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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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STRYKER CORPORATION
(Exact name of registrant as specified in its charter)
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MICHIGAN 3841 38-1239739
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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2725 FAIRFIELD ROAD
KALAMAZOO, MICHIGAN 49002
(616) 385-2600
(Address, including Zip Code, and telephone number, including area
code, of registrant's principal executive offices)
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DAVID J. SIMPSON
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
STRYKER CORPORATION
2725 FAIRFIELD ROAD, KALAMAZOO, MICHIGAN 49002
(616) 385-2600
(Name, address, including Zip Code, and telephone number, including
area code, of agent for service)
Copies to:
JOHN H. DENNE, ESQ. WILLIAM E. TANIS, ESQ.
WHITMAN BREED ABBOTT & MORGAN LLP IRELAND, STAPLETON, PRYOR & PASCOE, P.C.
200 PARK AVENUE 1675 BROADWAY, SUITE 2600
NEW YORK, NEW YORK 10166 DENVER, COLORADO 80202
(212) 351-3207 (303) 628-3654
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: The effective date of the merger of a wholly owned subsidiary of
registrant with and into Image Guided Technologies, Inc. as described in the
proxy statement/prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed
Title of each class of Amount Proposed maximum maximum Amount of
securities to to be offering price per aggregate registration
be registered registered (1) unit offering price (2) fee
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Common Stock, par value
$.10 per share 343,000 shares Not Applicable $9,939,932 $2,625
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(1) This Registration Statement relates to common stock of the registrant
issuable to holders of common stock of Image Guided Technologies, Inc.
in a proposed merger as described in the proxy statement/prospectus.
The actual number of shares to be issued will be determined by dividing
$12,000,000 by the average closing price of the registrant's common
stock on the New York Stock Exchange for a specified 30-day period. The
number of shares to be registered is based on an assumed average
closing price of registrant's common stock of approximately $35 per
share.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(1) under the Securities Act of 1933.
Pursuant to Rule 457(f)(i), the proposed maximum aggregate offering
price of the registrant's common stock was calculated in accordance
with Rule 457(c) under the Securities Act by multiplying $1.88, the
average of the bid and ask prices of the common stock of Image Guided
Technologies, Inc. on the over-the-counter market on June 23, 2000, by
5,287,198, the maximum number of shares of common stock of Image Guided
Technologies, Inc. to be cancelled as a result of the merger based on
the shares outstanding on June 23, 2000 plus number of shares expected
to be issued prior to the effective date of the merger pursuant to the
exercise of outstanding options and warrants.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
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IMAGE GUIDED TECHNOLOGIES, INC.
5710-B FLATIRON PARKWAY
BOULDER, COLORADO 80301
July , 2000
--
Dear Shareholder:
You are cordially invited to attend our special meeting of shareholders
on July __, 2000, at 9:00 a.m., local time, at 5710-B Flatiron Parkway, Boulder,
Colorado 80301. At the special meeting, we will ask you to vote on the merger of
IGT and Stryker Corporation. In the merger, you will receive in exchange for
each share of IGT common stock that you own that number of shares of Stryker
common stock determined by dividing $12,000,000 by the average closing price of
the Stryker common stock on the New York Stock Exchange for the 30 consecutive
trading days beginning on the 35th trading day prior to the date of the special
meeting and dividing the quotient so obtained by the number of shares of IGT
common stock outstanding immediately prior to the merger. Stryker common stock
is listed on the New York Stock Exchange under the trading symbol "SYK." On June
22, 2000, Stryker common stock closed at $41.19 per share. On that date, there
were 4,304,198 shares of IGT common stock outstanding. In addition, up to an
additional 983,000 shares of IGT common stock may be issued prior to the merger
as a result of the exercise of in-the-money outstanding options and warrants and
other adjustments. You will receive cash for any fractional share of Stryker
common stock that you would otherwise receive in the merger.
Your vote is very important. We cannot complete the merger unless
holders of a majority of the outstanding shares of IGT common stock vote to
approve the merger agreement. Only shareholders who hold shares of IGT common
stock at the close of business on June 22, 2000 will be entitled to vote at the
special meeting.
THE ENCLOSED PROXY STATEMENT/PROSPECTUS GIVES YOU DETAILED INFORMATION
ABOUT THE PROPOSED MERGER AND INCLUDES THE MERGER AGREEMENT AS ANNEX A. WE
ENCOURAGE YOU TO READ CAREFULLY THE PROXY STATEMENT/PROSPECTUS, INCLUDING ITS
ANNEXES. YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS RELATING
TO THE MERGER" ON PAGE 13 OF THE ENCLOSED PROXY STATEMENT/PROSPECTUS BEFORE
VOTING.
AFTER CAREFUL CONSIDERATION, THE IGT BOARD OF DIRECTORS HAS APPROVED
THE MERGER AGREEMENT, HAS DETERMINED THAT THE MERGER IS FAIR TO YOU AND
RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT.
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Please complete, sign and return your proxy. Thank you for your
cooperation.
Sincerely,
Paul L. Ray, Chief Executive Officer and
Chairman of the Board
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE MERGER DESCRIBED IN THE PROXY
STATEMENT/PROSPECTUS OR THE STRYKER COMMON STOCK TO BE ISSUED IN CONNECTION WITH
THE MERGER, OR DETERMINED IF THE PROXY STATEMENT/ PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE PROXY STATEMENT/PROSPECTUS IS DATED JULY __, 2000,
AND IS FIRST BEING MAILED TO SHAREHOLDERS ON OR ABOUT JULY __, 2000.
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REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Stryker from documents that are not included in or
delivered with this proxy statement/prospectus. This information is available to
you without charge upon your written or oral request. You can obtain documents
incorporated by reference in this proxy statement/prospectus by requesting them
in writing or by telephone from Stryker at the following address and telephone
number:
Stryker Corporation
P.O. Box 4085
Kalamazoo, Michigan 49003-4085
Attention: Secretary
Telephone: 616-385-2600
If you would like to request documents, please do so by July __, 2000
in order to receive them before the IGT special meeting.
See "Where You Can Find More Information" (page 62).
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IMAGE GUIDED TECHNOLOGIES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY __, 2000
To the Shareholders of Image Guided Technologies, Inc.:
We will hold a special meeting of the shareholders of Image Guided
Technologies, Inc. on July __, 2000, at 9:00 a.m., local time, at 5710-B
Flatiron Parkway, Boulder, Colorado 80301 for the following purpose:
To consider and vote upon a proposal to approve the merger agreement
among Stryker Corporation, IGT Acquisition Co., a wholly owned
subsidiary of Stryker, and IGT. Under the merger agreement, each
outstanding share of IGT common stock will be converted into the right
to receive that number of shares of Stryker common stock determined by
dividing $12,000,000 by the average closing price of the Stryker common
stock on the New York Stock Exchange for the 30 consecutive trading
days beginning on the 35th trading day prior to the date of the special
meeting and dividing the quotient so obtained by the number of shares
of IGT common stock outstanding immediately prior to the merger.
We will transact no other business at the special meeting, except
business that may be properly brought before the special meeting or any
adjournment of it by the IGT board of directors.
Only holders of record of shares of IGT common stock at the close of
business on June 22, 2000, the record date for the special meeting, are entitled
to notice of, and to vote at, the special meeting and any adjournments or
postponements.
We cannot complete the merger unless holders of a majority of the
outstanding shares of IGT common stock vote to adopt the merger agreement. Under
Colorado law, you are entitled to dissenters' rights. If you do not vote in
favor of the merger and you properly elect to exercise your dissenters' rights,
you may receive payment of the "fair value" of your IGT common stock.
FOR MORE INFORMATION ABOUT THE MERGER, PLEASE REVIEW THE ACCOMPANYING
PROXY STATEMENT /PROSPECTUS AND THE MERGER AGREEMENT ATTACHED AS ANNEX A.
All IGT shareholders are cordially invited to attend the special
meeting in person. However, whether or not you plan to attend the special
meeting, please complete, sign and date the enclosed proxy and return it
promptly in the enclosed postage-paid envelope. You may vote in person at the
special meeting, even if you have returned a proxy. If you do not vote by proxy
or in person at the special meeting, it will have the same effect as a vote
against the merger agreement.
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Executed proxies with no instructions will be voted "FOR" the approval
of the merger agreement. Please do not send any stock certificates at this time.
If the merger is completed, you will be sent instructions regarding the exchange
of your certificates.
By Order of the Board of Directors,
Waldean Schulz, Secretary
Boulder, Colorado
July , 2000
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TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL
MEETING................................................................................................1
SUMMARY...................................................................................................4
General................................................................................................4
The Companies..........................................................................................6
The Special Meeting....................................................................................7
The Merger.............................................................................................8
RISK FACTORS RELATING TO THE MERGER.......................................................................13
INFORMATION CONCERNING IGT................................................................................14
General Description of IGT's Business..................................................................14
Selected Historical Financial Data.....................................................................22
Management's Discussion and Analysis of Financial Condition and Results of
Operations...........................................................................................24
Security Ownership of Certain Beneficial Owners and Management............................................30
Additional Information.................................................................................33
INFORMATION CONCERNING STRYKER............................................................................33
General Description of Stryker's Business..............................................................33
Selected Historical Financial Data.....................................................................33
Additional Information.................................................................................35
MATERIAL CONTRACTS BETWEEN STRYKER AND IGT................................................................35
THE SPECIAL MEETING.......................................................................................36
Date, Time and Place...................................................................................36
Purpose of Special Meeting.............................................................................36
Record Date; Stock Entitled to Vote; Quorum............................................................36
Votes Required.........................................................................................36
Voting of Proxies......................................................................................36
Revocability of Proxies................................................................................37
Solicitation of Proxies................................................................................38
THE MERGER................................................................................................38
Background to the Merger...............................................................................38
Reasons for the Merger.................................................................................39
Recommendation of the IGT Board of Directors...........................................................41
Interests of IGT's Directors and Management in the Merger..............................................41
Accounting Treatment...................................................................................42
Form of the Merger.....................................................................................42
Merger Consideration...................................................................................42
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares.......................43
Effective Time of the Merger...........................................................................44
Stock Exchange Listing of Stryker Common Stock.........................................................44
Delisting and Deregistration of IGT Common Stock.......................................................44
Certain Material United States Federal Income Tax Consequences of the Merger...........................44
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Dissenters' Rights.....................................................................................46
Resale of Stryker Common Stock.........................................................................48
THE MERGER AGREEMENT......................................................................................48
Conditions to the Merger...............................................................................48
No Solicitation........................................................................................49
Termination of the Merger Agreement....................................................................51
Termination Fees.......................................................................................52
Conduct of Business Pending the Merger.................................................................52
Amendment; Extension and Waiver........................................................................53
Expenses...............................................................................................53
Representations and Warranties........................................................................53
COMPARATIVE STOCK PRICES AND DIVIDENDS....................................................................55
DESCRIPTION OF STRYKER CAPITAL STOCK......................................................................57
COMPARISON OF RIGHTS OF COMMON STOCKHOLDERS OF STRYKER
AND IGT................................................................................................57
Capitalization.........................................................................................57
Voting Rights..........................................................................................58
Number, Election, Vacancy and Removal of Directors.....................................................58
Amendments to Articles of Incorporation................................................................59
Amendments to Bylaws... ...............................................................................59
Shareholder Action.....................................................................................59
Special Shareholder Meetings...........................................................................59
Limitation of Personal Liability of Directors and Indemnification......................................60
LEGAL MATTERS.............................................................................................61
EXPERTS...................................................................................................61
OTHER MATTERS.............................................................................................62
WHERE YOU CAN FIND MORE INFORMATION.......................................................................62
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.........................................................64
INDEX TO FINANCIAL STATEMENTS.............................................................................66
Annexes
Annex A Agreement and Plan of Merger
Annex B Colorado Dissenters' Rights Statute
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QUESTIONS AND ANSWERS ABOUT THE MERGER
AND THE SPECIAL MEETING
Q: WHY IS IGT MERGING?
A: IGT needs additional capital to compete effectively in the image
guided surgery market.
Q: WHY IS THE IGT BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR
APPROVAL OF THE MERGER AGREEMENT?
A: In reaching its decision to approve the merger agreement and the
merger and to recommend approval of the merger agreement by IGT's shareholders,
the IGT board of directors consulted with IGT management, as well as IGT's
financial and legal advisors, and considered the terms of the proposed merger
agreement and the transactions contemplated by the merger agreement. In
addition, the IGT board of directors considered each of the items set forth on
pages 39 to 41. Based on those consultations and considerations, the IGT board
of directors unanimously approved the merger agreement and the merger and
believes that the terms of the merger agreement and the merger are fair to IGT's
shareholders.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, you will receive for each share of IGT
common stock that you own that number of shares of Stryker common stock
determined by dividing $12,000,000 by the average closing price of the Stryker
common stock on the New York Stock Exchange for the 30 consecutive trading days
beginning on the 35th trading day prior to the date of the special meeting and
dividing the quotient so obtained by the number of shares of IGT common stock
outstanding immediately prior to the merger. Stryker common stock is listed on
the New York Stock Exchange under the trading symbol "SYK." On June 22, 2000,
Stryker common stock closed at $41.19 per share. On that date, there were
4,304,198 shares of IGT common stock outstanding and up to an additional 983,000
shares may be issued upon exercise of in-the-money options and warrants and
other adjustments prior to the effective date. You will receive cash for any
fractional share of Stryker common stock that you would otherwise receive in the
merger.
For example, if the average closing price of the Stryker common stock
during the specified period and on the day preceding the effective time of the
merger were $37.685 and the number of shares of IGT common stock issued and
outstanding at the effective time of the merger were 5,287,198, a holder of 100
shares of IGT common stock would be entitled to receive an aggregate of six
shares of Stryker common stock and $.85 in lieu of a fractional share.
Q: WHAT IF THE MERGER IS NOT COMPLETED?
A: If the merger is not completed, IGT will continue to operate as an
independent company. None of Stryker, IGT or any third party is under any
obligation to make or consider any alternative proposal regarding the purchase
of your IGT common stock. IGT may be
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required to pay a termination fee under the merger agreement if the merger is
not completed for certain reasons.
Q: WHERE CAN I GET INFORMATION REGARDING STRYKER, IGT AND THE MERGER?
A: We urge you to read and consider the information contained in this
proxy statement/prospectus, including its annexes. You also may want to review
the documents referenced under "Where You Can Find More Information."
Q: WHO MAY VOTE AT THE SPECIAL MEETING?
A: All shareholders of record as of the close of business on June 22,
2000 may vote. You are entitled to one vote for each share of IGT common stock
that you own on the record date.
Q: HOW DO I VOTE?
A: After carefully reading and considering the information contained in
this proxy statement/prospectus, please complete and sign your proxy and return
it in the enclosed return envelope as soon as possible so that your shares may
be represented at the special meeting. If you sign and send in your proxy and do
not indicate how you want to vote, we will count your proxy as a vote in favor
of approval of the merger agreement. IF YOU ABSTAIN FROM VOTING OR DO NOT VOTE
YOUR SHARES BY PROXY OR IN PERSON, IT WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST APPROVAL OF THE MERGER AGREEMENT.
The special meeting will take place on July __, 2000 at 9:00 a.m.,
local time, at 5710-B Flatiron Parkway, Boulder, Colorado 80301. You may attend
the special meeting and vote your shares in person, rather than signing and
mailing your proxy.
Q: IF MY SHARES ARE HELD IN A BROKERAGE ACCOUNT OR IN "STREET NAME" BY
MY BROKER, HOW DO I VOTE?
A: Your broker will vote your shares only if you provide instructions
on how to vote. You should follow the directions provided by your broker
regarding how to instruct your broker to vote your shares. IF YOU DO NOT
INSTRUCT YOUR BROKER, YOUR SHARES WILL NOT BE VOTED, WHICH WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A: Yes. You may change your vote in one of three ways at any time
before your proxy is voted at the special meeting. First, you may send a written
notice stating that you would like to revoke your proxy. Second, you may
complete and submit a new, later dated proxy. Third, you may attend the special
meeting and vote in person. If you choose either of the first two methods, you
must submit your notice of revocation or your new proxy to the Secretary of IGT
at the following address: Image Guided Technologies, Inc., 5710-B Flatiron
Parkway, Boulder, Colorado 80301, Attention: Secretary.
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Q: DO I HAVE DISSENTERS' RIGHTS?
A: Under Colorado law, you are entitled to dissenters' rights. If you
do not vote in favor of the merger and you properly elect to exercise your
dissenters' rights as described under "The Merger -- Dissenters' Rights" and in
Annex B, you may receive payment of the "fair value" of your IGT common stock.
The fair value could be more than, less than or equal to the value of the
Stryker common stock that you would otherwise be entitled to receive.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger has been completed, you will receive written
instructions for exchanging your stock certificates. Please do not send in your
stock certificates with your proxy.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as quickly as possible. We
expect to complete the merger during the third calendar quarter of 2000.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger or if you need additional
copies of this proxy statement/prospectus or the enclosed proxy, you should
contact:
Paul L. Ray
Image Guided Technologies, Inc.
5710-B Flatiron Parkway
Boulder, Colorado 80301
Telephone: 303-447-0248
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SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and does not contain all the information that is important
to you. For a more complete understanding of the merger, you should carefully
read this entire proxy statement/prospectus, the documents attached to the
proxy statement/prospectus as annexes and the other documents to which we refer
you. In addition, we incorporate by reference important business and financial
information about Stryker into this proxy statement/prospectus. You may obtain
the information incorporated by reference without charge by following the
instructions in the section "Where You Can Find More Information" on page 62. We
have included page references parenthetically to direct you to a more complete
description of certain topics presented in this summary.
GENERAL
WHAT YOU WILL RECEIVE IN THE MERGER
In the merger, you will receive for each share of IGT common stock that
you own that number of shares of Stryker common stock determined by dividing
$12,000,000 by the average closing price of the Stryker common stock on the New
York Stock Exchange for the 30 consecutive trading days beginning on the 35th
trading day prior to the date of the special meeting and dividing the quotient
so obtained by the number of shares of IGT common stock outstanding immediately
prior to the merger. You will receive cash for any fractional share of Stryker
common stock that you would otherwise receive in the merger. Stryker common
stock is listed on the New York Stock Exchange under the trading symbol "SYK."
On June 22, 2000, Stryker common stock closed at $41.19 per share. On that date,
there were 4,304,198 shares of IGT common stock outstanding and up to an
additional 983,000 shares may be issued upon exercise of in-the-money options
and warrants and other adjustments prior to the effective date.
For example, if the average closing price of the Stryker common stock
during the specified period were $ 37.685 and the number of shares of IGT common
stock issued and outstanding at the effective time of the merger were 5,287,198,
a holder of 100 shares of IGT common stock would be entitled to receive an
aggregate of six shares of Stryker common stock and $.85 in lieu of a fractional
share.
OWNERSHIP OF STRYKER FOLLOWING THE MERGER
Based on the number of outstanding shares of IGT common stock and the
number of shares of IGT common stock likely to be issued upon exercise of
outstanding options and warrants and the closing price of the Stryker common
stock on the record date, we anticipate that IGT shareholders will receive in
the aggregate approximately 318,500 shares of Stryker common stock in the
merger. Based on that number and on the number of outstanding shares of Stryker
common stock, following the merger former IGT shareholders will own less than
one-fifth of one percent of the outstanding shares of Stryker common stock.
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CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
(PAGE 44)
The merger is intended to qualify as a reorganization within the
meaning of the Internal Revenue Code of 1986. It is a condition to the
completion of the merger that IGT receive an opinion from its counsel, Ireland,
Stapleton, Pryor & Pascoe, P.C., stating that the merger will qualify for United
States federal income tax purposes as a reorganization within the meaning of the
Internal Revenue Code. If the merger qualifies, unless you are subject to
special tax treatment under the Internal Revenue Code, you will not recognize
gain or loss for United States federal income tax purposes as a result of the
exchange of your IGT common stock for Stryker common stock in the merger, except
for any cash received in lieu of a fractional share of Stryker common stock.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER
TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR
OWN TAX ADVISORS FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER
TO YOU.
RECOMMENDATION OF THE IGT BOARD OF DIRECTORS (PAGE 41)
The IGT board of directors believes that the terms of the merger and
the merger agreement are fair to IGT's shareholders and unanimously (Mr. Ray not
voting because of his interest in the merger as described below) recommends that
shareholders vote "FOR" the approval of the merger agreement.
To review the background and reasons for the merger in greater detail,
as well as certain risks related to the merger, see pages 38 to 41 and page 13.
INTERESTS OF IGT'S DIRECTORS AND MANAGEMENT IN THE MERGER (PAGE 41)
IGT shareholders should note that a number of directors and officers of
IGT have interests in the merger as directors or officers that are different
from, or in addition to, those of a shareholder. It is a condition to Stryker's
obligation to consummate the merger that Paul L. Ray, Chief Executive Officer,
Chief Financial Officer and Chairman of the Board of IGT, and Waldean Schulz,
Vice President of Technology and Secretary of IGT, enter into employment
agreements with IGT. In addition, all stock options will become fully vested
immediately prior to the merger and certain indemnification arrangements for
current directors and officers of IGT will be continued.
DISSENTERS' RIGHTS (PAGE 46)
IGT is organized under Colorado law. Under Colorado law, any IGT
shareholder who does not vote in favor of the approval of the merger agreement
and who properly exercises his or her dissenters' rights will be entitled to
receive fair value of his or her IGT common stock. In order to receive the fair
value for their shares, dissenting IGT shareholders must:
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<PAGE> 15
o Not vote in favor of the merger;
o Deliver to IGT prior to a vote on the merger a written notice
of their intent to demand fair value for their shares; and
o Strictly follow the other requirements of Article 113 of the
Colorado Business Corporation Act, a copy of which is attached
hereto as Annex B.
Any IGT shareholder who wishes to submit a notice of intent to demand
payment of the fair value of his or her IGT shares must deliver the written
notice to Image Guided Technologies, Inc., 5710-B Flatiron Parkway, Boulder,
Colorado 80301, Attention: Secretary, prior to the vote on the merger at the
special meeting.
THE COMPANIES
IMAGE GUIDED TECHNOLOGIES, INC. (PAGE 14)
IGT develops and manufactures optical localizers for both medical and
industrial applications. IGT's optical localizer is a series of infrared cameras
that compute the position and orientation of a point or object in
three-dimensional space. IGT's wholly-owned subsidiary, Springfield Surgical
Instruments, Inc., manufactures minimally invasive surgical instruments.
The address of IGT's principal executive offices is 5710-B Flatiron
Parkway, Boulder, Colorado 80301 and its telephone number is 303-447-0248.
STRYKER CORPORATION (PAGE 33)
Stryker develops, manufactures and markets specialty surgical and
medical products worldwide. These products include orthopaedic implants, trauma
systems, powered surgical instruments, endoscopic systems and patient care and
handling equipment. Stryker also provides outpatient rehabilitative health
services in the United States and is engaged in premarket testing of the bone
growth factor osteogenic protein-1 ("OP-1").
The address of Stryker's principal executive offices is P.O. Box 4085,
Kalamazoo, Michigan 49003-4085 and its telephone number is 616-385-2600.
MARKET PRICE AND DIVIDEND INFORMATION (PAGE 55)
Shares of Stryker common stock are listed on the New York Stock
Exchange under the symbol "SYK". Shares of IGT common stock are traded on the
over-the-counter market under the symbol "IGTI" and on the Boston Stock Exchange
under the symbol "IGK". The following table presents as of June 1, 2000, the
last full trading day prior to the public announcement of the proposed merger,
and as of July __, 2000, the last day for which information in the table could
be calculated prior to the date of this proxy statement/prospectus:
o The last reported sale price of the Stryker common stock, as
reported on the New York Stock Exchange Composite Transactions
Tape;
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o The last reported sale price of the IGT common stock, as
reported on the over-the-counter market; and
o The market value of one share of IGT common stock on an
equivalent per share basis in each case as if the merger had
been completed on the relevant date. The equivalent price per
share data for IGT common stock has been determined by
dividing the last reported sale price of one share of Stryker
common stock by 16.60, based on an assumed exchange ratio of
one share of Stryker common stock for each 16.60 shares of IGT
common stock. The exchange ratio was based on the assumption
that the average closing price of the Stryker common stock for
the specified period was $37.685 and that there will be
5,287,198 shares of IGT common stock outstanding on the
effective date of the merger. There can be no assurance that
the actual average price and the number of shares will not
vary in a way that will result in the actual exchange ratio at
the time the merger is completed being lower.
<TABLE>
<CAPTION>
EQUIVALENT
PRICE PER
STRYKER IGT SHARE OF
COMMON COMMON IGT COMMON
DATE STOCK STOCK STOCK
---- --------- --------- ---------
<S> <C> <C> <C>
June 1, 2000 $37.6875 $0.88 $2.27
July , 2000
--
</TABLE>
Stryker paid its stockholders an annual dividend of $0.065 (adjusted
for a two-for-one stock split effective on May 12, 2000) per share for 1999. The
payment of dividends by Stryker in the future will depend on business
conditions, its financial position, earnings and other factors. IGT has never
paid dividends to its shareholders.
THE SPECIAL MEETING (PAGE 36)
The special meeting of IGT shareholders will be held at 5710-B Flatiron
Parkway, Boulder, Colorado 80301 at 9:00 a.m., local time, on July __, 2000. At
the special meeting, all IGT shareholders who held shares of IGT common stock at
the close of business on June 22, 2000 will be asked to approve the merger
agreement.
RECORD DATE; VOTING POWER
IGT shareholders are entitled to vote at the special meeting if they
owned shares of IGT common stock as of the close of business on June 22, 2000,
the record date.
7
<PAGE> 17
On the record date, there were 4,304,198 shares of IGT common stock
entitled to vote at the special meeting held by approximately 80 holders of
record. Shareholders will have one vote for each share of IGT common stock that
they owned on the record date.
VOTE REQUIRED
The affirmative vote of a majority of the shares of IGT common stock
outstanding on the record date is required to approve the merger agreement.
Each of the directors and executive officers of IGT has advised IGT
that he intends to vote all shares of IGT common stock over which he has or
shares voting control "FOR" approval of the merger agreement. The directors and
executive officers and their affiliates own an aggregate of 876,665 shares
(20.4%) of the outstanding IGT common stock.
THE MERGER (PAGE 38)
The merger agreement is attached as Annex A to this proxy
statement/prospectus. We encourage you to read the entire merger agreement
carefully. It is the principal document governing the merger.
CONDITIONS TO THE MERGER (PAGE 48)
Stryker and IGT will complete the merger only if they satisfy or, in
some cases, waive certain conditions, including the following:
o Holders of a majority of the outstanding shares of IGT common
stock must approve the merger agreement;
o Holders of not more than 200,000 shares of IGT common stock
have exercised their dissenters' rights and delivered written
notice of their intent to demand fair value for their shares;
o No legal restraints or prohibitions are in effect, and no
suits, actions or proceedings by any governmental authority
are pending that would prevent the consummation of the merger
or are reasonably likely to have a material adverse effect on
Stryker or IGT;
o The registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, must have become effective
under the Securities Act and must not be the subject of any
stop order or proceedings seeking a stop order;
o The Stryker common stock to be issued to IGT shareholders
pursuant to the merger must be authorized for listing on the
New York Stock Exchange;
o IGT and Stryker must comply with their respective agreements
and conditions under the merger agreement in all material
respects;
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<PAGE> 18
o The respective representations and warranties of IGT and
Stryker contained in the merger agreement must be true and
correct, except where the failure of those representations and
warranties to be true and correct does not result, and could
not reasonably be expected to result, individually or in the
aggregate, in losses, liabilities, claims, damages, expenses
and diminution of value exceeding $600,000;
o IGT must receive from Ireland, Stapleton, Pryor & Pascoe,
P.C., on the date on which the registration statement is
declared effective by the Securities and Exchange Commission
and on the date on which the merger is to be completed an
opinion, on the basis of certain facts, representations and
assumptions as set forth in the opinion, stating that the
merger will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code;
o In the case of Stryker only, Paul L. Ray, Chief Executive
Officer, Chief Financial Officer and Chairman of the Board,
and Waldean Schulz, Vice President of Technology and Secretary
of IGT, shall have entered into employment agreements with IGT
covering periods of one and two years, respectively; and
o In the case of Stryker only, IGT shall have taken all
necessary action to terminate any option or warrant to
purchase IGT common stock that has not been exercised prior to
the effective time of the merger.
NO SOLICITATION (PAGE 49)
The merger agreement provides that IGT will not, and will not authorize
or permit any of its officers, directors, employees or other representatives to
solicit any takeover proposal or participate in any discussion or negotiation
regarding any takeover proposal. However, if at any time prior to the date of
the special meeting, the IGT board of directors determines in good faith, after
consultation with outside counsel, that a proposal by a third party, which was
unsolicited and did not result from a breach by IGT of the merger agreement, is
more favorable and superior to IGT shareholders than the terms of the merger
with Stryker, IGT may furnish, under a customary confidentiality agreement,
information about IGT to any person making the superior proposal and participate
in discussions or negotiations regarding the superior proposal.
TERMINATION OF THE MERGER AGREEMENT (PAGE 51)
The merger agreement may be terminated at any time prior to the
effective time of the merger, whether before or after approval of the merger
agreement by the IGT shareholders, as summarized below:
o Stryker and IGT can mutually agree to terminate the merger
agreement at any time without completing the merger;
o Stryker or IGT can terminate the merger agreement if:
9
<PAGE> 19
(1) The merger is not completed by December 31, 2000,
provided that this right to terminate will not be available to
a party whose failure to perform any of its obligations under
the merger agreement has caused or resulted in the failure of
the merger to be completed by that date;
(2) Holders of a majority of the outstanding shares
of IGT common stock do not approve the merger agreement; or
(3) The conditions to its obligations referred to
above have not been satisfied at the closing date or if
satisfaction of a condition becomes impossible (other than
through its failure to comply with its obligations), at least
30 days notice of an intention to terminate has been given and
such condition has not been satisfied or reasonable assurance
given that it will be satisfied on or before the closing date;
o IGT can terminate the merger agreement before the special
meeting if the IGT board of directors receives an unsolicited
proposal by a third party to acquire IGT on terms determined
by the IGT board of directors, based on the advice of its
financial advisor, Viscogliosi Brothers LLC, to be more
favorable to IGT shareholders than the terms of the merger
with Stryker; or
o Stryker can terminate the merger agreement if IGT or any of
its directors or officers participates in discussions or
negotiations with third parties regarding certain takeover
proposals or furnishes information to third parties in breach
of the merger agreement.
TERMINATION FEES (PAGE 52)
IGT must pay Stryker a termination fee of $600,000 if:
o IGT shareholders receive a takeover proposal, a takeover
proposal otherwise becomes publicly known or anyone publicly
announces its intention to make a takeover proposal and
thereafter Stryker or IGT terminates the merger agreement
because either (1) the merger is not completed by December 31,
2000 or (2) IGT's shareholders have not approved the merger
agreement, and within nine months of the termination IGT or
any of its subsidiaries enters into any definitive agreement
with respect to, or consummates, a takeover proposal;
o IGT terminates the merger agreement because IGT receives
before the special meeting an unsolicited proposal by a third
party to acquire IGT on terms determined by the IGT board of
directors to be more favorable to the IGT shareholders than
the terms of the merger with Stryker; or
o Stryker terminates the merger agreement because IGT or any of
its directors or officers participates in discussions or
negotiations with third parties regarding certain takeover
proposals or furnishes information to third parties in breach
of the merger agreement.
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<PAGE> 20
EMPLOYMENT AGREEMENTS WITH CERTAIN OFFICERS (PAGE 41)
As a condition to Stryker's obligation to complete the merger, Paul L.
Ray, Chief Executive Officer, Chief Financial Officer and Chairman of the Board
of IGT, and Waldean Schulz, Vice President of Technology and Secretary of IGT,
must enter into employment agreements with IGT.
Under Mr. Ray's agreement, he will be employed for a one-year period
following the effective date of the merger at an annual salary of $125,000. In
addition, he will receive a payment of $325,000 at the commencement of the
employment period and will be entitled to incentive compensation based on the
proceeds realized from divestiture of certain IGT assets in one or more
transactions for which an agreement in principle is negotiated during the
employment term.
Under the agreement with Mr. Schulz, he will be employed for a two-year
period following the effective date of the merger at an annual salary of
$115,000.
ACCOUNTING TREATMENT (PAGE 42)
The merger will be accounted for under the "purchase" method of
accounting in accordance with generally accepted accounting principles. Stryker
expects a significant portion of the purchase price to be allocated to goodwill
and other intangible assets.
EXPENSES (PAGE 53)
Stryker and IGT will each pay its own expenses incidental to the
preparation of the merger agreement, the carrying out of the provisions of the
merger agreement and the completion of the merger whether or not the merger is
completed.
COMPARATIVE PER SHARE INFORMATION
We have summarized below the per share information for each of Stryker
and IGT on a historical basis, for Stryker on a pro forma basis and for IGT on a
pro forma equivalent basis. All per share data has been restated to account for
Stryker's two-for-one stock split effective on May 12, 2000.
The unaudited "pro forma Stryker" and the unaudited "pro forma
equivalent -- IGT" information assumes that the merger of IGT and Stryker will
be accounted for as a purchase. The unaudited "pro forma Stryker" information is
derived from the historical financial information of Stryker and IGT at or for
the three months ended March 31, 2000 and at or for the year ended December 31,
1999 and assumes the merger of Stryker and IGT occurred at the beginning of the
earliest period presented.
The unaudited "pro forma Stryker" net earnings includes pro forma
adjustments for the amortization of goodwill and other intangible assets. These
adjustments are based on preliminary estimates and the final amounts of these
adjustments may vary. Stryker's and IGT's
11
<PAGE> 21
results for the three-month period ended March 31, 2000 may not be indicative of
results for the full year.
"Pro forma Stryker" basic net earnings per share was calculated using
the weighted average number of Stryker common stock outstanding and adding the
weighted average number of shares of IGT common stock outstanding, assuming all
IGT common stock was converted to Stryker common stock at an assumed exchange
ratio of one share of Stryker common stock for each 16.60 shares of IGT common
stock, which is based on an assumed average closing price of the Stryker common
stock for the specified period of $37.685 and the assumption that 5,287,198
shares of IGT common stock will be outstanding at the time of the merger.
"Pro forma Stryker" diluted net earnings per share was calculated by
dividing "pro forma Stryker" net earnings by the sum of the weighted average
number of shares of "pro forma Stryker" common stock outstanding plus all
additional shares of "pro forma Stryker" common stock that would have been
outstanding if potentially dilutive securities or common stock equivalents had
been issued.
"Pro forma Stryker" book value per share was calculated by dividing the
sum of Stryker historical book value and the purchase price of IGT (fair value
of the net assets acquired plus goodwill) by the number of shares of "pro forma
Stryker" common stock outstanding as of the end of the period.
The unaudited "pro forma equivalent -- IGT" information was calculated
by dividing the corresponding "pro forma Stryker" data by 16.60 so that the per
share amounts are equated to the respective values for one share of IGT common
stock. These amounts do not necessarily reflect future per share levels of net
earnings, cash dividends or book value of Stryker.
SHAREHOLDERS SHOULD READ THE INFORMATION IN THIS SECTION ALONG WITH
STRYKER'S AND IGT'S HISTORICAL FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
INCLUDED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE DOCUMENTS
DESCRIBED UNDER "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 62.
<TABLE>
<CAPTION>
AT OR FOR THE THREE AT OR FOR YEAR
MONTHS ENDED ENDED
MARCH 31, 2000 DECEMBER 31, 1999
------------------- -----------------
<S> <C> <C>
STRYKER-HISTORICAL
Basic net earnings per share ........... $0.27 $0.10
Diluted net earnings per share ......... 0.26 0.10
Cash dividends declared per share ...... -- 0.065
Book value per share ................... 3.61 3.46
</TABLE>
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<PAGE> 22
<TABLE>
<CAPTION>
AT OR FOR THE THREE AT OR FOR YEAR
MONTHS ENDED ENDED
MARCH 31, 2000 DECEMBER 31, 1999
------------------- -----------------
<S> <C> <C>
IGT - HISTORICAL
Basic net loss per share ............... $(0.03) $(0.23)
Diluted net loss per share ............. (0.03) (0.23)
Cash dividends declared per share ...... -- --
Book value per share ................... 0.11 0.14
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE AT OR FOR YEAR
MONTHS ENDED ENDED
MARCH 31, 2000 DECEMBER 31, 1999
------------------- -----------------
<S> <C> <C>
PRO FORMA STRYKER
Basic net earnings per share ........... $0.27 $0.09
Diluted net earnings per share ......... 0.26 0.09
Cash dividends declared per share ...... -- 0.065
Book value per share ................... 3.66 3.51
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE THREE AT OR FOR YEAR
MONTHS ENDED ENDED
MARCH 31, 2000 DECEMBER 31, 1999
------------------- -----------------
<S> <C> <C>
PRO FORMA EQUIVALENT - IGT
Basic net earnings per share ........... $0.0163 $.0054
Diluted net earnings per share ......... 0.0157 .0054
Cash dividends declared per share ...... -- .0039
Book value per share ................... .22 .21
</TABLE>
RISK FACTORS RELATING TO THE MERGER
In addition to the other information included and incorporated by
reference in this proxy statement/prospectus, IGT shareholders should consider
carefully the matters described below in determining whether to approve the
merger agreement.
ONCE ESTABLISHED, THE AVERAGE CLOSING PRICE UTILIZED IN THE
DETERMINATION OF THE EXCHANGE RATIO FOR THE STRYKER COMMON STOCK TO BE RECEIVED
IN THE MERGER WILL BE FIXED AND WILL NOT BE ADJUSTED IN THE EVENT OF ANY
SUBSEQUENT CHANGE IN PRICE. The exchange ratio will be determined based in part
on the average closing price of the Stryker common stock on the New York Stock
Exchange for the 30 consecutive trading days beginning on the 35th trading day
prior to the special meeting and will not be adjusted for subsequent changes in
the price of the Stryker common stock. The average closing price of the Stryker
common stock on the effective date of the merger may vary from the average price
for the specified period and the average closing price for the specified period
may vary from the assumed price of $37.685 used in
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<PAGE> 23
determining the assumed exchange ratio for example purposes in this proxy
statement/prospectus. The board of directors of IGT urges IGT shareholders to
obtain current market prices for Stryker common stock.
THE EXCHANGE RATIO FOR STRYKER COMMON STOCK TO BE RECEIVED IN THE
MERGER WILL VARY BASED ON THE NUMBER OF SHARES OF IGT COMMON STOCK OUTSTANDING
ON THE EFFECTIVE DATE OF THE MERGER. The number of shares of IGT common stock
outstanding on the effective date of the merger is expected to increase by up to
approximately 983,000 shares from the 4,304,198 shares outstanding on the record
date as a result of the exercise of in-the-money options and warrants, including
shares as to which the vesting of the underlying options has been accelerated
pursuant to the merger agreement. There can be no assurance that the actual
number of shares will not vary in a way that will result in the actual exchange
ratio at the time the merger is completed being lower than the assumed ratio of
one share of Stryker common stock for each 16.60 shares of IGT common stock.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT THE MARKET PRICE
OF IGT'S COMMON STOCK AND IGT'S OPERATING RESULTS. If the merger is not
completed, the market price of IGT's common stock may decline to the extent that
the current market price reflects a market assumption that the merger will be
completed. There can be no assurance that IGT would be able to find a party
willing to pay an equivalent or more attractive price than that to be received
by the IGT shareholders in the merger.
THE PRICE OF STRYKER COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT
FROM THOSE AFFECTING THE PRICE OF IGT COMMON STOCK. Upon completion of the
merger, holders of IGT common stock will become holders of Stryker common stock.
Stryker's business differs from that of IGT, and Stryker's results of
operations, as well as the price of Stryker common stock, may be affected by
factors different from those affecting IGT's results of operations and the price
of IGT common stock. For a discussion of Stryker's business and certain factors
to consider in connection with its business, see Stryker's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 and Stryker's Quarterly Report
on Form 10-Q for the quarter ended March 31, 2000, which are incorporated by
reference in this proxy statement/prospectus. See "Information Concerning IGT"
for a discussion of IGT's business and certain factors to consider in connection
with its business.
INFORMATION CONCERNING IGT
GENERAL DESCRIPTION OF IGT'S BUSINESS
IGT was incorporated in Colorado in 1990, and until December 1997, it
derived substantially all of its revenue from the sales of 3D optical
measurement devices ("optical localizers") manufactured at IGT's Boulder,
Colorado facility. In December 1997, IGT purchased all the stock of Brimfield
Precision, Inc. ("BPI"). BPI manufactured general instruments and orthopedic
implants and orthopedic instrumentation at its Brimfield, Massachusetts facility
and minimally invasive surgical instruments at its Springfield, Massachusetts
facility.
14
<PAGE> 24
On September 24, 1998, IGT adopted a plan to sell the net assets of the
general instrument and implant business units of BPI and to retain the surgical
instruments operation in Springfield, Massachusetts. The plan was effected on
March 30, 1999, with the closing of the sale and changing of the name of the
retained operation to Springfield Surgical Instruments, Inc. ("SSI"). IGT has
continued the SSI operations in Springfield, Massachusetts, with a focus on the
manufacture of minimally invasive surgical instruments. The general instrument
and implant business units of BPI represented a separate major line of business,
and, accordingly, are reflected in IGT's consolidated financial statements as a
discontinued operation.
Optical Localizers. IGT's optical localizers have both medical and
industrial applications and typically consist of a proprietary
microprocessor-based control system, proprietary software to calculate the
digital coordinate location of light emitting diodes ("LEDs"), a multi-camera
array for detecting the LED emissions, a relative position dynamic reference
device connected to the measured object, and a number of custom-manufactured
LEDs mounted on the device or instrument to be tracked in 3D space.
