<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ARTERIAL VASCULAR ENGINEERING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3841 94-3144218
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
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ARTERIAL VASCULAR ENGINEERING, INC.
3576 Unocal Place
Santa Rosa, California 95403
Telephone: (707) 525-0111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------
Lawrence J. Fassler
Vice President of Legal Affairs, General Counsel and Secretary
ARTERIAL VASCULAR ENGINEERING, INC.
3576 Unocal Place
Santa Rosa, California 95403
Telephone: (707) 525-0111
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
------------------------
COPIES TO:
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CRAIG E. DAUCHY, ESQ. RANDOLPH H. FIELDS, ESQ.
ERIC C. JENSEN, ESQ. JEFFERY A. BAHNSEN, ESQ.
COOLEY GODWARD LLP GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & QUENTEL, P.A.
3000 SAND HILL ROAD 111 NORTH ORANGE AVENUE
BUILDING 3, SUITE 230 ORLANDO, FLORIDA 32801
MENLO PARK, CALIFORNIA 94306 (407) 420-1000
(650) 843-5100 FAX (407) 420-5909
FAX (650) 854-2691
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this Registration Statement becomes
effective and the effective time of the proposed merger of Walleye Acquisition
Corporation, a wholly owned subsidiary of the Registrant with and into World
Medical Manufacturing Corporation, as described in the Agreement and Plan of
Merger and Reorganization, dated as of April 10, 1998, as amended attached as
Appendix A to the Proxy Statement/Prospectus forming a part of this Registration
Statement.
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for this same offering. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED(1) SHARE (2) PRICE (2) FEE
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Common Stock, $0.001 par value..... 2,175,000 $1.45 $3,153,750 $1,087.50
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(1) Represents the number of shares of common stock of the Registrant which may
be issued to former shareholders of World Medical Manufacturing Corporation,
a Florida corporation ("World Medical") pursuant to the merger of a wholly
owned subsidiary of the Registrant with and into World Medical and includes
an equal number of rights under the Registrant's Preferred Share Rights
Agreement.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(f)(2) based upon the book value per share on March 31, 1998 of
World Medical Manufacturing Corporation.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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WORLD MEDICAL MANUFACTURING CORPORATION
SAWGRASS INTERNATIONAL CORPORATE PARK
13794 N.W. 4TH STREET
BUILDING #210
SUNRISE, FLORIDA 33325
, 1998
Dear Shareholder:
A Special Meeting of Shareholders (the "Special Meeting") of World Medical
Manufacturing Corporation, a Florida corporation ("World Medical"), will be held
at 9:00 a.m., local time, on , 1998 at World Medical's
headquarters at 13794 N.W. 4th Street, Building #210, Sunrise, Florida 33325.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger and
Reorganization dated as of April 10, 1998, as amended (the "Reorganization
Agreement"), by and among World Medical, Arterial Vascular Engineering, Inc., a
Delaware corporation ("AVE") and Walleye Acquisition Corporation, a Florida
corporation and a wholly owned subsidiary of AVE ("Sub"), and the merger of Sub
with and into World Medical (the "Merger"). Upon consummation of the Merger (the
"Effective Time"), World Medical will be a wholly owned subsidiary of AVE and
each share of common stock, par value $.10 per share, of World Medical ("World
Medical Common Stock") outstanding immediately prior to the time of the closing
of the Merger will be converted into the right to receive a fraction of a share
of common stock, par value $.001 per share, of AVE ("AVE Common Stock") that is
equal to ninety percent (90%) of the exchange ratio for the Merger (the
"Applicable Fraction"), which will be calculated on the closing date and will be
based upon a formula that divides $62,000,000 (less certain fees and expenses in
excess of negotiated amounts related to carrying out the Merger) by the result
of the multiplication of the adjusted fully diluted capitalization of World
Medical, expressed in shares, by a ten day average of the closing price for AVE
Common Stock (subject to certain maximum and minimum average price levels). The
remaining ten percent (10%) of the merger consideration (in the form of AVE
Common Stock) will be held in escrow to secure certain indemnification
obligations and will be distributed pro rata among World Medical shareholders
receiving shares of AVE Common Stock in the Merger one year after the Effective
Time, unless a claim has been made prior to that time. Each outstanding option
to purchase World Medical Common Stock (a "World Medical Option") will be
converted into an option to purchase a number of shares of AVE Common Stock
determined by multiplying the number of shares of World Medical Common Stock
subject to the option by the Applicable Fraction (rounded down to the nearest
whole share), at an exercise price per share of AVE Common Stock equal to the
exercise price per share of such option at the time of the Merger divided by the
Applicable Fraction (rounded up to the nearest cent). Based upon World Medical
Common Stock and World Medical options and warrants outstanding on [May 15],
1998, and assuming a ten day average closing price for AVE Common Stock of
$[35.00], a deduction of fees and expenses of approximately $[100,000], the
Applicable Fraction would be approximately [0.9740]. The market price of AVE
Common Stock will likely fluctuate prior to the date of the Special Meeting,
however, and the Applicable Fraction may be significantly more or less than such
number. The foregoing numbers are also subject to change based upon the
exercise, expiration or termination of options or warrants for World Medical
Common Stock at or prior to the Effective Time. If the requisite approval of the
shareholders of World Medical is received and other conditions of the Merger are
satisfied, the Merger is expected to be consummated on or before
, 1998.
The Board of Directors of World Medical (the "World Medical Board") has
carefully reviewed and considered the Reorganization Agreement and the
transactions provided for therein. In addition, the World Medical Board has
received a written opinion from its financial advisor, Vector Securities
International, Inc., dated April 1, 1998, to the effect that as of such date,
the consideration to be received by the holders of World Medical Common Stock is
fair to such holders from a financial point of view.
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THE WORLD MEDICAL BOARD HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN
THE BEST INTEREST OF, WORLD MEDICAL AND ITS SHAREHOLDERS. ACCORDINGLY, THE WORLD
MEDICAL BOARD HAS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT ALL SHAREHOLDERS VOTE FOR ITS APPROVAL AND ADOPTION.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Proxy Statement/Prospectus relating to the actions to
be taken by World Medical shareholders at the Special Meeting and a proxy card.
The Proxy Statement/Prospectus more fully describes the proposed Merger and
certain related matters and includes certain information about World Medical and
AVE.
One of the conditions to the closing of the Merger requires that holders of
at least 85% of the outstanding shares of World Medical Common Stock vote in
favor of the Merger. For this reason, it is critical that all shareholders fill
out the enclosed proxy card and return it as soon as possible. Every
shareholder's vote is important, no matter how many shares you hold. The failure
of shareholders to promptly return their proxy cards could delay or prevent the
Merger from taking place.
If the Reorganization Agreement is approved and the Merger is consummated,
you will be sent a letter of transmittal with instructions for surrendering your
certificates representing shares of World Medical Common Stock. Please do not
send your share certificates until you receive these materials. All shareholders
are cordially invited to attend the Special Meeting in person. HOWEVER, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE PROMPTLY COMPLETE, SIGN,
DATE AND RETURN YOUR PROXY CARD IN THE ENCLOSED ENVELOPE. If you attend the
Special Meeting, you may vote in person if you wish, even though you have
previously returned your proxy card. It is important that your shares be
represented and voted at the Special Meeting.
Sincerely,
Norman Dann
Chairman of the Board of Directors
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WORLD MEDICAL MANUFACTURING CORPORATION
SAWGRASS INTERNATIONAL CORPORATE PARK
13794 N.W. 4TH STREET
BUILDING #210
SUNRISE, FLORIDA 33325
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of World Medical Manufacturing Corporation, a Florida corporation
("World Medical"), will be held at 9:00 a.m., local time, on ,
1998 at World Medical's headquarters at 13794 N.W. 4th Street, Building #210,
Sunrise, Florida 33325 for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger and Reorganization dated as of April 10, 1998,
as amended (the "Reorganization Agreement"), among World Medical, Arterial
Vascular Engineering, Inc., a Delaware corporation ("AVE") and Walleye
Acquisition Corporation, a wholly owned Florida subsidiary of AVE ("Sub"),
and approve the merger of Sub with and into World Medical (the "Merger").
2. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement/Prospectus accompanying this notice.
Only shareholders of record of World Medical Common Stock at the close of
business on , 1998 (the "Record Date") are entitled to notice of,
and will be entitled to vote at, the Special Meeting or any adjournment thereof.
Under applicable law, approval of the Reorganization Agreement and the Merger
will require the affirmative vote of the holders of a majority of the shares of
World Medical Common Stock outstanding on the Record Date. In addition, one of
the conditions to the closing of the Merger requires that holders of at least
85% of the outstanding shares of World Medical Common Stock vote in favor of the
Merger. Accordingly, it is critical that all shareholders complete and return
the enclosed proxy card as promptly as practicable.
IF THE REORGANIZATION AGREEMENT IS EFFECTED, SHAREHOLDERS WHO DISSENT
THEREFROM MAY BE ENTITLED TO BE PAID THE FAIR VALUE OF THEIR SHARES. A COPY OF
FLORIDA STATUTES SECTIONS 607.1301, 607.1302 AND 607.1320 RELATING TO
DISSENTERS' RIGHTS, IS ATTACHED AS APPENDIX D TO THIS PROXY STATEMENT/PROSPECTUS
AND INCORPORATED HEREIN BY REFERENCE. THESE SECTIONS MUST BE COMPLIED WITH IN
ORDER FOR SHAREHOLDERS TO BE ENTITLED TO DISSENTERS' RIGHTS.
BY ORDER OF THE BOARD OF DIRECTORS
Norman Dann
Chairman of the Board of Directors
Sunrise, Florida
, 1998
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE URGED
TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE
BOARD OF DIRECTORS OF WORLD MEDICAL, AND MAIL IT PROMPTLY IN THE POSTAGE PAID
ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON. YOUR PROXY CAN BE WITHDRAWN BY YOU AT ANY TIME BEFORE IT IS VOTED.
<PAGE> 5
WORLD MEDICAL MANUFACTURING CORPORATION
PROXY STATEMENT
ARTERIAL VASCULAR ENGINEERING, INC.
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the shareholders of
World Medical Manufacturing Corporation, a Florida corporation ("World
Medical"), in connection with the solicitation of proxies by the Board of
Directors of World Medical (the "World Medical Board") for use at the Special
Meeting of World Medical shareholders (the "Special Meeting") to be held at 9:00
a.m., local time, on , 1998, at World Medical's headquarters at
13794 N.W. 4th Street, Building #210, Sunrise, Florida 33325, and at any
adjournments or postponements of the Special Meeting.
This Proxy Statement/Prospectus also constitutes the prospectus of Arterial
Vascular Engineering, Inc. ("AVE") for use in connection with the offer and
issuance of shares of common stock, par value $0.001 per share of AVE ("AVE
Common Stock"), pursuant to the merger of Walleye Acquisition Corporation, a
Florida corporation and a wholly owned subsidiary of AVE ("Sub"), with and into
World Medical, in which World Medical would become a wholly owned subsidiary of
AVE (the "Merger"). Upon consummation of the Merger (the "Effective Time"),
World Medical will be a wholly owned subsidiary of AVE and each share of common
stock, par value $.10 per share, of World Medical ("World Medical Common Stock")
outstanding immediately prior to the time of the closing of the Merger will be
converted into the right to receive a fraction of a share of common stock, par
value $.001 per share of AVE ("AVE Common Stock") that is equal to ninety
percent (90%) of the exchange ratio for the Merger (the "Applicable Fraction"),
which will be calculated on the closing date and will be based upon a formula
that divides $62,000,000 (less certain fees and expenses in excess of negotiated
amounts related to carrying out the Merger) by the result of the multiplication
of the adjusted fully diluted capitalization of World Medical, expressed in
shares, by a ten day average of the closing price for AVE Common Stock (subject
to certain maximum and minimum average price levels). The remaining ten percent
(10%) of the merger consideration (in the form of AVE Common Stock) will be held
in escrow to secure certain indemnification obligations and will be distributed
pro rata among World Medical shareholders receiving shares of AVE Common Stock
in the Merger one year after the Effective Time (unless a claim has been made
prior to that time). Each outstanding option to purchase World Medical Common
Stock (a "World Medical Option") will be converted into an option to purchase a
number of shares of AVE Common Stock determined by multiplying the number of
shares of World Medical Common Stock subject to the option by the Applicable
Fraction (rounded down to the nearest whole share), at an exercise price per
share of AVE Common Stock equal to the exercise price per share of such option
at the time of the Merger divided by the Applicable Fraction (rounded up to the
nearest cent). Based upon World Medical Common Stock and World Medical options
and warrants outstanding on [May 15], 1998, and assuming a ten day average
closing price for AVE Common Stock of $[35.00], a deduction of fees and expenses
of approximately $[100,000], the Applicable Fraction would be approximately
[0.9740]. The market price of AVE Common Stock will likely fluctuate prior to
the date of the Special Meeting, however, and the Applicable Fraction may well
be significantly more or less than such number. The foregoing numbers are also
subject to change based upon the exercise, expiration or termination of options
or warrants for World Medical Common Stock at or prior to the Effective Time.
Holders of World Medical Common Stock may, by complying with Sections
607.1301, 607.1302 and 607.1320 of the Florida Business Corporation Act (the
"Florida Act"), be entitled to dissenters' rights as discussed therein with
respect to the proposed Merger. See "The Merger and Related
Transactions -- Dissenters' Rights."
On , 1998, the closing sales price as reported on the
Nasdaq National Market tier of The Nasdaq Stock Market (the "Nasdaq National
Market") of AVE Common Stock was $ per share.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to shareholders of World Medical on or about ,
1998.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/PROSPECTUS.
THE PROPOSED MERGER IS A COMPLEX TRANSACTION. STOCKHOLDERS ARE STRONGLY URGED TO
READ AND CONSIDER CAREFULLY THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY,
PARTICULARLY THE MATTERS REFERRED TO UNDER "RISK FACTORS" BEGINNING ON PAGE 18.
------------------------
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is , 1998.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION....................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 2
SUMMARY..................................................... 3
The Companies............................................. 3
The Special Meeting....................................... 4
Recommendation of World Medical's Board of Directors...... 4
Opinion of Financial Advisor.............................. 5
The Merger................................................ 5
Market Price Data and Dividends........................... 13
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION..... 14
SELECTED PRO FORMA COMBINED FINANCIAL DATA.................. 16
COMPARATIVE PER SHARE DATA.................................. 17
RISK FACTORS................................................ 18
Uncertainty Relating to Integration....................... 18
Rights of Holders of World Medical Common Stock Following
the Merger............................................. 18
Volatility of Stock Prices; Fluctuation in Value of Merger
Consideration.......................................... 18
Expenses Related to Rapid Growth.......................... 18
Manufacturing and Supply.................................. 18
Patents and Proprietary Rights............................ 19
Competition............................................... 19
Expansion of Operations................................... 20
Fluctuations in Results of Operations..................... 20
Rapid Technological Change................................ 21
Dependence on Key Personnel............................... 21
"Year 2000" Issues........................................ 21
Anti-takeover Provisions.................................. 21
THE WORLD MEDICAL MEETING................................... 22
Date, Time and Place...................................... 22
Solicitation of Proxies; Revocability of Proxies.......... 22
Record Date; Shares Entitled to Vote...................... 22
Quorum; Vote Required; Existing Shareholder Agreements.... 22
Expenses of Solicitation.................................. 22
Board Recommendations..................................... 22
THE MERGER AND RELATED TRANSACTIONS......................... 22
General................................................... 23
Background of the Merger.................................. 25
Reasons for the Merger.................................... 27
Board Recommendations..................................... 30
Opinion of Financial Advisor.............................. 30
Indemnification and Escrow of Holdback Shares............. 34
Related Agreements........................................ 36
Representations and Warranties............................ 38
Covenants................................................. 38
Conditions to the Merger.................................. 40
Termination or Amendment.................................. 41
Regulatory Matters........................................ 41
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Material Federal Income Tax Consequences.................. 41
Accounting Treatment...................................... 43
Resales of AVE Common Stock............................... 43
Dissenters' Rights........................................ 44
Merger Expenses and Fees and Other Costs.................. 45
Interests of Certain Persons in The Merger................ 45
Unaudited Pro Forma Condensed Combined Financial
Statements............................................. 48
Unaudited Pro Forma Condensed Combined Balance Sheet...... 48
Unaudited Pro Forma Condensed Combined Statement Of
Operations............................................. 50
Unaudited Pro Forma Condensed Combined Statement Of
Operations............................................. 51
Notes To Unaudited Pro Forma Condensed Combined Financial
Statements............................................. 52
BUSINESS OF WORLD MEDICAL................................... 54
SELECTED FINANCIAL DATA OF WORLD MEDICAL.................... 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 57
History and Overview...................................... 57
Results of Operations..................................... 57
Liquidity and Capital Resources........................... 58
WORLD MEDICAL STOCK, OPTIONS, WARRANTS AND DIVIDENDS........ 59
Common Stock.............................................. 59
Preferred Stock........................................... 59
Stock Options Plan........................................ 59
Warrant................................................... 59
Dividend Policy........................................... 60
MANAGEMENT OF WORLD MEDICAL................................. 61
Executive Officers and Directors.......................... 61
Executive Compensation.................................... 62
Compensation of Directors................................. 63
Certain Relationships..................................... 64
WORLD MEDICAL SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................................... 64
COMPARISON OF RIGHTS OF STOCKHOLDERS OF AVE AND SHAREHOLDERS
OF WORLD MEDICAL.......................................... 66
EXPERTS..................................................... 72
LEGAL MATTERS............................................... 72
INDEX TO WORLD MEDICAL FINANCIAL STATEMENTS................. F-1
APPENDICES:
APPENDIX A -- Agreement and Plan of Merger and
Reorganization, as amended
APPENDIX A-1 -- Amendment to Agreement and Plan of Merger
and Reorganization
APPENDIX B -- Plan of Merger and Reorganization (see
Exhibit B to Appendix A)
APPENDIX C -- Opinion of Vector Securities International,
Inc.
APPENDIX D -- Sections 607.1301, 607.1302 and 607.1320 of
the Florida Business
Corporation Act
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NO PERSON HAS BEEN AUTHORIZED BY AVE OR WORLD MEDICAL TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY AVE OR WORLD MEDICAL. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS
OR A SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
AVE is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The reports, proxy statements and other
information filed by AVE with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 as well as at the Commission's regional
offices at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material may also be obtained from the Commission at
prescribed rates by writing to the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov. AVE Common Stock is listed on the
Nasdaq National Market under the symbol "AVEI," and certain of AVE's reports,
proxy materials and other information may be available for inspection at the
offices of The Nasdaq Stock Market at 1735 "K" Street, N.W., Washington, D.C.
20006.
Under the rules and regulations of the Commission, the solicitation of
proxies from shareholders of World Medical to approve and adopt the
Reorganization Agreement and the Merger constitutes an offering of the AVE
Common Stock to be issued in connection with the Merger. Accordingly, AVE has
filed with the Commission a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to such
offering (the "Registration Statement"). This Proxy Statement/ Prospectus
constitutes the prospectus of AVE that is filed as part of the Registration
Statement. Other parts of the Registration Statement are omitted from this Proxy
Statement/Prospectus in accordance with the rules and regulations of the
Commission. Copies of the Registration Statement, including the exhibits to the
Registration Statement and other material that is not included herein, may be
inspected, without charge, at the regional offices of the Commission referred to
above, or obtained at prescribed rates from the Public Reference Section of the
Commission at the address set forth above or on the Commission web site.
Statements made in this Proxy Statement/Prospectus or in any document
incorporated in this Proxy Statement/Prospectus by reference concerning the
contents of any contract or other document are not necessarily complete. With
respect to each contract or other document filed as an exhibit to the
Registration Statement, reference is hereby made to that exhibit for a more
complete description of the matter involved, and each such statement is hereby
qualified in its entirety by such reference.
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<PAGE> 9
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission (Commission
file number 0-27802) by AVE pursuant to the Exchange Act are incorporated by
reference into this Proxy Statement/Prospectus:
1. AVE's Annual Report on Form 10-K for the fiscal year ended June 30,
1997;
2. AVE's Quarterly Reports on Form 10-Q for the quarterly periods ended
September 30, 1997, December 31, 1997 and March 31, 1998;
3. AVE's Current Reports on Form 8-K filed on February 27, 1997, October
23, 1997 and May 21, 1998;
4. The description of AVE Common Stock set forth in AVE's Registration
Statement on Form 8-A effective April 2, 1996, and any amendment or
report filed for the purpose of updating such description; and
5. AVE's proxy statement for the Annual Meeting of Stockholders held
October 29, 1997.
The information relating to AVE contained in this Proxy
Statement/Prospectus does not purport to be comprehensive and should be read
together with the information in the documents incorporated by reference herein.
All documents and reports filed by AVE pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference into this Proxy Statement/Prospectus from
the dates of filing of such documents or reports. Any statement contained herein
or in a document incorporated or deemed to be incorporated herein shall be
deemed to be modified or superseded for purposes of this Proxy Statement/
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
Documents and reports incorporated herein by reference (other than exhibits
to such documents, unless such exhibits are specifically incorporated by
reference) are available without charge by contacting Diane Lefebvre, Investor
Relations, Arterial Vascular Engineering, Inc., 3576 Unocal Place, Santa Rosa,
California 95403, tel. (707) 525-0111. In order to ensure delivery of the
documents prior to the Special Meeting, requests must be received by
, 1998.
All information contained in this Proxy Statement/Prospectus relating to
AVE has been supplied by AVE, and all information relating to World Medical has
been supplied by World Medical.
"AVE" and certain other trademarks used herein are trademarks of AVE. This
Proxy Statement/ Prospectus also includes trade names and trademarks of
companies other than AVE and World Medical. The use of any such third party
trade name or trademark herein is an editorial fashion only, and to the benefit
of the owner thereof, with no intention of commercial use or infringement of
such trade name or trademark.
2
<PAGE> 10
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement/ Prospectus and the appendices attached hereto. This
summary is qualified in its entirety by reference to the more detailed
information contained elsewhere in this Proxy Statement/Prospectus, the
appendices attached hereto and the documents referred to or incorporated by
reference herein. Shareholders of World Medical are urged to review carefully
all of the information contained in this Proxy Statement/Prospectus, the
Reorganization Agreement (defined below) attached as Appendix A and the other
appendices attached hereto in their entirety. As used in this Proxy
Statement/Prospectus, the terms "AVE" and "World Medical" refer to such entities
and their consolidated subsidiaries, respectively.
This Proxy Statement/Prospectus contains forward-looking statements
(including those set forth or referenced in "The Merger and Related
Transactions -- Opinion of Financial Advisor") that involve risks and
uncertainties. The actual results of AVE and World Medical may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Proxy Statement/Prospectus, and in the documents incorporated herein by
reference.
THE COMPANIES
AVE and Sub
AVE designs, develops, manufactures and markets a variety of highly
specialized stent systems and percutaneous transluminal coronary angioplasty
("PTCA") catheters designed to be utilized in connection with less invasive
treatment of cardiovascular disease. AVE's stents are used as arterial support
devices in connection with balloon angioplasty or other minimally invasive
treatments of atherosclerosis (the formation of deposits in the arteries) and to
prevent abrupt closure of vessels in higher risk angioplasty procedures. AVE
believes that it is currently one of the world's leading providers of coronary
stent systems. AVE began commercial sales of its PTCA catheters in October 1993,
its coronary stent systems in October 1994, and its peripheral stent systems in
December 1996. In June 1997, AVE's Japanese distributor received regulatory
approval for the sale in Japan of AVE's coronary stent systems, and in January
1998 AVE received the related reimbursement approval. In December 1997, AVE
received pre-market approval ("PMA") from the United States Food and Drug
Administration (the "FDA") in connection with commercial sales of its coronary
stent systems in the United States. International sales previously accounted for
substantially all of AVE's revenues.
AVE was originally incorporated in Delaware in July 1991 under the name
"Applied Vascular Engineering, Inc." AVE's principal executive offices are
located at 3576 Unocal Place, Santa Rosa, California 95403. Its telephone number
is (707) 525-0111.
Sub is a wholly owned subsidiary of AVE formed solely for the purpose of
effecting the Merger. Its principal executive offices are located at 3576 Unocal
Place, Santa Rosa, California 95403. Its telephone number is (707) 525-0111.
World Medical
World Medical designs, develops, manufactures and markets endovascular
devices for diagnosing, monitoring and treating patients with cardiovascular
disease. World Medical has developed a proprietary catheter-based stent graft
system (the "Talent System") for the repair of aneurysms, which are potentially
fatal enlargements of arterial walls. The types of aneurysms for which World
Medical has developed the Talent System include abdominal aortic aneurysms
("AAAs") as well as aneurysms located in the thoracic aorta and the iliac
arteries. The first human implant of a Talent device occurred in December 1995,
and since then Talent devices have been implanted in approximately 1,500
patients. The Talent System is currently being sold in selected countries
outside the United States and is in clinical trials in the United States. In
April 1998, World Medical received the right to affix CE marking to the Talent
System, allowing that product to continue to be sold in the European Area and
Switzerland after June 14, 1998. World Medical had previously received ISO 9001
and EN 46001 certification with respect to the Talent System. In addition to the
Talent
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System, World Medical markets a line of cardiovascular catheters and also acts
as a contract manufacturer of catheters for several major medical device
companies. See "Business of World Medical."
World Medical was incorporated in Florida in August 1988. World Medical's
principal executive offices are located at Sawgrass International Corporate
Park, 13794 N.W. 4th Street, Building #210, Sunrise, Florida 33325. Its
telephone number is (954) 846-0418.
THE SPECIAL MEETING
Date, Time and Place
The Special Meeting will be held on , 1998 at 9:00 a.m.,
local time, at World Medical's headquarters at 13794 N.W. 4th Street, Building
#210, Sunrise, Florida 33325.
Purpose of the Meeting
At the Special Meeting, shareholders of record of World Medical as of the
close of business on the Record Date (as defined below) will be asked to
consider and vote upon a proposal to adopt and approve the Agreement and Plan of
Merger and Reorganization dated as of April 10, 1998, as amended
("Reorganization Agreement") by and among World Medical, AVE and Sub and approve
the Merger and such other matters as may properly be brought before the Special
Meeting.
Record Date; Shares Entitled to Vote
The close of business on , 1998 has been fixed as the
record date (the "Record Date") for determining holders of shares of World
Medical Common Stock entitled to notice of, and to vote at, the Special Meeting.
As of the Record Date, [1,474,240] shares of World Medical Common Stock were
outstanding and entitled to vote and held of record by approximately [96]
holders. See "The World Medical Meeting -- Record Date; Shares Entitled to
Vote."
Quorum; Vote Required; Existing Shareholder Agreements
The presence, in person or by proxy, of the holders of a majority of shares
of World Medical Common Stock entitled to vote at the Special Meeting is
necessary to constitute a quorum for the transaction of business at the Special
Meeting. See "The World Medical Meeting -- Quorum; Vote Required; Existing
Shareholder Agreements."
Under applicable law and World Medical's Articles of Incorporation,
approval of the Reorganization Agreement and the Merger will require the
affirmative vote of the holders of a majority of the outstanding shares of World
Medical Common Stock entitled to vote. However, it is also a condition to the
obligations of AVE and Sub under the Reorganization Agreement that no less than
eighty-five percent (85%) of the shares of World Medical Common Stock entitled
to vote at the Special Meeting shall vote to approve the Reorganization
Agreement and the Merger. Pursuant to certain shareholder agreements with AVE,
certain shareholders and all of the executive officers and directors of World
Medical, including World Medical's founder, President and Chief Executive
Officer, Howard J. Leonhardt, have agreed to vote all of the shares of World
Medical Common Stock owned or controlled by them in favor of such approval and
adoption and have granted to AVE irrevocable proxies to vote their shares in the
event that such shareholders fail or are unable to vote as agreed. As of [May
15, 1998], such shareholders, executive officers and directors held in the
aggregate approximately [sixty-one percent (61%)] of all of the then outstanding
shares of World Medical Common Stock. See "The Merger and Related
Transactions -- Related Agreements -- Shareholder Agreements."
RECOMMENDATION OF WORLD MEDICAL'S BOARD OF DIRECTORS
The Board of Directors of World Medical has determined that the Merger is
in the best interests of World Medical and its shareholders and has unanimously
approved the Reorganization Agreement and the Merger. Accordingly, the World
Medical Board of Directors has unanimously recommended that the shareholders of
World Medical vote FOR approval and adoption of the Reorganization Agreement and
the
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Merger. The primary factors considered and relied upon by the World Medical
Board of Directors in reaching its recommendation are described in "The Merger
and Related Transactions -- Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR
Vector Securities International, Inc. ("Vector") has delivered its written
opinion dated April 1, 1998, to the effect that as of such date, the
consideration to be received by the holders of World Medical Common Stock is
fair to such holders from a financial point of view (the "Vector Opinion"). The
full text of the Vector Opinion, which sets forth the assumptions made,
procedures followed, matters considered and limitations on the review undertaken
by Vector, is attached as Appendix C to this Proxy Statement/Prospectus. WORLD
MEDICAL SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE VECTOR OPINION IN ITS
ENTIRETY. See "The Merger and Related Transactions -- Opinion of Financial
Advisor."
THE MERGER
General
Effects of the Merger. The Merger will be consummated at the time of the
filing of Articles of Merger with the Secretary of State of the State of
Florida. Unless otherwise agreed, the consummation of the Merger will take place
no later than three days following World Medical shareholder approval and the
satisfaction or waiver of other conditions to consummation of the Merger. Upon
consummation of the Merger, the separate existence of Sub will cease and World
Medical will become a wholly owned subsidiary of AVE. The shareholders of World
Medical will become stockholders of AVE (as described below), and their rights
will be governed by AVE's Amended and Restated Certificate of Incorporation and
Bylaws, each as amended. It is currently anticipated that the Merger will be
consummated during , 1998. See "The Merger and Related
Transactions -- General."
Conversion of Shares. Upon consummation of the Merger, each then
outstanding share of World Medical Common Stock (other than shares held in
treasury by World Medical, which will be cancelled, or dissenting shares) will
automatically be converted into the right to receive a fraction of a share of
AVE Common Stock that is equal to ninety percent (90%) of the Applicable
Fraction. The "Applicable Fraction" will be the fraction (i) having a numerator
equal to sixty two million dollars ($62,000,000), less certain fees and expenses
in excess of negotiated amounts related to carrying out the Merger (the
"Aggregate Purchase Price") and (ii) having a denominator equal to the amount
determined by multiplying (A) the Fully Diluted Company Share Amount (as defined
below) by (B) the Designated AVE Stock Price (as defined below). The "Fully
Diluted Company Share Amount" will be the sum of (i) the aggregate number of
shares of World Medical Common Stock outstanding immediately prior to the
Effective Time, (ii) the aggregate number of shares of World Medical Common
Stock purchasable under or otherwise subject to all options to purchase World
Medical Common Stock ("World Medical Options") and (iii) the aggregate number of
shares of World Medical Common Stock purchasable under or otherwise subject to
all warrants to purchase shares of World Medical Common Stock ("World Medical
Warrants") or other options, warrants or other rights of any type to purchase
shares of World Medical Common Stock outstanding immediately prior to the
Effective Time, minus the number of shares of World Medical Common Stock
determined by dividing the aggregate exercise price payable by holders of World
Medical Options and World Medical Warrants upon exercise of all of the World
Medical Options and World Medical Warrants (under (ii) and (iii) directly above)
by the acquisition price per share (which for purposes of this description shall
mean (x) the Aggregate Purchase Price plus the aggregate exercise price payable
by holders of World Medical Options and World Medical Warrants upon exercise of
all of the World Medical Options and World Medical Warrants (under (ii) and
(iii) directly above) divided by (y) the sum of (i), (ii) and (iii) directly
above). The "Designated AVE Stock Price" shall be the average of the closing
sales price of a share of AVE Common Stock as reported on the Nasdaq National
Market for each of the ten consecutive trading days ending on and including the
second trading day immediately preceding the date of the closing of the Merger
(the "Closing Price"); provided, however, that (i) if the Closing Price is equal
to or less than eighty percent (80%) of the average of the closing sale price of
a share of AVE Common Stock as reported on the Nasdaq National Market for each
of the ten consecutive trading days ending on and including the second trading
day immediately preceding the date on which the Reorganization Agreement was
signed, or $37.5219 (the "Signing Price"), then the Designated
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AVE Stock Price shall be equal to eighty percent (80%) of the Signing Price
($30.0175), and (ii) if such average is greater than or equal to one hundred and
twenty percent (120%) of the Signing Price ($45.0263), then the Designated AVE
Stock Price shall be equal to $45.0263. Based upon World Medical Common Stock,
World Medical Options and World Medical Warrants outstanding on [May 15, 1998],
an estimated deduction of fees and expenses of approximately $[100,000], and a
Designated AVE Stock Price of $[35.00], the Applicable Fraction would be
approximately [0.9740] (the "Estimated Applicable Fraction"). The market price
of AVE Common Stock is likely to fluctuate prior to the date of the Special
Meeting and the Applicable Fraction may be significantly more or less than such
number. Cash will be paid in lieu of issuing fractional shares. AVE intends to
use its current cash resources to fund the payments for fractional shares. Based
upon the capitalization of World Medical and AVE as of the Record Date (and
assuming (i) no exercises of vested World Medical Options between the Record
Date and the Effective Time; (ii) exercise of the outstanding World Medical
Warrant on a cashless basis assuming a market price of World Medical Common
Stock of approximately $34.09 per share; (iii) release of all Holdback Shares to
the Merger Shareholders; and (iv) an Applicable Fraction of [0.9740],
approximately 1,450,974 shares of AVE Common Stock will be issued in the Merger,
and shareholders of World Medical will own shares of AVE Common Stock
representing approximately [2.27]% of the shares of AVE Common Stock outstanding
immediately after consummation of the Merger. See "The Merger and Related
Transactions -- General."
Holdback Shares. AVE shall establish and maintain an escrow comprised of
shares of AVE Common Stock equal to the product of (i) the aggregate number of
shares of World Medical Common Stock outstanding immediately prior to the
Effective Time (less any shares for which dissenters' rights have been
perfected) and (ii) ten percent (10%) of the Applicable Fraction (the "Holdback
Shares"). The Holdback Shares will be deposited into escrow to secure certain
indemnification obligations specified in the Reorganization Agreement. The
Holdback Shares will be released to the former shareholders of World Medical one
year after the Effective Time unless a claim has been made prior thereto, in
which case Holdback Shares may be retained pending resolution of such claim. The
Holdback Shares shall be apportioned pro rata among the shareholders of World
Medical receiving shares of AVE Common Stock in the Merger (the "Merger
Shareholders"), in accordance with their respective holdings of World Medical
Common Stock. See "The Merger and Related Transactions -- Indemnification and
Escrow of Holdback Shares."
Stock Ownership Following the Merger. Based upon the capitalization of
World Medical and AVE as of [May 15, 1998] (and assuming (i) no exercises of
vested World Medical Options between such date and the Effective Time; (ii)
exercise of the outstanding World Medical Warrant on a cashless basis assuming a
market price of World Medical Common Stock of approximately $34.09 per share;
(iii) release of all Holdback shares to the Merger Shareholders; and (iv) an
Applicable Fraction of [0.9740]), approximately 1,450,974 shares of AVE Common
Stock will be issued in the Merger, and shareholders of World Medical will hold
shares of AVE Common Stock representing approximately [2.27]% of the shares of
AVE Common Stock outstanding immediately after consummation of the Merger.
Conversion of Options. At the Effective Time, each then outstanding World
Medical Option will automatically be converted into an option to purchase a
number of shares of AVE Common Stock determined by multiplying the number of
shares subject to the World Medical Option by the Applicable Fraction (rounded
down to the nearest number of shares) at an exercise price per share of AVE
Common Stock equal to the exercise price of such World Medical Option at the
time of the Merger divided by the Applicable Fraction (rounded up to the nearest
cent). Pursuant to the terms of World Medical's 1996 Stock Option Plan (the
"World Medical Plan"), all outstanding options under the World Medical Plan will
become fully vested upon consummation of the Merger. All other terms of each
World Medical Option will remain unchanged. As of the Record Date, [412,550]
shares of World Medical Common Stock were subject to outstanding World Medical
Options. See "The Merger and Related Transactions -- General" and "World Medical
Stock, Options, Warrants and Dividends -- Stock Option Plan."
Indemnification and Escrow of Holdback Shares
The representations and warranties made by World Medical will survive the
closing of the Merger and will expire on the first anniversary of the date of
the closing of the Merger. Any time prior to the expiration of this one year
period the Holdback Shares will be available to compensate and reimburse AVE,
any of its affiliates (including World Medical) or their respective
representatives, successors and assigns (each an
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"Indemnitee") for any damages which are directly or indirectly suffered or
incurred (regardless of whether such damages relate to any third party claim)
and which arise from or as a result of: (i) any inaccuracy in or breach of
representations and warranties made by World Medical in the Reorganization
Agreement, the disclosure schedule accompanying the Reorganization Agreement
(the "Disclosure Schedule") or the certificate delivered by an officer of World
Medical to AVE at the closing of the Merger (the "Closing Certificate"); (ii)
any breach of any covenant or obligation of World Medical; or (iii) any legal
proceeding relating to any such inaccuracy or breach. The measure of damages
payable will be the number of Holdback Shares equal to the dollar amount of such
indemnification obligation divided by the Designated AVE Stock Price.
Notwithstanding the foregoing, the Holdback Shares will not be available for any
indemnification payments until the total amount of all qualified damages exceeds
$750,000 in the aggregate. In addition, claims associated with a single
inaccuracy in or breach of any representation or warranty shall not be
considered for indemnification payment unless an Indemnitee claims in good faith
an amount in excess of $100,000. The indemnification described in this paragraph
and the right of an Indemnitee to receive Holdback Shares is the exclusive
remedy for any breach by World Medical of a representation, warranty, covenant
or obligation contained in the Reorganization Agreement, Disclosure Schedule, or
the Closing Certificate. See "The Merger and Related
Transactions -- Indemnification and Escrow of Holdback Shares."
Comparative Stock Price and Book Value Per Share
The following table sets forth the closing sales prices per share of AVE
Common Stock on the Nasdaq National Market on Friday, April 10, 1998, the last
trading day before announcement of the proposed Merger, and on
, 1998, the latest practicable trading day before the printing of
this Proxy Statement/Prospectus, and equivalent per share prices for World
Medical Common Stock based on the application of the Estimated Applicable
Fraction to the AVE Common Stock prices at the dates indicated:
<TABLE>
<CAPTION>
AVE WORLD MEDICAL
COMMON STOCK EQUIVALENT(A)
------------ -------------
<S> <C> <C>
April 10, 1998............................................. $35.88 $[34.95]
, 1998......................................... $ $
</TABLE>
(a) Represents the equivalent of one share of World Medical Common Stock
calculated by multiplying the AVE Common Stock price per share by the
Estimated Applicable Fraction.
At March 31, 1998, book values per share of AVE Common Stock and World
Medical Common Stock, the pro forma combined book value per share and the book
value per share of World Medical Common Stock based on the application of the
Estimated Applicable Fraction to the book value per share of AVE were as
follows:
<TABLE>
<CAPTION>
WORLD MEDICAL
AVE COMMON PRO FORMA WORLD MEDICAL
COMMON STOCK STOCK COMBINED EQUIVALENT(B)
------------ ------------- --------- -------------
<S> <C> <C> <C> <C>
March 31, 1998......................... $3.38 $1.45 $3.62 $[3.53]
</TABLE>
- ---------------
(b) Represents the equivalent of one share of World Medical Common Stock
calculated by multiplying the pro forma combined book value per share by the
Estimated Applicable Fraction.
Accordingly, the Estimated Applicable Fraction results in a premium based
on the respective book values per share at March 31, 1998.
Interests of Certain Persons in the Merger
Certain members of World Medical's management and World Medical's Board of
Directors have interests in the Merger that are in addition to their interests
as shareholders of World Medical generally. The World Medical Board of Directors
was aware of these interests and considered them, among other matters, in
approving the Reorganization Agreement and the transactions contemplated
thereby. See "The Merger and Related Transactions -- Interests of Certain
Persons in the Merger."
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The Board of Directors of AVE intends to approve the appointment of Howard
J. Leonhardt, the President and Chief Executive Officer of World Medical, as an
officer of AVE upon consummation of the Merger. In addition, certain employees
of World Medical have entered into employment agreements with World Medical,
generally with four year terms commencing at the Effective Time at annual base
salaries ranging from $60,000 to $150,000, and certain employees of World
Medical will, subject to approval by AVE's Board of Directors, each receive
options to purchase as much as 12,500 shares of AVE Common Stock. Moreover,
certain employees of World Medical have entered into noncompetition agreements
with AVE and World Medical, whereby they will refrain from competing with AVE
and World Medical for up to three years after the date of termination of such
employee's employment with World Medical, subject to certain qualifications and
limitations. Also, certain World Medical employees will, upon consummation of
the Merger, become eligible to receive annual bonuses amounting to as much as
$4,032,000 in the aggregate over a four-year period, depending on World
Medical's meeting certain performance criteria. All outstanding options to
purchase shares of World Medical Common Stock, including all such options held
by the officers, directors and shareholders of World Medical, will fully vest
upon consummation of the Merger. See "The Merger and Related
Transactions -- Interests of Certain Persons in the Merger," and "-- Related
Agreements."
D. Theodore Berghorst, a director of World Medical, is also Chairman and
Chief Executive Officer of Vector. Vector is acting as World Medical's financial
advisor in connection with the Merger, and Vector will receive a fee payable
upon consummation of the Merger equal to 1.75% of the aggregate consideration
plus $250,000 in connection with the Vector Opinion. World Medical has agreed to
indemnify Vector, its affiliates and its employees against certain liabilities,
including liabilities under federal securities laws. In addition, as of the
Record Date, Vector and its directors, officers and employees beneficially owned
[134,998] shares of World Medical Common Stock plus a warrant exercisable for
25,000 shares of World Medical Common Stock (the "Vector Warrant"). Vector will
exercise the Vector Warrant on a cashless basis at or prior to consummation of
the Merger. See "The Merger and Related Transactions -- Interests of Certain
Persons in the Merger" and "World Medical Stock Options, Warrants and
Dividends -- Warrant."
In May 1995, World Medical entered into an exclusive distribution agreement
(the "Distribution Agreement") with Todd F. Davenport, a director of World
Medical, whereby World Medical granted Mr. Davenport the exclusive right to
market, sell and distribute World Medical products in certain territories. In
connection with the Merger, Mr. Davenport and World Medical agreed to terminate
the Distribution Agreement subject to the closing of the Merger. As
consideration for such termination, World Medical will pay or cause the
acquiring company or others to pay Mr. Davenport a termination payment of
$1,850,000, payable to Mr. Davenport within seven days following the Effective
Time. In addition, for a period of one year thereafter, Mr. Davenport will serve
as Vice President of Marketing Development of World Medical at an annual salary
of $100,000. See "The Merger and Related Transactions -- Interests of Certain
Persons in the Merger."
The Reorganization Agreement provides that indemnification rights existing
in favor of the persons serving as directors and officers of World Medical as of
the date of the Reorganization Agreement will survive the Merger, and that AVE
will cause World Medical to perform its obligations arising thereunder for at
least six years after the Effective Time. Subject to certain limitations, AVE
has also agreed to cause World Medical to maintain in effect for six years after
the Effective Time a policy of directors' and officers' liability insurance for
the benefit of persons serving as directors and officers of World Medical as of
the date of the Reorganization Agreement. See "The Merger and Related
Transactions -- Interests of Certain Persons in the Merger" and
"-- Covenants -- Director and Officer Indemnification and Insurance."
Related Agreements
Shareholder Agreements. Pursuant to certain shareholder agreements (the
"Shareholder Agreements") entered into between AVE and each of D. Theodore
Berghorst, Norman Dann, Todd F. Davenport, Simon J. Fuger, Howard J. Leonhardt,
Brenda L. Leonhardt, Richard Spencer, Adam Sanford, Nippon Zeon Co. Ltd. and
Vector (each, a "Voting Agreement Shareholder"), such persons and entities
holding in the aggregate approximately [sixty-one percent (61%)] of the shares
of World Medical Common Stock outstanding on [May 15, 1998], agreed that, prior
to the consummation of the Merger or termination of the Reorganization
Agreement, such holder would vote his, her or its shares of World Medical Common
Stock and any new
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<PAGE> 16
shares obtained by such holder in favor of the approval of the Merger and the
execution and delivery of the Reorganization Agreement and approval of each of
the other transactions contemplated by the Reorganization Agreement. The Voting
Agreement Shareholders have also delivered to AVE irrevocable proxies with
respect to such matters. See "The Merger and Related Transactions -- Related
Agreements -- Shareholder Agreements."
Lock-Up Agreement. Howard J. Leonhardt, President, Chief Executive Officer
and a principal shareholder of World Medical, has entered into a lock-up
agreement (the "Lock-Up Agreement") that restricts the sale, transfer or other
disposition of sixty percent (60%) of the securities received or receivable by
Mr. Leonhardt in the Merger, including (i) shares of AVE Common Stock, (ii)
securities that are convertible into, or exchangeable or exercisable for, shares
of AVE Common Stock (the "Options"), or (iii) shares of AVE Common Stock
received from conversion, exchange or exercise of any World Medical Options
(such shares, Options and shares receivable upon the exercise of World Medical
Options being collectively referred to as "Mr. Leonhardt's Securities"). Forty
percent (40%) of Mr. Leonhardt's Securities will not be so restricted. One-third
(1/3) of the securities that are restricted under the Lock-Up Agreement will be
released from such restrictions on each of the first, second and third
anniversaries of the Effective Time of the Merger. See "The Merger and Related
Transactions -- Related Agreements -- Lock-Up Agreement."
Officer Appointment; Employment Agreements and Severance Benefits. In
addition to remaining as the President and Chief Executive Officer of World
Medical, the Board of Directors of AVE intends to approve the appointment of
Howard J. Leonhardt as an officer of AVE upon consummation of the Merger.
Pursuant to employment agreements with World Medical, each of the following
executive officers of World Medical has agreed to serve in their respective
positions for the following terms (commencing upon consummation of the Merger),
annual base salaries and, for certain employees, the number of AVE options
indicated (subject to approval by the Board of Directors of AVE): (i) Mr.
Leonhardt, President, and Chief Executive Officer, four years, $150,000; (ii)
Simon J. Fuger, Chief Financial Officer, four years, $130,000, option to
purchase 2,500 shares of AVE Common Stock; (iii) Richard Spencer, Chief
Operating Officer, one year, $130,000; (iv) Jeff Elkins; Vice President of
Operations, four years, $135,000, option to purchase 12,500 shares of AVE Common
Stock; (v) Brenda L. Leonhardt, Vice President of Administration, four years,
$77,500; and (vi) Trevor Greenan, Vice President of Research and Development,
four years, $80,000, option to purchase 5,000 shares of AVE Common Stock. Two
other employees of World Medical have entered into employment agreements with
World Medical each with four year terms at annual base salaries of $60,000 and
options to purchase 2,500 shares of AVE Common Stock. Each employment agreement
provides that, in case of termination by World Medical without cause or by the
employee for good reason, the employee will receive his or her salary for the
remainder of the term of the employment agreement. Todd Davenport has also
entered into a one year employment agreement with World Medical at an annual
base salary of $100,000. Mr. Davenport will serve as Vice President of Marketing
Development and has not been granted any rights to salary after termination or
any similar severance benefits. See "The Merger and Related Transactions --
Related Agreements -- Officer Appointment; Employment Agreements and Severance
Benefits."
World Medical 1998 Incentive Bonus Plan. It is a condition to closing of
the Merger that AVE cause to be instituted an incentive-based bonus program for
certain employees of World Medical who continue employment with World Medical
after consummation of the Merger. AVE's Board of Directors has approved the
World Medical 1998 Incentive Bonus Plan, under which approximately 45 World
Medical employees would, upon consummation of the Merger, be eligible to receive
bonuses amounting to up to $4,032,000 in the aggregate over a four year period.
Employees eligible to receive bonuses under such plan (individually, a
"Participant") will be entitled to receive 30% of a specified annual maximum
bonus payment (a "Maximum Bonus Payment") if the Participant is a full-time
employee of World Medical or any of its affiliates on December 31 of a plan
year. In addition, the Participant will receive the remaining 70% of such
Maximum Bonus Payment if World Medical's gross collections from sales in a plan
year equal or exceed a targeted performance goal for the applicable plan year.
The annual Maximum Bonus Payment for Messrs. Leonhardt, Spencer, Fuger, Elkins
and Greenan will be $100,000, and for Ms. Leonhardt it will be $50,000. The
other World Medical employees participating in the plan will be eligible for
annual Maximum Bonus Payments
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<PAGE> 17
ranging from $4,000 to $100,000. See "The Merger and Related
Transactions -- Related Agreements -- World Medical 1998 Incentive Bonus Plan."
Noncompetition Agreements. Certain employees of World Medical have entered
into agreements with AVE and World Medical whereby, following the Effective
Time, they will refrain from competing with AVE and World Medical for up to
three years after the date of termination of such employee's employment with
World Medical, subject to certain qualifications and limitations. See "The
Merger and Related Transactions -- Related Agreements -- Noncompetition
Agreements."
Affiliate Agreements. Certain shareholders of World Medical who may be
deemed to be affiliates of World Medical for purposes of Rule 145 under the
Securities Act have executed or will execute agreements that restrict the sale,
transfer or other disposition of AVE Common Stock received by such shareholder
in the Merger, in order to comply with the requirements of federal securities
laws. See "The Merger and Related Transactions -- Related
Agreements -- Affiliate Agreements" and "-- Resales of AVE Common Stock."
Representations, Warranties and Covenants
In the Reorganization Agreement, each of AVE and World Medical made
representations and warranties regarding, among other things, their respective
organization and good standing, authority to enter into the Reorganization
Agreement, absence of certain changes, the need to obtain consents to the
transaction, financial matters and tax matters. AVE made additional
representations relating to the issuance of AVE Common Stock in the Merger and
certain other matters. World Medical made additional representations concerning,
among other things, its proprietary assets, its products and regulation thereof,
title to its assets, environmental matters, and employee and labor matters.
World Medical represented that it is not engaged in any discussions (other than
with AVE) relating to a Competing Transaction (as defined in "The Merger and
Related Transactions -- Covenants -- Non-Solicitation"). See "The Merger and
Related Transactions -- Representations and Warranties."
Under the Reorganization Agreement, AVE and World Medical made various
covenants concerning, among other things, the filing of this Registration
Statement and certain tax matters. AVE covenanted to provide certain
indemnification rights to directors and officers of World Medical after
consummation of the Merger and to submit an application for listing of the
shares of AVE Common Stock to be issued in the Merger on the Nasdaq National
Market. World Medical covenanted that, until the Effective Time or the
termination of the Reorganization Agreement, it will maintain its business and
it will not take certain actions outside the ordinary course of business without
AVE's consent. World Medical also made other covenants, including an agreement
not to encourage or facilitate a Competing Transaction or enter into or endorse
any agreement in connection with a Competing Transaction and to call and hold
the Special Meeting. Subject to certain limitations, the World Medical Board of
Directors may disclose certain information about World Medical and change its
recommendation to the shareholders of World Medical with respect to the Merger
in the event it determines in good faith after consultation with its financial
advisor that a Superior Offer (as defined in "The Merger and Related
Transactions -- Covenants -- Non-Solicitation") is reasonably likely and outside
legal counsel to World Medical advises that the change in recommendation is
required in order to comply with fiduciary duties. These provisions will not,
however, affect World Medical's obligation to convene the Special Meeting. See
"The Merger and Related Transactions -- Covenants -- Other Covenants."
Conditions to the Merger
The obligations of AVE and Sub to effect the Merger and otherwise
consummate the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction or waiver of certain conditions relating to, among
other things: (i) the accuracy of the representations and warranties of World
Medical contained in the Reorganization Agreement; (ii) the performance by World
Medical of covenants and obligations contained in the Reorganization Agreement;
(iii) the approval of the terms of the Merger by holders of no less than
eighty-five percent (85%) of the outstanding shares of World Medical Common
Stock; (iv) no more than eight percent (8%) of the shares of World Medical
Common Stock outstanding having delivered notice of intent to exercise
dissenters' rights; (v) the absence of any material adverse change to
10
<PAGE> 18
World Medical's business; (vi) the effectiveness of the Registration Statement;
(vii) compliance with certain sections of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"); and (viii) the approval for listing on
the Nasdaq National Market of the shares of AVE Common Stock to be issued in the
Merger.
The obligations of World Medical to effect the Merger and otherwise
consummate the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction or waiver of certain conditions relating to, among
other things: (i) the accuracy of the representations and warranties of AVE
contained in the Reorganization Agreement; (ii) the performance by AVE of
covenants and obligations contained in the Reorganization Agreement; (iii) the
effectiveness of the Registration Statement; (iv) the approval for listing on
the Nasdaq National Market of the shares of AVE Common Stock to be issued in the
Merger; (v) approval of the principal terms of the Merger by no less than fifty
percent (50%) of the outstanding shares of World Medical Common Stock; and (vi)
the average closing sales price of a share of AVE Common Stock on the Nasdaq
National Market over a ten-day period prior to closing of the Merger, being no
less than seventy percent (70%) of such average closing sales price over a
ten-day period prior to signing of the Reorganization Agreement. See "The Merger
and Related Transactions -- Conditions to the Merger."
Termination
The Reorganization Agreement may be terminated by mutual agreement of both
parties or, subject to certain exceptions and qualifications, by either party
(i) if the Merger shall not have been consummated by July 31, 1998 or under
certain circumstances, August 31, 1998; (ii) as a result of a material breach by
the other party of a material covenant or agreement; (iii) as a result of
material breach by the other party of such party's representations and
warranties that would have a material adverse effect on such party and cause a
closing condition not to be satisfied; or (iv) if a permanent injunction or
other order by a federal or state court that would make illegal or otherwise
restrain or prohibit the consummation of the Merger is issued and has become
final and not eligible for appeal. World Medical may terminate the
Reorganization Agreement if it fails to obtain the affirmative vote of no less
than fifty percent (50%) of the shares of World Medical Common Stock entitled to
vote at the World Medical Special Meeting. AVE may terminate the Reorganization
Agreement if World Medical fails to obtain the affirmative vote of eighty-five
percent (85%) of the shares of World Medical Common Stock entitled to vote at
the World Medical Special Meeting, or if holders of eight percent (8%) or more
of the shares of World Medical Common Stock outstanding immediately prior to the
World Medical Special Meeting have delivered to World Medical notice of intent
to exercise dissenters' rights. See "The Merger and Related
Transactions -- Termination or Amendment."
Dissenters' Rights
If the Reorganization Agreement is approved by the required vote of World
Medical shareholders and is not abandoned or terminated, holders of World
Medical Common Stock who file a written notice of dissent before the vote and
who do not vote in favor of the Merger will have the right to dissent to the
Merger and to receive the "fair value" of their shares of World Medical Common
Stock in cash, if such holders comply with Sections 607.1301, 607.1302 and
607.1320 of the Florida Act, and will be entitled to dissenters' rights as
described therein. See "The Merger and Related Transactions -- Dissenters'
Rights."
Merger Expenses, Fees and Other Costs
Pursuant to the Reorganization Agreement, all fees and expenses incurred in
connection with the Reorganization Agreement and the transactions contemplated
by the Reorganization Agreement shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; provided, however, that to
the extent the total amount of all fees and expenses incurred by or for the
benefit of World Medical, other than those payable by or to Vector, exceeds
$150,000 in the aggregate, such excess fees shall be borne and paid by the World
Medical shareholders in the form of a reduction in the Aggregate Purchase Price;
and further, to the extent the total amount of all fees and expenses incurred by
or for the benefit of World Medical and payable to Vector exceeds $1,448,000 in
the aggregate for fees or $25,000 for expenses, such excess fees and
11
<PAGE> 19
expenses shall also reduce the Aggregate Purchase Price. See "The Merger and
Related Transactions -- Merger Expenses and Fees and Other Costs."
Material Federal Income Tax Consequences
The Merger is expected to qualify as a "tax-free reorganization" for
federal income tax purposes, so that no gain or loss would be recognized by
World Medical shareholders on the exchange of shares of World Medical Common
Stock for AVE Common Stock, except to the extent that World Medical shareholders
receive cash in lieu of fractional shares or upon exercise of dissenters'
rights. Neither AVE nor World Medical will obtain a ruling from the Internal
Revenue Service (the "IRS") as to the tax consequences of the Merger. As a
condition to each of AVE's and World Medical's obligations to consummate the
Merger, AVE and World Medical must receive an opinion at the closing of the
Merger from their respective legal counsel that the Merger will be treated as a
tax-free reorganization for federal income tax purposes. World Medical
shareholders are urged to consult their own tax advisors regarding such tax
consequences. See "The Merger and Related Transactions -- Material Federal
Income Tax Consequences."
Accounting Treatment
The Merger is expected to be accounted for under the purchase method of
accounting whereby the purchase price will be allocated based on the fair value
of the assets acquired and liabilities assumed. Such allocation will be made
based upon valuations which have not been completed. It is anticipated that a
significant portion of the purchase price will be allocated to in-process
research and development which, based on preliminary valuation information will
result in a charge to AVE's results of operations of approximately $41 million
in the quarter the Merger closes. The actual amount and exact timing of this
charge cannot be determined unless and until the valuation of the specified
tangible and identifiable intangible assets and liabilities is completed. See
"The Merger and Related Transactions -- Accounting Treatment."
Regulatory Matters
AVE and World Medical are not aware of any governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
the federal securities laws and applicable securities and "blue sky" laws of the
various states. See "The Merger and Related Transactions -- Regulatory Matters."
Resales of AVE Common Stock
The AVE Common Stock to be issued to shareholders of World Medical in
connection with the Merger has been registered under the Securities Act. All
shares of AVE Common Stock received by holders of World Medical Common Stock
upon consummation of the Merger will be freely transferable by those
shareholders of World Medical not deemed to be "affiliates" of World Medical.
"Affiliates" are generally defined as persons who control, are controlled by, or
are under common control with, World Medical at the time of the Special Meeting
(generally, directors, executive officers and principal shareholders). In
addition, Howard J. Leonhardt has entered into the Lock-Up Agreement that
restricts the sale, transfer or other disposition of sixty percent (60%) of the
securities received or receivable by Mr. Leonhardt in the Merger. See "The
Merger and Related Transactions -- Resales of AVE Common Stock" and "-- Related
Agreements -- Affiliate Agreements" for a discussion of the limitations on
transfer of shares of AVE Common Stock held by Mr. Leonhardt and affiliates of
World Medical.
Comparison of Stockholder Rights
AVE is incorporated under the laws of Delaware, while World Medical is
incorporated under the laws of Florida. The rights of the stockholders of AVE
and World Medical are also governed by the respective charter documents (either
a Certificate or Articles of Incorporation) and the Bylaws of each company. Upon
consummation of the Merger, World Medical shareholders will become AVE
stockholders and, as such, their rights will be governed by the Delaware General
Corporation Law (the "Delaware Law") and AVE's
12
<PAGE> 20
Amended and Restated Certificate of Incorporation and Bylaws, each as amended.
See "Comparison of Rights of Stockholders of AVE and Shareholders of World
Medical."
MARKET PRICE DATA AND DIVIDENDS
Shares of AVE Common Stock are traded on the Nasdaq National Market under
the symbol "AVEI." On April 10, 1998, the last trading day before announcement
by AVE and World Medical that they had entered into the Reorganization
Agreement, the closing sale price of AVE Common Stock as reported on the Nasdaq
National Market was $35.88 per share. On , 1998, the closing sales
price of AVE Common Stock as reported on the Nasdaq National Market was
$ . The following table sets forth the range of high and low sales
prices per share for AVE Common Stock for the periods indicated, as reported on
the Nasdaq National Market and adjusted for stock splits and stock dividends:
<TABLE>
<CAPTION>
AVE COMMON STOCK
(PRICE PER SHARE)
--------------------
HIGH LOW
-------- --------
<S> <C> <C>
Fiscal Year Ended June 30, 1996:
Fourth Quarter(1)......................................... $24.75 $14.75
Fiscal Year Ended June 30, 1997:
First Quarter............................................. 18.125 9.125
Second Quarter............................................ 14.5625 4.50
Third Quarter............................................. 9.625 5.75
Fourth Quarter............................................ 16.125 6.125
Fiscal Year Ending June 30, 1998:
First Quarter............................................. 28.6875 15.1875
Second Quarter............................................ 33.25 21.00
Third Quarter............................................. 45.375 24.4375
Fourth Quarter(2).........................................
</TABLE>
- ---------------
(1) Beginning on April 3, 1996, the initial public offering date of AVE Common
Stock.
(2) Through , 1998.
There can be no assurance as to the actual per share price of AVE Common
Stock at any time prior to, at or following the consummation of the Merger.
World Medical shareholders are urged to, and should, obtain current market
quotations for shares of AVE Common Stock.
Neither AVE nor World Medical has ever paid any cash dividends on its
stock, and both anticipate that for the foreseeable future they will continue to
retain any earnings for use in the operation of their respective businesses.
13
<PAGE> 21
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following selected historical consolidated financial information of AVE
and World Medical has been derived from their respective historical consolidated
financial statements, and should be read in conjunction with such consolidated
financial statements and the notes thereto, which are included or incorporated
by reference herein. Selected historical consolidated financial information of
AVE is presented as of and for the fiscal years ended June 30, 1993, 1994, 1995,
1996 and 1997, and as of and for the nine-month period ended March 31, 1998.
Selected historical financial information of World Medical is presented as of
and for the fiscal years ended December 31, 1993, 1994, 1995, 1996 and 1997, and
as of and for the three-month period ended March 31, 1998.
The following unaudited selected pro forma combined financial information
of AVE and World Medical has been derived from the unaudited pro forma condensed
combined financial statements, which give effect to the Merger as a purchase and
reflect the Applicable Fraction and the pro forma adjustments described in the
accompanying notes thereto, and should be read in conjunction with such
unaudited pro forma condensed combined pro forma financial statements and the
notes thereto which are included elsewhere in this Proxy Statement/Prospectus.
For pro forma purposes, (i) AVE's unaudited consolidated balance sheet as of
March 31, 1998 has been combined with World Medical's unaudited consolidated
balance sheet as of March 31, 1998 as if the Merger had occurred on March 31,
1998, and (ii) AVE's consolidated statement of operations for the fiscal year
ended June 30, 1997 and unaudited consolidated statement of operations for the
nine-month period ended March 31, 1998 have been combined with World Medical's
unaudited consolidated statements of operations for the twelve month period
ended June 30, 1997 and the nine month period ended March 31, 1998, as if the
Merger had occurred on July 1, 1996. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Merger had been
consummated on July 1, 1996 or March 31, 1998, respectively, nor is it
necessarily indicative of future operating results or financial position.
AVE SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JUNE 30, ENDED
----------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 15 $ 2,897 $17,141 $55,228 $79,420 $205,768
Cost of sales............................. 5 1,631 4,515 10,565 16,217 40,691
------- ------- ------- ------- ------- --------
Gross profit.............................. 10 1,266 12,626 44,663 63,203 165,077
Operating expenses
Research and development................ 398 594 987 6,480 11,422 24,611
Selling, general and administrative..... 973 870 1,807 8,437 22,510 55,070
Settlement costs........................ -- 358 425 -- -- --
------- ------- ------- ------- ------- --------
Operating income (loss)................... (1,361) (556) 9,407 29,746 29,271 85,396
Interest and other income................. 549 21 237 1,460 4,190 3,449
------- ------- ------- ------- ------- --------
Income (loss) before provision for income
taxes................................... (812) (535) 9,644 31,206 33,461 88,845
Provision for income taxes................ 2 3 3,004 10,766 11,711 33,140
------- ------- ------- ------- ------- --------
Net income (loss)......................... $ (814) $ (538) $ 6,640 $20,440 $21,750 $ 55,705
======= ======= ======= ======= ======= ========
Net income (loss) per share -- basic...... $ (0.02) $ (0.02) $ 0.18 $ 0.44 $ 0.37 $ 0.89
Net income (loss) per share -- diluted.... $ (0.02) $ (0.02) $ 0.13 $ 0.36 $ 0.34 $ 0.86
Shares used in per share
calculation -- basic.................... 32,827 35,317 36,081 46,926 58,447 62,647
Shares used in per share
calculation -- diluted.................. 32,827 35,317 49,300 56,617 63,289 65,055
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................. $ 82 $ 1,882 $ 2,533 $ 91,592 $ 87,228 $130,052
Working capital........................... 161 415 4,413 106,925 114,486 162,121
Total assets.............................. 706 3,086 13,089 122,157 147,979 288,711
Retained earnings (accumulated deficit)... (1,390) (1,928) 4,712 25,152 46,902 102,607
Total stockholders' equity................ 607 1,004 8,129 116,571 138,200 216,017
</TABLE>
14
<PAGE> 22
WORLD MEDICAL SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales............................. $ 990 $1,146 $1,123 $ 2,060 $ 4,203 $1,365
Cost of sales......................... 656 796 920 1,455 2,456 779
------ ------ ------ ------- ------- ------
Gross profit.......................... 335 349 203 605 1,747 586
Operating costs and expenses:
Research and development............ 0 62 183 822 1,519 603
Selling, general and
administrative................... 345 301 364 1,620 1,950 710
------ ------ ------ ------- ------- ------
Total operating costs and expenses.... 345 363 547 2,442 3,469 1,313
------ ------ ------ ------- ------- ------
Loss from operations.................. (11) (14) (343) (1,836) (1,722) (727)
Interest income (expense)............. (7) (12) (15) (2) 25 10
------ ------ ------ ------- ------- ------
Net loss.............................. $ (18) $ (26) $ (358) $(1,839) $(1,697) $ (717)
====== ====== ====== ======= ======= ======
Basic/diluted loss per share.......... $(0.02) $(0.03) $(0.40) $ (1.74) $ (1.28) $(0.49)
Shares used in computing basic/diluted
net loss per share.................. 816 848 892 1,056 1,324 1,464
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
----- ----- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........... $ 42 $ 21 $ -- $ 152 $ 1,416 $ 424
Working capital..................... 47 15 (41) (289) 2,316 1,502
Total assets........................ 389 375 365 959 3,361 2,736
Accumulated deficit................. (389) (468) (1,152) (2,990) (4,687) (5,404)
Total shareholders' equity.......... 100 86 0 (177) 2,793 2,128
</TABLE>
15
<PAGE> 23
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
1997 1998
------------------- --------------
<S> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Net sales................................................. $82,381 $209,625
Cost of sales............................................. 18,111 42,884
------- --------
Gross profit.............................................. 64,270 166,741
Operating expenses:
Research and development............................... 12,779 26,221
Selling, general and administrative.................... 24,074 56,774
Amortization of purchased intangible assets............ 2,890 2,167
------- --------
Total operating expenses.................................. 39,743 85,162
------- --------
Operating income.......................................... 24,527 81,579
Interest and other income................................. 4,192 3,483
------- --------
Income before provision of income taxes................... 28,719 85,062
Provision for income taxes................................ 9,996 31,774
------- --------
Net income................................................ $18,723 $ 53,288
======= ========
Net income per share -- basic............................. $ 0.31 $ 0.83
Net income per share -- diluted........................... $ 0.29 $ 0.80
Shares used in per share calculation -- basic............. 59,898 64,098
Shares used in per share calculation -- diluted........... 65,060 66,826
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
<S> <C> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $130,476
Working capital............................................. $158,438
Total assets................................................ $329,271
Retained Earnings........................................... $ 61,219
Total stockholders' equity.................................. $236,629
</TABLE>
- ---------------
See Unaudited Pro Forma Condensed Combined Financial Information and
accompanying notes thereto.
16
<PAGE> 24
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of AVE and
World Medical and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on the purchase method of accounting, assuming that
.9740 of a share of AVE Common Stock is issued in exchange for each share of
World Medical Common Stock in the Merger. This data should be read in
conjunction with the selected financial data, the unaudited pro forma condensed
combined financial information and the separate historical consolidated
financial statements of AVE and World Medical and notes thereto, incorporated by
reference herein or included elsewhere in this Proxy Statement/Prospectus. The
pro forma condensed combined financial data are not necessarily indicative of
the operating results that would have been achieved had the Merger been
consummated as of the beginning of the periods presented and should not be
construed as representative of future operations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
1997 1998
------------------- -----------------
<S> <C> <C>
Historical -- AVE
Net income per share -- basic............ $0.37 $0.89
Net income per share -- diluted.......... $0.34 $0.86
Book value per share(1).................. $2.23 $3.38
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1997 1998
----------------------- ------------------
<S> <C> <C>
Historical -- World Medical
Basic/diluted net loss per share..... $(1.28) $(0.49)
Book value per share(1).............. $ 1.91 $ 1.45
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
1997 1998
------------------- -----------------
<S> <C> <C>
Pro forma combined net income
Per AVE share -- basic................... $ 0.31 $ 0.83
Per AVE share -- diluted................. $ 0.29 $ 0.80
Equivalent per World Medical share --
basic(2).............................. $ 0.30 $ 0.81
Equivalent per World Medical share --
diluted(2)............................ $ 0.28 $ 0.78
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1998
-----------------
<S> <C>
Pro Forma Combined Book Value
Per Share(3):
Per AVE share............................................... $3.62
Equivalent per World Medical share(2)....................... $3.53
</TABLE>
- ---------------
(1) The historical book value per share is computed, in the case of AVE, by
dividing stockholders' equity by the number of shares of AVE Common Stock
outstanding at the end of each period and, in the case of World Medical, by
dividing shareholders' equity by the number of shares of World Medical
Common Stock outstanding at the end of each period.
