FILING PURSUANT TO RULE 424(b)(3)
FILE NO. 333-2713
DAIG CORPORATION
14901 DEVEAU PLACE
MINNETONKA, MINNESOTA 55345
May 1, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Daig Corporation ("Daig") to be held on May 30, 1996,
at 9:00 a.m., local time, at The Kelly Inn, 2705 Annapolis Lane, Plymouth,
Minnesota 55441,
At the Special Meeting, you will be asked to consider and vote on a proposal
to approve an Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which a wholly owned subsidiary of St. Jude Medical, Inc. ("SJM") will be
merged with and into Daig (the "Merger"). Daig will be the surviving
corporation and a wholly owned subsidiary of SJM. The terms of the Merger
Agreement provide that holders of the common stock, par value $.01 per share,
of Daig ("Daig Common Stock") will receive, for each share of Daig Common
Stock owned immediately prior to the effective time of the Merger, .651733 of
a share (the "Conversion Ratio") of the common stock, par value $.10 per
share, of SJM ("SJM Common Stock") together with cash in lieu of any
fractional share of SJM Common Stock to which such holder would otherwise be
entitled.
THE BOARD OF DIRECTORS OF DAIG BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF DAIG AND ITS SHAREHOLDERS AND THEREFORE UNANIMOUSLY RECOMMENDS
THAT YOU VOTE IN FAVOR OF APPROVAL OF THE MERGER AGREEMENT. The Board of
Directors of Daig has received a written opinion from its financial advisor,
Goldman, Sachs & Co., that, as of the date of the Merger Agreement, the
Conversion Ratio pursuant to the Merger Agreement is fair to the shareholders
of Daig. A copy of this opinion is included as Exhibit C to the Proxy
Statement/Prospectus.
I urge you to review carefully the accompanying Notice of Special Meeting of
Shareholders, Proxy Statement/Prospectus and Proxy, which contain information
about Daig and SJM and describe the proposed Merger and certain related
matters.
All shareholders are invited to attend the Special Meeting in person. The
affirmative vote of the holders of not less than a majority of the
outstanding shares of Daig Common Stock entitled to vote at the Special
Meeting will be necessary for approval of the Merger Agreement.
If the Merger 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 Daig Common Stock. PLEASE DO NOT SEND
YOUR SHARE CERTIFICATES UNTIL YOU RECEIVE THESE MATERIALS.
In order that your shares may be represented at the Special Meeting, you are
urged to complete, sign, date and return promptly the accompanying Proxy in
the enclosed envelope, whether or not you plan to attend the Special Meeting.
If you attend the Special Meeting in person, you may, if you wish, vote
personally on the matter brought before the Special Meeting even if you have
previously returned your Proxy. Your prompt cooperation will be appreciated.
Sincerely,
John J. Fleischhacker
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
DAIG CORPORATION
14901 DEVEAU PLACE
MINNETONKA, MINNESOTA 55345
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 30, 1996
To the Shareholders of Daig Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Daig Corporation, a Minnesota corporation ("Daig") will be held
on May 30, 1996, at 9:00 a.m., local time, at The Kelly Inn, 2705 Annapolis
Lane, Plymouth, Minnesota 55441, for the following purpose:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger, dated as of January 29, 1996 (the "Merger Agreement"), by and
among St. Jude Medical, Inc., a Minnesota corporation ("SJM"), Partner
Acquisition Corp., a Minnesota corporation and a wholly owned subsidiary
of SJM ("Merger Subsidiary"), and Daig. Pursuant to the Merger Agreement,
among other things, (a) Merger Subsidiary will be merged with and into
Daig, with Daig to be the surviving corporation and a wholly owned
subsidiary of SJM (the "Merger"), and (b) each outstanding share of common
stock, par value $.01 per share, of Daig ("Daig Common Stock") (other than
shares of Daig Common Stock as to which dissenters' rights have been
perfected under the Minnesota Business Corporation Act (the "MBCA")), will
be converted into the right to receive .651733 of a share of common stock,
par value $.10 per share, of SJM ("SJM Common Stock") together with cash
in lieu of any fractional share of SJM Common Stock to which a holder of
Daig Common Stock would otherwise be entitled (after aggregating all
fractional shares of SJM Common Stock to be received by such holder).
The Board of Directors of Daig has fixed the close of business on April 26,
1996, as the record date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting, and only shareholders of record
at such time will be entitled to notice of, and to vote at, the Special
Meeting.
Please be advised that, if the proposed Merger is approved and consummated,
holders of Daig Common Stock who file a written notice of dissent before the
vote and who do not vote for the Merger will have the right to dissent from
the proposed Merger and to receive the "fair value" of their shares of Daig
Common Stock in cash, if they fully comply with Sections 302A.471 and
302A.473 of the MBCA. A summary of the rights of holders of Daig Common Stock
and copies of the aforementioned Sections of the MBCA are included in the
accompanying Proxy Statement/Prospectus. SEE "DISSENTING SHAREHOLDERS'
RIGHTS" AND "EXHIBIT D -- EXCERPTS FROM MINNESOTA BUSINESS CORPORATION ACT
RELATING TO DISSENTERS' RIGHTS."
A form of Proxy and a Proxy Statement/Prospectus containing more detailed
information with respect to the matters to be considered at the Special
Meeting accompany this notice.
You are cordially invited and urged to attend the Special Meeting in person.
Whether or not you plan to attend, please complete, sign, date and promptly
return the enclosed Proxy in the enclosed self-addressed, stamped envelope.
If you attend the Special Meeting and desire to revoke your Proxy and vote in
person, you may do so. In any event, a Proxy may be revoked at any time
before it is voted.
THE BOARD OF DIRECTORS OF DAIG UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR
OF THE APPROVAL OF THE MERGER AGREEMENT.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING
SOLICITED BY THE BOARD OF DIRECTORS OF DAIG, WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING. AN ADDRESSED RETURN ENVELOPE WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE. YOUR
PROMPT COOPERATION WILL BE APPRECIATED.
By Order of the Board of Directors
Daniel J. Starks
SECRETARY
Minnetonka, Minnesota
May 1, 1996
PROSPECTUS OF
ST. JUDE MEDICAL, INC.
SHARES OF COMMON STOCK
AND
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
OF
DAIG CORPORATION
TO BE HELD ON MAY 30, 1996
This Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is being
furnished to the shareholders of Daig Corporation, a Minnesota corporation
("Daig"), in connection with the solicitation of proxies by the Board of
Directors of Daig (the "Daig Board") for use at the Special Meeting of
Shareholders of Daig to be held on May 30, 1996 at 9:00 a.m., local time, at
The Kelly Inn, 2705 Annapolis Lane, Plymouth, Minnesota 55441, (the "Special
Meeting"), or any adjournments or postponements thereof.
At the Special Meeting, holders of shares of Daig Common Stock, par value
$.01 per share ("Daig Common Stock"), will vote upon a proposal to approve
the Agreement and Plan of Merger, dated as of January 29, 1996 (the "Merger
Agreement"), by and among St. Jude Medical, Inc., a Minnesota corporation
("SJM"), Partner Acquisition Corp., a Minnesota corporation and a wholly
owned subsidiary of SJM ("Merger Subsidiary"), and Daig, pursuant to which
Merger Subsidiary will be merged with and into Daig (the "Merger"). Daig will
be the surviving corporation (the "Surviving Corporation") in the Merger and
will become a wholly owned subsidiary of SJM. A copy of the Merger Agreement
is attached to this Proxy Statement/Prospectus as Exhibit A and incorporated
herein by reference.
FOR INFORMATION CONCERNING CERTAIN RISKS WHICH SHOULD BE CONSIDERED BY DAIG
SHAREHOLDERS IN EVALUATING THE MERGER, SEE "RISK FACTORS" LOCATED ON PAGE 18
OF THIS PROXY STATEMENT/PROSPECTUS.
Because the conversion ratio is fixed, a change in the market price of SJM
Common Stock before the Merger would affect the value of the SJM Common Stock
to be received in the Merger in exchange for the Daig Common Stock. THERE CAN
BE NO ASSURANCE AS TO THE MARKET PRICE OF THE SJM COMMON STOCK AT ANY TIME
BEFORE OR AFTER THE DATE ON WHICH THE MERGER BECOMES EFFECTIVE. Shareholders
are urged to obtain current market quotations.
In the Merger, each share of Daig Common Stock (other than shares as to which
dissenters' rights have been perfected pursuant to Sections 302A.471 and
302A.473 of the Minnesota Business Corporation Act (the "MBCA")) will be
converted into the right to receive .651733 of a share of common stock, par
value $.10 per share, of SJM ("SJM Common Stock") together with cash in lieu
of any fractional share of SJM Common Stock to which a holder of Daig Common
Stock would otherwise be entitled (after aggregating all fractional shares of
SJM Common Stock to be received by such holder). A description of the terms
of the Merger is set forth in this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus also constitutes the prospectus for the
shares of SJM Common Stock to be issued in the Merger. SJM has filed a
Registration Statement on Form S-4 (together with any amendments thereto, the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") of which this Proxy Statement/Prospectus is a part. All
information concerning Daig contained in this Proxy Statement/Prospectus has
been furnished by Daig, and all information concerning SJM contained in this
Proxy Statement/Prospectus has been furnished by SJM.
The approximate date on which this Proxy Statement/Prospectus and the
accompanying proxy will first be mailed to Daig shareholders is May 1, 1996.
THE SHARES OF SJM COMMON STOCK 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 OF ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Proxy Statement/Prospectus is May 1, 1996.
AVAILABLE INFORMATION
SJM and Daig are each subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information
with the Commission. The reports, proxy statements and other information
filed by SJM and Daig with the Commission may be inspected and copied at the
public reference facilities maintained by the Commission at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and are also
available at the Commission's Regional Offices at 7 World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. SJM Common
Stock and Daig Common Stock are quoted on The Nasdaq National Market
("Nasdaq"), and certain of SJM's and Daig's reports, proxy materials and
other information may be available for inspection at the offices of Nasdaq at
1735 K Street, N.W., Washington, D.C. 20006.
SJM has filed with the Commission a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to
the SJM Common Stock to be issued pursuant to the Merger. This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which were
omitted as permitted by the rules and regulations of the Commission. Such
additional information may be obtained from the Commission's principal office
in Washington, D.C. Statements contained in this Proxy Statement/Prospectus
or in any document incorporated in this Proxy Statement/Prospectus by
reference as to the content of any contract or other document referred to
herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or each other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by SJM (File No. 0-8672)
are incorporated by reference in this Proxy Statement/Prospectus:
1. SJM's Annual Report on Form 10-K for the year ended December 31, 1995, as
amended by amendments on Form 10-K/A filed on April 1, 1996 and April 26,
1996;
2. SJM's Current Report on Form 8-K dated January 29, 1996; and
3. The description of SJM's Common Stock as set forth in SJM's Registration
Statement on Form S-8 filed with the Securities and Exchange Commission on
June 28, 1991 (Reg. No. 33-41459), including any amendments or reports
filed for the purpose of updating such information.
The following documents filed with the Commission by Daig (File No. 0-9178)
are incorporated by reference in this Proxy Statement/Prospectus:
1. Daig's Annual Report on Form 10-K for the fiscal year ended September 30,
1995; and
2. Daig's Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1995.
All documents and reports filed by SJM or Daig with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Proxy Statement/Prospectus and prior to the date of the Special Meeting
shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference 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
which 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.
All information set forth or incorporated by reference herein concerning Daig
has been furnished by Daig, and all information set forth or incorporated by
reference herein concerning SJM has been furnished by SJM.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE TO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE,
TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST, WITH RESPECT
TO SJM DOCUMENTS, TO ST. JUDE MEDICAL, INC., ONE LILLEHEI PLAZA, ST. PAUL,
MINNESOTA 55117, ATTENTION: INVESTOR RELATIONS, OR BY TELEPHONE AT (612)
481-7555; OR WITH RESPECT TO DAIG DOCUMENTS, TO DAIG CORPORATION, 14901
DEVEAU PLACE, MINNETONKA, MINNESOTA 55345, ATTENTION: SECRETARY, OR BY
TELEPHONE AT (612) 933-4700. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS PRIOR TO THE SPECIAL MEETING, REQUESTS MUST BE RECEIVED BY MAY 22,
1996.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE IN CONNECTION WITH THE SOLICITATION AND THE
OFFERING MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY DAIG OR
SJM. 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 THE SOLICITATION OF A PROXY FROM ANY PERSON, IN ANY
JURISDICTION IN WHICH IT IS 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 MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN
OR IN THE AFFAIRS OF SJM OR DAIG SINCE THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS OTHER THAN AS SET FORTH IN THE DOCUMENTS INCORPORATED
HEREIN BY REFERENCE FILED SUBSEQUENT TO THE DATE HEREOF.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT COVER ANY RESALES OF THE SJM COMMON
STOCK OFFERED HEREBY TO BE RECEIVED BY SHAREHOLDERS OF DAIG DEEMED TO BE
"AFFILIATES" OF DAIG OR SJM UPON THE CONSUMMATION OF THE MERGER. NO PERSON IS
AUTHORIZED TO MAKE USE OF THIS PROXY STATEMENT/ PROSPECTUS IN CONNECTION WITH
ANY SUCH RESALES.
This Proxy Statement/Prospectus, including the information incorporated by
reference herein, contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual
results could differ significantly from those projected or contemplated in
the forward-looking statements as a result, in part, of the risk factors set
forth elsewhere in this Proxy Statement/Prospectus. In connection with the
forward-looking statements which appear in these disclosures, prospective
purchasers of the SJM Common Stock offered hereby should carefully review all
of such risk factors.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
AVAILABLE INFORMATION 2
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE 2
SUMMARY 5
RISK FACTORS 18
Rapid Technological Change and Intense Competition 18
Costs and Risks Associated with FDA and Other
Governmental Regulation 18
Risk of Product Liability Losses and Inadequate or
Unavailable Insurance Coverage and
Certain Related Litigation 18
Possible Challenges to Patents and Proprietary Rights 19
Possible Denial of Third-Party Reimbursement 19
Government Investigations 19
Possible Adverse Impact of Health Care
Reform Proposals 20
Potential for Supply Interruptions 21
Dependence on Key Personnel 21
Proposal to Increase Authorized Shares of SJM Common
Stock; Other Antitakeover Considerations 21
Conflicts of Interest 21
THE COMPANIES 23
St. Jude Medical, Inc. 23
Partner Acquisition Corp 24
Daig Corporation 24
THE SPECIAL MEETING 26
General 26
Matters to be Considered 26
Record Date; Proxies 26
Solicitation of Proxies 26
Vote Required and Quorum 26
THE MERGER 27
General 27
Background of the Merger 27
SJM's Reasons for the Merger 29
Daig's Reasons for the Merger; Recommendation of
the Daig Board 30
Effective Time 31
Conversion of Shares of Daig Common Stock 31
Opinion of Financial Advisor to Daig 32
Certain Federal Tax Consequences 37
Accounting Treatment 38
Resale of SJM Common Stock; Agreements with
Affiliates of Daig and SJM 38
Regulatory Approvals 39
Nasdaq National Market Listing 39
Certain Exchange Procedures 39
Conflicts of Interest 40
CERTAIN PROVISIONS OF THE
MERGER AGREEMENT 42
Conversion of Securities 42
Exchange Procedures 42
No Further Rights in Daig Common Stock 42
No Fractional Shares 42
Daig Stock Option 43
Certain Representations and Warranties 43
Conduct of Business Pending the Merger 44
No Solicitation of Transactions 45
Conditions to Consummation of the Merger 46
Termination 47
Effect of Termination; Termination Fee 48
Expenses 48
Amendment and Waiver 48
MANAGEMENT; OWNERSHIP OF
DAIG COMMON STOCK 49
Directors and Executive Officers 49
Principal Shareholders 49
CAPITALIZATION 50
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS 51
MATERIAL DIFFERENCES IN RIGHTS OF
DAIG SHAREHOLDERS 58
General 58
Size and Classification of the Board of Directors 58
Special Meetings of Shareholders 58
Amendment of Charter Documents 58
Business Combinations 59
Shareholders' Rights Plan 59
DISSENTING SHAREHOLDERS' RIGHTS 60
Procedure to Preserve Dissenters' Rights 60
Procedures Following an Assertion of Dissenters' Rights 61
Tax Treatment 62
LEGAL MATTERS 62
EXPERTS 62
SHAREHOLDER PROPOSALS 62
EXHIBITS
A. Agreement and Plan of Merger
B. Shareholders' Agreement
C. Opinion of Goldman, Sachs & Co.
D. Excerpts from Minnesota Business Corporation Act
Relating to Dissenters' Rights
</TABLE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROXY STATEMENT/ PROSPECTUS AND THE EXHIBITS HERETO. THIS SUMMARY IS NOT
INTENDED TO BE COMPLETE, AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS AND RELATED NOTES APPEARING
ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS OR INCORPORATED HEREIN BY
REFERENCE. SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS AND THE EXHIBITS HERETO, AND IN PARTICULAR THE SECTION
HEREIN ENTITLED "RISK FACTORS," IN THEIR ENTIRETY.
THE COMPANIES
ST. JUDE MEDICAL, INC. St. Jude Medical, Inc. ("SJM")
ONE LILLEHEI PLAZA designs, develops, manufactures and
ST. PAUL, MN 55117 markets medical devices and services
(612) 483-2000 for the cardiovascular segment of the
medical device market. The Company's
products are sold in more than 70
countries. Principal products are
valve disease management products,
including mechanical and tissue heart
valves and annuloplasty ring
products, and pacemaker products,
including bradycardia pulse
generators, leads and programmers.
The main markets for SJM's products
are the United States, Western Europe
and Japan. In the United States, the
Company uses a direct employee based
sales organization for its heart
valve products and a combination of
distributor based and employee based
sales organizations for its pacemaker
products. In Western Europe, the
Company has a direct sales presence
in thirteen countries. Throughout the
rest of the world the Company uses
distributor based sales
organizations.
PARTNER ACQUISITION CORP. Partner Acquisition Corp. ("Merger
C/O ST. JUDE MEDICAL, INC. Subsidiary") is a wholly owned
ONE LILLEHEI PLAZA subsidiary of SJM that was formed in
ST. PAUL, MN 55117 January, 1996 by SJM solely for the
(612) 483-2000 purpose of effecting the Merger. Upon
consummation of the Merger, Merger
Subsidiary will be merged with and
into Daig, and the separate corporate
existence of Merger Subsidiary will
thereupon cease.
DAIG CORPORATION Daig designs, manufactures and
14901 DEVEAU PLACE markets specialized disposable
MINNETONKA, MN 55345 cardiovascular devices for the
(612) 933-4700 electrophysiology and interventional
cardiology markets, including
percutaneous catheter introducers,
diagnostic guidewires,
electrophysiology catheters and
bipolar temporary pacing catheters
(used with external pacemakers). Daig
employs direct sales representatives
and independent distributors to sell
its products to hospitals, hospital
purchasing groups and original
equipment manufacturers ("OEMs")
worldwide. Daig packages its products
both under its own label and under
third-party private labels.
RISK FACTORS DAIG SHAREHOLDERS SHOULD CONSIDER
CAREFULLY THE INFORMATION SET FORTH
UNDER "RISK FACTORS."
THE SPECIAL
MEETING OF
SHAREHOLDERS
OF DAIG
GENERAL The Special Meeting is scheduled to
be held on May 30, 1996, at 9:00
a.m., local time, at The Kelly Inn,
2705 Annapolis Lane, Plymouth,
Minnesota 55441.
MATTER TO BE At the Special Meeting, holders of
CONSIDERED Daig Common Stock will consider and
vote upon a proposal to approve the
Merger Agreement.
RECORD DATE; SHARES ENTITLED TO The close of business on April 26,
VOTE 1996 has been fixed as the record
date (the "Record Date") for
determining holders of shares of Daig
Common Stock entitled to notice of
and to vote at the Special Meeting.
As of the Record Date, 15,236,144
shares of Daig Common Stock were
outstanding and held of record by 360
holders.
VOTE REQUIRED AND QUORUM; The affirmative vote of the holders
SHAREHOLDERS' AGREEMENT of not less than a majority of the
shares of Daig Common Stock
outstanding and entitled to vote at
the Special Meeting is required to
approve the Merger Agreement. As a
result, abstentions, failures to vote
and broker nonvotes will have the
practical effect of voting against
approval of the Merger Agreement. The
presence, in person or by proxy, of a
majority of the number of shares of
Daig Common Stock entitled to vote at
the Special Meeting is necessary to
constitute a quorum for the
transaction of business. Daig expects
that the directors and executive
officers of Daig will vote all of the
8,370,800 shares of Daig Common Stock
they beneficially own at the Record
Date (approximately 54.9% of the
total number of outstanding shares of
Daig Common Stock at such date) for
approval of the Merger Agreement. To
the extent that such directors and
executive officers vote in accordance
with Daig's expectation, approval of
the Merger Agreement is assured. In
addition, pursuant to the
Shareholders' Agreement dated as of
January 29, 1996 (the "Shareholders'
Agreement") among SJM, Daig and John
J. Fleischhacker and Daniel J.
Starks, each a director, officer and
shareholder of Daig, such individuals
have (i) agreed to vote an aggregate
of 3,047,228 shares of Daig Common
Stock held by them, or approximately
20% of the Daig Common Stock
outstanding as of the Record Date, in
favor of approval of the Merger
Agreement and the Merger, (ii)
granted irrevocable proxies to SJM to
vote such shares accordingly, and
(iii) agreed not to sell such shares
except pursuant to the Merger. The
Shareholders' Agreement is attached
as Exhibit B to this Proxy
Statement/Prospectus and is
incorporated herein by reference.
Approval of the Merger Agreement by
the shareholders of SJM is not
required under applicable law. See
"THE SPECIAL MEETING -- VOTE REQUIRED
AND QUORUM" and "THE MERGER --
CONFLICTS OF INTEREST."
VOTING OF PROXIES Shares of Daig Common Stock
represented by properly executed
proxy cards received prior to the
vote at the Special Meeting that have
not been revoked will be voted and
will be voted in accordance with the
instructions indicated thereon. IF NO
INSTRUCTIONS ARE INDICATED, SUCH
PROXIES WILL BE VOTED FOR APPROVAL OF
THE MERGER AGREEMENT.
REVOCABILITY OF PROXIES A Daig shareholder who has given a
proxy may revoke such proxy at any
time prior to its exercise at the
Special Meeting by (i) giving written
notice of revocation bearing a later
date than the proxy to the Secretary
of Daig, (ii) properly submitting to
Daig a duly executed proxy card
relating to the same shares bearing a
later date or (iii) attending the
Special Meeting and voting in person.
Attendance at the Special Meeting
will not in and of itself revoke a
proxy. All written notices of
revocation and other communications
with respect to revocation of proxies
by Daig shareholders should be
addressed as follows: Daig
Corporation, 14901 DeVeau Place,
Minnetonka, MN 55345, Attention:
Secretary, or hand-delivered to the
Secretary of Daig before the vote is
taken at the Special Meeting.
THE MERGER
TERMS OF THE MERGER At the effective time of the Merger
(the "Effective Time"), Merger
Subsidiary will be merged with and
into Daig, with Daig to be the
surviving corporation and a wholly
owned subsidiary of SJM. The Merger
Agreement is attached as Exhibit A to
this Proxy Statement/Prospectus and
is incorporated herein by reference.
See "THE MERGER."
Each share of Daig Common Stock
issued and outstanding immediately
prior to the Effective Time (other
than any shares to which dissenters'
rights have been perfected under the
MBCA) shall be converted into the
right to receive .651733 of a share
of SJM Common Stock (the "Conversion
Ratio") together with cash in lieu of
any fractional share to which a
holder of Daig Common Stock would
otherwise be entitled (after
aggregating all fractional shares of
SJM Common Stock to be received by
such holder). If the average closing
sale price of a share of SJM Common
Stock on Nasdaq for the 20 trading
days immediately preceding the fifth
trading day prior to the Effective
Time is less than $34.00, Daig will
be entitled to terminate the Merger
Agreement unconditionally and without
penalty to Daig. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT --
TERMINATION."
At the Effective Time, a
non-qualified option to purchase
128,000 shares of Daig Common Stock
held by John C. Heinmiller, an
officer and director of Daig (the
"Daig Option") shall, if then
unexercised, by virtue of the Merger
and without any further action on the
part of Daig or the holder thereof,
be assumed by SJM and shall be
exercisable upon the same terms and
conditions as under the Daig Option
prior to the Effective Time, except
that it shall be exercisable as to
the whole number of shares of SJM
Common Stock into which the number of
shares of Daig Common Stock subject
to the Daig Option immediately prior
to the Effective Time would have been
converted pursuant to the Merger, at
a price per share of SJM Common Stock
equal to the per share Daig Option
exercise price divided by the
Conversion Ratio. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT --
DAIG STOCK OPTION."
RECOMMENDATION The Board of Directors of Daig (the
OF THE BOARD OF "Daig Board") has determined that the
DIRECTORS OF DAIG terms of the Merger Agreement are
fair to, and in the best interests
of, Daig and its shareholders.
Accordingly, the Daig Board has
unanimously approved the Merger
Agreement and unanimously recommends
that the shareholders of Daig vote
FOR approval of the Merger Agreement.
The recommendation of the Daig Board
is based on a number of factors
described in "THE MERGER --
BACKGROUND OF THE MERGER" AND "--
DAIG'S REASONS FOR THE MERGER;
RECOMMENDATION OF THE DAIG BOARD."
OPINION OF FINANCIAL Goldman, Sachs & Co. ("Goldman
ADVISOR TO DAIG Sachs") has delivered its written
opinion to the Board of Directors of
Daig that, as of January 29, 1996,
the Conversion Ratio pursuant to the
Merger Agreement was fair to the
holders of Daig Common Stock.
The full text of the written opinion
of Goldman Sachs, which sets forth
assumptions made, matters considered
and limitations on the review
undertaken in connection with the
opinion, is attached hereto as
Exhibit C and is incorporated herein
by reference. HOLDERS OF DAIG COMMON
STOCK ARE URGED TO, AND SHOULD, READ
SUCH OPINION IN ITS ENTIRETY. See
"THE MERGER -- OPINION OF FINANCIAL
ADVISOR TO DAIG."
CONFLICTS OF INTEREST In considering the recommendation of
the Daig Board with respect to the
Merger Agreement, holders of Daig
Common Stock should be aware that
certain members of Daig's management
and the Daig Board have interests in
the Merger that are in addition to,
and different from, the interests of
Daig shareholders generally. As
described above, pursuant to the
Shareholders' Agreement, Messrs.
Fleischhacker and Starks have (i)
agreed to vote certain of the shares
of Daig Common Stock held by them in
favor of approval of the Merger
Agreement, (ii) granted irrevocable
proxies to SJM to vote such shares
accordingly, and (iii) agreed not to
sell such shares except pursuant to
the Merger. In addition, each of Mr.
Fleischhacker and Mr. Starks has
entered into an employment agreement
with Daig that will become effective
at the Effective Time. The employment
agreements provide that Messrs.
Fleischhacker and Starks will be
employed as Chairman and Chief
Executive Officer and President and
Chief Operating Officer,
respectively, of Daig. These
agreements, which have a term of two
years each, set the annual base
salary for each individual ($300,000
for Mr. Fleischhacker and $250,000
for Mr. Starks), provide that each
individual shall be eligible to
participate in SJM's bonus, stock
option and benefits programs, and
contain certain provisions regarding
confidential information, assignment
of inventions, non-competition and
non-solicitation. Each of Mr.
Fleischhacker and Mr. Starks has also
entered into an agreement with SJM,
similar to the agreements currently
provided to SJM executives, with
regard to the treatment to be
accorded such executives upon the
occurrence of certain events that
result in a "change in control" (as
defined in such agreements) of SJM.
In addition, it is a condition to
Daig's obligation to consummate the
Merger that Mr. Starks (the
"Designated Director") shall have
been appointed to fill a newly
created directorship on the SJM Board
having a term expiring at the SJM
annual meeting of shareholders to be
held in 1997. John C. Heinmiller,
Daig's Vice President -- Finance and
Administration, has entered into an
employment agreement with Daig having
a term of one year from the Effective
Time of the Merger, unless earlier
terminated. The agreement provides
that Mr. Heinmiller will be employed
as Daig's Vice President -- Finance
and Administration at a base salary
of $137,000 per annum together with a
guaranteed annual bonus equal to 30%
of this base salary, will receive an
option to purchase 4,500 shares of
SJM Common Stock at the fair market
value on the date of grant (the
"Stock Option"), will have the right
to participate in SJM's benefit
programs and will be subject to
certain provisions regarding
confidential information, assignment
of inventions, non-competition and
non-solicitation. The Stock Option
will vest at the rate of 25% per year
over a period of four years provided
Mr. Heinmiller remains continuously
employed by Daig. If the employment
agreement terminates under conditions
other than those certain ones
specifically described in the
agreement, Mr. Heinmiller will be
entitled to receive a bonus payment
of $322,000. If the payment is not
made and Mr. Heinmiller is not
employed by Daig or an affiliate
within one year after expiration of
the term of the employment agreement,
Mr. Heinmiller will be entitled to a
bonus payment of $20,833.33 per month
for each month in the one-year period
following the expiration of the
employment agreement in which he is
not employed by Daig or an affiliate.
In addition, SJM has agreed to allow
a $440,000 interest-free loan from
Daig to Mr. Heinmiller to remain
outstanding after the Effective Time.
SJM has also agreed with Mr.
Heinmiller that, in the event the
Daig Option has not been exercised
prior to the Closing Date, SJM will
file an amendment to a registration
statement covering the shares of its
stock to permit Mr. Heinmiller to
exercise the option and receive
registered shares of SJM Common
Stock. The Merger Agreement also
provides for certain indemnification
by SJM of the officers and directors
of Daig. See "RISK FACTORS --
CONFLICTS OF INTEREST," "THE MERGER
-- CONFLICTS OF INTEREST" and
"CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- CONDITIONS TO
CONSUMMATION OF THE MERGER."
CONDITIONS TO The obligations of SJM and Daig to
CONSUMMATION consummate the Merger are subject to
OF THE MERGER various conditions, including
obtaining the requisite approval of
Daig's shareholders. In addition, it
is a condition precedent to the
obligation of SJM to consummate the
Merger that SJM receives from each of
Grant Thornton LLP and Ernst & Young
LLP a letter, dated as of the
Effective Date, confirming their
respective reports dated January 29,
1996, that with respect to Daig,
based upon procedures performed,
there have been no common stock
transactions, changes in equity
ownership or ownership affiliations
that would preclude SJM from
accounting for the Merger as a
pooling of interests, and that with
respect to SJM, the Merger will be
treated as a pooling of interests
under applicable accounting standards
and Commission rules and regulations.
Among other things, such letters will
be subject to the condition that less
than 10% of the merger consideration
will consist of cash, including (i)
cash paid to holders of outstanding
shares of Daig Common Stock who
dissent from the proposed Merger and
receive cash for their shares of
Common Stock, and (ii) cash paid in
the Merger in lieu of fractional
shares of SJM Common Stock. See
"CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- CONDITIONS TO
CONSUMMATION OF THE MERGER."
TERMINATION The Merger Agreement may be
terminated at any time prior to the
Effective Time (i) by mutual consent
of SJM, Merger Subsidiary and Daig,
duly authorized by the Boards of
Directors of each of SJM and Daig;
(ii) by either SJM or Daig if (A) the
Effective Time shall not have
occurred on or before September 30,
1996, (B) a court of competent
jurisdiction or an administrative,
governmental or regulatory authority
has issued a final non-appealable
order, decree or ruling, or taken any
other action, preventing the
consummation of the Merger, or (C)
the shareholders of Daig fail to
approve the Merger Agreement.
SJM may terminate the Merger
Agreement if (i) it is not in
material breach of its obligations
under the Merger Agreement and either
(A) Daig solicits from or negotiates
an Acquisition Proposal (as defined
in "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- NO SOLICITATION OF
TRANSACTIONS") with a third party,
(B) the Daig Board has recommended,
approved, accepted or entered into a
definitive agreement regarding an
Acquisition Proposal, or (C) an
Acquisition Proposal has been made
and the Daig Board withdraws,
modifies or changes its
recommendation of the Merger in a
manner adverse to SJM; or (ii) if SJM
is not in material breach of its
obligations under the Merger
Agreement and there has been (A) a
material breach by Daig of any of its
representations and warranties under
the Merger Agreement or (B) a
material failure by Daig to perform
any of its obligations under the
Merger Agreement, and, in both case
(A) and (B), the breach or failure
has not been cured or is not curable
by September 30, 1996.
Daig may terminate the Merger
Agreement if (i) it is not in
material breach of its obligations
under the Merger Agreement; and
either (A) the Daig Board has
recommended, approved, accepted or
entered into a definitive agreement
regarding, or resolved to recommend,
an Acquisition Proposal, or (B) an
Acquisition Proposal has been made
and the Daig Board has withdrawn or
modified its recommendation regarding
the Merger in a manner adverse to
SJM; (ii) Daig is not in material
breach of its obligations under the
Merger Agreement and there has been
(A) a material breach by SJM of any
of its representations and warranties
under the Merger Agreement, or (B) a
material failure by SJM to perform
any of its obligations under the
Merger Agreement, and, in both case
(A) and (B), the breach or failure
has not been cured or is not curable
by September 30, 1996; (iii) the
average of the closing sale prices
(in thousandths) on Nasdaq of a share
of SJM Common Stock as reported in
THE WALL STREET JOURNAL for the
twenty trading days immediately
preceding the fifth trading day prior
to the Effective Time is less than
$34 (as adjusted for certain events
with regard to such Common Stock); or
(iv) SJM has entered into a written
agreement under which SJM will be
acquired by or merge with another
entity and, after such transaction,
the persons who were members of the
SJM Board prior to such transaction
would not constitute a majority of
the Board of Directors of the
acquiring or surviving corporation.
See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- TERMINATION."
TERMINATION FEE If the Merger Agreement is terminated
AND EXPENSES by SJM or Daig upon the occurrence of
certain events (including in
connection with certain third party
offers to acquire Daig), then Daig
will be required to pay to SJM within
five business days of a demand by
SJM, a termination fee of $10
million. This termination fee may
have the effect of discouraging
competing offers to acquire or merge
with Daig. The Merger Agreement
provides that all expenses incurred
in connection with such agreement and
the transactions contemplated thereby
will be paid by the party incurring
such expenses. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT --
EFFECT OF TERMINATION," "--
TERMINATION FEE" AND "-- EXPENSES."
NASDAQ LISTING SJM has filed an application to
include the shares of SJM Common
Stock to be issued in connection with
the Merger for quotation on Nasdaq.
REGULATORY APPROVALS Each of SJM, Daig, Mr. Fleischhacker
and Mr. Starks filed notification and
report forms under the
Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended
(the "HSR Act"), with the Federal
Trade Commission ("FTC") and the
Antitrust Division of the Department
of Justice (the "Antitrust Division")
on or about February 20, 1996. SJM
and Daig have received notice of
early termination of the waiting
period under the HSR Act effective
March 5, 1996. SJM and Daig do not
believe that any additional
regulatory approvals are required,
except for the filing and recordation
of appropriate merger documents as
required by the MBCA. See "THE MERGER
-- REGULATORY APPROVALS."
DISSENTING If the Merger Agreement is approved
SHAREHOLDERS' RIGHTS at the Special Meeting and the Merger
is consummated, holders of Daig
Common Stock who file a written
notice of dissent before the vote and
who do not vote for the Merger
Agreement will have the right to
dissent from the Merger and to
receive the "fair value" of their
shares of Daig Common Stock in cash,
if and only if they fully comply with
Sections 302A.471 and 302A.473 of the
MBCA. The full text of these sections
of the MBCA is attached as Exhibit D
to this Proxy Statement/ Prospectus
and is incorporated herein by
reference. See "DISSENTING
SHAREHOLDERS' RIGHTS."
EFFECTIVE TIME The Effective Time will occur as soon
as practicable after the requisite
approval of Daig's shareholders has
been obtained and all other
conditions to the Merger have been
satisfied or waived. The Effective
Time will occur upon the filing of
Articles of Merger with the Secretary
of State of the State of Minnesota.
ACCOUNTING TREATMENT The Merger will be accounted for
using the pooling of interests method
under generally accepted accounting
principles. Under the Merger
Agreement, it is a condition
precedent to the obligation of SJM to
consummate the Merger that it
receives letters as of the Effective
Date from the respective independent
accountants for SJM and Daig in the
form previously received on the date
of the Merger Agreement to the effect
that, with respect to Daig, based on
procedures performed, there have been
no common stock transactions, changes
in equity ownership or ownership
affiliations that would preclude SJM
from accounting for the Merger as a
pooling of interests, and that with
respect to SJM, the Merger will be
treated as a pooling of interests
under applicable accounting standards
and Commission rules and regulations.
Among other things, such letters from
the respective independent
accountants will be subject to the
condition that less than 10% of the
merger consideration will consist of
cash, including (i) cash paid to
holders of outstanding shares of Daig
Common Stock who dissent from the
proposed Merger and receive cash for
their shares of Daig Common Stock,
and (ii) cash paid in the Merger in
lieu of fractional shares of SJM
Common Stock. Daig and SJM are
obligated to use their best efforts
to cause the Merger to qualify, and
to refrain from taking any action
which could prevent the Merger from
qualifying, as a pooling of
interests. See "THE MERGER --
ACCOUNTING TREATMENT," "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT --
CONDITIONS TO CONSUMMATION OF THE
MERGER" and "UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL
STATEMENTS."
CERTAIN FEDERAL TAX SJM and Daig expect that the Merger
CONSEQUENCES will be treated as a tax-free
reorganization within the meaning of
Section 368 of the Internal Revenue
Code of 1986, as amended (the
"Code"), and that for federal income
tax purposes no gain or loss will be
recognized by any Daig shareholder
upon receipt of SJM Common Stock
pursuant to the Merger (except upon
the receipt of cash by holders who
exercise their dissenters' rights or
by other holders in lieu of
fractional shares of SJM Common
Stock). Furthermore, where cash is
received by holders of Daig Common
Stock pursuant to the Merger,
including cash received by holders
who exercise their dissenters' rights
or by other holders in lieu of
fractional shares of SJM Common
Stock, gain or loss will be
recognized by such holders upon the
exchange of their shares of Daig
Common Stock for cash. This
expectation is based upon the opinion
of Dorsey & Whitney LLP ("Dorsey &
Whitney"), special counsel to Daig,
which itself is based upon various
representations and subject to
various assumptions and
qualifications. EACH HOLDER OF DAIG
COMMON STOCK IS URGED TO CONSULT SUCH
HOLDER'S OWN TAX ADVISOR AS TO THE
FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER, AND ALSO AS TO ANY STATE,
LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES, BASED ON SUCH HOLDER'S
OWN PARTICULAR FACTS AND
CIRCUMSTANCES. See "THE MERGER --
CERTAIN FEDERAL TAX CONSEQUENCES."
COMPARATIVE MARKET PRICES AND The following tables set forth, for
DIVIDENDS -- SJM AND DAIG the calendar quarters indicated, the
high and low closing sales prices per
share of SJM Common Stock and Daig
Common Stock as quoted on Nasdaq.
SJM's fiscal year ends on the
Saturday nearest December 31 and
Daig's fiscal year ends on September
30. Shares of SJM Common Stock and
shares of Daig Common Stock are
quoted on Nasdaq under the symbols
"STJM" and "DAIG", respectively.
On January 29, 1996, the last full
trading day preceding the public
announcement of the execution of the
Merger Agreement, the last reported
sale price per share of SJM Common
Stock was $44.25 and the last
reported sale price per share of Daig
Common Stock was $24.00. Under the
terms of the Merger Agreement, each
share of Daig Common Stock
outstanding immediately prior to the
Effective Time (other than any shares
as to which dissenters' rights have
been perfected under the MBCA) will
be converted into the right to
receive .651733 of a share of SJM
Common Stock. Based on the closing
sales price of SJM Common Stock on
January 29, 1996, the market price of
.651733 of a share of SJM Common
Stock was $28.84.
Based on the closing sales price of
SJM Common Stock on April 26, 1996,
the market price of .651733 of a
share of SJM Common Stock was $23.79.
<TABLE>
<CAPTION>
SJM DAIG
COMMON STOCK COMMON STOCK
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
CALENDAR YEAR 1993
1st Quarter $28.33 $19.17 $ 3.31 $ 2.25
2nd Quarter 26.00 18.17 5.50 2.13
3rd Quarter 26.33 17.00 5.50 4.13
4th Quarter 19.83 16.67 7.25 4.38
CALENDAR YEAR 1994
1st Quarter 20.33 17.33 7.25 6.00
2nd Quarter 21.67 16.50 7.00 5.13
3rd Quarter 24.17 20.00 8.50 5.50
4th Quarter 27.33 22.50 9.88 7.50
CALENDAR YEAR 1995
1st Quarter 28.83 23.67 15.50 9.50
2nd Quarter 35.67 27.08 18.00 12.25
3rd Quarter 42.67 32.58 25.75 18.50
4th Quarter 43.25 32.50 24.75 19.50
CALENDAR YEAR 1996
1st Quarter (1) 46.00 36.38 28.38 20.75
2nd Quarter (2) 39.50 34.63 25.38 22.13
</TABLE>
(1) The high and low sales prices per
share of SJM Common Stock
reported on Nasdaq during the
period January 1, 1996 through
January 29, 1996, the last full
trading day prior to the public
announcement of the execution of
the Merger Agreement, were $46.00
and $39.25, respectively. The
high and low sales prices per
share of Daig Common Stock as
reported on Nasdaq during the
period January 1, 1996 through
January 29, 1996, were $25.50 and
$19.75, respectively.
(2) Through April 26, 1996.