IGT's FlashPoint(R) localizer is a key component of the anatomical
image display workstation used by physicians to perform image guided surgery, a
specialty procedure in the field of minimally invasive surgery. When the
FlashPoint localizer is combined with the imaging software provided by IGT's
customers, the location of specially designed surgical instruments can be
tracked in relation to the patient's anatomy during surgical procedures by
display as an overlay on a magnetic resonance imaging ("MRI") or computerized
tomography ("CT") image. IGT's Pixsys(TM) localizer is used in industrial
applications to measure the position or shape of objects in 3D space.
Image Guided Surgery. In image guided surgery, a surgeon tracks the
location of specially designed surgical instruments on the medical image (such
as CT or MRI). Image guided surgery requires a method for registering or
"mapping" the points in the medical image onto the patient's anatomical physical
space and a method for localizing (i.e., determining the position in 3D space)
the surgical instrument. Knowing the exact position of the probe or pointer is
key to the successful completion of this type of surgical procedure.
Since image guided surgery allows the patient's CT, MRI or other
medical image to be used as a map, it provides the surgeon with a real-time
visual representation of the surgical probe or pointing device on the
interactive medical image. It allows the spatial position of the instrument to
be tracked during the surgical procedure and to be displayed as an overlay on
the medical image shown on the workstation. The medical image may either be
historical (i.e., pre-operative), or real-time (i.e., intraoperative).
IGT'S PRODUCTS
Optical Localizers. The FlashPoint and Pixsys localizers consist of a
number of LEDs used as markers mounted on a pointer device or surgical
instrument, a relative position dynamic reference device (the "Dynamic Reference
Frame"(R)) connected to the measured object (a patient in a medical application
or a part in an industrial application), a multi-camera array for detecting the
X, Y and Z positions of the LEDs, a proprietary microprocessor based control
system, and a proprietary, internally developed, software package. IGT's optical
localizer is an input
15
<PAGE> 25
subsystem providing real-time mathematical coordinates to a host computer. IGT's
optical localizer determines the position of the hand-held probe or surgical
instrument and the patient reference device by tracking the X, Y and Z
coordinates of each infrared light emitting diode mounted on the probe or
surgical instrument and reference device. It then communicates this position in
the form of X, Y and Z coordinates to the host computer. Most localizer models
sold by IGT are customized prior to delivery to satisfy customer requirements.
IGT provides various instruments, such as probes and pointers,
containing LEDs and dynamic reference frames as component parts to its optical
localizers. For both medical and industrial applications, the LEDs are placed on
the instrument, and the distance between the LED and the tip of the instrument
is precisely calibrated. The medical instruments can be reused on a limited
basis, while an industrial instrument can normally be reused until it no longer
fulfills its intended use. IGT began offering cordless instruments for use with
its medical optical localizers in early 1999.
Minimally Invasive Surgical Instruments. SSI's instruments are used
mainly in minimally invasive surgical procedures. SSI controls all aspects of
the manufacturing process from machining through finishing, including in-house
passivation and laser marking.
CUSTOMERS AND USE
Optical Localizers and Image Guided Instruments. IGT sells most of its
optical localizers and image guided instruments to original equipment
manufacturers ("OEMs"). During 1999 and the first quarter of 2000, approximately
83% and 77%, respectively, of IGT's total revenues were derived from its six
largest customers. IGT's FlashPoint product is used to determine the position in
3D space of the surgical probe or instrument. The FlashPoint 5000 medical
optical localizer is a component integrated into several medical devices. Sales
to medical customers constituted approximately 79% of sales in 1999 and 85% of
sales in the first quarter of 2000. Some medical customers and illustrative uses
are set forth below:
o Carl Zeiss. IGT's FlashPoint product is an integral and key
component of the Zeiss Stereotactic System. By combining
imaging diagnostic data with powerful computers, precision
optics and finely crafted hand-held instrumentation, Zeiss has
created a product enhancement to its operating microscope
line. Recent shipments to Zeiss have been comprised of image
guided instruments and upgrades to previously supplied optical
localizers.
o GE Medical Systems. In 1993, GE Medical Systems introduced its
magnetic resonance guided therapy ("MRT") system, which
provides direct physician access to the patient during
imaging, giving a real-time, internal view of patients for
procedures such as needle biopsies. MRT is currently used to
plan, guide and monitor surgical procedures in a minimally
invasive manner. FlashPoint is being used by GE Medical
Systems for the guidance system in its MRT device. IGT is
currently providing image guided instruments to previously
supplied optical localizers.
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<PAGE> 26
o Radionics Software Applications, Inc. Radionics employs
FlashPoint in the Radionics' Optical Tracking System for
Frameless Stereotaxy. This real-time, free-hand stereotaxy
system is primarily used in neurosurgical applications. Tyco
International, Inc. purchased Radionics in January 2000.
Radionics has not purchased any optical localizers since the
acquisition by Tyco.
o Sofamor Danek, a subsidiary of Medtronic. Sofamor Danek
incorporates the FlashPoint system into an image guided system
that is marketed through Xomed, Inc., for use in functional
endoscopic sinus surgery.
o Howmedica Leibinger, Inc., a subsidiary of Stryker. Stryker
uses FlashPoint in the Stryker proprietary navigational
system. See "Material Contracts Between Stryker and IGT" on
page 35. Stryker will acquire IGT if the merger is completed.
o Surgical Navigation Network, Inc. (SNN). SNN supports
companies that want to avail themselves of a standard image
guided surgery technology/performance platform. SNN purchases
a custom instrument set developed by SSI and IGT's optical
localizer system used in Carl Zeiss' Stereotactic System sold
in the North American market.
IGT's Pixsys product is used to determine the shape or position of an
object by rapidly collecting a large number of points on the object's surface or
locating a particular location on the object. Sales to industrial customers
constituted approximately 21% of IGT's total revenues in 1999 and 15% in the
first quarter of 2000. A key industrial customer and illustrative use are set
forth below:
o Nu-Tech Industries, Inc., a wholly owned subsidiary of Snap-on
Incorporated. In a variation of its standard product offering
for automobile collision repair, Nu-Tech has created the Wolf
frame straightening system. The Wolf incorporates a Pixsys
localizer into its system to measure the extent of damage
caused by a collision and indicate to the system operator the
progress of the straightening operation. IGT has granted
Snap-on Technologies an exclusive license to its technology
for the automotive, truck and golf cart field of use.
Minimally Invasive Surgical Instruments. The two largest customers for
SSI's minimally invasive surgical instruments in 1999 and the first quarter of
2000 were Davol, Inc., a subsidiary of Bard International, and V. Mueller, a
subsidiary of Allegiance Healthcare Corporation.
MARKETING AND SALES
IGT's marketing strategy focuses on selling its localizers to OEM
customers. SSI is a contract manufacturer for medical supply companies. None of
IGT's customers has entered into a long-term minimum purchase agreement with
IGT. Accordingly, purchases from IGT by customers in any prior period may not be
indicative of orders or purchases in any future period, and there can be no
assurance that these companies will remain customers of IGT.
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<PAGE> 27
BACKLOG
At May 31, 2000, IGT's backlog was approximately $1,388,000. Backlog
can fluctuate depending upon how customers order their products and over what
period of time, and therefore IGT does not necessarily consider backlog to be
indicative of future sales.
COMPETITION
IGT's primary competitor in the medical OEM localizer market is
Northern Digital Inc. ("NDI"). NDI markets a localizer to the medical OEM
marketplace named the Polaris, an infrared based optical localizer using two
two-dimensional CCD cameras. Medical device companies have also developed their
own optical localization devices for their image guided surgery systems.
Companies have also attempted to use other systems as localization devices for
medical applications.
The competition for the contract manufacturing of surgical instruments
provided by SSI is, in general, from other machine shops that can manufacture
product to a customer's design specifications.
The methods of competition for IGT are in general based on quality,
price and delivery.
MANUFACTURING AND SUPPLIERS
IGT's localizer manufacturing activities primarily consist of
assembling and testing components and subassemblies acquired from qualified
vendors, as well as final assembly and testing its fully-configured systems.
Components are generally available from several sources, although the order
lead-time for the semi-custom isolated power supply used in the FlashPoint 5000
varies from four to six months.
IGT uses a coordinate measurement machine ("CMM") to improve the
calibration process for products being shipped to its customers. The CMM gives
IGT a final calibration capability that is traceable to National Institute of
Standards and Technology standards. The CMM system is also used by IGT for
research and development projects.
SSI's surgical instruments manufacturing activities primarily consist
of assembling components, machining high quality titanium and cobalt chrome
alloys, or some combination thereof, and finishing the product to include
passivation and laser marking. Raw materials are generally available from many
suppliers.
SSI utilizes several types of high-technology machine tools in its
manufacturing operations. Its computer numerically controlled ("CNC") machines
are programmable milling and turning machines used to remove metal according to
pre-programmed specifications. CNC machines typically require less machine
operator time and produce less variation in the final product. Its electrical
discharge machines ("EDMs") typically produce contoured shapes to very close
manufacturing tolerances through programmed procedures. EDMs minimize the
secondary finishing operations required on the final product.
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<PAGE> 28
INTELLECTUAL PROPERTY
Intellectual Property Rights.
IGT and SSI have been issued ten patents.
o U.S. Patent #5,987,349 issued in 1999 describes a system for
sensing at least two points on an object for determining the
position and orientation of the object relative to another
object.
o U.S. Patent #5,920,395 issued in 1999 provides for locating
and displaying the relative positions of two objects in a
three-dimensional space where one object is a
three-dimensional object and the second object has at least
three collinear points, at least two of which are sensible by
a detector.
o U.S. Patent #5,907,395 issued in 1999 provides for improved
point source electromagnetic radiation emitters including a
dispersing element that radiates electromagnetic radiation
over a very wide conical angle approaching about 180 degrees.
o U.S. Patent #5,622,170 issued in 1997 describes an optical
system for determining the location and orientation of one
object (such as a medical probe) relative to another object
(such as a patient), where the first object has an invasive
portion which is partially inside the second. A display device
connected to a computer graphically indicates the location of
a representation of the probe with respect to a model of the
second object.
o U.S. Patent #5,617,857 issued in 1997 describes a "smart" 3-D
probe (such as a medical instrument) which contains a memory
module that can store its serial number, calibration data, and
similar information in a computer-readable form. The patent
also provides for interchangeable tips or other workpieces
that can be identified electronically.
o U.S. Patent #5,263,967 issued in 1993 describes a medical
instrument utilizing a dual action drive mechanism that
actuates two jaws or blades that in turn move rotationally
relative to each other and a center pivot point.
o U.S. Patent #5,198,877 issued in 1993 is a non-contact, laser
based, hand-held 3D localizer that allows the user to acquire
simply and easily a multitude of points on the surface of an
object or anatomy by sweeping a hand-held scanner over the
desired target. U.S. Patent RE35,816 is a reissue of this
patent, which broadens its claims and was issued in 1998.
o U.S. Patent #5,054,906 issued in 1991 describes an indirectly
illuminating ophthalmological speculum used for opening the
eyelids to permit access to the eye and for illuminating the
eye.
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<PAGE> 29
o U.S. Patent #4,770,174 issued in 1988 describes rotary cutting
scissors used for surgical procedures in which soft tissue
needs to be cut. The inner blade rotates against the outer
blade through the use of a unique helical drive mechanism.
o U.S. Patent #4,499,899 issued in 1985 describes a fiber-optic
illuminated microsurgical scissor used in surgery to
illuminate the surgical site so that the surgeon can more
clearly see the site.
In July 1999, IGT granted Snap-on an exclusive license for its
technology for use in the automotive, truck and golf cart markets. Snap-on plans
to set up its own manufacturing arrangements for the optical localizers, but in
the interim IGT is continuing to sell localizers to Snap-on's Nu-Tech Industries
subsidiary.
GOVERNMENT REGULATION
IGT's FlashPoint localizer is incorporated into medical devices that
are subject to extensive regulation by the United States Food and Drug
Administration (the "FDA") and corresponding foreign organizations in the
countries to which the devices are exported. The FDA regulates the processes of
design, manufacture, labeling, clinical testing, distribution and promotion of
medical devices. Before a new device or significantly modified device can be
introduced into the market, the manufacturer must generally obtain clearance
through either the 510(k) premarket notification process or the more rigorous
premarket approval application process. Medical device customers that
incorporate IGT's products may be subject to regulation by the FDA.
Medical devices that incorporate IGT products and are sold into the
European Union and other international markets must comply with additional
standards and regulations. Some of the compliance requirements include the
European Economic Community Medical Device Directive (MDD), International
Electrotechnical Commission (IEC), conformity assessment (CE MARK), and
ISO9000/EN46001 guidelines.
SSI is registered as an original equipment manufacturer and contract
manufacturer with the FDA. The scope of SSI manufacturing includes FDA Class III
general surgical instrumentation. Some of the products sold by SSI are sold
pursuant to a SSI 510 (k) premarket notification.
IGT is ISO 9001 certified.
RESEARCH AND DEVELOPMENT
For the fiscal years ended December 31, 1999 and 1998, and the three
months ended March 31, 2000 and 1999, IGT expended $1,272,000 and $1,470,000,
and $321,000 and $345,000, respectively, on research and development activities.
Some of IGT's customers may, at times, pay for research and development
activities related to specific applications of IGT's localizer technology.
20
<PAGE> 30
IGT has developed core competencies in software development,
mathematical modeling of the 3D measurement process, digital signal processing,
circuit design, computer system integration, and 3D optical sensor system
development. Outside consultants and contract engineering are employed, when
needed, for optical system design, surgical instrument development and safety
engineering. IGT's engineers work closely with its OEMs to assist in the
integration of IGT's products with customer systems and to identify new
applications for IGT's products.
In addition to improving functionality, IGT's product development
engineering staff continues to refine the overall accuracy of its localizer.
Improvements in the sensor array design, emitter technology, calibration and
position calculation algorithms are expected to continue to improve the accuracy
of the system.
EMPLOYEES
At June 1, 2000, IGT had 46 full-time employees, 14 of whom are
employed at SSI's Springfield manufacturing facility.
IGT'S PROPERTY
IGT leases approximately 18,000 square feet within a 133,000 square
foot multi-tenant facility in Boulder, Colorado, where it performs all
development, manufacturing and marketing activities related to its optical
localizers. In addition to base rent, IGT pays its pro-rata share of building
operating expenses, insurance and taxes and its own utilities. Monthly base rent
is as follows: $15,356 from May 2000 through April 2001, and $16,124 from May
2001 through April 2002.
SSI leases approximately 14,000 square feet in a facility in
Springfield, Massachusetts. The current lease for the SSI facility has
approximately 1 1/2 years remaining. In addition to base rent, SSI pays its
pro-rata share of building operating expenses, taxes and utilities. Monthly base
rent is $4,927 through December 2001.
IGT'S LEGAL PROCEEDINGS
IGT is a party to one pending legal proceeding. This case was filed in
the Chancery Court for the State of Tennessee in Davidson County on October 27,
1998. The plaintiff was an exclusive sales representative for SSI for certain
products in SSI's line of surgical instruments. The plaintiff claims the
products were defective and sued SSI for breach of contract, breach of express
and implied warranties, negligent misrepresentation, fraud and violations of the
Tennessee Consumer Protection Act. In January 2000, the plaintiff filed a motion
for summary judgment claiming the instruments sold by SSI were defective and
seeking to return the instruments in its possession and to obtain, in addition
to other damages, a refund of the purchase price paid of $101,187. SSI filed
pleadings opposing the plaintiff's motion for summary judgment claiming, among
other things, that the instruments were not defective. The judge denied the
plaintiff's motion, and IGT expects the case to be tried in the fall of 2000.
IGT is currently unable to determine the ultimate outcome or resolution of this
legal proceeding, whether resolution of this matter will have a material adverse
impact on IGT's financial position
21
<PAGE> 31
or results of operations, or a reasonable estimate of the amount of loss, if
any, that may result from resolution of this matter.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical consolidated financial data of IGT
for the fiscal years as of December 31, 1999 and 1998 and for each of the two
years in the period ended December 31, 1999 is derived from audited financial
statements contained in this proxy statement/prospectus; for the fiscal years as
of December 31, 1997, 1996 and 1995 and for each of the three years in the
period ended December 31, 1997, the selected data is derived from historical
audited financial statements not contained in this proxy statement/prospectus.
The selected financial data of IGT at March 31, 2000 and for the three-month
periods ended March 31, 2000 and 1999 is derived from unaudited financial
statements contained in this proxy statement/prospectus, which, in the opinion
of IGT's management, include all necessary adjustments (consisting of normal
recurring items) necessary for a fair presentation of the interim data. The
results of operations for any interim period are not necessarily indicative of
results for the full year.
THE INFORMATION IN THIS SECTION SHOULD BE READ ALONG WITH IGT'S FINANCIAL
STATEMENTS AND ACCOMPANYING NOTES CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS.
SEE "INDEX TO FINANCIAL STATEMENTS" ON PAGE 66.
22
<PAGE> 32
<TABLE>
<CAPTION>
STATEMENT OF EARNINGS DATA Three Months Ended
(in thousands, except per share amounts) March 31,
(Unaudited) Year ended December 31
---------------------- -----------------------------------
2000 1999 1999 1998(1) 1997(1)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,777.0 $ 1,854.0 $ 6,432.0 $ 7,154.0 $ 5,306.0
Cost of Goods Sold 1,053.0 1,031.0 3,850.0 4,395.0 2,368.0
--------- --------- --------- --------- ---------
Gross profit 724.0 823.0 2,582.0 2,759.0 2,938.0
Operating Expenses:
Research and Development 321.0 345.0 1,272.0 1,470.0 1,093.0
Selling and Marketing 128.0 307.0 1,023.0 723.0 660.0
General and Administrative 335.0 531.0 1,696.0 1,816.0 1,106.0
--------- --------- --------- --------- ---------
Total Operating Expenses 784.0 1,183.0 3,991.0 4,009.0 2,859.0
--------- --------- --------- --------- ---------
Operating Income, (Loss) (60.0) (360.0) (1,409.0) (1,250.0) 79.0
Interest and Other Expense (57.0) (134.0) (311.0) (681.0) (31.0)
Other Income 0.0 0.0 2.0 90.0 239.0
--------- --------- --------- --------- ---------
Income (Loss) from Continuing Operations (117.0) (494.0) (1,718.0) (1,841.0) 287.0
Discontinued Operations(2)
Income (Loss) from Discontinued Operations -- 162.0 162.0 185.0 (27.0)
Gain (Loss) on Disposal -- 668.0 668.0 (4,411.0) --
Extraordinary Loss on Early
Extinguishment of Debt -- -- -- (253.0) --
--------- --------- --------- --------- ---------
Net Earnings (Loss) $ (117.0) $ 336.0 $ (888.0) $(6,320.0) $ 260.0
========= ========= ========= ========= =========
Earnings (loss) per common share:
Earnings (loss) from continuing operations:
Basic $ (0.03) $ (0.13) $ (0.45) $ (0.50) $ 0.09
Diluted $ (0.03) $ (0.13) $ (0.45) $ (0.50) $ 0.08
Earnings (loss) from discontinued operations:
Basic $ -- $ 0.22 $ 0.22 $ (1.14) $ (0.01)
Diluted $ -- $ 0.22 $ 0.22 $ (1.14) $ (0.01)
Loss from extraordinary item: basic and
diluted $ -- $ -- $ -- $ (0.07) $ --
Net earnings (loss):
Basic $ (0.03) $ 0.09 $ (0.23) $ (1.71) $ 0.08
Diluted $ (0.03) $ 0.09 $ (0.23) $ (1.71) $ 0.07
Weighted average number of shares outstanding
Basic 4,061.9 3,705.2 3,852.6 3,705.2 3,138.3
Diluted 4,061.9 3,705.2 3,852.6 3,705.2 3,557.3
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF EARNINGS DATA
(in thousands, except per share amounts) Year ended December 31
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Net sales $ 4,080.0 $ 1,884.0
Cost of Goods Sold 1,836.0 794.0
--------- ---------
Gross profit 2,244.0 1,090.0
Operating Expenses:
Research and Development 618.0 627.0
Selling and Marketing 554.0 767.0
General and Administrative 705.0 596.0
--------- ---------
Total Operating Expenses 1,877.0 1,990.0
--------- ---------
Operating Income, (Loss) 367.0 (900.0)
Interest and Other Expense (74.0) (176.0)
Other Income 62.0 24.0
--------- ---------
Income (Loss) from Continuing Operations 355.0 (1,052.0)
Discontinued Operations(2)
Income (Loss) from Discontinued Operations -- --
Gain (Loss) on Disposal -- --
Extraordinary Loss on Early
Extinguishment of Debt -- --
--------- ---------
Net Earnings (Loss) $ 355.0 $(1,052.0)
========= =========
Earnings (loss) per common share:
Earnings (loss) from continuing operations
Basic $ 0.21 $ (0.63)
Diluted $ 0.16 $ (0.63)
Earnings (loss) from discontinued operations:
Basic $ -- $ --
Diluted $ -- $ --
Loss from extraordinary item: basic and
diluted $ -- $ --
Net earnings (loss):
Basic $ 0.21 $ (0.63)
Diluted $ 0.16 $ (0.63)
Weighted average number of shares outstanding
Basic 1,726.3 1,675.9
Diluted 2,171.6 1,675.9
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
(in thousands) March 31 December 31
2000 ------------------------------------------------------------------------
(Unaudited) 1999 1998 1997(1) 1996 1995
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total assets(1) $ 2,812.0 $ 2,831.0 $ 9,513.0 $ 15,533.0 $ 6,582.0 $ 858.0
Long-term debt 232.0 253.0 38.0 4,908.0 96.0 --
Shareholders' equity (deficit) 436.0 553.0 1,370.0 7,479.0 5,773.0 (604.0)
</TABLE>
(1) Increases in 1998 revenue, cost of revenue and general and
administrative expenses, as well as total assets and long-term
obligations as of December 31, 1997 are due primarily to the
acquisition of Brimfield Precision, Inc., which was consummated on
December 12, 1997. The purchase price was paid with a combination of
approximately $8,069,000 in cash, $500,000 in note
23
<PAGE> 33
payable and 579,710 shares of IGT's common stock. IGT obtained the cash
for the acquisition from the bank financing and its own funds. In
addition, goodwill of approximately $5,748,000 was recorded for the
excess of the purchase price over the fair value of the net
identifiable assets acquired.
(2) On September 24, 1998, IGT adopted a plan to discontinue the operations
of the general instrument and implant business units of its
wholly-owned subsidiary, Brimfield Precision, Inc. The original
estimated loss on the disposal of the net assets was $4,411,000 as
reflected in the 1998 statement of operations. The sale of such assets,
as consummated on March 30, 1999, resulted in a loss on disposal of
$3,743,000 compared to the originally estimated loss of $4,411,000
reflected in the 1998 statement of operations. The $668,000 reduction
in the actual loss on disposal is reflected as a gain in the 1999
statement of operations. See also Note 11 of the 1999 "Notes to
Consolidated Financial Statements" of IGT, included elsewhere in the
document.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
FISCAL YEAR ENDED DECEMBER 31, 1999, COMPARED TO THE FISCAL YEAR ENDED DECEMBER
31, 1998
Revenue. Revenue decreased by $722,000, or approximately 10%, to
$6,432,000 for the year ended December 31, 1999, as compared to $7,154,000 for
the year ended December 31, 1998. The increases in revenue associated with
higher sales of optical localizer products and the recognition of technology
licensing and non-recurring engineering fees were more than offset by a decrease
in surgical instrument sales due to the loss of a major customer.
Cost of Goods Sold and Gross Margin. The cost of goods sold decreased
by $545,000, or approximately 12%, to $3,850,000 for the year ended December 31,
1999, compared to $4,395,000 for the year ended December 31, 1998. The cost of
goods sold as a percentage of revenue decreased to 60% for the year ended
December 31, 1999, as compared to 61% for the year ended December 31, 1998. The
decrease in cost of goods sold was primarily attributable to a change in the
revenue mix as 12% of the annual revenue in 1999 resulted from technology
licenses and non-recurring engineering fees where the cost of the revenue is
lower than product/systems sales. Partially offsetting the favorable revenue mix
was a relatively high cost of sales ratio for Springfield which provided a lower
gross margin compared to the other IGT products.
Gross Profit. Gross profit decreased by $177,000, or approximately 6%,
to $2,582,000 for the year ended December 31, 1999, compared to $2,759,000 for
the year ended December 31, 1998.
Research and Development Expenses. Research and development expenses
decreased by $198,000, or approximately 13%, to $1,272,000 for the year ended
December 31, 1999, compared to $1,470,000 for the year ended December 31, 1998.
The impact of the reduction in engineering personnel in the third quarter of
1998 partially offset the spending incurred for base technology enhancement and
product/software customization required to satisfy customer requirements.
Selling and Marketing Expenses. Selling and marketing expenses
increased by $300,000, or approximately 41%, to $1,023,000 for the year ended
December 31, 1999, compared to $723,000 for the year ended December 31, 1998.
This increase was primarily attributable to the addition of two sales personnel
in 1999 coupled with increased spending to broaden the customer base.
24
<PAGE> 34
General and Administrative Expenses. General and administrative
expenses decreased by $120,000, or approximately 7%, to $1,696,000 for the year
ended December 31, 1999, compared to $1,816,000 for the year ended December 31,
1998. The decrease was primarily due to a decrease in the number of personnel
during 1999 utilized to support this functional activity.
Operating Loss. The operating loss increased by $159,000 to
($1,409,000) for the year ended December 31, 1999, compared to ($1,250,000) for
the year ended December 31, 1998. This increase was primarily attributable to
reduced revenue partially offset by lower cost of sales and a 2% increase in the
spending for operating expenses.
Other Expenses. Other income (expense), net, decreased by $282,000 to
($309,000) for the year ended December 31, 1999, compared to ($591,000) for the
year ended December 31, 1998. This change was primarily due to reduced interest
expense to support the debt associated with continuing operations.
As a result of the foregoing, the loss from continuing operations
decreased to ($1,718,000) for the year ended December 31, 1999 (a reduction of
$123,000 or 7%), compared to ($1,841,000) for the year ended December 31, 1998.
Discontinued Operations. The income (loss) from discontinued operations
represents the results of operations and loss on disposal of the general
surgical instruments, orthopedic implants and orthopedic instrumentation
business which IGT sold in March 1999. IGT recorded an estimated net loss of
($4,411,000) for 1998 on the disposal of this business. The gain for 1999
resulted from a reduction of the loss on the disposal of assets compared to the
previously estimated loss recognized in 1998.
Extinguishment of Debt. IGT realized an extraordinary loss of $253,000
during 1998 related to warrant costs associated with the early extinguishment of
debt.
THREE MONTHS ENDED MARCH 31, 2000, COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999.
Revenue. IGT's revenue decreased $77,000 or 4.2% from $1,854,000 in the
first quarter of 1999 to $1,777,000 in the first quarter of 2000. The decrease
is due to a decrease in the sales of optical localizers.
Cost of Goods Sold and Gross Margin. IGT's gross margin decreased from
44.4% in the first quarter of 1999 to 40.7% in the first quarter of 2000. This
decrease is due to higher production costs associated with the implementation of
revised production methods for new products for both optical localizers and
surgical instruments.
Research and Development Expenses. IGT's research and development
expenses decreased $24,000 or 7% from $345,000 in the first quarter of 1999 to
$321,000 in the first quarter of 2000. Higher spending for research and
development is projected to occur during later quarters of 2000 as new product
developmental programs enter the tooling and certification phase.
25
<PAGE> 35
Selling and Marketing Expenses. Selling and marketing expenses
decreased $179,000 or 58% from $307,000 in the first quarter of 1999 to $128,000
in the first quarter of 2000. The decrease is due to the reduction of the sales
force by two individuals at the end of January 2000. IGT's senior executives now
directly administer sales.
General and Administrative Expenses. General and administrative
expenses decreased $196,000 or 37% from $531,000 in the first quarter of 1999 to
$335,000 in the first quarter of 2000. The decrease is due to a continuing
reduction in the number of people utilized to support this functional area,
severance costs in the first quarter of 1999 for a former officer, and higher
spending for legal fees in 1999.
Other Expenses. Other expenses decreased $77,000 or 57% from $134,000
in the first quarter of 1999 to $57,000 for the first quarter of 2000. The
decrease is due primarily to a reduction in interest expense required to support
on-going operations.
Discontinued Operations. Income from discontinued operations in 1999
represents the results of operations of the general surgical instruments,
orthopedic implants and orthopedic instrumentation business that IGT sold in
March 1999. The gain on the disposal of these assets is a gain recognized in the
first quarter of 1999, due to a change in the estimated sale price primarily due
to the valuation of net assets sold and the costs associated with finalizing the
sale.
LIQUIDITY AND CAPITAL RESOURCES
IGT's working capital deficit at March 31, 2000 was $668,000. IGT has
paid down its bank obligations and financed its losses from continuing
operations through a combination of the sale of BPI's business units located in
Brimfield, Massachusetts, the technology license fees received from Snap-on
Technologies, the sale and leaseback of certain of its equipment, customer
funding of customization required to incorporate IGT's optical localizer into
the customer's product, a partial prepayment on an order, and funds provided by
Silicon Valley Financial Services.
IGT is currently in default under its $500,000 12% subordinated
promissory note payable to Cruttenden Roth, Inc. ("Cruttenden"). While interest
has been paid to date, IGT owes the $500,000 principal in full. The note is
subordinated to IGT's bank debt and the holders of the note are not permitted
under the terms of the subordination agreement with the bank to sue upon or
collect, nor to make any demand for, nor to exercise any rights or remedies to
enforce, the note so long as any bank obligation remains outstanding.
IGT needs cash to fund operations, pay its obligations to suppliers and
for other corporate purposes. On June 1, 2000, Stryker purchased 383,142 shares
of a newly-issued IGT series of preferred stock for $300,000. See "Material
Contracts Between Stryker and IGT" on page 35.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998 and June 1999 respectively, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), and SFAS No. 137,
"Accounting for Derivative Instruments and
26
<PAGE> 36
Hedging Activities -- Deferral of the Effective Date of FASB No. 133" ("SFAS No.
137"). IGT is required to adopt SFAS No. 133 and SFAS No. 137 effective
January 1, 2001. These pronouncements establish methods of accounting for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. The adoption of this standard
is not expected to have a material effect on IGT's results of operations,
liquidity, or financial position.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting
for Certain Transactions involving Stock Compensation - an interpretation of APB
Opinion No. 25" ("FIN 44"). The provisions of this Interpretation are effective
July 1, 2000 and shall be treated prospectively unless otherwise stated within
the Interpretation. The adoption of this Interpretation is not expected to have
a material effect on IGT's results of operations, liquidity, or financial
position.
On December 6, 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). This Staff Accounting Bulletin provides guidance in applying generally
accepted accounting principles to revenue recognition in the financial
statements. IGT is required to adopt SAB 101 during the quarter ended June 30,
2000 and apply the principles retroactively on transactions occurring after
December 31, 1999. IGT will also be required to report the cumulative effect of
the application of SAB 101 for periods prior to December 31, 1999.
OTHER MATTERS
In December 1997, IGT acquired all the outstanding stock of Brimfield
Precision, Inc. ("BPI") for a purchase price of approximately $9,844,000
(including expenses related to the acquisition), consisting of approximately
$8,069,000 in cash, $500,000 in a subordinated note payable to Cruttenden and
579,710 shares of IGT's common stock.
To finance the acquisition, IGT entered into a secured loan agreement
with Imperial Bank under which Imperial Bank loaned IGT $4,000,000 pursuant to a
three-year term loan and up to $2,000,000 pursuant to a revolving loan. IGT paid
Cruttenden a $300,000 finder's fee for introducing IGT to, and advising IGT in
negotiations with, Imperial Bank. IGT issued a one-year $500,000 subordinated
note to Cruttenden to pay the finder's fee and an additional $200,000 advisory
fee owed to Cruttenden. In connection with the loan and subordinated note, IGT
issued a seven-year warrant for 160,000 shares of IGT's common stock with an
exercise price of $2.92 per share to Imperial Bank and an one-year warrant for
100,000 shares of IGT's common stock with an exercise price of $2.92 per share
to Cruttenden. On March 15, 1998, IGT issued to Imperial Bank an additional
seven-year warrant for 80,000 shares of IGT's common stock with an exercise
price of $2.65 per share and on March 31, 1998 a seven-year warrant for 10,000
shares of IGT's common stock with an exercise price of $2.86 per share.
In April 1998, Imperial Bank assigned its loan to BankBoston. After the
assignment, BankBoston and IGT amended and restated the loan to provide for a
$2,700,000 sixty-month term loan and up to a $3,000,000 revolving loan.
27
<PAGE> 37
In September 1998, IGT adopted a plan to sell the net assets of BPI's
general surgical instrument, orthopedic implant and orthopedic instrumentation
businesses located at Brimfield, Massachusetts. IGT sold the businesses on March
30, 1999. The adjusted sale price was $6,158,000 in cash plus assumption of
certain trade payables and accrued liabilities, totaling $449,000.
As a result of the sale of BPI's general surgical instrument,
orthopedic implant and orthopedic instrumentation businesses located at
Brimfield, Massachusetts, IGT paid off amounts outstanding under its equipment
leases, paid off its term loan with BankBoston and paid down its revolving loan
with BankBoston.
In April 1999, BankBoston assigned its loan to Silicon Valley Financial
Services, a division of Silicon Valley Bank ("Silicon"). After the assignment,
Silicon and IGT amended and restated the loan to provide for a loan facility
under which Silicon would purchase certain of IGT's receivables, initially at
rates of 90% and subsequently decreasing to 75% of their face amount. Under the
facility, IGT will repurchase from Silicon any uncollected receivables and pay
Silicon a finance charge equal to 2% per month on the face amount of all
purchased receivables and an administrative fee of 1.5% of the face amount of
each purchased receivable. Silicon has no obligation to purchase any receivable
under the facility and in no event shall the aggregate amount of all purchased
receivables outstanding exceed $650,000.
In July 1999, IGT entered into an exclusive licensing agreement with
Snap-on Technologies for the automotive, truck, and golf cart markets. Under the
terms of the agreement, IGT was to receive three equal payments totaling
$500,000 as a license fee. As a result of a settlement of issues between the
parties, the final payment was reduced from $166,667 to $112,000.
FACTORS AFFECTING IGT'S BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
Continuing Losses; Potential Fluctuations in Operating Results. IGT
lost $1,718,000 from continuing operations in 1999 and $117,000 in the first
quarter of 2000. There can be no assurance IGT will generate sufficient revenue
to attain profitability. In addition, because IGT generally ships its products
on the basis of purchase orders, operating results in any quarter are highly
dependent on orders booked and shipped in that quarter and, accordingly, may
fluctuate materially from quarter to quarter. IGT's operating expense levels are
based on IGT's internal forecasts of future demand and not on firm customer
orders. Failure by IGT to achieve these internal forecasts could result in
expense levels that are inconsistent with actual revenues. Moreover, IGT's
results may also be affected by fluctuating demand for IGT's products, declines
in the average selling prices for its products, changes in product mix sold,
increases in the costs of the components and subassemblies acquired by IGT from
vendors and availability of such component and subassemblies.
Bank Debt. IGT is currently borrowing money from Silicon through an
arrangement by which it sells its outstanding accounts receivable to Silicon.
The arrangement is expensive and Silicon has no obligation to purchase any
receivable.
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<PAGE> 38
Need for Additional Capital. IGT will need additional capital to
satisfy its obligations to Cruttenden and to meet its other capital
requirements. There can be no assurance that such capital will be available on
reasonable terms, or at all.
Dependence on Few Customers. IGT realizes a majority of its revenues by
sales to relatively few customers. None of these customers has entered into a
long-term minimum purchase agreement with IGT. The loss of, or substantial
diminution of purchases from IGT by, any of these customers could have a
material adverse effect on IGT.
Technological Change in the Medical Industry and in IGT's Product.
There can be no assurance that IGT's competitors will not succeed in developing
or marketing products or technologies that are more effective and/or less costly
and that render IGT's products obsolete or non-competitive. In addition, new
technologies and procedures could be developed for medical and other industries
that replace or reduce the value of IGT's products. IGT's success will depend in
part on its ability to respond quickly to technological changes through the
development and improvement of its products. IGT believes that a substantial
amount of capital will be required to be allocated to such activities in the
future.
Intellectual Property Rights. IGT primarily relies on a combination of
patents, trade secrets and copyright laws, together with nondisclosure
agreements, to protect its know-how and proprietary rights. There can be no
assurance that such measures will provide adequate protection for IGT's
intellectual property rights, that disputes with respect to ownership of its
intellectual property rights will not arise, that IGT's trade secrets or
proprietary technology will not otherwise become known or be independently
developed by competitors or that IGT can otherwise meaningfully protect its
intellectual property rights. Furthermore, there can be no assurance that others
will not develop similar products or software or duplicate IGT's products or
software or that third parties will not assert intellectual property
infringement claims against IGT. Moreover, there can be no assurance that any
patent owned by, or issued to, IGT will not be invalidated, circumvented or
challenged, or that the rights granted thereunder will provide meaningful
competitive advantages to IGT.
A patent granted to Saint Louis University ("SLU Patent") and
subsequently licensed to a company acquired by Sofamor Danek, one of IGT's
customers, relates, in general, to a particular technique for determining the
position of a surgical probe within a patient's body on a historical image of
that body. Sofamor Danek has sued BrainLab GmbH for infringement of this patent.
IGT's documents have been subpoenaed and Waldean Schulz, Vice President of
Technology of IGT, has had his deposition taken in connection with such lawsuit.
In 1995, IGT assigned to Saint Louis University all right, title and interest it
had in the SLU Patent. There can be no assurance that Sofamor Danek or Saint
Louis University may not challenge IGT's ownership of certain of its patents
based on such assignment. IGT is not in a position to evaluate what effect this
lawsuit, or any further lawsuits, will have on its customers or whether it will
become a defendant in any lawsuit involving this patent or any of IGT's patents.
Litigation may be necessary to protect IGT's intellectual property
rights and trade secrets, to determine the validity and scope of the proprietary
rights of others or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of
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<PAGE> 39
resources, regardless of the outcome of the litigation. If any claims are
asserted against IGT, IGT may be required to obtain a license under a third
party's intellectual property rights. However, such a license may not be
available on reasonable terms, or at all.
Competition by Existing Competitors and Potential New Entrants into the
Marketplace. Companies with substantially greater financial, technical,
marketing, manufacturing and human resources, as well as name recognition, may
enter markets currently serviced by IGT. Additionally, competitors may be able
to respond more quickly to new or emerging technologies and changes in customer
requirements and to devote substantially greater resources to the development,
marketing and sale of their products than IGT. IGT's customers may develop their
own products to be able to differentiate their product or for other reasons.
Furthermore, competitors may develop technologies and/or products other than
that currently offered by IGT that are more effective or economical.
Regulation by the FDA. Noncompliance with applicable requirements of
FDA can result in, among other things, fines, injunctions, civil penalties,
recall or seizure of products, total or partial suspension of production,
failure of the government to grant pre-market clearance or pre-market approval
for medical devices, withdrawal of marketing approvals and criminal prosecution.
The FDA also has the authority to request repair, replacement or refund of the
cost of any medical device. In addition, international sales of medical devices
are subject to foreign regulatory requirements, which vary from country to
country.
Risk of Product Liability Claims. IGT faces an inherent business risk
of exposure to product liability claims in the event that the use of its
products is alleged to have resulted in adverse effects. To date, no product
liability claims have been asserted against IGT. IGT maintains a product
liability and commercial general liability insurance policy, with coverage of
$1,000,000 per occurrence and an annual aggregate maximum coverage of
$2,000,000, and a commercial umbrella excess liability policy of $3,000,000.
IGT's product liability and general liability policy is provided on an
occurrence basis and is subject to annual renewal. There can be no assurance
that liability claims will not exceed the coverage limits of such policy or that
such insurance will continue to be available on commercially reasonable terms or
at all. If IGT does not or cannot maintain sufficient liability insurance, its
ability to market its products could be significantly impaired.
IGT's Dependence on Key Management and Technical Personnel and Its
Ability to Attract New Personnel. IGT's success depends in significant part on
the continued contribution of certain key management and technical personnel.
The loss of services of any of these individuals could have a material adverse
effect on IGT. IGT's growth and profitability also depend on its ability to
attract and retain other management and technical personnel.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of IGT's common stock as of June 22, 2000 by (i) each
director, (ii) each executive officer, (iii) each shareholder known by IGT to
own beneficially five percent or more of the outstanding shares of common stock
and (iv) all executive officers and directors of IGT as a group.
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<PAGE> 40
<TABLE>
<CAPTION>
Number of Shares Percentage of
of Common Stock Outstanding Common
Name and Address of Beneficially Stock Beneficially
Beneficial Owner(1) Owned(2) Owned
------------------- ------------------ ------------------
<S> <C> <C>
Paul L. Ray(3) ......................... 583,385 12.9%
Ray L. Hauser, Ph.D.(4) ................ 299,926 7.0%
Clifford F. Frith(5) ................... 48,956 1.1%
William O'Connor(6) .................... 99,671 2.3%
William G. Lyons(7) .................... 333,460 7.7%
Tibor Foldvari ......................... 10,500 *
Terry R. Knapp, M.D.(8) ................ 34,750 *
Waldean Schultz(9) ..................... 216,121 5.0%
John Pappajohn ......................... 232,820 5.4%
2116 Financial Center
Des Moines, Iowa 50309
Matthew Lyons .......................... 226,655 5.3%
90 Brookdale Drive
Springfield, MA 01104
Imperial Bank(10) ...................... 250,000 5.5%
225 Franklin Street, 29th Floor
Boston, MA 02110
Austin W. Marxe and .................... 552,700 12.8%
David Greenhouse(11)
153 East 53rd Street
New York, NY 10022
All executive officers and directors ... 1,326,843 27.9%
as a group (7 persons)(12)
</TABLE>
*Less than one percent.