(2) The World Medical Equivalent Pro Forma Combined Per Share amounts are
calculated by multiplying the AVE combined pro forma per share amounts by
the estimated Applicable Fraction of [0.9740] shares of AVE Common Stock for
each share of World Medical Common Stock.
(3) The Pro Forma Combined Book Value Per Share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common stock
outstanding at the end of each period.
17
<PAGE> 25
RISK FACTORS
This Proxy Statement/Prospectus contains forward-looking statements that
involve risks and uncertainties. AVE's and World Medical's actual results may
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those discussed under this section as
well as those discussed elsewhere in this Proxy Statement/Prospectus and in
AVE's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, AVE's
Quarterly Reports on Form 10-Q for the quarterly periods ended September 30,
1997, December 31, 1997 and March 31, 1998, and in the additional documents
incorporated herein by reference. In addition to the other information in this
Proxy Statement/Prospectus, the following risk factors should be considered
carefully by World Medical shareholders in determining whether or not to vote in
favor of the adoption and approval of the Reorganization Agreement and approval
of the Merger.
UNCERTAINTY RELATING TO INTEGRATION
The Merger involves the integration of two companies that have previously
operated independently. Such integration will require effort and coordination
from each company. There can be no assurance that AVE will integrate the
operations of World Medical without encountering difficulties or experiencing
departure of World Medical personnel or adverse effects upon arrangements with
World Medical customers, distributors or suppliers, or that the benefits
expected from such integration will be realized. Any difficulties encountered in
the transition process could have a material adverse effect on World Medical's
business, financial condition and results of operations and on AVE's ability to
realize anticipated benefits from the Merger.
RIGHTS OF HOLDERS OF WORLD MEDICAL COMMON STOCK FOLLOWING THE MERGER
Following the Merger, holders of World Medical Common Stock outstanding as
of the date of the consummation of the Merger will become holders of AVE Common
Stock. Certain material differences exist between the rights of shareholders of
World Medical under the Florida Act and the Articles of Incorporation and Bylaws
of World Medical, and the rights of stockholders of AVE under the Delaware Law
and the AVE Amended and Restated Certificate of Incorporation and Bylaws, each
as amended. See "Comparison of Rights of Stockholders of AVE and Shareholders of
World Medical."
VOLATILITY OF STOCK PRICES; FLUCTUATION IN VALUE OF MERGER CONSIDERATION
In recent years, the stock market in general has experienced extreme price
and volume fluctuations, which have particularly affected the market price of
many technology and health care companies and which have often been unrelated to
the operating performance of those companies. These broad market fluctuations
have in the past and may in the future adversely affect the market price of AVE
Common Stock. Although the Applicable Fraction will be based on the Closing
Price, the market price of AVE Common Stock may fluctuate significantly. There
can be no assurance as to the actual per share price of AVE Common Stock at any
time prior to, at, or following the consummation of the Merger. In particular,
the market price of AVE Common Stock at each of the date of consummation of the
Merger, the date of receipt of shares of AVE Common Stock by holders of World
Medical Common Stock, or the date on which such shares of AVE Common Stock are
eventually sold, may be more or less than the Closing Price.
MANUFACTURING AND SUPPLY
Generally, AVE manufactures and ships product shortly after the receipt of
orders, and anticipates that it will do so in the future. From time to time,
however, AVE develops short-term backlogs in connection with the scale-up of
manufacturing of its stent products. There can be no assurance that AVE will be
successful in
18
<PAGE> 26
scaling up production of new or modified products or that it will not experience
manufacturing difficulties or develop backlogs in the future, particularly with
respect to the significant demands of the United States market. AVE is
completing construction of a 130,000 square foot building at its corporate
headquarters campus in Santa Rosa, California, which will be largely devoted to
manufacturing activities. However, there can be no assurance that such new
manufacturing facility will be sufficient to allow AVE to adequately supply the
significant demands of the United States market on a long-term basis.
PATENTS AND PROPRIETARY RIGHTS
A number of medical device and other companies, universities and research
institutions have filed patent applications or have been issued patents relating
to catheters, stents and delivery systems and there has been substantial
litigation in this area. AVE's success will depend on its products not
infringing patents issued to others.
Since the commencement of sales of its coronary stent systems in the United
States, several of AVE's competitors have filed claims against AVE alleging,
among other things, that such stent systems infringe on certain patents of such
competitors. Although AVE continually reviews the scope of relevant United
States and foreign patents and related litigation, the question of infringement
involves complex legal and factual issues and is highly uncertain. There can be
no assurance that any conclusion reached by AVE regarding infringement will be
consistent with the resolution of such issue by a court. If AVE's products are
determined to infringe third party patents and AVE cannot obtain a license on
commercially reasonable terms or modify its current technology or develop new
products to avoid infringement, AVE would be required to cease its sales of the
affected products in the United States, which could have a material adverse
affect on AVE's business, financial condition and results of operations. In any
event, there can be no assurance that AVE or World Medical will not be obliged
to defend itself in court against allegations of infringement of third party
patents. Patent litigation is very expensive and could subject AVE to
significant liabilities, require disputed rights to be licensed from third
parties or require AVE to cease selling its products.
The validity and breadth of claims in medical technology patents involve
complex legal and factual questions and, therefore, may be highly uncertain. No
assurance can be given that any patents based on pending patent applications or
any future patent applications of AVE will be issued, that the scope of any
patent protection will exclude competitors or provide competitive advantages to
AVE, that any of AVE's patents or patents to which they have licensed rights
will be held valid if subsequently challenged or that others will not claim
rights in or ownership of the patents and other proprietary rights held or
licensed by AVE. Furthermore, there can be no assurance that others have not
developed or will not develop similar products, duplicate any of AVE's products
or design around any patents issued to or licensed by AVE, or that may be issued
in the future to AVE. Since patent applications in the United States are
maintained in secrecy until patents issue, AVE also cannot be certain that
others did not first file applications for inventions covered by AVE's pending
patent applications, nor can AVE be certain that they will not infringe any
patents that may be issued to others on such applications.
COMPETITION
Competition in the market for the treatment of cardiovascular disease is
intense and is expected to increase. AVE competes primarily with Boston
Scientific Corporation, C.R. Bard, Inc., Cook, Inc., Advanced Cardiovascular
Systems, Inc. ("ACS"), Guidant Corporation, Cordis Endovascular Systems (Johnson
& Johnson), Medtronic, Inc. and Pfizer Inc., among others, in the development,
production and marketing of stents and stent technology. Many of AVE's
competitors and potential competitors have substantially greater name
recognition and capital resources than do AVE and also have greater resources
and expertise in the areas of research and development, obtaining regulatory
approvals, manufacturing and marketing. There can be no assurance that AVE's
competitors will not succeed in developing similar products, competing
technologies or therapeutic drugs that are more effective or more effectively
marketed than products marketed by AVE or that render AVE's technology obsolete.
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<PAGE> 27
The increasing number of devices in the international stent market and the
desire of companies to obtain market share has resulted in increased price
competition in such market, particularly in the second and third quarters of
fiscal 1997. Such competition has, in the past, caused AVE to reduce prices on
its stent systems. AVE expects that, as the stent industry develops, competition
and pricing pressures will continue to increase. In particular, it is likely
that the FDA will begin to use a streamlined PMA process once a sufficient
number of similar coronary stent products have been cleared for commercial sale
in the United States, and will permit coronary stent manufacturers to utilize a
simplified clinical trial structure in obtaining marketing approval here as
sufficient stent performance data enters the public domain. Thus, the regulatory
barriers to entry in the United States coronary stent market that currently
exist may, in the future, be lowered significantly with respect to both new
market entrants and new products introduced by existing United States
competitors. If AVE is forced to effect further price reductions in connection
with such increased competition, such reductions would reduce net sales in
future periods if not offset by increased unit sales or other factors.
EXPANSION OF OPERATIONS
AVE intends to expand its operations by promoting new or complementary
products and by expanding the breadth and depth of its product offerings.
Expansion in this manner would require significant additional expense as well as
substantial managerial, financial and operational resources. Furthermore, gross
margins attributable to new business areas may be lower than those associated
with existing business activities. There can be no assurance that AVE will be
able to expand its respective operations in a cost-effective or timely manner.
Furthermore, any new product or business launched that is not favorably received
by customers may damage AVE's reputation or the AVE brand. The lack of market
acceptance of such efforts or the inability to generate satisfactory revenues
from such expanded product offerings to offset its costs could have a material
adverse effect on AVE's business, financial condition and results of operations.
AVE may choose to expand its operations or market presence by entering into
business combinations, acquisitions, investments, joint ventures or other
strategic alliances with third parties. Any such transaction would be
accompanied by the risks commonly associated with such transactions, such as the
difficulty of assimilating the operations, technology and personnel of the
combined companies, the potential disruption of ongoing business, the inability
to retain key technical and managerial personnel, the inability of management to
maximize the financial and strategic position of AVE through the successful
integration of acquired businesses, additional expenses associated with
amortization of acquired intangible assets, the maintenance of uniform
standards, controls and policies and the impairment of relationships with
existing employees and customers. There can be no assurance that AVE would be
successful in overcoming these risks or any other potential problems encountered
in connection with such business combinations, acquisitions, investments, joint
ventures or other strategic alliances, or that such transactions would not have
a material adverse effect on AVE's business, financial condition and results of
operations.
FLUCTUATIONS IN RESULTS OF OPERATIONS
AVE anticipates that its results of operations may fluctuate for the
foreseeable future due to several factors, including variations in operating
expenses, the costs and the outcome of litigation, the potential disruption of
business and other additional costs and expenses in connection with possible
business combinations, acquisitions, investments, joint ventures or other
strategic alliances with third parties, AVE's ability to manufacture its
products efficiently, competition (including pricing pressures), the timing of
new product introductions or transitions to new products, the costs of
establishing direct sales operations, the timing of research and development
expenses (including clinical trial related expenditures), the timing of
regulatory and third party reimbursement approvals, the level of third party
reimbursement, sales by distributors, the mix of sales among distributors and
direct sales force, the fluctuations in international currency exchange rates,
and seasonal factors impacting the number of elective angioplasty or stent
procedures. In addition, AVE's results of operations could be affected by the
timing of orders from their distributors, changes in the distributor network
(including expenses in connection with termination of former distributors), the
ability of direct sales forces and independent distributors to effectively
promote AVE's
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<PAGE> 28
products and the ability of AVE to quickly and cost-effectively establish an
effective direct sales force in targeted countries.
AVE's limited operating histories makes accurate prediction of future
operating results difficult or impossible. Although AVE has experienced growth
in recent years and substantial growth in the most recent quarter, there can be
no assurance that, in the future, AVE will sustain revenue growth or remain
profitable on a quarterly or annual basis or that its growth will be consistent
with predictions made by securities analysts. AVE has experienced, and may
experience in one or more future quarters, operating results that are below the
expectations of public market analysts and investors. In such event, the price
of AVE Common Stock has been, and would likely be, materially adversely
affected.
RAPID TECHNOLOGICAL CHANGE
The medical device industry is characterized by rapid and significant
technological change. AVE's future success will depend in large part on whether
AVE can continue to respond to such changes, and whether they can expand the
indications and applications for which their products are used, through the
timely development and successful introduction of enhanced and new versions of
their stent systems and balloon catheters. Product research and development will
require substantial expenditures and has inherent risks, and there can be no
assurance that AVE will be successful in identifying products for which demand
exists, in developing products that have the characteristics necessary to treat
particular applications, or that any new product introduced will receive
regulatory approval or be commercially successful.
DEPENDENCE ON KEY PERSONNEL
AVE is dependent upon a limited number of key management and technical
personnel. The loss of the services of one or more of such key employees could
have a material adverse effect on AVE's business. In addition, the success of
each company will be dependent on whether they can attract and retain additional
highly qualified sales, management, manufacturing and research and development
personnel. AVE faces intense competition in its recruiting activities and there
can be no assurance that they will be able to attract and/or retain qualified
personnel.
"YEAR 2000" ISSUES
AVE believes that its computer programs will not be adversely affected by
the "Year 2000" problem, but they have not made an assessment of whether any of
their customers, suppliers or service providers will be so affected. Failure of
AVE's software or that of their customers, suppliers or service providers could
have a material adverse affect on AVE's business, financial condition and
results of operations.
ANTI-TAKEOVER PROVISIONS
AVE's Amended and Restated Certificate of Incorporation, as amended and the
Delaware Law contain certain provisions, including the requirements of Section
203 of the Delaware General Corporation Law, that may delay or prevent an
attempt by a third party to acquire control of AVE. In addition, in February
1997, AVE's Board of Directors adopted a stockholder rights plan, commonly
referred to as a "poison pill," that is intended to deter hostile or coercive
attempts to acquire AVE. The stockholder rights plan enables stockholders of AVE
to acquire shares of AVE Common Stock, or the common stock of an acquiror, at a
substantial discount to the public market price should any person or group
acquire more than fifteen percent (15%) of AVE Common Stock without the approval
of AVE's Board of Directors under certain circumstances. AVE has reserved
1,000,000 shares of Series A Junior Participating Preferred Stock for issuance
in connection with the stockholder rights plan. AVE is authorized to issue an
additional 4,000,000 shares of preferred stock in one or more series with terms
to be fixed by AVE's Board of Directors without a stockholder vote. While AVE's
Board of Directors has no current intentions or plans to issue any preferred
stock, issuance of these shares could also be used as an anti-takeover device.
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<PAGE> 29
THE WORLD MEDICAL MEETING
DATE, TIME AND PLACE
The Special Meeting of Shareholders will be held on , 1998 at
9:00 a.m., local time, at the headquarters of World Medical at 13794 N.W. 4th
Street, Building #210, Sunrise, Florida 33325.
SOLICITATION OF PROXIES; REVOCABILITY OF PROXIES
The enclosed proxy is solicited on behalf of the Board of Directors of
World Medical for use at the Special Meeting, or at any adjournment thereof, for
the purposes set forth herein and in the accompanying Notice of Special Meeting
of Shareholders. Any proxy given pursuant to this solicitation may be revoked by
the person giving it at any time before its use by delivering to World Medical a
written notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting of shareholders and voting in person.
RECORD DATE; SHARES ENTITLED TO VOTE
The close of business on , 1998 has been fixed as the
Record Date for determining holders of shares of World Medical Common Stock
entitled to vote at the Special Meeting. As of the Record Date, [1,474,240]
shares of World Medical Common Stock were outstanding and held of record by
approximately [96] holders.
QUORUM; VOTE REQUIRED; EXISTING SHAREHOLDER AGREEMENTS
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of World Medical Common Stock entitled to vote at the Special
Meeting is necessary to constitute a quorum for the transaction of business at
the Special Meeting. Approval and adoption of the Reorganization Agreement
requires the affirmative vote of the holders of a majority of the shares of
World Medical Common Stock outstanding on the Record Date. It is also a
condition to the obligations of AVE and Sub under the Reorganization Agreement
that no less than eighty-five percent (85%) of the shares of World Medical
Common Stock entitled to vote at the Special Meeting shall vote to approve the
Reorganization Agreement and the Merger. Pursuant to certain shareholder
agreements with AVE, certain shareholders and all of the executive officers and
directors of World Medical, including World Medical's founder, President and
Chief Executive Officer Howard J. Leonhardt, have agreed to vote all of the
shares of World Medical Common Stock owned or controlled by them in favor of
such approval and adoption and have granted to AVE irrevocable proxies to vote
their shares in the event that such shareholders fail or are unable to vote as
agreed. As of [May 15, 1998], such shareholders and executive officers and
directors held in the aggregate approximately [sixty-one percent (61%)] of all
the then outstanding shares of World Medical Common Stock.
EXPENSES OF SOLICITATION
World Medical will bear the cost of solicitation of proxies in the enclosed
form from its shareholders. In addition to solicitation by mail, the directors,
officers and employees of World Medical may solicit proxies from shareholders by
telephone, telegram, telecopy, letter or in person.
BOARD RECOMMENDATIONS
THE BOARD OF DIRECTORS OF WORLD MEDICAL HAS DETERMINED THAT THE MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF WORLD MEDICAL AND ITS SHAREHOLDERS AND HAS
UNANIMOUSLY RECOMMENDED A VOTE FOR APPROVAL OF THE REORGANIZATION AGREEMENT AND
THE CONSUMMATION OF THE MERGER.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY. IF
THE REORGANIZATION AGREEMENT IS APPROVED AND THE MERGER IS CONSUMMATED, EACH
WORLD MEDICAL SHAREHOLDER WILL BE SENT A LETTER OF TRANSMITTAL WITH INSTRUCTIONS
FOR SURRENDERING THEIR WORLD MEDICAL SHARE CERTIFICATES. PLEASE DO NOT SEND YOUR
SHARE CERTIFICATE UNTIL YOU RECEIVE THE LETTER OF TRANSMITTAL.
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<PAGE> 30
THE MERGER AND RELATED TRANSACTIONS
GENERAL
The Reorganization Agreement provides for the Merger of Sub with and into
World Medical, with World Medical to be the surviving corporation of the Merger
and a wholly owned subsidiary of AVE. The discussion in this Proxy
Statement/Prospectus of the Merger and the description of the principal terms of
the Reorganization Agreement and related agreements are subject to and qualified
in their entirety by reference to the Agreement and Plan of Merger and
Reorganization, a copy of which is attached to this Proxy Statement/ Prospectus
as Appendix A and incorporated herein by reference.
The current Board of Directors and executive officers of AVE are expected
to continue to serve after the Merger. In addition, the Board of Directors of
AVE intends to approve the appointment of Howard J. Leonhardt, currently the
President and Chief Executive Officer of World Medical, as an officer of AVE
upon consummation of the Merger. Mr. Leonhardt will also continue to serve as
President and Chief Executive Officer of World Medical after the Merger. See
"-- Related Agreements -- Officer Appointment; Employment Agreements and
Severance Benefits." Upon consummation of the Merger of Sub with and into World
Medical, World Medical will continue its operations as a wholly owned subsidiary
of AVE. Upon consummation of the Merger, the members of World Medical's Board of
Directors will be Scott J. Solano, the President, Chief Executive Officer and
Chairman of the Board of AVE and John D. Miller, the Chief Financial Officer,
Treasurer and a director of AVE. Lawrence J. Fassler, Vice President of Legal
Affairs, General Counsel and Secretary of AVE, will serve as Secretary of World
Medical upon consummation of the Merger. Certain executive officers of World
Medical will continue as executive officers of World Medical after consummation
of the Merger. See "-- Related Agreements -- Officer Appointment; Employment
Agreements and Severance Benefits." The shareholders of World Medical will
become stockholders of AVE (as described below), and their rights will be
governed by AVE's Amended and Restated Certificate of Incorporation and Bylaws,
each as amended.
Conversion of Shares
Upon consummation of the Merger, each then outstanding share of World
Medical Common Stock (other than shares held in treasury by World Medical, which
will be cancelled, or dissenting shares) will automatically be converted into
the right to receive a fraction of a share of AVE Common Stock that is equal to
ninety percent (90%) of the Applicable Fraction. AVE will establish and maintain
an escrow comprised of shares of AVE Common Stock equal to the aggregate number
of shares of World Medical Common Stock outstanding immediately prior to the
Effective Time multiplied by ten percent (10%) of the Applicable Fraction, in
order to secure certain indemnification obligations under the Reorganization
Agreement. See "Indemnification and Escrow of Holdback Shares." The "Applicable
Fraction" will be the fraction (i) having a numerator equal to sixty two million
dollars ($62,000,000), less certain fees and expenses in excess of negotiated
amounts related to carrying out the Merger (the "Aggregate Purchase Price") and
(ii) having a denominator equal to the amount determined by multiplying (A) the
Fully Diluted Company Share Amount (as defined below) by (B) the Designated AVE
Stock Price (as defined below). The "Fully Diluted Company Share Amount" will be
the sum of (i) the aggregate number of shares of World Medical Common Stock
outstanding immediately prior to the Effective Time, (ii) the aggregate number
of shares of World Medical Common Stock purchasable under or otherwise subject
to all options to purchase World Medical Common Stock ("World Medical Options")
and (iii) the aggregate number of shares of World Medical Common Stock
purchasable under or otherwise subject to all warrants to purchase shares of
World Medical Common Stock ("World Medical Warrants") or other options, warrants
or other rights of any type to purchase shares of World Medical Common Stock
outstanding immediately prior to the Effective Time, minus the number of shares
of World Medical Common Stock determined by dividing the aggregate exercise
price payable by holders of World Medical Options and World Medical Warrants
upon exercise of all of the World Medical Options and World Medical Warrants
(under (ii) and (iii) directly above) by the acquisition price per share (which
for purposes of this description shall mean (x) the Aggregate Purchase Price
plus the aggregate exercise price payable by holders of World Medical Options
and World Medical Warrants upon
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<PAGE> 31
exercise of all of the World Medical Options and World Medical Warrants (under
(ii) and (iii) directly above) divided by (y) the sum of (i), (ii) and (iii)
directly above). The "Designated AVE Stock Price" shall be the average of the
closing sales price of a share of AVE Common Stock as reported on the Nasdaq
National Market for each of the ten consecutive trading days ending on and
including the second trading day immediately preceding the date of the closing
of the Merger (the "Closing Price"); provided, however, that (i) if the Closing
Price is equal to or less than eighty percent (80%) of the average of the
closing sale price of a share of AVE Common Stock as reported on the Nasdaq
National Market for each of the ten consecutive trading days ending on and
including the second trading day immediately preceding the date on which the
Reorganization Agreement was signed, or $37.5219 (the "Signing Price"), then the
Designated AVE Stock Price shall be equal to eighty percent (80%) of the Signing
Price ($30.0175), and (ii) if such average is greater than or equal to one
hundred and twenty percent (120%) of the Signing Price ($45.0263), then the
Designated AVE Stock Price shall be equal to $45.0263. Based upon World Medical
Common Stock, World Medical Options and World Medical Warrants outstanding on
[May 15, 1998], an estimated deduction of fees and expenses of approximately
$[100,000], and a Designated AVE Stock Price of $[35.00], the Applicable
Fraction would be approximately [0.9740] (the "Estimated Applicable Fraction").
The market price of AVE Common Stock is likely to fluctuate prior to the date of
the Special Meeting and the Applicable Fraction may be significantly more or
less than such number. Cash will be paid in lieu of issuing fractional shares.
AVE intends to use its current cash resources to fund the payments for
fractional shares. Based upon the capitalization of World Medical and AVE as of
the Record Date (and assuming (i) no exercises of vested World Medical Options
between the Record Date and the Effective Time; (ii) exercise of the outstanding
World Medical Warrant on a cashless basis assuming a market price of World
Medical Common Stock of approximately $34.09 per share; (iii) release of all
Holdback Shares to the Merger Shareholders; and (iv) an Applicable Fraction of
[0.9740], approximately [1,450,974] shares of AVE Common Stock will be issued in
the Merger, and shareholders of World Medical will own shares of AVE Common
Stock representing approximately [2.27]% of the shares of AVE Common Stock
outstanding immediately after consummation of the Merger.
Conversion of Option Rights
At the Effective Time, each then outstanding World Medical Option will
automatically be converted into an option to purchase a number of shares of AVE
Common Stock determined by multiplying the number of shares of World Medical
Common Stock subject to the World Medical Option by the Applicable Fraction,
rounded down to the nearest whole number of shares, at an exercise price per
share of AVE Common Stock equal to the exercise price per share of the World
Medical Option at the time of the Merger divided by the Applicable Fraction,
rounded up to the nearest cent. To avoid fractional shares, the number of shares
of AVE Common Stock subject to a converted World Medical Option will be rounded
down to the nearest whole share, with no cash being payable for such fractional
share. Pursuant to the terms of the World Medical Plan, all outstanding options
under the World Medical Plan will become fully vested upon consummation of the
Merger. All other terms of each World Medical Option will remain unchanged.
As of the Record Date, [412,550] shares of World Medical Common Stock were
subject to outstanding World Medical Options. If the same number of shares are
subject to World Medical Options at the date of consummation of the Merger, and
assuming an Applicable Fraction of [0.9740], such options will be converted into
options to purchase an aggregate of approximately [401,823] shares of AVE Common
Stock, which would, if all such options were then exercised, increase to
approximately [2.90]% the shares of AVE Common Stock held by the Merger
Shareholders.
Conversion of Warrant
At or prior to consummation of the Merger, the World Medical Warrant held
by Vector to purchase 25,000 shares of World Medical Common Stock (the "Vector
Warrant") shall be exercised on a cashless basis and Vector will receive the
right to purchase the number of shares of AVE Common Stock determined by
multiplying the number of shares that Vector is entitled to receive pursuant to
the Vector Warrant by the Applicable Fraction, rounded down to the nearest whole
number of shares.
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<PAGE> 32
BACKGROUND OF THE MERGER
From time to time, AVE has evaluated strategic alliances, including
business combinations with other companies that could complement and strengthen
AVE's product offerings and revenues. Similarly, from time to time, World
Medical has considered various opportunities for expanding its base of products
and distribution.
In early 1995, Robert D. Lashinski, the former Vice President of Business
Development of AVE, called Howard J. Leonhardt, President and Chief Executive
Officer of World Medical, to inquire about World Medical's business. During the
discussion, Mr. Leonhardt expressed his interest in distributing internationally
certain of AVE's PTCA balloon catheters. Mr. Lashinski indicated to Mr.
Leonhardt that AVE was not interested in this proposal but that AVE was
interested in discussing with World Medical other possible business transactions
related to World Medical and its technology. On September 20, 1996, World
Medical and AVE entered into a confidentiality agreement in anticipation of
discussing such possible business transactions at an interventional radiology
conference in Milwaukee, Wisconsin at the beginning of October. At this
conference, Mr. Lashinski and Mr. Leonhardt met and Mr. Lashinski raised for the
first time the possibility of a business combination of AVE and World Medical.
At the meeting, Mr. Lashinski and Mr. Leonhardt discussed the potential
advantages of expanding AVE's and World Medical's abilities to offer their
respective customers a broader and more varied array of products and of possibly
accelerating technological innovation with the combined companies' technical
resources.
In November 1996, Mr. Lashinski visited World Medical's Sunrise, Florida
facilities and met with Mr. Leonhardt and other executive officers of World
Medical, at which time discussions concerning a possible business combination
continued. In December 1996, Mr. Lashinski called Mr. Leonhardt and discussed
price and other possible terms of a potential equity investment in, or purchase
of assets from, World Medical by AVE. Following these discussions, AVE's
management intensified its review of World Medical's business, operations and
product line developments. On January 20, 1997, Bradley A. Jendersee, then
President and Chief Executive Officer of AVE, Mr. Lashinski, John D. Miller,
Chief Financial Officer of AVE, Richard Klein, in-house patent counsel of AVE
and two representatives from Cowen & Company, financial advisor to AVE
("Cowen"), met with senior management of World Medical at World Medical's
headquarters in Sunrise, Florida to discuss the businesses and prospects of AVE
and World Medical and also to discuss and review certain intellectual property
and other diligence items. The following representatives of World Medical met
with AVE: Mr. Leonhardt, Richard Spencer, Chief Operating Officer and Vice
President of Sales and Marketing, Simon Fuger, Chief Financial Officer, Jeff
Elkins, Vice President of Operations, Trevor Greenan, Vice President of Research
and Development and Todd Davenport, a Director of World Medical. Late in January
1997, AVE's executive management determined to not then undertake such an equity
investment or purchase of assets, but rather to continue to evaluate World
Medical's progress and development .
At a regularly scheduled meeting of the Board of Directors of AVE (the "AVE
Board") on February 27, 1997, the AVE Board engaged in a detailed discussion
regarding the possible strategic fit between AVE and World Medical and the
advantages and risks associated with a potential business combination. At the
meeting, the AVE Board authorized AVE's management to continue discussions with
World Medical concerning such a possible business combination. In May 1997, the
World Medical Board of Directors (the "World Medical Board") met and discussed,
among other matters, the advisability of a business combination in light of
other strategic alternatives, such as an initial public offering of World
Medical Common Stock. The World Medical Board engaged Vector to assist in
consummating a private placement of equity securities of World Medical in order
to meet its financial objectives and in conducting discussions and negotiations
with potential acquirors, including with AVE.
In May 1997, at an interventional radiology conference in Paris, France,
Mr. Lashinski met with Mr. Leonhardt and continued discussions about a possible
business combination. On July 21, 1997, members of AVE's executive management
again visited World Medical's facilities in Sunrise, Florida and met with senior
management of World Medical. Further discussions resulted in the two companies
entering into an updated confidentiality agreement late in July 1997. On August
8, 1997, World Medical completed the private placement of shares of World
Medical Common Stock. On August 14, 1997, AVE sent an expression of
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<PAGE> 33
interest letter to World Medical setting forth AVE's interest in acquiring all
of the shares of outstanding World Medical Common Stock for cash and shares of
AVE Common Stock, and also setting forth certain proposed price and transaction
terms.
During the course of the fall of 1997, the executive management of the two
companies continued their ongoing discussions regarding a possible business
combination and the structure and financial terms of any such transaction. On
December 9, 1997, AVE sent a revised expression of interest letter to World
Medical which reflected further negotiations on the proposed transaction's
pricing. The letter also requested that World Medical cease negotiations until
February 6, 1998, with any other company that might be contemplating a
transaction with World Medical. On December 12, 1997 the World Medical Board met
and approved the revised expression of interest letter and authorized its
officers to pursue the possibility of being acquired by AVE. During the course
of the next two months, management and advisors for both companies had several
telephone conversations in connection with various due diligence matters.
The AVE Board met for a regular meeting on January 16, 1998, at which the
status, structure, pricing and other elements of the proposed transaction were
reviewed. After full discussion, the AVE Board authorized its management to
continue to pursue an acquisition of World Medical.
In early February 1998, AVE distributed to World Medical a draft of the
Reorganization Agreement. On February 9, 1998, AVE requested that World Medical
sign an amended expression of interest letter ("Amended Letter") that would
provide for an extension to March 9, 1998 of the moratorium on negotiations with
other interested parties. On February 11, 1998, World Medical executed the
Amended Letter. On February 26-27, 1998, management of both companies and their
respective outside counsel and financial advisors met in San Francisco,
California to review the draft Reorganization Agreement. The parties discussed
the pricing and structure of the transaction, including, among other things, the
terms of indemnification and the escrow arrangement, the treatment and issuance
of existing and contemplated stock options and continuing employment
arrangements and incentive programs. Following this series of meetings,
subsequent meetings and related telephone conversations among the parties and
their advisors continued regularly until a draft of the Reorganization Agreement
was approaching final form.
On March 9, 1998, a conference call was held between the parties to discuss
outstanding issues of the proposed merger of the two companies. Following this
telephone call, negotiations temporarily broke down over issues related to
price, voting agreements and closing conditions. Beginning March 11, 1998, the
managements of the two companies and their respective financial advisors resumed
merger discussions upon revised price and accounting and other terms, including
the Lock-Up Agreement. On March 20, 1998, World Medical and AVE agreed in
principle to a revised acquisition structure and other key merger terms.
The AVE Board and the World Medical Board met in separate special meetings
on March 27, 1998 and April 1, 1998, respectively. At the AVE Board meeting,
AVE's financial advisors and in-house counsel reviewed the Reorganization
Agreement and AVE's management reviewed the resolution of previously outstanding
issues. After discussion with its financial and legal advisors, the AVE Board
unanimously approved the terms of the Reorganization Agreement and determined
that the Merger was fair to, and in the best interests of, AVE. At the World
Medical Board meeting, World Medical's counsel reviewed the Reorganization
Agreement and reviewed the previously outstanding issues and resolution thereof.
In addition, representatives of Vector delivered its opinion dated April 1,
1998, to the effect that, as of such date, the consideration to be received by
the holders of World Medical Common Stock is fair to such holders from a
financial point of view. After considering the presentations of its financial
and legal advisors, the World Medical Board unanimously approved the terms of
the Reorganization Agreement and determined that the Merger was fair to, and in
the best interests of, World Medical and its shareholders.
On April 10, 1998, the Reorganization Agreement and the related
shareholder, employment, noncompetition and other agreements were signed. On
April 13, 1998, World Medical and AVE issued a joint press release announcing
the execution of the Reorganization Agreement and the proposed Merger. On May
21, 1998, the parties to the Reorganization Agreement entered into an amendment
to the Reorganization Agreement agreeing that under certain circumstances the
date after which World Medical or AVE may terminate such agreement would be
August 31, 1998 instead of July 31, 1998.
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<PAGE> 34
REASONS FOR THE MERGER
AVE's Reasons for the Merger
The AVE Board has determined that the Merger is fair to, and in the best
interests of, AVE. Accordingly, the AVE Board has approved the Reorganization
Agreement and the other agreements related to the Merger. In reaching its
determination, the AVE Board consulted with AVE's management, discussed the
terms of the Merger with its legal counsel and its financial advisors, and
considered a number of factors, including, without limitation, the following:
1. The opportunity the Merger affords the combined company to increase
its presence in the interventional peripheral cardiovascular market,
thereby enabling it to offer its customers a broader and more varied array
of products;
2. The potential to create a company that is better positioned than
either company would be separately to adapt to, and benefit from,
technological and other developments in the health care industry, which it
believes will result in the acceleration of product development and
technological innovation. AVE expects the Merger to bring together two
technology leaders dedicated to the development of innovative,
cost-effective medical devices and to enable the combined company to
accelerate its efforts to investigate new technologies and to develop new
products in emerging markets, including the treatment of peripheral
cardiovascular disease and radiation treatment of both coronary and
peripheral cardiovascular disease;
3. The advantages of combining two highly capable management teams,
each with established track records. AVE expects the health care industry
to continue to be characterized by substantial uncertainty and the
likelihood of continuing consolidation and believes that, by combining the
expertise of AVE's and World Medical's managements, the combined company
will be better able to respond to these changes and to take advantage of
the opportunities that these changes may create;
4. The potential revenue synergies offered by the Merger through the
broadening of existing product lines of both companies;
5. The potential cost synergies offered by the Merger through
consolidation and integration of certain distribution, sales and
administrative operations and functions;
6. The changing health care environment and the increasing emphasis on
cost containment, including the emergence of large managed care buying
groups and hospital consolidations, suggesting to AVE that a certain
critical mass is required to compete effectively in the market and to
absorb the pressures of the managed care structure. AVE expects the Merger
to help the combined company achieve the necessary critical mass;
7. The agreements to be entered into by holders of approximately 61%
of the outstanding shares of World Medical Common Stock to vote in favor of
the Reorganization Agreement;
8. The expectation that the Merger will not result in federal income
tax for AVE and its stockholders; and
9. The employment and non-competition agreements to be entered into by
certain members of the management of World Medical.
10. The Lock-Up Agreement to be entered into by Howard J. Leonhardt.
11. The World Medical 1998 Incentive Bonus Plan and the incentive
offered thereunder to certain of the employees continuing employment with
World Medical after the Merger relating to World Medical's achievement of
certain performance criteria.
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In addition to the factors set forth above, the AVE Board reviewed and
considered a wide variety of information relevant to the Merger, including: (i)
information concerning AVE's and World Medical's respective businesses,
historical financial performance and condition, operations, technology,
products, customers, competitive positions, prospects and management; (ii) AVE
management's view as to the financial condition, results of operations and
business and financial potential of AVE and World Medical before and after
giving effect to the Merger, based on management's due diligence; (iii) the
consideration to be paid to the World Medical shareholders in the Merger and the
relationship between the market value of AVE Common Stock to be issued in
exchange for World Medical Common Stock and a comparison of comparable merger
transactions; (iv) the belief that the terms of the Reorganization Agreement,
including the parties' representations, warranties and covenants, and the
conditions to their respective obligations, are reasonable; (v) discussions
between AVE's management and its legal and financial advisors as to the results
of their due diligence investigation of World Medical; and (vi) the potential
impact of the Merger on customers and employees of AVE and World Medical.
The AVE Board also considered certain potentially negative factors in its
deliberations concerning the Merger, including, without limitation, the
following:
1. The possibility that the Merger would not be consummated following
the execution of the Reorganization Agreement;
2. The risk that the combined company might not realize the
anticipated cost savings and revenue synergies of the Merger;
3. The risk that the combined company would be unable to retain key
employees;
4. The risk that the other benefits sought to be achieved by the
Merger may not be achieved; and
5. The risk of intellectual property or other litigation associated
with the activities of World Medical.
In view of the wide variety of factors considered by the AVE Board, the AVE
Board did not find it practicable to quantify or otherwise attempt to assign
relative weights to the specific factors considered in making its determination.
Consequently, the AVE Board did not quantify the assumptions and results of its
analysis in reaching its determination that the Merger is fair to, and in the
best interests of, AVE.
World Medical's Reasons for the Merger
The World Medical Board believes that the Merger with AVE provides an
opportunity for World Medical to create a combined company with greater
financial resources and flexibility, competitive strengths and business
opportunities than would be possible for World Medical alone. The World Medical
Board considered alternative means for World Medical to achieve such ends,
including other potential business combinations, the private placement of stock,
an initial public stock offering and debt financing.
The World Medical Board, after consultation with Vector, determined that
the terms of the Reorganization Agreement are fair to, and in the best interests
of, World Medical and its shareholders. Accordingly, the World Medical Board has
unanimously approved the Reorganization Agreement and recommends that the
shareholders of World Medical vote FOR the adoption of the Reorganization
Agreement and consummation of the Merger. In reaching its determination, the
World Medical Board reviewed, with its financial and legal advisors, a number of
factors, including, without limitation, the following:
1. The opportunity for World Medical shareholders to reduce their
exposure to the risks associated with World Medical's reliance on a single
product line and the difficulty of competing against larger, more
diversified companies with substantially greater financial resources;
2. The opportunity for World Medical shareholders to reduce their
exposure to the risks and dilution associated with World Medical's need to
obtain additional capital in order to finance World Medical to a cash flow
positive position;
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3. The opportunity for World Medical shareholders to reduce their
exposure to the risks associated with a changing and unpredictable
regulatory environment in the United States and its potential impact on the
timely receipt of approvals necessary for product commercialization;
4. The changing health care environment, with its increasing focus on
cost containment, coupled with the trend of consolidation in the medical
device industry, resulting in the emergence of larger medical device
companies with broad product lines that are able to more effectively
compete in such a market environment;
5. The fact that three of World Medical's major competitors have
already been acquired by well capitalized and diversified medical device
companies that could, in the future, present considerable competitive
challenges;
6. Potential revenue synergies, including the ability to market World
Medical's products through AVE's distribution network in certain
territories and to sell World Medical's products with AVE's products (which
World Medical believes are complementary technologies);
7. The ability to accelerate product development and product line
diversification by leveraging the resources and technological expertise of
the combined company;
8. The opportunity to retain an equity interest in the combined
company in a tax free exchange and achieve substantially greater liquidity
than could be achieved in the near term by holding World Medical Common
Stock; and
9. The detailed financial analysis and pro forma and other information
with respect to the companies presented to the World Medical Board of
Directors, as well as Vector's opinion dated April 1, 1998, to the effect
that, as of such date, the consideration to be received by holders of World
Medical Common Stock is fair to such holders from a financial point of
view.
In addition to the factors set forth above, the World Medical Board of
Directors reviewed and considered a wide variety of information relevant to the
Merger, including: (i) information concerning World Medical's and AVE's
respective businesses, historical financial performance and condition,
operations, technology, products, customers, competitive positions, prospects
and management; (ii) World Medical management's view as to the financial
condition, results of operations and business and financial potential of World
Medical and AVE before and after giving effect to the Merger, based on World
Medical management's due diligence; (iii) the consideration to be received by
the World Medical shareholders in the Merger and the relationship between the
market value of AVE Common Stock to be issued in exchange for World Medical
Common Stock and a comparison of comparable merger transactions; (iv) the belief
that the terms of the Reorganization Agreement, including the parties'
representations, warranties and covenants, and the conditions to their
respective obligations, are reasonable; (v) reports from management and legal
and financial advisors as to the results of their due diligence investigation of
AVE; (vi) the view of World Medical's management and the World Medical Board as
to the long term opportunities and prospects of World Medical as an independent
company and of World Medical and AVE as a combined company; (vii) the potential
for World Medical to enter into strategic relationships with alternative
companies; and (viii) the potential impact of the Merger on customers and
employees of World Medical and AVE.
The World Medical Board also considered the following potentially negative
factors in its deliberations concerning the Merger:
1. The loss of control over future operations of World Medical
following the Merger;
2. The risk that the combined company would be unable to retain key
employees;
3. The risk that the benefits sought to be achieved in the Merger may
not be achieved; and
4. The other risks described under "Risk Factors."
In view of the wide variety of factors, both positive and negative,
considered by the World Medical Board, the World Medical Board did not find it
practicable to quantify or otherwise assign relative weight to the
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specific factors considered in making its determination. However, after taking
into consideration all of the factors set forth above, the World Medical Board
agreed that the Merger is fair to, and in the best interests of, World Medical
and its shareholders.
BOARD RECOMMENDATIONS
THE BOARD OF DIRECTORS OF WORLD MEDICAL HAS DETERMINED THAT THE MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF WORLD MEDICAL AND ITS SHAREHOLDERS AND HAS
UNANIMOUSLY RECOMMENDED A VOTE FOR APPROVAL AND ADOPTION OF THE REORGANIZATION
AGREEMENT AND THE CONSUMMATION OF THE MERGER.
OPINION OF FINANCIAL ADVISOR
Fairness Opinion of World Medical's Financial Advisor
THE FULL TEXT OF THE OPINION OF VECTOR DATED APRIL 1, 1998 (THE "VECTOR
OPINION"), WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY VECTOR, IS ATTACHED AS
APPENDIX C TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. HOLDERS OF COMMON STOCK OF WORLD MEDICAL ARE URGED TO READ THE VECTOR
OPINION CAREFULLY IN ITS ENTIRETY. THE SUMMARY OF THE VECTOR OPINION SET FORTH
IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
World Medical retained Vector as its financial advisor in connection with
the Merger. In connection with such engagement, World Medical requested Vector
to render an opinion as to whether or not the consideration offered to the
holders of World Medical Common Stock by AVE in the Merger is fair, from a
financial point of view, to such holders.
In connection with the World Medical Board consideration of the Merger on
April 1, 1998, Vector delivered its oral opinion, which was confirmed in
writing, to the effect that, as of such date, and based on its review and
assumptions and subject to the limitations on the review undertaken as set forth
in such opinion, the consideration to be received by the World Medical
shareholders in the Merger is fair to such shareholders from a financial point
of view. The Vector Opinion was prepared at the request of and for the use of
the World Medical Board in connection with and for the purposes of its
evaluation of the proposed Merger and did not constitute a recommendation to the
World Medical Board with respect to the approval of the proposed Merger nor does
it constitute a recommendation to any World Medical shareholder as to how any
such shareholder should vote with respect to the Merger.
In arriving at the Vector Opinion, Vector, among other things: (i) reviewed
World Medical's financial statements and related financial information for the
three fiscal years ended December 31, 1997; (ii) reviewed AVE's annual reports
and Forms 10-K for the fiscal years ended June 30, 1996 and June 30, 1997 and
Form 10-Q and related unaudited financial information for the six months ended
December 31, 1997; (iii) reviewed certain other information relating to the
business, earnings, cash flows, assets and prospects of World Medical, including
financial forecasts for World Medical furnished to it by World Medical; (iv)
conducted discussions with members of senior management of World Medical and AVE
concerning their respective businesses and prospects; (v) reviewed the
historical market prices and trading activity for AVE Common Stock and compared
such prices and trading history with those of certain publicly-traded companies
which Vector deemed to be relevant; (vi) compared the financial position and
operating results of World Medical and AVE with those of certain publicly-traded
companies which Vector deemed to be relevant; (vii) compared the proposed
financial terms of the Merger with the financial terms of certain other
transactions which Vector deemed to be relevant; (viii) reviewed the financial
terms of the Merger as set forth in the draft Reorganization Agreement, dated
March 25, 1998 (the "Draft Agreement"); and (ix) reviewed
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such other financial studies and analyses and performed such other
investigations and took into account such other matters as Vector deemed
appropriate.
The amount of consideration to be paid to World Medical shareholders
pursuant to the Draft Agreement was determined through negotiations between
World Medical and AVE. In preparing the Vector Opinion, Vector relied on the
accuracy and completeness of all information that was publicly available,
supplied or otherwise communicated to Vector by or on behalf of World Medical
and AVE, and Vector neither attempted independently to verify nor assumed any
responsibility for independent verification of any such information. Vector
assumed that the financial forecasts examined by it were reasonably prepared on
bases reflecting the best available estimates and judgments of the management of
World Medical as to the future financial performance of World Medical and that
World Medical will perform substantially in accordance with such forecasts.
Vector did not make or obtain any independent evaluation or appraisal of the
assets of World Medical or AVE. The Vector Opinion is based upon economic,
market and other conditions existing on the date thereof. Furthermore, Vector
expressed no opinion as to the value of the shares of AVE Common Stock upon
issuance pursuant to the Merger or the price or trading range at which shares of
AVE Common Stock will trade at any time. Vector also assumed that the Merger
would qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended, and that the
transactions contemplated by the proposed Merger will be consummated on the
terms described in the Draft Agreement, without any material waiver or
modification by World Medical or AVE. The Vector Opinion does not address the
relative merits of the Merger and any other transactions or business strategies
discussed by the World Medical Board as alternatives to the Merger, or the
decision of the World Medical Board to proceed with the Merger. World Medical
did not place any limitations upon Vector with respect to the procedures
followed or factors considered in rendering the Vector Opinion.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial and comparative analysis
and the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to partial analysis or
summary description. Vector did not attribute any particular weight to analyses
or factors considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis or factor. Accordingly, Vector
believes that its analyses must be considered as a whole and that considering
any portion of such analyses or the factors considered, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying the Vector Opinion. In its analyses, Vector made numerous
assumptions with respect to World Medical, AVE and industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of World Medical and AVE, and involved the application of complex
methodologies and educated judgment. Any estimates contained in these analyses
are not necessarily indicative of actual values or predictive of future results
or values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Because such analyses are inherently subject to uncertainty,
neither Vector nor any other person assumes responsibility for their accuracy.
The following paragraphs summarize the significant analyses performed by
Vector in arriving at the Vector Opinion.
Stock Trading History. Vector reviewed and analyzed the trading prices and
volume for the AVE Common Stock, as compared to the Standard & Poor's MidCap 400
Index and an index consisting of the following eight companies: Arrow
International, Inc.; Boston Scientific Corporation; C. R. Bard, Inc.; Guidant
Corporation; Medtronic, Inc.; St. Jude Medical, Inc.; Thermo Cardiosystems Inc.;
and United States Surgical Corporation (collectively, the "AVE Comparable
Companies").
Selected Comparable Public Company Analysis. Using publicly available
information, Vector compared selected historical and projected financial and
operating performance data of World Medical to the corresponding data of the
following twelve selected comparable companies: ABIOMED, Inc.; Cambridge Heart,
Inc.; Cardiac Pathways Corporation; Cardima, Inc.; Computer Motion, Inc.;
Endocardial Solutions, Inc.; EndoVascular Technologies, Inc. ("EVT") (as of
September 5, 1997, one month prior to the
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announcement that Guidant Corporation would acquire EVT); InControl, Inc.;
Nitinol Medical Technologies, Inc.; Novoste Corporation; Possis Medical, Inc.;
and Thoratec Laboratories Corporation (collectively, the "World Medical
Comparable Companies"). Because World Medical, similar to certain of the World
Medical Comparable Companies, currently does not have meaningful revenues or
earnings, Vector believed that a quantitative, multiple-driven analysis based on
the historical data of the World Medical Comparable Companies would not be
meaningful. Therefore, Vector reviewed and analyzed the calendar year 2000 and
2001 estimated earnings before interest and taxes ("EBIT") and net income for
the World Medical Comparable Companies, based upon publicly available equity
research analyst information. Vector then examined the technology value of the
World Medical Comparable Companies (calculated as the market capitalization plus
an amount equal to total debt and capital lease obligations minus cash and cash
equivalents) as a multiple of calendar year 2000 and 2001 estimated EBIT and
market capitalization as a multiple of calendar year 2000 and 2001 estimated net
income. The multiples for the World Medical Comparable Companies were as
follows: (i) calendar year 2000 estimated EBIT multiples ranged from 2.0x to
10.7x (median of 5.1x); (ii) calendar year 2001 estimated EBIT multiples ranged
from 1.4x to 3.7x (median of 3.0x); (iii) calendar year 2000 estimated net
income multiples ranged from 3.7x to 14.2x (median of 8.1x); and (iv) calendar
year 2001 estimated net income multiples ranged from 2.6x to 6.5x (median of
4.2x). Vector applied these multiples to World Medical's projected 2000 and 2001
EBIT and net income to derive a range of equity values for World Medical. The
projected World Medical data was based upon four-year forecasts for World
Medical which were provided to Vector by World Medical management and were
adjusted by Vector based on World Medical management's input to reflect the
probability of World Medical's products being successfully developed and
commercialized as well as to reflect a higher operating cost structure (the
"World Medical Projections"). Based on this analysis, Vector derived an equity
value range for World Medical of $15.2 million to $48.4 million, or $9.70 to
$27.04 per fully diluted share. In addition to the above analysis, Vector
reviewed the acquisition price of World Medical in relation to the market
capitalizations of the World Medical Comparable Companies. This analysis
indicated a per share valuation range for World Medical of $18.68 to $100.56.
With respect to AVE and the AVE Comparable Companies, using publicly
available information, Vector compared selected historical and projected
financial, operating and stock market performance data of AVE to the
corresponding data of the AVE Comparable Companies. Vector compared multiples of
technology value to latest twelve month ("LTM") revenue, earnings before
interest, taxes, depreciation and amortization ("EBITDA") and EBIT. Vector also
compared multiples of stock price to LTM earnings per share ("EPS"), 1998
calendar year estimated EPS and 1999 calendar year estimated EPS, and the
multiple of market capitalization to tangible book value. 1998 and 1999 calendar
year EPS estimates for AVE and the AVE Comparable Companies were derived from
Zack's Investment Research, Inc., dated March 22, 1998, and Nelson's
Information, Inc., dated March 27, 1998. AVE's multiples of LTM revenue, EBITDA,
EBIT and EPS, and 1998 calendar year estimated EPS, 1999 calendar year estimated
EPS and tangible book value were 22.0x, 69.8x, 75.5x, 107.8x, 30.1x, 23.0x and
15.6x, respectively. The AVE Comparable Companies' multiples were as follows:
(i) LTM revenue multiples ranged from 2.0x to 9.5x (median of 3.5x); (ii) LTM
EBITDA multiples ranged from 10.1x to 26.2x (median of 14.0x); (iii) LTM EBIT
multiples ranged from 13.7x to 31.0x (median of 20.3x); (iv) LTM EPS multiples
ranged from 19.2x to 54.5x (median of 35.2x); (v) 1998 calendar year estimated
EPS multiples ranged from 18.5x to 37.6x (median of 22.8x); (vi) 1999 calendar
year estimated EPS multiples ranged from 15.4x to 43.4x (median of 21.9x); and
(vii) tangible book value multiples ranged from 2.7x to 27.7x (median of 12.4x).
Selected Comparable Mergers and Acquisitions Analysis. Because World
Medical does not currently have meaningful revenues or earnings, Vector believed
that a quantitative, multiple-driven analysis based on comparable mergers and
acquisitions would not be meaningful. However, Vector analyzed the aggregate
consideration paid in the following four selected completed transactions
involving companies with stent graft technology (target/acquiror): EVT/Guidant
Corporation; Corvita Corporation/Pfizer Inc.; MinTec Inc./ Boston Scientific
Corporation; and AneuRx, Inc./Medtronic, Inc. Based on this analysis, Vector
derived an equity value range for World Medical of $57.4 million to $166.2
million, or $31.74 to $88.53 per fully diluted share.
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No transaction used in the comparable mergers and acquisitions analysis is
identical to the Merger, and no company used in the comparable public company
analyses is identical to World Medical or AVE. Accordingly, an analysis of the
results of the foregoing is not entirely mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics and other factors that could affect the public trading
or acquisition value of the companies to which they are being compared.
Discounted Cash Flow Analysis. Vector analyzed the value of World Medical
based on a discounted cash flow analysis of the projected financial performance
of World Medical. This discounted cash flow analysis was based upon the World
Medical Projections. The discounted cash flow analysis determined the present
value of the cash flows generated over the four-year period ending December 31,
2001 and a terminal value based upon a range of 2001 EBIT multiples from 14.0x
to 16.0x. The cash flows and terminal value were discounted using a range of
discount rates from 27.5% to 32.5%. Based on this analysis, Vector estimated an
equity value range for World Medical of $54.6 million to $72.8 million, or
$30.26 to $39.79 per fully diluted share.
Vector also analyzed the value of AVE based on a discounted cash flow
analysis of the projected financial performance of AVE. This discounted cash
flow analysis was based upon four-year forecasts for AVE utilizing Vector
Institutional Equity Research projections (the "AVE Projections"). The
discounted cash flow analysis determined the present value of the cash flows
generated over the four-year period ending June 30, 2001 and a terminal value
based upon a range of 2001 EBIT multiples from 25.0x to 30.0x. The cash flows
and terminal value were discounted using a range of discount rates from 25.0% to
30.0%. Based on this analysis, Vector derived an equity value range for AVE of
$38.49 to $51.31 per fully diluted share.
Relative Contribution Analysis. Vector performed an analysis of the
relative contributions of World Medical and AVE to the operating performance of
the pro forma combined company, based on the World Medical Projections and the
AVE Projections. Vector compared World Medical's relative contribution to
revenue, EBIT and net income of the pro forma combined company to the relative
ownership percentage in the pro forma combined company represented by the shares
of AVE Common Stock received by the World Medical shareholders as aggregate
consideration in the Merger. Vector noted that the pro forma ownership
percentage represented by shares of AVE Common Stock received by the World
Medical Shareholders in the Merger is approximately 2.3% (assuming an exchange
ratio of 0.8672 of a share of AVE Common Stock for each share of World Medical
Common Stock, based on the average closing stock price for AVE for the ten-day
period ending March 27, 1998 of $39.36). Based on revenues, World Medical's
relative contribution to the operating performance of the pro forma combined
company was estimated to be 3.8%, 2.6% and 3.7% for the LTM period ended
December 31, 1997 and the fiscal years ending June 30, 1998 and 1999,
respectively. Based on EBIT, World Medical's relative contribution to the
operating performance of the pro forma combined company was estimated to be
(5.8%), (0.5%) and 0.8% for the LTM period ended December 31, 1997 and the
fiscal years ending June 30, 1998 and 1999, respectively. Based on net income,
World Medical's relative contribution to the operating performance of the pro
forma combined company was estimated to be (8.0%), (0.7%) and 1.1% for the LTM
period ended December 31, 1997 and the fiscal years ending June 30, 1998 and
1999, respectively. Based on total assets, World Medical's relative contribution
to the pro forma combined company was estimated to be 1.8% as of December 31,
1997.
Pro Forma Merger Analysis. Vector performed an analysis of the potential
pro forma effect of the Merger on AVE's EPS for the fiscal years ending June 30,
1998 through June 30, 2001. In performing this analysis, Vector assumed the
Merger (i) was consummated on June 30, 1998; (ii) resulted in the exchange of
0.8672 of a share of AVE Common Stock (the exchange ratio based on the average
closing sales price for AVE Common Stock for the ten-day period ending March 27,
1998 of $39.36) for each share of World Medical Common Stock; and (iii) would be
accounted for under the purchase method of accounting. Vector derived the pro
forma combined company projected net income by combining the World Medical
Projections with the AVE Projections without giving effect to any synergies that
could result from the Merger. Vector divided the resulting pro forma combined
company projected net income by the pro forma shares outstanding to arrive at a
pro forma combined company EPS. Vector then compared the pro forma combined
company EPS to AVE's projected stand-alone EPS (utilizing the AVE Projections)
to determine the pro forma impact
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on AVE's EPS. This analysis suggested that the Merger would result in dilution
to AVE's EPS in 1998, 1999 and 2000, with such dilution declining successively
in 1999 and 2000, and would result in accretion to AVE's EPS in 2001.
World Medical selected Vector to be its financial advisor in connection
with the Merger because Vector is a prominent investment banking and financial
advisory firm with experience in the valuation of health care and life science
companies and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations for corporate purposes.
Pursuant to an engagement letter between World Medical and Vector dated May
29, 1997 and as amended on March 6, 1998 (the "Engagement Letter"), Vector will
receive a fee payable upon completion of the Merger equal to 1.75% of the
aggregate consideration plus $250,000 in connection with the Vector Opinion.
World Medical has agreed to reimburse all reasonable out-of-pocket expenses
incurred by Vector, including fees and disbursements of counsel. The
Reorganization Agreement provides that, to the extent the total amount of fees
and expenses incurred for World Medical exceeds $1,448,000 in the aggregate for
fees or $25,000 for expenses, such excess fees and expenses will reduce the
Aggregate Purchase Price. World Medical has also agreed, under separate
agreement, to indemnify Vector, its affiliates and its employees against certain
liabilities, including liabilities under federal securities laws.
In the past, Vector has performed investment banking services for World
Medical, including acting as placement agent in connection with World Medical's
private placement in August 1997, and has received fees for the rendering of
these services. In addition, as of the Record Date, Vector and its directors,
officers and employees beneficially owned [134,998] shares of World Medical
Common Stock, and World Medical has issued to Vector a warrant to purchase
25,000 shares of World Medical Common Stock. D. Theodore Berghorst, Chairman and
Chief Executive Officer of Vector, is also a director of World Medical. Vector
may actively trade the securities of AVE for its own account and for the
accounts of its customers and, accordingly, may at any time hold long or short
positions in such securities.
INDEMNIFICATION AND ESCROW OF HOLDBACK SHARES
Escrow of Holdback Shares
AVE will establish and maintain an escrow comprised of shares of AVE Common
Stock equal to the aggregate number of shares of World Medical Common Stock
outstanding immediately prior to consummation of the Merger (less any shares for
which dissenters' rights have been perfected), multiplied by ten percent (10%)
of the Applicable Fraction (the "Holdback Shares"). The Holdback Shares will be
deposited into escrow to secure the indemnification obligations set forth in the
Reorganization Agreement. The Holdback Shares will be released to the former
shareholders of World Medical on a pro rata basis one year after the Effective
Time unless a claim thereto has been made prior thereto, in which case Holdback
Shares may be retained pending resolution of such claim.
It is a condition to closing that the parties enter into an escrow
agreement substantially in the form attached as Exhibit J to the Reorganization
Agreement (the "Escrow Agreement") with Cupertino National Bank or another bank
acting as escrow agent (the "Escrow Agent"). Pursuant to the Escrow Agreement,
the Escrow Agent shall vote the Holdback Shares in escrow as directed by the
Designated Escrow Representative (defined below) and any distributions of cash,
securities or other property in respect of any Holdback Shares shall be
delivered into the escrow and shall become a part of the escrow fund.
Indemnification
The representations and warranties made by World Medical will survive the
closing of the Merger and will expire on the first anniversary of the date of
the closing of the Merger. Any time prior to the expiration of this one year
period any Indemnitee may allege in good faith an inaccuracy in or breach of any
such representation, warranty, covenant or obligation and assert a claim of
recovery. Holdback Shares will be available to compensate and reimburse each of
the Indemnitees for any damages which are directly or indirectly suffered or
incurred (regardless of whether such damages relate to any third party claim)
and which
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arise from or as a result of: (i) any inaccuracy in or breach of representations
and warranties made by World Medical in the Reorganization Agreement, Disclosure
Schedule or Closing Certificate, (ii) any breach of any covenant or obligation
of World Medical; or (iii) any legal proceeding relating to any such inaccuracy
or breach. The measure of damages payable will be the number of Holdback Shares
equal to the dollar amount of such indemnification obligation divided by the
Designated AVE Stock Price. Notwithstanding the foregoing, the Holdback Shares
will not be available for any indemnification payments until the total amount of
all qualified damages exceeds $750,000 in the aggregate. In addition, claims
associated with a single inaccuracy in or breach of any representation or
warranty shall not be considered for indemnification payment unless the
Indemnitee claims in good faith an amount in excess of $100,000. The
indemnification described in this paragraph and the right of the Indemnitee to
receive Holdback Shares is the exclusive remedy for any breach by World Medical
of a representation, warranty, covenant or obligation contained in the
Reorganization Agreement, Disclosure Schedule, or the Closing Certificate.
In the event the Merger is approved, effective upon the vote of the
shareholders of World Medical to this effect and without the further act of any
shareholder, Howard J. Leonhardt, the President and Chief Executive Officer of
World Medical will be appointed as initial agent and attorney-in-fact (the
"Designated Escrow Representative") for each former shareholder of World
Medical. The Designated Escrow Representative will be authorized to act for and
on behalf of the former shareholders of World Medical, to, among other things,
give and receive notices and communications and authorize delivery to AVE of
Holdback Shares in satisfaction of claims for indemnification, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts with respect to, such
claims. Decisions, acts, consents or instructions of the Designated Escrow
Representative will constitute decisions of all of the shareholders of World
Medical receiving shares of AVE Common Stock in the Merger and will be final,
binding and conclusive upon each of such shareholders. The Designated Escrow
Representative will not be held liable by the former shareholders of World
Medical for actions taken pursuant to the Reorganization Agreement or the Escrow
Agreement, except in the case of his willful misfeasance or gross negligence.
Defense of Third Party Claims
In the event of the assertion or commencement of a claim or legal
proceeding with respect to which any Indemnitee may be held harmless and
indemnified pursuant to the indemnification provisions of the Reorganization
Agreement and the Escrow Agreement, the Indemnitee will proceed with the defense
of the claim or legal proceeding on its own, employing legal counsel reasonably
acceptable to the Designated Escrow Representative. All reasonable expenses
relating to the defense of such claim or legal proceeding will be borne and paid
out of the Holdback Shares.
Disputed Amounts and Fees and Expenses Relating to the Escrow
If AVE determines in good faith that there is or has been an inaccuracy or
breach by World Medical that is indemnifiable pursuant to the Reorganization
Agreement and Escrow Agreement, then AVE may deliver a claim notice to the
Designated Escrow Representative and the Escrow Agent setting forth the claim.
The Designated Escrow Representative must respond to the notice within thirty
(30) days after disputing the claim or the Designated Escrow Representative will
be deemed to have given instructions that shares of AVE Common Stock having a
value equal to the entire claim amount are to be released to AVE from the
escrow. The Designated Escrow Representative may deliver a notice disputing any
or all amounts of any claim made by AVE (the "Disputed Amounts"). Holdback
Shares representing 115% of any Disputed Amounts will be held in escrow pending
resolution of the dispute, while Holdback Shares representing any undisputed
portions of any claim made against the escrow will be released to AVE. Disputes
shall be settled by delivery of a notice to the Escrow Agent executed by AVE and
the Designated Escrow Representative as to the release of Holdback Shares, or by
delivery of a final and non-appealable judgment of a court instructing the
Escrow Agent as to the release of Holdback Shares.
All reasonable out-of-pocket expenses incurred by the Designated Escrow
Representative in connection with the Reorganization Agreement and the Escrow
Agreement (except those arising from resolution of rights
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with respect to Disputed Amounts) will be entitled to reimbursement from the
Holdback Shares. Each Indemnitee and the Designated Escrow Representative will
be responsible for its own expenses (whether legal, out-of-pocket or other)
arising from resolution of rights with respect to Disputed Amounts. However, the
Designated Escrow Representative may, immediately prior to distribution of any
Holdback Shares to the Merger Shareholders at the end of the one year period
after the closing of the Merger, or upon the resolution of any claims made prior
to the expiration of such one year period, reimburse itself for any of such
expenses from the Holdback Shares to be so released. The Designated Escrow
Representative will not be required to incur any expenses in performing its
duties and exercising its rights under the Reorganization Agreement and the
Escrow Agreement if the Designated Escrow Representative reasonably believes
that such expenses will not be reimbursed from the Holdback Shares. Failure of
the Designated Escrow Representative to respond to a claim for indemnification
by AVE within thirty (30) days after delivery of a claim notice by AVE would be
deemed to be an instruction that Holdback Shares should be released from the
escrow to AVE in satisfaction of such claim.
RELATED AGREEMENTS
Shareholder Agreements. Pursuant to the Shareholder Agreement, the Voting
Agreement Shareholders who, as of [May 15, 1998] beneficially owned in the
aggregate approximately [sixty-one percent (61%)] of the outstanding shares of
World Medical Common Stock, have agreed that, prior to the consummation of the
Merger or termination of the Reorganization Agreement, they will vote their
shares of World Medical Common Stock in favor of the approval of the execution
and delivery of the Reorganization Agreement, the approval of the Merger, and
each of the other transactions contemplated by the Reorganization Agreement. The
Voting Agreement Shareholders have also delivered to AVE irrevocable proxies
with respect to such matters. In addition, subject to certain exceptions, the
Voting Agreement Shareholders have agreed not to transfer any of their
beneficial ownership of, interest in, or risk relating to, the World Medical
securities owned by them.
The Voting Agreement Shareholders have also agreed that, during the period
between the date of the Shareholder Agreement and the earlier of the
consummation of the Merger or termination of the Reorganization Agreement, they
will not, directly or indirectly, and will not authorize any of their
Representatives to: (i) solicit, initiate or encourage the making or
announcement of a Competing Transaction (as defined in
"-- Covenants -- Non-Solicitation") or take any action that could reasonably be
expected to lead to a Competing Transaction; (ii) furnish any nonpublic
information regarding World Medical or any of its subsidiaries to any person in
connection with an actual or potential Competing Transaction; or (iii) engage in
discussions with any person regarding a Competing Transaction. The Voting
Agreement Shareholders have also agreed to cease any existing discussions with
any person that relate to a Competing Transaction.
Affiliate Agreements. It is a condition to consummation of the Merger that
each person who could reasonably be determined to be an "affiliate", as such
term is defined in Rule 145 promulgated under the Securities Act, of World
Medical ("Affiliate") execute an agreement that prohibits sales, transfers of
other dispositions of shares of AVE Common Stock that Affiliate will receive in
the Merger unless: (i) such sale, transfer or other disposition is made in
conformity with the requirements of Rule 145 under the Securities Act, as
evidenced by a broker's letter and a representation letter executed by Affiliate
stating that such requirements have been met; (ii) counsel reasonably
satisfactory to AVE shall have advised AVE in a written opinion letter that such
sale, transfer or disposition will be exempt from registration under the
Securities Act; (iii) such sale, transfer or other disposition has been
registered under the Securities Act; or (iv) an authorized representative of the
Commission shall have rendered written advice to Affiliate to the effect that
the Commission would take no action, or that the staff of the Commission would
not recommend that the Commission take action, with respect to such proposed
sale, transfer or other disposition. Certain shareholders of World Medical who
may be deemed to be affiliates of World Medical for purposes of Rule 145 under
the Securities Act have executed or will execute agreements that restrict the
sale, transfer or other disposition of AVE Common Stock received by such
shareholder in the Merger in accordance with these guidelines.
Lock-Up Agreement. Mr. Leonhardt has entered into the Lock-Up Agreement
that contains provisions restricting the sale, transfer or other disposition of
sixty percent (60%) of the securities received or receivable
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by Mr. Leonhardt in the Merger, including (i) shares of AVE Common Stock, (ii)
securities that are convertible into, or exchangeable or exercisable for, shares
of AVE Common Stock (the "Options"), or (iii) shares of AVE Common Stock
received from conversion, exchange or exercise of any Options (such shares,
Options and shares receivable upon the exercise of Options being collectively
referred to as "Mr. Leonhardt's Securities"). Forty percent (40%) of Mr.
Leonhardt's Securities will not be so restricted. One-third ( 1/3) of the
securities that are restricted under the Lock-Up Agreement will be released from
such restrictions on each of the first, second and third anniversaries of the
Effective Time.
Officer Appointment; Employment Agreements and Severance Benefits. In
addition to remaining as the President and Chief Executive Officer of World
Medical, the Board of Directors of AVE intends to approve the appointment of
Howard J. Leonhardt as an officer of AVE upon consummation of the Merger.
Pursuant to employment agreements with World Medical, each of the following
executive officers of World Medical has agreed to serve in their respective
positions for the following terms (commencing upon consummation of the Merger),
annual base salaries and, for certain employees, the number of AVE options
indicated (subject to approval by the Board of Directors of AVE): (i) Mr.
Leonhardt, President, four years, $150,000; (ii) Simon Fuger, Chief Financial
Officer, four years, $130,000, option to purchase 2,500 shares of AVE Common
Stock; (iii) Richard Spencer, Chief Operating Officer, one year, $130,000; (iv)
Jeff Elkins; Vice President of Operations, four years, $135,000, option to
purchase 12,500 shares of AVE Common Stock; (v) Brenda Leonhardt, Vice President
of Administration, four years, $77,500; and (vi) Trevor Greenan, Vice President
of Research and Development, four years, $80,000, option to purchase 5,000
shares of AVE Common Stock. Two other employees of World Medical have entered
into employment agreements with World Medical each with four year terms at
annual base salaries of $60,000 and options to purchase 2,500 shares of AVE
Common Stock. Each employment agreement provides that, in case of termination by
World Medical without cause or by the employee for good reason, the employee
will receive his or her salary for the remainder of the term of the employment
agreement. Todd Davenport has also entered into a one year employment agreement
with World Medical at an annual base salary of $100,000. Mr. Davenport will
serve as Vice President of Marketing Development and has not been granted any
rights to salary after termination or any similar severance benefits.
