Rule 424(b)(3)
Registration No. 333-04591
INSTENT INC.
6271 Bury Drive
Eden Prairie, Minnesota 55346
May 31, 1996
Dear InStent Shareholder:
I am pleased to invite you to attend the Special Meeting of Shareholders of
InStent Inc., which will be held on June 28, 1996, at 8:30 a.m., local time,
at InStent's corporate headquarters, located at 6271 Bury Drive, Eden
Prairie, Minnesota. At the meeting you will be asked to consider and vote
upon the Agreement and Plan of Reorganization dated as of March 22, 1996 (the
"Merger Agreement"), which provides for the merger of a wholly-owned
subsidiary of Medtronic, Inc. with InStent.
Under the terms of the Merger Agreement, InStent shareholders will receive
0.3833 of a share of Medtronic Common Stock in exchange for each of their
shares of InStent Common Stock.
The attached Proxy Statement/Prospectus is intended to provide you with the
information that you will need to make an informed decision regarding how you
should vote on the proposed merger. It also serves as a Prospectus for
Medtronic, describing the investment in Medtronic that you will be making if
the merger is approved and you exchange your InStent Common Stock for
Medtronic Common Stock. A copy of the Merger Agreement is attached to the
Proxy Statement/Prospectus as Appendix A. I urge you to read this information
carefully before voting on the proposed merger.
The Board of Directors believes that the proposed transaction is fair and in
the best interests of InStent and its shareholders and unanimously recommends
approval of the Merger Agreement. The Board believes that the merger will,
among other things, give InStent shareholders the opportunity to continue
their equity participation on a tax-free basis in a larger, more diversified
medical products enterprise.
The Board of Directors of InStent retained the investment banking firms of
Dillon, Read & Co. Inc. and Volpe, Welty & Company to advise it with respect
to the consideration to be received in the merger. Such firms have advised
the Board that, in their respective opinions, the consideration to be
received by the InStent shareholders pursuant to the Merger Agreement is fair
to such shareholders from a financial point of view. Copies of the opinions
are attached to the Proxy Statement/Prospectus as Appendices B and C.
The Merger Agreement must be approved by the holders of a majority of the
outstanding shares of InStent Common Stock. Your vote on this matter is very
important. We urge you to carefully review the enclosed material and to
return your proxy promptly.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND PROMPTLY
RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU ATTEND
THE MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY.
Sincerely,
Warren L. Bielke
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INSTENT INC.
6271 BURY DRIVE
EDEN PRAIRIE, MINNESOTA 55346
----------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 28, 1996
----------
To the Shareholders of InStent Inc.:
A Special Meeting of the Shareholders of InStent Inc. ("InStent") will be
held at InStent's corporate headquarters, located at 6271 Bury Drive, Eden
Prairie, Minnesota, on June 28, 1996, at 8:30 a.m., local time, to consider
and act upon a proposal to approve the Agreement and Plan of Reorganization
dated as of March 22, 1996 (the "Merger Agreement"), a copy of which is
included as Appendix A to the Proxy Statement/Prospectus accompanying this
Notice. Pursuant to the Merger Agreement, (a) BYR Acquisition Corp. ("Merger
Subsidiary") will be merged (the "Merger") with and into InStent, with
InStent to be the surviving corporation and to become a wholly-owned
subsidiary of Medtronic, Inc. ("Medtronic"), and (b) holders of InStent
common stock, par value $.01 per share ("InStent Common Stock"), will receive
0.3833 of a share of Medtronic common stock, par value $.10 per share
("Medtronic Common Stock"), in exchange for each of their shares of InStent
Common Stock, as described more fully in the Proxy Statement/Prospectus
accompanying this Notice.
With respect to the proposal to approve the Merger Agreement, InStent
shareholders do not have a right to dissent and obtain payment in cash for
their shares.
Only shareholders of record as shown on the books of InStent at the close of
business on May 24, 1996 are entitled to notice of and to vote at the Special
Meeting or any adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Patricia Berg
SECRETARY
May 31, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN,
AND DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE
ENCLOSED PROXY RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
SHAREHOLDERS SHOULD NOT SEND ANY STOCK
CERTIFICATES WITH THE PROXY CARD.
- --------------------------------------------------------------------------------
PROXY STATEMENT/PROSPECTUS
INSTENT INC. MEDTRONIC, INC.
6271 Bury Drive 7000 Central Avenue N.E.
Eden Prairie, Minnesota 55346 Minneapolis, Minnesota 55432
Telephone: 612) 937-0322 Telephone: (612) 574-4000
SPECIAL MEETING OF SHAREHOLDERS OF INSTENT INC.
TO BE HELD ON JUNE 28, 1996
This Proxy Statement/Prospectus is being furnished to the shareholders of
InStent Inc. ("InStent") in connection with the special meeting of
shareholders (the "Meeting") of InStent to be held at InStent's corporate
headquarters, located at 6271 Bury Drive, Eden Prairie, Minnesota, on June
28, 1996, at 8:30 a.m. At the Meeting, InStent shareholders will be asked to
consider and act upon a proposal to approve the Agreement and Plan of
Reorganization dated as of March 22, 1996 (the "Merger Agreement"), a copy of
which is attached hereto as Appendix A, pursuant to which (a) BYR Acquisition
Corp. ("Merger Subsidiary"), a wholly-owned subsidiary of Medtronic, Inc.
("Medtronic"), will be merged (the "Merger") with and into InStent, which
shall be the surviving corporation in the Merger and shall thereby become a
wholly-owned subsidiary of Medtronic, and (b) each share of InStent common
stock, par value $.01 per share ("InStent Common Stock"), will be converted
into 0.3833 of a share of Medtronic common stock, par value $.10 per share
("Medtronic Common Stock"), as described more fully in this Proxy
Statement/Prospectus. This Proxy Statement/Prospectus also constitutes the
Prospectus of Medtronic with respect to the shares of Medtronic Common Stock
to be issued in the Merger. Medtronic has filed a Registration Statement on
Form S-4 with the Securities and Exchange Commission (the "Commission")
covering up to 4,158,943 shares of Medtronic Common Stock for possible
issuance in connection with the Merger. This Proxy Statement/Prospectus is
first being mailed to InStent shareholders on or about May 31, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
No person is authorized to give any information or to make any representation
not contained in this Proxy Statement/Prospectus, and, if given or made, such
information or representation must not be relied on as having been
authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy the securities offered by this
Proxy Statement/Prospectus, or the solicitation of a proxy, in any
jurisdiction in which, or to any person to whom, it is unlawful to make such
an offer or solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of the securities made hereunder
shall, under any circumstances, create any implication that there has been no
change in the information set forth herein or in the affairs of Medtronic,
InStent or Merger Subsidiary since the date of this Proxy
Statement/Prospectus.