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<PAGE> 41
(1) Unless otherwise noted, the address for each beneficial owner is c/o IGT,
5710-B Flatiron Parkway, Boulder, Colorado 80301.
(2) Except as indicated by footnote, and subject to community property laws
where applicable, the persons or entities named in the table above have sole
voting and investment power with respect to all shares of IGT common stock shown
as beneficially owned by them. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. In accordance with the
Securities and Exchange Commission rules, shares of the common stock that may be
acquired upon exercise of stock options and warrants that are currently
exercisable or that become exercisable within 60 days of June 22, 2000, are
deemed beneficially owned by the optionee and each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held by
such person (but not those held by any other person) and that are exercisable
within 60 days of June 22, 2000, have been exercised. This table does not
include as beneficially owned shares of common stock that an optionee will have
the right to acquire as a result of the full vesting of his options in
connection with the merger, but which are not otherwise included as a result of
the previous sentence.
(3) Includes 224,799 shares that Mr. Ray has a right to acquire upon exercise of
stock options currently exercisable or exercisable within 60 days of June 22,
2000, and includes 774 shares of common stock owned by Medcap Ltd. Mr. Ray is
the sole shareholder of Medcap Ltd.
(4) Includes 9,206 shares of IGT common stock that Dr. Hauser has a right to
acquire upon exercise of stock options currently exercisable or exercisable
within 60 days of June 22, 2000, and excludes 2,560 shares of common stock owned
by Dr. Hauser's wife of which Dr. Hauser disclaims beneficial ownership.
(5) Includes 45,081 shares of IGT common stock that Mr. Frith has a right to
acquire upon exercise of stock options currently exercisable or exercisable
within 60 days of June 22, 2000.
(6) Includes 93,325 shares of IGT common stock that Mr. O'Connor has a right to
acquire upon exercise of stock options currently exercisable or exercisable
within 60 days of June 22, 2000.
(7) Includes 17,750 shares of IGT common stock that Mr. Lyons has a right to
acquire upon exercise of stock options currently exercisable or exercisable
within 60 days of June 22, 2000.
(8) Includes 34,750 shares of IGT common stock that Dr. Knapp has a right to
acquire upon exercise of stock options currently exercisable or exercisable
within 60 days of June 22, 2000.
(9) Includes 35,013 shares of IGT common stock that Dr. Schulz has a right to
acquire upon exercise of stock options currently exercisable or exercisable
within 60 days of June 22, 2000.
(10) Includes 250,000 shares of IGT common stock that Imperial Bank has the
right to acquire upon exercise of warrants currently exercisable.
(11) Includes 425,700 shares of IGT common stock held by Special Situations Fund
III, L.P. and 127,000 shares held by Special Situations Cayman Fund, L.P. The
investment advisor of both
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<PAGE> 42
funds is controlled by Mr. Marxe and Mr. Greenhouse. Mr. Marxe and Mr.
Greenhouse have shared voting power and shared dispositive power over all such
shares.
(12) Includes 450,718 shares of IGT common stock issuable upon exercise of
options currently exercisable or exercisable within 60 days of June 22, 2000.
ADDITIONAL INFORMATION
Certain historical financial information regarding IGT is contained in
this proxy statement/prospectus. See "Index to IGT Financial Statements" on page
66. Additional information regarding IGT is contained in IGT's filings with the
Securities and Exchange Commission. See "Where You Can Find More Information" on
page 62.
INFORMATION CONCERNING STRYKER
GENERAL DESCRIPTION OF STRYKER'S BUSINESS
Stryker develops, manufactures and markets specialty surgical and
medical products worldwide. These products include orthopaedic implants, trauma
systems, powered surgical instruments, endoscopic systems and patient care and
handling equipment. Stryker also provides outpatient rehabilitative health
services in the United States and is engaged in premarket testing of the bone
growth factor osteogenic protein-1 ("OP-1"). Stryker was incorporated in
Michigan in February 1946.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data of Stryker for each of
the five years in the period ended December 31, 1999 are derived from audited
historical financial statements incorporated by reference in this proxy
statement/prospectus.
The selected historical financial data of Stryker for the three months
ended March 31, 2000 and March 31, 1999, is derived from unaudited condensed
financial statements incorporated by reference in this proxy
statement/prospectus and, in the opinion of Stryker's management, include all
necessary adjustments for a fair presentation of that data in conformity with
generally accepted accounting principles. Results for the three-month period
ended March 31, 2000 may not be indicative of the results for the full year.
THE INFORMATION IN THIS SECTION SHOULD BE READ ALONG WITH STRYKER'S
HISTORICAL FINANCIAL STATEMENTS AND ACCOMPANYING NOTES INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/PROSPECTUS. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON
PAGE 62.
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<PAGE> 43
<TABLE>
<CAPTION>
STATEMENT OF EARNINGS DATA Three Months Ended
(in millions except per share amounts) March 31, Year ended December 31
------------------- ------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 562.1 $ 522.4 $2,103.7 $1,103.2 $ 980.1 $ 910.1 $ 871.9
Cost of sales:
Before inventory step-up 201.6 204.1 791.5 464.3 397.7 392.4 369.4
Inventory step-up(1) -- 62.5 198.2 7.8 -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Cost of sales 201.6 266.6 989.7 472.1 397.7 392.4 369.4
-------- -------- -------- -------- -------- -------- --------
Gross profit 360.5 255.8 1,114.0 631.1 582.4 517.7 502.5
Research, development and engineering expenses 28.6 25.2 105.2 61.0 56.9 56.9 43.8
Selling, general and administrative expenses 218.6 202.3 808.4 373.6 334.3 326.6 301.4
Purchased research and development(2) 83.3 7.5
Acquisition-related, restructuring and special -- 19.7 18.9 19.0 -- 34.3 --
charges(3)
Gain on patent judgment(4) -- -- -- -- -- (61.1) --
-------- -------- -------- -------- -------- -------- --------
247.2 247.2 932.5 536.9 391.2 364.2 345.2
Other expense (income)(5) 34.8 40.1 151.7 3.3 (4.1) (12.6) 3.4
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before income taxes 78.5 (31.5) 29.8 90.9 195.3 166.1 153.9
Income taxes 26.7 (10.7) 10.4 30.9 70.0 61.6 66.9
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss) $ 51.8 $ (20.8) $ 19.4 $ 60.0 $ 125.3 $ 104.5 $ 87.0
======== ======== ======== ======== ======== ======== ========
Net earnings (loss) per share of common stock:(6)
Basic $ .27 $ (.11) $ .10 $ .31 $ .65 $ .54 $ .45
Diluted $ .26 $ (.11) $ .10 $ .31 $ .64 $ .53 $ .44
Dividend per share of common stock (6) -- -- $ .065 $ .06 $ .055 $ .05 $ .0225
Average number of shares outstanding:(6)
Basic 194.5 193.5 193.8 192.6 192.5 193.7 193.9
Diluted 199.6 197.7 198.6 196.3 196.3 196.9 197.1
-------- --------
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA Three Months Ended
(in millions) March 31, December 31,
------------------ ----------------------------------------------------
2000 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Total assets $2,562.2 $2,580.5 $2,875.4 $ 985.1 $ 993.5 $ 854.9
Long-term debt 1,140.1 1,181.1 1,488.0 4.4 89.5 97.0
Stockholders' equity 702.2 671.5 672.6 612.8 530.4 454.3
</TABLE>
(1) Represents additional nonrecurring cost of sales for inventory sold that was
stepped-up to fair value in connection with the acquisition of Howmedica, the
orthopaedic division of Pfizer Inc.
(2) Represents nonrecurring purchased research and development charges related
to the acquisition of Howmedica in 1998 and Osteo Holdings in 1996.
(3) Represents nonrecurring acquisition-related charges related to the
acquisition of Howmedica in 1999 and 1998 and special charges in 1996 related to
the conversion of a portion of Stryker's distributors to direct sales and asset
impairments.
(4) Represents gain on patent judgment, net of legal and other fees in 1996.
(5) The increase in other expense in 1999 is due to intangibles amortization
expense and interest expense related to the Howmedica acquisition.
(6) Adjusted for the two-for-one stock splits effective May 10, 1996 and May 12,
2000. Stryker's Annual Report on Form 10-K for the year ended December 31, 1999,
which is incorporated in this proxy statement/prospectus, was filed prior to the
two-for-one stock split and the share and per share data in the Form 10-K did
not reflect this split.
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<PAGE> 44
ADDITIONAL INFORMATION
Additional information regarding Stryker is contained in Stryker's
filings with the Securities and Exchange Commission. See "Where You Can Find
More Information" on page 62.
MATERIAL CONTRACTS BETWEEN STRYKER AND IGT
In September 1999, IGT and a Stryker subsidiary entered into a
Development and Supply Agreement under which a customized modification of IGT's
FlashPoint optical localizer product was jointly developed for use in
conjunction with Stryker's Surgical Navigation System for image guided surgical
procedures. Stryker paid IGT $250,000 for its work on the development phase.
Since December 31, 1999, IGT has manufactured and supplied 73 modified
FlashPoint systems to Stryker for a total purchase price of approximately
$911,000. IGT has agreed not to manufacture or make available to anyone other
than Stryker pointers or handpieces used in conjunction with optical localizers
for image guided surgical procedures that utilize certain features of the
FlashPoint modification developed in collaboration with Stryker for the two-year
period ending September 22, 2001. IGT also agreed in the event of a sale of all
or substantially all its assets to a third party or the sale of thirty percent
or more of its capital stock to a third party, that it would grant the Stryker
subsidiary a royalty-free license to use IGT's technology to manufacture the
FlashPoint modification for incorporation in the Stryker Surgical Navigation
System. In February 2000, the Stryker subsidiary made a partial prepayment on an
order in the amount of $250,000. IGT agreed to pay interest on the prepayment at
the rate of 10% per annum until the product was shipped and, in the event of
default, the Stryker subsidiary would be granted an exclusive royalty-free
license to certain of IGT's patents and patent applications until the product
was shipped or the prepayment repaid.
On June 1, 2000, in conjunction with the signing of the merger
agreement, Stryker purchased 383,142 shares of a newly issued series of
preferred stock from IGT for $300,000, or $0.783 per share. The preferred stock
is convertible into IGT common stock on a share-for-share basis at any time
after the earliest of December 31, 2000, the date holders of record of IGT
common stock are given notice of certain proposed transactions or the date IGT
sends a notice of redemption to the holders of the preferred stock. The
conversion formula is subject to customary anti-dilution adjustments. IGT may
elect to redeem the preferred stock at any time at a redemption price of $0.783
per share. The transaction was entered into to provide funding for IGT's
continued operation pending the closing of the merger. If the merger is
consummated, the preferred stock will be canceled and retired without payment of
any consideration and will cease to exist. The preferred stock is not entitled
to vote on the merger. Otherwise, holders of preferred stock are entitled to one
vote for each share of IGT common stock into which the preferred stock is then
convertible. In the event of a dissolution, liquidation or winding up of IGT,
holders of preferred stock are entitled to receive $0.783 per share before any
payment is made in respect of the IGT common stock. The holders of preferred
stock have the same rights to dividends as the holders of IGT common stock based
on the number of shares of IGT common stock into which the preferred stock is
then convertible.
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<PAGE> 45
THE SPECIAL MEETING
We are furnishing this proxy statement/prospectus to shareholders of
IGT as part of the solicitation of proxies by the IGT board of directors for use
at the special meeting.
DATE, TIME AND PLACE
The special meeting will be held at 5710-B Flatiron Parkway, Boulder,
Colorado 80301 at 9:00 a.m., local time, on July __, 2000.
PURPOSE OF SPECIAL MEETING
At the special meeting, holders of IGT common stock will be asked to
approve the merger agreement. The IGT board of directors has determined that the
merger is fair to IGT shareholders, has approved the merger agreement and the
merger, and recommends that IGT shareholders vote "FOR" approval of the merger
agreement.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of IGT common stock at the close of business on
June 22, 2000, the record date, are entitled to notice of and to vote at the
special meeting. On the record date, 4,304,198 shares of IGT common stock were
issued and outstanding and held by approximately 80 holders of record. A quorum
will be present at the special meeting for purposes of the vote of the holders
of IGT common stock if a majority of the shares of IGT common stock that are
issued and outstanding and entitled to vote on the record date are represented
in person or by proxy. Shares of IGT common stock represented at the special
meeting but not voting, including abstentions and broker non-votes, will be
treated as present at the special meeting for purposes of determining the
presence or absence of a quorum for the transaction of all business. If a quorum
is not present at the special meeting, it is expected that the meeting will be
adjourned or postponed to solicit additional proxies. Holders of record of IGT
common stock on the record date are entitled to one vote per share of common
stock at the special meeting.
VOTES REQUIRED
The affirmative vote of a majority of the outstanding shares of IGT
common stock is required to approve the merger agreement. IF YOU ABSTAIN FROM
VOTING OR DO NOT VOTE, EITHER IN PERSON OR BY PROXY, IT WILL HAVE THE EFFECT OF
A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT.
VOTING OF PROXIES
All shares represented by properly executed proxies received in time
for the special meeting, unless previously revoked, will be voted at the special
meeting in the manner specified by the holders. PROPERLY EXECUTED PROXIES THAT
DO NOT CONTAIN VOTING INSTRUCTIONS WILL BE
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<PAGE> 46
VOTED "FOR" APPROVAL OF THE MERGER AGREEMENT. As explained below in the section
entitled "The Merger - Dissenters' Rights," a vote in favor of the merger
agreement means that the shareholder owning those shares will not have the right
to dissent and seek appraisal of the fair value of such shareholder's shares.
Only shares voted for approval of the merger agreement, including
properly executed proxies that do not contain voting instructions, will be
counted as favorable votes for the merger agreement. Because Colorado law
requires that the Merger Agreement be approved by the affirmative vote of the
holders of a majority of the outstanding shares of IGT common stock, if you
abstain from voting or do not vote, either in person or by proxy, it will count
as a vote against approval of the merger agreement. Brokers who hold shares of
IGT common stock in street name for customers who are the beneficial owners of
such shares may not give a proxy to vote those customers' shares in the absence
of specific instructions from those customers. Those non-voted shares are
referred to as broker non-votes and will have the same effect as votes against
approval of the merger agreement.
IGT does not expect that any matter other than the proposal to approve
the merger agreement will be brought before the special meeting. If, however,
the IGT board of directors properly presents other matters, the persons named as
proxies will vote on those other matters in accordance with their judgment. In
addition, the persons named as proxies may propose and vote for one or more
adjournments or postponements of the special meeting, including adjournments or
postponements to permit further solicitation of proxies. No proxy voted against
the proposal to approve the merger agreement will be voted in favor of any
adjournment or postponement.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude
you from voting in person at the special meeting. You may revoke a proxy at any
time prior to its exercise by:
o Filing with the Secretary of IGT, before the proxy is voted at
the special meeting, a duly executed written notice of
revocation of proxy which is dated later than the proxy;
o Before the proxy is voted at the special meeting, submitting a
duly executed later dated proxy to the Secretary of IGT; or
o Voting in person at the special meeting, although attendance
at the special meeting will not itself constitute revocation
of a proxy.
Any written notice of revocation or subsequent proxy should be sent to
Image Guided Technologies, Inc., 5710-B Flatiron Parkway, Boulder, Colorado
80301, Attention: Secretary, or hand delivered to the Secretary of IGT at or
before the taking of the vote at the special meeting.
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<PAGE> 47
SOLICITATION OF PROXIES
IGT will bear the cost of the solicitation of proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of IGT may solicit proxies from shareholders by telephone or other
electronic means or in person. IGT will cause brokerage houses and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of stock held of record by those persons. IGT will reimburse
any of these custodians, nominees and fiduciaries for their reasonable
out-of-pocket expenses in doing so.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH YOUR PROXY. A transmittal
form with instructions for the exchange of IGT common stock certificates will be
mailed to you as soon as practicable after completion of the merger.
THE MERGER
The following discussion summarizes the material terms of the merger
and the merger agreement. We urge shareholders to read carefully the merger
agreement, which is attached as Annex A to this proxy statement/prospectus.
BACKGROUND TO THE MERGER
At the April 2000 meeting of the American Academy of Neurosurgery, IGT
discussed a possible transaction with three of its customers and signed
confidentiality agreements with all three. One of these companies subsequently
informed IGT that it was not interested in pursuing an acquisition.
On Friday, April 28, 2000, Stryker called IGT and stated that it wanted
to meet with IGT on the following Monday to discuss a transaction. IGT then
engaged Viscogliosi Brothers LLC , an investment banking, merchant banking and
venture capital firm specializing exclusively in the musculoskeletal industry,
as its financial advisor. IGT agreed to pay Viscogliosi Brothers 3-1/2% of the
first $12.5 million of the purchase price received by IGT from a sale and 6% of
any amount in excess of $12.5 million. On Monday, May 1, 2000, IGT and its
financial advisor met with Stryker and the general terms of the merger were
negotiated. On Wednesday, May 3, 2000, IGT received an unsigned letter of intent
from Stryker. The letter of intent contained substantially the same no-shop and
termination fee provisions as are in the merger agreement and required that the
letter of intent be kept confidential.
On Friday, May 5, 2000, IGT's financial advisor received two calls from
the third customer concerning a possible acquisition of IGT. This customer
stated it could not meet with IGT until the following week and could not
recommend a price without a better understanding of IGT's business. IGT's
financial advisor then called Stryker to request a delay in signing the letter
of intent. Stryker refused and threatened to break off negotiations if IGT
negotiated with another party. That evening, IGT received a signed letter of
intent from Stryker.
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<PAGE> 48
On Thursday, May 4, 2000, and again on Saturday, May 6, 2000, IGT's
board of directors met to consider the Stryker letter of intent. In determining
whether or not to delay signing the letter of intent with Stryker in order to
meet with the other interested party, the board considered the following
uncertainties: (1) timing, as the other party could not meet until the following
week; (2) the price the other party would be willing to pay; (3) the other
party's knowledge of the technology license to Stryker that would be triggered
if IGT was acquired; and (4) Stryker's position that it would terminate
discussions with IGT if IGT delayed signing the letter of intent to hold
discussions with another interested party. The board of directors of IGT
approved the letter of intent on Saturday, May 6, 2000.
On Monday, May 29, 2000, Wednesday, May 31, 2000 and Thursday, June 1,
2000, IGT's board of directors considered and then approved the merger agreement
with Stryker. The merger agreement was signed on June 1, 2000.
REASONS FOR THE MERGER
In reaching its decision to approve the merger agreement and the merger
and to recommend approval of the merger agreement by IGT shareholders, the IGT
board of directors consulted with IGT management, as well as its financial and
legal advisors, and independently considered the proposed merger agreement and
the transactions contemplated by the merger agreement. In unanimously approving
the merger agreement and the merger, the IGT board of directors considered a
number of factors, including all the following:
o The premium represented by the merger consideration over the
current market price for IGT stock;
o The financial condition of IGT and IGT's need for working
capital;
o The capital required by IGT to compete effectively in the
image guided surgery market and the fact that there can be no
assurance that such capital will be available to IGT as an
independent company on reasonable terms, or at all;
o Possible technological changes in the image guided surgery
market that may require the development of new products;
o Poor stock market conditions for microcap stocks like IGT with
the result that any equity capital raised by IGT to remain
independent would be extremely dilutive;
o Stryker's plans to keep IGT's Boulder operations intact;
o The benefit to IGT shareholders of participating in a larger,
more diversified company; and
o The financial condition, business and reputation of Stryker.
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<PAGE> 49
In the course of its deliberations, the IGT board of directors also
considered a number of additional factors relevant to the merger, including:
o The terms and conditions of the merger agreement, including
termination fees and closing conditions;
o The number of outstanding shares of common stock of IGT, an
estimate of the number of options and warrants that would be
exercised prior to consummation of the merger and the
resulting dilution to existing IGT shareholders from such
exercises;
o Other possible alternatives for IGT, including other possible
buyers and IGT's prospects if it were to continue as an
independent company;
o The expected qualification of the merger as a tax-free
reorganization under Section 368(a) of the Internal Revenue
Code;
o The synergy between IGT's and Stryker's research and
development groups and the belief the combination would have a
positive impact on IGT's employees;
o The likelihood the merger would be completed;
o IGT's need for bridge capital financing pending closing and
Stryker's agreement to provide such capital by purchasing
383,142 shares of a series of IGT preferred stock for
$300,000; and
o IGT's existing contractual relationship with Stryker and
Stryker's extensive knowledge of IGT.
The IGT board of directors also identified and considered potentially
negative factors in its deliberations concerning the merger, including:
o The merger agreement might foreclose offers by other
interested parties.
The IGT board of directors determined that the risks to the
shareholders from not proceeding were substantially outweighed by the potential
benefits of the merger.
The above discussion of the factors considered by the IGT board of
directors in making its decision is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation of the
merger agreement and the merger, the IGT board of directors did not find it
practicable to, and did not, quantify or otherwise assign relative weight to the
specific factors considered in reaching its determination. In addition,
individual members of the IGT board of directors may have given different weight
to different factors.
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RECOMMENDATION OF THE IGT BOARD OF DIRECTORS
After careful consideration, the IGT board of directors (Mr. Ray not
voting) determined that the terms of the merger agreement and the merger are
fair to IGT's shareholders and has unanimously (Mr. Ray not voting) approved the
merger agreement and the merger. The IGT board of directors unanimously (Mr. Ray
not voting) recommends that the IGT shareholders vote "FOR" the approval of the
merger agreement. Paul L. Ray did not vote due to his interest in the merger as
described below.
INTERESTS OF IGT'S DIRECTORS AND MANAGEMENT IN THE MERGER
In considering the recommendation of the IGT board of directors in
favor of the merger, you should be aware that certain directors and executive
officers of IGT have interests in the merger that are different from, or in
addition to, the interests of IGT shareholders. These interests relate to or
arise from, among other things:
o The employment agreements entered into by Paul L. Ray, Chief
Executive Officer, Chief Financial Officer and Chairman of the
Board of IGT, and Waldean Schulz, Vice President of Technology
and Secretary of IGT;
o William O'Connor, Vice President and Chief Operating Officer
of IGT, may be entitled to severance benefits in certain
circumstances as a result of the merger;
o All stock options to acquire IGT common stock will become
fully vested as a result of the merger; and
o The merger agreement provides that all rights for exculpation
and indemnification from liabilities existing in favor of the
current and former directors or officers of IGT as provided in
IGT's articles of incorporation and bylaws will be assumed by
the surviving corporation in the merger and will continue in
full force and effect in accordance with their terms after the
merger. Stryker will maintain for six years after the merger
directors' and officers' liability insurance for acts or
omissions which occur prior to the merger for those directors
and officers who were, as of the date of the merger agreement,
covered by IGT's directors' and officers' liability insurance
policy on terms no less advantageous than those in effect on
the date of the merger agreement. Stryker's obligation to
provide this insurance coverage is subject to an annual
premium cap of $35,000, the current annual premium paid by IGT
for its existing insurance coverage. If Stryker cannot
maintain the existing or equivalent insurance coverage without
exceeding the cap, Stryker is required to maintain only that
amount of insurance coverage that can be obtained by paying an
annual premium equal to $35,000.
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Except as described above those persons have, to the knowledge of
Stryker and IGT, no material interest in the merger apart from those of
shareholders generally. The IGT board of directors was aware of, and considered
the interests of, its directors and Dr. Schultz in approving the merger
agreement and the merger.
ACCOUNTING TREATMENT
The merger will be accounted for under the "purchase" method of
accounting in accordance with generally accepted accounting principles. Stryker
expects a significant portion of the purchase price to be allocated to goodwill
and other intangible assets.
FORM OF THE MERGER
Subject to the terms and conditions of the merger agreement and in
accordance with Colorado law, at the effective time of the merger, IGT
Acquisition Co., a wholly owned subsidiary of Stryker, will merge with and into
IGT. IGT will survive the merger and become a wholly owned subsidiary of
Stryker. IGT will continue operations under its present name.
MERGER CONSIDERATION
At the effective time of the merger, each outstanding share of IGT
common stock will be converted into the right to receive that number of shares
of Stryker common stock determined by dividing $12,000,000 by the average
closing price of the Stryker common stock on the New York Stock Exchange for the
30 consecutive trading days beginning on the 35th trading day prior to the date
of the special meeting and dividing the quotient so obtained by the number of
shares of IGT common stock outstanding immediately prior to the merger, except
that treasury stock and stock held by IGT Acquisition Co. and Stryker will be
canceled. Shareholders will receive cash for any fractional share that they
would otherwise receive in the merger. As of the effective time of the merger,
all shares of IGT common stock will no longer be outstanding and will
automatically be canceled. At that time, each holder of a certificate
representing shares of IGT common stock will cease to have any rights as a
shareholder except the right to receive Stryker common stock and the right to
receive cash for any fractional share of Stryker common stock. The merger
consideration was determined through arm's-length negotiations between Stryker
and IGT.
Based on the number of outstanding shares of Stryker common stock and
IGT common stock as of the record date, the holders of IGT common stock
immediately prior to the merger would own less than one-fifth of one percent of
the outstanding shares of Stryker common stock immediately after the merger.
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CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of IGT common stock into the right to receive Stryker
common stock will occur automatically at the effective time of the merger. As
soon as practicable after the merger, the exchange agent, First Chicago Trust, a
division of Equiserve, will send a transmittal letter to each former IGT
shareholder. The transmittal letter will contain instructions for obtaining
shares of Stryker common stock in exchange for shares of IGT common stock.
PLEASE DO NOT SEND STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
After the merger, each certificate that previously represented shares
of IGT common stock will represent only the right to receive the Stryker common
stock into which those shares were converted in the merger and the right to
receive cash for any fractional share of Stryker common stock as described
below.
Until holders of certificates previously representing IGT common stock
have surrendered those certificates to the exchange agent for exchange, holders
will not receive dividends or distributions on the Stryker common stock into
which those shares have been converted with a record date after the merger, and
will not receive cash for any fractional share of Stryker common stock. When
holders surrender those certificates, they will receive any unpaid dividends and
any cash for any fractional share of Stryker common stock without interest.
In the event of a transfer of ownership of IGT common stock that is not
registered in the records of IGT's transfer agent, a certificate representing
the proper number of shares of Stryker common stock may be issued to a person
other than the person in whose name the certificate so surrendered is registered
if:
o That certificate is properly endorsed and otherwise is in
proper form for transfer; and
o The person requesting the issuance (1) pays to the exchange
agent any transfer or other taxes resulting from the issuance
of shares of Stryker common stock in a name other than that on
the surrendered certificate, or (2) establishes to the
satisfaction of the exchange agent that any tax has been paid
or is not applicable.
All shares of Stryker common stock issued upon conversion of shares of
IGT common stock, including any cash paid for any fractional share of Stryker
common stock, will be issued in full satisfaction of all rights relating to
those shares of IGT common stock.
No fractional share of Stryker common stock will be issued to any IGT
shareholder upon surrender for exchange of certificates previously representing
IGT common stock. In lieu of any fractional share, the shareholder will receive
cash equal to the product obtained by multiplying (1) the closing price for a
share of Stryker common stock on the New York Stock Exchange Composite
Transactions Tape on the date immediately preceding the date on which the merger
is completed by (2) the fractional share to which the shareholder would
otherwise be entitled.
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EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of articles of merger
with the Secretary of State of the State of Colorado, or at such later time as
stated in the articles of merger or agreed upon by Stryker and IGT. The filing
of the articles of merger will occur at the time of the closing of the merger.
STOCK EXCHANGE LISTING OF STRYKER COMMON STOCK
It is a condition to the completion of the merger that Stryker common
stock issued to IGT shareholders in the merger be authorized for listing on the
New York Stock Exchange, subject to official notice of issuance.
DELISTING AND DEREGISTRATION OF IGT COMMON STOCK
If the merger is completed, IGT common stock will no longer be traded
on the over-the-counter market, will be delisted from the Boston Stock Exchange
and will be deregistered under the Securities Exchange Act of 1934.
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary of the material United States federal income tax
consequences of the merger to the holders of IGT common stock who hold their IGT
common stock as a capital asset is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), currently applicable Treasury
regulations and judicial and administrative rulings and decisions as of the date
hereof. The following summary is not binding on the Internal Revenue Service
(the "IRS"), and no rulings have been or will be sought from the IRS regarding
any matters relating to the merger. In addition, legislative, judicial or
administrative changes may be forthcoming that could alter or modify the
statements set forth herein, possibly on a retroactive basis. The summary does
not purport to deal with all aspects of the federal income taxation that may be
relevant to particular holders of IGT common stock in light of their individual
circumstances, nor with certain types of holders who are subject to special
treatment under the federal income tax laws (e.g., tax-exempt organizations;
insurance companies; financial institutions; broker-dealers; persons who hold
such stock as part of a hedge, appreciated financial position, straddle or
conversion transaction; holders whose functional currency is not the U.S.
dollar; holders who acquired their stock pursuant to the exercise of employee
stock options or otherwise as compensation; and holders who are neither citizens
nor residents of the United States, or that are foreign corporations, foreign
partnerships or foreign estates or trusts for United States federal income tax
purposes). Also, the summary assumes that each holder holds his or her shares of
IGT common stock as capital assets. Finally, no foreign, state or local tax
considerations are addressed herein. CONSEQUENTLY, EACH HOLDER OF IGT COMMON
STOCK IS STRONGLY URGED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF THE MERGER IN LIGHT OF EACH SUCH HOLDER'S PARTICULAR
CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL
AND FOREIGN INCOME AND OTHER TAX LAWS.
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Completion of the merger is conditioned upon, among other things, the
receipt by IGT of tax opinions of Ireland, Stapleton, Pryor & Pascoe, P.C.,
dated as of the effective date of the registration statement of which this proxy
statement/prospectus is a part and as of the closing date, to the effect that
the merger will qualify for United States federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. This opinion
will be based on customary assumptions and representations made by IGT, IGT
Acquisition Co., and Stryker. An opinion of counsel represents counsel's best
legal judgment and is not binding on the IRS or any court.
Consequences of the Merger. Provided that the merger qualifies as a
reorganization within the meaning of Section 368(a) of the Code, and based on
the above assumptions and qualifications, the merger will generally result in
the following federal income tax consequences:
o No gain or loss will be recognized by IGT, IGT Acquisition Co.
or Stryker solely as a result of the merger;
o No gain or loss will be recognized by IGT's shareholders who
exchange their IGT common stock solely for Stryker common
stock (except to the extent of cash received in lieu of
fractional shares);
o The holding period of Stryker common stock received will
include the holding period of shares of IGT common stock
surrendered in the merger;
o The aggregate tax basis of Stryker common stock received by
IGT shareholders who exchange all of their IGT common stock
for Stryker common stock in the merger will be the same as the
aggregate tax basis of IGT common stock surrendered in the
merger (reduced by any portion of such tax basis allocable to
a fractional share of Stryker common stock for which cash is
received); and
o Cash payments received by IGT shareholders in lieu of a
fractional share of Stryker common stock will be treated as
capital gain or loss measured by the difference, if any,
between the cash payment received and the portion of the tax
basis in the shares of IGT common stock allocable to the
fractional share; this gain or loss will be long-term capital
gain or loss if the holder's holding period in the IGT common
stock exchanged for the fractional share of Stryker common
stock is more than one year at the time the merger is
completed.
Backup Withholding. Backup withholding at the rate of 31% may apply
with respect to certain cash payments received by an IGT shareholder in
connection with the merger unless either:
o The recipient is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact;
or
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- The recipient provides a correct taxpayer identification
number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements
of the backup withholding rules.
An IGT shareholder who does not provide Stryker with his correct
taxpayer identification number may be subject to penalties imposed by the IRS.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's federal income tax liability, provided
that the required information is furnished to the IRS.
DISSENTERS' RIGHTS
Under Colorado corporate law, each holder of IGT common stock has the
right to dissent from the consummation of the merger and receive payment of the
fair value of his or her common stock. Shareholders wishing to exercise their
Dissenters' Rights must carefully comply with the applicable procedures set
forth in Article 113 of the Colorado Business Corporation Act which are
summarized below. Shareholders who fail to follow the specific requirements of
Article 113 will lose the right to payment of the fair value of their shares and
will instead receive the consideration offered as part of the merger. Annex B to
this Proxy Statement contains a complete copy of Article 113 of the Colorado
Business Corporation Act. "Fair value," with respect to a dissenter's shares,
means the value of the shares immediately before the effective date of the
merger, excluding any appreciation or depreciation in anticipation of the merger
except to the extent that exclusion would be inequitable. We strongly encourage
you to read the attached Annex B for a complete understanding of your rights.
THE FOLLOWING PARAGRAPHS SUMMARIZE THE PROCEDURES FOR DISSENTING
SHAREHOLDERS PRESCRIBED BY ARTICLE 113 OF THE COLORADO BUSINESS CORPORATION ACT
AND THE FULL TEXT OF ARTICLE 113 IS INCLUDED AS ANNEX B TO THIS PROXY STATEMENT.
WE ENCOURAGE YOU TO READ THIS STATUTE AND/OR CONTACT YOUR LEGAL COUNSEL FOR A
MORE COMPLETE UNDERSTANDING OF YOUR RIGHTS AND DUTIES.
Colorado law provides that each record or beneficial holder of IGT
common stock is entitled to dissent from the merger and obtain payment of the
fair value of his/her shares of common stock. A shareholder wishing to exercise
dissenters' rights must (1) prior to the shareholder vote on the Merger, deliver
to IGT written notice of his or her intention to demand payment for shares if
the shareholders approve the merger, and (2) either abstain from voting on or
vote against the merger. A shareholder who votes in favor of the merger may not
exercise dissenters' rights. A beneficial shareholder as defined by Section
7-113-101(1) of the Colorado Business Corporation Act must cause the record
shareholder to notify IGT of his or her intent to dissent and demand payment. A
beneficial shareholder should contact his or her record shareholder who owns the
beneficial shareholder's shares for instructions on how to dissent.
Within ten days after the merger becomes effective, IGT must deliver a
written dissenter's notice to all shareholders who properly deliver written
notice of their intent to demand payment and who also either abstain from voting
on or vote against the merger. In the notice, IGT must (1) state that the merger
was authorized, (2) state the effective date of the
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merger, (3) include the address where IGT will receive payment demands and the
stock certificates, (4) supply a form which the dissenting shareholder may use
to demand payment, (5) set the date by which IGT must receive the payment demand
and the stock certificates, which cannot be less than 30 days after the delivery
of the notice, and (6) include a copy of Article 113 of the Colorado Business
Corporation Act. Furthermore, the notice may require that all beneficial
shareholders of the dissenting shares, if any, certify that they have asserted
or will assert their dissenters' rights.
After receiving the notice a dissenting shareholder must demand payment
in writing and deposit any stock certificates according to the instructions in
the notice. Any shareholders who fail to demand payment in writing or properly
deposit stock certificates will not be entitled to the fair value of their
shares. A shareholder's demand for payment and the deposit of any stock
certificates is irrevocable except as provided in Section 7-113-204(3) of the
Colorado Business Corporation Act. Once a shareholder demands payment and
deposits the certificates with IGT, he or she may not transfer his or her
shares. However, if the effective time of the merger does not occur within 60
days after the date IGT sets as the day by which a shareholder must demand
payment, IGT must return the deposited shares and lift the transfer
restrictions, and send a new notice to the dissenting shareholders.
Upon the later of the effective date of the merger, or upon receipt of
a demand for payment by a dissenting shareholder, IGT must pay each dissenting
shareholder who properly demands payment and deposits his or her stock
certificates the amount IGT estimates to be the fair value of such shares, plus
accrued interest. The payment must be accompanied by (1) IGT's balance sheet for
the fiscal year ending not more than sixteen months before the date of payment,
an income statement for that year, a statement of change in shareholders' equity
for that year, and the latest available interim financial statement; (2) a
statement of IGT's estimate of the fair value of the shares; (3) an explanation
of how the interest was calculated; (4) a statement of the dissenting
shareholder's right to demand payment if he or she rejects IGT's estimate of the
fair value of the shares; and (5) a copy of Article 113 of the Colorado Business
Corporation Act.
A dissenting shareholder may reject IGT's valuation of the fair value
of the shares if: (1) the dissenting shareholder believes that the amount paid
or offered is less than the fair value of the shares or that the interest due is
incorrectly calculated; (2) IGT fails to make payment within 60 days after the
date set for demanding payment; or (3) IGT does not return the deposited stock
certificates within the time specified by Section 7-113-207 of the Colorado
Business Corporation Act. In order to reject IGT's estimation of fair value, the
shareholder must notify IGT of his or her rejection in writing within 30 days
after IGT makes or offers to pay each dissenting shareholder. This notification
must include either the shareholder's own estimate of the fair value of his or
her shares and the amount of interest due, and demand payment of their estimate,
less any payment already made by IGT, or a demand for payment of the fair value
of the shares and interest due. In the event a demand for payment remains
unresolved, IGT may commence a court proceeding to determine the fair value of
the shares and accrued interest within 60 days after receiving the payment
demand from a dissenting shareholder.
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RESALE OF STRYKER COMMON STOCK
Stryker common stock issued in the merger will not be subject to any
restrictions on transfer arising under the Securities Act of 1933, except for
shares issued to any IGT shareholder who may be deemed to be an "affiliate" of
IGT for purposes of paragraphs (c) and (d) of Rule 145 under the Securities Act.
An affiliate of IGT is any individual or entity that directly or indirectly
through one or more intermediaries controls, is controlled by or is under common
control with, IGT or Stryker. It is expected that each affiliate will agree not
to transfer any Stryker common stock received in the merger unless (1) the
disposition is made in conformity with the provisions of Rule 145 under the
Securities Act, (2) the disposition has been registered under the Securities
Act, or (3) in the opinion of counsel reasonably acceptable to Stryker, the
disposition is otherwise exempt from registration under the Securities Act. The
merger agreement requires IGT to use its reasonable best efforts to cause its
affiliates to enter into these agreements and conditions Stryker's obligation to
effect the merger on the receipt of these agreements. This proxy
statement/prospectus does not cover resales of Stryker common stock received by
any person upon completion of the merger, and no person is authorized to make
any use of this proxy statement/prospectus in connection with any resale.
THE MERGER AGREEMENT
The following description summarizes the material provisions of the
merger agreement. We urge shareholders to read carefully the merger agreement,
which is attached as Annex A to this proxy statement/prospectus.
CONDITIONS TO THE MERGER
Each party's obligation to complete the merger is subject to the
satisfaction or waiver of various conditions which include, in addition to other
customary closing conditions, all the following:
o Holders of a majority of the outstanding shares of IGT common
stock must adopt the merger agreement;
o No judgment, order, decree, statute, law, ordinance, rule or
regulation entered, enacted, enforced, promulgated or issued
by any court or other governmental entity of competent
jurisdiction or other legal restraint or prohibition being in
effect, and no suit, action or proceeding by any governmental
entity being pending that (1) would prevent the consummation
of the merger or (2) otherwise would be reasonably likely to
have a material adverse effect, as described below, on Stryker
or IGT; provided, that each of the parties will have used its
reasonable best efforts to prevent the entry of any legal
restraint or prohibition and (ii) to appeal as promptly as
possible any legal restraint or prohibition that may be
entered;
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o Stryker's registration statement on Form S-4, of which this
proxy statement/prospectus forms a part, must have become
effective under the Securities Act and must not be the subject
of any stop order or proceedings seeking a stop order;
o The shares of Stryker common stock issuable to IGT's
shareholders in the merger must be authorized for listing on
the New York Stock Exchange, subject to official notice of
issuance;
o Each of IGT and Stryker must have, in all material respects,
performed the various obligations and complied with the
various conditions required by the merger agreement;
o The representations and warranties of each party set forth in
the merger agreement must be true and correct as of the date
of the merger agreement and as of the date on which the merger
is to be completed as if made at and as of the date on which
the merger is to be completed, except to the extent expressly
made as of an earlier date, in which case as of such date,
except where the failure of such representations and
warranties to be true and correct, without giving effect to
any included limitation as to "materially" or "material
adverse effect," does not result, and could not reasonably be
expected to result, individually or in the aggregate, in
losses, liabilities, claims, damages, expenses and diminution
in value, whether or not involving a third party claim, in an
amount exceeding $600,000;
o IGT must receive from Ireland, Stapleton, Pryor & Pascoe,
P.C., on the date on which the registration statement is
declared effective by the Securities and Exchange Commission
and on the date on which the merger is to be completed, an
opinion in each case dated as of those dates, to the effect
that on the basis of certain facts, representations and
assumptions set forth in the opinions, the merger will be
treated for United States federal income tax purposes as a
reorganization with the meaning of Section 368(a) of the
Internal Revenue Code;
o In the case of Stryker only, Paul L. Ray, Chief Executive
Officer and Chairman of the Board of IGT, and Waldean Schulz,
Vice President of Technology and Secretary of IGT, must enter
into employment agreements effective at the time of the merger
with IGT, and those agreements must be in full force and
effect; and
o In the case of Stryker only, IGT shall have taken all
necessary action to terminate all options and warrants to
purchase IGT common stock that have not been exercised prior
to the effective time of the merger.
NO SOLICITATION
The merger agreement provides that IGT will not, and will not authorize
or permit any of its directors, officers or employees, or any investment banker,
financial advisor, attorney,
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accountant or other representative retained by it or any of its subsidiaries to,
directly or indirectly through another person:
o Solicit, initiate or encourage (including by way of furnishing
information), or take any other action to facilitate, any
inquiries or the making of any proposal that is or may
reasonably be expected to lead to a takeover proposal, as
described below; or
o Participate in any discussions or negotiations regarding any
takeover proposal;
provided that if, at any time prior to the date of the special meeting, the IGT
board of directors determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to IGT's shareholders under applicable law, IGT and its representatives,
in response to a superior proposal, as described below, which was not solicited
by IGT or which did not otherwise result from a breach of the merger agreement,
may furnish information about IGT and its subsidiaries to any person making a
superior proposal and participate in discussions or negotiations regarding that
superior proposal. In such event, IGT must provide Stryker with prior written
notice of IGT's decision to enter into the negotiations, and promptly advise
Stryker of the material terms and conditions of the superior proposal and the
identity of the person making the superior proposal.