World Medical 1998 Incentive Bonus Plan. It is a condition to closing of
the Merger that AVE cause to be instituted an incentive-based bonus program for
employees of World Medical who continue employment with World Medical after
consummation of the Merger. AVE's Board of Directors has approved the World
Medical 1998 Incentive Bonus Plan, under which approximately 45 World Medical
employees would, upon consummation of the merger, be eligible to receive bonuses
amounting to up to $4,032,000 in the aggregate over a four year period.
Employees eligible to receive bonuses under such plan (individually, a
"Participant") will be are entitled to receive 30% of a specified annual maximum
bonus payment (a "Maximum Bonus Payment") if the Participant is a full-time
employee of World Medical or any of its affiliates on December 31 of a plan
year. In addition, the Participant will receive the remaining 70% of such
Maximum Bonus Payment if World Medical's gross collections from sales in a Plan
Year equal or exceed the targeted performance goal for the applicable plan year.
The annual Maximum Bonus Payment for Messrs. Leonhardt, Spencer, Fuger, Elkins
and Greenan will be $100,000, and for Ms. Leonhardt it will be $50,000. The
other World Medical employees participating in the plan will be eligible for
annual Maximum Bonus Payments ranging from $4,000 to $100,000.
Noncompetition Agreements. Messrs. Leonhardt, Spencer, Elkins, Fuger and
Greenan and Ms. Leonhardt have each entered into agreements with AVE and World
Medical whereby, following the Effective Time, they will not, directly or
indirectly, anywhere in the world, provide any service, support, product or
technology to any person or entity materially relating to balloon angioplasty
catheters, stents, stent grafts, radiation catheters or irradiated stents, or
own, manage, operate, join, control, finance or participate in a company engaged
in such businesses, for up to three years after the date of termination of such
employee's employment with World Medical, subject to certain qualifications and
limitations (the "Noncompete Period"). In addition, the Noncompetition
Agreements restrict such employees from taking the following actions during the
Noncompete Period: (i) soliciting employees of World Medical, AVE or any
subsidiary of AVE to leave his or her employment with such companies; or (ii)
interfering or attempting to interfere with any commercial relationship or
prospective commercial relationship of World Medical, AVE or any subsidiary
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of AVE. Seven other employees of World Medical have also entered into
noncompetition agreements with AVE on similar terms.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains certain representations and
warranties, including, without limitation, representations and warranties by
World Medical as to: (i) due organization and subsidiaries; (ii) charter
documents and bylaws; (iii) capitalization; (iv) authority and binding nature of
the Reorganization Agreement; (v) non-contravention and consents; (vi)
governmental authorizations; (vii) compliance with legal requirements; (viii)
financial statements and liabilities; (ix) absence of certain changes; (x) legal
proceedings and orders; (xi) title to assets; (xii) bank accounts, receivables
and inventory; (xiii) equipment and leaseholds; (xiv) proprietary assets; (xv)
contracts; (xvi) employee and labor matters and benefit plans; (xvii) tax
matters; (xviii) environmental matters; (xix) insurance; (xx) transactions with
affiliates; (xxi) World Medical products and regulation thereof; (xxii) tax
treatment of the Merger; (xxiii) fairness opinion; (xxiv) vote required; (xxv)
brokers, finders, investment bankers or other fees or commissions; and (xxvi)
the absence of discussions concerning Competing Transactions.
The Reorganization Agreement contains further representations and
warranties by AVE and Sub as to: (i) organization and good standing; (ii)
charter documents; (iii) authority and binding nature of the Reorganization
Agreement; (iv) non-contravention; (v) absence of certain changes; (vi) filings
with the SEC and financial statements; (vii) valid issuance of AVE Common Stock;
(viii) the extent of investigation by AVE; (ix) tax matters; and (x) consents.
COVENANTS
Non-Solicitation
Pursuant to the Reorganization Agreement, World Medical has agreed that it
will not directly or indirectly, and will not cause the officers, directors,
employees, agents, attorneys, accountants, advisors or representatives of World
Medical or any subsidiary of World Medical directly or indirectly to: (i) take
certain actions that may encourage or facilitate a Competing Transaction (as
defined below); (ii) conduct or continue discussions or negotiations in
connection with a Competing Transaction; or (iii) enter into or endorse any
agreement in connection with a Competing Transaction. However, if the World
Medical Board of Directors determines in good faith (i) after consultation with
its financial advisor, that an Acquisition Proposal is reasonably likely to
result in a Superior Offer (as such terms are defined below); and (ii) based
upon the advice of its outside legal counsel, that such action is required in
order for the Board of Directors of World Medical to comply with its fiduciary
duties under applicable law, then the Board of Directors of World Medical may,
if the person requesting information from the Company has executed a
non-disclosure agreement reasonably satisfactory to AVE and World Medical has
not breached any provision of the Reorganization Agreement, furnish information
about World Medical to, and enter into discussions and negotiations about an
Acquisition Proposal with, the outside party making such Acquisition Proposal.
Further, the World Medical Board may recommend a Superior Offer to its
shareholders if it determines, upon the advice of its outside legal counsel,
that the recommendation is required in order for the Board of World Medical to
comply with its fiduciary obligations. World Medical must promptly notify AVE in
writing of any inquiry, proposal, or other relating to a possible Competing
Transaction received by World Medical.
A "Competing Transaction" is generally any transaction involving: (i) any
merger, consolidation, business combination, reorganization or similar
transaction involving World Medical; (ii) the issuance, disposition or
acquisition of any capital stock or other security of World Medical; (iii) the
sale, lease, license, exchange, mortgage, pledge, transfer or other disposition
or acquisition of any of the business or assets of World Medical; (iv) any
tender offer or exchange offer for shares of World Medical; or (v) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
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An "Acquisition Proposal" is an offer or proposal contemplating or
otherwise relating to: (i) any merger, consolidation, combination, share
exchange, acquisition of securities, issuance of securities, tender offer,
exchange offer or similar transaction in which World Medical is a constituent
corporation or in which more than 50% of World Medical's business or voting
securities are acquired; or (ii) any sale, license, exchange, transfer,
acquisition or disposition of more than fifty percent (50%) of World Medical's
assets.
A "Superior Offer" is an unsolicited, bona fide written offer made by a
third party to purchase more than fifty percent (50%) of the outstanding voting
securities of World Medical, and where the Board of Directors of World Medical
determines in its reasonable judgment, after consultation with its financial
advisor, that such proposal is more favorable to World Medical's shareholders
than the terms of the Merger.
Conduct of Business
Pursuant to the Reorganization Agreement, World Medical has made certain
covenants regarding the conduct of World Medical's business during the period
from the date of execution of the Reorganization Agreement through the
consummation of the Merger, including, without limitation, covenants to: (i)
provide AVE with access to certain information regarding its business; (ii)
conduct its business and operations in the ordinary course and in accordance
with past practices; (iii) use reasonable efforts to preserve its business
organization and the services of its current officers and employees and maintain
its relations and goodwill with suppliers, customers, landlords, creditors,
licensors, licensees, employees and other persons; and (iv) maintain insurance
policies. In addition, World Medical has agreed not to take or to agree to take
certain actions relating to: (i) dividends or distributions; (ii) the sale or
issuance of securities; (iii) the amendment or waiver of rights under stock
option plans; (iv) the amendment of charter documents; (v) the formation of
subsidiaries or the acquisition of equity interests; (vi) capital expenditures;
(vii) material contracts; (viii) the acquisition, lease, license, sale or
disposal of assets; (ix) the pledge or encumbrance of assets; (x) the lending of
money; (xi) the establishment or adoption of employee benefit plans; (xii)
material changes in accounting; (xiii) material tax elections; (xiv) the
revaluation of assets; or (xv) the satisfaction of material obligations.
Director and Officer Indemnification and Insurance
The Reorganization Agreement provides that all rights to indemnification
existing in favor of persons serving as directors and officers of World Medical
as of the date of the Reorganization Agreement for acts and omissions occurring
prior to the consummation of the Merger, as provided in World Medical's Articles
of Incorporation and Bylaws, will survive for a period of six years after the
consummation of the Merger. Subject to certain limitations, AVE has also agreed
to cause World Medical to maintain in effect for six years after consummation of
the Merger a directors' and officers' liability insurance policy for the benefit
of persons serving as directors and officers of World Medical as of the date of
the Reorganization Agreement.
World Medical Special Meeting
World Medical has agreed in the Reorganization Agreement to call and hold
the Special Meeting. However, nothing in the Reorganization Agreement will
prevent the World Medical Board of Directors from withdrawing, amending or
modifying its recommendation in favor of the Merger if (i) a "Superior Offer"
(as defined above in "-- Covenants -- Non-Solicitation") is made to World
Medical and not withdrawn, (ii) neither World Medical nor any of its
representatives has violated any of the covenants not to solicit, initiate,
encourage or induce any proposals for an Acquisition Proposal (as defined
below), and (iii) the World Medical Board of Directors concludes in good faith,
based upon the advice of its outside counsel, that the withdrawal, amendment or
modification of such recommendation is required in order for it to comply with
its fiduciary obligations under applicable law. Nothing contained in the
Reorganization Agreement, however, limits or eliminates in any way World
Medical's obligation to call, give notice of, convene and hold the World Medical
Special Meeting (regardless of whether the recommendation of the Board of
Directors of World Medical shall have been withdrawn, amended or modified).
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Other Covenants
The Reorganization Agreement also contains certain additional covenants of
the parties applying from the period commencing from the signing of the
Reorganization Agreement until the consummation of the Merger (the "Pre-Closing
Period"), including covenants relating to: (i) access and investigation by AVE
to and of World Medical; (ii) notification of events and updates to the schedule
of items disclosed by World Medical to AVE; (iii) preparation and filing of the
Registration Statement; (iv) making required filings and obtaining required
consents; (v) World Medical's obligations with respect to the Special Meeting;
(vi) press releases, public statements and other disclosures regarding the
Merger, the Reorganization Agreement and the transactions contemplated thereby;
(vii) affiliate agreements, tax opinion back-up certificates, employment and
noncompetition agreements, and releases; (viii) delivery of Inventions,
Proprietary Rights, Assignment and Confidentiality Agreements by certain World
Medical employees and consultants; and (viii) listing of AVE Common Stock on the
Nasdaq National Market.
CONDITIONS TO THE MERGER
The obligations of AVE and Sub to effect the Merger and otherwise
consummate the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction or waiver of certain conditions relating to, among
other things: (i) the accuracy of the representations and warranties of World
Medical contained in the Reorganization Agreement; (ii) the performance by World
Medical of covenants and obligations contained in the Reorganization Agreement;
(iii) the approval of the principal terms of the Merger by holders of no less
than eighty-five percent (85%) of the shares of outstanding World Medical Common
Stock entitled to vote with respect thereon; (iv) no more than eight percent
(8%) of the shares of World Medical Common Stock outstanding immediately prior
to the World Medical Special Meeting having delivered notice of intent to
exercise dissenters' rights; (v) receipt of certain consents; (vi) receipt of
certain agreements, certificates, legal opinions and resignations; (vii) receipt
by World Medical of analyses and information relating to certain patents; (viii)
the absence of any change that has had or would reasonably be expected to have a
material adverse effect on World Medical's business; (ix) the absence of
restraining orders, injunctions and other legal impediments to the Merger; the
absence of certain litigation or administrative actions or proceedings; (x) the
effectiveness of the Registration Statement; (xi) compliance with certain
sections of the Internal Revenue Code; (xii) the approval for listing on the
Nasdaq National Market of the shares of AVE Common Stock to be issued in the
Merger; and (xiii) the absence of insolvency proceedings against World Medical.
The obligation of World Medical to effect the Merger and otherwise
consummate the transactions contemplated by the Reorganization Agreement are
subject to the satisfaction or waiver of certain conditions relating to, among
other things: (i) the accuracy of the representations and warranties of AVE
contained in the Reorganization Agreement; (ii) the performance by AVE of
covenants and obligations contained in the Reorganization Agreement; (iii) the
effectiveness of the Registration Statement; (iv) the approval for listing on
the Nasdaq National Market of the shares of AVE Common Stock to be issued in the
Merger; (v) receipt of certain legal opinions; (vi) the absence of restraining
orders, injunctions and other legal impediments to the Merger; and (vii)
approval of the principal terms of the Merger by no less than fifty percent
(50%) of the shares of World Medical Common Stock entitled to vote with respect
thereon. World Medical's obligation to consummate the transactions contemplated
by the Reorganization Agreement is further conditioned upon the average closing
sales price of a share of AVE Common Stock on the Nasdaq National Market over a
certain ten day period prior to closing of the Merger, being no less than
$26.2653.
At any time at or prior to the Effective Time, to the extent legally
allowed, AVE or World Medical, without approval of the stockholders or
shareholders of each such company, may waive compliance with any of the
agreements or conditions contained in the Reorganization Agreement for the
benefit of that company. Neither AVE nor World Medical currently intends to
waive compliance with any such agreements or conditions.
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TERMINATION OR AMENDMENT
Termination
The Reorganization Agreement may be terminated by mutual agreement of both
parties or by either party, (i) if the Merger shall not have been consummated by
July 31, 1998, (or, under certain circumstances, August 31, 1998) other than as
a result of the failure on the part of the terminating party to comply with or
perform any covenant or obligation in the Reorganization Agreement; (ii) as a
result of a material breach by the other party of a material covenant or
agreement in the Reorganization Agreement; (iii) as a result of material breach
by the other party of such party's representations and warranties that would
have a material adverse effect on such party and cause a closing condition not
to be satisfied (subject to a right to cure); (iv) if a permanent injunction or
other order by a federal or state court that would make illegal or otherwise
restrain or prohibit the consummation of the Merger is issued and has become
final and nonappealable. In addition, World Medical may terminate the
Reorganization Agreement if it fails to obtain the affirmative vote of no less
than fifty percent (50%) of the shares of World Medical Common Stock entitled to
vote at the World Medical Special Meeting. AVE may terminate the Reorganization
Agreement if World Medical fails to obtain the affirmative vote of no less than
eighty-five percent (85%) of the shares of World Medical Common Stock entitled
to vote at the World Medical Special Meeting, or if holders of eight percent
(8%) or more of the shares of World Medical Common Stock outstanding immediately
prior to the World Medical Special Meeting has delivered to the Company notice
of intent to exercise dissenters' rights.
Amendment
The Reorganization Agreement may be amended by AVE and World Medical at any
time before or after approval of the World Medical shareholders, except that,
after such approval, no amendment may be made that by law requires the further
approval of the World Medical shareholders unless such approval is obtained. On
May 21, 1998, the parties to the Reorganization Agreement entered into an
amendment to the Reorganization Agreement agreeing that under certain
circumstances the date after which World Medical or AVE may terminate such
agreement would be August 31, 1998 instead of July 31, 1998. See "-- Termination
or Amendment -- Termination."
REGULATORY MATTERS
AVE and World Medical are not aware of any governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
the federal securities laws and applicable securities and "blue sky" laws of the
various states.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to AVE, Sub and World
Medical and holders of World Medical Common Stock. This discussion is based on
currently existing provisions of the Internal Revenue Code, existing and
proposed Treasury Regulations thereunder and current administrative rulings and
court decisions, all of which are subject to change. Any such change, which may
or may not be retroactive, could alter the tax consequences to AVE, Sub, World
Medical or World Medical's shareholders as described herein.
World Medical shareholders should be aware that this discussion does not
deal with all federal income tax considerations that may be relevant to
particular World Medical shareholders in light of their particular
circumstances, such as shareholders who are dealers in securities, banks,
insurance companies or tax-exempt entities, who are subject to the alternative
minimum tax provisions of the Internal Revenue Code, who are foreign persons,
who acquired their shares in connection with stock option or stock purchase
plans or in other compensatory transactions or who hold their shares as a hedge
or as part of a hedging, straddle, conversion or other risk reduction
transaction. In addition, the following discussion does not address the tax
consequences of the Merger under foreign, state or local tax laws or the tax
consequences of transactions effectuated prior to or after the Merger (whether
or not such transactions are in connection with the Merger).
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ACCORDINGLY, WORLD MEDICAL SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
Neither AVE nor World Medical has requested, or will request a ruling from
the IRS with regard to any of the federal income tax consequences of the Merger.
As a condition to AVE's and World Medical's obligations to consummate the
Merger, AVE and World Medical must receive an opinion at the closing of the
Merger from Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A., counsel to
World Medical, and Cooley Godward LLP, counsel to AVE, respectively,
(collectively, the "Tax Opinions") that the Merger will constitute a
reorganization under Section 368(a) of the Internal Revenue Code (a
"Reorganization"). Such opinions will be based on certain assumptions as well as
representations received from AVE, World Medical and Sub and will be subject to
the limitations discussed below. Moreover, such opinions will not be binding on
the IRS nor preclude the IRS from adopting a contrary position. The discussion
below assumes that the Merger will qualify as a Reorganization, based upon such
Tax Opinions.
The tax description set forth below has been prepared and reviewed by
Cooley Godward LLP and Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.,
and in their opinion, to the extent such description relates to statements of
law, it is correct in all material respects. Subject to the limitations and
qualifications referred to herein, and as a result of the Merger's qualifying as
a Reorganization, the following federal income tax consequences should result:
(a) No gain or loss will be recognized by the holders of World Medical
Common Stock upon the receipt of AVE Common Stock solely in exchange
for such World Medical Common Stock in the Merger (except to the extent
of cash received in lieu of fractional shares or as a result of
exercising dissenters' rights).
(b) The aggregate tax basis of the AVE Common Stock so received by World
Medical shareholders in the Merger (including any fractional share of
AVE Common Stock not actually received) will be the same as the
aggregate tax basis of the World Medical Common Stock surrendered in
exchange therefor.
(c) The holding period of the AVE Common Stock so received by each World
Medical shareholder in the Merger will include the period for which the
World Medical Common Stock surrendered in exchange therefor was
considered to be held, provided that the World Medical Common Stock so
surrendered is held as a capital asset at the Effective Time of the
Merger.
(d) Cash payments received by holders of World Medical Common Stock in lieu
of a fractional share of AVE Common Stock will be treated as if such
fractional share had been issued in the Merger and then redeemed by
AVE. A World Medical shareholder receiving such cash will recognize
gain or loss upon such payment, measured by the difference (if any)
between the amount of cash received and the basis in such fractional
share. The gain or loss should be capital gain or loss provided that
such share of World Medical Common Stock was held as a capital asset at
the Effective Time of the Merger.
(e) A shareholder of World Medical who exercises dissenters' rights under
any applicable law with respect to a share of World Medical Common
Stock and receives a cash payment for such stock generally should
recognize capital gain or loss (if such stock was held as a capital
asset at the Effective Time of the Merger) measured by the difference
between the amount of cash received and the shareholder's basis in such
stock, provided such payment is neither essentially equivalent to a
dividend within the meaning of Section 302 of the Internal Revenue Code
nor has the effect of a distribution of a dividend within the meaning
of Section 356(a)(2) of the Internal Revenue Code (collectively, a
"Dividend Equivalent Transaction"). A sale of World Medical shares
incident to an exercise of dissenters' rights will generally not be a
Dividend Equivalent Transaction if, as a result of such exercise, the
dissenting shareholder owns no shares of capital stock of AVE (either
actually or constructively within the meaning of Section 318 of the
Internal Revenue Code).
(f) None of AVE, World Medical or Sub will recognize gain solely as a
result of the Merger.
42
<PAGE> 50
A successful IRS challenge to the Reorganization status of the Merger could
result in significant tax consequences. A World Medical shareholder could
recognize gain or loss with respect to each share of World Medical Common Stock
surrendered equal to the difference between the shareholder's basis in such
share and the fair market value, as of the Effective Time of the Merger, of the
AVE Common Stock received in exchange therefor. In such event, a stockholder's
aggregate basis in the AVE Common Stock so received would equal its fair market
value, and the stockholder's holding period for such stock would begin the day
after the Merger.
Even if the Merger qualifies as a Reorganization, a recipient of AVE Common
Stock would recognize income to the extent that, for example, any such shares
were determined to have been received in exchange for services, to satisfy
obligations or in consideration for anything other than the World Medical Common
Stock surrendered. In addition, to the extent that a World Medical shareholder
were treated as receiving (directly or indirectly) consideration other than AVE
Common Stock in exchange for such shareholder's World Medical Common Stock gain,
if any, would have to be recognized.
Certain World Medical shareholders (which are not corporations) shall be
subject to backup withholding at a rate of 31% on cash payments received in lieu
of a fractional share interest in AVE Common Stock. Backup withholding will not
apply, however, to a shareholder who furnishes a correct taxpayer identification
number ("TIN") and certifies that he, she or it is not subject to backup
withholding on the substitute Form W-9 included in the Transmittal Letter, who
provides a certificate of foreign status on Form W-8, or who is otherwise exempt
from backup withholding. A shareholder who fails to provide the correct TIN on
Form W-9 may be subject to a $50 penalty imposed by the IRS.
Each World Medical shareholder will be required to retain records and file
with such holder's United States federal income tax return a statement setting
forth certain facts relating to the Merger.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. THUS, HOLDERS OF
WORLD MEDICAL COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
APPLICABLE TAX LAWS AND THE EFFECTS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for under the purchase method of
accounting whereby the purchase price will be allocated based on the fair value
of the assets acquired and liabilities assumed. Such allocation will be made
based upon valuations which have not been completed. It is anticipated that a
significant portion of the purchase price will be allocated to in-process
research and development which, based on preliminary valuation information will
result in a charge to AVE's results of operations of approximately $41 million
in the quarter the Merger closes. The actual amount and exact timing of this
charge cannot be determined unless and until the valuation of the specified
tangible and identifiable intangible assets and liabilities is completed.
RESALES OF AVE COMMON STOCK
The shares of AVE Common Stock to be issued in the Merger will have been
registered under the Securities Act pursuant to a Registration Statement on Form
S-4, thereby allowing such shares to be traded without restriction by all former
holders of World Medical Common Stock who (i) are not deemed to be "affiliates"
of World Medical at the time of the Special Meeting (as "affiliates" is defined
for purposes of Rule 145 under the Securities Act) and (ii) who do not become
"affiliates" of AVE after the Merger. World Medical shareholders who may be
deemed to be "affiliates" of World Medical will be so advised prior to the
Merger. See "The Merger and Related Transactions -- Related
Agreements -- Affiliate Agreements" and "-- Lock-Up Agreement."
43
<PAGE> 51
Howard J. Leonhardt, President and Chief Executive Officer and a principal
shareholder of World Medical, has entered into a Lock-Up Agreement that contains
provisions restricting the sale, transfer or other disposition of certain
securities received or receivable in connection with the Merger. See "The Merger
and Related Transactions -- Related Agreements -- Lock-Up Agreement."
DISSENTERS' RIGHTS
If the Reorganization Agreement and Merger are approved by the required
vote of World Medical shareholders and the Reorganization Agreement is not
abandoned or terminated, holders of World Medical Common Stock who do not vote
in favor of the Merger will, by complying with Sections 607.1301, 607.1302 and
607.1320 of the Florida Act, be entitled to receive cash equal to the fair value
of such holder's shares of World Medical Common Stock. The record holders of the
shares of World Medical Common Stock that are eligible to, and do, exercise
their dissenters' rights with respect to the Merger are referred to herein as
"Dissenting Shareholders," and the shares of World Medical Common Stock with
respect to which they exercise dissenters' rights are referred to herein as
"Dissenting Shares." If a World Medical shareholder has a beneficial interest in
shares of World Medical Common Stock that are held of record in the name of
another person, such as a broker or nominee, and such shareholder desires to
perfect whatever dissenters' rights such beneficial shareholder may have, such
beneficial shareholder must act promptly to cause the holder of record timely
and properly to follow the steps summarized below. The following discussion is
not a complete statement of the Florida Act relating to dissenters' rights, and
is qualified in its entirety by reference to Sections 607.1301, 607.1302 and
607.1320 of the Florida Act attached to this Proxy Statement/Prospectus as
Appendix D and incorporated herein by reference, and any amendments to such
provisions that may be adopted after the date of this Proxy
Statement/Prospectus.
THIS DISCUSSION AND SECTIONS 607.1301, 607.1302 AND 607.1320 OF THE FLORIDA
ACT SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO EXERCISE STATUTORY
DISSENTERS' RIGHTS OR WISHES TO PRESERVE THE RIGHT TO DO SO, SINCE FAILURE TO
COMPLY WITH THE REQUIRED PROCEDURES WILL RESULT IN THE LOSS OF SUCH RIGHTS.
Shares of World Medical Common Stock must satisfy each of the following
requirements to qualify as Dissenting Shares under the Florida Act: (i) the
shares of World Medical Common Stock must have been outstanding on the Record
Date; (ii) the shares of World Medical Common Stock must not have been voted in
favor of the Merger; (iii) the holder of such shares of World Medical Common
Stock must make a written demand that World Medical repurchase shares of World
Medical Common Stock at fair value (determined as of the close of business on
the day prior to the Shareholders' Authorization Date, as defined in Section
607.1301(3) of the Florida Act, excluding any appreciation or depreciation as a
consequence of the proposed Merger); and (iv) the holder of such shares of World
Medical Common Stock must deposit certificates for the certificated shares with
World Medical. Neither a vote by proxy or in person against the Merger nor an
abstention constitutes a demand for or a waiver of dissenters' rights under the
Florida Act.
Within ten days following the "Shareholders' Authorization Date," World
Medical must mail to each of its shareholders who filed a notice to demand
payment, other than those voting in favor of the proposed action, a written
notice of the shareholders' approval of the Merger. Within twenty days after the
date World Medical sends notice of the Merger approval, Dissenting Shareholders
must file a written notice of their election to dissent and a demand for payment
of the fair value of their Dissenting Shares, and must simultaneously deposit
the certificates for these shares with World Medical. Shareholders who fail to
file an election to dissent within the twenty day period are bound by the terms
of the Merger.
Within ten days after the expiration of the twenty day period, or within
ten days after the Effective Time, but in no case later than ninety days after
the Shareholders' Authorization Date, World Medical must make a written offer to
the Dissenting Shareholders to pay fair value for each of the Dissenting Shares,
accompanied by a balance sheet and a profit and loss statement. If the
Dissenting Shareholder accepts World Medical's offer within thirty days and
receives payment of the agreed upon value within ninety days of World Medical's
offer or the consummation of the Merger, all interest the Dissenting Shareholder
had in the Dissenting Shares
44
<PAGE> 52
is terminated. The Dissenting Shares may then be held by World Medical as
authorized but unissued shares, or may be disposed of pursuant to the
Reorganization Agreement.
However, if World Medical fails to offer to pay fair value to a Dissenting
Shareholder or if it makes an offer that any Dissenting Shareholder fails to
accept within thirty days after the offer is made, World Medical: (i) must,
within thirty days after receipt of written demand for court action from any
Dissenting Shareholder (provided such demand is given within sixty days after
the date on which the Merger was effectuated); or (ii) may, if no written demand
for court action is received by World Medical from a Dissenting Shareholder
within sixty days after the date on which the Merger is effectuated, file an
action requesting that a Florida Circuit Court, in the county where World
Medical's registered office is located, determine the fair value of the
Dissenting Shares. If World Medical fails to institute court action, a
Dissenting Shareholder may do so in the name of World Medical, and all holders
of Dissenting Shares who have not agreed upon fair value must be made parties.
Within ten days of a judicial determination of fair value, World Medical
must pay each Dissenting Shareholder the fair value of the Dissenting Shares as
determined by the court. Costs and expenses of a judicial determination of fair
value are generally assessed against the corporation, but are within the court's
discretion.
MERGER EXPENSES AND FEES AND OTHER COSTS
Whether or not the Merger is consummated, each party will bear its own
costs and expenses in connection with the Merger and the transactions provided
for therein. World Medical has agreed to pay Vector a transaction fee payable
upon completion of the Merger equal to 1.75% of the aggregate consideration plus
$250,000 in connection with the Vector Opinion. See "-- Opinion of Financial
Advisor." To the extent the total amount of all fees and expenses incurred by or
for the benefit of World Medical, other than those payable by or to Vector,
exceeds $150,000 in the aggregate, such excess fees shall be borne and paid by
the World Medical shareholders in the form of a reduction in the Aggregate
Purchase Price; and further, to the extent the total amount of all fees and
expenses incurred by or for the benefit of World Medical and payable to Vector
exceeds $1,448,000 in the aggregate for fees or $25,000 for expenses, such
excess fees and expenses shall also reduce the Aggregate Purchase Price.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of World Medical's management and World Medical's Board of
Directors may be deemed to have certain interests in the Merger that are in
addition to their interests as shareholders of World Medical generally. The
World Medical Board of Directors was aware of these interests and considered
them, among other matters, in approving the Reorganization Agreement and the
transactions contemplated thereby.
Officer Appointment; Employment Agreements and Severance Benefits. In
addition to remaining as the President and Chief Executive Officer of World
Medical, the Board of Directors of AVE intends to approve the appointment of
Howard J. Leonhardt, the President and Chief Executive Officer of World Medical,
as an officer of AVE upon consummation of the Merger. Pursuant to employment
agreements with World Medical, each of the following executive officers of World
Medical has agreed to serve in their respective positions for the following
terms (commencing upon consummation of the Merger), annual base salaries and,
for certain employees, also in exchange for the number of AVE options indicated
(subject to approval by the Board of Directors of AVE): (i) Mr. Leonhardt,
President, four years, $150,000; (ii) Simon Fuger, Chief Financial Officer, four
years, $130,000, option to purchase 2,500 shares of AVE Common Stock; (iii)
Richard Spencer, Chief Operating Officer, one year, $130,000; (iv) Jeff Elkins,
Vice President of Operations, four years, $135,000, option to purchase 12,500
shares of AVE Common Stock; (v) Brenda Leonhardt, Vice President of
Administration, four years, $77,500; and (vi) Trevor Greenan, Vice President of
Research and Development, four years, $80,000, option to purchase 5,000 shares
of AVE Common Stock. Two other employees of World Medical have entered into
employment agreements with World Medical each with four year terms at annual
base salaries of $60,000 and options to purchase 2,500 shares of AVE Common
Stock. Todd Davenport has also entered into a one year employment agreement with
World Medical at an annual base salary of $100,000.
45
<PAGE> 53
Mr. Davenport will serve as Vice President of Marketing and Development and has
not been granted any rights to salary after termination or any similar severance
benefits.
Noncompetition Agreements. Messrs. Leonhardt, Fuger, Spencer, Elkins and
Greenan, and Ms. Leonhardt have each entered into noncompetition agreements with
AVE whereby, following the Effective Time of the Merger and subject to certain
qualifications and limitations, they will refrain from (i) directly or
indirectly, anywhere in the world, providing any service, support, product or
technology to any person or entity materially relating to balloon angioplasty
catheters, stents, stent grafts, radiation catheters or irradiated stents, or
owning, managing, operating, joining, controlling, financing or participating in
a company engaged in such businesses for up to three years after the date of
termination of such employee's employment with World Medical, (ii) soliciting
employees of World Medical, AVE or any subsidiary of AVE to leave his or her
employment with such companies, or (iii) interfering or attempting to interfere
with any commercial relationship or prospective commercial relationship of World
Medical, AVE or any subsidiary of AVE. Seven other non-officer, non-director
employees of World Medical have also entered into noncompetition agreements with
AVE on similar terms.
World Medical 1998 Incentive Bonus Plan. AVE's Board of Directors has
approved the World Medical 1998 Incentive Bonus Plan, under which approximately
45 World Medical employees would, upon the Effective Time of the Merger, be
eligible to receive bonuses amounting to up to $4,032,000 in the aggregate over
a four year period. Employees eligible to receive bonuses under the 1998
Incentive Bonus Plan (individually, a "Participant") will be entitled to receive
30% of a specified annual maximum bonus payment (a "Maximum Bonus Payment") if
the Participant is a full-time employee of World Medical or any of its
affiliates on December 31 of a plan year. In addition, the Participant will
receive an additional 70% of such Maximum Bonus Payment if World Medical's gross
collections from sales in a plan year equal or exceed the targeted performance
goal for the applicable plan year. The annual Maximum Bonus Payment for Messrs.
Leonhardt, Spencer, Fuger, Elkins, and Greenan will be $100,000. The annual
Maximum Bonus Payment for Ms. Leonhardt will be $50,000. The other World Medical
employees participating in the plan will be eligible for annual Maximum Bonus
Payments ranging from $4,000 to $100,000.
Vesting of World Medical Stock Options. All unvested stock options granted
by World Medical, including those held by officers and directors of World
Medical, will become immediately exercisable upon consummation of the Merger.
Relationship with Vector. Mr. Berghorst, a director of World Medical, is
also Chairman and Chief Executive Officer of Vector. Vector is acting as World
Medical's financial advisor in connection with the Merger, and pursuant to the
Engagement Letter, Vector will receive a fee payable upon completion of the
Merger equal to 1.75% of the aggregate consideration plus $250,000 in connection
with the Vector Opinion. World Medical has agreed to reimburse all reasonable
out-of-pocket expenses incurred by Vector, including fees and disbursements of
counsel. To the extent the total amount of such fees and expenses incurred
pursuant to the Engagement Letter exceeds $1,448,000 in the aggregate for fees
and $25,000 in the aggregate for expenses, such excess fees and expenses will
reduce the Aggregate Purchase Price. World Medical has also agreed, under
separate agreement, to indemnify Vector, its affiliates and its employees
against certain liabilities, including liabilities under federal securities
laws. In the past, Vector has performed investment banking services for World
Medical, including acting as placement agent in connection with World Medical's
private placement in August 1997. Vector received approximately $215,250 in fees
and a warrant to purchase 25,000 shares of Common Stock at an exercise price of
$13.00 per share for the rendering of these services. The warrant will be
exercised by Vector on a cashless basis at or prior to consummation of the
Merger. In addition, as of the Record Date, Vector and its directors, officers
and employees beneficially own [134,998] shares of World Medical Common Stock.
Distribution Agreement. In May 1995, World Medical entered into the
exclusive Distribution Agreement with Todd F. Davenport, a director of World
Medical, whereby World Medical granted Mr. Davenport the exclusive right to
market, sell and distribute World Medical products in the states of
Massachusetts, Rhode Island, Maine, New Hampshire, Vermont, Connecticut, New
York, New Jersey and Pennsylvania. In connection with the Merger, Mr. Davenport
and World Medical mutually agreed to terminate the Distribution
46
<PAGE> 54
Agreement subject to the closing of the Merger. As consideration for such
termination, World Medical will pay or cause the acquiring company or others to
pay Mr. Davenport a termination payment of $1,850,000, payable to Mr. Davenport
within seven (7) days following the consummation of the Merger. In addition, for
a period of one year thereafter, Mr. Davenport will serve as Vice President of
Marketing Development of World Medical at an annual salary of $100,000. See also
"-- Related Agreements."
Indemnification and Insurance. The Reorganization Agreement provides that
all rights to indemnification, as provided in the World Medical's Articles of
Incorporation and Bylaws, existing in favor of the persons serving as directors
and officers of World Medical as of the date of the Reorganization Agreement for
acts or omissions occurring prior to consummation of the Merger, will survive
the Merger, and that AVE will cause the surviving corporation to perform its
obligations arising thereunder for at least six years from the Effective Time.
Subject to certain limitations, AVE has also agreed to cause World Medical to
maintain in effect for six years after the consummation of the Merger a policy
of directors and officers liability insurance for the benefit of persons serving
as directors and officers of World Medical as of the date of the Reorganization
Agreement. See "-- Covenants -- Indemnification and Insurance."
47
<PAGE> 55
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
give effect to the Merger applying the purchase method of accounting. The
unaudited pro forma condensed combined balance sheet gives effect to the Merger
as if it had occurred on March 31, 1998. The unaudited pro forma condensed
combined statements of operations gives effect to the Merger as if it had
occurred on July 1, 1996.
For pro forma purposes, (i) AVE's unaudited consolidated balance sheet as
of March 31, 1998 has been combined with World Medical's unaudited consolidated
balance sheet as of March 31, 1998 as if the Merger had occurred on March 31,
1998, and (ii) AVE's consolidated statement of operations for the fiscal year
ended June 30, 1997 and unaudited consolidated statement of operations for the
nine-month period ended March 31, 1998 have been combined with World Medical's
unaudited consolidated statements of operations for the 12-month period ended
June 30, 1997 and the nine-month period ended March 31, 1998 as if the Merger
had occurred on July 1, 1996. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Merger had been
consummated on July 1, 1996 or March 31, 1998, respectively, nor is it
necessarily indicative of future operating results or financial position.
The unaudited pro forma condensed combined financial information has been
prepared on the basis of assumptions described in the notes thereto and includes
assumptions relating to the allocation of the consideration paid for the assets
and liabilities of World Medical based on preliminary estimates of their fair
value. The actual allocation of such consideration may differ from that
reflected in the unaudited pro forma condensed combined financial information
after the completion of independent valuations and other procedures to be
performed after the closing of the Merger. AVE does not expect that the final
allocation of the aggregate purchase price for the Merger will differ materially
from the preliminary allocations. In the opinion of AVE, all adjustments
necessary to present fairly such unaudited pro forma condensed combined
financial information have been made based on the proposed terms and structure
of the Merger.
These pro forma condensed combined financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of AVE incorporated by reference herein and of World
Medical included herein.
48
<PAGE> 56
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
------------------
WORLD PRO FORMA REFERENCE PRO FORMA
AVE MEDICAL ADJUSTMENTS (NOTE 2) COMBINED
-------- ------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................... $ 49,653 $ 424 $ -- $ 50,077
Short-term investments...................... 80,399 -- -- 80,399
Accounts receivable, net.................... 83,358 938 -- 84,296
Inventories................................. 9,736 748 250 (A ) 10,734
Deferred income tax......................... 5,197 -- 515 (A ) 5,712
Prepaid expenses and other current assets... 6,472 -- -- 6,472
-------- ------ ------- --------
Total current assets................ 234,815 2,110 765 237,690
Deferred income tax........................... 1,171 -- 1,031 (A ) 2,202
Property, plant and equipment, net............ 52,465 492 (206) (B ) 52,751
Developed technology.......................... -- -- 33,007 (C ) 33,007
Intangible assets............................. -- -- 3,227 (D ) 3,227
Other assets.................................. 260 134 -- 394
-------- ------ ------- --------
Total assets........................ $288,711 $2,736 $37,824 $329,271
======== ====== ======= ========
LIABILITIES
Current liabilities:
Short-term borrowings....................... $ 17,471 $ 60 $ -- $ 17,531
Accounts payable............................ 8,799 412 -- 9,211
Accrued expenses............................ 33,439 136 3,500 (E ) 37,075
Obligations due upon close of Merger........ -- -- 2,450 (F ) 2,450
Income taxes payable........................ 12,985 -- -- 12,985
-------- ------ ------- --------
Total current liabilities........... 72,694 608 5,950 79,252
Deferred income tax........................... -- -- 13,390 (G ) 13,390
Stockholders' equity:
Common stock................................ 64 146 (144) (H ) 66
Additional paid in capital.................. 115,743 7,409 (7,409) (H )
-- -- 61,998 (I ) 177,741
Treasury stock, at cost..................... (390) -- -- (390)
Cumulative translation adjustment........... (2,007) -- -- (2,007)
Deferred compensation....................... -- (23) 23 (H ) --
Retained earnings........................... 102,607 (5,404) 5,404 (H )
(41,388) (J ) 61,219
-------- ------ ------- --------
Total stockholders' equity.......... 216,017 2,128 18,484 236,629
-------- ------ ------- --------
Total liabilities and stockholders'
equity............................ $288,711 $2,736 $37,824 $329,271
======== ====== ======= ========
</TABLE>
The accompanying notes to the unaudited pro forma condensed combined
balance sheet are an integral part of this statement.
49
<PAGE> 57
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AVE WORLD MEDICAL ADJUSTMENTS COMBINED
-------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales...................................... $ 79,420 $ 2,961 $ -- $ 82,381
Cost of sales.................................. 16,217 1,894 -- 18,111
-------- ------- ------- --------
Gross profit................................... 63,203 1,067 -- 64,270
Operating expenses:
Research and development expenses............ 11,422 1,357 -- 12,779
Selling, general and administrative
expenses.................................. 22,510 1,564 -- 24,074
Amortization of purchased intangible
assets.................................... -- -- 2,890 2,890
-------- ------- ------- --------
Total operating expenses....................... 33,932 2,921 2,890 39,743
-------- ------- ------- --------
Operating income (loss)........................ 29,271 (1,854) (2,890) 24,527
Interest and other income...................... 4,190 2 -- 4,192
-------- ------- ------- --------
Income (loss) before provision (benefit) for
income taxes................................. 33,461 (1,852) (2,890) 28,719
Provision (benefit) for income taxes........... 11,711 1 (1,716) 9,996
-------- ------- ------- --------
Net income (loss).............................. $ 21,750 $(1,853) $(1,174) $ 18,723
======== ======= ======= ========
Net income per share -- basic.................. $ 0.37 $ 0.31
======== ========
Net income per share -- diluted................ $ 0.34 $ 0.29
======== ========
Shares used in per share calculation --basic... 58,447 59,898
======== ========
Shares used in per share
calculation -- diluted....................... 63,289 65,060
======== ========
</TABLE>
The accompanying notes to the unaudited pro forma condensed combined
balance sheet are an integral part of this statement.
50
<PAGE> 58
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WORLD PRO FORMA PRO FORMA
AVE MEDICAL ADJUSTMENTS COMBINED
-------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales...................................... $205,768 $ 3,857 $ -- $209,625
Cost of sales.................................. 40,691 2,193 -- 42,884
-------- ------- ------- --------
Gross profit................................... 165,077 1,664 -- 166,741
Operating expenses:
Research and development expenses............ 24,611 1,610 -- 26,221
Selling, general and administrative
expenses.................................. 55,070 1,704 -- 56,774
Amortization of purchased intangible
assets.................................... -- -- 2,167 2,167
-------- ------- ------- --------
Total operating expenses....................... 79,681 3,314 2,167 85,162
-------- ------- ------- --------
Operating income (loss)........................ 85,396 (1,650) (2,167) 81,579
Interest and other income...................... 3,449 34 -- 3,483
-------- ------- ------- --------
Income (loss) before provision (benefit) for
income taxes................................. 88,845 (1,616) (2,167) 85,062
Provision (benefit) for income taxes........... 33,140 -- (1,366) 31,774
-------- ------- ------- --------
Net income (loss).............................. $ 55,705 $(1,616) $ (801) $ 53,288
======== ======= ======= ========
Net income per share -- basic.................. $ 0.89 $ 0.83
======== ========
Net income per share -- diluted................ $ 0.86 $ 0.80
======== ========
Shares used in basic net income per share
calculation -- basic......................... 62,647 64,098
======== ========
Shares used in diluted net income per share
calculation -- diluted....................... 65,055 66,826
======== ========
</TABLE>
The accompanying notes to the unaudited pro forma condensed combined
balance sheet are an integral part of this statement.
51
<PAGE> 59
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1
The unaudited pro forma condensed consolidated financial statements reflect
the conversion of all of the outstanding shares of World Medical Common Stock
into approximately 1,451,000 shares of AVE's common stock pursuant to the
Merger. This calculation is based on World Medical's capitalization at May 15,
1998 and assumes an Applicable Fraction of .9740 and the cashless exercise of
the Vector Warrant which will occur at or prior to the Effective Time. Certain
options and warrants to purchase approximately 412,550 shares of World Medical
common stock will be assumed by AVE pursuant to the Merger and converted into
options to purchase approximately 401,823 shares of AVE common stock. The total
cost of the proposed Merger is estimated to be approximately $64 million,
including estimated AVE transaction costs of $2 million, which include financial
advisory, legal and accounting fees.
Based upon a preliminary independent valuation of tangible and intangible
assets, AVE has allocated the total cost of the merger to the net assets of
World Medical at March 31, 1998 as follows (in thousands):
<TABLE>
<S> <C>
Tangible assets acquired.................................... $ 2,780
Deferred income tax asset................................... $ 1,546
In-process research and development......................... $41,388
Developed technology........................................ $33,007
Other purchased intangible assets........................... $ 3,227
Liabilities assumed (including World Medical transaction
costs and other obligations due upon the close of the
Merger)................................................... (4,558)
Deferred income tax liability............................... (13,390)
-------
$64,000
=======
</TABLE>
Pursuant to Regulation S-X, the in-process research and development has
been written off against the combined retained earnings and has not been
reflected in the pro forma condensed combined statements of operations. The
developed technology and other intangibles will be amortized over lives ranging
from 3 to 15 years.
NOTE 2
The pro forma condensed combined balance sheet includes the adjustments
necessary to give effect to the Merger as if it had occurred on March 31, 1998
and to reflect the allocation of the proposed acquisition cost to the fair value
of tangible and intangible assets acquired and liabilities assumed as noted
above, including the charge to retained earnings for in-process technology
acquired and the elimination of World Medical's equity accounts. Adjustments
included in the pro forma condensed consolidated balance sheet are summarized as
follows (in thousands):
(A) Valuation of inventories and deferred tax asset (relating to World
Medical's net operating loss carryforwards) of approximately $1,796;
(B) Proportional allocation of excess appraised value of assets acquired
to property plant and equipment of $206
(C) Valuation of developed technology of approximately $33,007;
(D) Valuation of covenant not to compete, assembled work force and other
intangible assets of approximately $3,227;
(E) Accrual of transaction related costs of approximately $2,000 for AVE
and $1,500 for World Medical;
(F) Accrual for distributor termination fee payable and a license fee
payable which become due upon closing of the Merger of $2,450;
(G) Recognition of deferred tax liability for the difference between the
financial reporting and tax bases of purchased intangible assets of
approximately $13,390;
52
<PAGE> 60
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(H) Elimination of the World Medical equity accounts;
(I) Issuance of AVE common stock, $0.001 par value, and options and
warrants to purchase common stock, as discussed in Note 1. The value
of the AVE common stock is equal to the product of 1,451,000 shares
multiplied by approximately $35.00 per share, while the options have
been assigned a value of approximately $11.2 million; and
(J) Charge to operations for in-process technology of approximately
$41,388;
NOTE 3
The pro forma condensed combined statements of operations includes the
adjustments necessary to give effect to the Merger as if it had occurred on July
1, 1996. Adjustments consist of the amortization of acquired intangible assets
using the following estimated useful lives:
<TABLE>
<S> <C>
Developed technology....................................... 15 years
Assembled workforce........................................ 3 years
Trademarks................................................. 7 years
Covenant not to compete.................................... 7 years
</TABLE>
The adjustment to the provision for income taxes represents the reversal of
the deferred tax liability related to the above described amortization, and the
tax benefit resulting from the World Medical losses at the federal statutory
rate.
NOTE 4
Pro forma basic net income per share amounts for the year ended June 30,
1997 and the nine month period ended March 31, 1998, are based upon the
historical weighted average number of AVE common shares outstanding adjusted to
reflect the issuance, as of July 1, 1996, of approximately 1,451,000 shares of
AVE common stock as described in Note 1. Pro forma diluted net income per share
amounts include shares used in the calculation of pro forma basic net income per
share and the dilutive effect, calculated using the treasury stock method, of
options and warrants to purchase approximately 412,550 shares of World Medical
common stock will be assumed by AVE pursuant to the Merger and converted into
options or warrants to purchase approximately 401,824 shares of AVE common
stock.
53
<PAGE> 61
BUSINESS OF WORLD MEDICAL
World Medical designs, develops, manufactures and markets endovascular
devices for diagnosing, monitoring and treating patients with cardiovascular
disease. Substantially all of World Medical's products and products in
development are a result of World Medical's core competencies in multi-lumen
balloon catheters and nitinol technology. World Medical currently has three
primary product lines: the Talent catheter-delivered stent graft system;
cardiovascular catheters; and customized catheters. World Medical also has a
number of other products in the research phase.
World Medical has developed the Talent System, which is a proprietary
catheter-based stent graft system for the repair of aneurysms, including
abdominal aortic aneurysms ("AAAs") as well as aneurysms located in the thoracic
aorta and the iliac arteries. World Medical's Talent System represents an
endovascular approach for the repair of AAAs and other aneurysms, thereby
offering an alternative to open abdominal surgery. World Medical has developed a
straight configuration and a bifurcated configuration of the Talent System. The
straight configuration is used to treat AAAs in patients that have sufficient
non-aneurysmal vessel wall above the natural aortic bifurcation to allow for
placement of the stent graft and is also used to treat thoracic aortic aneurysms
and aneurysms located in the iliac arteries, while the bifurcated configuration
is designed to treat AAAs that are generally more advanced. The first human
implant of a Talent device occurred in December 1995, and since then, Talent
devices have been implanted in approximately 1,500 patients. The Talent System
is currently being sold in selected countries outside the United States and is
in clinical trials in the United States. In April 1998, World Medical received
the right to affix CE marking to the Talent System, allowing that product to
continue to be sold in the European Economic Area and Switzerland after June 14,
1998. World Medical had previously received ISO 9001 and EN 46001 certification
with respect to the Talent System.
In the United States, World Medical has filed and received approval of an
Investigational Device Exemption from the FDA. World Medical has completed a
Phase I feasibility study with the bifurcated Talent System to treat AAAs in
patients who are deemed to be poor candidates for AAA open surgery. Following
the clinical results of the Phase I feasibility study, World Medical was
approved in February 1998 by the FDA to commence a Phase II feasibility study
for the bifurcated Talent System to treat AAAs in patients who are deemed to be
poor candidates for AAA open surgery. World Medical has applied to the FDA for
approval to commence a Phase II feasibility study for the bifurcated Talent
System in low risk patients. World Medical believes that the Talent System will
be subject to regulatory clearance through the FDA's PMA regulations. After
completing the Phase II feasibility study and assuming satisfactory clinical
results, World Medical intends to submit a PMA application to the FDA. World
Medical has also received Phase II approval to commence a clinical study on high
risk patients for straight and aortoiliac Talent Systems. World Medical
anticipates that it will have to conduct a separate Phase I feasibility study
for the thoracic version of the Talent device. World Medical expects to incur
significant costs to achieve compliance with FDA and other regulatory
requirements. Failure to achieve compliance would have a material adverse effect
on World Medical's business, financial condition and results of operations.
In addition to the Talent System, World Medical has developed and is
marketing the Poly-Cath(TM) line of cardiovascular catheters for diagnostic
applications. This line of catheters is comprised of the Poly-Cath
thermodilution catheter, the Poly-Cath angiographic catheter and the Poly-Cath
wedge pressure catheter. World Medical's Poly-Cath thermodilution catheters are
used to monitor pressures within the heart as well as to measure cardiac output
readings. FDA clearance was received in April 1990 for World Medical's Poly-Cath
thermodilution catheters. World Medical's Poly-Cath angiographic catheters are
used to inject contrast media to a particular site in the vascular system for
fluoroscopic observation. World Medical received FDA clearance for its Poly-Cath
angiographic catheters in August 1992. World Medical's Poly-Cath wedge pressure
catheters monitor pressures within the heart, but differ from World Medical's
thermodilution catheters in that they do not incorporate a thermistor, and
therefore, cannot be used to measure cardiac output or blood temperature. World
Medical received FDA clearance in April 1990 for its Poly-Cath wedge pressure
catheters.
World Medical also provides custom catheter manufacturing services for
medical device companies that do not have the experience with multi-lumen
catheters and low pressure, polyurethane balloons. World
54
<PAGE> 62
Medical believes that these catheters are particularly well-suited for localized
drug delivery systems. In addition, World Medical provides contract
manufacturing services for research and development projects, pre-production
orders and full production quantities.
World Medical is researching several new cardiovascular products,
including: an intervascular lung membrane catheter designed to treat patients
with potential fatal acute respiratory distress syndrome and advanced pneumonia;
Pro-Cell(TM), a protruding needle localized delivery catheter designed to
provide precise control for the delivery of substances (e.g., cells, drugs,
radiation capsules, oxygen and nitric oxide) beneath the inner wall of a blood
vessel; Coil-Rad(TM), a beta radiation emitting agent coated stent made of a
shape memory nitinol alloy designed to irradiate diseased blood vessels
following angioplasty, atheroctomy, or post stenting to prevent restenosis;
No-Graft(TM), an endovascular device designed to fill aneurysms with a mixture
of glues, growth factors, cells, radiopaque agents and other thrombogenic
agents; and Center-Rad(TM), a catheter-based balloon delivery system that allows
for precise deployment of radiation therapy within the diseased blood vessel.
There can be no assurance that World Medical's research, including its research
in connection with the products described herein, will conclude successfully,
that viable products will result, or if products do result, that such products
will be commercially successful.
World Medical holds seven issued United States patents, has filed four
pending United States patent applications and has filed counterpart patent
applications currently pending in various foreign countries. Issued patents and
pending patent applications cover fundamental aspects of World Medical
technology, including polyurethane balloon technology, nitinol technology, the
design of the Talent stent graft, including the ability to conform to vessel
wall size and configuration, and drug delivery technology. There can be no
assurance that patents applied for will be issued to World Medical, and if
issued, that patents will provide adequate protection.
World Medical markets the Talent System overseas through independent
distributors. World Medical has established an independent distributor network
in over 20 countries, including the major markets in Europe, as well as,
Australia, Japan, Canada, and the Middle East. World Medical currently sells its
Poly-Cath catheters in 65 countries, either under its own brand name or under
another manufacturer's label, through a network of distributors.
55
<PAGE> 63
SELECTED FINANCIAL DATA OF WORLD MEDICAL
The following selected financial data at December 31, 1995, 1996, and 1997
for the years then ended are derived from the consolidated financial statements
of World Medical Manufacturing, Inc. which have been audited by Ernst & Young
LLP, independent auditors. The following selected financial data for the years
ended December 31, 1993 and 1994 are derived from unaudited consolidated
financial statements. The selected financial data as of March 31, 1998 and for
the three months ended March 31, 1997 and 1998 are derived from unaudited
consolidated financial statements that have been prepared on the same basis as
the audited consolidated financial statements and, in the opinion of management,
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial condition at such date and
the results of operations for such periods. The historical results for such
periods are not necessarily indicative of the results of operations to be
expected for any future period. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements, related
notes, and other financial information included herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- -------- -------- ------ ------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales...................... $ 990 $1,146 $1,123 $ 2,060 $ 4,203 $ 785 $1,365
Cost of sales.................. 656 796 920 1,455 $ 2,456 540 779
------ ------ ------ ------- ------- ------ ------
Gross profit................... 335 349 203 605 1,747 245 586
Operating costs and expenses:
Research and development..... 0 62 183 822 1,519 209 603
Selling, general and
administrative............ 345 301 364 1,620 1,950 361 710
------ ------ ------ ------- ------- ------ ------
Total operating costs and
expenses..................... 345 363 547 2,442 3,469 570 1,313
------ ------ ------ ------- ------- ------ ------
Loss from operations........... (11) (14) (343) (1,836) (1,722) (325) (727)
Interest income (expense)...... (7) (12) (15) (2) 25 2 10
------ ------ ------ ------- ------- ------ ------
Net loss....................... $ (18) $ (26) $ (358) $(1.839) $(1.697) $ (323) $ (717)
====== ====== ====== ======= ======= ====== ======
Basic and diluted net loss per
common share................. $(0.02) $(0.03) $(0.40) $ (1.74) $ (1.28) $(0.56) $(0.49)
Weighted average number of
common shares outstanding.... 816 848 892 1,056 1,324 1,193 1,464
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, MARCH 31, 1998
----------------------------------------------- --------------
1993 1994 1995 1996 1997
----- ----- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash, cash equivalents and
short-term investments..... $ 42 $ 21 $ -- $ 152 $ 1,416 $ 424
Working capital (deficit).... 47 15 (41) (289) 2,316 1,502
Total assets................. 389 375 365 959 3,361 2,736
Total liabilities............ 289 289 365 1,135 568 608
Accumulated deficit.......... (389) (468) (1,152) (2,990) (4,687) (5,404)
Total shareholders' equity... 100 86 -- (177) 2,793 2,128
</TABLE>
56
<PAGE> 64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
HISTORY AND OVERVIEW
Since its inception in 1988, World Medical has focused its efforts on the
design, development, manufacture and marketing of endovascular devices for
diagnosing, monitoring and treating patients with cardiovascular disease. All of
World Medical's products and products in development are a result of World
Medical's core competencies in multi-lumen balloon catheters and nitinol
technology. World Medical currently has three primary product lines: the Talent
System; cardiovascular catheters; and customized catheters. World Medical also
has a number of other products in the research phase. To date, World Medical's
revenues have been derived from: (i) the sale of cardiovascular catheters to
distributors worldwide; (ii) the sale of customized catheters on an OEM basis to
several major medical device companies; (iii) the sale of Talent System devices
to distributors outside the United States; and (iv) reimbursement of costs for
Talent System devices used in United States clinical trials and
compassionate-use cases. World Medical has incurred operating losses in each of
the last three years of operation, including net losses of approximately
$358,000, $1.8 million, $1.7 million and $716,000 in 1995, 1996, 1997 and the
three months ended March 31, 1998, respectively, and as of March 31, 1998 had an
accumulated deficit of approximately $5.4 million.
During 1997 and through March 31, 1998, World Medical has increased
significantly the scope of its operations in order to accommodate the continued
development of the Talent System. In particular, World Medical has added
personnel to its research, development, regulatory, manufacturing and marketing
areas and expanded its leased facilities. World Medical expects operating
expenses to continue to increase significantly as it expands its clinical trials
and builds the infrastructure necessary to continue to commercialize its
technology.
World Medical expects that results of operations will fluctuate
significantly from quarter to quarter and will depend upon, among other factors:
actions relating to foreign and domestic regulatory and reimbursement matters;
the extent to which World Medical products gain market acceptance; the rate at
which World Medical establishes its international distribution network; the
progress of clinical trials; and introduction of competing products or
alternative treatments for AAAs.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1998
Net sales increased from approximately $785,000 for the three months ended
March 31, 1997 to approximately $1.4 million for the three months ended March
31, 1998. The overall increase in net sales was primarily due to an increase in
sales of the Talent System.
Gross profit increased 139.2% from approximately $245,000 in the three
months ended March 31, 1997 to approximately $586,000 in the three months ended
March 31, 1998. Gross margins were 28.6% in the three months ended March 31,
1997 and 42.9% in the three months ended March 31, 1998. The increase in gross
margins was primarily due to an increase in sales of the Talent System. Research
and development expenses consist primarily of compensation and other expenses
related to research and development personnel, overhead costs and costs
associated with preclinical and clinical testing and testing of World Medical's
product candidates, particularly the Talent System. Research and development
expenses increased from approximately $209,000 for the three months ended March
31, 1997 to approximately $603,000 for the three months ended March 31, 1998.
The increase in research and development expenses were primarily due to
increased product development costs associated with the Talent System, including
those relating to design validation, animal testing, regulatory requirements,
clinical trials and patent registration and acquisition costs.
Selling, general and administrative expenses include personnel and related
overhead costs for sales, marketing, finance, human resources and general
management. Selling, general and administrative expenses increased from
approximately $361,000 for the three months ended March 31, 1997 to
approximately $710,000 for the three months ended March 31, 1998. The increase
in selling, general and administrative
57
<PAGE> 65
expenses was primarily due to the added marketing expenses associated with
commercializing and distributing the Talent System.
Interest income increased to $9,832 for the first quarter of fiscal 1998
from $3,786 for the first quarter of fiscal 1997. The increase in interest
income was primarily due to an increase in interest earned on cash balances.
Interest expense decreased to $116 for the first quarter of fiscal 1998 from
$3,598 for the first quarter of fiscal 1997. The decrease in interest expense
was primarily due to a reduction in borrowed principal amounts outstanding.
Fiscal Years ended December 31, 1996 and 1997
Net sales increased from approximately $2.1 million in 1996 to
approximately $4.2 million in 1997. The increase in net sales was due to the
increased sales growth in the Talent System.
Gross profit increased 188.6% from approximately $605,000 in 1996 to
approximately $1.7 million in 1997. Gross margins were 29.4% in 1996 and 41.6%
in 1997. The increase in gross margins is largely the result of higher margins
attributable to increased sales of the Talent System.
Research and development expenses increased from approximately $821,000 in
1996 to approximately $1.5 million in 1997. The growth in research and
development expenses was primarily due to increased product development costs
associated with the Talent System, including design validation, animal testing,
regulatory requirements, clinical costs and patent registration and acquisition
costs.
Selling, general and administrative expenses increased from approximately
$1.6 million in 1996 to approximately $2.0 million in 1997. This increase was
primarily due to the added marketing expenses associated with commercializing
and distributing the Talent System.
Interest income was $38,671 in 1997 and $14,003 in 1996 as a result of
interest earned on cash balances. Interest expense decreased to $13,107 in 1997
from $16,371 in 1996. The decrease in interest expense in 1997 was primarily due
to the termination of the World Medical line of credit.
At December 31, 1997, World Medical had net operating loss carryforwards
for federal income tax purposes of approximately $3.1 million, which will expire
at various dates through 2012. The Tax Reform Act of 1986 contains provisions
that may limit the net operating loss carryforwards available to be used in any
given year should certain events occur, including additional sales of equity
securities and other changes in ownership. Such events could limit the eventual
tax utilization of these carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
World Medical has financed its operations since incorporation through
private placements of World Medical Common Stock. Through December 31, 1997,
World Medical had raised approximately $6.9 million from the sale of World
Medical Common Stock and certain other equity securities, including
approximately $1.8 million raised between May 1995 and September 1996,
approximately $976,800 raised in February 1997 and approximately $3.1 million
raised in August 1997. As of December 31, 1997, World Medical had cash and cash
equivalents of approximately $1.4 million.
World Medical utilized cash in operating activities of approximately $1.3
million and approximately $1.9 million in 1996 and 1997, respectively. The cash
used for operations was primarily to fund research and development and to
finance working capital needs. World Medical expects that substantial additional
cash will be used to fund operating activities until it achieves significant
commercial sales of the Talent System, which is dependent on a number of
factors, including market acceptance, regulatory approval, product performance
and competitive environment.
World Medical anticipates that it will need to raise additional capital to
fund operations over the next twelve months. World Medical's longer-term
prospects are highly dependent on successful development and marketing of the
Talent System, timely receipt of regulatory approvals and market acceptance of
World Medical products.
58
<PAGE> 66
World Medical's cash requirements may vary materially from those now
planned due to the results of research, development, and clinical testing, the
timing of regulatory submissions and the FDA regulatory process, the development
of commercial-scale manufacturing capability, the development of sales,
marketing and distribution capabilities, and other factors. World Medical may be
required to seek additional funds through additional equity or debt financings
or through other arrangements.
WORLD MEDICAL STOCK, OPTIONS, WARRANTS AND DIVIDENDS
World Medical is a privately held company; there is no public market for
its stock. The following is a brief description of the principal terms
applicable to the authorized shares of World Medical Common Stock and Preferred
Stock, the Vector Warrant, World Medical's stock option plan, and a brief
description of World Medical's dividend policy.
COMMON STOCK
As of the Record Date, World Medical had 10,000,000 shares of Common Stock
authorized for issuance, of which [1,474,240] were issued and outstanding and
held by approximately [96] stockholders. Each share of World Medical Common
Stock is entitled to pro rata distribution upon liquidation and to one vote on
all matters submitted to a vote of the stockholders. Dividends may be paid to
the holders of World Medical Common Stock when and if declared by the Board of
Directors out of funds legally available therefore. Holders of World Medical
Common Stock have no preemptive or similar rights. The outstanding shares of
World Medical Common Stock are fully paid and nonassessable.
Shares of World Medical Common Stock have non-cumulative voting rights,
which means that the holders of more than fifty percent (50%) of the shares
voting can elect all the directors if they so choose, and in such event, the
holders of the remaining shares cannot elect any directors.
PREFERRED STOCK
World Medical's Articles of Incorporation authorize 1,000,000 shares of
Preferred Stock, of which none has been issued. The Board of Directors has the
authority to issue the Preferred Stock in one or more series and to fix the
rights, preferences, privileges, and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences, and the number of shares
constituting any series or the designation of such series, without further vote
or action by the shareholders.
STOCK OPTIONS PLAN
In April 1996, the shareholders approved World Medical's 1996 Stock Option
Plan (the "World Medical Plan"), under which 1,000,000 shares of Common Stock
were reserved for issuance upon exercise of options to be granted to employees,
officers, consultants and directors of World Medical. As of the Record Date,
there were [412,550] shares reserved for the exercise of outstanding options.
The World Medical Plan is administered by the Board of Directors, which has the
power to grant options pursuant to the World Medical Plan. Subject to the terms
of the World Medical Plan, the Board of Directors has the authority in its
discretion to determine the employees to whom options shall be granted, the
option period, the option price, the shares of World Medical Common Stock
subject to the option, and such other terms and conditions under which the
option may be exercised. Subject to the terms of the World Medical Plan, the
Board of Directors also has the authority to make any interpretation with
respect to an option and the World Medical Plan, to prescribe, amend and rescind
rules and regulations relating to the World Medical Plan, to determine the terms
and provisions not specified in or incorporated with the World Medical Plan to
be included in the respective option (which need not be uniform), and to make
all other determinations necessary or advisable for administering the World
Medical Plan. The Board of Directors may correct any defect or supply any
omission or reconcile any inconsistency in the World Medical Plan or in any
option in the manner and to the extent that it shall deem expedient to carry
into effect the purposes of the World Medical Plan, and any determination made
in connection with the World Medical Plan shall be final and conclusive.
59
<PAGE> 67
In the event of a merger, consolidation, reverse merger or reorganization,
options outstanding under the World Medical Plan will automatically become fully
vested.
WARRANT
World Medical has granted the Vector Warrant to purchase a total of 25,000
shares of World Medical Common Stock at an exercise price of $13.00 per share.
The Vector Warrant expires in July 2002. The Vector Warrant provides for
customary anti-dilution provisions in the event of certain mergers,
consolidations, reorganizations, recapitalizations, stock dividends, stock
splits and other changes in World Medical's capital structure. The holder of the
Warrant is entitled to certain "piggy-back" registration rights. Vector has
agreed to exercise the Warrant on a cashless basis at or prior to the Effective
Time.
DIVIDEND POLICY
To date, World Medical has not paid any cash dividends on shares of its
Common Stock. World Medical's Board of Directors anticipates that for the
foreseeable future World Medical's earnings, if any, will be retained for use in
the business and no cash dividends will be paid on World Medical Common Stock.
60
<PAGE> 68
MANAGEMENT OF WORLD MEDICAL
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
current executive officers or directors of World Medical who will serve as an
executive officer or director of World Medical or AVE after the Merger (the
"Continuing Executives"):
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Howard J. Leonhardt... 36 President, Chief Executive Officer and Director
Simon J. Fuger........ 45 Executive Vice President, Finance, Chief Financial
Officer and Director
Richard Spencer....... 62 Executive Vice President, Chief Operating Officer
and Director
Jeff Elkins........... 34 Vice President, Operations and Chief Technical
Officer
Trevor Greenan........ 31 Vice President, Research and Development
Brenda L. 34 Vice President, Administration and Director
Leonhardt ..........
Todd F. Davenport..... 48 Director
</TABLE>
Howard J. Leonhardt is a founder of World Medical and has served as Chief
Executive Officer since February 1997 and as President and a Director since
August 1988. Mr. Leonhardt has over 15 years of experience in medical device
technology and sales. He was formerly Vice President of Exim International,
Export Sales Manager of American General Medical Corporation, and director of
East Hemisphere Sales for I.M.A. Medical Group. Mr. Leonhardt is the husband of
Brenda L. Leonhardt, the Vice President of Administration and a Director of
World Medical.
Simon J. Fuger has served as Executive Vice President of Finance, and since
January 1996 as Chief Financial Officer and as a Director since November 1996.
From September 1994 to January 1996, he served as a consultant to World Medical.
In August 1980, Mr. Fuger was a founder and from November 1980 to February 1994
held various positions at, Cardiac Control Systems, Inc. ("Cardiac Control"),
most recently as Chairman and Chief Executive Officer. From November 1980 to May
1988 he served as Chief Financial Officer and Executive Vice President of
Cardiac Control. Prior to that, Mr. Fuger was a Vice President at Kidder Peabody
& Co.
Richard Spencer is a founder of World Medical and served as a director
until October 1993. He was re-appointed to the Board of Directors in November
1996. Mr. Spencer has served as Executive Vice President, Sales and Marketing,
since January 1996 and as Chief Operating Officer since February 1997. From July
1987 to April 1995, he was President, Chief Executive Officer and Chairman of
Unimed International Corporation, from March 1982 to June 1987, he held various
positions with Cordis Corporation ("Cordis"), including President, Marketing
Division, Corporate Vice President, Sales and Marketing, and a member of the
Executive Committee of Cordis. From September 1969 to January 1982, he was Vice
President of Marketing of Cordis-Dow, a joint venture of Cordis and The Dow
Chemical Company. From September 1967 to August 1969, Mr. Spencer was Sales
Manager of Sarns Inc., a unit of Minnesota Mining and Manufacturing Company.
Jeff Elkins has served as Chief Technical Officer since April 1998, and
previously served as Vice President of Operations from January 1997 to April
1998. From May 1994 to January 1997 he served as Senior Manager of Operations
for Cordis Endovascular Systems, a division of Cordis and from January 1991 to
May 1994 Mr. Elkins was Manager of Manufacturing Operations for Haemonetics
Corporation. Prior to that, he held various engineering and management positions
at Cordis.
Trevor Greenan has served as Vice President of Research and Development
since September 1996 and as a Senior Engineer of production support and Research
and Development Engineering since January 1991. Mr. Greenan was formerly with
the Theratek Division of Cordis.
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<PAGE> 69
Brenda L. Leonhardt has served as Vice President of Administration and as a
director since February 1997. From August 1988 to February 1997, she served as
Vice President, Controller. Ms. Leonhardt is the wife of Howard J. Leonhardt,
the President and Chief Executive Officer and a director of World Medical.