Additional copies of this Proxy Statement/Prospectus and the Proxy card to be
returned for the Meeting can be obtained from InStent, 6271 Bury Drive, Eden
Prairie, Minnesota 55346, Attention: Investor Relations, telephone (612)
937-0322. QUESTIONS OR REQUESTS FOR ASSISTANCE IN COMPLETING AND SUBMITTING
PROXY CARDS MAY ALSO BE DIRECTED TO CHEMICAL MELLON SHAREHOLDER SERVICES, 450
WEST 33RD STREET, 15TH FLOOR, NEW YORK, NEW YORK 10001, TELEPHONE
800-244-7265 (TOLL FREE).
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS MAY 31, 1996.
AVAILABLE INFORMATION
This Proxy Statement/Prospectus is a prospectus of Medtronic delivered in
compliance with the Securities Act of 1933, as amended (the "Act"). Medtronic
has filed a Registration Statement on Form S-4 (the "Registration Statement")
under the Act with the Commission with respect to the shares of Medtronic
Common Stock to be issued in connection with the Merger. As permitted by the
rules and regulations of the Commission, this Proxy Statement/Prospectus
omits certain information contained in the Registration Statement on file
with the Commission. For further information pertaining to the securities
offered hereby, reference is made to the Registration Statement, including
the exhibits filed as a part thereof.
Medtronic and InStent are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, each files reports, proxy and information statements,
and other information with the Commission. The Registration Statement, as
well as reports, proxy and information statements, and other information
filed by each of Medtronic and InStent pursuant to the Exchange Act, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and are also available for inspection and copying at the regional
offices of the Commission located at Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60661, and 7 World Trade Center,
Suite 1300, New York, New York 10048; and, with respect to Medtronic, are
available for inspection at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005. Copies of such documents can also
be obtained at prescribed rates by writing to the Public Reference Section of
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
INFORMATION INCORPORATED BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. MEDTRONIC WILL PROVIDE WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS
PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST, COPIES
OF ANY AND ALL SUCH DOCUMENTS (OTHER THAN THE EXHIBITS THERETO, UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES) OF MEDTRONIC THAT ARE
INCORPORATED BY REFERENCE HEREIN. REQUESTS SHOULD BE DIRECTED TO MEDTRONIC,
INC., 7000 CENTRAL AVENUE N.E., MINNEAPOLIS, MINNESOTA 55432, ATTENTION:
INVESTOR RELATIONS, TELEPHONE (612) 574-3035. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE NO LATER THAN JUNE
21, 1996.
The following Medtronic documents are incorporated by reference herein:
1. Medtronic's Annual Report on Form 10-K, as amended, for the fiscal year ended
April 30, 1995.
2. Medtronic's Quarterly Reports on Form 10-Q for the fiscal quarters ended
July 28, 1995, October 27, 1995, and January 26, 1996.
3. Medtronic's Current Reports on Form 8-K dated February 13, 1996, March
25, 1996, and May 23, 1996.
4. The description of Medtronic's Common Stock contained in Medtronic's
Registration Statement on Form 8-A filed under Section 12 of the Exchange
Act.
5. The description of Medtronic's Preferred Stock Purchase Rights attached to
its Common Stock contained in Medtronic's Registration Statement on Form
8-A filed under Section 12 of the Exchange Act.
All documents filed by Medtronic with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and
prior to the date of the Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents.
Any statements contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes hereof to the extent that
a statement contained herein (or in any other subsequently filed document
that also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
TABLE OF CONTENTS
Page
SUMMARY 4
GENERAL INFORMATION 12
THE MERGER 13
General 13
Effective Time of the Merger 13
Background of the Merger 13
InStent's Reasons for the Merger; Recommendation of the
InStent Board of Directors 15
Medtronic's Reasons for the Merger 16
Opinions of InStent's Financial Advisors 16
Vote Required 24
Conversion of InStent Common Stock in the Merger 24
Shareholder Rights Plan 25
Treatment of Stock Options 25
Conduct of Business of InStent Pending the Merger 26
Conflicts of Interest 26
Voting Agreements 28
Conditions; Waiver 28
Amendment and Termination of the Merger Agreement 28
Expenses and Fees 29
Restrictions on Resale of Medtronic Common Stock 30
Deregistration of InStent Common Stock 30
Accounting Treatment of the Merger 30
Certain Federal Income Tax Consequences 30
Indemnification 31
Regulatory Requirements 31
Rights of Dissenting InStent Shareholders 32
COMPARATIVE STOCK PRICES AND DIVIDENDS 33
COMPARATIVE RIGHTS OF MEDTRONIC SHAREHOLDERS AND INSTENT
SHAREHOLDERS 34
Classification, Removal and Election of Directors 34
Preferred Stock 35
Special Meetings of Shareholders 35
Voting Rights; Shareholder Approvals 35
Cumulative Voting 36
Preemptive Rights 36
Amendment of the Articles of Incorporation 36
Business Combinations and Control Share Acquisitions 36
Shareholder Rights Plan 37
Related Person Business Transactions 37
INFORMATION REGARDING INSTENT 38
General 38
Technology 38
Products 39
Sales and Marketing 43
Patents and Proprietary Rights 43
Competition 44
Manufacturing 45
Government Regulation 46
Third-Party Reimbursement 47
Product Liability and Insurance 48
Employees 48
SELECTED FINANCIAL DATA OF INSTENT 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF INSTENT 50
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF INSTENT 53
CERTAIN TRANSACTIONS AND RELATIONSHIPS BETWEEN INSTENT
AND MEDTRONIC 54
LEGAL MATTERS 54
EXPERTS 54
INDEX TO FINANCIAL STATEMENTS F-1
APPENDIX A -- Agreement and Plan of Reorganization A-1
APPENDIX B -- Opinion of Dillon, Read & Co. Inc. B-1
APPENDIX C -- Opinion of Volpe, Welty & Company C-1
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROXY STATEMENT/PROSPECTUS AND IN THE DOCUMENTS INCORPORATED HEREIN
BY REFERENCE. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED
ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO, AND THIS
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, THE APPENDICES HERETO, AND THE
DOCUMENTS INCORPORATED IN THIS PROXY STATEMENT/PROSPECTUS BY REFERENCE.
PARTIES TO THE MERGER
INSTENT: InStent Inc. ("InStent"), a Delaware
corporation, was incorporated in
1991. InStent designs, develops,
manufactures and markets a variety of
highly specialized stents for a broad
range of medical indications.
InStent's stents are designed to hold
open passageways in the body, such as
the arterial vasculature, the
esophagus, bile duct and male
urethra, that may have closed or
become obstructed as a result of
aging, disease or trauma. Stents are
increasingly being used as an
alternative or adjunct to many
surgical and minimally-invasive
procedures or drug therapies.