Daig shareholders are urged to obtain
current market quotations for shares
of SJM Common Stock and Daig Common
Stock.
SJM has never paid cash dividends,
other than during the period from
April 1992 through August 1994, when
SJM paid quarterly dividends of $.067
per share to holders of SJM Common
Stock. SJM currently intends to
retain all of its earnings to finance
the continued growth of SJM's
business. Although SJM may consider
declaring and paying a dividend in
the future, there can be no assurance
that it will do so. No cash dividends
have been declared or paid on Daig
Common Stock since Daig's inception.
SELECTED HISTORICAL AND PRO FORMA The following tables set forth
FINANCIAL DATA -- SJM AND DAIG selected historical consolidated
financial data of SJM and Daig and
combined pro forma financial data
giving effect to the Merger using the
pooling of interests method of
accounting and reflecting the
Conversion Ratio and the pro forma
adjustments described in the
accompanying notes. The selected
consolidated financial data for the
five fiscal years ended December 31,
1995 for SJM and for the five fiscal
years ended September 30, 1995 for
Daig, has been obtained from the
consolidated financial statements of
SJM and Daig, which statements have
been audited by Ernst & Young LLP and
Grant Thornton LLP, respectively,
independent public accountants. The
selected financial data for Daig for
the three-month periods ended
December 31, 1995 and 1994 have been
obtained from Daig's unaudited
financial statements and include, in
the opinion of Daig management, all
adjustments necessary to present
fairly the data for such periods.
Daig's fiscal year ends on September
30 of each calendar year; therefore,
Daig's results for the fiscal years
ended September 30, 1995, 1994, and
1993, have been combined with SJM's
results for the years ended December
31, 1995, 1994 and 1993. It is
anticipated that, upon consummation
of the Merger, the fiscal year end of
the Surviving Corporation will be
changed to the Saturday nearest
December 31.
In addition, the pro forma combined
financial data for 1994 reflects the
acquisition by SJM of substantially
all the worldwide assets of the
cardiac rhythm management operations
of Siemens AG ("Pacesetter") as if it
had occurred as of the beginning of
1994. The acquisition of Pacesetter
was effective September 30, 1994, and
was accounted for as a purchase. The
historical SJM results for 1994
include the results of Pacesetter
only from October 1, 1994 to December
31, 1994.
This data should be read in
conjunction with the separate
consolidated financial statements and
notes thereto of SJM and Daig
incorporated by reference in this
Proxy Statement/Prospectus.
The pro forma information set forth
below is presented for illustrative
purposes only and is not necessarily
indicative of the operating results
or financial position that would have
resulted had the Merger been
consummated prior to the periods
indicated, nor is it necessarily
indicative of the operating results
for future periods or future
financial position. Total
Merger-related direct expenses are
expected to approximate $5.5 million,
substantially all of which are
reflected in the unaudited pro forma
condensed combined financial
statements. A one-time charge
associated with the Merger of
approximately $5.5 million was
recognized by SJM in the first
quarter of 1996. The unaudited pro
forma condensed combined financial
statements exclude any benefits from
synergies that may result from the
Merger. The unaudited pro forma
combined selected financial
statements should be read in
conjunction with "UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL
STATEMENTS." There were no material
transactions between SJM and Daig
during any of the periods presented.
Pro forma combined net income per
share is derived from the pro forma
combined statements presented in
"UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS," which
gives effect to the Merger under the
pooling of interests accounting
method as if the Merger had occurred
at the beginning of each period and
combines the results of SJM and Daig
for the periods presented. Pro forma
combined dividends per share reflect
SJM's cash dividends paid in the
periods indicated. The per share
equivalent pro forma combined data
presentation is based upon the
Conversion Ratio. Book value per
share for the pro forma combined
presentation is based upon the number
of common shares outstanding of SJM
Common Stock, adjusted to include the
shares of SJM Common Stock to be
issued as a result of the Merger.
Comparative per share data for net
income, dividends and book value of
SJM and Daig is also set forth below
on both a historical and pro forma
combined basis and on a per share
equivalent pro forma basis for Daig.
ST. JUDE MEDICAL, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994 (A) 1993 1992 1991
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $723,513 $359,640 $252,642 $239,547 $209,837
Gross profit 500,717 258,684 191,300 179,297 149,043
Selling, general and administrative
expenses 237,569 97,577 49,040 45,561 40,286
Research and development expenses 68,970 21,008 10,972 11,478 8,110
Purchased research and development charge 40,800
Total operating expenses 306,539 159,385 60,012 57,039 48,396
Operating profit 194,178 99,299 131,288 122,258 100,647
Net income $129,418 $ 79,234 $109,643 $101,658 $ 83,968
Net earnings per common share $ 1.82 $ 1.13 $ 1.55 $ 1.41 $ 1.17
Dividends per common share $ 0.00 $ 0.20 $ 0.27 $ 0.20 $ 0.00
Weighted average number of common shares 71,067 70,169 70,834 71,897 72,104
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 327,526 $321,402 $408,998 $377,321 $301,094
Total assets 1,015,934 919,898 526,817 469,750 375,093
Long-term obligations 120,000 255,000 0 0 0
Shareholders' equity 703,306 552,218 484,241 429,039 344,727
Book value per common
share 10.05 7.92 6.96 6.02 4.85
</TABLE>
SEE ACCOMPANYING NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
SJM AND DAIG
DAIG CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS
ENDED DECEMBER 31, YEAR ENDED SEPTEMBER 30,
1995 1994 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $10,119 $ 8,639 $38,322 $32,309 $25,678 $19,186 $11,227
Gross profit 7,065 5,809 26,288 21,178 16,587 11,711 6,204
Selling, general and administrative
expenses 2,520 2,308 9,820 8,394 6,932 5,238 3,757
Research and development expenses 799 608 3,335 2,463 1,897 1,631 1,447
Total operating expenses 3,319 2,916 13,155 10,857 8,829 6,869 5,204
Operating profit 3,746 2,893 13,133 10,321 7,758 4,842 1,000
Net income $ 2,717 $ 2,054 $ 9,898 $ 7,574 $ 5,229 $ 3,575 $ 477
Net earnings per common share $ 0.18 $ 0.14 $ 0.65 $ 0.50 $ 0.35 $ 0.25 $ 0.04
Dividends per common share $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Weighted average number of common shares 15,236 15,204 15,223 15,215 14,829 14,279 13,217
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1994 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $28,370 $18,441 $25,869 $16,344 $10,283 $ 5,952 $2,966
Total assets 37,882 26,924 34,055 24,299 17,117 11,645 6,969
Long-term obligations 0 0 0 0 284 571 1,166
Shareholders' equity 34,192 23,631 31,475 21,577 14,056 7,587 3,627
Book value per common
share 2.24 1.55 2.07 1.42 0.92 0.55 0.30
</TABLE>
SEE ACCOMPANYING NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA OF
SJM AND DAIG
SELECTED PRO FORMA FINANCIAL DATA OF SJM AND DAIG
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA COMBINED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
ADJUSTED
1995 1994 (B) 1994 (C) 1993
<S> <C> <C> <C> <C>
OPERATING DATA:
Net sales $761,835 $696,739 $391,949 $278,320
Gross profit 527,005 468,190 279,862 207,887
Selling, general and administrative
expenses 247,389 241,435 105,971 55,972
Research and development expenses 72,305 49,318 23,471 12,869
Purchased research and development charge. 40,800 40,800
Total operating expenses 319,694 331,553 170,242 68,841
Operating profit 207,311 136,637 109,620 139,046
Net income $138,848 $ 92,082 $ 86,450 $114,573
Net earnings per common share (d) $ 1.71 $ 1.15 $ 1.08 $ 1.42
Dividends per common share $ 0.00 $ 0.20 $ 0.20 $ 0.27
Weighted average number
of common shares 80,988 80,085 80,085 80,499
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C>
BALANCE SHEET DATA:
Working capital $ 349,271 $332,241
Total assets 1,053,816 944,197
Long-term obligations 120,000 255,000
Shareholders' equity 730,873 568,290
Book value per common
share 9.14 7.22
</TABLE>
SEE ACCOMPANYING NOTES
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
OPERATING DATA:
Income Per Common Share:
SJM -- historical $1.82 $1.13 $1.55
Daig -- historical 0.65 0.50 0.35
SJM and Daig pro forma (d) 1.71 1.08 1.42
Daig pro forma equivalent (e) 1.11 0.70 0.93
SJM and Daig adjusted pro forma (f) 1.71 1.15 1.42
Daig adjusted pro forma equivalent
(f) 1.11 0.75 0.93
Dividends Declared Per Common Share:
SJM -- historical 0.00 0.20 0.27
Daig -- historical 0.00 0.00 0.00
SJM and Daig pro forma 0.00 0.20 0.27
Daig pro forma equivalent 0.00 0.00 0.00
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995
<S> <C>
BALANCE SHEET DATA:
Book Value Per Common Share:
SJM -- historical $10.05
Daig -- historical 2.24
SJM and Daig pro forma (d) 9.14
Daig pro forma equivalent
(e) 5.96
</TABLE>
NOTES TO SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) Results are not directly comparable due to the Pacesetter acquisition
effective September 30, 1994. Results for 1994 include a $40,800 pre-tax
($25,300 after-tax) one-time charge for purchased research and
development associated with the Pacesetter acquisition.
(b) Represents the combined results as if the acquisition of Pacesetter had
occurred as of the beginning of 1994.
(c) The acquisition of Pacesetter was effective September 30, 1994, and was
accounted for under the purchase accounting method. Accordingly,
Pacesetter's results are included from the effective date of the
acquisition.
(d) The pro forma amounts per SJM common share have been derived from the
historical consolidated financial statements of SJM and Daig,
incorporated by reference herein, and give effect to the Merger under the
pooling of interests method of accounting as if the Merger occurred on
the first day of the earliest period presented with .651733 of a share of
SJM Common Stock issued for each share of Daig Common Stock.
(e) Reflects the pro forma amounts per SJM common share multiplied by the
Conversion Ratio of .651733.
(f) Same as (d) and (e) above, except includes the results of Pacesetter as
if the acquisition had occurred as of the beginning of 1994.
RISK FACTORS
SHAREHOLDERS OF DAIG SHOULD CONSIDER CAREFULLY ALL THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT/PROSPECTUS AND, IN PARTICULAR, THE FOLLOWING FACTORS.
RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION
The medical device market is highly competitive. SJM and Daig both compete
with many companies, some of which have access to greater financial and other
resources than SJM or Daig. Furthermore, the medical device market is
characterized by intensive development efforts and rapidly advancing
technology. SJM's and Daig's present and future products could be rendered
obsolete or uneconomical by technological advances by one or more of SJM's
and Daig's current or future competitors or by alternative therapies,
including drug therapies. The future success of the combined company will
depend, in large part, on its ability to anticipate technology advances and
keep pace with other developers of medical devices and therapies. Competitive
market forces may also adversely affect the prices at which the combined
company sells its products. In particular, there has been significant
consolidation in the medical device industry in recent years, partly in
response to the increasing emphasis on cost containment in the industry, the
emergence of large managed-care buying groups and hospital consolidations and
the potential for increased federal regulation. Given these factors, there
can be no assurance that the combined company resulting from the Merger will
have the size or ability to compete successfully in the industry.
COSTS OF AND RISKS ASSOCIATED WITH FDA AND OTHER GOVERNMENTAL REGULATION
The medical devices manufactured and marketed by SJM and Daig are subject to
rigorous regulation by the U.S. Food and Drug Administration ("FDA") and
numerous other federal, state and foreign governmental authorities. The
process of obtaining regulatory approvals to market a medical device,
particularly from the FDA, can be costly and time-consuming, and there can be
no assurance that such approvals will be granted for future products on a
timely basis, if at all. Delays in receipt of, or failure to obtain,
approvals for future products could result in delays in realizing product
revenues or in substantial additional costs or have other material adverse
effects on the combined company's business or results of operations. In
addition, there can be no assurance that the combined company will be or will
continue to be in compliance with applicable FDA and other material
regulatory requirements. If the FDA were to conclude that the combined
company was not in compliance with applicable laws or regulations, it could
institute proceedings to detain or seize the combined company's products,
issue a recall, impose operating restrictions, enjoin future violations and
assess civil penalties against the combined company, its officers or its
employees and could recommend criminal prosecution to the Department of
Justice. Furthermore, the FDA could proceed to ban, or request recall,
repair, replacement or refund of the cost of, any device manufactured or
distributed by the combined company. Moreover, foreign governmental
regulations have become increasingly stringent, and the combined company may
be subject to more rigorous regulation by foreign governmental authorities in
the future. SJM and Daig cannot predict whether any U.S. or foreign
governmental regulation may be imposed in the future that may have a material
adverse effect on the combined company.
For a description of a consent decree applicable to SJM's Pacesetter, Inc.
subsidiary, see "THE COMPANIES -- ST. JUDE MEDICAL, INC. -- LITIGATION AND
OTHER PROCEEDINGS."
RISK OF PRODUCT LIABILITY LOSSES AND INADEQUATE OR UNAVAILABLE INSURANCE
COVERAGE AND CERTAIN RELATED LITIGATION
The medical device industry is subject to significant product liability
claims and litigation, and the combined company will face an inherent risk of
exposure to product liability claims alleging that the use of its products
(or of products previously manufactured by SJM or Daig) has resulted in
adverse effects to a patient or patients. Such claims could be asserted in
the future against the combined company for past or future events not
currently known to management of SJM or Daig. Any such claim could have an
adverse effect on the combined company. As part of their respective risk
management policies, SJM has obtained third party product liability insurance
coverage, while Daig has elected to self-insure with respect to product
liability risks. There can be no assurance that the combined company will
continue to be able to obtain product liability insurance on commercially
reasonable terms, if at all. Furthermore, there can be no assurance that
product liability claims against the combined company will not exceed the
coverage limits of any insurance policies or cause the combined company to
record a self-insured loss. A product liability claim in an amount in excess
of applicable insurance could have a material adverse effect on the combined
company.
For a description of certain litigation involving SJM related to product
liability claims and insurance coverage, see "THE COMPANIES -- ST. JUDE
MEDICAL, INC. -- LITIGATION AND OTHER PROCEEDINGS."
POSSIBLE CHALLENGES TO PATENTS AND PROPRIETARY RIGHTS
SJM and Daig are, and the combined company will be, dependent upon
proprietary intellectual property. Both SJM and Daig rely on a combination of
patents, trade secrets and nondisclosure agreements to protect their
respective proprietary intellectual property, and the combined company will
continue to do so. There can be no assurance that pending patent applications
owned by SJM or Daig will result in patents issuing to SJM, Daig or the
combined company, that patents issued to or licensed by SJM, Daig or the
combined company in the past or in the future will not be challenged or
circumvented by competitors or that such patents will be found to be valid or
sufficiently broad to protect the combined company's technology or to provide
the combined company with any competitive advantage. Third parties could also
obtain patents that may require the combined company to negotiate licenses to
conduct its business, but there can be no assurance that the required
licenses would be available on reasonable terms or at all. The combined
company will also rely on confidentiality agreements with certain employees,
consultants and other parties to protect, in part, trade secrets and other
proprietary technology. There can be no assurance that these agreements will
not be breached, that the combined company will have adequate remedies for
any breach, that others will not independently develop substantially
equivalent proprietary information or that third parties will not otherwise
gain access to the combined company's trade secrets or proprietary knowledge.
There has been substantial litigation regarding patent and other intellectual
property rights in the medical device industry generally. In the future, the
combined company may be forced to defend itself against claims and legal
actions alleging infringement of the intellectual property rights of others.
Additionally, the combined company may find it necessary to initiate
litigation in order to enforce its patent rights, to protect its trade
secrets or know-how and to determine the scope and validity of the
proprietary rights of others. Intellectual property litigation can be costly
and time-consuming, and there can be no assurance that the combined company's
intellectual property litigation expenses will not be significant in the
future or that the outcome of such litigation will be favorable to the
combined company. Adverse determinations in any such litigation could subject
the combined company to significant liabilities to third parties, could
require the combined company to seek licenses from third parties and could,
if such licenses are not available, prevent the combined company from
manufacturing, selling or using certain of its products, any of which could
have a material adverse effect on the combined company.
POSSIBLE DENIAL OF THIRD-PARTY REIMBURSEMENT
SJM and Daig currently sell their products, and the combined company will
sell its products, to hospitals, doctors and other health care providers, who
receive reimbursement for the health care services provided to their patients
from third-party payors, such as governmental programs (i.e., Medicare and
Medicaid), private insurance plans and managed care programs. These
third-party payors may deny reimbursement if they determine that a device
used in a procedure was not used in accordance with cost-effective treatment
methods, as determined by such third-party payor, or was used for an
unapproved indication. Also, third-party payors are increasingly challenging
the prices charged for medical products and services. There can be no
assurance that the combined company's products will be considered
cost-effective by third-party payors, that reimbursement will be available
or, if available, that the third-party payors' reimbursement policies will
not adversely affect the combined company's ability to sell its products
profitably.
GOVERNMENT INVESTIGATIONS
INVESTIGATION BY OFFICE OF THE INSPECTOR GENERAL OF REIMBURSEMENT CLAIMS MADE
BY CERTAIN CUSTOMERS. The Office of the Inspector General (the "OIG") of the
United States Department of Health and Human Services ("HHS") is currently
conducting an investigation regarding the possible submission of improper
claims to the Medicare/Medicaid programs for reimbursement for procedures
using cardiovascular medical devices that were not approved for marketing by
the FDA at the time of use. Beginning in June 1994, approximately 130
hospitals received subpoenas from HHS seeking information with respect to
reimbursement for procedures using cardiovascular medical devices (including
certain products manufactured by SJM and Daig, as well as numerous other
manufacturers) that were subject to investigational exemptions or may not
have been approved for marketing by the FDA at the time of use. The subpoenas
also sought information regarding various types of remuneration, including
payments, gifts, stock and stock options, received by the hospitals or their
employees from manufacturers of medical devices. The OIG's investigation and
any related change in Medicare/Medicaid reimbursement practices may
discourage hospitals from participating in clinical trials or from including
Medicare and Medicaid patients in clinical trials, which could lead to
increased costs in the development of new products. In addition, civil and
criminal sanctions may be imposed against any person found to have
participated in an improper claim for reimbursement under Medicare/Medicaid,
including possibly SJM, Daig or the combined company. Both SJM and Daig
believe that it is too early to predict the possible outcome of this matter
or when it will be resolved. There can be no assurance that the OIG's
investigation or any resulting or related changes in third-party payors'
reimbursement practices will not materially adversely affect the medical
device industry in general or the combined company in particular.
GERMAN GOVERNMENT INVESTIGATION. In 1994 a state prosecutor in Germany began
an investigation of allegations of corruption in connection with the sale of
heart valves. As part of that investigation, the prosecutor seized documents
from SJM's offices in Germany as well as documents from certain competitors'
offices. In December 1995, the state prosecutor announced that the
investigation was continuing and had been broadened to include other medical
devices. Subsequently, the United States Securities and Exchange Commission
issued a formal order of private investigation covering sales practices of
SJM and other manufacturers in Germany.
POSSIBLE ADVERSE IMPACT OF HEALTH CARE REFORM PROPOSALS
From time to time health care reform proposals have been introduced in the
United States Congress that generally attempt to expand health care coverage
and reduce total health care expenditures. Different proposals use various
techniques to achieve these goals. Proposals often include such features as
universal health care coverage, mandatory employer health insurance premiums,
global expenditure limits, procedures for the review of new technologies,
portability of insurance coverage and the creation of large buying groups
intended to have considerable purchase power. Currently, legislative
attention is focused particularly on certain proposed Medicare and Medicaid
reforms. The ultimate scope of these reforms, if any, cannot yet be
ascertained. Certain states have already made significant changes to their
Medicaid programs and have adopted other health care reforms. Other states
have reform proposals under consideration. In addition, such health care
reform initiatives may accelerate the growing trend toward involvement by
hospital administrators, purchasing managers and buying groups in purchasing
decisions. This trend is expected to lead to increased emphasis on the
cost-effectiveness of any treatment regimen. Regardless of whether any
additional reform proposals are ultimately adopted, the trend toward cost
controls and the requirement of more efficient utilization of medical
therapies and procedures is expected to continue. Health care reform and the
trend toward managed care may adversely affect the prices for, or the levels
at which reimbursement is provided for, the combined company's products and
the volume of products sold. In addition, certain health care reform
initiatives, if enacted, may cause the combined company to incur increased
expenses or reduced revenue in connection with bringing new products to
market, which may adversely affect the combined company's business and
results of operations. Similar initiatives to limit the growth of health care
costs, including price regulation, are also underway in several other
countries in which SJM and Daig currently do, or the combined company is
expected to do, business. SJM and Daig are unable to predict at this time
whether any such U.S. or foreign health care reform initiatives will be
enacted or, if enacted, the final form such reforms would take or when such
reforms would be implemented. Similarly, SJM and Daig are unable to predict
what effect, if any, the enactment of any current or future U.S. or foreign
health care reform initiatives might have on the combined company's business
and results of operations.
POTENTIAL FOR SUPPLY INTERRUPTIONS
SJM purchases raw materials and other items from numerous suppliers for use
in its products. SJM maintains sizeable inventories of up to three years of
its projected requirements for certain materials, some of which are available
only from a single vendor. SJM has been advised from time to time that
certain of these vendors may terminate sales of products to customers that
manufacture implantable medical devices in an effort to reduce their
potential products liability exposure. Some of these vendors have modified
their positions and have indicated a willingness to either temporarily
continue to provide product until such time as an alternative vendor or
product can be qualified or to reconsider the supply relationship. While SJM
believes that alternative sources of raw materials are available and that
there is sufficient lead time in which to qualify such other sources, any
supply interruption could have a material adverse effect on SJM's ability to
manufacture its products.
DEPENDENCE ON KEY PERSONNEL
The combined company's continued success will depend in large part on its
ability to attract and retain highly qualified scientific, management,
marketing and sales personnel. The competition for skilled personnel in SJM's
and Daig's industry is intense. There is an inherent risk in transactions
like the Merger that the combination process could result in the departure of
key employees. There can be no assurance that the announcement of the
proposed Merger will not adversely affect the combined company's ability to
attract and retain personnel. The loss of a significant group of skilled
personnel could adversely affect the combined company.
PROPOSAL TO INCREASE AUTHORIZED SHARES OF SJM COMMON STOCK; OTHER
ANTITAKEOVER CONSIDERATIONS
At the SJM Annual Meeting of Shareholders scheduled to be held on May 9,
1996, holders of SJM Common Stock will be asked to consider and vote upon a
proposal to approve and adopt a proposed amendment to the SJM Articles of
Incorporation to increase the number of authorized shares of SJM Common Stock
from 100,000,000 to 250,000,000 (the "Amendment"). The Amendment is being
sought because, following the consummation of the Merger and absent the
Amendment, there would remain only approximately 11.4 million shares of
authorized, unissued and unreserved shares of SJM Common Stock. The
Amendment, if adopted, will make available to SJM additional authorized,
unissued and unreserved shares of SJM Common Stock without the delay and cost
of calling a special shareholders' meeting. The additional authorized SJM
Common Stock could also be issued to make any attempt to acquire control of
SJM more difficult and costly and thereby discourage attempts to acquire SJM
or deprive holders of SJM Common Stock of the opportunity to sell their
shares at a premium above market price. If an issuance of additional shares
of SJM Common Stock is made on other than a pro rata basis to all
shareholders, dilution of ownership interest and voting power of existing
shareholders may occur and, depending on the consideration for which the
shares were issued, could dilute earnings per share. If any plans or
arrangements are made concerning the issuance of any such shares, holders of
the then outstanding shares of SJM Common Stock may or may not be given the
opportunity to vote thereon, depending upon the nature of any such
transaction, the law applicable thereto, the policy of any stock exchange
upon which the SJM Common Stock may be listed at such time and the judgment
of the SJM Board.
SJM is, and the combined company will continue to be, subject to a
shareholders' rights plan which could in certain circumstances serve as a
deterrent against a possible change of control not approved by the SJM Board.
In addition, SJM is, and the combined company will be, subject to certain
provisions of the Minnesota Business Corporation Act that limit the voting
rights of shares acquired in "control share acquisitions" and restrict
certain "business combinations." See "MATERIAL DIFFERENCES IN RIGHTS OF DAIG
SHAREHOLDERS -- BUSINESS COMBINATIONS" and "-- SHAREHOLDERS' RIGHTS PLAN."
These provisions and the rights plan could, in themselves or in connection
with the foregoing factors, have the effect of discouraging certain attempts
to acquire the combined company that could deprive the combined company's
shareholders of opportunities to sell their shares of SJM Common Stock at
prices higher than prevailing market prices.
CONFLICTS OF INTEREST
In considering the recommendation of the Daig Board with respect to the
Merger Agreement, holders of Daig Common Stock should be aware that certain
members of Daig's management and the Daig Board have interests in the Merger
that are in addition to, and different from, the interests of Daig
shareholders generally. As described above, pursuant to the Shareholders'
Agreement, Messrs. Fleischhacker and Starks have (i) agreed to vote certain
of the shares of Daig Common Stock held by them in favor of approval of the
Merger Agreement, (ii) granted irrevocable proxies to SJM to vote such shares
accordingly, and (iii) agreed not to sell such shares except pursuant to the
Merger. In addition, each of Mr. Fleischhacker and Mr. Starks has entered
into an employment agreement with Daig that will become effective at the
Effective Time. The employment agreements provide that Messrs. Fleischhacker
and Starks will be employed as Chairman and Chief Executive Officer and
President and Chief Operating Officer, respectively, of Daig. These
agreements, which have a term of two years each, set the annual base salary
for each individual ($300,000 for Mr. Fleischhacker and $250,000 for Mr.
Starks), provide that each individual shall be eligible to participate in
SJM's bonus, stock option and benefits programs, and contain certain
provisions regarding confidential information, assignment of inventions,
non-competition and non-solicitation. Each of Mr. Fleischhacker and Mr.
Starks has also entered into an agreement with SJM, similar to the agreements
currently provided to SJM executives, with regard to the treatment to be
accorded such executives upon the occurrence of certain events that result in
a "change in control" (as defined in such agreements) of SJM. In addition, it
is a condition to Daig's obligation to consummate the Merger that Mr. Starks
(the "Designated Director") shall have been appointed to fill a newly created
directorship on the SJM Board having a term expiring at the SJM annual
meeting of shareholders to be held in 1997. Mr. Heinmiller, Daig's Vice
President -- Finance and Administration, has entered into an employment
agreement with Daig having a term of one year from the Effective Time of the
Merger, unless earlier terminated. The agreement provides that Mr. Heinmiller
will be employed as Daig's Vice President -- Finance and Administration at a
base salary of $137,000 per annum together with a guaranteed annual bonus
equal to 30% of this base salary, will receive an option to purchase 4,500
shares of SJM Common Stock at the fair market value on the date of grant (the
"Stock Option"), will have the right to participate in SJM's benefit programs
and will be subject to certain provisions regarding confidential information,
assignment of inventions, non-competition and non-solicitation. The Stock
Option will vest at the rate of 25% per year over a period of four years
provided Mr. Heinmiller remains continuously employed by Daig. If the
employment agreement terminates under conditions other than those certain
ones specifically described in the agreement, Mr. Heinmiller will be entitled
to receive a bonus payment of $322,000. If the payment is not made and Mr.
Heinmiller is not employed by Daig or an affiliate within one year after
expiration of the term of the employment agreement, Mr. Heinmiller will be
entitled to a bonus payment of $20,833.33 per month for each month in the
one-year period following the expiration of the employment agreement in which
he is not employed by Daig or an affiliate. In addition, SJM has agreed to
allow a $440,000 interest-free loan from Daig to Mr. Heinmiller to remain
outstanding after the Effective Time. SJM has also agreed with Mr. Heinmiller
that, in the event the Daig Option has not been exercised prior to the
Closing Date, SJM will file an amendment to a registration statement covering
shares of its stock to permit Mr. Heinmiller to exercise the option and
receive registered shares of SJM Common Stock. SJM is obligated under the
Merger Agreement to indemnify and hold harmless directors, officers,
employees and agents of Daig under certain circumstances, from claims,
actions, suits or proceedings, and also has certain obligations with respect
to employee benefit matters. The Daig Board was aware of these interests and
considered them, among other matters, in approving the Merger Agreement. See
"THE MERGER -- CONFLICTS OF INTEREST" and "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- CONDITIONS TO CONSUMMATION OF THE MERGER."
THE COMPANIES
ST. JUDE MEDICAL, INC.
GENERAL. SJM designs, manufactures and markets medical devices and services
for the cardiovascular segment of the medical device market. The Company's
products are distributed in more than 70 countries worldwide through a
combination of direct sales personnel and independent manufacturers'
representatives. SJM's principal products are valve disease management
products, including mechanical and tissue heart valves and annuloplasty ring
products, and pacemaker products, including bradycardia pulse generators,
leads and programmers. The main markets for SJM's products are the United
States, Western Europe and Japan.
Prior to the acquisition of Pacesetter from Siemens in September 1994, SJM
derived the substantial majority of its revenues from heart valve products.
SJM acquired substantially all of its pacemaker operations in the Pacesetter
acquisition, which significantly expanded SJM's product offering and provided
a platform for potential further diversification of its business. In 1995
almost 63% of SJM's net sales were derived from pacemaker products,
approximately 36% from heart valve products and the balance from cardiac
assist products. Effective January 19, 1996, the Company sold its Cardiac
Assist Division assets to C.R. Bard.
Pacesetter pulse generators and leads treat patients with heart beats that
are too slow or irregular, a condition known as bradycardia. Various models
of bradycardia pulse generators and leads are produced by Pacesetter. Pulse
generators can sense and produce impulses in both the upper and lower
chambers of the heart, in appropriate relation to heart activity, and can be
non-invasively programmed by the physician to adjust sensing, electrical
pulse intensity, duration, rate, and other characteristics. The pulse
generator, generally referred to as a pacemaker, contains a battery and
electronic circuitry. It generates pacing pulses and monitors the heart's
activity to sense abnormalities requiring correction. It is most often
implanted pectorally in the upper chest just below the collarbone. The leads
are insulated wires that carry the pulses to the heart and information from
the heart back to the pacemaker. A pacemaker uses electrical currents
equivalent to those in a healthy heart.
Heart valves facilitate the one-way flow of blood in the heart and prevent
significant backflow of blood into the heart and between the heart's
chambers. Heart valve replacement or repair may be necessary because the
natural heart valve has deteriorated due to congenital defects or disease.
SJM offers both mechanical and tissue heart valves. The St. Jude Medical(R)
mechanical heart valve is the most widely implanted valve in the world with
over 650,000 valves implanted to-date. Also, in 1996, the Company executed an
agreement to provide services relating to homografts.
Annuloplasty rings are prosthetic devices used to repair diseased or damaged
mitral heart valves. The ring can be adjusted either symmetrically or
asymmetrically before, during or after placement to produce the desired valve
annulus size and configuration.
MERGER AGREEMENT WITH CYBERONICS, INC. In April 1996, SJM entered into a
Merger Agreement with respect to the possible acquisition of Cyberonics, Inc.
("Cyberonics") by SJM. Cyberonics designs, develops and markets medical
devices for the treatment of epilepsy and other debilitating neurological
disorders through vagus nerve stimulation. Under the terms of the merger
agreement, if SJM elects to proceed with the merger, SJM would pay
approximately $72 million in cash (approximately $7 per share) for the
currently outstanding shares of Cyberonics. The merger agreement gives SJM
the unilateral option to terminate the merger prior to closing (currently
anticipated to occur in October 1996). The merger is subject to approval by a
majority of the shareholders of Cyberonics and certain regulatory reviews.
SJM has agreed that, upon approval of the merger by the shareholders of
Cyberonics and regardless of whether it elects to proceed with the merger, it
will purchase from Cyberonics $12 million in newly issued Cyberonics common
stock at a price of $5.50 per share.
Cyberonics' approach to the treatment of epilepsy utilizes "neuropacing" or
the use of a pacemaker-like device to stimulate the vagus nerve
intermittently and reduce the incidence of seizures. The Cyberonics device
consists of an implantable pulse signal generator and a nerve stimulation
lead. This system has been implanted in over 700 patients worldwide and has
been approved for use in 23 countries, including the countries in the
European Union. Cyberonics filed a pre-market approval ("PMA") application
with the FDA in June 1993, which was amended in January 1995 following a
request from the FDA for a second double-blind placebo-controlled study.
Cyberonics has completed the enrollment phase of this confirmatory trial. The
treatment phase of this trial is expected to be completed in mid-1996, and
the submission of the final PMA to the FDA is expected before the end of
1996.
LITIGATION AND OTHER PROCEEDINGS. On February 28, 1994, the predecessor
organization to SJM's Pacesetter Systems, Inc. subsidiary entered into a
consent decree in settlement of a lawsuit brought by the United States in
U.S. District Court for the District of New Jersey. The consent decree, which
remains in effect indefinitely, requires that Pacesetter's operations comply
with the FDA's Good Manufacturing Practice regulations, including certain
specific provisions of such regulations identified in the consent decree. The
consent decree provides for FDA inspections and for the payment by the
inspected facility of certain costs of the inspections.
From 1987 to 1991, Siemens AG ("Siemens"), through its Pacesetter division
and other affiliates, manufactured and sold approximately 32,000 model 1016T
and 1026T pacemaker leads of which approximately 25,000 were sold in the
United States. In 1991, Siemens ceased selling these products and issued a
safety alert to physicians explaining that these pacemaker leads had a higher
than expected failure rate due to an inner insulation problem. The safety
alert recommended monitoring steps to minimize any risk posed by the devices.
The FDA treated this notice as a Class I recall. In March 1993, Siemens was
sued in federal district court in Cincinnati, Ohio (the "Wilson case"). The
suit alleged that the model 1016T leads were negligently designed and
manufactured. The suit sought class action status for patients whose 1016T
leads had malfunctioned up to that time. The class status was granted by the
court in September 1993. When SJM acquired Pacesetter from Siemens as of
September 30, 1994, the purchase agreement specifically provided that Siemens
retain all liability for the Wilson case as well as all other litigation that
was pending or threatened before October 1, 1994. The purchase agreement also
provided that SJM would assume liability for other product liability claims
which arose after September 30, 1994.
Siemens and SJM were named defendants in a class action suit filed in March
1995 in federal district court in Houston, Texas for alleged defects in
models 1016T and 1026T pacing leads (the "Hann case"). The suit sought class
action status for patients who had inner insulation failures of these leads
after March 22, 1993 and who were not members of the Wilson class. Siemens
and SJM settled the Wilson and Hann cases in November 1995. SJM's anticipated
financial responsibility for the settlement is approximately $7 million. The
precise number of class members, and the corresponding financial liability,
could increase or decrease as the process for filing claims is completed. The
settlement agreement has an "opt out" provision for class members. Apart from
this class action settlement, additional claims could be made or lawsuits
brought by patients with these leads whose leads fail at a later date or
whose leads fail for reasons outside the class definition.
SJM's product liability insurance carrier, Steadfast, a wholly owned
subsidiary of Zurich Insurance Company ("Zurich"), has denied coverage for
these cases and has filed suit against SJM in federal district court in
Minneapolis seeking rescission of the policy covering Pacesetter business
retroactive to the date SJM acquired Pacesetter. Zurich alleges that SJM made
material negligent misrepresentations to Zurich, including failure to
disclose the Wilson case in order to procure the insurance policy. SJM has
filed an answer denying Zurich's claim and has alleged that Zurich
specifically had knowledge of the Wilson case. The terms of the product
liability insurance policy which Zurich is seeking to rescind provide that
SJM would be entitled to $10 million in coverage for the 1016T and 1026T
pacemaker lead claims after payment by SJM of a self insured retention. SJM
is investigating whether it may have claims against any entities, in addition
to Zurich, arising from this situation.
PARTNER ACQUISITION CORP.
Merger Subsidiary, a wholly owned subsidiary of SJM, was formed in January
1996 by SJM solely for the purpose of effecting the Merger. Upon consummation
of the Merger, Merger Subsidiary will be merged with and into Daig, and
Merger Subsidiary's separate corporate existence will thereupon cease.
DAIG CORPORATION
GENERAL. Daig designs, manufactures and markets specialized disposable
cardiovascular devices for the electrophysiology and interventional
cardiology markets, including percutaneous catheter introducers, diagnostic
guidewires, electrophysiology catheters and bipolar temporary pacing
catheters (used with external pacemakers). Daig employs direct sales
representatives and independent distributors to sell its products to
hospitals, hospital purchasing groups and OEMs worldwide. Daig packages its
products both under its own label and under third-party private labels.
CURRENT DAIG PRODUCTS. Percutaneous catheter introducers are used to create
passageways for cardiovascular catheters from outside the human body through
the skin into a vein, artery or other location inside the body. Daig's
percutaneous catheter introducer products consist primarily of peel-away
sheaths, sheaths with and without hemostasis valves, dilators, guidewires,
repositioning sleeves, obturators and needles. All of these products are
offered in a variety of sizes and packaging configurations.
Diagnostic guidewires are used in conjunction with percutaneous catheter
introducers to aid in the introduction of intravascular catheters. Daig's
diagnostic guidewires are available in multiple lengths and incorporate a
proprietary surface finish for lasting lubricity.
Electrophysiology catheters are placed into the human body percutaneously
(through the skin) to aid in the diagnosis and treatment of cardiac
arrhythmias (abnormal heart rhythms). Between two and four electrophysiology
catheters are generally used in each electrophysiology procedure. Daig's
electrophysiology catheters are available in multiple configurations.
Bipolar temporary pacing catheters are inserted percutaneously (through the
skin) for temporary use (less than one hour to a maximum of one week) with
external pacemakers to provide patient stabilization prior to implantation of
a permanent pacemaker, following a heart attack, or during surgical
procedures. Daig produces and markets several designs of bipolar temporary
pacing catheters.
In addition to these current products, Daig continually explores the
possibility for new products and for new or expanded applications for
existing products. Daig has received marketing clearance for a diagnostic
angiography catheter and plans to launch this product commercially during the
next year. Daig is also involved in various research and development efforts,
including two related to its Livewire(tm) steerable electrophysiology
catheter. One of these efforts aims to expand the approved diagnostic
labeling of the Livewire(tm) steerable electrophysiology catheter to include
certain ablation therapies. The other, which is being conducted pursuant to
an FDA Investigational Device Exemption ("IDE"), involves a clinical trial to
gather data in support of the use of the Livewire(tm) steerable
electrophysiology catheter in combination with specialized guiding
introducers as a cure for atrial fibrillation (a heart rhythm disorder).
There can be no assurance that Daig (or the combined company if the Merger is
consummated) will be successful in obtaining FDA clearance for such labeling
or in commercially launching any such product or new product application. See
"RISK FACTORS -- FDA AND OTHER GOVERNMENTAL REGULATION."
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to shareholders of Daig in
connection with the solicitation of proxies by Daig for use at the Special
Meeting to be held on May 30, 1996 at 9:00 a.m. local time at The Kelly Inn,
2705 Annapolis Lane, Plymouth, Minnesota 55441, and any adjournments or
postponements thereof.
MATTERS TO BE CONSIDERED
At the Special Meeting, the holders of record of Daig Common Stock as of the
Record Date will consider and vote upon a proposal to approve the Merger
Agreement. See "THE MERGER" and "CERTAIN PROVISIONS OF THE MERGER AGREEMENT."
RECORD DATE; PROXIES
The Daig Board has fixed the close of business on April 26, 1996 as the
Record Date for determining the shareholders of Daig entitled to notice of
and to vote at the Special Meeting. At the close of business on the Record
Date, there were 15,236,144 shares of Daig Common Stock outstanding and
entitled to vote, held of record by 360 holders. Holders of Daig Common Stock
entitled to vote at the Special Meeting (including any adjournments or
postponements thereof) may be represented by proxy at the Special Meeting by
properly completing, executing and returning a proxy in the form enclosed
with this Proxy Statement/Prospectus. Unless revoked between the date of such
proxy and the date of the Special Meeting, such proxies will be voted at the
Special Meeting and will be voted in accordance with the instructions
indicated in such proxies. To the extent instructions are not indicated, such
proxies will be voted and will be voted IN FAVOR of approval of the Merger
Agreement. A Daig shareholder who has given a proxy may revoke such proxy at
any time prior to its exercise at the Special Meeting by (i) giving written
notice of revocation bearing a later date than the proxy to the Secretary of
Daig, (ii) properly submitting to Daig a duly executed proxy card relating to
the same shares bearing a later date or (iii) attending the Special Meeting
and voting in person. Attendance at the Special Meeting will not in and of
itself revoke a proxy. All written notices of revocation and other
communications with respect to revocation of proxies by Daig shareholders
should be addressed as follows: Daig Corporation, 14901 DeVeau Place,
Minnetonka, MN 55345, Attention: Secretary, or hand-delivered to the
Secretary of Daig before the vote is taken at the Special Meeting.
HOLDERS OF DAIG COMMON STOCK SHOULD NOT SEND ANY STOCK CERTIFICATES WITH
THEIR PROXY CARD. IF THE MERGER AGREEMENT IS APPROVED, HOLDERS OF DAIG COMMON
STOCK WILL BE SENT A LETTER OF TRANSMITTAL WITH INSTRUCTIONS FOR SURRENDERING
THEIR CERTIFICATES REPRESENTING SHARES OF DAIG COMMON STOCK.
SOLICITATION OF PROXIES
In addition to mailing this material to Daig shareholders, Daig has asked
banks and brokers to forward copies to persons for whom they hold Daig Common
Stock and to request authority for execution of proxies. Daig will reimburse
the banks and brokers for their reasonable out-of-pocket expenses in doing
so. Officers and regular employees of Daig may, without being additionally
compensated, solicit proxies by mail, telephone, telegram or personal
contact. All proxy solicitation expenses will be paid by Daig in connection
with the solicitation of proxies for the Special Meeting. Daig has engaged
Proxy Communications, Inc. to assist in proxy solicitation for a fee based on
the number of items mailed that is not expected to exceed $1,000 plus postage
and other customary expenses.