Todd F. Davenport has served as a director since September 1996. Mr.
Davenport has been the President of Cardiant Medical Corporation, an independent
distributor of medical products since May 1995. From August 1992 to March 1995,
he was the President of St. Jude Medical International Division. From April 1990
to July 1992, Mr. Davenport was Vice President of Marketing and Sales of Baxter
Edwards Critical Care Division. From March 1986 to March 1990, he was a Vice
President of Abiomed.
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation paid by
World Medical for services rendered to World Medical during the fiscal year
ended December 31, 1997 (the "Fiscal Year") by its Chief Executive Officer who
is a Continuing Executive. No other Continuing Executive earned in excess of
$100,000 during the Fiscal Year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS
--------------------------- ---- ------------ ------------
<S> <C> <C> <C>
Howard J. Leonhardt............................... 1997 $118,269 13,000(1)
President, Chief Executive Officer and Director
</TABLE>
- ---------------
(1) Options granted in January 1997 as compensation for partial salary reduction
in 1996.
The following table sets forth information concerning options granted
during the Fiscal Year to the Continuing Executive named in the preceding
Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN FISCAL EXERCISE PRICE
NAME GRANTED(#)(1) YEAR(%)(2) ($/SHARE) EXPIRATION DATE
---- ------------- -------------------- -------------- ---------------
<S> <C> <C> <C> <C>
Howard J. Leonhardt ........... 13,000(3) 9 5.00 01/02/2007
</TABLE>
- ---------------
(1) The options will fully vest upon consummation of the Merger.
(2) Based upon 143,422 options granted in the Fiscal Year.
(3) Options granted in January 1997 as compensation for partial salary reduction
in 1996.
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The following table sets forth information concerning the value of
unexercised stock options at December 31, 1997 for the Continuing Executive
named in the Summary Compensation Table.
AGGREGATED OPTIONS EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON REALIZED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
NAME EXERCISE(#) (1)($) EXERCISABLE/UNEXERCISABLE(#) EXERCISABLE/UNEXERCISABLE(2)($)
---- ----------- -------- ---------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Howard J. Leonhardt...... 0 0 57,444/22,222 485,552/177,776
</TABLE>
- ---------------
(1) Value of underlying securities on date of exercise (as determined by the
Board of Directors), minus the exercise price.
(2) Value of underlying securities at December 31, 1997, the fiscal year end, as
determined by the Board of Directors (for in-the-money options only), minus
the exercise price.
COMPENSATION OF DIRECTORS
No non-employee member of the Board of Directors receives cash compensation
for either meetings attended personally or telephonically. Expenses associated
with attending Board meetings are reimbursed, and the Board members may be
granted non-qualified stock options pursuant to World Medical's 1996 Stock
Option Plan. See "World Medical Stock, Options, Warrants and Dividends -- Stock
Option Plans."
CERTAIN RELATIONSHIPS
Distribution Agreement. In May 1995, World Medical entered into an
exclusive distribution agreement (the "Distribution Agreement") with Todd F.
Davenport, a director of World Medical, whereby World Medical granted Mr.
Davenport the exclusive right to market, sell and distribute World Medical
products in the states of Massachusetts, Rhode Island, Maine, New Hampshire,
Vermont, Connecticut, New York, New Jersey and Pennsylvania. In connection with
the Merger, the Mr. Davenport and World Medical mutually agreed to terminate the
Distribution Agreement subject to the closing of the Merger. As consideration
for such termination, World Medical will pay or cause the acquiring company or
others to pay Mr. Davenport a termination payment of $1,850,000, payable to Mr.
Davenport within seven days following the consummation of the Merger. In
addition, for a period of one year thereafter, Mr. Davenport will serve as Vice
President of Marketing Development of World Medical at an annual salary of
$100,000. See also "-- Related Agreements."
Option Grants. On August 22, 1996, certain executive officers were granted
incentive stock options to purchase the following number of shares of World
Medical Common Stock at an exercise price of $7.00 per share, with one-third
( 1/3rd) of the shares vesting on the grant date and one-third ( 1/3rd) of the
shares vesting on each of the first and second anniversaries of the grant date
and exercisable over ten years: Howard Leonhardt, 66,666 shares, Richard
Spencer, 50,000 shares, Simon Fuger, 33,333 shares, Brenda Leonhardt, 30,000
shares, Trevor Greenan, 15,000 shares and Todd Davenport, 5,000 shares. On
January 2, 1997, certain executive officers and directors of World Medical who
had agreed in 1996 to accept, in lieu of cash compensation, the grant of
incentive stock options to purchase shares of World Medical Common Stock, were
granted the following number of shares at an exercise price of $5.00 per share,
vesting at grant date and exercisable over ten years: Howard J. Leonhardt,
13,000 shares; Richard Spencer, 30,940 shares; Simon J. Fuger, 15,744 shares,
and Brenda Leonhardt, 6,500 shares.
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<PAGE> 71
WORLD MEDICAL SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of World Medical's Common Stock as of May 15, 1998 held by
(i) each person known to World Medical to be the beneficial owner of more than
5% of its outstanding shares of Common Stock, (ii) each director of World
Medical, (iii) the Continuing Executive of World Medical named in the Summary
Compensation Table, and (iv) all directors and executive officers of World
Medical as a group. Except as otherwise indicated below, all persons listed
below have sole voting and investment power with respect to their shares of
Common Stock, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
PERCENTAGE
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OWNED
------------------------------------ ------------ ------------
<S> <C> <C>
Howard J. Leonhardt(2)...................................... 686,239 44.0%
14601 Madison Place
Davie, FL 33325
Brenda L. Leonhardt(3)...................................... 686,239 44.0
14601 Madison Place
Davie, FL 33325
Nippon Zeon Co., Ltd.(4).................................... 168,194 11.4
2-4-1 Shiba-Keon Minato-Ku
Tokyo, Japan
Richard Spencer(5).......................................... 100,153 6.5
3461 North 47th Avenue
Hollywood, FL 33021
D. Theodore Berghorst(6).................................... 100,001 6.7
12 Kent Road
Winnetka, IL 60093
Simon J. Fuger(7)........................................... 46,393 3.1
Adam Sanford(8)............................................. 22,000 1.5
Todd F. Davenport(9)........................................ 17,334 1.2
Norman Dann(10)............................................. 12,001 *
Robert Burns................................................ 0 *
All directors and executive officers as a group (9
persons)(11).............................................. 984,121 58.8
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent (1%) of the Common
Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Beneficial ownership also
includes shares of stock subject to options and warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of
the date of this table. Percentage of beneficial ownership is based on
1,474,240 shares of Common Stock outstanding as of May 15, 1998.
(2) Includes 57,444 shares issuable upon exercise of options exercisable within
60 days of May 15, 1998. Also includes 927 shares and 26,500 shares
issuable upon exercise of options exercisable within 60 days of May 15,
1998, beneficially owned by Mr. Leonhardt's wife, with respect to which Mr.
Leonhardt disclaims beneficial ownership.
(3) Includes 26,500 shares issuable upon exercise of options exercisable within
60 days of May 15, 1998. Also includes 601,368 shares and 57,444 shares
issuable upon options exercisable within 60 days of May 15, 1998
beneficially owned by Ms. Leonhardt's husband, with respect to which Ms.
Leonhardt disclaims beneficial ownership.
(4) Includes 18,194 shares owned by Zeon Medical Corp., a wholly owned
subsidiary of Nippon Zeon Co., Ltd.
(5) Includes 64,276 shares issuable upon exercise of options exercisable within
60 days of May 15, 1998.
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<PAGE> 72
(6) Includes 41,667 shares owned by Vector and 25,000 shares issuable pursuant
to warrants held by Vector. Mr. Berghorst, the Chairman and Chief Executive
Officer of Vector, disclaims beneficial ownership of the securities of
World Medical held by Vector except to the extent of his pro rata pecuniary
interests therein.
(7) Includes 37,966 shares issuable upon exercise of options exercisable within
60 days of May 15, 1998.
(8) Includes 8,000 shares owned by Adam Spence Corporation, with respect to
which Mr. Sanford is sole shareholder.
(9) Includes 3,334 shares issuable upon exercise of options exercisable within
60 days of May 15, 1998.
(10) Includes 10,001 shares issuable upon exercise of options exercisable within
60 days of May 15, 1998.
(11) Includes 199,521 shares issuable upon exercise of options exercisable
within 60 days of May 15, 1998 and 25,000 shares issuable pursuant to
warrants.
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<PAGE> 73
COMPARISON OF RIGHTS OF STOCKHOLDERS OF AVE
AND SHAREHOLDERS OF WORLD MEDICAL
AVE is incorporated in the State of Delaware, and World Medical is
incorporated in the State of Florida. Pursuant to the Merger, Sub will be merged
with and into World Medical and World Medical will continue to be governed by
the Florida Act. AVE will continue to be governed by Delaware Law following the
Merger. The rights of AVE's stockholders are governed by its Amended and
Restated Certificate of Incorporation, as amended, (as so amended, the "AVE
Certificate of Incorporation") its Bylaws (the "AVE Bylaws") and Delaware Law.
The rights of World Medical's shareholders are governed by its Articles of
Incorporation (the "World Medical Articles of Incorporation"), its Bylaws (the
"World Medical Bylaws") and the Florida Act. After the effective time of the
Merger, the rights of World Medical shareholders who become AVE stockholders
will be governed by the AVE Certificate of Incorporation, the AVE Bylaws and
Delaware Law. The following is a summary comparison of certain material
differences between the rights of AVE stockholders under Delaware Law and its
Certificate of Incorporation and the AVE Bylaws and the rights of World Medical
shareholders under Florida Act and the World Medical Articles of Incorporation
and the World Medical Bylaws. This summary does not purport to be complete and
is qualified in its entirety by reference to the corporate statutes of Delaware
and Florida, and the corporate charters and bylaws of AVE and World Medical.
Cumulative Voting. In an election of directors under cumulative voting,
each share of stock normally having one vote is entitled to a number of votes
equal to the number of directors to be elected. A stockholder may then cast all
such votes for a single candidate or may allocate them among as many candidates
as the stockholder may choose (up to the number of directors to be elected).
Without cumulative voting, the holders of a majority of the shares present at an
annual meeting or any special meeting held to elect directors would have the
power to elect all the directors to be elected at that meeting, and no person
could be elected without the support of holders of a majority of the shares
voting at such meeting.
Under the Delaware Law, cumulative voting in the election of directors is
not mandatory. AVE's Certificate of Incorporation does not provide for
cumulative voting. Under the Florida Act, cumulative voting in the election of
directors is not mandatory. The World Medical Articles of Incorporation do not
provide for cumulative voting.
Shareholder Power to Call Special Shareholders Meeting. Under Delaware Law,
a special meeting of stockholders may be called by the board of directors or any
other person authorized to do so in the corporation's certificate of
incorporation or bylaws. The AVE Certificate of Incorporation and the AVE Bylaws
provide that special meetings of stockholders may be called by the chairman of
the board, the chief executive officer or by a resolution adopted by the
affirmative vote of a majority of the AVE Board.
Under the Florida Act, a special meeting of shareholders may be called by a
corporation's board of directors, by the persons authorized to do so in its
articles of incorporation or bylaws or by the holders of not less than ten
percent (10%) of all votes entitled to be cast on any issue proposed to be
considered at the special meeting, unless a greater percentage, not to exceed
fifty percent (50%), is required by the articles of incorporation. The World
Medical Bylaws have increased the percentage to fifty percent (50%).
Size of Board of Directors. Delaware Law permits the board of directors of
a Delaware corporation to change the authorized number of directors by amendment
to the corporation's bylaws or in the manner provided in the bylaws unless the
number of directors is fixed in the corporation's certificate of incorporation,
in which case a change in the number of directors may be made only by amendment
to the certificate of incorporation.
The AVE Bylaws provide that the authorized number of directors of the
corporation shall be fixed from time to time by the Board of Directors by a
resolution duly adopted by the Board of Directors. The number of directors
presently authorized is five.
Under the Florida Act, the number of directors on a board of directors
shall be specified in or fixed in accordance with a corporation's articles of
incorporation or bylaws. The World Medical Bylaws provide that World Medical
shall have at least one but not more than nine directors and that the number of
directors may
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<PAGE> 74
be altered by the shareholders at any annual or special meeting, provided that
the number of directors shall not be less than nor more than the number fixed by
the World Medical Articles of Incorporation.
Classified Board of Directors. A classified board is one with respect to
which a certain number of the directors, but not necessarily all, are elected on
a rotating basis each year. The Delaware Law permits, but does not require, a
Delaware corporation to provide in its certificate of incorporation for a
classified board of directors, pursuant to which the directors can be divided
into up to three classes of directors with staggered terms of office, with only
one class of directors to be elected each year for a maximum term of three
years. Although permitted by Delaware law, the AVE Board is not classified.
Rather, the AVE Certificate of Incorporation and the AVE Bylaws provide that
directors shall be elected at each annual stockholders' meeting.
Under the Florida Act, a corporation's articles of incorporation or bylaws
may provide that the board of directors be divided into not more than three
classes (four classes if the corporation was in existence before July 1, 1990)
of classified terms. Neither the World Medical Articles of Incorporation nor the
World Medical Bylaws provide for a classified Board of Directors.
Removal of Directors. Under the Delaware Law, any director or the entire
board of directors of a Delaware corporation may be removed with or without
cause by the holders of a majority of the shares then entitled to vote at an
election of directors.
Under the Florida Act, shareholders may remove one or more directors with
or without cause, unless the articles of incorporation provide that directors
may be removed only for cause. The World Medical Articles of Incorporation do
not so provide. Under the Florida Act, a director generally may be removed only
if the number of votes cast to remove him exceeds the number of votes cast not
to remove him. The Florida Act does not provide for a different method of
removing a director of a classified board.
Actions by Written Consent of Stockholders. Under Delaware Law,
stockholders may execute an action by written consent in lieu of a meeting of
stockholders. Delaware Law permits a corporation to eliminate such actions by
written consent in its certificate of incorporation. Under the AVE Certificate
of Incorporation and the AVE Bylaws, such actions by written consent are
eliminated.
Under the Florida Act, unless otherwise provided in the articles of
incorporation, actions which would be required or permitted to be taken at an
annual or special meeting of shareholders may be taken by the written consent of
the holders of shares constituting not less than the minimum number of shares
that would be necessary to take such action at a meeting of shareholders at
which all shares entitled to vote thereon were present and voted. Prior notice
is not required for such action. The World Medical Bylaws provide for action by
written consent consistent with the provisions of the Florida Act.
Advance Notice Requirement for Shareholder Proposals and Director
Nominations. The AVE Bylaws require timely advance notice by a stockholder of a
proposal or director nomination that such stockholder desires to present at the
annual meeting of stockholders. To be timely, a stockholder's notice must be
delivered or mailed no later than the close of business on the 60th day and no
earlier than the close of business on the 90th day prior to the first
anniversary of the preceding year's annual meeting of stockholders. There is no
similar advance notice requirement under the Florida Act.
Voting Requirements. Unless otherwise specified in a Delaware corporation's
certificate of incorporation, an amendment to the certificate of incorporation
requires the affirmative vote of a majority of the outstanding stock entitled to
vote thereon. The AVE Certificate of Incorporation does not otherwise specify.
Furthermore, under Delaware Law, the holders of the outstanding shares of a
class are entitled to vote as a class upon any proposed amendment to the
certificate of incorporation, whether or not entitled to vote thereon by the
provisions of the corporation's certificate of incorporation, if the amendment
would increase or decrease the aggregate number of authorized shares of such
class, increase or decrease the par value of the shares of such class, or alter
or change the powers, preferences or specific rights of the shares of such class
so as to adversely affect them.
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<PAGE> 75
Under the Delaware Law, unless otherwise provided in a corporation's
certificate of incorporation, all directors shall be elected by written ballot
by a majority of the shares entitled to vote thereon. Under Delaware Law,
abstentions generally have the same effect as votes against a matter. Under
Delaware Law, with certain exceptions, any merger, consolidation or sale of all
or substantially all of a corporation's assets must be approved by the
corporation's board of directors and a majority of the outstanding shares
entitled to vote.
Under the Florida Act, directors are generally elected by a plurality of
the votes cast by the shareholders entitled to vote at a shareholders' meeting
at which a quorum is present, unless otherwise provided in the articles of
incorporation. The World Medical Articles of Incorporation do not provide
otherwise.
An amendment to a Florida corporation's articles of incorporation must be
approved by the corporation's shareholders, except that certain immaterial
amendments specified in Section 607.1002 of the Florida Act may be made by the
board of directors. Unless a specific section of the Florida Act, articles of
incorporation or the board of directors require a greater vote, an amendment to
a Florida corporation's articles of incorporation generally must be approved by
a majority of the votes entitled to be cast on the amendment. Nothing in World
Medical's Articles of Incorporation and Bylaws changes this requirement.
With respect to plans of merger, the Florida Act requires approval by the
holders of a majority of the shares entitled to vote on such action. World
Medical's Articles of Incorporation do not change these provisions.
Rights of Dissenting Stockholders. Generally, stockholders of a Delaware
corporation who dissent from a merger or consolidation of the corporation for
which a stockholders' vote is required are entitled to appraisal rights,
requiring the surviving corporation to purchase the dissenting shares at fair
value. There are, however, generally no statutory rights of appraisal with
respect to stockholders of a Delaware corporation whose shares of stock are
either (i) listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or (ii) held of record by more than
2,000 stockholders where such stockholders receive only shares of stock of the
corporation surviving or resulting from the merger or consolidation (or cash in
lieu of fractional interests therein).
Generally, shareholders of a Florida corporation who dissent from a merger
or consolidation of the corporation are entitled to dissenters' rights. See "The
Merger and Related Transactions -- Appraisal and Dissenters' Rights."
Inspection of Stockholders List. Delaware Law allows any stockholder to
inspect the stockholders list for a purpose reasonably related to such person's
interest as a stockholder. Under the Florida Act, any shareholder can inspect
the shareholders' list for any proper purpose reasonably related to such
shareholder's interest.
Dividends. Subject to any restrictions contained in a corporation's
certificate of incorporation, the Delaware Law generally provides that a
corporation may declare and pay dividends out of surplus (defined as net assets
minus stated capital) or, when no surplus exists, out of net profits for the
fiscal year in which the dividend is declared and/or for the preceding fiscal
year. Dividends may not be paid out of net profits if the capital of the
corporation is less than the amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets. The AVE Certificate of Incorporation contains no restrictions on the
declaration or payment of dividends.
Under the Florida Act, a corporation may make distributions to shareholders
as long as, after giving effect to such distribution, the corporation would be
able to pay its debts as they become due in the usual course of business and,
subject to the articles of incorporation, the corporation's total assets would
not be less than the sum of its total liabilities plus the amount that would be
needed, if the corporation were to be dissolved at the time of the distribution,
to satisfy the preferential rights upon dissolution of shareholders whose
preferential rights are superior to those receiving the distribution. Under the
Florida Act, a corporation's redemption of its own capital stock is deemed to be
a distribution. The World Medical Bylaws provide that dividends may be declared
by the Board of Directors except when it is insolvent or when payment of the
dividends would render it insolvent.
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<PAGE> 76
Bylaws. Under the Delaware Law, the authority to adopt, amend, or repeal
the bylaws of a Delaware corporation is held exclusively by the stockholders
unless such authority is conferred upon the board of directors in the
corporation's certificate of incorporation. The AVE Certificate of Incorporation
expressly grants to its directors the power to make, alter, or repeal any
bylaws. Adoption, amendment and repeal of the AVE Bylaws by the stockholders
require a vote of eighty percent (80%) of the combined voting power of AVE's
outstanding stock.
Under the Florida Act, a corporation's board of directors may amend or
repeal the corporation's bylaws unless the articles of incorporation or another
section of the Florida Act reserves the power to amend the bylaws exclusively to
the shareholders, or the shareholders, in amending or repealing the bylaws
provide expressly that the board of directors may not amend or repeal the bylaws
or a specific bylaw provision. Also, under the Florida Act, a corporation's
shareholders may amend or repeal the corporation's bylaws even though the bylaws
may also be amended or repealed by its board of directors. The World Medical
Bylaws may be altered, amended or repealed and new bylaws may be adopted by the
Board of Directors, provided that the bylaws enacted by the Board of Directors
may be altered, amended or repealed by vote of the shareholders entitled to vote
thereon, and a new bylaw may be adopted by the shareholders.
Preemptive Rights. Stockholders of a Delaware corporation have only such
preemptive rights as may be provided in its certificate of incorporation. The
AVE Certificate of Incorporation does not grant any preemptive rights to its
stockholders.
Under the Florida Act, shareholders have only such preemptive rights as may
be provided in the articles of incorporation. The World Medical Articles of
Incorporation do not provide for preemptive rights.
AVE Rights Plan. On February 25, 1997, the Board of Directors of AVE
declared a dividend of one preferred share purchase right (a "Right") for each
outstanding share of AVE Common Stock to the holders of record on March 21,
1997, and authorized and directed the issuance of one Right with respect to each
share of AVE Common Stock that becomes outstanding prior to the occurrence of
certain triggering events pursuant to the Preferred Shares Rights Agreement
dated February 26, 1997 between AVE and The First National Bank of Boston (the
"Rights Agreement"). Each share of AVE Common Stock issued in exchange for World
Medical Common Stock includes one Right. Each Right entitles the registered
holder to purchase from AVE a fraction of a share of AVE's Series A Junior
Participating Preferred Stock at a designated price per such fraction of a
preferred share, subject to adjustment under certain circumstances. Upon the
occurrence of certain events generally associated with an unsolicited takeover
attempt of AVE, the Rights (except for Rights held by an Acquiring Person (as
defined in the Rights Agreement)) will become exercisable and will cease to
trade with the AVE Common Stock. Upon the acquisition without Board consent of
15% or more of AVE's Common Stock or announcement of a tender offer or exchange
offer for shares in excess of fifteen percent (15%) or more of AVE's Common
Stock, each Right (except for Rights held by an Acquiring Person) will be
converted into a right to purchase at the then-current exercise price of the
Right that number of shares of AVE Common Stock having a market value of two
times the exercise price of the Right or, in the event of merger of AVE into an
Acquiring Person, securities of the Acquiring Person having a market value of
two times the exercise price of the Right. Subject to the terms of the Rights
Agreement, AVE may exchange the Rights for AVE Common Stock.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire AVE in a
manner that causes the Rights to become exercisable. AVE believes, however, that
the Rights should neither affect any prospective offer or willing to negotiate
with the Board of Directors of AVE nor interfere with any merger or other
business combination approved by the Board of Directors of AVE because the Board
of Directors may, at its option, redeem the Rights. The terms of the Rights may
be amended by the Board of Directors of AVE without the consent of the holders
of the Rights.
World Medical does not have such a Rights Plan.
Transactions Involving Officers or Directors. A Delaware corporation may
lend money to, or guarantee any obligation incurred by, its officers or
directors if, in the judgment of the board of directors, such loan or guarantee
may reasonably be expected to benefit the corporation. With respect to any other
contract or
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<PAGE> 77
transaction between the corporation and one or more of its directors or
officers, such transactions are neither void nor voidable if either (i) the
director's or officer's interest is made known to the disinterested directors or
the stockholders of the corporation, who thereafter approve the transaction in
good faith, or (ii) the contract or transaction is fair to the corporation as of
the time it is approved or ratified by either the board of directors, a
committee thereof, or the stockholders. The Florida Act contains similar
provisions.
Filling Vacancies on the Board of Directors. Under Delaware Law, vacancies
on the board of directors and newly created directorships may be filled by a
majority of the directors then in office (even though less than a quorum) unless
otherwise provided in the certificate of incorporation or bylaws of the
corporation, the AVE Certificate of Incorporation and Bylaws do not provide
otherwise).
The Florida Act provides that a vacancy on the board of directors and newly
created directorships shall be filled by the affirmative vote of a majority of
the remaining directors, or by the shareholders, unless the articles of
incorporation provide otherwise (the World Medical Articles of Incorporation and
Bylaws do not provide otherwise).
Limitation of Liability of Directors. Under the Delaware Law, a corporation
may include in its certificate of incorporation a provision which would, subject
to the limitations described below, eliminate or limit directors' liability for
monetary damages for breaches of their fiduciary duty of care. Under Delaware
Law, a director's liability cannot be eliminated or limited (i) for breaches of
the duty of loyalty, (ii) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) for the
payment of unlawful dividends or expenditure of funds for unlawful stock
purchases or redemptions, or (iv) for transactions from which such director
derived an improper personal benefit. The AVE Certificate of Incorporation
contains provisions limiting a director's liability to the fullest extent
permitted by Delaware Law. AVE also has indemnification agreements with its
executive officers and directors.
Under the Florida Act, a director is not personally liable for monetary
damages to the corporation or any other person for any act or omission as a
director, unless the director breached or failed to perform his statutory duties
as a director and such breach or failure: (i) constitutes a violation of
criminal law, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful; (ii)
constitutes a transaction from which the director derived an improper personal
benefit; (iii) results in an unlawful distribution pursuant to Section 607.0834
of the Florida Act; (iv) in a derivative action or an action by a shareholder,
constitutes a conscious disregard for the best interests of the corporation or
willful misconduct; or (v) in a proceeding other than a derivative action or an
action by a shareholder, constitutes recklessness or an act or omission which
was committed in bad faith or with a malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety or property. The World
Medical Bylaws limit director liability to the fullest extent permitted by law.
Business Combinations/Reorganizations. Section 203 of Delaware Law
prohibits certain transactions between a Delaware corporation and an "interested
stockholder." An "interested stockholder" for purposes of such provision is a
stockholder that is directly or indirectly a beneficial owner of fifteen percent
(15%) or more of the voting power of the outstanding voting stock of a Delaware
corporation (or its affiliate or associate). This provision prohibits certain
business combinations between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder acquired its
stock unless (i) the business combination is approved by the corporation's board
of directors prior to the stock acquisition date; (ii) the interested
stockholder acquired at least eighty-five percent (85%) of the voting stock of
the corporation in the transaction in which such stockholder became an
interested stockholder; or (iii) the business combination is approved by a
majority of the board of directors and the affirmative vote of two-thirds of
disinterested stockholders.
The Florida Act contains an affiliated transactions statute which provides
that certain transactions involving a corporation and a shareholder owning ten
percent (10%) or more of the corporation's outstanding voting shares (an
"interested shareholder") must generally be approved by the affirmative vote of
the holders of two-thirds of the disinterested shareholders. The transactions
covered by the statute include, with certain exceptions, mergers and
consolidations to which the corporation and the interested shareholder are
parties. Under the Florida Act, a two-thirds vote is not required in any of the
following circumstances: (i) the
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transaction was approved by a majority of the corporation's disinterested
directors; (ii) the corporation did not have more than 300 shareholders of
record at any time during the preceding three years; (iii) the interested
shareholder has been the beneficial owner of at least eighty percent (80%) of
the corporation's outstanding voting shares for the past five years; (iv) the
interested shareholder is the beneficial owner of at least ninety percent (90%)
of the corporation's outstanding voting shares, exclusive of those acquired in a
transaction not approved by a majority of disinterested directors; or (v) the
consideration received by each shareholder in connection with the transaction
satisfies the "fair price" provisions of the statute. This statute applies to
any Florida corporation unless the original articles of incorporation or an
amendment to the articles of incorporation or bylaws contain a provision
expressly electing not to be governed by this statute, or an amendment to the
articles of incorporation expressly electing not to be governed by this Section
or bylaws is approved by the affirmative vote of a majority of disinterested
shareholders, but is not effective until eighteen (18) months after approval.
Neither World Medical's Articles of Incorporation nor its Bylaws contain such a
provision.
Control Share Acquisitions. The Florida Act contains a control share
acquisition statute which provides that a person who acquires shares in an
issuing public corporation in excess of certain specified thresholds, pursuant
to Section 607.0902, will generally not have any voting rights with respect to
such shares, unless the voting rights are approved by a majority of the
disinterested shareholders. This statute does not apply to acquisitions of
shares of a corporation if, prior to the pertinent acquisition of shares, the
corporation's articles of incorporation or bylaws provide that the corporation
shall not be governed by the statute. Under the Florida Act, a corporation is
permitted to adopt a provision in its articles of incorporation or bylaws
providing for the redemption by the corporation of such acquired shares in
certain circumstances. Unless otherwise provided in the corporation's articles
of incorporation or bylaws prior to the pertinent acquisition of shares, and in
the event that such shares are accorded full voting rights by the shareholders
of the corporation and the acquiring shareholder acquires a majority of the
voting power of the corporation, all shareholders who did not vote in favor of
according voting rights to such acquired shares are entitled to dissenters'
rights to receive fair value of their shares. For a more detailed description of
dissenters' rights, see "The Merger and Related Transactions -- Dissenters'
Rights."
Delaware does not have any provision comparable to Florida's Control Share
Acquisition Statute.
Shareholder Derivative Suits. Under Delaware Law, a stockholder may only
bring a derivative action on behalf of the corporation if the stockholder was a
stockholder of the corporation at the time of the transaction in question or his
or her stock thereafter devolved upon him or her by operation of law. Under the
Florida Act, a person may not bring a derivative action unless the person was a
shareholder of the corporation at the time the challenged transaction occurred
or unless the person acquired the shares by operation of law from a person who
was a shareholder at such time. The Florida Act also provides that a shareholder
must allege and verify in a complaint that a demand was made to the board of
directors to obtain court action and that the demand was refused or ignored.
Under the Florida Act, a derivative proceeding may be settled or discontinued
only with court approval, and the court may dismiss a derivative proceeding if
the court finds that a determination has been made in good faith that the
maintenance of the action is not in the best interests of the corporation. The
Florida Act further provides that if an action was brought without reasonable
cause the court may require the plaintiff to pay the corporation's reasonable
expenses, including reasonable attorney's fees, incurred in defending the
proceeding.
Dissolution. Under Delaware Law, a dissolution must be approved by
stockholders holding one hundred percent (100%) of the total voting power or the
dissolution must be initiated by the board of directors and approved by the
holders of a majority of the outstanding voting shares of the corporation. Under
the Florida Act, if dissolution is initiated by the board of directors, it must
be approved by the holders of a majority of the outstanding voting shares of a
corporation. Under the Florida Act, for a dissolution that is not initiated by
the board of directors, action to dissolve the corporation may be taken by
written consent of the holders of not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
71
<PAGE> 79
EXPERTS
The consolidated financial statements of Arterial Vascular Engineering,
Inc. appearing in Arterial Vascular Engineering, Inc.'s Annual Report (Form
10-K) for the year ended June 30, 1997 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of World Medical Manufacturing
Corporation as of December 31, 1997 and 1996 and for the years then ended,
included in the Proxy Statement of World Medical Manufacturing Corporation which
is referred to and made a part of this Prospectus and Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for AVE by its Vice President of Legal Affairs and General Counsel,
Lawrence J. Fassler, Esq. Certain legal matters in connection with the Merger
will be passed upon for AVE by Cooley Godward LLP, Palo Alto, California.
Certain legal matters in connection with the Merger will be passed upon for
World Medical by Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.,
Orlando, Florida.
72
<PAGE> 80
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Shareholders' Equity
(Deficiency).............................................. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheet for the Three Months
Ended March 31, 1998 (unaudited).......................... F-13
Condensed Consolidated Statement of Operations for the Three
Months Ended March 31, 1998 (unaudited)................... F-14
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 (unaudited)............. F-15
Notes to Condensed Consolidated Finance Statements for the
Three Months Ended March 31, 1998 (unaudited)............. F-16
</TABLE>
F-1
<PAGE> 81
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
World Medical Manufacturing Corporation
We have audited the accompanying consolidated balance sheets of World Medical
Manufacturing Corporation and subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity
(deficiency) and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of World Medical
Manufacturing Corporation and subsidiary at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Miami, Florida
February 5, 1998
F-2
<PAGE> 82
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1997 1996
---------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $1,416,323 $ 151,942
Accounts receivable, net of allowance for doubtful
accounts of $39,000 in 1997 and 1996................... 235,693 136,397
Accounts receivable -- trade from related parties......... 619,738 173,000
Inventory................................................. 611,872 384,822
---------- -----------
Total current assets.............................. 2,883,626 846,161
Equipment, net of accumulated depreciation.................. 325,128 78,998
Patents, net................................................ 122,950 28,667
Other assets................................................ 28,850 4,998
---------- -----------
$3,360,554 $ 958,824
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 404,084 $ 244,770
Accounts payable -- trade to related parties.............. 43,387 67,000
Accrued compensation...................................... 70,015 624,370
Other accrued liabilities................................. 42,277 33,325
Customer advances......................................... 8,133 15,878
Note payable.............................................. -- 150,000
---------- -----------
Total current liabilities......................... 567,896 1,135,343
Commitments and contingencies
Shareholders' equity (deficiency):
Preferred stock, $.01 par value:
Authorized shares -- 1,000,000; no shares issued or
outstanding........................................... -- --
Common stock, $.10 par value:
Authorized shares -- 10,000,000; issued and outstanding
shares -- 1,463,823 in 1997 and 1,161,623 in 1996.... 146,382 116,162
Additional paid-in capital................................ 7,363,349 2,697,783
Deferred compensation..................................... (29,793) --
Accumulated deficit....................................... (4,687,280) (2,990,464)
---------- -----------
Total shareholders' equity (deficiency)........... 2,792,658 (176,519)
---------- -----------
$3,360,554 $ 958,824
========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 83
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net sales................................................... $ 4,202,767 $ 2,060,383
Cost of sales............................................... 2,455,723 1,455,017
----------- -----------
Gross profit................................................ 1,747,044 605,366
Operating expenses:
Selling, general and administrative....................... 1,950,582 1,620,220
Research and development.................................. 1,518,842 821,534
----------- -----------
Total operating expenses.................................... 3,469,424 2,441,754
----------- -----------
Loss from operations........................................ (1,722,380) (1,836,388)
Other income (expense):
Interest income........................................... 38,671 14,003
Interest expense.......................................... (13,107) (16,371)
----------- -----------
Total other................................................. 25,564 (2,368)
----------- -----------
Net loss.................................................... $(1,696,816) $(1,838,756)
=========== ===========
Basic and diluted net loss per common share................. $ (1.28) $ (1.74)
=========== ===========
Weighted average number of common shares outstanding........ 1,324,409 1,056,383
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 84
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
CASH PAID TOTAL
COMMON STOCK ADDITIONAL FOR UNISSUED SHAREHOLDERS'
-------------------- PAID-IN COMMON DEFERRED ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL STOCK COMPENSATION DEFICIT (DEFICIENCY)
--------- -------- ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996..... 917,430 $ 91,743 $1,008,607 $ 51,500 $ -- $(1,151,708) $ 142
Issuance of common stock..... 211,608 21,161 1,460,092 -- -- -- 1,481,253
Expenses paid with the
issuance of common stock... 20,714 2,071 142,927 -- -- -- 144,998
Cash received for common
stock to be issued......... -- -- -- 15,000 -- -- 15,000
Issuance of common stock..... 11,871 1,187 65,313 (66,500) -- -- --
Stock options granted to non-
employees.................. -- -- 20,844 -- -- -- 20,844
Net loss..................... -- -- -- -- -- (1,838,756) (1,838,756)
--------- -------- ---------- -------- -------- ----------- -----------
Balance at December 31, 1996... 1,161,623 116,162 2,697,783 -- -- (2,990,464) (176,519)
Sales of common stock (net of
issuance costs of
$400,000).................. 286,400 28,640 3,623,386 -- -- -- 3,652,026
Shares issued to employees
for services rendered...... 10,300 1,030 124,541 -- -- -- 125,571
Shares issued for patent..... 5,500 550 65,450 -- -- -- 66,000
Stock options granted to
employees.................. -- -- 647,242 -- (55,000) -- 592,242
Equity instruments granted to
non-employees.............. -- -- 204,947 -- -- -- 204,947
Amortization of deferred
compensation............... -- -- -- -- 25,207 -- 25,207
Net loss..................... -- -- -- -- -- (1,696,816) (1,696,816)
--------- -------- ---------- -------- -------- ----------- -----------
Balance at December 31, 1997... 1,463,823 $146,382 $7,363,349 $ -- $(29,793) $(4,687,280) $ 2,792,658
========= ======== ========== ======== ======== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 85
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(1,696,816) $(1,838,756)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 53,147 16,192
Amortization.............................................. 14,384 4,133
Amortization of deferred compensation..................... 25,207 --
Provision for doubtful accounts........................... -- 38,582
Expenses paid with equity instruments..................... 204,947 165,842
Stock issued to employees for services rendered........... 125,571 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (546,034) (209,402)
Inventory.............................................. (227,050) (198,878)
Accounts payable....................................... 135,701 166,704
Accrued compensation................................... 37,887 594,120
Other accrued liabilities.............................. 8,952 21,161
Customer advances...................................... (7,744) (11,737)
----------- -----------
Net cash used in operating activities....................... (1,871,848) (1,252,039)
INVESTING ACTIVITIES
Purchase of equipment....................................... (291,944) (63,808)
Purchase of patent.......................................... (50,000) --
Purchase of other assets.................................... (23,853) (464)
----------- -----------
Net cash used in investing activity......................... (365,797) (64,272)
FINANCING ACTIVITIES
Repayment of note payable................................... (150,000) --
Proceeds from issuance of common stock...................... 3,652,026 1,453,253
Proceeds from common stock to be issued..................... -- 15,000
----------- -----------
Net cash provided by financing activities................... 3,502,026 1,468,253
----------- -----------
Increase (decrease) in cash................................. 1,264,381 151,942
Cash and cash equivalents at beginning of year.............. 151,942 --
----------- -----------
Cash and cash equivalents at end of year.................... $ 1,416,323 $ 151,942
=========== ===========
SUPPLEMENTAL INFORMATION
Interest payments........................................... $ 13,108 $ 16,366
=========== ===========
SIGNIFICANT NON-CASH TRANSACTIONS
Common stock issued for patent.............................. $ 66,000 $ 28,000
=========== ===========
Common stock options issued for employee services........... $ 592,242 $ --
=========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 86
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
World Medical Manufacturing Corporation (the Company) was incorporated on
August 2, 1988 for the purpose of designing and manufacturing minimally invasive
devices for diagnosis and treatment of patients with cardiovascular disease.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
World Medical Europe Limited (a wholly-owned active subsidiary). All significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Deposits in
banks may exceed the amount of insurance provided on such deposits. The Company
performs reviews of the credit worthiness of its depository banks. The Company
has not experienced any losses on its deposits of cash and cash equivalents.
Inventories
Inventories consist of raw materials, work in progress and finished goods
and are stated at the lower of cost (using the first-in, first-out method) or
market value.
Equipment
Equipment is stated at cost less accumulated depreciation. Depreciation of
equipment is computed using the straight-line method over the estimated useful
lives of the respective assets (ranging from three to five years).
Patents
Patents are stated at cost and amortized on a straight-line basis over
their estimated useful life (ranging from five to seven years). Accumulated
amortization was $21,717 and $7,333 as of December 31, 1997 and 1996,
respectively.
Research and Development
Research and development costs are expensed as incurred.
Revenue Recognition
Revenues are recognized when products are shipped to distributors. Product
returns are permitted only in limited circumstances and are estimated and
reflected as adjustments to current period sales and cost of sales.
F-7
<PAGE> 87
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
Net Loss Per Share
The Company has adopted provisions of Financial Accounting Standard Board
Statement No. 128, Earnings per Share (SFAS 128). SFAS No. 128, which applies to
entities with publicly held common stock, simplifies and replaces the standards
for computing earnings per share previously required in APB Opinion No. 15,
Earnings per Share, and makes them comparable to international earnings per
share standards. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997.
Basic and diluted net loss per share, is calculated using the weighted
average number of common shares outstanding during the respective periods.
Common stock equivalents are not included in the computation of net loss and pro
forma net loss per share in 1997 and 1996 as their effect is antidilutive.
2. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Finished goods.......................................... $ 88,244 $ 37,456
Work in process......................................... 8,766 66,763
Raw materials........................................... 514,862 280,603
-------- --------
$611,872 $384,822
======== ========
</TABLE>
3. EQUIPMENT
Equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
Machinery and equipment................................. $196,654 $ 97,366
Furniture, fixtures and office equipment................ 261,410 68,754
-------- --------
458,064 166,120
Accumulated depreciation................................ (132,936) (87,122)
-------- --------
$325,128 $ 78,998
======== ========
</TABLE>
4. NOTE PAYABLE
During 1997 the Company had a $150,000 line of credit (LOC) with a
commercial bank bearing interest at the Wall Street Journal prime rate plus 2%
(10.25%) as of December 31, 1996. The LOC was repaid and expired in May 1997.
The LOC was secured by substantially all of the assets of the Company.
5. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and a vehicle under non-cancelable
operating leases. Rent expense was $87,481, $57,196 and $40,724, and for the
years ended December 31, 1997 and 1996 and 1995, respectively.
F-8
<PAGE> 88
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
The future minimum annual payments under non-cancelable operating leases at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998...................................... $195,000
1999...................................... 189,000
2000...................................... 158,000
--------
$542,000
========
</TABLE>
The Company has an agreement with a distributor of its product that
requires the Company to pay the distributor between $3 million and $7 million
(depending on the date of such transaction) in the event the Company is sold and
the distribution agreement is canceled (see Note 11).
In 1997, the Company entered into a research and option agreement with the
University of Arizona under which the Company has agreed to provide funding of a
research project. Total funding committed under the agreement is $43,000 for
1997 and $31,000 for 1998, respectively.
At December 31, 1997, the Company committed to approximately $74,000 in
building improvements under the terms of a construction contract, of which
$43,000 is to be reimbursed by the landlord.
6. STOCK OPTIONS AND WARRANTS
On April 19, 1996 the Company adopted the 1996 Non-Qualified Stock Option
Plan (the Option Plan) under which 1,000,000 shares of common stock are reserved
for issuance upon exercise of options granted to employees, officers and
consultants of the Company. The Option Plan is administered by the Board of
Directors, which determines recipients and types of awards to be granted,
including the exercise price, number of shares subject to the award and the
exercisability thereof. All options granted have 10 year terms and vest over a
term from two to three years.
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
SHARES
UNDER WEIGHTED AVERAGE
OPTION EXERCISE PRICE
------- ----------------
<S> <C> <C>
Options outstanding at January 1, 1996............. -- $ --
Granted.......................................... 279,128 7.00
-------
Options outstanding at December 31, 1996........... 279,128 7.00
Granted.......................................... 193,222 9.96
Exercised........................................ --
Canceled......................................... (43,967) 7.00
-------
Options outstanding at December 31, 1997........... 428,383 8.34
=======
Exercisable at December 31, 1996................... 99,720
=======
Exercisable at December 31, 1997................... 277,585
=======
</TABLE>
The weighted average fair value of options granted during 1997 and 1996 was
$6.36 and $1.15, respectively. The weighted average remaining contractual life
of options outstanding as of December 31, 1997 is 8.8 years.
In conjunction with an offering of common stock during 1997, the Company
granted 25,000 warrants to purchase common stock with an exercise price of $13
per share with a term of five years to the representatives of the underwriters.
All of the warrants were outstanding as of December 31, 1997. The approximate
fair
F-9
<PAGE> 89
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
market value the warrants on the date of grant was $50,000. This amount has been
accounted for as a cost of the offering.
At December 31, 1997, the Company had reserved common stock for future
issuance under warrant and option agreements as follows:
<TABLE>
<S> <C>
Stock option plans and other option grants.................. 428,383
Common stock purchase warrants.............................. 25,000
-------
Total............................................. 453,383
=======
</TABLE>
During 1996, certain officers and employees agreed to accept, in lieu of
cash compensation for 1996, equity interest in the Company. The amount of the
compensation was included in accrued compensation in the December 31, 1996
balance sheet. In January, 1997, the Board of Directors granted these employees
options to acquire 84,606 shares of common stock with an exercise price of $5.00
per share. The options vested at grant date and are exercisable over 10 years.
The fair value of the common stock at the date the options were granted was
$12.00 per share. Accordingly, the Company recognized $592,000 of compensation
expense in the 1996 statement of operations. This amount is the difference
between the fair value of the common stock and the option price at the date of
grant.
The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, requires use of option valuation models that were not developed
for use in valuing employee stock options.
During 1997, the Company granted stock options to employees for the
purchase of 17,500 common shares at exercise prices ranging from $7 to $12 per
share. Deferred compensation of $55,000 was recorded in connection with the
issuance of these options based on a fair market value ranging from $10 to $13
per share. The Company will amortize the deferred compensation over the
employees' required service period of two years. Deferred compensation expense
recognized in 1997 totaled $25,207.
Pro forma information regarding net income and earnings per share has been
determined as if the Company had accounted for its employee stock options under
the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 7%; dividend yields of 0%; volatility
factors of the expected market price of the Company's Common Stock of .584; and
a weighted-average expected life of the options based on the vesting period of
the options of two years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. In accordance
with SFAS No. 123, the effect of compensation expense from stock option awards
on pro forma net income reflects only the vesting of year ended 1996 awards in
1996 and the vesting of year ended 1997 and 1996 awards in 1997. Because
compensation expense associated with a stock option award is recognized over the
vesting period, the initial impact of applying SFAS No. 123 may not be
F-10
<PAGE> 90
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
indicative of compensation expense in future years, when the effect of the
amortization of multiple awards will be reflected in pro forma net income. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Pro forma net loss.......................................... $1,993,969 $2,076,649
========== ==========
Pro forma net loss per share................................ $ 1.51 $ 1.97
========== ==========
</TABLE>
7. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Deferred
income tax assets and liabilities are determined based upon differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
The Company did not have a current or deferred tax provision or benefit for
the years ended December 31, 1997 and 1996 because of its operating losses.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- ---------
<S> <C> <C>
Net operating losses............................... $ 1,175,125 $ 617,885
Stock option compensation.......................... 215,901 215,901
Allowance for doubtful accounts.................... 14,538 14,538
Depreciation/amortization and other................ 2,232
----------- ---------
Net deferred tax assets............................ 1,407,796 848,324
Valuation allowance................................ (1,407,796) (848,324)
----------- ---------
Net deferred taxes................................. $ -- $ --
=========== =========
</TABLE>
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a valuation allowance of $1,176,227 at December 31, 1997 is
necessary to reduce the deferred tax assets to the amount that will more likely
than not be realized. The change in the valuation allowance for the current year
is $327,903.
The Company has available net operating loss carryforwards of approximately
$3.1 million at December 31, 1997. These losses expire in the years 2007 through
2012. A change of ownership of greater than 50% may have occurred as a result of
the Company issuing equity instruments. As a result, a limitation may be imposed
upon the future utilization of net operating losses and the effects of any such
limitation are not yet known.
F-11
<PAGE> 91
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
8. RELATED PARTY TRANSACTIONS
Certain of the Company's vendors and customers own shares of the Company.
The following summarizes transactions with these shareholders:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Sale of medical devices............................. $3,326,549 $1,098,000
Purchases of materials and services................. 780,380 220,000
Trade accounts receivable from shareholders......... 619,738 173,000
Payables to shareholders............................ 43,387 67,000
</TABLE>
A material part of the Company's business is dependent upon one customer
that is also a shareholder. During the years ended December 31, 1997 and 1996,
this customer accounted for $656,000 and $654,000 (or 15.61% and 31.74%) of net
sales, respectively.
Additionally, during 1997 sales to certain shareholders of the Company
totaled $1,080,000 (25% of net sales) and $550,000 (13% of net sales).
9. PRODUCT LIABILITY INSURANCE
The Company carries claims-made product liability insurance which includes
a deductible on a per occurrence basis and in the aggregate. Management is not
aware of any reported claims pending against the Company in excess of insurance
coverage and considers current insurance coverage sufficient to protect itself
from product liability actions.
10. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable and
short-term borrowings are reflected in the financial statements at fair value
because of the short-term maturity of these instruments.
11. POTENTIAL SALE OF COMPANY (UNAUDITED)
The Company has entered into an Agreement and Plan of Merger and
Reorganization ("the Reorganization Agreement") with Arterial Vascular
Engineering, Inc. to enter into a transaction for the possible sale of the
Company. The transaction is subject to, among other things, satisfactory
completion of business due diligence and shareholder approval. However, there
can be no assurance that this transaction will be consummated.
Additionally, in connection with the Reorganization Agreement, the Company
has agreed to terminate the agreement with a distributor, more fully described
in Note 5 for $1,850,000. The Company has also agreed, contingent upon the
closing of the proposed merger transaction, to pay $600,000 to an individual for
the assignment of all rights, title and interest in certain patents held by the
individual.
During 1998, the Company entered into a line of credit for $500,000 with a
financial institution. The line of credit is secured by a certificate of deposit
for $500,000.
F-12
<PAGE> 92
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 424,543
Accounts receivable, net of allowance for doubtful
accounts of $39,000.................................... 937,697
Inventory................................................. 748,104
-----------
Total current assets........................................ 2,110,338
Equipment, net of accumulated depreciation.................. 492,136
Patents, net................................................ 117,184
Other assets................................................ 16,837
-----------
$ 2,736,495
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable.......................................... $ 411,643
Accrued compensation...................................... 131,121
Customer advances......................................... 4,742
Note payable.............................................. 60,117
-----------
Total current liabilities................................... 607,623
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 1,000,000; no shares issued or
outstanding........................................... --
Common stock, $.10 par value:
Authorized shares -- 10,000,000; issued and outstanding
shares -- 1,463,823 146,382
Additional paid-in capital................................ 7,409,044
Deferred compensation..................................... (22,916)
Accumulated deficit....................................... (5,403,638)
-----------
Total shareholders' equity.................................. 2,128,872
-----------
$ 2,736,495
===========
</TABLE>
See accompanying notes.
F-13
<PAGE> 93
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------
1998 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Net sales................................................... $1,365,268 $ 785,218
Cost of sales............................................... 778,599 540,482
---------- ----------
Gross profit................................................ 586,669 224,736
Operating expenses:
Selling, general and administrative....................... 709,993 361,296
Research and development.................................. 602,749 209,090
---------- ----------
Total operating expenses.................................... 1,312,742 570,386
---------- ----------
Loss from operations........................................ (726,073) (325,650)
Other income (expense):
Interest income........................................... 9,832 5,920
Interest expense.......................................... (116) (3,598)
---------- ----------
Total other................................................. 9,716 2,322
---------- ----------
Net loss.................................................... $ (716,357) $ (323,328)
========== ==========
Basic and diluted net loss per common share................. $ (0.49) $ (0.27)
========== ==========
Weighted average number of common shares outstanding........ 1,463,823 1,192,987
========== ==========
</TABLE>
See accompanying notes.
F-14
<PAGE> 94
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------
1998 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (716,357) $ (323,328)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.............................................. 24,402 4,050
Amortization.............................................. 5,766 --
Amortization of deferred compensation..................... 52,570 --
Changes in operating assets and liabilities:
Accounts receivable.................................... (80,862) (137,105)
Inventory.............................................. (136,233) (120,231)
Accounts payable....................................... (20,390) 161,664
Customer advances...................................... 10,616 --
---------- ----------
Net cash used in operating activities....................... (860,488) (414,950)
INVESTING ACTIVITIES
Purchase of equipment....................................... (191,409) (19,875)
Purchase of patent.......................................... -- (10,000)
---------- ----------
Net cash used in investing activity......................... (191,409) (29,875)
FINANCING ACTIVITIES
Note payable................................................ 60,117 --
Proceeds from issuance of common stock...................... -- 976,800
---------- ----------
Net cash used for financing activities...................... 60,117 976,800
---------- ----------
(Decrease) increase in cash................................. (991,780) 531,975
Cash and cash equivalents at beginning of period............ 1,416,323 151,942
---------- ----------
Cash and cash equivalents at end of period.................. $ 424,543 $ 683,917
========== ==========
SUPPLEMENTAL INFORMATION
Interest payments........................................... $ -- $ 10,000
========== ==========
SIGNIFICANT NON-CASH TRANSACTIONS
Common stock issued for patent.............................. $ -- $ 66,000
========== ==========
Common stock options issued for employee services........... $ -- $ 592,242
========== ==========
</TABLE>
See accompanying notes.
F-15
<PAGE> 95
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the 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 March 31, 1998
are not necessarily indicative of the result that may be expected for the year
ended December 31, 1998. For further information, refer to the Company's
consolidated financial statements and footnotes thereto for the year ended
December 31, 1997.
The condensed consolidated financial statements include the accounts of
World Medical Manufacturing Corporation and its subsidiaries (the Company). All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Net Loss Per Share
The Company has adopted the provisions of Financial Accounting Standards
Board Statement No. 128, Earnings per Share (SFAS 128). SFAS No. 128, which
applies to entities with publicly held common stock, simplifies and replaces the
standards for computing earnings per share previously required in APB Opinion
No. 15, Earnings per Share (SFAS No. 128), and makes them comparable to
international earnings per share standards. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997.
Basic and diluted net loss per share, is calculated using the weighted
average number of common shares outstanding during the respective periods.
Common stock equivalents are not included in the computation of net loss and pro
forma net loss per share for the three months ended March 31, 1997 and 1996 as
their effect is antidilutive.
2. POTENTIAL SALE OF COMPANY
The Company has entered into an Agreement and Plan of Merger and
Reorganization ("the Reorganization Agreement") with Arterial Vascular
Engineering, Inc. for the possible sale of the Company. The transaction is
subject to, among other things, satisfactory completion of business due
diligence and shareholder approval. However, there can be no assurance that this
transaction will be consummated.
During 1998, the Company entered into a line of credit for $500,000 with a
financial institution. The line of credit is secured by a certificate of deposit
for $500,000.
3. INCOME TAXES
Income taxes have been provided at the effective tax rate expected for the
year. Income taxes are accounted for in accordance with SFAS No. 109. SFAS No.
109 requires a valuation allowance to reduce the deferred tax assets reported
if, based on the weight of the evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a full valuation allowance March 31, 1998 is necessary to reduce
the deferred tax assets to the amount that will more likely than not be
realized.
F-16
<PAGE> 96
WORLD MEDICAL MANUFACTURING CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. CONTINGENCIES
The Company has an agreement with a distributor of its product that
requires the Company to pay the distributor between $3 million and $7 million
(depending on the date of such transaction) in the event the Company is sold and
the distribution agreement is canceled. In connection with the Reorganization
Agreement described in Note 2, the Company and such distributor have agreed to
terminate the distribution agreement for $1,850,000. The Company has also
agreed, contingent upon the closing of the merger transaction, to pay $600,000
to an individual for the assignment of all rights, title and interest in certain
patents held by the individual.
The Company carries claims-made product liability insurance which includes
a deductible on a per occurrence basis and in the aggregate. Management is not
aware of any reported claims pending against the Company in excess of insurance
coverage and considers current insurance coverage sufficient to protect itself
from product liability actions.
F-17
<PAGE> 97
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG:
ARTERIAL VASCULAR ENGINEERING, INC.,
A DELAWARE CORPORATION;
WALLEYE ACQUISITION CORPORATION,
A FLORIDA CORPORATION;
AND
WORLD MEDICAL MANUFACTURING CORPORATION,
A FLORIDA CORPORATION
----------------------------------
DATED AS OF APRIL 10, 1998
----------------------------------
================================================================================
<PAGE> 98
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A...................... Certain Definitions
Exhibit B...................... Plan of Merger and Reorganization
Exhibit C-1.................... Form of Shareholder Agreement
Exhibit C-2.................... Persons to execute Shareholder Agreement [not provided]
Exhibit D...................... Directors and Officers of Surviving Corporation
Exhibit E-1.................... Form of Affiliate Agreement
Exhibit E-2.................... Person to execute Affiliate Agreements [not provided]
Exhibit F-1.................... Form of Tax Representation Letter of the Company [not
provided]
Exhibit F-2.................... Form of Tax Representation Letter of Acquiror and Merger Sub
[not provided]
Exhibit G-1.................... Form Employment Agreement and Employee Inventions and
Proprietary Rights Assignment and Confidentiality Agreement
Exhibit G-2.................... Persons to execute Employment Agreement [not provided]
Exhibit G-3.................... Persons to execute Employee Inventions and Proprietary
Rights Assignment and Confidentiality Agreement [not
provided]
Exhibit H-1.................... Form of Noncompetition Agreement
Exhibit H-2.................... Persons to execute Noncompetition Agreement [not provided]
Exhibit I-1.................... Form of Release
Exhibit I-2.................... Persons to execute Release [not provided]
Exhibit J...................... Form of Escrow Agreement
Exhibit K...................... Form of legal opinion of Greenberg Traurig Hoffman Lipoff
Rosen & Quentel, P.A. [not provided]
Exhibit L...................... Form of Director Confidentiality/Nondisclosure Agreement
Exhibit M-1.................... Form of legal opinion of Cooley Godward LLP [not provided]
Exhibit M-2.................... Form of legal opinion of Akerman, Senterfitt & Eidson, P.A.
[not provided]
Exhibit N...................... Employee Bonus Plan
Exhibit O...................... List of persons in connection with "Knowledge" definition
[not provided]
</TABLE>
i
<PAGE> 99
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
THE MERGER; CONVERSION AND EXCHANGE OF SECURITIES
SECTION 1.1 The Merger.................................... 1
SECTION 1.2 Closing; Effective Time....................... 1
SECTION 1.3 Effect of the Merger.......................... 1
SECTION 1.4 Articles of Incorporation; Bylaws............. 2
SECTION 1.5 Directors and Officers........................ 2
SECTION 1.6 Conversion of Shares.......................... 2
SECTION 1.7 Holdback Shares............................... 4
SECTION 1.8 Exchange of Certificates...................... 5
SECTION 1.9 Closing of the Company's Stock Transfer
Books..................................................... 6
SECTION 1.10 Dissenting Shares............................. 6
SECTION 1.11 Tax Consequences.............................. 6
SECTION 1.12 Accounting Treatment.......................... 6
SECTION 1.13 Further Action................................ 7
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 2.1 Organization and Qualification; Subsidiaries;
Etc....................................................... 7
SECTION 2.2 Articles of Incorporation and Bylaws;
Records................................................... 7
SECTION 2.3 Capitalization................................ 8
SECTION 2.4 Authority; Binding Nature of Agreement........ 9
SECTION 2.5 No Conflict; Consents......................... 9
SECTION 2.6 Governmental Authorizations................... 10
SECTION 2.7 Legal Compliance.............................. 10
SECTION 2.8 Financial Statements; No Other Liabilities.... 10
SECTION 2.9 Absence of Changes............................ 11
SECTION 2.10 No Legal Proceedings; No Orders............... 11
SECTION 2.11 Title to Assets............................... 11
SECTION 2.12 Bank Accounts; Receivables; Inventory......... 12
SECTION 2.13 Equipment; Leasehold.......................... 12
SECTION 2.14 Proprietary Assets............................ 12
SECTION 2.15 Contracts..................................... 14
SECTION 2.16 Employee and Labor Matters; Benefit Plans..... 15
SECTION 2.17 Tax Matters................................... 17
SECTION 2.18 Environmental Matters......................... 18
SECTION 2.19 Insurance..................................... 18
SECTION 2.20 Related Party Transactions.................... 18
SECTION 2.21 Company Products; Regulation.................. 19
SECTION 2.22 Transaction Tax Matters....................... 19
SECTION 2.23 Opinion of Financial Advisor.................. 19
SECTION 2.24 Vote Required................................. 20
SECTION 2.25 No Brokers.................................... 20
SECTION 2.26 No Existing Discussions....................... 20
</TABLE>
ii
<PAGE> 100
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
SECTION 3.1 Organization and Good Standing................ 20
SECTION 3.2 Certificate/Articles of Incorporation and
Bylaws.................................................... 20
SECTION 3.3 Authority; Binding Nature of Agreement........ 20
SECTION 3.4 Non-Contravention............................. 21
SECTION 3.5 Absence of Changes............................ 21
SECTION 3.6 SEC Filings; Financial Statements............. 21
SECTION 3.7 Valid Issuance................................ 21
SECTION 3.8 Investigation by Acquiror..................... 21
SECTION 3.9 Tax Matters................................... 22
SECTION 3.10 Consents...................................... 22
ARTICLE 4
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.1 Access and Investigation...................... 22
SECTION 4.2 Operation of the Company's Business........... 22
SECTION 4.3 Notification; Updates to Disclosure
Schedule.................................................. 24
SECTION 4.4 No Solicitation of Competing Transactions..... 25
ARTICLE 5
ADDITIONAL COVENANTS OF THE PARTIES
SECTION 5.1 Filings and Consents.......................... 25
SECTION 5.2 Registration Statement........................ 26
SECTION 5.3 Company Shareholders' Meeting................. 26
SECTION 5.4 Public Announcements.......................... 27
SECTION 5.5 Affiliate Agreements.......................... 27
SECTION 5.6 Tax Matters................................... 27
SECTION 5.7 Reasonable Efforts............................ 27
SECTION 5.8 Employment and Noncompetition Agreements...... 27
SECTION 5.9 Protection of Proprietary Assets.............. 27
SECTION 5.10 FIRPTA Matters................................ 28
SECTION 5.11 Release....................................... 28
SECTION 5.12 Directors' and Officers' Insurance and
Indemnification........................................... 28
SECTION 5.13 Confidentiality............................... 28
SECTION 5.14 Stock Exchange Listing........................ 29
</TABLE>
iii
<PAGE> 101
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIROR AND MERGER
SUB
SECTION 6.1 Accuracy of Representations................... 29
SECTION 6.2 Performance of Covenants...................... 29
SECTION 6.3 Shareholder Approval and Dissenting Rights.... 29
SECTION 6.4 Consents...................................... 29
SECTION 6.5 No Restraints................................. 29
SECTION 6.6 No Material Adverse Change.................... 30
SECTION 6.7 Particular Agreements and Documents........... 30
SECTION 6.8 Termination of Options; Warrants.............. 30
SECTION 6.9 FIRPTA Compliance............................. 31
SECTION 6.10 Effectiveness of Registration Statement....... 31
SECTION 6.11 Listing....................................... 31
SECTION 6.12 Insolvency Proceeding......................... 31
SECTION 6.13 No Other Litigation........................... 31
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
SECTION 7.1 Accuracy of Representations................... 31
SECTION 7.2 Performance of Covenants...................... 31
SECTION 7.3 Effectiveness of Registration Statement....... 31
SECTION 7.4 Listing....................................... 31
SECTION 7.5 Documents..................................... 32
SECTION 7.6 No Restraints................................. 32
SECTION 7.7 Share Price................................... 32
SECTION 7.8 Shareholder Approval.......................... 32
SECTION 7.9 Employee Payment Plan......................... 32
ARTICLE 8
TERMINATION
SECTION 8.1 Termination Events............................ 32
SECTION 8.2 Termination Procedures........................ 33
SECTION 8.3 Effect of Termination......................... 33
ARTICLE 9
INDEMNIFICATION, ETC.
SECTION 9.1 Survival of Representations, Etc. ............ 33
SECTION 9.2 Indemnification............................... 34
SECTION 9.3 Threshold; Ceiling............................ 34
SECTION 9.4 Escrow........................................ 34
SECTION 9.5 Exclusive Remedy.............................. 35
SECTION 9.6 Payment of Indemnification Amounts............ 35
SECTION 9.7 Interest...................................... 35
SECTION 9.8 Defense of Third Party Claims................. 35
SECTION 9.9 Exercise of Remedies by Indemnitees Other Than
Acquiror.................................................. 36
</TABLE>
iv
<PAGE> 102
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 10
MISCELLANEOUS PROVISIONS
SECTION 10.1 Designated Escrow Representative............. 36
SECTION 10.2 Further Assurances........................... 36
SECTION 10.3 Fees and Expenses............................ 36
SECTION 10.4 Attorneys' Fees.............................. 37
SECTION 10.5 Notices...................................... 37
SECTION 10.6 Time of the Essence.......................... 38
SECTION 10.7 Headings..................................... 38
SECTION 10.8 Counterparts................................. 38
SECTION 10.9 Governing Law................................ 38
SECTION 10.10 Successors and Assigns....................... 38
SECTION 10.11 Remedies Cumulative; Specific Performance.... 38
SECTION 10.12 Waiver....................................... 38
SECTION 10.13 Amendments................................... 39
SECTION 10.14 Severability................................. 39
SECTION 10.15 Parties in Interest.......................... 39
SECTION 10.16 Entire Agreement............................. 39
SECTION 10.17 Construction................................. 39
</TABLE>
v
<PAGE> 103
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement") is
made and entered into as of April 10, 1998 (the "Signing Date"), by and among
ARTERIAL VASCULAR ENGINEERING, INC., a Delaware corporation ("Acquiror"),
WALLEYE ACQUISITION CORPORATION, a Florida corporation ("Merger Sub") and WORLD
MEDICAL MANUFACTURING CORPORATION, a Florida corporation (the "Company").
Certain other capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS
WHEREAS, Acquiror, Merger Sub and the Company intend to effect a merger of
Merger Sub with and into the Company (the "Merger") pursuant to this Agreement
and in accordance with the Florida Business Corporation Act ("Florida Law");
WHEREAS, the Board of Directors of the Company has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of the Company and is fair to, and in the best interests of, the Company and its
shareholders and has approved and adopted the Plan of Merger attached hereto as
Exhibit B, this Agreement and the transactions contemplated thereby, and
recommended approval and adoption of this Agreement by the shareholders of the
Company;
WHEREAS, it is intended that for federal income tax purposes the Merger
qualify as a tax-free reorganization within the meaning of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"), and that
for accounting purposes the Merger will be treated as a purchase; and
WHEREAS, concurrently with the execution of this Agreement, each Company
shareholder set forth on Exhibit C-2 attached hereto (the "Designated
Shareholders"), which Designated Shareholders hold in excess of fifty percent of
the outstanding shares of voting capital stock of the Company, are executing and
delivering to Acquiror a Shareholder Agreement in the form attached as Exhibit
C-1.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE 1
THE MERGER; CONVERSION AND EXCHANGE OF SECURITIES
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Florida Law, at the Effective
Time (as defined in Section 1.2) Merger Sub will be merged with and into the
Company. Upon consummation of the Merger, the separate corporate existence of
Merger Sub shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").
SECTION 1.2 Closing; Effective Time. Subject to the satisfaction or, if
permissible, waiver of the conditions set forth in Articles 6 and 7, the
consummation of the transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Cooley Godward llp, 3000 El Camino Real, Palo
Alto, California 94306, unless otherwise agreed by the Acquiror and the Company,
not later than three days following the approval at the Company Shareholders'
Meeting (as defined in Section 5.3) of the Merger and this Agreement (the
"Scheduled Closing Time"). The date on which the Closing actually takes place is
referred to in this Agreement as the "Closing Date." Concurrently with or as
promptly as practicable after the Closing, the parties hereto shall cause
properly executed articles of merger conforming to the requirements of Florida
Law to be filed with the Secretary of State of the State of Florida. The Merger
shall become effective on the date and time of such filing (the "Effective
Time").
SECTION 1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of this Agreement and
Florida Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, except as otherwise provided herein, all the
property
1
<PAGE> 104
rights, privileges, powers and franchises of Merger Sub and the Company shall
vest in the Surviving Corporation, and all debts, liabilities and duties of
Merger Sub and the Company shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.4 Articles of Incorporation; Bylaws. At the Effective Time, the
Articles of Incorporation and Bylaws of the Surviving Corporation shall be
amended and restated to conform to the Articles of Incorporation and Bylaws of
Merger Sub as in effect immediately prior to the Effective Time.
SECTION 1.5 Directors and Officers. The directors and officers of Merger
Sub immediately prior to the Effective Time shall be the individuals identified
on Exhibit D, in each case until their respective successors are duly elected or
appointed and qualified.
SECTION 1.6 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any further action on the part of Acquiror, Merger Sub, the
Company or the Company's shareholders, the outstanding shares (the "Shares", and
individually, a "Share") of common stock, par value $0.10, of the Company, (the
"Company Common Stock") shall be converted into shares of common stock, par
value $.001, of Acquiror ("Acquiror Common Stock") in the manner described in
this Section 1.6.
(a) Conversion of Shares. Subject to the other provisions of this Article
1, each Share issued and outstanding immediately prior to the Effective Time
(other than any Shares to be canceled pursuant to Section 1.6(g) or dissenting
shares as described in Section 1.10) shall be converted into the right to
receive ninety percent (90%) of the "Applicable Fraction" (as defined in Section
1.6(b)(i)) of a share of Acquiror Common Stock. In addition, each Share will by
virtue of the Merger and without any further action on the part of any holder
thereof, be converted and represent the right to participate in the distribution
of the Holdback Shares (as hereinafter defined) subject to set off, deduction or
indemnification as provided herein and in the Escrow Agreement (as defined in
Section 1.7(a).
(b) Definitions. For purposes of this Agreement:
(i) The "Applicable Fraction" shall be the fraction (A) having a
numerator equal to sixty two million dollars ($62,000,000), less any excess
amounts referred to in Section 10.3 below (the "Aggregate Purchase Price")
and (B) having a denominator equal to the amount determined by multiplying
(1) the Fully Diluted Company Share Amount (as defined below) by (2) the
Designated Acquiror Stock Price (as defined below).