InStent's stents include
self-expanding, nitinol
(nickel-titanium alloy) wire coils
that are inserted into the body
non-surgically via InStent's
patented, catheter-based stent
delivery systems. InStent also is
developing a series of balloon
expandable stents. Once placed,
stents exert radial force against the
walls of passageways to enable the
passageways to remain open and
functional. InStent manufactures
stents with differing flexibilities
and radial forces and in a variety of
shapes and sizes to treat specific
medical indications, ranging from
relatively rigid esophageal stents
that resist tumor ingrowth to more
pliant urethral, coronary and
vascular stents that must conform to
delicate and intricate anatomy. The
combination of InStent's stents and
delivery systems enables the
accurate, nonsurgical placement of a
variety of stents at multiple sites
within the body.
InStent's principal offices and
corporate headquarters are located at
6271 Bury Drive, Eden Prairie,
Minnesota 55346, telephone: (612)
937-0322. See "Information Regarding
InStent."
MEDTRONIC: Medtronic, Inc. ("Medtronic"), a
Minnesota corporation, was
incorporated in 1957. Medtronic is
the world's leading medical
technology company specializing in
implantable and invasive therapies.
Primary products include implantable
pacemaker systems used for treatment
of bradycardia, implantable
tachyarrhythmia management systems,
mechanical and tissue heart valves,
balloons and guiding catheters used
in angioplasty, stents, implantable
neurostimulation and drug delivery
systems, and perfusion systems
including blood oxygenators,
centrifugal blood pumps, cannula
products, and autotransfusion and
blood monitoring systems.
Medtronic's principal offices and
corporate headquarters are located at
7000 Central Avenue N.E.,
Minneapolis, Minnesota 55432,
telephone: (612) 574-4000. See
"Information Incorporated by
Reference."
BYR ACQUISITION CORP.: BYR Acquisition Corp. ("Merger
Subsidiary"), a Delaware corporation,
is a corporation recently organized
by Medtronic for the purpose of
effecting the Merger. It has no
material assets and has not engaged
in any activities except in
connection with the proposed Merger.
INSTENT SHAREHOLDERS' MEETING
TIME, DATE, AND PLACE OF MEETING: A special meeting of shareholders of
InStent will be held on June 28,
1996, at 8:30 a.m., local time, at
InStent's corporate headquarters,
located at 6271 Bury Drive, Eden
Prairie, Minnesota (the "Meeting").
PURPOSE OF THE MEETING: The purpose of the Meeting is to
consider and vote upon a proposal to
approve the Agreement and Plan of
Reorganization dated as of March 22,
1996 (the "Merger Agreement"), among
Medtronic, InStent, and Merger
Subsidiary, attached hereto as
Appendix A, providing for the merger
(the "Merger") of Merger Subsidiary
with and into InStent, as a result of
which InStent will become a
wholly-owned subsidiary of Medtronic.
Other terms and provisions related to
the Merger are set forth in the
Merger Agreement, which is summarized
in this Proxy Statement/Prospectus.
RECORD DATE: Only holders of record of InStent
Common Stock at the close of business
on May 24, 1996, will be entitled to
notice of and to vote at the Meeting
or any adjournment or adjournments
thereof.
VOTE REQUIRED: The affirmative vote by the holders
of a majority of the outstanding
shares of InStent Common Stock is
required to approve the Merger
Agreement. As of the record date,
10,043,427 shares of InStent Common
Stock were outstanding and entitled
to vote. Of such shares, 3,715,332
shares (approximately 37% of the
shares entitled to vote at the
Meeting) are beneficially owned by
directors and executive officers of
InStent or their immediate family
members. InStent's directors and
executive officers have executed
voting agreements under which such
persons agreed to vote the shares of
InStent Common Stock beneficially
owned by them or their immediate
family members in favor of the
Merger.
Approval of the Merger Agreement by
Medtronic shareholders is not
required under Minnesota law and,
accordingly, will not be sought. See
"The Merger -- Vote Required."
APPRAISAL RIGHTS: Under Delaware law, holders of
InStent Common Stock do not have the
right to dissent and receive payment
in cash for their InStent shares in
lieu of Medtronic Common Stock
pursuant to the Merger. See "The
Merger -- Rights of Dissenting
InStent Shareholders." Holders of
Medtronic Common Stock also do not
have dissenters' rights in connection
with the Merger.
DESCRIPTION OF THE MERGER
GENERAL: Upon consummation of the Merger,
Merger Subsidiary will be merged with
and into InStent and InStent will
become a wholly-owned subsidiary of
Medtronic. Each share of InStent
Common Stock outstanding immediately
prior to the Merger will be converted
into 0.3833 of a share (the
"Conversion Ratio") of Medtronic
Common Stock.
The Conversion Ratio is subject to
appropriate adjustment in the event
of a stock split, combination, stock
dividend, or other distribution of
shares of the Medtronic Common Stock
prior to the Effective Time of the
Merger. See "The Merger."
Each share of Medtronic Common Stock
received in the Merger will also
represent one Preferred Stock
Purchase Right under Medtronic's
Shareholder Rights Plan. Such Right
is not yet exercisable or separable
from the share of Medtronic Common
Stock to which it relates. See "The
Merger -- Shareholder Rights Plan."
Persons entitled to fractional shares
of Medtronic Common Stock upon such
conversion shall receive a cash
payment in lieu thereof. See "The
Merger -- Conversion of InStent
Common Stock in the Merger --
Fractional Shares."
EFFECTIVE TIME OF THE MERGER: It is expected that the Merger will
become effective as promptly as
practicable following approval of the
Merger Agreement by the requisite
vote of the InStent shareholders and
the satisfaction or waiver of the
other conditions to the Merger. See
"The Merger -- Effective Time" and
"-- Conditions; Waiver."
BACKGROUND OF THE MERGER: The terms of the Merger Agreement are
the result of arm's-length
negotiations between representatives
of Medtronic and InStent. The
following is a brief discussion of
the background of these negotiations,
the Merger and related transactions.
On August 9, 1995, representatives of
Medtronic met with senior managers of
InStent to generally discuss
InStent's stent products. On October
24, 1995, the Chairman of the Board
of InStent and the Vice Chairman of
Medtronic met to discuss various
matters, including the future of the
stent industry in general. On
November 13, 1995, representatives of
Medtronic and senior managers of
InStent met to discuss potential
mutual benefits from a strategic
alliance between InStent and
Medtronic. From November 1995 through
February 1996, members of Medtronic's
management held various discussions
and meetings with members of
InStent's management to discuss the
terms of a potential strategic
alliance. On February 7, 1996, an
initial draft of the Merger Agreement
was distributed to both companies and
their legal advisors. Discussions and
meetings between representatives of
the companies and due diligence
investigation by Medtronic continued
throughout February and March 1996.