The merger agreement further provides that neither the IGT board of
directors nor any committee of the board of directors will:
o Withdraw or modify, or propose publicly to withdraw or modify,
in a manner adverse to Stryker, the approval or recommendation
by the IGT board of directors or such committee of the merger
or the merger agreement;
o Approve or recommend, or propose publicly to approve or
recommend, any takeover proposal; or
o Approve or recommend, or propose to approve or recommend, or
execute or enter into any letter of intent, agreement in
principle, acquisition agreement, option agreement or other
similar agreement related to any takeover proposal, other than
any such agreement entered into concurrently with a
termination as described below in order to facilitate such
action.
Notwithstanding the foregoing, in response to a superior proposal received prior
to the date of the special meeting which was not solicited by IGT and which did
not otherwise result from a breach of the provisions of the merger agreement
described above, if the IGT board of directors determines in good faith, after
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to the IGT shareholders under applicable law,
the IGT board of directors may terminate the merger agreement and enter into a
definitive agreement regarding the superior proposal, but only at a time prior
to the special meeting and that is after the tenth business day following
Stryker's receipt of written notice advising Stryker that the board of directors
is prepared to accept a superior proposal. IGT must pay a fee in the amount of
$600,000 to Stryker upon termination. See "--Termination of the Merger
Agreement" and "--Termination Fees."
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The merger agreement provides that:
o The term "takeover proposal" means any inquiry, proposal or
offer from any person relating to any direct or indirect
acquisition or purchase of assets of IGT and its subsidiaries,
other than in the ordinary course of business, or shares of
any class or series of equity securities of IGT or any of its
subsidiaries, any tender offer or exchange offer for shares of
any class or series of equity securities of IGT or any of its
subsidiaries, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or
similar transaction involving IGT or any of its subsidiaries;
and
o The term "superior proposal" means any proposal made by a
third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, more than
50% of the combined voting power of the shares of IGT common
stock then outstanding or all or substantially all the assets
of IGT on terms that the IGT board of directors determines in
its good faith judgment, based on the advice of its financial
advisor, Viscogliosi Brothers LLC, to be more favorable to
IGT's shareholders than the merger and for which financing, to
the extent required, is then committed or which, in the good
faith judgment of the IGT board of directors, is reasonably
capable of being obtained.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the effective
time of the merger, whether before or after adoption of the merger agreement by
the IGT shareholders:
o By mutual agreement of Stryker and IGT;
o By Stryker or IGT, if the merger has not been completed by
December 31, 2000; provided, that this right to terminate the
merger agreement will not be available to a party whose
failure to perform any of its obligations under the merger
agreement has been the cause of, or resulted in, the failure
of the merger to be completed by that date;
o By Stryker or IGT if holders of a majority of the shares of
IGT common stock do not adopt the merger agreement at the
special meeting of IGT's shareholders or any adjournment or
postponement of that meeting;
o By Stryker or IGT if the conditions to its obligations
referred to above have not been satisfied at the closing date
or if satisfaction of a condition becomes impossible (other
than through its failure to comply with its obligations), at
least 30 days notice of an intention to terminate has been
given and such condition has not been satisfied or reasonable
assurance given that it will be satisfied on or before the
closing date;
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o By IGT, at any time prior to the date of the special meeting
of IGT's shareholders, in response to a superior proposal
which was not solicited by IGT and which did not otherwise
result from a breach of the provisions of the merger
agreement, if IGT has complied with certain notice
requirements and paid the termination fee; or
o By Stryker, if IGT or any of its directors or officers
participated in discussions or negotiations with third parties
regarding certain takeover proposals or furnished information
to third parties in breach of the merger agreement.
TERMINATION FEES
Under certain circumstances, if the merger agreement is terminated, IGT
must pay Stryker a termination fee of $600,000. IGT must pay Stryker the
termination fee if:
o IGT shareholders receive a takeover proposal, a takeover
proposal otherwise becomes publicly known or anyone publicly
announces its intention to make a takeover proposal, and
thereafter Stryker or IGT terminates the merger agreement
because either (1) the merger is not completed by December 31,
2000 or (2) IGT's shareholders have not adopted the merger
agreement and within nine months of the termination IGT or any
of its subsidiaries enters into any definitive agreement with
respect to, or consummates, any takeover proposal;
o IGT terminates the merger agreement because before the date of
the special meeting IGT receives an unsolicited proposal by a
third party to acquire IGT on terms determined by the IGT
board of directors to be more favorable to IGT's shareholders
than the terms of the merger with Stryker; or
o Stryker terminates the merger agreement because IGT or any of
its directors or officers participates in discussions or
negotiations with third parties regarding certain takeover
proposals or furnishes information to third parties in breach
of the merger agreement.
The merger agreement further provides that if IGT fails to pay the
termination fee when due and, in order to obtain payment of the fee, Stryker
commences a suit which results in a judgment against IGT for the fee, IGT must
pay the costs and expenses, including attorneys' fees and expenses, in
connection with any action taken to collect payment, together with interest on
the amount of the fee.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the merger agreement, IGT has agreed that, until the
closing of the merger, it will, and cause its subsidiaries to:
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<PAGE> 62
o Conduct its business only in the ordinary course of business;
o Use its best efforts to preserve intact its current business
organization, keep available the services of its current
officers, employees and agents, and maintain the relations and
good will with suppliers, customers, landlords, creditors,
employees, agents and others having business relationships
with it;
o Confer with Stryker concerning operational matters of a
material nature; and
o Otherwise report periodically to Stryker concerning the status
of its business, operations and finances.
AMENDMENT; EXTENSION AND WAIVER
Subject to applicable law:
o The merger agreement may be amended by the parties in writing
at any time, except that after the merger agreement has been
approved by IGT's shareholders, no amendment may be entered
into that by law requires further approval by IGT's
shareholders unless that further approval is obtained; and
o At any time before the effective time of the merger, a party
may, by written instrument signed on behalf of that party, (1)
extend the time for performance of any of the obligations or
other acts of any other party to the merger agreement, (2)
waive any inaccuracies in representations and warranties of
any other party contained in the merger agreement or in any
document delivered pursuant to the merger agreement, or (3)
except as provided in the merger agreement, waive compliance
by any other party with any agreements or conditions in the
merger agreement.
EXPENSES
Whether or not the merger is consummated, all fees and expenses
incurred in connection with the merger and the merger agreement will be paid by
the party incurring those fees or expenses.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
relating to, among other things:
o Corporate organization and similar corporate matters of
Stryker and IGT;
o Subsidiaries of IGT;
o The capital structure of Stryker and IGT;
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<PAGE> 63
o Authorization, execution, delivery, performance and
enforceability of, and required consents, approvals, orders
and authorizations of governmental authorities relating to,
the merger agreement and related matters of Stryker, IGT
Acquisition Co. and IGT;
o Documents filed by each of Stryker and IGT with the Securities
and Exchange Commission, the accuracy of information contained
in those documents and the absence of undisclosed liabilities
of each of Stryker and IGT;
o The accuracy of information supplied by each of Stryker and
IGT in connection with this proxy statement/prospectus and the
registration statement of which it is a part;
o Title to property of IGT, free of nondisclosed encumbrances;
o Filing of tax returns and payment of taxes by IGT and its
subsidiaries;
o Matters relating to the benefit plans of IGT and its
subsidiaries and IGT's compliance with the Employee Retirement
Income Security Act;
o Absence of any material adverse change in the business,
operation, properties, prospects, assets or condition of IGT
and its subsidiaries or events concerning IGT and its
subsidiaries that may result in such a material adverse
change;
o Compliance with applicable laws by IGT and its subsidiaries;
o Absence of legal proceedings or orders affecting IGT and its
subsidiaries;
o Absence of certain changes and events affecting IGT and its
subsidiaries;
o Certain leases and contracts entered into by IGT and absence
of default by IGT and its subsidiaries under those leases and
contracts;
o Liability of IGT and its subsidiaries under environmental
laws;
o Certain employment and labor relations matters regarding IGT
and its subsidiaries;
o Intellectual property matters of IGT and its subsidiaries;
o Regulatory matters affecting IGT and its subsidiaries;
o Inapplicability of certain state takeover statutes'
requirements to the merger; and
o Transactions by IGT and its subsidiaries with related persons.
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<PAGE> 64
COMPARATIVE STOCK PRICES AND DIVIDENDS
Stryker common stock is listed for trading on the New York Stock
Exchange under the trading symbol "SYK" and IGT common stock is quoted on the
over-the-counter market under the trading symbol "IGTI" and on the Boston Stock
Exchange under the symbol "IGK." The following table sets forth, for the periods
indicated, dividends and the high and low sales prices per share of Stryker
common stock on the New York Stock Exchange Composite Transactions Tape and
dividends and range of high and low bid information per share of IGT common
stock on the Nasdaq SmallCap Market for 1998 (except the fourth quarter low) and
on the over-the-counter market for the 1998 fourth quarter low, 1999 and 2000.
Such over-the-counter prices reflect inter-dealer quotations, without retail
mark-up, mark-down or commission and may not represent actual transactions. IGT
has never paid dividends to its shareholders. Stryker's per share data has been
restated to account for Stryker's two-for-one stock split effective on May 12,
2000. For current price information, shareholders are urged to consult publicly
available sources.
<TABLE>
<CAPTION>
STRYKER COMMON STOCK
DIVIDENDS
CALENDAR PERIOD HIGH LOW DECLARED
------------------------- ---------- --------- --------
<S> <C> <C> <C>
1998
----
First Quarter............................ $24.56 $17.38 --
Second Quarter........................... 24.34 18.44 --
Third Quarter............................ 22.56 15.94 --
Fourth Quarter........................... 27.88 15.50 $0.06
1999
----
First Quarter............................ 31.25 22.22 --
Second Quarter .......................... 32.91 23.88 --
Third Quarter ........................... 34.38 24.94 --
Fourth Quarter .......................... 36.63 24.31 $0.65
2000
----
First Quarter............................ 40.66 24.39
Second Quarter...........................
Third Quarter (through July __,) ........
</TABLE>
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<PAGE> 65
<TABLE>
<CAPTION>
IGT STOCK PRICE
CALENDAR PERIOD HIGH LOW
------------------------- ---------- ------
<S> <C> <C>
1998
----
First Quarter............................ $3.63 $2.00
Second Quarter........................... 3.13 1.63
Third Quarter............................ 2.56 0.50
Fourth Quarter........................... 0.88 0.09
1999
----
First Quarter............................ 0.75 0.13
Second Quarter .......................... 0.63 0.22
Third Quarter ........................... 0.47 0.19
Fourth Quarter .......................... 1.50 0.38
2000
----
First Quarter............................ 1.06 0.41
Second Quarter...........................
Third Quarter (through July __)..........
</TABLE>
The following table sets forth the high and low sales prices per share
of Stryker common stock on the New York Stock Exchange Composite Transactions
Tape and of IGT common stock on June 1, 2000, the last trading day before the
public announcement of the merger agreement, and on July __, 2000, the last
trading day before the date of this proxy statement/prospectus:
<TABLE>
<CAPTION>
STRYKER COMMON STOCK IGT COMMON STOCK
----------------------------- ---------------------------
HIGH LOW HIGH LOW
------ ------ ----- ----
<S> <C> <C> <C> <C>
June 1, 2000............... $38.38 $37.44 $1.03 $.88
July __, 2000.............. $ $ $ $
</TABLE>
DESCRIPTION OF STRYKER CAPITAL STOCK
The following summary of the capital stock of Stryker is subject in all
respects to applicable Michigan law and Stryker's articles of incorporation and
bylaws. See "Comparison of Rights of Common Shareholders of Stryker and IGT" on
page 57.
The total authorized shares of capital stock of Stryker consist of (1)
500 million shares of common stock, $.10 par value per share, and (2) 500,000
shares of preferred stock, $1.00 par value per share. At the close of business
on June 22, 2000, 195,139,639 million shares of
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<PAGE> 66
Stryker common stock were issued and outstanding and no shares of Stryker
preferred stock were issued and outstanding.
The Stryker board of directors is authorized to provide for the
issuance from time to time of Stryker preferred stock in series and, as to each
series, to fix the designation, the dividend rate and the preferences, if any,
which dividends on each series will have compared to any other class or series
of capital stock of Stryker, the voting rights, if any, the voluntary and
involuntary liquidation prices, the conversion or exchange privileges, if any,
applicable to each series and the redemption price or prices and the other terms
of redemption, if any, applicable to each series. Cumulative dividends, dividend
preferences and conversion, exchange and redemption provisions, to the extent
that some or all of these features may be present when shares of Stryker
preferred stock are issued, could have an adverse effect on the availability of
earnings for distribution to the holders of Stryker common stock or for other
corporate purposes.
COMPARISON OF RIGHTS OF COMMON SHAREHOLDERS
OF STRYKER AND IGT
The rights of IGT shareholders are currently governed by the Colorado
Business Corporation Act and the articles of incorporation and bylaws of IGT.
Upon completion of the merger, the rights of IGT shareholders who become
stockholders of Stryker in the merger will be governed by the Michigan Business
Corporation Act, Stryker's articles of incorporation and Stryker's bylaws.
The following description summarizes the material differences that may
affect the rights of shareholders of Stryker and IGT but does not purport to be
a complete statement of all those differences, or a complete description of the
specific provisions referred to in this summary. The identification of specific
differences is not intended to indicate that other equally or more significant
differences do not exist. Shareholders should read carefully the relevant
provisions of the Michigan Business Corporation Act and the Colorado Business
Corporation Act, Stryker's articles of incorporation and bylaws and IGT's
articles of incorporation and bylaws.
CAPITALIZATION
Stryker. Stryker's authorized capital stock is described above under
"Description of Stryker Capital Stock." On June 22, 2000, there were 195,139,639
shares of Stryker common stock outstanding.
IGT. The total authorized shares of capital stock of IGT consist of
10,000,000 shares of common stock, no par value, and 2,416,668 shares of
preferred stock, no par value. On the record date, there were 4,304,198 shares
of IGT common stock outstanding and 383,142 shares of IGT preferred stock
outstanding. If the merger is consummated, the preferred stock will be cancelled
and retired without payment of any consideration and will cease to exist.
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<PAGE> 67
VOTING RIGHTS
Stryker. Each holder of Stryker common stock is entitled to one vote
for each share held of record and may not cumulate votes for the election of
directors.
IGT. Each holder of IGT common stock is entitled to one vote for each
share held of record and may not cumulate votes for the election of directors.
NUMBER, ELECTION, VACANCY AND REMOVAL OF DIRECTORS
Stryker. Stryker's board of directors has seven members. Stryker's
bylaws provide that the Stryker board of directors will consist of one or more
directors and that the number of directors may be changed from time to time by a
resolution adopted by a majority of the total number of directors which Stryker
would have if there were no vacancies.
Stryker's bylaws provide that if there is a vacancy on the Stryker
board of directors or if the number of directors is increased, those vacancies
will be filled by the affirmative vote of a majority of the directors then in
office, even though less than a quorum, and not by the shareholders except that
a vacancy caused by the removal of a director shall be filled by the
shareholders. A director elected to fill a vacancy or newly created directorship
will serve until the next election of directors by the shareholders.
Under Stryker's bylaws, any director may be removed from office at any
time, with or without cause, by the vote of the holders of a majority of the
shares entitled to vote at an election of directors.
IGT. The IGT board of directors has five members. IGT's articles of
incorporation provide that the number of directors shall be fixed from time to
time by or pursuant to IGT's bylaws. IGT's bylaws provide that the IGT board of
directors consists of at least three and no more than ten directors and that the
exact number of directors be determined from time to time by the board of
directors.
IGT's bylaws provide that vacancies and newly created directorships
resulting from an increase in the authorized number of directors will be filled
solely by the affirmative vote of a majority of the directors then in office,
even though less than a quorum, and the directors so chosen hold office until
the next annual meeting of shareholders and until their successors have been
elected and qualified.
Under the Colorado Business Corporation Act, any or all of the
directors may be removed from office, with or without cause by the shareholders
of IGT at a meeting called for that purpose if the number of votes cast in favor
of removal exceeds the number of votes cast against.
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<PAGE> 68
AMENDMENTS TO ARTICLES OF INCORPORATION
Stryker. Pursuant to the Michigan Business Corporation Act, the
affirmative vote of a majority of the voting stock then outstanding, voting
together as a single class, will be required to alter or amend Stryker's
articles of incorporation.
IGT. Pursuant to IGT's articles of incorporation, the affirmative vote
of a majority of each voting group entitled to vote separately will be required
to amend IGT's articles of incorporation.
AMENDMENTS TO BYLAWS
Stryker. Stryker's bylaws provide that Stryker's bylaws may be amended
or repealed or new bylaws may be adopted by the shareholders or the board of
directors. Amendment by the board of directors requires a vote of not less than
a majority of the directors then in office.
IGT. IGT's bylaws authorize the alteration, amendment or repeal of any
of IGT's bylaws by the board of directors, subject to repeal or change by action
of the shareholders.
SHAREHOLDER ACTION
Stryker. Any action required or permitted to be taken by the Stryker
shareholders may be effected by written consent.
IGT. IGT's bylaws provide that any action required or permitted to be
taken by the IGT shareholders may be taken without a meeting if a consent in
writing, setting forth the action so taken, is signed by all the shareholders
entitled to vote with respect to the particular subject.
SPECIAL SHAREHOLDER MEETINGS
Stryker. Stryker's bylaws provide that a special meeting of Stryker's
shareholders may be called at any time by the chairman of the board, the
president or by order of the board of directors.
IGT. IGT's bylaws provide that a special meeting of the IGT
shareholders may be called for any purpose by the chairman of the board, the
president or any other designated person or by the board of directors. In
addition, the chairman of the board or the president shall call a special
meeting if the holders of not less then one-tenth of the outstanding shares
entitled to vote file a written demand stating the purpose for which the meeting
is to be held.
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<PAGE> 69
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND INDEMNIFICATION
Stryker. Stryker's articles of incorporation provide that a director
will not be personally liable to Stryker or to its shareholders for monetary
damages for breach of the fiduciary duty of care as a director, except, as
required by law, for liability:
o For any breach of the director's duty of loyalty to Stryker or
its stockholders;
o For acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;
o Under Section 551(1) of the Michigan Business Corporation Act
regarding unlawful payment of dividends, distributions of
assets, loans to officers, directors or employees or unlawful
stock repurchases;
o For any transaction from which the director derived an
improper personal benefit; or
o Acts or omissions occurring before March 1, 1987.
Stryker's bylaws provide a right to indemnification to directors and
officers of Stryker subject to the limitations under the Michigan Business
Corporation Act. Under Stryker's bylaws and the current provisions of the
Michigan Business Corporation Act, Stryker is required to indemnify a director,
officer, employee or agent against expenses, including attorneys' fees,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by such person, in connection with an action other than a
derivative action if it is determined that the person acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interests of
the corporation or its stockholders and, with respect to any criminal action or
proceeding, if the person had no reason to believe his or her conduct was
unlawful. In the case of a derivative action, indemnification is required
against expenses, including actual and reasonable attorneys' fees and amounts
paid in settlement, if it is determined that the person acted in good faith and
in a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation or its stockholders, provided that indemnification
may not be made for a claim, issue or matter in which the person was found
liable to IGT in a derivative action unless deemed proper by the court in which
such action was brought. Stryker is also obligated to pay expenses incurred in
defending against actions or proceedings in advance of the final disposition
thereof upon receipt of an undertaking by or on behalf of the director, officer,
employee or agent to repay the expenses if it is ultimately determined that such
person is not entitled to indemnification.
IGT. Under IGT's articles of incorporation and the current Colorado
Business Corporation Act, a director will not be personally liable to IGT or to
its shareholders for monetary damages for breach of fiduciary duty as a
director, except, as required by law, for liability:
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<PAGE> 70
o For any breach of the director's duty of loyalty to IGT or its
shareholders;
o For acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
o Under Section 7-108-403 of the Colorado Business Corporation
Act regarding unlawful distributions; or
o For any transaction from which the director derived an
improper personal benefit.
IGT's bylaws provide a right of indemnification to directors and
officers of IGT to the fullest extent authorized by Colorado law, and to
employees and agents if authorized by the Board of Directors. Under IGT's bylaws
and the current provisions of the Colorado Business Corporation Act, IGT is
required to indemnify a director or officer (and if authorized, employees and
agents) against expenses, including attorneys' fees, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by such person,
in connection with an action other than a derivative action if it is determined
that the person acted in good faith and in a manner reasonably believed to be in
or not opposed to the best interests of the corporation or its shareholders and,
with respect to any criminal action or proceeding, if the person had no reason
to believe his or her conduct was unlawful. In the case of a derivative action,
indemnification is required against expenses, including actual and reasonable
attorneys' fees and amounts paid in settlement, if it is determined that the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation or its stockholders,
provided that indemnification may not be made for a claim, issue or matter in
which the person was found liable to IGT in a derivative action unless deemed
proper by the court in which such action was brought. IGT is also obligated to
pay expenses incurred in defending against actions or proceedings in advance of
the final disposition thereof upon receipt of an undertaking by or on behalf of
the director or officer to repay the expenses if it is ultimately determined
that such person is not entitled to indemnification.
LEGAL MATTERS
The legality of Stryker common stock offered by this proxy
statement/prospectus will be passed upon for Stryker by its counsel, Whitman
Breed Abbott & Morgan LLP.
Certain United States federal income tax consequences of the merger
will be passed upon for IGT by its counsel, Ireland, Stapleton, Pryor & Pascoe,
P.C.
EXPERTS
The consolidated financial statements of Stryker Corporation appearing
in Stryker Corporation's Annual Report (Form 10-K) for the year ended December
31, 1999 have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated by reference
upon such report, given on the authority of such firm as experts in accounting
and auditing.
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<PAGE> 71
The consolidated financial statements of IGT as of December 31, 1999
and 1998 and for each of the two years in the period ended December 31, 1999
included in this proxy statement/prospectus have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
Representatives of PricewaterhouseCoopers LLP are not expected to be
present at the special meeting.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the IGT board of
directors knows of no matters that will be presented for consideration at the
special meeting of shareholders other than as described in this proxy
statement/prospectus.
WHERE YOU CAN FIND MORE INFORMATION
Stryker and IGT file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that Stryker
and IGT file with the Securities and Exchange Commission at the Securities and
Exchange Commission's public reference rooms at the following locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
</TABLE>
Please call the Securities and Exchange Commission at 1-800-SEC-0330
for further information on the public reference rooms. These Securities and
Exchange Commission filings are also available to the public from commercial
document retrieval services and at the Internet world wide web site maintained
by the Securities and Exchange Commission at "http://www.sec.gov." Reports,
proxy statements and other information concerning Stryker may also be inspected
at the offices of the New York Stock Exchange at 20 Broad Street, New York, New
York 10005.
Stryker filed a registration statement on Form S-4 on June __, 2000 to
register with the Securities and Exchange Commission the Stryker common stock to
be issued to IGT shareholders in the merger. This proxy statement/prospectus is
a part of that registration statement. As allowed by Securities and Exchange
Commission rules, this proxy statement/prospectus does not contain all the
information you can find in Stryker's registration statement or the exhibits to
the registration statement.
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<PAGE> 72
The Securities and Exchange Commission allows Stryker to "incorporate
by reference" information into this proxy statement/prospectus, which means that
Stryker can disclose important information to you by referring you to other
documents filed separately with the Securities and Exchange Commission. The
information incorporated by reference is considered part of this proxy
statement/prospectus, except for any information superseded by information
contained directly in this proxy statement/prospectus or in later filed
documents incorporated by reference in this proxy statement/prospectus. This
proxy statement/prospectus incorporates by reference the documents set forth
below that Stryker previously filed with the Securities and Exchange Commission.
These documents contain important business and financial information about
Stryker that is not included in or delivered with this proxy
statement/prospectus. Stryker has supplied all information contained or
incorporated by reference in this proxy statement/prospectus relating to
Stryker.
<TABLE>
<CAPTION>
STRYKER FILINGS
(FILE NO. 0-9165) PERIOD
----------------- ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1999
Quarterly Report on Form 10-Q Quarter ended March 31, 2000
Proxy Statement Filed March 17, 2000
The description of Stryker common stock set forth in the Filed under Section 12 of the
Stryker Registration Statement on Form 8-A Exchange Act on July 1, 1997
</TABLE>
In addition, the Current Report on Form 8-K filed by Stryker with the
Securities and Exchange Commission on December 21, 1998 and the amendment
thereto filed on February 19, 1999, which contain information concerning
Stryker's acquisition of Howmedica, the orthopaedic division of Pfizer Inc., are
incorporated by reference in this proxy statement/prospectus.
Stryker also incorporates by reference additional documents that may be
filed with the Securities and Exchange Commission under Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act between the date of this proxy
statement/prospectus and the date of the special meeting. These include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.
Although they are not incorporated by reference in this proxy
statement/prospectus, IGT has filed the documents set forth below with the
Securities and Exchange Commission. IGT has supplied all information contained
in this proxy statement/prospectus relating to IGT.
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<PAGE> 73
<TABLE>
<CAPTION>
IGT FILINGS
(FILE NO. 001-12189) PERIOD
-------------------- ------
<S> <C>
Annual Report on Form 10-KSB Year ended December 31, 1999
Quarterly Report on Form 10-QSB Quarter ended March 31, 2000
Current Report on Form 8-K Filed June 13, 2000
The description of IGT common stock set forth in Filed September 25, 1996
the IGT Registration Statement on Amendment No. 1 to
Form 8-A
</TABLE>
You can obtain the documents that Stryker and IGT have filed with the
Securities and Exchange Commission, including those incorporated by reference
herein, through the Securities and Exchange Commission or the Securities and
Exchange Commission's Internet web site as described above. Such documents are
available from the companies without charge, excluding all exhibits, except that
if Stryker has specifically incorporated by reference an exhibit in this proxy
statement/prospectus, the exhibit will also be provided without charge.
You may also obtain such documents by requesting them in writing or by
telephone from Stryker or IGT at the following addresses:
Stryker Corporation Image Guided Technologies, Inc.
P.O. Box 4085 5710-B Flatiron Parkway
Kalamazoo, Michigan 49003-4085 Boulder, Colorado 30301
Telephone: 616-385-2600 Telephone: 303-447-0248
Attention: Secretary Attention: Secretary
IGT shareholders should not send in their IGT certificates until they
receive the transmittal materials from the exchange agent. IGT shareholders of
record who have further questions about their share certificates or the exchange
of their IGT common stock for Stryker common stock should call the exchange
agent.
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. Neither Stryker nor IGT has
authorized anyone to provide you with information that is different from what is
contained or incorporated by reference in this proxy statement/prospectus. This
proxy statement/prospectus is dated June __, 2000. You should not assume that
the information contained in this proxy statement/prospectus is accurate as of
any date other than that date. Neither the mailing of this proxy
statement/prospectus to shareholders nor the issuance of Stryker common stock in
the merger creates any implication to the contrary.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 with respect to the financial condition, results of operations, business
strategies, operating efficiencies or synergies,
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<PAGE> 74
competitive positions, growth opportunities for existing products, plans and
objectives of management, markets for stock of Stryker and IGT and other
matters. Statements in this proxy statement/prospectus that are not historical
facts are hereby identified as "forward-looking statements" for the purpose of
the safe harbor provided by Section 21E of the Exchange Act and Section 27A of
the Securities Act. These forward-looking statements, including, without
limitation, those relating to the future business prospects, revenues and
income, in each case relating to Stryker and IGT, wherever they occur in this
proxy statement/prospectus, are necessarily estimates reflecting the best
judgment of the senior management of Stryker and IGT and involve a number of
risks and uncertainties that could cause actual results to differ materially
from those suggested by the forward-looking statements. These forward-looking
statements should, therefore, be considered in light of various important
factors, including those set forth in this proxy statement/prospectus. In the
case of Stryker, factors that could cause actual results and financial condition
to differ from Stryker's expectations include, without limitation, changes in
economic conditions that adversely affect the demand for Stryker's products,
changes in foreign exchange rates, changes in financial markets and changes in
the competitive environment. In the case of IGT, such factors include, but are
not limited to, potential fluctuations in operating results, bank debt, need for
additional capital, dependence on few customers, technological change,
protection of intellectual property rights, competition, regulation by the FDA,
risk of product liability claims and dependence on key management and technical
personnel. See "Management's Discussion of Financial Condition and Results of
Operations -- Factors Affecting IGT's Business, Operating Results and Financial
Conditions" on page 28.
Words such as "estimate," "project," "plan," "intend," "expect,"
"believe" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are found at various places
throughout this proxy statement/prospectus and the other documents incorporated
by reference or referred to herein, including, but not limited to, the Annual
Report on Form 10-K for the year ended December 31, 1999 and Quarterly Report on
Form 10-Q for the quarter ended March 31, 2000 of Stryker, including any
amendments, and the Annual Report on Form 10-KSB for the year ended December 31,
1999 and the Quarterly Report on Form 10-QSB for the quarter ended March 31,
2000 of IGT, including any amendments. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this proxy statement/prospectus. Neither Stryker nor IGT undertakes any
obligation to publicly update or release any revisions to these forward-looking
statements to reflect events or circumstances after the date of this proxy
statement/prospectus or to reflect the occurrence of unanticipated events.
65
<PAGE> 75
INDEX TO IGT FINANCIAL STATEMENTS
AUDITED ANNUAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
o Report of Independent Accountants.......................................... F-1
o Consolidated Balance Sheet as of December 31, 1999 and 1998................ F-2
o Consolidated Statement of Operations for the Years Ended
December 31, 1999 and 1998............................................. F-3
o Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the Years Ended December 31, 1999 and 1998............... F-4
o Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999 and 1998............................................. F-5
o Notes to Consolidated Financial Statements................................. F-6
UNAUDITED INTERIM FINANCIAL INFORMATION
o Consolidated Balance Sheet as of March 31, 2000 and
December 31, 1999...................................................... F-16
o Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999.......................................... F-17
o Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999.......................................... F-18
o Notes to Consolidated Financial Statements................................. F-19
</TABLE>
66
<PAGE> 76
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Image Guided Technologies, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of Image Guided Technologies, Inc. and its subsidiary at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Broomfield, Colorado
March 27, 2000
<PAGE> 77
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
ASSETS 1999 1998
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,000 $ 23,000
Accounts receivable, net of allowance for doubtful accounts of
$80,000 and $76,000, respectively 508,000 1,710,000
Inventories, net 832,000 921,000
Investment - discontinued operations -- 1,187,000
Other current assets 101,000 174,000
------------ ------------
Total current assets 1,454,000 4,015,000
Property and equipment, net of accumulated depreciation of
$847,000 and $602,000, respectively 643,000 650,000
Goodwill, net of accumulated amortization of $60,000
and $31,000, respectively 521,000 550,000
Investment - discontinued operations -- 4,076,000
Other assets 213,000 222,000
------------ ------------
Total assets $ 2,831,000 $ 9,513,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 914,000 $ 860,000
Accrued liabilities 482,000 403,000
Line of credit 42,000 2,524,000
Current portion of capital lease obligations 87,000 1,332,000
Notes payable 500,000 2,986,000
------------ ------------
Total current liabilities 2,025,000 8,105,000
Capital lease obligations 253,000 38,000
------------ ------------
Total liabilities 2,278,000 8,143,000
Commitments and Contingencies - Note 8
Shareholders' Equity:
Common Stock, no par value; 10,000,000 shares authorized;
4,061,945 and 3,705,222 shares issued and outstanding, respectively 10,527,000 10,456,000
Accumulated deficit (9,974,000) (9,086,000)
------------ ------------
Total shareholders' equity 553,000 1,370,000
------------ ------------
Total liabilities and shareholders' equity $ 2,831,000 $ 9,513,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 78
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenue $ 6,432,000 $ 7,154,000
Cost of goods sold 3,850,000 4,395,000
------------ ------------
Gross profit 2,582,000 2,759,000
------------ ------------
Operating expenses:
Research and development 1,272,000 1,470,000
Selling and marketing 1,023,000 723,000
General and administrative 1,696,000 1,816,000
------------ ------------
Total operating expenses 3,991,000 4,009,000
------------ ------------
Operating loss (1,409,000) (1,250,000)
Other income (expense):
Interest and other expense (311,000) (681,000)
Other income 2,000 90,000
------------ ------------
Loss from continuing operations (1,718,000) (1,841,000)
Discontinued operations:
Income from discontinued operations 162,000 185,000
Gain (loss) on disposal 668,000 (4,411,000)
Extraordinary item--loss on early
extinguishment of debt -- (253,000)
------------ ------------
Net loss $ (888,000) $ (6,320,000)
============ ============
Earnings (loss) per common share, basic and diluted:
Loss from continuing operations $ (0.45) $ (0.50)
============ ============
Earnings (loss) from discontinued operations $ 0.22 $ (1.14)
============ ============
Loss from extraordinary item $ -- $ (0.07)
============ ============
Net loss $ (0.23) $ (1.71)
============ ============
Weighted average common shares, basic and diluted 3,852,570 3,705,222
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 79
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31,
1997 3,693,822 $ 10,273,000 $ (2,766,000) $ 7,507,000
Exercise of stock options 11,400 14,000 -- 14,000
Warrants issued -- 169,000 -- 169,000
Net loss -- -- (6,320,000) (6,320,000)
------------ ------------ ------------ ------------
Balance at December 31,
1998 3,705,222 $ 10,456,000 $ (9,086,000) $ 1,370,000
Exercise of stock options 3,875 1,000 -- 1,000
Common Stock issued 352,848 70,000 -- 70,000
Net loss -- -- (888,000) (888,000)
------------ ------------ ------------ ------------
Balance at December 31,
1999 4,061,945 $ 10,527,000 $ (9,974,000) $ 553,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 80
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (888,000) $ (6,320,000)
Income (loss) from discontinued operations 830,000 (4,226,000)
------------ ------------
Loss from continuing operations (1,718,000) (2,094,000)
Adjustments to reconcile loss from continuing operations to net
cash provided by (used in) operating activities:
Extraordinary loss, net of tax -- 253,000
Depreciation and amortization 269,000 440,000
Provision for doubtful accounts 4,000 (100,000)
Net loss on disposition of assets -- (14,000)
Provision for inventory obsolescence 84,000 70,000
Changes in operating assets and liabilities, net of acquired assets and
liabilities:
Accounts receivable 1,198,000 (270,000)
Inventories 5,000 119,000
Other assets 106,000 13,000
Accounts payable 55,000 322,000
Accrued liabilities 79,000 78,000
Net cash provided by discontinued operations 161,000 587,000
------------ ------------
Net cash provided by (used in) operating activities 243,000 (596,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (238,000) (165,000)
Proceeds from sale of discontinued operations 5,931,000 --
Cash received from sales of property -- 64,000
Investment in patents and trademarks (19,000) --
------------ ------------
Net cash provided by (used in) investing activities 5,674,000 (101,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales/lease back arrangements 325,000 --
Proceeds from exercise of stock options 1,000 14,000
Proceeds from debt -- 2,700,000
Principal payments on term loans (2,486,000) (587,000)
Principal payments on line of credit (2,524,000) (194,000)
Proceeds from sale of stock 70,000 --
Proceeds from line of credit 42,000 2,524,000
Payments on capital lease obligations (1,355,000) 75,000
Principal payments to extinguish term loan -- (5,028,000)
------------ ------------
Net cash used in financing activities (5,927,000) (496,000)
------------ ------------
Net decrease in cash and cash equivalents (10,000) (1,193,000)
Cash and cash equivalents at beginning of period 23,000 1,216,000
------------ ------------
Cash and cash equivalents at end of period $ 13,000 $ 23,000
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 311,000 $ 512,000
Equipment acquired under capital lease 325,000 --
Warrants issued -- 169,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 81
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ACCOUNTING POLICIES
Description of Business
Image Guided Technologies, Inc. (the "Company") designs, develops,
manufactures and markets proprietary, hand-held electro-optical 3-dimensional
position input devices for medical and industrial applications as well as
minimally invasive surgical instruments.
As more fully described in Note 11, the Company adopted a plan to sell
the net assets of the general instrument and implant business units of its
wholly owned subsidiary, Brimfield Precision, Inc. ("BPI"). Management believes
that the general instrument and implant business units represent a separate and
major line of business.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. The consolidated financial statements
of the Company have been adjusted and restated to reflect the results of
operations and net assets of the general instrument and implant business units
of BPI as discontinued operations for the years ended December 31, 1999 and
1998. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Revenue Recognition and Warranty
Revenue is recognized upon shipment of product to the customer. The
Company offers a one-year warranty on certain of its products. The costs of
product warranties are accrued at the time sales are recorded based upon
estimates of costs to be incurred to repair or replace items under warranty.
Such cost estimates are based on the Company's historical warranty experience.
During 1999, the Company granted a customer an exclusive license for
its technology for use in the automotive, truck and golf cart markets together
with a six month agreement to provide services. The Company recognized the
revenue from the arrangement ratably over the period during which the services
were performed, in accordance with SOP 97-2 "Software Revenue Recognition".
Inventories
Inventories are carried at the lower of cost or market. Cost is
determined using the first-in, first-out ("FIFO") method. Cost includes
materials, labor and manufacturing overhead.
Goodwill
Goodwill represents the excess of cost over the fair value of those net
assets acquired in the BPI purchase that are to be retained by the Company. The
goodwill is being amortized on a straight-line basis over 20 years. Amortization
expense of goodwill related to continuing operations was $28,960 in both 1999
and 1998, respectively. The Company analyzes the recoverability of the goodwill
based on the estimated future undiscounted cash flows of the acquired company.
If the Company determines that the goodwill is impaired, the goodwill is then
written down to its estimated fair value based on discounted cash flows.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are carried at cost which approximates fair value.
F-6
<PAGE> 82
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the related reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including
cash, short-term trade receivables and payables, and notes payable approximate
their fair values.
Concentration of Credit Risk
The majority of the Company's revenues during 1999 and 1998 resulted from sales
of a single product which is used to determine the location of a surgical
instrument in a three dimensional space. Customers accounting for 10% or more of
total revenues during 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Customer A 21% 10%
Customer B 20% 32%
Customer C 15% 11%
Customer D 9% 15%
</TABLE>
At December 31, 1999, 24%, 20%, 0%, and 18% of accounts receivable were
with customers A, B, C and D respectively. At December 31, 1998, 14%, 25%, 31%
and 8% of accounts receivable were with customers A, B, C, and D respectively.
Export Revenue
The Company had export revenue totaling approximately $1,727,000 and
$1,679,000 for the years ended December 31, 1999 and 1998, respectively,
principally to Germany, Israel and Canada.
Related Parties
The Company has entered into various transactions, including the sale
and purchase of products and the sublease of a manufacturing facility, with
Blackstone Medical, Inc. ("BMI"), a corporation in which a director of the
Company holds an equity interest. In 1999 and 1998, the volume of such sales and
purchases aggregated approximately $345,000 and $903,000, respectively, and
rental payments approximated $5,000 per month. The Company also leases equipment
and computer network and telephone services to BMI on a month-to-month basis. In
addition, the Company issued a five-year warrant to purchase up to 75,000 shares
of the Company's common stock at any time for $2.281 per share to A. C. Allen &
Company, a company controlled by a former director, for consulting services
provided to IGT. The warrant was valued at approximately $68,000 at the date of
issuance via application of the Black-Scholes pricing model using the following
assumptions: volatility rate of 35%, risk-free interest rate of 5.51%, expected
term of 5 years, and dividend yield rate of 0%.
Earnings per Share
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128") for all periods presented. Basic earnings per share excludes any dilution
from common stock equivalents and is based on the weighted average common shares
outstanding. Diluted earnings per share includes dilution from the Company's
stock options and warrants, calculated under the treasury stock method.
Potentially dilutive shares as of December 31, 1999 and 1998 aggregated
1,880,036
F-7
<PAGE> 83
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
and 1,976,863, respectively. Due to the Company's net loss in 1999 and 1998,
basic and diluted earnings per share amounts are equal so as to exclude
anti-dilutive effects.
2. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Raw materials $ 725,000 $ 410,000
Work-in-process 181,000 214,000
Finished goods 141,000 428,000
------------ ------------
1,047,000 1,052,000
Less allowance for obsolescence (215,000) (131,000)
------------ ------------
$ 832,000 $ 921,000
============ ============
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a
straight-line basis over their estimated useful lives of one to twenty
years. Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
ESTIMATED USEFUL LIFE 1999 1998
--------------------- ------------ ------------
<S> <C> <C> <C>
Building and Building Improvements 3 - 20 years $ 63,000 $ 77,000
Production equipment 1 - 10 years 816,000 592,000
Computer equipment 1 - 5 years 318,000 281,000
Furniture and fixtures 2 - 7 years 129,000 134,000
Other 1 - 5 years 164,000 169,000
------------ ------------
1,490,000 1,253,000
Less accumulated depreciation (847,000) (603,000)
------------ ------------
$ 643,000 $ 650,000
============ ============
</TABLE>
Included in computer equipment are assets obtained under capital leases
with a net book value of $145,124 at December 31, 1999.
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Employee accruals $179,000 $187,000
Warranty reserves 85,000 56,000
Other accrued liabilities 218,000 160,000
-------- --------
Total accrued liabilities $482,000 $403,000
======== ========
</TABLE>
F-8
<PAGE> 84
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
5. DEBT
Notes payable
Notes payable consist of the following at December 31, 1999:
<TABLE>
<S> <C>
Subordinated note payable due December 12, 1998, interest at a rate of
12%, interest paid monthly and principal at maturity, secured by all
assets of the Company; junior to the senior note payable to bank. $ 500,000
==========
The Company is currently in default under this note payable to
Cruttenden Roth, Inc. While interest has been paid to date, the
Company owes the $500,000 principal in full. The note is subordinated
to the Company's bank debt and the holders of the note are not
permitted under the terms of the subordination agreement with the bank
to sue upon or collect, nor to make any demand for, nor to exercise
any rights or remedies to enforce, the note so long as any bank
obligation remains outstanding.