VOTE REQUIRED AND QUORUM
Approval of the Merger Agreement requires the affirmative vote of at least a
majority of the shares of Daig Common Stock outstanding and entitled to vote
at the Special Meeting. A vote by shareholders of Daig to approve the Merger
Agreement will constitute a vote to approve the terms of, and the
transactions contemplated by, the Merger Agreement (including the Merger).
Holders of Daig Common Stock are entitled to one vote at the Special Meeting
for each share of Daig Common Stock held of record at the close of business
on the Record Date. A majority of the shares entitled to vote at the Special
Meeting, represented in person or by proxy, constitutes a quorum for the
transaction of business. Under the MBCA, abstentions and broker nonvotes will
be considered present for purposes of determining a quorum. If an executed
proxy card is returned and the shareholder has affirmatively abstained from
voting on the Merger Agreement, the shares represented by such proxy will be
considered present at the Special Meeting for purposes of determining a
quorum and for purposes of calculating the vote, but will not be considered
to have voted in favor of approval of the Merger Agreement. If an executed
proxy card is returned by a broker holding shares in street name which
indicates that the broker does not have discretionary authority as to certain
shares to vote on the Merger Agreement, such shares will be considered
present at the meeting for purposes of determining a quorum, but will not be
considered to be represented at the meeting for purposes of calculating the
vote with respect to such matter. FAILURE TO RETURN A PROPERLY EXECUTED PROXY
CARD OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST APPROVAL OF THE MERGER AGREEMENT.
At the close of business on April 26, 1996, directors and executive officers
of Daig, in the aggregate, were entitled to vote 8,370,800 shares of Daig
Common Stock, representing approximately 54.9% of the total shares entitled
to vote at the Special Meeting. Daig expects that such directors and
executive officers will vote all of such shares for approval of the Merger
Agreement; to the extent that such directors and executive officers vote in
accordance with Daig's expectations, approval of the Merger Agreement is
assured. The two principal shareholders of Daig have entered into an
agreement with SJM pursuant to which such shareholders have agreed to vote a
portion of the shares of Daig Common Stock beneficially owned by each of them
(and have given irrevocable proxies with respect to such shares),
representing approximately 20% of the outstanding shares of Daig Common Stock
entitled to vote at the Special Meeting, in favor of approval of the Merger
Agreement. See "THE MERGER -- CONFLICTS OF INTEREST."
The Daig Board has determined that the terms of the Merger Agreement are fair
to, and in the best interests of, Daig and its shareholders. The Daig Board
recommends unanimously that shareholders of Daig vote FOR approval of the
Merger Agreement.
THE MERGER
GENERAL
The discussion in this Proxy Statement/Prospectus of the Merger and the
description of the principal terms of the Merger are subject to and qualified
in their entirety by reference to the Merger Agreement, a copy of which is
attached to this Proxy Statement/Prospectus as Exhibit A and is incorporated
herein by reference.
BACKGROUND OF THE MERGER
Management of Daig has from time to time in the past several years considered
whether a strategic alliance with another corporation or the acquisition of
Daig by another corporation might be in the best interests of Daig and its
shareholders. Management considered this possibility in the past because of
developing trends in the medical device industry as well as the healthcare
industry generally. Included within these trends were the consolidation in
the healthcare industry that was resulting in larger hospital systems with
consolidated buying power for products like Daig's products, merger activity
in the medical device industry and increased "bundling" of products within
companies in the medical device industry as a result of mergers, strategic
alliances, and distribution or licensing arrangements. Prior to 1995,
management had concluded that, notwithstanding these factors, it was in the
best interests of Daig to remain independent in order to further the growth
of Daig's products and distribution capabilities.
As a result of the acceleration of these industry factors, on September 19,
1995, Mr. Fleischhacker (Daig's Chief Executive Officer), Mr. Starks (Daig's
President) and Mr. Heinmiller (Daig's Vice President -- Finance and
Administration) met with a representative of Dorsey & Whitney, special
counsel to Daig, to consider their obligations as Daig renewed consideration
of all of Daig's strategic opportunities. In particular, the parties
discussed directors' and executive officers' fiduciary duties in the context
of a strategic alliance or an acquisition of Daig, the steps involved, the
role that a financial advisor could play, the importance of confidentiality
and other matters relating to how the Daig Board and Daig management should
proceed with regard to a potential transaction. Thereafter, Daig retained
Goldman Sachs to act as Daig's financial advisor in relation to such a
possible transaction. Through September and October, Goldman Sachs
representatives met with Daig officers to review Daig's business, to develop
information on Daig and to assist Daig in developing a preliminary list of
approximately eight potential transaction partners. Thereafter, Goldman
Sachs, on behalf of Daig, approached these potential partners on a
preliminary basis to determine the level of interest in a potential
transaction with Daig. Following Goldman Sachs' preliminary inquiries,
management of Daig, together with Goldman Sachs, had further discussions with
certain of these potential partners. Certain of these potential partners
expressed varying degrees of interest, but with the exception of SJM, none of
these expressions of interest resulted in a firm proposal. Furthermore, these
expressions of interest seemed less desirable to the management of Daig
because they involved anticipated price ranges that were too low, unfavorable
accounting treatment for Daig and its shareholders, proposed timing that was
too slow or breaking up Daig's business. SJM, on the other hand, expressed a
significant level of interest following a meeting with management of Daig on
October 23, 1995, at which Mr. Fleischhacker, Mr. Starks and Mr. Matricaria
(SJM's Chief Executive Officer) discussed Daig's business, products and
strategies. As the result of this expression of interest on SJM's part, which
included pricing parameters, accounting treatment, timing and provisions
regarding continuity of Daig's business that were acceptable to management of
Daig, management of SJM and Daig met on November 1, November 21, and December
1, 1995, to present information with respect to their respective companies
and to discuss a potential SJM acquisition of Daig. On December 1, 1995, Mr.
Starks also discussed possible per share prices with Mr. Matricaria .
On December 8, 1995, the Daig Board held a meeting with all directors and
representatives of Goldman Sachs and Dorsey & Whitney present. At this
meeting management presented a review of the preliminary steps it had taken.
A representative of Goldman Sachs gave a presentation regarding recent
dynamics within the medical device industry, Daig's performance compared to
the performance of other companies in the industry, SJM and information
regarding other transactions within the industry. A representative of Dorsey
& Whitney gave a presentation regarding the Daig Board's fiduciary duties.
Following questions and answers and discussion among the directors, the Daig
Board unanimously authorized management to continue with its negotiations.
Management did so, responding to SJM's due diligence requests and engaging in
negotiations regarding potential acquisition terms throughout December 1995.
On December 18, 1995, a regular meeting of the SJM Board was held at which
Mr. Matricaria and members of SJM's business development group discussed with
the SJM Board the strategic fit between the two companies, as well as Daig's
profit margins and growth rate. Management also described the progress of
negotiations and that the transaction would likely have the structure of a
stock-for-stock merger.
On January 5, 1996, Mr. Starks and a representative of Goldman Sachs held a
telephone conference with Mr. Matricaria regarding the pricing formula for
the proposed acquisition and other matters, including the elimination of
post-closing indemnity and a position on the SJM Board for a representative
of Daig. On January 11, 1996, the Daig Board met again, with all directors
present, to review progress since the December 8 meeting. Representatives of
Goldman Sachs and Dorsey & Whitney also participated in this meeting.
Following a presentation by Goldman Sachs, a further presentation by a
representative of Dorsey & Whitney regarding directors' fiduciary duties,
management's review of negotiations and a thorough discussion of possible
approaches, the Daig Board unanimously authorized management to continue
negotiations in an attempt to reach a satisfactory conclusion regarding the
terms of a potential acquisition. On January 12, 1996, Mr. Fleischhacker and
Mr. Starks again met with Mr. Matricaria to discuss transaction terms,
including the pricing formula, Daig representation on the SJM Board and the
future operation of Daig's business. After the January 12th meeting,
management of Daig continued to discuss the possibility of a transaction with
SJM. On January 18, 1996, management of Daig determined that a transaction on
the terms discussed with SJM would be in the best interests of the Daig
shareholders. Between January 18 and January 29, 1996, Daig and SJM completed
their due diligence reviews and negotiated the terms of the Merger Agreement.
On January 29, 1996, the Daig Board held a meeting to consider the proposed
Merger Agreement with all directors and representatives of Goldman Sachs and
Dorsey & Whitney present. Mr. Starks first reviewed the actions taken by
management since January 11, 1996. The Daig Board then reviewed and discussed
the terms of the Merger Agreement and the associated agreements with the
representatives of Goldman Sachs and Dorsey & Whitney. A representative of
Goldman Sachs updated their presentation regarding current industry
conditions, SJM and Daig's performance. Following this presentation, the
representative of Goldman Sachs delivered the opinion of Goldman Sachs to the
Daig Board that, as of such date, the Conversion Ratio pursuant to the Merger
Agreement was fair to the holders of Daig Common Stock. See "-- OPINION OF
FINANCIAL ADVISOR TO DAIG." After an extended discussion of the matters
presented at the meeting, the Daig Board unanimously concluded that it was in
the best interests of Daig and its shareholders for Daig to enter into the
Merger Agreement and to consummate the Merger, and voted unanimously to
recommend that the Daig shareholders approve the Merger and the Merger
Agreement.
On January 29, 1996, the SJM Board held a meeting to consider the proposed
Merger. Officers of SJM reviewed and discussed with the Board the background
of the Merger, the terms of the Merger Agreement and the industry factors to
be considered in connection with evaluating the Merger. After extensive
discussion, the directors of SJM, among other things, unanimously (i)
determined that it would be in the best interests of SJM to consummate the
Merger, (ii) approved the form and terms of the Merger Agreement, (iii)
authorized SJM's officers to undertake all acts necessary or desirable to
effectuate the Merger and (iv) appointed American Stock Transfer & Trust
Company as the exchange agent for the exchange of shares of SJM Common Stock
and shares of Daig Common Stock in the Merger.
Following the meetings of the Daig Board and the SJM Board on January 29,
1996, Daig and SJM entered into the Merger Agreement.
SJM'S REASONS FOR THE MERGER
The SJM Board has determined that the terms of the Merger Agreement and the
transactions contemplated thereby are fair to, and in the best interests of,
SJM. Accordingly, the SJM Board has unanimously approved the Merger
Agreement, In reaching its determination, the SJM Board consulted with SJM's
management, as well as its legal counsel and financial advisor, and
considered a number of factors, including, without limitation, the following:
1. The SJM Board believes that its customers are seeking to do
business with fewer vendors and only those suppliers that can deliver a
high volume of broad-based technologies that are truly cost-effective and,
where possible, improve outcomes. The Merger responds to the changing
needs of this evolving customer base by filling gaps in SJM's existing
cardiac rhythm management (CRM) products, thus allowing the combined
company to offer an expanded product line.
2. The SJM Board believes that combining SJM and Daig will 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
treatment of cardiac disease resulting in acceleration of product and
technological innovation.
3. The SJM Board believes that the Merger will offer potential cost
advantages through the consolidation and integration of certain
distribution, sales and administrative operations and functions. The SJM
Board also believes that the Merger will result in greater sales of Daig's
products due to the combined company's more extensive marketing and sales
organization and its larger network of established customers.
4. The SJM Board believes that the changing health care environment,
including the increasing emphasis on cost containment, the emergence of
large managed-care buying groups and hospital consolidations and the
potential for increased federal regulation, requires that a successful
medical device company have a certain critical mass to compete effectively
in the market and to absorb the pressures of the managed-care structure.
This belief is supported by the consolidation and refocusing taking place
among manufacturers and suppliers of pharmaceuticals and medical devices.
5. The SJM Board believes that SJM and Daig each have an extremely
capable management team with an established track record. The SJM Board
expects the health care industry to continue to be characterized by
uncertainty and the likelihood of continuing consolidation and believes
that by combining the expertise of the two management teams, the combined
company will be better able to respond to these changes and to take
advantage of the opportunities that these changes may create.
6. The SJM Board believes that by bringing together two companies
which have substantial cash flow and relatively little long-term debt, the
Merger will result in a combined company that will have a financial
condition superior to that of SJM alone, resulting in an enhanced ability
to secure financing on favorable terms and thereby increasing the combined
company's ability to pursue future growth through acquisition or the
development of existing, new or complementary businesses and technologies.
7. The SJM Board considered the terms of the Merger Agreement,
including the dilutive impact of the issuance of SJM Common Stock in
connection with the Merger, and determined, based in part on the advice of
SJM's financial advisor, that the terms were fair to existing holders of
SJM Common Stock.
8. The SJM Board considered the premium being paid in the Merger over
the historical market prices for Daig Common Stock in light of the
consideration being paid in connection with other acquisitions in the
medical device industry for companies that had displayed a high degree of
revenue and profitability growth, considering that Daig had also shown
strong profitability in recent periods.
In view of the wide variety of factors considered by the SJM Board, it 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 SJM 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 interest of, SJM.
DAIG'S REASONS FOR THE MERGER; RECOMMENDATION OF THE DAIG BOARD
The Daig Board has determined that the terms of the Merger Agreement and the
transactions contemplated thereby are fair to, and in the best interests of,
Daig and its shareholders. Accordingly the Daig Board has unanimously
approved the Merger Agreement and recommends unanimously that the
shareholders of Daig vote FOR approval of the Merger Agreement. In reaching
its determination, the Daig Board consulted with Daig's management, as well
as its legal counsel and financial advisor, and considered a number of
factors. As described above, over the past two years Daig's management has
monitored trends and competitive conditions in the medical device industry.
In particular, management has noted a recent move toward increased
consolidation in the medical device industry, which it understands to be
driven largely by the need to broaden product lines, to gain market share, to
increase international market penetration (given lengthy FDA approval times)
and to enable bundling and capitation arrangements with hospitals and managed
care organizations, which are increasingly taking actions that favor medical
device companies offering large and cost-effective product portfolios. As the
result of concern over the possible impact of these trends, Daig retained
Goldman Sachs and, following discussions with Goldman Sachs, initiated the
contacts described above that led to the execution of the Merger Agreement.
See "THE MERGER -- BACKGROUND OF THE MERGER."
In addition, the Daig Board considered other factors including: (i) the fact
that three of Daig's competitors in the electrophysiology market have already
been acquired by large medical device companies; (ii) potential revenue
synergies, including the ability to market Daig's products through SJM's
international distribution channels and to sell Daig's products together with
SJM's products; (iii) potential cost synergies, through consolidation and
integration of certain manufacturing, distribution, sales and administrative
operations and functions; (iv) public and non-public information concerning
the financial performance and condition, business operations and prospects of
each of SJM and Daig on the basis of which the Daig Board considered the
potential value of Daig as a stand-alone entity and as a part of SJM and the
value of the SJM Common Stock as merger consideration; (v) the fact that the
consideration per share of Daig Common Stock that may be received under the
Merger Agreement represents a premium over recent historical trading prices
of Daig Common Stock; (vi) the fact that the Merger would allow holders of
Daig Common Stock to retain an equity interest in the combined company and to
achieve substantially greater liquidity than could be achieved by continuing
to hold Daig Common Stock; (vii) the Conversion Ratio and recent trading
prices for Daig Common Stock and SJM Common Stock; (viii) the likelihood of
consummation of the Merger including the terms and conditions of the Merger
Agreement; (ix) the expectation that the Merger will be nontaxable to the
shareholders of Daig for federal income tax purposes; (x) the opportunity to
participate in the management of SJM through the representation on the SJM
Board of the Designated Director; and (xi) the financial analyses of Goldman
Sachs described herein and the oral opinion of Goldman Sachs subsequently
confirmed in writing, that as of January 29, 1996, the Conversion Ratio
pursuant to the Merger Agreement was fair to the holders of Daig Common Stock
(see "THE MERGER -- OPINION OF FINANCIAL ADVISOR TO DAIG").
The Daig Board also considered the following potentially negative material
factors in its deliberations concerning the Merger: (i) the loss of control
over the future operations of Daig following the Merger; (ii) the risk that
the benefits sought to be achieved in the Merger may not be achieved; (iii)
the fact that SJM Common Stock was trading at or near historical highs and
that recent price/earnings multiples of SJM Common Stock are high relative to
its historical price/earnings multiples; (iv) certain interests in the Merger
of members of Daig's management and the Daig Board (see "THE MERGER --
CONFLICTS OF INTEREST"); and (v) the other risks described above under "RISK
FACTORS." The Daig Board discussed with Daig's management and Daig's advisors
the prospects for combinations with companies other than SJM and whether the
benefits described above could be achieved through any such combination, as
well as the risks and benefits of a stand-alone strategy. After reviewing
these potentially negative factors, the Daig Board concluded that they were
outweighed by the positive factors described above and accordingly determined
that the Merger is fair to, and in the best interests of, Daig and its
shareholders.
In view of the wide variety of factors considered by the Daig Board, it 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 Daig 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, Daig and its shareholders. THE DAIG BOARD UNANIMOUSLY
RECOMMENDS THAT THE DAIG SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of Daig's
shareholders and all other conditions to the Merger are satisfied or waived,
the Merger will be consummated and effected at the time of the filing of the
Articles of Merger with the Secretary of State of the State of Minnesota (or
such later time as agreed to by the parties to the Merger Agreement and
specified in such Articles of Merger). The Merger Agreement provides that SJM
and Daig will cause the Effective Time to occur as soon as practicable, but
in no event later than the second business day following the satisfaction or
waiver of all of the conditions set forth in the Merger Agreement. The Merger
Agreement may be terminated and the Merger may be abandoned at any time prior
to the Effective Time by either SJM or Daig under certain circumstances,
whether before or after approval of the Merger Agreement by the Daig
shareholders. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT --
TERMINATION."
CONVERSION OF SHARES OF DAIG COMMON STOCK
If the required approval of Daig's shareholders is obtained and all other
conditions to the Merger are satisfied or waived, then Merger Subsidiary will
be merged with and into Daig, which will be the Surviving Corporation and
which will thereupon become a wholly owned subsidiary of SJM. In the Merger,
each share of Daig Common Stock outstanding immediately prior to the
Effective Time (other than shares as to which dissenters' rights have been
perfected) will be converted into the right to receive .651733 of a share of
SJM Common Stock together with cash in lieu of any fractional share of SJM
Common Stock to which a holder of Daig Common Stock would otherwise be
entitled (after aggregating all fractional shares of SJM Common Stock to be
received by such holder). In the event that the average closing sale price of
SJM Common Stock as quoted on Nasdaq for the 20 trading days immediately
preceding the fifth trading day prior to the Effective Time is less than
$34.00, Daig will be entitled to terminate the Merger Agreement without
penalty to Daig.
OPINION OF FINANCIAL ADVISOR TO DAIG
On January 29, 1996, Goldman Sachs delivered its oral opinion to the Board of
Directors of Daig that as of the date of such opinion, the Conversion Ratio
pursuant to the Merger Agreement was fair to the holders of Daig Common
Stock. Such oral opinion was subsequently confirmed in writing.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS DATED JANUARY 29, 1996,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS
EXHIBIT C TO THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. STOCKHOLDERS OF DAIG ARE URGED TO, AND SHOULD, READ SUCH OPINION
IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed (i) the Merger
Agreement; (ii) Annual Reports on Form 10-K of Daig for the five fiscal years
ended September 30, 1995; (iii) Annual Reports to Stockholders and Annual
Reports on Form 10-K of SJM for the five years ended December 31, 1994; (iv)
certain interim reports to stockholders and Quarterly Reports on Form 10-Q of
Daig and SJM; (v) certain other communications from Daig and SJM to their
respective stockholders; and (vi) certain internal financial analyses and
forecasts for Daig and SJM prepared by their respective managements. Goldman
Sachs also held discussions with members of the senior management of Daig and
SJM regarding the past and current business operations, financial condition,
and future prospects of their respective companies and Goldman Sachs reviewed
financial forecasts prepared for each business by their respective
managements. In addition, Goldman Sachs reviewed the reported price and
trading activity for the Daig Common Stock and SJM Common Stock, compared
certain financial and stock market information for Daig and SJM with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations
in the medical device and hospital supply industries specifically and in
other industries generally.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In that regard, Goldman Sachs assumed, with Daig's
consent, that the financial forecasts, including, without limitation,
projected cost savings and operating synergies resulting from the Merger had
been reasonably prepared on a basis reflecting the best currently available
judgments and estimates of Daig and SJM and that such forecasts will be
realized in the amounts and at the times contemplated thereby. In addition,
Goldman Sachs had not made an independent evaluation or appraisal of the
assets and liabilities of Daig or SJM or any of their respective
subsidiaries, and Goldman Sachs had not been furnished with any such
evaluation or appraisal. Goldman Sachs had assumed with Daig's consent that
the Merger will be accounted for as a pooling of interests under generally
accepted accounting principles.
The following is a summary of the material financial analyses used by Goldman
Sachs in connection with providing its oral opinion to Daig's Board of
Directors on January 29, 1996, which oral opinion was subsequently confirmed
in writing.
(i) SELECTED COMPANIES ANALYSIS. Goldman Sachs reviewed and compared
certain financial information relating to Daig and SJM to corresponding
financial information, ratios and public market multiples for seven
publicly-traded corporations, including SJM, with large market
capitalizations: Arrow International Inc., Boston Scientific Corporation,
C.R. Bard Inc., Guidant Corporation, Medtronic, Inc., Thermo Cardiosystems
Inc. and SJM (the "Selected Companies"). The Selected Companies were
chosen because they are publicly-traded companies with operations that for
purposes of analysis may be considered similar to Daig and SJM. Goldman
Sachs calculated and compared various financial multiples and ratios. The
multiples of Daig and SJM were calculated using a price of $23.25 per
share of Daig Common Stock and $44.63 per share of SJM Common Stock, the
closing price of such shares on January 26, 1996, and the multiples of the
Selected Companies were calculated using closing market prices for such
companies on January 26, 1996. Except as set forth below, the multiples
and ratios for Daig, SJM and each of the Selected Companies were based on
the most recent publicly available information. With respect to the
Selected Companies, Goldman Sachs considered levered market capitalization
(i.e., market value of common equity plus estimated market value of debt
less cash) as a multiple of latest twelve months ("LTM") revenues and as a
multiple of LTM earnings before interest and taxes ("EBIT"). Goldman
Sachs' analyses of the Selected Companies indicated levered multiples of
LTM revenues, which ranged from a low of 2.0x to a high of 136.5x, with a
mean of 23.8x and a median of 4.5x, and LTM EBIT, which ranged from a low
of 12.9x to a high of 27.7x, with a mean of 16.9x and a median of 16.8x,
compared to levered multiples of 8.8x and 25.5x, respectively, for Daig
and levered multiples of 4.4x and 16.6x, respectively, for SJM. Goldman
Sachs also considered for the Selected Companies LTM and estimated
calendar year 1995 and 1996 price/earnings ratios (based on Institutional
Broker Estimate System ("IBES") estimates as of January 15, 1996), which
for the Selected Companies ranged from a low of 22.5x to a high of 54.5x,
with a mean of 29.9x and a median of 26.8x, for LTM, a low of 16.8x to a
high of 42.8x, with a mean of 25.5x and a median of 24.7x, for estimated
calendar year 1995, and a low of 14.9x to a high of 30.7x, with a mean of
20.1x and a median of 21.1x, for estimated calendar year 1996, compared to
35.8x, 29.1x and 23.7x, respectively, for Daig and 25.4x, 24.7x and 21.1x,
respectively, for SJM; LTM net margins and LTM EBIT margins for the
Selected Companies, ranged from a low of 7.1% to a high of 26.3%, with a
mean of 15.6% and a median of 16.2%, and a low of 5.6% to a high of 30.7%,
with a mean of 21.6% and a median of 25.0%, respectively, compared to
25.8% and 34.3%, respectively, for Daig and 17.4% and 26.5%, respectively,
for SJM; and five-year earnings per share ("EPS") growth rate (based on
IBES estimates) for the Selected Companies ranged from a low of 12.0% to a
high of 50.0%, with a mean of 22.2% and a median of 19.0%, compared to
25.0% for Daig and 14.6% for SJM. IBES is a data service which monitors
and publishes a compilation of earnings estimates produced by selected
research analysts on companies of interest to investors. The estimated
calendar year 1996 price/earnings ratio to five-year EPS growth rate for
the Selected Companies ranged from a low of 0.9x to a high of 1.6x, with a
mean of 1.2x and a median of 1.3x, compared to 0.9x for Daig and 1.4x for
SJM. The review also indicated that total debt to capitalization for the
Selected Companies ranged from a low of 2.9% to a high of 57.0%, with a
mean of 22.6% and a median of 18.7%, compared to 0.0% for Daig and 17.3%
for SJM.
Goldman Sachs reviewed and compared certain financial information
relating to Daig and SJM to corresponding financial information, ratios
and public market multiples for three publicly traded corporations with
small market capitalizations: Endosonics Corp., InControl, Inc. and
Ventritex Inc. (the "Small Cap Selected Companies"). Goldman Sachs
calculated and compared various financial multiples and ratios. The
multiples of Daig and SJM were calculated using a price of $23.25 per
share of Daig Common Stock and $44.63 per share of SJM Common Stock, the
closing price of such shares on January 26, 1996, and the multiples of the
Small Cap Selected Companies were calculated using the closing market
prices for such companies on January 26, 1996. Except as set forth below,
the multiples and ratios for Daig, SJM and each of the Small Cap Selected
Companies were based on the most recent publicly available information.
With respect to the Small Cap Selected Companies, Goldman Sachs considered
levered market capitalization as a multiple of LTM revenues. Goldman
Sachs' analyses of the Small Cap Selected Companies indicated levered
multiples of LTM revenues for the two companies for which such data was
available, which ranged from a low of 3.2x to a high of 9.6x, compared to
a levered multiple of 8.8x for Daig and 4.4x for SJM. Goldman Sachs also
considered for the Small Cap Selected Companies estimated calendar year
1995 price/earnings ratios (based on IBES estimates as of January 15,
1996), which for the one company for which such data was available was
40.8x, compared to 29.1x for Daig and 24.7x for SJM; and five-year EPS
growth rate (based on IBES estimates) for the two Small Cap Selected
Companies for which such information was available ranged from a low of
30.0% to a high of 50.0%, compared to 25.0% for Daig and 14.6% for SJM.
The estimated calendar year 1996 price/earnings ratio to five-year EPS
growth rate for the two Small Cap Selected Companies for which such
information was available was 0.0x, compared to 0.9x for Daig and 1.4x for
SJM. The review also indicated that total debt to capitalization for the
Small Cap Selected Companies ranged from a low of 0.0% to a high of 14.5%,
compared to 0.0% for Daig and 17.3% for SJM.
(ii) DISCOUNTED CASH FLOW ANALYSIS. Goldman Sachs performed a
discounted cash flow analysis under the following four scenarios: (a)
using Daig's managements forecasts (the "Management Case"), (b) using
Daig's managements forecasts, but assuming only 90% of the revenues
forecasted are achieved and margins remain constant (the "Second Case"),
(c) using Daig's managements forecasts, but assuming only 75% of the
revenues forecasted are achieved and margins remain constant (the "Third
Case"), and (d) using IBES earnings estimates through 1997 and assuming
25% growth rate per year thereafter, depreciation and capital expenditures
increase by 25% per year and working capital remains the same (the "Fourth
Case"). Goldman Sachs calculated a net present value of free cash flows
for the years 1996 through 2000 using discount rates ranging from 20.0% to
30.0%. Goldman Sachs calculated Daig's terminal values in the year 2000
based on multiples ranging from 8.0x EBIT to 20.0x EBIT. These terminal
values were then discounted to present value using discount rates ranging
from 20.0% to 30.0%.
Using Daig's terminal values in the year 2000 based on multiples
ranging from 8.0x EBIT to 20.0x EBIT and discounting these terminal values
to present value using discount rates ranging from 20.0% to 30.0%, the
implied per share values (which is the present value of cash flows plus
the terminal value, less net debt, divided by the number of Shares
outstanding) ranged from a low of $18 to a high of $60 in the Management
Case, from a low of $16 to a high of $54 in the Second Case, from a low of
$13 to a high of $45 in the Third Case and from a low of $8 to a high of
$26 in the Fourth Case.
(iii) SELECTED TRANSACTIONS ANALYSIS. Goldman Sachs analyzed certain
information relating to thirty-four selected transactions in the medical
device and hospital supply industries since 1982 where the aggregate
merger consideration exceeded $200 million (the "Selected Transactions").
The comparisons to Daig referred to below assume a conversion ratio of
0.653 (which is higher than the 0.651733 Conversion Ratio for the Merger)
and aggregate equity merger consideration of $444.0 million (the
approximate amount of the merger consideration is based on the closing
price of SJM Common Stock on January 26, 1996). Such analysis indicated
that for the Selected Transactions aggregate consideration as a multiple
of (i) LTM sales ranged from a low of 0.4x to a high of 8.1x, with a mean
of 2.7x and a median of 1.8x, as compared to 11.1x for Daig (based on
actual 1995 net sales), (ii) LTM EBIT ranged from a low of 8.3x to a high
of 39.1x, with a mean of 17.7x and a median of 16.0x, as compared to 32.6x
for Daig (based on actual 1995 EBIT), and (iii) LTM net income ranged from
a low of 13.3x to a high of 58.5x, with a mean of 34.2x and a median of
31.9x, as compared to 45.5x for Daig (based on actual 1995 EPS). Such
analysis also indicated that for the Selected Transactions, the percentage
of premium paid (based on the stock price of the companies four weeks
prior to the announcement of the transaction) ranged from a low of 1.0% to
a high of 132.4%, with a mean of 55.9% and a median of 55.6%, as compared
to 25.3% for Daig.
(iv) PRO FORMA MERGER ANALYSIS. Goldman Sachs prepared pro forma
analyses of the financial impact of the Merger. Using earnings estimates
for Daig (adjusted to reflect a December 31 fiscal year end) and SJM
prepared by their respective managements for the years 1996, 1997 and
1998, Goldman Sachs compared the EPS of SJM Common Stock, on a standalone
basis, to the EPS of the common stock of the combined companies on a pro
forma basis. These comparisons were based on the following assumptions:
(i) a conversion ratio of 0.653 (which is higher than the 0.651733
Conversion Ratio for the Merger), (ii) aggregate merger consideration of
$444.0 million, and (iii) price to be paid in the Merger per Share of Daig
Common Stock of $29.14 (assumes a market value of $44.63 per share of SJM
Common Stock at the Effective Time of the Merger). Based on such analyses,
the proposed transaction would be dilutive to SJM's stockholders on an
earnings per share basis in 1996 and accretive to SJM's stockholders on an
earnings per share basis in 1997 and 1998.
Goldman Sachs also prepared a pro forma merger analysis of the
financial impact of the Merger using earnings estimates for Daig (adjusted
to reflect a December 31 fiscal year end) and SJM prepared by IBES for the
years 1996, 1997 and 1998. Goldman Sachs compared the EPS of SJM Common
Stock, on a standalone basis, to the EPS of the common stock of the
combined companies on a pro forma basis. These comparisons were based on
the following assumptions: (i) a conversion ratio of 0.653 (which is
higher than the 0.651733 Conversion Ratio for the Merger), (ii) aggregate
merger consideration of $444.0 million, and (iii) price to be paid in the
Merger per Share of Daig Common Stock of $29.14 (assumes a market value of
$44.63 per share of SJM Common Stock at the Effective Time of the Merger).
Based on such analyses, the proposed transaction would be dilutive to
SJM's stockholders on an earnings per share basis in 1996, 1997 and 1998.
(v) CONTRIBUTION ANALYSIS. Goldman Sachs reviewed certain historical
and estimated future operating and financial information (including, among
other things, revenues, research and development expenses, selling,
general and administrative expenses, EBIT, net income, net cash and total
assets) for Daig, SJM and the combined entity resulting from the Merger
based on historical figures, IBES estimates, Daig's management's estimates
(adjusted to reflect a December 31 fiscal year end) and Goldman Sachs'
research as of November 1995 regarding SJM. The analysis indicated that,
using a price of $23.25 per share of Daig Common Stock and $44.63 per
share of SJM Common Stock, the closing price of such shares on January 26,
1996, the Daig stockholders would contribute 10.2% of the equity market
capitalization and 9.7% of the levered market capitalization of the
combined entity. Goldman Sachs analyzed the relative contribution of Daig
and SJM to the combined companies based on actual 1994 and estimated years
1995, 1996 and 1997. This analysis indicated that (i) in 1994 Daig would
have contributed 8.6% to combined revenues, 11.4% to combined research and
development expenses, 8.2% to combined selling, general and administrative
expenses, 7.3% to combined EBIT and 9.3% to combined net income, (ii) in
estimated calendar year 1995 Daig would contribute 5.5% to combined
revenues, 5.1% to combined research and development expenses, 4.4% to
combined selling, general and administrative expenses, 6.9% to combined
EBIT and 7.5% to combined net income, (iii) in estimated calendar year
1996 Daig would contribute 7.2% to combined revenues, 7.3% to combined
research and development expenses, 5.9% to combined selling, general and
administrative expenses, 8.9% to combined EBIT, 8.9% to combined net
income and 8.0% to combined net income based on IBES estimates, and (iv)
in estimated calendar year 1997 Daig would contribute 10.5% to combined
revenues, 10.4% to combined research and development expenses, 8.6% to
combined selling, general and administrative expenses, 12.9% to combined
EBIT, 12.5% to combined net income and 8.6% to combined net income based
on IBES estimates. The analysis also indicated that Daig would contribute
11.0% of net cash of the combined companies and 3.4% of total assets to
the combined companies.
(vi) ANALYSIS AT VARIOUS PRICES. Goldman Sachs prepared a financial
analysis of the Merger and calculated various financial multiples assuming
a conversion ratio of 0.653 (which is higher than the 0.651733 Conversion
Ratio for the Merger) and based upon (i) the following amounts of
aggregate equity consideration (assuming 15,236,144 shares of Daig Common
Stock outstanding on September 30, 1995): $398.0 million, $422.8 million,
$444.0 million, $447.7 million and $472.6 million and (ii) the following
amounts of aggregate levered consideration: $379.1 million, $404.0
million, $425.1 million, $428.9 million and $453.7 million. Since the
total value of the aggregate equity consideration and aggregate levered
consideration will fluctuate with increases or decreases in the market
value of the SJM Common Stock, Goldman Sachs performed this analysis
assuming the foregoing range. Goldman Sachs calculated multiples of the
aggregate levered consideration to: (a) net sales; (b) earnings before
interest, taxes, depreciation and amortization ("EBITDA"); and (c) EBIT.
This analysis indicated that multiples of (i) 1995 net sales ranged from a
low 9.9x to a high of 11.8x; (ii) estimated 1996 net sales ranged from a
low of 7.1x to a high of 8.5x; and (iii) estimated 1997 net sales ranged
from a low of 4.5x to a high of 5.4x. This analysis also indicated that
multiples of (i) 1995 EBITDA ranged from a low of 26.6x to a high of
31.8x, (ii) estimated 1996 EBITDA ranged from a low of 19.2x to a high of
23.0x and (iii) estimated 1997 EBITDA ranged from a low of 11.8x to a high
of 14.1x. This analysis also indicated that multiples of (i) 1995 EBIT
ranged from a low of 29.1x to a high of 34.8x, (ii) estimated 1996 EBIT
ranged from a low of 20.6x to a high of 24.7x and (iii) estimated 1997
EBIT ranged from a low of 12.4x to a high of 14.8x. Goldman Sachs also
calculated multiples of the aggregate equity consideration to: (a) EPS and
(b) book value. This analysis indicated that multiples of (i) 1995 EPS
ranged from a low of 40.8x to a high of 48.5x, (ii) estimated 1996 EPS
(based on Daig's management estimates) ranged from a low of 32.2x to a
high of 38.3x, (iii) estimated 1997 EPS (based on Daig's management
estimates) ranged from a low of 19.5x to a high of 23.1x, (iv) estimated
1996 EPS (based on IBES estimates) ranged from a low of 32.7x to a high of
38.8x and (v) estimated 1997 EPS (based on IBES estimates) ranged from a
low of 26.7x to a high of 31.7x. This analysis also indicated that
multiples of 1995 book value ranged from a low of 12.5x to a high of
14.9x.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analysis as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses. No
company or transaction used in the above analyses as a comparison is
identical to Daig or SJM or the contemplated transaction. The analyses were
prepared solely for purposes of Goldman Sachs' providing its opinion to the
Daig Board of Directors as to the fairness of the Conversion Ratio pursuant
to the Merger Agreement to the holders of Daig Common Stock and do not
purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts
of future results are not necessarily indicative of actual future results,
which may be significantly more or less favorable than suggested by such
analyses. Because such analyses are inherently subject to uncertainty, being
based upon numerous factors or events beyond the control the parties or their
respective advisors, none of Daig, SJM, Goldman Sachs or any other person
assumes responsibility if future results are materially different from those
forecast.
As described above, Goldman Sachs' opinion to the Board of Directors of Daig
was one of many factors taken into consideration by the Daig Board of
Directors in making its determination to approve the Merger Agreement. The
foregoing summary does not purport to be a complete description of the
analysis performed by Goldman Sachs and is qualified by reference to the
written opinion of Goldman Sachs set forth in Exhibit C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, and valuations for estate, corporate and other purposes. Daig
selected Goldman Sachs as its financial advisor because it is a nationally
recognized investment banking firm that has substantial experience in
transactions similar to the Merger. Goldman Sachs has provided certain
investment banking services to SJM from time to time.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of Daig and/or SJM for its own account and for the account of
customers. As of January 25, 1996, Goldman Sachs had a long position of
91,786 shares of SJM Common Stock.
Pursuant to a letter agreement dated September 25, 1995 (the "Engagement
Letter"), Daig engaged Goldman Sachs to act as its financial advisor in
connection with the possible sale of all or a portion of Daig. Upon execution
of the Engagement Letter, Daig paid Goldman Sachs a fee of $150,000, such fee
to be credited toward the payment of the transaction fee set forth below.
Pursuant to the terms of the Engagement Letter, Daig has agreed to pay
Goldman Sachs (i) upon the purchase of 50% or more of the Daig Common Stock
or the assets (based on book value thereof) of Daig in one or a series of
transactions, including, but not limited to, private or open market purchases
of stock, a tender offer, a merger or a sale by Daig of its stock or assets,
a transaction fee of 1.0% of the aggregate consideration paid in such
transactions and (ii) if less than 50% of the outstanding Daig Common Stock
or assets (based on the book value thereof) of Daig is acquired in the manner
set forth in (i) above, a transaction fee to be mutually agreed upon by
Goldman Sachs and Daig but in no event less than 1.0% of the aggregate
consideration paid in such transactions. Daig has agreed to reimburse Goldman
Sachs for its reasonable out-of-pocket expenses, including attorney's fees,
and to indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws. SJM and Daig estimate that
Goldman Sachs will receive a transaction fee of between $4.0 million and $4.4
million in connection with the consummation of the Merger and will receive
reimbursement for approximately $75,000 in out-of-pocket expenses.
CERTAIN FEDERAL TAX CONSEQUENCES
SJM and Daig expect that the Merger will be treated as a tax-free
reorganization within the meaning of Section 368 of the Code and that for
federal income tax purposes no gain or loss will be recognized by any Daig
shareholder upon receipt of SJM Common Stock pursuant to the Merger (except
upon the receipt of cash by holders who exercise their dissenters' rights or
by other holders in lieu of fractional shares of SJM Common Stock). The
Internal Revenue Service (the "Service") has not been and will not be asked
to rule upon the tax consequences of the Merger. Instead, Daig will rely upon
the opinion of Dorsey & Whitney, its special counsel, as to certain federal
income tax consequences of the Merger to the Daig shareholders. The opinion
of Dorsey & Whitney is based upon the facts described herein, various
representations and covenants made by Daig, SJM and certain shareholders of
Daig, and subject to various assumptions and qualifications. The opinion of
Dorsey & Whitney is also based upon the Code, regulations now in effect
thereunder, current administrative rulings and practice, and judicial
authority, all of which are subject to change. Unlike a ruling from the
Service, an opinion of counsel is not binding on the Service and there can be
no assurance, and none is hereby given, that the Service will not take a
position contrary to one or more positions reflected herein or that the
opinion will be upheld by the courts if challenged by the Service. EACH
HOLDER OF DAIG COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR
AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER, AND ALSO AS TO ANY
STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES, BASED ON SUCH HOLDER'S OWN
PARTICULAR FACTS AND CIRCUMSTANCES.
Based upon the facts described herein, various representations and covenants
made by Daig, SJM and certain shareholders of Daig, and subject to various
assumptions and qualifications, Dorsey & Whitney has delivered its opinion
that the following federal income tax consequences will result from the
Merger:
(i) The Merger will qualify as a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code and Daig, SJM and Merger
Subsidiary each will be a party to the reorganization within the meaning of
Section 368(b) of the Code;
(ii) No income, gain or loss will be recognized by Daig or SJM as a result of
the consummation of the Merger;
(iii) Subject to items (vi) and (vii) below, no gain or loss will be
recognized by the holders of Daig Common Stock upon the exchange of Daig
Common Stock solely for the SJM Common Stock pursuant to the Merger;
(iv) The basis of the SJM Common Stock received by a shareholder of Daig
pursuant to the Merger, including any fractional shares deemed received as
described in item (vi) below, will be the same as the basis of the Daig
Common Stock surrendered in exchange therefor;
(v) The holding period of the SJM Common Stock received by a shareholder of
Daig pursuant to the Merger will include the period during which the Daig
Common Stock surrendered therefor was held, provided the Daig Common Stock is
a capital asset in the hands of the shareholder of Daig at the time of the
Merger;
(vi) Where cash is received by a holder of Daig Common Stock pursuant to the
Merger in lieu of fractional shares of SJM Common Stock, the cash payment
will be treated as received by the holder of Daig Common Stock as a
distribution in redemption of the fractional share interest and such
shareholder will recognize gain or loss, subject to the provisions and
limitations of Section 302 of the Code; and
(vii) Where cash is received by a holder of Daig Common Stock who exercises
dissenters' rights, the cash payment will be treated as received by the
holder of Daig Common Stock as a distribution in redemption of such
shareholder's Daig Common Stock and such shareholder will recognize gain or
loss, subject to the provisions and limitations of Section 302 of the Code.