During March 1996, InStent engaged
Dillon, Read & Co. Inc. ("Dillon
Read") and Volpe, Welty & Company as
financial advisors. Throughout March
1996, members of the managements of
InStent and Medtronic held various
discussions and meetings relating to
the terms of the proposed Merger, and
on March 12, 1996, the Conversion
Ratio of 0.3833 shares of Medtronic
Common Stock for each share of
InStent Common Stock was agreed upon,
subject to the approval of InStent's
Board of Directors. Negotiations
continued through March 22, 1996. On
March 22, 1996, the Board of
Directors of InStent, based upon the
factors described below under "--
Reasons for the Merger," unanimously
approved the terms of the Merger
Agreement. The Merger Agreement was
signed following the conclusion of
the meeting of the Board of Directors
of InStent. See "The Merger --
InStent's Reasons for the Merger;
Recommendation of the InStent Board
of Directors," "-- Medtronic's
Reasons for the Merger," and "--
Opinions of InStent's Financial
Advisors."
REASONS FOR THE MERGER: In reaching its conclusions to
approve the Merger Agreement and to
recommend the approval of the Merger
Agreement by the InStent
shareholders, the InStent Board of
Directors considered the opportunity
to continue equity participation in a
larger, more diversified medical
device company and to receive cash
dividends on their shareholdings;
increasing consolidation in the
medical device industry and other
competitive pressures that favor
larger, more diversified medical
device companies; Medtronic's
worldwide sales and marketing
presence; the terms and conditions of
the Merger Agreement; the respective
fairness opinions of Dillon Read and
Volpe, Welty & Company; the
Conversion Ratio and historical
trading prices for InStent Common
Stock and Medtronic Common Stock; the
likelihood of consummation of the
Merger and the limited conditions to
the consummation of the Merger; and
the expectation that the Merger will
be nontaxable to the shareholders of
InStent for United States federal
income tax purposes.
The Board of Directors of InStent
believes that the Merger offers
InStent the opportunity to join a
company with greater financial
resources and flexibility, a more
diversified product line and a
well-developed domestic and
international sales, marketing and
distribution system, and provides
competitive strength and business
opportunities not otherwise available
to InStent if it remained a separate
company.
THE BOARD OF DIRECTORS OF INSTENT HAS
UNANIMOUSLY APPROVED THE MERGER, AND
THE BOARD RECOMMENDS THAT THE
SHAREHOLDERS OF INSTENT VOTE IN FAVOR
OF THE PROPOSAL SUBMITTED FOR
CONSIDERATION AT THE MEETING.
See "The Merger -- InStent's Reasons
for the Merger; Recommendation of the
InStent Board of Directors," "--
Medtronic's Reasons for the Merger,"
"-- Opinions of InStent's Financial
Advisors," and "-- Comparative Stock
Prices and Dividends." For
information on the interests of
certain persons in the Merger, see
"The Merger -- Conflicts of
Interest."
INSTENT'S FINANCIAL ADVISORS: Dillon Read and Volpe, Welty &
Company were retained by InStent to
advise it with respect to the
fairness of the consideration to be
received by InStent shareholders in
the Merger from a financial point of
view. Dillon Read and Volpe, Welty &
Company have each rendered their
written opinions to the effect that
the consideration to be received in
the Merger by InStent shareholders is
fair to the InStent shareholders from
a financial point of view. The full
text of the opinions of Dillon Read
and Volpe, Welty & Company, which
contain information as to the
assumptions made, matters considered
and the scope and limitations on the
reviews undertaken, are set forth as
Appendices B and C, respectively, to
this Proxy Statement/Prospectus and
should be read in their entirety. See
"The Merger -- Opinions of InStent's
Financial Advisors."
FLUCTUATION IN MARKET PRICE: There can be no assurance that the
recent market prices of Medtronic
Common Stock will be maintained until
or after the consummation of the
Merger. See "Comparative Stock Prices
and Dividends."
Under the Merger Agreement, the
Conversion Ratio is fixed and will
not change based upon any increase or
decrease in the market price of
Medtronic Common Stock at the
Effective Time. Therefore, there is
no minimum or maximum value to be
received for each share of InStent
Common Stock in the Merger. See "The
Merger -- Conversion of InStent
Common Stock in the Merger."
CERTAIN FEDERAL INCOME TAX The Merger will be treated as a
CONSEQUENCES: tax-free reorganization within the
meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue
Code of 1986, as amended (the
"Code"). Medtronic, InStent and
Merger Subsidiary will each be a
"party to the reorganization" within
the meaning of Section 368(b) of the
Code.
No gain or loss will be recognized by
the shareholders of InStent upon
their receipt of Medtronic Common
Stock in exchange for their InStent
Common Stock. An InStent shareholder
receiving cash in lieu of fractional
shares, however, will be required to
recognize gain, if any, realized in
the transaction but not in excess of
the cash received by such
shareholder. See "The Merger --
Certain Federal Income Tax
Consequences."
ACCOUNTING TREATMENT: Medtronic intends to account for the
Merger as a "pooling of interests"
for accounting and financial
reporting purposes under generally
accepted accounting principles.
Consummation of the Merger is
conditioned upon Medtronic and
InStent receiving letters from Price
Waterhouse LLP, Medtronic's and
InStent's independent accountants,
confirming letters provided by Price
Waterhouse LLP as of the date of the
Merger Agreement stating that the
Merger will qualify as a pooling of
interests transaction under Opinion
16 of the Accounting Principles
Board. See "The Merger -- Accounting
Treatment of the Merger."
TREATMENT OF STOCK OPTIONS: Pursuant to the Merger Agreement, the
outstanding options to purchase
InStent Common Stock not otherwise
vested will be accelerated and fully
vested as a result of the Merger. All
options that are not exercised and
remain outstanding at the Effective
Time will be assumed by Medtronic and
shall thereafter be exercisable on
the same terms and conditions, except
for appropriate adjustments to
reflect the Conversion Ratio and
conversion into options to purchase
Medtronic Common Stock. See "The
Merger -- Treatment of Stock Options"
and "-- Conflicts of Interest."
CONFLICTS OF INTEREST: In considering the recommendation of
the Board of Directors of InStent
with respect to the Merger Agreement
and the transactions contemplated
thereby, shareholders of InStent
should be aware that certain members
of the management of InStent and the
Board of Directors of InStent have
certain interests in the Merger that
are in addition to the interests of
shareholders of InStent generally.
These interests include, among other
things, the interests of certain
executives and directors of InStent
in stock options that will
immediately vest and become
exercisable as a result of a change
of control of InStent, such as the
Merger, and the obligation of
Medtronic to indemnify and hold
harmless directors, officers,
employees and agents of InStent under
certain circumstances from claims,
actions, suits or proceedings.
Additionally, each of Kenneth Anstey,
Dr. Mordechay Beyar, Dr. Rafael
Beyar, Warren Bielke, Oren Globerman,
Katsumi Oneda, Lewis Pell and Dr.