Notes payable consist of the following at December 31, 1998:
Senior note payable due April 3, 2003 interest at rate equal to the
bank's base rate plus one-half of one percent, payable in monthly
installments of $40,000 plus interest, secured by all assets of the $2,380,000
Company. The interest rate at December 31, 1998 was 10.25%.
Subordinated note payable to Cruttenden Roth, Inc. due December 12,
1998, interest at a rate of 12%, interest paid monthly and principal at
maturity, secured by all assets of the Company; junior to the senior
note payable to bank. 500,000
Note payable, at one-quarter percent in excess of the Prime Rate,
payable in monthly installments of $2,167 plus interest, secured by
machinery, maturing in August 2000. The interest rate at December 31,
1998 was 8.5%. 44,000
Note payable, at one-quarter percent in excess of the Prime Rate,
payable in monthly installments of $2,833 plus interest, secured by
machinery, maturing in October 2000. The interest rate at December 31,
1998 was 8.5%. 62,000
----------
Total notes payable, December 31, 1998 $2,986,000
==========
</TABLE>
F-9
<PAGE> 85
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
Line of Credit/Accounts Receivable Factoring
In December of 1997, the Company entered into an agreement with a bank
for a $2,000,000 revolving line of credit secured by all assets of the Company,
maturing on June 30, 1999, and bearing interest at the rate of three quarters of
one percent in excess of the bank's prime lending rate. In April 1998, the
Company assigned its $2,000,000 revolving line of credit to BankBoston pursuant
to a twenty-four month revolving loan of up to $3,000,000 at an interest rate
initially equal to the Bank's base rate plus one-quarter of one percent. Due to
various loan covenant violations at December 31, 1998, the $3,000,000 revolving
loan was capped at $2,250,000 with an interest rate of 10% which included an
interest rate increase of one-quarter of a percent over the original interest
rate on revolving loan. As of December 31, 1998, the balance on the revolving
loan was $2,524,000.
On April 9, 1999, BankBoston assigned its loan to Silicon Valley
Financial Services, a division of Silicon Valley Bank. After the assignment,
Silicon and the Company amended and restated the loan to provide for a loan
facility under which Silicon would purchase certain of the Company's
receivables, initially at the rates of 90% and subsequently decreasing to 75% of
their face amount. Under the facility, the Company will repurchase from Silicon
any uncollected receivables and pay Silicon a finance charge equal to 2% per
month on the face amount of all purchased receivables and an administrative fee
of 1.5% of the face amount of each purchased receivable. Silicon has no
obligation to purchase any receivable under the facility and in no event shall
the aggregate amount of all purchased receivables outstanding exceed $650,000.
As of December 31, 1999, approximately $42,000 of the Company's account
receivables had been purchased by Silicon.
During 1998, IGT realized an extraordinary loss of $253,000 related to
warrant costs associated with the early extinguishment of debt.
6. INCOME TAXES
There is no provision for income taxes in 1999 or 1998 because the
Company incurred losses in each year. The components of the Company's deferred
income tax assets and liabilities under FAS 109 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net operating loss carryforwards $ 1,162,000 $ 1,446,000
R&D and minimum tax credits 144,000 141,000
Reserves and Allowances 146,000 96,000
Depreciation (21,000) (347,000)
Deferred revenue -- (18,000)
Refinancing Costs 3,000 (118,000)
Other 57,000 31,000
------------ ------------
1,491,000 1,231,000
Less valuation allowance (1,491,000) (1,231,000)
------------ ------------
Net deferred tax asset $ -- $ --
============ ============
</TABLE>
The Company has recorded a valuation allowance against its carryforward
tax benefits to the extent that it believes that it is more likely than not all
of such benefits will not be realized in the foreseeable future. The Company's
assessment of this valuation allowance was made using all available evidence,
both positive and negative. In particular, the Company considered both its
historical results and its projections of profitability for only the reasonably
foreseeable future periods. The Company's realization of its recorded net
deferred tax assets is dependent on future taxable income and therefore, the
Company is not assured that such benefits will be realized.
F-10
<PAGE> 86
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
The following is a reconciliation of the statutory U.S. Federal income
tax rate to the Company's effective income tax rate of continuing operations:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Federal income tax rate 34.0% 34.0%
State income tax, net of federal benefit 3.7 3.7
Warrant Expense (1.1) (0.6)
Goodwill amortization (1.1) (1.3)
Meals and entertainment (0.7) (0.2)
Effect of change in valuation allowance and other items (34.8) (35.6)
-------- --------
Effective income tax rate -- % -- %
======== ========
</TABLE>
No tax benefit is recorded related to the discontinued operations and
the extraordinary item because any benefit is completely offset by nondeductible
goodwill and the change in valuation allowance.
At December 31, 1998, and December 31, 1999, the Company had net
operating loss carryforwards of approximately $3,878,000 and $ 3,116,000,
respectively, which expire from 2008 to 2019. As a result of certain changes in
the Company's ownership, the future utilization of these net operating loss
carryforwards will be limited. The Company also has research and development tax
credit carryforwards for federal income tax purposes of approximately $141,000,
which begin to expire in 2006.
7. SHAREHOLDERS' EQUITY
Common Stock
At December 31, 1999, the Company has reserved an aggregate of
1,880,036 shares of its common stock for stock issuable upon exercise of
outstanding options and warrants.
Stock Options and Warrants
At December 31, 1999, the Company has two stock option plans, one
adopted in 1994 and one adopted in 1997.
The Company has authorized 1,440,000 options to be granted pursuant to
its stock option plans. As of December 31, 1999, there were 149,964 options
available for grant under the plans. Options are generally granted at fair
market value as determined by the Board of Directors at the date of grant and
vest over a three-year period. At December 31, 1999, there were 918,444 options
exercisable. During 1999, the Company granted 200,000 nonqualified stock options
to the Company's C.E.O. which were not included in either the 1994 nor 1997
plans.
In connection with the acquisition of Brimfield Precision Inc., the
Company financed a portion of the purchase price with debt and detachable
warrants. The Company issued 260,000 warrants with an exercise price of $2.92.
The warrants are exercisable over seven years. The warrants had a fair value of
$227,000 determined at date of issuance via application of the Black-Scholes
pricing model using the following assumptions: volatility rate of 35%; risk-free
interest rate of 5.28%; expected term of 3.5 years; and dividend yield rate
of 0%.
In 1998, the Company issued 75,000, 80,000, and 10,000 additional
warrants with exercise prices of $2.28, $2.65 and $2.86, respectively, with
terms of 5, 7 and 7 years, respectively. The warrants were valued, in aggregate,
at approximately $269,000 determined at their respective dates of issuance via
application of the Black-Scholes pricing model using the following weighted
average assumptions: volatility rate of 32%; risk-free interest rate of 5.51%;
expected term of 6.3 years; and dividend yield rate of 0%.
F-11
<PAGE> 87
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
A summary of the changes in options and warrants during the two years
ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
WARRANTS EXERCISE PRICE OPTIONS EXERCISE PRICE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding December 31, 1997 425,000 $ 2.74 810,951 $ 2.45
Granted 165,000 2.50 728,700 1.32
Exercised -- -- (11,400) .99
Forfeited -- -- (141,388) 2.79
-------------- --------------
Outstanding December 31, 1998 590,000 3.92 1,386,863 1.38
Granted -- -- 521,000 .43
Exercised -- -- (3,875) .38
Forfeited -- -- (613,952) 1.38
-------------- --------------
Outstanding December 31, 1999 590,000 3.92 1,290,036 .95
============== ==============
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
RANGE OF AVERAGE WEIGHTED WEIGHTED
EXERCISE NUMBER REMAINING AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING CONTRACT LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.25 - 1.00 626,775 4.49 $ 0.47 440,465 $ 0.51
$1.24 - 1.67 282,095 1.56 $ 1.26 274,415 $ 1.24
$2.00 - 2.94 381,166 4.16 $ 2.25 203,564 $ 2.21
----------- -----------
1,290,036 918,444
=========== ===========
</TABLE>
The following table summarizes information concerning outstanding
warrants at December 31, 1999:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
-----------------------------------------------------
AVERAGE
NUMBER REMAINING
EXERCISE PRICE OUTSTANDING CONTRACT LIFE
-------------- ----------- -------------
<S> <C> <C>
$ 1.25 40,000 1.00
$ 2.28 75,000 1.00
$ 2.83 350,000 5.00
$ 5.75 125,000 1.00
-----------
590,000
===========
</TABLE>
All outstanding warrants are exercisable at December 31, 1999.
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123"), issued in October 1995, established
financial accounting and reporting standards for stock-based employee
compensation plans. As permitted by SFAS 123, the Company elected to continue to
use Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations, in accounting for its Stock Option Plan.
F-12
<PAGE> 88
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
If the Company had elected to recognize compensation cost based on the
fair value of the options granted at the grant date as well as the vesting
provisions under the Stock Option Plan, the net loss from continuing operations
for 1999 would have been $(1,932,000) or $(.50) per basic and diluted share. Net
loss from continuing operations for 1998 would have been $(2,021,000), or $(.55)
and $(.55) per basic and diluted share, respectively. The weighted average fair
value of the options granted during 1999 and 1998 is estimated at $.15 and $.69
per share, respectively. The average fair value of the warrants granted during
1998 is estimated at $.66.
The options were valued on the date of grant using the Black-Scholes
option pricing model with the following assumptions: volatility of 15% and 29%
in 1999 and 1998, respectively; risk free interest rates of 5.3% and 5.2% for
1999 and 1998, respectively; expected terms of five years, and no dividend yield
rate.
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under capital leases expiring in
various years through 2004. Future minimum payments under equipment leases are
as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
2000 $ 135,000
2001 95,000
2002 95,000
2003 94,000
2004 39,000
---------
Total minimum future lease payments $ 458,000
Less amount representing interest 118,000
---------
Present value of minimum lease payments $ 340,000
Less current portion of capital lease obligations 87,000
---------
Non-current portion of capital lease obligations $ 253,000
=========
</TABLE>
The Company leases office space under non-cancelable operating leases.
The Company has required future minimum rental payments of $203,000, and
$212,000 for the years ended December 31, 1999 and 2000, respectively.
The Company subleases a facility in Springfield, Massachusetts from an
entity, the same stockholders of which had owned Brimfield Precision, Inc. The
lease agreement requires payments of $6,000 per month until December 2001.
9. LEGAL PROCEEDINGS
The Company is a party to one pending legal proceeding. This case was
filed in the Chancery Court for the State of Tennessee in Davidson County on
October 27, 1998. Plaintiff was an exclusive sales representative for Defendant,
Springfield Surgical Instruments, Inc. f/k/a Brimfield Precision, Inc., for
certain products in Defendant's Principle and Principle Advantage line of
surgical instruments. Plaintiff claims the products were defective and sued
Defendant for breach of contract, breach of express and implied warranties,
negligent misrepresentation, fraud and violations of the Tennessee Consumer
Protection Act. In January 2000, Plaintiff filed a Motion for Summary Judgment
claiming the instruments sold by Defendant were defective and seeking to return
the instruments in its possession and to obtain, in addition to other damages, a
refund of the purchase price paid of $101,187. Defendant filed a motion opposing
Plaintiff's Motion of Summary Judgment claiming, among other things, that the
instruments were not defective. The judge denied Plaintiff's Motion, and the
trial is currently expected during the fourth quarter of fiscal 2000. The
Company is currently unable to determine (i) the ultimate outcome or resolution
of this legal proceeding, (ii) whether resolution of this matter will have a
material adverse impact on the Company's financial position or results of
operations, or (iii) a reasonable estimate of the amount of loss, if any, that
may result from resolution of this matter.
F-13
<PAGE> 89
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
In addition, the Company has received a notice of a claim pursuant to
an employment agreement between Brimfield Precision, Inc. and an individual
claiming that he is entitled to payment of $200,000 per year plus benefits for
two years and eight months. While the outcome of this matter cannot be predicted
with certainty, management expects it will not have a material adverse affect on
the consolidated financial position or results of operations of the Company.
10. RETIREMENT PLAN
In 1996, the Company adopted the Image Guided Technologies, Inc. 401(k)
Profit Sharing Plan covering substantially all employees of Image Guided
Technologies, Inc. Employees may contribute up to 15% of compensation not to
exceed Internal Revenue Service limits. In connection with the Brimfield
Precision Inc. acquisition, the Company also has the Brimfield Precision, Inc.
401(k) Savings and Retirement Plan covering substantially all employees of
Brimfield Precision, Inc. Employees may contribute from 2% to 15% of
compensation not to exceed the Internal Revenue Service limits. The Company has
not made a matching contribution for the Brimfield Precision, Inc. 401(k)
Savings and Retirement Plan to date.
11. DISCONTINUED OPERATIONS
On September 24, 1998, the Company adopted a plan to sell the net
assets of the general instrument and implant business units of its wholly owned
subsidiary, Brimfield Precision, Inc. Management believes that the general
instrument and implant business units represent a separate and major line of
business. Accordingly, the consolidated financial statements of the Company have
been adjusted and restated to reflect the results of operations and net assets
of the general instrument and implant business units as a discontinued operation
for the years ended December 31, 1999 and 1998. Net assets of the discontinued
operations are carried at estimated net realizable value and are included in the
accompanying balance sheet as an Investment in Discontinued Operations, net of
liabilities to be assumed by the buyer. Such net assets consist primarily of
accounts receivable, inventories and property, plant, and equipment. The
original estimated loss on the disposal of the net assets was $4,411,000,
consisting of an estimated loss on disposal of the business of $4,348,000 and a
provision of $63,000 for anticipated operating losses until disposal.
On March 30, 1999, BPI sold substantially all the assets of its general
surgical instruments, orthopedic implants and orthopedic instrumentation
business. The sales price was $5,931,000 in cash plus assumption of certain
trade payables and accrued liabilities. The sale of such assets, as consummated,
resulted in a loss on disposal of $3,743,000 compared to the originally
estimated loss of $4,411,000 reflected in the 1998 statement of operations. The
$668,000 reduction in the actual loss on disposal is reflected as a gain in the
1999 statement of operations. Revenues of the discontinued operations were
$1,506,000 and $7,055,000 for the years ended December 31, 1999 and 1998,
respectively.
The funds received from the sale were used to pay off amounts
outstanding under the BPI's equipment leases (most of which equipment was sold
in the sale noted above), pay off the Company's term loan from BankBoston and
pay down the Company's revolving loan with BankBoston.
F-14
<PAGE> 90
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
12. SEGMENT INFORMATION
The Company is organized into two reportable segments based on the
definitions of segments provided under SFAS 131: optical localizers and surgical
instruments. The optical localizer segment typically sells a system which
consists of the following: a proprietary microprocessor-based control system,
proprietary software to calculate the digital coordinate location of light
emitting diodes ("LEDs"), a multi-camera array for detecting the LED emissions,
a relative position dynamic reference device connected to the measured object,
and a number of custom-manufactured LEDs mounted on the device or instrument to
be tracked in 3D space. The surgical instrument segment sells stainless steel
surgical instruments used for minimally invasive surgery and other surgical
procedures.
The accounting policies utilized in reporting these segments are the
same as those described in Note 1, "Summary of Significant Accounting Policies."
The Company does not have any intersegment revenue and evaluates segment
performance based upon revenue and gross profit. The segment gross profit equals
consolidated gross profit and the Company does not allocate research and product
development costs; selling, general, administrative and other income and
expense; interest income; interest expense; provision for income taxes; or
extraordinary items to the segments. The revenue and gross profit by segment is
as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
REVENUE: Optical localizers $ 5,266,000 $ 4,712,000
Surgical instruments 1,166,000 2,442,000
------------ ------------
Total revenue $ 6,432,000 $ 7,154,000
============ ============
GROSS PROFIT: Optical localizers $ 2,840,000 $ 2,300,000
Surgical instruments (258,000) 459,000
------------ ------------
Total gross profit $ 2,582,000 $ 2,759,000
============ ============
</TABLE>
13. SUBSEQUENT EVENTS (UNAUDITED)
On May 6, 2000, the Company's Board of Directors (the "Board") approved
a letter of intent from Stryker Corporation ("Stryker") to acquire the
outstanding common stock of IGT. The Board signed the merger agreement on June
1, 2000.
On June 1, 2000, the Company issued 383,142 shares of preferred stock
to Stryker for $300,000 in cash proceeds. The preferred stock is convertible
into IGT common stock on a share-for-share basis, subject to certain holding
restrictions. The transaction was entered into to provide funding for the
Company's continuing operations pending the closing of the merger between
Stryker and IGT.
F-15
<PAGE> 91
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
------ ------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,000 $ 13,000
Accounts receivable, net of allowance for doubtful accounts of
$72,000 and $80,000, respectively 573,000 508,000
Inventories, net 814,000 832,000
Other current assets 73,000 101,000
------------ ------------
Total current assets 1,476,000 1,454,000
Property and equipment, net of accumulated depreciation of
$905,000 and $847,000, respectively 610,000 643,000
Goodwill, net of accumulated amortization of $67,000
and $60,000, respectively 514,000 521,000
Other assets 212,000 213,000
------------ ------------
Total assets $ 2,812,000 $ 2,831,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,044,000 $ 914,000
Accrued liabilities 349,000 482,000
Unearned revenue 164,000 --
Line of credit -- 42,000
Current portion of capital lease obligations 87,000 87,000
Notes payable 500,000 500,000
------------ ------------
Total current liabilities 2,144,000 2,025,000
Capital lease obligations 232,000 253,000
------------ ------------
Total liabilities 2,376,000 2,278,000
Commitments and Contingencies - Note 5
Shareholders' Equity:
Common Stock, no par value; 10,000,000 shares authorized;
4,061,945 shares issued and outstanding 10,527,000 10,527,000
Accumulated deficit (10,091,000) (9,974,000)
------------ ------------
Total shareholders' equity 436,000 553,000
------------ ------------
Total liabilities and shareholders' equity $ 2,812,000 $ 2,831,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE> 92
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Revenue $ 1,777,000 $ 1,854,000
Cost of goods sold 1,053,000 1,031,000
------------ ------------
Gross profit 724,000 823,000
------------ ------------
Operating expenses:
Research and development 321,000 345,000
Selling and marketing 128,000 307,000
General and administrative 335,000 531,000
------------ ------------
Total operating expenses 784,000 1,183,000
------------ ------------
Operating loss (60,000) (360,000)
Other expense (57,000) (134,000)
------------ ------------
Loss from continuing operations (117,000) (494,000)
Discontinued operations:
Income from discontinued operations -- 162,000
Gain on disposal -- 668,000
------------ ------------
Net income (loss) $ (117,000) $ 336,000
============ ============
Earnings (loss) per common share, basic and diluted:
Loss from continuing operations $ (0.03) $ (0.13)
============ ============
Earnings from discontinued operations -- $ 0.22
============ ============
Net income (loss) $ (0.03) $ 0.09
============ ============
Weighted average common shares outstanding,
basic and diluted 4,061,945 3,705,222
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 93
IMAGE GUIDED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (117,000) $ 336,000
Income from discontinued operations -- 830,000
------------ ------------
Loss from continuing operations (117,000) (494,000)
Adjustments to reconcile loss from continuing operations
to net cash used in continuing operating activities:
Depreciation and amortization 66,000 53,000
Provision for inventory obsolescence 10,000 --
Provision for doubtful accounts (8,000) 7,000
Changes in operating assets and liabilities:
Accounts receivable (57,000) (119,000)
Inventories 8,000 2,000
Other assets 29,000 (33,000)
Accounts payable 129,000 312,000
Accrued liabilities (132,000) (26,000)
Unearned revenue 164,000 --
Net cash provided by discontinued operations -- 162,000
------------ ------------
Net cash provided by (used in) continuing operating
activities 92,000 (136,000)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (25,000) (40,000)
Proceeds from sale of discontinued operations -- 5,931,000
------------ ------------
Net cash provided by (used in) investing activities (25,000) 5,891,000
------------ ------------
Cash flows from financing activities:
Payment of revolving loan (42,000) (1,936,000)
Payment of capital lease obligations (22,000) (1,304,000)
Payment of notes payable -- (2,486,000)
------------ ------------
Net cash used in financing activities (64,000) (5,726,000)
------------ ------------
Net increase in cash and cash equivalents 3,000 29,000
Cash and cash equivalents at beginning of period 13,000 23,000
------------ ------------
Cash and cash equivalents at end of period $ 16,000 $ 52,000
============ ============
Supplemental Cash Flow Disclosures:
Interest paid $ 57,000 $ 153,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 94
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Springfield Surgical Instruments, Inc.
(Springfield), f/k/a Brimfield Precision, Inc. The consolidated financial
statements have been adjusted and restated to reflect the results of operations
and net assets of the general instrument and implant business units of
Springfield as discontinued operations for the three months ended March 31, 1999
and twelve months ended December 31, 1999. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying unaudited financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. The
financial statements reflect all adjustments (consisting of normal recurring
items) which, in the opinion of management, are necessary to present fairly the
financial position of the Company as of March 31, 2000 and its results of
operations and cash flows for the three-month period then ended. The unaudited
financial statements should be read with the complete financial statements and
footnotes thereto included in the Company's Form 10-KSB for the year ended
December 31, 1999, previously filed with the Securities and Exchange Commission.
NOTE 2 - SALE OF BRIMFIELD PRECISION INC.'S BUSINESSES
On March 30, 1999, the Company sold substantially all the assets of its general
surgical instruments, orthopedic implants and orthopedic instrumentation
business located at Brimfield, Massachusetts. The adjusted sales price was
$6,158,000 in cash plus assumption of certain trade payables and accrued
liabilities totaling $449,000.
The funds received from the net asset sale were used to pay off amounts
outstanding under equipment leases and the Company's term loan with BankBoston
and to pay down the Company's revolving loan with BankBoston.
NOTE 3 - LINE OF CREDIT
On April 9, 1999, BankBoston assigned its loan to Silicon Valley Financial
Services ("Silicon"), a division of Silicon Valley Bank. After the assignment,
Silicon and the Company amended and restated the loan to provide for a loan
facility under which Silicon would purchase certain of the Company's
receivables, initially at the rates of 90% and decreasing to 75% of the face
amount of the receivables. Under the facility, the Company will repurchase from
Silicon any uncollected receivables which are over 90 days old from the date of
the invoice and pay Silicon a finance charge equal to 2% per month of the face
amount of all purchased receivables and an administrative fee of 1.5% of the
face amount of each purchased receivable. Silicon has no obligation to purchase
any receivable under the facility and in no event shall the aggregate amount of
all purchased receivables outstanding exceed $650,000. As of March 31, 2000, the
balance of the Company's accounts receivable that had been purchased by Silicon
was approximately $163,000.
F-19
<PAGE> 95
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 4 - SEGMENT INFORMATION
The Company has two business segments--optical localizers and surgical
instruments. The optical localizer segment typically sells a system which
consists of the following: a number of light-emitting diodes ("LED's") used as
markers mounted on a pointer device or surgical instrument, a relative position
dynamic reference device connected to a patient or industrial part, a
multi-camera array for detecting positions of the LED's in three dimensional
space, a proprietary microprocessor-based control system and a proprietary
software package. The surgical instrument segment sells stainless steel surgical
instruments used for minimally invasive surgery and other surgical procedures
including the newly emerging image guided surgical instrument market segment.
The Company does not have a significant amount of inter-segment revenue and
evaluates segment performance based upon revenue and gross profit. The combined
segments gross profit equals consolidated gross profit. The Company does not
allocate research and product development costs, selling and marketing, general
and administrative expenses, other income and expense or income taxes to the two
segments. The revenue and gross profit by segment for the first three months of
the year are as follows.
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
REVENUE: Optical localizers $1,399,000 $1,480,000
Surgical instruments 378,000 374,000
---------- ----------
Total revenue $1,777,000 $1,854,000
========== ==========
GROSS PROFIT: Optical localizers $ 721,000 $ 800,000
Surgical instruments 3,000 23,000
---------- ----------
Total gross profit $ 724,000 $ 823,000
========== ==========
</TABLE>
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is a party to one pending legal proceeding. This case was filed in
the Chancery Court for the State of Tennessee in Davidson County on October 27,
1998. Plaintiff was an exclusive sales representative for Defendant, Springfield
Surgical Instruments, Inc. f/k/a Brimfield Precision, Inc., for certain products
in Defendant's Principle and Principle Advantage line of surgical instruments.
Plaintiff claims the products were defective and sued Defendant for breach of
contract, breach of express and implied warranties, negligent misrepresentation,
fraud and violations of the Tennessee Consumer Protection Act. In January 2000,
Plaintiff filed a Motion for Summary Judgment claiming the instruments sold by
Defendant were defective and seeking to return the instruments in its possession
and to obtain, in addition to other damages, a refund of the purchase price paid
of $101,187. Defendant filed a motion opposing Plaintiff's Motion of Summary
Judgment claiming, among other things, that the instruments were not defective.
The judge denied Plaintiff's Motion, and the trial is currently expected during
the fourth quarter of fiscal 2000. The Company is currently unable to determine
(i) the ultimate outcome or resolution of this legal proceeding, (ii) whether
resolution of this matter will have a material adverse impact on the Company's
financial position or results of operations, or (iii) a reasonable estimate of
the amount of loss, if any, that may result from resolution of this matter.
In addition, the Company has received a notice of a claim pursuant to an
employment agreement between Brimfield Precision, Inc. and an individual
claiming that he is entitled to payment of $200,000 per year plus benefits for
two years and eight months. While the outcome of this matter cannot be predicted
with certainty, management expects it will not have a material adverse affect on
the consolidated financial position or results of operations of the Company.
F-20
<PAGE> 96
IMAGE GUIDED TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2000
NOTE 6 - DEFAULT ON NOTE PAYABLE
The Company is currently in default under its $500,000 12% subordinated
promissory note payable to Cruttenden Roth, Inc. While interest has been paid to
date, the Company owes the $500,000 principal amount in full. The note is
subordinated to the Company's bank debt and the holders of the note are not
permitted under the terms of the subordination agreement with the bank to sue
upon or collect, nor to make demand for, nor to exercise any rights or remedies
to enforce, the note, so long as any bank obligation remains outstanding.
F-21
<PAGE> 97
ANNEX A
===============================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF
JUNE 1, 2000
AMONG
IMAGE GUIDED TECHNOLOGIES, INC.,
STRYKER CORPORATION
AND
IGT ACQUISITION CO.
===============================================================================
<PAGE> 98
TABLE OF CONTENTS
ANNEX A
<TABLE>
<CAPTION>
PAGE
<S> <C>
AGREEMENT AND PLAN OF MERGER...................................................................................A-1
RECITALS.......................................................................................................A-1
1. DEFINITIONS...........................................................................................A-2
2. MERGER; CLOSING; EFFECTIVE TIME......................................................................A-10
2.1. THE MERGER..................................................................................A-10
2.2. CLOSING.....................................................................................A-10
2.3. ARTICLES OF INCORPORATION...................................................................A-10
2.4. THE BYLAWS..................................................................................A-10
2.5. DIRECTORS AND OFFICERS......................................................................A-11
2.6. MERGER CONSIDERATION........................................................................A-11
2.7. CONVERSION OF COMPANY COMMON STOCK..........................................................A-11
2.8. CONVERSION OF MERGER SUB SHARES.............................................................A-12
2.9. TERMINATION OF OPTIONS AND WARRANTS.........................................................A-12
2.10. EXCHANGE OF CERTIFICATES....................................................................A-12
2.11. NO FURTHER TRANSFERS........................................................................A-14
2.12. NO FRACTIONAL SHARES........................................................................A-14
2.13. STOCK LEGENDS; AGREEMENTS BY CERTAIN SHAREHOLDERS...........................................A-14
2.14. DISSENTERS' RIGHTS..........................................................................A-15
2.15. ADJUSTMENTS.................................................................................A-15
2.16. RETURN OF EXCHANGE FUND.....................................................................A-15
2.17. FURTHER ASSURANCES..........................................................................A-15
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................A-16
3.1. ORGANIZATION................................................................................A-16
3.2. CAPITAL STRUCTURE...........................................................................A-16
3.3. AUTHORITY; NO CONFLICT......................................................................A-17
3.4. TITLE TO PROPERTIES; ENCUMBRANCES...........................................................A-18
3.5. SEC DOCUMENTS...............................................................................A-20
3.6. NO UNDISCLOSED LIABILITIES..................................................................A-20
3.7. TAXES.......................................................................................A-20
3.8. NO MATERIAL ADVERSE CHANGE..................................................................A-21
</TABLE>
-i-
<PAGE> 99
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C>
3.9. EMPLOYEE BENEFITS...........................................................................A-21
3.10. COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.............................A-23
3.11. LEGAL PROCEEDINGS; ORDERS...................................................................A-25
3.12. ABSENCE OF CERTAIN CHANGES AND EVENTS.......................................................A-26
3.13. CONTRACTS; NO DEFAULTS......................................................................A-27
3.14. ENVIRONMENTAL MATTERS.......................................................................A-29
3.15. EMPLOYEES...................................................................................A-31
3.16. LABOR RELATIONS; COMPLIANCE.................................................................A-32
3.17. INTELLECTUAL PROPERTY.......................................................................A-32
3.18. REGULATORY MATTERS..........................................................................A-35
3.19. CERTAIN PAYMENTS............................................................................A-36
3.20. STRYKER REGISTRATION STATEMENT; COMPANY PROXY STATEMENT.....................................A-36
3.21. STATE TAKEOVER STATUTES.....................................................................A-37
3.22. DISCLOSURE..................................................................................A-37
3.23. TRANSACTIONS WITH RELATED PERSONS...........................................................A-37
3.24. BROKERS.....................................................................................A-37
4. REPRESENTATIONS AND WARRANTIES OF STRYKER AND MERGER SUB.............................................A-38
4.1. ORGANIZATION AND GOOD STANDING..............................................................A-38
4.2. CAPITALIZATION..............................................................................A-38
4.3. AUTHORITY; NO CONFLICT......................................................................A-38
4.4. CERTAIN PROCEEDINGS.........................................................................A-39
4.5. SEC DOCUMENTS; UNDISCLOSED LIABILITIES......................................................A-39
4.6. INFORMATION SUPPLIED........................................................................A-40
4.7. INTERIM OPERATIONS OF MERGER SUB............................................................A-40
4.8. NO OTHER REPRESENTATIONS OR WARRANTIES......................................................A-40
5. COVENANTS OF THE COMPANY.............................................................................A-40
5.1. ACCESS AND INVESTIGATION....................................................................A-40
</TABLE>
-ii-
<PAGE> 100
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C>
5.2. OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES.......................................A-41
5.3. NEGATIVE COVENANT...........................................................................A-41
5.4. REQUIRED APPROVALS..........................................................................A-41
5.5. NOTIFICATION................................................................................A-41
5.6. PAYMENT OF INDEBTEDNESS BY RELATED PERSONS..................................................A-42
5.7. NO SOLICITATION BY THE COMPANY..............................................................A-42
5.8. PREPARATION OF THE STRYKER REGISTRATION STATEMENT AND COMPANY PROXY STATEMENT: COMPANY
SHAREHOLDERS MEETING........................................................................A-44
5.9. LETTER OF THE COMPANY'S ACCOUNTANTS; LETTER OF STRYKER'S ACCOUNTANTS........................A-45
5.10. BEST EFFORTS................................................................................A-45
6. COVENANTS OF STRYKER AND MERGER SUB..................................................................A-45
6.1. REQUIRED APPROVALS..........................................................................A-45
6.2. BEST EFFORTS................................................................................A-45
6.3. OFFICERS' AND DIRECTORS' INDEMNIFICATION....................................................A-45
7. CONDITIONS PRECEDENT.................................................................................A-46
7.1 CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER........................A-46
7.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF STRYKER AND MERGER SUB...............................A-47
7.3. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS...........................................A-48
7.4. FRUSTRATION OF CLOSING CONDITIONS...........................................................A-48
8. NON-SURVIVAL OF REPRESENTATION AND WARRANTIES........................................................A-48
9. TERMINATION..........................................................................................A-49
9.1. TERMINATION EVENTS..........................................................................A-49
9.2. RIGHTS AND OBLIGATIONS UPON TERMINATION.....................................................A-49
10. GENERAL PROVISIONS...................................................................................A-50
10.1. FEES AND EXPENSES...........................................................................A-50
10.2. PUBLIC ANNOUNCEMENTS........................................................................A-50
10.3. AFFILIATES..................................................................................A-51
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C>
10.4. LISTINGS....................................................................................A-51
10.5. CONFIDENTIALITY.............................................................................A-51
10.6. NOTICES.....................................................................................A-51
10.7. WAIVER......................................................................................A-52
10.8. ENTIRE AGREEMENT AND MODIFICATION...........................................................A-52
10.9. ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS..........................................A-52
10.10. SEVERABILITY................................................................................A-52
10.11. SECTION HEADINGS, CONSTRUCTION..............................................................A-53
10.12. GOVERNING LAW...............................................................................A-53
10.13. COUNTERPARTS................................................................................A-53
10.14. PERFORMANCE BY MERGER SUB...................................................................A-53
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("AGREEMENT") is made as of June 1,
2000 among Image Guided Technologies, Inc., a Colorado corporation (the
"COMPANY"), Stryker Corporation, a Michigan corporation ("STRYKER"), and IGT
Acquisition Co., a Colorado corporation and a wholly-owned subsidiary of Stryker
("MERGER SUB").
RECITALS
A. The Company is a Colorado corporation with its registered office
located at 5710-B Flatiron Parkway, Boulder, Colorado 80301, and has authorized
10,000,000 shares of common stock, no par value per share ("COMPANY COMMON
STOCK"), of which 4,293,782 shares of Company Common Stock are issued and
outstanding, and 2,416,668 shares of preferred stock, no par value per share
("COMPANY PREFERRED STOCK"), of which 383,142 shares of Company Preferred Stock
are issued and outstanding and are designated Series B Preferred Stock, all of
which are owned by Stryker.
B. Stryker is a Michigan corporation with its registered office located
at 2725 Fairfield Road, Kalamazoo, Michigan 49002.
C. Merger Sub is a wholly-owned subsidiary of Stryker and was formed to
merge with and into the Company so that, as a result of the merger, the Company
will survive and become a wholly-owned subsidiary of Stryker. Merger Sub is a
Colorado corporation with its registered office located at 1675 Broadway,
Denver, Colorado 80202, and has authorized an aggregate of 1,000 shares of
common stock, no par value ("MERGER SUB COMMON STOCK").
D. The Board of Directors of each of Stryker, Merger Sub and the
Company has determined that this Agreement and the merger of Merger Sub with and
into the Company, in accordance with the provisions of the Colorado Business
Corporation Act (the "CBCA") and subject to the terms and conditions of this
Agreement, is advisable and in the best interests of Stryker, Merger Sub and the
Company and their respective shareholders.
E. The Board of Directors of each of Stryker, Merger Sub and the
Company have approved this Agreement, the Merger and the transactions
contemplated hereby.
F. The parties intend that, for United States federal income tax
purposes, the Merger shall qualify as a reorganization within the meaning of
Section 368(a)(2)(E) of the IRC and that this Agreement shall constitute a plan
of reorganization.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound do hereby agree
as follows:
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1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"ACQUIRED COMPANY" -- each of the Company and Springfield Surgical
Instruments, Inc.
"ACQUISITION AGREEMENT" -- as defined in Section 5.7(b).
"AFFILIATE" -- with respect to a specified Person, any other Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such person.
"APPLICABLE PERIOD" -- as defined in Section 5.7(a).
"ARTICLES" -- as defined in Section 2.3.
"BALANCE SHEEt" -- as defined in Section 3.4.
"BENEFIT PLAN" -- each funded or unfunded, written or oral, employee
benefit plan, contract, agreement, incentive, salary, wage or other compensation
plan or arrangement, including but not limited to each pension and profit
sharing plan, savings plan, bonus, deferred compensation, incentive
compensation, stock purchase, supplemental retirement, severance or termination
pay, stock option, hospitalization, medical, life insurance, dental, disability,
salary continuation, vacation, supplemental unemployment benefit, union
contract, employment contract, consulting agreement, retiree benefit severance
agreement and each other employee benefit program, plan, policy or arrangement,
maintained, contributed to, or required to be contributed to by any Acquired
Company for the benefit of the employees, former employees, directors, agents or
consultants of the Acquired Companies, or for which the Acquired Companies may
be responsible or with respect to which they may have any liability, whether or
not subject to ERISA and whether legally binding or not. For purposes of this
definition, any reference to the term "Acquired Company" shall be deemed to
refer also to any entity that is under common control or affiliated with any
Acquired Company within the meaning of Section 4001 of ERISA, and the rules and
regulations promulgated thereunder and/or Section 414(b), (c), (m) or (o) of the
IRC and the rules and regulations promulgated thereunder.
"BEST EFFORTS" -- the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to ensure that such result
is achieved as expeditiously as possible. An obligation to use Best Efforts
under this Agreement does not require the Person subject to that obligation to
take actions that would result in a materially adverse change in the benefits to
such Person of this Agreement and the Contemplated Transactions or that would
conflict with such Person's fiduciary obligations to shareholders.
"BYLAWS" -- as defined in Section 2.4.
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"CBCA" -- as defined in the Recitals.
"CLOSING" -- as defined in Section 2.2.
"CLOSING DATE" -- the date and time as of which the Closing actually
takes place.
"COLORADO ARTICLES OF MERGER" -- as defined in Section 2.2.
"COMPANY" -- as defined in the Preamble of this Agreement.
"COMPANY COMMON STOCK" -- as defined in the Recitals.
"COMPANY PREFERRED STOCK" -- as defined in the Recitals.
"COMPANY PROXY STATEMENT" -- as defined in Section 3.3(c).
"COMPANY SHAREHOLDERS MEETING" -- as defined in Section 5.8(b).
"COMPANY SEC DOCUMENTS" -- as defined in Section 3.5.
"CONSENT" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" -- all of the transactions contemplated by
this Agreement, including:
(a) The merger; and
(b) The performance by Stryker, Merger Sub and the Company of their
respective obligations under this agreement.
"CONTRACT" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"COPYRIGHTS" -- as defined in Section 3.17(a).
"DISCLOSURE LETTER" -- the disclosure letter delivered by the Company
to Stryker concurrently with the execution and delivery of this Agreement.
"DISSENTING SHAREHOLDERS" -- shareholders of the Company properly
exercising appraisal rights with respect to Shares pursuant to Section 7-113-101
et seq. of the CBCA.
"EFFECTIVE TIME" -- as defined in Section 2.2.
"ENCUMBRANCE" -- any charge, claim, equitable interest, lien, option,
pledge, security interest, or right of first refusal, restriction, covenant,
easement, license, lease, mortgage, obligation, title defect or imperfection or
other encumbrance or right of others, including any
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restriction on use, voting, transfer, receipt of income or exercise of any other
attribute of ownership.
"ENVIRONMENT" -- soil, land surface or subsurface strata, surface
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwater, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"ENVIRONMENTAL, HEALTH AND SAFETY LIABILITIES" -- any cost, damages,
expense, liability, obligation, Encumbrance or other responsibility arising from
or relating to the existence, use, storage, handling, treatment, generation,
manufacture, disposal, recycling, transportation, arrangement for transportation
or disposal, release, spill, discharge, or threatened release of Hazardous
Materials or chemical substances at any location or noncompliance with any
Environmental Law or Occupational Safety and Health Law including, without
limitation:
(a) any cost, damages, expense, liability, obligation, Encumbrance or
other responsibility consisting of or relating to any environmental, health, or
safety matters or conditions (including on-site or off-site contamination,
occupational safety and health, and regulation of chemical substances or
products);
(b) fines, penalties, fees, interest, taxes, Encumbrances, judgments,
awards, settlements, legal or administrative proceedings, damages, losses,
claims, demands and response, monitoring, operation and maintenance,
investigative, remedial, or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, treatment, containment, or other remediation or
response actions ("CLEANUP") related to Hazardous Materials or Hazardous
Activities at any location, required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages;
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health Law;
or
(e) any cost, damage, expense, liability, obligation or other
responsibility for personal injury or threatened personal injury (including
sickness, disease and death) or injury or threatened injury to property or
natural resources, foreseeable or unforeseeable.
The terms "removal," "remedial," and "response action" include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended ("CERCLA") and similar state and local laws.
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"ENVIRONMENTAL LAW" -- any Legal Requirement that requires or relates
to:
(a) advising appropriate authorities, employees, and the public of
threatened, intended or actual Releases of pollutants or hazardous substances or
Hazardous Materials, violations of discharge limits, or other prohibitions and
of the commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the Release or
threatened Release of pollutants or Hazardous Materials into the Environment;
(c) reporting, investigating, reducing the quantities, preventing the
release, or minimizing the hazardous characteristics of wastes that are
generated;
(d) assuring that products are designed, formulated, packaged, and used
so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of Hazardous Materials, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up Hazardous Materials that have been Released, preventing
the Release or threat of Release, or paying the costs of such cleanup or
prevention;
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting
self-appointed representatives of the public interest to recover for injuries
done to public assets; or
(i) pollution or the protection, cleanup or restoration of the
environment, or to safety or health, including, but not limited to, any of the
same relating to the presence, discharge, emission, Release or threatened
Release of Hazardous Materials into the air, land, surface water, groundwater,
or the effects thereof, or relating to the generation, treatment, storage,
disposal, manufacturing, distribution, sale, handling or any other activity
involving Hazardous Materials, or the effects thereof.
"ERISA" -- the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"EXCHANGE ACT" -- the United States Securities Exchange Act of 1934, as
amended.