The opinion described above is based upon certain assumptions, including the
assumption that the holders of Daig Common Stock do not have any plan or
intention to sell, exchange or otherwise dispose of a number of shares of SJM
Common Stock received pursuant to the Merger that would reduce the ownership
of SJM Common Stock by all of the pre-Merger holders of Daig Common Stock to
a number of shares having a value, as of the date of the Merger, of less than
50% of the value of all of the formerly outstanding Daig Common Stock as of
the same date.
The foregoing is only a general description of certain anticipated federal
income tax consequences of the Merger without regard to the particular facts
and circumstances of the tax situation of each shareholder of Daig. It does
not discuss all of the consequences that may be relevant to Daig shareholders
entitled to special treatment under the Code (such as insurance companies,
dealers in securities, exempt organizations or foreign persons) or to
shareholders of Daig who acquired their Daig Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation. The summary
set forth above does not purport to be a complete analysis of all potential
tax effects of the transactions contemplated by the Merger Agreement or the
Merger itself. No information is provided herein with respect to the tax
consequences, if any, of the Merger under state, local or foreign tax laws.
ACCOUNTING TREATMENT
The Merger will be accounted for using the pooling of interests method under
generally accepted accounting principles. The pooling of interests method of
accounting is intended to present as a single interest two or more common
stockholder interests which were previously independent. The pooling of
interests method of accounting assumes that the combining companies have been
merged from inception. Consequently, the historical financial statements for
periods prior to consummation of the Merger are restated as though the
companies had been combined. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT
- -- CONDITIONS TO CONSUMMATION OF THE MERGER" and "UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS."
Under the Merger Agreement, neither SJM nor any of its subsidiaries may take
any action that would prevent the Merger from qualifying for pooling of
interests accounting treatment. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- CONDUCT OF BUSINESS PENDING THE MERGER." In addition, it is a
condition precedent to the obligation of SJM to consummate the Merger that
SJM receives from each of Grant Thornton LLP and Ernst & Young LLP a letter,
dated as of the Effective Date, confirming their respective reports dated
January 29, 1996, that with respect to Daig, based upon procedures performed,
there have been no common stock transactions, changes in equity ownership or
ownership affiliations that would preclude SJM from accounting for the Merger
as a pooling of interests, and that with respect to SJM, the Merger will be
treated as a pooling of interests under applicable accounting standards and
Commission rules and regulations. Among other things, such letters will be
subject to the condition that less than 10% of the merger consideration will
consist of cash, including (i) cash paid to holders of outstanding shares of
Daig Common Stock who dissent from the proposed Merger and receive cash for
their shares of Common Stock, and (ii) cash paid in the Merger in lieu of
fractional shares of SJM Common Stock. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT -- CONDITIONS TO CONSUMMATION OF THE MERGER."
RESALE OF SJM COMMON STOCK; AGREEMENTS WITH AFFILIATES OF DAIG AND SJM
The shares of SJM Common Stock to be issued in the Merger will be registered
under the Securities Act on a registration statement of which this Proxy
Statement/Prospectus is a part, thereby allowing such shares of SJM Common
Stock to be traded without restriction by all holders not deemed to be
affiliates of Daig prior to the consummation of the Merger.
Prior to the execution of the Merger Agreement, Daig caused each principal
executive officer, each director and each other person whom Daig deemed, in
its reasonable judgment, to be an affiliate of Daig to deliver to SJM an
agreement (each a "Daig Affiliate Agreement") pursuant to which, among other
things, each such person agreed not to sell, transfer or otherwise dispose of
any shares of Daig Common Stock or SJM Common Stock during the period
immediately preceding the Effective Time and until such time after the
Effective Time as SJM has publicly released a report including the combined
financial results of SJM and Daig for a period of at least 30 days of
post-Effective Time combined operations of SJM and Daig within the meaning of
Commission Accounting Series Release No. 130, as amended. Furthermore,
pursuant to the Daig Affiliate Agreements, each of such persons will agree to
refrain from the sale or transfer of any SJM Common Stock received in
connection with the Merger except in accordance with the provisions of the
Securities Act and the general rules and regulations promulgated thereunder.
Compliance with Daig Affiliate Agreements is an element required for SJM to
account for the Merger as a pooling of interests.
Affiliates of SJM will also be subject to certain limitations on their
ability to sell, transfer or otherwise dispose of shares of SJM Common Stock
during the period preceding the Merger. SJM will, at least 30 days prior to
the Effective Date, enter into an agreement with each person SJM believes to
be an affiliate of SJM relating to the restrictions on transfer resulting
from the Merger being accounted for as a pooling of interests in accordance
with generally accepted accounting principles and all published rules,
regulations and policies of the Commission.
REGULATORY APPROVALS
The Merger is subject to the requirements of the HSR Act and the rules
promulgated thereunder by the FTC, which prohibit consummation of the Merger
unless notice has been given and certain information has been furnished to
the Antitrust Division and the FTC and certain waiting period requirements
have been satisfied.
Each of SJM, Daig, Mr. Fleischhacker and Mr. Starks filed notification and
report forms under the HSR Act with the FTC and the Antitrust Division on or
about February 20, 1996. SJM and Daig received notice of early termination of
the waiting period under the HSR Act effective March 5, 1996. Nevertheless,
at any time before or after the Effective Time, the FTC or the Antitrust
Division could take such action under federal antitrust laws as it should
deem necessary or desirable in the public interest, including seeking to
enjoin the Merger or seeking the divestiture of Daig or SJM, in whole or in
part, or the divestiture of substantial assets of SJM, its subsidiaries or
Daig. State Attorneys General and private parties may also bring legal
actions under the federal or state antitrust laws under certain
circumstances. Based on an examination of information available to SJM and
Daig relating to the businesses in which SJM, its subsidiaries and Daig are
engaged, SJM and Daig believe that consummation of the Merger will not
violate any antitrust laws. There can be no assurance, however, that a
challenge to the proposed Merger on antitrust grounds will not be made or, if
such a challenge is made, that SJM and Daig will prevail.
Neither SJM nor Daig is aware of any other governmental approvals or actions
that may be required for consummation of the Merger, except for the filing
and recordation of appropriate Merger documents as required by the MBCA.
Pursuant to the Merger Agreement, SJM and Daig each have agreed to use
commercially reasonable efforts to do all things necessary to consummate the
transactions contemplated by the Merger Agreement.
NASDAQ NATIONAL MARKET LISTING
SJM has filed an application to list the shares of SJM Common Stock to be
issued in connection with the Merger for quotation on Nasdaq. The approval of
such listing is a condition to consummation of the Merger.
CERTAIN EXCHANGE PROCEDURES
As of the Effective Time, SJM will deposit, or will cause to be deposited
with American Stock Transfer & Trust Company or such other bank or trust
company as may be designated by SJM (the "Exchange Agent"), for the benefit
of the holders of Daig Common Stock, certificates representing the shares of
SJM Common Stock (such certificates for shares of SJM Common Stock, together
with any dividends or distributions with respect thereto and any cash in lieu
of fractional shares of SJM Common stock, being hereinafter referred to as
the "Exchange Fund") issuable as of the Effective Time in exchange for
outstanding shares of Daig Common Stock. The Exchange Agent will, pursuant to
irrevocable instructions, deliver the SJM Common Stock contemplated to be
issued out of the Exchange Fund.
As promptly as practicable after the Effective Time, SJM will cause the
Exchange Agent to mail to each holder of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Daig Common Stock (the "Certificates") (i) a letter of transmittal (which
shall specify that delivery will be effected, and risk of loss and title to
the Certificates will pass, only upon proper delivery of the Certificates to
the Exchange Agent, and shall be in customary form) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for
certificates representing shares of SJM Common Stock. Upon surrender to the
Exchange Agent of a Certificate for cancellation, together with such letter
of transmittal, duly executed, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate will be
entitled to receive in exchange therefor a certificate representing that
number of whole shares of SJM Common Stock which such holder has the right to
receive in respect of the Daig Common Stock formerly represented by such
Certificate after taking into account all Daig Common Stock then held by such
holder, together with cash in lieu of any fractional share of SJM Common
Stock to which such holder is entitled (after aggregating all fractional
shares of SJM Common Stock to be received by the holder) and which have
become payable with respect to such whole number of shares of SJM Common
Stock and which have not previously been paid. In the event of a transfer of
ownership of Daig Common Stock that is not registered in the transfer records
of Daig, a certificate representing the proper number of shares of SJM Common
Stock may be issued to a transferee if the Certificate representing such Daig
Common Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. See "CERTAIN PROVISIONS OF
THE MERGER AGREEMENT -- EXCHANGE PROCEDURES."
PLEASE DO NOT SEND ANY CERTIFICATES REPRESENTING SHARES OF DAIG COMMON STOCK
UNTIL YOU RECEIVE THESE MATERIALS.
CONFLICTS OF INTEREST
In considering the recommendation of the Daig Board with respect to the
Merger Agreement, holders of Daig Common Stock should be aware that certain
members of Daig's management and its Board of Directors have interests in the
Merger that are in addition to, and different from, the interests of Daig
shareholders generally.
SHAREHOLDERS' AGREEMENT. Mr. Fleischhacker, Daig's Chairman of the Board,
Chief Executive Officer and a director of Daig, and Mr. Starks, Daig's
President and a director of Daig, have entered into a Shareholders'
Agreement, dated January 29, 1996, with SJM. Under the terms of the
Shareholders' Agreement, which is attached as Exhibit B to this Proxy
Statement/Prospectus and incorporated herein by reference, Mr. Fleischhacker
and Mr. Starks are required to vote certain of their shares of Daig Common
Stock, equal to approximately 20% of the outstanding shares of Daig Common
Stock, in favor of the Merger and the Merger Agreement and against certain
other actions. Messrs. Fleischhacker and Starks have further agreed to
certain other restrictions, including a restriction on the sale, pledge or
other transfer of the shares subject to the Shareholders' Agreement other
than pursuant to the terms of the Merger Agreement. Each of Mr. Fleischhacker
and Mr. Starks has executed an irrevocable proxy in connection with the
Shareholders' Agreement, appointing each of Mr. Matricaria, SJM's President
and Chief Executive Officer, and Kevin T. O'Malley, SJM's Vice President and
General Counsel, as proxy with power to vote the shares subject to the
Shareholders' Agreement in the manner described in the Shareholders'
Agreement.
In addition, Daig expects that the directors and executive officers of Daig,
including Mr. Fleischhacker and Mr. Starks, will vote all of the 8,370,800
shares of Daig Common Stock they beneficially own at the Record Date
(approximately 54.9% of the total number of outstanding shares of Daig Common
Stock at such date) for approval of the Merger Agreement. To the extent that
such directors and executive officers vote in accordance with Daig's
expectation, approval of the Merger Agreement is assured.
DESIGNATED DIRECTOR. It is a condition to Daig's obligation to consummate the
Merger that Mr. Starks shall have been appointed to fill a newly created
directorship on the SJM Board having a term expiring at the SJM annual
meeting of shareholders to be held in 1997. See "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT -- CONSUMMATION OF THE MERGER."
EMPLOYMENT AGREEMENTS. Each of Mr. Fleischhacker and Mr. Starks has entered
into an employment agreement with Daig that will become effective at the
Effective Time. The employment agreements provide that Messrs. Fleischhacker
and Starks will be employed as Chairman and Chief Executive Officer and
President and Chief Operating Officer, respectively. These agreements, which
have a term of two years each, set the annual base salary for each individual
($300,000 for Mr. Fleischhacker and $250,000 for Mr. Starks), provide that
each individual shall be eligible to participate in SJM's bonus, stock option
and benefits programs, and contain certain provisions regarding confidential
information, assignment of inventions, non-competition and non-solicitation.
In addition, each of Mr. Fleischhacker and Mr. Starks has entered into an
agreement with SJM, similar to the agreements currently provided to SJM
executives, with regard to the treatment to be accorded such executives upon
the occurrence of certain events that result in a "change in control" (as
defined in such agreements) of SJM. SJM has entered into employment
agreements with substantially all of its executive officers. In the event of
any "change in control" as defined in the agreements and for a period of
three years thereafter, if an officer's employment is terminated (i) by SJM
for reasons other than death, retirement, disability or "cause," or (ii) or
the officer for "good reason," then SJM shall pay a severance payment,
generally equal to two times the prior twelve months' compensation if the
officer's employment with SJM has exceeded three years and one times the
prior twelve months' compensation if such employment was less than three
years. "Cause" means conviction by a court of competent authority for felony
criminal conduct. "Good reason" means substantial and material reduction of
principal duties, responsibilities and reporting obligations or a reduction
in annual compensation. In general, a change in control occurs when there has
been any change in the controlling persons reported in the Company's proxy
statements, when 40% or more of the Company's outstanding voting stock is
acquired by any person, or when current members of the Board of Directors or
their successors elected or nominated by such members cease to be a majority
of the Board of Directors.
Mr. Heinmiller, Daig's Vice President -- Finance and Administration, has
entered into an employment agreement with Daig having a term of one year from
the Effective Time of the Merger, unless earlier terminated. The agreement
provides that Mr. Heinmiller will be employed as Daig's Vice President --
Finance and Administration at a base salary of $137,000 per annum together
with a guaranteed annual bonus equal to 30% of this base salary, will receive
an option to purchase 4,500 shares of SJM Common Stock at the fair market
value on the date of grant (the "Stock Option"), will have the right to
participate in SJM's benefit programs and will be subject to certain
provisions regarding confidential information, assignment of inventions,
non-competition and non-solicitation. The Stock Option will vest at the rate
of 25% per year over a period of four years provided Mr. Heinmiller remains
continuously employed by Daig. If the employment agreement terminates under
conditions other than those certain ones specifically described in the
agreement, Mr. Heinmiller will be entitled to receive a bonus payment of
$322,000. If the payment is not made and Mr. Heinmiller is not employed by
Daig or an affiliate within one year after expiration of the term of the
employment agreement, Mr. Heinmiller will be entitled to a bonus payment of
$20,833.33 per month for each month in the one-year period following the
expiration of the employment agreement in which he is not employed by Daig or
an affiliate. In addition, SJM has agreed to allow a $440,000 interest-free
loan from Daig to Mr. Heinmiller to remain outstanding after the Effective
Time. SJM has also agreed with Mr. Heinmiller that, in the event the Daig
Option has not been exercised prior to the Closing Date, SJM will file an
amendment to a registration statement covering shares of its stock to permit
Mr. Heinmiller to exercise the option and receive registered shares of SJM
Common Stock.
EMPLOYEE BENEFITS. The Merger Agreement provides that following the Effective
Time, SJM will provide benefits to Daig's employees and officers that are
comparable to those such employees and officers had prior to the Effective
Time or comparable to the benefits provided to similarly situated employees
of SJM and its other subsidiaries and will grant all such employees and
officers credit for all service with Daig prior to the Effective Time for all
purposes. SJM has agreed to provide employees and officers (other than
Messrs. Fleischhacker, Starks and Heinmiller, whose compensation is covered
by their employment agreements) comparable compensation, taken as a whole, to
the compensation such employees received prior to the Effective Time.
INDEMNIFICATION; INSURANCE AND INDEMNIFICATION AGREEMENTS. Under the Merger
Agreement, SJM has agreed to cause the Surviving Corporation, for the
six-year period following the Effective Time, to indemnify the present and
former officers and directors of Daig for acts or omissions occurring prior
to the Effective Time to the extent provided under Daig's Articles of
Incorporation and Bylaws, and indemnification agreements between Daig and
such persons in effect on January 29, 1996. The Merger Agreement also
provides that SJM and the Surviving Corporation will enter into
indemnification agreements similar to those indemnification agreements
currently provided to SJM executives and directors with those Daig employees
and officers holding positions comparable to the SJM recipients of the SJM
indemnification agreements. The indemnification agreements that SJM has
entered into with each of its directors and officers provide for
indemnification against certain costs incurred by each director and officer
made or threatened to be made a party to a proceeding because of his or her
official capacity as a director or officer. Such indemnification agreements,
together with SJM's Bylaws, provide for indemnification to the full extent
permitted by Minnesota law.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger Agreement
not summarized elsewhere in this Proxy Statement/Prospectus. The following
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is attached as Exhibit A
to this Proxy Statement/Prospectus and is incorporated herein by reference.
All Daig shareholders are urged to read the Merger Agreement and the other
Exhibits hereto in their entirety.
CONVERSION OF SECURITIES
At the Effective Time, by virtue of the Merger and without any action on the
part of Merger Subsidiary, Daig or the holders of any of the following
securities, each share of Daig Common Stock outstanding immediately prior to
the Effective Time (other than (i) any shares of Daig Common Stock owned by
SJM, Merger Subsidiary or Daig, which will be canceled and retired without
any conversion or the payment or delivery of any consideration; (ii)
fractional shares; and (iii) shares for which dissenters' rights have been
perfected) shall be canceled and converted into the right to receive .651733
of a share (the "Conversion Ratio") of SJM Common Stock.
Each share of Common Stock of Merger Subsidiary outstanding immediately prior
to the Effective Time shall be converted into one validly issued, fully paid
and nonassessable share of common stock of the Surviving Corporation. Each
such share shall be owned by SJM.
EXCHANGE PROCEDURES
After the Effective Time, each holder of an outstanding certificate or
certificates theretofore representing shares of Daig Common Stock
("Certificates"), upon surrender thereof to American Stock Transfer & Trust
Company or such other banking institution as may be designated by SJM (the
"Exchange Agent"), will be entitled to receive in exchange therefor a
certificate representing that number of whole shares of SJM Common Stock into
which the shares of Daig Common Stock formerly represented by such
Certificate shall have been converted, together with cash in lieu of any
fractional share of SJM Common Stock to which such holder is entitled (after
aggregating all fractional shares of SJM Common Stock to be received by the
holder) and the amount, without interest, of any dividends or other
distributions to which such holder is entitled which have become payable with
respect to such whole number of shares of SJM Common Stock and which have not
previously been paid. Until surrendered as described herein, each Certificate
will be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the number of whole shares of SJM Common
Stock into which the shares of Daig Common Stock theretofore represented
thereby shall have been converted together with cash in lieu of any
fractional share of SJM Common Stock to which such holder is entitled and any
dividends or other distributions to which such holder is entitled. Until so
surrendered, SJM may, at its option, refuse to pay any dividend or other
distribution payable to holders of SJM Common Stock.
Any shares of SJM Common Stock deposited with the Exchange Agent that remain
unclaimed twelve months after the Effective Time shall be returned to SJM
upon demand. Thereafter, the holder of a Certificate who has not exchanged
such Certificate prior to such time will be able to look only to SJM for any
claim for shares of SJM Common Stock, cash in lieu of fractional shares and
any distributions or dividends. SJM shall not be liable to any holder of SJM
Common Stock for any amounts paid to a public official pursuant to applicable
abandoned property laws. See "THE MERGER -- CERTAIN EXCHANGE PROCEDURES."
NO FURTHER RIGHTS IN DAIG COMMON STOCK
Whether or not a Certificate is surrendered, from and after the Effective
Time it shall under no circumstances evidence, represent or otherwise
constitute any stock or other interest whatsoever in Daig, the Surviving
Corporation or any other person, firm or corporation other than SJM and SJM's
successors.
NO FRACTIONAL SHARES
No fraction of a share of SJM Common Stock will be issued upon the surrender
for exchange of Certificates, but in lieu thereof, each holder of shares of
Daig Common Stock will be entitled to receive an amount in cash equal to the
product obtained by multiplying (i) such fractional share (after aggregating
all fractional shares of SJM Common Stock to be received by such holder) by
(ii) the Reference Market Value. For purposes of the Merger Agreement, the
Reference Market Value of SJM Common Stock shall mean the average of the
closing sale prices (in thousandths) on Nasdaq of SJM Common Stock as
reported in THE WALL STREET JOURNAL for the 20 trading days immediately
preceding the fifth trading day prior to the Effective Time.
DAIG STOCK OPTION
On execution of the Merger Agreement, the Daig Option became exercisable in
accordance with its terms. At the Effective Time, the Daig Option, an option
to purchase 128,000 shares of Daig Common Stock held by Mr. Heinmiller, an
officer and director of Daig, shall, if then unexercised, by virtue of the
Merger and without any further action on the part of Daig or the holder
thereof, be assumed by SJM and shall be exercisable upon the same terms and
conditions as under the Daig Option prior to the Effective Time, except that
it shall be exercisable for that whole number of shares of SJM Common Stock
into which the number of shares of Daig Common Stock subject to the Daig
Option immediately prior to the Effective Time would have been converted
pursuant to the Merger, at a price per share of SJM Common Stock equal to the
per share Daig Option exercise price divided by the Conversion Ratio. The
Daig Option will terminate 30 days after the Effective Time. SJM has agreed
that, if the Daig Option has not been exercised prior to the Closing Date,
SJM will file an amendment to a registration statement covering shares of its
stock to permit the shares of SJM Common Stock issuable upon exercise of the
Daig Option to be sold to the public following such exercise.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of SJM,
Merger Subsidiary and Daig relating to, among other things, the following
matters (which representations and warranties are subject, in certain cases,
to specified exceptions): (i) the due organization, corporate power and
authority and good standing of, and similar corporate matters with respect
to, each of SJM, Daig and Merger Subsidiary; (ii) each of SJM's and Daig's
capitalization; (iii) the authorization, execution, delivery and consummation
of the Merger Agreement by each party thereto and the enforceability against
each such party of the Merger Agreement; (iv) the absence of the need for
approvals, consents or waivers other than certain specified ones; (v) the
absence of conflict with Daig's Articles of Incorporation, Daig's Bylaws,
SJM's Articles of Incorporation, SJM's Bylaws, with applicable law or with
any contracts to which Daig, SJM or Merger Subsidiary, as the case may be, is
a party; (vi) reports and other documents filed with the Commission and other
regulatory authorities and the accuracy of the information contained therein;
(vii) the absence of certain changes or events between the date of the most
recent audited financial statements filed with the Commission by SJM or Daig
and the date of the Merger Agreement; (viii) the absence of actions taken by
SJM, SJM's affiliates, Daig or Daig's affiliates that would prevent the
Merger from qualifying as a tax-free reorganization; and (ix) opinions of
Piper Jaffray Inc. (for SJM) and Goldman Sachs (for Daig) as to the Merger
consideration and the fairness of the Conversion Ratio to the respective
shareholders of SJM and Daig. In addition, the Merger Agreement contains
certain additional representations and warranties of Daig relating to (i)
title (including leasehold title) to, and the absence of liens against, real
property and assets material to Daig's business, results of operation or
financial condition; (ii) the absence of litigation and other claims and
proceedings; (iii) filing of tax returns, the absence of tax audits, payment
of taxes and related tax matters; (iv) certain employee benefit plans and
ERISA matters; (v) compliance with laws and possession of permits required
for the conduct of Daig's business as now conducted; (vi) the absence of
finder's fees based upon arrangements made by or on behalf of Daig, other
than fees due to Goldman Sachs; (vii) Daig's rights in certain intellectual
property; (viii) certain matters related to environmental laws and the
Occupational Safety and Health Act of 1970 ("OSHA"); (ix) certain Daig
contracts; (x) the possession of certain licenses and absence of certain
notices and proceedings with regard to Daig's products; (xi) inventory; (xii)
accounts and notes receivable; (xiii) employee relations and certain other
matters related to Daig's employees; (xiv) insurance; (xv) the absence of
certain potential conflicts of interest; and (xvi) bank accounts.
CONDUCT OF BUSINESS PENDING THE MERGER
In the Merger Agreement, Daig has agreed that, between January 29, 1996 and
the Effective Time, Daig shall conduct its business in the ordinary course
consistent with past practice and will use reasonable efforts to preserve
intact its business organization and relationships with third parties and to
keep available the services of its present officers and employees. Without
limiting the generality of the foregoing, in the Merger Agreement Daig has
agreed not to: (i) declare, set aside or pay any dividend or other
distribution with respect to any shares of its capital stock; (ii) amend or
alter any term of any outstanding Daig securities; (iii) without the consent
of SJM (A) incur, assume or guarantee any debt other than in the ordinary
course of business consistent with past practices; (B) issue or sell any
securities convertible into or exchangeable for debt securities; or (C) issue
or sell any options or other rights to acquire from Daig, directly or
indirectly, any debt securities or any securities convertible into or
exchangeable for any such debt securities; (iv) create, assume or incur any
"lien" (as defined in the Merger Agreement) on any of its material assets;
(v) except for the issuance of shares pursuant to the exercise of the Daig
Option, (A) issue or sell, or authorize for issuance or sale, any shares of
capital stock of any class or any other securities; or (B) redeem, repurchase
or otherwise acquire any Daig securities; (vi) except in the ordinary course
of business, relinquish any material contract or other material right, make
any payment (direct or indirect) of any material liability before the same
becomes due in accordance with its terms or make any material change in its
operations; (vii) adopt any change in any method of accounting or accounting
practice used by Daig other than by reason of a concurrent change in
generally accepted accounting principles and upon the recommendation of
Daig's independent public accountants; (viii) without the prior written
consent of SJM (A) grant or make any severance or termination payments to any
officer, director or employee of Daig, except pursuant to written agreements
in effect on January 29, 1996 and disclosed to SJM except for normal payments
in the ordinary course of business consistent with past practice; (B) enter
into any employment, deferred compensation or other similar agreement (or
enter into any amendment to any such existing agreement) with any officer,
director or employee; (C) increase benefits payable under any existing
severance or termination pay policies or employment agreements, except for
normal increases in the ordinary course of business consistent with past
practice; or (D) pay or provide for any increase in compensation, bonus, or
other benefits payable to any current or former officer, director,
salesperson, distributor, agent or employee of Daig, other than any grants or
increases in the ordinary course of business consistent with past practice
except to the extent required under existing employment and labor agreements;
(ix) amend its Articles of Incorporation or Bylaws; (x) merge or consolidate
with any person, acquire any stock or other ownership interest in any person
or the assets of any business as an entity or liquidate, dissolve or
otherwise reorganize or seek protection from creditors; (xi) except for those
transactions which constitute an Acquisition Proposal (as defined in the
Merger Agreement), take any action, the taking of which, or omit to take any
action, the omission of which, would reasonably be expected to cause any of
Daig's representations and warranties in the Merger Agreement to be
inaccurate in any respect at or as of any time prior to the Effective Time;
(xii) except for the sale of inventory and the disposition of obsolete or
defective equipment, without the prior written consent of SJM sell, transfer,
mortgage, or otherwise dispose of, or encumber, or agree to sell, transfer,
mortgage or otherwise dispose of or encumber, any assets or properties, real,
personal or mixed, other than in the ordinary course of business consistent
with past practice; (xiii) either (A) enter into any other agreements,
commitments or contracts (including without limitation joint venture
agreements or material license agreements) which, individually or in the
aggregate, are material to Daig, except agreements, commitments or contracts
for the purchase, sale or lease of goods or services, consistent with past
practice; or (B) otherwise make any material change in any existing material
agreement, commitment or arrangement; (xiv) without the prior written consent
of SJM make any investment of a capital nature with a maturity in excess of
180 days either by purchase of stock or securities, contributions to capital,
property transfers or otherwise, or by the purchase of any property or assets
of any other individual, firm or corporation; (xv) without the prior written
consent of SJM purchase any capital items which singly have an installed
purchase price greater than $100,000, or in the aggregate have a purchase
price in excess of $600,000; or (xvi) agree or commit to do any of the
matters set forth in (i) through (xv) above.
In the Merger Agreement Daig has also agreed to do the following: (i) take
certain actions with regard to this Proxy Statement/Prospectus, the Special
Meeting and the solicitation of proxies; (ii) provide SJM, its counsel,
financial advisors, auditors and other authorized representatives with access
to certain information regarding Daig; (iii) notify SJM of the occurrence of
certain events and the receipt of certain documents; (iv) use its reasonable
efforts as promptly as possible to obtain necessary approvals,
authorizations, consents, etc. relating to the Merger; (v) subject to the
fiduciary duties of the Daig Board, use its reasonable efforts to cause to be
fulfilled and satisfied all of the conditions to the Merger to be fulfilled
and satisfied by Daig, to cause to be performed all of the matters required
of Daig at or prior to the Effective Time and to comply with applicable law;
and (vi) exercise certain rights under confidentiality agreements to retrieve
certain confidential information provided to third parties.
In the Merger Agreement, SJM has also agreed: (i) that neither SJM nor any of
its subsidiaries will, without the prior written approval of Daig,
intentionally take any action that would prevent SJM from accounting for the
Merger as a pooling of interests or that would prevent the Merger from
qualifying as a tax-free reorganization; (ii) subject to the fiduciary duties
of the SJM Board, to use its reasonable efforts to cause to be fulfilled and
satisfied all of the conditions to the Merger to be fulfilled and satisfied
by SJM and to cause to be performed all of the matters required of SJM at or
prior to the Effective Time and to comply with applicable law; (iii) to use
its reasonable efforts as promptly as possible to obtain all approvals,
authorizations, consents, etc. necessary for SJM to perform its obligations
under the Merger Agreement; (iv) to advise Daig orally and in writing of the
occurrence of certain events and the receipt of certain documents; (v) to
take certain actions with regard to indemnification of Daig officers and
directors, including the execution at the Effective Time of the
Indemnification Agreements; (vi) to prepare and submit a Nasdaq listing
application for the shares of SJM Common Stock to be issued in the Merger;
(vii) to take such action as shall be necessary to have Mr. Starks appointed
to fill a newly created directorship on the SJM Board, to have a term
expiring at the SJM annual meeting of shareholders to be held in 1997; (viii)
to take certain actions with regard to employee benefits and compensation;
(ix) to take all action necessary to cause the Merger Subsidiary to perform
its obligations under the Merger Agreement and to consummate the Merger upon
the terms and subject to the conditions contained in the Merger Agreement;
(x) to provide Daig, its counsel, financial advisors, auditors and other
authorized representatives with access to certain information regarding SJM;
and (xi) to take certain actions with regard to the registration statement
filed with the Commission of which this Proxy Statement/Prospectus is a part.
See "THE MERGER -- CONFLICTS OF INTEREST."
In the Merger Agreement, SJM and Daig have also mutually agreed to take
certain actions relating to the preparation and distribution of this Proxy
Statement/Prospectus and compliance with federal and state securities and
other laws.
NO SOLICITATION OF TRANSACTIONS
Pursuant to the Merger Agreement, Daig has agreed that it will not, and shall
direct and use its reasonable efforts to cause its officers, directors,
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it) not to, directly or
indirectly, (i) take any further action to solicit, initiate or encourage any
offer or indication of interest from any person with respect to any
Acquisition Proposal (as defined below), including without limitation, any
such further action through any investment banker, broker, finder or other
intermediary previously engaged or which may be engaged for the purpose of
soliciting, initiating or encouraging such offer or indication of interest;
or (ii) engage in negotiations with, or disclose any non-public information
relating to Daig's businesses, assets or operations or afford access to its
properties, books or records to, any person that has made, or that Daig has
good reason to believe may be considering making, an Acquisition Proposal.
Subject to the fiduciary duties of the Daig Board, Daig (i) will promptly
notify SJM after receipt of any Acquisition Proposal or indication, in
writing, that any person is considering making an Acquisition Proposal and
will keep SJM reasonably informed of any such offer or indication; and (ii)
will not enter into any agreement relating to any such Acquisition Proposal
for a period of seven days following receipt by SJM of such notification by
Daig.
"Acquisition Proposal" means any proposal to (i) effect a merger or
consolidation or similar transaction involving Daig or any of its
subsidiaries; (ii) purchase, lease, or otherwise acquire 10% or more of the
assets of Daig or any of its subsidiaries; (iii) purchase or otherwise
acquire (including by way of merger, consolidation, share exchange or similar
transaction) beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of securities representing 10% or more of the voting power of
Daig or any of its subsidiaries; or (iv) the assignment, transfer, licensing
or other disposition of, in whole or in part, the patents, patent rights,
trade secrets or other technology of Daig or any of its subsidiaries, other
than in the ordinary course of business. In the event Daig takes action or
fails to take action required under the exclusivity provisions of the Merger
Agreement due to a belief that to do otherwise would result in a breach of
the fiduciary duties of its Board of Directors, it may do so only after
receipt of a written opinion of its legal counsel or upon advice of its legal
counsel confirmed by a written opinion of such counsel, and a copy of such
opinion must be furnished to SJM.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Daig, SJM and Merger Subsidiary to consummate the Merger
are subject to the satisfaction of the following conditions: (i) the Merger
Agreement shall have been approved by the affirmative vote of the
shareholders of Daig in accordance with the MBCA and Daig's Articles of
Incorporation and Bylaws; (ii) all necessary authorizations, consents, orders
or approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any governmental authority shall have been filed, expired
or obtained, including any applicable waiting period under the HSR Act; (iii)
no order, preliminary or permanent injunction, statute, rule or regulation
shall have been enacted, issued, promulgated or deemed applicable by any
governmental authority or a court of competent jurisdiction which has the
effect of making the Merger illegal or otherwise prohibiting the consummation
of the Merger; and (iv) the Registration Statement shall have been declared
effective, and no stop order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall be
pending before or threatened by the SEC.
The obligations of SJM and Merger Subsidiary to consummate the Merger are
subject to the satisfaction of the following further conditions, unless
waived by SJM: (i) Daig shall have performed in all material respects all of
its obligations under the Merger Agreement required to be performed by it at
or prior to the Closing Date; (ii) the representations and warranties of
Daig, without regard to any qualification or reference to immateriality or
"Material Adverse Effect," shall be true and correct in all respect as of the
Closing Date, as though made on and as of such date (provided that those
representations or warranties made as of a particular date need only be true
and correct as of such date), except for any inaccuracies which, individually
or in the aggregate, have not had, and would not have, a material adverse
effect; provided, however, that there shall be deemed not to be such a
material adverse effect to the extent that such effect is the result of
conditions or factors affecting the economy generally or the industry in
which Daig operates or the result of the announcement of the Merger or
actions taken in contemplation thereof; (iii) receipt by SJM of a certificate
signed by both the Chairman and the President of Daig to the effect set forth
in (i) and (ii) above; (iv) copies of resolutions of Daig's Board of
Directors authorizing the Merger Agreement, as certified by Daig's Secretary;
(v) receipt by SJM, without expense to it, of executed originals (or
facsimiles thereof) of any and all consents, approvals, waivers and/or
acknowledgments required under any of certain identified agreements to which
Daig is a party, in order to permit the consummation of the Merger without
causing or resulting in a default, event of default, acceleration event or
termination event under any of such documents and without entitling any party
to any of such documents to exercise any other right or remedy adverse to the
interests of SJM, except for such consents, approvals, waivers and/or
acknowledgments with respect to which the failure to obtain would not have a
"material adverse effect"; (vi) receipt by SJM of a letter from each of Grant
Thornton LLP and Ernst & Young LLP, respectively, dated as of the Closing
Date, stating that with respect to Daig, there have been no common stock
transactions, changes in equity ownership or ownership affiliations that
would preclude SJM from accounting for the Merger as a pooling of interests,
and that with respect to SJM, the Merger will qualify as a pooling of
interests under applicable accounting standards and Commission rules and
regulations; (vii) there shall have been no breach of the Shareholders'
Agreement by any shareholder signatory thereof, which breach would have a
material adverse effect on the consummation of the Merger; (viii) SJM shall
have received from any person who is as of January 29, 1996, or at any time
between January 29, 1996 and the Effective Time, an affiliate of Daig
(pursuant to Rule 145 under the Securities Act or otherwise under applicable
Commission accounting releases with respect to pooling of interests
accounting treatment) a signed agreement substantially in the form provided
as Exhibit 10.2 to the Merger Agreement; and (ix) SJM shall have received, on
or prior to the time that the Registration Statement shall have become
effective, the opinion of Dorsey & Whitney, addressed to SJM, regarding
certain federal income tax matters, which opinion shall not have been
withdrawn.
The obligations of Daig to consummate the Merger are subject to the
satisfaction of the following further conditions, unless waived by Daig: (i)
SJM and the Merger Subsidiary shall have performed in all material respects
all of their obligations under the Merger Agreement required to be performed
by them at or prior to the Closing Date; (ii) the representations and
warranties of SJM and the Merger Subsidiary, without regard to any
qualification, materiality threshold or reference to immateriality or
"Material Adverse Effect," shall be true and correct in all respect as of the
Closing Date, as though made on and as of such date (provided that those
representations or warranties made as of a particular date need only be true
and correct as of such date), except for any inaccuracies which, individually
or in the aggregate, have not had, and would not have, a material adverse
effect; provided, however, that there shall be deemed not to be such a
material adverse effect to the extent that such effect is the result of
conditions or factors affecting the economy generally or the industry in
which SJM operates or the result of the announcement of the Merger or actions
taken in contemplation thereof; (iii) receipt by Daig of a certificate signed
by the President of SJM and the Merger Subsidiary to the effect set forth in
(i) and (ii) above; (iv) the shares of SJM Common Stock to be issued in the
Merger shall have been authorized for listing on Nasdaq; (v) Daig shall have
received, on or prior to the time that the Registration Statement shall have
become effective, the opinion of Dorsey & Whitney, regarding certain federal
income tax matters, which opinion shall not have been withdrawn; and (vi) the
Designated Director (Mr. Starks) shall have been elected to the SJM Board.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, notwithstanding the approval of Merger
Agreement and the Merger by the shareholders of Daig: (i) by mutual written
consent of SJM, the Merger Subsidiary and Daig duly authorized by the Boards
of Directors of each of SJM and Daig; (ii) by either of SJM or Daig if (A)
the Effective Time shall not have occurred on or before September 30, 1996;
(B) a court of competent jurisdiction or an administrative, governmental or
regulatory authority has issued a final non-appealable order, decree or
ruling, or taken any other action, having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger; provided that the
party seeking to terminate the Merger Agreement shall have used its
reasonable efforts to obtain the necessary approvals, authorizations,
consents, etc.; or (C) at the Special Meeting (including any adjournment or
postponement thereof) the requisite vote of the shareholders of Daig is not
obtained.
The Merger Agreement may be terminated by Daig if (i) it is not in material
breach of its obligations under the Merger Agreement; and either (A) the
Board of Directors of Daig has recommended, approved, accepted or entered
into a definitive agreement regarding or resolved to recommend, an
Acquisition Proposal, or (B) an Acquisition Proposal has been made and the
Board of Directors of Daig has withdrawn or modified (in a manner adverse to
SJM) its recommendation of the Merger; (ii) Daig is not in material breach of
its obligations under the Merger Agreement and there has been (A) a material
breach by SJM of any of its representations and warranties under the Merger
Agreement, or (B) a material failure by SJM to perform any of its obligations
under the Merger Agreement, and, in both case (A) and (B), the breach or
failure has not been cured or is not curable by September 30, 1996; (iii) if
the average of the closing sale prices (in thousandths) on Nasdaq of a share
of SJM Common Stock as reported in THE WALL STREET JOURNAL for the twenty
trading days immediately preceding the fifth trading day prior to the
Effective Time is less than $34 (as adjusted for certain events with regard
to such Common Stock); or (iv) if SJM has entered into a written agreement
under which SJM will be acquired by or merge with any other entity and, after
such transaction, the persons who were members of the SJM Board prior to such
transaction would not constitute a majority of the Board of Directors of the
acquiring or surviving corporation.
The Merger Agreement may be terminated by SJM if (i) it is not in material
breach of its obligations under the Merger Agreement and either (A) Daig has
breached its obligations regarding no solicitation of transactions in any
material respect, (B) the Daig Board has recommended, approved, accepted or
entered into a definitive agreement regarding an Acquisition Proposal, or (C)
an Acquisition Proposal has been made and the Daig Board has withdrawn or
modified (in a manner adverse to SJM) its recommendation of the Merger; or
(ii) if SJM is not in material breach of its obligations under the Merger
Agreement and there has been (A) a material breach by Daig of any of its
representations and warranties under the Merger Agreement or (B) a material
failure by Daig to perform any of its obligations under the Merger Agreement,
and, in both case (A) and (B), the breach or failure has not been cured or is
not curable by September 30, 1996.
EFFECT OF TERMINATION; TERMINATION FEE
Except as otherwise provided in the Merger Agreement, in the event of the
termination of the Merger Agreement as described above, the obligation of the
parties to consummate the Merger will expire, the provisions of the Merger
Agreement regarding confidentiality obligations (and the related
confidentiality agreement) shall survive for a period of 3 years and each
party will bear its own expenses incurred in connection with the Merger
Agreement.
