<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant []
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by
[_] Definitive Additional Materials Rule 14a-6(e)(2))
[_] Soliciting Material pursuant to
Rule 14a-11(c) or Rule 14a-12
Luther Medical Products, Inc.
-----------------------------
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, no par value per share
2) Aggregate number of securities to which transaction applies: 3,222,986
shares of Common Stock and options/warrants exercisable for 896,943
shares of Common Stock
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
The amount on which the filing fee of $3,321.00 was calculated was
determined pursuant to Rule 0-11(c)(1) of the Exchange Act by
multiplying $16,604,594, which amount constitutes the aggregate proposed
compensation to security holders in the transaction, by one fiftieth of
one percent as prescribed by Rule 0-11(c).
4) Proposed maximum aggregate value of transaction: $16,604,594
5) Total fee paid: $3,321.00
[X] Fee paid previously with preliminary materials.
[_] Check box, if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
================================================================================
<PAGE>
LUTHER MEDICAL PRODUCTS, INC.
14332 Chambers Road
Tustin, California 92780
December 21, 1998
Dear Shareholder:
The attached Notice of Special Meeting of Shareholders and Proxy Statement
relate to a Special Meeting of Shareholders of Luther Medical Products, Inc.
(the "Company"), to be held at 9:00 a.m., local time, on January 25, 1999, at
the Irvine Marriott, 18000 Von Karman Avenue, Irvine, California 92612.
The principal purpose of the special meeting is to consider and act upon a
Merger Agreement which, if approved, will result in the acquisition of the
Company by a newly formed wholly-owned subsidiary of Becton Dickinson Infusion
Therapy Systems, Inc. and the payment in cash of $4.70, without interest, for
each share of the Company's Common Stock. Approval of this proposal requires
the affirmative vote of at least a majority of the outstanding shares of Common
Stock. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED MERGER AND
UNANIMOUSLY RECOMMENDS APPROVAL BY THE SHAREHOLDERS.
The attached Proxy Statement describes the proposed transaction in detail,
sets forth the basis of the affirmative recommendation by the Board of Directors
and the opinion of Marshall & Stevens Incorporated, as to the fairness from a
financial point of view of the consideration to be paid to the shareholders. I
urge you to give this material your careful attention.
IF THE MERGER IS APPROVED, SHAREHOLDERS WILL RECEIVE APPROPRIATE INSTRUCTIONS
FOR EXCHANGING THEIR STOCK CERTIFICATES FOR CASH. PLEASE DO NOT SEND IN YOUR
STOCK CERTIFICATES AT THIS TIME.
Shareholders of the Company who comply with the procedures of Sections 1300
through 1312 of the California General Corporation Law, which includes, among
other things, voting against the Merger and making written demand upon the
Company no later than the date of the Special Meeting, as more fully described
in the accompanying Proxy Statement under the heading "Terms of the Merger --
Rights of Dissenting Shareholders of the Company," will be entitled, if the
Merger is consummated, to certain appraisal rights with respect to their shares.
Whether or not you intend to attend the Special Meeting in person and
regardless of the number of shares you own, we request that you complete, sign,
date and return the enclosed proxy promptly in the accompanying prepaid
envelope. You may, of course, attend the Special Meeting and vote in person,
even if you have previously returned your proxy.
Sincerely,
/s/ DAVID ROLLO
-------------------------------------
David Rollo
President and Chief Executive Officer
<PAGE>
LUTHER MEDICAL PRODUCTS, INC.
14332 Chambers Road
Tustin, California 92780
________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
January 25, 1999
________________
To the Shareholders of LUTHER MEDICAL PRODUCTS, INC.:
Notice hereby is given that a Special Meeting of Shareholders (the "Special
Meeting") of Luther Medical Products, Inc., a California corporation (the
"Company"), will be held at 9:00 a.m., local time, on January 25, 1999, at the
Irvine Marriott, 18000 Von Karman Avenue, Irvine, California 92612, for the
following purposes:
1. To consider and vote upon a Merger Agreement, as amended (the "Merger
Agreement"), and the transactions contemplated thereby, pursuant to which a
wholly-owned subsidiary of Becton Dickinson Infusion Therapy Systems, Inc.
("Becton Dickinson") would be merged (the "Merger") into the Company and
the shareholders of the Company would receive a cash payment of $4.70,
without interest, for each share of the Company's Common Stock held by them
(other than shares as to which statutory appraisal rights have been
perfected), in accordance with the terms of the Merger Agreement described
in the accompanying Proxy Statement, a copy of which is attached to such
Proxy Statement as Annex I; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements hereof.
The affirmative vote of the holders of at least a majority of the outstanding
shares of Common Stock is required for adoption of the Merger Agreement. Record
holders of Common Stock at the close of business on December 1, 1998 are
entitled to notice of and to vote at the Meeting and any adjournments or
postponements thereof.
THE BOARD OF DIRECTORS OF THE COMPANY, AFTER CAREFUL REVIEW AND CONSIDERATION
OF THE TERMS OF THE MERGER AGREEMENT AND OTHER FACTORS, INCLUDING THE OPINION OF
MARSHALL & STEVENS INCORPORATED WITH RESPECT TO THE FAIRNESS OF THE MERGER FROM
A FINANCIAL POINT OF VIEW, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
BELIEVES THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS OF THE COMPANY'S
SHAREHOLDERS.
PLEASE EXECUTE AND RETURN PROMPTLY THE ENCLOSED PROXY CARD WHETHER OR NOT YOU
EXPECT TO ATTEND THE SPECIAL MEETING. YOUR PROXY, ONCE GIVEN, MAY BE REVOKED AT
ANY TIME PRIOR TO THE SPECIAL MEETING BY FILING A PROXY BEARING A LATER DATE AND
PRESENTING IT AT THE SPECIAL MEETING OR BY YOUR APPEARING AT THE SPECIAL MEETING
AND VOTING IN PERSON. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE FOR MAILING IN
THE UNITED STATES.
By Order of the Board of Directors
/s/ PETRA DARLING
-------------------------------------
Petra Darling
Secretary
Tustin, California
December 21, 1998
YOUR VOTE IS IMPORTANT. PLEASE EXECUTE AND RETURN THE ENCLOSED
PROXY PROMPTLY, WHETHER OR NOT YOU INTEND TO BE PRESENT
AT THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY CERTIFICATES
FOR YOUR SHARES AT THIS TIME.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY................................................................. i
INTRODUCTION............................................................ 1
General............................................................... 1
Record Date; Proxies.................................................. 1
Persons Making the Solicitation....................................... 2
Quorum................................................................ 2
Vote Required......................................................... 2
THE MERGER.............................................................. 3
Background............................................................ 3
Recommendation of the Board of Directors of the Company; Reasons for
the Merger........................................................... 6
Opinion of Financial Advisor.......................................... 7
Interests of Certain Persons in the Merger............................ 11
Operation and Management of the Company after the Merger.............. 12
TERMS OF THE MERGER..................................................... 13
Effective Date of the Merger.......................................... 13
Effect of the Merger.................................................. 13
Payment for Shares; Exchange Agent.................................... 13
Treatment of Stock Options and Warrants............................... 14
Representations and Warranties........................................ 14
Conditions to the Merger.............................................. 14
Restrictions on the Company........................................... 15
Additional Agreements................................................. 15
Termination of the Merger Agreement; Amendments....................... 16
Cancellation Fee; Expenses............................................ 16
Rights of Dissenting Shareholders of the Company...................... 16
Certain Federal Income Tax Consequences of the Merger................. 18
Accounting Treatment of the Merger.................................... 18
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY......................... 19
SELECTED FINANCIAL DATA OF THE COMPANY.................................. 20
DOCUMENTS INCORPORATED BY REFERENCE..................................... 20
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT............. 21
BECTON DICKINSON INFUSION THERAPY SYSTEMS, INC.......................... 22
OTHER MATTERS........................................................... 23
AVAILABLE INFORMATION................................................... 23
Annex I Merger Agreement............................................ I
Annex II Opinion of Marshall & Stevens Incorporated.................. II
Annex III Chapter 13 of the California General Corporation Law........ III
<PAGE>
SUMMARY
Certain information contained in this Proxy Statement is summarized below.
This summary is not intended to be complete and is qualified in all respects by
the detailed information appearing elsewhere in this Proxy Statement and the
annexes hereto. Shareholders are urged to review carefully the entire Proxy
Statement, the Merger Agreement which is attached hereto as Annex I and the
other annexes attached hereto.
The Proxy Statement and the documents incorporated herein by reference contain
forward-looking statements about future results that are subject to risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements.
The Company
Luther Medical Products, Inc., a California corporation (the "Company"), has
been primarily engaged in the design, development, manufacture, sale and
licensing of intra-vascular catheters and split, peel-away needles since its
organization in 1980. The Company's L-Cath(R) peel-away needle catheter
placement system and the OneCath(R) protected needle catheter placement systems
are used when soft, flexible catheters must be inserted for short-term or long-
term intravenous therapy. The L-Cath for Ports is used to insert a soft,
flexible catheter into an implanted port as an alternative to a steel Huber
needle. The principle executive offices of the Company are located at 14332
Chambers Road, Tustin, California 92780, and its telephone number is (714) 544-
3002.
Becton Dickinson Infusion Therapy Systems, Inc.
Becton Dickinson Infusion Therapy Systems, Inc. ("Becton Dickinson") is a
subsidiary of Becton, Dickinson and Company, the common stock of which is listed
on the New York Stock Exchange. Becton, Dickinson and Company was incorporated
under the laws of the State of New Jersey in November 1906, as successor to a
New York business started in 1897. Becton, Dickinson and Company is engaged
principally in the manufacture and sale of a broad line of medical supplies,
devices and diagnostic systems used by health care professionals, medical
research institutions and the general public. The principal executive offices
of Becton, Dickinson and Company are located at 1 Becton Drive, Franklin Lakes,
New Jersey 07417, and its telephone number is (201) 847-6800. Neither Becton,
Dickinson and Company nor any of its subsidiaries is affiliated with the
Company. See "Becton Dickinson Infusion Therapy Systems, Inc."
Date, Time, Place and Purpose of Special Meeting
The Special Meeting of Shareholders of the Company (the "Special Meeting")
will be held on January 25, 1999 at 9:00 a.m., local time, at the Irvine
Marriott, 18000 Von Karman Avenue, Irvine, California 92612. At the Special
Meeting, including any adjournments or postponements thereof, the shareholders
of the Company will consider and vote upon a proposal to approve and adopt the
Merger Agreement, as amended (the "Merger Agreement"), by and among the Company,
Becton Dickinson and LMP Acquisition Corp., a California corporation and wholly-
owned subsidiary of Becton Dickinson. The Merger Agreement provides that, on
the Effective Date (as defined under "Effective Date of the Merger" below), LMP
Acquisition Corp. will be merged with and into the Company (the "Merger") and
thereafter the Company will be a wholly-owned subsidiary of Becton Dickinson.
In the Merger, each outstanding share of Common Stock, no par value (the "Common
Stock"), of the Company (other than shares as to which statutory appraisal
rights have been perfected) will be converted into the right to receive $4.70 in
cash, without interest (the "Merger Consideration"). See "Introduction --
General." Upon consummation of the Merger, shareholders will cease to have any
further ownership or interest in the Company.
Record Date; Quorum
Only holders of record of the Common Stock of the Company at the close of
business on December 1, 1998 (the "Record Date") will be entitled to notice of,
and to vote at, the Special Meeting. Holders of Common Stock are entitled to
one vote for each share held by them. The presence, either in person or by
properly executed proxy, of the holders of a majority of the outstanding shares
of Common Stock entitled to vote at the Special Meeting is necessary to
constitute a quorum at the Special Meeting. See "Introduction -- Quorum."
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<PAGE>
Vote Required
The affirmative vote of the holders of a majority of the outstanding shares of
Common Stock is required to approve and adopt the Merger Agreement. As of the
Record Date, there were 3,222,986 shares of Common Stock outstanding. Each
member of the Board of Directors of the Company has agreed to vote each share of
Common Stock of the Company held by him in favor of the Merger Agreement and the
transactions contemplated thereby. The members of the Board of Directors as a
group were the beneficial holders of an aggregate of 382,175 shares of Common
Stock on the Record Date (excluding outstanding but unexercised options to
purchase Common Stock), constituting 11.86% of the aggregate number of shares of
Common Stock outstanding as of the Record Date. See "Introduction -- Record
Date; Proxies" and "Introduction -- Vote Required."
Background of the Merger
The Merger was negotiated by representatives of the Company and Becton
Dickinson in a series of exchanges and meetings which began in February 1998
with regard to this contemplated Merger and more generally since late 1994. See
"The Merger -- Background." In connection with such negotiations, the Board of
Directors of the Company has reviewed the Company's financial condition and
strategic alternatives and has determined that the terms of the merger are fair
and in the best interests of the Company's shareholders.
Approval by the Company's Board of Directors
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS ADOPTION OF THE MERGER AGREEMENT BY THE SHAREHOLDERS OF
THE COMPANY. For a discussion of the factors considered by the Company's Board
of Directors in approving the Merger Agreement and the transactions contemplated
thereby, see "The Merger -- Recommendation of the Board of Directors of the
Company; Reasons for the Merger." In arriving at its decision, the Board of
Directors considered the opinion of Marshall & Stevens Incorporated that the
cash price of $4.70 per share proposed to be received by holders of Common Stock
is fair to the Company's shareholders from a financial point of view. See "The
Merger -- Opinion of Financial Advisor."
Effective Date of the Merger
The Merger will become effective immediately upon the filing of the Agreement
of Merger (Exhibit A to the Merger Agreement) with the Secretary of State of the
State of California (the "Effective Date"). The Effective Date currently is
expected to occur on or shortly after the date of the Special Meeting, subject
to the approval and adoption of the Merger Agreement at the Special Meeting and
satisfaction or waiver of the conditions precedent to the Merger set forth in
the Merger Agreement. See "Terms of the Merger -- Conditions to the Merger."
Conditions to the Merger
The obligations of the Company and Becton Dickinson to effect the Merger are
subject to the satisfaction or waiver of certain conditions, including the
receipt of certain opinions of counsel to the Company and Becton Dickinson. See
"Terms of the Merger -- Conditions to the Merger."
Surrender of the Company's Stock Certificates
As of the Effective Date, holders of Common Stock will be entitled to receive,
following compliance with certain procedures, the Merger Consideration.
Promptly after consummation of the Merger, holders of the Company's Common Stock
certificates will be furnished with a transmittal letter to be used to exchange
their certificates for payment of the Merger Consideration for each share
represented thereby. After the Effective Date, holders of the Company's Common
Stock certificates should retain such certificates until receipt of a letter of
transmittal. See "Terms of the Merger -- Payment for Shares; Exchange Agent."
ii
<PAGE>
Certain Federal Income Tax Consequences of the Merger
The exchange by shareholders of their shares of Common Stock for cash pursuant
to the Merger will be a taxable transaction for federal income tax purposes. A
shareholder whose shares are exchanged will recognize gain or loss for federal
income tax purposes equal to the difference between the amount of cash received
pursuant to the Merger and his adjusted tax basis in the shares exchanged
therefor, assuming the shareholder does not have a special tax status or did not
acquire his or her shares pursuant to an incentive stock option or special
compensation arrangement. The exchange by shareholders of their shares of
Common Stock for cash pursuant to the Merger may also be a taxable transaction
for state, local, foreign, and other tax purposes. See "Terms of the Merger --
Certain Federal Income Tax Consequences of the Merger."
Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors with respect to
the Merger, shareholders of the Company should be aware that certain members of
the Board of Directors and the Company's management have certain interests which
may present them with potential conflicts of interest in connection with the
Merger. These interests include, among other things, the right of certain
directors and officers to receive cash upon cancellation of outstanding and
unexercised options and warrants held by them, and the right of certain officers
to receive payments and other benefits pursuant to certain employment agreements
with the Company and a consulting agreement to be entered into between Becton
Dickinson and the President and Chief Executive Officer of the Company. For a
description of such interests, see "The Merger -- Interests of Certain Persons
in the Merger."
Rights of Dissenting Shareholders of the Company
Record holders of the Company's Common Stock have the right to dissent from
the Merger and, subject to certain conditions, to receive a cash payment equal
to the fair market value of their shares, but, except in the case of shares
which are restricted as to transfer, only if demands for payment are made with
respect to five percent or more of the outstanding shares of the Company's
Common Stock. In order to perfect his or her dissenter's rights, a record
holder of the Company's Common Stock must comply with all of the procedural
requirements of Sections 1300 through 1312 of the California General Corporation
Law, a description of which is set forth under the caption "Terms of the Merger
- -- Rights of Dissenting Shareholders of the Company," and the full text of which
is attached to this Proxy Statement as Annex III. Failure to take any of the
steps required under California law may result in a loss of such dissenters'
rights. Pursuant to the terms of the Merger Agreement, Becton Dickinson may
abandon the Merger if the holders of shares of Common Stock representing fifteen
percent or more of the shares of Common Stock remain eligible to exercise their
dissenters' rights.
Price Range of Common Stock
The Common Stock is traded on the Nasdaq small cap market under the symbol
"LUTH." On October 12, 1998, the last trading day prior to the public
announcement of the execution of the Merger Agreement, the high and low prices
for the Common Stock as reported by Nasdaq were $2.500 and $2.375 per share,
respectively, and the closing quotation was $2.500. The last reported high and
low prices for the Common Stock as reported by Nasdaq on December 18, 1998, the
last full trading day prior to the printing of this Proxy Statement, were $4.500
and $4.500 per share, respectively, and the closing quotation was $4.500. See
"Price Range of Common Stock and Dividend Policy." Shareholders are urged to
obtain current market quotations for the Common Stock.
Selected Financial Data of the Company
For certain financial information concerning the Company, please see the
consolidated financial information included in the Company's 1998 Annual Report
on Form 10-KSB, 1998 Annual Report on Form 10-KSB/A, filed December 11, 1998,
and 1998 Annual Report on Form 10-KSB/A, filed December 14, 1998, which are
incorporated herein by reference.
iii
<PAGE>
LUTHER MEDICAL PRODUCTS, INC.
14332 Chambers Road
Tustin, California 92780
________________________
PROXY STATEMENT
________________________
INTRODUCTION
General
This Proxy Statement is being furnished by Luther Medical Products, Inc., a
California corporation (the "Company"), to the holders of outstanding shares of
Common Stock, no par value (the "Common Stock"), of the Company in connection
with the solicitation of proxies by the Board of Directors of the Company from
holders of such shares. The proxies are to be used at the Special Meeting of
Shareholders of the Company (the "Special Meeting") to be held at the Irvine
Marriott, 18000 Von Karman Avenue, Irvine, California 92612, at 9:00 a.m., local
time, on January 25, 1999, and at any adjournments or postponements thereof.
Holders of Common Stock are entitled to one vote for each share held by them.
The purpose of the Special Meeting is to consider and vote upon a proposal to
approve and adopt the Merger Agreement, dated as of October 13, 1998, as amended
(the "Merger Agreement"), among the Company, Becton Dickinson Infusion Therapy
Systems, Inc., a Delaware corporation ("Becton Dickinson"), and LMP Acquisition
Corp., a California corporation and wholly-owned subsidiary of Becton Dickinson
("BD Sub"), and the transactions contemplated thereby, providing for the merger
of BD Sub with and into the Company (the "Merger"). As a result of the Merger,
the Company will become a wholly-owned subsidiary of Becton Dickinson.
In the Merger, each outstanding share of Common Stock (other than shares as to
which statutory appraisal rights have been perfected) will be converted into the
right to receive a cash payment of $4.70, without interest (the "Merger
Consideration").
The Board of Directors of the Company has unanimously approved the Merger
Agreement and the transactions contemplated thereby. The Board of Directors of
the Company unanimously recommends adoption of the Merger Agreement by the
shareholders of the Company. For a discussion of the factors considered by the
Company's Board of Directors in approving the Merger Agreement and the
transactions contemplated thereby, see "The Merger -- Recommendation of the
Board of Directors of the Company; Reasons for the Merger."
The principal executive offices of the Company are located at 14332 Chambers
Road, Tustin, California 92780, and its telephone number is (714) 544-3002.
This Proxy Statement is first being mailed to shareholders of the Company on
or about December 23, 1998.
Record Date; Proxies
The Board of Directors of the Company has fixed the close of business on
December 1, 1998 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Special Meeting.
Accordingly, only holders of record of shares of Common Stock at the close of
business on the Record Date will be entitled to notice of, and to vote at, the
Special Meeting.
A proxy card for use at the Special Meeting is enclosed. Shares of Common
Stock represented by properly executed proxies, unless such proxies have been
previously revoked, will be voted in accordance with the instructions indicated
in such proxies. If no instructions are so indicated, such shares will be voted
in favor of the approval and adoption of the Merger Agreement and in the
discretion of the proxy holder as to any other matter that properly may come
before the Special Meeting. The Board of Directors of the Company knows of no
business that will be presented for consideration at the Special Meeting other
than consideration of the Merger Agreement. A shareholder who has given a proxy
may revoke it at any time prior to its exercise at the Special Meeting by filing
an instrument revoking it with the Company, by duly executing a proxy bearing a
later date and presenting it at the Special
1
<PAGE>
Meeting or by appearing at the Special Meeting and voting in person. The mere
presence at the Special Meeting of the person who has given a proxy will not
revoke such proxy.
Persons Making the Solicitation
This solicitation of proxies is being made by the Board of Directors of the
Company. All expenses associated with soliciting proxies, including the
preparation, assembly, printing and mailing of this Proxy Statement, will be
borne by the Company. It is contemplated that proxies will be solicited
principally through the use of the mail, but officers, directors and employees
of the Company may solicit proxies personally or by telephone, without receiving
special compensation therefor. The Company has retained Regan and Associates,
Inc. to aid in the solicitation of proxies from brokers, bank nominees, and
other institutional owners at a cost of $4,000.00. In addition, the Company
will reimburse banks, brokerage houses, and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding these proxy materials to
their principals.
Quorum
The presence, either in person or by properly executed proxy, of the holders
of a majority of the voting power of the outstanding shares of Common Stock
entitled to vote at the Special Meeting is necessary to constitute a quorum at
the Special Meeting.
Vote Required
The affirmative vote of the holders of a majority of the outstanding shares of
Common Stock is required to approve and adopt the Merger Agreement. For
purposes of determining whether the Merger Agreement has been approved and
adopted by the shareholders, the inspector of elections will exclude abstentions
and broker non-votes from the number of shares deemed to have voted on such
matter at the Special Meeting. Accordingly, abstentions and broker non-votes
will have the effect of a "NO" vote on the Merger Agreement.
As of the Record Date, 3,222,986 shares of Common Stock were outstanding and
held by approximately 2,990 record holders. Each shareholder of the Company is
entitled to one vote for each share of Common Stock held in his or her name on
the Record Date. Each member of the Board of Directors of the Company has
agreed to vote each share of Common Stock of the Company held by him in favor of
the Merger Agreement and the transactions contemplated thereby. The members of
the Board of Directors as a group were the beneficial holders of an aggregate of
382,175 shares of Common Stock on the Record Date (excluding outstanding but
unexercised options to purchase Common Stock), constituting 11.86% of the shares
of Common Stock outstanding on such date.
2
<PAGE>
THE MERGER
Background
Industry Background
In the past decade, fundamental changes in the healthcare delivery system in
the United States have caused dramatic restructuring in both the systems for the
provision of medical services and in the development, manufacture and
distribution of medical devices. All aspects of medical technology and
healthcare services have been affected by demographic trends, the rise of
managed care, government and consumer demands for cost reduction and cost
avoidance, and consolidation among manufacturers, distributors, hospitals and
other end users. The industry segments of vascular access, infusion therapy and
I.V. systems in which the Company participates have been affected dramatically
by these developments. See "Recommendation of the Board of Directors of the
Company; Reasons for the Merger."