"EXCHANGE AGENT" -- as defined in Section 2.10(a).
"FACILITIES" -- any real property, leaseholds, or other interests
currently or formerly owned or operated by any Acquired Company and any
buildings, plants, structures, or equipment currently or formerly owned or
operated by any Acquired Company.
"FDA" -- the United States Food and Drug Administration.
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"GAAP" -- generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the Balance Sheet and the
other financial statements included in the Company SEC Documents were prepared.
"GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY" -- any:
federal, state, county, city, town, village, district, or other jurisdiction of
any nature, domestic or foreign;
(a) federal, state, local, municipal, foreign or other government;
or
(b) governmental or quasi-governmental body of any nature
(including any governmental agency, branch, department,
official, or entity and any court or other tribunal and the
European Union).
"HAZARDOUS ACTIVITY" -- the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Acquired
Companies.
"HAZARDOUS MATERIALS" -- any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any mixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"INTELLECTUAL PROPERTY ASSETS" -- as defined in Section 3.17(a).
"IRC" -- the Internal Revenue Code of 1986, as amended, or any
successor law, and regulations issued by the IRS pursuant to the Internal
Revenue Code or any successor law.
"IRS" -- the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of such
fact or other matter or (b) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter because of the nature of
his position with, or responsibilities on behalf of, a Person. The Company will
be deemed to have "Knowledge" of a particular fact or other matter if any
individual who is serving, or who has at any time served as an officer or
director of any Acquired Company, has, or at any time had Knowledge of such fact
or other matter.
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"LEGAL REQUIREMENT" -- any order, constitution, law, ordinance,
regulation, statute, directive, code, binding policy, rule, permit,
authorization or treaty of any Governmental Body.
"MARKS" -- as defined in Section 3.17(a).
"MATERIAL ADVERSE EFFECT" -- a material adverse effect on the business,
assets, properties, condition (financial or otherwise), operations or results of
operations of the Acquired Companies taken as a whole.
"MDRs" -- as defined in Section 3.18(c).
"MERGER" -- as defined in Section 2.1.
"MERGER CONSIDERATION" -- as defined in Section 2.6.
"MERGER SUB COMMON STOCK" -- as defined in the Recitals.
"OCCUPATIONAL SAFETY AND HEALTH LAW" -- any Legal Requirement designed
to provide safe and healthful working conditions and to reduce occupational
safety and health hazards and any program, whether governmental or private
(including those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"OPTIONS" -- as defined in Section 2.9.
"ORDER" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any Governmental Body
or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" -- an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal
day-to-day operations of such Person;
(b) such action is not required to be authorized by the board of
directors of such Person; and
(c) with respect to an Acquired Company, such action is similar in
nature and magnitude to actions customarily taken, without
authorization by the board of directors in the ordinary course
of the Acquired Company.
"ORGANIZATIONAL DOCUMENTS" -- the articles or certificate of
incorporation and the bylaws of any corporation and any amendment thereto.
"PATENTS" -- as defined in Section 3.17(a).
"PENSION PLAN" -- as defined in Section 3.9.
"PER SHARE MERGER CONSIDERATION" -- as defined in Section 2.7(a).
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"PERSON" -- any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PROCEEDING" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROPRIETARY INFORMATION" -- as defined in Section 3.17(a).
"RELATED PERSON" -- with respect to a particular individual:
Each other member of such individual's family;
Any person that is directly or indirectly controlled by such individual or one
or more members of such individual's family;
Any person in which such individual or members of such individual's family hold
(individually or in the aggregate) a material interest; and
Any person with respect to which such individual or one or more members of such
individual's family serves as a director, officer, partner, executor, or trustee
(or in a similar capacity).
With respect to a specified Person other than an individual:
Any person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified person;
Any person that holds a material interest in such specified person;
Each person that serves as a director, officer, partner, executor, or trustee of
such specified person (or in a similar capacity);
Any person in which such specified person holds a material interest;
Any person with respect to which such specified person serves as a general
partner or a trustee (or in a similar capacity); and
Any related person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is
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related to the individual or the individual's spouse within the second degree,
and (iv) any other natural person who resides with such individual, and (b)
"Material Interest" means direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934) of voting securities or
other voting interests representing at least 5% of the outstanding voting power
of a Person or equity securities or other equity interests representing at least
5% of the outstanding equity securities or equity interests in a Person.
"RELEASE" -- any release, discharge, spill, leaking, emission, pumping,
pouring, injection, deposit, disposal, escaping, leaching, dumping or migrating
into the Environment, whether intentional or unintentional.
"REPRESENTATIVE" -- with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
"SEC" -- the United States Securities and Exchange Commission.
"SECURITIES ACT" -- the Securities Act of 1933, as amended, or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"STRYKER COMMON STOCK" -- as defined in Section 2.7(a).
"STRYKER REGISTRATION STATEMENT" -- as defined in Section 3.20.
"STRYKER SEC DOCUMENTS" -- as defined in Section 4.5.
"SUBMISSIONS" -- as defined in Section 3.18(a).
"SUPERIOR PROPOSAL" -- as defined in Section 5.7(b).
"SURVIVING CORPORATION" -- as defined in Section 2.1.
"TAKEOVER PROPOSAL" -- as defined in Section 5.7(a).
"TAX" -- any tax (including any income tax, franchise tax, capital
gains tax, value-added tax, excise tax, sales tax, payroll tax, property tax,
gift tax, or estate tax), levy, assessment, tariff, duty (including any customs
duty), deficiency, or other fee commonly referred to as a tax, and any related
charge or amount (including any fine, penalty, interest, or addition to tax),
imposed, assessed, or collected by or under the authority of any Governmental
Body or payable pursuant to any tax-sharing agreement or any other Contract
relating to the sharing or payment of any such tax, levy, assessment, tariff,
duty, deficiency, or fee.
"TAX RETURN" -- any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any Legal
Requirement relating to any Tax.
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"THREATENED" -- a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstance exists, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"WARRANTS" -- as defined in Section 2.9.
2. MERGER; CLOSING; EFFECTIVE TIME
2.1 THE MERGER
Subject to the terms and conditions of this Agreement, at the Effective
Time, Merger Sub will be merged with and into the Company and the separate
corporate existence of Merger Sub will cease (the "MERGER"). The Company will be
the surviving corporation in the Merger (sometimes referred to as the "SURVIVING
CORPORATION") and will continue to be governed by the laws of the State of
Colorado. The Merger will have the effects set forth in the CBCA. Without
limiting the generality of the foregoing, upon the Merger, the rights,
privileges, immunities, powers, franchises and authority of the Company and the
Merger Sub will vest in the Surviving Corporation and all obligations of the
Company and the Merger Sub will be the obligations of the Surviving Corporation.
2.2 CLOSING
The Closing of the Merger (the "CLOSING") will take place at the
offices of Ireland, Stapleton, Pryor & Pascoe, P.C., Suite 2600, 1675 Broadway,
Denver, Colorado, at 10:00 a.m., Mountain Time, on the day which is no later
than the fifth business day after the last to be fulfilled or waived of the
conditions set forth in Section 7 of this Agreement, unless another date or
place is agreed to in writing by the parties hereto. At the Closing, the Company
and Stryker will cause Articles of Merger (the "COLORADO ARTICLES OF MERGER") to
be executed and filed with the Secretary of State of the State of Colorado as
provided in Section 7-111-105 of the CBCA. The Merger will become effective when
the Colorado Articles of Merger have been duly filed with the Secretary of State
of the State of Colorado (the "EFFECTIVE TIME").
2.3 ARTICLES OF INCORPORATION
The articles of incorporation of the Company (the "ARTICLES") in effect
immediately prior to the Effective Time will be the articles of incorporation of
the Surviving Corporation, until amended in accordance with the terms of the
Articles and the CBCA, except that no such amendment will violate Section 6.3.
2.4 THE BYLAWS
The Bylaws of Merger Sub in effect immediately prior to the Effective
Time will be the Bylaws of the Surviving Corporation (the "BYLAWS") until
amended in accordance with the Articles, such Bylaws and the CBCA, except that
no such amendment will violate Section 6.3.
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2.5 DIRECTORS AND OFFICERS
The directors and officers of Merger Sub at the Effective Time will,
from and after the Effective Time, be the directors and officers of the
Surviving Corporation until their successors have been duly elected or appointed
or until their earlier death, resignation or removal in accordance with the
Articles and the Bylaws.
2.6 MERGER CONSIDERATION
The aggregate consideration to be delivered by Stryker to the holders
of issued and outstanding Company Common Stock shall be that number of shares of
Stryker Common Stock determined by dividing $12,000,000 by the average closing
price of Stryker's Common Stock as reported in The Wall Street Journal for New
York Stock Exchange - Composite Transactions during the 30 consecutive trading
day period beginning on the 35th trading day prior to the Company Shareholders
Meeting and rounding the result upward to the next whole share (the "MERGER
CONSIDERATION").
2.7 CONVERSION OF COMPANY COMMON STOCK
At the Effective Time, by virtue of the Merger and without any action
on the part of the Company, Stryker or the Merger Sub:
(a) Each share of Company Common Stock issued and outstanding at the
Effective Time (other than shares of Company Common Stock canceled in accordance
with Section 2.7(c) and other than shares of Company Common Stock that are held
by Dissenting Shareholders) will be converted into the right to receive that
number of shares of common stock, par value $.10 per share, of Stryker (the
"STRYKER COMMON STOCK") determined by dividing the Merger Consideration by the
number of shares of Company Common Stock issued and outstanding immediately
prior to the Merger and rounding the result to six decimal places (the "PER
SHARE MERGER CONSIDERATION").
(b) All the shares of Company Common Stock, by virtue of the Merger and
without any action on the part of the holders, will no longer be issued and
outstanding and will be canceled and retired and will cease to exist, and each
holder of a certificate representing shares of Company Common Stock will
thereafter cease to have any rights with respect to the shares of Company Common
Stock, except the right to receive the Per Share Merger Consideration upon the
surrender of the respective certificate(s) in accordance with Section 2.10 or
the right, if any, to receive payment as a Dissenting Shareholder from the
Surviving Corporation as determined in accordance with Sections 7-113-101 et
seq. of the CBCA.
(c) At the Effective Time, each share of Company Common Stock issued
and held in the Company's treasury immediately prior to the Effective Time and
each share of Company Common Stock or Company Preferred Stock owned by Stryker,
Merger Sub, or any other subsidiary of Stryker, will, by virtue of the Merger
and without any other action, be canceled and retired without payment of any
consideration and will cease to exist.
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2.8 CONVERSION OF MERGER SUB SHARES
At the Effective Time, each share of Merger Sub common stock issued and
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without any action on the part of Merger Sub or the holder of the
Merger Sub Common Stock, be converted into one validly issued, fully paid and
nonassessable share of common stock, no par value per share, of the Surviving
Corporation.
2.9 TERMINATION OF OPTIONS AND WARRANTS
IGT shall take such action as is necessary to accelerate the vesting
date of all outstanding options to purchase shares of Company Common Stock
granted pursuant to the Company's 1994 Stock Option Plan, 1997 Stock Option Plan
or otherwise (the "OPTIONS") and outstanding warrants to purchase shares of
Company Common Stock (the "WARRANTS") that are not vested as of the date of this
Agreement in order that they are fully vested prior to the Effective Time. In
addition, IGT shall use its Best Efforts to take such action as is necessary,
which action shall not obligate IGT to make any cash payment in an amount, or
distribute any other asset or with a value, in the aggregate in excess of
$25,000, in order that the Options and Warrants that have not been exercised
prior thereto shall be terminated as of the Effective Time and may not be
exercised thereafter.
2.10 EXCHANGE OF CERTIFICATES
(a) As of the Effective Time, Stryker shall deposit with an exchange
agent reasonably satisfactory to Stryker and the Company (the "EXCHANGE AGENT")
for the benefit of the holders of the shares of Company Common Stock,
certificates representing the Merger Consideration. Such shares of Stryker
Common Stock, together with any dividends or distributions thereon with respect
to Sections 2.10(b) and 2.15 are referred to as the "EXCHANGE FUND" for purposes
of this Agreement.
(b) After the Effective Time, each holder of a certificate formerly
evidencing shares of Company Common Stock which have been converted pursuant to
Section 2.7(a), upon surrender of the same to the Exchange Agent as provided in
Section 2.10(c) hereof, shall be entitled to receive in exchange therefor a
certificate or certificates representing the number of whole shares of Stryker
Common Stock into which such shares of Company Common Stock shall have been
converted as provided in this Article 2 and, as provided in Section 2.12, cash
in lieu of any fractional share of Stryker Common Stock into which such shares
of Company Common Stock would have otherwise been converted, without any
interest thereon. Until so surrendered, each certificate formerly evidencing
shares of Company Common Stock which have been so converted will be deemed for
all corporate purposes to evidence ownership of the number of whole shares of
Stryker Common Stock for which the shares of Company Common Stock formerly
represented thereby were exchanged; provided, however, that until such
certificate is so surrendered, no dividend payable to holders of record of
Stryker Common Stock as of any date subsequent to the Effective Time shall be
paid to the holder of such certificate in respect of the shares of Stryker
Common Stock evidenced thereby and such holder shall not be entitled to vote
such shares of Stryker Common Stock. Upon surrender of a certificate formerly
evidencing shares of Company Common Stock which have been so converted, there
shall be paid
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to the record holder of the certificates of Stryker Common Stock issued in
exchange therefor (i) at the time of such surrender, the amount of dividends and
any other distributions theretofore paid with respect to such shares of Stryker
Common Stock as of any date subsequent to the Effective Time to the extent the
same has not yet been paid to a public official pursuant to abandoned property,
escheat or similar laws and (ii) at the appropriate payment date, the amount of
dividends and any other distributions with a record date after the Effective
Time but prior to surrender and a payment date subsequent to surrender payable
with respect to such shares of Stryker Common Stock. No interest shall be
payable with respect to the payment of such dividends. All certificates
representing shares of Stryker Common Stock delivered upon the surrender for
exchange of the certificates representing shares of Company Common Stock in
accordance with the terms hereof (including any cash paid pursuant to Section
2.12) shall be deemed to have been delivered (and paid) in full satisfaction of
all rights pertaining to the Company Common Stock previously represented by such
certificates.
(c) As soon as practicable after the Effective Time, the Exchange Agent
shall send a notice and a transmittal form to each holder of certificates
formerly evidencing shares of the Company Common Stock (other than certificates
formerly representing shares of the Company Common Stock to be canceled pursuant
to Section 2.7(c) and certificates representing Dissenting Shares) advising such
holder of the effectiveness of the Merger and the procedure for surrendering to
the Exchange Agent (who may appoint forwarding agents with the approval of
Stryker) such certificates for exchange into certificates evidencing Stryker
Common Stock (including cash in lieu of any fractional share). Each holder of
certificates theretofore evidencing shares of the Company Common Stock, upon
proper surrender thereof to the Exchange Agent together and in accordance with
such transmittal form, shall be entitled to receive in exchange therefor
certificates evidencing Stryker Common Stock (including cash in lieu of any
fractional share) deliverable in respect of the shares of the Company Common
Stock theretofore evidenced by the certificates so surrendered. Notwithstanding
the foregoing, neither the Exchange Agent nor any party hereto shall be liable
to a holder of certificates theretofore representing shares of the Company
Common Stock for any amount which may be required to be paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(d) If any certificate evidencing shares of Stryker Common Stock is to
be delivered to a Person other than the Person in whose name the certificates
surrendered in exchange therefor are registered, it shall be a condition to the
issuance of such certificate evidencing shares of Stryker Common Stock, that the
certificates so surrendered shall be properly endorsed or accompanied by
appropriate stock powers and otherwise in proper form for transfer, that such
transfer otherwise be proper and that the Person requesting such transfer pay to
the Exchange Agent any transfer or other taxes payable by reason of the
foregoing or establish to the satisfaction of the Exchange Agent that such taxes
have been paid or are not required to be paid. Stryker or the Exchange Agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as Stryker or the Exchange Agent is required to deduct and
withhold with respect to the making of such payment under the IRC, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by Stryker or the Exchange Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the shares of Company Common Stock in respect of which such deduction and
withholding was made by Stryker or the Exchange Agent. All amounts in respect of
taxes
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received or withheld by Stryker shall be disposed of by Stryker in accordance
with the IRC or such state, local or foreign tax law, as applicable.
(e) In the event any certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such certificate to be lost, stolen or destroyed, the Surviving Corporation will
issue in exchange for such lost, stolen or destroyed certificate the certificate
evidencing shares of Stryker Common Stock deliverable in respect thereof and pay
any cash, dividends or other distributions, in each case as determined in
accordance with this Article 2. When authorizing such issue of the certificate
of shares of Stryker Common Stock in exchange therefor, the Board of Directors
of the Surviving Corporation may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or destroyed
certificate to give the Surviving Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Surviving
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
(f) Adoption of this Agreement by the shareholders of the Company shall
constitute, as an integral part of the Merger, ratification of the appointment
of, and the reappointment of, said Exchange Agent.
2.11 NO FURTHER TRANSFERS
At the close of business on the day on which the Effective Time occurs,
the stock transfer books of the Company shall be closed and thereafter there
shall be no further registration of transfers of shares of Company Common Stock
on the records of the Company.
2.12 NO FRACTIONAL SHARES
Neither certificates nor scrip for fractional shares of Stryker Common
Stock will be issued upon surrender for exchange of certificates representing
shares of Company Common Stock, but in lieu thereof each holder of Company
Common Stock otherwise entitled to a fraction of a share of Stryker Common Stock
shall receive from Stryker an amount in cash (without interest), in an amount
rounded to the nearest whole cent, determined by multiplying the per share
closing price of a share of Stryker Common Stock, as reported in The Wall Street
Journal for New York Stock Exchange - Composite Transactions for the day
immediately preceding the date on which the Effective Time occurs (or, if the
Stryker Common Stock did not trade on the New York Stock Exchange such date, the
last day of trading in the Stryker Common Stock prior to the Effective Time) by
the fractional share of Stryker Common Stock to which such shareholder would be
otherwise entitled. No Stryker stock split or dividend shall relate to any
fractional share interest, and no such fractional share interest shall entitle
the owner thereof to vote or to any rights of a shareholder of Stryker. Stryker
shall make available to the Exchange Agent the cash necessary for this purpose.
2.13 STOCK LEGENDS; AGREEMENTS BY CERTAIN SHAREHOLDERS
Certificates representing shares of Stryker Common Stock issued to
Persons deemed to be affiliates of the Company (as that term is used for
purposes of Rule 145 under the Securities
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Act) on the date of the Company Shareholders Meeting shall bear the legend
referred to in paragraph 4 of Exhibit I hereto.
2.14 DISSENTERS' RIGHTS
No Dissenting Shareholder will be entitled to any portion of the Merger
Consideration under this Section 2 unless and until the holder has failed to
perfect or has effectively withdrawn or lost their right to dissent from the
Merger under the CBCA. Any Dissenting Shareholder will be entitled to receive
only the payment provided by Sections 7-113-101 et seq. of the CBCA with respect
to Shares owned by such Dissenting Shareholder. If any Person who otherwise
would be deemed a Dissenting Shareholder has failed to properly perfect or has
effectively withdrawn or has lost the right to dissent with respect to any
Shares, those Shares will be converted into the right to receive the Per Share
Merger Consideration as provided by Section 2.7(a), without interest or
dividends thereon.
2.15 ADJUSTMENTS
If, between the date that the Merger Consideration is determined
pursuant to Section 2.6 and the Effective Time, the outstanding shares of
Stryker Common Stock shall have been changed into a different number of shares
or a different class by reason of any reclassification, recapitalization, stock
split, stock dividend or combination, or a record date with respect to any of
the foregoing should occur within such period, the Merger Consideration
specified in Section 2.6 shall be correspondingly adjusted and thereafter all
references to the Merger Consideration and the Per Share Merger Consideration
shall be deemed to be to the Merger Consideration and the Per Share Merger
Consideration as so adjusted.
2.16 RETURN OF EXCHANGE FUND
Any portion of the Exchange Fund which remains undistributed to the
former holders of Company Common Stock for six months after the Effective Time
shall be delivered to Stryker, upon its request, and any such former holders who
have not theretofore surrendered to the Exchange Agent the certificates
representing shares of Company Common Stock owned by them in compliance herewith
shall thereafter look only to Stryker for payment of their claim for shares of
Stryker Common Stock, any cash in lieu of fractional shares of Stryker Common
Stock and any dividends or distributions with respect to such shares of Stryker
Common Stock. None of Stryker, Merger Sub, the Exchange Agent or the Company
shall be liable to any former holder of Company Common Stock for any such shares
of Stryker Common Stock held in the Exchange Fund (and any cash, dividends and
distributions payable in respect thereof) which are delivered to a public
official pursuant to an official request under any applicable abandoned
property, escheat or similar law.
2.17 FURTHER ASSURANCES
If at any time after the Effective Time the Surviving Corporation shall
consider or be advised that any deeds, bills of sale, assignments or assurances
or any other acts or things are necessary, desirable or proper (a) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation its
right, title or interest in, to or under any of the rights, privileges,
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powers, franchises, properties or assets of either the Company or Merger Sub or
(b) otherwise to carry out the purposes of this Agreement, the Surviving
Corporation and its proper officers and directors or their designees shall be
authorized to execute and deliver, in the name and on behalf of either the
Company or Merger Sub, all such deeds, bills of sale, assignments and assurances
and do, in the name and on behalf of the Company or Merger Sub, all such other
acts and things necessary, desirable or proper to vest, perfect or confirm its
right, title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of the Company or Merger Sub, as applicable,
and otherwise to carry out the purposes of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Stryker as follows:
3.1 ORGANIZATION
Part 3.1 of the Disclosure Letter contains a complete and accurate list
for each Acquired Company of its name, its jurisdiction of incorporation and any
other jurisdictions in which it is authorized to do business. Each Acquired
Company is a corporation duly organized, validly existing, and in good standing
under the laws of its jurisdiction of incorporation, with the corporate power
and authority to conduct its business as it is now being conducted, to own or
use the properties and assets that it purports to own or use, and to perform all
its obligations under its Contracts. Each Acquired Company is duly licensed or
qualified to do business as a foreign corporation in good standing in each
domestic or foreign jurisdiction in which the nature of the business conducted
by it or the character or location of the properties owned or leased by it makes
such licensing or qualification necessary. Copies of (i) the Organizational
Documents of each Acquired Company, (ii) the minute books of the Acquired
Companies and (iii) the stock transfer books of the Acquired Companies,
heretofore delivered, furnished or made available to Stryker or its
representatives, are true and complete as of the date hereof. The Organizational
Documents of each Acquired Company are in full force and effect, and no Acquired
Company is in violation or breach of any of the provisions of its Organizational
Documents.
3.2 CAPITAL STRUCTURE
(a) The authorized capital stock of the Company consists of 10,000,000
shares of Company Common Stock and 2,416,668 shares of Company Preferred Stock.
As of December 31, 1999 (i) 4,061,945 shares of Company Common Stock were issued
and outstanding; (ii) 1,290,036 shares of Company Common Stock were subject to
outstanding Options; (iii) 590,000 shares of Company Common Stock were subject
to outstanding Warrants; (iv) no shares of Company Common Stock were held in the
treasury of the Company; and (v) no shares of Company Preferred Stock were
issued and outstanding. Except as set forth in Part 3.2(a) of the Disclosure
Letter, since December 31, 1999 through the date of this Agreement, (A) no
Options or Warrants to purchase shares of Company Common Stock have been
granted, (B) no shares of Company Common Stock have been issued other than
pursuant to the exercise of Options and Warrants outstanding on December 31,
1999 and (C) no shares of Company Preferred Stock have been issued other than
the 383,142 shares of Company Preferred Stock issued to Stryker. Part 3.2(a) of
the Disclosure Letter sets forth a complete and correct list, as of the date
hereof, of all holders of Options and Warrants including such person's name, the
number of Options
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(vested, unvested and total) or Warrants held by such person, the date of grant
and the exercise price for each such Option or Warrant.
(b) All the outstanding shares of Company Common Stock and Company
Preferred Stock are duly authorized, validly issued, fully paid and
non-assessable. Except as set forth in paragraph (a) above, (i) there are no
shares of capital stock of the Company authorized, issued or outstanding, (ii)
there are no authorized or outstanding options, warrants, calls, preemptive
rights, subscriptions or other rights, agreements, arrangements or commitments
of any character obligating any Acquired Company to issue, transfer or sell or
cause to be issued, transferred or sold any shares of capital stock or other
equity interest in any Acquired Company or securities convertible into or
exchangeable for such shares or equity interests, or obligating any Acquired
Company to grant, extend or enter into any such option, warrant, call,
subscription or other right, agreement, arrangement or commitment, and (iii)
there are no outstanding contractual obligations of any Acquired Company to
repurchase, redeem or otherwise acquire any shares or other capital stock of any
Acquired Company or to provide funds to make any investment (in the form of a
loan, capital contribution or otherwise) in any Acquired Company (other than an
Acquired Company that is wholly owned, directly or indirectly, by the entity
obligated to provide such funds) or other entity.
3.3 AUTHORITY; NO CONFLICT
(a) This Agreement is a legal, valid, and binding obligation of the
Company, enforceable against the Company in accordance with its terms. The
Company has all requisite right, power and authority to execute and deliver this
Agreement and, subject to approval of its shareholders, to perform its
obligations under this Agreement. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
Contemplated Transactions have been duly authorized by the Board of Directors of
the Company and, other than approval and adoption of this Agreement by the
holders of at least a majority of the voting power of the Company, no other
corporate proceedings on the part of the Company are necessary to authorize the
execution, delivery and performance of this Agreement by the Company and the
consummation of the Contemplated Transactions. The Board of Directors of the
Company has determined that the Merger Consideration is fair to the shareholders
of the Company and has recommended approval by the shareholders of the Company
of this Agreement and the Merger.
(b) Except as set forth in Part 3.3(b) of the Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance by the Company of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of any
provision of the Organizational Documents of the Acquired Companies, or any
resolution adopted by the directors or the shareholders of any Acquired Company;
(ii) contravene, conflict with, or result in a violation of,
or give any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to
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which any Acquired Company, or any of the assets owned or used by any Acquired
Company, may be subject;
(iii) contravene, conflict with, or result in a violation of
any of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by any Acquired Company or that otherwise relates to
the business of, or any of the assets owned or used by, any Acquired Company;
(iv) cause any Acquired Company to become subject to, or to
become liable for the payment of, any Tax;
(v) cause any of the assets owned by any Acquired Company to
be reassessed or revalued by any taxing authority or other Governmental Body;
(vi) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Contract; or
(vii) result in the imposition or creation of any Encumbrance
upon or with respect to any of the assets owned or used by any Acquired Company.
(c) No consent, approval, order or authorization of, action by or in
respect of, or registration, declaration or filing with, any Governmental Body
is required by or with respect to any Acquired Company in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the Contemplated Transactions except for (i) the filing with the
SEC of (A) a proxy statement relating to the Company Shareholders Meeting for
the approval by the shareholders of the Company of the Merger (such proxy
statement, as amended or supplemented from time to time, the "Company Proxy
Statement"), and (B) such reports under Section 13(a), 13(d), 15(d) or 16(a) of
the Exchange Act as may be required in connection with this Agreement and the
Contemplated Transactions; (ii) the filing of the Articles of Merger with the
Secretary of State of the State of Colorado and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business; (iii) filings with Governmental Bodies to satisfy the applicable
requirements of state securities or "blue sky" laws; and (iv) the required vote
of the Company shareholders. Except as set forth in Part 3.3(c) of the
Disclosure Letter, no Acquired Company is or will be required to obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
3.4 TITLE TO PROPERTIES; ENCUMBRANCES
(a) The Acquired Companies own all of the properties and assets
(whether real, personal or mixed and whether tangible or intangible) that they
purport to own, including all of the properties and assets reflected in the
consolidated balance sheet at March 31, 2000 contained in the Company's
quarterly report on Form 10-Q for the quarter then ended (the "BALANCE SHEET")
or acquired after the date thereof (except for personal property sold since the
date of the Balance Sheet in the Ordinary Course of Business), and all of the
properties and assets purchased
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or otherwise acquired by the Acquired Companies since the date of the Balance
Sheet (except for personal property acquired and sold since the date of the
Balance Sheet in the Ordinary Course of Business and consistent with past
practice). All assets reflected in the Balance Sheet are free and clear of all
Encumbrances other than security interests listed in Part 3.4(a) of the
Disclosure Letter.
(b) The Acquired Companies do not own any real property. Part 3.4(b) of
the Disclosure Letter contains a complete list of all real property leases
(collectively, the "REAL PROPERTY LEASES") to which any of the Acquired
Companies is a party. The Acquired Companies have a valid leasehold interest in
all of the real property leased pursuant to the Real Property Leases (the
"LEASED REAL PROPERTY") and each of the Real Property Leases is in full force
and effect in accordance with its terms and there exists no breach or default
thereunder on the part of any Acquired Company or, to the Knowledge of the
Company, the other party thereto, and no event that, with the giving of notice
or passage of time, or both, would constitute a default on the part of the
Company or, to the Knowledge of the Company, on the part of the other party
thereto, has occurred and is continuing unremedied or unwaived. The Contemplated
Transactions will not alter or impair any of the rights presently enjoyed by any
of the Acquired Companies in any of the Leased Real Property. The buildings and
improvements constituting part of the Leased Real Property, and the operation or
maintenance thereof as now operated and maintained, do not (i) contravene any
zoning or building law or ordinance or administrative regulation or (ii) violate
any restrictive covenant or any provision of Contract or Legal Requirement, the
effect of which would interfere with or prevent the continued use of such
properties for the purposes for which they are now being used. All of the
plants, buildings and structures constituting part of the Leased Real Property
are in reasonably good operating condition and in a state of reasonable
maintenance and repair to the extent necessary for the efficient operation of
the business of the Acquired Companies being conducted therein. There exists no
pending or, to the Knowledge of the Company, threatened condemnation, eminent
domain or similar proceeding with respect to, or which could affect, any Leased
Real Property or the buildings or improvements thereon.
(c) Except for items disposed of since the date of the Balance Sheet in
the Ordinary Course of Business, all machinery, tools, equipment and other
tangible assets (i) reflected in the Balance Sheet (other than inventories),
(ii) leased by any Acquired Company or (iii) acquired by any Acquired Company
since the date of the Balance Sheet, currently are used, useable by or useful to
the Acquired Companies in the Ordinary Course of Business and in the manufacture
and sale of the products of the Acquired Companies, and are in reasonably good
operating condition and in a state of reasonable maintenance and repair. Except
as set forth in Part 3.4(c) of the Disclosure Letter, the inventories reflected
in the Balance Sheet were on the date thereof in good condition; such
inventories, and any inventories acquired by the Acquired Companies after the
date of the Balance Sheet to the extent not sold or otherwise disposed of in the
Ordinary Course of Business, are in good condition, are used, useable by or
useful to the Company in the Ordinary Course of Business and in the manufacture
and sale of the products of the Acquired Companies, and are not in excess of
reasonable requirements for the next 12 months. No item of inventory reflected
in the Balance Sheet was valued in excess of the lower of cost (on a first-in,
first-out basis) or market value. Except as indicated in the Balance Sheet, the
accounts receivable reflected in the Balance Sheet, or acquired by the Company
after the date of the Balance Sheet, have been collected or are collectible in
amounts not less than the
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aggregate amount recorded in the Balance Sheet, in the case of receivables
reflected in the Balance Sheet, or not less than the aggregate amount recorded
on the Company's books, in the case of receivables acquired after the date of
the Balance Sheet.
3.5 SEC DOCUMENTS
The Company has filed with the SEC since January 1, 1999, all required
registration statements, reports, schedules, forms, statements, proxy or
information statements and other documents (including exhibits and all other
information incorporated therein) (the "COMPANY SEC DOCUMENTS"). As of their
respective dates, the Company SEC Documents complied or, with respect to those
not yet filed, will comply in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and, in each case, the
rules and regulations of the SEC promulgated thereunder and, except to the
extent that information contained in any Company SEC Document has been revised
and superseded by or restated in a later filed Company SEC Document, did not or,
with respect to those not yet filed, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the Company SEC Documents comply as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, 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 SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal recurring
year-end audit adjustments).
3.6 NO UNDISCLOSED LIABILITIES
Except for liabilities (i) reflected in such financial statements or in
the notes thereto, (ii) incurred in the ordinary course of business consistent
with past practice since the date of the most recent audited financial
statements included in the Company SEC Documents, (iii) incurred in connection
with this Agreement or the transactions contemplated hereby or thereby, or (iv)
disclosed in Item 3.6 of the Disclosure Letter, no Acquired Company has any
liabilities or obligations of any nature which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on the
Company.
3.7 TAXES
(a) The Acquired Companies have filed or caused to be filed on a timely
basis all Tax Returns that are or were required to be filed by or with respect
to any of them, either separately or as a member of a group of corporations. The
Acquired Companies have paid, or made provision for the payment of, all Taxes
that have become due whether or not shown on those Tax Returns, or pursuant to
any assessment received by any Acquired Company, except such Taxes, if any, as
are being contested in good faith and as to which adequate reserves (determined
in accordance with GAAP) have been provided in the Balance Sheet. The Company
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has made available to Stryker copies of, and Part 3.7(a) of the Disclosure
Letter contains a complete and accurate list of, all such Tax Returns relating
to income and franchise taxes filed since December 31, 1994.
(b) The federal, state and foreign Tax Returns of each Acquired Company
subject to such Taxes have been audited by the IRS or relevant state or foreign
tax authorities or are closed by the applicable statute of limitations for all
taxable years through 1995. Part 3.7(b) of the Disclosure Letter contains a
complete and accurate list of all audits of all such Tax Returns, including a
reasonably detailed description of the nature and outcome of each audit. All
deficiencies proposed as a result of such audits have been paid, reserved
against, settled, or, as described in Part 3.7(b) of the Disclosure Letter, are
being contested in good faith by appropriate proceedings. Part 3.7(b) of the
Disclosure Letter describes all adjustments to the Tax Returns filed by any
Acquired Company or any group of corporations including any Acquired Company for
all taxable years since December 31, 1994, and the resulting deficiencies
proposed by the IRS or relevant state or foreign tax authorities. Except as
described in Part 3.7(b) of the Disclosure Letter, no Acquired Company has given
or been requested to give waivers or extensions (or is or would be subject to a
waiver or extension given by any other Person) of any statute of limitations
relating to the payment of Taxes of any Acquired Company or for which any
Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of each Acquired Company are adequate (determined in accordance
with GAAP) and are at least equal to that Acquired Company's liability for
Taxes. There exists no proposed tax assessment against any Acquired Company
except as disclosed in the Balance Sheet or in Part 3.7 of the Disclosure
Letter. No consent to the application of Section 341(f)(2) of the IRC has been
filed with respect to any property or assets held, acquired, or to be acquired
by any Acquired Company. All Taxes that any Acquired Company is or was required
by Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis)
any Acquired Company are true, correct, and complete. There is no tax sharing
agreement that will require any payment by any Acquired Company after the date
of this Agreement.
3.8 NO MATERIAL ADVERSE CHANGE
Except as set forth in Part 3.8 of Disclosure Letter, as of the date of
this Agreement, there has not been since the date of the Balance Sheet any
material adverse change in the business, operations, properties, prospects,
assets, or condition of any Acquired Company and no event has occurred or
circumstance exists that may result in such a material adverse change.
3.9 EMPLOYEE BENEFITS
(a) Part 3.9(a) of the Disclosure Letter contains a true and complete
list of all Benefit Plans.
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(b) The Company has delivered to Stryker true and complete copies of
all documents embodying or relating to Benefit Plans. Each of the Benefit Plans
listed in Part 3.9(a) of the Disclosure Letter is and has at all times been in
compliance in all respects with all applicable provisions of ERISA, the IRC and
other laws.
(c) Each "employee pension benefit plan" as defined in Section 3(2) of
ERISA (each a "Pension Plan") which is intended to meet the requirements of
Section 401(a) of the IRC now meets, and since its inception has met, the
requirements for qualification under Section 401(a) of the IRC and nothing has
occurred which would adversely affect the qualified status of any such Pension
Plan. Except as set forth in Part 3.9(c) of the Disclosure Letter, the IRS has
issued a favorable determination letter with respect to the qualification under
the IRC of each Pension Plan and the IRS has not taken any action to revoke any
such letter.
(d) Each fiduciary and every plan official of each Benefit Plan are
bonded to the extent required by Section 412 of ERISA. Those sections of all
annual reports heretofore filed with the IRS, the Department of Labor and the
Pension Benefit Guaranty Corporation by or on behalf of every Benefit Plan which
were required to be certified were only certified without qualification by the
accountants or actuaries of such Benefit Plan.
(e) Except as set forth in Part 3.9(e) of the Disclosure Letter, the
execution and performance of the transactions contemplated by this Agreement
will not (either alone or upon the occurrence of any additional or subsequent
event) constitute an event under any Benefit Plan or individual agreement that
will or may result in any payment (whether of severance pay or otherwise),
acceleration, vesting or increase in benefits with respect to any employee,
former employee, consultant, agent or director of any Acquired Company. No
payment which will be or may be made by any Acquired Company to any employee,
former employee, director, consultant or agent thereof will or could be
characterized as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the IRC.
(f) At no time has any Acquired Company contributed to, been required
to contribute to, or incurred any withdrawal liability (within the meaning of
Section 4201 of ERISA) to any Benefit Plan which is a multiemployer plan as
defined in Section 3(37) of ERISA.
(g) No Acquired Company maintains any Benefit Plan which is funded by
an association described in Section 501(c)(9) of the IRC.
(h) Each "group health plan" (within the meaning of Section 4980B of
the IRC) maintained by any Acquired Company has been administered in compliance
with the coverage continuation requirements contained in the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") and as provided under
Section 4980B of the IRC and any regulations promulgated or proposed under the
IRC.
(i) The Acquired Companies have made all contributions required to be
made to each Benefit Plan under the terms of the plan and applicable law. No
prohibited transaction (as defined in Section 4975 of the IRC or Section 406 of
ERISA) has occurred with respect to any Benefit Plan listed, which could subject
any Benefit Plan or any related trust, any Acquired
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Company, any affiliate, Stryker or any director or employee of any of them to
any tax or penalty imposed under Section 4975 of the IRC or Section 502(i) or
502(1) of ERISA, either directly or indirectly, and whether by way of indemnity
or otherwise.
(j) Except as set forth in Part 3.9(k) of the Disclosure Letter, no
Acquired Company maintains, sponsors or contributes to, or has in the past
maintained, sponsored or contributed to, any plan or program providing retiree
medical or life insurance benefits.
(k) No Acquired Company has ever contributed to a Pension Plan subject
to Title IV of ERISA or Section 412 of the IRC.
(l) There are no pending or threatened lawsuits or other claims (other
than routine claims for benefits under the plan) against or involving (i) any
Benefit Plan or (ii) any fiduciary (within the meaning of Section 3(21)(A) of
ERISA) of any Benefit Plan brought on behalf of any participant, beneficiary, or
fiduciary thereunder, nor to the Knowledge of the Company is there any
reasonable basis for any such claim.
(m) There are no proceedings or investigations, either currently in
progress or expected to be instituted in the future, relating to any Benefit
Plan, by any local, state, or federal administrative agency.
(n) All reports, notices, and other disclosure relating to Benefit
Plans required to be filed with, or furnished to, Governmental Bodies, plan
participants, or plan beneficiaries have been timely filed and furnished in
accordance with applicable law.
(o) None of the persons performing services for any Acquired Company
have been improperly classified as independent contractors or as being exempt
from the payment of wages for overtime.
3.10 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Part 3.10(a) of the Disclosure Letter:
(i) each Acquired Company is, and at all times since January
1, 1995 has been, in substantial compliance with each Legal Requirement that is
or was applicable to it or to the conduct or operation of its business or the
ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with
or without notice or lapse of time) (A) may constitute or result in a violation
by any Acquired Company of, or a failure on the part of any Acquired Company to
comply with, any Legal Requirement, or (B) may give rise to any obligation on
the part of any Acquired Company to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature; and
(iii) no Acquired Company has received, at any time since
January 1, 1995, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of, or failure to comply with, any
Legal Requirement, or (B) any actual, alleged, possible, or potential
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obligation on the part of any Acquired Company to undertake, or to bear all or
any portion of the cost of, any remedial action of any nature.
(b) Part 3.10(b) of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by any Acquired
Company or that otherwise relates to the business of, or to any of the assets
owned or used by, any Acquired Company. Each Governmental Authorization listed
or required to be listed in Part 3.10(b) of the Disclosure Letter is valid and
in full force and effect. Except as set forth in Part 3.10(b) of the Disclosure
Letter:
(i) each Acquired Company is, and at all times since January
1, 1995 has been, in full compliance with all of the terms and requirements of
each Governmental Authorization identified or required to be identified in Part
3.10(b) of the Disclosure Letter;
(ii) no event has occurred or circumstance exists that may
(with or without notice or lapse of time) (A) constitute or result directly or
indirectly in a violation of or a failure to comply with any term or requirement
of any Governmental Authorization listed or required to be listed in Part
3.10(b) of the Disclosure Letter, or (B) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or termination of, or any
modification to, any Governmental Authorization listed or required to be listed
in Part 3.10(b) of the Disclosure Letter;
(iii) no Acquired Company has received, at any time since
January 1, 1995, any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A) any actual,
alleged, possible, or potential violation of or failure to comply with any term
or requirement of any Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to, any Governmental Authorization; and
(iv) all applications required to have been filed for the
renewal of the Governmental Authorizations listed or required to be listed in
Part 3.10(b) of the Disclosure Letter have been duly filed on a timely basis
with the appropriate Governmental Bodies, and all other filings required to have
been made with respect to such Governmental Authorizations have been duly made
on a timely basis with the appropriate Governmental Bodies.