Pursuant to the Merger Agreement, in addition to the provisions described
above, Daig will be required to pay SJM a fee of $10 million within five
business days of a demand by SJM (the "Termination Fee") if (i) the Merger
Agreement is terminated by SJM in the event SJM is not in material breach of
its obligations under the Merger Agreement and (A) Daig shall have breached
its obligations regarding no solicitations of transactions in any material
respect, (B) the Daig Board has either recommended, approved, accepted or
entered into a definitive agreement regarding an Acquisition Proposal, or (C)
an Acquisition Proposal has been made and the Daig Board has withdrawn or
modified (in a manner adverse to SJM) its recommendation of the Merger; (ii)
the Merger Agreement is terminated by Daig if it is not in material breach of
its obligations under the Merger Agreement and either (A) the Daig Board has
recommended, approved, accepted or entered into a definitive agreement
regarding, or resolved to recommend, an Acquisition Proposal or (B) an
Acquisition Proposal has been made and the Daig Board has withdrawn or
modified (in a manner adverse to SJM) its recommendation of the Merger; (iii)
the Officer/Shareholders shall have (A) voted any of their Daig Common Stock
against the Merger Agreement and the Merger, (B) demanded and perfected
dissenters' rights on any of their shares, or (C) failed or otherwise
abstained from voting their Daig Common Stock at the Special Meeting, and the
requisite vote of the shareholders of Daig to approve the Merger Agreement
and the Merger is not obtained; or (iv) (A) any third party makes an
Acquisition Proposal or acquires 10% or more of the outstanding Daig Common
Stock prior to the Special Meeting, (B) the requisite vote of the
shareholders of Daig is not obtained, (C) the Merger Agreement is terminated,
and (D) within six months after the execution of the Merger Agreement, (x)
Daig enters into an agreement relating to an Acquisition Proposal or (y) an
Acquisition Proposal is consummated.
EXPENSES
All expenses incurred in connection with the Merger Agreement and the
transactions contemplated by it are to be paid by the party incurring such
expenses, whether or not the Merger is consummated.
AMENDMENT AND WAIVER
The Merger Agreement may be amended, modified or supplemented by the parties
thereto by mutual consent of their respective Boards of Directors, or by
their respective officers duly authorized by their respective Boards of
Directors, by an appropriate written instrument executed at any time prior to
the Effective Time.
At any time prior to the Effective Time, any party to the Merger Agreement
may by an instrument in writing (a) extend the time for or waive the
performance of any of the obligations of any other party thereto, (b) waive
compliance with any of the covenants, or (c) waive any of the conditions of
its obligations (other than Daig shareholder approval).
MANAGEMENT; OWNERSHIP OF DAIG COMMON STOCK
DIRECTORS AND EXECUTIVE OFFICERS
Information concerning the directors and executive officers of Daig is set
forth in Daig's Proxy Statement dated January 29, 1996, incorporated herein
by reference to Daig's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
Pursuant to the Merger Agreement, the directors of Daig immediately prior to
the Effective Time will, as of the Effective Time, no longer be directors of
the Surviving Corporation. The six individuals currently serving as directors
of Daig are John J. Fleischhacker, Daniel J. Starks, John C. Heinmiller,
Dennis A. Stowers, Dale L. Harris and Edward F. Fox.
Pursuant to the Merger Agreement, the directors of Merger Subsidiary
immediately prior to the Effective Time shall become the directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation then in effect and
until the successor of each is duly elected and qualified. The three
individuals currently serving as directors of Merger Subsidiary are Kevin T.
O'Malley, Stephen L. Wilson and John P. Berdusco.
In accordance with the Merger Agreement, at the Effective Time, Daniel J.
Starks, President, Chief Operating Officer and a current director of Daig,
will be appointed to the SJM Board for a term expiring at SJM's annual
meeting of shareholders to be held in 1997.
Pursuant to the Merger Agreement, the officers of Daig immediately prior to
the Effective Time shall become the officers of the Surviving Corporation
until the successor of each is duly appointed and qualified.
PRINCIPAL SHAREHOLDERS
As of the Record Date, Mr. Fleischhacker owned 5,375,000 shares of Daig
Common Stock (35.2% of the outstanding shares) and Mr. Starks owned 2,789,600
shares of Daig Common Stock (18.2% of the outstanding shares). Information
related to the other principal shareholders of Daig is set forth in Daig's
Proxy Statement dated January 29, 1996, incorporated herein by reference to
Daig's Annual Report on Form 10-K for the fiscal year ended September 30,
1995. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
CAPITALIZATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth the historical capitalization of SJM as of
December 31, 1995 and the pro forma capitalization of SJM adjusted to give
effect to the Merger. The adjustments made to SJM's historical consolidated
capitalization to arrive at the adjusted consolidated capitalization are
described under "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS."
<TABLE>
<CAPTION>
SJM AS
REPORTED PRO FORMA
DECEMBER 31, 1995 DECEMBER 31, 1995
<S> <C> <C>
Borrowings due within one year $ 0 $ 0
Obligations under capital leases 0 0
Long-term debt 120,000 120,000
Shareholders' Equity:
Common Stock, $.10 par value -- authorized
100,000,000 shares, 69,991,700 shares issued;
79,921,598 shares issued, as adjusted 6,999 7,992
Additional paid-in capital 31,782 34,769
Retained earnings 650,515 674,542
Cumulative translation adjustment 4,319 4,319
Unrealized gain on available-for-sale securities 9,691 9,691
Amount receivable for shares issued 0 (440)
Total Shareholders' Equity 703,306 730,873
Total Capitalization $823,306 $850,873
</TABLE>
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of
December 31, 1995, and the related Unaudited Pro Forma Condensed Combined
Statements of Income for each of the three years in the period ended December
31, 1995, give effect to the Merger as if it had occurred on the first day of
the earliest period presented. In addition, the Unaudited Pro Forma Condensed
Combined Statement of Income for the year ended December 31, 1994 includes
the results of the Pacesetter acquisition as if it had occurred as of the
beginning of 1994. The acquisition of Pacesetter was effective September 30,
1994, and was accounted for as a purchase. The historical SJM results include
the results of Pacesetter only from October 1, 1994 to December 31, 1994.
This pro forma information has been prepared utilizing the historical
consolidated financial statements of SJM and Daig, and should be read in
conjunction with the historical financial statements and notes thereto, which
are incorporated by reference herein. Daig's fiscal year ends on September 30
each calendar year; therefore, Daig's results for the fiscal years ended
September 30, 1995, 1994 and 1993, have been combined with SJM's results for
the years ended December 31, 1995, 1994 and 1993. It is anticipated that,
upon consummation of the Merger, the fiscal year end of Daig will be changed
to the Saturday closest to December 31. These unaudited pro forma condensed
combined financial statements are presented for illustrative purposes only
and are not necessarily indicative of the operating results or financial
position that would have occurred if the Merger had been consummated, nor are
they necessarily indicative of future operating results or financial
position.
These unaudited pro forma condensed combined financial statements are based
on the pooling of interests method of accounting for the Merger. The pro
forma adjustments are described in the accompanying notes.
UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
HISTORICAL PRO FORMA
ST. JUDE
MEDICAL DAIG ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 13,438 $21,329 $ 34,767
Marketable securities 152,615 0 152,615
Accounts receivable, net 164,492 5,198 169,690
Inventories 158,411 4,892 163,303
Prepaid expenses 31,198 641 31,839
Property, plant and equipment, net 156,248 5,822 162,070
Other assets 339,532 0 339,532
TOTAL ASSETS $1,015,934 $37,882 $1,053,816
LIABILITIES AND
SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses. $ 192,628 $ 3,690 $ 1,125 (a) $ 202,943
5,500 (c)
Long-term debt 120,000 120,000
TOTAL LIABILITIES 312,628 3,690 6,625 322,943
Preferred stock 0 0 0
Common stock 6,999 152 841 (b) 7,992
Additional paid-in-capital 31,782 3,828 (841)(b) 34,769
Retained earnings 650,515 30,652 (1,125)(a) 674,542
(5,500)(c)
Cumulative translation adjustment. 4,319 0 4,319
Unrealized gain on available-for-sale securities 9,691 0 9,691
Amount receivable for shares issued 0 (440) (440)
TOTAL SHAREHOLDERS' EQUITY 703,306 34,192 (6,625) 730,873
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,015,934 $37,882 $ 0 $1,053,816
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined balance sheet.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
(a) To reflect the combined tax position as if the Merger had occurred at the
beginning of the earliest period presented. This adjustment is based on
the evaluation of a variety of factors including the combined companies'
statutory and state tax rates, reductions to research and development tax
credits and reductions to net operating loss carryforwards.
(b) To record the exchange of Daig Common Stock for SJM Common Stock.
(c) To adjust the pro forma condensed combined balance sheet to reflect
one-time merger-related charges which will be expensed at the time the
merger is consummated as required under the "pooling of interests"
accounting method. These charges are presently estimated to be
approximately $5.5 million. Direct merger expenses include financial
advisor fees, outside legal and accounting fees, and various other costs
and filing fees.
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
HISTORICAL PRO FORMA
ST. JUDE
MEDICAL DAIG ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Net sales $723,513 $38,322 $ $761,835
Cost of sales 222,796 12,034 234,830
Gross profit 500,717 26,288 527,005
Selling, general and administrative expense 237,569 9,820 247,389
Research and development expense 68,970 3,335 72,305
Operating profit 194,178 13,133 207,311
Other income (expense), net (6,615) 825 (5,790)
Income before taxes 187,563 13,958 201,521
Income tax provision 58,145 4,060 468 (a) 62,673
Net income $129,418 $ 9,898 $(468) $138,848
Earnings per share $ 1.82 $ 0.65 $ 1.71
Weighted average shares outstanding 71,067 15,223 80,988
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of income.
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
HISTORICAL PRO FORMA
ST. JUDE SUBTOTAL (B) (C) PRO FORMA
MEDICAL DAIG ADJUSTMENTS PRO FORMA PACESETTER ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $359,640 $32,309 $ $391,949 $330,527 $(25,737) $696,739
Cost of sales 100,956 11,131 112,087 133,680 (17,218) 228,549
Gross profit 258,684 21,178 279,862 196,847 (8,519) 468,190
Selling, general and
administrative expense 97,577 8,394 105,971 120,789 14,675 241,435
Research and
development expense 21,008 2,463 23,471 25,847 49,318
Purchased research and
development charge 40,800 40,800 40,800
Operating profit 99,299 10,321 109,620 50,211 (23,194) 136,637
Other income, net 7,056 624 7,680 947 (17,604) (8,977)
Income before taxes 106,355 10,945 117,300 51,158 (40,798) 127,660
Income tax provision 27,121 3,371 358 (a) 30,850 19,733 (15,005) 35,578
Net income $ 79,234 $ 7,574 $(358) $ 86,450 $ 31,425 $(25,793) $ 92,082
Earnings per share $ 1.13 $ 0.50 $ 1.08 $ 1.15
Weighted average shares
outstanding 70,169 15,215 80,085 80,085
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of income.
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
HISTORICAL PRO FORMA
ST. JUDE
MEDICAL DAIG ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Net sales $252,642 $25,678 $ $278,320
Cost of sales 61,342 9,091 70,433
Gross profit 191,300 16,587 207,887
Selling, general and administrative expense 49,040 6,932 55,972
Research and development expense 10,972 1,897 12,869
Operating profit 131,288 7,758 139,046
Other income, net 13,934 192 14,126
Income before taxes 145,222 7,950 153,172
Income tax provision 35,579 2,721 299 (a) 38,599
Net income $109,643 $ 5,229 $(299) $114,573
Earnings per share $ 1.55 $ 0.35 $ 1.42
Weighted average shares outstanding 70,834 14,829 80,499
</TABLE>
The accompanying notes are an integral part of the unaudited
pro forma condensed combined statement of income.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENTS OF INCOME
(a) Reflects the combined tax position as if the Merger had occurred at the
beginning of the earliest period presented. This adjustment is based on
the evaluation of a variety of factors including the combined companies'
statutory and state tax rates, reductions to research and development tax
credits and reductions to net operating loss carryforwards.
(b) Represents the results of Pacesetter for the nine months ended September
30, 1994, as if the acquisition had been consummated as of the beginning
of 1994. SJM's historical results include Pacesetter only from October 1,
1994 to December 31, 1994.
(c) To reflect the Pacesetter acquisition as if the transaction had occurred
at the beginning of the year. These adjustments include the elimination
of intercompany sales and cost of sales between the U.S. and non-U.S.
Pacesetter entities; the ongoing infrastructure costs related principally
to the establishment of sales offices in Western Europe; the amortization
expense related to the excess cost over net assets acquired; the lost
interest income on the cash used to fund a portion of the acquisition;
the interest expense on the average debt balance; and the increase in the
effective tax rate by 1.5 percentage points.
(d) The accompanying Unaudited Pro Forma Condensed Combined Statements of
Income exclude any merger-related direct expenses. A one-time charge
associated with the Merger of approximately $5.5 million is expected to
be recognized in the first quarter of 1996. See footnote (c) to the
Unaudited Pro Forma Condensed Combined Balance Sheet for additional
description of the components of this charge.
MATERIAL DIFFERENCES IN RIGHTS OF DAIG SHAREHOLDERS
GENERAL
The rights of holders of Daig Common Stock are governed by the Articles of
Incorporation of Daig (the "Daig Articles"), the bylaws of Daig (the "Daig
Bylaws") and laws of the State of Minnesota (as previously defined, the
"MBCA"). The rights of holders of SJM Common Stock are governed by the
Articles of Incorporation of SJM (the "SJM Articles"), the bylaws of SJM (the
"SJM Bylaws") and the MBCA. After the Merger becomes effective, the rights of
holder of Daig Common Stock who become SJM shareholders will be governed by
the SJM Articles, the SJM Bylaws and the MBCA. While it is not practical to
describe all changes in the rights of Daig shareholders that will result from
the differences between the Daig Articles and Bylaws on the one hand and the
SJM Articles and Bylaws on the other hand, the following is a summary of
material differences.
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
The MBCA provides that the board of directors of a Minnesota corporation
shall consist of one or more directors as fixed by the articles of
incorporation or bylaws. The SJM Bylaws provide that the SJM Board shall
consist of five directors, and the Board may increase the number of directors
without shareholder approval. SJM currently has nine directors. Pursuant to
the SJM Articles and as allowed by the MBCA, SJM's Board of Directors is
divided into three classes of directors, each director serving a three-year
term. Each year only one class of directors is subject to a shareholder vote.
The Daig Bylaws provide that the Daig Board shall consist of six directors,
subject to increase or decrease by a vote of the holders of a majority of the
shares entitled to vote at any meeting of the shareholders; the Daig Articles
provide that the directors may not make, alter or repeal any Bylaw fixing the
number, qualifications or term in office of any director. All six directors
of Daig are of one class and are elected every year.
The MBCA provides that, unless modified by the articles of incorporation or
bylaws of the corporation or by shareholder agreement, the directors may be
removed with or without cause by the affirmative vote of that proportion or
number of the voting power of the shares of the classes or series the
director represents which would be sufficient to elect such director. The SJM
Articles provide that any director may be removed from office at any time,
but only for cause and only by the affirmative vote of at least 80% of the
votes entitled to be cast by holders of all the outstanding shares of voting
stock of SJM voting together as a single class.
The Daig Bylaws provide that directors may be removed as provided by statute.
SPECIAL MEETINGS OF SHAREHOLDERS
The SJM Bylaws provide that special shareholders' meetings may be called at
any time by the Chief Executive Officer or Chief Financial Officer, or by the
President or Secretary upon the request in writing of two or more directors
or upon the request in writing of shareholders holding 10% or more of the
total outstanding shares of SJM Common Stock.
The Daig Bylaws provide that the Secretary shall call a special meeting of
the shareholders upon the request of the Chief Executive Officer, the
President, any two of the members of the Daig Board or upon a written request
of shareholders holding 10% or more of the voting power of all shares
entitled to vote, except that a special meeting for the purpose of
considering any action to facilitate or effect, directly or indirectly, a
business combination, including any action to change or otherwise affect the
composition of the Daig Board for that purpose, must be called by
shareholders holding 25% or more of the voting power of all shares entitled
to vote.
AMENDMENT OF CHARTER DOCUMENTS
The MBCA provides that a resolution proposing an amendment to a corporation's
articles of incorporation will be submitted to shareholders for approval
after either being approved by the affirmative vote of the directors or being
proposed by shareholders holding 3% or more of the voting shares entitled to
vote thereon. Under the MBCA, any such amendment must be approved by the
affirmative vote of the holders of a majority of the shares entitled to vote
thereon, unless the articles of incorporation provide for a number larger
than a majority. The SJM Articles provide that the affirmative vote of the
holders of a majority of the outstanding shares of capital stock entitled to
vote is required to amend provisions of the SJM Articles, provided, however,
that the affirmative vote of 80% of the votes entitled to be cast by the
holders of the outstanding shares shall be required to amend or repeal, or
adopt any provision inconsistent with Articles IX and XIII, which relate to
management and additional powers and to business combinations, respectively.
The Daig Articles provide that they may be amended solely by the affirmative
vote of the holders of a majority of the shares entitled to vote.
Under the MBCA, shareholders holding 3% or more of the voting power of the
outstanding shares may propose a resolution to adopt, amend or repeal the
bylaws adopted, amended or repealed by the board, which resolution must be
approved by the affirmative vote of the holders of a majority of the shares
entitled to vote thereon. The SJM Bylaws provide that the SJM Board may alter
or amend its Bylaws or adopt additional Bylaws, subject to the power of the
shareholders to change or repeal the Bylaws, except that the SJM Board shall
not make or alter any Bylaws fixing their qualifications, classifications or
term of office, or reducing their number.
The Daig Bylaws provide that the Daig Board may make, alter or repeal Bylaws,
but only upon a vote of a majority of the entire Daig Board present at any
meeting called for that purpose, provided that notice of the proposed
amendment shall have been given to the directors in the notice of such
meeting. The Daig Articles provide that the directors may not make, alter or
repeal any Bylaw fixing the number, qualifications or term in office of any
director. The Daig Board's authority to make, alter or repeal Bylaws is
subject to the powers of the shareholders to enact, change or repeal Bylaws
by majority vote of the shareholders present and represented at any meeting
of the shareholders.
BUSINESS COMBINATIONS
The MBCA restricts certain business combination transactions with an
interested shareholder for four years after such shareholder has acquired 10%
of the voting power of a publicly traded corporation having 50 or more
shareholders. The restrictions on business combinations do not apply if the
business combination or the acquisition of shares in which the 10% ownership
level was exceeded is approved before the date of such share acquisition by a
committee of the board of the public corporation. Although permitted by the
MBCA, SJM has not elected to opt out of the business combination statute.
Daig has elected in the Daig Bylaws to opt out of the business combination
rules of the MBCA.
Article XIII of the SJM Articles includes a "fair price" provision which will
make it more difficult for a person to stage a "two-tier" acquisition of SJM
if the second tier of the acquisition is at a lower price than the first
tier. A 75% shareholder vote is required to approve such a two-tier merger if
it is not approved by a majority of the continuing directors. Article XIII is
an attempt to assure that shareholders participating in the second "tier"
will receive either the same price as received in the first-tier acquisition
or a minimum price as determined under the formula contained in the fair
price provision. The Daig Articles have no comparable provision.
SHAREHOLDERS' RIGHTS PLAN
SJM is a party to a shareholders' rights agreement which could in certain
circumstances serve as a deterrent against a possible change of control not
approved by the SJM Board. Under the agreement, upon the occurrence of
certain events which result in a change of control as defined by the
agreement, registered holders of shares of SJM Common Stock are entitled to
purchase one-tenth of a share of Series A Junior Participating Preferred
Stock at a stated price, or to purchase shares of capital stock in either SJM
or the acquiring entity at half their market value.
Daig has not adopted any comparable shareholders' rights plan.
DISSENTING SHAREHOLDERS' RIGHTS
Sections 302A.471 and 302A.473 of the MBCA provide shareholders in a
Minnesota corporation with the right to dissent in the event of a merger and
obtain payment in cash of the "fair value" (as defined in the statute) of
their shares. FAILURE TO COMPLY PROPERLY, FULLY AND IN A TIMELY FASHION WITH
THE STATUTORY REQUIREMENTS WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS, AND
ANY DAIG SHAREHOLDER WHO WISHES TO EXERCISE SUCH RIGHTS OR WHO WISHES TO
PRESERVE THE RIGHT TO DO SO SHOULD CAREFULLY REVIEW THE FOLLOWING DISCUSSION
AND THE FULL TEXT OF SECTIONS 302A.471 AND 302A.473 OF THE MBCA, WHICH ARE
ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS EXHIBIT D. ANY SUCH
SHAREHOLDER SHOULD ALSO CONSULT WITH SUCH SHAREHOLDER'S LEGAL COUNSEL. The
following discussion is not a complete statement of the law pertaining to
dissenters' rights under the MBCA and is qualified in its entirety by
reference to the full text of Sections 302A.471 and 302A.473, which are
attached hereto as Exhibit D.
PROCEDURE TO PRESERVE DISSENTERS' RIGHTS
Any Daig shareholder who wishes to exercise dissenters' rights (a) must file
with Daig, before the vote on the Merger, a written notice of intent to
demand the fair value of the shares owned by such shareholder if the Merger
is approved and (b) must not vote his or her shares in favor of the Merger.
Any such notice must be filed at Daig's executive offices at 14901 DeVeau
Place, Minnetonka, Minnesota 55345, Attn: Secretary. A vote against the
Merger does not in itself constitute the written notice required in (a)
above. A shareholder must satisfy the requirement in (b) above by voting his
or her shares against the approval of the Merger in person or by proxy or by
abstaining from voting his or her shares.
A shareholder may not assert dissenters' rights as to less than all of the
shares registered in the name of that shareholder. A shareholder may,
however, dissent with respect to shares registered in the name of that
shareholder but owned beneficially by someone else if the shareholder (a)
dissents with respect to all the shares that are beneficially owned by such
other person and (b) discloses the name and address of each beneficial owner
on whose behalf the shareholder dissents. Similarly, a beneficial owner of
shares who is not the shareholder of record may assert dissenters' rights
with respect to all shares held on behalf of such beneficial owner (and will
be treated as a dissenting shareholder under the terms of Sections 302A.471
and 302A.473); to do so, the beneficial owner must submit to Daig,
concurrently with or prior to asserting such rights, a written consent of the
record shareholder holding such beneficial owner's shares. The rights of a
dissenting beneficial owner and a non-dissenting registered owner will be
determined as if the shares were registered in the names of different
shareholders.
If the Merger is approved by the requisite shareholder vote, Daig must send a
written notice to all shareholders who have filed a written notice of intent
to demand payment and have refrained from voting in favor of approving the
Merger. The notice from Daig must contain:
(1) the address to which a demand for payment and stock certificates must be
sent in order to obtain payment and the date by which they must be
received;
(2) a form to be completed by the shareholder to demand payment and to
certify the date on which the shareholder, or the beneficial owner on
whose behalf the shareholder dissents, acquired the shares or an interest
in them; and
(3) copies of Sections 302A.471 and 302A.473 and a brief description of the
procedures to be followed under such sections.
To receive the fair value of the shares, a dissenting shareholder must demand
payment and deposit his or her shares within 30 days after the notice is
mailed by Daig. A dissenter retains all other rights of a shareholder until
the Effective Time.
PROCEDURES FOLLOWING AN ASSERTION OF DISSENTERS' RIGHTS
After the Effective Time, or after the Surviving Corporation receives a valid
demand for payment, whichever is later, the Surviving Corporation must remit
to each such validly demanding shareholder the amount that the Surviving
Corporation estimates to be the fair value of the shares, plus any interest
that may have accrued. (Interest accrues from five days after the Effective
Time up to and including the date of payment at the rate provided under
Minnesota law for interest on verdicts and judgments). The Surviving
Corporation shall include with this payment:
(1) certain financial statements of the Surviving Corporation;
(2) an estimate of the fair value of the shares and a brief description of
the method used to reach the estimate; and
(3) a copy of Sections 302A.471 and 302A.473 and a brief description of the
procedure to be followed in demanding supplemental payment under such
sections.
The term "fair value" under Section 302A.473 means the value of the shares
immediately before the Effective Time.
If the Surviving Corporation fails to remit payment within 60 days of the
deposit of stock certificates, it must return all deposited certificates.
However, the Surviving Corporation may require a deposit at a later time and
again give notice that contains:
(1) the address to which a demand for payment and stock certificates must be
sent in order to obtain payment and the date by which they must be
received;
(2) a form to be completed by the shareholder to demand payment and to
certify the date on which the shareholder, or the beneficial owner on
whose behalf the shareholder dissents, acquired the shares or an interest
in them; and
(3) copies of Sections 302A.471 and 302A.473 and a brief description of the
procedures to be followed under such sections.
If a dissenter believes that the amount remitted by the Surviving Corporation
is less than the fair value of his or her shares plus interest, the dissenter
may, within 30 days of the remittance (or the offer of remittance), give
written notice to the Surviving Corporation of the dissenter's own estimate
of the fair value of the shares, plus interest, and demand payment of the
difference (a "Demand"). If a dissenter does not do so, that dissenter is
entitled only to the amount remitted (or offered) by the Surviving
Corporation.
If the Surviving Corporation receives a Demand, it must, within 60 days after
receiving the Demand, either pay to the dissenter the amount demanded or
agreed to by the dissenter after discussion with the Surviving Corporation or
file in the appropriate Minnesota state court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition
must name as parties all dissenters who made a Demand and who have not
reached agreement with the Surviving Corporation. The court must determine
whether the dissenter or dissenters in question have fully complied with all
statutory requirements and must determine the fair value of the shares,
taking into account any and all factors the court finds relevant, computed by
any method or combination of methods that the court, in its discretion, sees
fit to use, whether or not used by the Surviving Corporation or by a
dissenter. The court may appoint appraisers, with powers and authorities the
court deems proper, to receive evidence on and recommend the amount of the
fair value of the shares. The fair value of the shares as determined by the
court is binding on all shareholders, wherever located. A dissenter is
entitled to judgment for the amount, if any, by which the fair value of the
shares as determined by the court, plus interest, exceeds the amount, if any,
remitted by the Surviving Corporation, but shall not be liable to the
Surviving Corporation for the amount, if any, by which the amount, if any,
remitted to the dissenter exceeds the fair value of the shares as determined
by the court, plus interest.
The court must determine the costs and expenses of any proceeding, including
the reasonable expenses and compensation of any appraisers appointed by the
court, and must assess those costs and expenses against the Surviving
Corporation, except that the court may assess part or all of those costs and
expenses against a dissenter whose Demand is found to be arbitrary, vexatious
or not in good faith. If the court finds that the Surviving Corporation has
failed to comply substantially with the statutory requirements, the court may
assess against the Surviving Corporation all fees and expenses of any experts
or attorneys as the court deems equitable. In addition, fees and expenses may
be assessed against any dissenter who has acted arbitrarily, vexatiously or
not in good faith in bringing the proceeding.
The court may, in its discretion, award fees and expenses to an attorney for
the dissenters out of the amount awarded to the dissenters, if any.
TAX TREATMENT
Cash received pursuant to the exercise of dissenters' rights may be subject
to federal or state income tax. See "THE MERGER -- CERTAIN FEDERAL TAX
CONSEQUENCES."
LEGAL MATTERS
The validity of the SJM Common Stock to be issued to the shareholders of Daig
in connection with the Merger will be passed upon for SJM by Lindquist &
Vennum P.L.L.P., Minneapolis, Minnesota. Thomas H. Garrett III, a partner of
Lindquist & Vennum P.L.L.P., is a director and shareholder of SJM. Certain
federal income tax consequences in connection with the Merger will be passed
on by Dorsey & Whitney LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of SJM at December 31, 1995 and 1994,
and for each of the three years in the period ended December 31, 1995,
incorporated by reference in this Proxy Statement/Prospectus have been
audited by Ernst & Young LLP, independent auditors, and the information under
the caption "Selected Financial Data" for each of the five years in the
period ended December 31, 1995, appearing in this Proxy Statement/Prospectus
have been derived from consolidated financial statements audited by Ernst &
Young LLP, as set forth in their reports incorporated herein by reference.
Such consolidated financial statements and selected financial data are
incorporated by reference herein in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Daig as of September 30, 1995 and 1994 and for
each of the years in the three-year period ended September 30, 1995
incorporated by reference herein have been audited by Grant Thornton LLP,
independent auditors, as set forth in their report incorporated by reference.
Such financial statements are incorporated by reference herein in reliance
upon such report, given upon the authority of such firm as experts in
accounting and auditing.
SHAREHOLDER PROPOSALS
If the Merger is not consummated, or is not consummated within the time
period currently contemplated, Daig will reschedule and hold its 1996 Regular
Meeting of Shareholders, which was originally scheduled to be held on April
12, 1996. The deadline for submitting shareholder proposals for inclusion in
Daig's 1996 Proxy Statement and Proxy for shareholder action at the 1996
Regular Meeting of Shareholders was December 1, 1995.
- --------------------------------------------------------------------------------
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
DATED
JANUARY 29, 1996
AMONG
ST. JUDE MEDICAL, INC.
PARTNER ACQUISITION CORP.
AND
DAIG CORPORATION
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I THE MERGER.....................................................................................1
Section 1.1 The Merger...................................................................1
Section 1.2 Conversion of Merger Subsidiary Capital Stock................................2
Section 1.3 Cancellation or Conversion of Partner Common Stock...........................2
Section 1.4 Exchange of Shares...........................................................3
Section 1.5 Dissenting Shares............................................................4
Section 1.6 Adjustments..................................................................4
Section 1.7 Partner Option...............................................................5
ARTICLE II CLOSING; CLOSING DATE.................................................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARTNER.............................................5
Section 3.1 Corporate Existence and Power................................................6
Section 3.2 Corporate Authorization......................................................6
Section 3.3 Subsidiaries ................................................................6
Section 3.4 Governmental Authorization; Consents.........................................7
Section 3.5 Non-Contravention............................................................7
Section 3.6 Binding Effect...............................................................8
Section 3.7 Capitalization...............................................................8
Section 3.8 Financial Statements and SEC Filings.........................................8
Section 3.9 Material Events..............................................................9
Section 3.10 Properties; Liens...........................................................11
Section 3.11 Litigation..................................................................11
Section 3.12 Taxes.......................................................................12
Section 3.13 ERISA.......................................................................12
Section 3.14 Compliance with Laws; Permits...............................................15
Section 3.15 Finders' Fees...............................................................15
Section 3.16 Patents, Trademarks, Trade Names, Service Marks and Copyrights..............15
Section 3.17 Environmental Matters; OSHA.................................................17
Section 3.18 Contracts...................................................................18
Section 3.19 Partner Products; Regulation................................................19
Section 3.20 Inventory...................................................................20
Section 3.21 Accounts and Notes Receivable...............................................20
Section 3.22 Employee Relations..........................................................21
Section 3.23 Insurance...................................................................21
Section 3.24 Potential Conflicts of Interest.............................................21
Section 3.25 Bank Accounts...............................................................22
Section 3.26 Opinion of Financial Advisor................................................22
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Page
Section 3.27 Full Disclosure ............................................................22
Section 3.28 Tax Matters.................................................................22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPANY AND
MERGER SUBSIDIARY.............................................................................23
Section 4.1 Corporate Existence and Power...............................................23
Section 4.2 Corporate Authorization.....................................................23
Section 4.3 Governmental Authorization; Consents........................................23
Section 4.4 Non-Contravention...........................................................24
Section 4.5 Binding Effect..............................................................24
Section 4.6 Capitalization .............................................................24
Section 4.7 Financial Statements and SEC Filings........................................24
Section 4.8 Material Events.............................................................25
Section 4.9 Opinion of Financial Advisor ...............................................25
Section 4.10 Tax Matters ................................................................25
Section 4.11 Full Disclosure.............................................................25
ARTICLE V COVENANTS OF PARTNER..........................................................................25
Section 5.1 Conduct of Partner..........................................................25
Section 5.2 Partner Shareholders' Meeting; Proxy Material...............................27
Section 5.3 Access to Information.......................................................28
Section 5.4 Notices of Certain Events...................................................28
Section 5.5 Consents, Approvals and Filings.............................................29
Section 5.6 Reasonable Efforts..........................................................29
Section 5.7 Exclusivity.................................................................29
Section 5.8 Return of Confidential Information..........................................30
ARTICLE VI COVENANTS OF COMPANY..........................................................................30
Section 6.1 Conduct of Business by Company..............................................30
Section 6.2 Reasonable Efforts..........................................................30
Section 6.3 Consents, Approvals and Filings.............................................30
Section 6.4 Advice of Changes...........................................................31
Section 6.5 Director and Officer Liability..............................................31
Section 6.6 NASDAQ Listing..............................................................31
Section 6.7 Director....................................................................31
Section 6.8 Employee Benefits...........................................................32
Section 6.9 Obligations of Merger Subsidiary............................................32
Section 6.10 Access to Information.......................................................32
Section 6.11 Notices of Certain Events...................................................33
A-3
Page
ARTICLE VII REGISTRATION STATEMENT AND RELATED MATTERS....................................................33
Section 7.1 Preparation of Registration Statement.......................................33
Section 7.2 Accountant Consents.........................................................34
Section 7.3 State Securities Laws.......................................................34
Section 7.4 Proxy Statement; Information Supplied by Partner............................34
Section 7.5 Registration Statement; Information Supplied by Company.....................34
Section 7.6 Efforts to Close Promptly...................................................35
Section 7.7 Mailings to Shareholders....................................................35
Section 7.8 Letters of Partner's Accountants............................................35
Section 7.9 Letters of Company's Accountants............................................35
ARTICLE VIII CONDITIONS TO THE MERGER......................................................................35
Section 8.1 Conditions of Each Party's Obligation to Effect the Merger..................35
Section 8.2 Conditions to the Obligations of Partner....................................36
Section 8.3 Conditions to the Obligations of Company and Merger Subsidiary..............37
ARTICLE IX TERMINATION...................................................................................38
Section 9.1 Termination.................................................................38
Section 9.2 Effects of Termination......................................................40
ARTICLE X OTHER AGREEMENTS..............................................................................41
Section 10.1 Non-survival of Representations and Warranties..............................41
Section 10.2 Affiliate Letter............................................................41
ARTICLE XI MISCELLANEOUS.................................................................................42
Section 11.1 Notices.....................................................................42
Section 11.2 Amendment and Modification..................................................43
Section 11.3 Waiver of Compliance........................................................43
Section 11.4 No Third Party Rights.......................................................43
Section 11.5 Confidentiality.............................................................43
Section 11.6 Expenses....................................................................43
Section 11.7 Assignment..................................................................43
Section 11.8 Governing Laws..............................................................43
Section 11.9 Counterparts................................................................44
Section 11.10 Headings and References.....................................................44
Section 11.11 Entire Agreement............................................................44
Section 11.12 Publicity...................................................................44
Section 11.13 Interpretation..............................................................44
Section 11.14 Further Assurance...........................................................44
Section 11.15 Severability................................................................44
</TABLE>
A-4
GLOSSARY OF DEFINED TERMS
Acquisition Proposal.................................................Section 5.7
Affected Employees.................................................Section 6.8.1
Affiliates........................................................Section 10.2.1
affiliate.........................................................Section 3.13.1
Articles of Merger.................................................Section 1.1.2
Benefit Arrangements..............................................Section 3.13.5
Closing...............................................................Article II
Closing Date..........................................................Article II
Code....................................................................Preamble
Company.................................................................Preamble
Company Common Stock....................................................Preamble
Company SEC Filings..................................................Section 4.7
Conversion Ratio...................................................Section 1.3.2
Designated Director..................................................Section 6.7
Disclosure Schedule..................................................Article III
Dissenters' Rights.................................................Section 1.5.1
Dissenting Shares..................................................Section 1.5.1
Effective Time.....................................................Section 1.1.2
Employee Plans....................................................Section 3.13.1
Environmental Laws................................................Section 3.17.1
ERISA.............................................................Section 3.13.1
Exchange Agent.....................................................Section 1.4.1
Goldman Sachs.......................................................Section 3.15
HSR Act............................................................Section 3.4.1
Indemnification Agreements.........................................Section 6.5.2
Knowledge..........................................................Section 3.9.7
Licenses .........................................................Section 3.19.2
Lien.................................................................Section 3.5
Material Adverse Effect............................................Section 3.1.2
Merger.............................................................Section 1.1.1
Merger Consideration...............................................Section 1.3.2
Merger Subsidiary.......................................................Preamble
Minnesota Law...........................................................Preamble
Multi-employer Plan...............................................Section 3.13.2
NASDAQ.............................................................Section 1.3.3
Non-Scheduled Proprietary Rights..................................Section 3.16.1
1933 Act...........................................................Section 3.4.1
1934 Act...........................................................Section 3.4.1
Partner.................................................................Preamble
Partner Common Stock....................................................Preamble
Partner Option.......................................................Section 1.7
A-5
Partner Product...................................................Section 3.19.1
Partner SEC Filings..................................................Section 3.8
Partner Securities...................................................Section 3.7
Partner Shareholders Meeting.........................................Section 5.2
Partner Stock Certificates.........................................Section 1.4.1
Partner Subsidiary/Subsidiaries......................................Section 3.3
Pension Plans.....................................................Section 3.13.1
Permits.............................................................Section 3.14
Property..........................................................Section 3.17.1
Proprietary Information...........................................Section 3.16.1
Prospectus and Proxy Statement.......................................Section 7.1
Proxy Statement......................................................Section 5.2
Reference Market Value.............................................Section 1.3.3
Registration Statement...............................................Section 7.1
Regulated Substances..............................................Section 3.17.1
Scheduled Proprietary Rights......................................Section 3.16.1
SEC..................................................................Section 3.8
SEC Effective Date................................................Section 10.2.2
Surviving Corporation..............................................Section 1.1.1
Tax.................................................................Section 3.12
Termination Fee....................................................Section 9.2.2
A-6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT dated January 29, 1996, among Daig Corporation, a
Minnesota corporation ("Partner"), St. Jude Medical, Inc., a Minnesota
corporation ("Company") and Partner Acquisition Corp., a Minnesota corporation
and a wholly owned subsidiary of Company ("Merger Subsidiary").
WHEREAS, the Boards of Directors of Company, Merger Subsidiary and
Partner have each determined that it is in the best interests of their
respective shareholders for Company to acquire Partner upon the terms and
subject to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
Company, Merger Subsidiary and Partner have each approved the merger of Merger
Subsidiary with and into Partner in accordance with the Minnesota Business
Corporation Act ("Minnesota Law") and upon the terms and subject to the
conditions set forth herein;
WHEREAS, as a result of the Merger, all of the outstanding common
stock, $.01 par value, of Partner ("Partner Common Stock") will be converted
into the right to receive common stock, $.10 par value, of Company ("Company
Common Stock");
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization under the provisions of Section 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall
be accounted for as a "pooling of interests."
The parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER.
1.1.1 Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.1.2), Merger Subsidiary shall be
merged with and into Partner (the "Merger") in accordance with Minnesota Law,
whereupon the separate existence of Merger Subsidiary shall cease, and Partner
shall continue as the surviving corporation (the "Surviving Corporation") under
the name of Partner as set forth in Section 1.1.3.
1.1.2 As soon as practicable after satisfaction of or, to the
extent permitted hereunder, waiver of, all conditions to the Merger set forth in
Article VIII, the parties hereto
A-7
shall cause the Merger to be consummated by filing Articles of Merger (the
"Articles of Merger") with the Secretary of State of the State of Minnesota, in
such form as required by, and executed in accordance with the relevant
provisions of, Minnesota Law and the parties hereto shall make all other filings
or recordings required by Minnesota Law in connection with the Merger and the
transactions contemplated by this Agreement. The Merger shall become effective
at such time as the Articles of Merger are duly filed with the Secretary of
State or such later date set forth in the Articles of Merger (the "Effective
Time").
1.1.3 At the Effective Time, (i) the separate existence of
Merger Subsidiary shall cease and Merger Subsidiary shall be merged with and
into Partner, which shall be the Surviving Corporation; (ii) the officers of the
Surviving Corporation shall initially be the officers of Partner immediately
prior to the Merger; (iii) the directors of the Surviving Corporation shall
initially be the directors of Merger Subsidiary immediately prior to the Merger;
(iv) the Articles of Incorporation and Bylaws of the Surviving Corporation shall
initially be the same as the Articles of Incorporation and Bylaws, respectively,
of Merger Subsidiary immediately prior to the Merger, except that Article I of
the Articles of Incorporation of Merger Subsidiary shall, at the Effective Time,
be amended to read that "The name of the Corporation is Daig Corporation;" and
(v) the Merger shall, from and after the Effective Time, have all of the effects
provided by applicable law. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time all the property, rights, privileges,
powers and franchises of Merger Subsidiary and Partner shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Merger
Subsidiary and Partner shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.2 CONVERSION OF MERGER SUBSIDIARY CAPITAL STOCK. At the
Effective Time, each share of capital stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become one
validly issued, fully paid and non-assessable share of capital stock of the
Surviving Corporation with the same rights and privileges as the shares of
Merger Subsidiary so converted, which share shall be owned by Company.
SECTION 1.3 CANCELLATION OR CONVERSION OF PARTNER COMMON STOCK. As of
the Effective Time of the Merger, by virtue of the Merger and without any action
on the part of any shareholder:
1.3.1 Any shares of Partner Common Stock issued and
outstanding immediately prior to the Effective Time which are owned by Company,
Merger Subsidiary or Partner shall be canceled and retired without any
conversion thereof, and no cash, securities or other consideration shall be paid
or delivered in exchange for such Partner Common Stock.
1.3.2 Except (i) as provided herein with respect to Dissenting
Shares (as defined below in Section 1.5); (ii) fractional shares; and (iii)
shares of Partner Common Stock canceled pursuant to Section 1.3.1 hereof, at the
Effective Time, each share of Partner
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Common Stock outstanding shall be canceled and converted into the right to
receive a fraction of a share of Company Common Stock equal to .651733 (the
"Conversion Ratio"), such shares of Company Common Stock, together with the cash
in respect of fractional shares to be received pursuant to Section 1.3.3 (the
"Merger Consideration").