Beginning in the late 1980's and continuing into the 1990's, significant
technological advances were made in vascular access products, new competitors
entered the market segment and a number of major product line and corporate
acquisitions occurred. In 1987, the Company licensed its primary technology, a
safety peripheral I.V. catheter, to Johnson & Johnson Medical Inc. ("J&J"). By
the early 1990's, the Company had developed and introduced its peripherally
inserted central catheters ("PICC") and midline I.V. catheters and begun to
experience increases in product sales.
Prior Discussions and Contacts
In September 1994, the Board of Directors of the Company received an
unsolicited proposal from Medchem Products, Inc. ("Medchem") to acquire the
Company. Medchem had previously acquired Gesco Inc., the Company's primary
competitor and the market leader in PICCs. Barrington Associates was engaged to
advise the Company's Board in connection with the Medchem proposal. Barrington
Associates analyzed the Medchem proposal from a financial point of view and,
among other activities, contacted other potential acquirors of the Company,
including Becton Dickinson. After numerous communications between the Company
and Medchem, refinement of the Medchem proposal, and meetings between Medchem
and the Company, the Medchem proposal was withdrawn by Medchem after being
advised that the consensus of the Company's Board of Directors was that the
proposal was not sufficiently specific or definite and was not in a range of
values deemed to be in the best interests of the shareholders of the Company at
that time.
A number of potential acquirors of the Company contacted in the context of the
Medchem proposal expressed interest in an acquisition of the Company or various
of its product lines or in licensing or distributing the Company products.
Contacts from such parties with the Company or Barrington Associates on the
Company's behalf occurred from time to time over the ensuing years. The
Company's engagement of Barrington Associates continued after termination of the
Medchem discussions and included advice on strategic issues including various
alternatives to provide financing for future product development and
commercialization.
As a result of the contact initiated by Barrington Associates in the context
of the Medchem proposal, Becton Dickinson expressed interest in acquiring the
Company or its PICC product line. Numerous conversations occurred between
Barrington Associates and Becton Dickinson in the fourth quarter of 1994. A
meeting was scheduled for January 1995 between senior executives of the Company
and Becton Dickinson to discuss a possible transaction, but was subsequently
canceled by Becton Dickinson.
In July 1995, discussions between Becton Dickinson and Barrington Associates
resumed, although Becton Dickinson's focus in those discussions was primarily on
the potential purchase of product lines or license arrangements rather than a
corporate acquisition. In August 1995, a meeting was held between senior
executives of Becton Dickinson and the Company to discuss products and markets.
In September 1995, Becton Dickinson terminated discussions with the Company.
From time to time during 1996 and 1997, conversations occurred between various
executives of Becton Dickinson and Barrington Associates concerning product and
other developments at the Company.
In the context of the Medchem proposal, Barrington Associates had contacted
another large medical products company (the "potential acquiror") concerning
possible interest in acquiring the Company. Repeated contact occurred between
the potential acquiror and Barrington Associates during the fourth quarter of
1995 and the first quarter of 1996. In April 1996, the potential acquiror
commenced due diligence efforts that continued through the Summer of 1996 and
included disclosures by the Company, site
3
<PAGE>
visits, and meetings among executives and other personnel of the potential
acquiror, the Company and Barrington Associates. Discussions with potential
acquiror were suspended in September 1996, and were resumed through the efforts
of Barrington Associates in late March 1997.
In April 1997, the potential acquiror indicated its desire to pursue an
acquisition of the Company, and periodic communications between the potential
acquiror and Barrington Associates occurred in May and June. Due diligence was
resumed and numerous meetings occurred in the following months culminating in
extensive negotiations in September and October 1997. Eventually, talks broke
down over valuation issues and were terminated in October 1997.
In November 1996, the Company had been approached by a smaller public medical
device company concerning the latter's interest in a merger with the Company. A
number of contacts between executives of that company and its financial advisor
and executives of the Company and Barrington Associates occurred throughout
1997. Extensive due diligence was undertaken by both parties and negotiations
reached an advanced stage by January 1998, focusing on a merger between the two
companies in which the Company shareholders would receive stock in the acquiring
company in exchange for their stock in the Company. However, prior to
presentation of the proposed merger to the Company's Board of Directors for its
approval, divergence in the relative values of the stocks of the merger
candidate and the Company caused the termination of discussions.
During the period from its initial engagement in connection with the Medchem
matter in September 1994, Barrington Associates contacted 47 companies that had
initiated contact with the Company or Barrington Associates or had been
contacted by Barrington Associates concerning the acquisition of the Company or
one or more of its product lines.
Current Merger Transaction
In February 1998, Barrington Associates contacted a Director of Corporate
Development of Becton Dickinson to determine whether Becton Dickinson might have
an interest in acquiring the Company and discussions between Barrington
Associates and Becton Dickinson ensued. In April 1998, Becton Dickinson signed
the Company's Confidentiality Agreement, and Barrington Associates sent an
Information Memorandum and certain public filings to Becton Dickinson.
Representatives from Becton Dickinson then met with David Rollo, the President
and Chief Executive Officer of the Company, to discuss the Company's business,
markets, and technology and the potential fit and complement of the Company's
products with the current products and distribution channels of Becton
Dickinson.
In May 1998, the Company's Board of Directors held a regularly scheduled board
meeting. The agenda included a review of the Company and Becton Dickinson's
recent discussions. At this meeting, the Company's Board of Directors
established parameters for any further discussions with Becton Dickinson.
During the balance of May 1998 and in June 1998, discussions between Becton
Dickinson and Barrington Associates continued.
In late June 1998, Becton Dickinson faxed Barrington Associates a letter
addressed to the Company's Board of Directors expressing its interest in
acquiring the Company and providing an initial valuation range of $13,750,000 to
$15,000,000. Concurrently, Becton Dickinson sent this letter, dated June 26,
1998, to each Company board member via overnight mail. Upon receipt of the
faxed copy of the letter, Barrington Associates contacted Mr. Rollo to review
and discuss the inquiry. On July 17, 1998, the Company's Board of Directors met
and discussed Becton Dickinson's June 26, 1998 letter. The Company's Board of
Directors prepared a list of issues for Barrington Associates to address with
Becton Dickinson, including valuation, the due diligence process, and timing.
Barrington Associates subsequently contacted Becton Dickinson and communicated
the Company's Board's issues.
Becton Dickinson sent a second letter dated July 30, 1998, to Mr. Rollo,
reiterating its interest in acquiring the Company within the valuation range
previously mentioned and suggesting that key executives from each company meet
at an off-site location to continue to discuss valuation. In August 1998,
Barrington Associates and certain members of the Company's Board of Directors
met to review the Becton Dickinson proposal and a presentation developed by the
Company, which discussed the Company's operations, and representatives from
Becton Dickinson, the Company and Barrington Associates met and discussed the
Company's financial position, products, technology, markets, and prospects.
On August 21, 1998, Becton Dickinson sent a letter to Barrington Associates
addressed to Mr. Rollo in which it increased its valuation of the Company to
$16,750,000 based upon information provided to it at the earlier August meeting.
Barrington Associates
4
<PAGE>
contacted the Company and communicated this information. Based upon this
increased valuation, the Company determined that it would permit Becton
Dickinson to conduct detailed due diligence on the Company.
On August 28, 1998, Becton Dickinson delivered to the Company a term sheet
outlining basic business terms under which Becton Dickinson proposed to acquire
the Company. The term sheet included the $16,750,000 purchase price, to be
reduced by the Company's costs directly attributable to the transaction. On
September 1, 1998, representatives of the Company, Becton Dickinson and
Barrington Associates met to discuss the due diligence process and timeline. At
this time, Becton Dickinson provided the Company with a list of due diligence
questions and the parties scheduled a series of due diligence meetings for the
following week.
On September 3, 1998, Becton Dickinson delivered a revised term sheet to the
Company. The revised term sheet included a $16,950,000 purchase price, to be
reduced by the transaction expenses and permitted the Company to use up to
$150,000 for legal and fairness opinion fees. On September 4, 1998, Becton
Dickinson and the Company executed an agreement, effective September 8, 1998,
providing that the Company would negotiate exclusively with Becton Dickinson for
a 30-day period in an effort to reach a definitive agreement.
During September 1998, representatives from Becton Dickinson reviewed due
diligence materials assembled by the Company and met with certain of the
Company's management personnel at the Irvine, California offices of Morrison &
Foerster LLP and at the Company' facility. During these meetings, the Company
and Becton Dickinson agreed to an eight-day extension of the Company's agreement
to negotiate exclusively with Becton Dickinson.
On September 24, 1998, representatives of Becton Dickinson, the Company,
Barrington Associates and Morrison & Foerster LLP met to discuss due diligence
issues and establish a timeline to pursue the transaction. On September 29,
1998, the Company Board met, and discussed among other things, the Becton
Dickinson proposal, the schedule of the transaction and the engagement of a firm
to provide a fairness opinion for the proposed combination. The Company and its
advisors also received a draft copy of the Merger Agreement from Latham &
Watkins, Becton Dickinson's legal counsel for the Merger. On October 7 and
October 8, 1998, Becton Dickinson and their legal counsel met with the Company
and its legal counsel and investment bankers to negotiate the terms of the
definitive agreement, and finalized a purchase price of $16,275,000 plus the
payment of certain transaction expenses which, in the aggregate, are currently
estimated to be approximately $800,000.
On October 13, 1998, at a special meeting of the Board of Directors of the
Company, (i) the management of the Company reported the financial and structural
terms of the proposed Merger with BD Sub, (ii) the Company's legal counsel
presented to the Board of Directors the proposed terms of the Merger Agreement,
(iii) one of the Company's financial advisors, Marshall & Stevens Incorporated
("Marshall & Stevens"), delivered its opinion that as of such date, the
financial terms of the proposed Merger were fair, from a financial point of
view, to the shareholders of the Company, and (iv) the Company's Board of
Directors approved the Merger Agreement by a unanimous vote. Following the
special meeting of the Board of Directors of the Company, the Company and Becton
Dickinson executed the Merger Agreement, and the Company issued a press release
concerning the proposed Merger.
On November 6, 1998, representatives of Becton Dickinson approached the
Company and proposed that the Company grant a license to Becton Dickinson for a
patent for a needle blunting assembly for use with intravascular introducers
(the "Patent"). The Patent is not currently being utilized by the Company in
any marketed product. A term sheet was presented to the Company on November 13,
1998, which proposed a six-month exclusive license of the Patent in exchange for
an $0.08 per share increase in the consideration to be paid to shareholders in
the Merger, in the event that the Merger is consummated, or in the event that
the Merger is not consummated (other than as a result of breach or default of
the Company under the Merger Agreement), a cash payment of $325,000. On
November 14, 1998, the Board of Directors of the Company unanimously approved
the term sheet presented by Becton Dickinson, but the proposal was withdrawn by
Becton Dickinson and replaced with the proposal described in the following
paragraph.
On November 18, 1998, Becton Dickinson proposed an alternative to the Patent
license whereby the Company would provide Becton Dickinson with an exclusive
option (the "Option") expiring on June 1, 1999, to obtain a license of the
Patent for a term of eighteen months from the effective date of the license in
exchange for an $0.08 per share increase in the consideration to be paid to
shareholders in the Merger, in the event that the Merger is consummated, or in
the event that the Merger is not consummated (other than as a result of a breach
or default of the Company under the Merger Agreement), a cash payment of
$325,000. Further, in the event that Becton Dickinson exercises the Option to
enter into the License, then an additional cash payment of $200,000 would be
paid to Luther. At a meeting of the Board of Directors of the Company on
November 24, 1998, the Board approved the Option by a
5
<PAGE>
vote of four to one. After the vote on the Option, the Board voted unanimously
to approve amending the Merger Agreement to increase the Merger Consideration to
$4.70 per share.
Recommendation of the Board of Directors of the Company; Reasons for the Merger
At a special meeting of the Board of Directors held on October 13, 1998, the
Board of Directors approved by unanimous vote the terms of the Merger and the
Merger Agreement and recommended approval of the Merger and the Merger Agreement
to holders of Common Stock. Subsequently, at a special meeting of the Board of
Directors held on November 24, 1998, the Board of Directors approved by
unanimous vote Amendment No. 1 to the Merger Agreement entered into in
connection with the grant of the Option to Becton Dickinson. In determining to
approve the Merger and the Merger Agreement, the Board of Directors considered a
number of factors, the material of which were as follows:
(i) the oral presentation of Barrington Associates and the written
opinion of Marshall & Stevens with respect to its determination as to the
fairness of the Merger from a financial point of view to the Company's public
shareholders, and the analyses, methodologies and conclusions underlying such
determination (see "The Merger -- Opinion of Financial Advisor");
(ii) the premium of $2.12 (later increased to $2.20), which represents the
difference between the Merger Consideration and the last reported sale price
of the Common Stock as reported by Nasdaq on October 12, 1998 ($2.500 per
share), the day prior to the October 13, 1998 Board meeting and the initial
announcement of the execution of the Merger Agreement;
(iii) the historical and recent earnings performance of the Company;
(iv) the Company's future prospects and uncertainties in the business in
which the Company engages;
(v) uncertainty with respect to the Company's ability to meet its needs
for current and future working capital;
(vi) conditions in the industry in which the Company competes, increased
competition in the markets that are addressed by the Company's current and
proposed products, consolidation in distribution channels, increased demand
for broad, integrated product lines, and pressing measures;
(vii) the prices and multiples of invested capital-to-revenue and market
value-to-revenue paid in recent acquisitions of companies deemed to be similar
in certain respects to the Company (see "Opinion of Financial Advisor");
(viii) the likelihood that the Merger could be consummated, noting the
timing of and conditions to the Merger, and the expected effect of the
announcement of the Merger on relationships with the Company's customers,
employees, distributors, and suppliers;
(ix) the terms and conditions set forth in the Merger Agreement,
including, but not limited to, the provisions in the Merger Agreement
permitting the Board of Directors to consider and respond to unsolicited bona
fide third-party offers to acquire the Company, subject to certain limitations
(see "Terms of the Merger -- Restrictions on the Company") and subject to a
cancellation fee payable by the Company in certain circumstances (see "Terms
of the Merger --Cancellation Fee; Expenses"); and
(x) the substantial capital requirements to commercialize new products
necessary to maintain long-term competitiveness in the market.
Based upon an analysis of these factors, among others, the Board of Directors
determined unanimously that the terms and conditions of the Merger Agreement
would be fair and in the best interests of the Company and its shareholders.
The Board of Directors did not find it practicable to, and did not attempt to,
assign relative weights to the specific factors considered by it.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER AGREEMENT
BY THE SHAREHOLDERS OF THE COMPANY.
6
<PAGE>
Opinion of Financial Advisor
The terms of the Merger, including the Merger Consideration, were determined
by negotiation between the Company and Becton Dickinson. The Company retained
Marshall & Stevens to deliver an opinion to its Board of Directors as to the
fairness of the Merger transaction to the Company's shareholders. Marshall &
Stevens has delivered to the Board of Directors of the Company its written
opinion ("Opinion"), dated October 12, 1998, to the effect that, as of such date
and based upon the matters described therein, the $4.62 per share in cash
originally to be received by the public holders of Common Stock pursuant to the
Merger Agreement was fair to such shareholders from a financial point of view.
Marshall & Stevens has supplementally noted that the subsequent increase in the
aggregate consideration to $4.70 per share would also have been deemed to be
fair to the shareholders from a financial point of view as of the date of their
October 12, 1998 Opinion. As set forth in its Opinion, Marshall & Stevens
assumed and relied upon, without independent verification, the accuracy and
completeness of the information reviewed by it for the purposes of its Opinion.
Marshall & Stevens did not make or obtain an independent evaluation or appraisal
of the assets or liabilities of Company. Marshall & Stevens was not authorized
to, and did not, solicit from other parties indications of interest with respect
to combining with or acquiring the Company or any of its assets. Marshall &
Stevens was not involved in the negotiation of the Merger Agreement or the
determination of the amount of the Merger Consideration.
At the October 13, 1998 meeting of the Company's Board of Directors, Marshall
& Stevens made a presentation discussing the factors it considered in evaluating
the proposed terms of the transaction and delivered its Opinion that the Merger
Consideration was fair to such shareholders from a financial point of view. The
presentation included a discussion of the basis for, and the methodologies being
used by Marshall & Stevens to reach its Opinion. No instructions or limitations
were given to or imposed on Marshall & Stevens in connection with its Opinion,
and no limitations were imposed upon the scope of Marshall & Stevens'
investigation.
The text of Marshall & Stevens' Opinion is attached to this Proxy Statement as
Annex II and is incorporated by reference herein. Shareholders of the Company
are urged to read such Opinion carefully and in its entirety for a description
of the procedures followed, the factors considered and the assumptions made by
Marshall & Stevens. In arriving at its Opinion, Marshall & Stevens considered
such financial and other matters as it deemed appropriate under the
circumstances, which included, among other things:
(i) Analysis and inspection of the Company's financial statements for the
fiscal years ended June 30, 1997 and 1998 audited by Ernst & Young
LLP; June 30, 1994 through 1996 audited by Corbin & Wertz; and the
interim internally prepared financial statements for the two-month
period ended August 31, 1998.
(ii) Inspection of copies of the following documents:
. Certain sections of the draft Merger Agreement dated October 10,
1998.
. Business Plan of the Company approved at the July 17, 1998 board
meeting.
. Federal Tax Return for the year ended June 30, 1997.
(iii) Search of companies considered comparable to the Company.
(iv) Review of certain transaction data for publicly traded companies.
(v) Visit to the Company's headquarters and taking of telephone interviews
of certain members of the Company, as well as outside consultants and
counsel concerning the operations, financial condition, future
prospects, and projected operations and performance of the Company.
(vi) Review of historical market prices and trading volume of the Company.
(vii) Review of equity risk premium studies published by Ibbotson
Associates.
(viii) Review of control premium studies published by Mergerstat Review.
7
<PAGE>
In preparing its Opinion, Marshall & Stevens performed a variety of financial
and comparative analyses and made assumptions in conjunction with the Company
with respect to assets, financial conditions and other matters, many of which
are beyond the control of the Company. The estimates of value arrived at by
Marshall & Stevens based on such analyses and the valuation results determined
from any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, and are inherently subject to
substantial uncertainty. The analyses made by Marshall & Stevens in conjunction
with its Opinion included those factors and considerations specified in IRS
Revenue Ruling 59-60. This ruling is most commonly prescribed as a guide for
the valuation of closely held businesses or thinly traded public companies and
securities.
The following paragraphs summarize the most significant quantitative and
qualitative analyses performed by Marshall & Stevens in arriving at its Opinion
and reviewed by the Company's Board of Directors.
Selected Comparable Company Analysis. The comparable company analysis
requires that an analysis be made of publicly traded companies considered
comparable to the appraised company with regard to industry, performance and/or
markets exploited. This analysis is predicated on the theory that the market
value of a company can be estimated by deriving market multiples from publicly
traded companies that relate their stock prices to earnings, cash flows or other
measures of the appraised company.
Marshall & Stevens conducted a search of Moody's database of over 15,000
publicly traded companies to determine if any could be utilized in its analysis.
After screening applicable SIC codes and other relevant criteria, Marshall &
Stevens selected public companies that most closely resembled the Company in
terms of lines of business and markets serviced, including Alaris Medical, Inc.,
Arrow International, Arterial Vascular Engineering, Inc., Bard (C.R.), Inc.,
Endosonics, Inc., Everest Medical Corp., Gish Biomedical, Inc., I-Flow
Corporation, ICU Medical Inc., Maxxim Medical, Inc., Merit Medical Systems,
Inc., Rochester Medical Corp., and Uroquest Medical Corp.
Marshall & Stevens computed market value multiples of invested capital-to-
revenue and market value-to-revenue of the aforementioned public companies and
applied these multiples to the corresponding revenue measures for the Company
based on the latest fiscal year and three-year weighted average. The invested
capital-to-revenue multiple ranged from a low of .44x to a high of 7.09x, with a
median of 2.10x for the latest fiscal year, and ranged from a low of .43x to a
high of 10.3x, with a median of 2.61x, calculated as a three-year weighted
average. The market value-to-revenue multiple ranged from a low of .44x to a
high of 7.09x, with a median of 1.71x for the latest fiscal year, and ranged
from a low of .43x to a high of 10.3x with a median of 2.16x, calculated as a
three-year weighted average. Marshall & Stevens utilized these revenue
multiples to value the Company irrespective of the variations inherent in its
capital structure, depreciation methods and income tax rates as compared to the
aforementioned public companies. Its analysis concentrated on revenue multiples
because the Company reported negative earnings during the time periods analyzed.
Marshall & Stevens chose multiples near the median range to apply to the
corresponding financial measures for the Company, since the Common Stock of the
Company is thinly traded, and, therefore, its shares are characterized as having
limited identity and as lacking solid market presence. Marshall & Stevens also
considered the Company's size, diversification, financial condition, revenue
growth and performance relative to Everest Medical Corp. and Uroquest Medical
Corp., which Marshall & Stevens deemed to be comparable companies for this
purpose.
After multiplying the respective revenue measures of the Company by the
selected multiples and then subtracting any interest-bearing debt, Marshall &
Stevens generated a preliminary indicated equity value, which Marshall & Stevens
determined represented the aggregate minority value (minority interests traded
in the public marketplace) of the Company before estimated marketing costs.
Because Marshall & Stevens was valuing the Company on a controlling basis, the
preceding preliminary minority value was adjusted to reflect control. Market
data demonstrated that investors who seek to acquire controlling interests in
publicly traded companies in order to set company policies and direct operations
pay prices higher than investors trading minority shareholdings in the public
marketplace.
In order to derive the appropriate control premium, Marshall & Stevens
reviewed statistical information from a publication, Mergerstat Review,
regarding acquisitions of either controlling interests in, or total ownership
of, public companies considered comparable to the Company. In its selection of
the control premium, Marshall & Stevens also considered that its adjustments to
normalize the Company's historical earnings were not made to the aforementioned
public companies. Based on the above-mentioned factors and other data, Marshall
& Stevens selected 25% as the appropriate control premium.
8
<PAGE>
Marshall & Stevens' estimated marketing costs considered the cost associated
with selling either the entire company or a significant percentage thereof.
This included attorney's fees, filing fees, accounting fees, and investment
banking-brokerage commissions. Marshall & Stevens determined that a reasonable
range for this cost is 5% to 15%, depending on the size and desirability of the
subject company and/or the underlying interest. After considering estimated
closing costs, Marshall & Stevens determined that the indicated market value of
the shareholders' equity of the Company on a controlling interest basis, as of
October 12, 1998, was $13,300,000.
Comparable Transaction Analysis. The comparable transaction analysis is
predicated on the theory that the market value of a company can be estimated by
mathematically relating the sales price for acquisitions of comparable publicly
traded companies to ratios of their earnings, revenues, and/or other measures.
Marshall & Stevens researched acquisitions of comparable publicly traded
companies and analyzed the implied transaction and purchase price multiple paid
or proposed to be paid in the following transactions and/or speculative
transactions from 1996 to date:
<TABLE>
<CAPTION>
PURCHASE ANNUAL Multiple
TARGET ACQUIRER DATE PRICE SALES (Price/Revenue)
(in $000s) (in $000s)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Block Medical, Inc. I-Flow Corporation Jul-96 17,000 14,000 1.21
IMPRA, Inc. C.R. Bard, Inc. Sep-96 143,200 48,800 2.93
Division of C.R. Bard, Inc. Arterial Vascular Jul-98 452,000 200,000 2.79
Engineering, Inc.
Medical Devices Div. of Ohmeda Becton, Dickinson & Co. Jan-98 452,000 200,000 2.26
</TABLE>
After considering estimated marketing costs, Marshall & Stevens determined
that the indicated market value of the shareholders' equity of the Company on a
controlling interest basis, as of October 12, 1998, was $13,500,000.