Daniel Yachia has executed separate
noncompetition agreements (the
"Noncompetition Agreements") with
Medtronic pursuant to which these
individuals have agreed that they
will not be employed by, associated
with or render services to any person
or entity engaged in the design,
development, manufacture, marketing
or sale of stents, stent graphs or
any stent graph combination or stent
delivery system anywhere in the
world. Each Noncompetition Agreement
expires five years after the
Effective Time, except with respect
to Dr. Yachia, whose Noncompetition
Agreement expires two years after the
Effective Time. The Noncompetition
Agreements were executed
simultaneously with the Merger
Agreement and are specifically
conditioned upon the effectiveness of
the Merger. In addition, four members
of management of InStent are parties
to change in control agreements with
InStent which provide certain
benefits to these individuals if,
during the 24-month period following
a "change in control" of InStent
(such as the Merger), (i) such
individual's employment is terminated
by InStent for any reason other than
for death, "disability" or "for
cause" or (ii) the individual
terminates his or her employment for
"good reason," as such terms are
defined in the respective change in
control agreements. Additionally, in
anticipation of the execution of the
Merger Agreement, and as an
inducement to Medtronic to execute
the Merger Agreement and consummate
the transactions contemplated
thereby, InStent, along with certain
other parties, including Dr. M. Beyar
and Dr. Yachia, each a director and
principal shareholder of InStent,
executed a Second Amendment to
Assignment Agreement (the "Second
Amendment"), pursuant to which the
parties agreed to limit InStent's
obligation to pay product royalties
under a Patent Assignment Agreement
to a maximum of $3 million. The
parties to the Second Amendment also
agreed to limit the duration of
InStent's royalty payment obligations
under the Patent Assignment Agreement
to a maximum of six years. The Second
Amendment is contingent upon the
effectiveness of the Merger. The
InStent Board of Directors was aware
of each of these interests and
considered them, among other matters,
in approving the Merger Agreement.
See "The Merger -- Conflicts of
Interest."
REGULATORY APPROVAL: The only federal or state regulatory
approval needed to effect the Merger
was the expiration of the waiting
period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976
(the "HSR Act"), which period expired
on May 2, 1996. See "The Merger --
Regulatory Requirements."
COMPARISON OF RIGHTS OF MEDTRONIC SHAREHOLDERS AND INSTENT SHAREHOLDERS
Medtronic and InStent are incorporated under the laws of the States of
Minnesota and Delaware, respectively. The rights of InStent shareholders are
currently governed by the Certificate of Incorporation, as amended, and
Restated Bylaws of InStent. Upon consummation of the Merger, InStent
Shareholders will become shareholders of Medtronic and their rights as such
will be governed by the Restated Articles of Incorporation and Bylaws, as
amended, of Medtronic. See "The Merger -- Comparative Rights of Medtronic
Shareholders and InStent Shareholders."
RECENT PRICES OF MEDTRONIC AND INSTENT COMMON STOCK
On March 22, 1996, the last trading day preceding public announcement of the
Merger Agreement, the reported closing sale price of Medtronic Common Stock
on the NYSE was $57.625 per share. On that day, the reported closing sale
price of InStent Common Stock on the Nasdaq National Market was $21.875 per
share. On an equivalent per share basis, the reported closing sale price of
InStent Common Stock on March 22, 1996 (calculated by multiplying the closing
sale price of Medtronic Common Stock by the Conversion Ratio of 0.3833) would
have been $22.09. See "Comparative Stock Prices and Dividends."
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data for
Medtronic for each of the five consecutive fiscal years ended April 30, 1995
and the nine months ended January 26, 1996 and January 27, 1995, and for
InStent for the period from April 17, 1991 (inception) to December 31, 1991,
each of the four consecutive fiscal years ended December 31, 1995 and the
three months ended March 31, 1996 and 1995. Such data should be read in
conjunction with the consolidated financial statements and the unaudited
condensed consolidated interim financial statements of Medtronic and InStent,
all of which are incorporated by reference or included herein. Selected
unaudited financial data for Medtronic for the nine months ended January 26,
1996 and January 27, 1995 and selected unaudited financial data for InStent
include all adjustments (consisting only of normal recurring accruals) that
each considers necessary for a fair presentation of the consolidated
operating results for such interim periods. Results for the interim periods
are not necessarily indicative of results for the full years. See
"Information Incorporated by Reference," "Selected Financial Data of InStent"
and "Index to Financial Statements."
MEDTRONIC, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Net sales $1,021,423 $1,176,912 $1,328,208 $1,390,922 $1,742,392
Net earnings before cumulative effect
of accounting changes* 133,372 161,541 211,584 232,357 294,000
Net earnings 133,372 161,541 197,228 232,357 294,000
Earnings per share from continuing
operations** 0.56 0.68 0.89 1.01 1.28
Earnings per share** 0.56 0.68 0.83 1.01 1.28
Total assets 1,024,141 1,163,456 1,292,480 1,623,252 1,946,732
Long-term debt 7,918 8,618 10,851 20,232 14,200
Cash dividends per share** 0.10 0.12 0.14 0.17 0.21
</TABLE>
(wide table continued from above)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 27, JANUARY 26,
1995 1996
<S> <C> <C>
Net sales $1,225,670 $1,573,011
Net earnings before cumulative effect
of accounting changes* 206,179 312,400
Net earnings 206,179 312,400
Earnings per share from continuing
operations** 0.90 1.34
Earnings per share** 0.90 1.34
Total assets 1,716,916 2,230,277
Long-term debt 18,275 15,852
Cash dividends per share** 0.16 0.20
</TABLE>
INSTENT INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM APRIL 17, THREE MONTHS ENDED
1991 (INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31,
1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ -- $ 36 $ 132 $ 772 $ 2,403 $ 422 $ 1,004
Net loss before extraordinary items and
cumulative effect of accounting changes (448) (1,110) (2,174) (2,376) (1,741) (423) (936)
Net loss (448) (1,110) (2,174) (2,376) (1,741) (423) (936)
Loss per share from continuing
operations (0.09) (0.23) (0.45) (0.37) (0.22) (0.07) (0.09)
Net loss per share (0.09) (0.23) (0.45) (0.37) (0.22) (0.07) (0.09)
Total assets 719 1,064 3,682 1,754 44,764 2,340 43,899
Long-term debt -- -- -- -- -- -- --
Cash dividends per share -- -- -- -- -- -- --
</TABLE>
* In the first quarter of fiscal year 1993, Medtronic reported the cumulative
effect of accounting changes related to the adoption of new accounting
standards for post-retirement benefits and income taxes which, net of taxes,
totaled $14,356,000. Income from litigation settlements and certain
non-recurring costs are included as a component of operating income.