The Governmental Authorizations listed in Part 3.10(b) of the
Disclosure Letter collectively constitute all of the Governmental Authorizations
necessary to permit the Acquired Companies to lawfully conduct and operate their
businesses in the manner they currently conduct and operate such businesses and
to permit the Acquired Companies to own and use their assets in the manner in
which they currently own and use such assets. The Company has made available to
Stryker copies of all periodic monitoring reports and records maintained or
filed by the Acquired Companies since January 1, 1995 in compliance with the
requirements of any Governmental Authorization.
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3.11 LEGAL PROCEEDINGS; ORDERS
(a) Except as set forth in Part 3.11 of the Disclosure Letter, there
is no pending Proceeding:
(i) that has been commenced by or against any Acquired Company
or that otherwise relates to or may affect the business of, or any of the assets
owned or used by, any Acquired Company; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.
Except as set forth in Part 3.11(a) of the Disclosure Letter, to the
Knowledge of the Company, (1) no such Proceeding has been Threatened, and (2) no
event has occurred or circumstance exists that may give rise to or serve as a
basis for the commencement of any such Proceeding. The Company has delivered to
Stryker copies of all pleadings and correspondence between opposing counsel
relating to each Proceeding listed in Part 3.11 of the Disclosure Letter. The
Proceedings listed in Part 3.11 of the Disclosure Letter will not have a
material adverse effect on the business, operations, assets, condition, or
prospects of any Acquired Company.
(b) Except as set forth in Part 3.11(b) of the Disclosure Letter:
(i) there is no Order to which any of the Acquired Companies,
or any of the assets owned or used by any Acquired Company, is subject;
(ii) no Acquired Company is subject to any Order that relates
to the business of, or any of the assets owned or used by, any Acquired Company;
and
(iii) no officer, director, agent, or employee of any Acquired
Company is subject to any Order that prohibits such officer, director, agent, or
employee from engaging in or continuing any conduct, activity, or practice
relating to the business of any Acquired Company.
(c) Except as set forth in Part 3.11(c) of the Disclosure Letter:
(i) each Acquired Company is, and at all times since July 1,
1995 has been, in full compliance with all of the terms and requirements of each
Order to which it, or any of the assets owned or used by it, is or has been
subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a violation of
or failure to comply with any term or requirement of any Order to which any
Acquired Company, or any of the assets owned or used by any Acquired Company, is
subject; and
(iii) no Acquired Company has received, at any time since July
1, 1995, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding any actual, alleged, possible,
or potential violation of, or failure to comply with, any term or requirement of
any Order to which any Acquired Company, or any of the assets owned or used by
any Acquired Company, is or has been subject.
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3.12 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Part 3.12 of the Disclosure Letter, since the
date of the Balance Sheet, the Acquired Companies have conducted their
businesses only in the Ordinary Course of Business and there has not been any:
(a) change in any Acquired Company's authorized or issued capital
stock; grant of any Options or right to purchase shares of capital stock of any
Acquired Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or other
acquisition by any Acquired Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment in
respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired Company;
(c) payment or increase by any Acquired Company of any bonuses,
salaries, or other compensation to any shareholder, director, officer, or
(except in the Ordinary Course of Business) employee or entry into any
employment, severance, or similar Contract with any director, officer, or
employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of any
Acquired Company;
(e) damage to or destruction or loss of any asset or property of any
Acquired Company, whether or not covered by insurances;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to any Acquired Company of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of any Acquired
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of any Acquired Company, including the sale,
lease, or other disposition of any of the Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to any
Acquired Company in excess of $25,000;
(i) material change in the accounting methods used by any Acquired
Company; or
(j) agreement, whether oral or written, by any Acquired Company to do
any of the foregoing.
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3.13 CONTRACTS; NO DEFAULTS
(a) Part 3.13(a) of the Disclosure Letter identifies, and the Company
has furnished to Stryker true and complete copies of:
(i) each Contract that involves performance of services or
delivery of goods or materials by one or more Acquired Companies of an amount or
value in excess of $25,000;
(ii) each Contract that involves performance of services or
delivery of goods or materials to one or more Acquired Companies of an amount or
value in excess of $25,000;
(iii) each Contract that was not entered into in the Ordinary
Course of Business and that involves expenditures or receipts of one or more
Acquired Companies in excess of $10,000;
(iv) each Contract for borrowed money;
(v) each lease, rental or occupancy agreement, license,
installment and conditional sales agreement, and other Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property to which an Acquired Company is a party
(except personal property leases and installment and conditional sales
agreements having a value per item or aggregate payments of less than $10,000 or
with terms of less than one year);
(vi) each licensing agreement or other Contract with respect
to patents, trademarks, copyrights or other intellectual property to which an
Acquired Company is a party;
(vii) each collective bargaining agreement and other Contract
to which an Acquired Company is a party to or with any labor union or other
employee representative of a group of employees;
(viii) each joint venture, partnership, and other Contract
(however named) involving a sharing of profits, losses, costs, or liabilities by
any Acquired Company with any other Person;
(ix) each Contract to which an Acquired Company is a party
containing covenants that in any way purport to restrict the business activity
of any Acquired Company or limit the freedom of any Acquired Company to engage
in any line of business or compete with any Person;
(x) each Contract providing for payments to or by any Person
based on sales, purchases, or profits, other than direct payments for goods;
(xi) each power of attorney that is currently effective and
outstanding;
(xii) each Contract that contains or provides for an express
undertaking by any Acquired Company to be responsible for consequential damages;
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(xiii) each Contract for capital expenditures in excess of
$25,000;
(xiv) each written warranty, guaranty and or other similar
undertaking with respect to contractual performance extended by any Acquired
Company other than in the Ordinary Course of Business; and
(xv) each amendment, supplement, and modification (whether
oral or written) in respect of any of the foregoing.
(b) Part 3.13(b) of the Disclosure Letter accurately describes all
warranties and service policies of the Company relating to its products
currently in effect or in effect at any time during the last three years. Other
than normal product returns pursuant to the foregoing warranties and except as
disclosed on Part 3.13(b) of the Disclosure Letter, there are no pending or, to
the knowledge of the Company threatened, claims of a customer, consumer,
distributor, government agency or other person based upon an alleged defect in
or otherwise relating to products assembled, manufactured or sold by the
Company.
(c) To the Knowledge of the Company, no officer, director, agent,
employee, consultant, or contractor of any Acquired Company is bound by any
Contract that purports to limit the ability of such officer, director, agent,
employee, consultant, or contractor to (i) engage in or continue any conduct,
activity, or practice relating to the business of any Acquired Company, or (ii)
assign to any Acquired Company or to any other Person any rights to any
invention, improvement, or discovery.
(d) Except as set forth in Part 3.13(d) of the Disclosure Letter, each
Contract identified or required to be identified in Part 3.13(a) of the
Disclosure Letter is in full force and effect and is valid and enforceable in
accordance with its terms.
(e) Except as set forth in Part 3.13(e) of the Disclosure Letter:
(i) each Acquired Company is, and at all times since January
1, 1995 has been, in full compliance with all applicable terms and requirements
of each Contract under which such Acquired Company has or had any obligation or
liability or by which such Acquired Company or any of the assets owned or used
by such Acquired Company is or was bound;
(ii) each other Person that has or had any obligation or
liability under any Contract under which an Acquired Company has or had any
rights is, and at all times since July 1, 1995 has been, in full compliance with
all applicable terms and requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with
or without notice or lapse of time) may contravene, conflict with, or result in
a violation or breach of, or give any Acquired Company or other Person the right
to declare a default or exercise any remedy under, or to accelerate the maturity
or performance of, or to cancel, terminate, or modify, any Contract; and
(iv) no Acquired Company has given to or received from any
other Person, at any time since January 1, 1995, any notice or other
communication (whether oral or written)
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regarding any actual, alleged, possible, or potential violation or breach of, or
default under, any Contract.
(f) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to any
Acquired Company under current or completed Contracts with any Person and, to
the Knowledge of the Company, no such Person has made written demand for such
renegotiation.
(g) The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Acquired Companies have been entered
into in the Ordinary Course of Business and have been entered into without the
commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that is or would be in violation of
any Legal Requirement.
3.14 ENVIRONMENTAL MATTERS
Except as set forth in Part 3.14 of the Disclosure Letter:
(a) Each Acquired Company is, and at all times has been, in full
compliance with, and has not been and is not in violation of or liable under,
any Environmental Law. Each Acquired Company holds, and has been and is in
compliance with, all Governmental Authorizations and Consents required under
Environmental Laws, and has made, timely and proper filings for renewal of all
such Governmental Authorizations and Consents. No Acquired Company has Knowledge
of or any basis to expect, nor has any Acquired Company or any other Person for
whose conduct an Acquired Company is or may be held to be responsible received,
any actual or Threatened order, notice, claim or other communication from (i)
any Governmental Body or private citizen acting in the public interest, (ii) the
current or prior owner or operator of any Facilities, of any actual or potential
violation or failure to comply with any Environmental Law, or of any actual or
Threatened obligation to undertake or bear the cost of any Environmental,
Health, and Safety Liabilities with respect to any of the Facilities or any
other properties or assets (whether real, personal, or mixed) in which any
Acquired Company has had an interest, or with respect to any property or
Facility at or to which Hazardous Materials were generated, manufactured,
refined, transferred, imported, used, or processed by any Acquired Company, or
any other Person for whose conduct any Acquired Company is or may be held
responsible, or from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, or received.
(b) There are no pending or, to the Knowledge of the Company,
Threatened claims, Encumbrances, or other restrictions of any nature, resulting
from any Environmental, Health, and Safety Liabilities or arising under or
pursuant to any Environmental Law, with respect to or affecting any of the
Facilities or any other properties and assets (whether real, personal, or mixed)
in which any Acquired Company has or had an interest.
(c) The Company does not have Knowledge or any basis to expect, nor
has any Acquired Company or any other Person for whose conduct any Acquired
Company is or may be held responsible received, any citation, directive,
inquiry, notice, Order, summons, warning, claim or other communication that
relates to Hazardous Activity, Hazardous Materials, or any
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alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which any Acquired Company had an interest, or with
respect to any property or facility to which Hazardous Materials generated,
manufactured, refined, transferred, imported, used, or processed by any Acquired
Company, or any other Person for whose conduct any Acquired Company is or may be
held responsible, have been transported, treated, stored, handled, transferred,
disposed, recycled, or received.
(d) No Acquired Company, or any other Person for whose conduct any
Acquired Company is or may be held responsible, has any Environmental, Health,
and Safety Liabilities with respect to the Facilities or, to the Knowledge of
the Company, with respect to any other properties and assets (whether real,
personal, or mixed) in which any Acquired Company (or any predecessor), has or
had an interest, or at any property geologically or hydrologically adjoining the
Facilities or any such other property or assets.
(e) There are no Hazardous Materials being stored at the Facilities,
or present on or in the Environment at the Facilities or at any geologically or
hydrologically adjoining property, including any Hazardous Materials contained
in barrels, above or underground storage tanks, landfills, land deposits, dumps,
equipment (whether moveable or fixed) or other containers, either temporary or
permanent, and deposited or located in land, water, sumps, or any other part of
the Facilities or such adjoining property, or incorporated into any structure
therein or thereon. No Acquired Company, any other Person for whose conduct any
Acquired Company is or may be held responsible, or to the Knowledge of the
Company, any other Person, has permitted or conducted, or is aware of, any
Hazardous Activity conducted with respect to the Facilities or any other
properties or assets (whether real, personal, or mixed) in which any Acquired
Company has or had an interest.
(f) There has been no Release or, to the Knowledge of the Company,
Threat of Release, of any Hazardous Materials in, at, on, about, under, beneath
or emanating from the Facilities or at any other locations where any Hazardous
Materials were generated, manufactured, refined, transferred, produced,
imported, used, or processed from or by the Facilities, or from or by any other
properties and assets (whether real, personal, or mixed) in which any Acquired
Company has or had an interest, or to the Knowledge of the Company any
geologically or hydrologically adjoining property, whether by any Acquired
Company or any other Person.
(g) The Company has delivered to Stryker true and complete copies and
results of any reports, studies, analyses, tests, or monitoring possessed or
initiated by any Acquired Company and any permits, registrations or
authorizations pertaining to Hazardous Materials or Hazardous Activities in, at,
on, about, under or beneath the Facilities, or concerning compliance by any
Acquired Company, or any other Person for whose conduct any Acquired Company is
or may be held responsible, with Environmental Laws.
(h) Neither the execution of this Agreement nor the consummation of
the transactions contemplated by this Agreement requires any filings,
disclosures, Consents,
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Governmental Authorizations or notices under Environmental Laws and will not
result in increased costs of compliance with Environmental Laws relating to the
Acquired Companies.
3.15 EMPLOYEES
(a) Part 3.15(a) of the Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
Acquired Companies, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or payable and any
change in compensation since January 1, 2000; vacation accrued; and service
credited for purposes of vesting and eligibility to participate under any
Benefit Plan.
(b) Part 3.15(b) of the Disclosure Letter includes a complete and
accurate list of each (a) employment or severance agreement not terminable
without liability or obligation (either individually or collectively); (b)
agreement with any director, executive officer or other employee of any acquired
Company (i) the benefits of which are contingent, or the terms of which are
materially altered, on the occurrence of a transaction involving the Acquired
Company of the nature of any of the Contemplated Transactions or relating to an
actual or potential change in control of the Acquired Company or (ii) providing
any term of employment or other compensation guarantee or extending severance
benefits or other benefits after termination not comparable to benefits
available to employees of the Acquired Companies generally; (c) agreement, plan
or arrangement under which any person may receive payments as a result of the
Contemplated Transactions that may be subject to tax imposed by Section 4999 of
the IRC or included in the determination of such person's "parachute payment"
under Section 280G of the IRC; and (d) agreement or plan, including any stock
option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be triggered, increased, or the
vesting of the benefits of which will be triggered or accelerated, by the
occurrence of any of the Contemplated Transactions or the value of any of the
benefits of which will be calculated on the basis of any of the Contemplated
Transactions. Except as provided for by the terms of any agreement, plan or
arrangement, the existence of which is disclosed in Part 3.15(b) of the
Disclosure Letter, the consummation of the Contemplated Transactions, without
regard to any other event following the Effective Time, will not (i) entitle any
current or former employee or officer of any Acquired Company to severance pay,
unemployment compensation or any other payment, or (ii) accelerate the time of
payment or vesting or increase the amount of compensation due any such employee
or officer.
(c) No employee or director of any Acquired Company is a party to, or
is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition, or proprietary rights agreement, between such
employee or director and any other Person that in any way adversely affects or
will affect (i) the performance of his duties as an employee or director of the
Acquired Companies, or (ii) the ability of any Acquired Company to conduct its
business. Except as set forth in Part 3.15(c) of the Disclosure Letter, to the
Knowledge of the Company, no officer or other key employee of any Acquired
Company intends to terminate his employment with such Acquired Company.
(d) Part 3.15(d) of the Disclosure Letter contains a complete and
accurate list of the following information for each retired employee or director
of the Acquired Companies, or
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their dependents, receiving benefits or scheduled to receive benefits in the
future: name, pension benefit, pension option election, retiree medical
insurance coverage, retiree life insurance coverage, and other benefits.
3.16 LABOR RELATIONS; COMPLIANCE
No Acquired Company has been or is a party to any collective bargaining
or other labor Contract. There has not been, there is not presently pending or
existing, and there is not Threatened, (a) any strike, slowdown, picketing, work
stoppage, or employee grievance process, (b) any Proceeding against or affecting
any Acquired Company relating to the alleged violation of any Legal Requirement
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations Board,
the Equal Employment Opportunity Commission, or any comparable Governmental
Body, organizational activity, or other labor or employment dispute against or
affecting any of the Acquired Companies or their premises, or (c) any
application for certification of a collective bargaining agent. No event has
occurred or circumstance exists that could provide the basis for any work
stoppage or other labor dispute. There is no lockout of any employees by any
Acquired Company, and no such action is contemplated by any Acquired Company.
Each Acquired Company has complied in all respects with all Legal Requirements
relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant
closing. No Acquired Company is liable for the payment of any compensation,
damages, taxes, fines, penalties, or other amounts, however designated, for
failure to comply with any of the foregoing Legal Requirements.
3.17 INTELLECTUAL PROPERTY
(a) Intellectual Property Assets -- The term "Intellectual Property
Assets" includes:
(i) the names Image Guided Technologies, Inc. and Springfield
Surgical Instruments, Inc., all fictional business names, trading names,
registered and unregistered trademarks and service marks, registrations and
applications (collectively, "MARKS");
(ii) all patents, patent applications, and inventions
improvements and other developments that may be patentable (collectively,
"PATENTS");
(iii) all other know-how, trade secrets, confidential
information, customer lists, software, technical information, data, process
technology, plans, drawings, blue prints and other proprietary information
(collectively, "PROPRIETARY INFORMATION"); and
(iv) all copyrights in both published works and unpublished
works (collectively, "COPYRIGHTS").
owned, used, or licensed by any Acquired Company as licensee or licensor.
(b) AGREEMENTS -- Part 3.17(b) of the Disclosure Letter contains a
complete and accurate list and summary description, including any royalties paid
or received by the Acquired
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Companies, of all Contracts relating to the Intellectual Property Assets to
which any Acquired Company is a party or by which any Acquired Company is bound,
except for any license implied by the sale of a product and perpetual, paid-up
licenses for commonly available software programs with a value of less than
$25,000 under which an Acquired Company is the licensee. There are no
outstanding and, to the Knowledge of the Company, no Threatened disputes or
disagreements with respect to any such agreement.
(c) Know-How Necessary for the Business
(i) The Intellectual Property Assets are all those necessary
for the operation of the Acquired Companies' businesses as they are currently
conducted. Except as set forth in Part 3.17(c) of the Disclosure Letter, one or
more of the Acquired Companies is the owner of all right, title, and interest in
and to each of the Intellectual Property Assets, free and clear of all
Encumbrances and other adverse claims, and has the right to use without payment
to a third party all of the Intellectual Property Assets.
(ii) The Contemplated Transactions will not alter or impair
any of the rights presently enjoyed by any Acquired Company with respect to the
Intellectual Property Assets.
(iii) Except as set forth in Part 3.17(c) of the Disclosure
Letter, all former and current employees of each Acquired Company have executed
written Contracts with one or more of the Acquired Companies that assign to one
or more of the Acquired Companies all rights to any inventions, improvements,
developments or other information relating to the business of any Acquired
Company. No employee of any Acquired Company has entered into any Contract that
restricts or limits in any way the scope or type of work in which the employee
may be engaged or requires the employee to transfer, assign, or disclose
information concerning his work to anyone other than one or more of the Acquired
Companies.
(d) Patents
(i) Part 3.17(d) of the Disclosure Letter contains a complete
and accurate list and summary description of all Patents owned or used (pursuant
to license agreements or otherwise) by the Acquired Companies and, in the case
of Intellectual Property Assets that are so owned, the jurisdictions in or by
which such assets have been registered, filed or issued.
(ii) All of the issued Patents are currently in compliance
with formal legal requirements (including payment of filing, examination, and
maintenance fees and proofs of working or use), are valid and enforceable, and
are not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date.
(iii) Except as set forth in Part 3.17(d) of the Disclosure
Letter, no Patent has been or is now involved in any interference, reissue,
reexamination, or opposition proceeding. To the Knowledge of the Company, there
is no potentially interfering patent or patent application of any third party.
(iv) Except as set forth in Part 3.17(d) of the Disclosure
Letter, to the Knowledge of the Company, no Patent has been challenged or
threatened in any way. None of the products manufactured and sold, nor any
process or know-how used, by any Acquired
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Company infringes or is alleged to infringe any patent or other proprietary
right of any other Person.
(e) Marks
(i) Part 3.17(e) of Disclosure Letter contains a complete and
accurate list and summary description of all Marks.
(ii) All Marks that have been registered with the United
States Patent and Trademark Office are currently in compliance with all formal
legal requirements (including the timely post-registration filing of affidavits
of use and incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within ninety days after the Closing Date.
(iii) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and, to the Knowledge of the Company, no such
action is Threatened with respect to any of the Marks.
(iv) To the Knowledge of the Company, there is no potentially
interfering trademark or trademark application of any third party.
(v) To the Knowledge of the Company, no Mark has been
challenged or threatened in any way. None of the Marks used by any Acquired
Company infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.
(f) Copyrights
(i) Part 3.17(f) of the Disclosure Letter contains a complete
and accurate list and summary description of all Copyrights.
(ii) All the Copyrights have been registered and are currently
in compliance with formal legal requirements, are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety days after the date of Closing.
(iii) To the Knowledge of the Company, no Copyright has been
challenged or threatened in any way. None of the subject matter of any of the
Copyrights infringes or is alleged to infringe any copyright of any third party
or is a derivative work based on the work of a third party.
(g) Proprietary Information
(i) With respect to each item of Proprietary Information, the
documentation relating to such item of Proprietary Information is current,
accurate, and sufficient in detail and content to identify and explain it and to
allow its full and proper use without reliance on the knowledge or memory of any
individual.
(ii) The Acquired Companies have taken all reasonable
precautions to protect any secrecy, confidentiality and value of their
Proprietary Information.
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(iii) The Proprietary Information is not part of the public
knowledge or literature, and, to the Knowledge of the Company, has not been
used, divulged, or appropriated either for the benefit of any Person (other than
one or more of the Acquired Companies) or to the detriment of the Acquired
Companies. No Proprietary Information is subject to any adverse claim or has
been challenged or threatened in any way.
3.18 REGULATORY MATTERS
(a) Part 3.18(a) of the Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by any Acquired
Company or that otherwise relates to the business of, or to any of the assets
owned or used by, any Acquired Company, including but not limited to product
approvals and clearances issued by the FDA and similar foreign Governmental
Bodies and product submissions to the FDA and similar foreign Governmental
Bodies which are currently in process (the "SUBMISSIONS"). Except for the
Submissions, each Governmental Authorization issued by a United States
Governmental Body, and, to the Knowledge of the Company, each Governmental
Authorization issued by a foreign Governmental Body, listed or required to be
listed in Part 3.11(b) of the Disclosure Letter is valid and in full force and
effect.
(b) Except as set forth in Part 3.11(b) of the Disclosure Letter, to
the Knowledge of the Company, the Governmental Authorizations listed in Part
3.18(a) of the Disclosure Letter collectively constitute all of the Governmental
Authorizations necessary to permit the Acquired Companies to lawfully conduct
and operate their businesses in the manner they currently conduct and operate
such businesses and to permit the Acquired Companies to own and use their assets
in the manner in which they currently own and use such assets.
(c) In calendar year 1999, the Company recorded no "complaints" (as
such term is defined in 21 C.F.R. Section 820.198) and reported no Medical
Device Reports ("MDRS"). From January 1, 2000 through the date of this
Agreement, the Company recorded no "complaints" and reported no MDRs. Except as
set forth in Part 3.18(c) of the Disclosure Letter, to the Knowledge of the
Company, these "complaints" and MDRs would not reasonably lead to the conclusion
that there is a trend or failure mode with respect to a particular product.
(d) The Acquired Companies manufacture and for the past three years
have manufactured their products in all material respects in accordance with all
applicable FDA rules and regulations (including the Good Manufacturing Practices
and the Quality System regulations promulgated by the FDA) and the European
Medical Device Directive (93142/ECC) and quality control procedures of the
Acquired Companies in effect at the time of manufacture. To the extent required,
all of the products currently sold by the Acquired Companies have been approved
for sale by the FDA and all other applicable federal, state, local and foreign
regulatory agencies. The Acquired Companies are authorized by their "notified
body" to apply the "CE" mark to the products listed in Part 3.18(d) of the
Disclosure Letter. No Acquired Company has received any notice from the FDA or
any other federal, state, local or foreign regulatory agency questioning its
manufacturing practices or threatening to revoke or curtail any product
approval, and no Acquired Company is aware of any intent to deliver any such
notice. Part 3.18(d) of the Disclosure Letter contains a complete list of all
products manufactured or marketed by the Acquired Companies, including those
that require the approval of or notice to, or registration
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with, the FDA or any other United States federal or state or foreign
governmental agency or bureau under any existing law, regulation or policy,
specifying the type of approval or notice of registration required and the
reference number or identification of each currently effective approval or
notice and registration. Since January 1, 1995, none of the Acquired Companies
has received any FDA "warning letter." None of the products identified in Part
3.18(d) of the Disclosure Letter has been the subject of any voluntary or
involuntary recall or any governmental investigation other than routine
inspections of the Acquired Companies' facilities and all United States and,
except as set forth in Part 3.18(d) of the Disclosure Letter, international
regulatory approvals therefor are owned by and registered in the name of an
Acquired Company and are in full force and effect.
3.19 CERTAIN PAYMENTS
Since January 1, 1995, no Acquired Company or director, officer, agent,
or employee of any Acquired Company, or to the Knowledge of the Company any
other Person associated with or acting for or on behalf of any Acquired Company,
has directly or indirectly (a) made any contribution, gift, bribe, rebate,
payoff, influence payment, kickback, or other payment to any Person, private or
public, regardless of form, whether in money, property, or services (i) to
obtain favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, (iii) to obtain special concessions or for
special concessions already obtained, for or in respect of any Acquired Company
or any Affiliate of an Acquired Company, or (iv) in violation of any Legal
Requirement, or (b) established or maintained any fund or asset that has not
been recorded in the books and records of the Acquired Companies.
3.20 STRYKER REGISTRATION STATEMENT; COMPANY PROXY STATEMENT
None of the information supplied or to be supplied by the Company
specifically for inclusion or incorporation by reference in (i) the registration
statement on Form S-4 to be filed with the SEC by Stryker in connection with the
issuance of Stryker Common Stock in the Merger, together with all amendments
thereto (the "STRYKER REGISTRATION STATEMENT"), will, at the time the Stryker
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
or (ii) the Company Proxy Statement will, at the date it is first mailed to the
Company's shareholders and the time of the Company Shareholders Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company Proxy Statement will comply as to form in all material
respects with the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made by the Company
with respect to statements made or incorporated by reference therein based on
information supplied by Stryker specifically for inclusion or incorporation by
reference in the Company Proxy Statement.
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3.21 STATE TAKEOVER STATUTES
To the Knowledge of the Company, no state takeover statute is
applicable to the Merger or any other Contemplated Transaction.
3.22 DISCLOSURE
(a) No representation or warranty of the Company in this Agreement
and no statement in the Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
(c) There is no fact known to any Acquired Company that has specific
application to any Acquired Company (other than general economic or industry
conditions) and that materially adversely affects or, as far as any Acquired
Company can reasonably foresee, materially threatens, the assets, business,
prospects, financial condition, or results of operations of the Acquired
Companies (on a consolidated basis) that has not been set forth in this
Agreement or the Disclosure Letter.
3.23 TRANSACTIONS WITH RELATED PERSONS
Except as set forth in Part 3.23 of the Disclosure Letter, no Related
Person of any Acquired Company has, or since January 1, 1995 has had, any
interest in any property (whether real, personal, or mixed and whether tangible
or intangible), used in or pertaining to the Acquired Companies' businesses.
Except as set forth in Part 3.23 of the Disclosure Letter, no Related Person of
any Acquired Company is, or since January 1, 1995 has owned (of record or as a
beneficial owner) an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial interest
in any transaction with any Acquired Company or (ii) engaged in competition with
any Acquired Company with respect to any line of the products or services of
such Acquired Company in any market presently served by such Acquired Company.
Except as set forth in Part 3.23 of the Disclosure Letter, no Related Person of
any Acquired Company is a party to any Contract with, or has any claim or right
against, any Acquired Company.
3.24 BROKERS
Other than as set forth in Part 3.24 of the Disclosure Letter, the
Company has not incurred and will not incur any obligation for any finder's or
broker's fee or agents' commission or other similar payment in connection with
the Contemplated Transactions.
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4. REPRESENTATIONS AND WARRANTIES OF STRYKER AND MERGER SUB
Each of Stryker and Merger Sub represents and warrants to the Company
as follows:
4.1 ORGANIZATION AND GOOD STANDING
Stryker is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Michigan. Merger Sub is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Colorado.
4.2 CAPITALIZATION
The authorized capital stock of Stryker consists of (i) 500,000,000
shares of Stryker Common Stock and (ii) 500,000 shares of preferred stock, $1.00
par value. As of May 31, 2000, (i) 194,919,584 shares of Stryker Common Stock
were issued and outstanding and (ii) no shares of Stryker Preferred Stock were
issued and outstanding. As of the date of this Agreement, no bonds, debentures,
notes or other indebtedness of Stryker having the right to vote (or convertible
into, or exchangeable for, securities having the right to vote) on any matters
on which stockholders of Stryker may vote are issued or outstanding. All
outstanding shares of Stryker Common Stock are, and all shares of Stryker Common
Stock that may be issued pursuant to this Agreement will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights.
4.3 AUTHORITY; NO CONFLICT
(a) This Agreement is a legal, valid, and binding obligation of Stryker
and Merger Sub, enforceable against each in accordance with its terms. The
execution, delivery and performance by Stryker and Merger Sub of this Agreement
and the consummation by Stryker and Merger Sub of the Contemplated Transactions
have been duly authorized by the respective boards of directors of Stryker and
Merger Sub and no other corporate proceedings on the part of Stryker or Merger
Sub are necessary to authorize the execution, delivery and performance of this
Agreement by Stryker and Merger Sub and the consummation of the Contemplated
Transactions.
(b) Neither the execution and delivery of this Agreement by Stryker or
Merger Sub nor the consummation or performance of any of the Contemplated
Transactions by Stryker or Merger Sub will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of Stryker's or Merger Sub's Organizational
Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Stryker or Merger Sub;
(iii) any Legal Requirement or Order to which Stryker or
Merger Sub may be subject; or
(iv) any Contract to which Stryker or Merger Sub is a party or
by which Stryker or Merger Sub may be bound.
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(c) No consent, approval, order or authorization of, action by, or in
respect of, or registration, declaration or filing with, any Governmental Body
is required by or with respect to Stryker or Merger Sub in connection with the
execution and delivery of this Agreement by Stryker and Merger Sub or the
consummation by Stryker and Merger Sub of the transactions contemplated by this
Agreement, except for (i) the filing with the SEC of (A) the Stryker
Registration Statement and (B) such reports under Section 13(a), 13(d), 15(d) or
16(a) of the Exchange Act as may be required in connection with this Agreement
and the Contemplated Transactions; (ii) the filing of the Articles of Merger
with the Secretary of State of the State of Colorado and appropriate documents
with the relevant authorities of other states in which Stryker is qualified to
do business; (iii) such filings with and approvals of the New York Stock
Exchange to permit the shares of Stryker Common Stock that are to be issued in
the Merger to be listed on the New York Stock Exchange; (iv) filings with
Governmental Bodies to satisfy the applicable requirements of state securities
or "blue sky" laws and (v) such consents, approvals, orders or authorizations
the failure of which to be made or obtained individually or in the aggregate
could not reasonably be expected to have a Material Adverse Effect.
4.4 CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against either
Stryker or Merger Sub that challenges, or may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions. To the Knowledge of Stryker, no such Proceeding has been
threatened.
4.5 SEC DOCUMENTS; UNDISCLOSED LIABILITIES
Stryker has filed all required reports, schedules, forms, statements
and other documents (including exhibits and all other information incorporated
therein) with the SEC since January 1, 1999 (the "STRYKER SEC DOCUMENTS"). As of
their respective dates, the Stryker SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Stryker SEC Documents. Except to the extent that information
contained in any Stryker SEC Document has been revised or superseded by a later
filed Stryker SEC Document, none of the Stryker SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Stryker included in the Stryker SEC
Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, 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 SEC) applied
on a consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the consolidated
financial position of Stryker and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except for liabilities (i) reflected in
such financial statements or in the notes thereto, (ii) incurred in the ordinary
course of business consistent with past practice since the date of the most
recent audited financial statements included in the Stryker
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SEC Documents or (iii) incurred in connection with this Agreement or the
transactions contemplated hereby or thereby neither Stryker nor any of its
Subsidiaries has any liabilities or obligations of any nature which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
4.6 INFORMATION SUPPLIED
None of the information supplied or to be supplied by Stryker
specifically for inclusion or incorporation by reference in (i) the Stryker
Registration Statement will, at the time the Stryker Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or (ii) the Company
Proxy Statement will, at the date it is first mailed to the Company's
shareholders or at the time of the Company Shareholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
Stryker Registration Statement will comply as to form in all material respects
with the requirements of the Exchange Act and the rules and regulations
thereunder, except that no representation or warranty is made by Stryker with
respect to statements made or incorporated by reference therein based on
information supplied by the Company specifically for inclusion or incorporation
by reference in the Stryker Registration Statement.
4.7 INTERIM OPERATIONS OF MERGER SUB
Merger Sub was formed solely for the purpose of engaging in
transactions of the type contemplated hereby, has engaged in no other business
activities and has conducted its operations only as contemplated hereby.
4.8 NO OTHER REPRESENTATIONS OR WARRANTIES
Except for the representations and warranties contained in this
Agreement, neither Stryker nor Merger Sub makes any representation or warranty,
and hereby disclaims any such representations by Stryker or Merger Sub with
respect to the execution and delivery of the Agreement or the Contemplated
Transactions.
5. COVENANTS OF THE COMPANY
5.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, the Company
will, and will cause each Acquired Company (other than the Company) and the
Representatives of each Acquired Company (other than the Company) to, (a) afford
Stryker and its Representatives full and free access during normal business
hours to each Acquired Company's personnel, contracts, books and records, and
other documents and data, as Stryker may reasonably request and (b) furnish
Stryker and its Representatives with copies of all such contracts, books and
records and other documents and data as Stryker or its Representatives may
reasonably request.
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5.2 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANIES
Between the date of this Agreement and the Closing Date, except as
specifically contemplated by this Agreement and the Disclosure Letter, the
Company will, and will cause each Acquired Company other than the Company to:
(a) conduct the business of such Acquired Company only in the Ordinary
Course of Business;
(b) use their Best Efforts to preserve intact the current business
organization of such Acquired Company, keep available the services of the
current officers, employees, and agents of such Acquired Company, and maintain
the relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with such Acquired
Company;
(c) confer with Stryker concerning operational matters of a material
nature; and
(d) otherwise report periodically to Stryker concerning the status of
the business, operations and finances of such Acquired Company.
5.3 NEGATIVE COVENANT
Between the date of this Agreement and the Closing Date, except as
specifically permitted by this Agreement and the Disclosure Letter, the Company
will not, and will cause each other Acquired Company not to, without the prior
consent of Stryker, take any affirmative action, or fail to take any reasonable
action within their or its control as a result of which any of the changes or
events listed in Section 3.12 is likely to occur.
5.4 REQUIRED APPROVALS
Between the date of this Agreement and the Closing Date, the Company
will, and will cause each other Acquired Company and each of its and their
Related Person to, cooperate with Stryker with respect to all filings that
Stryker is required by Legal Requirements to make in connection with the
Contemplated Transactions.
5.5 NOTIFICATION
Between the date of this Agreement and the Closing Date, the Company
will promptly notify Stryker in writing if the Company or any other Acquired
Company becomes aware of any fact or condition that causes or constitutes a
Breach of any of the Company's representations and warranties as of the date of
this Agreement, or if the Company or any other Acquired Company becomes aware of
the occurrence after the date of this Agreement of any fact or condition that
would (except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any fact or condition require any change in the Disclosure
Letter if the Disclosure Letter were dated the date of the occurrence or
discovery of any such fact or condition, the Company will promptly deliver to
Stryker a supplement to the Disclosure Letter specifying such change. During the
same period, the
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Company will promptly notify Stryker of the occurrence of any Breach of any
covenant of the Company in this Section 5 or of the occurrence of any event that
may make the satisfaction of the conditions in Section 7 impossible or unlikely.
5.6 PAYMENT OF INDEBTEDNESS BY RELATED PERSONS
The Company will cause all indebtedness owed to any Acquired Company by
any Related Person of any Acquired Company to be paid in full prior to Closing.
5.7 NO SOLICITATION BY THE COMPANY
(a) The Company shall not, nor shall it permit any other Acquired
Company to, nor shall it authorize or permit any of its directors, officers or
employees or any investment banker, financial advisor, attorney, accountant or
other representative retained by it or any of its Subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding any Takeover Proposal;
provided, however, that if, at any time prior to the date of the Company
Shareholders Meeting (the "APPLICABLE PERIOD"), the Board of Directors of the
Company determines in good faith, after consultation with outside counsel, that
it is necessary to do so in order to comply with its fiduciary duties to the
Company's shareholders under applicable law, the Company and its representatives
may, in response to a Superior Proposal which was not solicited by it or which
did not otherwise result from a breach of this Section 5.7(a), and subject to
providing prior written notice of its decision to take such action to Stryker
and compliance with Section 5.7(c), (x) furnish information with respect to the
Company and its Subsidiaries to any person making a Superior Proposal pursuant
to a customary confidentiality agreement (as determined by the Company after
consultation with its outside counsel) and (y) participate in discussions or
negotiations regarding such Superior Proposal. For purposes of this Agreement,
"TAKEOVER PROPOSAL" means any inquiry, proposal or offer from any person
relating to any direct or indirect acquisition or purchase of assets of the
Company other than in the Ordinary Course of Business, or any shares of any
class or series of equity securities of the Company or any of its Subsidiaries,
any tender offer or exchange offer for shares of any class or series of equity
securities of the Company or any of its Subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company or any of its Subsidiaries, other
than the transactions contemplated by this Agreement.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose publicly to withdraw or modify,
in a manner adverse to Stryker, the approval or recommendation by such Board of
Directors or such committee of the Merger or this Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Takeover Proposal,
or (iii) approve or recommend, or propose to approve or recommend, or execute or
enter into, any letter of intent, agreement in principle, merger agreement,
acquisition agreement, option agreement or other similar agreement or propose
publicly or agree to do any of the foregoing (each, an "ACQUISITION AGREEMENT")
related to any Takeover Proposal, other than any such agreement entered into
concurrently with a termination
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pursuant to the next sentence in order to facilitate such action.
Notwithstanding the foregoing, during the Applicable Period, in response to a
Superior Proposal which was not solicited by the Company and which did not
otherwise result from a breach of Section 5.7(a), if the Board of Directors of
the Company determines in good faith, after consultation with outside counsel,
that it is necessary to do so in order to comply with its fiduciary duties to
the Company's shareholders under applicable law, the Board of Directors of the
Company may (subject to this and the following sentence) terminate this
Agreement (and concurrently with or after such termination, if it so chooses,
cause the Company to enter into any Acquisition Agreement with respect to any
Superior Proposal), but only at a time that is during the Applicable Period and
is after the tenth business day following Stryker's receipt of written notice
advising Stryker that the Board of Directors of the Company is prepared to
accept a Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and identifying the person making such Superior Proposal. For
purposes of this Agreement, a "SUPERIOR PROPOSAL" means any proposal made by a
third party to acquire, directly or indirectly, including pursuant to a tender
offer, exchange offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction, for
consideration consisting of cash and/or securities, more than 50% of the
combined voting power of the shares of the Company Common Stock then outstanding
or all or substantially all the assets of the Company and otherwise on terms
which the Board of Directors of the Company determines in its good faith
judgment (based on the advice of its financial advisor referred to in Part 3.24
of the Disclosure Letter) to be more favorable to the Company's shareholders
than the Merger and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of Directors of the
Company, is reasonably capable of being obtained by such third party.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 5.7, the Company shall promptly (and no
later than 48 hours) advise Stryker orally and in writing of any request for
information or of any Takeover Proposal, the material terms and conditions of
such request or Takeover Proposal and the identity of the Person making such
request or Takeover Proposal. The Company will keep Stryker informed of the
status and material terms and conditions (including amendments or proposed
amendments) of any such request or Takeover Proposal.
(d) Nothing contained in this Section 5.7 shall prohibit the Company
from taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's shareholders if, in the good faith judgment of the Board of Directors
of the Company, after consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under applicable law; provided, that,
except as expressly permitted by this Section 5.7, neither the Company nor its
Board of Directors nor any committee thereof shall withdraw or modify, or
propose publicly to withdraw or modify, its position with respect to this
Agreement or the Merger or approve or recommend, or propose publicly to approve
or recommend, a Takeover Proposal.
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5.8 PREPARATION OF THE STRYKER REGISTRATION STATEMENT AND COMPANY PROXY
STATEMENT: COMPANY SHAREHOLDERS MEETING
(a) As soon as practicable following the date of this Agreement, the
Company shall prepare and file with the SEC the Company Proxy Statement and
Stryker shall prepare and file with the SEC the Stryker Registration Statement,
in which the Company Proxy Statement will be included as a prospectus. Each of
the Company and Stryker shall use its reasonable best efforts to have the
Stryker Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing. The Company will use its reasonable
best efforts to cause the Company Proxy Statement to be mailed to the Company's
shareholders as promptly as practicable after the Stryker Registration Statement
is declared effective under the Securities Act. Stryker shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the issuance of Stryker Common Stock in the Merger and the Company shall
furnish all information concerning the Company and the holders of Company Common
Stock as may be reasonably requested in connection with any such action. No
filing of, or amendment or supplement to, the Stryker Registration Statement
will be made by Stryker, or the Company Proxy Statement will be made by the
Company, without providing the other party the opportunity to review and comment
thereon. Stryker will advise the Company, promptly after it receives notice
thereof, of the time when the Stryker Registration Statement has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of the Stryker Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or any request by the SEC for amendment of the Stryker Registration Statement or
comments thereon and responses thereto or requests by the SEC for additional
information. The Company will inform Stryker, promptly after it receives notice
thereof, of any request by the SEC for the amendment of the Company Proxy
Statement or comments thereon and responses thereto or requests by the SEC for
additional information. If at any time prior to the Effective Time any
information relating to the Company or Stryker, or any of their respective
affiliates, officers or directors, should be discovered by the Company or
Stryker which should be set forth in an amendment or supplement to any of the
Stryker Registration Statement or the Company Proxy Statement, so that any of
such documents would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party that
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law, disseminated to
the shareholders of the Company.