Discounted Cash Flow Analysis. Marshall & Stevens performed a discounted cash
flow analysis of projected net debt-free cash flow (EBIT, less taxes, capital
expenditures, changes in working capital plus noncash charges) of the Company
for the fiscal years 1999 through 2003 based on certain operating and financial
assumptions as to sales growth, operating margins, income taxes at 40%,
depreciation, capital expenditures, working capital levels and discount rate
provided by the Company, as follows:
<TABLE>
<CAPTION>
June 30
- ------------------------------------------------------------------------------
($000s) Actual 1998 1999 2000 2001 2002 2003
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Rate --- 29.2% 36.2% 20.0% 18.3% 16.2%
Cost of Goods 61.3% 62.7% 60.0% 58.0% 56.0% 54.0%
Operating Exp. 44.8% 30.4% 24.4% 22.5% 21.4% 20.5%
Depreciation 201 169 203 256 259 292
Capital Exp. 88 225 260 300 325 350
Debt Free Working --- (609) 771 580 638 667
Capital
</TABLE>
Marshall & Stevens calculated an equity value as a sum of the unlevered cash
flows from 1999 to 2003 and the projected terminal year based on a multiple of
4.76 of projected unlevered cash flows, minus net interest-bearing debt.
Marshall & Stevens applied a discount rate assumption of 16% by utilization of
the weighted average cost of capital ("WACC"). The WACC is a function of
9
<PAGE>
(i) cost of debt, (ii) cost of equity, (iii) industry capital structure, and
(iv) cumulative federal and state taxes. Overall, this projection reflected
significant increases in revenues and earnings when compared to historical
operations.
After considering estimated closing costs, Marshall & Stevens determined that
the indicated market value of the shareholders' equity of the Company on a
controlling interest basis, as of October 12, 1998, was $12,000,000.
Trading Stock Price Analysis. Marshall & Stevens also considered the stock
trading price of $2.375 as of October 9, 1998 (the most currently available
trading price proximate to the Opinion date) which represented the aggregate
minority interest in the Company. Because Marshall & Stevens was valuing the
Company on a controlling basis, the preceding preliminary aggregate minority
value was adjusted to reflect control as discussed in the previous selected
comparable company analysis.
Based on these factors, Marshall & Stevens selected 25% as the appropriate
control premium. After considering estimated closing costs, the indicated
market value of the shareholders' equity of the Company on a controlling
interest basis, as of October 12, 1998, was $8,700,000.
In deriving a final conclusion, Marshall & Stevens reconciled the value
indications by weighting their relative significance depending upon the
circumstances and the quantity of reliable market data. Marshall & Stevens
determined that the selected comparable company analysis reflected the consensus
of many investors relative to the historical profitability of public companies
considered comparable to the Company. Marshall & Stevens determined that the
comparable transaction analysis reflected actual market transactions within the
industry in the merger and acquisition marketplace represented by strategic
buyer and synergistic motivations. Marshall & Stevens believed that the
discounted cash flow analysis considered the future profit potential coupled
with the riskiness of that return, and avoided the difficulty in identifying
public companies considered comparable to the Company. In its analyses,
Marshall & Stevens applied various sensitivity weightings to the analyses to
determine a range for the market value of shareholders' equity as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Range of values Selected Comparable Comparable Transaction Discounted Cash Flow Trading Stock Price
determined by M&S Company ("DCF")
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$13,700,000 30% 20% 50% 0%
$14,000,000 50% 20% 30% 0%
</TABLE>
In summary, Marshall & Stevens determined a value of $13,700,000 by applying a
50%-50% weighting between the market approach (selected company and comparable
transaction) and income approach (DCF); and determined a value of $14,000,000 by
applying a 70%-30% weighting between the market approach and income approach.
Marshall & Stevens gave the least weight to the comparable transaction analysis
since the multiple derived from those transactions may have included synergistic
and strategic motivations relative to a specific buyer. The trading price
analysis (the lowest derived value) was not given any weight as it considered
such analysis as a reasonableness check on the other analyses.
The final step in its analysis was to add the Company's non-operating asset,
the present value of the tax benefit of acquiring the Company's net operating
loss ("NOL") carryover, determined to be $1,000,000. In this calculation,
Marshall & Stevens assumed that an acquiring company would be able to absorb the
maximum annual NOL limitation pursuant to Section 382 of the Internal Revenue
Code. The maximum annual NOL limitation is based on the value of the Company
multiplied by the highest published long-term Federal tax exempt rates pursuant
to Revenue Rulings 98-50, 98-43 and 98-36, which was determined to be 5.02%.
Marshall & Stevens then performed a discounted cash flow analysis of the annual
projected tax benefit (annual NOL limitation times the federal and state tax
rates) for all subsequent years until the NOL was fully exhausted. This cash
flow was discounted and summed by Marshall & Stevens at a discount rate
assumption of 16%, as previously discussed in the discounted cash flow analysis.
Based on the information, analyses and various sensitivity weightings
discussed above, Marshall & Stevens' opinion is that the market value of the
shareholders' equity of the Company on a controlling interest basis, as of
October 12, 1998, ranged from $13,700,000 to $14,000,000.
10
<PAGE>
For Marshall & Stevens' services as financial advisor to the Company in
connection with the Merger, the Company agreed to pay Marshall & Stevens total
fees of $22,000. The Company also has agreed to reimburse Marshall & Stevens
for its reasonable out-of-pocket expenses, including legal fees, and to
indemnify Marshall & Stevens against certain expenses and liabilities, including
liabilities under the federal securities laws, relating to or arising out of
services performed by Marshall & Stevens as financial advisor to the Company.
During the two years prior to its engagement, Marshall & Stevens did not perform
investment banking or financial advisory services for, or receive compensation
from, the Company.
The Company retained Barrington Associates in September 1994 to act as a
financial advisor to the Company, pursuant to an engagement agreement (the
"Barrington Agreement") dated September 15, 1994, as amended on May 6, 1995 and
May 7, 1997, between the Company and Barrington Associates. Barrington
Associates acted as the Company's financial advisor from September 1994 until
February 1998. See "The Merger -- Background." Pursuant to the amendments, the
Barrington Agreement continued on a month-to-month basis until terminated by
either party. In February 1998, the Company terminated the Barrington
Agreement. The Barrington Agreement provides, however, that as to any potential
acquiror with which the Company or Barrington Associates had contact during the
term, the Barrington Agreement shall continue to apply to any acquisition or
merger with the Company for a period of eighteen months from the date of
termination of the Barrington Agreement. Becton Dickinson was introduced to the
Company by Barrington Associates and, pursuant to the Barrington Agreement, an
aggregate payment of approximately $600,000 in connection with the Barrington
Agreement will be made to Barrington Associates upon the closing of the Merger.
Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors with respect to
the Merger, shareholders of the Company should be aware that certain members of
the Board of Directors and the Company's management have certain interests which
may present them with potential conflicts of interest in connection with the
Merger. For information with respect to management's beneficial ownership of
the Company's Common Stock, which Common Stock will be subject to exchange for
the Merger Consideration upon consummation of the Merger, see "Principal
Shareholders and Security Ownership of Management."
The Company has entered into employment agreements (the "Employment
Agreements") with each of David Rollo and George Brdlik which provide, among
other things, for certain benefits in the event the employment of such officer
is terminated in connection with certain "change of control" transactions (which
would include the change in control of the Company resulting from the Merger).
These benefits include: (i) payment of the employee's full base compensation
through the date of termination at the rate in effect at the time of such
termination and (ii) payment of a lump sum equal to 100% of the employee's
annual base compensation at the highest rate in effect during the twelve months
immediately preceding the date of termination. The Employment Agreements were
entered into during December 1993 (as amended May 1995 and January 1998) and
December 1996 (as amended July 1997), respectively. The Employment Agreements
were each entered into prior to substantive discussions between the Company and
Becton Dickinson in February 1998 with respect to a potential acquisition of the
Company. Becton Dickinson was not involved in the negotiation or determination
of the terms of the Employment Agreements.
Pursuant to the terms of the Merger Agreement, immediately prior to the
effectiveness of the Merger, each outstanding and exercisable stock option is to
be cancelled in exchange for a cash payment equal to the difference, if any,
between $4.70 and the exercise price applicable to such option (less any
applicable withholding taxes). See "Terms of the Merger -- Treatment of Stock
Options and Warrants."
The following table sets forth the estimated cash payments that will be made
by Becton Dickinson or the Company to each of the Company's directors and
executive officers and all of the Company's directors and executive officers as
a group upon consummation of the Merger, including (i) the total cash payment to
each such person for shares of Common Stock, (ii) the total cash payment to each
such person in connection with the cancellation of currently vested and unvested
options held by such person, and (iii) the estimated cash amount (the "Severance
Amount") to be received by such person pursuant to an Employment Agreement, if
applicable, assuming that each such person's employment is terminated following
consummation of the Merger and that such person's compensation does not change
during the period prior to such termination.
11
<PAGE>
<TABLE>
<CAPTION>
Cash For Estimated
Cash for Vested Severance
Name Office Shares Options Amount Total
- ---------------------- -------------------------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
David Rollo President, Chief Executive $ 14,923 $264,000 $173,410 $ 452,333
Officer, Chief Financial
Officer, and Director
George C. Brdlik Vice President of Quality -- $ 27,240 $105,000 $ 132,240
Assurance and Regulatory
Affairs
Petra Darling Secretary $ 10,406 $ 58,021 -- $ 68,427
Randolf W. Katz Assistant Secretary -- -- -- --
Jack W. Payne Director -- $123,950 -- $ 123,950
D. Ross Hamilton Director $ 383,050 $143,450 -- $ 526,500
William R. Dahlman Director -- $ 37,200 -- $ 37,200
William C. Huck Director $1,398,250 $ 58,500 -- $1,456,750
All executive officers $1,806,629 $712,361 $278,410 $2,797,400
and directors as a
group (8 persons)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Concurrently with the execution of the Merger Agreement, Becton Dickinson
entered into a consulting agreement (the "Consulting Agreement") with David
Rollo. The Consulting Agreement will become effective upon the closing of the
Merger. The Consulting Agreement provides for a term of not less than twelve
months and not more than eighteen months. Mr. Rollo will serve as a consultant
to Becton Dickinson and, in that capacity, will assist in the transition of the
Company's business and perform such other duties as may be designated by Becton
Dickinson. Pursuant to the terms of the Consulting Agreement, Mr. Rollo will be
entitled to receive a consulting fee of $14,000 per month during the initial
term of the Consulting Agreement and other payments upon certain termination
events as described below.
The Consulting Agreement provides that Becton Dickinson may terminate the
Consulting Agreement (i) at any time for cause and (ii) beginning six months
from the Effective Date, for any reason. However, in the event that the
Consulting Agreement is terminated pursuant to (ii) above, the $14,000 per month
consulting fee shall cease and then during the subsequent period, Mr. Rollo will
provide part-time consulting services and will be entitled to receive a monthly
payment of $12,000 for a period of six months from the date of notice of
termination.
Operation and Management of the Company After the Merger
Each of the directors of the Company will resign on the Effective Date.
Becton Dickinson has elected to retain David Rollo as a consultant to Becton
Dickinson. See "Interests of Certain Persons in the Merger." The officers and
other employees of the Company will continue as employees of the surviving
corporation after consummation of the Merger unless and until otherwise
determined by Becton Dickinson.
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<PAGE>
TERMS OF THE MERGER
The detailed terms of and conditions to the Merger are contained in the Merger
Agreement, which is attached to this Proxy Statement as Annex I and incorporated
herein by reference. The description in this Proxy Statement of the terms of
the Merger Agreement is qualified by, and made subject to, the more complete
information set forth in the Merger Agreement.
Effective Date of the Merger
Pursuant to the Merger Agreement, BD Sub will be merged with and into the
Company at the effective time of the Merger, and the Company shall thereupon be
the surviving corporation (the "Surviving Corporation") pursuant to the terms
and conditions of the Merger Agreement. The Merger will become effective upon
the filing of a properly executed and certified copy of the Agreement of Merger
(which is attached to the Merger Agreement as Exhibit A) with the Secretary of
State of the State of California, in compliance with the California General
Corporation Law, and the date upon which such effectiveness occurs is referred
to as the "Effective Date." It is anticipated that such filing will be made
promptly following receipt of the requisite approval of shareholders of the
Company and satisfaction or waiver of all other conditions to the Merger. Each
of the parties to the Merger Agreement will have certain rights to terminate the
Merger Agreement in the event that the Merger is not consummated on or before
March 31, 1999. See "Termination of the Merger Agreement; Amendments."
Although it is anticipated that the Merger Agreement will be filed and the
Effective Date will occur on or before March 31, 1999, there can be no assurance
that there will be no further delay between the date of the Meeting and the
Effective Date, that the conditions to the Merger will be satisfied or waived or
that the Merger will occur. See "Conditions to the Merger."
Effect of the Merger
On the Effective Date, each share of Common Stock issued and outstanding
(other than shares as to which statutory appraisal rights have been perfected
(collectively, the "Excluded Shares")), will be converted into the right to
receive, without interest, the Merger Consideration. Upon consummation of the
Merger, shareholders will cease to have any further ownership or interest in the
Company.
The Company will be the Surviving Corporation upon the effectiveness of the
Merger and as such will succeed to all of the debts and liabilities and all of
the rights and property of the Company and BD Sub. The Surviving Corporation
will become a wholly-owned subsidiary of Becton Dickinson. As such, the Company
will no longer be subject to the reporting requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"). The Company's results of operations
will be included in the consolidated results of operations reflected in Becton
Dickinson's periodic reports. BD Sub will cease to exist following the
Effective Date.
Payment for Shares; Exchange Agent
Upon the consummation of the Merger, each issued and outstanding share of
Common Stock (other than the Excluded Shares) shall be deemed for all purposes
to represent only the right of the holder to receive the Merger Consideration.
First Chicago Trust Company of New York will act as exchange agent (the
"Exchange Agent") in order to facilitate the payment in exchange for
certificates theretofore representing shares of Common Stock.
Instructions with regard to the surrender of certificates, together with a
letter of transmittal to be used for this purpose, will be mailed to
shareholders promptly after the Effective Date. Shareholders should surrender
certificates for shares of Common Stock only with a letter of transmittal. Each
holder shall deliver the stock certificate or certificates representing his or
her shares of Common Stock and related documentation by mailing such stock
certificates or certificates and related documentation to the Exchange Agent,
for payment, as promptly as practicable, by return mail. Each holder of shares
held in street name by a broker, dealer, clearing agency or other nominee should
contact such entity as soon as possible prior to the Effective Date to direct
the entity to tender their shares as instructed by the letter of transmittal.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD.
Upon receipt of a certificate or certificates for Common Stock together with a
duly executed letter of transmittal, the Exchange Agent will issue cash or a
cash equivalent to the person or persons entitled thereto in an amount equal to
the product determined by multiplying the Merger Consideration by the number of
shares of Common Stock represented by such stock certificate or certificates.
No interest will accrue to holders of Common Stock in respect of payments to
which they become entitled upon consummation of the Merger.
13
<PAGE>
If any payment for shares of Common Stock is to be made in a name other than
that in which the certificate for such shares surrendered for payment are
registered on the stock transfer books of the Company as of the Effective Date,
it will be a condition of such payment that the certificate or certificates so
surrendered shall be properly endorsed or otherwise in proper form for transfer,
and that the person requesting such transfer pay to the Exchange Agent all
transfer or other taxes or establish that such taxes have been paid or are not
required to be paid.
Becton Dickinson has agreed in the Merger Agreement to transfer to the
Exchange Agent, not later than the Effective Date, all the cash required for
payments of the Merger Consideration to be made to all holders of Common Stock
and the cash payments to holders of options and warrants to purchase Common
Stock (as described in the following section) called for by the Merger
Agreement.
Treatment of Stock Options and Warrants
As of the Record Date, options and warrants to purchase approximately 887,000
shares of Common Stock were outstanding at exercise prices ranging from $2.22 to
$4.81 per share. Pursuant to the terms of the Merger Agreement, each option or
warrant to purchase Shares which is outstanding immediately prior to the
Effective Time and which has an exercise price less than $4.70 shall, by virtue
of the Merger, cease to be outstanding and shall be converted into a right to
receive an amount in cash for each Share purchasable under such option or
warrant, as the case may be, equal to $4.70 minus the per share exercise price
under such option or warrant, as the case may be. If the per share exercise
price under any option or warrant is equal to or greater than $4.70, then, as of
the Effective Time, such option or warrant shall cease to be outstanding,
without further consideration to the holder thereof. Prior to the Effective
Time, the Company is required to obtain the agreement of each person who as of
the Effective Time is the holder of an option or warrant to purchase Shares
confirming the foregoing treatment of their options or warrants in the Merger.
Representations and Warranties
Each of the Company, Becton Dickinson and BD Sub has made certain customary
representations and warranties in the Merger Agreement, including those which
relate to, among other things (i) organization and similar corporate matters,
(ii) the authorization, execution, delivery and performance of the Merger
Agreement and other matters relating to its enforceability, and (iii) the
absence of any undisclosed consents, approvals or authorizations required for
the execution, delivery or performance of the Merger Agreement and the
consummation of the transactions contemplated thereby.
The Company also has made certain customary representations and warranties
relating to, among other things (i) the absence of material adverse changes and
undisclosed liabilities, (ii) the Company's capital structure, (iii) the
Company's filing of all reports and documents required to be filed with the
Securities and Exchange Commission and the accuracy of filings made pursuant
thereto, (iv) the accuracy and preparation of certain financial statements of
the Company, and (v) other matters relating to the conduct of the Company's
business including, among other things, the Company's employees, benefit plans,
litigation, compliance with environmental laws, payment of taxes, absence of
defaults, government and other contracts, intellectual property rights, and the
absence of any undisclosed material adverse change in the financial condition,
results of operation, business or assets of the Company.
Conditions to the Merger
Consummation of the Merger by the Company is subject to the satisfaction of
certain conditions set forth in the Merger Agreement, including, but not limited
to (i) the making of all filings and the receipt of all consents,
authorizations, orders and approvals required by governmental or regulatory
authorities, or any nongovernmental third party, (ii) the accuracy of the
representations and warranties of Becton Dickinson and BD Sub as of the
Effective Time, (iii) the absence of any judgment, decree, injunction, ruling or
order of any court, governmental department, commission, agency or
instrumentality outstanding against any party to the Agreement which prohibits,
restricts or delays consummation of the Merger of any of the conditions to the
consummation of the Merger, (iv) the performance or compliance by Becton
Dickinson and BD Sub with all covenants and agreements pursuant to the
Agreement, and (v) the delivery by counsel to Becton Dickinson and BD Sub of an
opinion with respect to certain matters, including, without limitation, the
organization and good standing of the Company, the execution and delivery of the
Merger Agreement and the legal effect of the Merger.
The obligation of each of Becton Dickinson and BD Sub to consummate the Merger
is subject to the satisfaction of conditions corresponding to those described
for the Company in the preceding paragraph. In addition, consummation of the
Merger by Becton Dickinson and BD Sub is subject to the following further
conditions: (i) the approval of the Merger and the Merger Agreement by the
14
<PAGE>
shareholders of the Company, (ii) no material adverse change since June 30, 1998
in the business or financial condition of the Company, (iii) shareholders
holding less than fifteen percent of the Common Stock having remained eligible
to exercise their dissenters' rights under California law (see "Rights of
Dissenting Shareholders of the Company"), (iv) each holder of any right, option
or warrant to acquire Common Stock consenting to the treatment of their options
and warrants as provided in the Merger Agreement, (v) the Consulting Agreement
with Mr. Rollo not being repudiated by him, and (vi) the delivery to Becton
Dickinson by the Company of preliminary invoices for all material transaction
fees incurred by the Company in connection with the Merger.
The Merger Agreement provides that any party may waive any condition to its
obligation to consummate the Merger.
Restrictions on the Company
The shareholders of the Company will retain their equity interest in the
Company until the Effective Date. Pursuant to the Merger Agreement, the Company
is required to refrain from taking certain actions without the written consent
of Becton Dickinson (unless such actions are provided for in the Merger
Agreement), including, but not limited to (i) amending its charter or bylaws,
(ii) splitting, combining or reclassifying its outstanding capital stock or
declaring, or paying any dividend payable in cash, stock or property or making
any other distribution with respect to its capital stock, (iii) redeeming,
purchasing or otherwise acquiring, directly or indirectly, any of its capital
stock, (iv) issuing or agreeing to issue any additional shares of, or options,
warrants or rights of any kind to acquire any shares of, its capital stock of
any class (excepting the issuance of stock upon the exercise of presently
outstanding options or warrants), (v) entering into any agreement, contract or
commitment out of the ordinary course of business, to dispose or acquire, or
relating to the disposition or acquisition of, a segment of its business, (vi)
except in the ordinary course of business, selling, pledging, disposing of or
encumbering any of its assets; except as permitted by (ix) below, (vii) granting
a license to any of its technology, (viii) acquiring any corporation,
partnership or other business organization or division thereof or making any
material investment, either by purchase of stock or securities, contribution to
capital, property transfer or purchase of any material amount of property or
assets, in any other individual or entity, (ix) incurring any indebtedness for
borrowed money (other than up to $200,000 of indebtedness which may be incurred
solely for working capital purposes and with prior consultation with Becton
Dickinson), (x) entering into any other material contract, agreement, commitment
or arrangement, except as permitted by (ix) above, (xi) granting any severance
or termination pay or increasing the benefits payable under its severance or
termination pay policies or agreements in effect, (xii) adopting or amending any
plan or increasing in any manner the compensation or fringe benefits of any
employee (other than salary increases in the ordinary course of business
consistent with past practice) or paying any benefit not required by any plan,
or (xiii) entering into or amending any lease or contract in excess of $50,000
which is not cancelable within 90 days without penalty, cost or liability, other
than contracts with customers in the ordinary course of business consistent with
past practice and agreements.
The Merger Agreement also provides that the Company will not (i) initiate,
solicit or encourage, or take any other action to facilitate any inquiries or
the making of any proposal with respect to any acquisition, tender offer,
acquisition of beneficial ownership of (or the right to vote) the Company's
securities, dissolution, business combination, acquisition of any significant
portion of the assets of the Company, or any other transaction similar to the
Merger ("Alternative Transaction"), or (ii) except to the extent required in the
exercise of the fiduciary duties of the Board of Directors, as advised by
counsel, in connection with the receipt by the Company of any unsolicited
written proposal that the Board determines is reasonably likely to be more
favorable to the Company's shareholders than the Merger, engage or participate
in negotiations with, provide any nonpublic information or data to, or have any
discussions with, any person other that Becton Dickinson relating to an
Alternative Transaction. However, the Merger Agreement also provides that the
foregoing restrictions shall not prohibit the Company's Board of Directors from
taking, and disclosing to the Company's shareholders, a position with respect to
an Alternative Transaction pursuant to the applicable Securities and Exchange
Commission proxy statement or tender offer rules or, subject to the payment of
the Cancellation Fees described below, terminating the Merger Agreement to enter
into any agreement for an unsolicited Alternative Transaction, if the Board, in
exercising its fiduciary duties under applicable law as advised by counsel, and
after consultation with its financial advisors, determines the Alternative
Transaction to be superior to the Merger, and Becton Dickinson does not make,
within five business days after it has received written notice of terms of such
Alternative Transaction, an offer which the Board, after consultation with its
financial advisors, determines is at least as favorable as such third party
offer.
Additional Agreements
In the Merger Agreement, the Company has made certain additional covenants to
Becton Dickinson and BD Sub. The Company has agreed, among other things (i) to
afford Becton Dickinson reasonable access to the Company's properties and
personnel, to disclose to Becton Dickinson such documents relating to the
Company as Becton Dickinson may reasonably request and to advise Becton
Dickinson of certain material events, (ii) to submit the Merger Agreement to its
shareholders for approval, to hold a special
15
<PAGE>
meeting to act on the Merger Agreement and, subject to the fiduciary obligations
of the Board of Directors, to recommend the approval of the Merger Agreement to
its shareholders, (iii) to enter into the Consulting Agreement with Mr. Rollo,
(iv) to use all reasonable efforts to cause all things necessary, proper and
advisable for the consummation of the Merger to occur including obtaining any
necessary waivers, consents and approvals under material contracts of the
Company, and (v) to refrain from taking certain actions with respect to tax
matters.