(ii) The "Fully Diluted Company Share Amount" shall be the sum of (A)
the aggregate number of Shares, outstanding immediately prior to the
Effective Time (including any shares that are subject to a repurchase
option or risk of forfeiture under any restricted stock purchase agreement
or other agreement), (B) the aggregate number of shares of Company Common
Stock purchasable under or otherwise subject to all Company Options
outstanding immediately prior to the Effective Time (including all shares
of Company Common Stock that may ultimately be purchased under Company
Options that are unvested or are otherwise not then exercisable) and (C)
the aggregate number of Shares purchasable under or otherwise subject to
all warrants to purchase shares of Company Common Stock ("Company
Warrants") or other options, warrants or other rights of any type to
purchase shares of Company Common Stock outstanding immediately prior to
the Effective Time (including all Shares that may ultimately be purchased
under Company Warrants that are not then exercisable), minus the number of
Shares determined by dividing the aggregate exercise price payable by
holders of Company Options and Company Warrants upon exercise of all of the
Company Options and Company Warrants (under (B) and (C) above) by the
acquisition price per share (which for purposes of this subparagraph shall
mean (i) the Aggregate Purchase Price plus the aggregate exercise price
payable by holders of Company Options and Company Warrants upon exercise of
all of the Company Options and Company Warrants (under (B) and (C) above)
divided by (ii) the sum of (A), (B) and (C) above).
(iii) The "Designated Acquiror Stock Price" shall be the average of
the closing sales price of a share of Acquiror Common Stock as reported on
the Nasdaq National Market tier of The Nasdaq Stock Market (the "Nasdaq
National Market") for each of the ten consecutive trading days ending on
and including the second trading day immediately preceding the Closing Date
(the "Closing Price");
2
<PAGE> 105
provided, however, that (A) if the Closing Price is equal to or less than
eighty percent (80%) of the average of the closing sale price of a share of
Acquiror Common Stock as reported on the Nasdaq National Market for each of
the ten consecutive trading days ending on and including the second trading
day immediately preceding the Signing Date (the "Signing Price"), then the
Designated Acquiror Stock Price shall be equal to eighty percent (80%) of
the Signing Price, and (B) if such average is greater than or equal to one
hundred and twenty percent (120%) of the Signing Price, then the Designated
Acquiror Stock Price shall be equal to one hundred and twenty percent
(120%) of the Signing Price.
(c) Effect of Share Conversion. All shares of Company Common Stock
converted pursuant to Section 1.6 shall cease to be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
certificate (a "Certificate") previously evidencing Company Common Stock
outstanding immediately prior to the Effective Time (other than Company Common
Stock described in Section 1.6(f) or Section 1.10) ("Converted Shares") shall
thereafter represent, subject to Section 1.8(d), the right to receive a
certificate evidencing shares of Acquiror Common Stock into which such Company
Common Stock was converted in the Merger pursuant to Section 1.6(a) and, if
applicable, the right to receive cash pursuant to Section 1.8(c) and Section
1.8(f). The holders of such certificates previously evidencing Converted Shares
shall cease to have any rights with respect to such Converted Shares or as a
shareholder of the Company except as otherwise provided herein or by applicable
law. Such certificates previously evidencing Converted Shares may be exchanged
for certificates evidencing whole shares of Acquiror Common Stock issued in
consideration therefor upon the surrender of such certificates in accordance
with the provisions of Section 1.8.
(d) Stock Options. At the Effective Time, the Company's obligations with
respect to each Company Option that is then issued and outstanding under the
Company Option Plan, whether vested or unvested, shall be assumed by Acquiror in
accordance with the terms of the Company Option Plan and the stock option
agreement by which such Company Option is evidenced. All rights with respect to
Company Common Stock under such outstanding Company Options shall thereupon be
converted into rights with respect to Acquiror Common Stock. Accordingly, from
and after the Effective Time, (i) each Company Option assumed by Acquiror may be
exercised solely for shares of Acquiror Common Stock, (ii) the number of shares
of Acquiror Common Stock subject to each such assumed Company Option shall be
equal to the product of the number of shares of Company Common Stock that were
subject to such Company Option immediately prior to the Effective Time
multiplied by the Applicable Fraction, rounded down to the nearest whole number
of shares of Acquiror Common Stock, (iii) the per share exercise price for the
shares of Acquiror Common Stock issuable upon the exercise of each such assumed
Company Option shall be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Company Option
was exercisable immediately prior to the Effective Time by the Applicable
Fraction and rounding the resulting exercise price up to the nearest whole cent,
and (iv) each such assumed Company Option shall vest as of the Effective Time,
the exercise of each Company Option shall be adjusted in accordance with
subsection 1.6(b) above, and the other provisions of each such Company Option
shall otherwise remain unchanged.
(e) Warrant. At or prior to the Closing Date, the warrant to purchase
25,000 shares of Company Common Stock held by Vector Securities International,
Inc. (the "Vector Warrant") shall be exercised on a cashless basis in accordance
with Section 1(c) of the Vector Warrant and Vector shall receive at the
Effective Time the right to receive that number of shares of Acquiror Common
Stock equal to the product of (i) the number of shares of Company Common Stock
that Vector is entitled to receive pursuant to Section 1(c) of the Vector
Warrant, and (ii) the Applicable Fraction, rounded down to the nearest whole
number of shares of Acquiror Common Stock.
(f) Treasury Shares. Each Share held in the treasury of the Company and
each Share owned by Acquiror or any direct or indirect wholly-owned subsidiary
of Acquiror or of the Company immediately prior to the Effective Time shall be
cancelled and extinguished without any conversion thereof and no payment shall
be made with respect thereto.
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(g) Merger Sub Shares. Each share of common stock, par value $.001 per
share, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into one share of common stock of the Surviving
Corporation.
(h) Stock Splits. Each of the closing or other price per share amounts in
this Agreement and each formula, adjustment or ratio regarding any such price
shall be as adjusted for any stock splits, stock dividends or similar event.
SECTION 1.7 Holdback Shares.
(a) Acquiror shall establish and maintain an escrow comprised of shares of
Acquiror Common Stock in a number equal to the product of (i) the aggregate
number of shares of Company Common Stock outstanding immediately prior to the
Effective Time, less any shares for which dissenters' rights have been
perfected; (ii) the Applicable Fraction; and (iii) (.10); (the "Holdback
Shares") and shall designate and appoint Cupertino National Bank or such other
third party escrow agent that is mutually and reasonably acceptable to Acquiror
and the Designated Escrow Representative in connection therewith (the "Escrow
Agent") to serve in accordance with the Escrow Agreement attached as Exhibit J
hereto (the "Escrow Agreement") to be entered into among Acquiror, the Escrow
Agent and the Designated Escrow Representative at closing. Such escrow of the
Holdback Shares shall be maintained for purposes of satisfying claims brought
pursuant to Article 9 and for the period of time set forth in such Article (the
"Holdback Period"). Each Company shareholder that does not perfect its
dissenters' rights and is otherwise entitled to receive shares of Acquiror
Common Stock pursuant to Section 1.6 (the "Merger Shareholders") shall be
entitled to a ratable portion of the shares held in escrow in accordance with
the terms and conditions of this Agreement and the Escrow Agreement (each such
ratable portion, a "Holdback Portion").
(b) Upon expiration of the Holdback Period, and subject to the terms of
subsection (c), Article 9 and the Escrow Agreement, the Escrow Agent shall
deliver to each Merger Shareholder a certificate representing the number of
shares of Acquiror Common Stock comprising such Merger Shareholder's Holdback
Portion, with any fractional shares rounded to the nearest whole share and
accrued dividends, if any.
(c) If, upon expiration of the Holdback Period an Indemnitee shall have
asserted an Indemnifiable Claim in accordance with Article 9 and such claim is
pending or unresolved at the time of such expiration, the Escrow Agent shall,
subject to the terms of the Escrow Agreement, withhold from delivery to each
Merger Shareholder its ratable portion of that number of Holdback Shares as
specified in the Escrow Agreement until such matter is resolved. If it is
finally determined that Acquiror is entitled to recovery on account of such
Indemnifiable Claim, the amount due and payable with respect to such
Indemnifiable Claim and any expenses incurred by the Designated Escrow
Representative (subject to Section 1.7(d)) may be offset against each Merger
Shareholder's Holdback Portion and the remainder of each Merger Shareholder's
Holdback Portion, if any, shall be delivered to each Merger Shareholder pursuant
to this Agreement, without interest, but including any applicable dividends. For
purposes of this subsection, each Holdback Share shall be valued (and such
valuation shall apply throughout the duration of the Holdback Period) at the
Designated Acquiror Stock Price. The value of any shares of Acquiror Common
Stock ultimately retained by Acquiror hereunder shall be treated for purposes of
this Agreement as a reduction of the Merger Consideration.
(d) The Designated Escrow Representative shall be reimbursed out of the
Holdback Shares for its reasonable out-of-pocket expenses incurred in connection
with serving as the Designated Escrow Representative under this Agreement and
the Escrow Agreement, not including, however, those expenses (whether legal,
out-of-pocket or other) arising from resolution of rights with respect to
Disputed Amounts. Each Indemnitee and the Designated Escrow Representative shall
be responsible for its own expenses (whether legal, out-of-pocket or other)
arising from the resolution of rights with respect to Disputed Amounts.
Notwithstanding the foregoing, the Designated Escrow Representative may,
immediately prior to distribution of any Holdback Shares to the Merger
Shareholders at the end of the Holdback Period, reimburse itself for such
expenses from the Holdback Shares to the extent such Holdback Shares are
available and not withheld pursuant to Section 1.7(c). To the extent Holdback
Shares are withheld pursuant to Section 1.7(c), the Designated Escrow
Representative may reimburse itself for any remaining expenses from the Holdback
Shares immediately prior to the distribution of any such withheld Holdback
Shares ratably to the Merger Shareholders.
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(e) The right to receive Holdback Shares upon expiration of the Holdback
Period (i) is an integral part of the consideration in the Merger, and (ii)
shall be transferable or assignable only upon submission of evidence of such
transfer or assignment reasonably satisfactory to Acquiror and the Escrow Agent.
SECTION 1.8 Exchange of Certificates.
(a) Letter of Transmittal. As soon as reasonably practicable after the
Effective Time, Acquiror shall mail to the holders of record of Company Common
Stock at the Effective Time a letter of transmittal, in such form and containing
such provisions as Acquiror may reasonably specify (including, without
limitation, that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to
Acquiror), and other instructions for use in effecting the surrender of
Certificates to Acquiror.
(b) Exchange Procedures. Upon surrender (following the Effective Time) of
one or more Certificates for exchange, together with a duly executed and
properly completed letter of transmittal and such other documents as may be
required by Acquiror, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate evidencing whole shares of Acquiror
Common Stock, any dividends or other distributions to which such holder is
entitled pursuant to Section 1.8(c), and cash in lieu of any fractional shares
of Acquiror Common Stock as contemplated by Section 1.8(f), and the Certificate
so surrendered shall forthwith be cancelled. If delivery is to be made to a
person other than the person in whose name the Certificate surrendered is
registered, it shall be a condition of delivery that the Certificate so
surrendered shall be properly endorsed, with signatures guaranteed, or otherwise
in proper form for transfer and that the person requesting such delivery shall
pay any stock transfer or other applicable taxes required by reason of the
payment to a person other than the registered holder of the Certificate
surrendered, or such person shall establish to the satisfaction of Acquiror that
such tax has been paid or is not applicable. Until surrendered as contemplated
by this Section 1.8, each Certificate shall be deemed at any time following the
Effective Time to evidence only the right to receive upon such surrender a
certificate representing shares of Acquiror Common Stock, any dividends or other
distributions to which such holder is entitled pursuant to Section 1.8(c), and
cash in lieu of any fractional share of Acquiror Common Stock, as contemplated
by Section 1.8(f).
(c) Distributions with Respect to Unexchanged Shares of Acquiror Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to Acquiror Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Acquiror Common Stock evidenced thereby, and no cash
payment in lieu of any fractional shares shall be paid to any such holder
pursuant to Section 1.8(f), until such holder surrenders such Certificate in
accordance with this Section 1.8. Subject to the effect of escheat, tax or other
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder thereof certificates representing whole shares of Acquiror
Common Stock issued in exchange therefor, without interest the amount of cash
payable with respect to a fractional share of Acquiror Common Stock to which
such holder is entitled pursuant to Section 1.8(f) and the amount of dividends
or other distributions with a record date after the Effective Time but prior to
surrender payable with respect to such whole shares of Acquiror Common Stock.
(d) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, Acquiror may, in its sole discretion and as a condition precedent to
the issuance of any certificate evidencing Acquiror Common Stock, require the
owner of such lost, stolen or destroyed Certificate to make an appropriate
affidavit and to deliver a bond (in such reasonable amount as Acquiror may
direct) as indemnity against any claim that may be made against Acquiror or the
Surviving Corporation with respect to such Certificate.
(e) No Further Rights in Company Common Stock. The shares of Acquiror
Common Stock issued upon conversion of the Converted Shares in accordance with
the terms of this Agreement and any cash paid pursuant to Sections 1.8(c) or
1.8(f) shall be deemed to have been issued in full satisfaction of all rights
pertaining to the Converted Shares. From and after the Effective Time, the
holders of Certificates outstanding immediately prior to the Effective Time
shall cease to have any rights as shareholders of the Company.
(f) No Fractional Shares. No certificates or scrip evidencing fractional
shares of Acquiror Common Stock shall be issued upon the surrender for exchange
of Certificates, and such fractional interests shall not
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entitle the owner thereof to vote or to any other rights as a stockholder of
Acquiror. In lieu of any such fractional shares, each holder of a fractional
share interest in Company Common Stock shall be paid an amount in cash (rounded
to the nearest whole cent), without interest, equal to the product obtained by
multiplying such fractional share interest to which such holder would otherwise
be entitled (after taking into account all fractional share interests then held
by such holder) by the Designated Acquiror Stock Price. As promptly as
practicable after the determination of the amount of cash, if any, to be paid to
holders of fractional share interests, the Acquiror shall forward payments to
such holders of fractional share interests, subject to and in accordance with
the provisions of this Section 1.8.
(g) Withholding Rights. Each of the Surviving Corporation and Acquiror
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any former holder of Shares such amounts
as Acquiror or the Surviving Corporation is required to deduct and withhold with
respect to the making of such payment under the Code or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by Acquiror
or the Surviving Corporation, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the former
holder of Shares in respect of which such deduction and withholding was made by
Acquiror or the Surviving Corporation, as the case may be.
(h) Effect of Escheat Laws. Neither Acquiror nor the Surviving Corporation
shall be liable to any holder of Shares for any shares of Acquiror Common Stock
to be delivered in exchange for the Conversion Shares in the Merger (or
dividends or distributions with respect thereto or cash in lieu of fractional
amounts) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
SECTION 1.9 Closing of the Company's Stock Transfer Books. At the
Effective Time, the stock transfer books of the Company shall be closed and
there shall be no further transfer of Shares thereafter on the records of the
Company. If, after the Effective Time, a valid Certificate is presented to
Acquiror or the Surviving Corporation, such Certificate shall be cancelled and
shall be exchanged as provided in Section 1.8.
SECTION 1.10 Dissenting Shares.
(a) Notwithstanding anything to the contrary contained in this Agreement,
any shares of Company Common Stock that, as of the Effective Time, are or may
become "dissenting shares" pursuant to Section 607.1301 et seq. of Florida Law
shall not be converted into or represent the right to receive Acquiror Common
Stock in accordance with Section 1.6 (or cash pursuant to Section 1.8(c) or
1.8(f)), and the holder or holders of such shares shall be entitled only to such
rights as may be granted to such holder or holders under Florida Law; provided,
however, that if the status of any such shares as "dissenting shares" shall not
be perfected, or if any such shares shall lose their status as "dissenting
shares," then, as of the later of the Effective Time or the time of failure to
perfect such status or the loss of such status, such shares shall automatically
be converted into and shall represent only the right to receive (upon the
surrender of the certificate or certificates representing such shares) Acquiror
Common Stock in accordance with Section 1.6 (and cash pursuant to Section 1.8(c)
or 1.8(f)).
(b) The Company shall give Acquiror (i) prompt notice of any written demand
received by the Company prior to the Effective Time to require the Company to
purchase shares of Company Common Stock pursuant to the dissenters' rights
provisions of Florida Law, and (ii) the opportunity to participate in all
negotiations and proceedings with respect to any such demand. The Company shall
not make any payment or settlement offer prior to the Effective Time with
respect to any such demand unless Acquiror shall have consented in writing to
such payment or settlement offer.
SECTION 1.11 Tax Consequences. For federal income tax purposes, the Merger
is intended to constitute a reorganization within the meaning of Section 368 of
the Code. The parties to this Agreement hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
SECTION 1.12 Accounting Treatment. For accounting purposes, the Merger is
intended to be treated as a purchase.
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Section 1.13 Further Action. If, at any time after the Effective Time, any
further action is determined by Acquiror to be necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving Corporation or
Acquiror with full right, title and possession of and to all rights and property
of Merger Sub and the Company, the officers and directors of the Surviving
Corporation and Acquiror shall be fully authorized (in the name of Merger Sub,
in the name of the Company and otherwise) to take such action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants, to and for the benefit of the
Indemnitees, as follows:
SECTION 2.1 Organization and Qualification; Subsidiaries; Etc.
(a) Organization and Good Standing. The Company and each subsidiary of the
Company (a "Company Subsidiary") is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all corporate power and authority: (i) to conduct its
business in the manner in which its business is currently being conducted; (ii)
to own and use its assets in the manner in which its assets are currently owned
and used; and (iii) to perform its obligations under all Company Contracts.
(b) Subsidiaries. A true and complete list of all Company Subsidiaries,
together with the jurisdiction of incorporation of each Company Subsidiary and
the approximate percentage of the outstanding capital stock of each Company
Subsidiary owned by the Company and each other Company Subsidiary, is set forth
in Part 2.1(b) of the Disclosure Schedule.
(c) No Fictitious Business Names. Neither the Company nor any Company
Subsidiary has conducted any business under or otherwise used, for any purpose
or in any jurisdiction, any fictitious name, assumed name, trade name or other
name, other than the name "[Walleye Corporation]," and in the case of the
Company Subsidiaries, other than any names identified in Part 2.1(c) of the
Disclosure Schedule.
(d) Qualification as a Foreign Corporation. The Company and each Company
Subsidiary is in good standing as a foreign corporation in each of the
jurisdictions identified in Part 2.1(d) of the Disclosure Schedule. Neither the
Company nor any Company Subsidiary is or has been required to be qualified,
authorized, registered or licensed to do business as a foreign corporation in
any jurisdiction other than the jurisdictions identified in Part 2.1(d) of the
Disclosure Schedule, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a Company Material Adverse
Effect.
(e) No Interests in Other Entities. Neither the Company nor any Company
Subsidiary directly or indirectly owns, beneficially or otherwise, any voting
equity or similar voting interest in, or any interest convertible into or
exchangeable or exercisable for, any voting equity or similar voting interest
in, or otherwise has a controlling interest in any Entity other than the Company
Subsidiaries. Neither the Company nor any Company Subsidiary has agreed or is
obligated to make any future investment in or capital contribution to any
Entity. Neither the Company nor any Company Subsidiary has guaranteed or is
responsible or liable for any obligation of any Entity, except for any
indemnification obligations pursuant to Company Contracts set forth in Part
2.15(a) of the Disclosure Schedule.
(f) Directors and Officers. Part 2.1(f) of the Disclosure Schedule
accurately sets forth (i) the names of the members of the boards of directors of
the Company and each Company Subsidiary, (ii) the names of the members of each
committee of each such board of directors, and (iii) the names and titles of the
officers of the Company and of each Company Subsidiary.
SECTION 2.2 Articles of Incorporation and Bylaws; Records. The Company has
delivered to Acquiror accurate and complete copies of: (i) the Articles of
Incorporation and Bylaws, or equivalent documents, including all amendments
thereto, of the Company and each Company Subsidiary (collectively, the "Charter
Documents"); (ii) the stock records of the Company and each Company Subsidiary;
and (iii) the minutes and other records of the meetings and other proceedings
(including any actions taken by written consent or
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otherwise without a meeting) of the shareholders of the Company and each Company
Subsidiary, the boards of directors of the Company and each Company Subsidiary
and all committees of the boards of directors of the Company and each Company
Subsidiary, other than information that is directly subject to Confidentiality
Agreements (other than with Acquiror) in effect as of the Signing Date. With
respect to each of the Company and the Company Subsidiaries, there have been no
resolutions approved or action taken at formal meetings or other proceedings of
the shareholders, the board of directors or any committee of the board of
directors that are not fully reflected in such minutes or other records in all
material respects. With respect to each of the Company and the Company
Subsidiaries, there has not been any violation of any of the provisions of the
applicable Charter Documents, and no action has been taken that is inconsistent
in any material respect with any resolution adopted by the shareholders, the
board of directors or any committee of the board of directors. With respect to
each of the Company and the Company Subsidiaries, the books of account, stock
records, minute books and other records are accurate, up to date and complete in
all material respects, and have been maintained in accordance with prudent
business practices.
SECTION 2.3 Capitalization.
(a) Outstanding Capital Stock. The authorized capital stock of the Company
consists of (i) 10,000,000 shares of Company Common Stock and (ii) 1,000,000
shares of preferred stock, $.01 par value of which 1,464,240 shares of Company
Common Stock have been issued and are outstanding and no shares of preferred
stock are issued and outstanding as of the date of this Agreement. Part 2.3(a)
of the Disclosure schedule accurately sets forth the authorized and outstanding
capital stock of each of the Company Subsidiaries. All of the outstanding shares
of Company Common Stock and all of the outstanding shares of capital stock of
each of the Company Subsidiaries (the "Subsidiary Stock") have been duly
authorized and validly issued, and are fully-paid and non-assessable. As of the
date of this Agreement, the outstanding shares of Company Common Stock and
Subsidiary Stock are held by the Persons, with the addresses of record and in
the amounts set forth in Part 2.3(a) of the Disclosure Schedule. Part 2.3(a) of
the Disclosure Schedule also provides an accurate and complete description of
the material terms of each repurchase option which is held by the Company and to
which any of the outstanding shares of Company Common Stock or Subsidiary Stock
is subject.
(b) Company Options. The Company has reserved one million (1,000,000)
shares of Company Common Stock for future issuance pursuant to the Company
Option Plan, of which options to purchase 426,550 are outstanding as of the date
of this Agreement. Part 2.3(b) of the Disclosure Schedule accurately sets forth,
with respect to each Company Option that is outstanding as of the date of this
Agreement: (i) the name of the holder of such Company Option; (ii) the total
number of shares of Company Common Stock that are subject to such Company Option
and the number of shares of Company Common Stock with respect to which such
Company Option is immediately exercisable; (iii) the date on which such Company
Option was granted and the term of such Company Option; (iv) the vesting
schedule for such Company Option; (v) the exercise price per share of Company
Common Stock purchasable under such Company Option; and (vi) whether such
Company Option has been designated an "incentive stock option" as defined in
Section 422 of the Code.
(c) Preemptive Rights. Except as set forth in Part 2.3(c) of the Disclosure
Schedule, there is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital stock of the Company or any Company Subsidiary; (ii) outstanding
security, instrument or obligation that is or may become convertible into or
exchangeable for any shares of the capital stock or other securities of the
Company or any Company Subsidiary; (iii) Contract under which the Company or any
Company Subsidiary may become obligated to sell or otherwise issue any shares of
its capital stock or other securities; or (iv) to the best of the knowledge of
the Company, condition or circumstance that may give rise to or provide a basis
for the assertion of a claim by any Person to the effect that such Person is
entitled to acquire or receive any shares of capital stock or other securities
of the Company or any Company Subsidiary.
(d) Compliance; No Encumbrances. Except as set forth in Part 2.3(d) of the
Disclosure Schedule, all outstanding shares of Company Common Stock, all
Subsidiary Stock and all outstanding Company Options,
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Company Warrants and all other options, warrants or rights set forth in Part
2.3(b) of the Disclosure Schedule have been issued and granted in compliance
with (i) all applicable securities laws and other Legal Requirements, and (ii)
all material requirements set forth in applicable Contracts. All Subsidiary
Stock is owned free and clear of all Encumbrances.
(e) Redemption. Except as set forth in Part 2.3(e) of the Disclosure
Schedule, neither the Company nor any Company Subsidiary has ever repurchased,
redeemed or otherwise reacquired any shares of capital stock of the Company or
any Company Subsidiary.
SECTION 2.4 Authority; Binding Nature of Agreement. The Company has all
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby (subject to, with respect to the Merger, the approval and adoption of
this Agreement by the shareholders of the Company as set forth in Section 2.24)
and, as of the Closing Date, will have all requisite corporate power and
authority to consummate the transactions contemplated hereby. The execution,
delivery and performance by the Company of this Agreement and the transactions
contemplated hereby have been duly and validly authorized by all necessary
action on the part of the Company and its board of directors and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby (other than,
with respect to the Merger, the approval and adoption of this Agreement by the
holders of a majority of the then outstanding Shares and the filing of Articles
of Merger as required by Florida Law). This Agreement has been duly and validly
executed and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
SECTION 2.5 No Conflict; Consents.
(a) No Conflict. Neither(1) the execution, delivery or performance of this
Agreement or any of the other agreements being entered into in connection with
this Agreement (the "Transaction Agreements") nor (2) the consummation of the
Merger or any of the other transactions contemplated by this Agreement or the
Transaction Agreements will directly or indirectly (with or without notice or
lapse of time): (i) contravene, conflict with or result in a violation of (A)
any of the provisions of the Charter Documents of the Company or any Company
Subsidiary, or (B) any resolution adopted by the shareholders, board of
directors or any committee thereof of the Company or any Company Subsidiary;
(ii) contravene, conflict with or result in a violation of any Legal Requirement
or any order, writ, injunction, judgment or decree to which the Company or any
Company Subsidiary, or any of the properties or assets owned or used by the
Company or any Company Subsidiary, is bound or subject; (iii) contravene,
conflict with or result in a violation of any of the terms or requirements of,
or give any Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate or modify, any Governmental Authorization that is held by the Company
or any Company Subsidiary or that otherwise relates specifically to the business
of, or any of the properties or assets owned or used by, the Company or any
Company Subsidiary; (iv) contravene, conflict with or result in a violation or
breach of, or result in a default under, any provision of any Company Contract,
or give any Person the right to (A) declare a default or exercise any remedy
under any such Company Contract, (B) accelerate the maturity or performance of
any such Company Contract, or (C) cancel, terminate, amend or modify any such
Company Contract, except in each case of this clause (iv) as set forth in Part
2.5(a)(iv) of the Disclosure Schedule; or (v) result in the imposition or
creation of any lien or other Encumbrance (other than Permitted Encumbrances) on
or with respect to any property or asset owned or used by the Company or any
Company Subsidiary, except in the case of clauses (ii) through (v), with respect
to occurrences since the date of this Agreement, for such violations, breaches
or defaults which, or authorizations, licenses, consent, approvals, notices or
filings, the failure of which to obtain or make, would not have or be reasonably
expected to have a Company Material Adverse Effect or would not materially
adversely affect the ability of the Company to consummate the transactions
contemplated by this Agreement. The board of directors of the Company has taken
all actions necessary under Florida Law, including approval of the transactions
contemplated hereby, to ensure that the restrictions on (i) "control-share"
acquisitions set forth in Section 607.0902 of Florida Law,
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and (ii) "affiliated transactions" set forth in Section 607.0901 of Florida Law,
do not and will not apply to the transactions contemplated hereby or those
certain Shareholder Agreements described in the recitals to this Agreement.
(b) Consents. Except as set forth in Part 2.5(b) of the Disclosure
Schedule, the Company's execution and delivery of this Agreement and the
Transaction Agreements do not, and the Company's performance of this Agreement
and the Transaction Agreements and the consummation of the transactions
contemplated thereby will not, require any filing with, delivery of notice to,
or receipt of any material Consent from, any Person, except for applicable
requirements, if any, of the Securities Act of 1933, as amended, state
securities or "blue sky" laws and the filing of Articles of Merger as required
by Florida Law.
SECTION 2.6 Governmental Authorizations. Part 2.6(a) of the Disclosure
Schedule identifies each material Governmental Authorization held by the Company
and each Company Subsidiary, and Part 2.6(b) of the Disclosure Schedule
identifies each material Governmental Authorization applied for, or which is
necessary to conduct the business of the Company or any Company Subsidiary. The
Company has delivered to Acquiror accurate and complete copies of all material
Governmental Authorizations identified in Part 2.6(a) of the Disclosure
Schedule. Each of such material Governmental Authorizations identified in Part
2.6(a) of the Disclosure Schedule are valid and in full force and effect, and
collectively constitute all material Governmental Authorizations necessary to
enable the Company and each Company Subsidiary to own, lease and operate its
properties or to conduct its business as it is currently being conducted. The
Company and each Company Subsidiary is, and at all times since January 1, 1995,
has been, in compliance with the terms and requirements of the respective
Governmental Authorizations identified in Part 2.6(a) of the Disclosure
Schedule. Since January 1, 1995, neither the Company nor any Company Subsidiary
has received any written notice or other written communication from any
Governmental Body regarding (a) any actual or possible conflict with, default or
violation of or failure to comply with any term or requirement of any material
Governmental Authorization, or (b) any actual or possible revocation,
withdrawal, suspension, cancellation, termination or modification of any
material Governmental Authorization.
SECTION 2.7 Legal Compliance. The Company and each Company Subsidiary is,
and has at all times since January 1, 1995 been, in compliance with all
applicable Legal Requirements, except where the failure to comply with such
Legal Requirements has not had and would not have a Company Material Adverse
Effect. Since January 1, 1995, neither the Company nor any Company Subsidiary
has received any written notice or other written communication from any
Governmental Body or other third party regarding any actual or possible
violation of, or failure to comply with, any material Legal Requirement.
SECTION 2.8 Financial Statements; No Other Liabilities.
(a) The Company has heretofore delivered to Acquiror (i) the audited
consolidated balance sheets of the Company and the Company Subsidiaries as of
December 31, 1997 (the "1997 Balance Sheet"), 1996 and 1995, and (ii) the
related consolidated statements of income (loss) and accumulated deficit and of
cash flows and statements of shareholders' equity of the Company and the Company
Subsidiaries for the years then ended, together with the notes thereto and the
unqualified report and opinion thereon of Ernst & Young llp ((i) and (ii)
collectively referred to hereafter as the "Company Financial Statements").
(b) The Company Financial Statements are accurate, complete and present
fairly in all material respects the financial position of the Company as of the
respective dates thereof and the results of operations and cash flows of the
Company and the Company Subsidiaries for the periods covered thereby. The
Company Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods covered (except as may be indicated in the notes thereto).
(c) As of the Signing Date, the Company has no material accrued, absolute,
contingent or other liabilities or obligations of any type which are required to
be reflected in financial statements prepared in accordance with GAAP applied in
a manner consistent with the Company's past financial statements, except for:
(a) liabilities reflected in the 1997 Balance Sheet or the notes to the Company
Financial Statements or the balance sheet as of January 31, 1998 included in
Part 2.8(c) of the Disclosure Schedule (the "January Balance Sheet"); (b)
liabilities that have been incurred by the Company since December 31, 1997 in
the
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ordinary course of business and consistent with the Company's past practices;
(c) liabilities under the Company Contracts identified in Part 2.15 of the
Disclosure Schedule, to the extent the nature and magnitude of such liabilities
can be specifically ascertained by reference to the text of such Company
Contracts; and (d) the liabilities identified in Part 2.8 of the Disclosure
Schedule.
SECTION 2.9 Absence of Changes. Since December 31, 1997, the Company and
each of the Company Subsidiaries have conducted their respective businesses in
the ordinary course and consistent with past practices. Without limiting the
generality of the foregoing, except as disclosed in Part 2.9 of the Disclosure
Schedule, since December 31, 1997:
(a) there has not been any Company Material Adverse Effect, and, to
the best of the knowledge of the Company, no event has occurred that will,
or could reasonably be expected to, have a Company Material Adverse Effect;
(b) there has not been any material loss, damage or destruction to the
assets of the Company and the Company Subsidiaries taken as a whole
(whether or not covered by insurance);
(c) there has not been any transaction, commitment or other event or
condition that would be prohibited by Section 4.2 if it were to be
effected, accepted or were to take place between the Signing Date and the
Closing Date; and
(d) neither the Company nor any Company Subsidiary has agreed or
committed to take any of the actions referred to in clause (c).
SECTION 2.10 No Legal Proceedings; No Orders.
(a) As of the Signing Date, except as set forth in Part 2.10 of the
Disclosure Schedule, there is no pending Legal Proceeding, and, to the best
knowledge of the Company, no Person has threatened to commence any Legal
Proceeding (and, between the Signing Date and the Closing Date there will be no
pending material Legal Proceeding and no knowledge by the Company of any
threatened material Legal Proceeding) to which the Company or any Company
Subsidiary is or is threatened to be a party or to which any material assets
owned or used by the Company, any Company Subsidiary or any Person whose
liability the Company has retained or assumed, either contractually or by
operation of law, is subject.
(b) Since January 1, 1995, except as set forth in Part 2.10 of the
Disclosure Schedule, no Legal Proceeding has been commenced by or has ever been
pending against the Company or any Company Subsidiary.
(c) There is no order, writ, injunction, judgment or decree to which the
Company, any Company Subsidiary or any of the material assets owned or used by
the Company or any Company Subsidiary, is subject. To the best knowledge of the
Company, no officer or other employee of the Company or any Company Subsidiary
is subject to any order, writ, injunction, judgment or decree that prohibits
such officer or other employee from engaging in or continuing any conduct,
activity or practice relating to the business of the Company or any Company
Subsidiary as currently conducted.
SECTION 2.11 Title to Assets.
(a) Each of the Company and each Company Subsidiary owns, and has good and
valid title to, all assets purported to be owned by it, including: (i) all
assets reflected on the 1997 Balance Sheet; (ii) all assets identified in the
Disclosure Schedule as being owned by the Company or a Company Subsidiary; and
(iii) all other assets reflected in the books and records of the Company and the
Company Subsidiaries as being owned by the Company or a Company Subsidiary.
Except as set forth in Part 2.11(a) of the Disclosure Schedule, all of said
assets are owned by the Company or Company Subsidiaries free and clear of any
liens or other Encumbrances, except (i) Permitted Encumbrances; (ii) as shown in
the 1997 Balance Sheet, or (iii) as otherwise set forth in Part 2.11(a) of the
Disclosure Schedule.
(b) Part 2.11(b) of the Disclosure Schedule identifies all fixed assets
that are material to the business of the Company and each Company Subsidiary.
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SECTION 2.12 Bank Accounts; Receivables; Inventory.
(a) Part 2.12(a) of the Disclosure Schedule provides accurate information
with respect to each account maintained by or for the benefit of the Company or
a Company Subsidiary at any bank or other financial institution.
(b) Part 2.12(b) of the Disclosure Schedule provides an accurate and
complete breakdown and aging of all accounts receivable, notes receivable and
other receivables of the Company or any Company Subsidiary as of December 31,
1997. Except as set forth in Part 2.12(b) of the Disclosure Schedule, all
existing accounts receivable of the Company or any Company Subsidiary (including
those accounts receivable reflected on the 1997 Balance Sheet that have not yet
been collected and those accounts receivable that have arisen since December 31,
1997 and have not yet been collected) (i) represent obligations of customers of
the Company or a Company Subsidiary arising from bona fide transactions entered
into in the ordinary course of business, (ii) are current and, to the best of
its knowledge, will be collected in full when due, without any counterclaim, set
off or nonpayment not to exceed $50,000 in the aggregate. All of the goods and
services that have been sold or will be sold and delivered that give rise and
will give rise to such accounts receivable were and will be sold and delivered
in material conformity with applicable purchase orders, agreements and
specifications. There are no Encumbrances, other than Permitted Encumbrances, on
any of the Company's inventories or accounts receivable.
(c) All of the inventories of the Company and the Company Subsidiaries,
whether finished goods, work in process or raw materials, shown on the 1997
Balance Sheet or thereafter acquired prior to the Closing, are and will be items
of a quality usable or salable in the ordinary and usual course of business of
the Company and the Company Subsidiaries, except for inventory items that have
been written down to an amount not in excess of realizable market value or for
which adequate reserves or allowances have been provided. The values at which
inventories are carried reflect an inventory valuation policy that is consistent
with the Company's past practice and that is in accordance with GAAP applied on
a consistent basis.
SECTION 2.13 Equipment; Leasehold.
(a) All material items of equipment and other tangible assets owned by or
leased to the Company or any Company Subsidiary are reasonably adequate for the
uses to which they are being put, are in good condition and repair (ordinary
wear and tear excepted) and are reasonably adequate for the conduct of the
Company's and such Company Subsidiary's business in the manner in which such
business is currently being conducted.
(b) Neither the Company nor any Company Subsidiary owns any real property
or any interest in real property, except for the leasehold created under the
real property leases identified in Part 2.13(b) of the Disclosure Schedule.
SECTION 2.14 Proprietary Assets.
(a) Part 2.14(a)(i) of the Disclosure Schedule sets forth, with respect to
each Company Proprietary Asset registered with any Governmental Body or for
which an application has been filed with any Governmental Body (including,
without limitation, all patents and patent applications) (i) a list of such
Proprietary Assets, and (ii) the names of the jurisdictions covered by the
applicable registration or application. Part 2.14(a)(iii) of the Disclosure
Schedule lists each Proprietary Asset licensed to the Company or any Company
Subsidiary by any Person, and each Company Contract relating to the license,
acquisition, transfer, development or sharing of any technology or Proprietary
Asset (except for any Proprietary Asset that is licensed to the Company or any
Company Subsidiary under any third party software license generally available to
the public at a cost of less than $10,000 or any Company Contract for such
license). Except as set forth in Part 2.14(a)(iv) of the Disclosure Schedule or
pursuant to a Company Contract set forth in Part 2.15(a) of the Disclosure
Schedule, neither the Company nor any Company Subsidiary is contractually
obligated to make any payment to any Person for the use of any Company
Proprietary Asset. Except as may be set forth in Part 2.14(a)(v) of the
Disclosure Schedule or pursuant to a Company Contract set forth in Part 2.15(a)
of the Disclosure Schedule, neither the Company nor any Company Subsidiary has
developed jointly with any other Person any Company Proprietary Asset with
respect to which such other Person has any rights, and each Company Proprietary
Asset was created solely by Company employees who have executed and
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delivered an Employee Inventions, Proprietary Right, Assignment and Inventions
Agreement (an "Assignment and Inventions Agreement") in the form previously
delivered to Acquiror, which agreement contained no exceptions to or exclusions
from the scope of coverage and which makes assignment of all inventions
effective from commencement of such employee's employment with the Company.
(b) To the Company's knowledge, except as set forth in Part 2.14(b) of the
Disclosure Schedule, as of the Signing Date, there are no pending or threatened
claims or Legal Proceedings by any Person against the Company or any Company
Subsidiary relating to (A) the use of the material Company Proprietary Assets or
(B) the manufacture, use or sale of the Company's Products insofar as such claim
or Legal Proceeding may relate to any infringement or violation of third party
Proprietary Assets. To the Company's knowledge, the Company and each Company
Subsidiary have ownership of, or such rights by assignment, license, lease or
other agreement described in Part 2.14(a) of the Disclosure Schedule, to the
Company Proprietary Assets as are necessary to permit them to conduct their
respective operations as currently conducted. To the Company's knowledge, no
material Company Proprietary Asset is subject to any outstanding order,
judgment, decree or stipulation restricting in any manner the use, licensing or
sale thereof by the Company or such Company Subsidiary.
(c) Except as set forth in Part 2.14 (c) of the Disclosure Schedule or
pursuant to a Company Contract set forth in Part 2.15(a) of the Disclosure
Schedule, neither the Company nor any Company Subsidiary has licensed or
otherwise transferred any of the Company Proprietary Assets to any Person on an
exclusive basis, and neither the Company nor any Company Subsidiary has entered
into any covenant not to compete or Contract limiting its ability to exploit
fully any of its Proprietary Assets or to transact business in any market or
geographical area or with any Person. Neither the Company nor any Company
Subsidiary has offered for sale, or entered into non-confidential preliminary
negotiations or discussions with respect to a sale, of any Company Proprietary
Asset prior to filing any patent application with respect to such Company
Proprietary Asset. Except as set forth in Part 2.14(c) of the Disclosure
Schedule or pursuant to a Company Contract set forth in Part 2.15(a) of the
Disclosure Schedule, neither the Company nor any Company Subsidiary has entered
into any agreement to indemnify any other person against any charge of
infringement of any Company Proprietary Asset.
(d) Except as set forth in Part 2.14(d) of the Disclosure Schedule, (i) all
employees of the Company and each Company Subsidiary since January 1, 1997 have
executed and delivered to the Company or such Company Subsidiary an agreement
(containing no exceptions to or exclusions from the scope of its coverage) that
is substantially identical to the form of the Employee Inventions, Proprietary
Right, Assignment and Confidentiality Agreements previously delivered to
Acquiror, and (ii) all consultants and independent contractors to the Company
and each Company Subsidiary since January 1, 1997 have executed and delivered to
the Company or such Company Subsidiary an agreement (containing no exceptions to
or exclusions from the scope of its coverage) that is substantially identical to
the form of Consultant, Inventions, Proprietary Rights, Assignment and
Confidentiality Agreement previously delivered to Acquiror.
(e) Notwithstanding anything to the contrary set forth in this Agreement,
Acquiror acknowledges that the representations and warranties set forth in
Section 2.14(b) constitute the sole representations and warranties made
regarding (i) claims or Legal Proceedings (made or threatened) with respect to
(A) the use of the Company's patents or (B) the manufacture, use or sale of the
Company's Products, insofar as such claim or Legal Proceeding may relate to any
infringement of patents owned by third parties or in which third parties have
rights, and (ii) the Company's ownership of, or rights by license, lease or
other agreement, with respect to, the Company's patents. In addition, Acquiror
acknowledges and agrees that claims made or threatened or the institution or
threat of institution of Legal Proceedings that arise after the Signing Date and
(i) about which claims or Legal Proceedings the Company had no knowledge as of
the Signing Date, to the extent concerning (A) the use of the Company's patents
or (B) the manufacture, use or sale of the Company's Products, insofar as such
claim or Legal Proceeding may relate to any infringement of patents owned by
third parties or in which third parties have rights, or (ii) which claims or
Legal Proceedings are disclosed in Part 2.14(b) of the Disclosure Schedule,
shall not cause a breach of any of the representations and warranties set forth
in Article 2 for any and all purposes under this Agreement, including without
limitation the failure to meet any condition in Article 6 and Article 9 of this
Agreement.
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SECTION 2.15 Contracts.
(a) Part 2.15(a) of the Disclosure Schedule identifies:
(i) each Company Contract relating to the employment of, or the
performance of services by, any employee or consultant, other than oral,
at-will arrangements with employees and contracts relating to the Plans (as
defined in Section 2.16);
(ii) each Company Contract imposing any restriction on the right or
ability of the Company or any Company Subsidiary (A) to compete with any
other Person, (B) to acquire any product or other asset or any services
from any other Person, to sell any product or other asset to or perform any
services for any other Person or to transact business or deal in any other
manner with any other Person, or (C) develop or distribute any technology;
(iii) each Company Contract creating or involving any agency
relationship, distribution arrangement or franchise relationship;
(iv) each Company Contract relating to the acquisition, issuance or
transfer of any securities;
(v) each Company Contract relating to the creation of any Encumbrance
with respect to any asset of the Company;
(vi) each Company Contract relating to real property or any leasehold
interest in real property;
(vii) each Company Contract involving or incorporating any guaranty,
any pledge, any performance or completion bond, any indemnity or any surety
arrangement;
(viii) each Company Contract creating or relating to any partnership
or joint venture or any sharing of revenues, profits, losses, costs or
liabilities;
(ix) each Company Contract relating to the purchase or sale of any
product or other asset by or to, or the performance of any services by or
for, any Related Party;
(x) any other Company Contract that was entered into outside the
ordinary course of business or was inconsistent with the Company's past
practices;
(xi) any other material Company Contract that has a term of more than
sixty (60) days and that may not be terminated by the Company (without
penalty) within sixty (60) days after the delivery of a termination notice
by the Company; and
(xii) any other Company Contract that contemplates or involves (A) the
payment or delivery of cash, or other consideration in an amount or having
a value in excess of twenty thousand dollars ($20,000) in the aggregate, or
(B) the performance of services having a value in excess of twenty thousand
dollars ($20,000) in the aggregate.
(Contracts in the respective categories described in clauses (i) through
(xii) above and Section 2.14(a) are referred to in this Agreement as "Material
Contracts.")
(b) The Company has delivered to Acquiror accurate and complete copies of
all written Contracts identified in Part 2.15(a) of the Disclosure Schedule,
including all amendments thereto. Part 2.15(a) of the Disclosure Schedule
provides an accurate description of the terms of each non-written Material
Contract. Each Contract identified in Part 2.15(a) of the Disclosure Schedule is
valid and in full force and effect, and, to the best knowledge of the Company,
is enforceable by the Company or a Company Subsidiary in accordance with its
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.15(c) of the Disclosure Schedule:
(i) neither the Company nor any Company Subsidiary has materially
violated or breached, or committed any material default under, any Material
Contract, and, to the best knowledge of the Company, no other Person has
materially violated or breached, or committed any material default under,
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any Material Contract which violation or breach has, will or would
reasonably be expected to result in Damages in excess of $100,000;
(ii) to the best knowledge of the Company, no event has occurred, and
no circumstance or condition exists, that (with or without notice or lapse
of time) will, or could reasonably be expected to, (A) result in a material
violation or breach of any Material Contract, (B) give any Person the right
to declare a material default or exercise any material remedy under any
Material Contract, (C) give any Person the right to accelerate the maturity
or performance of any Material Contract, or (D) give any Person the right
to cancel, terminate or materially modify any Material Contract;
(iii) neither the Company nor any Company Subsidiary has received any
written notice or other written communication regarding any actual or
possible violation or breach of, or default under, any Material Contract;
and
(iv) neither the Company nor any Company subsidiary has waived any of
its material rights under any Material Contract.
(d) The Company is not renegotiating any amount paid or payable to the
Company or any Company Subsidiary under any Material Contract or any other
material term or provision of any Material Contract, except as set forth in Part
2.15(b) of the Disclosure Schedule.
(e) The Contracts delivered to Acquiror prior to the Signing Date and
identified in the Disclosure Schedule collectively constitute all of the
material contracts currently used by the Company and each Company Subsidiary to
conduct their respective operations as currently conducted.
(f) Part 2.15(f) of the Disclosure Schedule identifies and provides a brief
description of each proposed Contract as to which any bid, offer, award, written
proposal, term sheet or similar document has been submitted or received by the
Company since December 31, 1997 and on or before the Signing Date that
contemplates or involves (A) the payment or delivery of cash or other
consideration in an amount or having a value in excess of fifty thousand dollars
($50,000) in the aggregate, or (B) the performance of services having a value in
excess of fifty thousand dollars ($50,000).
SECTION 2.16 Employee and Labor Matters; Benefit Plans.
(a) Part 2.16(a) of the Disclosure Schedule identifies each salary, bonus,
deferred compensation, incentive compensation, stock purchase, stock option,
severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plans, programs or agreements (collectively, the "Plans") sponsored,
maintained, contributed to or required to be contributed to by the Company or
any Company Subsidiary for the benefit of any employee of the Company or any
Company Subsidiary ("Employee").
(b) Neither the Company nor any Company Subsidiary maintains, sponsors or
contributes to, and, to the best of the knowledge of the Company, has not at any
time in the past maintained, sponsored or contributed to, any employee pension
benefit plan (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), whether or not excluded from
coverage under specific Titles or Subtitles of ERISA) for the benefit of
Employees or former Employees (a "Pension Plan").
(c) Neither the Company nor any Company Subsidiary maintains, sponsors or
contributes to any employee welfare benefit plans (as defined in Section 3(1) of
ERISA, whether or not excluded from coverage under specific Titles or Subtitles
of ERISA) for the benefit of Employees or former Employees (a "Welfare Plan"),
except as set forth in Part 2.16(c) of the Disclosure Schedule.
(d) Neither the Company nor any Company Subsidiary is required to be, and,
to the best knowledge of the Company, has ever been required to be, treated as a
single employer with any other Person under Section 4001(b)(1) of ERISA or
Section 414(b), (c), (m) or (o) of the Code. Neither the Company nor any Company
Subsidiary has ever been a member of an "affiliated service group" within the
meaning of Section 414(m) of the Code. To the best knowledge of the Company,
neither the Company nor any Company Subsidiary has ever made a complete or
partial withdrawal from a multi-employer plan, as such term is
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defined in Section 3(37) of ERISA, resulting in "withdrawal liability", as such
term is defined in Section 4201 of ERISA (without regard to subsequent reduction
or waiver of such liability under either Section 4207 or 4208 of ERISA).
(e) With respect to each Plan, the Company has delivered to Acquiror:
(i) an accurate and complete copy of such Plan (including all
amendments thereto);
(ii) an accurate and complete copy of the annual report, if required
under ERISA, with respect to such Plan for the last two years;
(iii) an accurate and complete copy of the most recent summary plan
description (and modifications summary), if required under ERISA, with
respect to such Plan;
(iv) if such Plan is funded through a trust or any third party funding
vehicle, an accurate and complete copy of the trust or other funding
agreement (including all amendments thereto) and accurate and complete
copies of the most recent financial statements thereof;
(v) accurate and complete copies of all Contracts relating to such
Plan, including service provider agreements, insurance contracts, minimum
premium contracts, stop-loss agreements, investment management agreements,
subscription and participation agreements and recordkeeping agreements; and
(vi) an accurate and complete copy of the most recent determination
letter received from the Internal Revenue Service with respect to such Plan
(if such Plan is intended to be qualified under Section 401(a) of the
Code).
(f) Neither the Company nor any Company Subsidiary has any plan or
commitment to create any Welfare Plan or any Pension Plan, or to modify or
change any existing Welfare Plan or Pension Plan (other than to comply with
applicable law) in a manner that would affect any Employee.
(g) Each of the Plans has been operated and administered in all material
respects in accordance with applicable Legal Requirements, including but not
limited to ERISA and the Code.
(h) Each of the Plans intended to be qualified under Section 401(a) of the
Code has received a favorable determination from the Internal Revenue Service,
and the Company is not aware of any reason why any such determination letter
should be revoked.
(i) Neither the execution, delivery or performance of this Agreement, nor
the consummation of the transactions contemplated by this Agreement, will result
in any payment (including any bonus, golden parachute or severance payment) to
any current or former Employee or director of the Company or any Company
Subsidiary (whether or not under any Plan), or materially increase the benefits
payable under any Plan, or result in any acceleration of the time of payment or
vesting of any such benefits, except as set forth in Part 2.16(i) of the
Disclosure Schedule.
(j) Part 2.16(j) of the Disclosure Schedule contains a list of all salaried
employees of the Company and each Company Subsidiary as of the date of this
Agreement, and correctly reflects, in all material respects, their salaries, any
other compensation payable to them (including compensation payable pursuant to
bonus, deferred compensation or commission arrangements), their dates of
employment and their positions. Neither the Company nor any Company Subsidiary
is a party to any collective bargaining contract or other Contract with a labor
union involving any of its Employees. All of the Company's employees are "at
will" employees.
(k) Part 2.16(k) of the Disclosure Schedule identifies each Employee whom
to the knowledge of the Company is not fully available to perform work because
of disability or other leave and sets forth the basis of such leave and the
anticipated date of return to full service.
(l) The Company and each Company Subsidiary is in compliance with all
applicable Legal Requirements and Contracts relating to employment, employment
practices, wages, bonuses and terms and conditions of employment, including
employee compensation matters, except where the failure to do so would not have
and could not reasonably be expected to have a Company Material Adverse Effect.
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(m) To its knowledge, as of the Signing Date, the Company and each Company
Subsidiary has good labor relations, and the Company does not believe that the
consummation of any of the transactions contemplated by this Agreement will have
a Company Material Adverse Effect on the Company's or any Company Subsidiary's
labor relations.
SECTION 2.17 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of the Company or
any Company Subsidiary with any Governmental Body with respect to any taxable
period ending on or before the Closing Date (the "Company Returns") (i) have
been or will be filed on or before the applicable due date (including any
extensions of such due date), and (ii) have been, or will be when filed,
accurately and completely prepared in all material respects in compliance with
all applicable Legal Requirements. All amounts shown on the Company Returns to
be due on or before the Closing Date have been or will be paid on or before the
Closing Date. The Company has delivered to Acquiror accurate and complete copies
of all Company Returns filed since the Company's inception, except as set forth
in Part 2.17(a) of the Disclosure Schedule.
(b) The Company Financial Statements fully accrue all actual and contingent
liabilities for Taxes payable by the Company or any Company Subsidiary with
respect to all periods through the dates thereof in accordance with generally
accepted accounting principles. The Company and each Company Subsidiary has
established, in the ordinary course of business and consistent with its past
practices, reserves adequate for the payment of all Taxes through the Signing
Date, and the Company has disclosed the dollar amount of such reserves to
Acquiror on or prior to the Closing Date.
(c) To the Company's knowledge, no Company Return relating to income Taxes
has ever been examined or audited by any Governmental Body and there have been
no examinations or audits of any Company Return. The Company has delivered to
Acquiror accurate and complete copies of all audit reports and similar documents
(to which the Company has access) relating to the Company Returns. No extension
or waiver of the limitation period applicable to any of the Company Returns has
been granted (by the Company, any Company Subsidiary or any other Person), and
no such extension or waiver has been requested from the Company or any Company
Subsidiary.
(d) No claim or Legal Proceeding is pending or has been threatened against
or with respect to the Company or any Company Subsidiary in respect of any Tax.
There are no unsatisfied liabilities for Taxes (including liabilities for
interest, additions to tax and penalties thereon and related expenses) with
respect to any notice of deficiency or similar document received by the Company
or such Company Subsidiary with respect to any Tax (other than liabilities for
Taxes asserted under any such notice of deficiency or similar document which are
being contested in good faith by the Company or such Company Subsidiary and with
respect to which adequate reserves for payment have been established); there are
no Encumbrances, other than Permitted Encumbrances, for Taxes upon any of the
assets of the Company or any Company Subsidiary; neither the Company nor any
Company Subsidiary has entered into or become bound by any agreement or consent
pursuant to Section 341(f) of the Code; neither the Company nor any Company
Subsidiary has been, and neither the Company nor any Company Subsidiary will be,
required to include any adjustment in taxable income for any tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions or events
occurring, or accounting methods employed, prior to the Closing.
(e) Except as set forth in Part 2.17(e) of the Disclosure Schedule, there
is no agreement, plan, arrangement or other Contract covering any employee or
independent contractor or former employee or independent contractor of the
Company or any Company Subsidiary that, considered individually or considered
collectively with any other such Contracts, will, or could reasonably be
expected to, give rise directly or indirectly to the payment of any amount that
would not be deductible pursuant to Section 280G or Section 162 of the Code.
Neither the Company nor any Company Subsidiary is, or has ever been, a party to
or bound by any tax indemnity agreement, tax sharing agreement, tax allocation
agreement or similar Contract.
(f) None of the Designated Shareholders is a "foreign person" as defined in
Section 1445 of the Code.
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SECTION 2.18 Environmental Matters.
(a) The Company and each Company Subsidiary is in compliance in all
material respects with all applicable Environmental Laws, which compliance
includes the possession by the Company of all material permits and other
material Governmental Authorizations required under applicable Environmental
Laws, and compliance with the terms and conditions thereof; neither the Company
nor any Company Subsidiary has received any notice or other communication (in
writing or otherwise), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that the Company or any Company Subsidiary
is not in compliance with any Environmental Law; and no current or prior owner
of any property leased or controlled by the Company or any Company Subsidiary
has received any notice or other communication (in writing or otherwise),
whether from a Government Body, citizens group, employee or otherwise, that
alleges that, with respect to such leased or controlled property, such current
or prior owner or the Company or any Company Subsidiary is not in compliance
with any Environmental Law. All Governmental Authorizations currently held by
the Company or any Company Subsidiary pursuant to Environmental Laws are
identified in Part 2.18 of the Disclosure Schedule.
(b) As of the Closing, no material amount of any Hazardous Material is
present in, on or under any Company Property in violation of any Environmental
Law as a result of the actions of the Company or any Company Subsidiary
(excluding failure of the Company or any Company Subsidiary to remediate the
presence of a Hazardous Material resulting from the actions of any previous
owner or occupier of Company Property of which presence the Company has no
knowledge) in violation of any Environmental Law in effect on or before the
Closing Date, in, on or under any property, including the land and the
improvements, groundwater and surface water thereof, that the Company or any
Company Subsidiary or any of their predecessors has at any time owned, operated,
occupied or leased (collectively, "Company Property"). In any event, neither the
Company nor any Company Subsidiary knows of the presence of any Hazardous
Material in, on or under any Company Property in violation of any Environmental
Law.
(c) At no time prior to the Closing has the Company or any Company
Subsidiary transported, stored, used, released or exposed its employees or
others to Hazardous Materials in violation of any Environmental Law in effect on
or before the Closing Date, nor has the Company or any Company Subsidiary
disposed of, transported, sold, or manufactured any product containing a
Hazardous Material (collectively, "Hazardous Materials Activities") in violation
of the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Resource Conservation and Recovery Act of 1976, the Toxic
Substances Control Act of 1976 or any other applicable state or federal acts
(including the rules and regulations thereunder) or any other Environmental Law
as in effect on or before the Closing Date.
(d) The Company and each Company Subsidiary currently holds all
Governmental Authorizations necessary for the conduct of the Company's Hazardous
Material Activities.
SECTION 2.19 Insurance. Part 2.19 of the Disclosure Schedule identifies
all insurance policies maintained by, at the expense of or for the benefit of
the Company or any Company Subsidiary. The Company has delivered to Acquiror
accurate and complete copies of all insurance policies identified on Part 2.19
of the Disclosure Schedule. Each of the insurance policies identified in Part
2.19 of the Disclosure Schedule is in full force and effect. Since January 1,
1995, neither the Company nor any Company Subsidiary has received any notice or
other communication regarding any actual or possible (a) cancellation or
invalidation of any insurance policy, (b) refusal of any coverage or rejection
of any claim under any insurance policy, or (c) material adjustment in the
amount of the premiums payable with respect to any insurance policy.
SECTION 2.20 Related Party Transactions. Except as set forth in Part 2.20
of the Disclosure Schedule: (a) no Related Party has any direct or indirect
interest in any material asset used in or otherwise relating to the business of
the Company or any Company Subsidiary; (b) no Related Party is indebted to the
Company or any Company Subsidiary; (c) since January 1, 1995, the Company, no
Related Party has entered into, or has had any direct or indirect financial
interest in, any material Contract, transaction or business dealing involving
the Company or any Company Subsidiary; (d) no Related Party is competing,
directly or indirectly, with the Company or any Company Subsidiary; and (e) to
the best of the Company's knowledge, no Related Party has
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any claim or right against the Company or any Company Subsidiary (other than
rights under Company Options and rights to receive compensation for services
performed as an employee of the Company).
SECTION 2.21 Company Products; Regulation. Since January 1, 1995, except
as set forth in Part 2.21 of the Disclosure Schedule:
(a) there have not been any written notices, citations or decisions by any
Governmental Body that any "commercialized" product, as such term is defined
below, produced, manufactured, marketed, tested or distributed by the Company or
any Company Subsidiary (each, a "Company Product") is defective or fails to meet
any applicable regulations or standards promulgated by any such Governmental
Body;
(b) the Company and each Company Subsidiary has complied in all material
respects with the laws, regulations and specification with respect to design,
manufacture, labeling, testing and inspection of each Company Product
promulgated by the United States Food and Drug Administration (the "FDA") or any
other Governmental Body;
(c) there have been no recalls, field notifications or seizures ordered or,
to the knowledge of the Company, threatened by any such Governmental Body with
respect to any Company Product;
(d) neither the Company or any Company Subsidiary has received any warning
letter or Section 305 notices from the FDA; and
(e) to the Company's knowledge, there have been no adverse events during
any human clinical trials of a Company Product (except as set forth in the
Clinical Trial Documents). Neither the Company nor any Company Subsidiary has
received any written notice that there exist any reasonable grounds for a claim
of defectiveness of any Company Product or for the recall of any Company
Product. To the best knowledge of the Company, no Person has been required to
file any notification or other report with or provide information to any
Governmental Body or product safety standards organization or to disclose any
information to any person or the public at large with respect to actual or
potential defects, hazards or adverse events with respect to any Company Product
and any service provided by the Company. The Company has provided to Acquiror
accurate and complete copies of all material Clinical Trial Documents.
(f) For purposes of this Section 2.21, a "commercialized" product shall
mean any product that is sold or offered for sale to third parties in or outside
of the United States, or that has been approved for sale in or outside of the
United States by any authorized Governmental Body, and shall further include the
Talent system, whether or not such system is or has been sold, offered for sale
or approved for sale.
(g) Notwithstanding anything to the contrary set forth in this Agreement,
Acquiror acknowledges that (i) the representations and warranties set forth in
Section 2.21(a) constitutes the sole representation and warranty made for the
benefit of Acquiror relating to Governmental Body liability for and regulation
of Company products; and (ii) the representations and warranties set forth in
Section 2.21(e) constitutes the sole representation and warranty made for the
benefit of Acquiror relating to product liability claims brought or threatened
to be brought by third parties using or who have used the Company's Products. In
addition, Acquiror acknowledges and agrees that claims made or threatened or the
institution of Legal Proceedings by third parties claiming defectiveness of the
Company's Products that arise after the Signing Date and (i) about which claims
or Legal Proceedings the Company had no knowledge as of the Signing Date, or
(ii) which claims or Legal Proceedings are disclosed in Part 2.21(e) of the
Disclosure Schedule, shall not cause a breach of any of the representations and
warranties set forth in Article 2 for any and all purposes under this Agreement,
including without limitation the failure to meet any condition in Article 6 and
Article 9 of this Agreement.
SECTION 2.22 Transaction Tax Matters. The Company has not taken or failed
to take any action that would prevent the Merger from constituting a transaction
qualifying as a reorganization under Section 368(a) of the Code.
SECTION 2.23 Opinion of Financial Advisor. The Company has received the
written opinion (the "Fairness Opinion") of Vector Securities International,
Inc. ("Vector"), on the date of this Agreement, to the effect that, as of the
date of this Agreement, the Exchange Ratio is fair to the Company's shareholders
from a
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financial point of view, and the Company will, promptly after the date of this
Agreement, deliver a copy of such opinion to Acquiror. Vector has acknowledged
and agreed that the Fairness Opinion will be included in the notice and proxy to
be sent to the Company's shareholders in connection with the Company
Shareholders' Meeting described in Section 5.3 below.
SECTION 2.24 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock is the only vote of
the holders of any class or series of capital stock of the Company necessary to
approve the Merger, this Agreement and the transactions contemplated by this
Agreement.
SECTION 2.25 No Brokers. No broker, finder or investment banker (other
than Vector Securities International, Inc.) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based on arrangements made by or on behalf of the
Company. The Company has heretofore furnished to Acquiror a correct copy of all
agreements between the Company and Vector Securities International, Inc.
pursuant to which such firm would be entitled to any payment relating to the
transactions contemplated by this Agreement.
SECTION 2.26 No Existing Discussions. Except as set forth in the
Disclosure Schedule, neither the Company nor any Company Subsidiary, and no
Representative of the Company or any Company Subsidiary, is engaged, directly or
indirectly, in any discussions or negotiations with any other Person relating to
any Competing Transaction.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Acquiror and Merger Sub represent and warrant to the Company as follows:
SECTION 3.1 Organization and Good Standing. Each of Acquiror and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all corporate power
and authority (i) the conduct its business in the manner in which its business
is currently being conducted; (ii) to own and use its assets in the manner in
which its assets are currently being owned and used; and (iii) to perform its
obligations under its material contracts.
SECTION 3.2 Certificate/Articles of Incorporation and Bylaws. Acquiror has
delivered to the Company accurate and complete copies of: (i) its Certificate of
Incorporation and Bylaws, including all amendments thereto. There has not been
any violation of any of the provisions of Acquiror's Certificate of
Incorporation or Bylaws, and no action has been taken that is inconsistent in
any material respect with any resolution adopted by the stockholders, the board
of directors or any committee of the board of directors. Merger Sub has
delivered to the Company accurate and complete copies of: (i) its Articles of
Incorporation and Bylaws, including all amendments thereto. There has not been
any violation of any of the provisions of Merger Sub's Articles of Incorporation
or Bylaws, and no action has been taken that is inconsistent in any material
respect with any resolution adopted by the stockholders, the board of directors
or any committee of the board of directors.
SECTION 3.3 Authority; Binding Nature of Agreement. Acquiror and Merger
Sub have all requisite corporate power and authority to enter into and, as of
the Closing Date will have all requisite corporate power and authority, to
perform their obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance by
Acquiror and Merger Sub of this Agreement and the transactions contemplated
hereby have been duly and validly authorized by all necessary action on the part
of Acquiror's and Merger Sub's respective boards of directors and no other
corporate proceedings on the part of Acquiror or Merger Sub are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
(other than, with respect to the Merger, the filing of Articles of Merger as
required by Florida Law). No vote of Acquiror stockholders is needed to approve
the Merger. This Agreement has been duly and validly executed and delivered by
Acquiror and Merger Sub and constitutes the legal, valid and binding obligation
of Acquiror and Merger Sub, enforceable against them in
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accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
SECTION 3.4 Non-Contravention. Neither (a) the execution, delivery or
performance of the Transaction Agreements nor (b) the consummation of the Merger
or any of the transactions contemplated by this Agreement or the Transaction
Agreements will, directly or indirectly (with or without notice or lapse of
time): (i) contravene, conflict with or result in a violation of (A) any of the
provisions of the Certificate of Incorporation or Bylaws of Acquiror or the
Articles of Incorporation or Bylaws of Merger Sub, or (B) any resolution adopted
by the stockholders, boards of directors or any committee thereof of Acquiror or
Merger Sub; or (ii) contravene, conflict with or result in a violation of any
Legal Requirement or any order, writ, injunction, judgment or decree to which
Acquiror or Merger Sub, or any of the properties or assets owned or used by
Acquiror or Merger Sub, is bound or affected, except for such violations,
breaches or defaults which would not have an Acquiror Material Adverse Effect.
SECTION 3.5 Absence of Changes. Since January 1, 1998, Acquiror has not
suffered any change constituting an Acquiror Material Adverse Effect.
SECTION 3.6 SEC Filings; Financial Statements. Acquiror has filed with the
Securities and Exchange Commission (the "SEC") and has heretofore made available
to the Company true and complete copies of, all forms, reports, schedules,
statements and other documents required to be filed by it and its subsidiaries
since July 1, 1997 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or the Securities Act of 1933, as amended (the "Securities Act")
(collectively, the "Acquiror SEC Documents"). As of their respective dates or,
if amended, as of the date of the last such amendment, the Acquiror SEC
Documents, including, without limitation, any financial statements or schedules
included therein, complied in all material respects with the applicable
requirements of the Securities Act as the Exchange Act, and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Each of the
consolidated balance sheets (including the related notes) included in the
Acquiror SEC Documents fairly presented in all material respects the financial
position of Acquiror and its consolidated subsidiaries as of the respective
dates thereof, and the other related statements (including the related notes)
included therein fairly presented in all material respects the results of
operations and cash flows of Acquiror and its consolidated subsidiaries for the
respective periods or as of the respective dates set forth therein. Each of the
consolidated balance sheets and statements of operations and cash flows
(including the related notes) included in the Acquiror SEC Documents has been
prepared in all material respects in accordance with GAAP applied on a
consistent basis during the periods involved, except as otherwise noted therein
and subject, in the case of unaudited interim financial statements, to normal
year-end adjustments.
SECTION 3.7 Valid Issuance. The issuance and delivery by Acquiror of
shares of Acquiror Common stock in connection with the Merger and this Agreement
have been duly and validly authorized by all necessary action on the part of
Acquiror. The shares of Acquiror Common Stock to be issued in connection with
the Merger and this Agreement, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable.
SECTION 3.8 Investigation by Acquiror. In entering into this Agreement,
each of Acquiror and Merger Sub:
(a) acknowledges that none of the Company, any Company Subsidiary or
any of their respective directors, officers, employees, affiliates, agents,
advisors or representatives makes any representation or warranty, either
express or implied, as to the accuracy or completeness of any of the
information provided or made available to Acquiror, Merger Sub or their
agents or representatives; and
(b) agrees, to the fullest extent permitted by law, that none of the
Company, any Company Subsidiary or any of their respective directors,
officers, employees, shareholders, affiliates, agents, advisors or
representatives shall have any liability or responsibility to Acquiror or
Merger Sub on any basis
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(including, without limitation, in contract or tort, under federal or state
securities laws or otherwise), based upon any information provided or made
available, or statements made, to Acquiror.
The foregoing limitations shall not: (i) apply to the Company to the extent
the Company makes the specific representations, warranties and covenants set
forth in this Agreement and the Transaction Agreements, including the Disclosure
Schedule and the exhibits attached hereto and incorporated herein and therein
and any documents (including the certificate referenced in Section 6.7(j)) to be
delivered at the Closing by the Company, (ii) apply to obligations with respect
to the Holdback Shares; or (iii) preclude Acquiror and Merger Sub from seeking
any remedy for fraud.
SECTION 3.9 Tax Matters. Neither Acquiror nor Merger Sub has taken or
failed to take any action that would prevent the Merger from constituting a
transaction qualifying as a reorganization under Section 368(a) of the Code.
SECTION 3.10 Consents. Acquiror's and Merger Sub's execution and delivery
of this Agreement and the Transaction Agreements do not, and Acquiror's and
Merger Sub's performance of this Agreement and the Transaction Agreements and
the consummation of the transactions contemplated thereby will not, require any
filing with, delivery of notice to, or receipt of any material Consent from, any
Person, except for applicable requirements of the Securities Act of 1933, as
amended, state securities or "blue sky" laws and the filing of Articles of
Merger as required by Florida Law.