** In each of September 1995 and September 1994, Medtronic declared a
two-for-one common stock split, paid in the form of a 100 percent stock
dividend, to shareholders of record. All references in the Selected
Historical Consolidated Financial Data to earnings per share and cash
dividends per share have been restated to reflect these stock splits.
COMPARATIVE PER SHARE DATA
The following summary sets forth certain historical per share data of
Medtronic and InStent and combined per share data on an unaudited pro forma
basis after giving effect to the Merger on a pooling of interests basis
assuming that 0.3833 of a share of Medtronic Common Stock is issued in
exchange for each InStent share and option outstanding. The assumed values
used to determine the 0.3833 Conversion Ratio were $23 per share of InStent
Common Stock and $60 per share of Medtronic Common Stock. Such values were
determined as a result of arm's-length negotiation between Medtronic and
InStent management. This data should be read in conjunction with the selected
historical financial data and the separate historical financial statements of
Medtronic and InStent, including the notes thereto, incorporated by reference
or included in this Proxy Statement/Prospectus. See "Information Incorporated
by Reference" and "Index to Financial Statements." The unaudited pro forma
data are provided for comparative purposes only and do not purport to be
indicative of actual or future operating results or financial position that
would have occurred or will occur upon consummation of the Merger.
Presentation of full pro forma financial statements is not included because
the impact of the Merger is not deemed to be significant and the disclosure
is not deemed to be material.
<TABLE>
<CAPTION>
EARNINGS (LOSS)
BOOK FROM CONTINUING CASH
VALUE OPERATIONS DIVIDENDS
<S> <C> <C> <C>
MEDTRONIC HISTORICAL DATA:
Per Medtronic share at and for the nine months ended January 26, 1996 $7.08 $ 1.34 $0.20
Per Medtronic share at and for the fiscal year ended April 30, 1995 5.78 1.28 0.21
Per Medtronic share for the fiscal year ended April 30, 1994 * 1.01 0.17
Per Medtronic share for the fiscal year ended April 30, 1993 * 0.89 0.14
INSTENT HISTORICAL DATA:
Per InStent share at and for the 3 months ended March 31, 1996 4.29 (0.09) 0
Per InStent share at and for the nine months ended December 31, 1995 4.39 (0.15) 0
Per InStent share at and for the fiscal year ended December 31, 1995 4.39 (0.22) 0
Per InStent share at and for the 12 months ended March 31, 1995 0.32 (0.35) 0
Per InStent share for the fiscal year ended December 31, 1994 * (0.37) 0
Per InStent share for the 12 months ended March 31, 1994 * (0.45) 0
Per InStent share for the fiscal year ended December 31, 1993 * (0.45) 0
Per InStent share for the 12 months ended March 31, 1993 * (0.25) 0
MEDTRONIC AND INSTENT PRO FORMA COMBINED DATA:
Per Medtronic share at and for the nine months ended January 26, 1996(1) 7.14 1.31 0.20
Per InStent share equivalent(2) at and for the nine months ended January 26,
1996(1) 2.74 0.50 0.08
Per Medtronic share at and for the fiscal year ended April 30, 1995(3) 5.67 1.24 0.21
Per InStent share equivalent(2) at and for the fiscal year ended April 30,
1995(3) 2.17 0.48 0.08
Per Medtronic share for the fiscal year ended April 30, 1994(4) * 0.98 0.17
Per InStent share equivalent(2) for the fiscal year ended April 30, 1994(4) * 0.38 0.07
Per Medtronic share for the fiscal year ended April 30, 1993(5) * 0.87 0.14
Per InStent share equivalent(2) for the fiscal year ended April 30, 1993(5) * 0.33 0.05
</TABLE>
(1) The combined pro forma data combine the financial information of
Medtronic at and for the nine-month period ended January 26, 1996 with
the financial information of InStent at and for the nine-month period
ended December 31, 1995.
(2) The equivalent pro forma combined information represents the pro forma
combined net income and book value multiplied by 0.3833, which is the
assumed Conversion Ratio.
(3) The combined pro forma data combine the financial information of
Medtronic at and for the year ended April 30, 1995 with the financial
information of InStent at and for the 12-month period ended March 31,
1995.
(4) The combined pro forma data combine the financial information of
Medtronic for the year ended April 30, 1994 with the financial
information of InStent for the 12-month period ended March 31, 1994.
(5) The combined pro forma data combine the financial information of
Medtronic for the year ended April 30, 1993 with the financial
information of InStent for the 12-month period ended March 31, 1993.
* Disclosure is not required.
GENERAL INFORMATION
This Proxy Statement/Prospectus is being furnished to the shareholders of
InStent in connection with the solicitation by the Board of Directors of
InStent of proxies to be voted at the Meeting to be held on June 28, 1996.
At the Meeting, InStent shareholders will be asked to consider and vote upon
the approval of the Agreement and Plan of Reorganization dated as of March
22, 1996 (the "Merger Agreement"), among Medtronic, InStent, and Merger
Subsidiary, providing for the Merger of Merger Subsidiary, a wholly-owned
subsidiary of Medtronic, with and into InStent, as a result of which InStent
will become a wholly-owned subsidiary of Medtronic. A copy of the Merger
Agreement is attached as Appendix A to this Proxy Statement/Prospectus. Other
terms and provisions related to the Merger are set forth in the Merger
Agreement, as described herein.
The Board of Directors of InStent has unanimously approved the Merger. The
Board of Directors of Medtronic has approved the Merger and the issuance of
shares of Medtronic Common Stock in the Merger. See "The Merger -- Background
of the Merger." Applicable Minnesota law does not require that Medtronic
shareholders approve the Merger, and no such approval is being sought.
Medtronic, as the sole shareholder of Merger Subsidiary, has approved the
Merger.
Pursuant to the Merger Agreement, upon effectiveness of the Merger, each
outstanding share of InStent Common Stock will be converted into the right to
receive 0.3833 of a share of Medtronic Common Stock. See "The Merger --
General" and "The Merger -- Conversion of InStent Common Stock in the
Merger."
The close of business on May 24, 1996 (the "Record Date") has been fixed as
the record date for determination of the holders of InStent Common Stock who
are entitled to notice of and to vote at the Meeting or at any adjournment
thereof. InStent has only one class of capital stock outstanding, Common
Stock, $.01 par value per share. As of the Record Date, there were 10,043,427
shares of InStent Common Stock outstanding held by approximately 100 holders
of record. The holders of record on the Record Date of shares of InStent
Common Stock are entitled to one vote per share at the Meeting. The presence
at the Meeting in person or by proxy of the holders of a majority of the
outstanding shares of InStent common stock entitled to vote shall constitute
a quorum for the transaction of business. The affirmative vote of the holders
of a majority of the outstanding shares of InStent Common Stock is required
for approval of the Merger. The directors and executive officers of InStent
have agreed to vote the InStent shares beneficially owned by them or their
immediate family members in favor of the Merger. See "The Merger -- Vote
Required" and " -- Voting Agreements."