With respect to the matters contained in clause (iv) of the preceding
paragraph, Becton Dickinson and BD Sub have made reciprocal covenants to the
Company.
Termination of the Merger Agreement; Amendments
The Merger Agreement may be modified or amended by an agreement signed by the
Company, Becton Dickinson and BD Sub. If any such amendment would have a
material adverse effect on the rights of the Company's shareholders, it is the
intention of management of the Company to submit such amendment to the
shareholders for approval. The Merger Agreement expressly permits the waiver or
extension of any term, provision or condition in writing by the party entitled
to the benefits thereof.
The Merger Agreement provides that it may be terminated at any time, whether
before or after approval by the Company's shareholders: (i) by mutual consent
of the Company, Becton Dickinson and BD Sub, (ii) by Becton Dickinson and BD
Sub, if there has been a material breach of the Merger Agreement on the part of
the Company, (iii) by the Company, or Becton Dickinson and BD Sub, if the Merger
shall not have been consummated on or before March 31, 1999, (iv) by the
Company, or Becton Dickinson and BD Sub, if a court shall have issued an order
or other action permanently restraining, enjoining or otherwise prohibiting the
Merger and such action shall have become final and unappealable, (v) by the
Company, if it is approached regarding an Alternative Transaction which the
Company's Board of Directors determines is more favorable to the shareholders
than the Merger and for which the Company's Board of Directors authorizes the
Company to enter into a definitive agreement, unless Becton Dickinson and BD Sub
make a subsequent offer that is at least as favorable as the third-party offer
within five days after receipt of notice of the Alternative Transaction, or (vi)
by Becton Dickinson and BD Sub, in the event the Company's Board of Directors
withdraws, modifies or changes its recommendation of the Merger Agreement or the
Merger in a manner adverse to Becton Dickinson and BD Sub or recommends an
Alternative Transaction or resolves to take any such action. See "Restrictions
on the Company."
Cancellation Fee; Expenses
The Merger Agreement provides that, as noted below, the Company will pay to
Becton Dickinson a cancellation fee of $500,000, plus actual out-of-pocket costs
and expenses incurred in connection with the Merger Agreement to a maximum of
$150,000 (the "Cancellation Fees") upon the termination of the Merger Agreement
under certain circumstances. The Cancellation Fees are payable (i) if the
Merger Agreement has been terminated by the Company to take an Alternative
Transaction, or (ii) if the Merger Agreement is terminated by Becton Dickinson
due to the withdrawal, modification or change of the recommendation of the
Merger Agreement or the Merger by the Board of Directors of the Company in a
manner adverse to Becton Dickinson or BD Sub or due to the recommendation or
resolution of the Board of Directors of the Company to enter into an Alternative
Transaction following the earlier of (x) execution by the Company of an
alternative acquisition agreement and (y) any third-party becoming the
beneficial owner by tender offer, exchange offer or otherwise, of 50% or more of
the Company's outstanding voting stock. However, no Cancellation Fee is payable
by the Company if the event otherwise triggering such payment occurs after the
Merger Agreement has been terminated other than as a result of the above listed
reasons.
The Merger Agreement provides that, except for payment of any Cancellation
Fees, each party thereto shall separately bear its own expenses incurred in the
negotiation and performance of the Merger Agreement.
Rights of Dissenting Shareholders of the Company
The following is a brief summary of the rights of dissenting shareholders, and
does not purport to be a complete statement thereof and is qualified in its
entirety by reference to the applicable statutory provisions of the California
General Corporation Law which are set forth in Annex III hereto.
If the Merger is completed, certain of the record holders of the Company's
Common Stock who object to the Merger may have the right to dissent with respect
to the Merger and, subject to certain conditions, receive a cash payment equal
to the fair market value of their shares under the California General
Corporation Law. In order to perfect his or her dissenter's rights, a record
holder of the
16
<PAGE>
Company's Common Stock must (i) vote his or her dissenting shares against the
Merger, (ii) make written demand upon the Company to purchase his or her
dissenting shares not later than the date of the Special Meeting, January 25,
1999, (iii) submit the stock certificates representing his or her dissenting
shares to the Company, for notation that they represent dissenting shares,
within thirty days after the mailing by the Company to shareholders who voted
against the Merger of a notice stating that the Merger has been approved by the
shareholders, and (iv) file an action in court within six months after the date
on which notice stating that the Merger has been approved by the shareholders is
mailed to the Company's shareholders who voted against the Merger, but only if
the Company and the shareholder are unable to reach agreement on the price to be
paid for the dissenting shares, all as more particularly described below.
Failure to take any of the required steps described herein may result in a loss
of such dissenters' rights. If demands for payment referred to in clause (ii)
above are not filed with respect to five percent or more of the outstanding
shares of the Company's Common Stock, no shareholder of the Company, other than
a holder of shares which are restricted as to transfer, will have dissenters'
rights, even if all of the above conditions are satisfied.
Dissenters' rights cannot be validly exercised by persons other than the
record holders of the Company's Common Stock, regardless of the beneficial
ownership thereof. Persons who are beneficial owners of the Company's Common
Stock but whose shares are held of record by another person, such as a broker, a
bank or a nominee, should instruct the record holder to follow the procedure
outlined below if they wish to dissent from the Merger with respect to any or
all of their shares.
Under Sections 1300 to 1312 of the California General Corporation Law, any
shareholder of record of the Company who votes any or all of his or her shares
against the Merger and who intends to exercise his or her dissenter's rights
must, on or before the date of the Special Meeting, January 25, 1999, submit to
the Company at its principal executive offices, 14332 Chambers Road, Tustin,
California 92780, Attention: Secretary, a written demand that the Company
purchase for cash some or all of his or her shares voted against the Merger,
which demand shall state the number of shares which he or she demands that the
Company purchase and the amount which the shareholder claims to be the fair
market value of those shares as of October 12, 1998, the day before the first
announcement of the terms of the proposed Merger, excluding any appreciation or
depreciation because of the proposed Merger.
Dissenters' rights may not be perfected with respect to any shares unless such
shares are voted against the Merger. A record shareholder may vote part of the
shares which he or she is entitled to vote in favor of or in abstention with
respect to the Merger without jeopardizing appraisal rights as to shares voted
against the Merger; however, if a record shareholder votes part of the shares he
or she is entitled to vote in favor of the Merger and fails to specify the
number of shares he or she is voting in favor of the Merger, it is conclusively
presumed under California law that his or her approving vote is with respect to
all shares which he or she is entitled to vote. A vote to abstain will not
constitute a vote against the Merger. Further, voting against the Merger will
not of itself, absent compliance with the other provisions summarized herein,
satisfy the requirements of the California General Corporation Law for exercise
of dissenters' rights.
Within ten (10) days after the approval of the Merger by the shareholders, the
shareholders who voted against the Merger and made a timely demand for purchase
and who are entitled to require the Company to purchase their shares, will be
notified by the Company of such approval and the Company will offer all of these
shareholders a cash price for their shares that the Company considers to be the
fair market value of the shares on the day before the terms of the Merger were
first announced, excluding any appreciation or depreciation because of the
proposed Merger. The notice will also contain a brief description of the
procedures to exercise their rights to have the Company purchase their Common
Stock and will attach a copy of the relevant provisions of the California
General Corporation Law.
A dissenting shareholder must submit to the Company or its transfer agent at
the addresses set forth above, within thirty days after the Company mails to him
or her notice of shareholder approval of the Merger, certificates representing
the dissenting shares which he or she demands that the Company purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or
endorsed. The notice of shareholder approval of the Merger will specify the
date by which the submission of certificates for endorsement must be made to the
Company, and a submission made after such date will not be effective for any
purpose. No other notices will be given by the Company of any dates upon which
any shareholder action is required to exercise dissenters' rights.
If the Company and a dissenting shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the Company, upon
surrender of the certificates evidencing such shares, will make payment of that
amount (plus interest thereon from the date of such agreement) within thirty
days after such agreement or within thirty days after the satisfaction of any
statutory or contractual conditions, whichever is later. Any agreement fixing
the fair market value of any dissenting shares between a dissenting shareholder
and the Company shall be filed with the Secretary of the Company.
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<PAGE>
If the Company denies that the shares are dissenting shares, or the Company
and the dissenting shareholder fail to agree on the fair market value of the
shares, the dissenting shareholder may, within six months after the date on
which notice of shareholder approval of the Merger was mailed to the
shareholder, but not thereafter, file a complaint in the Superior Court of the
County of Orange, State of California, requesting that the Court determine
whether the shares are dissenting shares and the fair market value of such
dissenting shares. The costs of the action will be assessed or apportioned as
the Court considers equitable, but, if the appraised fair market value is
determined to exceed the price offered to the shareholder by the Company, the
Company will be required to pay the costs of the action and may be required to
pay counsel fees.
A dissenting shareholder may not withdraw his or her dissent or demand for
payment without the consent of the Company by its Board of Directors. The
rights of dissenting shareholders to demand payment terminates if, among other
things, the Merger is abandoned or if the shares are transferred prior to
submission for endorsement as dissenting shares.
Any demands, notices, certificates or other documents required to be delivered
to the Company may be sent to: Secretary, Luther Medical Products, Inc., 14332
Chambers Road, Tustin, California 92780.
Certain Federal Income Tax Consequences of the Merger
The following summary is a general discussion of certain anticipated federal
income tax consequences of the Merger to shareholders. The summary assumes that
shareholders are individuals or corporations who do not have a special tax
status (e.g., dealers in securities, nonresident aliens, individual retirement
accounts, or tax-exempt organizations). The discussion is based upon existing
federal tax law and does not address any state, local or foreign tax
consequences of the Merger. The discussion also does not describe certain
special tax rules that may apply to shareholders who acquired their stock
pursuant to incentive stock options or other stock compensation arrangements.
The exchange by shareholders of their shares of Common Stock for the Merger
Consideration pursuant to the Merger will be a taxable transaction for federal
income tax purposes. A shareholder whose shares are exchanged generally will
recognize gain or loss equal to the difference between the amount of cash
received pursuant to the Merger and his adjusted tax basis in the shares
exchanged therefor. Such gain or loss will constitute capital gain or loss if
the shares exchanged in the Merger were held as capital assets. Capital gain or
loss will constitute long-term capital gain or loss if the shareholder's holding
period with respect to the shares is greater than one year and otherwise will
constitute short-term capital gain or loss.
Under current federal income tax law, the highest marginal tax rate applicable
to ordinary income of individuals is 39.6%, and the highest rate applicable to
corporations is 35%. Net capital gains (the excess of net long-term capital
gains over net short-term capital losses) generally are taxed at rates up to 20%
for individuals and at the regular corporate rates for corporations. The excess
of net short-term capital gains (the excess of short-term capital gains over
short-term capital losses) over net long-term capital losses (the excess of
long-term capital losses over long-term capital gains) generally is taxed at the
same rates as ordinary income for both individuals and corporations, as
applicable. Corporations may use capital losses only against capital gains.
Individuals may use capital losses only against capital gains and up to $3,000
of ordinary income (married individuals filing separate returns may each only
apply capital losses against up to $1,500 of ordinary income). Compensatory
stock option holders whose options are cancelled in connection with the Merger
in exchange for a cash payment will recognize ordinary compensation income in
the amount of such cash payment. The Company will be required to withhold
applicable federal and state taxes from such payment.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE MERGER, INCLUDING
POTENTIAL AND RECENT CHANGES OF LAW. THE FOREGOING SUMMARY IS INTENDED AS A
GENERAL DESCRIPTION ONLY OF CERTAIN MATERIAL TAX CONSEQUENCES AND DOES NOT
CONSIDER THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER.
Accounting Treatment of the Merger
The Merger will be accounted for under the "purchase" method whereby the
purchase price paid for Common Stock will be allocated based upon the fair value
of the assets acquired and the liabilities assumed pursuant to the Merger.
18
<PAGE>
PRICE RANGE OF COMMON STOCK
AND DIVIDEND POLICY
The Company's Common Stock is publicly traded on the Nasdaq small cap market
under the symbol "LUTH". At December 1, 1998, there were approximately 2,990
record holders of Common Stock. The following table sets forth, for the
calendar periods indicated, the high and low bid, ask and closing quotations for
the Common Stock, as reported by Nasdaq.
<TABLE>
<CAPTION>
Calendar Year Quarter High/Low High/Low High/Low
---------- ---------- ----------
Bid Ask Closing
---------- ---------- ----------
<S> <C> <C> <C> <C>
1996 First $5.00/3.25 $5.13/3.50 $5.06/3.50
Second $7.00/4.25 $7.25/4.50 $6.75/4.32
Third $5.75/3.88 $6.00/4.06 $5.87/3.93
Fourth $5.00/3.00 $5.38/3.19 $5.25/3.00
1997 First $4.75/3.00 $5.00/3.19 $4.87/3.00
Second $4.00/2.88 $3.75/3.00 $4.12/2.87
Third $3.31/2.50 $3.50/2.94 $3.50/2.31
Fourth $5.19/2.88 $5.25/2.94 $5.25/2.88
1998 First $3.81/2.38 $3.88/3.00 $3.88/2.69
Second $2.94/2.38 $3.06/2.50 $3.00/2.38
Third $3.06/1.25 $3.19/1.31 $2.75/1.38
Fourth $4.50/2.13 $4.63/2.25 $4.50/2.19
(through December 18, 1998)
</TABLE>
On October 12, 1998, the last trading day prior to the public announcement by
the Company of the execution of the Merger Agreement, the high and low prices
for the Common Stock as reported by Nasdaq were $2.500 and $2.375 per share,
respectively, and the closing quotation was $2.500. The high and low prices for
the Common Stock as reported by Nasdaq on December 18, 1998, the last full
trading day prior to the printing of this Proxy Statement, were $4.500 and
$4.500 per share, respectively, and the closing quotation was $4.500.
Shareholders are urged to obtain current market quotations for the Common Stock.
The Company has never paid any cash dividends and does not intend to do so in
the near future. The Merger Agreement prevents the Company from declaring or
paying any dividend or any other form of cash, stock or property distribution
without Becton Dickinson's consent while the Merger Agreement remains in effect.
19
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
Certain financial information of the Company is included in the Company's 1998
Annual Report on Form 10-KSB, 1998 Annual Report on Form 10-KSB/A, filed
December 11, 1998, and 1998 Annual Report on Form 10-KSB/A, filed December 14,
1998, which are incorporated hereby by reference, including the notes
accompanying such financial information. No dividends were paid on the Common
Stock during the periods indicated therein.
DOCUMENTS INCORPORATED BY REFERENCE
The following Company documents, which have been filed with the Securities and
Exchange Commission (the "Commission"), are incorporated herein and specifically
made a part of this Proxy Statement by this reference: (i) Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1998, (ii) Annual Report on Form
10-KSB/A for the fiscal year ended June 30, 1998, filed December 11, 1998, (iii)
Annual Report on Form 10-KSB/A for the fiscal year ended June 30, 1998, filed
December 14, 1998, (iv) Quarterly Report on Form 10-QSB for the fiscal quarter
ended September 30, 1998, and (v) Current Report on Form 8-K filed on October
19, 1998, relating to the execution of the Merger Agreement.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed to be
incorporated by reference into this Proxy Statement and to be a part hereof from
the date of filing of such documents with the Commission. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference shall be deemed to be modified or superseded for purposes of this
Proxy Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement. The Company will provide, upon
written or oral request, without charge, to each person to whom a Proxy
Statement is delivered a copy of any and all of the information that is
incorporated herein by reference (not including exhibits to the information that
is incorporated by reference unless such exhibits are specifically incorporated
by reference into the information this Proxy Statement incorporates). Requests
for such information should be directed to: Secretary, Luther Medical Products,
Inc., 14332 Chambers Road, Tustin, California 92780, (714) 544-3002.
20
<PAGE>
PRINCIPAL SHAREHOLDERS
AND SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, as of the Record Date, by (i) each
person known by the Company to be the beneficial owner of more than five percent
of the outstanding Common Stock, (ii) each of the Company's directors, and (iii)
all directors and officers of the Company as a group. The nature of beneficial
ownership shown in the table is, unless otherwise noted, shares for which the
owner has sole voting and sole investment power. Ownership information is based
upon information furnished by the respective persons listed.
<TABLE>
<CAPTION>
Amount of
Name of Individual or Beneficial Percent of
Identity of Group Ownership (1) Options/Warrants Class (2)
- ---------------------------------------- ------------- ---------------- ----------
<S> <C> <C> <C>
David Rollo 153,175 (3) 150,000 4.54%
Jack W. Payne 75,000 (4) 75,000 2.27%
D. Ross Hamilton 166,500 (5) 85,000 5.03%
William R. Dahlman 27,000 (6) 27,000 *
William C. Huck 327,500 (7) 30,000 10.07%
Ronald B. Luther 277,982 (8) 184,286 8.16%
All executive officers and directors as 798,618 (9) 414,229 21.96%
a group (8 persons)
</TABLE>
- --------------------
* Represents less than 1%.
(1) Assumes the exercise of options and warrants to purchase 598,515 shares held
by executive officers, directors and beneficial owners of more than five
percent of the outstanding Common Stock of the Company, which options and
warrants are, or will become, exercisable as a result of the Merger.
(2) Percentages reflect shares owned and options that are exercisable or will
become exercisable as a result of the Merger.
(3) Includes 3,175 shares beneficially owned by Mr. Rollo, plus warrants to
purchase 150,000 shares at an exercise price of $2.94 per share, expiring at
various dates from December 5, 1999, to December 5, 2001, all of which
150,000 warrants are currently exercisable. Mr. Rollo's address is 14332
Chambers Road, Tustin, California 92780.
(4) Includes warrants to purchase 5,000 shares at an exercise price of $2.50 per
share, expiring on January 21, 1999; warrants to purchase 25,000 shares at
an exercise price of $2.75 per share, expiring on January 23, 1999; warrants
to purchase 9,000 shares at an exercise price of $2.55 per share, expiring
on January 27, 2000; warrants to purchase 9,000 shares at an exercise price
of $3.85 per share, expiring on December 8, 2000; warrants to purchase 6,000
shares at an exercise price of $4.81 per share, expiring on December 8,
2001; warrants to purchase 6,000 shares at an exercise price of $4.81 per
share, expiring on December 8, 2002; warrants to purchase 5,000 shares at an
exercise price of $2.22 per share, expiring on December 8, 2003; warrants to
purchase 5,000 shares at an exercise price of $2.22 per share, expiring on
December 8, 2004; and warrants to purchase 5,000 shares at an exercise price
of $2.22 per share, expiring on December 8, 2005. Mr. Payne's address is
4515 S. Meadow Drive, Boulder, Colorado 80301.
(5) Includes 7,500 shares beneficially owned by Mr. Hamilton and 74,000 shares
owned by a partnership, of which Mr. Hamilton and two unaffiliated third
parties each own 33.3%; warrants to purchase 5,000 shares at an exercise
price of $2.50 per share, expiring on January 21, 1999; warrants to purchase
35,000 shares at an exercise price of $2.75 per share, expiring on January
23, 1999; warrants to purchase 9,000 shares at an exercise price of $2.55
per share, expiring on January 27, 2000; warrants to purchase 9,000 shares
at an exercise price of $3.85 per share, expiring on December 8, 2000;
warrants to purchase 6,000 shares at an exercise price of $4.81 per share,
expiring on December 8, 2001; warrants to purchase 6,000 shares at an
exercise price of $4.81 per share, expiring on December 8, 2002; warrants to
purchase 5,000 shares at an exercise price of $2.22 per share, expiring on
December 8, 2003; warrants to purchase 5,000 shares at an exercise price of
$2.22 per share, expiring on December 8, 2004; and warrants to purchase
5,000 shares at an exercise price of $2.22 per share, expiring on December
8, 2005. Mr. Hamilton's address is 9440 Gregory Road, Easton, Maryland
21601.
21
<PAGE>
(6) Includes warrants to purchase 6,000 shares at an exercise price of $4.81 per
share, expiring on December 8, 2001; warrants to purchase 6,000 shares at an
exercise price of $4.81 per share, expiring on December 8, 2002; warrants to
purchase 5,000 shares at an exercise price of $2.22 per share, expiring on
December 8, 2003; warrants to purchase 5,000 shares at an exercise price of
$2.22 per share, expiring on December 8, 2004; and warrants to purchase
5,000 shares at an exercise price of $2.22 per share, expiring on December
8, 2005. Mr. Dahlman's address is 215 N. Marengo Avenue, Pasadena,
California 91101.
(7) Includes 297,500 shares beneficially owned by Mr. Huck; warrants to purchase
6,000 shares at an exercise price of $2.75 per share, expiring May 1, 2004;
warrants to purchase 6,000 shares at an exercise price of $2.75 per share,
expiring on May 1, 2005; warrants to purchase 6,000 shares at an exercise
price of $2.75 per share, expiring on January 6, 2006; warrants to purchase
6,000 shares at an exercise price of $2.75 per share, expiring on May 1,
2007; and warrants to purchase 6,000 shares at an exercise price of $2.75
per share, expiring on May 1, 2008. Mr. Huck's address is c/o Columbia
Vital Systems, Inc., 100 E. Chestnut Avenue, Westmont, Illinois 60559.
(8) Includes 88,074 shares beneficially owned by Mr. Luther; 5,622 shares owned
by Mr. Luther's spouse, as to which shares Mr. Luther disclaims beneficial
ownership; warrants to purchase 4,286 shares at an exercise price of $3.25
per share, expiring on April 22, 1999; warrants to purchase 80,000 shares at
an exercise price of $2.63 per share, expiring at various dates from
December 8, 1998 to December 8, 2001; and warrants to purchase 100,000
shares at an exercise price of $3.63 per share, expiring September 18, 2000.
Mr. Luther's address is 530 Kings Road, Newport Beach, California 92663.
(9) Includes all shares, options, and warrants described in notes (3) through
(7), inclusive, above; 2,214 shares beneficially owned by an executive
officer who is not a director, plus options to purchase 2,143 shares at an
exercise price of $3.25 per share, expiring on April 22, 1999; options to
purchase 2,000 shares at an exercise price of $2.82 per share, expiring on
July 22, 1999; options to purchase 9,286 shares at an exercise price of
$3.19 per share, expiring on January 27, 2000; options to purchase 5,800
shares at an exercise price of $4.56 per share, expiring on July 26, 2001;
options to purchase 4,000 shares at an exercise price of $3.06 per share,
expiring on August 15, 2003; options to purchase 12,000 shares at an
exercise price of $2.22 per share, expiring on July 17, 2003; options to
purchase 3,000 shares at an exercise price of $3.06 per share, expiring on
August 15, 2002; and options to purchase 9,000 shares at an exercise price
of $2.27 per share, expiring July 17, 2003, granted to an executive officer
who is not a director.
BECTON DICKINSON INFUSION THERAPY SYSTEMS, INC.
Becton Dickinson is a subsidiary of Becton, Dickinson and Company, the common
stock of which is listed on the New York Stock Exchange. Becton, Dickinson and
Company was incorporated under the laws of the State of New Jersey in November
1906, as successor to a New York business started in 1897. Becton, Dickinson
and Company is engaged principally in the manufacture and sale of a broad line
of medical supplies, devices and diagnostic systems used by health care
professionals, medical research institutions and the general public. Becton,
Dickinson and Company's operations are comprised of two worldwide business
segments, Medical Supplies and Devices ("Medical") and Diagnostic Systems
("Diagnostic") and its products are manufactured and sold worldwide.
The major products in the Medical segment are hypodermic products, specially
designed devices for diabetes care, prefillable drug delivery systems, vascular
access products and specialty and surgical blades. The Medical segment also
includes specialty needles, drug infusion systems, disposable scrubs, elastic
support products and thermometers.