ARTICLE 4
CERTAIN COVENANTS OF THE COMPANY
SECTION 4.1 Access and Investigation. During the period from the date of
this Agreement through the Effective Time (the "Pre-Closing Period"), the
Company shall, and shall cause its Representatives to: (a) provide Acquiror and
Acquiror's Representatives with reasonable access to the Company's and each
Company Subsidiary's Representatives, personnel and assets and to all existing
books, records, Tax Returns, work papers and other documents and information
relating to the Company and each Company Subsidiary, including as may be
necessary for the Acquiror's Representatives to perform an accounting audit and
to prepare pro forma financial statements for the Acquiror and the Company; and
(b) provide Acquiror and Acquiror's Representatives with copies of such existing
books, records, Tax Returns, work papers and other documents and information
relating to the Company and each Company Subsidiary, and with such additional
financial, operating and other data and information regarding the Company and
each Company Subsidiary, as Acquiror may reasonably request.
SECTION 4.2 Operation of the Company's Business. Except as specifically
contemplated by the Transaction Agreements, during the Pre-Closing Period:
(a) the Company and each Company Subsidiary shall conduct its business
and operations in the ordinary course and in substantially the same manner
as such business and operations have been conducted prior to the date of
this Agreement and neither the Company nor any Company Subsidiary shall
enter into any material transaction or take any other material action
outside the ordinary course of business or inconsistent with past practice;
(b) the Company and each Company Subsidiary shall use all reasonable
efforts to preserve intact its current business organization, keep
available the services of its current officers and employees and maintain
its relations and good will with all suppliers, customers, landlords,
creditors, employees and other Persons having business relationships with
the Company or such Company Subsidiary;
(c) the Company and each Company Subsidiary shall keep in full force
all insurance policies identified in Part 2.19 of the Disclosure Schedule;
(d) neither the Company nor any Company Subsidiary shall declare,
accrue, set aside or pay any dividend or make any other distribution in
respect of any shares of capital stock, and shall not repurchase, redeem or
otherwise reacquire any shares of capital stock or other securities;
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(e) neither the Company nor any Company Subsidiary shall sell, issue
or authorize the issuance of (i) any capital stock or other security, (ii)
any option or right to acquire any capital stock or other security, or
(iii) any instrument convertible into or exchangeable for any capital stock
or other security (except that the Company shall be permitted to issue
Company Common Stock upon exercise of outstanding Company Options);
(f) the Company shall not amend or waive any of its rights under, or
permit the acceleration of vesting under (except to the extent provided for
in Plans and option agreements entered into pursuant thereto, as in effect
on the Signing Date), (i) any provision of its Company Options, (ii) any
provision of any agreement evidencing any outstanding Company Option, or
(iii) any restricted stock purchase agreement;
(g) neither the Company nor any Company Subsidiary shall amend or
permit the adoption of any amendment to the Charter Documents, or effect or
permit the Company or any Company Subsidiary to become a party to any
Competing Transaction (subject to Section 4.4), recapitalization,
reclassification of shares, stock split, reverse stock split or similar
transactions;
(h) neither the Company nor any Company Subsidiary shall form any
subsidiary or acquire any equity interest or other similar interest in any
other Entity;
(i) except as contemplated by the capital expenditure budget set forth
in Part 4.2(i) of the Disclosure Schedule, neither the Company nor any
Company Subsidiary shall make any capital expenditure, except for capital
expenditures that, when added to all other capital expenditures made on
behalf of the Company or any Company Subsidiary during the Pre-Closing
Period, do not exceed one hundred and fifty thousand dollars ($150,000);
(j) neither the Company nor any Company Subsidiary shall (i) enter
into, or become bound by, any Contract that is or would constitute a
Material Contract, or (ii) amend, violate or terminate, or waive any
material right or remedy under, any such Contract;
(k) neither the Company nor any Company Subsidiary shall (i) acquire,
lease or license any material right or other material asset from any other
Person, or (ii) sell or otherwise dispose of, or lease or license, any
material right or other material asset to any other Person, other than the
sale by the Company of inventory in the ordinary course of business and
consistent with past practice;
(l) neither the Company nor any Company Subsidiary shall make any
pledge of any of its assets or otherwise voluntarily permit any of its
assets to become subject to any Encumbrance, except for Permitted
Encumbrances;
(m) other than loans made in the ordinary course of business and
consistent with past practice up to an aggregate amount of ten thousand
dollars ($10,000), neither the Company nor any Company Subsidiary shall (i)
lend money to any Person, or (ii) incur or guarantee any indebtedness for
borrowed money;
(n) neither the Company nor any Company Subsidiary shall (i) other
than as required by applicable law or agreement set forth in the Disclosure
Schedule, establish, adopt or amend any Plan, (ii) pay any bonus or make
any profit sharing payment, cash incentive payment or similar payment to,
or increase the amount of the wages, salary, commissions, severance or
termination pay, fringe benefits or other compensation or remuneration
payable to, any of its directors, officers or employees except for
increases made in the ordinary course of business consistent with past
practice and which in the aggregate do not exceed one hundred and fifty
thousand ($150,000), or (iii) hire any new employee, other than employees
hired whose annualized compensation is no greater than sixty thousand
dollars ($60,000) and who are hired in the ordinary course of business and
consistent with past practice;
(o) neither the Company nor any Company Subsidiary shall change any of
its methods of accounting or accounting practices in any material respect,
unless required by GAAP or applicable law;
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(p) neither the Company nor any Company Subsidiary shall make any
material Tax election, adopt or materially change any material accounting
method in respect of Taxes, file any material Tax Return or any amendment
to a material Tax Return, enter into any closing agreement, settle any
material claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(q) neither the Company nor any Company Subsidiary shall revalue any
of its assets, including without limitation writing down the value of
inventory or writing off notes or accounts receivable other than in the
ordinary course of business;
(r) neither the Company nor any Company Subsidiary shall pay,
discharge or satisfy in an amount in excess of fifty thousand dollars
($50,000) in any one case any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business of
liabilities identified in clauses (a) through (d) of Section 2.8(c);
(s) neither the Company nor any Company Subsidiary shall agree or
commit to take any of the actions described in clauses (e) through (r)
above.
Notwithstanding the foregoing, the Company may take any action described in
clauses (e) through (s) above if Acquiror gives its prior written consent (which
consent shall not be unreasonably withheld) to the taking of such action by the
Company.
SECTION 4.3 Notification; Updates to Disclosure Schedule.
(a) During the Pre-Closing Period, the Company shall promptly notify
Acquiror in writing of:
(i) the discovery by the Company of any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this
Agreement and that caused or constitutes an inaccuracy in or breach of any
representation or warranty made by the Company in this Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or
exists after the date of this Agreement and that would cause or constitute
an inaccuracy in or breach of any representation or warranty made by the
Company in this Agreement if (A) such representation or warranty had been
made as of the time of the occurrence, existence or discovery of such
event, condition, fact or circumstance, or (B) such event, condition, fact
or circumstance had occurred, arisen or existed on or prior to the date of
this Agreement;
(iii) any breach of any covenant or obligation of the Company, any
Company Subsidiary;
(iv) any event, condition, fact or circumstance that would make the
timely satisfaction of any of the conditions set forth in Articles 6 or 7
impossible or unlikely; and
(v) any actual or, to the best knowledge of the Company, threatened
action, proceeding or investigation by any Governmental Body or any other
Person (A) challenging or seeking material damages in connection with the
Merger or the conversion of the Shares into shares of Acquiror Common Stock
pursuant to the Merger or (B) seeking to restrain or prohibit the
consummation of the Merger or otherwise limit the right of Acquiror or any
subsidiary of Acquiror to own or operate all or any portion of the business
or assets of the Company or any Company Subsidiary.
(b) If any event, condition, fact or circumstance that is required to
be disclosed pursuant to Section 4.3(a) requires any change in the
Disclosure Schedule, or if any such event, condition, fact or circumstance
would require such a change assuming the Disclosure Schedule were dated as
of the date of the occurrence, existence or discovery of such event,
condition, fact or circumstance, then the Company shall promptly deliver to
Acquiror and its counsel a written update to the Disclosure Schedule
prominently labelled as an update to the Disclosure Schedule and setting
forth in detail the required changes. Except as to any such written and
prominently labelled updates which are objected to in a writing prominently
labelled as an objection to such update delivered by Acquiror to the
Company within fifteen (15) business days after Acquiror's and its
counsel's receipt of an update, such update shall be
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deemed to supplement and amend the Disclosure Schedule for the purpose of
(i) determining the accuracy of any of the representations and warranties
made by the Company in this Agreement, and (ii) determining whether any of
the conditions set forth in Article 6 has been satisfied.
SECTION 4.4 No Solicitation of Competing Transactions.
(a) During the Pre-Closing Period, neither the Company nor any Company
Subsidiary shall, and each of them shall direct and cause its Representatives
to, directly or indirectly, (i) initiate, solicit or encourage (including by way
of furnishing non-public information or assistance), or take any other action to
facilitate, any inquiry or the making of any proposal or offer from any Person
relating to a possible Competing Transaction, (ii) enter into, continue or
otherwise participate in any discussions or negotiations with any Person in
furtherance of such inquiries or in connection with a Competing Transaction,
(iii) enter into any agreement relating to or in connection with a possible
Competing Transaction, or endorse any such agreement, or (iv) consider,
entertain or accept any proposal or offer from any Person relating to a possible
Competing Transaction. Without limiting the generality of the foregoing, the
Company acknowledges and agrees that any violation of any of the restrictions
set forth in the preceding sentence by any Representative of the Company or any
Company Subsidiary, whether or not such Representative is purporting to act on
behalf of the Company or a Company Subsidiary, shall be deemed to constitute a
breach of this Section 4.4 by the Company.
(b) Nothing contained in this Agreement shall prevent the Company or its
Board of Directors from furnishing information regarding the Company (including
a copy of this Section 4.4) to any Person in connection with or in response to a
bona fide, unsolicited Acquisition Proposal or engaging in discussions or
negotiations with respect thereto if and only to the extent that (i) the Board
of Directors of the Company determines in good faith, after consultation with
its financial advisor, that such Acquisition Proposal is reasonably likely to
result in a Superior Offer, (ii) the Board of Directors of the Company
determines in good faith, upon the advice of its outside legal counsel, that
such action is required in order for the Board of Directors to comply with its
fiduciary duties under applicable law, (iii) the Person who has requested such
information has executed and delivered to the Company a non-disclosure agreement
reasonably satisfactory to Acquiror, and (iv) the Company has not breached any
provision of this Agreement, including Section 4.4(a)(i). In addition, nothing
in paragraph 4.4(a) above shall prevent the Board of Directors of the Company
from recommending a Superior Offer to its shareholders, if the Board determines,
upon the advice of its outside legal counsel, that, in light of such Superior
Offer, such recommendation is required in order for the Board of Directors to
comply with its fiduciary obligations to the Company's shareholders under
applicable law.
(c) The Company shall promptly notify Acquiror in writing of any inquiry,
proposal or offer relating to a possible Competing Transaction that is received
by the Company or any Company Subsidiary during the Pre-Closing Period.
(d) Nothing in this Section 4.4 shall limit or eliminate in any way the
Company's obligation to call, give notice of, convene and hold the Company's
Shareholders' Meeting as set forth in Section 5.3 below, regardless of whether
the recommendation of the Board of Directors of the Company shall have been
withdrawn, amended or modified pursuant to Section 4.4(b).
ARTICLE 5
ADDITIONAL COVENANTS OF THE PARTIES
SECTION 5.1 Filings and Consents. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings (if any) and give all notices (if any) required to be made and given by
such party in connection with the transactions contemplated by this Agreement,
and (b) shall use all reasonable efforts to obtain all Consents (if any)
required to be obtained (pursuant to any applicable Legal Requirement or
Contract, or otherwise) by such party in connection with the transactions
contemplated by this Agreement. Acquiror shall (upon request) promptly deliver
to the Company a copy of each such filing made, each such notice given and each
such Consent obtained by Acquiror during the Pre-Closing Period (except to the
extent any such filing, notice or Consent contains any non-public information);
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and the Company shall (upon request) promptly deliver to Acquiror a copy of each
such filing made, each such notice given and each such Consent obtained by the
Company during the Pre-Closing Period.
SECTION 5.2 Registration Statement.
(a) As promptly as practicable after the date of this Agreement, Acquiror
and the Company shall cooperate in preparing and causing to be filed with the
SEC a Form S-4 Registration Statement in order to register the shares of
Acquiror Common Stock to be issued in the Merger. Each of Acquiror and the
Company shall use all reasonable efforts to cooperate in causing the Form S-4
Registration Statement to comply with the rules and regulations promulgated by
the SEC, to respond promptly to any comments of the SEC or its staff and to have
the Form S-4 Registration Statement declared effective under the Securities Act
as promptly as practicable after it is filed with the SEC. The Company will use
all reasonable efforts to cause a proxy statement, a component part of which
shall be the Form S-4 Registration Statement, to be mailed to the Company's
shareholders as promptly as practicable after the Form S-4 Registration
statements is declared effective under the Securities Act. The Company shall
promptly furnish to Acquiror all information concerning the Company, Company
Subsidiaries and the Company shareholders that may be required (as agreed by
counsel to the Company and Acquiror) or reasonably requested in connection with
any action contemplated by this Section 5.2. Acquiror shall notify the Company
promptly of the receipt of any comments from the SEC or its staff and of any
request by the SEC or its staff for any amendment or supplement to the Form S-4
Registration Statement or for any other information and shall supply the Company
with copies of all correspondence between Acquiror and the SEC or its staff or
other governmental officials with respect to the S-4 Registration Statement. The
information supplied by each of Acquiror and the Company for inclusion in the
Form S-4 Registration Statement shall not (i) at the time the Form S-4
Registration Statement is declared effective, (ii) at the time of the Company
Shareholders' Meeting (as defined in Section 5.3), and (iii) at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required under which they were made, not misleading. If Acquiror
or the Company becomes aware of any information that should be disclosed in an
amendment or supplement to the Form S-4 Registration Statement, then the parties
shall promptly inform each other and shall cooperate with the other in filing
such amendment or supplement with the SEC and, if appropriate, in mailing such
amendment or supplement to the shareholders of the Company.
(b) Prior to the Effective Time, Acquiror shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Acquiror Common Stock
to be issued in the Merger will be approved for quotation at the Effective Time
on the Nasdaq National market; provided, however, that Acquiror shall not be
required (i) to qualify to do business as a foreign corporation in any
jurisdiction in which it is not now qualified or (ii) to file a general consent
to service of process in any jurisdiction.
SECTION 5.3 Company Shareholders' Meeting.
(a) The Company shall, in accordance with its articles of incorporation and
bylaws and the applicable requirements of Florida Law, call and hold a special
meeting of its shareholders as promptly as practicable for the purpose of
permitting them to consider and vote upon and approve the Merger and this
Agreement (together with any postponements or adjournments thereof , the
"Company Shareholders' Meeting"). As promptly as practicable after the SEC
declares the Form S-4 Registration Statement effective, the Company shall cause
a copy of a proxy statement, a component part of which shall be the Form S-4
Registration Statement (the "Proxy"), to be delivered to each shareholder of the
Company who is entitled to vote at the Company Shareholders' Meeting. As
promptly as practicable after the delivery of copies of the Proxy to all
shareholders entitled to vote at the Company Shareholders' Meeting, the Company
shall use all reasonable efforts to solicit from each of such shareholders a
proxy in favor of the approval of the Merger and this Agreement.
(b) Nothing in this Agreement shall prevent the board of directors of the
Company from withdrawing, amending or modifying its recommendation in favor of
the Merger at any time prior to the approval of this Agreement at the Company
Shareholders' Meeting if (i) a Superior Offer is made to the Company and not
withdrawn, (ii) neither the Company nor any of its Representatives shall have
violated any of the restrictions set forth in Section 4.4, and (iii) the Board
of Directors of the Company concludes in good faith, upon the
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advice of its outside legal counsel, that, in light of such Superior Offer, the
withdrawal, amendment or modification of such recommendation is required in
order for the board of directors of the Company to comply with its fiduciary
obligations to the Company's shareholders under applicable law. Nothing
contained in this Section 5.3(b) shall limit or eliminate in any way the
Company's obligation to call, give notice of, convene and hold the Company
Shareholders' Meeting (regardless of whether the recommendation of the board of
directors of the Company shall have been withdrawn, amended or modified).
SECTION 5.4 Public Announcements. Neither the Company, Acquiror nor any of
their respective affiliates or Representatives shall issue or cause the
publication of any press release or the making of a public statement or filing
with respect to the Merger, this Agreement or the other transactions
contemplated hereby without the prior agreement of the other party, except as
may be required for Acquiror by law or by any listing agreement with a national
securities exchange.
SECTION 5.5 Affiliate Agreements. The Company shall use its all reasonable
efforts to cause each Person identified on Exhibit E-2 (and any other Person
that could reasonably be deemed to be an "affiliate" of the Company within the
meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act), to execute and deliver to Acquiror as promptly as practicable
after the execution of this Agreement, an Affiliate Agreement in the form of
Exhibit E-1. The Company shall provide to Acquiror in good faith a list of the
persons described as affiliates in this Section 5.5 and to be included in
Exhibit E-2. If there is a disagreement between Acquiror and the Company about
the persons who must be included on Exhibit E-2, the Company may remove persons
from Exhibit E-2 only if the Company provides to Acquiror a written opinion from
its outside legal counsel that such person could not reasonably be deemed an
affiliate within the meaning of Rule 145 under the Securities Act. Acquiror
shall be entitled to place share certificate legends and to issue stop transfer
instructions to Acquror's transfer agent consistent with the terms of such
Affiliate Agreements.
SECTION 5.6 Tax Matters.
(a) Prior to the Closing, the Company, Acquiror and Merger Sub shall
execute and deliver, to Cooley Godward llp and to Greenberg Traurig Hoffman
Lipoff Rosen & Quentel, P.A., tax representation letters in substantially the
form of Exhibit F-1 and F-2, respectively (which will be used in connection with
the legal opinions contemplated in Articles 6 and 7).
(b) Acquiror and Company will use all of their respective reasonable
efforts to cause the transactions contemplated hereby to qualify as a
reorganization under the provisions of Section 368(a) of the Code and will not
take any action after the Merger is effected that could reasonably be expected
to cause the Merger to lose its tax-free status. All parties hereto agree to
file the Plan of Merger with their respective federal income tax returns for the
year in which the Merger is effective and to comply with the reporting
requirements of Treasury Regulation 1.368-3.
SECTION 5.7 Reasonable Efforts. During the Pre-Closing Period, (a) the
Company shall use all reasonable efforts to cause the conditions set forth in
Article 6 to be satisfied on a timely basis, and (b) Acquiror and Merger Sub
shall use all reasonable efforts to cause the conditions set forth in Article 7
to be satisfied on a timely basis.
SECTION 5.8 Employment and Noncompetition Agreements. The Company shall
apply all reasonable efforts to have the individuals on Exhibit G-2 execute and
deliver to the Company and Acquiror an Employment Agreement in the form of
Exhibit G-1 and a Noncompetition Agreement in the form of Exhibit H.
SECTION 5.9 Protection of Proprietary Assets. The Company and each Company
Subsidiary shall apply all reasonable efforts to have all current and former
employees, consultants and independent contractors that are or were involved in
the creation, invention, research or development of the Company's Proprietary
Assets, execute and deliver to the Company or such Company Subsidiary an
agreement that is substantially identical to the form of the Inventions,
Proprietary Right, Assignment and Confidentiality Agreements previously
delivered to Acquiror.
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SECTION 5.10 FIRPTA Matters. At the Closing, (a) the Company shall deliver
to Acquiror a statement (in such form as may be reasonably requested by Cooley
Godward llp) conforming to the requirements of Section 1.897-2(h)(1)(I) of the
United States Treasury Regulations, and (b) the Company shall deliver to the
Internal Revenue Service the notification required under Section 1.897-2(h)(2)
of the United States Treasury Regulations.
SECTION 5.11 Release. The Company shall apply all reasonable efforts to
have each of the persons identified on Exhibit I-2 execute and deliver to the
Company a Release in the form of Exhibit I-1.
SECTION 5.12 Directors' and Officers' Insurance and Indemnification.
(a) All rights to indemnification existing in favor of the current
directors and officers (the "Indemnified Parties") of the Company for acts,
omissions and events occurring on or prior to the Effective Time (regardless of
whether any claim in connection therewith is asserted or claimed prior to or
after the Effective Time), as provided to the fullest extent under Florida Law
in the Company's Articles, Bylaws or indemnification agreements (as in effect as
of the date of this Agreement), shall survive the Merger and shall be observed
by the Surviving Corporation for a period of not less than six years from the
Effective Time.
(b) In the event that Acquiror (i) causes the Surviving Corporation to
consolidate with or merge into any other Person and Surviving Corporation is not
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) causes the Surviving Corporation to transfer or convey all or
substantially all of Surviving Corporation's properties and assets to any
Person, then, and in each such case, to the extent necessary to effectuate the
purposes of this Section 5.12, proper provision shall be made so that the
successors and assigns of the Surviving Corporation assume the obligations set
forth in this Section 5.12 and none of the actions described in clause (i) or
(ii) shall be taken until such provision is made.
(c) From the Effective Time until the sixth anniversary of the date on
which the Merger becomes effective, the Surviving Corporation shall maintain in
effect, for the benefit of the current directors and officers of the Company
with respect to acts or omissions occurring prior to the Effective Time, the
existing policy of directors' and officers' liability insurance maintained by
the Company as of the date of this Agreement (the "Existing Policy"); provided,
however, that (i) the Surviving Corporation may substitute for the Existing
Policy a policy or policies of comparable coverage, and (ii) the Surviving
Corporation shall not be required to pay an annual premium for the Existing
Policy (or for any substitute policies) in excess of 150% of the annual premium
currently paid by the Company for such insurance. In the event any future annual
premium for the Existing Policy (or any substitute policy or policies) exceeds
150% of the annual premium currently paid by the Company for such insurance, the
Surviving Corporation shall be entitled to reduce the amount of coverage of the
Existing Policy (or any substitute policies) to the amount of coverage that can
be obtained for a premium equal to 150% of the annual premium currently paid by
the Company for such insurance.
SECTION 5.13 Confidentiality. Notwithstanding anything to the contrary
contained in this Agreement, and subject only to any disclosure requirements
which may be imposed upon Acquiror under applicable state or federal securities
or antitrust laws, it is expressly understood and agreed by Acquiror and the
Company that, except to the extent that the following have been published (other
than by Acquiror or the Company or their respective Representatives in breach of
this Section 5.13): (a) this Agreement, the schedules and exhibits hereto, and
the conversations, negotiations and transactions relating hereto and/or
contemplated hereby; and (b) all financial information, business records and
other non-public information concerning Acquiror or the Company which any of the
parties or their respective representatives has received or may hereafter
receive, shall be maintained in the strictest confidence by the parties and
their respective representatives, and shall not be disclosed to any person that
is not associated or affiliated with any of the parties and involved in the
transactions contemplated hereby, without the prior written approval of Acquiror
or the Company, as applicable. The parties hereto shall use all reasonable
efforts to avoid disclosure of any of the foregoing or undue disruption of any
of the business operations or personnel of Acquiror or the Company. In the event
that the transactions contemplated hereby shall not be consummated for any
reason, each of the parties covenants and agrees that neither it nor its
representatives shall retain any documents, lists or other writings which they
may have received or obtained in connection herewith or any documents
incorporating any of the information contained in any of the same (all of which,
and all copies thereof in the possession or control of themselves or
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their representatives, shall be returned to the original source of the material
at issue). The parties hereto shall be responsible for any damages sustained by
reason of their respective breaches of this subsection, and this subsection may
be enforced by injunctive relief.
SECTION 5.14 Stock Exchange Listing. Acquiror shall promptly prepare and
submit to the Nasdaq National Market tier of the Nasdaq Stock Market or such
other national securities exchange on which shares of Acquiror Common Stock are
listed, a listing application covering the shares of Acquiror Common Stock
issuable in the Merger, and shall apply all reasonable efforts to obtain, prior
to the Effective Time, approval for listing of such Acquiror Common Stock,
subject to official notice of issuance.
ARTICLE 6
CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIROR AND MERGER SUB
The obligations of Acquiror and Merger Sub to effect the Merger and
otherwise consummate the other transactions contemplated by this Agreement are
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
SECTION 6.1 Accuracy of Representations. The representations and
warranties made by the Company in Sections 2.3(a), 2.3(b) and 2.3(c) shall be
true and correct on and as of the Closing Date as though such representation and
warranties were made on and as of that date, taking into account exercise of any
Company Options or Company warrants outstanding on the Signing Date. All other
representations and warranties made by the Company shall be true and correct on
and as of the Closing Date as though such representations and warranties were
made on and as of that date (other than those representations and warranties
that address matters only as of a particular date or only with respect to a
specific period of time which need only be true and accurate as of such date or
with respect to such period), except where the failure of such representations
and warranties to be so true and accurate (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth therein)
would not have a Company Material Adverse Effect.
The obligations of Acquiror and Merger Sub to effect the Merger and
otherwise consummate the other transactions contemplated by this Agreement are
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions:
SECTION 6.2 Performance of Covenants. All of the covenants and obligations
that the Company and the Company Subsidiaries are required to comply with or to
perform at or prior to the Closing shall have been complied with and performed
in all material respects.
SECTION 6.3 Shareholder Approval and Dissenting Rights. The principal
terms of the Merger shall have been duly approved by the affirmative vote of no
less than eighty-five percent (85%) of the shares of Company Common Stock
entitled to vote with respect thereon. No more than eight percent (8%) of the
shares of Company Common Stock outstanding immediately prior to the Company
Shareholders' Meeting shall have delivered to the Company notice of intent to
exercise dissenters' rights.
SECTION 6.4 Consents. All Consents required to be obtained in connection
with the transactions contemplated by this Agreement (including the Consents
identified in Part 2.5 of the Disclosure Schedule) shall have been obtained and
shall be in full force and effect, other than those which if not obtained would
not have a Company Material Adverse Effect. Failure to obtain any consent
required pursuant to the Standard Office Building Net Lease for the Sawgrass
Building, Plaza I & II shall be deemed to have a Company Material Adverse
Effect.
SECTION 6.5 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any
Governmental Body and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the Merger that makes consummation
of the transactions contemplated by this Agreement illegal.
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Section 6.6 No Material Adverse Change. Since the date of this Agreement,
there shall not have been any Company Material Adverse Effect, or any fact,
circumstance or condition that would reasonably be expected to have a Company
Material Adverse Effect.
Section 6.7 Particular Agreements and Documents. Acquiror and Merger Sub
shall have received the following agreements and documents, each of which shall
be in full force and effect:
(a) Shareholder Agreements in the form of Exhibit C-1, executed by the
Persons identified in Exhibit C-2;
(b) Affiliate Agreements in the form of Exhibit E-1, executed by the
Persons identified on Exhibit E-2 and by any other Person who could
reasonably be deemed to be an "affiliate" of the Company within the meaning
of Rule 145 of the rules and regulations promulgated under the Securities
Act;
(c) Employment Agreements in the form of Exhibit G-1, executed by the
individuals identified on Exhibit G-2 and not withdrawn or terminated by
such individuals;
(d) Employee Inventions, Proprietary Rights, Assignment and
Confidentiality Agreements, in the form attached to the Employment
Agreement attached as Exhibit G-1, executed by the individuals identified
on Exhibit G-3;
(e) Noncompetition Agreements in the form of Exhibit H-1, executed by
the individuals identified on Exhibit H-2;
(f) a Release in the form of Exhibit I-1, executed by each of persons
listed on Exhibit I-2;
(g) Escrow Agreement substantially in the form of Exhibit J executed
by Acquiror, the Escrow Agent and the Designated Escrow Representative;
(h) a legal opinion of Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A., dated as of the Closing Date, in the form of Exhibit K;
(i) Confidentiality/Nondisclosure agreements in the form of Exhibit L
executed by each of the directors of the Company on the Signing Date;
(j) a legal opinion of Cooley Godward LLP, dated as of the Closing
Date, to the effect that the Merger will constitute a reorganization within
the meaning of Section 368 of the Code (it being understood that, in
rendering such opinion, Cooley Godward LLP may rely upon the tax
representation letters referred to in Article 5,
(k) a certificate executed by the Company to the effect that the
conditions set forth in Sections 6.1, 6.2, 6.3 and 6.4 have been duly
satisfied (the "Company Closing Certificate");
(l) written resignations of all officers not included in Exhibit D and
all directors of the Company, effective as of the Effective Time;
(m) the valid and effective termination as of the Effective Time of
provisions in Contracts that provide any Person with rights of any nature
with respect to the board of directors of the Company or of any Company
Subsidiary, except as provided generally by the Company's or the Company's
Subsidiaries' Articles of Incorporation and Bylaws (or equivalent
documents) or by applicable law;
(n) the valid and effective termination of the Common Stock Purchase
Agreement and the Shareholder Agreement, each dated as of August 8, 1997;
and
(o) The Company shall have received analyses and information mutually
satisfactory to Acquiror and the Company relating to certain patents.
SECTION 6.8 Termination of Options; Warrants. Other than the Company
Options which shall be assumed by Acquiror, each outstanding option, warrant or
other right to purchase capital stock of the Company shall have either been
exercised (including "net exercise") or terminated.
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SECTION 6.9 FIRPTA Compliance. The Company shall have filed with the
Internal Revenue Service the notification referred to in Section 5.9(b) and
delivered notice to Acquiror.
SECTION 6.10 Effectiveness of Registration Statement. The Form S-4
Registration Statement shall have become effective in accordance with the
provisions of the Securities Act, and no stop order shall have been issued by
the SEC with respect to the Form S-4 Registration Statement.
SECTION 6.11 Listing. The shares of Acquiror Common stock to be issued in
the Merger shall have been approved for listing (subject to notice of issuance)
on the Nasdaq National Market.
SECTION 6.12 Insolvency Proceeding. There shall be no pending general
assignment of the Company for the benefit of creditors, or any proceeding
pending, or to the Company's knowledge, threatened by or against the Company
seeking to adjudicate the Company as bankrupt or insolvent, or seeking
liquidation, winding up a reorganization, arrangement, adjustment, protection,
relief or composition of its debts under any law relating to bankruptcy,
insolvency or reorganization, except for any assignment or proceeding that has
not had, and would not reasonably be expected to have, a Company Material
Adverse Effect.
SECTION 6.13 No Other Litigation. No Person shall have commenced or
threatened to commence any Legal Proceeding challenging or seeking the recovery
of a material amount of damages in connection with the transactions contemplated
by this Agreement or seeking to prohibit or limit the exercise by Acquiror of
any material right pertaining to its ownership of the Stock of the Surviving
Corporation. There shall not be pending or threatened any Legal Proceeding in
which a Governmental Body is or is threatened to become a party or is otherwise
involved, or in which there is a reasonable possibility of an outcome that would
have a Material Adverse Effect on the Company or any Company Subsidiary or
Acquiror; (a) challenging or seeking to restrain or prohibit the consummation of
the Merger or any of the other transactions contemplated by this Agreement; (b)
relating to the Merger and seeking to obtain from Acquiror or any of its
subsidiaries any damages that may be material to Acquiror; or (c) seeking to
prohibit or limit in any material respect Acquiror's ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect to
the stock of the Surviving Corporation.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
SECTION 7.1 Accuracy of Representations. All representations and
warranties made by Acquiror shall be true and correct on and as of the Closing
Date as though such representations and warranties were made on and as of that
date (other than those representations and warranties that address matters only
as of a particular date or only with respect to a specific period of time which
need only be true and accurate as of such date or with respect to such period),
except where the failure of such representations and warranties to be so true
and accurate (without giving effect to any limitation as to "materiality" or
"material adverse effect" set forth therein) would not have an Acquiror Material
Adverse Effect.
SECTION 7.2 Performance of Covenants. All of the covenants and obligations
that Acquiror is required to comply with or to perform at or prior to the
Closing shall have been complied with and performed in all material respects.
SECTION 7.3 Effectiveness of Registration Statement. The Form S-4
Registration Statement shall have become effective in accordance with the
provisions of the Securities Act, and no stop order shall have been issued by
the SEC with respect to the Form S-4 Registration Statement.
SECTION 7.4 Listing. The shares of Acquiror Common Stock to be issued in
the Merger shall have been approved for listing (subject to notice of issuance)
on the Nasdaq National Market.
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SECTION 7.5 Documents. The Company shall have received the following
documents:
(a) a legal opinion of Cooley Godward llp, dated as of the Closing Date, in
the form of Exhibit M-1;
(b) a legal opinion of Akerman, Senterfitt & Eidson, P.A., dated as of the
Closing Date, in the form of Exhibit M-2; and
(c) a legal opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A., dated as of the Closing Date, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code (it
being understood that, in rendering such opinion, Greenberg Traurig Hoffman
Lipoff Rosen & Quentel, P.A., may rely upon the tax representation letters
referred to in Article 5).
SECTION 7.6 No Restraints. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the
transactions contemplated by this Agreement shall have been issued by any court
of competent jurisdiction and remain in effect, and there shall not be any Legal
Requirement enacted or deemed applicable to the Merger that makes consummation
of the transactions contemplated by this Agreement illegal.
SECTION 7.7 Share Price. Notwithstanding anything else set forth in this
Agreement, the Closing Price shall not be less than seventy percent (70%) of the
Signing Price (as adjusted for any stock splits, stock dividends or reverse
stock splits).
SECTION 7.8 Shareholder Approval. The principal terms of the Merger shall
have been duly approved by the affirmative note of no less than fifty percent
(50%) of the shares of Company Common Stock entitled to vote with respect
thereon.
SECTION 7.9 Employee Payment Plan. Acquiror shall have caused a bonus
program for employees of the Company who continue employment with Acquiror or
its affiliates to be established, conditional upon the effectiveness of the
Merger, substantially in the form of Exhibit N.
ARTICLE 8
TERMINATION
SECTION 8.1 Termination Events. This Agreement may be terminated prior to
the Closing:
(a) by Acquiror if the Closing has not taken place on or before July
31, 1998 (other than as a result of any failure on the part of Acquiror to
comply with or perform any covenant or obligation of Acquiror set forth in
this Agreement);
(b) by the Company, if the Closing has not taken place on or before
July 31, 1998 (other than as a result of the failure on the part of the
Company to comply with or perform any covenant or obligation set forth in
this Agreement or in any other agreement or instrument delivered to
Acquiror);
(c) by either the Company or Acquiror if any Governmental Body shall
have issued an order, decree or ruling or taken any other action which
order, decree, ruling or other action the parties hereto shall use all
reasonable efforts to lift, in each case permanently restraining, enjoining
or otherwise prohibiting the material transactions contemplated by this
Agreement and such order, decree, ruling or other action shall have become
final and non-appealable;
(d) by the Company if Acquiror or Merger Sub (x) breaches or fails in
any material respect to perform or comply with any of its material
covenants and agreements contained herein or (y) breaches its
representations and warranties in any material respect and such breach
would have an Acquiror Material Adverse Effect, in each case such that any
of the conditions set forth in Article 7 would not be satisfied; provided,
however, that if any such breach is curable by the breaching party through
the exercise of the breaching party's best efforts and for so long as the
breaching party shall be so using its best efforts to cure such breach, the
Company may not terminate this Agreement pursuant to this subsection; or
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(e) by Acquiror if the Company (x) breaches or fails in any material
respect to perform or comply with any of its material covenants and
agreements contained herein or (y) breaches its representations and
warranties in any material respect and such breach would have a Company
Material Adverse Effect, in each case such that the conditions set forth in
Article 6 would not be satisfied; provided, however, that if any such
breach is curable by the Company through the exercise of the Company's best
efforts and for so long as the Company shall be so using its best efforts
to cure such breach, Acquiror may not terminate this Agreement pursuant to
this subsection;
(f) by the Company if the Company fails to obtain the affirmative vote
of no less than fifty percent (50%) of the shares of Company Common Stock
entitled to vote at the Company Shareholders' Meeting;
(g) by Acquiror if the Company fails to obtain the affirmative vote of
no less than eighty-five percent (85%) of the shares of Company Common
Stock entitled to vote at the Company Shareholders' Meeting, or if holders
of eight percent (8%) or more of the shares of Company Common Stock
outstanding immediately prior to the Company Shareholders' Meeting has
delivered to the Company notice of intent to exercise dissenters' rights;
(h) by the mutual consent of Acquiror and the Company.
SECTION 8.2 Termination Procedures. If Acquiror wishes to terminate this
Agreement pursuant to Section 8.1, Acquiror shall deliver to the Company a
written notice stating that Acquiror is terminating this Agreement and setting
forth a brief description of the basis on which Acquiror is terminating this
Agreement. If the Company wishes to terminate this Agreement pursuant to Section
8.1, the Company shall deliver to Acquiror a written notice stating that the
Company is terminating this Agreement and setting forth a brief description of
the basis on which the Company is terminating this Agreement.
SECTION 8.3 Effect of Termination. If this Agreement is terminated
pursuant to Section 8.1, all further obligations of the parties under this
Agreement shall terminate; provided, however, that: (a) neither the Company nor
Acquiror shall be relieved of any obligation or liability arising from any prior
willful breach by such party of any provision of this Agreement; and (b) the
parties shall, in all events, remain bound by and continue to be subject to the
provisions set forth in Sections 4.4, 5.4 and 5.13 and Article 10.
ARTICLE 9
INDEMNIFICATION, ETC.
SECTION 9.1 Survival of Representations, Etc.
(a) Except as otherwise provided in this Section 9.1(a), the
representations and warranties made by the Company (including the
representations and warranties set forth in Article 2) shall survive the Closing
and shall expire on the first anniversary of the Closing Date. If, at any time
prior to the expiration of the representations and warranties, any Indemnitee
(acting in good faith) delivers to the Designated Escrow Representative a
written notice alleging the existence of an inaccuracy in or a breach of any of
the representations and warranties made by the Company (and setting forth in
reasonable detail the basis for such Indemnitee's belief that such an inaccuracy
or breach may exist) and asserting a claim for recovery under Section 9.2 based
on such alleged inaccuracy or breach, then the representations and warranties
shall survive as to such claim until such time as the claim is fully and finally
resolved. All representations and warranties made by Acquiror and Merger Sub
shall terminate and expire as of the Effective Time, and any liability of
Acquiror with respect to such representations and warranties shall thereupon
cease.
(b) The representations, warranties, covenants and obligations of the
Company, and the rights and remedies that may be exercised by the Indemnitees,
shall not be limited or otherwise affected by or as a result of any information
furnished to, or any investigation made by or knowledge of, any of the
Indemnitees or any of their Representatives.
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(c) For purposes of this Agreement, each statement or other item of
information set forth in the Disclosure Schedule or in any update to the
Disclosure Schedule shall be deemed to be a representation and warranty made by
the Company in this Agreement.
SECTION 9.2 Indemnification.
(a) From and after the Closing Date (but subject to any applicable time
periods set forth in Section 9.1(a)), the Holdback Shares shall be available to
compensate and reimburse each of the Indemnitees for, any Damages which are
directly or indirectly suffered or incurred by any of the Indemnitees
(regardless of whether or not such Damages relate to any third party claim) and
which arise from or as a result of: (i) any inaccuracy in or breach of any
representation or warranty set forth in Article 2 or in the Disclosure Schedule
or Certificate described in Section 6.6(j) (without giving effect to any
"Material Adverse Effect" or other materiality qualification or any similar
qualification contained or incorporated directly or indirectly in such
representation or warranty); (ii) any breach of any covenant or obligation of
the Company (including the covenants set forth in Articles 4 and 5; or (iii) any
Legal Proceeding relating to any inaccuracy or breach of the type referred to in
clauses (i) or (ii) above (including any Legal Proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Article 9).
Notwithstanding anything contained in this Agreement or the Escrow Agreement to
the contrary, any expenses (whether legal, out-of-pocket or other) incurred by
Indemnitee arising in connection with the resolution of rights with respect to
Disputed Amounts shall not be compensated and reimbursed from the Holdback
Shares and shall not accrue interest pursuant to Section 9.7 below.
(b) If the Company suffers, incurs or otherwise becomes subject to any
Damages as a result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any of
the rights of the Surviving Corporation as an Indemnitee) Acquiror shall also be
deemed, by virtue of its ownership of the stock of the Surviving Corporation, to
have incurred Damages as a result of and in connection with such inaccuracy or
breach, but such Damages shall be limited to Damages suffered by the Company.
SECTION 9.3 Threshold; Ceiling.
(a) The Holdback Shares shall not be available for any indemnification
payment pursuant to Section 9.2(a) for any inaccuracy in or breach of any of the
representations and warranties set forth in Article 2 until such time as the
total amount of all Damages (including the Damages arising from such inaccuracy
or breach and all other Damages arising from any other inaccuracies in or
breaches of any representations or warranties) that have been directly or
indirectly suffered or incurred by any one or more of the Indemnitees, or to
which any one or more of the Indemnitees has or have otherwise become subject,
exceeds seven hundred and fifty thousand dollars ($750,000) in the aggregate. If
the total amount of such Damages exceeds seven hundred and fifty thousand
dollars ($750,000), then the Indemnitees shall be entitled to be indemnified
against and compensated and reimbursed only for the portion of such Damages
exceeding seven hundred fifty thousand dollars ($750,000). For purposes of this
Section 9.3, claims associated with a single inaccuracy in or breach of any of
the representations and warranties set forth in Article 2 shall not be
considered for payment pursuant to this Section 9.3 unless the Indemnitee claims
in good faith an amount in excess of one hundred thousand dollars ($100,000) for
such inaccuracy or breach.
(b) Any distribution of Holdback Shares to satisfy a claim hereunder shall
be done so as to reduce the Escrow Fund. Any Holdback Shares remaining upon
termination of the Escrow shall be distributed to the Merger Shareholders on a
pro rata basis in accordance with the Escrow Agreement.
SECTION 9.4 Escrow. In the event there is a claim of liability (for
indemnification or otherwise) to any Indemnitee under this Article 9, upon
notice to the Designated Escrow Representative specifying in reasonable detail
the basis for such set-off, Acquiror may give notice of a claim in such amount
under the Escrow Agreement. Neither the giving nor the failure to give a notice
of a claim under the Escrow Agreement shall constitute an election of remedies
or limit Acquiror in any manner in the enforcement of any other remedies that
may be available to it.
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SECTION 9.5 Exclusive Remedy. The indemnification provided in this Article
9 and the right to receive Holdback Shares to satisfy such obligation shall be
the Indemnitees' exclusive remedy for any breach by the Company of a
representation, warranty or covenant contained in this Agreement or any
certificate or other writing delivered by the Company pursuant hereto or in
connection herewith. Notwithstanding the foregoing, nothing contained herein
shall limit a party's rights or remedies with respect to claims resulting from
or arising out of or willful misconduct or fraud.
SECTION 9.6 Payment of Indemnification Amounts. The measure of Damages
payable pursuant to this Article 9 shall be the number of Holdback Shares equal
to the dollar amount of such indemnification obligation divided by the
Designated Acquiror Stock Price.
SECTION 9.7 Interest. The Holdback Shares, in addition to their being
available to hold harmless, indemnify, compensate or reimburse any Indemnitee
pursuant to this Section 9 with respect to any Damages, shall also be available
to such Indemnitee to compensate for interest on the amount of such Damages (for
the period commencing as of the date on which the Designated Escrow
Representative first received notice of a claim for recovery by such Indemnitee
and ending on the date on which the liability of the Company's shareholders to
such Indemnitee is fully satisfied by the Merger Shareholders) at a floating
rate equal to the rate of interest publicly announced by Morgan Guaranty Trust
Company from time to time as its prime, base or reference rate.
SECTION 9.8 Defense of Third Party Claims.
(a) Promptly after receipt by an Indemnitee of notice of the commencement
of a Legal Proceeding for which indemnification is available pursuant to this
Article 9, such Indemnitee will, if a claim is to be made pursuant to this
Article 9, give notice to the Designated Escrow Representative of the
commencement of such claim, but the failure to notify the Designated Escrow
Representative will not release liability under this Article 9, except to the
extent that the defense of such action is materially prejudiced (including any
material increase in expenses) by the Indemnitee's failure to give such notice.
(b) In the event of the assertion or commencement by any Person of any
claim or Legal Proceeding with respect to which any Indemnitee may be held
harmless, indemnified, compensated or reimbursed out of the Holdback Shares
pursuant to this Article 9, the Indemnitee shall proceed with the defense of
such claim or Legal Proceeding on its own; provided that:
(i) All reasonable expenses relating to the defense of such claim or
Legal Proceeding shall be borne and paid exclusively out of the Holdback
Shares.
(ii) Legal counsel must be reasonably acceptable to the Designated
Escrow Representative in order to be reimbursed out of the Holdback Shares.
The parties agree that Cooley Godward LLP shall be deemed reasonably
acceptable for purposes of this Section 9.8.
(iii) The Indemnitees shall keep the Designated Escrow Representative
fully informed as to the status of any such claim or Legal Proceeding,
including but not limited to any settlement offer, and the Designated
Escrow Representative shall have the right to participate in, at its own
expense (such expense not to be reimbursed from the Holdback Shares), the
defense and settlement of any such claim or Legal Proceeding, any and all
negotiations with respect thereto and the assertion of any claim against an
insurer with respect thereto.
(c) The Designated Escrow Representative shall make available to Acquiror
any documents and materials in his possession and control that may be necessary
to the defense of any claim or Legal Proceeding.
(d) Notwithstanding anything to the contrary in this Section 9.8, the
Indemnitee shall not settle, adjust or compromise any claim or action without
the prior express written consent of the Designated Escrow Representative, which
consent shall not be unreasonably withheld, except that such consent may be
withheld for any reason or no reason, if such settlement, adjustment or
compromise involves the issuance of injunctive or other forms of non-monetary
relief binding upon any Merger Shareholder or a plea of guilty or nolo contendre
on the part of any Merger Shareholder in any criminal or quasi-criminal
proceeding or which
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involves any admission or liability, responsibility or culpability or guilt on
the part of any Merger Shareholder or which has any collateral estoppel effect
on any Merger Shareholder.
SECTION 9.9 Exercise of Remedies by Indemnitees Other Than Acquiror. No
Indemnitee (other than Acquiror or any successor thereto or assign thereof)
shall be permitted to assert any indemnification claim or exercise any other
remedy under this Agreement unless Acquiror (or any successor thereto or assign
thereof) shall have consented to the assertion of such indemnification claim or
the exercise of such other remedy.
ARTICLE 10
MISCELLANEOUS PROVISIONS
SECTION 10.1 Designated Escrow Representative.
(a) In the event the Merger is approved, effective upon such vote, and
without further act of any shareholder, Howard J. Leonhardt shall be appointed
as agent and attorney-in-fact (the "Designated Escrow Representative") for each
Merger Shareholder of the Company, for and on behalf of the Merger Shareholders,
to give and receive notices and communications, to authorize delivery to
Acquiror of shares of Acquiror Common Stock from the escrow in satisfaction of
claims of Indemnitees, to object to such deliveries, to agree to, negotiate,
enter into settlements and compromises of, and demand arbitration and comply
with orders of courts and awards of arbitrators with respect to such claims, and
to take all actions necessary or appropriate in the judgment of the Designated
Escrow Representative for the accomplishment of the foregoing. Such agency may
be changed by the Merger Shareholders from time to time in accordance with the
procedures set forth in the Escrow Agreement. A decision, act, consent or
instruction of the Designated Escrow Representative shall constitute a decision
of all of the Merger Shareholders and shall be final, binding and conclusive
upon each of such shareholders and the Escrow Agent and Acquiror may rely upon
any such decision, act, consent or instruction of the Designated Escrow
Representative as being the decision, act, consent or instruction of each and
every such Merger Shareholder of the Company.
(b) The Designated Escrow Representative shall not be held liable by the
Merger Shareholders for actions taken in its capacity as the Designated Escrow
Representative pursuant to this Agreement and the Escrow Agreement, except in
the case of the Designated Escrow Representative's willful misfeasance or gross
negligence. The Designated Escrow Representative shall not be required to incur
any expenses in performing its duties and exercising its rights under this
Agreement and the Escrow Agreement if the Designated Escrow Representative
reasonably believes that such expenses will not be reimbursed from the Holdback
Shares. Failure of the Designated Escrow Representative to respond to a Claim
Notice (as such term is defined in the Escrow Agreement) within thirty days
after the delivery of a Claim Notice to the Designated Escrow Representative
pursuant to this subsection 10.1(b) shall be deemed to be an instruction that
Holdback Shares are to be released from the escrow to satisfy the claim made in
accordance with Section 4(b) of the Escrow Agreement.
SECTION 10.2 Further Assurances. Each party hereto shall execute and cause
to be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
Section 10.3 Fees and Expenses. Each party to this Agreement shall bear
and pay all fees, costs and expenses (including legal fees and accounting fees
and financial adviser fees) that have been incurred or that are incurred by such
party in connection with the transactions contemplated by this Agreement,
including all fees, costs and expenses incurred by such party in connection with
or by virtue of (a) the investigation and review conducted by Acquiror and its
Representatives with respect to the Company's business (and the furnishing of
information to Acquiror and its Representatives in connection with such
investigation and review), (b) the negotiation, preparation and review of this
Agreement (including the Disclosure Schedule) and all agreements, certificates,
opinions and other instruments and documents delivered or to be delivered in
connection with the transactions contemplated by this Agreement, (c) the
preparation and submission of any filing or notice required to be made or given
in connection with any of the transactions contemplated by this
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Agreement, and the obtaining of any Consent required to be obtained in
connection with any of such transactions, and (d) the consummation of the
transactions contemplated by this Agreement; provided, however, that, to the
extent the total amount of all such fees, costs and expenses incurred by or for
the benefit of the Company (including all such fees, costs and expenses incurred
prior to the date of this Agreement and including the amount of all special
bonuses and other amounts that may become payable to any officers of the Company
or other Persons in connection with the consummation of the transactions
contemplated by this Agreement, and including any amounts paid or payable to
Skadden, Arps, Slate, Meagher & Flom (Illinois) by the Company, but excluding
any amounts payable to Vector Securities International) exceeds $150,000 in the
aggregate, such excess fees, costs and expenses shall be borne and paid by the
Company's shareholders in the form of a reduction in the Aggregate Purchase
Price; and further, to the extent the total amount of all such fees, costs and
expenses incurred by or for the benefit of the Company and payable to Vector
Securities International, Inc. exceeds $1,448,000 in the aggregate for fees and
$25,000 for costs and expenses, such excess fees, costs and expenses shall be
borne and paid by the Company's shareholders in the form of a reduction in the
Aggregate Purchase Price. The Company shall deliver to Acquiror no later than
three days prior to the Scheduled Closing Time a written accounting of all fees,
costs and expenses described in this Section 10.3 paid to that time, and written
invoices for all such further amounts that will be payable. As of the date of
delivery of such written accounting and invoices, neither the Company nor any
Company Subsidiary shall pay any amounts described hereunder unless Acquiror
gives its consent (which consent shall not be unreasonably withheld).
SECTION 10.4 Attorneys' Fees. Unless otherwise provided for herein, if any
action or proceeding relating to this Agreement or the enforcement of any
provision of this Agreement is brought against any party hereto, the prevailing
party shall be entitled to recover reasonable attorneys' fees, costs and
disbursements (in addition to any other relief to which the prevailing party may
be entitled).
SECTION 10.5 Notices. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in writing
and shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail, by courier or express delivery service or by
facsimile) to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other
parties hereto):
if to Acquiror or Merger Sub:
Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, California 95403
Attention: General Counsel
Facsimile: (707) 525-0114
with a copy to:
Cooley Godward LLP
3000 Sand Hill Road
Building 3, Suite 230
Menlo Park, California 94025
Attention: Craig E. Dauchy, Esq.
Facsimile: (650) 854-2691
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if to the Company:
WORLD MEDICAL MANUFACTURING CORPORATION
Sawgrass International Corporate Park
13794 NW 4th Street, Building 210
Sunrise, Florida 33325
Attention: President
Facsimile: (954) 846-7078
with a copy to:
Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.
111 North Orange Avenue, Suite 2050
Orlando, Florida 32801
Attention: Randolph H. Fields, Esq.
Facsimile: (407) 420-5909
SECTION 10.6 Time of the Essence. Time is of the essence of this
Agreement.
SECTION 10.7 Headings. The underlined headings contained in this Agreement
are for convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
SECTION 10.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
SECTION 10.9 Governing Law. This Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the State
of Delaware (without giving effect to principles of conflicts of laws).
SECTION 10.10 Successors and Assigns. This Agreement shall be binding upon
Acquiror and its successors and assigns (if any). This Agreement shall inure to
the benefit of: the Company; the Company's shareholders (to the extent set forth
in Section 1.6); Acquiror; the other Indemnitees (subject to Section 9.8); and
the respective successors and assigns (if any) of the foregoing. Acquiror may
freely assign any or all of its rights under this Agreement (including its
indemnification rights under Article 9), in whole or in part, to any other
Person without obtaining the consent or approval of any other party hereto or of
any other Person.
SECTION 10.11 Remedies Cumulative; Specific Performance. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or threatened
breach by any party to this Agreement of any covenant, obligation or other
provision set forth in this Agreement for the benefit of any other party to this
Agreement, such other party shall be entitled (in addition to any other remedy
that may be available to it) to (a) a decree or order of specific performance or
mandamus to enforce the observance and performance of such covenant, obligation
or other provision, and (b) an injunction restraining such breach or threatened
breach.
SECTION 10.12 Waiver.
(a) No failure on the part of any Person to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any Person
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
Person; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
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SECTION 10.13 Amendments. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of all of the parties hereto.
SECTION 10.14 Severability. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
SECTION 10.15 Parties in Interest. Except for the provisions of Section
10, none of the provisions of this Agreement is intended to provide any rights
or remedies to any Person other than the parties hereto and their respective
successors and assigns (if any).
SECTION 10.16 Entire Agreement. This Agreement and the other agreements
referred to herein or signed concurrently herewith set forth the entire
understanding of the parties hereto relating to the subject matter hereof and
thereof and supersede all prior written or oral agreements and understandings
among or between any of the parties relating to the subject matter hereof and
thereof; provided, however, that the Confidentiality Agreement between Acquiror
and the Company dated as of July 9, 1997 shall not be superseded by this
Agreement and shall remain in effect in accordance with its terms until the
earlier of (a) the Effective Time, or (b) the date on which such Confidentiality
Agreement is terminated in accordance with its terms.
SECTION 10.17 Construction.
(a) For purposes of this Agreement, whenever the context requires: the
singular number shall include the plural, and vice versa; the masculine gender
shall include the feminine and neuter genders; the feminine gender shall include
the masculine and neuter genders; and the neuter gender shall include the
masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not be
applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including," and
variations thereof, shall not be deemed to be terms of limitation, but rather
shall be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Sections" and "Exhibits" are intended to refer to Sections of this Agreement
and Exhibits to this Agreement.
The parties hereto have caused this AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION to be executed and delivered as of April , 1998.
ARTERIAL VASCULAR ENGINEERING, INC.
a Delaware corporation
By: /s/ SCOTT J. SOLANO
------------------------------------
Name: Scott J. Solano
Title:
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WALLEYE ACQUISITION CORPORATION,
a Florida corporation
By: /s/ SCOTT J. SOLANO
------------------------------------
Name: Scott J. Solano
Title:
WORLD MEDICAL MANUFACTURING
CORPORATION
a Florida corporation
By: /s/ HOWARD J. LEONHARDT
------------------------------------
Name: Howard J. Leonhardt
Title: President, CEO
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit B):
ACQUIROR COMMON STOCK. "Acquiror Common Stock" shall mean shares of common
stock, par value $.001, of Acquiror.
ACQUIROR MATERIAL ADVERSE EFFECT. A violation or other matter will be
deemed to have an "Acquiror Material Adverse Effect" on Acquiror if such
violation or other matter (considered together with all other matters that would
constitute exceptions to the representations and warranties set forth in the
Agreement but for the presence of "Material Adverse Effect" or other materiality
qualifications, or any similar qualifications, in such representations and
warranties) would have a material adverse effect on Acquiror's business,
conditions, assets, liabilities, operations, financial performance or prospects;
provided, however, that the effects of changes that are generally applicable to:
(a) the industries and markets in which Acquiror operates; or (b) the United
States economy shall be excluded from the determination of Acquiror Material
Adverse Effect, provided further, that any adverse effect on Acquiror resulting
from the execution of this Agreement and the announcement of this Agreement and
the transactions contemplated hereby shall also be excluded from the
determination of Acquiror Material Adverse Effect.
ACQUIROR SEC DOCUMENTS. "Acquiror SEC Documents" shall have the meaning
ascribed to such term in Section 3.6.
ACQUISITION PROPOSAL. "Acquisition Proposal" shall mean any offer or
proposal (other than an offer or proposal by Acquiror) contemplating or
otherwise relating to any Acquisition Transaction.
ACQUISITION TRANSACTION. "Acquisition Transaction" shall mean:
(a) Any merger, consolidation, combination, share exchange,
acquisition of securities, issuance of securities, tender offer, exchange
offer or similar transaction (i) in which the Company is a constituent
corporation; (ii) in which a Person acquires the Company or more than 50%
of the Company's business or directly or indirectly acquires beneficial or
record ownership of securities representing more than 50% of the
outstanding voting securities of the Company; or (iii) in which the Company
issues securities representing more than 50% of the outstanding voting
securities of the Company; or
(b) Any sale, license, exchange, transfer, license, acquisition or
disposition of more than 50% of the assets of the Company.
AGREEMENT. "Agreement" shall mean the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached (including the Disclosure
Schedule), as it may be amended from time to time.
AGGREGATE PURCHASE PRICE. "Aggregate Purchase Price" shall have the meaning
ascribed to such term in Section 1.6(b)(i).
CHARTER DOCUMENTS. "Charter Documents" shall have the meaning ascribed to
such term in Section 2.2.
CLINICAL TRIAL DOCUMENTS. "Clinical Trial Documents" shall mean (a) all
documentation, including correspondence, letters, requests, reports, approvals,
denials, rejections, terminations or certifications issued by any Governmental
Body to the Company, any Company Subsidiary, (b) all applications for regulatory
approval, qualification, permit or registration filed with any Governmental Body
by the Company, or any Company Subsidiary, (c) all written documentation of all
data gathered, processed, reviewed, analyzed or assessed and copies of all
results, information, reports, analyses or materials which the Company or the
Company's Subsidiaries have compiled, received or reviewed.
CLOSING. "Closing" shall have the meaning ascribed to such term in Section
1.2.
CLOSING DATE. "Closing Date" shall have the meaning ascribed to such term
in Section 1.2.
CLOSING PRICE. "Closing Price" shall have the meaning ascribed to such term
in Section 1.6(b)(iii).
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CODE. "Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
COMPANY CLOSING CERTIFICATE. "Company Closing Certificate" shall have the
meaning ascribed to such term in Section 6.7(j).
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to which
the Company or any Company Subsidiary is a party; (b) by which the Company or
any Company Subsidiary, or any of its or their respective properties or assets,
is bound or subject; or (c) under which the Company or any Company Subsidiary
has any right or interest.
COMPANY FINANCIAL STATEMENTS. "Company Financial Statements" shall have the
meaning ascribed to such term in Section 2.8(a).
COMPANY MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed
to have a "Company Material Adverse Effect" on the Company if such violation or
other matter (considered for purposes of Sections 6.1 and 6.6 together with all
other matters that would constitute exceptions to the representations and
warranties set forth in the Agreement but for the presence of "Material Adverse
Effect" or other materiality qualifications, or any similar qualifications, in
such representations and warranties) would have a material adverse effect on the
Company's business, conditions, assets, liabilities, operations or financial
performance of the Company and the Company Subsidiaries taken as a whole;
provided, however, that the effects of changes that are generally applicable to:
(a) the industries and markets in which the Company operates; or (b) the United
States economy shall be excluded from the determination of Company Material
Adverse Effect, provided further, that any adverse effect on the Company
resulting from the execution of this Agreement and the announcement of this
Agreement and the transactions contemplated hereby shall also be excluded from
the determination of Company Material Adverse Effect, but provided further,
however, that the termination or departure or announced termination or departure
of more than twenty of the employees who were employed by the Company on January
1, 1998, shall be considered a Company Material Adverse Effect.
COMPANY OPTION. "Company Option" shall mean any option issued pursuant to
the Company's 1996 Non-qualified Stock Option Plan.
COMPANY OPTION PLAN. "Company Option Plan" shall mean the Company's 1996
Non-qualified Stock Option Plan.
COMPANY PRODUCT. "Company Product" shall have the meaning ascribed to such
term in Section 2.21.
COMPANY PROPERTY. "Company Property" shall have the meaning ascribed to
such term in Section 2.18(b).
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or any Company Subsidiary
or otherwise used by the Company or any Company Subsidiary.
COMPANY RETURNS. "Company Returns" shall have the meaning ascribed to such
term in Section 2.17(a).
COMPANY SHAREHOLDERS' MEETING. "Company Shareholders' Meeting" shall have
the meaning ascribed to such term in Section 5.3(a).
COMPANY SUBSIDIARY. "Company Subsidiary" shall mean a subsidiary of the
Company.
COMPANY WARRANTS. "Company Warrants" shall mean warrants to purchase shares
of Company Common Stock.
COMPETING TRANSACTION. "Competing Transaction" shall mean any transaction
involving:
(a) any merger, consolidation, business combination, reorganization or
similar transaction involving the Company (other than the transactions
contemplated by the Agreement);
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(b) the issuance, disposition or acquisition (other than the issuance of a
Company Option) of (i) any capital stock or other equity security of the
Company, (ii) any option, call, warrant or right (whether or not immediately
exercisable) to acquire any capital stock or other equity security of the
Company, or (iii) any security, instrument or obligation that is or may become
convertible into or exchangeable for any capital stock or other equity security
of the Company; or
(c) the sale, lease, license, exchange, mortgage, pledge, transfer or other
disposition or acquisition of any of the business or assets of the Company and
the Company Subsidiaries, in a single transaction or series of transactions,
other than those transactions expressly permitted under Section 4.2;
(d) any tender offer or exchange offer for any of the Shares; or
(e) any public announcement of a proposal, plan or intention to do any of
the foregoing or any agreement to engage in any of the foregoing.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
CONVERTED SHARES. "Converted Shares" shall have the meaning ascribed to
such term in Section 1.6(d).
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, royalty license payment, fee (including reasonable
attorneys' fees), charge, cost (including reasonable costs of investigation) or
expense of any nature.
DESIGNATED ESCROW REPRESENTATIVE. "Designated Escrow Representative" shall
have the meaning ascribed to such term in Section 10.1.
DESIGNATED SHAREHOLDERS. "Designated Shareholders" shall mean the Company
shareholders set forth on Exhibit C-2 of this Agreement.
DISCLOSURE SCHEDULE. "Disclosure Schedule" shall mean the schedule (dated
as of the date of the Agreement) delivered to Acquiror on behalf of the
Company).
DISPUTED AMOUNTS. "Disputed Amounts" shall have the meaning ascribed to
such term in the Escrow Agreement.
EFFECTIVE TIME. "Effective Time" shall have the meaning ascribed to such
term in Section 1.2.
EMPLOYEE. "Employee" shall mean any employee of the Company or any Company
Subsidiary.
EMPLOYEE BENEFIT PLAN. "Employee Benefit Plan" shall mean any salary,
bonus, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, hospitalization, medical, life or other
insurance, supplemental unemployment benefits, profit-sharing, pension or
retirement plans, programs or agreements or any employee pension benefit plan
(as defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), whether nor not excluded from coverage under
specific Title or Subtitles of ERISA).
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement, proxy,
equity interference, option, right of first refusal, preemptive right, community
property interest or restriction of any nature (including any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset).
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ENTITY. "Entity" shall mean any corporation (including any non profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization or entity.
ENVIRONMENTAL LAW. "Environmental Law" shall mean any federal, state, local
or foreign Legal Requirement relating to pollution or protection of human health
or the environmental (including ambient air, surface water, ground water, land
surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
Materials of Environmental Concern.
ERISA. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended
ESCROW AGENT. "Escrow Agent" shall have the meaning ascribed to such term
in Section 1.7(a).
ESCROW AGREEMENT. "Escrow Agreement" shall mean the agreement attached
hereto as Exhibit J.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
FDA. "FDA" shall mean the United States Food and Drug Administration.
FULLY DILUTED COMPANY SHARE AMOUNT. "Fully Diluted Company Share Amount"
shall have the meaning ascribed to such term in Section 1.6(b)(ii).
GAAP. "GAAP" shall mean generally accepted accounting principles.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean any:
(a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, or given by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement; or (b) right under any Contract with any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; (c) governmental or quasi governmental authority of any nature
(including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or Entity, any supranational
authority, and any court or other tribunal); (d) a multi-national organization
or body; or (e) body exercising, or entitled to or purporting to exercise, any
administrative, executive, judicial, legislative, police, regulatory or taxing
authority of power of any nature.
HAZARDOUS MATERIAL. "Hazardous Material" shall mean any substance that is
regulated by any Governmental Body or that has been designated by any
Governmental Body to be radioactive, toxic, hazardous or otherwise a danger to
health or the environment, including, without limitation, PCBs, asbestos,
urea-formaldehyde and all substances listed pursuant to the United States
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended from time to time, and the United States Resource Recovery and
Conservation Act of 1976, as amended from time to time, and the regulations and
publications promulgated pursuant to said laws,
HAZARDOUS MATERIALS ACTIVITIES. "Hazardous Material Activities" shall have
the meaning ascribed to such term in Section 2.18.
HOLDBACK PORTION. "Holdback Portion" shall have the meaning ascribed to
such term in Section 1.7(a).
HOLDBACK SHARES. "Holdback Shares" shall have the meaning ascribed to such
term in Section 1.7(a).
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a) Acquiror;
(b) Acquiror's current and future affiliates (including the Surviving
Corporation); (c) the respective Representatives of the Persons referred to in
clauses (a) and (b) above; and (d) the respective successors and assigns of the
Persons referred to in clauses (a), (b) and (c) above.
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JANUARY BALANCE SHEET. "January Balance Sheet" shall have the meaning
ascribed to such term in Section 2.8(c).
KNOWLEDGE; BEST OF KNOWLEDGE. Information shall be deemed to be known to
the "best of knowledge" or to the "knowledge" of the Company if that information
is actually known or reasonably should have been known by any director of the
Company, or any of the other persons listed on Exhibit O attached hereto, in
each case after due inquiry by such persons of the appropriate Company personnel
and records.
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry, audit,
or investigation commenced, brought, conducted or heard by or before, or
otherwise involving, any court or other Governmental Body or any arbitrator or
arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal, state,
local, municipal, foreign or other law, statute, constitution, principle of
common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling
or requirement issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental Body.
MATERIAL CONTRACT. "Material Contracts" shall have the meaning ascribed to
such term in Section 2.15(a).
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
include chemicals, pollutants, contaminants, hazardous wastes, toxic substances,
petroleum and petroleum products and any other substance that is now or
hereafter regulated by any Environmental Law.
MERGER SHAREHOLDERS. "Merger Shareholders" shall have the meaning ascribed
to such term in Section 1.7(a).
PENSION PLAN. "Pension Plan" shall have the meaning ascribed to such term
in Section 2.16(b).
PERMITTED ENCUMBRANCES. "Permitted Encumbrances" shall mean and includes:
(a) the lien of taxes and assessments which are not delinquent; (b) excluding
Proprietary Assets, minor defects and irregularities in title which do not
materially impair the values or use of property; (c) easements, exceptions or
reservations for the purpose of pipelines, telephone lines, telegraph lines,
power lines and substations, roads, streets, alleys, highways, railroad
purposes, drainage and sewage purposes, dikes, canals, laterals, ditches, the
removal of oil, gas, coal or other minerals, and other like purposes, or for the
joint or common use of real property, facilities, and equipment, which do not
materially impair the value of property or use of property for the purposes for
which property is or may reasonably be expected to be held; (d) rights reserved
to or vested in any municipality or governmental or other public authority to
control, regulate or use in any manner any portion of a property which do not
materially impair the value of the property for the purposes for which it is or
may reasonably be expected to be held; (e) any obligations or duties affecting
any portion of any property to any municipality or governmental or other public
authority with respect to any right, power, franchise, grant, license or permit
which do not materially impair the value of a property or use of a property for
the purpose for which it is or may reasonably be expected to be held; (f)
present or future valid zoning laws and ordinances consistent with the intended
use of a property; (g) liens, pledges and encumbrances securing liabilities set
forth in the 1997 Balance Sheet or set forth in the Disclosure Schedule,
Schedules or Exhibits; (h) minor Encumbrances that have arisen in the ordinary
course of business and that do not (in any case or in the aggregate) materially
detract from the value of the assets subject thereto or materially impair the
operations of the Company or any Company Subsidiary; and (i) liens arising under
other documents and agreements referred to in this Agreement.
PERSON. "Person" shall mean any individual, Entity or Governmental Body.
PRE-CLOSING PERIOD. "Pre-Closing Period" shall mean the period from the
date of this Agreement through the Effective Time.
PROPRIETARY ASSET. "Proprietary Asset" shall mean: (a) any patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service
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mark (whether registered or unregistered), service mark application, copyright
(whether registered or unregistered), copyright application, maskwork, maskwork
application, trade secret, know-how, customer list, franchise, system, computer
software, computer program, invention, design, blueprint, engineering drawing,
proprietary product, technology, proprietary right or other intellectual
property right or intangible asset; and (b) any right to use or exploit any of
the foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives
(including, without limitation, any investment banker, attorney or accountant
retained).