1.3.3 No fraction of a share of Company Common Stock will be
issued in the Merger but, in lieu thereof, each holder of shares of Partner
Common Stock who would otherwise be entitled to a fraction of a share of Company
Common Stock (after aggregating all fractional shares of Company Common Stock to
be received by the holder) will be entitled to receive from the Company an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction multiplied by (ii) the Reference Market Value. For purposes of
this Agreement, "Reference Market Value" of a share of Company Common Stock
shall mean the average of the closing sale prices (in thousandths) on the NASDAQ
National Market System (the "NASDAQ") of Company Common Stock as reported in The
Wall Street Journal for the twenty trading days immediately preceding the fifth
trading day prior to the Effective Time.
SECTION 1.4 EXCHANGE OF SHARES.
1.4.1 After the Effective Time, each holder of an outstanding
certificate or certificates theretofore representing shares of Partner Common
Stock ("Partner Stock Certificates"), upon surrender thereof to American Stock
Transfer & Trust Company, or such other banking institution as shall be
designated by Company, as exchange agent (the "Exchange Agent"), shall be
entitled to receive the Merger Consideration. Until so surrendered, each
outstanding Partner Stock Certificate shall be deemed for all purposes, other
than as provided below with respect to the payments of dividends or other
distributions, if any, in respect of Company Common Stock, to represent a right
to receive the number of whole shares of Company Common Stock into which the
shares of Partner Common Stock theretofore represented thereby shall have been
converted together with payment for fractional shares. Until so surrendered,
Company may, at its option, refuse to pay any dividend or other distribution, if
any, payable to the holders of shares of Company Common Stock to the holders of
Partner Stock Certificates; provided, however, that upon surrender and exchange
of such Partner Stock Certificates, there shall be paid to the record holders of
the stock certificate or certificates issued in exchange therefor the amount,
without interest, of dividends and other distributions, if any, which have
become payable with respect to the number of whole shares of Company Common
Stock into which the shares of Partner Common Stock theretofore represented
thereby shall have been converted and which have not previously been paid,
together with any payment for fractional shares required by Section 1.3.3
hereof. Whether or not a Partner Stock Certificate is surrendered, from and
after the Effective Time such certificate shall under no circumstances evidence,
represent or otherwise constitute any stock or other interest whatsoever in the
Company, the Surviving Corporation or any other person, firm or corporation
other than Company or its successors.
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1.4.2 Any shares of Company Common Stock deposited with the
Exchange Agent that remain unclaimed by the holders of shares of Partner Common
Stock twelve months after the Effective Time shall be returned to Company upon
demand, and any such holder who has not exchanged his shares of Partner Common
Stock for the Merger Consideration prior to that time shall thereafter look only
to Company for his claim for Company Common Stock, any cash in lieu of
fractional shares of Company Common Stock and any dividends or distributions
with respect to Company Common Stock. Notwithstanding the foregoing, Company
shall not be liable to any holder of shares of Company Common Stock for any
amount paid to a public official pursuant to applicable abandoned property laws.
SECTION 1.5 DISSENTING SHARES.
1.5.1 Notwithstanding any provision of this Agreement to the
contrary, any shares of capital stock of Partner held by a holder which has
demanded and perfected its right for appraisal of such shares in accordance with
Minnesota Law (the "Dissenters' Rights") and who, as of the Effective Time, has
not effectively withdrawn or lost such right to appraisal ("Dissenting Shares"),
shall not be converted into or represent a right to receive the Merger
Consideration pursuant to Section 1.3, but the holder thereof shall only be
entitled to such rights as are granted by the Dissenters' Rights.
1.5.2 Notwithstanding the provisions of Section 1.5.1, if any
holder of shares of capital stock of Partner who demands appraisal of such
shares under the Dissenters' Rights shall effectively withdraw or lose (through
failure to perfect or otherwise) its right to appraisal, then, as of the later
of the Effective Time or the occurrence of such event, such holder's shares
shall automatically be converted into and represent only the right to receive
the Merger Consideration as provided in Section 1.3, without interest thereon,
upon surrender of the certificate or certificates representing such shares.
1.5.3 Partner shall give Company (i) prompt written notice of
any notice of intent to demand fair value for any shares of capital stock of
Partner, withdrawals of such notices, and any other instruments served pursuant
to the Dissenters' Rights and received by Partner; and (ii) the opportunity to
direct and carry on all negotiations and proceedings with respect to demands for
fair value for shares of capital stock of Partner under the Dissenters' Rights.
Partner shall not, except with the prior written consent of Company, voluntarily
make any payment with respect to any demands for fair value for shares of
capital stock of Partner or offer to settle or settle any such demands other
than by operation of law or pursuant to a final order of a court of competent
jurisdiction.
SECTION 1.6 ADJUSTMENTS. In the event that, subsequent to the date of
this Agreement but prior to the Effective Time, the outstanding shares of
Company Common Stock shall have been increased, decreased, changed into or
exchanged for a different number or kind of shares or securities and such
increase, decrease, change or exchange shall have been effected through a stock
dividend, stock split or reverse stock split, then an appropriate and
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proportionate adjustment shall be made to the Conversion Ratio to fully reflect
such increase, decrease, change or exchange.
SECTION 1.7 PARTNER OPTION. The non-qualified stock option to purchase
128,000 shares of Partner Common Stock (the "Partner Option"), outstanding on
the date hereof, shall, pursuant to the terms of the Partner Option (i) become
exercisable in accordance with its terms and (ii) terminate 30 days after the
Effective Time. From and after the Effective Time until the end of such 30-day
period, all references to Partner in the Partner Option and the related stock
option agreement shall be deemed to refer to Company. During such period, the
Partner Option shall be assumed by Company and shall be exercisable upon the
same terms and conditions as under the Partner Option and the related option
agreement, except that (i) such Partner Option shall be exercisable for that
whole number of shares of Company Common Stock (to the nearest whole share) into
which the number of shares of Partner Common Stock subject to such Partner
Option immediately prior to the Effective Time would be converted under Section
1.3, and (ii) the option price per share of Company Common Stock shall be an
amount equal to the option price per share of Partner Common Stock subject to
such Partner Option in effect immediately prior to the Effective Time divided by
the Conversion Ratio (the option price per share, as so determined, being
rounded upward to the nearest full cent).
ARTICLE II
CLOSING; CLOSING DATE
Unless this Agreement shall have been terminated pursuant to a
provision of Section 9.1 below, a closing (the "Closing") with respect to the
Merger and the transactions contemplated by this Agreement will be held on a
date mutually acceptable to Company and Partner, which shall be no later than
the second business day after satisfaction or waiver of the conditions set forth
in Article VIII, at the offices of Partner's legal counsel, commencing at 10:00
a.m. At such time and place, the documents referred to in Articles VII and VIII
hereof shall be exchanged by the parties and, immediately thereafter, the
Articles of Merger shall be filed by Merger Subsidiary and Partner with the
Secretary of State of the State of Minnesota. The date on which the Closing
occurs is hereinafter referred to as the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARTNER
Partner represents and warrants to Company as follows, except as set
forth in the schedule of exceptions to representations and warranties attached
hereto as Schedule 3 (the "Disclosure Schedule"):
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SECTION 3.1 CORPORATE EXISTENCE AND POWER.
3.1.1 Partner is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers required to carry on its business as
now conducted. Partner is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect.
Partner has heretofore delivered to Company true and complete copies of
Partner's Articles of Incorporation and Bylaws, as currently in effect.
3.1.2 For purposes of this Agreement, a "Material Adverse
Effect," when used with respect to any entity, shall mean a material adverse
change in the financial condition, business, assets, liabilities,
capitalization, financial position compared to the financial statements as of
September 30, 1995, in the case of Partner or as of December 31, 1995 in the
case of Company, operations or results of operations of such entity and its
subsidiaries taken as a whole or any event described in Schedule 3.1.2 which
could, so far as can reasonably be foreseen, have such an effect.
SECTION 3.2 CORPORATE AUTHORIZATION. Partner has the corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by Partner's Board of Directors and no other corporate
proceedings on the part of Partner are necessary to authorize the execution and
delivery of this Agreement or to consummate the transactions so contemplated
(except the approval of this Agreement and the transactions contemplated hereby
by the shareholders of Partner required in accordance with Minnesota Law and the
Articles of Incorporation and Bylaws of Partner).
SECTION 3.3 SUBSIDIARIES. Schedule 3.3 of the Disclosure Schedule
contains a true and complete list of all of Partner's subsidiaries (each such
subsidiary shall hereinafter separately be called a "Partner Subsidiary" and all
such subsidiaries shall collectively be called the "Partner Subsidiaries") and
their jurisdictions of incorporation. All of the shares of capital stock of each
of the Partner Subsidiaries are owned directly or indirectly by Partner, are
validly issued, fully paid and nonassessable and are owned free and clear of any
Liens. There are no existing options, warrants, calls or commitments of any
character relating to the issued or unissued capital stock of any of the Partner
Subsidiaries. Partner has, and the Partner Subsidiaries have, no material
investment in any subsidiary or any material investment in any partnership,
joint venture or similar entity, all of which investments are owned free and
clear of any Liens. Each of the Partner Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation.
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SECTION 3.4 GOVERNMENTAL AUTHORIZATION; CONSENTS.
3.4.1 The execution, delivery and performance by Partner of
this Agreement and the consummation of the Merger by Partner require no action
by or in respect of, or filing with, any governmental body, agency, official or
authority other than (i) the filing of Articles of Merger in accordance with
Minnesota Law; (ii) compliance with any applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"); (iii)
compliance with any applicable requirements of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "1933 Act")
and the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (the "1934 Act"); (iv) compliance with the
rules and regulations of the NASDAQ National Market System; (v) compliance with
any applicable state securities laws; and (vi) any action or filing, the failure
to obtain or make would not, individually or in the aggregate, have a Material
Adverse Effect.
3.4.2 No consent, approval, waiver or other action by any
person under any material contract, agreement, indenture, lease, instrument or
other material document to which Partner is a party or by which it is bound is
required or necessary for the execution, delivery and performance of this
Agreement by Partner or the consummation of the transactions contemplated
hereby.
SECTION 3.5 NON-CONTRAVENTION. The execution, delivery and performance
by Partner of this Agreement do not, and the consummation by Partner of the
transactions contemplated hereby will not (i) contravene or constitute a default
under or give rise to a right of termination, cancellation or acceleration of
any right or obligation of Partner or to a loss of any benefit to which Partner
is entitled under (A) any provision of applicable law or regulation (assuming
compliance with the matters referred to in Section 3.4.1), other than such
contraventions, defaults or rights of termination, cancellation or acceleration
which would not, individually or in the aggregate, have a Material Adverse
Effect; (B) the Articles of Incorporation or Bylaws of Partner; (C) any
agreement, contract, plan, lease, arrangement or commitment, other than such
contraventions, defaults or rights of termination, cancellations or acceleration
which would not, individually or in the aggregate, have a Material Adverse
Effect; or (D) any judgment, injunction, order, decree, administrative
interpretation, award or other instrument binding upon Partner, other than such
contraventions, defaults or rights of termination, cancellations or acceleration
which would not, individually or in the aggregate, have a Material Adverse
Effect, or (ii) result in the creation or imposition of any Lien on any asset of
Partner. For purposes of this Agreement, "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest, restriction on
transfer or encumbrance of any kind in respect of such asset; provided, however,
"Lien" does not include liens for taxes or statutory liens, not yet delinquent
or the validity of which is being contested in good faith by appropriate
proceedings.
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SECTION 3.6 BINDING EFFECT. This Agreement constitutes a valid and
binding agreement of Partner enforceable against Partner in accordance with its
terms, except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by principles of
equity regarding the availability of remedies.
SECTION 3.7 CAPITALIZATION. The authorized capital stock of Partner
consists of 40,000,000 shares of Partner Common Stock. As of the date hereof (i)
15,236,144 shares of Partner Common Stock were outstanding, and (ii) stock
options to purchase an aggregate of 128,000 shares of Partner Common Stock under
the Partner Option were outstanding. All outstanding shares of capital stock of
Partner have been duly authorized and validly issued and are fully paid and
nonassessable. Except for the Partner Option, there are no plans, agreements or
other arrangements pursuant to which any options, warrants or other rights to
acquire shares of capital stock of Partner are outstanding. An aggregate of
128,000 shares of Partner Common Stock have been reserved for issuance under the
Partner Option. Except as set forth in this Section, there are outstanding (i)
no shares of capital stock or other voting securities of Partner, (ii) no
securities of Partner convertible into or exchangeable for shares of capital
stock or voting securities of Partner, and (iii) no options or other rights to
acquire from Partner, and no obligation of Partner to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Partner (collectively "Partner Securities"). There
are no outstanding obligations of Partner to repurchase, redeem or otherwise
acquire any Partner Securities.
SECTION 3.8 FINANCIAL STATEMENTS AND SEC FILINGS. Partner has delivered
to Company true and complete copies of (i) its annual reports on Form 10-K for
its fiscal years ended September 30, 1993, 1994 and 1995; (ii) its quarterly
reports on Form 10-Q for its fiscal quarters commencing October 1, 1993; (iii)
its proxy or information statements relating to all meetings of, or actions
taken without a meeting by, the shareholders of Partner held since September 30,
1993; and (iv) all of its other reports or registration statements filed with
the Securities and Exchange Commission (the "SEC") since October 1, 1993. The
reports and statements so delivered are referred to collectively in this
Agreement as the "Partner SEC Filings." As of their respective dates, the
Partner SEC Filings (including all exhibits and schedules thereto and documents
incorporated by reference therein) did not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading. Partner has delivered to Company's counsel copies of any statements
on Schedule 13D and Schedule 13G known to Partner which had been filed with the
SEC with respect to capital stock of Partner pursuant to the 1934 Act. The
audited financial statements and unaudited interim financial statements of
Partner included or incorporated by reference in the Partner SEC Filings (i)
have been prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q of the
1934 Act) applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto); (ii) complied as of their respective
dates in all material respects with
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applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto; and (iii) fairly present the financial position of
Partner as of the dates thereof and the income and cash flows for the periods
then ended (subject, in the case of any unaudited interim financial statements,
to normal year-end adjustments).
SECTION 3.9 MATERIAL EVENTS. Except as disclosed in the Partner SEC
Filings, and except as expressly contemplated by this Agreement, since the date
of the most recent audited financial statements included in the Partner SEC
Filings there has not been:
3.9.1 Any event, occurrence or development of a state of
circumstances or facts which has had a Material Adverse Effect.
3.9.2 Any discharge or satisfaction of any Lien, other than
those then required to be discharged or satisfied, or any payment of any
obligation or liability, absolute, accrued, contingent or otherwise, whether due
or to become due, other than the payment of current liabilities shown on the
financial statements and included in the Partner SEC Filings and current
liabilities incurred since the date of the most recent audited financial
statements included in the Partner SEC Filings in the ordinary course of
business and consistent with its prior practice and other than payments which,
individually and in the aggregate, would not exceed $50,000.
3.9.3 Any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
Partner, or any repurchase, redemption or other acquisition by Partner of any
outstanding shares of capital stock or other ownership interests in or other
securities of Partner.
3.9.4 Any alteration in any material term of any outstanding
security of Partner.
3.9.5 Any damage, destruction or other casualty loss (whether
or not covered by insurance) affecting the business or assets of Partner which,
in the aggregate, has resulted in or might reasonably be expected to result in a
loss in excess of $250,000.
3.9.6 Any change in any method of accounting or accounting
practice by Partner, except for any such change required by reason of a
concurrent change in generally accepted accounting principles.
3.9.7 Any labor dispute, other than routine individual
grievances, or, to Partner's knowledge, any activity or proceeding by a labor
union or representative thereof to organize any employees of Partner or any
lockouts, strikes, slowdowns, or work stoppages. For purposes of this Agreement,
"knowledge" of a party means, unless otherwise specifically qualified in the
Agreement, the actual knowledge of the officers and directors of that party, as
such knowledge has been obtained in the normal conduct of the business, and also
includes
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such knowledge as a reasonably prudent officer would have obtained upon the
exercise of reasonable diligence under the same or similar circumstances;
"known" or "aware" shall have a correlative meaning.
3.9.8 Any transaction or commitment made by Partner relating
to its assets or business (including the acquisition or disposition of any
assets), or any relinquishment of any contract or other right material to
Partner and its subsidiaries taken as a whole, other than transactions and
commitments in the ordinary course of business, those that would not exceed
$100,000, those contemplated by this Agreement or those constituting an
Acquisition Proposal (as defined in Section 5.7).
3.9.9 Any (i) incurrence, assumption or guarantee by Partner
of any indebtedness other than in the ordinary course of business in amounts and
on terms consistent with past practices, (ii) issuance or sale of any securities
convertible into or exchangeable for debt securities of Partner, or (iii)
issuance or sale of options or other rights to acquire from Partner, directly or
indirectly, debt securities of Partner or any securities convertible into or
exchangeable for any such debt securities.
3.9.10 Any creation or assumption of any Lien by Partner on
any asset of Partner other than in the ordinary course of business.
3.9.11 Any grant, except pursuant to agreements in effect on
the date of this Agreement, of any material severance or termination pay to, any
entering into of any employment, deferred compensation or other similar
agreement with, or any increase in benefits payable under any existing severance
or termination pay policies or employment agreements, or any increase in
compensation, bonus or other benefits payable to any current or former
shareholder, officer, director, salesperson, distributor, agent or employee of
Partner, other than any grants or increases in the ordinary course of business
consistent with past practice.
3.9.12 Any sale, transfer, lease to others or other
disposition of any material assets of Partner, except for inventory sold in the
ordinary course of business, or any cancellation or compromise of any material
debt or claim, or any waiver or release of any right, other than sales,
transfers, leases, dispositions, cancellations, compromises, waivers or releases
made in the ordinary course of business and which, individually and in the
aggregate, would not have a Material Adverse Effect.
3.9.13 Any receipt of a notice of termination of any contract
(including without limitation, any material distributorship agreement) or lease
or other agreement required to be disclosed in Section 3.18 below.
3.9.14 Any transfer or grant of any rights under, or any
settlement regarding the breach or infringement of, any United States or foreign
license, patent, copyright,
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trademark, trade name, invention or similar rights, or modified any existing
rights with respect thereto.
3.9.15 Any material increase or decrease in the quantity of
items of inventory not consistent with Partner's prior practice, or any purchase
commitment in excess of the normal, ordinary and usual requirements of Partner's
business, or any material change in Partner's selling, pricing or advertising
practices inconsistent with its prior practice.
3.9.16 Any written agreement or, to Partner's knowledge, any
commitment to take any of the types of action described in paragraphs 3.9.1
through 3.9.15 above.
SECTION 3.10 PROPERTIES; LIENS. Partner has good title to all of its
assets material to the business, results of operation or financial condition of
Partner, subject, in each case, only to Liens and imperfections of title and
encumbrances, if any, which, individually or in the aggregate, do not have a
Material Adverse Effect. Schedule 3.10 of the Disclosure Schedule sets forth a
summary description of all real property (including warehouses) leased by
Partner, together with any encumbrances on Partner's interest. The leases,
subleases and other agreements disclosed in Schedule 3.10 of the Disclosure
Schedule are in full force and effect. Partner is not in material default under
any such lease, sublease or agreement and has received no notice of default
thereunder and, to the knowledge of Partner, no other party thereto is in
material default thereunder. Partner enjoys a right of quiet possession as
against any Lien on its real property interests. To Partner's knowledge, all
buildings and other structures leased by Partner are (i) in good operating
condition and repair, normal wear and tear excepted; and (ii) in Partner's
judgment, adequate for the uses to which they are being put. Partner has not
received any notice and has no knowledge of any pending, threatened or
contemplated condemnation proceeding affecting the real property leased by
Partner or any part thereof or of any sale or other disposition of such real
property or any part thereof in lieu of condemnation.
SECTION 3.11 LITIGATION. As of the date hereof there is no action,
suit, proceeding, or, to the knowledge of Partner, any investigation pending
against, or, to the knowledge of the Partner, overtly threatened against or
affecting, Partner or any of its properties before any court or arbitrator or
any governmental body, agency or official. There are no actions, suits or claims
or legal, administrative or arbitral proceedings pending or, to the knowledge of
Partner, overtly threatened against or affecting, Partner or any of its
properties (other than any such suit, action or proceeding challenging the
acquisition by Company or Merger Subsidiary of the shares of Partner Common
Stock or any provision of this Agreement or seeking to restrain or prohibit the
consummation of the Merger) before any court or arbitrator or any governmental
body, agency or official that, if determined or resolved adversely to Partner
(in accordance with the plaintiff's demands, if applicable), individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect.
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SECTION 3.12 TAXES. The statute of limitations for the assessment of
federal income taxes has expired for all federal income tax returns of Partner
or its predecessor through the fiscal year ended September 30, 1992. Partner is
not currently being audited by any tax authority. Partner has filed all material
returns for Taxes, as defined below, that it is required to file. Each of the
federal, state, and local income tax returns heretofore filed by Partner is true
and correct in all material respects. Partner has timely paid or made provision
for all material Taxes that have been shown as due and payable on the returns
that have been filed. The charges, accruals and reserves for taxes reflected in
the financial statements contained in the most recently filed Partner SEC
Filings are adequate to cover the material Tax liabilities accruing or payable
by Partner in respect of periods covered by such financial statements. Partner
is not delinquent in the payment of any Taxes (other than Taxes, the failure to
pay which would not, individually or in the aggregate, result in amounts owing
(including penalties and interest) in excess of $100,000). Partner has not
requested any extension of time within which to file or send any return, which
return has not since been filed or sent. No deficiency for any Taxes has been
proposed, asserted or assessed in writing against Partner and Partner does not
know of any other unassessed Tax deficiency threatened or proposed against
Partner (other than deficiencies, the liability for which would not,
individually or in the aggregate, result in amounts owing (including penalties
and interest) in excess of $100,000). Partner has not been granted any extension
of the limitation period applicable to any Tax claims. Partner is not, nor has
Partner been, a party to any tax sharing agreement with any corporation. "Tax"
means with respect to any person (i) any net income, gross income, gross
receipts, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profit tax, custom duty or other tax, governmental fee, or other like
assessment or charge of any kind whatsoever, together with any interest and any
penalty, addition to tax or additional amount imposed by any taxing authority
(domestic or foreign) on such person; and (ii) any liability of Partner for the
payment of any amount of the type described in the immediately preceding clause
(i) as a result of being a member of an affiliated or combined group, or as a
result of any spin off, distribution or other reorganization related to the
disposition of any assets or business of Partner. Partner has not, for the five
year period preceding the Effective Time, been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code.
SECTION 3.13 ERISA.
3.13.1 Schedule 3.13.1 of the Disclosure Schedule lists each
"employee benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), which is or was subject to any provision
of ERISA and with respect to which Partner or any affiliate (as defined below)
has any direct or indirect, fixed or contingent liability as of the Effective
Time. Copies of such plans (and, if applicable, related trust agreements or
insurance contracts) and all written amendments thereto, summary plan
descriptions thereof and any material written employee communications with
respect to them have been furnished to Company, together with the three most
recent annual reports (Form
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5500 including, if applicable, Schedule B thereto) and the most recent annual
accounting, if any, of plan assets prepared in connection with any such plan.
Such plans are hereinafter referred to collectively as the "Employee Plans". For
purposes of this Section, "affiliate" of any person means any other person
which, together with Partner, is treated as a single employer under Section 414
of the Code. The only Employee Plans which, individually or collectively, would
constitute an "employee pension benefit plan" as defined in Section 3(2) of
ERISA (the "Pension Plans") are identified as such in Schedule 3.13 of the
Disclosure Schedule. Neither Partner nor any affiliate has terminated or caused
to be terminated in whole or in part or merged any Employee Plan during the
period since September 30, 1990.
3.13.2 No Employee Plan constitutes a "multi-employer plan,"
as defined in Section 3(37) of ERISA (a "Multi-employer Plan"); with respect to
insurance arrangements, there are no reserves, assets, surpluses or prepaid
premiums; and no Employee Plan is subject to Title IV of ERISA. Neither Partner
nor, to the knowledge of Partner, any disqualified person, as defined in Section
4975 of the Code, has engaged in any "prohibited transaction", as defined in
Section 406 of ERISA or Section 4975 of the Code, with respect to any Employee
Plan which is covered by Title I of ERISA, excluding transactions effected
pursuant to a statutory or administrative exemption.
3.13.3 Each Employee Plan which is intended to be qualified
under Section 401(a) of the Code is or was the subject of a favorable Internal
Revenue Service determination with respect to such qualification, and Partner
has furnished to Company copies of the most recent such determination letters,
and nothing has occurred since the date thereof that would have an adverse
effect on such qualification. There are no accrued liabilities under any
Employee Plan which have not been fully provided for by contributions to such
Employee Plans or which are not provided for on the financial statements
included in the most recently filed Partner SEC Filings. Each Employee Plan has
been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Employee Plans, including without limitation those requirements necessary to
maintain its qualification and the continuation of coverage requirements of Code
Section 4980B. Other than for claims in the ordinary course for benefits under
the Employee Plans, there are no suits, actions, claims or proceedings pending
or, to the knowledge of Partner, threatened which would result in any liability
with respect to any such Employee Plan.
3.13.4 There is no contract, agreement, plan or arrangement
covering any employee or former employee of Partner or any affiliate that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Section 280G or Section 162(m)
of the Code.
3.13.5 Schedule 3.13.5 of the Disclosure Schedule sets forth a
list of each material employment, severance or other similar contract,
arrangement or policy and each plan or arrangement providing for insurance
coverage (including any self-insured
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arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits or for deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits in effect at the Effective Time which (i) is not an Employee Plan;
(ii) is entered into, maintained or contributed to, as the case may be, by
Partner or any of its subsidiaries; and (iii) covers any employee or former
employee of Partner or any of its affiliates (as defined in paragraph 3.13.1
above). Such contracts, plans and arrangements as are described above, copies or
descriptions of all of which have been furnished previously or made available to
Company are hereinafter referred to collectively as the "Benefit Arrangements."
Each Benefit Arrangement has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations which are applicable to such Benefit Arrangement. Partner
has no liability with respect to post-retirement medical or death benefits for
retired employees other than coverage mandated by law or death benefits under
any Pension Plan.
3.13.6 There has been no amendment to, written interpretation
or announcement (whether or not written) by Partner or any of its affiliates
relating to, or change in employee participation or coverage under, any Employee
Plan or Benefit Arrangement which would increase the expense (whether or not
such expense is recognized under generally accepted accounting principles) of
maintaining such Employee Plan or Benefit Arrangement above the level of the
expense incurred in respect thereof for the fiscal year ended on September 30,
1995.
3.13.7 With respect to any Employee Plan or Benefit
Arrangement, no event has occurred, and there exists no condition or set of
circumstances, in connection with which Partner or any such plan, directly or
indirectly, could reasonably be expected to be subject to any liability under
ERISA, the Code or any other law, regulation or governmental order, other than
ordinary contribution and benefit arrangements. With respect to each Employee
Plan and Benefit Arrangement: (i) Partner has made all payments due from it to
date or has established a reasonable reserve therefore and all amounts properly
accrued to date as liabilities of Partner which have not been paid have been
properly recorded on the books of Partner (including without limitation the
financial statements included in the most recently filed Partner SEC Filings);
(ii) no Pension Plan which is subject to ERISA section 302 or Code section 412
has incurred any "accumulated funding deficiency" (as defined in either such
section), whether or not waived; and (iii) to Partner's knowledge, there are no
unfunded benefit obligations that are not subject to United States law which are
not accounted for by reserves shown on the financial statements included in the
most recently filed Partner SEC Filings and established under generally accepted
accounting principles or otherwise noted on such financial statements.
3.13.8 The consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former employee of Partner or
any affiliate to severance pay, supplementary unemployment compensation or any
similar payment; (ii) accelerate the time of
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payment or vesting, or increase the amount, of any compensation due to any such
employee or former employee; or (iii) constitute or involve a prohibited
transaction (as defined in ERISA section 406 or Code section 4975) that is not
otherwise covered by a statutory or administrative exemption.
SECTION 3.14 COMPLIANCE WITH LAWS; PERMITS. Except for violations which
do not and will not have individually or in the aggregate a Material Adverse
Effect, Partner (i) is not in violation of any applicable provision of any law,
statute, ordinance or regulation; and (ii) would not, to its knowledge, be in
violation of any provision of any law, statute, ordinance or regulation that has
been enacted or adopted but is not yet effective if it were effective at the
date hereof. Partner has all licenses, permits, orders and approvals of any
federal, state, local or foreign governmental or regulatory body (collectively,
"Permits") that are required for the conduct of the business of Partner as now
being conducted, except where the failure to hold any such Permit would not
result in a Material Adverse Effect; such Permits are in full force and effect;
no material violations are or have been recorded in respect of any Permit; and
no proceeding is pending or, to the knowledge of Partner, threatened to revoke
or limit any material Permit.
SECTION 3.15 FINDERS' FEES. No investment banker, broker, finder or
other intermediary, other than Goldman, Sachs & Co. ("Goldman Sachs"), the fees
and expenses of which will be paid by Partner, has been retained by or is
authorized to act on behalf of, Partner is entitled to any fee or commission
from Partner or Company or any of its affiliates based upon consummation of the
transactions contemplated by this Agreement and based upon arrangements made by
or on behalf of Partner. Partner has provided Company with a true and correct
copy of the fee letter between Partner and Goldman Sachs.
SECTION 3.16 PATENTS, TRADEMARKS, TRADE NAMES, SERVICE MARKS AND
COPYRIGHTS.
3.16.1 Schedule 3.16 of the Disclosure Schedule lists all
federally registered trademarks and U.S. patents (collectively the "Scheduled
Proprietary Rights") owned by Partner, specifying as to each, as applicable (i)
the nature of such Scheduled Proprietary Right; (ii) the owner of such Scheduled
Proprietary Right; and (iii) licenses, sublicenses or other agreements as to
which Partner is a party pursuant to which any person is authorized to use such
Scheduled Proprietary Right, including the identity of all parties thereto.
Partner has previously furnished or made available to Company, copies of all
such licenses, sublicenses or other agreements. Schedule 3.16 of the Disclosure
Schedule sets forth all material licenses held by Partner other than
off-the-shelf software licenses. Subject to the rights of third parties under
contracts listed on Schedule 3.18 or Schedule 3.16 of the Disclosure Schedule,
all material trade secrets (if any) of Partner ("Proprietary Information") have
been developed independently by Partner, or on behalf of Partner by independent
contractors, under circumstances and arrangements which vest in Partner the
exclusive and unencumbered rights to such Proprietary Information (subject only
to such rights as a third party may have due to its independent development of
such information or obtaining such information in a manner
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which does not constitute or involve an act of misappropriation). To the
knowledge of Partner, the research, development and manufacture of the current
products of Partner do not constitute or involve the misappropriation of trade
secrets of any third party. Subject to the rights of third parties under
contracts listed on Schedule 3.18 or Schedule 3.16 of the Disclosure Schedule,
to Partner's knowledge, Partner's right, title and interest in and to the
Scheduled Proprietary Rights, the Proprietary Information and all trademarks,
patents, copyrights, service marks, applications therefor, logos, trade names
and Partner developed computer software and firmware owned by Partner other than
the Scheduled Proprietary Rights (collectively the "Non-Scheduled Proprietary
Rights") are free and clear of all Liens. To Partner's knowledge, there are no
other parties infringing the Scheduled or Non-Scheduled Proprietary Rights.
Subject to the rights of third parties under contracts listed on Schedule 3.18
or Schedule 3.16 of the Disclosure Schedule, Partner has not granted, conveyed,
licensed or assigned any rights in the Scheduled or Non-Scheduled Proprietary
Rights or Proprietary Information to any third party.
3.16.2 Partner has no knowledge of any material fact which
would result in any of the Scheduled or Non-Scheduled Proprietary Rights being
declared invalid or unenforceable.
3.16.3 None of the features, components, configurations, uses
or operations (whether developed or under development) of Partner's products or
processes, to the knowledge of Partner, infringe, nor has any claim been made
that they may infringe, the intellectual property rights of any other party.
Partner has not been sued or charged in writing with, or been a defendant in any
claim, suit, action or proceeding relating to Partner's assets or business which
has not been finally determined prior to the date hereof and which involves a
claim of infringement of any patents, trademarks, service marks or copyrights,
or claim of unfair competition.
3.16.4 None of the Scheduled or Non-Scheduled Proprietary
Rights or Proprietary Information are subject to any outstanding order,
judgment, decree, stipulation or, subject to the rights of third parties under
contracts listed on Schedule 3.18 or Schedule 3.16 of the Disclosure Schedule,
agreement restricting the use thereof by Partner or restricting the licensing
thereof by Partner to any person.
3.16.5. Partner has not entered into any agreement to
indemnify any person against any charge of infringement of any patent,
trademark, service mark or copyright.
3.16.6. Partner has established safeguards to maintain the
secrecy of all the Proprietary Information. To the knowledge of Partner, Partner
has executed agreements respecting the non-disclosure of Proprietary
Information, and the assignment of inventions with each of its employees,
excluding clerical, janitorial and similar employees. To the knowledge of
Partner, the information which Partner believes is Proprietary Information has
not been disclosed by Partner or any of its employees or affiliates to any
person, entity or
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governmental agencies other than to employees, representatives or agencies of
Partner and certain governmental agencies except pursuant to confidentiality
agreements, protective orders or non-disclosure rules or policies adopted by
governmental agencies (as appropriate).
SECTION 3.17 ENVIRONMENTAL MATTERS; OSHA.
3.17.1 The following terms used in this Section 3.17 are
defined as follows:
(a) "Environmental Laws" is defined as any and all federal,
state and local laws, regulations, statutes, rules, ordinances, codes,
standards or criteria, orders, decrees, policies or other requirements
of any governmental agency, authority, or jurisdiction where Partner is
located or conducts business relating to the environment or to human
health or safety associated with the environment, all as modified or
amended from time to time.
(b) "Regulated Substances" is defined as any toxic,
radioactive, explosive, corrosive, flammable, infectious, carcinogenic,
mutagenic or otherwise hazardous substance, waste, pollutant or
contaminant, including but not limited to asbestos or
asbestos-containing material, urea-formaldehyde, polychlorinated
biphenyls, petroleum and petroleum products, and any nuclear fuel or
waste, whose generation, storage, handling, release or disposal is
regulated by any Environmental Law.
(c) "Property" is defined as all real estate and property
presently or formerly owned, leased or used by Partner.
3.17.2 Except for violations which do not and will not have,
individually or in the aggregate, a Material Adverse Effect, Partner is and at
all times has been in compliance with any and all applicable Environmental Laws.
Partner has not received written notice of any pending or threatened actions,
litigation, proceedings, investigations, claims or notices by any party against
or relating to Partner, Partner's business, the Property, or Partner's use of
Regulated Substances or compliance with Environmental Laws.
3.17.3 Except for licenses, permits and authorizations, the
absence of which do not and will not have, individually or in the aggregate, a
Material Adverse Effect, Partner has all governmental licenses, permits and
other authorizations required by any and all Environmental Laws and necessary to
conduct and operate the business of Partner as currently conducted or operated.
All such licenses, permits and authorizations are in full force and effect and
Partner is, and, except for violations which do not have, individually or in the
aggregate, a Material Adverse Effect, at all times has been, in full compliance
therewith.
3.17.4 Except in compliance with Environmental Laws, the
Property is not utilized, and has not in the past been utilized, by Partner for
the generation, storage, handling, treatment, transportation or disposal of any
Regulated Substance and, to Partner's knowledge,
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the Property has not been used by prior owners, lessees, operators or others for
the generation, storage, handling, treatment, transportation or disposal of any
Regulated Substance. No part of the Property is being or, to Partner's
knowledge, was ever used as (i) a gasoline service station or for the purpose of
selling, dispensing, storing, or handling petroleum or petroleum products; or
(ii) as a dry cleaning establishment.
3.17.5 To Partner's knowledge, the Property has not been
subject to any release or threatened release of any Regulated Substance, except
for releases and conditions which will not have, individually or in the
aggregate, a Material Adverse Effect, and it does not otherwise contain any
condition which may result in a claim, right of action or recovery by any person
or entity under any Environmental Law. To Partner's knowledge, the Property and
all improvements thereon contain no asbestos, urea-formaldehyde, lead paint,
radon at levels above applicable U.S. EPA rules and guidelines, polychlorinated
biphenyls, or pesticides.
3.17.6 Partner has not received any notice that it has
generated, transported for disposal or treatment, arranged for transportation
for disposal or treatment or disposed of any Regulated Substances at any site
where there has been a release or threatened release of a Regulated Substance or
in a manner which could create liability to any party under any Environmental
Law. Partner has not received nor does it have knowledge of any written notice,
request for response action, administrative or other order, judgment, complaint,
claim, investigation, request for information or any other request for relief
whatsoever relating to any site where a Regulated Substance was disposed of,
placed or located, which was generated, transported for disposal or treatment,
or arranged for transportation by Partner.
3.17.7 To Partner's knowledge, there are, and have been, no
above-ground or underground storage tanks located on the Property.
3.17.8 Partner is not operating its business in material
violation of the Occupa tional Safety and Health Act of 1970 or the regulations
promulgated thereunder. Partner is not, nor will it become, liable for any
workers' compensation insurance premiums relating to the period of time prior to
the date of this Agreement in excess of the reserves shown on the financial
statements included in the most recently filed Partner SEC Filings, except for
adjustments to workers' compensation insurance premiums based on annual audits
of employee compensation and classification as contemplated by the terms of
Partner's workers' compensation insurance policy.
SECTION 3.18 CONTRACTS. Schedule 3.18 of the Disclosure Schedule lists
the following contracts and other agreements to which Partner is a party or by
which Partner or its assets or properties are bound or subject: (i) customer
contracts (except for customer pricing letters, a form of which has been
delivered to the Company) and agreements for the sale by Partner of materials or
products which by their terms exceed one year or under which the executory
portion involves dollar amounts in excess of $100,000; (ii) supply contracts,
distributorship
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agreements and manufacturer's representative agreements which are material to
Partner and its subsidiaries taken as a whole; (iii) research and development
agreements; (iv) employment, consulting, independent contractor, severance and
indemnification agreements, arrangements or understandings, and any other
agreements, arrangements or understandings, between Partner and any current or
former stockholder, officer, director, employee, consultant, agent or other
representative; (v) contracts and other agreements with any labor union or
association representing any employee of Partner; (vi) joint venture agreements;
(vii) contracts or other agreements under which Partner agrees to indemnify any
party or to share tax liability of any party; (viii) contracts and other
agreements relating to the borrowing of money; (ix) any equipment leases
requiring payment by Partner of at least $100,000 within a given year which are
not cancelable without penalty upon 90 days notice; or (x) any other material
contract not required to be disclosed by any other section of this Agreement,
whether or not made in the ordinary course of business. There have been
delivered or made available to Company true and complete copies of all such
contracts and other agreements set forth in Schedule 3.18 of the Disclosure
Schedule. All of such contracts and other agreements are in full force and
effect and Partner is not in default under any of them, and, to the knowledge of
Partner, no other party to any such contract or other agreement is in default
thereunder, and no condition exists that, with notice or lapse of time, or both,
would constitute a default thereunder, except, in each such case, for defaults
that would not, individually or in the aggregate, have a Material Adverse
Effect. No approval or consent of any person is needed in order that any
contracts and other agreements set forth in Schedule 3.18 continue in full force
and effect following the consummation of the transactions contemplated by this
Agreement, except for consents and approvals where the failure of Partner to
obtain such consent or approval would not have, individually or in the
aggregate, a Material Adverse Effect. Other than products provided in connection
with clinical trials, Partner is not a party to any material contract to sell
products or to provide services to third parties which is to be performed at a
price which is less than Partner's full cost. No customer or supplier has
cancelled or otherwise terminated its relationship with Partner during the last
twelve months, except for such cancellations or terminations which would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.19 PARTNER PRODUCTS; REGULATION.
3.19.1 There are no statements, citations, warning letters,
FDA Forms 483, or decisions by any governmental or regulatory body that any
product produced, manufactured, marketed or distributed at any time by Partner
("Partner Product") is defective or fails to meet any applicable standards
promulgated by any such governmental or regulatory body. There have been no
recalls ordered by any such governmental or regulatory body with respect to any
Partner Product. To the knowledge of Partner, there is (i) no fact relating to
any Partner Product that constitutes grounds for a recall of any Partner Product
or a duty to warn of a defect in any Partner Product; and (ii) no latent or
overt design, manufacturing or other defect in any Partner Product which defect
would result in a Product malfunction or recall.
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3.19.2 All Partner Products used, marketed or distributed by
Partner in clinical investigations are subject to all applicable licenses,
registrations, approvals, clearances, and authorizations required by local,
state, and federal agencies, foreign or domestic, regulating the safety,
effectiveness, and market clearance of medical devices, which licenses,
registrations, approval, clearances and authorizations ("Licenses") are held by
Partner and were obtained by Partner on or before the date when same were
required, except, in those cases in which Partner has contracted with third
parties for distribution of Partner Products and such third parties were
responsible for conducting clinical investigations. To Partner's knowledge,
without inquiry, such third parties had the necessary Licenses to conduct such
clinical investigations. Those licenses, registrations, approvals, clearances,
and authorizations will not be affected or impaired by the Merger. Schedule
3.19.2 to the Disclosure Schedule lists all such U.S. licenses, registrations,
approvals, clearances and authorizations obtained or held by Partner in its own
name.
3.19.3 There is no proceeding by the FDA or any other
governmental agency, including but not limited to a grand jury investigation, a
405 hearing, a civil penalty proceeding pending, or to Partner's knowledge
overtly threatened, against Partner, and no such proceedings have been brought
at any time in the past relating to the safety or efficacy of Partner's Products
and, to Partner's knowledge, there is no basis for such a proceeding.