The major products in the Diagnostic segment are manual and instrumented
microbiology products, sample collection products, flow cytometry systems for
cellular analysis, tissue culture labware, hematology instruments and other
diagnostic systems, including immunodiagnostic test kits.
Becton, Dickinson and Company's products and services are marketed in the
United States both through independent distribution channels and directly to
end-users, and are marketed outside of the United States through independent
distributors and sales representatives, and in some markets directly to end-
users.
22
<PAGE>
Becton, Dickinson and Company had worldwide revenues of $2.8 billion in the
fiscal year ended September 30, 1997. U.S. revenues during the same period were
$1.5 billion. Becton, Dickinson and Company intends to finance the Merger with
cash flow from operations.
The principal executive offices of Becton, Dickinson and Company are located
at 1 Becton Drive, Franklin Lakes, New Jersey 07417, and its telephone number is
(201) 847-6800. Neither Becton, Dickinson and Company nor any of its
subsidiaries is affiliated with the Company.
Except where otherwise noted, all information relating to Becton, Dickinson
and Company set forth in this Proxy Statement is based upon the Annual Report on
Form 10-K of Becton, Dickinson and Company for the fiscal year ended September
30, 1997, and documents incorporated therein by reference.
OTHER MATTERS
Management knows of no other business to be transacted at the Special Meeting,
but, if any other matters do properly come before the Special Meeting, the
persons named as proxies or their substitute will vote or act with respect to
such other matters in accordance with the direction of a majority of the Board
of Directors of the Company.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other
information filed by the Company pursuant to the Exchange Act can be inspected
and copied, at prescribed rates, at the public reference facilities maintained
by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following Regional Offices of the Commission:
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Suite 1300, Seven World Trade Center, New York, New York 10048. Copies of
such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Certain reports, proxy statements and other information concerning the
Company also can be inspected on the SEC web site at http://www.sec.gov. See
"Documents Incorporated by Reference."
By Order of the Board of Directors
/s/ PETRA DARLING
Petra Darling
Secretary
Dated: December 21, 1998
23
<PAGE>
- --------------------------------------------------------------------------------
MERGER AGREEMENT
by and among
LUTHER MEDICAL PRODUCTS, INC.
LMP ACQUISITION CORP.,
and
BECTON DICKINSON INFUSION THERAPY SYSTEMS, INC.
Dated as of October 13, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE I. THE MERGER...................................................... 1
1.1. The Merger........................................................... 1
1.2. Effective Time of the Merger......................................... 1
1.3. Effects of the Merger................................................ 1
1.4. Charter; Bylaws; Directors and Officers of Surviving Corporation..... 2
ARTICLE II. CONVERSION OF SHARES AND PAYMENT............................... 2
2.1. Conversion of Shares................................................. 2
2.2. Dissenting Shares.................................................... 2
2.3. Stock Options and Warrants........................................... 3
2.4. Surrender of Shares; Stock Transfer Books............................ 3
ARTICLE III. THE CLOSING................................................... 4
3.1. Closing.............................................................. 4
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF LUTHER....................... 4
4.1. Organization......................................................... 4
4.2. No Subsidiaries...................................................... 4
4.3. Authorization........................................................ 4
4.4. Capitalization....................................................... 5
4.5. SEC Filings; Financial Statements.................................... 5
4.6. Assets............................................................... 5
4.7. No Material Adverse Change........................................... 6
4.8. Contracts and Commitments............................................ 6
4.9. Permits.............................................................. 7
4.10. Books and Records................................................... 7
4.11. Litigation.......................................................... 7
4.12. Compliance with Laws and Other Instruments.......................... 7
4.13. No Brokers.......................................................... 7
4.14. No Other Agreements to Sell Assets.................................. 8
4.15. Proprietary Rights.................................................. 8
4.16. Employee Benefit Plans.............................................. 8
4.17. Taxes............................................................... 9
4.18. Insurance........................................................... 10
4.19. Compliance With Environmental Laws.................................. 10
4.20. Bank Accounts, Powers, etc.......................................... 10
4.21. Luther Proxy Statement; Fairness Opinion............................ 10
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF BD AND ACQUISITION............ 11
5.1. Organization......................................................... 11
5.2. Authorization........................................................ 11
5.3. No Conflict or Violation............................................. 11
5.4. Permits.............................................................. 11
5.5. No Brokers........................................................... 11
5.6. Litigation........................................................... 12
5.7. Proxy Statement...................................................... 12
i
ANNEX I
<PAGE>
ARTICLE VI. CONDUCT OF BUSINESS PENDING THE CLOSING........................ 12
ARTICLE VII. ADDITIONAL COVENANTS.......................................... 13
7.1. Further Assurances and Cooperation................................... 13
7.2. Access............................................................... 13
7.3. Public Statements and Press Releases................................. 13
7.4. No Discussions with Others........................................... 13
7.5. Execution of Lock-Up Agreements...................................... 14
7.6. Execution of Consulting Agreement.................................... 14
7.7. Luther Shareholders Meeting.......................................... 14
7.8. Certain Further Transaction Expenses................................. 14
7.9. Tax Matters.......................................................... 15
ARTICLE VIII. CONDITIONS TO OBLIGATIONS OF LUTHER.......................... 15
8.1. Representations and Warranties....................................... 15
8.2. Covenants............................................................ 15
8.3. Regulatory Consents, Authorizations, etc.; Shareholder Approval...... 15
8.4. Injunctions.......................................................... 15
8.5. Corporate Documents.................................................. 15
8.6. Certificates......................................................... 16
8.7. Funds................................................................ 16
8.8. Opinion.............................................................. 16
ARTICLE IX. CONDITIONS TO OBLIGATIONS OF BD AND ACQUISITION................ 16
9.1. Representations and Warranties....................................... 16
9.2. Covenants............................................................ 16
9.3. Opinion.............................................................. 16
9.4. Regulatory Consents, Authorizations, etc.; Shareholder Approval...... 16
9.5. Injunctions.......................................................... 17
9.6. Corporate Documents.................................................. 17
9.7. Certificates......................................................... 17
9.8. Consulting Agreements................................................ 17
9.9. Dissenters' Rights................................................... 17
9.10. Options/Warrant Consents............................................ 17
9.11. Transaction Fees.................................................... 17
ARTICLE X. TERMINATION, AMENDMENT AND WAIVER............................... 17
10.1. Termination......................................................... 17
10.2. Procedure and Effect of Termination................................. 18
10.3. Termination Fees and Expenses....................................... 18
10.4. Amendments.......................................................... 18
10.5. Waivers............................................................. 18
ARTICLE XI. DEFINITIONS.................................................... 19
11.1. Defined Terms....................................................... 19
11.2. Other Defined Terms................................................. 21
ii
ANNEX I
<PAGE>
ARTICLE XII. MISCELLANEOUS................................................. 22
12.1. Notices............................................................. 22
12.2. Choice of Law....................................................... 23
12.3. Entire Agreement.................................................... 23
12.4. Counterparts........................................................ 23
12.5. No Third Party Beneficiaries........................................ 23
12.6. Invalidity.......................................................... 23
12.7. Headings; Construction.............................................. 23
12.8. Gender.............................................................. 23
12.9. Expenses............................................................ 23
12.10. Non-Survival of Representations and Warranties..................... 23
iii
ANNEX I
<PAGE>
MERGER AGREEMENT
This Merger Agreement (the "Agreement"), dated as of October 13, 1998, is
entered into by and among LUTHER MEDICAL PRODUCTS, INC., a California
corporation ("Luther"), BECTON DICKINSON INFUSION THERAPY SYSTEMS, INC., a
Delaware corporation ("BD"), and LMP ACQUISITION CORP., a California corporation
and a wholly-owned subsidiary of BD ("Acquisition").
RECITALS
A. The Boards of Directors of Luther, BD and Acquisition have each
determined that it is advisable and in the best interests of their respective
shareholders for BD to acquire Luther; and
B. The Boards of Directors of Luther, BD and Acquisition have each
approved the merger (the "Merger") of Acquisition with Luther upon the terms and
subject to the conditions set forth herein and in accordance with the
Corporations Code of the State of California (the "CCC"); and
C. The Board of Directors of Luther has resolved to recommend the Merger
to the holders of shares of Luther common stock, without par value (the
"Shares"), and has determined that the consideration to be paid for each Share
in the Merger is fair to the holders of the Shares, and to recommend that the
holders of the Shares adopt this Agreement and the transactions contemplated
hereby.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
THE MERGER
----------
1.1. The Merger. Subject to the terms and conditions hereof, at the Effective
----------
Time (as defined in Section 1.2), Acquisition shall be merged with and into
Luther in accordance with the CCC. Upon the consummation of the Merger, the
separate existence of Acquisition shall cease and Luther, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue its
corporate existence under the laws of the State of California.
1.2. Effective Time of the Merger. On the Closing Date (as defined in Section
----------------------------
3.1), the applicable parties hereto shall cause the Merger to be consummated by
duly filing an appropriate agreement of merger (the "Agreement of Merger")
substantially in the form attached hereto as Exhibit A, as is required by, and
executed in accordance with, the relevant provisions of the CCC. The Merger
shall be effective at such time as the Agreement of Merger is filed with the
Secretary of State of the State of California in accordance with the CCC, or at
such later time as is specified in the Agreement of Merger (the "Effective
Time").
1.3. Effects of the Merger. At the Effective Time, the effect of the Merger
---------------------
shall be as provided in the applicable provisions of the CCC, including, without
limitation, Section 1107 of the CCC. Without limiting the generality of the
foregoing, when the Merger has been effected, the Surviving Corporation shall
thereupon and thereafter possess all the rights, privileges, powers and
franchises, of a public as well as of a private nature, of Luther and
Acquisition (the "Constituent Corporations"), and shall become subject to all
the restrictions, disabilities and duties of each of the Constituent
Corporations; and, all and singular, the rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal, intangible and mixed, and all debts due to any of said Constituent
Corporations, on whatever account, as well for stock subscriptions and all other
choses in action belonging to each of such corporations, shall become vested in
the Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall become thereafter the
property of the Surviving Corporation as they were of the Constituent
Corporations; and the title to any real estate vested by deed or otherwise or
any other interest in real estate vested by any instrument or otherwise in
either of
1
ANNEX I
<PAGE>
such Constituent Corporations shall not revert or become in any way impaired by
reason of the Merger; but all liens upon any property of either of the
Constituent Corporations shall thenceforth attach to the Surviving Corporation,
and shall be enforceable against it to the same extent as if said debts,
liabilities and duties had been incurred or contracted by it; all of the
foregoing in accordance with the applicable provisions of the CCC.
1.4. Charter; Bylaws; Directors and Officers of Surviving Corporation. The
----------------------------------------------------------------
Articles of Incorporation of the Surviving Corporation shall be as set forth in
the Agreement of Merger attached hereto as Exhibit A, until thereafter amended
as provided therein and under the CCC. The Bylaws of the Surviving Corporation
shall be the Bylaws of Acquisition, as in effect immediately prior to the
Effective Time, until thereafter amended as provided therein and under the CCC,
except that the title of the Bylaws of Acquisition shall be amended to read as
follows: "Bylaws of Luther Medical Products, Inc." The directors and officers of
Acquisition immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation, in each case until their successors are
elected and qualified.
ARTICLE II.
CONVERSION OF SHARES AND PAYMENT
--------------------------------
2.1. Conversion of Shares. As of the Effective Time, by virtue of the Merger
--------------------
and without any action on the part of the holder thereof:
(a) Each Share issued and outstanding immediately prior to the Effective
Time (other than any Shares to be canceled pursuant to Section 2.1(b) and any
Dissenting Shares (as defined below)) shall be canceled and extinguished and be
converted into the right to receive upon surrender of the certificate
representing such Share $4.62 in cash (the "Merger Consideration").
(b) Each Share which is held by Luther as a treasury share or by any
subsidiary of Luther shall be canceled and retired without payment of any
consideration therefor.
(c) Each share of common stock, no par value per share, of Acquisition
issued and outstanding immediately prior to the Effective Time shall be
converted into one validly issued, fully paid and nonassessable share of common
stock, without par value per share, of the Surviving Corporation.
2.2. Dissenting Shares.
-----------------
(a) Notwithstanding any provisions of this Agreement to the contrary, any
Shares held by a holder who has demanded and perfected his demand for appraisal
of his Shares in accordance with the CCC and as of the Effective Time has
neither effectively withdrawn nor lost his right to such appraisal ("Dissenting
Shares") shall not be converted into or represent a right to receive the Merger
Consideration pursuant to Section 2.1, but the holder thereof shall be entitled
to only such rights as are granted by the CCC.
(b) Notwithstanding the provisions of subsection (a) of this Section, if
any holder of Shares who demands appraisal of his Shares under the CCC shall
effectively withdraw or lose (through failure to perfect or otherwise) his right
to appraisal, then as of the Effective Time or the occurrence of such event,
whichever later occurs, such holder's Shares shall automatically be converted
into and represent only the right to receive the Merger Consideration as
provided in Section 2.1, without interest thereon, upon surrender of the
certificate or certificates representing such Shares.
(c) Luther shall give BD (i) prompt notice of any written demands for
appraisal or payment of the fair value of any Shares, withdrawals of such
demands, and any other instrument served pursuant to the CCC received
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<PAGE>
by Luther and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under the CCC. Luther shall not
voluntarily make any payment with respect to any demands for appraisal and shall
not, except with the prior written consent of BD, settle or offer to settle any
such demands.
2.3. Stock Options and Warrants. Each option or warrant to purchase Shares
--------------------------
which is outstanding immediately prior to the Effective Time and which has an
exercise price less than $4.62 shall, by virtue of the Merger, cease to be
outstanding and shall be converted into a right to receive an amount in cash for
each Share purchasable under such option or warrant, as the case may be, equal
to $4.62 minus the per share exercise price under such option or warrant, as the
case may be. If the per share exercise price under any option or warrant is
equal to or greater than $4.62, then as of the Effective Time such option or
warrant shall cease to be outstanding, without further consideration to the
holder thereof. Prior to the Effective Time, Luther shall obtain an executed
Stock Option/Warrant Exercise/Termination Agreement in the form attached as
Exhibit B hereto (the "Option/Warrant Agreement") from each person who as of the
Effective Time is the holder of an option or warrant to purchase Shares which
shall confirm the foregoing treatment.
2.4. Surrender of Shares; Stock Transfer Books.
-----------------------------------------
(a) First Chicago Trust Company of New York shall act as agent (the
"Exchange Agent") to receive and hold the funds necessary to make the payments
contemplated by Sections 2.1 and 2.3. Prior to the Closing Date, BD shall
transfer to the Exchange Agent the funds necessary to make the payments
contemplated by Sections 2.1 and 2.3. Such funds shall be invested by the
Exchange Agent as directed by the Surviving Corporation, provided that such
investment shall be an obligation of or guaranteed by the United States of
America or any agency thereof and backed by the full faith and credit of the
United States of America, commercial paper obligations rated A-1 or P-1 or
better by Moody's Investors Services, Inc. or Standard and Poors Corporation,
respectively, or in deposit accounts, certificates or deposit or bankers
acceptances of, repurchase or reverse repurchase agreements with, or Eurodollar
time deposits purchased from, commercial banks with capital, surplus and
undivided profits aggregating in excess of $200 million (based upon the most
recent financial statements of such bank which are then publicly available at
the Securities and Exchange Commission or otherwise).
(b) Each holder of a certificate or certificates representing any Shares
canceled upon the Merger pursuant to Section 2.1 may thereafter surrender such
certificate or certificates to the Exchange Agent, as agent for such holder, to
effect the surrender of such certificate or certificates on such holder's behalf
for a period ending one year after the Effective Time. BD agrees that promptly
after the Effective Time, it shall cause the distribution of appropriate
materials to facilitate such surrender to holders of record of Shares as of the
Effective Time.
(c) If payment of the Per Share Merger Consideration in respect of
canceled Shares is to be made to a person other than the person in whose name a
surrendered certificate or instrument is registered, it shall be a condition to
such payment that the certificate or instrument so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that the person
requesting such payment shall have paid any transfer and other taxes required by
reason of such payment in a name other than that of the registered holder of the
certificate or instrument surrendered or shall have established to the
satisfaction of the Surviving Corporation that such tax either has been paid or
is not payable.
(d) Immediately prior to the Effective Time, the stock transfer books of
Luther shall be closed and there shall not be any further registration of
transfers of Shares thereafter on the records of Luther. If, after the
Effective Time, certificates for Shares are presented to the Surviving
Corporation, they shall be canceled and exchanged for the Per Share Merger
Consideration as provided in Section 2.1. No interest shall accrue or be paid
on any cash payable upon the surrender of a certificate or certificates which
immediately before the Effective Time represented outstanding Shares.
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<PAGE>
(e) In the event any certificate representing Shares to be canceled upon
the Merger pursuant to Section 2.1(a) 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 and, if required by BD, the posting
by such person of a bond in such amount, form and with such surety as BD may
direct as indemnity against any claim that may be made against it with respect
to such certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed certificate the Per Share Merger Consideration in respect
thereof pursuant to this Agreement.
(f) The Exchange Agent shall make the payments contemplated by Section 2.3
promptly after the Effective Time in accordance with the Option/Warrant
Agreements.
ARTICLE III.
THE CLOSING
-----------
3.1. Closing. The closing of the Merger (the "Closing") shall take place at
-------
9:00 a.m. local time on the first business day following the day on which the
last of the conditions set forth in Articles VIII and IX hereof shall be
fulfilled or waived in accordance with this Agreement, at the offices of Latham
& Watkins, 701 "B" Street, Suite 2100, San Diego, California 92101, or at such
other time and place and on such other date as the parties hereto shall agree
(the "Closing Date"). In connection with the Closing, the filing required under
Section 1.2 shall be made and all actions, payments and deliveries then required
hereunder shall be completed. The Closing shall be deemed to have occurred only
when (i) the matters provided for in Section 1.2 shall have occurred and (ii)
all of the opinions, certificates and other documents required to be delivered
at the Closing have been delivered (or the requirement therefor waived).
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF LUTHER
----------------------------------------
Luther, as of the date hereof, hereby represents and warrants to BD and
Acquisition, except as set forth in the corresponding section of the Disclosure
Schedule, as follows.
4.1. Organization. Luther is a corporation duly incorporated, validly existing
------------
and in good standing under the laws of the State of California with full
corporate power and authority to conduct its business as presently conducted and
own and operate its properties. Luther is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified will not have a Material Adverse Effect on Luther. Luther has
previously provided BD with true and correct copies of its charter documents,
bylaws and other governing documents, as currently in effect.
4.2. No Subsidiaries. Luther has no Subsidiaries.
---------------
4.3. Authorization. Luther has all requisite corporate power and authority and
-------------
has taken all corporate action necessary to execute and deliver this Agreement,
to consummate the transactions contemplated hereby and to perform its
obligations hereunder. The execution and delivery of this Agreement by Luther
and the consummation by Luther of the transactions contemplated hereby have been
duly approved by the Luther Board of Directors and prior to the Closing will be
submitted to the shareholders of Luther for approval. Assuming such shareholder
approval, no other corporate proceedings on the part of Luther are necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Luther and is a legal, valid
and binding obligation of Luther enforceable against it in accordance with its
terms, except to the extent that
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<PAGE>
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditor's
rights generally or by general principles of equity.
4.4. Capitalization. The authorized capital stock of Luther consists of
--------------
25,000,000 shares of Common Stock, no stated par value, and 10,000,000 shares of
Preferred Stock, no stated par value, of which 3,219,986 shares of Common Stock
and no shares of Preferred Stock are validly issued and outstanding on the date
hereof. All of the issued and outstanding Shares have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth on
Schedule 4.4, Luther has no outstanding options, warrants, rights or other
securities, plans, contracts or agreements which give the holder or any other
person the right to purchase or otherwise receive from Luther any shares of
capital stock or any securities which are convertible into or exercisable for
any shares of such capital stock or under which any such option, warrant, right
or security may be issued in the future. Schedule 4.4 identifies, as of the date
hereof, the option and warrant holders, the number of shares subject to each
option or warrant held, the exercise prices and expiration dates of the
outstanding options and warrants.
4.5. SEC Filings; Financial Statements.
---------------------------------
(a) Luther has filed all forms, reports and documents required to be filed
with the Securities and Exchange Commission ("SEC") since July 1, 1996, and has
heretofore delivered to BD, in the form filed with the SEC, its (i) Annual
Reports on Form 10-KSB for the fiscal years ended June 30, 1998; June 30, 1997
and June 30, 1996, (ii) all proxy statements relating to the Company's meetings
of shareholders (whether annual or special) held since July 1, 1996 and (iii)
all other reports or registration statements filed by the Company with the SEC
since July 1, 1996 (collectively, the "SEC Reports"). The SEC Reports (i) were
prepared in all material respects in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) did not at the
time they were filed 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 the light of the circumstances under which they
were made, not misleading.
(b) The financial statements contained in the SEC Reports comply in all
material respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder by the SEC and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present the financial position of Luther as at the
respective dates thereof and the results of operations and changes in financial
position of Luther for the periods indicated, subject, in the case of quarterly
financial statements, to normal, recurring year-end adjustments and the absence
of notes.
(c) Except as reflected or reserved against in the financial statements
contained in the SEC Reports, Luther has no liabilities of any nature (whether
accrued, absolute, contingent or otherwise) which in the aggregate could have a
Material Adverse Effect, except for liabilities incurred since June 30, 1998 in
the ordinary course of business and consistent with past practice. Since June
30, 1998 Luther has not incurred any material liabilities, except (i)
liabilities incurred in the ordinary course of business and consistent with past
practice, or (ii) liabilities incurred in connection with or as a result of the
Merger.
4.6. Assets. Excluding Proprietary Rights and real and personal property
------
operated pursuant to Leases, Luther has good and marketable title to all
material Assets used in its business. Excluding Proprietary Rights, the Assets
owned or leased by Luther include without limitation all Assets reasonably
necessary for the conduct of its business as presently conducted. Luther owns no
real property.
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ANNEX I
<PAGE>
4.7. No Material Adverse Change. Since June 30, 1998, as of the date hereof,
--------------------------
except as disclosed in the SEC Reports:
(a) there has been no actual or, to the knowledge of Luther, threatened
material adverse change in the financial condition, results of operation,
business or Assets of Luther; and
(b) Luther has operated its business in the ordinary course so as to
preserve the business intact, to keep available to the business the services of
its employees, and to preserve the business and the goodwill of its suppliers,
customers, distributors and others having business relations with it.
4.8. Contracts and Commitments. Schedule 4.8 sets forth an accurate, correct
-------------------------
and complete list of the following Contracts and Leases to which Luther is a
party or bound or by which any of its assets are subject or bound and which have
not been terminated or otherwise contain executory obligations of Luther
(collectively, "Material Contracts"):
------------------
(a) All Contracts which involve an obligation of Luther to pay over the
remainder of their terms an amount in excess of $50,000;
(b) All Contracts currently in effect that involve the borrowing or
lending of money (other than trade payables incurred in the ordinary course of
business);
(c) All distributor, agency and sales representative Contracts;
(d) All licenses, whether as licensor or licensee, of any patent,
trademark, or know-how (other than licenses to computer software utilized in
connection with the operation of Luther's business);
(e) All Contracts with current or former employees, directors or officers;
(f) All Leases of real property and any other Lease which involve an
obligation of Luther to pay over its remaining term an amount in excess of
$50,000;
(g) All Contracts creating a joint venture, partnership, cooperative
arrangement or sharing of profits;
(h) All Contracts to indemnify any person or entity, excluding contracts
with customers in the ordinary course of business.
(i) All Contracts containing covenants of Luther not to compete in any
line of business or with any person or entity in any geographical area or which
otherwise materially restrict Luther's freedom to do business in any manner or
place (other than confidentiality provisions entered into in the ordinary course
of business); and
(j) Any Contract or Lease proposed as of the date hereof of a type that,
if entered into, would be a Material Contract.