RELATED PARTY. "Related Party" shall mean (i) each individual who is, or
who has at any time since the inception of such entity been, an officer of the
Company or a Company Subsidiary; (ii) each member of the immediate family of
each of the individuals referred to in clause (i) above; and (iv) any trust or
other Entity (other than the Company or any Company Subsidiary) in which any one
of the individuals referred to in clauses (i) and (ii) above holds (or in which
more than one of such individuals collectively hold), beneficially or otherwise,
a material voting, proprietary or equity interest.
SCHEDULED CLOSING TIME. "Scheduled Closing Time" shall have the meaning
ascribed to such term in Section 1.2.
SEC. "SEC" shall mean the United States Securities and Exchange Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as
amended.
SUPERIOR OFFER. "Superior Offer" shall mean an unsolicited, bona fide
written offer made by a third party to purchase more than 50% of the outstanding
voting securities of the Company on the terms that the Board of Directors of the
Company determines in its reasonable judgment, after consultation with its
financial advisor, to be more favorable to the Company's shareholders than the
terms of the Merger; provided, however, that any such offer shall not be deemed
to be a "Superior Offer" 0 if any financing required to consummate the
transaction contemplated by such offer is not committed and is not reasonably
capable of being obtained by such third party.
TAX. "Tax" shall mean any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value added tax, surtax, excise tax, ad
valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business
tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including
any customs duty), deficiency or fee, and any related charge or amount
(including any fine, penalty or interest), imposed, assessed or collected by or
under the authority of any Governmental Body.
TRANSACTION AGREEMENTS. "Transaction Agreements" shall mean any of the
agreements related to the transactions contemplated in the Agreement.
TAX RETURN. "Tax Return" shall mean any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other document or information filed
with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection
or payment of any Tax or in connection with the administration, implementation
or enforcement of or compliance with any Legal Requirement relating to any Tax.
WELFARE PLAN. "Welfare Plan" shall have the meaning ascribed to such term
in Section 2.16(c).
VECTOR WARRANT. "Vector Warrant" shall have the meaning ascribed to such
term in Section 1.6(e).
1997 BALANCE SHEET. "1997 Balance Sheet" shall have the meaning ascribed to
such term in Section 2.8(a).
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EXHIBIT B
PLAN OF MERGER AND REORGANIZATION
This Plan of Merger and Reorganization (this "Plan" is entered into as of
, 1998 among WALLEYE ACQUISITION CORPORATION, a Florida corporation
("Walleye Acquisition"), and WORLD MEDICAL MANUFACTURING CORPORATION, a Florida
corporation (the "Company").
RECITALS
The boards of directors and shareholders of Walleye Acquisition and the
Company have determined that it is advisable and in the best interests of each
such corporation and its respective shareholders that Walleye Acquisition be
merged (the "Merger") with and into the Company on the terms and subject to the
conditions set forth herein.
ARTICLE I
THE MERGER
At the Effective Time (as defined in Article V hereof), Walleye Acquisition
shall be merged with and into the Company in accordance with the Florida
Business Corporation Act (the "FBCA"), and the separate existence of Walleye
Acquisition shall cease and the Company shall thereafter continue as the
surviving corporation (the "Surviving Corporation") under the laws of the State
of Florida.
ARTICLE II
THE SURVIVING CORPORATION
A. At the Effective Time, the Articles of Incorporation of the Company
shall be amended and restated to conform to the Articles of Incorporation of
Walleye Acquisition as in effect immediately prior to the Effective Time.
B. At the Effective Time, the Bylaws of the Company shall be amended and
restated to conform to the Bylaws of Walleye Acquisition as in effect
immediately prior to the Effective Time.
C. At the Effective Time, the officers and directors of Walleye Acquisition
immediately prior to the Effective Date shall be the officers and directors of
the Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
ARTICLE III
MANNER AND BASIS OF CONVERTING SHARES
A. At the Effective Time, each share of common stock of the Company, $.10
par value per share (the "Company Common Stock"), which shall be issued and
outstanding (other than shares of Company Common Stock held in treasury) shall,
by virtue of the Merger and without any action on the part of the holder
thereof, be converted into the right to receive shares (the
"Exchange Ratio") of common stock, $.001 par value per share, of Arterial
Vascular Engineering, Inc., the sole shareholder of Walleye Acquisition ("AVE"),
which Exchange Ratio has been calculated in accordance with Section 1.6 of the
Agreement and Plan of Merger and Reorganization dated as of April 10, 1998 among
the Company, Walleye Acquisition and AVE (the "Merger Agreement"), a copy of
which is available at the principal offices of Walleye Acquisition.
B. At the Effective Time, each share of Company Common Stock held in
treasury and each share owned by AVE or any direct or indirect wholly-owned
subsidiary of AVE or of the Company immediately prior to the Effective Time
shall be canceled and extinguished without any conversion thereof.
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C. At the Effective Time, each right to acquire shares of Company Common
Stock pursuant to the Company's 1996 Non-Qualified Stock Option Plan (a "Company
Option"), to the extent that any such rights exist, which shall be issued and
outstanding shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into the right to acquire that number of shares
of AVE Common Stock equal to the number of shares subject to purchase under the
Company Option multiplied by the Exchange Ratio.
D. At the Effective Time, each share of common stock of Walleye
Acquisition, $.001 par value per share, which shall be issued and outstanding
immediately prior to the Effective Time, shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into one
share of common stock of the Company.
ARTICLE IV
EFFECT OF MERGER
At the Effective Time, all property, rights, privileges, powers and
franchises of Walleye Acquisition and the Company shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Walleye Acquisition and
the Company shall become debts, liabilities and duties of the Surviving
Corporation.
ARTICLE V
EFFECTIVE TIME
As used in this Agreement, the term, "Effective Time" shall mean the date
and time of filing of Articles of Merger with the Department of State of the
State of Florida with respect to the Merger.
IN WITNESS WHEREOF, each of the parties has caused this Plan to be executed
on its behalf as of the date first written above.
WALLEYE ACQUISITION CORPORATION
By:
--------------------------------------
THE COMPANY
By:
--------------------------------------
Howard J. Leonhardt, President
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EXHIBIT C-1
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT ("Agreement") is being executed and delivered as
of April 10, 1998, by ("Shareholder") in favor of and for the
benefit of ARTERIAL VASCULAR ENGINEERING, INC., a Delaware corporation
("Acquiror").
WHEREAS, Shareholder owns ( ) shares of the
common stock of WORLD MEDICAL MANUFACTURING CORPORATION, a Florida corporation
(the "Company"). Said shares are referred to herein as the "Shares."
WHEREAS, Acquiror, Walleye Acquisition Corporation, a Florida corporation
and wholly owned subsidiary of Acquiror ("Merger Sub") and the Company are
entering into an Agreement and Plan of Merger and Reorganization of even date
herewith (the "Merger Agreement"), providing for the merger of Merger Sub into
the Company (the "Merger"). As a result of the Merger, the Company's
shareholders will receive shares of the common stock of Acquiror in exchange for
their shares of common stock of the Company, and the Company will become a
wholly owned subsidiary of Acquiror.
WHEREAS, Acquiror has required, as a condition to entering into the Merger
Agreement, that Shareholder enter into this Agreement.
NOW, THEREFORE, in order to induce Acquiror to consummate the transactions
contemplated by the Merger Agreement, and in further consideration of the mutual
covenants and agreements contained herein, the parties agree as follows:
SECTION 1. Representations and Warranties. Shareholder represents and
warrants to Acquiror that:
(a) Shareholder is the holder and beneficial owner of the Shares and
has good and valid title to the Shares, free and clear of any liens,
pledges, security interests, adverse claims, equities, options, proxies,
charges, encumbrances or restrictions of any nature. Shareholder does not
own, either beneficially or of record, any shares of capital stock of the
Company, or rights to acquire any shares of capital stock of the Company,
other than the Shares. As of the date of this Agreement and at any meeting
of the shareholders of the Company held during the term of this Agreement,
Shareholder has and shall have the ability to vote all the shares and the
New Shares (as defined in Section 6) in accordance with Section 2 of this
Agreement. Except as provided in this Agreement, Shareholder has not
appointed or granted any proxy or entered into a voting agreement, which
appointment agreement or grant is still effective, with respect to any of
the Shares.
(b) This Agreement, the Proxy (as defined below) and any other
agreements or documents executed and delivered or to be executed and
delivered by Shareholder in connection with the transactions contemplated
by the Merger Agreement (collectively, the "Transactional Agreements"),
including any Affiliate Agreement, any Employment Agreement and any
Noncompetition Agreement executed or to be executed by shareholder in
connection with such transactions, (i) have been, or will when executed be,
duly and validly executed on behalf of Shareholder, and (ii) constitute, or
will when executed constitute, valid and binding obligations of
Shareholder, enforceable against Shareholder in accordance with their
respective terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and to rules of law
governing specific performance, injunctive relief and other equitable
remedies.
(c) [Vector and other corporations/partnerships only] Shareholder is a
[corporation] [limited partnership] duly organized, validly existing and in
good standing under the laws of the jurisdiction of its [incorporation]
[formation]. The person executing the Transactional Agreements on behalf of
Shareholder has full power and authority [under the limited partnership
agreement of Shareholder] to execute the Transactional Agreements on behalf
of Shareholder, and Shareholder has the requisite corporate power and
authority to perform its obligations under the Transactional Agreements.
Neither the execution and delivery of any of the Transactional Agreements
nor the performance of Shareholder's
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obligations under any of the Transactional Agreements will violate any
provision of the articles or bylaws of Shareholder.
(d) [Trusts only (if applicable)] (the "Trustee[s]")
[is] [are] the sole trustee[s] of [name of trust] (the "Trust"). The
Trustee[s] [has] [have] delivered to Acquiror a complete and correct copy
of the trust agreement for the Trust, including all amendments thereto. The
Trustee[s] [has] [have] full power and authority, under the trust agreement
for the Trust, to enter into the Transactional Agreements on behalf of
Shareholder, and Shareholder has the absolute and unrestricted right, power
and authority to perform Shareholder's obligations under the Transactional
Agreements. No action or consent on the part of any of the beneficiaries of
the Trust or any other person or entity is necessary to permit the
trustee[s] to enter into any of the Transactional Agreements or to perform
Shareholder's obligations thereunder. Neither the execution and delivery of
any of the Transactional Agreements nor the performance of Shareholder's
obligations under any of the Transactional Agreements will violate any
provision of the trust agreement for the Trust.
(e) Neither the execution, delivery or performance of any of the
Transactional Agreements, nor the consummation of the Merger or any of the
other transactions contemplated by the Merger Agreement, will directly or
indirectly (i) result in any violation or breach of any agreement or other
instrument to which Shareholder is a party or by which Shareholder or any
of the shares is bound; or (ii) result in a violation of any law, rule,
regulation, order, judgment or decree to which Shareholder or any of the
Shares is subject. The execution and delivery of this Agreement by
Shareholder does not, and the performance of this Agreement by Shareholder
shall not, require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental entity.
(f) [For Howard and Brenda Leonhardt only] Shareholder does not have
total assets or annual net sales of ten million dollars or more, or
otherwise has attributes that cause the Company, Acquiror or any other
Person to be statutorily required to file a premerger report or take any
other actions pursuant to the HSR Act in connection with this Agreement or
the transactions contemplated therein.
(g) The representations and warranties contained in this Shareholder
Agreement, will be accurate in all material respects at all times through
the Effective Time as if made on that date.
SECTION 2. Agreement to Vote Shares. During the period from the date of
this Shareholder Agreement through the earlier of (i) the date upon which the
Merger Agreement is validly terminated, or (ii) the date upon which the Merger
becomes effective (the "Expiration Date"), Shareholder shall vote the Shares and
any New Shares (as defined in section 6 below), and shall cause any holder of
record of the Shares or any New Shares to vote such shares, (a) in favor of
approval of the execution and delivery of the Merger Agreement, the Merger and
the other transactions contemplated by the Merger Agreement (including, without
limitation, any amendment of the Company's articles of incorporation required in
connection therewith) at every meeting of the shareholders of the Company,
however called, (and every adjournment or postponement thereof) or by written
consent in lieu of such a meeting or otherwise and (b) against any proposal for
any recapitalization, merger, sale of assets or other business combination
between the Company and any person or entity (other than the Merger) or any
other action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or which could result in any of the conditions to the
Company's obligations under the Merger Agreement not being fulfilled.
SECTION 3. Irrevocable Proxy. Concurrently with the execution of this
Agreement, Shareholder agrees to deliver to Acquiror a proxy in the form
attached hereto as Exhibit A (the "Proxy"), which shall be irrevocable to the
fullest extent permitted by law, with respect to the Shares, and shall be deemed
to be coupled with an interest. Shareholder understands and agrees that such
proxy shall be used in the event that Shareholder fails or is unable to vote the
Shares or the New Shares, if any, in accordance with Section 2.
SECTION 4. Non-Solicitation. Shareholder agrees that, from the date of this
Shareholder Agreement through the Expiration Date, Shareholder shall not,
directly or indirectly, and Shareholder shall ensure that his Representatives
(as defined in the Merger Agreement) do not, directly or indirectly: (a)
solicit, initiate,
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encourage or induce the making, submission or announcement of any Competing
Transaction (as defined in the Merger Agreement) or take any action that could
reasonably be expected to lead to a Competing Transaction; (ii) furnish any
information regarding the Company or any subsidiary of the Company to any person
or entity in connection with a Competing Transaction; or (iii) engage in
discussions with any person or entity with respect to any Competing Transaction.
Shareholder shall immediately cease and discontinue, and Shareholder shall
ensure that his Representatives immediately cease and discontinue, any existing
discussions with any person or entity that relate to any Competing Transaction.
SECTION 5. Transfer and Encumbrance. Shareholder agrees not to transfer,
sell, offer or otherwise dispose of or encumber any of the Shares or any New
Shares, deposit any of the Shares into a voting trust or grant a proxy or enter
into a voting agreement or similar agreement with respect to any of the Shares
(except pursuant to and upon consummation of the Merger) from the date of this
Shareholder Agreement through the Expiration Date.
SECTION 6. Additional Purchases. Shareholder agrees that any shares of
capital stock of the Company acquired by Shareholder on or after the date of
this Agreement shall be subject to the terms of this Agreement to the same
extent as if they constituted Shares. For purposes of this Agreement, the term
"New Shares" shall mean any shares of capital stock of the Company that
Shareholder purchases or otherwise acquires beneficial ownership of, or acquires
the right to vote or share in the voting of, after the execution of this
Agreement, whether through the exercise of any option or warrant to purchase
such capital stock, or otherwise.
SECTION 7. No Ownership Interest. Nothing contained in this Agreement shall
be deemed to vest in Acquiror any direct or indirect ownership or incidence of
ownership of or with respect to any Shares or New Shares. All rights, ownership,
and economic benefits of and relating to the Shares and to options to acquire
Shares shall remain and belong to Shareholder, and Acquiror shall have no
authority to manage, direct, superintend, restrict, regulate, govern, or
administer any of the policies or operations of the Company or exercise any
power or authority to direct Shareholder in the voting of any of the Shares,
except as otherwise expressly provided herein.
SECTION 8. Waiver of Appraisal Rights. Shareholder hereby waives any
dissenters' rights that Shareholder may have in connection with the Merger.
SECTION 9. Specific Performance. Shareholder agrees that in the event of
any breach or threatened breach by Shareholder of any covenant, obligation or
other provision contained in this Agreement, Acquiror shall be entitled (in
addition to any other remedy that may be available to it) to (a) a decree or
order of specific performance or mandamus to enforce the observance and
performance of such covenant, obligation or other provision, and (b) an
injunction restraining such breach or threatened breach.
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SECTION 10. Notices. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed to be sufficient if contained
in a written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
if to Acquiror:
Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
Attn: General Counsel
Tel.: (707) 525-0111
Fax: (707) 525-0114
with a copy to:
Cooley Godward LLP
3000 Sand Hill Road
Building 3, Suite 230
Menlo Park, CA 94025-7116
Attn: Craig Dauchy, Esq.
Tel.: (650) 843-5100
Fax: (650) 854-2691
if to Shareholder:
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of a telecopy, when the party receiving such copy shall have
confirmed receipt of the communication, and (c) in the case of delivery by
nationally recognized overnight courier, on the business day following dispatch.
SECTION 11. Severability. If any provision of this Agreement or any part of
any such provision is held under any circumstances to be invalid or
unenforceable in any jurisdiction, then (a) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be deemed
amended to conform to applicable laws so as to be valid and enforceable to the
fullest possible extent, (b) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction, and (c) such
invalidity of enforceability of such provision or part thereof shall not affect
the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other provision of this Agreement. Each
provision of this Agreement is separable from every other provision of this
Agreement, and each part of each provision of this Agreement is separable from
every other part of such provision.
SECTION 12. Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of Delaware
(without giving effect to principles of conflicts of laws).
SECTION 13. Waiver. No failure on the part of Acquiror to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of Acquiror in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right privilege or remedy. Acquiror shall not be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or remedy under
this Agreement, unless
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the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
party; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
SECTION 14. Captions. The captions in this Agreement are for convenience of
reference only, shall not be deemed to be a part of this Agreement and shall not
be referred to in connection with the construction or interpretation of this
Agreement.
SECTION 15. Further Assurances. Shareholder shall execute and/or cause to
be delivered to Acquiror or the Company such instruments and other documents and
shall take such other actions as Acquiror may reasonably request to effectuate
the intent and purposes of this Agreement.
SECTION 16. Entire Agreement. This Agreement, the Merger Agreement and the
other agreements referred to in the Merger Agreement set forth the entire
understanding of shareholder and Acquiror relating to the subject matter hereof
and thereof and supersede all prior agreements and understandings between such
parties relating to the subject matter hereof and thereof.
SECTION 17. Amendments. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Acquiror and Shareholder.
SECTION 18. Assignment. This Agreement and all obligations of the
Shareholder hereunder are personal to Shareholder and may not be transferred or
assigned by Shareholder at any time. Acquiror may assign its rights under this
Agreement to its affiliates at any time, or to any other entity in connection
with any sale or transfer of all or substantially all of Acquiror's assets to
such entity.
SECTION 19. Binding Nature. Subject to Section 18, this Agreement will be
binding upon Shareholder and Shareholder's representatives, executors,
administrators, estate, heirs, successors and assigns, and will inure to the
benefit of Acquiror and its successors and assigns. Without limiting the
generality of anything contained in Section 5, if any person or entity shall
acquire Shares or New Shares from Shareholder in any manner, whether by
operation of law or otherwise, such Shares shall be held subject to all the
terms and provisions of this Agreement, and by taking and holding such Shares,
such person or entity shall be conclusively deemed to have agreed to be bound
and to comply with all the terms and provisions of this Agreement. Without
limiting the foregoing, Shareholder agrees that the obligations of shareholder
hereunder shall not be terminated by operation of law, whether by death or
incapacity of shareholder or, in the case of a trust, by the death or incapacity
of any trustee or the termination of such trust.
SECTION 20. Attorneys' Fees and Expenses. If any legal action or other
legal proceeding relating to the enforcement of any provision of this Agreement
is brought against Shareholder, the prevailing party shall be entitled to
recover reasonable attorneys' fees, costs and disbursements including without
limitation at the pre-trial, trial and appellate stages of any proceeding (in
addition to any other relief to which the prevailing party may be entitled).
SECTION 21. Survival. The representations and warranties contained in this
Agreement shall survive the consummation of the Merger.
SECTION 22. Certain Rights. Notwithstanding any other provision of this
Agreement, this Agreement shall not prohibit or restrain Shareholder from acting
in accordance with Sections 4.4(b) and 5.3(b) of the Merger Agreement in his or
her capacity as a director of the Company, it being understood and agreed that
any such actions taken in a directorial capacity shall not affect the
Shareholder's voting and other obligations contained in this Agreement.
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<PAGE> 156
IN WITNESS WHEREOF, the undersigned has executed and delivered this
SHAREHOLDER AGREEMENT as of the date first written above.
SHAREHOLDER
--------------------------------------
(Shareholder Name)
Address:
--------------------------------------
--------------------------------------
--------------------------------------
SHARES OF THE COMPANY
BENEFICIALLY OWNED:
shares
of the Common Stock of the Company
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<PAGE> 157
EXHIBIT A
LIMITED IRREVOCABLE PROXY
The undersigned shareholder of WORLD MEDICAL MANUFACTURING CORPORATION, a
Florida corporation (the "Company"), hereby irrevocably appoints ARTERIAL
VASCULAR ENGINEERING, INC., a Delaware Corporation ("Acquiror") and Walleye
Acquisition Corporation, a Florida corporation and wholly owned subsidiary of
Acquiror ("Merger Sub"), and each of them, the attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to vote the
shares of capital stock of the Company which the undersigned is entitled to vote
at any meeting of the shareholders of the Company (and every adjournment or
postponement thereof) or by written consent in lieu of such a meeting or
otherwise, which shares are listed below (the "Shares"), and any and all other
shares of capital stock of the Company acquired by the undersigned (or which the
undersigned is otherwise entitled to vote) on or after the date hereof (the "New
Shares"), but only with respect to (a) the Merger (as herein defined) and the
other transactions contemplated by the Merger Agreement (as herein defined) or
(b) proposals that would result in a breach of any obligation or agreement of
the Company under the Merger Agreement or which could reasonably result in any
of the conditions to the Company's obligations under the Merger agreement not
being fulfilled (collectively, the "Identified Matters"), until the earlier of:
(x) such time as that certain Agreement and Plan of Merger and Reorganization
dated as of April 10, 1998 (the "Merger Agreement"), among Acquiror, Merger Sub
and the Company, providing for the merger of a wholly owned subsidiary of
Acquiror with and into the Company (the "Merger"), shall be terminated in
accordance with its terms; or (y) the effective time of the Merger. Upon the
execution hereof, all prior proxies given by the undersigned with respect to the
Shares and the New Shares, if any, and any and all other shares or securities
issued or issuable in respect thereof on or after the date hereof are hereby
revoked, but only to the extent that they relate to the Identified Matters, and
no subsequent proxies will be given with respect to the Identified Matters. This
proxy is irrevocable and is granted in connection with that certain Shareholder
Agreement dated as of April 10, 1998, executed by the undersigned shareholder in
favor of Acquiror, and is granted in consideration of Acquiror entering into the
Merger Agreement. The attorneys and proxies named above will be empowered at any
time prior to the termination of the Merger Agreement (i) to exercise all voting
and other rights of the undersigned with respect to the Shares and the New
Shares, if any (including, without limitation, the power to execute and deliver
written consents with respect to the Shares and the New Shares, if any), but
only with respect to the Identified Matters, at every meeting of the
shareholders of the Company (and every adjournment or postponement thereof) or
by written consent in lieu of such a meeting, or otherwise, and (ii) to vote the
Shares and the New Shares, if any, in favor of approval of the Merger and the
other actions and transactions contemplated by the Merger Agreement (including,
without limitation, any amendment of the Company's articles of incorporation
required in connection therewith).
Any obligation of the undersigned pursuant to this Irrevocable Proxy shall
be binding upon the successors and assigns of the undersigned.
Dated: April , 1998 SHAREHOLDER
--------------------------------------
(Shareholder Name)
SHARES WHICH SHAREHOLDER
IS ENTITLED TO VOTE:
shares
of the Common Stock of the Company
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<PAGE> 158
EXHIBIT D
DIRECTORS AND OFFICERS OF
SURVIVING CORPORATION
DIRECTORS
Scott J. Solano
John D. Miller
OFFICERS
President, Howard J. Leonhardt
Secretary, Lawrence Fassler
Chief Financial Officer, Simon Fuger
Chief Operating Officer, Richard Spencer
Vice President of Operations, Jeff Elkins
Vice President of Research and Development, Trevor Greenan
Vice President of Administration, Brenda Leonhardt
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<PAGE> 159
EXHIBIT E-1
AFFILIATE AGREEMENT
THIS AFFILIATE AGREEMENT (this "Agreement") is being executed and delivered
as of , 1998, by ("Affiliate") in favor of and for the
benefit of ARTERIAL VASCULAR ENGINEERING, INC., a Delaware corporation
("Acquiror").
WHEREAS, Affiliate is a shareholder [and an officer and director] of WORLD
MEDICAL MANUFACTURING, INC., a Florida corporation (the "Company").
WHEREAS, Acquiror, Walleye Acquisition Corporation, a Florida corporation
and a wholly owned subsidiary of Acquiror ("Merger Sub") and the Company have
entered into an Agreement and Plan of Merger and Reorganization dated as of
April 10, 1998 (the "Merger Agreement") providing for the merger of Merger Sub
with and into the Company (the "Merger"). The Merger Agreement contemplates
that, upon consummation of the Merger, all outstanding shares of capital stock
of the Company will be converted into the right to receive shares of common
stock of Acquiror ("Acquiror Common Stock"). It is accordingly contemplated that
Affiliate will receive shares of Acquiror Common Stock in the Merger.
WHEREAS, Affiliate may be deemed to be an "affiliate" of the Company for
purposes of paragraphs (c) and (d) of Rule 145 of the rules and regulations
promulgated by the staff of the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Securities Act"), and as
such, Affiliate may only transfer, sell or dispose of such Acquiror Common Stock
in accordance with this Affiliate Agreement and Rule 145.
NOW, THEREFORE, in order to induce Acquiror to consummate the transactions
contemplated by the Merger Agreement, and for other valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by the Affiliate), the
Affiliate hereby covenants and agrees as follows:
SECTION 1. Representations and Warranties. Affiliate represents and
warrants to Acquiror as follows:
(a) Affiliate is the holder and "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934, as amended) of the number
of shares of the Company's capital stock set forth under Affiliate's
signature below (the "Shares"), and Affiliate has good and valid title to
the Shares, free and clear of any liens, pledges, security interests,
adverse claims, equities, options, proxies, charges, encumbrances or
restrictions of any nature.
(b) Affiliate has carefully read this Agreement, and has discussed
with counsel to the extent Affiliate felt necessary the limitations imposed
on Affiliate's ability to sell, transfer or otherwise dispose of shares of
Acquiror Common Stock that Affiliate is to receive in the Merger (the
"Acquiror Shares"). Affiliate fully understands the limitations this
Agreement places upon Affiliate's ability to sell, transfer or otherwise
dispose of the Acquiror Shares.
(c) Affiliate understands that the representations, warranties and
covenants set forth herein will be relied upon by Acquiror and its counsel
for purposes of determining whether to proceed with the Merger and for
other purposes.
SECTION 2. Prohibition Against Transfer. Affiliate agrees that Affiliate
shall not effect any sale, transfer or other disposition of the Acquiror Shares
unless:
(a) such sale, transfer or other disposition is made in conformity with the
volume and other requirements of Rule 145 under the Securities Act, as evidenced
by a broker's letter and a representation letter executed by Affiliate
(satisfactory in form and content to Acquiror); each stating that such
requirements have been met;
(b) counsel reasonably satisfactory to Acquiror shall have advised Acquiror
in a written opinion letter (satisfactory in form and content to Acquiror) upon
which Acquiror may rely that such sale, transfer or other disposition will be
exempt from registration under the Securities Act;
(c) such sale, transfer or other disposition has been registered under the
Securities Act; or
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<PAGE> 160
(d) an authorized representative of the SEC shall have rendered written
advice to Affiliate to the effect that the SEC would take no action, or that the
staff of the SEC would not recommend that the SEC take action, with respect to
such proposed sale, transfer or other disposition, and a copy of such written
advice and all other related communications with the SEC shall have been
delivered to Acquiror.
SECTION 3. Stop Transfer Instructions.
(a) Affiliate acknowledges and agrees that stop transfer instructions will
be given to Acquiror's transfer agent with respect to the Acquiror Shares and
with respect to any shares of Acquiror Common Stock acquired by Affiliate upon
any exercise of any option to purchase shares of Acquiror Common Stock, and that
there will be placed on the certificates representing such shares of Acquiror
Common Stock or any substitutions thereof a legend, stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145(d) PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE
SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE TRANSFERRED, SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR DISPOSED OF IN ACCORDANCE WITH
THE PROVISIONS OF SUCH RULE AND IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT DATED AS OF APRIL 10, 1998, BETWEEN THE REGISTERED HOLDER HEREOF
AND ARTERIAL VASCULAR ENGINEERING, INC., A COPY OF WHICH AGREEMENT IS ON
FILE AT THE PRINCIPAL OFFICES OF ARTERIAL VASCULAR ENGINEERING, INC.
(b) Affiliate understands that unless a sale, transfer or other disposition
of the Acquiror Shares (or any shares of Acquiror Common Stock acquired by
Affiliate upon any exercise of any option to purchase shares of Acquiror Common
Stock) is made in conformity with the provisions of Rule 145 under the
Securities Act or is registered under the Securities Act, Acquiror reserves the
right to put the following legend on the certificates issued to Affiliate's
transferees:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED
SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES, THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER
NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION
THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933.
Acquiror agrees that such stop transfer instructions and legends will be
removed with respect to shares of Acquiror Common Stock at such time as Acquiror
is reasonably satisfied that the restrictions on resale imposed by
interpretations of the staff of the Commission are no longer applicable to such
shares.
SECTION 4. Specific Performance. Affiliate agrees that irreparable damages
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms, or were otherwise breached.
It is, accordingly, agreed that Acquiror shall be entitled to injunctive relief
to prevent breaches of the provisions of this Agreement, and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which Acquiror may be entitled at law or in equity.
SECTION 5. Independence of Obligations. he covenants and obligations of
Affiliate set forth in this Affiliate Agreement shall be construed as
independent of any other agreement or arrangement between Affiliate, on the one
hand, and the Company or Acquiror, on the other. The existence of any claim or
cause of action by Affiliate against the Company or Acquiror shall not
constitute a defense to the enforcement of any of such covenants or obligations
against Affiliate.
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<PAGE> 161
SECTION 6. Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
if to Acquiror:
Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
Tel.: (707) 525-0111
Attn: General Counsel
Fax: (707) 525-0114
with a copy to:
Cooley Godward LLP
3000 Sand Hill Road
Building 3, Suite 230
Menlo Park, CA 94025-7116
Attn: Craig Dauchy, Esq.
Tel: (650) 843-5100
Fax: (650) 854-2691
if to Affiliate:
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of a telecopy, when the party receiving such copy shall have
confirmed receipt of the communication, and (c) in the case of deliver by
nationally recognized overnight courier, on the business day following dispatch.
SECTION 7. Severability. In the event that any provision of this Agreement,
or the application of any such provision to any person, entity or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons, entities or circumstances other than
those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.
SECTION 8. Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of Delaware
(without giving effect to principles of conflicts of laws).
SECTION 9. Waiver. No failure on the part of Acquiror to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of Acquiror in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy. Acquiror shall not be deemed to have waived any
claim arising out of this Agreement, or any power, right, privilege or remedy
under this Agreement, unless the waiver of such claim, power, right, privilege
or remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of Acquiror; and any such waiver shall not be applicable or
have any effect except in the specific instance in which it is given.
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<PAGE> 162
SECTION 10. Captions. The captions contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
SECTION 11. Further Assurances. Affiliate shall execute and/or cause to be
delivered to Acquiror such instruments and other documents and shall take such
other actions as Acquiror may reasonably request to effectuate the intent and
purposes of this Agreement.
SECTION 12. Entire Agreement. This Agreement, the Merger Agreement and the
other agreements referred to in the Merger Agreement set forth the entire
understanding of Affiliate and Acquiror relating to the subject matter hereof
and thereof and supersede all prior agreements and understandings between
Affiliate and Acquiror relating to the subject matter hereof and thereof.
SECTION 13. Amendments. This Agreement may not be amended, modified,
altered, or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Acquiror and Affiliate.
SECTION 14. Binding Nature. This Agreement will be binding upon Affiliate
and Affiliate's representatives, executors, administrators, estate, heirs,
successors and assigns, and shall inure to the benefit of Acquiror and its
successors and assigns.
SECTION 15. Attorneys' Fees and Expenses. If any legal action or other
legal proceeding relating to the enforcement of any provision of this Agreement
is brought against Affiliate, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
SECTION 16. Assignment. This Agreement and all obligations of Affiliate
hereunder are personal to Affiliate and may not be transferred or delegated by
Affiliate at any time. Acquiror may freely assign any or all of its rights under
this Affiliate Agreement in whole or in part, to any other person or entity
without obtaining the consent or approval of Affiliate.
SECTION 17. Survival. Each of the representations, warranties, covenants
and obligations contained in this Affiliate Agreement shall survive the
consummation of the Merger.
AFFILIATE:
--------------------------------------
Stock Beneficially owned by Affiliate:
shares
of Stock
E-4
<PAGE> 163
EXHIBIT G-1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is being entered into as of
, 1998 by and between WORLD MEDICAL MANUFACTURING CORPORATION, a
Florida corporation (the "Company") and ("Employee").
WHEREAS, pursuant to the Agreement and Plan of Merger and Reorganization,
to be executed by and among ARTERIAL VASCULAR ENGINEERING, INC., a Delaware
corporation ("Acquiror"), Walleye Acquisition Corporation, a Florida corporation
("Merger Sub") and the Company (the "Merger Agreement"), and subject to the
terms and conditions thereof, Merger Sub will merge with and into the Company,
and the Company will become a wholly owned subsidiary of Acquiror. Capitalized
terms not otherwise defined herein have the meanings given them in the Merger
Agreement.
WHEREAS, Employee has been serving as the of the Company.
WHEREAS, Acquiror has required that Employee execute and deliver this
Agreement as a condition to Acquiror's executing the Merger Agreement.
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Employee is executing and delivering to the Company a Noncompetition
Agreement and an Employee Inventions, Proprietary Rights Assignment and
Confidentiality Agreement, collectively referred to herein as the "Other
Agreements."
NOW, THEREFORE, in order to induce Acquiror to consummate the transactions
contemplated by the Merger Agreement, and for other valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by the Affiliate), the
Affiliate hereby covenants and agrees as follows:
ARTICLE 1
TERMS OF EMPLOYMENT
SECTION 1.1 Term; Duties.
(a) Term. Subject to Section 1.8 below, Employee agrees to serve as an
employee of the Company during the period commencing at the Effective Time and
ending on the date four years after the Effective Time (the "Employment Term").
(b) Duties. During the Employment Term, Employee shall serve in such
capacity as the Company's Board of Directors may specify from time to time, and
shall have such responsibilities as may be assigned and modified from time to
time by the Company's Board of Directors. Employee agrees to serve the Company
faithfully and to the best of his ability, and to devote substantially all of
his working time, attention and efforts during the Employment Term to the
business and affairs of the Company. Employee represents and warrants to the
Company that he is under no contractual commitments inconsistent with his
obligations set forth in this Agreement.
(c) Location. Employee's principal job location shall initially be in the
Sunrise, Florida area.
SECTION 1.2 Salary. In consideration of all services to be rendered by
Employee to the Company during the Employment Term, the Company shall pay to
Employee a salary of $ per annum, less standard deductions and withholdings
payable at such times as other salaried employees of the Company receive their
regular salary payments.
SECTION 1.3 Bonus. Employee shall be entitled to participate in the
Company's 1998 Incentive Bonus Plan for Walleye Employees (the "Bonus Plan")
pursuant to the terms of such plan. A copy of the Bonus Plan is attached hereto.
SECTION 1.4 Stock Option. Promptly after the Effective Date, upon approval
by the Compensation Committee of Acquiror's Board of Directors, Employee shall
be granted a stock option exercisable for shares of Acquiror
common stock, with an exercise price equal to the closing price on the date
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<PAGE> 164
of the grant. Such option will vest in one-fourth increments annually over four
years, and will otherwise be awarded under the terms of the Acquiror's 1996
Equity Incentive Plan and the stock option agreement (both as described in the
Acquiror's publicly filed documents) that you will receive promptly after the
date of grant.
SECTION 1.5 Other Benefits. The Company shall provide to Employee, during
the Employment Term, the same benefits that the Company makes generally
available to all of its other similarly situated employees during the Employment
Term, subject to Employee's satisfaction of the respective eligibility
requirements for such benefits.
SECTION 1.6 No Other Compensation. Employee acknowledges and agrees that
he shall not be entitled to receive from the Company, from Acquiror or any other
affiliate of the Company, any salary, bonus or other compensation or benefit of
any nature (whether relating to any period prior to or after the Effective
Time), except as expressly provided in the Other Agreements or in Sections 1.2
through 1.5 inclusive. Employee represents and warrants to the Company that he
is not aware of any claims or rights against the Company arising directly or
indirectly from his past employment with the Company, and Employee hereby
releases and discharges the Company and its affiliates from all claims, rights,
causes of action, demands and obligations arising directly or indirectly from
his past employment with the Company.
SECTION 1.7 Expenses. Employee shall be entitled to reimbursement from the
Company for reasonable out-of-pocket business expenses reasonably incurred by
Employee during the Employment Term in the performance of Employee's duties
under this Agreement; provided, however, that the Company shall not be required
to reimburse Employee for any such expenses unless: (a) Employee presents
vouchers and receipts indicating in reasonable detail the amount and business
purpose of each of such expenses; and (b) Employee otherwise complies with the
Company's reimbursement policies established from time to time and in effect
during the Employment Term.
SECTION 1.8 Termination.
(a) Either the Company or the Employee shall have the right to terminate
this Agreement, with or without Cause (as defined below), at any time during the
Employment Term by delivering written notice of termination to the other. This
at-will employment relationship cannot be changed except in a written instrument
signed by both the Employee and a duly authorized officer of the Company. Upon
the termination of this Agreement during the Employment Term, Employee's
employment with the Company shall terminate and, except as provided in Section
1.8(b) below, the Company shall have no further monetary obligation or other
obligation of any nature to Employee under this Agreement or with respect to his
employment or the termination of his employment.
(b) If (i) the Company terminates this Agreement without Cause (as defined
below) during the Employment Term or Employee terminates this Agreement with
Good Reason (as defined below) during the Employment Term, (ii) Employee
satisfies all of his obligations relating to the termination of his employment
under this Agreement (including his obligations under Section 3.2 below), and
(iii) Employee executes and delivers to the Company a general release of
liability (satisfactory in form and substance to the Company) in favor of the
Company, then, provided Employee has not materially breached and does not
materially breach Section 2 below or any of the material provisions of the Other
Agreements, Employee shall be entitled to continue to receive the salary
specified in Section 1.2 above for the remainder of the Employment Term, payable
on the terms and conditions specified in Section 1.2.
(c) The termination of this Agreement pursuant to this Section 1.8 or
otherwise shall not limit or otherwise affect any of Employee's obligations
under Section 2 or Section 3.2 below or under any of the Other Agreements, all
of which shall remain in full force and effect.
(d) The Employee shall not be entitled to any severance, pay-in-lieu of
notice or any other compensation except as expressly set forth herein.
SECTION 1.9 Definition of "Cause." For purposes of this Agreement, "Cause"
shall mean (a) any gross or willful misconduct or fraud or bad faith on the part
of Employee in the performance of his duties as an employee of the Company; (b)
the conviction of Employee of, or the entry by Employee of a plea of guilty or
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no contest to, any felony or crime involving dishonesty or moral turpitude; (c)
the material breach by Employee of this Agreement or any provision in any of the
Other Agreements; (d) material breach of the Company's material policies; (e)
intentional damage to the Company's property; (f) conduct by Employee that, in
the good faith and reasonable determination of the Company, demonstrates
unacceptable job performance (to the extent not cured by Employee within 30 days
after written notice from the Company) or gross unfitness to serve; or (g) the
inability of Employee to perform, with or without reasonable accommodation, any
of his material duties as a result of illness or injury, if Employee remains
unable to perform such duties for a total of twelve consecutive weeks.
SECTION 1.10 Definition of "Good Reason." Employee shall be deemed to have
terminated his employment with the Company with "Good Reason" if Employee
resigns his employment within one month after the Company reduces without Cause
Employee's level of authority and responsibility substantially below the level
of authority and responsibility previously enjoyed by Employee as an employee of
the Company.
ARTICLE 2
CONFIDENTIAL INFORMATION
SECTION 2.1 Proprietary Information Agreement. Employee agrees to abide by
the provisions of the Employee Inventions and Proprietary Rights Assignment and
Confidentiality Agreement both during and after the Employment Term as provided
therein.
SECTION 2.2 Obligation to Keep Confidential. Employee agrees to keep all
Confidential Information (as defined in Section 2.3 below) strictly and
permanently confidential and agrees that he shall not at any time (whether
during or after the Employment Term) directly or indirectly use for any purpose,
or disclose or permit to be disclosed to any person or entity, any Confidential
Information. Employee acknowledges that the Confidential Information constitutes
unique and valuable assets of the Company and such Confidential Information was
acquired at great time and expense by the Company and Acquiror, and that any
disclosure or other use of such Confidential Information, other than for the
sole benefit of the Company and Acquiror, would be wrongful and would cause
irreparable harm to the Company.
SECTION 2.3 Definition of "Confidential Information." The term
"Confidential Information" means any non-public information (whether or not in
written form and whether or not expressly designated as confidential) relating
directly or indirectly to the Company, Acquiror or any of the Company's or
Acquiror's subsidiaries or other affiliates or relating to the business,
operations, financial affairs, performance, assets, investments, technology,
processes, products, contracts, customers, licensees, sublicensees, suppliers,
personnel, plans or prospects of the Company or Acquiror or any of the Company's
or Acquiror's subsidiaries or other affiliates, including any such information
consisting of or otherwise relating directly or indirectly to trade secrets,
know how, technology, designs, drawings, processes, license or sublicense
arrangements, formulae, proposals, customer lists or preference, pricing lists,
referral sources, marketing or sales techniques or plans, operations manuals,
service manuals, financial information, projections, lists of suppliers or
distributors or sources of supply; provided, however, that "Confidential
Information" shall not be deemed to include information which, at the time of
initial disclosure to Employee, is part of, or without violation of this
Agreement or fault of Employee becomes part of, the public knowledge of
literature and is readily accessible to third parties.
ARTICLE 3
MISCELLANEOUS PROVISIONS
SECTION 3.1 Other Agreements. Nothing in this Agreement shall limit
Employee's or the Company's obligation or the rights and remedies of Employee or
the Company under the Other Agreements, and nothing in any of the Other
Agreement shall limit Employee's or the Company's obligations or the rights and
remedies of the Employee or the Company under this Agreement.
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SECTION 3.2 Surrender of Records and Property. At such time as Employee no
longer serves as an employee of the Company, Employee shall deliver promptly to
the Company (a) all records, manuals, books, blank forms, documents, letters,
memoranda, notes, notebooks, reports, data, tables, calculations or copies
thereof in his possession or under his control which are the property of the
Company or which relate in any way to the business, products, practices or
techniques of the Company, (b) all Confidential Information of the Company or
Acquiror in his possession or under his control, including all documents which
contain any Confidential Information of the Company or Acquiror (and all
reproduction thereof), and (c) all tangible property including, but not limited
to computers, credit cards, entry cards, and identification badges and keys.
SECTION 3.3 Notices. Any notice or other communication required or
permitted to be delivered to either party under this Agreement shall be in
writing and shall be deemed properly deliver, given and received when delivered
(by hand, by registered mail, by courier or express delivery service or by
facsimile) to the address or facsimile telephone number set forth beneath the
name of such party below (or to such other address or facsimile telephone number
as such party shall have specified in a written notice given to the other party
hereto):
if to the Company:
WORLD MEDICAL MANUFACTURING CORPORATION
c/o Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
Attention: General Counsel
Facsimile: (707) 525-0114
if to Employee:
- ---------------------------------------------
--------------------------------------------------------
--------------------------------------------------------
Facsimile:
--------------------------------------------
SECTION 3.4 Severability. In the event that any provision of this
Agreement, or the application of any such provision to any person, entity or set
of circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons, entities or circumstances other than
those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.
SECTION 3.5 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of Florida (without
giving effect to principles of conflicts of laws).
SECTION 3.6 Waiver. No failure on the part of either party to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of either party in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy. Neither party shall be deemed to have waived any
claim arising out of this Agreement, or any power, right, privilege or remedy
under this Agreement, unless the waiver of such claim, power, right, privilege
or remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such party; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
SECTION 3.7 Captions. The captions contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
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SECTION 3.8 Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
SECTION 3.9 Further Assurances. Each party hereto shall execute and/or
cause to be delivered to the other party hereto such instruments and other
documents and shall take such other actions as such other party may reasonably
request to effectuate the intent and purposes of this Agreement.
SECTION 3.10 Entire Agreement. This Agreement and the Other Agreements set
forth the entire understanding of the parties relating to the subject matter
hereof and thereof and supersede all prior agreements and understandings between
the parties relating to the subject matter hereof and thereof.
SECTION 3.11 Amendments. This Agreement may not be amended, modified,
altered or supplemental other than by means of a written instrument duly
executed and delivered on behalf of the Company and Employee.
SECTION 3.12 Assignment. This Agreement and all rights and obligations of
Employee hereunder are personal to Employee and may not be transferred or
assigned by Employee at any time. The Company may freely assign its rights under
this Agreement to any person or entity that assumes the Company's obligations
hereunder in connection with any sale or transfer of all or a substantial
portion of the Company's assets to such person or entity.
SECTION 3.13 Binding Nature. Subject to Section 3.12, this Agreement will
be binding upon and inure to the benefit of the Company and its successors and
assigns and Employee and his representatives, executors, administrators, estate,
heirs, successors and assigns.
SECTION 3.14 Attorneys' Fees and Expenses. If any legal action or other
legal proceeding relating to the enforcement of any provision of this Agreement
is brought against either party hereto, the prevailing party shall be entitled
to recover reasonable attorneys' fees, costs and disbursements (in addition to
any other relief to which the prevailing party may be entitled).
In Witness Whereof, the parties hereto have caused this Employment
Agreement to be executed and delivered as of the date first above written.
WORLD MEDICAL MANUFACTURING
CORPORATION
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
EMPLOYEE
Signature:
--------------------------------------
Print Name:
--------------------------------------
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EXHIBIT H-1
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is being executed and delivered
as of , 1998 (the "Signing Date"), by [Shareholder] ("Shareholder")
in favor of, and for the benefit of ARTERIAL VASCULAR ENGINEERING, INC., a
Delaware corporation ("Acquiror"), and WORLD MEDICAL MANUFACTURING CORPORATION,
a Florida corporation (the "Company").
WHEREAS, as an employee and shareholder of the Company, Shareholder
performs unique services and has obtained extensive and valuable knowledge and
information concerning the business of the Company (including confidential
information relating to the Company and its operations, assets, contracts,
customers, personnel, plans and prospects).
WHEREAS, pursuant to an Agreement and Plan of Merger and Reorganization to
be entered into by and among Acquiror, Walleye Acquisition Corporation, a
Florida corporation and a wholly owned subsidiary of Acquiror ("Merger Sub") and
the Company (the "Merger Agreement"), and subject to the terms and conditions
thereof, Merger Sub will merge with and into the Company (the "Merger"). In
connection with the Merger, Shareholder and the Company's other shareholders
will exchange all of their shares of common stock of the Company for shares of
common stock of Acquiror (except to the extent that shareholders may permissibly
dissent from the Merger), and as a result of the Merger the Company will become
a wholly owned subsidiary of Acquiror.
WHEREAS, in connection with the Merger Agreement (and as a condition to its
execution), and to more fully secure unto Acquiror the benefits of the Merger,
Acquiror has required that Shareholder enter into this Agreement; and
Shareholder is entering into this Agreement in order to induce Acquiror to enter
into the Merger Agreement, with all of the attendant financial benefits to
Shareholder as a shareholder of the Company.
WHEREAS, the Company has conducted and is conducting its business on a
worldwide basis.
NOW, THEREFORE, in order to induce Acquiror to consummate the transactions
contemplated by the Merger Agreement, and for other valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by the Affiliate), the
Affiliate hereby covenants and agrees as follows:
SECTION 1. Acknowledgments by Shareholder. Shareholder acknowledges that
the promises and restrictive covenants he is providing in this Agreement are
reasonable and necessary to Acquiror's protection of its legitimate interests in
its acquisition of the Company pursuant to the Merger Agreement, including but
not limited to the Company's goodwill. Shareholder acknowledges that Shareholder
is exchanging all of Shareholder's shares of common stock of the Company for
shares of common stock of Acquiror in the Merger. Shareholder further
acknowledges that by virtue of his position with the Company he has developed
considerable expertise in the business operations of the Company and has had
access to extensive confidential information with respect to the Company.
Shareholder recognizes that Acquiror and the Company would be irreparably
damaged, and Acquiror's substantial investment in the Company materially
impaired, if Shareholder were to enter into an activity competing with the
Company's business in violation of the terms of this Agreement or if Shareholder
were to disclose or make unauthorized use of any confidential information
concerning the business of the Company.
SECTION 2. Confidentiality. Shareholder hereby expressly affirms that the
Employee Inventions, Proprietary Right, Assignment and Confidentiality Agreement
dated as of even date herewith (the "Assignment and Confidentiality Agreement")
between the Shareholder and the Company is and shall remain in full force and
effect and specifically agrees that the rights and privileges of the Company
under the Confidentiality Agreement shall inure to the benefit of the Acquiror,
to the same extent as if it was an original party thereto, as well as to the
Company. Further, Shareholder hereby expressly agrees that the Company's rights
under this Agreement are in addition to, but no substitution of, its rights
under the Confidentiality Agreement and the Confidentiality Agreement remains in
full force and effect.
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SECTION 3. Noncompetition. During the period commencing on the Closing Date
and continuing until the date three years after the date of termination of
Shareholder's employment with the Company (the "Noncompete Period"), Shareholder
shall not, directly or indirectly, anywhere in the world, (a) provide any
service, support, product or technology (as an employee, licensor, consultant or
otherwise), to any person or entity, if such service, support, product or
technology involves or relates to, in any material respect, (w) balloon
angioplasty catheters, (x) stents, (y) stent grafts (including, without
limitation, for the repair of aneurysms in the abdominal aorta, thoracic aorta
and iliac arteries) or (z) radiation catheters or irradiated stents (each, a
"Restricted Business") or (b) own, manage, operate, join, control, finance,
participate in the ownership, management, operation, control or financing of, or
have any stock, equity or other interest in, either directly or indirectly, or
have any right to compensation from, a company or other entity engaged in a
Restricted Business (other than ownership of less than 1% of a company that has
its shares listed on a national securities exchange or traded over-the-counter);
[FOR PERSONS WITH EMPLOYMENT AGREEMENTS: provided, however, that the Noncompete
Period for Shareholders whose employment with the Company is terminated without
Cause or for Good Reason (as such terms are defined in the Employment Agreement
dated as of even date herewith (the "Employment Agreement")) shall be the longer
of (i) one year following such termination or (ii) the period following such
termination during which such Shareholder elects to receive salary payments
pursuant to Section 1.8(b) of the Employment Agreement, and provided further,
that for Shareholders whose employment with the Company is terminated as a
result of (a) the inability of the Shareholder to perform, with or without
reasonable accommodation, any of his material duties as a result of illness or
injury and (if such shareholder remains unable to perform such duties for a
total of 12 consecutive weeks), or (b) Shareholder not fulfilling the Company's
requirement that Shareholder continue employment with the Company at a site more
than 100 miles from the city of Sunrise, Florida, the Noncompete Period shall be
one year; provided further, that nothing in this Agreement shall prevent
Shareholder from providing services, support, product or technology to any
person or entity in Shareholder's capacity as an employee of the Company.] [FOR
PERSONS WITHOUT EMPLOYMENT AGREEMENTS: provided, however, that the Noncompete
Period for Shareholders whose employment with the Company is terminated (a)
without Cause, (b) for Good Reason (as such terms are defined in the World
Medical Manufacturing Corporation 1998 Incentive Bonus Plan), or (c) as a result
of the inability of the Shareholder to perform, with or without reasonable
accommodation, any of his material duties as a result of illness or injury and
(if such shareholder remains unable to perform such duties for a total of 12
consecutive weeks), or (d) as a result of Shareholder not fulfilling the
Company's requirement that Shareholder continue employment at a site more than
100 miles from the city of Sunrise, Florida, shall be one year following such
termination, and provided, further, that nothing in this Agreement shall prevent
Shareholder from providing services, support, product or technology to any
person or entity in Shareholder's capacity as an employee of the Company.]
SECTION 4. Nonsolicitation. Shareholder further agrees that during the
Noncompete Period, he will not:
(a) directly or indirectly, personally or through others, encourage,
induce, attempt to induce, solicit or attempt to solicit (on Shareholders'
own behalf or on behalf of any other person or entity) any employee of the
Company, Acquiror or any of Acquiror's subsidiaries to leave his or her
employment with the Company, Acquiror or any or Acquiror's subsidiaries;
(b) employ, or permit any entity over which Shareholder exercises any
control, to employ such employee who has terminated his or her employment
with the Company, Acquiror or any of Acquiror's subsidiaries during the
Noncompete Period; or
(c) directly or indirectly, personally or through others, approach,
contact, solicit, advise or do (or attempt to do) business with, or
otherwise interfere with the relationship of the Company, Acquiror or any
of Acquiror's subsidiaries with, any person or entity who is, was or is
reasonably anticipated to become a supplier, customer or client of the
Company, Acquiror or any of Acquiror's subsidiaries with respect to any
Restricted Business.
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SECTION 5. Independence of Obligations. The covenants of Shareholder set
forth in this Agreement shall be construed as independent of any other agreement
or arrangement between Shareholder, on the one hand, and the Company or
Acquiror, on the other. The existence of any claim or cause of action by
Shareholder against the Company or Acquiror shall not constitute a defense to
the enforcement of such covenants against Shareholder.
SECTION 6. Remedy for Breach. Shareholder agrees that in the event of any
breach or threatened breach by Shareholder of any covenant, obligation or other
provision contained in this Agreement, Acquiror and the Company shall be
entitled (in addition to any other remedy that may be available to them) to (a)
a decree or order of specific performance or mandamus to enforce the observance
and performance of such covenant, obligation or other provision, (b) an
injunction restraining such breach or threatened breach and (c) any other relief
which a court deems just and equitable.
SECTION 7. Non-Exclusivity. The rights and remedies of Acquiror and the
Company hereunder are not exclusive of or limited by any other rights or
remedies which Acquiror or the Company may have, whether at law, in equity, by
contract or otherwise, all of which shall be cumulative (and not alternative).
Without limiting the generality of the foregoing, the rights and remedies of
Acquiror and the Company hereunder, and the obligations and liabilities of
Shareholder hereunder, are in addition to their respective rights, remedies,
obligations and liabilities under the law of unfair competition,
misappropriation of trade secrets and the like. This Agreement does not limit,
and is not limited by, [FOR PERSONS WITH EMPLOYMENT AGREEMENTS: the terms of the
Employment Agreement of even date herewith between Shareholder and the Company
(the "Employment Agreement")] [FOR PERSONS WITHOUT EMPLOYMENT AGREEMENTS: the
terms of any employment arrangement between Shareholder and the Company] or the
terms of any other agreement between Shareholder and Acquiror or the Company or
any affiliate of Acquiror or the Company.
SECTION 8. Notices. Any notice or other communication required or permitted
to be delivered to Shareholder, the Company or Acquiror under this Agreement
shall be in writing and shall be deemed properly delivered, given and received
when delivered (by hand, by registered mail, by courier or express delivery
service or by facsimile) to the address or facsimile telephone number set forth
beneath the name of such party below (or to such other address or facsimile
telephone number as such party shall have specified in a written notice given to
the other party hereto):
if to the Company: WORLD MEDICAL MANUFACTURING CORPORATION
c/o Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
Attn: General Counsel
Fax: (707) 525-0114
if to Acquiror: ARTERIAL VASCULAR ENGINEERING, INC.
(same as above)
if to Shareholder:
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
SECTION 9. Severability. If any provision of this Agreement or any part of
any such provision is held under any circumstances to be invalid or
unenforceable in any jurisdiction, then (a) such provision or part thereof
shall, with respect to such circumstances and in such jurisdiction, be deemed
amended to conform to applicable laws so as to be valid and enforceable to the
fullest possible extent, (b) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction, and (c) such
invalidity of enforceability of such provision or part thereof shall not affect
the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other
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<PAGE> 171
provision of this Agreement. Each provision of this Agreement is separable from
every other provision of this Agreement, and each part of each provision of this
Agreement is separable from every other part of such provision.
SECTION 10. Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the Florida (without giving
effect to principles of conflicts of laws).
SECTION 11. Waiver. No failure on the part of Acquiror or the Company to
exercise any power, right, privilege or remedy under this Agreement, and no
delay on the part of Acquiror or the Company in exercising any power, right,
privilege or remedy under this Agreement, shall operate as a waiver of such
power, right, privilege or remedy; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy. Neither Acquiror nor
the Company shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
party; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
SECTION 12. Captions. The captions contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
SECTION 13. Further Assurances. Shareholder shall execute and/or cause to
be delivered to the Company and Acquiror such instruments and other documents
and shall take such other actions as Company and Acquiror may reasonably request
to effectuate the intent and purposes of this Agreement.
SECTION 14. Entire Agreement. This Agreement and the Employment Agreement
sets forth the entire understanding of Shareholder, the Company and Acquiror
relating to the subject matter hereof and supersede all prior agreements and
understandings between any of such parties relating to the subject matter
hereof.
SECTION 15. Amendments. This Agreement may not be amended, modified,
altered, or supplemented other than by means of a written instrument duly
executed and delivered on behalf of Acquiror and Shareholder.
SECTION 16. Assignment. This Agreement and all obligations hereunder are
personal to Shareholder and may not be transferred or assigned by Shareholder at
any time. Acquiror and the Company may freely assign their respective rights
under this Agreement to any person or entity in connection with any sale or
transfer of all or a substantial portion of Acquiror's or the Company's assets
to such person or entity.
SECTION 17. Binding Nature. Subject to Section 16, this Agreement will be
binding upon Shareholder and Shareholder's representatives, executors,
administrators, estate, heirs, successors and assigns, and will inure to the
benefit of Acquiror and the Company and their respective successors and assigns.
SECTION 18. Attorneys' Fees and Expenses. If any legal action or other
legal proceeding relating to the enforcement of any provision of this Agreement
is brought against Shareholder, the prevailing party shall be entitled to
recover reasonable attorneys' fees, costs and disbursements, including without
limitation at the pre-trial, trial and appellate stages of any proceeding (in
addition to any other relief to which the prevailing party may be entitled).
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<PAGE> 172
IN WITNESS WHEREOF, the undersigned has executed this Noncompetition
AGREEMENT as of the date first above written.
Signature:
--------------------------------------
Address:
--------------------------------------
---------------------------------
---------------------------------
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<PAGE> 173
EXHIBIT I-1
GENERAL RELEASE
THIS GENERAL RELEASE (this "General Release") is being executed and
delivered as of , 1998, by , residing at
(the "Releasor") to and in favor of, and for the benefit of WORLD
MEDICAL MANUFACTURING CORPORATION, a Florida corporation (the "Company"),
ARTERIAL VASCULAR ENGINEERING, INC., a Delaware corporation ("Acquiror"), and
the other Releasees (as defined in Section 2).
WHEREAS, contemporaneously with the execution and delivery of this General
Release, pursuant to an Agreement and Plan of Merger and Reorganization (the
"Merger Agreement") dated as of April 10, 1998, by and among Acquiror, Walleye
Acquisition Corporation, a Florida corporation and a wholly owned subsidiary of
Acquiror ("Merger Sub"), and the Company, Merger Sub is merging with and into
the Company. As a result of the Merger, the Company's shareholders are receiving
shares of common stock of Acquiror in exchange for their shares of common stock
of the Company, and the Company is becoming a wholly owned subsidiary of
Acquiror.
WHEREAS, Acquiror has required, as a condition to consummating the
transactions contemplated by the Merger Agreement, that the Releasor execute and
deliver this General Release.
NOW, THEREFORE, in order to induce Acquiror to consummate the transactions
contemplated by the Merger Agreement, and for other valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by the Affiliate), the
Affiliate hereby covenants and agrees as follows:
SECTION 1. Release. The Releasor, for itself and, to the extent permitted
by law, for each of such Releasor's Associated Parties (as defined in Section
2), hereby generally, irrevocably, unconditionally and completely releases and
forever discharges each of the Releasees (as defined in Section 2) from, and
hereby irrevocably, unconditionally and completely waives and relinquishes, each
of the Released Claims (as defined in Section 2).
SECTION 2. Definitions.
(a) The term "Associated Parties," when used herein with respect to the
Releasor, shall mean and include: (i) such Releasor's predecessors, successors,
executors, administrators, heirs and estate; (ii) such Releasor's past, present
and future assigns, agents and representatives; (iii) each entity that such
Releasor has the power to bind (by such Releasor's acts or signature) or over
which such Releasor directly or indirectly exercises control; and (iv) each
entity of which such Releasor owns, directly or indirectly, at least 50% of the
outstanding equity, beneficial, proprietary, ownership or voting interests.
(b) The term "Releasees" shall mean and include: (i) Acquiror; (ii) the
Company; (iii) each of the direct and indirect subsidiaries of the Company; (iv)
each other affiliate of the Company; and (v) the successors and past, present
and future assigns, directors, officers, employees, agents and representatives
of the respective entities identified or otherwise referred to in clauses "(i)"
through "(iv)" of this sentence, other than the Releasors.
(c) The term "Claims" shall mean and include all past, present and future
disputes, claims, controversies, demands, rights, obligations, liabilities,
actions and causes of action of every kind and nature, including: (i) any
unknown, unsuspected or undisclosed claim; (ii) any claim or right that may be
asserted or exercised by the Releasor in such Releasor's capacity as a
shareholder, director, officer or employee of the Company or in any other
capacity; and (iii) any claim, right or cause of action based upon any breach of
any express, implied, oral or written contract or agreement.
(d) The term "Released Claims" shall mean and include each and every Claim
of the Releasor or any Associated Party of the Releasor against any of the
Releasees that has arisen or arises directly or indirectly out of, or relates
directly or indirectly to, any circumstance, agreement, activity, action,
omission, event or matter occurring or existing on or prior to the date of this
General Release, whether the Releasor or any Associated Party of the Releasor
has asserted or asserts such Claim prior to, on or after the date of this
General Release
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<PAGE> 174
(excluding only (1) such Releasor's rights and Claims, if any, against Acquiror
or the Surviving Corporation (as defined in the Merger Agreement) under the
Merger Agreement or any other Transaction Agreement and (2) such Releasor's
rights and Claims, if any, against the Company under any employment agreement
being entered into by such Releasor and the Company at any time from and after
the date hereof). Notwithstanding the foregoing, Released Claims shall not
include any right of indemnification the Releasor may have against the Company
under the Company's articles of incorporation, bylaws or the Merger Agreement in
its capacity as an officer or director of the Company. [FOR VECTOR SECURITIES
ONLY: Further, Released Claims shall not include any rights the Releasor
(including Vector Securities International, Inc., D. Theodore Berghorst, Linda
B. Ginsburg and Barry M. Deutsch) may have against the Company pursuant to the
indemnification agreement attached to the engagement letter between the Company
and Vector Securities International, Inc. dated as of May 29, 1998, whether or
not the Releasor is employed by Vector Securities International, Inc. at the
time such rights set forth in the indemnification agreement are exercised.]
SECTION 3. Representations and Warranties. The Releasor represents and
warrants that:
(a) the Releasor has not assigned, transferred, conveyed or otherwise
disposed of any Claim against any of the Releasees, or any direct or
indirect interest in any such Claim, in whole or in part;
(b) to the best of the Releasor's knowledge, no other person or entity
has any interest in any of the Released Claims;
(c) to the best of Releasor's knowledge, no Associated Party of the
Releasor has or had any Claim against any of the Releasees;
(d) neither the Releasor nor any Associated Party of the Releasor over
which Releasor directly or indirectly exercises control will in the future
have any Claim against any Releasee that arises directly or indirectly from
or relates directly or indirectly to any circumstance, agreement, activity,
action, omission, event or matter occurring or existing on or before the
date of this General Release;
(e) this General Release has been duly and validly executed and
delivered by the Releasor;
(f) this General Release is a valid and binding obligation of the
Releasor, and is enforceable against the Releasor in accordance with its
terms, except as enforceability may be limited by bankruptcy, moratorium or
similar laws affecting the rights and remedies of creditors rights, and
general principles of equity, whether applied by a court of law or equity;
(g) there is no action, suit, proceeding, dispute, litigation, claim,
complaint or investigation by or before any court, tribunal, governmental
body, governmental agency or arbitration pending or, to the best of the
knowledge of the Releasor, threatened, against such Releasor or any of the
Releasor's Associated Parties that challenges or would challenge the
execution and delivery of this General Release or the taking of any of the
actions required to be taken by the Releasor under this General Release;
(h) neither the execution and delivery of this General Release nor the
performance hereof will (i) result in any violation or breach of any
agreement or other instrument to which the Releasor or any of such
Releasor's Associated Parties is a party or by which the Releasor or any of
such Releasor's Associated Parties is bound, or (ii) result in a violation
of any law, rule, regulation, treaty, ruling, directive, order, arbitration
award, judgment or decree to which the Releasor or any of such Releasor's
Associated Parties is subject; and
(i) no authorization, instruction, consent or approval of any person
or entity is required to be obtained by the Releasor or any of such
Releasor's Associated Parties in connection with the execution and delivery
of this General Release or the performance hereof.
(j) the Releasor is not relying on any representation or promise of
any other person in executing this General Release, or in making the
release provided for herein, and assumes the risk of any misrepresentation,
concealment or mistake. If a Releasor should subsequently discover that a
fact relied upon by it in entering into this General Release was untrue, or
that a fact was concealed from it, or that its understanding of the facts
or of the law was incorrect, such party shall not be entitled to any relief
in
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connection therewith, including, without limitation, any alleged right or
claim to set aside or rescind this General Release. This General Release is
intended to be and is final and binding, regardless of any claims of
misrepresentation, promise made without the intention to perform,
concealment of fact, mistake of fact or law, or of any other circumstance.
SECTION 4. Miscellaneous.
(a) This General Release sets forth the entire understanding of the parties
relating to the subject matter hereof and supersedes all prior agreements and
understandings among or between any of the Releasors and Releasees relating to
the subject matter hereof.
(b) If any provision of this General Release or any part of any such
provision is held under any circumstances to be invalid or unenforceable in any
jurisdiction, then (i) such provision or part thereof shall, with respect to
such circumstances and in such jurisdiction, be deemed amended to conform to
applicable laws so as to be valid and enforceable to the fullest possible
extent, (ii) the invalidity or unenforceability of such provision or part
thereof under such circumstances and in such jurisdiction shall not affect the
validity or enforceability of such provision or part thereof under any other
circumstances or in any other jurisdiction, and (iii) such invalidity or
enforceability of such provision or part thereof shall not affect the validity
or enforceability of the remainder of such provision or the validity or
enforceability of any other provision of this General Release. Each provision of
this General Release is separable from every other provision of this General
Release, and each part of each provision of this General Release is separable
from every other part of such provision.
(c) This General Release shall be construed in accordance with, and
governed in all respects by, the laws of the State of Florida (without giving
effect to principles of conflicts of laws).
(d) Any legal action or other legal proceeding relating to this General
Release or the enforcement of any provision of this General Release may be
brought or otherwise commenced by any party hereto in any state or federal court
located in the State of Florida. The parties hereto:
(i) expressly and irrevocably consent and submit to the jurisdiction
of each state and federal court located in the State of Florida in
connection with any such legal proceeding;
(ii) agree that each state and federal court located in the State of
Florida shall be deemed to be a convenient forum; and
(iii) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in the State of Florida, any claim that the respective party
is not subject personally to the jurisdiction of such court, that such
legal proceeding has been brought in an inconvenient forum, that the venue
of such proceeding is improper or that this General Release or the subject
matter of this General Release may not be enforced in or by such court.
Nothing contained in this General Release shall be deemed to limit or
otherwise affect the right of any Releasee (1) to commence any legal
proceeding or to otherwise proceed against the Releasor or any other person
or entity in any other forum or jurisdiction, or (2) to raise this Release
as a defense in any legal proceeding in any other forum or jurisdiction.
(e) This General Release may be executed in several counterparts, each of
which shall constitute an original and all of which, when taken together, shall
constitute one agreement.
(f) The Releasor shall execute and/or cause to be delivered to each
Releasee such instruments and other documents, and shall take such other
actions, as such Releasee may reasonably request for the purpose of carrying out
or evidencing any of the actions contemplated by this General Release.
(g) If any legal action or other legal proceeding relating to this General
Release or the enforcement of any provision hereof is brought by any Releasor or
Releasee, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements to the extent actually incurred,
including, without
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limitation, at the pre-trial, trial and appellate levels (in addition to any
other relief to which the prevailing party may be entitled).
(h) Whenever required by the context, the singular number shall include the
plural, and vice versa; the masculine gender shall include the feminine and
neuter genders; and the neuter gender shall include the masculine and feminine
genders.
(i) Any rule of construction to the effect that ambiguities are to be
resolved against the drafting party shall not be applied in the construction or
interpretation of this General Release.
(j) As used in this General Release, the words "include" and "including,"
and variations thereof, shall not be deemed to be terms of limitation, and shall
be deemed to be followed by the words "without limitation."
IN WITNESS WHEREOF, the Releasor has caused this GENERAL RELEASE to be
executed as of the date first above written.
RELEASOR:
--------------------------------------
(Releasor Name)
Address:
--------------------------------------
--------------------------------------
--------------------------------------
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EXHIBIT J
ESCROW AGREEMENT
THIS ESCROW AGREEMENT is entered into as of , 1998, by and
among ARTERIAL VASCULAR ENGINEERING, INC., a Delaware corporation ("Acquiror"),
WORLD MEDICAL MANUFACTURING CORPORATION, a Florida corporation (the "Company"),
, the Designated Escrow Representative (as such term is defined
in the Merger Agreement described below) and CUPERTINO NATIONAL BANK (the
"Escrow Agent").