Representatives of Price Waterhouse LLP, InStent's independent accountants,
are expected to be present at the Meeting. Such representatives will have the
opportunity to make a statement if they so desire and are expected to be
available to respond to appropriate questions.
A proxy card is enclosed for use by InStent shareholders. Such shareholders
are solicited on behalf of the Board of Directors of InStent to SIGN AND
RETURN THE PROXY CARD IN THE ACCOMPANYING ENVELOPE. No postage is required if
mailed within the United States. QUESTIONS OR REQUESTS FOR ASSISTANCE IN
COMPLETING AND SUBMITTING PROXY CARDS MAY BE DIRECTED TO CHEMICAL MELLON
SHAREHOLDER SERVICES AT THE ADDRESS OR TELEPHONE NUMBER LISTED ON THE COVER
OF THIS PROXY STATEMENT/PROSPECTUS.
All shares of InStent Common Stock represented by properly executed proxies
not revoked will be voted at the Meeting and will be voted in accordance with
the instructions contained therein. Proxies containing no instructions will
be voted in favor of approval of the Merger Agreement. A shareholder who has
executed and returned a proxy may revoke it at any time before it is voted,
but only by executing and returning a proxy bearing a later date, by giving
written notice of revocation to an officer of InStent, or by attending the
Meeting and voting in person. Abstentions will be treated as shares present
for purposes of determining a quorum for the Meeting but will have the same
effect as a vote against approval of the Merger Agreement. If a broker or
other record holder or nominee indicates on a proxy that it does not have
direction or authority as to certain shares to vote on the Merger Agreement,
those certain shares will be considered present at the Meeting for purposes
of determining a quorum but will not be considered present with respect to
the vote on the Merger Agreement.
THE BOARD OF DIRECTORS OF INSTENT RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE APPROVAL OF THE MERGER AGREEMENT. See "The Merger -- Conflicts of
Interest" for a discussion of conflicts of interest that certain directors
and members of management have in connection with the Merger.
SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR PROXY CARDS.
In addition to the solicitation of proxies by use of mail, the directors,
officers or regular employees of InStent may, but without compensation other
than their regular compensation, solicit proxies personally or by telephone
or fax. In addition, Chemical Mellon Shareholder Services, a firm that
provides professional proxy soliciting services, has been engaged to assist
in the solicitation of proxies from brokers, bank nominees, institutional
holders and other InStent shareholders and to serve as information agent in
connection with the Merger. Chemical Mellon Shareholder Services will receive
reasonable and customary compensation for such services and reimbursement of
reasonable out-of-pocket expenses. InStent intends to reimburse brokerage
houses and other custodians, nominees, and fiduciaries for reasonable
out-of-pocket expenses incurred in forwarding copies of solicitation material
to beneficial owners of InStent Common Stock held of record by such persons.
InStent and Medtronic have agreed to share equally all expenses relating to
the printing and mailing of this Proxy Statement/Prospectus and the filing of
it with the Commission.
All information in this Proxy Statement/Prospectus with respect to Medtronic
has been furnished by Medtronic and all information with respect to InStent
has been furnished by InStent.
The mailing of this Proxy Statement/Prospectus to shareholders of InStent is
expected to commence on or about May 31, 1996.
THE MERGER
SET FORTH BELOW IS A BRIEF DESCRIPTION OF CERTAIN TERMS OF THE MERGER
AGREEMENT AND RELATED MATTERS. THIS DESCRIPTION DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER
AGREEMENT, WHICH IS ATTACHED HERETO AS APPENDIX A AND IS INCORPORATED HEREIN
BY REFERENCE.
GENERAL
Medtronic, Merger Subsidiary, and InStent have entered into the Merger
Agreement, which provides that Merger Subsidiary will be merged with and into
InStent, with InStent becoming a wholly-owned subsidiary of Medtronic. In the
Merger, InStent will change its name to "Medtronic InStent, Inc." Each
outstanding share of InStent Common Stock will be converted at the Effective
Time (as defined below) into the right to receive 0.3833 of a share of
Medtronic Common Stock. See "The Merger -- Conversion of InStent Common Stock
in the Merger."
EFFECTIVE TIME OF THE MERGER
As soon as practicable after the conditions to consummation of the Merger
described below have been satisfied or waived, and unless the Merger
Agreement has been terminated as provided below, a certificate of merger will
be filed with the Secretary of State of the State of Delaware, at which time
the Merger will become effective (the "Effective Time"). It is presently
contemplated that the Effective Time will be as soon as practicable after
approval of the Merger Agreement at the Meeting.
BACKGROUND OF THE MERGER
The terms of the Merger Agreement are the result of arm's-length negotiations
between representatives of Medtronic and InStent. InStent was not evaluating
any other potential business combination partners or other potential business
combinations prior to or during the course of its discussions with Medtronic
with respect to the terms of the Merger. The following is a brief discussion
of the background of these negotiations, the Merger and related transactions.
Over the past several years, InStent has had informal discussions with
various medical device companies, including Medtronic, to consider the
potential opportunities for cooperation in the development, sales and
marketing of InStent's products.
On August 9, 1995, James Kimmel, Director, Corporate Development of
Medtronic, Hartmut Loos, Director, World Wide Coronary Stent Business of
Medtronic, and Jon Tremmel, President, Interventional Vascular Business of
Medtronic, met at InStent with Warren Bielke, InStent's President and Chief
Executive Officer, and senior managers of InStent to generally discuss
InStent's stent products.
On October 24, 1995, Lewis Pell, the Chairman of the Board of InStent, met
with Glen Nelson, M.D., the Vice Chairman of Medtronic. Mr. Pell and Dr.
Nelson had a wide ranging discussion concerning InStent's products and
history, recent consolidation in the medical device industry and the future
of the stent industry in general.
On November 13, 1995, Mr. Bielke, Dr. Mordechay Beyar, Director of New
Product Development and a director of InStent, Dr. Raphael Beyar, a director
of and medical consultant to InStent, and Oren Globerman, Vice President and
General Manager of InStent (Israel) Ltd., met with Dr. Nelson and Messrs.
Kimmel and Loos at the American Heart Association meeting in Anaheim,
California, to discuss InStent's product development and the potential mutual
benefits from a strategic alliance between InStent and Medtronic. Various
alternatives, including distribution agreements, joint development agreements
or a potential business combination of InStent and Medtronic, were discussed.
On various dates in November and December 1995, Mr. Pell and Dr. Nelson
discussed by telephone various matters, including, without limitation,
InStent's product lines, research and development projects and potential
synergies from a strategic alliance between InStent and Medtronic. In
addition, beginning in the summer of 1995, the parties periodically met and
consulted with Dr. Shlomo A. Ben-Haim, a world renowned expert in the field
of cardiopulmonary interactions and cardiac arrhythmia, whom the parties came
to regard as a mutual technical advisor, serving to corroborate InStent's
technology and assisting in the parties' evaluation of potential realizable
synergies between Medtronic and InStent. See "The Merger -- Expenses and
Fees."