Luther has delivered, or provided access, to BD true, correct and
complete copies, summaries or descriptions of all of the Material Contracts,
including all amendments and supplements thereto. To the knowledge of Luther,
all of the Material Contracts are valid, binding and enforceable in accordance
with their terms. Luther has fulfilled all of its obligations under each of the
Material Contracts to the extent that such obligations have accrued. To the
knowledge of Luther, no party is in Default in any material respect thereunder
and no notice of any claim of Default has been given to Luther. To the
knowledge of Luther, all products and services called for by any unfinished
Material Contract can be supplied in accordance with the terms of such Material
Contract. With respect to Leases, Luther has not received any notice of
cancellation or termination under any option or right reserved to the lessor, or
any notice of Default, thereunder. To the knowledge of Luther, Luther has not
committed any act, and there has been no omission, which is
6
ANNEX I
<PAGE>
reasonably likely to result in, and there has been no occurrence which is
reasonably likely to give rise to, product liability or Liability for breach of
warranty (whether covered by insurance or not) on the part of Luther with
respect to products designed, manufactured or delivered or services rendered
prior to or on the Closing Date.
4.9. Permits.
-------
(a) Luther owns or possesses all Permits required under any Regulation
(including Environmental Laws) in the operation of its business or in the
ownership of its Assets free and clear of all Encumbrances, except where any
failure will not, individually or in the aggregate, have a Material Adverse
Effect on Luther. Luther is not in Default, nor has it received any notice of
any claim of Default, with respect to any such Permit, except where any Default
would not have a Material Adverse Effect on Luther.
(b) No notice to, declaration, filing or registration with, or Permit
from, any domestic or foreign governmental or regulatory body or authority, or
any other person or entity, is required to be made or obtained by Luther in
connection with the execution, delivery or performance of this Agreement and the
consummation of the transactions contemplated hereby, except pursuant to federal
securities laws, the filing of the Agreement of Merger as contemplated in
Section 1.2 and post-effective filings under applicable law.
4.10. Books and Records. Luther has made and kept (and given BD access to) Books
-----------------
and Records and accounts, which, in reasonable detail, accurately and fairly
reflect its activities in all material respects. The minute books of Luther
previously provided to BD, together with the financial statements contained in
the SEC Reports, accurately and adequately reflect all material action
previously taken by the shareholders, board of directors and committees of the
board of directors of Luther. Luther has not engaged in any transaction,
maintained any bank account or used any corporate funds except for transactions,
bank accounts and funds which have been and are reflected in its normally
maintained Books and Records or are not material to Luther.
4.11. Litigation. There is no Action pending, or to the knowledge of Luther,
----------
threatened (a) against, related to or affecting (i) Luther or its business or
Assets (including with respect to Proprietary Rights and Environmental Laws),
(ii) any officers or directors of Luther, as such, or (iii) any shareholder of
Luther in such shareholder's capacity as such, (b) seeking to delay, limit or
enjoin the transactions contemplated by this Agreement or (c) in which Luther is
a plaintiff, except for any pending or threatened Action which would not
reasonably be expected to have a Material Adverse Effect on Luther. Luther is
not in Default with respect to or subject to any Court Order, and there are no
unsatisfied judgments against Luther or its business or Assets, which default or
judgments would have a Material Adverse Effect on Luther.
4.12. Compliance with Laws and Other Instruments. Luther has complied in all
------------------------------------------
respects with, and is not in violation of, (i) any instrument, judgment, decree
or order binding upon it and (ii) any federal, state, local or foreign law,
ordinance, statute, rule or governmental regulation applicable to it, except to
the extent noncompliance or violation would not have a Material Adverse Effect
on Luther. The execution, delivery and performance of this Agreement by Luther
and the taking of any action by Luther contemplated hereby will not (a) result
in any violation of any provision of any law, statute or order of any court or
other agency of government applicable to Luther, (b) conflict with, constitute a
Default under, result in any breach of any of the terms, conditions or
provisions of, or result in the creation of any Encumbrance upon any of the
Assets of Luther under, Luther's charter or bylaws, or (c) conflict with,
constitute a Default under, result in any breach of any of the terms, conditions
or provisions of, or result in the creation of any Encumbrance upon any of the
Assets of Luther under any Contract or Lease to which Luther is a party or by
which any of its property is bound or affected, except with respect to clauses
(a) and (c) for such violations, conflicts, defaults, breaches or Encumbrances
as would not individually or in the aggregate have a Material Adverse Effect on
Luther.
4.13. No Brokers. Neither Luther nor any of its officers, directors, employees,
----------
shareholders or Affiliates has employed or made any agreement with any broker,
finder or similar agent or any person or firm which will result in the
obligation of BD, Luther or any of their Affiliates to pay any finder's fee,
brokerage fee or commission or
7
ANNEX I
<PAGE>
similar payment in connection with the transactions contemplated hereby, other
than Luther's obligation to pay fees to Barrington Associates as previously
disclosed to BD.
4.14. No Other Agreements to Sell Assets. Neither Luther nor any of its
----------------------------------
officers, directors or Affiliates has any commitment or legal obligation,
absolute or contingent, to any other person or firm other than BD to sell,
assign, transfer or effect a sale of any of Luther's Assets (other than
inventory in the ordinary course of business), to sell or effect a sale of the
capital stock of Luther (other than stock options or warrants set forth on
Schedule 4.4), to effect any merger, consolidation, liquidation, dissolution or
other reorganization of Luther, or to enter into any agreement or cause the
entering into of an agreement with respect to any of the foregoing.
4.15. Proprietary Rights. Luther has delivered to BD, or provided BD access to,
------------------
true and correct copies of all documents in Luther's possession relating to
Proprietary Rights owned, controlled, created or used by Luther, including,
without limitation, all agreements pursuant to which Luther has licensed or
otherwise acquired rights in technology used by Luther in its business (the
"License Agreements"). Without limiting the generality of the foregoing, Luther
owns all right, title and interest in the Patents set forth on Schedule 4.15,
except to the extent indicated therein. To the knowledge of Luther, other than
as provided in the License Agreements, Luther has no obligations to compensate
any person for the use of any such Proprietary Rights nor has Luther granted to
any person any license, option or other rights to use in any manner any of such
Proprietary Rights, whether requiring the payment of royalties or not. To its
knowledge, Luther owns or has a valid right to use each of such Proprietary
Rights (to the extent material), and to the knowledge of Luther such Proprietary
Rights (to the extent material) will not cease to be valid rights of Luther
solely by reason of the execution, delivery and performance of this Agreement or
the consummation of the transactions contemplated hereby. To the knowledge of
Luther, the manufacture, use, sale, offer for sale, importation, distribution or
commercialization of any of the products being offered by Luther as its business
presently is conducted does not and will not conflict with, infringe upon or
otherwise violate the valid Proprietary Rights of any third party, and no Action
has been instituted against or notices received by Luther within the last three
years alleging that the use of such Proprietary Rights presently infringes upon
or otherwise presently violates any valid Proprietary Rights of a third party.
4.16. Employee Benefit Plans. Except as set forth on Schedule 4.16, Luther is
----------------------
not a party to, does not make or is not required to make employer contributions
to and does not have any current or future obligation or Liability with respect
to, any pension, profit-sharing, retirement, deferred compensation, bonus, stock
purchase, or other employee benefit plan, agreement, arrangement or
understanding maintained for the benefit of its employees (a "Plan"). Each Plan
set forth or described on Schedule 4.16 is in full force and effect in
accordance with its terms and complies in all material respects with all
applicable laws. Luther is not in default under any Plan and, to the knowledge
of Luther, no other person is in default thereunder. Luther has made or provided
for all payments due under or with respect to each Plan to date, and all amounts
properly accrued to date (in accordance with generally accepted accounting
principles) as Liabilities of Luther under each Plan in the current plan years
have been recorded on its financial statements. Each Plan listed in Schedule
4.16 that is intended to qualify under section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service and each trust
established under a Plan that is intended to be exempt from taxation under
section 501(a) of the Code has been determined by the Internal Revenue Service
to be so exempt, and nothing has occurred which would cause the loss of such
qualification or exemptions. None of the Plans is a "multi-employer plan,"
within the meaning of section 3(37) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and Luther has not made any contributions to
or participated in any "multiple employer plan" or "multi-employer plan" (as so
defined) within the last five years.
Luther has satisfied all material reporting and disclosure requirements and
all other material requirements applicable to it under the Code or ERISA, and
the Department of Labor and the Internal Revenue Service regulations promulgated
thereunder, with respect to each Plan. There are no material actions, suits or
asserted claims pending (other than routine claims for benefits) or, to the
knowledge of Luther, threatened, against any Plan or against the Assets of any
Plan except for routine claims for benefits under the Plan by participants or
beneficiaries received by the Plan administrator. With respect to each Plan and
the related trust, if any, there have been no prohibited transactions (as
defined in Section 406 of ERISA or Section 4975 of the Code) and no fiduciary
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ANNEX I
<PAGE>
(as defined in Section 3 of ERISA) has committed any breach of fiduciary
responsibility imposed by ERISA or any other applicable law.
4.17. Taxes.
-----
(a) Luther has timely filed all Tax Returns (as herein defined below)
required to be filed by it. All such Tax Returns are true, correct and complete
in all respects. Luther has made timely payment of all Taxes (as herein defined
below) required to be paid. Luther has fulfilled all withholding obligations
with respect to Taxes and has paid to the appropriate governmental authorities
the proper amounts with respect to the foregoing. The amount of Luther's
liability for unpaid Taxes for all periods ending on or before the date hereof
does not, in aggregate, exceed that amount of reserve for Tax liability
(excluding reserves for deferred Taxes established to reflect timing differences
between book and tax income) reflected on the financial statements at September
30, 1998.
(b) Except as to waivers or extensions of time that have expired, Luther
has not waived any statute of limitations in respect of Taxes or agreed to an
extension of time with respect to the period for assessment or collection of
Taxes. Neither the Internal Revenue Service nor any foreign, state, local or
other taxing authority has examined or audited or is in the process of examining
or auditing any federal, foreign, state, local or other Tax Returns of Luther.
Luther has not received any notice of intention to initiate an audit from any
federal, foreign, state, local or other taxing authority.
(c) Luther is not a party to, or bound by, any tax indemnity, tax sharing
or tax allocation agreement.
(d) Luther has not filed a consent under Section 341(f) of the Internal
Revenue Code, as amended (the "Code") concerning collapsible corporations.
(e) Luther has not been a United States Real Property Holding Corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in section 897(c)(1)(A)(ii) of the Code, and BD is not required to
withhold tax on the purchase of stock of Luther by reason of Code Section 1445.
(f) Luther (i) has not been a member of an affiliated group filing a
consolidated federal income tax return, or (ii) has no liability for the Taxes
of any person (other than any Taxes of Luther) under Treasury Regulation sec.
1.1502-6 (or any similar state, local or foreign law), as a transferee or
successor, by contract, or otherwise.
(g) To Luther's knowledge, no taxing authority has asserted any liens for
Taxes (other than for current Taxes not yet due and payable) upon the assets of
Luther.
(h) Luther has furnished to BD (i) copies of all federal, foreign, state
and local income or franchise tax returns filed with respect to all open tax
years; (ii) copies of all audit reports, statements of deficiencies, closing or
other agreements received by Luther related to Taxes; (iii) a list of all
material elections it has made with respect to Taxes; and (iv) a schedule that
contains an accurate and complete description of any carryovers of tax
attributes. Luther does not do business or derive income from any state, local,
territorial or foreign taxing jurisdiction other than those for which such tax
returns have been furnished to BD.
(i) Luther is not (nor has it ever been) a member of an affiliated group
of corporations within the meaning of Code section 1504, and Luther is not a
party to any joint venture, partnership, or other arrangement or contract which
it is treating as a partnership for federal income tax purposes.
(j) Luther is not a party to any safe harbor lease within the meaning of
Code Section 168(f)(8), as in effect prior to amendment by the Tax Equity and
Fiscal Responsibility Act of 1982. None of the assets of Luther is "tax-exempt
use property" within the meaning of Code Section 168(h). None of the assets of
Luther directly or indirectly secures any debt the interest on which is tax
exempt under Code Section 103(a).
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ANNEX I
<PAGE>
4.18. Insurance. Luther has provided BD access to true and complete copies of
---------
all policies or binders of fire, liability, title, worker's compensation,
product liability and other forms of insurance currently maintained by Luther on
its business, Assets or employees. All insurance coverage applicable to Luther
and its business and Assets is in full force and effect and provides coverage as
may be required by applicable Regulation and by any and all Contracts to which
Luther is a party. There is no Default under any such coverage nor has there
been any failure to give notice or present any claim under any such coverage in
a due and timely fashion. There are no outstanding unpaid premiums except in the
ordinary course of business and no notice of cancellation or nonrenewal of any
such coverage has been received. There are no outstanding performance bonds
covering or issued for the benefit of Luther.
4.19. Compliance With Environmental Laws.
----------------------------------
(a) For the purposes of this Agreement, the term "Environmental Laws"
shall mean all foreign, federal, state and local environmental protection,
occupational, health and safety or similar laws, ordinances, restrictions,
licenses, rules, regulations and permit conditions, including but not limited to
the Federal Water Pollution Control Act, Resource Conservation & Recovery Act,
Safe Drinking Water Act, Toxic Substances Control Act, Clean Air Act,
Comprehensive Environmental Response, Compensation and Liability Act, Emergency
Planning and Community Right to Know or other foreign, U.S. or Canadian federal,
state, province, or local laws of similar effect, each as amended as of the
Closing Date, and the term "Hazardous Materials" shall mean any hazardous or
toxic substances, wastes or materials, including without limitation petroleum or
petroleum products, defined as such or governed by any applicable Environmental
Law.
(b) (i) Except to the extent it did not and would not have a Material
Adverse Effect on Luther, throughout the period of Luther's operation of the
Facilities and the Former Facilities, Luther has not received any written
notices, directives, violation reports, actions or claims from or by (1) any
local, state, foreign or federal governmental agency concerning any alleged
violation of Environmental Laws by Luther or (2) any person alleging that, in
connection with Hazardous Materials, conditions at any of the Facilities or the
Former Facilities or Luther's acts or omissions have resulted in or caused or
threatened to result in or cause injury or death to any person or damage to any
property, including without limitation, damage to natural resources, and to the
knowledge of Luther, no such notices, directives, violation reports, actions,
claims or allegations exist; (ii) the Facilities are, and throughout the period
of Luther's operation thereof the Former Facilities were, in compliance with all
applicable state, federal, foreign and local Environmental Laws except where any
noncompliance did not and would not have a Material Adverse Effect on Luther;
and (iii) no underground storage tanks either are or, to the knowledge of
Luther, have been located at any of the Facilities or the Former Facilities.
(c) To the Knowledge of Luther, (i) there has been no spill, discharge,
release, cleanup or contamination of or by any Hazardous Materials used,
generated, treated, stored, disposed of or handled by Luther at any of the
Facilities and (ii) Luther has not treated, stored, disposed of, released or
transported any Hazardous Material in a manner which would give rise to any
liability under any Environmental Laws.
4.20. Bank Accounts, Powers, etc. Schedule 4.20 lists each bank, trust company,
---------------------------
savings institution, brokerage firm, mutual fund or other financial institution
with which Luther has an account, credit line or safe deposit box and the names
and identification of all persons authorized to draw thereon or to have access
thereto, and lists the names of each person holding powers of attorney or agency
authority from Luther.
4.21. Luther Proxy Statement; Fairness Opinion.
----------------------------------------
(a) Luther's proxy statement for the meeting of its shareholders for the
purpose of approving this Agreement and the Merger, as contemplated by Section
7.7, will not on the date such Proxy Statement is filed with the SEC, first
mailed to shareholders in connection with Luther's shareholders' meeting, at the
time of Luther's shareholders' meeting or at the Effective Time (including any
supplements to the proxy statement) , contain any statement which, at such time
and in light of the circumstances under which it will be made, will be false or
misleading with respect to a material fact, and will not omit to state any
material fact necessary in order to make the
10
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<PAGE>
statements therein not false or misleading.
(b) Prior to the execution of this Agreement, the Board of Directors of
Luther received an opinion of Marshall & Stevens to the effect that the
aggregate consideration to be received in the Merger by the shareholders of
Luther is fair, from a financial point of view, to such shareholders.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
------------------------------
OF BD AND ACQUISITION
---------------------
BD and Acquisition hereby jointly and severally represent and warrant to
Luther as follows:
5.1. Organization. Each of BD and Acquisition is a corporation duly
------------
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to
conduct its business and to own and lease its properties. BD owns all of the
issued and outstanding capital stock of Acquisition. Acquisition was formed
solely for the purpose of effecting the Merger and has not engaged in any
business or had any operations since the date of its incorporation.
5.2. Authorization. BD and Acquisition have all requisite corporate power and
-------------
authority to execute, deliver and perform this Agreement and the transactions
contemplated hereby. The execution and delivery of this Agreement by each of BD
and Acquisition, the performance by BD and Acquisition of their respective
obligations hereunder and the consummation by BD and Acquisition of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of BD and Acquisition. This Agreement has been duly
and validly executed and delivered by each of BD and Acquisition, and is a
legal, valid and binding obligation of each of them enforceable against each of
them in accordance with its terms, except to the extent that such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting the enforcement of creditors' rights generally or by
general principles of equity.
5.3. No Conflict or Violation. The execution, delivery and performance of this
------------------------
Agreement by BD and Acquisition and the taking of any action by BD or
Acquisition contemplated hereby will not (a) result in any violation of any
provision of any law, statute or order of any court or other agency of
government applicable to BD or Acquisition, (b) conflict with, constitute a
Default under, result in any breach of any of the terms, conditions or
provisions of or result in the creation of any Encumbrance upon any of the
Assets of BD or Acquisition under, BD's or Acquisition's charter or bylaws, or
(c) conflict with, constitute a Default under, result in any breach of any of
the terms, conditions or provisions of, or result in the creation of any
Encumbrance upon any of the Assets of BD or Acquisition under any Contract or
Lease to which BD or Acquisition is a party or by which any of their property is
bound or affected, except with respect to clauses (a) and (c) for violations,
conflicts, Defaults, breaches or Encumbrances as would not individually or in
the aggregate have a Material Adverse Effect on BD and Acquisition.
5.4. Permits. No notice to, declaration, filing or registration with, or Permit
-------
from, any domestic or foreign governmental or regulatory body or authority, or
any other person or entity, is required to be made or obtained by BD or
Acquisition in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated hereby, except
pursuant to federal securities laws, the filing of the Agreement of Merger as
contemplated by Section 1.2 and post-effective filings under applicable law.
5.5 No Brokers. Neither BD or Acquisition nor any of their officers,
----------
directors, employees, shareholders or Affiliates has employed or made any
agreement with any broker, finder or similar agent or any person or firm which
will result in the obligation of Luther or any of its Affiliates to pay any
finder's fee, brokerage fee or commission or similar payment in connection with
the transactions contemplated hereby.
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<PAGE>
5.6. Litigation. There is no Action pending or, to the knowledge of BD,
----------
threatened against BD or Acquisition seeking to delay, limit or enjoin the
transactions contemplated by this Agreement.
5.7. Proxy Statement. The information regarding BD supplied by BD for inclusion
---------------
in Luther's proxy statement as contemplated by Section 7.7, will not on the date
such Proxy Statement is filed with the SEC, first mailed to shareholders in
connection with Luther's shareholders meeting or at the Effective Time, contain
any statement which, at such time and in light of the circumstances under which
it will be made, will be false or misleading with respect to a material fact,
and will not omit to state any material fact necessary in order to make the
statements therein not false or misleading.
ARTICLE VI.
CONDUCT OF BUSINESS PENDING THE CLOSING
---------------------------------------
From the date hereof through the Closing, except as otherwise provided for
in this Agreement, Luther shall conduct its business only in the ordinary and
usual course as such business has been conducted, and shall use commercially
reasonable efforts to keep intact the business organization in all material
respects. In addition, without limiting the generality of the foregoing, from
the date hereof through the Closing or termination of this Agreement, except as
otherwise provided for in this Agreement or with the written consent of BD:
(a) Luther shall not (i) amend its charter or bylaws; (ii) split, combine
or reclassify its outstanding capital stock or declare, set aside or pay any
dividend payable in cash, stock or property or make any other distribution with
respect to its capital stock; or (iii) redeem, purchase or otherwise acquire,
directly or indirectly, any of its capital stock;
(b) Luther shall not (i) issue or agree to issue any additional shares of,
or options, warrants or rights of any kind to acquire any shares of, its capital
stock of any class (excepting the issuance of stock upon the exercise of
presently outstanding options or warrants as set forth on Schedule 4.4); (ii)
enter into any agreement, contract or commitment out of the ordinary course of
its business, to dispose of or acquire, or relating to the disposition or
acquisition of, a segment of its business; (iii) except in the ordinary course
of business or pursuant to agreements described in paragraph (vi) below, sell,
pledge, dispose of or encumber any of its Assets (including without limitation,
any indebtedness owed to it or any claims held by it); (iv) grant a license to
any of its technology; (v) acquire (by merger, consolidation or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof or make any material investment, either by purchase of stock or
securities, contribution to capital, property transfer or purchase of any
material amount of property or assets, in any other individual or entity; (vi)
incur any indebtedness for borrowed money (other than up to $200,000 of
indebtedness which may be incurred solely for working capital purposes and with
prior consultation with BD) or (vii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(c) Luther shall use commercially reasonable efforts to keep available the
services of its present officers and key employees, and to preserve the goodwill
of its customers and other persons having business relationships with it, and
shall not appoint additional officers;
(d) Luther shall not grant any severance or termination pay (other than
pursuant to policies or agreements in effect on the date hereof and previously
disclosed to BD) or increase the benefits payable under its severance or
termination pay policies or agreements in effect on the date hereof;
(e) Luther shall not adopt or amend any Plan or increase in any manner the
compensation or fringe benefits of any employee (other than salary increases in
the ordinary course of business consistent with past practice) or pay any
benefit not required by any Plan; and
12
ANNEX I
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(f) Luther shall not enter into or amend any Lease or Contract in excess
of $50,000 which is not cancelable within 90 days without penalty, cost or
liability, other than contracts with customers in the ordinary course of
business consistent with past practice and agreements pursuant to paragraph
(b)(vi) above.
ARTICLE VII.
ADDITIONAL COVENANTS
--------------------
7.1. Further Assurances and Cooperation. Subject to the terms and conditions
----------------------------------
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement and to
cooperate with each other in connection therewith, (i) to obtain all necessary
waivers, consents and approvals from other parties to Material Contracts, (ii)
to defend any lawsuits or other legal proceedings challenging this Agreement or
the consummation of the transactions contemplated hereby, (iii) to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby,
(iv) to effect all necessary governmental registrations and filings, and (v) to
fulfill all conditions to this Agreement; provided, however, that with respect
to clause (iii) a party shall not be obligated to take any action if the taking
of such action would, in such party's reasonable opinion, be materially
burdensome to such party or impact in such a materially adverse manner the
economic or business benefits of the transaction contemplated by this Agreement
as to render inadvisable the consummation of the Merger. Each party hereto shall
promptly inform the other of any material communication between such party and
any government or governmental authority regarding the Merger or the other
transactions contemplated herein to the extent permitted by law.
7.2. Access. Upon reasonable notice, Luther shall afford BD and its
------
representatives full access during normal business hours to all of its officers,
agents, properties, Contracts, commitments and Books and Records (including but
not limited to tax returns) and, during such period, shall furnish promptly all
information concerning its business, properties and personnel as BD may
reasonably request. BD shall hold all such information in accordance with the
provisions of the Confidentiality Agreement. No investigation pursuant to this
Section 7.2 or otherwise shall affect the representations and warranties or the
conditions to consummate the Merger set forth herein.