WHEREAS, Acquiror, the Company, and Walleye Acquisition Corporation, a
Florida corporation and a wholly owned subsidiary of Acquiror ("Merger Sub")
have entered into an Agreement and Plan of Merger and Reorganization dated as of
April 10, 1998 (the "Merger Agreement"), pursuant to which Merger Sub is merging
with and into the Company (the "Merger"). As a result of the Merger, the
Company's shareholders are receiving shares of common stock of Acquiror
("Acquiror Common Stock") in exchange for their shares of common stock of the
Company, and the Company is becoming a wholly owned subsidiary of Acquiror.
WHEREAS, the Merger Agreement contemplates the establishment of an escrow
arrangement to secure the indemnification obligations of shareholders of the
Company who are receiving shares of Acquiror Common Stock in the Merger (the
"Merger Shareholders") pursuant to the Merger Agreement. As a condition to
Acquiror's consummation of the Merger and related agreements and to more fully
secure unto Acquiror the benefits of the Merger, Acquiror has required that the
Designated Escrow Representative, as representative and agent of the Merger
Shareholders, enter into this Agreement; and the Designated Escrow
Representative has agreed to enter into this Agreement in order to induce
Acquiror to consummate the Merger.
WHEREAS, by virtue of the Company shareholders' approval of the Merger
Agreement at the meeting of the Company's shareholders convened and held on
, 1998, the Merger Shareholders have appointed the Designated
Escrow Representative as their agent and attorney-in-fact, to act on their
behalf to the extent set forth in Section 10.1 of the Merger Agreement.
The parties to this Escrow Agreement, intending to be legally bound, agree
as follows:
SECTION 1. Defined Terms.
Capitalized terms used and not otherwise defined in this Escrow Agreement
shall have the meanings assigned to them in the Merger Agreement.
SECTION 2. Escrow.
(a) Shares to Be Placed in Escrow. On the date hereof, Acquiror shall issue
and deliver to the Escrow Agent a certificate for that number of shares of
Acquiror Common Stock described in Section 1.7(a) of the Merger Agreement (the
"Shares") in the name of the Escrow Agent or its nominee, evidencing the shares
of Acquiror Common Stock to be held in escrow (the "Escrow Fund") in accordance
with this Escrow Agreement and the Merger Agreement. The Escrow Agent shall
acknowledge receipt of such certificate in writing to the Acquiror and the
Designated Escrow Representative. The Escrow Fund shall be held as a trust fund
and shall not be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any party hereto. The Escrow Agent agrees to
accept delivery of the Escrow Fund and to hold the Escrow Fund in escrow (the
"Escrow"), subject to the terms and conditions of this Agreement.
(b) Indemnification. Pursuant to the Merger Agreement the Shares shall be
used to compensate and reimburse each of the Acquiror and the other Indemnitees
for indemnifiable claims as set forth therein. The Escrow Fund shall be security
for such indemnity obligation, subject to the limitations, and in the manner
provided, in this Agreement and the Merger Agreement and the reimbursement of
expenses of the Designated Escrow Representative as provided in, and to the
extent allowed by, the Merger Agreement and this Agreement.
(c) Voting of Shares. On any matter brought before the Acquiror
stockholders for a vote, the Escrow Agent shall vote the Shares in the Escrow
Fund as directed by the Designated Escrow Representative.
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(d) Dividends, Etc. Any distributions of cash, securities or other property
in respect of or in exchange for any of the Shares in the Escrow Fund, other
than distributions of capital stock of Acquiror (by way of stock dividend, stock
split or otherwise) not constituting a dividend for purposes of Section 301 of
the Code, shall be payable and distributed directly to the Escrow and shall
become a part of the Escrow Fund and become included in the definition of
"Shares". At the time any of the Shares in the Escrow Fund are required to be
released from the Escrow to any person pursuant to this Escrow Agreement, any
distributions of capital stock of Acquiror previously made in respect of such
released Shares and held in the Escrow shall be released from the Escrow to such
Person. Each certificate representing shares deposited in the Escrow Fund shall
be accompanied by executed stock powers, executed in blank as to the assignee
and certificate number, in form sufficient for the transfer thereof. It is
understood that shares of Acquiror which may be distributed on or with respect
to the shares in the Escrow Fund during the term of this Agreement by reason of
stock dividends, stock splits or otherwise shall be deposited directly by
Acquiror with the Escrow Agent (with the applicable executed stock powers)
pursuant to the terms and conditions hereof (such additional shares shall be
deemed to become a part of the Escrow Fund when deposited with the Escrow
Agent). The Escrow Agent shall notify the Designated Escrow Representative of
the receipt of new certificates so deposited with the Escrow Agent.
(e) Transferability. The interests of the Merger Shareholders in the Escrow
and in the Shares in the Escrow Fund shall be assignable or transferable only
upon submission of evidence of such transfer or assignment reasonably
satisfactory to Acquiror and the Escrow Agent.
(f) Fractional Shares. No fractional shares of Acquiror Common Stock shall
be retained in or released from the Escrow pursuant to this Escrow Agreement. In
connection with any release of Shares from the Escrow, the Escrow Agent shall be
permitted to "round down" or to follow such other rounding procedures as the
Escrow Agent reasonably determines to be appropriate in order to avoid (i)
retaining any fractional shares in the Escrow Fund or (ii) releasing any
fractional shares from the Escrow.
SECTION 3. Designated Escrow Representative
(a) The Merger Shareholders shall be represented hereunder by a Designated
Escrow Representative. The initial Designated Escrow Representative shall be
.
(b) In the event the Designated Escrow Representative shall die or resign
or otherwise terminate its status as such, a successor shall be appointed by a
majority in interest of the Merger Shareholders. The Designated Escrow
Representative shall receive no compensation for its services.
(c) The Merger Shareholders have agreed that a decision by the Designated
Escrow Representative shall constitute a decision of all of the Merger
Shareholders, and shall be final, binding and conclusive upon each of them.
Acquiror, Merger Sub, the Company and the Escrow Agent may rely upon any act,
decision, consent or instruction of the Designated Escrow Representative as
being the act, decision, consent or instruction of each and all of the Merger
Shareholders and Acquiror, Merger Sub, the Company and the Escrow Agent are
hereby relieved from any liability to any person for any acts done by them in
accordance with any act, decision, consent or instruction of the Designated
Escrow Representative.
SECTION 4. Claim Procedures.
(a) Claim Notice. If Acquiror determines in good faith that there is or has
been an inaccuracy in or breach by the Company of any representation, warranty,
covenant or other provision set forth in any of the Merger Agreement, Disclosure
Schedule, or Closing Certificate, and if Acquiror is entitled, under the terms
of the Merger Agreement, to make a claim against the Escrow with respect to such
inaccuracy or breach, then Acquiror may deliver to both the Designated Escrow
Representative and the Escrow Agent a written notice of such inaccuracy or
breach (a "Claim Notice") setting forth (i) a brief description of the
circumstances supporting Acquiror's reasonable belief that such inaccuracy or
breach exists or has occurred, and (ii) to the extent possible, a non-binding,
preliminary estimate of the aggregate dollar amount of all indemnifiable claims
that have arisen and may arise as a result of such inaccuracy or breach (such
aggregate amount being referred to as the "Claim Amount"). Such Claim Notice
must be delivered on or before the first anniversary of the Closing Date.
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(b) Response Notice. Within thirty (30) days after the delivery of a Claim
Notice to the Designated Escrow Representative, the Designated Escrow
Representative shall deliver to the Escrow Agent and Acquiror, a written notice
(the "Response Notice") containing: (i) instructions to the effect that Shares
having a Stipulated Value (as defined below) equal to the entire Claim Amount
set forth in such Claim Notice is to be released from the Escrow to Acquiror; or
(ii) instructions to the effect that Shares having a Stipulated Value (as
defined below) equal to a specified portion (but not the entire amount) of the
Claim Amount set forth in such Claim Notice are to be released from the Escrow
to Acquiror, together with a statement that the remaining portion of such Claim
Amount is being disputed; or (iii) a statement that the entire Claim Amount set
forth in such Claim Notice is being disputed. If no Response Notice is received
by Acquiror from the Designated Escrow Representative within thirty (30) days
after the delivery of a Claim Notice to the Designated Escrow Representative,
then the Designated Escrow Representative shall be deemed to have given
instructions that shares of Acquiror Common Stock having a Stipulated Value (as
defined below) equal to the entire Claim Amount set forth in such Claim Notice
are to be released to Acquiror from the Escrow.
(c) Release of Escrow Fund to Acquiror.
(i) If the Designated Escrow Representative gives (or is deemed to
have given) instructions that Shares having a Stipulated Value equal to the
entire Claim Amount set forth in a Claim Notice are to be released from the
Escrow to Acquiror, then the Escrow Agent shall promptly following the
required delivery date for the Response Notice transfer, deliver and assign
to Acquiror such number of Shares from the Escrow Fund as have a Stipulated
Value equal to the Claim Amount (or such lesser amount as is then held in
Escrow).
(ii) If a Response Notice delivered by the Designated Escrow
Representative in response to a Claim Notice contains instructions to the
effect that Shares having a Stipulated Value equal to a specified portion
(but not the entire amount) of the Claim Amount set forth in such Claim
Notice are to be released from the Escrow to Acquiror, then (i) the Escrow
Agent shall promptly following the required delivery date for the Response
Notice transfer, deliver and assign to Acquiror such number of Shares from
the Escrow Fund as have a Stipulated Value equal to such specified portion
of such Claim Amount, and (ii) the procedures set forth in Section
4(c)(iii) of this Escrow Agreement shall be followed with respect to the
remaining portion of such Claim Amount.
(iii) If a Response Notice delivered by the Designated Escrow
Representative in response to a Claim Notice contains a statement that all
or a portion of the Claim Amount set forth in such Claim Notice is being
disputed (such Claim Amount or the disputed portion thereof being referred
to as the "Disputed Amount"), then, notwithstanding anything contained in
Section 5 of this Escrow Agreement, the Escrow Agent shall continue to hold
in Escrow (in addition to any other Shares of Acquiror Common Stock
permitted to be retained in Escrow, whether in connection with any other
dispute, pursuant to Section 5 of this Escrow Agreement, or otherwise)
Shares of Acquiror Common Stock having a Stipulated Value equal to 115% of
the Disputed Amount. Such amount shall continue to be held in the Escrow
until (i) delivery of a notice executed by Acquiror and the Designated
Escrow Representative setting forth instructions to the Escrow Agent
regarding the release of such Shares, or (ii) delivery of a copy of a final
and non-appealable judgment of a court setting forth instructions to the
Escrow Agent as to the release of such shares. The Escrow Agent shall
thereupon release shares of Acquiror Common Stock from the Escrow in
accordance with the instructions set forth in such notice or arbitrator's
award. The parties acknowledge that it is appropriate to retain more than
100% of the Claim Amount in the Escrow in recognition of the fact that
Acquiror may have underestimated the aggregate amount of the actual and
potential Damages arising in connection with a particular Claim Notice.
(iv) In the event that any Response Notice indicates that there is a
Disputed Amount, the Designated Escrow Representative and Acquiror shall
for a period of 60 days attempt in good faith to resolve the rights of the
respective parties with respect to such claims. If the Designated Escrow
Representative and Acquiror should so agree, a notice setting forth such
agreement shall be signed by
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both parties and sent to the Escrow Agent who shall thereupon transfer,
deliver and assign to Acquiror such amount as is equal to the agreed upon
amount (or such lesser amount as is then held in Escrow).
SECTION 5. Release of Escrow Fund to Merger Shareholders. After the first
anniversary of the Closing Date (as defined in the Merger Agreement), the Escrow
Agent shall release to the Merger Shareholders from the Escrow all shares then
held in the Escrow, except for any amounts that are to be retained in the Escrow
in accordance with Section 4(c) of this Escrow Agreement.
SECTION 6. Procedures for Releasing Shares. Any distribution of all or a
portion of the Shares in the Escrow Fund to the Merger Shareholders shall be
made in accordance with the percentages set forth opposite such holders'
respective names on Attachment A. If the Escrow Agent becomes obligated to
transfer to Acquiror or the Designated Escrow Representative, any shares held in
the Escrow Fund in accordance with the terms of this Agreement, the Escrow Agent
shall deliver certificates representing such shares together with a completed
stock power to Acquiror or the Designated Escrow Representative, as the case may
be, or to their respective designee. If the Escrow Agent becomes obligated to
transfer to the Shareholders any shares held in the Escrow Fund in accordance
with the terms of this Agreement, the Escrow Agent shall deliver the certificate
representing the shares in the Escrow Fund, together with a completed stock
power, to the Acquiror. Acquiror agrees to issue one or more certificates
representing each Shareholder's pro rata portion of the Escrow Fund and to
deliver such certificates or to cause its transfer agent to deliver such
certificate to each respective Shareholder at the address set forth on the
transfer agent's books and records or, at the request of the Shareholder, and
upon submission of evidence satisfactory to Acquiror of such designation, to
deliver such certificate to the Shareholder's designee.
SECTION 7. Valuation of Shares in Escrow Fund. For purposes of this Escrow
Agreement, the "Stipulated Value" of each of the Shares in the Escrow Fund shall
be deemed to be the Closing Price (as defined in the Merger Agreement).
SECTION 8. Fees and Expenses. Except as may otherwise be provided in this
Section 8, all expenses incurred by the Designated Escrow Representative in
connection with this Agreement shall be borne by the Merger Shareholders. All
reasonable out-of-pocket expenses incurred by the Designated Escrow
Representative in connection with this Agreement (except those arising from
resolution of rights with respect to Disputed Amounts) shall be entitled to
reimbursement from the shares in the Escrow Fund. Legal fees (and out-of-pocket
and other expenses arising from resolution of rights with respect to Disputed
Amounts) incurred by the Designated Escrow Representative in connection with
this Agreement and the Merger Agreement shall be entitled to reimbursement from
the shares in the Escrow Fund in accordance with the terms of the Merger
Agreement. Upon presentment to the Escrow Agent of evidence of such fees and
expenses reasonably satisfactory to Acquiror and Escrow Agent, the Escrow Agent
shall release to the Designated Escrow Representative, within five business days
of the presentment of such evidence, shares with a Stipulated Value equal to
such fees and expenses. In the event that insufficient shares remain in the
Escrow Fund to pay both the expenses incurred by the Designated Escrow
Representative and to satisfy any Claim Amount submitted to the Escrow Agent
pursuant to Section 4 of this Escrow Agreement, the Designated Escrow
Representative shall be entitled to out-of-pocket reimbursement only out of the
Escrow Fund prior to the satisfaction of any such Claim Amount. Claim Amounts
shall be released prior to all other claims for reimbursement out of the Escrow
Fund.
SECTION 9. Duties of the Escrow Agent; Limitation of Escrow Agent's
Liability.
(a) The sole duty of the Escrow Agent, other than as herein specified,
shall be to receive and hold the Shares in the Escrow Fund, subject to
disbursement in accordance with this Agreement, and the Escrow Agent shall be
under no duty to determine whether Acquiror or the Merger Shareholders are
complying with the requirements of this Agreement or any other agreement. The
Escrow Agent shall not be liable for losses due to acts of God, war, loss of
electrical power or the failure of communication devices.
(b) The Escrow Agent shall incur no liability with respect to any action
taken or suffered by it in reliance upon any notice, direction, instruction,
consent, statement or other documents believed by it to be genuine and duly
authorized, nor for other action or inaction except its own willful misconduct
or negligence. The Escrow
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Agent shall not be responsible for the validity or sufficiency of this
Agreement. In all questions arising under the Escrow Agreement, the Escrow Agent
may rely on the advice of counsel, and for anything done, omitted or suffered in
good faith by the Escrow Agent based on such advice the Escrow Agent shall not
be liable to anyone. The Escrow Agent shall not be required to take any action
hereunder involving any expense unless the payment of such expense is made or
provided for in a manner reasonably satisfactory to it.
(c) Acquiror and the Designated Escrow Representative, on behalf of the
Merger Shareholders hereby agree to indemnify the Escrow Agent for, and hold it
harmless against, any loss, liability or expense incurred without negligence or
willful misconduct on the part of Escrow Agent, arising out of or in connection
with its carrying out of its duties hereunder. As among themselves, each of (i)
Acquiror and (ii) the Merger Shareholders (based on their pro-rata percentage
interest in the Shares) shall be liable for one-half ( 1/2) of such amounts and
Acquiror shall be entitled to reimbursement from the shares in the Escrow Fund
of the Merger Shareholders' share of any such amounts, if such share is paid by
Acquiror.
SECTION 10. General.
(a) Other Agreements. Nothing in this Escrow Agreement is intended to limit
any of the Company's, Acquiror's or the Merger Shareholders' rights, or any
obligation of Merger Shareholders, or of Acquiror under the Merger Agreement (or
any agreement entered into in connection with the transactions contemplated by
the Merger Agreement).
(b) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
conflict of laws provisions thereunder.
(c) Assignment; Binding Upon Successors and Assigns. Except as provided in
Section 2(e), no party hereto may assign any of its rights or obligations
hereunder without the prior written consent of the other party hereto, except
that Acquiror may at any time assign its rights and obligations hereunder. This
Agreement will be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
(d) Severability. If any provision of this Agreement, or the application
thereof, is for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the greatest extent possible, the economic, business and
other purposes of the void or unenforceable provision.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument. This Agreement will become binding
when one or more counterparts hereof, individually or taken together, bear the
signatures of all the parties reflected hereon as signatories.
(f) Amendment and Waivers. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. Notwithstanding any
rights that may be created in any third party under the terms of this Agreement,
no such amendment or waiver will require the consent of such third party to be
effective. The waiver by a party of any breach hereof or default in the
performance hereof will not be deemed to constitute a waiver of any other
default or any succeeding breach or default.
(g) Attorneys' Fees. Should suit be brought to enforce or interpret any
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including, without limitation, costs, expenses and fees
on any appeal). The prevailing party will be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
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(h) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
<TABLE>
<S> <C>
If to Acquiror: Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
Attn: General Counsel
Tel.: (707) 525-0114
If to the Designated Escrow
Representative:
------------------------------------------------------
------------------------------------------------------
If to Escrow Agent to: Cupertino National Bank
------------------------------------------------------
------------------------------------------------------
</TABLE>
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of a telecopy, when the party receiving such copy shall have
confirmed receipt of the communication, and (c) in the case of delivery by
nationally recognized overnight courier, on the business day following dispatch.
(i) Construction of Agreement. This Agreement has been negotiated by the
respective parties hereto and their attorneys and the language hereof will not
be construed for or against either party. A reference to a Section or an exhibit
will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement, which
will be considered as a whole.
(j) Further Assurances. Each party agrees to cooperate fully with the other
parties and to execute such further instruments, documents and agreements and to
give such further written assurances as may be reasonably requested by any other
party to evidence and reflect the transactions described herein and contemplated
hereby and to carry into effect the intents and purposes of this Agreement.
(k) Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
(l) Entire Agreement. This Agreement and the Merger Agreement and the
exhibits hereto and thereto constitute the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof and supersede all
prior and contemporaneous agreements or understandings, inducements or
conditions, express or implied, written or oral, between the parties with
respect hereto. The express terms hereof control and supersede any course of
performance or usage of the trade inconsistent with any of the terms hereof.
(m) Resignation or Replacement of Escrow Agent. Acquiror may substitute a
successor Escrow Agent for the Escrow Agent upon thirty days advance written
notice to the Designated Escrow Representative and the Escrow Agent. Such
replacement Escrow Agent shall be a bank or similar financial institution
reasonably acceptable to the Designated Escrow Representative. Escrow Agent may
resign upon 30 days advance written notice to Acquiror and the Designated Escrow
Representative. Within such 30 day period, Acquiror shall
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appoint a successor Escrow Agent in accordance with this Section 10(m). If
Acquiror has not appointed a successor Escrow Agent within such period, the
Escrow Agent may petition any court of competent jurisdiction to name a
successor escrow agent.
IN WITNESS WHEREOF, the parties have executed this ESCROW AGREEMENT as of
the day of , 1998.
ARTERIAL VASCULAR ENGINEERING, INC.
By:
--------------------------------------
Name:
Title:
--------------------------------------
AS DESIGNATED SHAREHOLDERS' AGENT
--------------------------------------
CUPERTINO NATIONAL BANK
AS ESCROW AGENT
By:
--------------------------------------
Name:
Title:
J-7
<PAGE> 184
EXHIBIT L
FORM OF DIRECTOR
CONFIDENTIALITY/NONDISCLOSURE AGREEMENT
This Confidentiality/Nondisclosure Agreement (this "Agreement") is
effective and delivered as of the date set forth below and is made by
, both in his or her individual capacity and on
behalf of the entity, if any, that such person represents (such individual and
entity collectively referred to in the first person singular, i.e. "I" or "me"),
in favor of, and for the benefit of, ARTERIAL VASCULAR ENGINEERING, INC. ("AVE")
and its wholly owned subsidiary, WORLD MEDICAL MANUFACTURING CORPORATION ("World
Med").
This Agreement refers to the Agreement and Plan of Merger and
Reorganization dated as of April 10, 1998 (the "Merger Agreement"), among AVE,
Walleye Acquisition Corporation ("Merger Sub"), a wholly owned subsidiary of
AVE, and World Med, pursuant to which Merger Sub shall merge with and into World
Med (the "Merger") and World Med shall become the wholly owned subsidiary of
AVE.
In the course of my service as a Director of World Med, I recognize that
certain non-public, confidential and proprietary information may have been
furnished to me or my directors, officers, employees, affiliates,
representatives (including, without limitation, my financial advisors, attorneys
and accountants) or agents (collectively, "my Representatives") by World Med or
its directors, officers, employees, affiliates, representatives (including,
without limitation, World Med's financial advisors, attorneys and accountants)
or agents (collectively, "World Med's Representatives"). Such information
("Confidential Information") includes any oral or written non-public information
furnished by World Med or World Med's Representatives (or that may otherwise
have been obtained by me in the course of duties as a Director of World Med),
whether before, on or after the date hereof, regardless of the manner in which
it has been furnished, to me or my Representatives, together with all analyses,
compilations, forecasts, studies or other documents prepared by me or my
Representatives, which contain or reflect any such information of a business or
technical nature, including, without limitation, inventions, trade secrets,
ideas, processes, formulas, works of authorship, know-how, improvements,
discoveries, developments, designs and techniques, catheter designs and
manufacturing technology, stent designs and manufacturing technology, as well as
information regarding plans for research, development, new products, marketing
and selling, business plans, budgets and unpublished financial statements,
licenses, prices and costs, and suppliers and customers.
In order to induce AVE and World Med to consummate the Merger and the other
transactions provided for in the Merger Agreement, and in consideration of same,
I agree that any Confidential Information received shall be held in strict
confidence by me and my Representatives and shall not be disclosed, directly or
indirectly, to third parties without the prior written consent of AVE. I will
cause my Representatives to observe the terms of this Agreement, and I will be
responsible for any breach of this Agreement by any of my Representatives. I
shall promptly notify AVE of any breach of this Agreement by me or my
Representatives of which I become aware, and shall cooperate fully in pursuing
any lawful remedies therefor.
The foregoing restrictions on my disclosure and use of Confidential
Information shall not apply to the extent that such information: (a) is or
becomes generally available to the public other than as a result of a disclosure
by me or my Representatives, (b) was available to me on a nonconfidential basis
prior to its disclosure by World Med or World Med's Representatives, as
evidenced by my records, or (c) becomes available to me on a nonconfidential
basis from a person other than AVE, World Med or AVE's or World Med's
Representatives who is not bound by a confidentiality agreement with AVE, World
Med or any of AVE's or World Med's Representatives, or is not otherwise under an
obligation to AVE, World Med or any of AVE's or World Med's Representatives not
to transmit the information to me; provided, however, that I shall have the
burden of proof respecting any of the aforementioned events on which I rely as
relieving me of any restrictions hereunder, and provided further, that in the
case of (a) and/or (c) above, the removal of restrictions shall be effective
only as of the date of occurrence of the applicable event.
In the event that I or any of my Representatives am or is requested
pursuant to, or required by, applicable law or regulation or by legal process to
disclose any Confidential Information, I agree that I will provide AVE
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with prompt written notice of such request or requirement in order to enable AVE
or World Med to seek an appropriate protective order or other remedy, to consult
with me with respect to AVE's or World Med's taking steps to resist or narrow
the scope of such request or legal process, or to waive compliance, in whole or
in part, with the terms of this Agreement. If no such protective order or other
remedy is obtained or AVE and World Med waive compliance with the terms of this
Agreement, I or my Representatives will furnish only that portion of the
Confidential Information which I am reasonably advised by counsel is legally
required and I will use my reasonable best efforts to ensure that all
Confidential Information and other information that is so disclosed will be
accorded confidential treatment.
The furnishing of Confidential Information shall not constitute or be
construed as a grant of any express or implied license or other right, or a
covenant not to sue or forbearance from any other right of action (except as to
permitted activities hereunder), by AVE or World Med to me or my Representatives
under any of AVE's or World Med's patents or other intellectual property rights.
If requested by AVE or World Med, I shall promptly destroy (providing
written confirmation of such destruction) or return all written, graphic or
other tangible forms of the Confidential Information and all copies thereof,
except for one copy which may be retained for record retention purposes only and
shall remain subject to the disclosure and use restrictions of this Agreement.
Any oral Confidential Information will continue to be subject to the terms of
this Agreement.
I understand and agree that money damages would not be a sufficient remedy
for any breach of this Agreement and that AVE and World Med shall be entitled to
equitable relief (including, but not limited to, an injunction or specific
performance) without proof of actual damages in the event of any breach by me or
my Representatives of the provisions of this Agreement. In the event of
litigation relating to this Agreement, if a court of competent jurisdiction
determines in a final order that this Agreement has been breached by me or my
Representatives, then I will reimburse AVE and World Med for their respective
costs and expenses (including, without limitation, legal fees and expenses)
incurred in connection with such litigation.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Florida without regard to conflicts of law principles. This
Agreement contains the entire agreement relating to the subject matter hereof
and supersedes all prior or contemporaneous oral or written agreements. No
failure or delay by AVE or World Med in exercising any of their respective
rights, powers or privileges hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power or privilege hereunder. No
amendment or modification of this Agreement or waiver of the terms or conditions
hereof shall be binding upon me, AVE or World Med except by mutual written
agreement of each of AVE, World Med and me. Any assignment of this letter
agreement by me without the prior written consent of AVE and World Med shall be
null and void. This Agreement shall be binding upon me and my heirs, legal
representatives, successors, and permitted assigns, and shall inure to the
benefit of AVE and World Med and their respective successors and assigns.
By
- --------------------------------------------------
Date
------------------------------------
Name & Title:
Company (if any):
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EXHIBIT N
WORLD MEDICAL MANUFACTURING CORPORATION
1998 INCENTIVE BONUS PLAN
A. PURPOSE OF THE PLAN. The purpose of this World Medical Manufacturing
Corporation (the "Company") 1998 Incentive Bonus Plan (the "Plan") is to further
the long-term growth of the Company by offering incentive and retention
compensation to the key managers and employees of the Company for the 1998,
1999, 2000 and 2001 calendar years (the "Plan Years").
B. EFFECTIVE DATE. Implementation of the Plan is contingent upon and
subject to the closing and effectiveness of the merger as provided for in that
certain Agreement and Plan of Merger and Reorganization dated April 10, 1998 by
and among Arterial Vascular Engineering, Inc., a Delaware corporation ("AVE"),
Walleye Acquisition Corporation and the Company (the "Closing").
C. BONUS POOL. A pool equal to Four Million Thirty Two Thousand Dollars
($4,032,000) (the "Bonus Pool") has been reserved for distribution to those
employees of the Company designated on Schedule A (attached hereto) to
participate in the Plan (the "Participants").
D. BONUS PAYMENT. The dollar amount set forth next to each Participant's
name on Schedule A for each Plan Year shall equal the maximum bonus payment such
Participant may receive under the Plan for such Plan Year (the "Maximum Bonus
Payment"). The Maximum Bonus Payment is comprised of two separate and distinct
payments: the "Retention Payment" and the "Performance Payment."
1. Retention Payment. If Participant is a full-time employee of the Company
or any affiliate on December 31 of a Plan Year, then Participant shall be
entitled to receive a payment equal to thirty percent (30%) of the Maximum Bonus
Payment for such Plan Year.
2. Performance Payment. In the event the Company's gross collections from
sales in a Plan Year (whether or not such collections occur during or after such
Plan Year) equal or exceed the amount set forth below (each, a "Performance
Goal") for the applicable Plan Year, then each Participant shall be entitled to
receive a payment equal to seventy percent (70%) of the Maximum Bonus Payment
for such Plan Year. The Performance Goals are as follows:
<TABLE>
<CAPTION>
GROSS COLLECTIONS
PLAN YEAR FROM SALES
- --------- -----------------
<S> <C>
1998.. $9 million
1999.. $23.85 million
2000.. $57 million
2001.. $100.05 million
</TABLE>
Gross sales, gross collections from sales, and allowances for bad debts and
returns will be determined in accordance with the Company's standard accounting
practices.
E. PAYMENT DATE. Retention Payments shall be paid by the Company on or
before January 15 of the following year. Performance Payments shall be paid by
the Company as soon as reasonably practicable following the date upon which the
Company determines that a Performance Goal has been achieved.
F. TERMINATION. If a Participant is terminated by the Company other than
for Cause, any Retention Payment or Performance Payment owing such Participant
shall be paid to Participant. If a Participant voluntarily leaves the employment
of the Company or any affiliate or is terminated for Cause prior to payment of a
Retention Payment or Performance Payment, then such Participant shall not be
entitled to and shall not be paid any portion of such payment. If a Participant
leaves the employment of the Company for Good Reason, then Employee shall be
paid a fraction of the Retention Payment and Performance Payment for the
relevant year equal to the fraction of the relevant year that Employee was
employed by the Company.
G. NO CUMULATIVE EFFECT. Any Retention Payment or Performance Payment not
paid as a result of a Participant's voluntary termination or termination for
Cause shall be removed from the Bonus Pool and thereafter shall not be available
for future bonus payments under the Plan. In addition, any Performance
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<PAGE> 187
Payment not paid as a result of the Company's failure to achieve a Performance
Goal shall be removed from the Bonus Pool and thereafter shall not be available
for future bonus payments under the Plan.
H. CAUSE AND GOOD REASON. As used herein, "Cause" means with respect to any
Participant: (a) any gross or willful misconduct, fraud or bad faith on the part
of the Participant in the performance of his duties as an employee of the
Company; (b) the conviction of the Participant of, or the entry by the
participant of a plea of guilty or no contest to, any felony or crime involving
dishonesty or moral turpitude; (c) the material breach by the Participant of any
provision in the Participant's Employment Agreement, Noncompetition Agreement,
Inventions, Proprietary Rights Assignment Agreement (or equivalent) or
Confidentiality Agreement with the Company or any affiliate; (d) material breach
of the Company's material policies; (e) intentional damage to the Company's
property; (f) conduct by the Participant that, in the good faith and reasonable
determination of the Company, demonstrates unacceptable job performance (to the
extent not cured by Employee within 30 days after written notice from the
Company) or gross unfitness to serve; or (g) the inability of Employee to
perform, with or without reasonable accommodation, any of his material duties as
a result of illness or injury, if Employee remains unable to perform such duties
for a total of twelve consecutive weeks. Employee shall be deemed to have
terminated his employment with the Company with "Good Reason" if Employee
resigns his employment within one month after the Company reduces without cause
Employee's level of authority and responsibility substantially below the level
of authority and responsibility previously enjoyed by Employee as an employee of
the Company.
I. ADMINISTRATION OF THE PLAN. The Plan will be administered by the
Company's Board of Directors (the "Board"), such successor as shall be
designated by the Board, or any compensation committee of the Board (the
"Administrator"). The Administrator shall have the sole discretion and authority
to interpret the Plan and make all other decisions relating to the operation of
the Plan and the distribution of benefits thereunder. The Administrator may
adopt such rules, regulations and guidelines as it deems appropriate to
implement the Plan, and all determinations by the Administrator shall be final
and binding on all Participants.
J. TAXES. Distribution of the Bonus Payments shall be subject to all
applicable income and employment withholding taxes.
K. GENERAL.
1. Benefits Nonassignable and Nontransferable. The rights to benefits under
the Plan shall not be assigned, attached, garnished, transferred or made subject
to any creditor's process, whether voluntarily or involuntarily, or by the
operation of law. Any act in violation of this paragraph shall be void.
2. Employment Status. Nothing contained in the Plan or in any action of the
Administrator pursuant to the Plan shall give any Participant the right to
remain in the employ of the Company or any affiliate or affect the right of the
Company or any affiliate to terminate a Participant's employment at any time for
any reason or no reason.
3. Designation of Beneficiary. A Participant may designate in writing one
or more beneficiaries to receive distributions under the Plan after the
Participant's death or permanent disability. If a beneficiary has not been
designated or if no designated beneficiary survives the Participant,
distribution will be made to the Participant's estate or legal representative.
4. Governing Law. The Plan shall be governed by and administered, construed
and enforced in accordance with the laws of the State of Florida, without regard
to such State's conflict of laws provisions.
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<PAGE> 188
APPENDIX A-1
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the
"Amendment") is made and entered into as of May 21, 1998, by and among Arterial
Vascular Engineering, Inc., a Delaware corporation ("AVE"), Walleye Acquisition
Corporation, a Florida corporation ("Sub") and World Medical Manufacturing
Corporation, a Florida corporation ("World Medical").
WHEREAS, AVE, Sub and World Medical entered into an Agreement and Plan of
Merger and Reorganization dated as of April 10, 1998 (the "Merger Agreement");
WHEREAS, subject to certain limitations, the Merger Agreement provides that
AVE or World Medical may terminate the Merger Agreement if the Closing (as
defined in the Merger Agreement) has not taken place on or before July 31, 1998
(the "Designated Date");
WHEREAS, AVE, Sub and World Medical each desire to amend the Merger
Agreement so that under certain circumstances the Designated Date shall be
August 31, 1998;
NOW, THEREFORE, in consideration of the agreements contained herein and for
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, AVE and World Medical hereby agree as follows:
1. In the event AVE receives notification from the Securities and
Exchange Commission (the "Commission") that the Commission will review the
Form S-4 Registration Statement described in Section 5.2(a) of the Merger
Agreement, the date "July 31, 1998" found in Section 8.1(a) shall be
replaced with the date "August 31, 1998" and the date "July 31, 1998" found
in Section 8.1(b) of the Merger Agreement shall be replaced with the date
"August 31, 1998."
2. This Amendment may be executed in several counterparts, each of
which shall constitute an original and all of which, when taken together,
shall constitute one agreement.
3. This Amendment shall be construed in accordance with, and governed
in all respects by, the internal laws of the State of Delaware (without
giving effect to principles of conflicts of laws).
4. This Amendment sets forth the entire understanding of the parties
hereto relating to the subject matter hereof and supersede all prior
written or oral agreements and understandings among or between any of the
parties relating to the subject matter hereof.
The parties hereto have caused this AMENDMENT TO AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION to be executed and delivered as of the date first
written above.
ARTERIAL VASCULAR ENGINEERING, INC.
a Delaware corporation
By: /s/ Lawrence J. Fassler
------------------------------------
Name: Lawrence J. Fassler
Title: Vice President
WALLEYE ACQUISITION CORPORATION
a Florida corporation
By: /s/ John D. Miller
------------------------------------
Name: John D. Miller
Title: Director
<PAGE> 189
WORLD MEDICAL MANUFACTURING
CORPORATION
A Florida corporation
By: /s/ Howard J. Leonhardt
------------------------------------
Name: Howard J. Leonhardt
Title: President and Chief Executive
Officer
<PAGE> 190
APPENDIX B
See Exhibit B to Appendix A.
<PAGE> 191
APPENDIX C
April 1, 1998
The Board of Directors
World Medical Manufacturing Corporation
13794 N.W. 4th Street, Building #210
Sunrise, FL 33325
Members of the Board:
You have requested our opinion as investment bankers with respect to the
fairness, from a financial point of view as of the date hereof, to the holders
of common stock, par value $0.10 per share (the "Common Stock"), of World
Medical Manufacturing Corporation ("World Medical"), a Florida corporation, of
the consideration to be received by such shareholders pursuant to the terms of
the draft Agreement and Plan of Merger and Reorganization, dated March 25, 1998
(the "Draft Agreement"), among (i) Arterial Vascular Engineering, Inc., a public
company organized under the laws of Delaware ("AVE"), (ii) Walleye Acquisition
Corp., a Florida corporation and a wholly-owned subsidiary of AVE ("Merger Sub")
and (iii) World Medical.
Pursuant to the Draft Agreement and subject to the terms and conditions
contained therein, Merger Sub shall be merged with and into World Medical (the
"Merger") and, at the effective time of the Merger (the "Effective Time"), each
outstanding share of Common Stock (a "World Medical Share") will be converted
into the right to receive ninety percent (90%) of a fraction of a share of AVE
(an "AVE Share"). Such fraction (the "Applicable Fraction") will have a
numerator equal to $62,000,000 and a denominator equal to the number of shares
of Common Stock outstanding at the Effective Time (assuming the exercise of all
outstanding options and warrants on a net exercise basis) multiplied by a
designated stock price (the "Designated Acquiror Stock Price") for an AVE Share
based on the average of the last closing sales price per share as reported on
the Nasdaq National Market tier of The Nasdaq Stock Market (the "Nasdaq National
Market") for the ten consecutive trading days ending on and including the second
trading day prior to the Closing Date (the "Closing Price"); provided, however,
that (i) if the Closing Price is equal to or less than eighty percent (80%) of
the average of the closing sales price per AVE Share as reported on the Nasdaq
National Market for each of the ten consecutive trading days ending on and
including the second trading day immediately preceding the date of signing of
the definitive agreement (the "Signing Price"), then the Designated Acquiror
Stock Price shall be equal to eighty percent (80%) of the Signing Price, and
(ii) if such average is greater than or equal to one hundred and twenty percent
(120%) of the Signing Price, then the Designated Acquiror Stock Price shall be
equal to one hundred and twenty percent (120%) of the Signing Price. In the
event the Closing Price is less than seventy percent (70%) of the Signing Price,
World Medical may terminate the definitive Agreement and Plan of Merger and
Reorganization. The closing sales price of an AVE Share on the Nasdaq National
Market on March 27, 1998 was $38.81. AVE shall establish and maintain an escrow
comprised of AVE Shares (the "Holdback Shares") in a number equal to ten percent
(10%) of the product of (i) the aggregate number of World Medical Shares
outstanding immediately prior to the Effective Time and (ii) the Applicable
Fraction. The Holdback Shares will be used to indemnify AVE for any breaches of
World Medical's representations, warranties and covenants in the definitive
Agreement and Plan of Merger and Reorganization. The Holdback Shares will be
held in escrow for one year following the Closing Date (the "Escrow Period") or
such longer period as is required to settle indemnification claims made during
the Escrow Period. Following settlement of all claims made against the Holdback
Shares in accordance with and subject to the limitations of the Draft Agreement,
the remaining Holdback Shares shall be distributed to all shareholders of World
Medical on a pro rata basis. The terms and conditions of the Merger are more
fully set forth in the Draft Agreement.
In arriving at the opinion set forth herein, we, among other things: (i)
reviewed World Medical's financial statements and related financial information
for the three fiscal years ended December 31, 1997; (ii) reviewed AVE's Annual
Reports and Forms 10-K for the fiscal years ended June 30, 1996 and June 30,
1997 and
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<PAGE> 192
Form 10-Q and related unaudited financial information for the six months ended
December 31, 1997; (iii) reviewed certain other information relating to the
business, earnings, cash flows, assets and prospects of World Medical, including
financial forecasts for World Medical furnished to us by World Medical; (iv)
conducted discussions with members of senior management of World Medical and AVE
concerning their respective businesses and prospects; (v) reviewed the
historical market prices and trading activity for AVE common stock and compared
such prices and trading history with those of certain publicly-traded companies
which we deemed to be relevant; (vi) compared the financial position and
operating results of World Medical and AVE with those of certain publicly-traded
companies which we deemed relevant; (vii) compared the proposed financial terms
of the Merger with the financial terms of certain other transactions which we
deemed to be relevant; (viii) reviewed the financial terms of the Merger as set
forth in the Draft Agreement; and (ix) reviewed such other financial studies and
analyses and performed such other investigations and took into account such
other matters as we deemed appropriate.
In connection with our opinion, we have assumed that all of the Holdback
Shares are distributed to the shareholders of World Medical at the Effective
Time. In addition, we have not assumed any responsibility for independent
verification of any information publicly available or supplied or otherwise made
available to us regarding World Medical and AVE and we have assumed and relied
on such information being accurate and complete in all respects. We have not
made or obtained any independent evaluation or appraisal of the assets of World
Medical or AVE. With respect to the financial projections of World Medical
referred to above, we have assumed that they have been reasonably prepared on
bases reflecting the best available estimates and judgements of the management
of World Medical as to the future financial performance of World Medical. We
assume no responsibility for and express no view as to such forecasts or the
assumptions under which they are prepared. Our conclusions are based solely on
information available to us on or before the date hereof and reflect economic,
market, and other conditions as of such date. In rendering our opinion, we have
assumed that the Merger will be consummated on the terms described in the Draft
Agreement, without any waiver of any material terms or conditions, and that
obtaining any necessary regulatory approvals for the transaction will not have
an adverse effect on World Medical or AVE. We are expressing no opinion as to
what the value of AVE Shares to be issued to World Medical's common shareholders
will actually be when issued pursuant to the Merger or the prices at which such
AVE Shares will actually trade at any time following the date hereof. We note
that the Merger is intended to qualify as a reorganization under the provisions
of Section 368(a) of the United States Internal Revenue Code of 1986, as amended
and we have assumed that the Merger will so qualify.
Vector Securities International, Inc. ("Vector") is a full service
securities firm and, in the course of its normal trading activities, may from
time to time effect transactions and hold positions in securities of AVE. We
have performed investment banking services for World Medical in the past and
have received customary compensation for such services. In addition, Vector and
its directors, officers and employees beneficially own 134,998 shares of Common
Stock, and World Medical has issued to Vector a warrant to purchase 25,000
shares of Common Stock. This opinion does not constitute a recommendation to any
shareholder of World Medical as to how any such shareholder should vote on the
Merger. This opinion does not address the relative merits of the Merger and any
other transactions or business strategies discussed by the Board of Directors of
World Medical as alternatives to the Merger or the decision of the Board of
Directors of World Medical to proceed with the Merger.
This opinion has been prepared at the request and for the use of the Board
of Directors of World Medical and shall not be reproduced, summarized, described
or referred to, or provided to any other person, without our prior written
consent. We are currently acting as financial advisor to World Medical in
connection with the Merger and will receive a fee in connection therewith, with
such fee being contingent upon consummation of the Merger.
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<PAGE> 193
On the basis of and subject to the foregoing, including the various
assumptions and limitations set forth herein, and based upon such other matters
as we consider relevant, it is our opinion as of the date hereof that the
consideration to be received by the holders of Common Stock of World Medical in
the Merger is fair to such shareholders from a financial point of view.
Very truly yours,
VECTOR SECURITIES INTERNATIONAL, INC.
By: /s/ D. THEODORE BERGHORST
-------------------------------------
D. Theodore Berghorst
Chairman and Chief Executive Officer
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<PAGE> 194
APPENDIX D
607.1301 DISSENTERS' RIGHTS; DEFINITIONS.
The following definitions apply to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to s. 607.1104, the day prior to the date on which a copy of the
plan of merger was mailed to each shareholder of record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its
parent under s. 607.1104, and the shareholders would have been entitled
to vote on action taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation, other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange pursuant to s. 607.1202, including a sale in dissolution but not
including a sale pursuant to court order or a sale for cash pursuant to a
plan by which all or substantially all of the net proceeds of the sale will
be distributed to the shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation
is a party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder
is entitled to vote on the amendment and if such amendment would adversely
affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of
his or her shares;
2. Altering or abolishing the voting rights pertaining to any of
his or her shares, except as such rights may be affected by the voting
rights of new shares then being authorized of any existing or new class
or series of shares;
3. Effecting an exchange, cancellation, or reclassification of any
of his or her shares, when such exchange, cancellation, or
reclassification would alter or abolish the shareholder's voting rights
or alter his or her percentage of equity in the corporation, or
effecting a reduction or cancellation of accrued dividends or other
arrearages in respect to such shares;
4. Reducing the stated redemption price of any of the shareholder's
redeemable shares, altering or abolishing any provision relating to any
sinking fund for the redemption or purchase of any of his or her shares,
or making any of his or her shares subject to redemption when they are
not otherwise redeemable;
1
<PAGE> 195
5. Making noncumulative, in whole or in part, dividends of any of
the shareholder's preferred shares which had theretofore been
cumulative;
6. Reducing the stated dividends preference of any of the
shareholder's preferred shares; or
7. Reducing any stated preferential amount payable on any of the
shareholder's preferred shares upon voluntary or involuntary
liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his or her shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his or her shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his or her name. In that event, the shareholder's rights shall be determined as
if the shares as to which he or she has dissented and his or her other shares
were registered in the names of different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a proposed
sale or exchange of property, to the holders of shares of any class or series
which, on the record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be acted upon or to
consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his or her
shares under this section may not challenge the corporate action creating his or
her entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.
(1) (a) If a proposed corporate action creating dissenters' rights under s.
607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for his or her
shares if the proposed action is effectuated, and
2. Not vote his or her shares in favor of the proposed action. A
proxy or vote against the proposed action does not constitute such a
notice of intent to demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the
corporation shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to
each simultaneously with any request for the shareholder's written consent
or, if such a request is not made, within 10 days after the date the
corporation received written consents without a meeting from the requisite
number of shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be to each shareholder who filed
a notice of intent to demand payment for his or her shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him or her, any
shareholder who elects to dissent shall file with the corporation a notice of
such election, stating the shareholder's name and address, the number, classes,
and series of shares as to which he or she dissents, and a demand for payment of
the fair value of his or her shares. Any shareholder failing to file such
election to dissent within the period set forth shall be bound by the
2
<PAGE> 196
terms of the proposed corporate action. Any shareholder filing an election to
dissent shall deposit his or her certificates for certificated shares with the
corporation simultaneously with the filing of the election to dissent. The
corporation may restrict the transfer of uncertificated shares from the date the
shareholder's election to dissent is filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall not
be entitled to vote or to exercise any other rights of a shareholder. A notice
of election may be withdrawn in writing by the shareholder at any time before an
offer is made by the corporation, as provided in subsection (5), to pay for his
or her shares. After such offer, no such notice of election may be withdrawn
unless the corporation consents thereto. However, the right of such shareholder
to be paid the fair value of his or her shares shall cease, and the shareholder
shall be reinstated to have all his or her rights as a shareholder as of the
filing of his or her notice of election, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim,
if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a
court has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value for
such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder
accepts the same, payment for his or her shares shall be made within 90
days after the making of such offer or the consummation of the proposed
action, whichever is later. Upon payment of the agreed value, the
dissenting shareholder shall cease to have any interest in such shares.
(7) If the corporation fails to make such offer within the period
specified therefor in subsection (5) or if it makes the offer and any
dissenting shareholder or shareholders fail to accept the same within the
period of 30 days thereafter, then the corporation, within 30 days after
receipt of written demand from any dissenting shareholder given within 60
days after the date on which such corporate action was effected, shall, or
at its election at any time within such period of 60 days may, file an
action in any court of competent jurisdiction in the county in this state
where the registered office of the corporation is located requesting that
the fair value of such shares be determined. The court shall also determine
whether each dissenting shareholder, as to whom the corporation requests
the court to make such determination, is entitled to receive payment for
his or her shares. If the corporation fails to institute the
3
<PAGE> 197
proceeding as herein provided, any dissenting shareholder may do so in the
name of the corporation. All dissenting shareholders (whether or not
residents of this state), other than shareholders who have agreed with the
corporation as to the value of their shares, shall be made parties to the
proceeding as an action against their shares. The corporation shall serve a
copy of the initial pleading in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law
for the service of a summons and complaint and upon each nonresident
dissenting shareholder either by registered or certified mail and
publication or in such other manner as is permitted by law. The
jurisdiction of the court is plenary and exclusive. All shareholders who
are proper parties to the proceeding are entitled to judgment against the
corporation for the amount of the fair value of their shares. The court
may, if it so elects, appoint one or more persons as appraisers to receive
evidence and recommend a decision on the question of fair value. The
appraisers shall have such power and authority as is specified in the order
of their appointment or an amendment thereof. The corporation shall pay
each dissenting shareholder the amount found to be due him or her within 10
days after final determination of the proceedings. Upon payment of the
judgment, the dissenting shareholder shall cease to have any interest in
such shares.
(8) The judgment may, at the discretion of the court, include a fair rate
of interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the shares,
if the court finds that the action of such shareholders in failing to accept
such offer was arbitrary, vexatious, or not in good faith. Such expenses shall
include reasonable compensation for, and reasonable expenses of, the appraisers,
but shall exclude the fees and expenses of counsel for, and experts employed by,
any party. If the fair value of the shares, as determined, materially exceeds
the amount which the corporation offered to pay therefor or if no offer was
made, the court in its discretion may award to any shareholder who is a party to
the proceeding such sum as the court determines to be reasonable compensation to
any attorney or expert employed by the shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of a
merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
4
<PAGE> 198
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law, AVE has broad
powers to indemnify its directors and officers against liabilities they may
incur in such capacities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). AVE's Bylaws provide that AVE will
indemnify its directors, officers, employees and other agents to the fullest
extent not prohibited by Delaware law.
In addition, AVE's Amended and Restated Certificate of Incorporation
provides for the elimination of liability for monetary damages for breach of the
directors' fiduciary duty of care to AVE and its stockholders. These provisions
do not eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to AVE, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for any transaction from which the director derived
an improper personal benefit and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
AVE has entered into an indemnification agreement with each of its
directors and executive officers under which AVE has indemnified each of them
against expenses and losses incurred for claims brought against them by reason
of being a director or executive officer of AVE. AVE maintains a policy
providing directors' and officers' liability insurance, which insures directors
and officers of AVE in certain circumstances with a liability limit of
$20,000,000.
In connection with certain litigation against AVE and John D. Miller, a
director, officer and principal stockholder of AVE, Bradly A. Jendersee, a
principal stockholder and a former director and officer of AVE, Dr. Simon H.
Stertzer, a stockholder and former director of AVE, and Dr. Gerald Dorros, a
stockholder of AVE, AVE has agreed to indemnify each of such individual
defendants against losses and expenses relating to such litigation.
The Reorganization Agreement provides that AVE will maintain certain
indemnification and limitation of liability provisions in World Medical's
articles of incorporation and bylaws for a period of six years after the
consummation of the Merger, and will maintain in effect for six years a
directors' and officers' liability insurance policy for the benefit of persons
serving as directors and officers of World Medical as of the date of the
Reorganization Agreement.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization dated as of
April 10, 1998 by and among Arterial Vascular Engineering,
Inc., Walleye Acquisition Corporation and World Medical
Manufacturing Corporation (see Appendix A to the Proxy
Statement/ Prospectus)
</TABLE>
II-1
<PAGE> 199
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
2.2 Amendment to Agreement and Plan of Merger and Reorganization
dated as of May 20, 1998 by and among Arterial Vascular
Engineering, Inc., Walleye Acquisition Corporation and World
Medical Manufacturing Corporation (see Appendix A-1 to the
Proxy Statement/Prospectus)
2.3 Form of Plan of Merger and Reorganization to be entered into
by Walleye Acquisition Corporation and World Medical
Manufacturing Corporation (see Exhibit B to Appendix A to
the Proxy Statement/Prospectus)
4.1 Form of Specimen Certificate for Registrant's Common
Stock(1)
5.1 Legal Opinion of Lawrence J. Fassler, Esq.
8.1 Tax Opinion of Cooley Godward LLP
8.2 Tax Opinion of Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Vector Securities International, Inc.
23.4 Consent of Counsel (included in Exhibits 5.1, 8.1 and 8.2)
24.1 Power of Attorney (see page II-4)
99.1 Form of World Medical Proxy Card
</TABLE>
- ---------------
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1, as amended filed March 7, 1996 (File No. 33-00824).
(B) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules of Arterial Vascular Engineering, Inc.
for the years ended June 30, 1997, 1996 and 1995 are incorporated by reference
to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1997
in this Registration Statement on Form S-4.
<TABLE>
<CAPTION>
SCHEDULE
- --------
<S> <C>
II Valuation and Qualifying Accounts
</TABLE>
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes thereto.
No financial statement schedules are required of World Medical Manufacturing
Corporation.
(C) ITEM 4(B) REPORTS
See Appendix C to the Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
(1) The Registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this Registration Statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the Registrant
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of
II-2
<PAGE> 200
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the Proxy Statement/Prospectus pursuant
to Items 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(4) The Registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
Registration Statement when it became effective.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or controlling persons of
the Registrant pursuant to the Certificate of Incorporation, as amended and the
Bylaws of the Registrant and the Delaware General Corporation Law, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in a successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
question has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(6) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 201
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Arterial Vascular Engineering, Inc. has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Santa Rosa, County of Santa Rosa, State of California, on the
day of May, 1998.
ARTERIAL VASCULAR ENGINEERING, INC.
By: /s/ SCOTT J. SOLANO
------------------------------------
Scott J. Solano
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Scott J. Solano and John D. Miller, and
each or any one of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitutes or substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ SCOTT J. SOLANO President, Chief Executive May , 1998
- ----------------------------------------------------- Officer, Chairman of the
Scott J. Solano Board and Director (Principal
Executive Officer)
/s/ JOHN D. MILLER Chief Financial Officer, May , 1998
- ----------------------------------------------------- Treasurer and Director
John D. Miller (Principal Financial and
Accounting Officer)
/s/ CRAIG E. DAUCHY Director May , 1998
- -----------------------------------------------------
Craig E. Dauchy
/s/ GEORGE BORKOW Director May , 1998
- -----------------------------------------------------
George Borkow
</TABLE>
II-4
<PAGE> 202
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization dated as of
April 10, 1998 by and among Arterial Vascular Engineering,
Inc., Walleye Acquisition Corporation and World Medical
Manufacturing Corporation (see Appendix A to the Proxy
Statement/ Prospectus)
2.2 Amendment to Agreement and Plan of Merger and Reorganization
dated as of May 20, 1998 by and among Arterial Vascular
Engineering, Inc., Walleye Acquisition Corporation and World
Medical Manufacturing Corporation (see Appendix A-1 to the
Proxy Statement/Prospectus)
2.3 Form of Plan of Merger and Reorganization to be entered into
by Walleye Acquisition Corporation and World Medical
Manufacturing Corporation (see Exhibit B to Appendix A to
the Proxy Statement/Prospectus)
4.1 Form of Specimen Certificate for Registrant's Common
Stock(1)
5.1 Legal Opinion of Lawrence J. Fassler, Esq.
8.1 Tax Opinion of Cooley Godward LLP
8.2 Tax Opinion of Greenberg Traurig Hoffman Lipoff Rosen &
Quentel, P.A.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Vector Securities International, Inc.
23.4 Consent of Counsel (included in Exhibits 5.1, 8.1 and 8.2)
24.1 Power of Attorney (see page II-4)
99.1 Form of World Medical Proxy Card
</TABLE>
- ---------------
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1, as amended filed March 7, 1996 (File No. 33-00824).
II-5
<PAGE> 1
EXHIBIT 2.1
See Appendix A to the Proxy Statement/Prospectus.
<PAGE> 1
EXHIBIT 2.2
See Appendix A-1 to the Proxy Statement/Prospectus.
<PAGE> 1
EXHIBIT 2.3
See Exhibit B to the Agreement and Plan of Merger and Reorganization, filed
as Appendix A to the Proxy Statement/Prospectus.
<PAGE> 1
EXHIBIT 5.1
[ARTERIAL VASCULAR ENGINEERING, INC. LETTERHEAD]
May 21, 1998
Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
Ladies and Gentlemen:
I am General Counsel of Arterial Vascular Engineering, Inc., a Delaware
corporation (the "Company"), and am rendering this opinion with respect to
certain matters in connection with the filing on May 21, 1998 by the Company of
a Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission, with respect to the Company's registration
of up to 2,175,000 shares of the common stock, par value $.001 per share, of the
Company (the "Shares"), to be issued pursuant to the Agreement and Plan of
Merger and Reorganization dated as of April 10, 1998 (the "Reorganization
Agreement"), by and among the Company, Walleye Acquisition Corporation, a
Florida corporation, and World Medical Manufacturing Corporation, a Florida
corporation ("World Medical"), and the related Plan of Merger in the form
attached as Exhibit B to the Reorganization Agreement (the "Merger Agreement").
In connection with this opinion, I have examined upon the Registration
Statement and the Proxy Statement/Prospectus included therein, the Company's
Amended and Restated Certificate of Incorporation and Bylaws, each as amended,
the Reorganization Agreement and the Merger Agreement, and the originals or
copies certified or otherwise identified to my satisfaction of such other
records, documents, certificates, memoranda and instruments as in my judgment
are necessary or appropriate to enable me to render the opinion expressed below.
I have assumed the genuineness and authenticity of all documents submitted to me
as originals, the conformity to originals of all documents submitted to me as
copies thereof, and the due execution and delivery of all documents where due
execution and delivery are prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, I am of the opinion
that the Shares, when issued pursuant to the Reorganization Agreement and the
Merger Agreement, as described in the Proxy Statement/ Prospectus, will be duly
authorized, validly issued, fully paid and nonassessable.
My opinion expressed herein is limited to the law of the State of
California, the General Corporation Law of the State of Delaware and the federal
law of the United States, and I do not express any opinion herein concerning any
other law.
I consent to the reference to me under the caption "Legal Matters" in the
Proxy Statement/Prospectus and to the filing of this opinion as an exhibit to
the Registration Statement.
Very truly yours,
/s/ LAWRENCE J. FASSLER
--------------------------------------
Lawrence J. Fassler
General Counsel
<PAGE> 1
EXHIBIT 8.1
[COOLEY GODWARD LLP LETTERHEAD]
May 21, 1998
Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement (the "Registration Statement") filed pursuant to the
Agreement and Plan of Merger and Reorganization dated as of April 10, 1998 (the
"Reorganization Agreement") by and among Arterial Vascular Engineering, Inc., a
Delaware corporation ("Parent"), Walleye Acquisition Corporation, a Florida
corporation and wholly owned subsidiary of Parent ("Merger Sub"), World Medical
Manufacturing Corporation, a Florida corporation (the "Company"), and certain
shareholders of the Company.
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to Parent and Merger Sub in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have
examined, and are relying upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in, the following documents
(including all exhibits and schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters delivered to us by
Parent, Merger Sub and the Company containing certain representations of
Parent, Merger Sub and the Company (the "Tax Representation Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and
related to the consummation of the Merger and the other transactions
contemplated by the Reorganization Agreement as we have deemed necessary or
appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the
Effective Time) duly and validly executed and delivered where due execution
and delivery are a prerequisite to the effectiveness thereof;
(b) All representations, warranties and statements made or agreed to
by Parent, Merger Sub and the Company, their managements, employees,
officers, directors and shareholders in connection with the Merger,
including, but not limited to, those set forth in the Reorganization
Agreement (including the exhibits thereto) and the Tax Representation
Letters are true and accurate at all relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
(d) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
(e) The opinion dated May 21, 1998 rendered by Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel to the Company with respect to the
qualification of the Merger as a reorganization within the meaning of
Section 368(a)(1) of the Code has been delivered and has not been
withdrawn.
<PAGE> 2
Arterial Vascular Engineering, Inc.
Page Two
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, for federal income tax purposes, the Merger will be a
reorganization within the meaning of Section 368(a)(1) of the Code.
In addition to your request for our opinion on this specific matter of
federal income tax law, you have asked us to review the discussion of federal
income tax issues contained in the Registration Statement. We have reviewed the
discussion entitled "Material Federal Income Tax Consequences" contained in the
Registration Statement and believe that the discussion, insofar as it relates to
statements of law and legal conclusions, is correct in all material respects.
We consent to the reference to our firm under the caption "Material Federal
Income Tax Consequences" in the Proxy Statement included in the Registration
Statement and to the reproduction and filing of this opinion as an exhibit to
the Proxy Statement and to the Registration Statement.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. No opinion is expressed as to
the federal income tax treatment that may be relevant to a particular investor
in light of personal circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, life insurance
companies, dealers in securities, taxpayers subject to the alternative minimum
tax, banks, tax-exempt organizations, non-United States persons, and
shareholders who acquired their shares of Company capital stock pursuant to the
exercise of options or otherwise as compensation or who hold their Company
capital stock as part of a straddle or risk reduction transaction).
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement, or as to any other transaction
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of the
Reorganization Agreement and without waiver of any material provision thereof.
To the extent that any of the representations, warranties, statements and
assumptions material to our opinion and upon which we have relied are not
accurate and complete in all material respects at all relevant times, our
opinion would be adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administration regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered solely in connection with the filing of the
Registration Statement. It is intended for the benefit of Parent and Merger Sub
and may not be relied upon or utilized for any other purpose or by any other
person and may not be made available to any other person without our prior
written consent.
Sincerely,
Webb B. Morrow III
WBM:DP
<PAGE> 1
EXHIBIT 8.2
[GREENBERG TRAURIG HOFFMAN LIPOFF ROSEN & QUENTEL, P.A. LETTERHEAD]
May 21, 1998
World Medical Manufacturing Corporation
Sawgrass International Corporate Park
13794 NW 4th Street, Building 210
Sunrise, Florida 33325
Dear Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement (the "Registration Statement") filed pursuant to the
Agreement and Plan of Merger and Reorganization dated as of April 10, 1998 (the
"Reorganization Agreement") by and among Arterial Vascular Engineering, Inc., a
Delaware corporation ("Parent"), Walleye Acquisition Corporation, a Florida
corporation and wholly owned subsidiary of Parent ("Merger Sub"), World Medical
Manufacturing Corporation, a Florida corporation (the "Company"), and certain
shareholders of the Company.
Except as otherwise provided, capitalized terms used but not defined herein
shall have the meanings set forth in the Reorganization Agreement. All section
references, unless otherwise indicated, are to the Internal Revenue Code of
1986, as amended (the "Code").
We have acted as counsel to the Company in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined, and are
relying upon (without any independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in, the following documents (including
all exhibits and schedules attached thereto):
(a) the Reorganization Agreement;
(b) those certain tax representation letters delivered to us by
Parent, Merger Sub and the Company containing certain representations of
Parent, Merger Sub and the Company (the "Tax Representation Letters"); and
(c) such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and the Company and
related to the consummation of the Merger and the other transactions
contemplated by the Reorganization Agreement as we have deemed necessary or
appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and that all such documents have been (or will be by the
Effective Time) duly and validly executed and delivered where due execution
and delivery are a prerequisite to the effectiveness thereof.
(b) All representations, warranties and statements made or agreed to
by Parent, Merger Sub and the Company, their managements, employees,
officers, directors and shareholders in connection with the Merger,
including, but not limited to, those set forth in the Reorganization
Agreement (including the exhibits thereto) and the Tax Representation
Letters are true and accurate at all relevant times;
(c) All covenants contained in the Reorganization Agreement (including
exhibits thereto) and the Tax Representation Letters are performed without
waiver or breach of any material provision thereof;
(d) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification; and
(e) The opinion dated May 21, 1998 rendered by Cooley Godward LLP to
Parent with respect to the qualification of the Merger as a reorganization
within the meaning of Section 368(a)(1) of the Code has been delivered and
has not been withdrawn.
<PAGE> 2
World Medical Manufacturing Corporation
May 21, 1998
Page 2
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, for federal income tax purposes, the Merger will be a
reorganization within the meaning of Section 368(a)(1) of the Code.
In addition to your request for our opinion on this specific matter of
federal income tax law, you have asked us to review the discussion of federal
income tax issues contained in the Registration Statement. We have reviewed the
discussion entitled "Material Federal Income Tax Consequences" contained in the
Registration Statement and believe that the discussion, insofar as it relates to
statements of law and legal conclusions, is correct in all material respects.
We consent to the reference to our firm under the caption "Material Federal
Income Tax Consequences" in the Proxy Statement included in the Registration
Statement and to the reproduction and filing of this opinion as an exhibit to
the Proxy Statement and to the Registration Statement.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization Agreement. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger or the other
transactions contemplated by the Reorganization Agreement except as specifically
set forth herein, and this opinion may not be relied upon except with respect to
the consequences specifically discussed herein. No opinion is expressed as to
the federal income tax treatment that may be relevant to a particular investor
in light of personal circumstances or to certain types of investors subject to
special treatment under the federal income tax laws (for example, life insurance
companies, dealers in securities, taxpayers subject to the alternative minimum
tax, banks, tax-exempt organizations, non-United States persons, and
shareholders who acquired their shares of Company capital stock pursuant to the
exercise of options or otherwise as compensation or who hold their Company
capital stock as part of a straddle or risk reduction transaction).
No opinion is expressed as to any transaction other than the Merger as
described in the Reorganization Agreement, or as to any other transactions
whatsoever, including the Merger, if all of the transactions described in the
Reorganization Agreement are not consummated in accordance with the terms of the
Reorganization Agreement and without waiver of any material provision thereof.
To the extent that any of the representations, warranties, statements and
assumptions material to our opinion and upon which we have relied are not
accurate and complete in all material respects at all relevant times, our
opinion would be adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
any court of law, tribunal, administrative agency or other governmental body.
The conclusions are based on the Code, existing judicial decisions,
administration regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes or interpretations would
not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, by rendering this opinion, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion is being delivered solely in connection with the filing of the
Registration Statement. It is intended for the benefit of the Company and may
not be relied upon or utilized for any other purpose or by any other person and
may not be made available to any other person without our prior written consent.
Very truly yours,
Joel D. Maser
JDM/sca
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Arterial Vascular
Engineering, Inc. for the registration of 2,175,000 shares of its common stock
and to the incorporation by reference therein of our reports dated July 25,
1997, except as to the first paragraph of Note 5 as to which the date is August
21, 1997, with respect to the consolidated financial statements of Arterial
Vascular Engineering, Inc. included in its Annual Report (Form 10-K) for the
year ended June 30, 1997 and the related financial statement schedule, filed
with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Palo Alto, California
May 19, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data of World Medical" and to the use of our report dated
February 5, 1998, with respect to the financial statements of World Medical
Manufacturing Corporation included in the Registration Statement (Form S-4) and
related Prospectus of Arterial Vascular Engineering, Inc. for the registration
of 2,175,000 shares of its common stock.
ERNST & YOUNG LLP
Miami, Florida
May 19, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF VECTOR SECURITIES INTERNATIONAL, INC.
We hereby consent to the references in the Proxy Statement/Prospectus to our
opinion, dated April 1, 1998, with respect to the merger of Walleye Acquisition
Corporation, a wholly owned subsidiary of Arterial Vascular Engineering, Inc.,
with and into World Medical Manufacturing Corporation, and to our firm,
respectively, and to the inclusion of such opinion as an appendix to such Proxy
Statement/Prospectus. By giving such consent, we do not thereby admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission thereunder.
By: /s/ D. THEODORE BERGHORST
------------------------------------
D. Theodore Berghorst
Chairman and Chief Executive Officer
Date: May 20, 1998
<PAGE> 1
EXHIBIT 99.1
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
------------------------
WORLD MEDICAL MANUFACTURING CORPORATION
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
, 1998
The undersigned hereby appoints and , and
each of them, with full power of substitution, the attorney and proxy of the
undersigned to attend the Special Meeting of Shareholders of World Medical
Manufacturing Corporation ("World Medical"), to be held on , 1998 at
9:00 a.m., local time, at World Medical's headquarters at 13794 N.W. 4th Street,
Building #210, Sunrise, Florida 33325 and any adjournment thereof, and to vote
all shares of Common Stock that the undersigned would be entitled to vote if
then and there personally present, on the matters set forth in the Notice of
Special Meeting of Shareholders and Proxy Statement as follows:
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
Approval of the Agreement and Plan of Merger and Reorganization between
World Medical, Arterial Vascular Engineering, Inc. ("AVE") and Walleye
Acquisition Corporation, a Florida corporation and a wholly owned subsidiary of
AVE ("Sub") dated as of April 10, 1998, as amended, and the Merger of Sub with
and into World Medical pursuant thereto.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Either of such proxies and attorneys-in-fact, or their substitutes, as
shall be present and shall act at said meeting or any adjournment or
adjournments thereof shall have and may exercise all the powers of said proxies
and attorneys-in-fact hereunder.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR APPROVAL OF THE REORGANIZATION AGREEMENT AND AS
SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
The undersigned acknowledges receipt of the Notice of Special Meeting of
Shareholders and the Proxy Statement/Prospectus.
NUMBER OF SHARES HELD AS OF , 1998
Common Stock:
Shareholder:
--------------------------------------
(Print Name of Shareholder)
--------------------------------------
(Signature)
--------------------------------------
(Title of Signer)
Date:
--------------------------------------
I plan to attend the meeting: YES [ ] NO [ ]
Sign exactly as your name(s) appears on your stock certificate(s). A
corporation is requested to sign its name by its president or other authorized
officer, with the office held designated. Executors, administrators, trustees
and persons in similar capacities are requested to so indicate when signing. If
stock is registered in two names, BOTH should sign.
SHAREHOLDERS SHOULD MARK, SIGN AND DATE THIS PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED ENVELOPE.