SECTION 3.20 INVENTORY. The inventory (including, without limitation,
finished goods, parts and supplies) of Partner (including the inventory
reflected on the financial statements included in the most recently filed
Partner SEC Filings and the inventory acquired after the date of such financial
statements) is or was, prior to the sale thereof, (i) in good and merchantable
condition, and suitable and usable or salable in the ordinary course of business
for the purposes for which intended; (ii) is not obsolete, damaged or defective;
and (iii) has been reflected on the financial statements included in the most
recently filed Partner SEC Filings and carried on the books of account of
Partner in accordance with generally accepted accounting principles consistently
applied, except, in the case of each of clause (i), (ii) and (iii), where
failure of such inventory to be in such condition or character or to be so
reflected would not, individually or in the aggregate, exceed $100,000.
SECTION 3.21 ACCOUNTS AND NOTES RECEIVABLE. All accounts and notes
receivable reflected on the financial statements included in the most recently
filed Partner SEC Filings, and all accounts and notes receivable arising
subsequent to the date of such financial statements, (i) have arisen in the
ordinary course of business of Partner; (ii) represent valid obligations due to
Partner; and (iii) subject only to a reserve for bad debts computed in a manner
consistent with past practice, have been collected or are collectible in the
ordinary course of business of Partner in the aggregate recorded amounts thereof
in accordance with their terms, except, in the case of each of clause (i), (ii)
and (iii), where failure of such accounts and notes receivable to have so
arisen, to so represent or to have been so collected or to be so collectible
would not, individually or in the aggregate, exceed $200,000. All items that are
required by generally accepted accounting principles to be reflected as accounts
and
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notes receivable on the financial statements and on the books of account of
Partner are so reflected, except where failure to be so reflected would not,
individually or in the aggregate, exceed $200,000.
SECTION 3.22 EMPLOYEE RELATIONS. Partner has heretofore provided
Company with a complete list of all employees of Partner stating position,
salary and dates of service as of November 30, 1995. None of Partner's employees
are union members. To the knowledge of Partner, no union organizing efforts have
been conducted within the last five years or are now being conducted with
respect to the employees of Partner. Partner is in substantial compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, equal opportunity, civil rights and
payroll taxes, including without limitation, the Immigration and Reform Control
Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991,
the Americans with Disabilities Act, the Federal Age Discrimination in
Employment Act, the Family and Medical Leave Act, the Workers Adjustment and
Retraining Notification Act and any state human rights act, except where failure
to be in compliance would not, individually or in the aggregate, have a Material
Adverse Effect. Except as set forth in Schedule 3.11 of the Disclosure Schedule,
Partner is not in receipt of a complaint, demand letter or charge issued by a
federal, state or local agency which alleges a violation by Partner of any
federal, state or local law or regulation respecting employment and employment
practices, terms and conditions of employment or wages and hours. Except as set
forth in Schedule 3.22 of the Disclosure Schedule, Partner has no knowledge of
any pending or overtly threatened claims by employees or former employees for
any contract claims, intentional infliction of emotional distress, defamation or
any other tort, or any claims arising from any federal, state or local law or
ordinance.
SECTION 3.23 INSURANCE. Schedule 3.23 of the Disclosure Schedule sets
forth a list and brief description of all material policies or binders of fire,
liability, worker's compen sation, vehicular, and other material insurance held
by or on behalf of Partner. Such policies and binders are valid and enforceable
in accordance with their terms and are in full force and effect. Partner is not
in default with respect to any provision contained in any such policy or binder
and has not failed to give any notice or present any claim under any such policy
or binder in due and timely fashion, except for such defaults or failures which
would not, individually or in the aggregate, have a Material Adverse Effect.
Partner has received no notice of cancellation or non-renewal of any such policy
or binder. Partner has no knowledge of any material inaccuracy in any
application for such policies or binders, any failure to pay premiums when due
or any similar state of facts that might form the basis for termination of any
such insurance.
SECTION 3.24 POTENTIAL CONFLICTS OF INTEREST. No officer or director of
Partner, no entity controlled by any such officer or director and no relative or
spouse (or relative of such spouse) of any such officer or director:
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(i) owns, directly or indirectly, any interest in (excepting
not more than 1% stock holdings for investment purposes in securities
of publicly held and traded companies), or is an officer, director,
employee or consultant of, any person which is, or is engaged in
business as, a competitor, lessor, lessee, customer or supplier of
Partner, except as disclosed in Schedule 3.24(i) of the Disclosure
Schedule;
(ii) owns, directly or indirectly, in whole or in part, any
tangible or intangible property that Partner uses or the use of which
is necessary or desirable for the conduct of business of Partner;
(iii) has any cause of action or other claim whatsoever
against, or owes any amount to, Partner, except for claims in the
ordinary course of business, such as for accrued vacation pay, accrued
benefits under employee benefit plans, stock options, and similar
matters and agreements existing on the date hereof; or
(iv) has made any payment of or commitment to pay any
commission, fee or other amount to, or purchase or obtain or otherwise
contract to purchase or obtain any goods or services from, any
corporation or other person of which any officer or director of
Partner, or a relative of any of the foregoing, is a partner or
stockholder (except as disclosed in Schedule 3.24(iv) of the Disclosure
Schedule and except for stock holdings solely for investment purposes
in securities of publicly held and traded companies).
SECTION 3.25 BANK ACCOUNTS. Schedule 3.25 of the Disclosure Schedule
sets forth a complete list of all the bank accounts or safe deposit boxes of
Partner, together with the names of the persons authorized to draw thereon or to
have access thereto.
SECTION 3.26 OPINION OF FINANCIAL ADVISOR. Partner has received the
oral opinion of Goldman Sachs, on the date hereof, to the effect that, as of
such date, the exchange ratio to be received in the Merger by the Partner's
shareholders (other than Company and its affiliates) is fair to such
shareholders, a signed confirmation of which opinion will be delivered to
Company as soon as Partner receives same.
SECTION 3.27 FULL DISCLOSURE. The representations and warranties of
Partner contained in this Agreement (as modified by the Disclosure Schedule) and
the Disclosure Statement, contain no untrue statements of any material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, taken as a whole, not false or misleading.
SECTION 3.28 TAX MATTERS. Neither Partner nor, to its knowledge, any of
its affiliates, has taken or agreed to take any action, or knows of any
circumstances, that (without regard to any action taken or agreed to be taken by
Company or any of its affiliates) would
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prevent the Merger from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
COMPANY AND MERGER SUBSIDIARY
Company and Merger Subsidiary each represents, warrants and covenants
to Partner that:
SECTION 4.1 CORPORATE EXISTENCE AND POWER. Each of Company and Merger
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
corporate powers required to carry on its business as now conducted. Each of
Company and Merger Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except for those jurisdictions where the failure to be
so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the condition, financial or otherwise, business, assets,
liability, capitalization, financial position, operations or results of
operations of Company and its subsidiaries taken as a whole.
SECTION 4.2 CORPORATE AUTHORIZATION. Each of Company and Merger
Subsidiary has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Company and Merger Subsidiary and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by Company's Board of Directors and Merger Subsidiary's
Board of Directors and no other corporate proceedings on the part of either
Company or Merger Subsidiary are necessary to authorize the execution and
delivery of this Agreement or to consummate the transactions so contemplated.
SECTION 4.3 GOVERNMENTAL AUTHORIZATION; CONSENTS.
4.3.1 The execution, delivery and performance by Company and
Merger Subsidiary of this Agreement and the consummation of the Merger by
Company and Merger Subsidiary require no action by or in respect of, or filing
with, any governmental body, agency, official or authority other than (i) the
filing of Articles of Merger in accordance with Minnesota Law; (ii) compliance
with any applicable requirements of the HSR Act; (iii) compliance with any
applicable requirements of the 1933 Act and the 1934 Act; (iv) compliance with
the rules and regulations of the NASDAQ National Market System; (v) compliance
with any applicable state securities laws; and (vi) any action or filing, the
failure to obtain or make would not, individually or in the aggregate, have a
Material Adverse Effect.
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4.3.2 No consent, approval, waiver or other action by any
person under any material contract, agreement, indenture, lease, instrument or
other document to which Company or Merger Subsidiary is a party or by which it
is bound is required or necessary for the execution, delivery and performance of
this Agreement by Company or Merger Subsidiary or the consummation of the
transactions contemplated hereby.
SECTION 4.4 NON-CONTRAVENTION. The execution, delivery and performance
by Company and Merger Subsidiary of this Agreement and the consummation by
Company of the transactions contemplated hereby do not and will not (i)
contravene or constitute a default under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of Company and Merger
Subsidiary or to a loss of any benefit to which Company and Merger Subsidiary is
entitled under (A) any provision of applicable law or regulation (assuming
compliance with the matters referred to in Section 4.3.1); (B) the Articles of
Incorporation or Bylaws of Company or Merger Subsidiary; (C) any agreement,
contract, plan, lease, arrangement or commitment; or (D) any judgment,
injunction, order, decree, administrative interpretation, award or other
instrument binding upon Company or Merger Subsidiary; or (ii) result in the
creation or imposition of any Lien on any asset of Company or Merger Subsidiary.
SECTION 4.5 BINDING EFFECT. This Agreement constitutes a legal, valid
and binding agreement of Company and Merger Subsidiary enforceable against
Company and Merger Subsidiary in accordance with its terms, except to the extent
that the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by principles of equity regarding the
availability of remedies.
SECTION 4.6 CAPITALIZATION. The capitalization of the Company as set
forth in the financial statements most recently filed with the Company SEC
Filings is true and correct as of the date of such financial statements.
SECTION 4.7 FINANCIAL STATEMENTS AND SEC FILINGS. Company has delivered
to Partner true and complete copies of (i) its annual reports on Form 10-K for
its fiscal years ended December 31, 1993 and 1994; (ii) its quarterly reports on
Form 10-Q for its fiscal quarters ended March 31, June 30 and September 30,
1995; (iii) its proxy or information statements relating to all meetings of, or
actions taken without a meeting by, the shareholders of Company held since
December 31, 1994; and (iv) all of its other 8-K reports filed with the SEC
since December 31, 1994. The reports and statements so delivered are referred to
collectively in this Agreement as the "Company SEC Filings." As of their
respective dates, the Company SEC Filings (including all exhibits and schedules
thereto and documents incorporated by reference therein) did not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
they were made, not misleading. The audited financial statements and unaudited
interim financial statements of Company included or incorporated by reference
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in the Company SEC Filings (i) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto); (ii) complied as of
their respective dates in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto; and (iii) fairly present the financial position of Company as of the
dates thereof and the income and cash flows for the periods then ended (subject,
in the case of any unaudited interim financial statements, to normal year-end
adjustments).
SECTION 4.8 MATERIAL EVENTS. Except as disclosed in the Company SEC
Filings, and except as expressly contemplated by this Agreement, since the date
of the most recent audited financial statements included in the Company SEC
Filings there has not been any event, occurrence or development of a state of
circumstances or facts which has had a Material Adverse Effect.
SECTION 4.9 OPINION OF FINANCIAL ADVISOR. The Company has received the
opinion of Piper Jaffray Inc., dated the date hereof, to the effect that, as of
such date, the consideration to be paid by the Company in the Merger is fair to
the shareholders of the Company from a financial point of view and such opinion
shall not have been withdrawn by the Closing.
SECTION 4.10 TAX MATTERS. Neither the Company nor, to its knowledge,
any of its affiliates, has taken or agreed to take any action, or knows of any
circumstances, that (without regard to any action taken or agreed to be taken by
Partner or any of its affiliates) would prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
SECTION 4.11 FULL DISCLOSURE. The representations and warranties of
Company contained in this Agreement contain no untrue statements of any material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, taken as a whole, not false or misleading.
ARTICLE V
COVENANTS OF PARTNER
Partner agrees that:
SECTION 5.1 CONDUCT OF PARTNER. Except as contemplated by this
Agreement, from the date hereof until the Effective Time, Partner shall conduct
its business in the ordinary course consistent with past practice and will use
reasonable efforts to preserve intact its business organization and
relationships with third parties and to keep available the services of
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its present officers and employees. Without limiting the generality of the
foregoing, except as provided in this Agreement, from the date hereof until the
Effective Time:
5.1.1 Partner will not declare, set aside or pay any dividend
or other distribution with respect to any shares of capital stock of Partner.
5.1.2 Partner will not amend or alter any term of any
outstanding Partner Securities.
5.1.3 Partner will not, without the consent of Company, (i)
incur, assume or guarantee any debt other than in the ordinary course of
business consistent with past practices; (ii) issue or sell any securities
convertible into or exchangeable for debt securities of Partner; or (iii) issue
or sell any options or other rights to acquire from Partner, directly or
indirectly, any debt securities of Partner or any securities convertible into or
exchangeable for any such debt securities.
5.1.4 Partner will not create, assume or incur any Lien on any
material asset of Partner.
5.1.5 Except for the issuance of shares pursuant to the
exercise of the Partner Option, Partner will not (i) issue or sell, or authorize
for issuance or sale, any shares of capital stock of any class or any other
securities of Partner; or (ii) redeem, repurchase or otherwise acquire any
Partner securities.
5.1.6 Except in the ordinary course of business, Partner will
not relinquish any material contract or other material right of Partner, make
any payment (direct or indirect) of any material liability of Partner before the
same becomes due in accordance with its terms or make any material change in its
operations.
5.1.7 Partner will not adopt any change in any method of
accounting or accounting practice used by Partner other than by reason of a
concurrent change in generally accepted accounting principles and upon the
recommendation of Partner's independent public accountants.
5.1.8 Partner will not, without the prior written consent of
Company (i) grant or make any severance or termination payments to any officer,
director or employee of Partner, except pursuant to written agreements in effect
on the date hereof and set forth in the Disclosure Schedule except for normal
payments in the ordinary course of business consistent with past practice; (ii)
enter into any employment, deferred compensation or other similar agreement (or
enter into any amendment to any such existing agreement) with any officer,
director or employee of Partner; (iii) increase benefits payable under any
existing severance or termination pay policies or employment agreements, except
for normal increases in the ordinary course of business consistent with past
practice; or (iv) pay or provide for any
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increase in compensation, bonus, or other benefits payable to any current or
former officer, director, salesperson, distributor, agent or employee of
Partner, other than any grants or increases in the ordinary course of business
consistent with past practice except to the extent required under existing
employment and labor agreements.
5.1.9 Partner will not amend its Articles of Incorporation or
Bylaws.
5.1.10 Partner will not merge or consolidate with any person,
acquire any stock or other ownership interest in any person or the assets of any
business as an entity or liquidate, dissolve or otherwise reorganize or seek
protection from creditors.
5.1.11 Except for those transactions which constitute an
Acquisition Proposal, Partner will not take any action, the taking of which, or
omit to take any action, the omission of which, would reasonably be expected to
cause any of the representations and warranties in Article III to be inaccurate
in any respect at or as of any time prior to the Effective Time.
5.1.12 Except for the sale of inventory and the disposition of
obsolete or defective equipment, Partner will not without the prior written
consent of Company sell, transfer, mortgage, or otherwise dispose of, or
encumber, or agree to sell, transfer, mortgage or otherwise dispose of or
encumber, any assets or properties, real, personal or mixed, other than in the
ordinary course of business consistent with past practice.
5.1.13 Partner will not (a) enter into any other agreements,
commitments or contracts (including without limitation joint venture agreements
or material license agreements) which, individually or in the aggregate, are
material to Partner, except agreements, commitments or contracts for the
purchase, sale or lease of goods or services, consistent with past practice; or
(b) otherwise make any material change in any existing material agreement,
commitment or arrangement.
5.1.14 Except with the prior written consent of Company,
Partner will not make any investment of a capital nature with a maturity in
excess of 180 days either by purchase of stock or securities, contributions to
capital, property transfers or otherwise, or by the purchase of any property or
assets of any other individual, firm or corporation.
5.1.15 Except with the prior written consent of Company,
Partner will not purchase any capital items which singly have an installed
purchase price greater than $100,000, or in the aggregate have a purchase price
in excess of $600,000.
5.1.16 Partner will not agree or commit to do any of the
matters set forth in Sections 5.1.1 through 5.1.15.
SECTION 5.2 PARTNER SHAREHOLDERS' MEETING; PROXY MATERIAL. Partner
agrees that it shall prepare and file with the SEC under the 1934 Act, and shall
use all reasonable efforts
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to have cleared by the SEC, and promptly thereafter shall mail to shareholders
of Partner, a proxy statement (the "Proxy Statement"). The Proxy Statement shall
be in form and substance reasonably satisfactory to Partner and Company and
shall contain the recommendation of the Board of Directors of Partner in favor
of the Merger, except to the extent that the Board of Directors of Partner shall
have withdrawn or modified its approval or recommendation of this Agreement or
the Merger as permitted by Section 5.7. Company shall furnish all information
concerning itself to Partner as may be reasonably requested in connection with
any such action and the preparation, filing and distribution of the Proxy
Statement. Partner shall promptly take all action necessary in accordance with
Minnesota Law and its Articles of Incorporation and Bylaws to convene a meeting
of its shareholders (the "Partner Shareholders Meeting") for the purpose of
approving this Agreement and the Merger. The shareholder vote or consent
required for approval of this Agreement and the Merger shall be no greater than
that set forth in the Minnesota Law. Partner shall use its reasonable efforts to
solicit from shareholders of Partner proxies in favor of the Merger and shall
take all other action necessary or, in the opinion of Company, advisable to
secure the vote or consent of shareholders required by Minnesota Law to effect
the Merger, except to the extent that the Board of Directors of Partner shall
have withdrawn or modified its approval or recommendation of this Agreement or
the Merger as permitted by Section 5.7.
SECTION 5.3 ACCESS TO INFORMATION. Partner will give Company, its
counsel, financial advisors, auditors and other authorized representatives
reasonable access to the offices, properties, books and records of Partner, will
promptly furnish to Company, its counsel, financial advisors, auditors and
authorized representatives such financial and operating data and other
information as such persons may reasonably request, other than the information
that, in the opinion of Partner's legal counsel, may not be disclosed under
applicable law. Partner will advise Company of the general nature of any such
withheld document or information and the reasons for withholding same. Partner
will instruct Partner's employees, counsel and financial advisors to cooperate
fully with the other party in its investigation of the business of Partner;
provided that no investigation pursuant to this section shall affect any
representation or warranty made by Partner to Company hereunder. The information
obtained hereunder will be subject to the confidentiality agreement described in
Section 11.5 below.
SECTION 5.4 NOTICES OF CERTAIN EVENTS. Partner shall promptly notify
Company of:
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
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(iii) any actions, suits, claims, investigations or
proceedings commenced or, to Partner's knowledge, overtly threatened
against, relating to or involving or otherwise affecting Partner which
relate to the consummation of the transactions contemplated by this
Agreement; and
(iv) any other event or change of fact or circumstance
subsequent to the date of this Agreement causing any representation
contained in Article III of this Agreement to be, as of the date of
such event or change, materially incorrect or misleading.
SECTION 5.5 CONSENTS, APPROVALS AND FILINGS. Partner will use its
reasonable efforts to obtain as promptly as possible (i) all necessary
approvals, authorizations, consents, licenses, clearances or orders of
governmental and regulatory authorities required in order for Partner to perform
its obligations hereunder; and (ii) all consents or approvals of third parties
required in connection with the contracts identified in Schedule 3.18 of the
Disclosure Schedule.
SECTION 5.6 REASONABLE EFFORTS. Subject to the fiduciary duties of its
Board of Directors, Partner shall use its reasonable efforts (i) to cause to be
fulfilled and satisfied all of the conditions to the Merger to be fulfilled and
satisfied by it; (ii) to cause to be performed all of the matters required of it
at or prior to the Effective Time; and (iii) to comply with applicable law.
SECTION 5.7 EXCLUSIVITY. In order to induce Company to enter into this
Agreement and subject to the fiduciary duties of the Board of Directors of
Partner, until this Agreement is terminated in accordance with its terms,
Partner shall not, and shall direct and use its reasonable efforts to cause its
respective officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it) not to, directly or indirectly, (a) take any further action to
solicit, initiate or encourage any offer or indication of interest from any
person with respect to any Acquisition Proposal (as hereinafter defined),
including without limitation, any such further action through any investment
banker, broker, finder or other intermediary previously engaged or which may be
engaged for the purpose of soliciting, initiating or encouraging such offer or
indication of interest; or (b) engage in negotiations with, or disclose any
non-public information relating to the businesses, assets or operations which
are the subject of this Agreement or afford access to the properties, books or
records of Partner to, any person that has made, or that Partner has good reason
to believe may be considering making, an Acquisition Proposal. Subject to the
fiduciary duties of the Board of Directors of Partner, Partner will promptly
notify Company after receipt of any Acquisition Proposal or indication, in
writing, that any person is considering making an Acquisition Proposal and will
keep Company reasonably informed of any such offer or indication. Subject to the
fiduciary duties of the Board of Directors of Partner, Partner will not enter
into any agreement relating to any such Acquisition Proposal for a period of
seven (7) days following receipt by Company of such notification by Partner.
"Acquisition Proposal" means any proposal to (i) effect a merger or
consolidation or similar transaction involving Partner or any of its
subsidiaries; (ii) purchase, lease, or otherwise
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acquire ten percent (10%) or more of the assets of Partner or any of its
subsidiaries; (iii) purchase or otherwise acquire (including by way of merger,
consolidation, share exchange or similar transaction) beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934) of securities
representing ten percent (10%) or more of the voting power of Partner or any of
its subsidiaries; or (iv) the assignment, transfer, licensing or other
disposition of, in whole or in part, the patents, patent rights, trade secrets
or other technology of Partner or any of its subsidiaries, other than in the
ordinary course of business. Where Partner takes action or fails to take action
required by this Section 5.7 due to a belief that to do otherwise would result
in a breach of the fiduciary duties of the Board of Directors, Partner may do so
only after receipt of a written opinion of its legal counsel or upon advice of
its legal counsel confirmed by a written opinion of such counsel, and a copy of
such opinion shall be furnished to the Company.
SECTION 5.8 RETURN OF CONFIDENTIAL INFORMATION. Promptly following the
execution of this Agreement, Partner shall exercise its right under all
confidentiality or other non-disclosure agreements entered into with parties
approached by Partner or its agents since September 30, 1995 to retrieve any and
all information provided by or on behalf of Partner to such parties.
ARTICLE VI
COVENANTS OF COMPANY
SECTION 6.1 CONDUCT OF BUSINESS BY COMPANY. From the date hereof until
the Effective Time, neither Company nor any of its subsidiaries will, without
the prior written approval of Partner:
(a) intentionally take any action that (without regard to any
action taken or agreed to be taken by Partner) would prevent Company
from accounting for the Merger as a pooling of interests; or
(b) intentionally take any action that (without regard to any
action taken or agreed to be taken by Partner) would prevent the Merger
from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
SECTION 6.2 REASONABLE EFFORTS. Subject to the fiduciary duties of its
Board of Directors, Company shall use its reasonable efforts (a) to cause to be
fulfilled and satisfied all of the conditions to the Merger to be fulfilled and
satisfied by it, (b) to cause to be performed all of the matters required of it
at or prior to the Effective Time and (c) to comply with applicable law.
SECTION 6.3 CONSENTS, APPROVALS AND FILINGS. Company will use its
reasonable efforts to obtain as promptly as possible all necessary approvals,
authorizations, consents,
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licenses, clearances or orders of governmental and regulatory authorities
required in order for Company to perform its obligations hereunder.
SECTION 6.4 ADVICE OF CHANGES. Company will promptly advise Partner
orally and in writing of (i) any event occurring subsequent to the date of this
Agreement which would render any representation or warranty of Company contained
in this Agreement, if made on or as of the date of such event or the Effective
Time, untrue, inaccurate or incomplete in any material respect; and (ii) any
material adverse change in the working capital, financial condition, assets,
liabilities (whether absolute, accrued, contingent or otherwise), operating
profits, business or prospects of Company.
SECTION 6.5 DIRECTOR AND OFFICER LIABILITY.
6.5.1 For six years after the Effective Time, Company shall
guarantee and cause the Surviving Corporation to indemnify and hold harmless the
present and former officers and directors of Partner in respect of acts or
omissions occurring prior to the Effective Time to the extent provided under
Partner's Articles of Incorporation, Bylaws and indemnification agreements in
effect on the date hereof; provided that in the event any claim or claims are
asserted or made within such six year period, all rights to indemnification in
respect of any such claim or claims shall continue until final disposition of
any and all such claims.
6.5.2 At the Effective Time, Company shall enter into
indemnification agreements (the "Indemnification Agreements") in the form of
indemnification agreements in existence on the date hereof between Company and
its executive officers with each director and employee of Partner who, following
the Effective Time, will hold a position with Company or any of its subsidiaries
comparable to those held by employees of Company and its subsidiaries who are
current parties to such indemnification agreements.
6.5.3 The rights under this Section 6.5 shall be in addition
to any other rights under Minnesota Law or otherwise. This Section 6.5 shall
survive the consummation of the Merger.
SECTION 6.6 NASDAQ LISTING. Company shall promptly prepare and submit
an application covering the shares in accordance with the rules of the NASDAQ
National Market System of Company Common Stock to be issued in connection with
the Merger. Company shall use its reasonable efforts to have such application
approved by the NASDAQ National Market System prior to the Effective Time.
SECTION 6.7 DIRECTOR. Company shall take such action as shall be
necessary so that, at the Effective Time, Daniel J. Starks (the "Designated
Director") shall be appointed to the Board of Directors of Company to fill the
vacancy created by such newly created directorship to have a term expiring at
the Company's annual meeting of shareholders to be held in 1997.
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SECTION 6.8 EMPLOYEE BENEFITS.
6.8.1 From and after the Closing Date, Company shall cause
Surviving Corporation to provide employees of Partner and its subsidiaries
("Affected Employees") with:
(i) comparable benefits to those such employees had prior to
the Effective Time or comparable to those provided to employees with
similar status and tenure of Company and its subsidiaries; and
(ii) comparable compensation, taken as a whole, to that which
such Affected Employees had prior to the Effective Time. For purposes
of this Section 6.8.1(ii) the term Affected Employees shall not include
those Partner employees referenced in Schedule 6.8.1(ii).
6.8.2 Company or its subsidiaries shall give each Affected
Employee full credit for all service with Partner and its affiliates for all
purposes under all employee benefit plans and arrangements (including, but not
limited to, any "employee benefit plan" as defined in Section 3(3) of ERISA)
maintained for such employees' benefit on and after the Closing Date.
6.8.3 For purposes of computing deductible amounts (or like
adjustments or limitations on coverage) under any "employee welfare benefit
plan" (as defined in Section 3(1) of ERISA), expenses and claims previously
recognized for similar purposes under the applicable employee welfare benefit
plan of Partner or its subsidiary for the current plan year shall be credited or
recognized under the comparable plan maintained after the Closing by Company or
its subsidiaries on behalf of Affected Employees. Medical plan coverage shall
not be denied to any Affected Employee with respect to a particular claim under
any plan maintained by Company or its subsidiaries on the basis of the existence
of a pre-existing condition.
6.8.4 Notwithstanding anything to the contrary set forth in
this Section 6.8, Company shall have no obligation to employ an employee of
Partner or to continue the employment of any employee of Partner offered
employment or employed by Company or its subsidiaries.
SECTION 6.9 OBLIGATIONS OF MERGER SUBSIDIARY. Company shall take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and subject to
conditions set forth in this Agreement.
SECTION 6.10 ACCESS TO INFORMATION. The Company will give Partner, its
counsel, financial advisors, auditors and other authorized representatives full
access to the offices, properties, books and records of Company, will promptly
furnish to Partner, its counsel,
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financial advisors, auditors and authorized representatives such financial and
operating data and other information as such persons may reasonably request,
other than the information that, in the opinion of Company's legal counsel, may
not be disclosed under applicable law, and will instruct Company's employees,
counsel and financial advisors to cooperate fully with the other party in its
investigation of the business of Company; provided that no investigation
pursuant to this section shall affect any representation or warranty given by
Company to Partner hereunder. The information obtained hereunder will be subject
to the confidentiality agreement set forth in Section 11.5 below.
SECTION 6.11 NOTICES OF CERTAIN EVENTS. Company shall promptly notify
Partner of:
(i) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental
or regulatory agency or authority in connection with the transactions
contemplated by this Agreement;
(iii) any actions, suits, claims, investigations or
proceedings commenced or, to Company's knowledge, overtly threatened
against, relating to or involving or otherwise affecting Company which
relate to the consummation of the transactions contemplated by this
Agreement; and
(iv) any other event or change of fact or circumstance to the
date of this Agreement causing any representation contained in Article
IV of this Agreement to be, as of the date of such event or change,
materially incorrect or misleading.
ARTICLE VII
REGISTRATION STATEMENT AND RELATED MATTERS
SECTION 7.1 PREPARATION OF REGISTRATION STATEMENT. Promptly after this
Agreement is executed, Company shall prepare and file with the SEC a
registration statement on Form S-4 (the "Registration Statement") for the
purpose of registering the shares of Company Common Stock to be issued in the
Merger under the 1933 Act. Such Registration Statement shall contain a
prospectus and the Proxy Statement (the "Prospectus and Proxy Statement") which
shall include information regarding Company, Partner, the combined entity and
the terms of the Merger, among other things. Neither the Registration Statement
nor any amendments thereto shall be filed with the SEC unless approved by
Company and Partner, provided that such approval shall not be unreasonably
withheld. Each of Company and Partner shall furnish all information concerning
itself to the other as may be reasonably
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requested in connection with any such action and the preparation, filing and
distribution of the Registration Statement and the Prospectus and Proxy
Statement.
SECTION 7.2 ACCOUNTANT CONSENTS. Partner and Company will each cause
their respective independent accountants to provide such consents as may be
required in connection with the filing of the Registration Statement.
SECTION 7.3 STATE SECURITIES LAWS. Partner shall provide Company with
such documentation as Company shall reasonably request in order to comply with
all applicable state securities laws.
SECTION 7.4 PROXY STATEMENT; INFORMATION SUPPLIED BY PARTNER. Partner
represents and warrants to Company that the Proxy Statement will comply as to
form in all material respects with the requirements of the 1934 Act and the
rules and regulations thereunder, except that no representation is made by
Partner with respect to statements made or incorporated by reference therein
based on information supplied by Company specifically for inclusion or
incorporation by reference in the Proxy Statement. None of the information
supplied or to be supplied by Partner specifically for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement is filed with the SEC, at any time it is amended or
supplemented, and at the time it becomes effective under the 1933 Act; or (ii)
the Proxy Statement, at the date it is first mailed to Partner's shareholders
and at the time of the meeting of Partner's shareholders held to vote on
approval of this Agreement and the Merger, contains any untrue statement of any
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. Partner will
promptly advise Company in writing if at any time prior to the Effective Time of
the Merger it shall obtain knowledge of any facts that might make it necessary
or appropriate to amend or supplement the Proxy Statement or the Registration
Statement in order to make the statements contained or incorporated by reference
therein not misleading or to comply with applicable law.
SECTION 7.5 REGISTRATION STATEMENT; INFORMATION SUPPLIED BY COMPANY.
Company represents and warrants to Partner that the Registration Statement will
comply as to form in all material respects with the requirements of the 1933
Act, and the applicable rules and regulations adopted thereunder, except that no
representation is made by Company with respect to statements made or
incorporated by reference therein based on information supplied by Partner
specifically for inclusion or incorporation by reference in the Registration
Statement. None of the information supplied or to be supplied by Company
specifically for inclusion or incorporation by reference in (i) the Registration
Statement will, at the time the Registration Statement is filed with the SEC, at
any time it is amended or supplemented, and at the time it becomes effective
under the 1933 Act; or (ii) the Proxy Statement, at the date it is first mailed
to Partner's shareholders and at the time of the meeting of Partner's
shareholders held to vote on approval of this Agreement and the Merger, contains
any untrue statement of any material fact or omit to state any material fact
required to be stated therein or
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necessary to make the statements therein not misleading. Company will promptly
advise Partner in writing if at any time prior to the Effective Time of the
Merger it shall obtain knowledge of any facts that might make it necessary or
appropriate to amend or supplement the Registration Statement or the Proxy
Statement in order to make the statements contained or incorporated by reference
therein not misleading or to comply with applicable law.
SECTION 7.6 EFFORTS TO CLOSE PROMPTLY. Company and Partner agree to use
commercially reasonable efforts to take such acts as may be necessary or
desirable in order to promptly complete the transactions contemplated by this
Agreement.
SECTION 7.7 MAILINGS TO SHAREHOLDERS. After the Registration Statement
is declared effective, Partner shall, subject to approval by Company and its
counsel, cause the Prospectus and Proxy Statement to be mailed to its
shareholders at such time as Company shall reasonably request and in accordance
with applicable federal and state law. Partner will not, without giving prior
notice to, and without the prior approval (which shall not be unreasonably
withheld) of, Company, use any proxy material other than the Prospectus and
Proxy Statement and any other proxy material filed with the SEC prior to or
concurrently with the filing of the Prospectus and Proxy Statement.
SECTION 7.8 LETTERS OF PARTNER'S ACCOUNTANTS. Partner has delivered to
Company a letter from Grant Thornton LLP, addressed to Company and Partner,
stating that after appropriate review of the Merger Agreement and based on its
familiarity with Partner, Partner is an entity which would qualify as a party to
a pooling of interests transaction under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations, and Partner shall cause a
similar letter dated as of the Closing Date, to be delivered to Company
confirming as of the Closing Date such previously delivered letter.
SECTION 7.9 LETTERS OF COMPANY'S ACCOUNTANTS. Company has delivered to
Partner a letter from Ernst & Young LLP, addressed to Company and Partner,
stating that after appropriate review of the Merger Agreement and based on its
familiarity with Company, the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations, and Company shall cause a similar letter dated as of
the Closing Date, to be delivered to Company confirming as of the Closing Date
such previously delivered letter.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.1 CONDITIONS OF EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of the Partner, Company and Merger Subsidiary to
consummate the Merger are subject to the satisfaction, prior to or upon the
Closing, of the following conditions:
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8.1.1 Shareholder Approval. This Agreement and the Merger
shall have been approved by the affirmative vote of the holders of a majority of
shares of outstanding Partner Common Stock in accordance with Minnesota Laws and
the Articles of Incorporation and Bylaws of Partner.
8.1.2 Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expiration of
waiting periods imposed by, any federal, state or local governmental authorities
necessary for the consummation of the transactions contemplated by this
Agreement shall have been filed, expired or obtained.
8.1.3 Registration Statement; Proxy Statement. The
Registration Statement shall have become effective under the 1933 Act and shall
not be the subject of any stop order or proceedings seeking a stop order and the
Proxy Statement shall not, at the Effective Time of the Merger, be subject to
any proceedings commenced or threatened by the SEC.
8.1.4 No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any federal,
state or local governmental authorities of competent jurisdiction nor other
legal restraint or prohibition preventing the consummation of the Merger shall
be in effect.
8.1.5 Statutes. No action shall have been taken, and no
statute, rule, regulation or order shall have been enacted, promulgated or
issued or deemed applicable to the Merger by any federal, state or local
governmental authorities which would (i) make the consummation of the Merger
illegal; or (ii) render the Partner, Company or Merger Subsidiary unable to
consummate the Merger, except for any waiting period provisions.
SECTION 8.2 CONDITIONS TO THE OBLIGATIONS OF PARTNER. The obligation of
Partner to consummate the Merger is subject to the satisfaction of the following
further conditions, prior to or upon the Closing, unless waived by Partner in
its discretion:
8.2.1 Company and Merger Subsidiary shall have performed in
all material respects all of their obligations hereunder required to be
performed by them at or prior to the Effective Time.
8.2.2 The representations and warranties of Company and Merger
Subsidiary contained in this Agreement, without regard to any qualification,
materiality threshold or reference to immateriality or "Material Adverse
Effect," shall be true and correct in all respects as of the Closing Date, as
though made on and as of such date (provided that those representations or
warranties made as of a particular date need only be true and correct as of such
date), except for any inaccuracies which, individually or in the aggregate, have
not had, and would not have, a material adverse effect; provided, however, that
there shall be deemed not to be such a material adverse effect to the extent
that such effect is the result of conditions
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or factors affecting the economy generally or the industry in which Company
operates or the result of the announcement of the Merger or actions taken in
contemplation thereof.
8.2.3 Receipt by Partner of a certificate signed by the
President of Company and Merger Subsidiary to the effect set forth in Sections
8.2.1 and 8.2.2 above.
8.2.4 Partner shall have received, on or prior to the time
that the Registration Statement shall have become effective under the 1933 Act,
an opinion of Dorsey & Whitney P.L.L.P. in form and substance satisfactory to
Partner to the effect that (i) the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code;
(ii) Partner, Company and Merger Subsidiary will each be a party to that
reorganization within the meaning of Section 368(b) of the Code; (iii) no
income, gain or loss will be recognized for federal income tax purposes by
either Partner or Company as a result of the consummation of the Merger; and
(iv) no income, gain or loss will be recognized for federal income tax purposes
by shareholders of Partner upon the exchange in the Merger of shares of Partner
Common Stock solely for shares of Company Common Stock (except to the extent of
any cash received in lieu of fractional shares), and such opinion shall not have
been withdrawn on or prior to the Closing Date. In connection with such opinion,
counsel shall be entitled to rely upon certain representations of Partner,
Company and Merger Subsidiary.
8.2.5 The Shares shall have been approved for listing on the
NASDAQ National Market System.
8.2.6 The Designated Director shall have been elected to the
Board of Directors of the Company.
SECTION 8.3 CONDITIONS TO THE OBLIGATIONS OF COMPANY AND MERGER
SUBSIDIARY. The obligations of Company and Merger Subsidiary to consummate the
Merger are subject to the satisfaction of the following further conditions,
prior to or upon the Closing, unless waived by Company in its discretion:
8.3.1 Partner shall have performed in all material respects
all of its obligations hereunder required to be performed by it at or prior to
the Closing Date.
8.3.2 The representations and warranties of Partner contained
in this Agreement, without regard to any qualification or reference to
immateriality or "Material Adverse Effect," shall be true and correct in all
respects as of the Closing Date, as though made on and as of such date (provided
that those representations or warranties made as of a particular date need only
be true and correct as of such date), except for any inaccuracies which,
individually or in the aggregate, have not had, and would not have, a material
adverse effect; provided, however, that there shall be deemed not to be such a
material adverse effect to the extent that such effect is the result of
conditions or factors affecting the economy
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generally or the industry in which Partner operates or the result of the
announcement of the Merger or actions taken in contemplation thereof.
8.3.3 Receipt by Company of a certificate signed by both the
Chairman and the President of Partner to the effect set forth in Sections 8.3.1
and 8.3.2 above.
8.3.4 Copies of resolutions of Partner's Board of Directors
authorizing this Agreement, as certified by the Secretary of Partner.
8.3.5 Receipt by Company, without expense to it, of executed
originals (or facsimiles thereof) of any and all consents, approvals, waivers
and/or acknowledgments required under any agreement identified in Schedule 3.18
of the Disclosure Schedule, in order to permit the consummation of the
transactions provided for herein without causing or resulting in a default,
event of default, acceleration event or termination event under any of such
documents and without entitling any party to any of such documents to exercise
any other right or remedy adverse to the interests of Company thereunder, except
for such consents, approvals, waivers and/or acknowledgments with respect to
which the failure to obtain would not have a Material Adverse Effect. Each such
consent, approval and/or waiver shall be in form reasonably satisfactory to
counsel for Company.
8.3.6 Company shall have received each of the letters
described in Sections 7.8 and 7.9 from Grant Thornton LLP and Ernst & Young LLP,
respectively.
8.3.7 Each Affiliate of Partner shall have entered into an
Affiliate Agreement in the form heretofore approved by Company as provided in
Section 10.2 below.
8.3.8 Company shall have received the opinion, addressed to
it, described in Section 8.2.4.
8.3.9 Company shall have received the executed Shareholder
Agreement of even date herewith and there shall have been no breach thereunder
by any shareholder signatory thereof, which breach would have a material adverse
effect on the consummation of the Merger.
ARTICLE IX
TERMINATION
SECTION 9.1 TERMINATION. This Agreement may be terminated and the
Merger contemplated by this Agreement may be abandoned at any time prior to the
Effective Time (notwithstanding the approval of this Agreement and the Merger by
the shareholders of Partner):
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9.1.1 By mutual written consent of each of Company, Merger
Subsidiary and Partner duly authorized by the Board of Directors of Company and
by the Board of Directors of Partner.
9.1.2 By either Partner or Company if the Merger has not been
consummated by September 30, 1996.
9.1.3 By either Partner or Company if a court of competent
jurisdiction or an administrative, governmental or regulatory authority has
issued a final non-appealable order, decree or ruling, or taken any other
action, having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; provided that the party seeking to terminate this
Agreement pursuant to this Section 9.1.3 shall have complied with its
obligations under Section 5.5 or Section 6.3 of this Agreement.
9.1.4 By either Company or Partner if, at the Partner
Shareholders Meeting, (including any adjournment or postponement thereof), the
requisite vote of the shareholders of Partner is not obtained; provided,
however, that if the requisite vote of the shareholders of Partner is not
obtained and, prior to the Partner's Shareholders Meeting, any of the
circumstances described in Section 9.1.6 have occurred, then termination of this
Agreement will be deemed to have occurred pursuant to Section 9.1.5 or 9.1.6 and
not this Section 9.1.4.
9.1.5 By Company if (i) it is not in material breach of its
obligations under this Agreement; and (ii) either (A) Partner has breached its
obligations under Section 5.7 in any material respect, (B) the Board of
Directors of Partner has recommended, approved, accepted or entered into a
definitive agreement regarding an Acquisition Proposal, as defined in Section
5.7, or (C) an Acquisition Proposal has been made and the Board of Directors of
Partner has withdrawn or modified(in a manner adverse to Company) its
recommendation of the Merger.