7.3. Public Statements and Press Releases. Upon execution of this Agreement, BD
------------------------------------
and Luther may each issue a press release regarding the Agreement and the Merger
which shall be subject to prior review and approval of the other, which shall
not be unreasonably withheld or delayed. Thereafter, so long as this Agreement
is in effect, neither Luther, or BD, nor any of their respective Affiliates,
shall issue or release any written public announcement, press release, statement
or acknowledgment of the existence of, or the terms, conditions and status of,
the transactions provided for herein, without the prior approval of the other as
to the content and time of release of and the media in which such statement or
announcement is to be made and that they will use commercially reasonable
efforts to consult with one another before making other public statements or
responding to any press inquiry with respect to this Agreement or the
transactions contemplated hereby, except as may be required by law or any
governmental agency or the rules of the National Association of Securities
Dealers, Inc. Nothing contained herein shall prevent either party at any time
from furnishing any information to any governmental agency if required by
applicable law nor prevent Luther or BD from issuing any release when it
believes, based upon advice of counsel, it is legally required to do so.
7.4. No Discussions with Others. (a) From the date hereof until the earlier of
--------------------------
termination of this Agreement or consummation of the Merger, Luther will not,
directly or indirectly, whether through any director, officer, employee,
financial advisor, legal counsel, accountant, other agent or representative (as
used in this Section 7.4 "affiliates") or otherwise, (A) initiate, solicit or
encourage, or take any other action to facilitate any inquiries or the making of
any proposal with respect to, or (B) except to the extent required in the
exercise of the fiduciary duties of the Board of Directors of Luther under
applicable law, as advised by counsel, in connection with the receipt by
13
ANNEX I
<PAGE>
Luther of an unsolicited written proposal that the Board determines is
reasonably likely to be more favorable to Luther's shareholders than the Merger,
engage or participate in negotiations concerning, provide any nonpublic
information or data to, or have any discussions with, any person other that BD
relating to, any (i) acquisition, (ii) tender offer (including a self-tender
offer), (iii) exchange offer, (iv) merger, (v) consolidation, (vi) acquisition
of beneficial ownership of (or the right to vote) securities of Luther
(excluding stock options or warrants outstanding on the date hereof), (vii)
dissolution, (viii) business combination, (ix) purchase of all or any
significant portion of the assets or any division of (or any equity interest in)
Luther, or (x) any similar transaction other than the Merger (such proposals,
announcements, or transactions being referred to as "Acquisition Proposals").
Luther will notify BD orally as promptly as practicable (but in any event within
one (1) business day) and in writing (as promptly as practicable) of each such
initial Acquisition Proposal made by any person or entity (each an "Initial
Acquisition Proposal") (including the identity of the person making such
proposals and the terms of such proposals), or any inquiry regarding making any
Acquisition Proposal, and will furnish to BD a copy of each such Initial
Acquisition Proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in this Section 7.4 by any affiliate of
Luther, whether or not acting on behalf of Luther, shall be deemed to be a
breach of this Section by Luther.
(b) Nothing contained in this Section 7.4 shall prohibit Luther or its
Board of Directors from (i) taking, and disclosing to Luther's shareholders, a
position with respect to any Acquisition Proposal pursuant to Rules 14d-9 and
14e-2(a) under the Securities Exchange Act of 1934 as amended, or (ii) making
any disclosure to Luther's shareholders that, in the judgment of the Board of
Directors, Luther, based upon advice of counsel, is required under applicable
law.
(c) BD acknowledges that prior to September 8, 1998 Luther has had
discussions with, and provided non-public information to, multiple parties
concerning possible business combination transactions. Luther represents that
it is not currently involved in any existing discussions or negotiations with
any party with respect to any Acquisition Proposal and has not been so involved
subsequent to September 8, 1998.
(d) Luther shall be entitled to provide copies of this Section 7.4 to
third parties who, on an unsolicited basis after the date hereof, contact Luther
or its representatives concerning an Acquisition Proposal so long as BD is
concurrently notified of such contact and the delivery of such copies.
7.5. Execution of Lock-Up Agreements. Concurrently with the execution of this
-------------------------------
Agreement, and as an inducement to BD and Acquisition to enter into this
Agreement, each of Luther's directors shall enter into a lock-up agreement in
the form attached as Exhibit C hereto (the "Lock-Up Agreements") with BD and
Luther pursuant to which each such person or entity shall agree, among other
things, to vote all Shares of the Company beneficially owned by them in favor of
this Agreement and the Merger.
7.6. Execution of Consulting Agreement. Concurrently with the execution of this
---------------------------------
Agreement, and as an inducement to BD and Acquisition to enter into this
Agreement, Luther shall enter into a consulting agreement with David Rollo in
the form attached hereto as Exhibit D (the "Consulting Agreement"), which
Consulting Agreement would become effective upon the Closing and would supersede
and replace the employment agreement currently in place with such employee,
subject to the payment of the severance payment due under that employment
agreement.
7.7. Luther Shareholders Meeting. Luther shall as promptly as practicable take
---------------------------
all necessary steps in accordance with applicable law and the Luther charter and
bylaws to call a meeting of its shareholders for the purpose of approving this
Agreement and the Merger, except to the extent required in the exercise of the
fiduciary duties of the Board of Directors of Luther under applicable law, as
advised by legal counsel. In all proxy statements or other communications with
shareholders relating to the Merger, Luther's Board of Directors shall recommend
that Luther's shareholders vote in favor of the Merger, except to the extent
required in the exercise of the fiduciary duties of the Board of Directors of
Luther under applicable law, as advised by legal counsel.
7.8. Certain Further Transaction Expenses. Luther agrees that in connection
------------------------------------
with the Merger and other transactions contemplated by this Agreement it shall
use its best efforts to minimize Transaction Expenses, subject
14
ANNEX I
<PAGE>
to fiduciary duties of the Board of Directors under applicable law, as advised
by legal counsel, and shall advise BD upon its request of the status of all
Transaction Expenses.
7.9. Tax Matters.
-----------
(a) After the date hereof, Luther shall not without the written consent of
BD (i) make any election with respect to Taxes or change any accounting methods
of Luther; (ii) execute any waiver of restrictions on assessment or collection
of Taxes; or (iii) enter into or amend any agreement or settlement with any Tax
authority. Luther shall promptly notify BD of the notice, commencement, or
scheduling of any Tax audit or examination.
(b) As soon as practicable after the date of this Agreement but in no
event later than three (3) business days prior to the Closing, Luther shall
prepare (or have prepared) and provide BD a reasonably detailed analysis of the
status of Luther's net operating losses, tax credits carryovers and other tax
attributes under Sections 382, 383 and 384 of the Code and the federal
consolidated return regulations and whether Luther has had an "ownership change"
as defined in Section 382 of the Code.
ARTICLE VIII.
CONDITIONS TO OBLIGATIONS OF LUTHER
-----------------------------------
The obligations of Luther to effect the Merger shall be subject to the
fulfillment, at or prior to the Closing, of the following conditions:
8.1. Representations and Warranties. The representations and warranties of BD
------------------------------
and Acquisition contained in this Agreement which are qualified with respect to
a Material Adverse Effect or materiality shall be true and correct, and all such
representations and warranties that are not so qualified shall be true and
correct in all material respects, in each case on and as of the Closing Date
with the same effect as though such representations and warranties had been made
on and as of such date, except for representations and warranties that speak as
of a specific date or time other than the Closing Date (which need only be true
and correct as of such date or time).
8.2. Covenants. All of the covenants and agreements of BD and Acquisition to be
---------
performed or complied with pursuant to this Agreement prior to the Closing shall
have been duly performed and complied with in all material respects.
8.3. Regulatory Consents, Authorizations, etc.; Shareholder Approval.
----------------------------------------------------------------
(a) Except for the filings of the Agreement of Merger as provided in
Section 1.2 and post-effective filings under applicable laws, all consents,
authorizations, orders and approvals of, and filings and registrations with, any
governmental commission, board or other regulatory body or any nongovernmental
third party which are required for or in connection with the execution and
delivery of this Agreement, and the consummation by each party hereto of the
transactions contemplated hereby, shall have been obtained or made, if the
failure to make such filing or registration or to obtain such consent,
authorization, order or approval would have a Material Adverse Effect on Luther.
(b) The Merger and the Agreement shall have been approved and adopted by
the requisite vote of the shareholders of Luther.
8.4. Injunctions. At the Closing there shall be no judgment, decree,
-----------
injunction, ruling or order of any court, governmental department, commission,
agency or instrumentality outstanding against any party hereto which prohibits,
restricts or delays consummation of the Merger or any of the conditions to the
consummation of the Merger.
15
ANNEX I
<PAGE>
8.5. Corporate Documents. BD and Acquisition shall have furnished Luther with
-------------------
certified resolutions adopted by the Boards of Directors of BD and Acquisition
and, as to Acquisition, its shareholder approving this Agreement and the
transactions contemplated hereby.
8.6. Certificates. BD and Acquisition shall have furnished Luther with such
------------
certificates of their respective officers and other representatives to evidence
compliance with the conditions set forth in this Article VIII as may reasonably
be requested.
8.7. Funds. BD shall have transferred to the Exchange Agent the funds necessary
-----
to make the payments contemplated by Sections 2.1 and 2.3.
8.8. Opinion. BD AND ACQUISITION SHALL HAVE FURNISHED LUTHER WITH THE OPINION
-------
OF RICHARD A. CARBONE, ESQ., COUNSEL TO BD AND ACQUISITION, DATED THE CLOSING
DATE AND SUBSTANTIALLY IN THE FORM SET FORTH IN EXHIBIT G HERETO.
ARTICLE IX.
CONDITIONS TO OBLIGATIONS OF BD AND ACQUISITION
-----------------------------------------------
The obligations of BD and Acquisition to effect the Merger shall be
subject to the fulfillment, at or prior to the Closing, of the following
conditions:
9.1. Representations and Warranties.
-------------------------------
(a) The representations and warranties of Luther contained in this
Agreement which are qualified with respect to a Material Adverse Effect or
materiality shall be true and correct, and all such representations and
warranties that are not so qualified shall be true and correct in all material
respects, in each case on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date,
except for representations and warranties that speak as of a specific date or
time other than the Closing Date (which need only be true and correct as of such
date or time).
(b) There shall have been no material adverse change since June 30, 1998
in the business or financial condition of Luther (other than as contemplated by
the Agreement or the Disclosure Schedules).
9.2. Covenants. All of the covenants and agreements of Luther to be performed
---------
or complied with pursuant to this Agreement prior to the Closing shall have been
duly performed and complied with in all material respects.
9.3. Opinion. Luther shall have furnished BD and Acquisition with the opinion
-------
of Arter & Hadden, counsel to Luther, dated the Closing Date and substantially
in the form set forth in Exhibit E hereto.
9.4. Regulatory Consents, Authorizations, etc.; Shareholder Approval.
---------------------------------------------------------------
(a) Except for the filings of the Agreement of Merger as provided in
Section 1.2 and post-effective filings under applicable laws, all consents,
authorizations, orders and approvals of, and filings and registrations with, any
governmental commission, board or other regulatory body or any nongovernmental
third party which are required for or in connection with the execution and
delivery of this Agreement, and the consummation by each party hereto of the
transactions contemplated hereby, shall have been obtained or made, if the
failure to make such filing or registration or to obtain such consent,
authorization, order or approval would have a Material Adverse Effect on BD, or
on the Surviving Corporation's abilities to conduct its business after the
Closing.
16
ANNEX I
<PAGE>
(b) The Merger and the Agreement shall have been approved and adopted by
the requisite vote of the shareholders of Luther.
9.5. Injunctions. At the Closing there shall be no judgment, decree,
-----------
injunction, ruling or order of any court, governmental department, commission,
agency or instrumentality outstanding against any party hereto which prohibits,
restricts or delays consummation of the Merger or any of the conditions to the
consummation of the Merger.
9.6. Corporate Documents. Luther shall have furnished BD with certified
-------------------
resolutions adopted by its Board of Directors and shareholders approving this
Agreement and the transactions contemplated hereby.
9.7. Certificates. Luther shall have furnished BD and Acquisition with such
------------
certificates of its officers and other representatives to evidence compliance
with the conditions set forth in this Article IX as may reasonably be requested.
9.8. Consulting Agreements. The Consulting Agreement shall not have been
---------------------
repudiated by the person who is the party thereto, and shall otherwise be in a
state to become effective in accordance with its terms upon the Closing.
9.9. Dissenters' Rights. As of the Closing, holders of not more than 15% of the
------------------
Shares shall remain eligible for dissenters' rights with respect to the Merger
under the CCC.
9.10. Options/Warrant Consents. Each holder of any right, option or warrant to
------------------------
acquire Shares shall have consented to the treatment of their options and
warrants as provided in Section 2.3.
9.11. Transaction Fees. Luther shall have received preliminary invoices for all
----------------
material Transaction Fees, and copies thereof shall have been delivered to BD.
ARTICLE X.
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
10.1. Termination. This Agreement may be terminated at any time prior to the
-----------
Effective Time by:
(a) the mutual consent of BD and Luther, set forth in a written instrument
executed by both parties; or
(b) either BD or Luther if the conditions to its respective obligations
hereunder are not capable of satisfaction, but only if the failure of such
condition did not result from the breach by the party seeking termination (or
any of its Affiliates) of any representation or warranty made by it herein or
the failure by the party seeking termination (or any of its Affiliates) to
fulfill any covenant provided for herein that is required to be fulfilled by
such person (or its Affiliates) prior to Closing; or
(c) either BD or Luther if the Merger shall not have been consummated by
the Termination Date; or
(d) either BD or Luther if either BD or Luther is precluded by an order or
injunction (other than one issued on a preliminary basis) of a court of
competent jurisdiction from consummating the Merger, and all means of appeal and
all appeals from such order or injunction shall have been finally exhausted; or
(e) BD if Luther is in material breach of its obligations under this
Agreement, or by Luther if BD is in material breach of its obligations under
this Agreement; provided that such material breach remains uncured after ten
(10) business days' written notice thereof to the breaching party, and provided
further, that no party shall be
17
ANNEX I
<PAGE>
entitled to terminate this Agreement by reason of this clause (e) if it or any
of its Affiliates is in material breach of its obligations under this Agreement;
or
(f) By Luther if (i) prior to the Effective Time, a corporation,
partnership, person or other entity or group shall have made a bona fide
unsolicited written offer that the Board of Directors of Luther determines in
its good faith judgment and in the exercise of its fiduciary duties, based on
the advice of legal counsel, is more favorable to Luther's shareholders than the
Merger, (ii) the Board of Directors of Luther authorizes Luther, subject to
complying with the terms of this Agreement, to enter into a definitive written
acquisition agreement concerning such transaction (the "Alternative Acquisition
Agreement") and five business days elapse after delivery to BD of a written
notice that the Board of Directors intends to authorize Luther to enter into
such Alternative Acquisition Agreement, attaching the most current version of
such agreement (which shall include all of the material terms, including the
price proposed to be paid for Shares pursuant thereto) to such notice, and (iii)
BD does not make, within five business days of receipt of such written notice
from Luther, an offer that the Board of Directors of Luther determines, in good
faith after consultation with its financial advisors, is at least as favorable,
from a financial point of view, to the shareholders of Luther as the offer set
forth in the Alternative Acquisition Agreement that Luther has indicated that it
intends to enter into following the end of such five business day period.
(g) By BD if the Board of Directors of Luther (i) withdraws, modifies or
changes its recommendation of this Agreement or the Merger in a manner adverse
to BD and Acquisition, (ii) recommends to Luther's shareholders an Acquisition
Proposal, other than the transactions contemplated by this Agreement, or (iii)
resolves to do any of the foregoing.
10.2. Procedure and Effect of Termination. In the event of termination of this
-----------------------------------
Agreement as provided in Section 10.1, this Agreement shall forthwith become
void and no party hereto shall have any liability or further obligation to any
other party hereto under or by reason of this Agreement or the transactions
contemplated hereby, except as set forth in Sections 10.3 and 12.9 hereof and
except for any breach of this Agreement occurring prior to or as a result of
termination of this Agreement, and except that the Confidentiality Agreement
shall survive in accordance with its terms. The foregoing provisions shall not
limit or restrict the availability of specific performance or other injunctive
relief to the extent that specific performance or such other relief would
otherwise be available to a party hereunder.
10.3 Termination Fees and Expenses. (i) Within one business day after this
-----------------------------
Agreement has been terminated by Luther pursuant to Section 10.1(f) hereof or
(ii) following termination by BD pursuant to Section 10.1(g) hereof, within one
business day following the earlier of (x) execution by Luther of an Alternative
Acquisition Agreement and (y) any person, entity or group (as defined in Section
13(d) of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder) having acquired beneficial ownership, by tender offer,
exchange offer or otherwise, of 50% of more of Luther's outstanding voting
stock, Luther shall pay to BD by certified check or wire transfer to an account
designated by BD, payable in same day funds, the amount of (A) $500,000, plus
(B) all actual out-of-pocket costs and expenses of BD and Acquisition incurred
in connection with this Agreement and the transactions contemplated hereby,
including, without limitation, legal, professional and service fees and
expenses, up to a maximum of $150,000.
10.4 Amendments. This Agreement may not be amended except by action of each of
----------
the parties hereto set forth in an instrument in writing signed by or on behalf
of each of the parties hereto.
10.5 Waivers. At any time prior to the Closing, Luther and BD may (i) extend the
-------
time for the performance of any of the obligations or other acts of the other,
(ii) waive any inaccuracies in the representations and warranties of the other
contained herein or in any document delivered pursuant hereto, or (iii) waive
compliance with any of the agreements of the other or with any conditions to its
own obligations. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party by a duly authorized officer. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
18
ANNEX I
<PAGE>
ARTICLE XI.
DEFINITIONS
-----------
11.1. Defined Terms.
-------------
As used herein, the terms below shall have the following meanings:
"Action" shall mean any action, order, writ, injunction, judgment or
------
decree outstanding or claim, suit, litigation, proceeding, arbitration or
investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any other person.
"Affiliate" shall mean, with respect to any party, any individual,
---------
corporation, partnership or other entity that directly, or through one or more
intermediaries, controls or is controlled by or is under common control with
such party.
"Assets" shall mean all land, buildings, improvements, leasehold
------
improvements, Fixtures and Equipment and other assets (tangible or intangible)
whether owned or leased.
"Books and Records" shall mean (a) all records and lists of Luther
-----------------
pertaining to its Assets, (b) all records and lists pertaining to the business,
customers, suppliers or personnel of Luther, (c) all product, business and
marketing plans of Luther, and (d) all books, ledgers, files, reports, plans,
drawings and operating records of every kind maintained by Luther.
"Confidentiality Agreement" shall mean that certain confidentiality
-------------------------
agreement dated as of April 21, 1998, between BD and Luther and which is
attached as Exhibit F hereto.
"Contracts" shall mean any agreement, contract, note, loan, evidence of
---------
indebtedness, purchase order, letter of credit, indenture, security or pledge
agreement, franchise agreement, undertaking, covenant not to compete, employment
agreement, license, instrument, obligation or commitment to which Luther is a
party or is bound or which relates to its business or Assets, whether oral or
written, but excluding all Leases.
"Copyrights" shall mean all mask works and works of authorship and all
----------
registered copyrights.
"Court Order" shall mean any judgment, decision, consent decree,
-----------
injunction, ruling or order of any federal, state or local court or governmental
agency, department or authority that is binding on any person or its property
under applicable law.
"Default" shall mean (a) a breach of or default under any Contract or
-------
Lease, (b) the occurrence of an event that with the passage of time or the
giving of notice or both would constitute a breach of or default under any
Contract or Lease, or (c) the occurrence of an event that with or without the
passage of time or the giving of notice or both would give rise to a right of
termination, renegotiation or acceleration under any Contract or Lease.
"Disclosure Schedule" means the schedules attached to this Agreement which
-------------------
set forth exceptions to the representations and warranties contained in Article
IV hereof and certain other information called for by other provisions of this
Agreement.
"Encumbrances" shall mean any claim, lien, pledge, option, charge,
------------
easement, security interest, deed of trust, mortgage, right-of-way, encumbrance
or other similar right of a third party.
"Facility" or "Facilities" shall mean all plants, offices, manufacturing
-------- ----------
facilities, warehouses, improvements, administration buildings, and all real
property and related facilities which are currently utilized by Luther.
19
ANNEX I
<PAGE>
"Fixtures and Equipment" shall mean all of the furniture, fixtures,
----------------------
furnishings, machinery, automobiles, supplies, equipment and other tangible
personal property owned by Luther and located in, at or upon the Facilities,
including all warranty rights with respect thereto.
"Former Facility" shall mean each plant, office, manufacturing facility,
---------------
warehouse, improvement, administrative building and all real property and
related facilities that were owned, leased or operated by Luther at any time
prior to the date hereof, but excluding any Facilities.
"Knowledge" shall mean the actual knowledge of a party's directors and
---------
executives and without limiting the foregoing in the case of Luther shall
include David Rollo, George Brdlik, Petra Darling, Wayne Parris, Janis Adams and
Roger Robison.
"Leases" shall mean all of the existing leases with respect to the personal
------
or real property of Luther.
"Liability" or "Liabilities" shall mean any direct or indirect liability,
--------- -----------
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute,
contingent, matured, unmatured or otherwise.
"Material Adverse Effect" shall mean, with respect to any person or entity,
-----------------------
a material adverse effect on the business, assets, liabilities, results of
operations or financial condition of such person or entity or the ability of
such person to consummate the transactions contemplated by this Agreement.
"Patents" shall mean all patents and patent applications including without
-------
limitation all utility patents and patent applications, design patents and
patent applications and utility models.
"Permits" shall mean all licenses, permits, franchises, approvals,
-------
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other person,
necessary or desirable for the past or present conduct of, or relating to the
operation of the business of Luther.
"Proprietary Rights" shall mean all Copyrights, Patents, Trademarks,
------------------
technology rights and licenses, computer software (including without limitation
any source or object codes therefor and documentation relating thereto), trade
secrets, franchises, know-how, inventions, ideas, discoveries, improvements,
design rights, specifications, plans, drawings and intellectual property rights.
"Regulations" shall mean any laws, statutes, ordinances, regulations,
-----------
rules, notice requirements, court decisions, agency guidelines, principles of
law and orders of any foreign, federal, state or local government and any other
governmental department or agency, including without limitation Environmental
Laws, energy, motor vehicle safety, public utility, zoning, building and health
codes, occupational safety and health and laws respecting employment practices,
employee documentation, terms and conditions of employment and wages and hours.
"Subsidiary" shall mean, with respect to a company, (i) any corporation in
----------
an unbroken chain of corporations beginning with the company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain; (ii) any partnership in
which such company is a general partner; (iii) any partnership in which such
company possesses a 50% or greater interest in the total capital or total income
of such partnership or (iv) any limited liability company in which such person
is a manager or possesses 50% or greater of the outstanding membership
interests.
"Taxes" shall mean any and all taxes, charges, fees, levies, or other
-----
assessments in the nature of taxes, including (without limitation) income, gross
receipts, excise, real or personal property, sales, withholding, social
security, occupation, use, service, service use, license, net worth, payroll,
franchise, transfer and recording taxes, estimated, ad valorem, value added,
customs duties, fees and charges, imposed by the Internal Revenue Service or any
taxing authority (whether domestic or foreign) including (without limitation)
any state, county, local or foreign
20
ANNEX I
<PAGE>
government or any subdivision or taxing agency thereof, including a United
States possession, whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest, fines,
penalties or additional amounts attributable to, or imposed upon, or with
respect to, any such taxes, charges, fees, levies or other assessments.
"Tax Returns" shall mean any report, return, document, declaration or
-----------
other information or filing required to be supplied to any taxing authority or
jurisdiction (whether domestic or foreign) with respect to Taxes, including
(without limitation) information returns, any documents with respect to or
accompanying payments of estimated Taxes, or with respect to or accompanying
requests for extensions of time in which to file any report, return, document,
declaration or other information.