(b) The Company shall, as soon as practicable following the date of
this Agreement, establish a record date (which will be as soon as practicable
following the date of this Agreement) for, duly call, give notice of, convene
and hold a meeting of its shareholders (the "COMPANY SHAREHOLDERS MEETING")
solely for the purpose of obtaining the Company Shareholder Approval. The
Company shall, through its Board of Directors, recommend to its shareholders the
approval and adoption of this Agreement, the Merger and the other transactions
contemplated hereby. Without limiting the generality of the foregoing but
subject to its right to terminate this Agreement pursuant to Section 5.7(b), the
Company agrees that its obligations
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pursuant to the first sentence of this Section 5.8(b) shall not be affected by
the commencement, public proposal, public disclosure or communication to the
Company of any Takeover Proposal.
5.9 LETTER OF THE COMPANY'S ACCOUNTANTS; LETTER OF STRYKER'S
ACCOUNTANTS
(a) The Company shall use its reasonable best efforts to cause its
independent public accountants to deliver to Stryker two letters from the
Company's independent public accountants, one dated the date on which the
Stryker Registration Statement is declared effective by the SEC and one dated
the Closing Date, each addressed to Stryker, in form and substance reasonably
satisfactory to Stryker and customary in scope and substance for comfort letters
delivered by independent public accountants in connection with registration
statements similar to the Stryker Registration Statement.
(b) Stryker shall use its reasonable best efforts to cause its
independent public accountants to deliver to the Company two letters from
Stryker's independent public accountants, one dated the date on which the
Stryker Registration Statement is declared effective by the SEC and one dated
the Closing Date, each addressed to the Company, in form and substance
reasonably satisfactory to the Company and customary in scope and substance for
comfort letters delivered by independent public accountants in connection with
registration statements similar to the Stryker Registration Statement.
5.10 BEST EFFORTS
Between the date of this Agreement and the Closing Date, the Company
will use its Best Efforts to cause the conditions in Sections 7.1 and 7.2 to be
satisfied.
6. COVENANTS OF STRYKER AND MERGER SUB
6.1 REQUIRED APPROVALS
Between the date of this Agreement and the Closing Date, Stryker will,
and will cause each of its Related Persons to, cooperate with the Company with
respect to all filings that the Company is required by Legal Requirements to
make in connection with the Contemplated Transactions.
6.2 BEST EFFORTS
Between the date of this Agreement and the Closing Date, Stryker will
use its Best Efforts to cause the conditions in Sections 7.1 and 7.3 to be
satisfied.
6.3 OFFICERS' AND DIRECTORS' INDEMNIFICATION
(a) Stryker will cause the Surviving Corporation to keep in effect in
each of its Articles and Bylaws provisions providing for exculpation and
indemnification of the respective officers and directors of the Company to the
fullest extent permitted under Colorado law.
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(b) For a period of six years after the Effective Time, Stryker shall
cause to be maintained in effect the current officers' and directors' liability
insurance maintained by the Company with respect to its officers and directors
covering acts or omissions occurring prior to the Effective Time; provided that
Stryker may substitute therefor policies of at least the same coverage and
amounts that contain terms and conditions that are no less advantageous to the
officers and directors of the Company than such existing insurance and provided,
further, that if the existing coverage cannot be maintained or equivalent
coverage cannot be obtained or can be obtained only by paying an annual premium
in excess of $35,000, Stryker shall only be required to obtain as much coverage
as can be obtained by paying an annual premium equal to $35,000.
(c) In the event Stryker or any of its successors or assigns (i)
consolidates with or merges into any other person and will not be the continuing
or surviving corporation or entity of such consolidation or merger, or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, to the extent necessary to effectuate
the purposes of this Section 6.3, proper provision will be made so that the
successors and assigns of Stryker assume the obligations set forth in this
Section 6.3 and none of the actions described in clauses (i) or (ii) will be
taken until such provision is made.
(d) Any person seeking indemnification under this Section 6.3 shall be
entitled to such indemnification only if such person notifies Stryker promptly
after such person becomes aware of any claim, action, suit or proceeding in
respect of which such person is making a claim hereunder and cooperate in the
defense thereof. Absent a conflict of interest under standards of professional
conduct, Stryker is entitled to select counsel to represent the indemnitee,
which selection must be approved by the indemnitee, such approval not to be
unreasonably withheld. So long as the proceeding (or settlement) involves only
the payment of money by Stryker, Stryker is entitled to control the conduct of
the proceeding.
(e) Present and former officers and directors of the Company are
intended third-party beneficiaries of the provisions set forth in this Section
6.3 and will be entitled to enforce such provisions against Stryker and Merger
Sub and their successors and assigns.
(f) Notwithstanding the foregoing, no person who is or was an officer
or director of the Company prior to the Effective Time shall be entitled to the
benefit of the provisions set forth in subsections (a), (c) and (d) of this
Section 6.3 with respect to any loss, claim, damage or expense incurred in
connection with a matter as to which such person had knowledge that should have
been, but was not, set forth in the Disclosure Letter and the Articles and
Regulations may be amended to so provide.
7. CONDITIONS PRECEDENT
7.1. CONDITIONS PRECEDENT TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER.
The respective obligations of each party hereto to effect the merger
shall be subject to the fulfillment or satisfaction, prior to or on the closing
date of each of the following conditions precedent:
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(a) Shareholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the shares of
Company Common Stock. There shall not have been written demands or objections
made and not withdrawn or otherwise terminated under Section 7-113-101 et. seq.
of the CBCA by shareholders of the Company holding in the aggregate more than
200,000 shares of Company Common Stock.
(b) No Litigation. No judgment, order, decree, statute, law, ordinance,
rule or regulation, entered, enacted, promulgated, enforced or issued by any
court or other Governmental Body of competent jurisdiction or other legal
restraint or prohibition (collectively, "RESTRAINTS") shall be in effect, and
there shall not be pending any suit, action or proceeding by any Governmental
Body (i) preventing the consummation of the Merger or (ii) which otherwise is
reasonably likely to have a Material Adverse Effect on the Company or Stryker,
as applicable; provided, that each of the parties shall have used its reasonable
best efforts to prevent the entry of any such Restraints and to appeal as
promptly as possible any such Restraints that may be entered.
(c) Stryker Registration Statement. The Stryker Registration Statement
shall have become effective in accordance with the provisions of the Securities
Act. No stop order suspending the effectiveness of the Stryker Registration
Statement shall have been issued by the SEC and no proceedings for that purpose
shall have been initiated.
(d) Stock Exchange Listing. The shares of Stryker Common Stock issuable
in accordance with the Merger shall have been authorized for listing on the
NYSE, subject to official notice of issuance.
7.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF STRYKER AND MERGER SUB.
All obligations of Stryker and Merger Sub under this Agreement are
subject to the fulfillment or satisfaction, prior to or on the Closing Date, of
each of the following additional conditions precedent:
(a) Performance of Obligations, Representations and Warranties. The
Company shall have performed and complied in all material respects with all
agreements and conditions contained in this Agreement that are required to be
performed or complied with by it prior to or at the Closing. Each of the
Company's representations and warranties contained in Section 3 of this
Agreement shall be true and correct as of the date hereof and as of the Closing
with the same effect as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date), except
where the failure of such representations and warranties to be so true and
correct (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein) does not have, and could not
reasonably be expected to result, individually or in the aggregate, in losses,
liabilities, claims, damages (including incidental and consequential damages),
expenses and diminution in value, whether or not involving a third party claim,
in an amount exceeding $600,000. Stryker and Merger Sub shall have received a
certificate dated the Closing Date and signed by the Chairman, President or a
Vice-President of the Company, certifying that, the conditions specified in this
Section 7.2(a) have been satisfied.
(b) Employment Agreements. Paul L. Ray and Waldean A. Schulz, Ph.D.
shall each have entered into an Employment Agreement with the Surviving
Corporation, substantially
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in the form of Exhibits II and III, respectively, hereto, and such agreements
shall be in full force and effect.
(c) Affiliates. Stryker shall have received from each Person referred
to in Section 2.13, an executed copy of an agreement substantially in the form
of Exhibit I.
(d) Termination of Options and Warrants. IGT shall have taken action to
terminate all Options and Warrants that have not been exercised as contemplated
by Section 2.9.
7.3. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS.
All obligations of the Company under this Agreement are subject to the
fulfillment or satisfaction, prior to or on the Closing Date, of each of the
following additional conditions precedent:
(a) Performance of Obligations; Representations and Warranties. Stryker
and Merger Sub shall have performed and complied in all material respects with
all agreements and conditions contained in this Agreement that are required to
be performed or complied with by them prior to or at the Closing. Each of the
representations and warranties of Merger Sub and Stryker contained in Section 4
of this Agreement shall be true and correct as of the date hereof and as of the
Closing with the same effect as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case as of such date),
except where the failure of such representations and warranties to be so true
and correct (without giving effect to any limitation as to "materiality" or
"Material Adverse Effect" set forth therein) does not have, and could not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Stryker. The Company shall have received certificates dated
the Closing Date and signed by the President or a Vice-President of Stryker and
Merger Sub, certifying that the conditions specified in this Section 7.3(a) have
been satisfied.
(b) Tax Opinion. The Company shall have received a written opinion from
Ireland, Stapleton, Pryor & Pascoe, P.C., counsel to the Company, on the date on
which the Stryker Registration Statement is declared effective by the SEC and on
the Closing Date, in each case dated as of such respective date, to the effect
that on the basis of certain facts, representations and assumptions set forth in
such opinion, the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
7.4. FRUSTRATION OF CLOSING CONDITIONS.
None of the Company, Stryker or Merger Sub may rely on the failure of
any condition set forth in Sections 7.1, 7.2 or 7.3, as the case may be, to be
satisfied if such failure was caused by such party's failure to use reasonable
efforts to consummate the Merger and the other transactions contemplated by this
Agreement.
8. NON-SURVIVAL OF REPRESENTATION 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. This Section shall not
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limit any covenant or agreement by the parties which expressly requires
performance after the Effective Time.
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9. TERMINATION
9.1 TERMINATION EVENTS
This Agreement may, by written notice given prior to or at the Closing,
be terminated:
(a) by Stryker if any of the conditions in Section 7.1 or 7.2 have not
been satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Stryker to comply with
its obligations under this Agreement) and Stryker has given Company written
notice of Stryker's intent to terminate at least 30 days before the effective
date of the proposed termination, and the Company has not satisfied the
condition nor provided reasonable assurances that the condition will, in due
course, be satisfied on or before the Closing Date;
(b) by the Company if any of the conditions in Section 7.1 or 7.3 has
not been satisfied as of the Closing Date or if satisfaction of such a condition
is or becomes impossible (other than through the failure of the Company to
comply with its obligations under this Agreement) and the Company has given
Stryker written notice of the Company's intent to terminate at least 30 days
before the effective date of the proposed termination, and Stryker has not
satisfied the condition nor provided reasonable assurances that the condition
will, in due course, be satisfied on or before the Closing Date;
(c) by the agreement of each of the Board of Directors of Stryker,
Merger Sub and the Company;
(d) by Stryker, if the Company or any of its directors or officers
shall participate in discussions or negotiations or furnish information in
breach of Section 5.7;
(e) by the Company in accordance with Section 5.7(b); provided that, in
order for the termination of this Agreement pursuant to this paragraph (e) to be
deemed effective, the Company shall have complied with all provisions of Section
5.7, including the notice provisions therein, and with applicable requirements,
including the payment of the Termination Fee;
(f) by either Stryker or the Company if (i) the requisite approval of
the shareholders of the Company shall not have been obtained at a Company
Shareholders Meeting duly convened therefor or at any adjournment or
postponement thereof or (ii) the Closing has not occurred (other than through
the failure of any party seeking to terminate this Agreement to comply fully
with its obligations under this Agreement) on or before December 31, 2000.
9.2 RIGHTS AND OBLIGATIONS UPON TERMINATION
Each party's right of termination under Section 9.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination will not be an election of remedies. If this Agreement
is terminated by a party because of the breach of this Agreement by the other
party or because one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired. If this Agreement is terminated pursuant to
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Section 9.1, all further obligations of the parties under this Agreement will
terminate, except that the obligations in Sections 10.1 and 10.5 will survive.
10. GENERAL PROVISIONS
10.1 FEES AND EXPENSES
(a) Except as provided in this Section 10.1, all fees and expenses
incurred in connection with the Merger, this Agreement and the Contemplated
Transactions shall be paid by the party incurring such fees or expenses whether
or not the Merger is consummated.
(b) In the event that (i) a bona fide Takeover Proposal shall have been
made directly to the shareholders of the Company generally or shall have
otherwise become publicly known or any Person shall have publicly announced an
intention (whether or not conditional) to make a Takeover Proposal and
thereafter this Agreement is terminated by either Stryker or the Company
pursuant to Section 9.1(f), or (ii) this Agreement is terminated by the Company
pursuant to Section 9.1(e) or (iii) this Agreement is terminated by Stryker
pursuant to Section 9.1(d), then the Company shall promptly, but in no event
later than the date of such termination, pay Stryker a fee equal to $600,000
(the "Termination Fee"), payable by wire transfer of same day funds; provided,
that no Termination Fee shall be payable to Stryker pursuant to clause (i) of
this Section 10.1(b) unless within nine (9) months of such termination the
Company or any of its Subsidiaries enters into any definitive agreement with
respect to, or consummates, any Takeover Proposal. The Company acknowledges that
the agreements contained in this Section 5.10(b) are an integral part of the
transactions contemplated by this Agreement and that, without these agreements,
Stryker would not enter into this Agreement. Accordingly, if the Company fails
promptly to pay the amount due pursuant to this Section 10.1(b), and, in order
to obtain such payment, Stryker commences a suit which results in a judgment
against the Company for the fee set forth in this Section 10.1(b), the Company
shall pay to Stryker its costs and expenses (including attorneys' fees and
expenses) in connection with such suit, together with interest on the amount of
the fee at the prime rate of Citibank, N.A. in effect on the date such payment
was required to be made.
10.2 PUBLIC ANNOUNCEMENTS
Stryker and the Company will consult with each other before issuing,
and provide each other the opportunity to review, comment upon and concur with,
any press release or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation,
except as either party may determine is required by applicable law, court
process or by obligations pursuant to any listing agreement with any national
securities exchange or national trading system. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement shall be in the form heretofore agreed to by the parties.
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10.3 AFFILIATES
As soon as practicable after the date hereof, the Company shall deliver
to Stryker a letter identifying all Persons who are, at the time this Agreement
is submitted for adoption by the shareholders of the Company, "affiliates" of
the Company for purposes of Rule 145 under the Securities Act. The Company shall
use its reasonable best efforts to cause each such Person to deliver to Stryker
as of the Closing Date, a written agreement substantially in the form attached
as Exhibit I hereto.
10.4 LISTINGS
Stryker shall use its reasonable best efforts to cause the Stryker
Common Stock issuable in the Merger to be approved for listing on the NYSE,
subject to official notice of issuance, as promptly as practicable after the
date hereof, and in any event prior to the Closing Date.
10.5 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date or, if this
Agreement is terminated pursuant to the provisions of Article 9 hereof, for a
period of two years thereafter, Stryker and the Company will maintain in
confidence and will not use except for the purposes set forth herein, and will
cause the respective Representatives of Stryker and the Acquired Companies to
maintain in confidence, any information furnished by another party or an
Acquired Company in connection with this Agreement or the Contemplated
Transactions, unless (a) such information was already known to such party or to
others not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings. If the
transactions contemplated hereby are not closed, Stryker shall return to the
Company all data, information and other written material relating to the Company
obtained by it from the Company in connection with this Agreement or its
negotiation.
10.6 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand, (b) sent by telecopier (with confirmation of receipt), or (c)
received by the addressee, if sent by a nationally recognized overnight delivery
service, in each case to the appropriate addresses and telecopier numbers set
forth below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):
Company: Image Guided Technologies, Inc.
5710-B Flatiron Parkway
Boulder, Colorado 80301
Attention: Paul L. Ray
Facsimile No.: (303) 473-9059
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with a copy to: Ireland, Stapleton, Pryor & Pascoe, P.C.
Suite 2600
1675 Broadway
Denver, Colorado 80202-4685
Attention: William E. Tanis
Facsimile No.: (303) 623-2062
Stryker or Merger Sub: Stryker Corporation
2725 Fairfield Road
Kalamazoo, Michigan 49002
Attention: David J. Simpson
Facsimile No.: (616) 385-2216
with a copy to: Whitman Breed Abbott & Morgan LLP
200 Park Avenue
New York, New York 10166
Attention: John H. Denne
Facsimile No.: (212) 351-3131
10.7 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. The failure or any delay by any party in exercising any
right, power, or privilege under this Agreement is not a waiver of such right,
power, or privilege, and no single or partial exercise of any right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege.
10.8 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter and constitutes a complete and exclusive statement
of the terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement executed
by the party to be charged with the amendment.
10.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without
the prior consent of the other parties. Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the parties.
10.10 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and
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effect. Any provision of this Agreement held invalid or unenforceable only in
part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.
10.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement. All words used in this Agreement will be construed to be of such
gender or number as the circumstances require. Unless otherwise expressly
provided, the word "including" does not limit the preceding words or terms.
10.12 GOVERNING LAW
This Agreement is governed by the laws of the State of Colorado without
giving effect to its principles of conflicts of laws.
10.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, are one and the same Agreement.
10.14 PERFORMANCE BY MERGER SUB
Stryker will cause Merger Sub to comply with its obligations hereunder
and cause Merger Sub to consummate the Merger as contemplated by this Agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
IMAGE GUIDED TECHNOLOGIES, INC.
By: /s/ PAUL L. RAY
-----------------------------------------
Name: Paul L. Ray
Title: President
STRYKER CORPORATION
By: /s/ STEPHEN SI JOHNSON
-----------------------------------------
Name: Stephen Si Johnson
Title: Group President Med Surg
IGT ACQUISITION CO.
By: /s/ DAVID J. SIMPSON
-----------------------------------------
Name: David J. Simpson
Title: Vice President
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ANNEX B
ARTICLE 113
DISSENTERS' RIGHTS
PART 1
RIGHT OF DISSENT -
PAYMENT FOR SHARES
7-113-101. Definitions.
7-113-102. Right to dissent.
7-113-103. Dissent by nominees and beneficial owners.
PART 2
PROCEDURE FOR EXERCISE
OF DISSENTERS' RIGHTS
7-113-201. Notice of dissenters' rights.
7-113-202. Notice of intent to demand payment.
7-113-203. Dissenters' notice.
7-113-204. Procedure to demand payment.
7-113-205. Uncertificated shares.
7-113-206. Payment.
7-113-207. Failure to take action.
7-113-208. Special provisions relating to shares acquired after announcement of
proposed corporate action.
7-113-209. Procedure if dissenter is dissatisfied with payment or offer.
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301. Court action.
7-113-302. Court costs and counsel fees.
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PART 1
RIGHT OF DISSENT -
PAYMENT FOR SHARES
7-113-101. DEFINITIONS. For purposes of this article:
(1) "Beneficial shareholder" means the beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action, or the surviving or acquiring domestic or foreign corporation,
by merger or share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under section 7-113-102 and who exercises that right at the time and in
the manner required by part 2 of this article.
(4) "Fair value", with respect to a dissenter's shares, means the value of the
shares immediately before the effective date of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action except to the extent that exclusion would
be inequitable.
(5) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the corporation
on its principal bank loans or, if none, at the legal rate as specified in
section 5-12-101, C.R.S.
(6) "Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares that are
registered in the name of a nominee to the extent such owner is recognized by
the corporation as the shareholder as provided in section 7-107-204.
(7) "Shareholder" means either a record shareholder or a beneficial shareholder.
7-113-102. RIGHT TO DISSENT. (1) A shareholder, whether or not entitled to vote,
is entitled to dissent and obtain payment of the fair value of the shareholder's
shares in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party if:
(I) Approval by the shareholders of that corporation is required for the merger
by section 7-111-103 or 7-111-104 or by the articles of incorporation; or
(II) The corporation is a subsidiary that is merged with its parent corporation
under section 7-111-104;
(b) Consummation of a plan of share exchange to which the corporation is a party
as the corporation whose shares will be acquired;
(c) Consummation of a sale, lease, exchange, or other disposition of all, or
substantially all, of the property of the corporation for which a shareholder
vote is required under section 7-112-102 (1); and
(d) Consummation of a sale, lease, exchange, or other disposition of all, or
substantially all, of the property of an entity controlled by the corporation if
the shareholders of the corporation were entitled to vote upon the consent of
the corporation to the disposition pursuant to section 7-112-102 (2).
(1.3) A shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of any class or
series of shares which either were listed on
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a national securities exchange registered under the federal "Securities Exchange
Act of 1934", as amended, or on the national market system of the national
association of securities dealers automated quotation system, or were held of
record by more than two thousand shareholders, at the time of:
(a) The record date fixed under section 7-107-107 to determine the shareholders
entitled to receive notice of the shareholders' meeting at which the corporate
action is submitted to a vote;
(b) The record date fixed under section 7-107-104 to determine shareholders
entitled to sign writings consenting to the corporate action; or
(c) The effective date of the corporate action if the corporate action is
authorized other than by a vote of shareholders.
(1.8) The limitation set forth in subsection (1.3) of this section shall not
apply if the shareholder will receive for the shareholder's shares, pursuant to
the corporate action, anything except:
(a) Shares of the corporation surviving the consummation of the plan of merger
or share exchange;
(b) Shares of any other corporation which at the effective date of the plan of
merger or share exchange either will be listed on a national securities exchange
registered under the federal "Securities Exchange Act of 1934", as amended, or
on the national market system of the national association of securities dealers
automated quotation system, or will be held of record by more than two thousand
shareholders;
(c) Cash in lieu of fractional shares; or
(d) Any combination of the foregoing described shares or cash in lieu of
fractional shares.
(2) (Deleted by amendment, L. 96, p. 1321, Section 30, effective June 1, 1996.)
(2.5) A shareholder, whether or not entitled to vote, is entitled to dissent and
obtain payment of the fair value of the shareholder's shares in the event of a
reverse split that reduces the number of shares owned by the shareholder to a
fraction of a share or to scrip if the fractional share or scrip so created is
to be acquired for cash or the scrip is to be voided under section 7-106-104.
(3) A shareholder is entitled to dissent and obtain payment of the fair value of
the shareholder's shares in the event of any corporate action to the extent
provided by the bylaws or a resolution of the board of directors.
(4) A shareholder entitled to dissent and obtain payment for the shareholder's
shares under this article may not challenge the corporate action creating such
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
7-113-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (1) A record shareholder
may assert dissenters' rights as to fewer than all the shares registered in the
record shareholder's name only if the record shareholder dissents with respect
to all shares beneficially owned by any one person and causes the corporation to
receive written notice which states such dissent and the name, address, and
federal taxpayer identification number, if any, of each person on whose behalf
the record shareholder asserts dissenters' rights. The rights of a record
shareholder under this subsection (1) are determined as if the shares as to
which the record shareholder dissents and the other shares of the record
shareholder were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to the shares held
on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder causes the corporation to receive the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
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(b) The beneficial shareholder dissents with respect to all shares beneficially
owned by the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents with
respect to the shares held by any one or more beneficial shareholders, each such
beneficial shareholder must certify to the corporation that the beneficial
shareholder and the record shareholder or record shareholders of all shares
owned beneficially by the beneficial shareholder have asserted, or will timely
assert, dissenters' rights as to all such shares as to which there is no
limitation on the ability to exercise dissenters' rights. Any such requirement
shall be stated in the dissenters' notice given pursuant to section 7-113-203.
PART 2
PROCEDURE FOR EXERCISE
OF DISSENTERS' RIGHTS
7-113-201. NOTICE OF DISSENTERS' RIGHTS. (1) If a proposed corporate action
creating dissenters' rights under section 7-113-102 is submitted to a vote at a
shareholders' meeting, the notice of the meeting shall be given to all
shareholders, whether or not entitled to vote. The notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
article and shall be accompanied by a copy of this article and the materials, if
any, that, under articles 101 to 117 of this title, are required to be given to
shareholders entitled to vote on the proposed action at the meeting. Failure to
give notice as provided by this subsection (1) shall not affect any action taken
at the shareholders' meeting for which the notice was to have been given, but
any shareholder who was entitled to dissent but who was not given such notice
shall not be precluded from demanding payment for the shareholder's shares under
this article by reason of the shareholder's failure to comply with the
provisions of section 7-113-202 (1).
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to section
7-107-104, any written or oral solicitation of a shareholder to execute a
writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken pursuant to section 7-107-104 for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202 (2).
7-113-201. NOTICE OF DISSENTERS' RIGHTS. (1) If a proposed corporate action
creating dissenters' rights under section 7-113-102 is submitted to a vote at a
shareholders' meeting, the notice of the meeting shall be given to all
shareholders, whether or not entitled to vote. The notice shall state that
shareholders are or may be entitled to assert dissenters' rights under this
article and shall be accompanied by a copy of this article and the materials, if
any, that, under articles 101 to 117 of this title, are required to be given to
shareholders entitled to vote on the proposed action at the meeting. Failure to
give notice as provided by this subsection (1) shall not affect any action taken
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at the shareholders' meeting for which the notice was to have been given, but
any shareholder who was entitled to dissent but who was not given such notice
shall not be precluded from demanding payment for the shareholder's shares under
this article by reason of the shareholder's failure to comply with the
provisions of section 7-113-202 (1).
(2) If a proposed corporate action creating dissenters' rights under section
7-113-102 is authorized without a meeting of shareholders pursuant to section
7-107-104, any written or oral solicitation of a shareholder to execute a
writing consenting to such action contemplated in section 7-107-104 shall be
accompanied or preceded by a written notice stating that shareholders are or may
be entitled to assert dissenters' rights under this article, by a copy of this
article, and by the materials, if any, that, under articles 101 to 117 of this
title, would have been required to be given to shareholders entitled to vote on
the proposed action if the proposed action were submitted to a vote at a
shareholders' meeting. Failure to give notice as provided by this subsection (2)
shall not affect any action taken pursuant to section 7-107-104 for which the
notice was to have been given, but any shareholder who was entitled to dissent
but who was not given such notice shall not be precluded from demanding payment
for the shareholder's shares under this article by reason of the shareholder's
failure to comply with the provisions of section 7-113-202 (2).
7-113-203. DISSENTERS' NOTICE. (1) If a proposed corporate action creating
dissenters' rights under section 7-113-102 is authorized, the corporation shall
give a written dissenters' notice to all shareholders who are entitled to demand
payment for their shares under this article.
(2) The dissenters' notice required by subsection (1) of this section shall be
given no later than ten days after the effective date of the corporate action
creating dissenters' rights under section 7-113-102 and shall:
(a) State that the corporate action was authorized and state the effective date
or proposed effective date of the corporate action;
(b) State an address at which the corporation will receive payment demands and
the address of a place where certificates for certificated shares must be
deposited;
(c) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(d) Supply a form for demanding payment, which form shall request a dissenter to
state an address to which payment is to be made;
(e) Set the date by which the corporation must receive the payment demand and
certificates for certificated shares, which date shall not be less than thirty
days after the date the notice required by subsection (1) of this section is
given;
(f) State the requirement contemplated in section 7-113-103 (3), if such
requirement is imposed; and
(g) Be accompanied by a copy of this article.
7-113-204. PROCEDURE TO DEMAND PAYMENT. (1) A shareholder who is given a
dissenters' notice pursuant to section 7-113-203 and who wishes to assert
dissenters' rights shall, in accordance with the terms of the dissenters'
notice:
(a) Cause the corporation to receive a payment demand, which may be the payment
demand form contemplated in section 7-113-203 (2) (d), duly completed, or may be
stated in another writing; and
(b) Deposit the shareholder's certificates for certificated shares.
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(2) A shareholder who demands payment in accordance with subsection (1) of this
section retains all rights of a shareholder, except the right to transfer the
shares, until the effective date of the proposed corporate action giving rise to
the shareholder's exercise of dissenters' rights and has only the right to
receive payment for the shares after the effective date of such corporate
action.
(3) Except as provided in section 7-113-207 or 7-113-209 (1) (b), the demand for
payment and deposit of certificates are irrevocable.
(4) A shareholder who does not demand payment and deposit the shareholder's
share certificates as required by the date or dates set in the dissenters'
notice is not entitled to payment for the shares under this article.
7-113-205. UNCERTIFICATED SHARES. (1) Upon receipt of a demand for payment under
section 7-113-204 from a shareholder holding uncertificated shares, and in lieu
of the deposit of certificates representing the shares, the corporation may
restrict the transfer thereof.
(2) In all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated shares.
7-113-206. PAYMENT. (1) Except as provided in section 7-113-208, upon the
effective date of the corporate action creating dissenters' rights under section
7-113-102 or upon receipt of a payment demand pursuant to section 7-113-204,
whichever is later, the corporation shall pay each dissenter who complied with
section 7-113-204, at the address stated in the payment demand, or if no such
address is stated in the payment demand, at the address shown on the
corporation's current record of shareholders for the record shareholder holding
the dissenter's shares, the amount the corporation estimates to be the fair
value of the dissenter's shares, plus accrued interest.
(2) The payment made pursuant to subsection (1) of this section shall be
accompanied by:
(a) The corporation's balance sheet as of the end of its most recent fiscal year
or, if that is not available, the corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months before the date of payment, an
income statement for that year, and, if the corporation customarily provides
such statements to shareholders, a statement of changes in shareholders' equity
for that year and a statement of cash flow for that year, which balance sheet
and statements shall have been audited if the corporation customarily provides
audited financial statements to shareholders, as well as the latest available
financial statements, if any, for the interim or full-year period, which
financial statements need not be audited;
(b) A statement of the corporation's estimate of the fair value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under section
7-113-209; and
(e) A copy of this article.
7-113-207. FAILURE TO TAKE ACTION. (1) If the effective date of the corporate
action creating dissenters' rights under section 7-113-102 does not occur within
sixty days after the date set by the corporation by which the corporation must
receive the payment demand as provided in section 7-113-203, the corporation
shall return the deposited certificates and release the transfer restrictions
imposed on uncertificated shares.
(2) If the effective date of the corporate action creating dissenters' rights
under section 7-113-102 occurs more than sixty days after the date set by the
corporation by which the corporation must receive the payment demand as provided
in section 7-113-203, then the corporation shall
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send a new dissenters' notice, as provided in section 7-113-203, and the
provisions of sections 7-113-204 to 7-113-209 shall again be applicable.
7-113-208. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER ANNOUNCEMENT OF
PROPOSED CORPORATE ACTION. (1) The corporation may, in or with the dissenters'
notice given pursuant to section 7-113-203, state the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action creating dissenters' rights under section 7-113-102 and state
that the dissenter shall certify in writing, in or with the dissenter's payment
demand under section 7-113-204, whether or not the dissenter (or the person on
whose behalf dissenters' rights are asserted) acquired beneficial ownership of
the shares before that date. With respect to any dissenter who does not so
certify in writing, in or with the payment demand, that the dissenter or the
person on whose behalf the dissenter asserts dissenters' rights acquired
beneficial ownership of the shares before such date, the corporation may, in
lieu of making the payment provided in section 7-113-206, offer to make such
payment if the dissenter agrees to accept it in full satisfaction of the demand.
(2) An offer to make payment under subsection (1) of this section shall include
or be accompanied by the information required by section 7-113-206 (2).
7-113-209. PROCEDURE IF DISSENTER IS DISSATISFIED WITH PAYMENT OR OFFER. (1) A
dissenter may give notice to the corporation in writing of the dissenter's
estimate of the fair value of the dissenter's shares and of the amount of
interest due and may demand payment of such estimate, less any payment made
under section 7-113-206, or reject the corporation's offer under section
7-113-208 and demand payment of the fair value of the shares and interest due,
if:
(a) The dissenter believes that the amount paid under section 7-113-206 or
offered under section 7-113-208 is less than the fair value of the shares or
that the interest due was incorrectly calculated;
(b) The corporation fails to make payment under section 7-113-206 within sixty
days after the date set by the corporation by which the corporation must receive
the payment demand; or
(c) The corporation does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares as required by section
7-113-207 (1).
(2) A dissenter waives the right to demand payment under this section unless the
dissenter causes the corporation to receive the notice required by subsection
(1) of this section within thirty days after the corporation made or offered
payment for the dissenter's shares.
PART 3
JUDICIAL APPRAISAL OF SHARES
7-113-301. COURT ACTION. (1) If a demand for payment under section 7-113-209
remains unresolved, the corporation may, within sixty days after receiving the
payment demand, commence a proceeding and petition the court to determine the
fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay to each
dissenter whose demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in subsection (1) of
this section in the district court of the county in this state where the
corporation's principal office is located or, if the corporation has no
principal office in this state, in the district court of the county in which its
registered office is located. If the corporation is a foreign corporation
without a registered
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office, it shall commence the proceeding in the county where the registered
office of the domestic corporation merged into, or whose shares were acquired
by, the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or not residents of this
state, whose demands remain unresolved parties to the proceeding commenced under
subsection (2) of this section as in an action against their shares, and all
parties shall be served with a copy of the petition. Service on each dissenter
shall be by registered or certified mail, to the address stated in such
dissenter's payment demand, or if no such address is stated in the payment
demand, at the address shown on the corporation's current record of shareholders
for the record shareholder holding the dissenter's shares, or as provided by
law.
(4) The jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend a decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to such order. The parties to the
proceeding are entitled to the same discovery rights as parties in other civil
proceedings.
(5) Each dissenter made a party to the proceeding commenced under subsection (2)
of this section is entitled to judgment for the amount, if any, by which the
court finds the fair value of the dissenter's shares, plus interest, exceeds the
amount paid by the corporation, or for the fair value, plus interest, of the
dissenter's shares for which the corporation elected to withhold payment under
section 7-113-208.
7-113-302. COURT COSTS AND COUNSEL FEES. (1) The court in an appraisal
proceeding commenced under section 7-113-301 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation; except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment under section 7-113-209.
(2) The court may also assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any dissenters if the court finds
the corporation did not substantially comply with the requirements of part 2 of
this article; or
(b) Against either the corporation or one or more dissenters, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this article.
(3) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to said counsel reasonable fees to be paid out of the amounts awarded to
the dissenters who were benefited.
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PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The following is a brief summary of certain indemnification provisions
of the Michigan Business Corporation Act (the "MBCA") and the registrant's
Restated Articles of Incorporation (the "Restated Articles") and By-Laws. The
summary is qualified in its entirety by reference to the provisions of MBCA, the
Restated Articles and the By-Laws.
The MBCA permits a Michigan corporation to include in its articles of
incorporation a provision that a director is not personally liable to the
corporation or its stockholders for monetary damages for a breach of the
director's fiduciary duty of care under certain circumstances. The registrant's
Restated Articles provide that the personal liability of the registrant's
directors to the registrant and its stockholders shall be limited and eliminated
to the full extent authorized or permitted under the MBCA as from time to time
in effect, thus automatically incorporating any future revisions of the MBCA
with respect to director liability without the necessity of any further action
by the registrant's stockholders.
In general, the MBCA allows a corporation to indemnify its directors
and officers if the director or officer acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
registrant or its shareholders and with respect to any criminal action or
proceeding, had no reason to believe his or her conduct was unlawful. The
registrant's By-Laws provide for the registrant to indemnify, to the full extent
authorized by law, any person who is made, or threatened to be made, a party in
any civil, criminal, administrative or investigative proceeding by reason of the
fact that such person is or was a director or officer of the registrant or
served another corporation at the request of the registrant. Such
indemnification could include liabilities arising under the Securities Act.
The registrant has a directors and officers liability insurance policy
designed to reimburse the registrant, subject to certain exclusions, for
payments made pursuant to the indemnification provisions set forth above. Such
policy covers up to $75,000,000 of losses in any year.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
2. Plan of acquisition, reorganization, arrangement, liquidation or succession.
(i) Agreement and Plan of Merger, dated as of June 1, 2000,
among Image Guided Technologies, Inc., the registrant and IGT
Acquisition Co. -- incorporated herein by reference from Annex A to the
Proxy Statement/Prospectus that forms a part of this registration
statement. The registrant hereby agrees to furnish supplementally a
copy of any omitted schedules to this agreement to the Securities and
Exchange Commission upon its request.
4. Instruments defining the rights of security holders, including indentures --
The registrant agrees to furnish to the Securities and Exchange Commission upon
request a copy of each
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instrument pursuant to which long-term debt of the registrant and its
subsidiaries not exceeding 10% of the total assets of the registrant and its
consolidated subsidiaries is authorized.
(i) Restated Articles of Incorporation of registrant and
Certificate of Amendment thereto dated December 28, 1993 --
incorporated by reference to Exhibit No. 3(i) to registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
(ii) Certificate of Amendment to Restated Articles of
Incorporation of registrant dated April 19, 2000.
(iii) Bylaws of registrant-- incorporated by reference to
Exhibit No. 3(ii) to registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1988.
(iv) Form of Amended and Restated Credit and Guaranty
Agreement, dated as of June 4, 1999, among the registrant, certain
subsidiaries of the registrant, as guarantors, the Lenders named
therein and certain other parties - Incorporated by reference to
Exhibit 10.1 to the registrant's Form 8-K dated June 15, 1999
(Commission File No. 0-9165).
5. Opinion re legality.
Opinion of Whitman Breed Abbott & Morgan LLP, including the
consent of such counsel.
8. Opinion re tax matters.
Opinion of Ireland, Stapleton, Pryor & Pascoe, P.C. as to
certain United States federal income tax consequences of the merger,
including the consent of such counsel.
23. Consents of experts and counsel.
(i) Consent of Ernst & Young LLP.
(ii) Consent of PricewaterhouseCoopers LLP.
(iii) The consent of Whitman Breed Abbott & Morgan LLP is
contained in the opinion filed as Exhibit 5 of this Registration
Statement.
(iv) The consent of Ireland, Stapleton, Pryor & Pascoe, P.C.
is contained in the opinion filed as Exhibit 8 of this Registration
Statement.
24. Powers of Attorney.
Included in Part II of this Registration Statement.
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99. Additional Exhibits.
Form of Proxy to be mailed to holders of IGT common stock.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
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unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT, HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF KALAMAZOO,
STATE OF MICHIGAN, ON JUNE 27, 2000.
STRYKER CORPORATION
By: /s/John W. Brown
-----------------
John W. Brown,
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below hereby constitutes and appoints John W. Brown and David J. Simpson, and
each of them, with full power of substitution and resubstitution, as attorneys
or attorney to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file with the Securities and Exchange
Commission the same, with all exhibits thereto, and any and all applications or
other documents to be filed with the Securities and Exchange Commission
pertaining thereto, with full power and authority to do and perform any and all
acts and things whatsoever required and necessary to be done in the premises, as
fully to all intents and purposes as the undersigned could do if personally
present, hereby ratifying and confirming all that said attorneys, and any of
them and any such substitute, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JUNE 27, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/John W. Brown Chairman of the Board, President and
------------------- Chief Executive Officer (Principal
John W. Brown Executive Officer)
/s/David J. Simpson Vice President, Chief Financial Officer
------------------- and Secretary (Principal Financial
David J. Simpson Officer)
/s/Dean H. Bergy Vice President, Finance (Principal
------------------- Accounting Officer)
Dean H. Bergy
</TABLE>
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<TABLE>
<S> <C>
/s/Howard E. Cox, Jr. Director
---------------------
Howard E. Cox, Jr.
/s/Donald M. Engelman Director
---------------------
Donald M. Engelman
/s/Jerome H. Grossman Director
---------------------
Jerome H. Grossman
/s/John S. Lillard Director
---------------------
John S. Lillard
/s/William U. Parfet Director
---------------------
William U. Parfet
/s/Ronda E. Stryker Director
---------------------
Ronda E. Stryker
</TABLE>
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EXHIBIT INDEX
<TABLE>
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EXHIBIT
NUMBER DESCRIPTION
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2(i) Agreement and Plan of Merger, dated as of June 1,
2000, among Image Guided Technologies, Inc., the
registrant and IGT Acquisition Co. -- included as
Annex A to the Proxy Statement/Prospectus that forms
a part of this registration statement.
4(i)* Restated Articles of Incorporation of registrant and
Certificate of Amendment thereto dated December 28,
1993 -- incorporated by reference to Exhibit No. 3(i)
to registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.
4(ii) Certificate of Amendment to Restated Articles of
Incorporation of registrant dated April 19, 2000.
4(iii)* Bylaws of registrant-- incorporated by reference to
Exhibit No. 3(ii) to registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1988.
4(iv)* Form of Amended and Restated Credit and Guaranty
Agreement, dated as of June 4, 1999, among the
registrant, certain subsidiaries of the registrant,
as guarantors, the Lenders named therein and certain
other parties - Incorporated by reference to Exhibit
10.1 to the registrant's Form 8-K dated June 15, 1999
(Commission File No. 0-9165).
5 Opinion of Whitman Breed Abbott & Morgan LLP,
including the consent of such counsel.
8 Opinion of Ireland, Stapleton, Pryor & Pascoe, P.C.
as to certain United States federal income tax
consequences of the merger, including the consent of
such counsel.
23(i) (i) Consent of Ernst & Young LLP.
23(ii) (ii) Consent of PricewaterhouseCoopers LLP.
23(iii) (iii) The consent of Whitman Breed Abbott & Morgan
LLP is contained in the opinion filed as Exhibit 5 of
this Registration Statement.
23(iv) (iv) The consent of Ireland, Stapleton, Pryor &
Pascoe, P.C. is contained in the opinion filed as
Exhibit 8 of this Registration Statement.
24 Powers of Attorney - included in Part II of this
Registration Statement.
99 Form of Proxy to be mailed to holders of IGT common
stock.
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* Incorporated by reference.