9.1.6 By Partner if (i) it is not in material breach of its
obligations under this Agreement; and (ii) either (A) the Board of Directors of
Partner has recommended, approved, accepted or entered into a definitive
agreement regarding or resolved to recommend, an Acquisition Proposal as defined
in Section 5.7, or (B) an Acquisition Proposal has been made and the Board of
Directors of Partner has withdrawn or modified (in a manner adverse to Company)
its recommendation of the Merger.
9.1.7 By Company if (i) Company is not in material breach of
its obligations under this Agreement; and (ii) there has been (A) a material
breach by Partner of any of its representations and warranties under this
Agreement such that the conditions in Section 8.3.2 will not be satisfied, or
(B) a material failure by Partner to perform any of its obligations under this
Agreement such that the conditions in Section 8.3.1 will not be satisfied, and,
in both case (A) and (B), the breach or failure has not been cured or is not
curable by September 30, 1996.
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9.1.8 By Partner if (i) Partner is not in material breach of
its obligations under this Agreement; and (ii) there has been (A) a material
breach by Company of any of its representations and warranties under this
Agreement such that the conditions in Section 8.2.2 will not be satisfied, or
(B) a material failure by Company to perform any of its obligations under this
Agreement such that the conditions in Section 8.2.1 will not be satisfied, and,
in both case (A) and (B), the breach or failure has not been cured or is not
curable by September 30, 1996.
9.1.9 By Partner, if the Reference Market Value of a share of
Company Common Stock is less than $34; provided, however, that in the event that
subsequent to the date of this Agreement but prior to the Effective Time, the
outstanding shares of Company Common Stock have been changed into a different
number of shares or a different class solely as a result of a stock split,
reverse stock split, stock dividend, subdivision, reclassification, split,
combination, exchange recapitalization or other similar transaction, such price
shall be appropriately adjusted.
9.1.10 By Partner, if Company has entered into a written
agreement under which Company will be acquired by or merge with any other entity
and, after such transaction, the persons who were members of the Board of
Directors of Company prior to such transaction would not constitute a majority
of the Board of Directors of the acquiring or surviving corporation.
SECTION 9.2 EFFECTS OF TERMINATION.
9.2.1 In the event of the termination of this Agreement, the
following shall occur:
(a) The obligation of the parties to consummate the
Merger will expire.
(b) The provisions of Section 11.5 of this Agreement
(and of the confidentiality agreement referred to therein) shall
survive for a period of three years.
(c) Each party will bear its own expenses incurred in
connection with this Agreement.
9.2.2 In addition to the provisions of Section 9.2.1, in
recognition of the efforts and expenses expended and incurred by Company with
respect to Partner, the opportunity Partner presents to the Company, and the
potential intangible damage to the Company if (i) this Agreement is terminated
pursuant to Section 9.1.5 or 9.1.6; (ii) the individual shareholder parties to
the Shareholder Agreement referenced in Section 8.3.9 above shall have (A) voted
any of his or her Partner Common Stock (whether held directly or indirectly)
against this Agreement and the Merger, (B) demanded and perfected his or her
Dissenters' Rights, or (C) failed or otherwise abstained from voting his or her
Partner
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Common Stock at the Partner Shareholder Meeting, and the requisite vote of the
shareholders of Partner to approve this Agreement and the Merger is not
obtained; or (iii) (A) any third party makes an Acquisition Proposal or acquires
10% or more of the outstanding Partner Common Stock prior to the Partner
Shareholders Meeting, (B) the requisite vote of the shareholders of Partner is
not obtained, (C) this Agreement is terminated, and (D) within six months after
the execution of this Agreement, (x) Partner enters into an agreement relating
to an Acquisition Proposal or (y) an Acquisition Proposal is consummated, then,
in the case of each of clause (i), (ii) and (iii), Partner will pay to Company,
within five business days after demand by Company, which may be made upon the
earlier of the events specified in such clauses (by wire transfer of immediately
available funds to an account designated by Company for such purpose), a
termination fee (the "Termination Fee") equal to $10,000,000. In the event that
Partner fails to make timely payment of the Termination Fee to the Company when
due pursuant to this Section 9.2.2, Partner shall reimburse the Company for its
legal and other expenses (including interest on the Termination Fee from the
date of demand at the rate of 8.5% per annum) incurred in connection with the
efforts to obtain said payment.
ARTICLE X
OTHER AGREEMENTS
SECTION 10.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time; provided,
however, that this Section 10.1 shall not limit any agreement or covenant of the
parties which, by its terms, contemplates performance after the Effective Time.
SECTION 10.2 AFFILIATE LETTER.
10.2.1 Prior to the date hereof, Partner delivered to Company
a list identifying all persons who, in Partner's reasonable judgment, were at
such time "affiliates" of Partner within the meaning of Rule 145 of the rules
and regulations promulgated under the 1933 Act or otherwise applicable SEC
accounting releases with respect to pooling of interests accounting treatment
(the "Affiliates"). Partner shall update such list from time to time as
necessary.
10.2.2 Partner shall use its reasonable efforts to cause each
person who is identified as an Affiliate in the list referred to above to
deliver to Company prior to the date hereof a written agreement in the form
attached as Exhibit 10.2 hereto, that (A) the Affiliates will not offer to sell,
sell or otherwise dispose of any Company Common Stock issued pursuant to the
Merger, except pursuant to an effective registration statement or in compliance
with Rule 145 or another exemption from the registration requirements of the
1933 Act, (B) the Affiliate will not sell or in any other way reduce the
Affiliate's risk relative to any shares of Partner Common Stock (within the
meaning of the SEC's rules relating to pooling of interest accounting) from the
date hereof through the Effective Time, and (C) the Affiliate will
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not sell or in any other way reduce the Affiliate's risk relative to any shares
of Company Common Stock received in the Merger (within the meaning of the rules
and regulations promulgated under the 1933 Act or otherwise applicable SEC
accounting releases relating to pooling of interest accounting), until such time
as financial results (including combined sales and net income) covering at least
30 days of post-merger operations have been published in accordance with such
rules. Should other Affiliates be added to the list Partner shall use its
reasonable efforts to promptly cause such new Affiliates to deliver the Exhibit
10.2 written agreement to the Company.
10.2.3 For so long as resales of shares of Company Common
Stock issued pursuant to the Merger are subject to the resale restrictions set
forth in Rule 145 under the 1933 Act, Company will use its reasonable efforts to
comply with Rule 144(c)(1) under the 1933 Act.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing and shall be given,
if to Company or Merger Subsidiary, to:
St. Jude Medical, Inc.
One Lillehei Plaza
St. Paul, MN 55117
Attn: Kevin T. O'Malley
Vice President and
General Counsel
if to Partner, to:
Daig Corporation
14801 DeVeau Place
Minnetonka, MN 55345
Attn: John J. Fleischhacker
Chairman and Chief
Executive Officer
or such other address as such party may hereafter specify for the purpose by
notice to the other parties hereto. Each such notice, request or other
communication shall be effective if given by any other means, when delivered at
the address specified in this section.
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SECTION 11.2 AMENDMENT AND MODIFICATION. To the fullest extent
permitted by applicable law, this Agreement may be amended, modified and
supplemented with respect to any of the terms contained herein by mutual consent
of the respective Boards of Directors of Partner, Company and Merger Subsidiary,
or by their respective officers duly authorized by such Boards of Directors, by
an appropriate written instrument executed at any time prior to the Effective
Time of the Merger.
SECTION 11.3 WAIVER OF COMPLIANCE. To the fullest extent permitted by
law, each of Company, Merger Subsidiary and Partner may, pursuant to action by
its respective Board of Directors, or its respective officers duly authorized by
its Board of Directors, by an instrument in writing extend the time for or waive
the performance of any of the obligations of the other or waive compliance by
the other with any of the covenants, or waive any of the conditions of its
obligations, contained herein; provided, however, that the obtaining of the
approval of the shareholders referred to in Section 8.1.1 hereof shall not be
waivable. No such extension of time or waiver shall operate as a waiver of, or
estoppel with respect to, any subsequent or other failure.
SECTION 11.4 NO THIRD PARTY RIGHTS. Except as otherwise provided in
this Agreement, nothing herein expressed or implied is intended, nor shall be
construed, to confer upon or give any person, firm or corporation, other than
Company, Merger Subsidiary and Partner and their respective security holders,
any rights or remedies under or by reason of this Agreement, other than Section
6.5 (which is intended to be for the benefit of the persons covered by the
indemnification provisions contained therein and may be enforced by such
persons).
SECTION 11.5 CONFIDENTIALITY. The confidentiality obligations of the
parties set forth in the confidentiality agreement between the parties dated as
of November 1, 1995 are incorporated herein by reference, and the parties agree
to honor and perform all obligations set forth therein.
SECTION 11.6 EXPENSES. Each party hereto will bear all expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby.
SECTION 11.7 ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties.
SECTION 11.8 GOVERNING LAWS. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of Minnesota.
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SECTION 11.9 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts and by the different parties hereto
on separate counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 11.10 HEADINGS AND REFERENCES. The headings of the Sections and
Articles of this Agreement are inserted for convenience of reference only and
shall not constitute a part hereof. All references herein to Sections and
Articles are to sections and articles of this Agreement, unless otherwise
indicated.
SECTION 11.11 ENTIRE AGREEMENT. This Agreement (including the exhibits
and schedules hereto, the Disclosure Schedules and the documents referred to
herein, all of which form a part hereof) and the confidentiality agreement
referenced in Section 11.5 contain the entire understanding of the parties
hereto in respect of the subject matter contained herein and supersede all prior
agreements and understandings between the parties with respect to such subject
matter. There are no restrictions, promises, representations, warranties,
covenants, or undertakings, other than those expressly set forth or referred to
herein or therein.
SECTION 11.12 PUBLICITY. Upon execution of this Agreement by Company,
Merger Subsidiary and Partner, the parties shall jointly issue a press release,
as agreed upon by them. Neither party shall, without the prior written consent
of the other, issue any statement or communication to the public or to the press
regarding this Agreement, or any of the terms, conditions or other facts with
respect to the Agreement, except as required by law or the rules of NASDAQ and
then, only (a) upon receipt of a written opinion from such party's legal
counsel; (b) to the extent required by law or the rules of NASDAQ; and (c) upon
prior notice to the other party, which notice shall include a copy of the
issuing party's opinion of legal counsel, together with a copy of the proposed
statement or communication to be issued to the press or public.
SECTION 11.13 INTERPRETATION. This Agreement has been fully negotiated
by the parties through their legal counsel. Accordingly, in interpreting this
Agreement, the rule of interpretation requiring that documents be construed
against the draftsman shall be inapplicable.
SECTION 11.14 FURTHER ASSURANCE. The parties hereto agree that each
will execute and deliver to the other any and all documents in addition to those
expressly provided for herein that may be necessary to carry out the provisions
of this Agreement, whether before, at or after the Closing.
SECTION 11.15 SEVERABILITY. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or validity of
any other provision.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
ST. JUDE MEDICAL, INC.
By: /s/ Ronald A. Matricaria
Its: President and Chief Executive Officer
PARTNER ACQUISITION CORP.
By: /s/ Kevin T. O'Malley
Its: Vice President
DAIG CORPORATION
By: /s/ John J. Fleischhacker
Its: Chief Executive Officer
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SCHEDULE 3.1.2
1. Any temporary restraining order, preliminary injunction or permanent
injunction granted to the Unites States government which has the effect
of prohibiting the future manufacture or sale of any of Partner's
products.
2. Any criminal indictment of Partner or its officers.
3. The initiation of any proceeding under Section 518 of the U.S. Food and
Drug Act to order a "repair, replacement or refund" in connection with
a product sold by Partner.
4. Administrative Detention under Section 304(g) of the U.S. Food and Drug
Act of a significant amount of Partner's inventory.
5. The death or incapacity of either the Chairman and Chief Executive
Officer or the President and Chief Operating Officer of Partner.
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SCHEDULE 6.8.1(ii)
John J. Fleischhacker
Daniel J. Starks
John C. Heinmiller
CP01-575946-12
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EXHIBIT B
SHAREHOLDERS AGREEMENT
AGREEMENT dated as of January 29, 1996 by and between St. Jude Medical,
Inc., a Minnesota corporation ("Company"), Daig Corporation, a Minnesota
corporation ("Partner") and the other parties signatory hereto (each a
"Shareholder").
Concurrently herewith, Company, Partner Acquisition Corp., a Minnesota
corporation and a wholly owned subsidiary of Company (the "Merger Subsidiary"),
and Partner are entering into an Agreement and Plan of Merger (as such agreement
may be amended from time to time, the "Merger Agreement"; capitalized terms used
but not defined herein shall have the meanings set forth in the Merger
Agreement) pursuant to which Merger Subsidiary will be merged with and into
Partner (the "Merger"), whereby the shares of common stock, par value $.01 per
share, of Partner ("Partner Common Stock") issued and outstanding and held by
each shareholder of Partner immediately prior to the Effective Time of the
Merger (other than (i) shares of Partner Common Stock owned, directly or
indirectly, by Partner or any subsidiary of Partner or the Merger Subsidiary or
any other subsidiary of the Company, and (ii) Dissenting Shares) will be
converted into the right to receive common stock, par value $.10 per share, of
the Company ("Company Common Stock") (and cash in lieu of any fractional share).
As a condition of their willingness to enter into the Merger Agreement,
the Company and Merger Subsidiary have agreed that each Shareholder enter into,
and each such Shareholder has agreed to enter into, this Agreement.
AGREEMENT
To implement the foregoing and in consideration of the mutual
agreements contained herein, the parties agree as follows:
1. Representations and Warranties.
1.1 Except as set forth in Schedule 1, each Shareholder hereby
severally represents and warrants to the Company as follows:
(a) Ownership of Shares. Such Shareholder is either (i) the
record and beneficial owner of, (ii) trustee of a trust that is the record
holder or beneficial owner of, and whose beneficiaries are the beneficial owners
(such trustee, a "Trustee") of, or (iii) the beneficial owner but not the record
holder of, the number of shares of Partner Common Stock as set forth opposite
such Shareholder's name on Schedule 1 hereto (the "Shares"). Such Shareholder
has sole voting power and sole power to issue instructions with respect to the
matters set forth in Section 2 hereof, sole power of disposition, sole power of
conversion, and sole power to demand appraisal rights, in each case with respect
to all of the Shares set forth opposite such Shareholder's
B-1
name on Schedule 1, with no restrictions, subject to applicable federal
securities laws and the terms of this Agreement, on such rights.
(b) Power; Binding Agreement. Such Shareholder has the legal capacity,
power and authority to enter into and perform all of such Shareholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Shareholder will not violate any other agreement to which
such Shareholder is a party including, without limitation, any trust agreement,
voting agreement, shareholders agreement or voting trust. This Agreement has
been duly and validly executed and delivered by such Shareholder and constitutes
a valid and binding agreement of such Shareholder in accordance with its terms.
There is no beneficiary or holder of a voting trust certificate or other
interest of any trust of which a Shareholder is Trustee whose consent is
required for the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby. If such Shareholder is married and such
Shareholder's Shares constitute community property, this Agreement has been duly
authorized, executed and delivered by, and constitutes a valid and binding
agreement of, such Shareholder's spouse, enforceable against such person in
accordance with its terms.
(c) No Conflicts. Except for filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, if applicable, (i) no filing
with, and no permit, authorization, consent or approval of, any state or federal
public body or authority is necessary for the execution of this Agreement by
such Shareholder and the consummation by such Shareholder of the transactions
contemplated hereby and (ii) neither the execution and delivery of this
Agreement by such Shareholder nor the consummation by such Shareholder of the
transactions contemplated hereby nor compliance by such Shareholder with any of
the provisions hereof will (A) conflict with or result in any breach of any
applicable trust or other organizational documents applicable to such
Shareholder, (B) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any third
party right of termination, cancellation, material modification or acceleration)
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding, agreement
or other instrument or obligation of any kind to which such Shareholder is a
party or by which such Shareholder or any of such Shareholder's properties or
assets may be bound or (C) violate any order, writ, injunction, decree,
judgment, order, statute, rule or regulation applicable to such Shareholder or
any of such Shareholder's properties or assets.
(d) No Encumbrances. Such Shareholder's Shares and the certificates
representing such Shares are now and at all times during the term hereof will be
held by such Shareholder, or by a nominee or custodian for the benefit of such
Shareholder free and clear of all liens, claims, security interests, proxies,
voting trusts or agreements, understandings, or arrangements or any other
encumbrances whatsoever except for any such encumbrances or proxies arising
hereunder.
(e) No Broker. Except as set forth in the Merger Agreement no broker,
investment banker, financial adviser or other person is entitled to any
broker's, finder's, financial adviser's or
B-2
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of such Shareholder.
(f) Acknowledgment of Reliance. Such Shareholder understands and
acknowledges that the Company is entering into, and causing Merger Subsidiary to
enter into, the Merger Agreement in reliance upon such Shareholder's execution
and delivery of this Agreement.
1.2 Partner represents and warrants to the Shareholders and
the Company that the Shares subject to this Agreement and the Proxy are less
than 20% of the issued and outstanding Partner Common Stock.
2. Agreement to Vote, Proxy.
2.1 Voting. Each Shareholder, in his capacity as a shareholder
of Partner, hereby severally agrees that, during the time this Agreement is in
effect, at any meeting of the shareholders of Partner, however called, or in
connection with any written consent of shareholders of Partner, such Shareholder
shall vote (or cause to be voted) the Shares (a) in favor of the Merger, the
execution and delivery by Partner of the Merger Agreement and the approval of
the terms thereof and each of the other actions contemplated by the Merger
Agreement and this Agreement and any actions required in furtherance hereof and
thereof; (b) against any action or agreement that would result in a breach in
any material respect of any covenant, representation or any other obligation or
agreement of Partner under the Merger Agreement or this Agreement; (c) except as
otherwise agreed to in writing in advance by the Company, against the following
actions (other than the Merger and the transactions contemplated by the Merger
Agreement): (i) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving Partner or its
subsidiaries; (ii) a sale, lease or transfer of a material amount of assets of
Partner or its subsidiaries or a reorganization, recapitalization, dissolution
or liquidation of Partner or its subsidiaries; (iii) (1) any material change in
the present capitalization of Partner or any amendment of Partner's Articles of
Incorporation; (2) any other material change in Partner's corporate structure or
business; or (3) any other action; which, in the case of each of the matters
referred to in clauses iii(1), (2) or (3), is intended, or could reasonably be
expected, to impede, interfere with, delay, postpone, discourage or materially
adversely affect the contemplated economic benefits to the Company of the Merger
or the transactions contemplated by the Merger Agreement. Such Shareholder shall
not enter into any agreement or understanding with any person or entity prior to
the Termination Date (as defined in Section 8) to vote or give instructions with
respect to the Shares after the Termination Date in any manner inconsistent with
clauses (i), (ii) or (iii) of the preceding sentence.
2.2 Proxy. Concurrently with the Shareholder's execution of this
Agreement, the Shareholder has executed and delivered to the Company an
irrevocable proxy (the "Proxy") in the form of Exhibit 1 attached hereto,
appointing the officers of the Company named therein, or either of them, as
proxy for the Shareholder to vote the Shares in accordance with Section 2.1
above.
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3. Certain Covenants of Shareholders. Except in accordance with the
terms of this Agreement, each Shareholder hereby severally covenants and agrees
as follows:
3.1 No Solicitation. No Shareholder, in his capacity as
shareholder, shall, directly or indirectly, solicit (including, by way of
furnishing information) or respond to any inquiries making of any proposal by
any person or entity (other than the Company or any affiliate of the Company)
with respect to Partner that constitutes or could reasonably be expected to lead
to an Acquisition Proposal or a proposal for an Acquisition Proposal. If any
Shareholder, in his capacity as shareholder, receives any such inquiry or
proposal, then such Shareholder shall promptly inform the Company of the terms
and conditions, if any, of such inquiry or proposal and the identity of the
person making it. Each Shareholder, in his capacity as shareholder, will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. Nothing in this Section 3.1 shall prohibit or restrict,
in any manner whatsoever, a Shareholder from exercising, in his capacity as an
officer or director of Partner, his fiduciary duties in such capacity with
respect to any of the matters covered by this Section 3.1.
3.2 Restriction on Transfer, Proxies and Non-Interference on
Withdrawal. No Shareholder, in his capacity as shareholder, shall, directly or
indirectly: (a) except pursuant to the terms of the Merger Agreement, offer for
sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of,
or enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of such
Shareholder's Shares or any interest therein; (b) except as contemplated hereby,
grant any proxies or powers of attorney, deposit any Shares into a voting trust
or enter into a voting agreement with respect to any Shares; (c) take any action
that would make any representation or warranty of such Shareholder contained
herein untrue or incorrect or have the effect of preventing or disabling such
Shareholder from performing, such Shareholder's obligations under this Agreement
or (d) following the merger, sell any shares of Company Common Stock until such
time as unaudited financial statements covering at least thirty days of the
combined operations of the Company and Partner following the Merger have been
published by the Company.
3.3 Waiver of Appraisal Rights. Each Shareholder hereby agrees
that, in the event that any election is available to such Shareholder with
respect to consideration available in the Merger or any information or
cooperation must be provided in order to obtain any form of consideration in the
Merger, such Shareholder will make all elections and provide all information and
cooperation necessary to obtain the maximum number of shares of Company Common
Stock available in the Merger. Each Shareholder hereby waives any rights of
appraisal or rights to dissent from the Merger that such Shareholder may have
and agrees to take no action in furtherance of the perfection of such rights.
4. Registration Rights.
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4.1 Company Registration. If, as a result of the Shareholder's
execution of this Agreement and the Proxy, any shares of Company Common Stock
received by the Shareholder pursuant to the Merger (the "Merger Shares") are not
deemed to have been registered under the Securities Act of 1933, as amended,
notwithstanding the filing of a registration statement on Form S-4, filed in
connection with the Merger, then as soon as practicable following the Effective
Time, Company shall file a shelf registration statement pursuant to form S-3
under the 1933 Act providing for sale by the Shareholder, from time to time of
the Merger Shares and, if required, under applicable state securities laws, to
register the resale of Shareholder's Merger Shares and use all reasonable
efforts to cause such registration statement to become effective and be
maintained until the Merger Shares are eligible for resale under Rule 144 of the
1933 Act. Company will furnish Shareholder with a reasonable number of copies of
any prospectus included in any such registration statement, and Company and each
Shareholder will enter into cross-indemnification agreements with each other in
customary scope covering the accuracy and completeness of the information
furnished by each for use in or incorporation into such registration statement.
All expenses incurred by Company in effecting or maintaining any registration of
the Merger Shares in accordance with this Section 4 shall be borne by Company;
provided, however, that Shareholder shall be responsible for the fees and
expenses of his legal counsel and any underwriting or brokerage commissions or
discounts applicable to his resale or disposition of his Merger Shares.
4.2 Draw Down Notice; Blockage. Shareholder agrees to provide
the Company with at least five business days notice of its intent to draw down
all or any portion of the Merger Shares under the registration statement (a
"Draw Down Notice"). If the Company notifies Shareholder in writing within three
business days of its receipt of a Draw Down Notice that, in the Company's good
faith judgment, a sale of Merger Shares under the registration statement would
be detrimental to the Company, Shareholder agrees not to sell Merger Shares
under the registration statement. If the Company notifies Shareholder that such
a sale is permissible, or fails to notify Shareholder that such a sale cannot be
made within three business days, Shareholder shall have a period of thirty days
from the expiration of such five business days to sell the Merger Shares
pursuant to the registration statement. In the event such a sale was not
permitted by the Company, the Company shall promptly notify Shareholder when
Shareholder may sell securities pursuant to the registration statement. In no
event shall Shareholder be precluded from selling Merger Shares for more than
120 days in any calendar year. Shareholder will not sell Merger Shares pursuant
to the registration statement except as permitted by this Section 4.2.
5. Further Assurances. From time to time, at the other party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further action as may be necessary
or desirable to consummate and make effective, in the most expeditions manner
practicable, the transactions contemplated by this Agreement.
6. Certain Events. Each Shareholder agrees that this Agreement and the
obligations hereunder shall attach to such Shareholder's Shares and shall be
binding upon any person or entity
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to which legal or beneficial ownership of such Shares shall pass, whether by
operation of law or otherwise, including without limitation such Shareholder's
heirs, guardians, administrators or successors.
7. Stop Transfer. Each Shareholder agrees with, and covenants to, the
Company that such Shareholder shall not request that Partner or its transfer
agent register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Shareholder's Shares, unless
such transfer is made in compliance with this Agreement. Each Shareholder
agrees, with respect to any Shares in certificated form, that such Shareholder
will tender to Partner, within 15 business days after the date hereof, the
certificates representing such Shares and Partner (or Partner's transfer agent)
will inscribe upon such certificates the following legend: "The shares of Common
Stock, par value $.01 per share, of Daig Corporation ("Partner") represented by
this certificate are subject to a Shareholders Agreement dated as of January 29,
1996, and may not be sold or otherwise transferred, except in accordance
therewith. Copies of such Agreement may be obtained at the principal executive
offices of Partner." Each Shareholder agrees that within 15 business days after
the date hereof, such Shareholder will no longer hold any Shares, whether
certificated or uncertificated, in "street name", or in the name of any nominee.
Following the Merger, the Company will not register the transfer (book-entry or
otherwise) of any certificate or uncertificated interest representing any of
Shareholder's Company Common Stock, unless such transfer is made in compliance
with this Agreement. Certificates representing Company Common Stock which are
distributed to Shareholders as Merger Consideration or are otherwise subject to
the terms of this Agreement shall bear the following legend: "The Shares of
Common Stock, par value $.10 per share of St. Jude Medical, Inc. (the "Company")
represented by this certificate are subject to a Shareholders Agreement dated as
of January 29, 1996 and may not be sold or otherwise transferred except in
accordance therewith. Copies of such Agreement may be obtained at the principal
executive offices of the Company." Certificates with such legend may be
exchanged for certificates without such legend in connection with a proposed
transfer if it is established to the reasonable satisfaction of the Company that
such transfer is not prohibited hereunder. In addition, any certificates bearing
such legend may be exchanged for certificates without such legend upon
termination of the Merger Agreement. In the event of a stock dividend or
distribution, or any change in Partner Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
8. Termination. The covenants and agreements contained herein with
respect to Partner Common Stock shall terminate on the first to occur of (a) the
Effective Time of the Merger and (b) the date upon which the Merger Agreement is
terminated in accordance with its terms. The covenants and agreements contained
herein with respect to Company Common Stock shall terminate (i) following the
event described in Section 3.2(iv) above, or (ii) upon removal of the legend
thereon in accordance with Section 6 above.
9. Shareholder Capacity. No person executing this Agreement who is or
becomes
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during the term hereof a director of the Company makes any agreement or
understanding herein in his or her capacity as such director. Each Shareholder
signs solely in his or her capacity as the record and beneficial owner of, or
the trustee of a trust whose beneficiaries are the beneficial owners of, such
Shareholder's Shares.
10. Miscellaneous.
10.1 Entire Agreement: Assignment. This Agreement (i)
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject manner hereof
and (ii) shall not be assigned by operation of law or otherwise without the
prior written consent of the other party provided that the Company may assign,
in its sole discretion, its rights and obligations hereunder to any direct or
indirect wholly-owned subsidiary of the Company, but no such assignment shall
relieve the Company of its obligations hereunder if such assignee does not
perform such obligations.
10.2 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto; provided that Schedule 1 hereto may be
supplemented by the Company by adding the name and other relevant information
concerning any Shareholder of Partner who agrees to be bound by the terms of
this Agreement without the agreement of any other party hereto, and thereafter
such added Shareholder shall be treated as a "Shareholder" for all purposes of
this Agreement.
10.3 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to Shareholder: At the address set forth on Schedule 1
If to Partner: 14901 DeVeau Place
Minnetonka, MN 55345
Attention: President
If to the Company: One Lillehei Plaza
St. Paul, MN 55117
Attention: Vice President and
General Counsel
B-7
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
10.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
10.5 Specific Performance. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants or agreements
contained in this Agreement will cause the other party to sustain damages for
which it would not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the event of any such breach
the aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
The Company agrees that it shall not bring any action for money damages relating
to this Agreement or the transactions herein contemplated against any trustee of
any Shareholder that is a trust in such trustee's personal capacity based upon
any action taken or not taken pursuant to a court order or a final legal
judgment.
10.6 Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original, but both of which
shall constitute one and the same Agreement.
10.7 Descriptive Headings. The descriptive headings used
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning, or interpretation of this Agreement.
10.8 Severability. Whenever possible, each provision or
portion of any provision of this Agreement will be interpreted in such manner as
to be effective and valid under applicable law but if any provision or portion
of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
10.9 Definitions. For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with
respect to any securities shall mean having "Beneficial Ownership" of such
securities (as determined pursuant to Rule 13d-3 under the Exchange Act),
including, pursuant to any agreement, arrangement or understanding, whether or
not in writing. Without duplicative counting, of the same securities by the same
holder, securities Beneficially Owned by a Person shall include securities
Beneficially
B-8
Owned by all other Persons with whom such Person would constitute a "group" as
described in Section 13(d)(3) of the Exchange Act.
(b) "Person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity.
IN WITNESS WHEREOF, the Company, Partner and each Shareholder have
caused this Agreement to be duly executed as of the day and year first above
written.
ST. JUDE MEDICAL, INC.
By: /s/ Ronald A. Matricaria
Name: Ronald A. Matricaria
Title: President and Chief Executive Officer
DAIG CORPORATION
By: /s/ John C. Heinmiller
Name: John C. Heinmiller
Title: Vice President
SHAREHOLDERS:
/s/ John J. Fleischhacker
John J. Fleischhacker
/s/ Daniel J. Starks
Daniel J. Starks
B-9
SCHEDULE I
<TABLE>
<CAPTION>
Percent of
Number of Shares Number of Outstanding
Of Partner Common Shares Partner
Name and Address Stock owned Subject to Common
of Shareholder by Shareholder* Agreement Stock
<S> <C> <C> <C>
John J. Fleischhacker 5,375,000 2,010,600 13.19625
14901 DeVeau Place
Minnetonka, MN 55345
Daniel J. Starks 2,789,600 1,036,628 6.80374
--------
14901 DeVeau Place
Minnetonka, MN 55345 19.99999
</TABLE>
*Indicates beneficial and, unless otherwise indicated, record ownership.
B-10
IRREVOCABLE PROXY
The undersigned, as owner of shares of Common Stock of Daig Corporation
(the "Corporation"), a Minnesota corporation, the number and description of
which shares are set forth below (the "Shares"), hereby revokes all previous
proxies and appoints Ronald H. Matricaria and Kevin T. O'Malley, and each of
such persons acting alone, as proxy holder to attend and to vote the Shares of
the Common Stock of the Corporation held by the undersigned in favor of the
Agreement and Plan of Merger expected to be signed and dated on January 29,
1996, among St. Jude Medical, Inc., Partner Acquisition Corp. and the
Corporation (the "Agreement") and the Merger, as such term is defined in the
Agreement, at any and all meetings of the shareholders of the Corporation called
to consider the Agreement or the Merger or both, and any adjournments thereof,
held on or after the date of the giving of this proxy and prior to the
termination of the Agreement, and to execute any and all written consents of
stockholders of the Corporation executed on or after the date of the giving of
this proxy and prior to the termination of the Agreement in favor of the
Agreement or the Merger or both, with the same effect as if the undersigned had
personally attended the meeting or had personally voted the Shares or had
personally signed a written consent.
The undersigned authorizes and directs the proxy holder to file this
proxy appointment with the Secretary of the Corporation and authorizes the proxy
holder to substitute another person as proxy holder and to file the substitution
instrument with the Secretary of the Corporation.
This proxy is given pursuant to a Shareholder Agreement between the
undersigned and St. Jude Medical, Inc. as a condition to the execution by St.
Jude Medical, Inc. of the Agreement and is, therefore, coupled with an interest
and may not be revoked without the written consent of St. Jude Medical, Inc. for
a period of nine months from the date hereof unless the Agreement is terminated.
Dated: January 29, 1996
Number and Description of Shares:
2,010,600 shares of common stock of Corporation
/s/ John J. Fleischhacker
(Signature)
John J. Fleischhacker
(Printed Name)
B-11
IRREVOCABLE PROXY
The undersigned, as owner of shares of Common Stock of Daig Corporation
(the "Corporation"), a Minnesota corporation, the number and description of
which shares are set forth below (the "Shares"), hereby revokes all previous
proxies and appoints Ronald H. Matricaria and Kevin T. O'Malley, and each of
such persons acting alone, as proxy holder to attend and to vote the Shares of
the Common Stock of the Corporation held by the undersigned in favor of the
Agreement and Plan of Merger expected to be signed and dated on January 29,
1996, among St. Jude Medical, Inc., Partner Acquisition Corp. and the
Corporation (the "Agreement") and the Merger, as such term is defined in the
Agreement, at any and all meetings of the shareholders of the Corporation called
to consider the Agreement or the Merger or both, and any adjournments thereof,
held on or after the date of the giving of this proxy and prior to the
termination of the Agreement, and to execute any and all written consents of
stockholders of the Corporation executed on or after the date of the giving of
this proxy and prior to the termination of the Agreement in favor of the
Agreement or the Merger or both, with the same effect as if the undersigned had
personally attended the meeting or had personally voted the Shares or had
personally signed a written consent.
The undersigned authorizes and directs the proxy holder to file this
proxy appointment with the Secretary of the Corporation and authorizes the proxy
holder to substitute another person as proxy holder and to file the substitution
instrument with the Secretary of the Corporation.
This proxy is given pursuant to a Shareholder Agreement between the
undersigned and St. Jude Medical, Inc. as a condition to the execution by St.
Jude Medical, Inc. of the Agreement and is, therefore, coupled with an interest
and may not be revoked without the written consent of St. Jude Medical, Inc. for
a period of nine months from the date hereof unless the Agreement is terminated.
Dated: January 29, 1996
Number and Description of Shares:
1,036,628 shares of common stock of Corporation
/s/ Daniel J. Starks
(Signature)
Daniel J. Starks
(Printed Name)
B-12
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January 29, 1996
Board of Directors
Daig Corporation
14901 Deveau Place
Minnetonka, Minnesota 55345
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $0.01 per share (the "Shares"), of
Daig Corporation (the "Company") of the conversion ratio of 0.651733 shares of
Common Stock of St. Jude Medical, Inc. ("St. Jude"), par value $0.10 per share
(the "St. Jude Shares") to be received by such holders for each Share (the
"Conversion Ratio") pursuant to the Agreement and Plan of Merger dated as of
January 29, 1996 among St. Jude, Partner Acquisition Corp., a wholly owned
subsidiary of St. Jude ("St. Jude Sub"), and the Company (the "Agreement"). In
the event that the Reference Market Value (as defined in the Agreement) of a St.
Jude Share is less than $34.00, the Company has the option to terminate the
Agreement.
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company, having acted as its financial advisor in connection with, and
having participated in certain of the negotiations leading to, the Agreement. As
disclosed to the Company previously, Goldman, Sachs & Co. has provided certain
investment banking services to St. Jude from time to time. In the course of the
trading activities of Goldman, Sachs & Co. we may from time to time hold
positions in securities or options on securities of St. Jude and of the Company.
As of the close of business on January 25, 1996, Goldman, Sachs & Co. had
accumulated a long position of 91.786 St. Jude Shares.
C-1
Daig Corporation
January 29, 1996
Page Two
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports on Form 10-K of the Company for the five fiscal years
ended September 30, 1995; Annual Reports to Stockholders and Annual Reports on
Form 10-K of St. Jude for the five years ended December 31, 1994; certain
interim reports to stockholders and Quarterly Reports on Form 10-Q of the
Company and St. Jude; certain other communications from the Company and St. Jude
to their respective stockholders; and certain internal financial analyses and
forecasts for the Company and St. Jude prepared by their respective managements.
We also have held discussions with members of the senior management of the
Company and St. Jude regarding the past and current business operations,
financial condition and future prospects of their respective companies and we
have reviewed financial forecasts prepared for each business by their respective
managements. In addition, we have reviewed the reported price and trading
activity for the Shares and St. Jude Shares, compared certain financial and
stock market information for the Company and St. Jude with similar information
for certain other companies the securities of which are publicly traded,
reviewed the financial terms of certain recent business combinations in the
medical device and hospital supply industries specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In that regard, we have assumed, with your consent,
that the financial forecasts, including, without limitation, projected cost
savings and operating synergies resulting from the merger have been reasonably
prepared on a basis reflecting the best currently available judgments and
estimates of the Company and St. Jude and that such forecasts will be realized
in the amounts and at the times contemplated thereby. In addition, we have not
made an independent evaluation or appraisal of the assets and liabilities of the
Company or St. Jude or any of their respective subsidiaries, and we have not
been furnished with any such evaluation or appraisal. We have assumed with your
consent that the Merger will be accounted for as a pooling of interests under
generally accepted accounting principles.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Conversion
Ratio pursuant to the Agreement is fair to the holders of the Shares.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
GOLDMAN, SACHS & CO.
C-2
- --------------------------------------------------------------------------------
EXHIBIT D
PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT
RELATING TO RIGHTS OF DISSENTING STOCKHOLDERS
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS
Subdivision 1. Actions creating rights. A shareholder of a corporation
may dissent from, and obtain payment for the fair value of the shareholder's
shares in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights of preferences of the shares of the dissenting shareholder in that
it:
1. alters or abolishes a preferential right of the shares;
2. creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares.
3. alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to
purchase shares or securities other than shares;
4. excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting
rights; except that an amendment ot the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B,
to which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares will
be acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may
assert dissenters' rights with respect to shares held on behalf of the
beneficial owner, and shall be treated as a dissenting shareholder under the
terms of this
D-1
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
Subd. 3. Rights not to apply. Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain payment
under this section does not apply to a shareholder of the surviving corporation
in a merger, if the shares of the shareholder are not entitled to be voted on
the merger.
Subd. 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS
Subdivision 1. Definitions. (a) For purposes of this section, the terms
defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1 or
the successor by merger of that issuer.
(c) "Fair value of shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective
date of the corporate action referred to in section 302A.471, subdivision 1, up
to and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting
at which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved by
the shareholders, a shareholder who wishes to exercise dissenters' rights must
file with the corporation before the vote on the proposed action a written
notice of intent to demand the fair value of the shares owned by the shareholder
and must not vote the shares in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
(1) The address to which a demand for payment and certificates
of certificated shares must be sent in order to obtain payment and the
date by which they must be received;
(2) Any restrictions on transfer of uncertified shares that
will apply after the demand for payment is received;
(3) A form to be used to certify the date on which the
shareholder, or the beneficial owner on whose behalf the shareholder
dissents, acquired the shares or an interest in them and to demand
payment; and
D-2
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice required by paragraph (a) was given, but the dissenter retains all other
rights of a shareholder until the proposed action takes effect.
Subd. 5. Payment, return of shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation estimates
to be the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of
income for a fiscal year ending not more than 16 months before the
effective date of the corporate action, together with the latest
available interim financial statements;
(2) An estimate by the corporation of the fair value of the
shares and a brief description of the method used to reach the
estimate; and
(3) A copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph
(a) from a person who was not a shareholder on the date the action dissented
from was first announced to the public or who is dissenting on behalf of a
person who was not a beneficial owner on that date. If the dissenter has
complied with subdivisions 3 and 4, the corporation shall forward to the
dissenter the materials described in paragraph (a), a statement of the reason
for withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction. The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel all
transfer restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
Subd. 7. Petition, determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by
D-3
registered or certified mail or by publication as provided by law. Except as
otherwise provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the shareholder or shareholders in question have fully
complied with the requirements of this section, and shall determine the fair
value of the shares, taking into account any and all factors the court finds
relevant, computed by any method or combination of methods that the court, in
its discretion, sees fit to use, whether or not used by the corporation or by a
dissenter. The fair value of the shares as determined by the court is binding on
all shareholders, wherever located. A dissenter is entitled to judgment in cash
for the amount by which the fair value of the shares as determined by the court,
plus interest, exceeds the amount, if any, remitted under subdivision 5, but
shall not be liable to the corporation for the amount, if any, by which the
amount, if any, remitted to the dissenter under subdivision 5 exceeds the fair
value of the shares as determined by the court, plus interest.
Subd. 8. Cost; fees, expenses. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
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DAIG CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 30, 1996
The undersigned hereby appoints John J. Fleischhacker and Daniel J. Starks,
or either of them, as proxies, with full power of substitution to vote all
the shares of common stock which the undersigned would be entitled to vote if
personally present at the Special Meeting of Shareholders of Daig
Corporation, to be held on Thursday, May 30, 1996, at 9:00 a.m., local time,
at The Kelly Inn, 2705 Annapolis Lane, Plymouth, Minnesota 55441, or at any
adjournments thereof, hereby revoking all former proxies. The undersigned
said proxies to vote as follows:
1. Proposal to approve the Agreement and Plan of Merger dated January 29,
1996 among St. Jude Medical, Inc., Partner Acquisition Corp. and Daig
Corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
(CONTINUED FROM PREVIOUS SIDE)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AND WILL BE VOTED "FOR"
PROPOSAL NUMBER ONE SUMMARIZED ON THE REVERSE SIDE OF THIS CARD UNLESS
OTHERWISE SPECIFIED.
Dated ___________________, 1996
_______________________________
Signature
_______________________________
Signature if held jointly
Please date and sign exactly as your name(s) appears at left indicating,
where proper, official position or representative capacity in which you are
signing. When signing as executor, administrator, trustee or guardian, give
full title as such; when shares have been issued in names of two or more
persons, all should sign.