"Termination Date" shall mean March 31, 1999.
----------------
"Trademarks" shall mean registered trademarks, registered service marks,
----------
trademark and service mark applications and unregistered trademarks and service
marks.
"Transaction Expenses" means all legal, investment banking, accounting and
--------------------
other fees and expenses incurred by Luther in connection with the Merger.
11.2. Other Defined Terms. The following terms shall have the meanings defined
-------------------
for such terms in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
- ---- -------
<S> <C>
Acquisition Preamble
Agreement Preamble
Agreement of Merger 1.2
Alternative Acquisition Agreement 10.1(f)
CCC Preamble
Closing 3.1
Closing Date 3.1
Code 4.17(c)
Constituent Corporations 1.3
Dissenting Shares 2.2(a)
Effective Time 1.2
Employment and Consulting Agreements 7.6
Environmental Laws 4.19
Hazardous Materials 4.19
License Agreements 4.15
Lock-Up Agreements 7.5
Merger Preamble
Merger Consideration 2.1
Person 7.4
Shares Preamble
Surviving Corporation 1.1
</TABLE>
21
ANNEX I
<PAGE>
ARTICLE XII.
MISCELLANEOUS
-------------
12.1. Notices. Unless otherwise provided herein, any notice, request,
-------
instruction or other document to be given hereunder by any party to the others
shall be in writing and delivered in person or by courier, telegraphed, telexed
or by facsimile transmission or mailed by certified mail, postage prepaid,
return receipt requested (such mailed notice to be effective on the date of such
receipt is acknowledged), as follows:
If to Luther: Luther Medical Products, Inc.
14332 Chambers Road
Tustin, CA 92780
Fax Number: (714) 832-6869
With copies to: Morrison and Foerster LLP
19900 MacArthur Boulevard, 12th Floor
Irvine, CA 92612
Attn: Robert Mattson, Esq.
Fax Number: (949) 251-0900
and
Arter and Hadden LLP
Five Park Plaza, 10th Floor, Jamboree Center
Irvine, CA 92614
Attn: Randolf W. Katz, Esq.
Fax Number: (949) 833-9604
If to BD or Acquisition or Becton Dickinson Infusion Therapy Systems, Inc.
the Surviving Corporation 9450 S. State Street
after the Merger to: Sandy, Utah 84070
Attn: President
Fax Number: (801) 565-2555
With copies to: Becton, Dickinson and Company
1 Becton Drive
Franklin Lakes, NJ 07417-1880
Attn: General Counsel
Fax Number: (201) 848-9228
and
Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
Attn: David A. Hahn, Esq.
Fax Number: (619) 696-7419
or to such other place and with such other copies as any party hereto may
designate as to itself by written notice to the others.
22
ANNEX I
<PAGE>
12.2. Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
California without reference to the choice of laws provisions thereof and except
with respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
12.3. Entire Agreement. This Agreement, together with all exhibits and
----------------
schedules hereto and the Confidentiality Agreement, constitute the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties.
12.4. Counterparts. This Agreement may be executed in one or more counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
12.5. No Third Party Beneficiaries. None of the provisions of this Agreement
----------------------------
shall be for the benefit of or enforceable by any third party.
12.6. Invalidity. In the event that any one or more of the provisions contained
----------
in this Agreement or in any other instrument referred to herein, shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement or any other such instrument.
12.7. Headings; Construction. The headings of the Articles and Sections herein
----------------------
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement. All references
to Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated. All parties have been represented by counsel.
Any presumption that an ambiguity in this Agreement shall be construed against
the party drafting such document is hereby waived and shall not apply with
respect to any document interpretation.
12.8. Gender. Words used in this Agreement, regardless of the number and gender
------
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context requires.
12.9. Expenses. Except as provided in Section 10.3 hereof, all costs and
--------
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
12.10. Non-Survival of Representations and Warranties. Subject to Section 10.2,
----------------------------------------------
the representations and warranties in this Agreement shall terminate at the
Effective Time or the termination of this Agreement pursuant to Section 10.1, as
the case may be.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
23
ANNEX I
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or have
caused this Agreement to be duly executed on their respective behalf by their
respective officers thereunto duly authorized, as of the day and year first
above written.
LUTHER MEDICAL PRODUCTS, INC.
/s/ David Rollo
--------------------------------------------------
By: David Rollo
Its: President
BECTON DICKINSON INFUSION THERAPY SYSTEMS, INC.
/s/ Richard A. Carbone
--------------------------------------------------
By: Richard A. Carbone
Its: Attorney-in-fact
LMP ACQUISITION CORP.
/s/ Richard A. Carbone
--------------------------------------------------
By: Richard A. Carbone
Its: Vice President & Secretary
[SIGNATURE PAGE TO MERGER AGREEMENT]
24
ANNEX I
<PAGE>
Exhibit A
---------
AGREEMENT OF MERGER
<PAGE>
AGREEMENT OF MERGER
OF
LUTHER MEDICAL PRODUCTS, INC.
AND
LMP ACQUISITION CORP.
AGREEMENT OF MERGER entered into on __________ __, 1998, by Luther Medical
Products, Inc. and LMP Acquisition Corp., as approved by the Board of Directors
of each of said corporations:
LMP Acquisition Corp., which is a corporation incorporated in the State of
California, and which is sometimes hereinafter referred to as the "disappearing
corporation," shall be merged with and into Luther Medical Products, Inc., which
is a corporation incorporated in the State of California, and which is sometimes
referred to as the "surviving corporation" (the "Merger").
The separate existence of the disappearing corporation shall cease upon the
effective date of the Merger in accordance with the provisions of the
Corporations Code of the State of California.
The surviving corporation shall continue its existence under its present
name pursuant to the provisions of the Corporations Code of the State of
California.
The Articles of Incorporation of the surviving corporation upon the
effective date of the Merger shall be amended and restated in their entirety as
follows:
"I.
The name of this corporation is Luther Medical Products, Inc.
II.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
This corporation is authorized to issue only one class of shares of stock;
and the total number of shares which this corporation is authorized to issue is
one thousand (1,000).
IV.
A. The liability of the directors of this Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
B. This Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the Corporation and its shareholders.
1
Exhibit A
ANNEX I
<PAGE>
C. Any repeal or modification of this Article V shall be prospective and
shall not affect rights under Article V in effect at the time of the alleged
occurrence of any act or omission to act giving rise to liability or
indemnification."
The directors and officers of the surviving corporation upon the effective
date of the Merger shall be the directors and officers of LMP Acquisition Corp.
prior to the effective date, all of whom shall hold their directorships and
offices until their successors are elected and qualified.
Each issued share of Luther Medical Products, Inc. common stock, without
par value, immediately prior to the effective date of the Merger, except for
treasury shares or shares held by Luther Medical Products, Inc. subsidiaries and
any properly exercised dissenting shares, shall be canceled and extinguished and
be converted into the right to receive upon surrender of the certificate
representing such shares the amount of $4.62 in cash. All treasury shares and
shares held by Luther Medical Products, Inc. subsidiaries shall, immediately
prior to the effective date of the Merger, be canceled and extinguished. Any
properly exercised dissenting shares shall be entitled to receive the
consideration described in the applicable provisions of the Corporations Code of
the State of California. Each issued share of LMP Acquisition Corp. immediately
prior to the effective date of the Merger shall be converted into one validly
issued, fully paid and nonassessable share of common stock, without par value,
of the surviving corporation.
Each option or warrant to purchase shares of Luther Medical Product Inc.
common stock which is outstanding immediately prior to the Effective Time and
which has an exercise price less than $4.62 shall, by virtue of the Merger,
cease to be outstanding and shall be converted into a right to receive a sum for
each share of Luther Medical Product, Inc. common stock purchasable under such
option or warrant, as the case may be, equal to $4.62 minus the per share
exercise price under such option or warrant, as the case may be. If the per
share exercise price under any option or warrant is equal to or greater than
$4.62, then such option or warrant shall cease to be outstanding, without
further consideration to the holder thereof.
The Agreement of Merger herein entered into and approved has been submitted
to the shareholders entitled to vote thereon of the disappearing corporation and
of the surviving corporation, and has been approved in the manner prescribed by
the provisions of the Corporations Code of the State of California.
This Agreement of Merger having been approved by the shareholders entitled
to vote of the disappearing corporation and of the surviving corporation in the
manner prescribed by the provisions of the Corporations Code of the State of
California, the disappearing corporation and the surviving corporation hereby
agree that they will cause to be executed and filed and/or recorded any document
or documents prescribed by the laws of the State of California, and that they
will cause to be performed all necessary acts therein and elsewhere to
effectuate the Merger.
The Board of Directors and the proper officers of the disappearing
corporation and of the surviving corporation, respectively, are hereby
authorized, empowered and directed to do any and all acts and things, and to
make, execute, deliver, file, and/or record any and all instruments, papers and
documents which shall be or become necessary, proper or convenient to carry out
or put into effect any of the provisions of this Agreement of Merger or of the
Merger herein provided for.
The Merger herein provided for shall become effective upon filing.
[Signature Page to Agreement of Merger Follows]
2
Exhibit A
ANNEX I
<PAGE>
Executed this __th day of ________, 1998.
LUTHER MEDICAL PRODUCTS, INC.
By:
-------------------------------------
President
By:
-------------------------------------
Secretary
LMP ACQUISITION CORP.
By:
-------------------------------------
President
By:
-------------------------------------
Secretary
3
Exhibit A
ANNEX I
<PAGE>
AMENDMENT NO. 1 TO MERGER AGREEMENT
THIS AMENDMENT NO. 1 (this "Amendment"), dated as of December 10, 1998, to
the Merger Agreement (the "Merger Agreement"), dated as of October 13, 1998, by
and among LUTHER MEDICAL PRODUCTS, INC., a California corporation ("Luther"),
BECTON DICKINSON INFUSION THERAPY SYSTEMS, INC., a Delaware corporation ("BD"),
and LMP ACQUISITION CORP., a California corporation and a wholly owned
subsidiary of BD ("Acquisition"), is entered into by and among Luther, BD and
Acquisition.
RECITALS
A. All capitalized terms used and not otherwise defined herein shall have
the respective meanings ascribed to them in the Merger Agreement.
B. In accordance with the Merger Agreement, the parties hereto desire to
amend the Merger Agreement in the manner hereinafter provided.
NOW THEREFORE, in consideration of the mutual covenants and premises
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
1. Section 2.1(a) of the Merger Agreement is restated in its entirety to
read as follows:
"(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be canceled pursuant to Section 2.1(b)
and any Dissenting Shares (as defined below)) shall be canceled and extinguished
and be converted into the right to receive upon surrender of the certificate
representing such Share $4.70 in cash (the "Merger Consideration")."
2. Section 2.3 of the Merger Agreement is restated in its entirety to read
as follows:
"2.3 Stock Options and Warrants. Each option or warrant to purchase
--------------------------
Shares which is outstanding immediately prior to the Effective Time and which
has an exercise price less than $4.70 shall, by virtue of the Merger, cease to
be outstanding and shall be converted into a right to receive an amount in cash
for each Share purchasable under such option or warrant, as the case may be,
equal to $4.70 minus the per share exercise price under such option or warrant,
as the case may be, subject to applicable withholding. If the per share
exercise price under any option or warrant is equal to or greater than $4.70,
then as of the Effective Time such option or warrant shall cease to be
outstanding, without further consideration to the holder thereof. Prior to the
Effective Time, Luther shall obtain an executed Stock Option/Warrant
Exercise/Termination Agreement in the form attached as Exhibit B hereto (the
"Option/Warrant Agreement") from each person who as of the Effective Time is the
holder of an option or warrant to purchase Shares which shall confirm the
foregoing treatment."
3. In all other respects the Merger Agreement shall remain in full force
and effect, and no amendment of any term or condition of the Merger Agreement
herein contained shall be deemed to be an amendment of any other term or
condition contained in the Merger Agreement.
4. The provisions of Article 12 of the Merger Agreement are incorporated
herein in full by reference as if each such provision were restated herein in
its entirety, except that, after the date of this Amendment, each reference to
the Merger Agreement shall be deemed to be a reference to the Merger Agreement
as amended hereby.
5. This Amendment may be executed in any number of counterparts all of
which, taken together, shall constitute one Amendment. In making proof of this
Amendment, it shall only be necessary to produce the counterpart executed and
delivered by the party to be charged.
1
ANNEX I
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
to Merger Agreement, or have caused this Amendment No. 1 to Merger Agreement to
be duly executed on their respective behalf by their respective officers
thereunto duly authorized, as of the day and year first above written.
LUTHER MEDICAL PRODUCTS, INC.
/s/ David Rollo
---------------
By: David Rollo
Its: President
BECTON DICKINSON INFUSION THERAPY SYSTEMS,
INC.
/s/ Richard A. Carbone
----------------------
By: Richard A. Carbone
Its: Attorney-in-Fact
LMP ACQUISITION CORP.
/s/ Richard A. Carbone
----------------------
By: Richard A. Carbone
Its: Vice President and Secretary
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO MERGER AGREEMENT]
2
ANNEX I
<PAGE>
October 12, 1998 File Reference: 11-11879
The Board of Directors of
Luther Medical Products, Inc.
14332 Chambers Road
Tustin, California 92680
Attention: David Rollo
President & CEO
It is our understanding that a Merger Agreement (the "Agreement") is proposed to
be entered into, by and among Luther Medical Products, Inc. ("Luther"), a
California corporation; LMP Acquisition Corporation ("Merger Subsidiary"), a
California corporation; and Becton Dickinson Infusion Therapy Systems, Inc.
("Becton"), a Delaware corporation. Pursuant to the Agreement each of the
3,219,986 outstanding shares of Luther common stock will be converted in this
Merger into the right to receive $4.62 per share. In addition, any "in the
money" stock options and warrants will be terminated and exchanged for cash
equal to the difference between $4.62 per share and the accompanying per share
exercise price of the options and warrants as of the consummation date of the
Merger. Any "out of the money" stock options and warrants will be terminated as
of the consummation date of the Merger. It is also our understanding that the
total aggregate consideration, net of transaction fees and costs, to be received
by the shareholders, warrant holders and option holders is $16,275,000. The
terms and conditions of the Merger are more fully described in the
aforementioned Agreement.
You have requested our opinion as to whether the aggregate consideration to be
received in the Merger is fair to the Luther shareholders from a financial point
of view to such shareholders pursuant to the terms and subject to the conditions
set forth in the Agreement. We have not been engaged to give advice on whether
the Luther shareholders should engage in the Transaction, nor have we been
requested to seek or identify alternatives. The date of this Opinion is October
12, 1998.
"Market value" is defined as the price at which an asset or business enterprise
would change hands between a willing buyer and a willing seller when the former
is not under any compulsion to buy, the latter is not under any compulsion to
sell, and both parties are well informed about all pertinent facts of the asset
and the market for such asset. Market value is synonymous with the legal term
fair market value.
It is our understanding that you and any other recipient of our Opinion of fair
market value will consult with and rely solely upon your own legal counsel with
respect to said definition. No representation is made herein as to any legal
matter or the sufficiency of said definition for any purpose other than setting
forth the scope of this Opinion.
"Controlling interest" is defined as any number of shares owned, either directly
or indirectly, that, when exercised, can influence the selection of the entity's
management group, the direction of existing or future operations (sale,
divestiture, or acquisition), the declaration of dividends, etc.
In connection with this opinion, we have made such reviews, analyses, and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we:
1. Analyzed and inspected Luther's financial statements for the fiscal
years ended June 30, 1997 and 1998 audited by Ernst & Young LLP; June
30, 1994 through 1996 audited by Corbin & Wertz; and the interim
internally prepared financial statements for the period ended August
31, 1998, identified by the Management as the most current financial
statements available.
1
ANNEX II
<PAGE>
2. Inspected copies of the following documents:
. Certain sections of the draft Agreement dated October 10, 1998,
which we received on October 10, 1998.
. Internally prepared Business Plan approved at the July 17, 1998
board meeting.
. Federal Tax Return for the year ended June 30, 1997.
3. Performed a search of companies considered comparable to Luther
provided by Moody's and Compustat's Databases and Mergerstat Review
1998.
4. Reviewed certain transaction data for publicly traded companies.
5. Visited Luther headquarters and conducted telephone interviews with
and relied upon the representations of certain members of Management,
as well as outside consultants, and counsel concerning the operations,
financial condition, future prospects, and projected operations and
performance of Luther.
6. Conducted such other studies, analyses, and inquiries as we deemed
appropriate.
In rendering our Opinion, we have not independently verified the accuracy and
completeness of the information supplied to us with respect to Luther and do not
assume any responsibility with respect to it. We advise the recipients of this
Opinion that nothing has come to our attention in the course of this engagement
that has caused us to believe it unreasonable to utilize and rely upon the
expectations and representations of Luther's management regarding Luther's
future performance. Additionally, our Opinion is necessarily based on business,
economic, market and other conditions as they exist and can be evaluated by us
as of the Date of this Opinion.
In arriving at our Opinion, we have not included the existence of any non-
compete and/or consulting/management agreements or any other form of additional
distributions to shareholders that may be included as part of the proposed
Agreement. Inclusion of said agreements and/or additional distributions could
have impacted the issuance of this Opinion.
This Opinion has been prepared for the Board of Directors of Luther in
connection with their consideration of the Merger and may not be used for any
other purpose without our express, prior, written consent; provided that, this
Opinion may be included in the proxy statement sent by Luther to its
shareholders concerning the merger so long as the Opinion is reproduced in full
in such proxy statement and any summary of the Opinion in the proxy statement is
reasonably acceptable to Marshall & Stevens Incorporated. Other than the
Opinion, Marshall & Stevens Incorporated has not been engaged to render any
other financial services and our fee for this service is not contingent upon the
consummation of the aforementioned transaction.
Based upon and subject to the attached summary of our analyses and the
assumptions and limiting conditions, it is our opinion that as of the date of
this Opinion, the aggregate consideration to be received in the Merger is fair
to the Luther shareholders from a financial point of view to such shareholders
pursuant to the terms and subject to the conditions set forth in the Agreement.
Very truly yours,
MARSHALL & STEVENS INCORPORATED
*Note: Subsequent to the delivery of the above Opinion dated October 12,
1998, as to the fairness from a financial point of view of the aggregate
consideration to be received in the Merger by the shareholders of Luther, the
Merger Agreement was amended to increase the Merger Consideration from $4.62 to
$4.70 per share. Please be advised that, as of the date of our Opinion above as
to the fairness from a financial point of view of the aggregate consideration to
be received in the Merger by the shareholders of Luther, a Merger Consideration
of $4.70 per share would likewise be deemed fair to the shareholders from a
financial point of view.
2
ANNEX II
<PAGE>
CHAPTER 13
OF THE
GENERAL CORPORATION LAW
(S)1300. Right to Require Purchase -- "Dissenting Shares" and "Dissenting
Shareholder" Defined.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a short-
form merger may, by complying with this chapter, require the corporation in
which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
(2) Which were outstanding on the date for the determination of shareholders
entitled to vote on the reorganization and (A) were not voted in favor of the
reorganization or, (B) if described in subparagraph (A) or (B) of paragraph (1)
(without regard to the provisos in that paragraph), were voted against the
reorganization, or which were held of record on the effective date of a short-
form merger; provided, however, that subparagraph (A) rather than subparagraph
(B) of this paragraph applies in any case where the approval required by Section
1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
(S)1301. Demand for Purchase.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase the
shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair
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market value. The demand is not effective for any purpose unless it is received
by the corporation or any transfer agent thereof (1) in the case of shares
described in clause (i) or (ii) of paragraph (1) of subdivision (b) of Section
1300 (without regard to the provisos in that paragraph), not later than the date
of the shareholders' meeting to vote upon the reorganization, or (2) in any
other case within 30 days after the date on which the notice of the approval by
the outstanding shares pursuant to subdivision (a) or the notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
(S)1302. Endorsement of Shares.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
(S)1303. Agreed Price -- Time for Payment.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
(S)1304. Dissenter's Action to Enforce Payment.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined as
defendants in any such action and two or more such actions may be consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
(S)1305. Appraisers' Report -- Payment -- Costs.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the
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court. Thereupon, on the motion of any party, the report shall be submitted to
the court and considered on such evidence as the court considers relevant. If
the court finds the report reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
(S)1306. Dissenting Shareholder's Status as Creditor.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
(S)1307. Dividends Paid as Credit Against Payment.
Cash dividends declared and paid by the corporation upon the dissenting shares
after the date of approval of the reorganization by the outstanding shares
(Section 152) and prior to payment for the shares by the corporation shall be
credited against the total amount to be paid by the corporation therefor.
(S)1308. Continuing Rights and Privileges of Dissenting Shareholders.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
(S)1309. Termination of Dissenting Shareholder Status.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
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(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation, withdraws
the shareholder's demand for purchase of the dissenting shares.
(S)1310. Suspension of Proceedings for Payment Pending Litigation.
If litigation is instituted to test the sufficiency or regularity of the votes
of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation.
(S)1311. Exempt Shares.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
(S)1312. Attacking Validity of Reorganization or Merger.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or short-
form merger, or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is directly
or indirectly controlled by, or under common control with, another party to the
reorganization or short-form merger, subdivision (a) shall not apply to any
shareholder of such party who has not demanded payment of cash for such
shareholder's shares pursuant to this chapter; but if the shareholder institutes
any action to attack the validity of the reorganization or short-form merger or
to have the reorganization or short-form merger set aside or rescinded, the
shareholder shall not thereafter have any right to demand payment of cash for
the shareholder's shares pursuant to this chapter. The court in any action
attacking the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon 10 days' prior notice to
the corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is directly
or indirectly controlled by, or under common control with, another party to the
reorganization or short-form merger, in any action to attack the validity of the
reorganization or short-form merger or to have the reorganization or short-form
merger set aside or rescinded, (1) a party to a reorganization or short-form
merger which controls another party to the reorganization or short-form merger
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of the controlled party, and (2) a person who controls two
or more parties to a reorganization shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of any party so
controlled.
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PROXY
LUTHER MEDICAL PRODUCTS, INC.
14332 CHAMBERS ROAD
TUSTIN, CALIFORNIA 92780
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF SHAREHOLDERS OF LUTHER MEDICAL PRODUCTS, INC. TO BE HELD ON JANUARY
25, 1999.
The undersigned hereby appoints David Rollo and George Brdlik, each with full
power of substitution, as proxy of the undersigned, to attend the Special
Meeting of Shareholders of LUTHER MEDICAL PRODUCTS, INC. (the "Company") to be
held at the Irvine Marriott, 18000 Von Karman Avenue, Irvine, California 92612
commencing at 9:00 a.m. local time, and at any and all postponements or
adjournments thereof, and to vote all Common Stock of the Company, as
designated on the reverse side of this proxy, with all powers the undersigned
would possess if personally present at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. APPROVAL of the Merger Agreement pursuant to which the Company would merge
into LMP Acquisition Corp., a wholly-owned subsidiary of Becton Dickinson
Infusion Therapy Systems, Inc.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued and to be Signed on Reverse Side)
This Proxy will be voted or withheld from being voted in accordance with the
instructions specified. Where no choice is specified, this Proxy will confer
discretionary authority and will be voted FOR approval of Proposal 1. This
Proxy confers authority for each of the above named persons to vote in his
discretion with respect to amendments or variations to the matters identified
in the notice of meeting accompanying this Proxy and other matters which may
properly come before the meeting. A shareholder has the right to appoint a
person, who need not be a shareholder, to attend and act on his behalf at the
meeting, other than the person designated in this form of proxy. Such right may
be exercised by inserting the name of such person in the blank space provided.
----------------------
PLEASE SIGN HERE
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SIGNATURE (IF HELD
JOINTLY)
----------------- ,199
---
DATED
NOTE: Please sign exactly as name appears on stock certificate. When signing as
executor, administrator, attorney, trustee or guardian please give your full
title as such. If a corporation, please sign in full corporation name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person. If a joint tenancy, please have both
tenants sign.