On November 14, 1995, the Board of Directors of InStent held a regular
meeting at which, among other matters, Mr. Bielke advised the Board
concerning the history of discussions with Medtronic.
On January 4, 1996, Dr. Nelson, Mr. Tremmel and other members of Medtronic's
management met with Messrs. Bielke, Globerman and Pell, and Dr. M. Beyar, and
other members of InStent's management, to discuss InStent's products,
markets, research and development projects and business strategy, and to
conduct due diligence.
On January 19, 1996, InStent and Medtronic executed a confidentiality
agreement covering information exchanges.
A series of telephone conversations between Mr. Pell and Dr. Nelson occurred
on various dates between January 4 and February 7, 1996 to discuss the terms
of a potential merger. As a result of these telephone conversations, on
February 7, 1996, an initial draft of the Merger Agreement was distributed to
both companies and their legal advisors.
On February 14, 1996, Dr. Nelson, Michael Ellwein, Vice President, Corporate
Development and Associate General Counsel of Medtronic, and Robert Griffin,
President, Pacing Business for Medtronic, met with Messrs. Pell, Bielke, and
Globerman and Drs. M. Beyar and R. Beyar at InStent (Israel) Ltd. to discuss
the research and development projects at InStent (Israel) Ltd. and to conduct
due diligence.
On February 15, 1996, William George, President and Chief Executive Officer
of Medtronic, visited InStent (Israel) Ltd. to examine the research and
development facilities and to meet with Messrs. Pell, Bielke, and Globerman
and Drs. M. Beyar and R. Beyar. Also on February 15, 1996, members of
Medtronic's management met with members of InStent's management at InStent
corporate headquarters to conduct due diligence.
On February 28, 1996, Mr. Bielke and other members of InStent's management
met with Mr. Loos, Robert Paulson, Director, Corporate Development for
Medtronic, and other members of Medtronic's management to discuss product
strategies and organizational issues relating to InStent and the proposed
merger. Patent counsel for Medtronic also conducted due diligence at InStent.
On February 29, 1996, Mr. Pell and Mr. Bielke met with representatives of
Dillon Read and Volpe, Welty & Company to advise them of InStent's
discussions with Medtronic and to discuss the potential retention of such
firms as financial advisors to InStent.
On March 1, 1996, Messrs. Pell and Bielke and Dr. M. Beyar met with Mr.
Tremmel in Washington, D.C. to discuss a potential distribution arrangement
pursuant to which Medtronic would distribute InStent's cardiovascular stent
products.
In early March 1996, Mr. Pell and Dr. Nelson met in Minneapolis, Minnesota,
to discuss various terms of the proposed Merger Agreement, including the
Conversion Ratio.
On March 9, 1996, the Board of Directors of Medtronic approved the
acquisition of InStent, subject to final negotiations by senior management,
and authorized Medtronic's officers to undertake all acts necessary or
desirable to effect the Merger.
On March 12, 1996, at a meeting of Mr. Pell and Dr. Nelson held in New York
City, a Conversion Ratio of 0.3833 shares of Medtronic Common Stock for each
share of InStent Common Stock was agreed upon, subject to the approval of
InStent's Board of Directors.
On March 18, 1996, management and counsel for both companies met in
Minneapolis, Minnesota, to review the initial draft of the Merger Agreement.
On March 18, 1996, Mr. Bielke had telephone conversations with
representatives of each of Dillon Read and Volpe, Welty & Company to advise
them of the proposed terms of the Merger Agreement and to engage Dillon Read
and Volpe, Welty & Company as financial advisors to InStent. Although InStent
had previously advised representatives of Dillon Read and Volpe, Welty &
Company of the existence of its discussions with Medtronic, no representative
from either organization participated in any of the meetings with Medtronic
prior to this date. Both Dillon Read and Volpe, Welty & Company are
nationally recognized investment banking firms that were familiar with
InStent, each having acted as a co-managing underwriter of InStent's initial
public offering of shares in July 1995.
A revised draft of the Merger Agreement was distributed on March 19, 1996,
based upon terms negotiated at the March 18 meeting. Telephone conversations
among the parties and their advisors continued regularly until a final draft
of the Merger Agreement was prepared for execution.
The Board of Directors of InStent met by telephone on March 22, 1996.
Representatives of Dillon Read and Volpe, Welty & Company, following a review
of their analyses, delivered the fairness opinions of their respective firms.
See "The Merger -- Opinions of InStent's Financial Advisors." InStent's legal
counsel reviewed with the InStent directors the final draft of the Merger
Agreement, the affiliate's letter, voting agreement, and noncompetition
agreement and certain related matters, and discussed the resolution of
previously outstanding issues relating thereto. After considering the
presentations of its financial and legal advisors, the Board of Directors of
InStent unanimously (i) determined that the terms of the Merger were fair to,
and in the best interest of, the holders of InStent Common Stock, from a
financial point of view; (ii) approved the terms of the Merger Agreement;
(iii) authorized InStent's officers to undertake all acts necessary or
desirable to effectuate the Merger; (iv) ratified and approved all acts or
actions taken previously by any officer or director of InStent in connection
with the Merger; and (v) recommended approval of the Merger Agreement by the
holders of InStent Common Stock. The Merger Agreement was signed following
the conclusion of the meeting of the Board of Directors of InStent.
INSTENT'S REASONS FOR THE MERGER; RECOMMENDATION OF THE INSTENT BOARD OF
DIRECTORS
The Board of Directors of InStent has determined that the Merger is fair to,
and in the best interests of, InStent and its shareholders. Accordingly, the
Board of Directors of InStent has approved the Merger Agreement and
recommends that the shareholders of InStent vote FOR approval and adoption of
the Merger Agreement. In reaching its determination, the Board of Directors
of InStent consulted with InStent's management, as well as its legal counsel
and its financial advisors, and considered a number of factors, including,
without limitation, the following:
(1) The Merger affords InStent shareholders the opportunity to
continue equity participation in a larger, more diversified medical device
company, and to receive cash dividends on their shareholdings while
reducing their exposure to the risks inherent in InStent's dependence upon
the market for stent products, and the difficulties of competing against
larger companies with more diversified product lines and greater financial
resources.
(2) The Board of Directors of InStent believes that the health care
environment is changing in response to the increasing emphasis on cost
containment, the emergence of large managed-care buying groups, hospital
consolidations, the desire of hospitals and other purchasers of medical
devices to do business with a few vendors that can deliver a high volume
of broad-based technologies, and the impact of federal regulations on
reimbursement policies and the approval of new medical devices. The Board
of Directors of InStent believes that medical device markets including the
stent market are experiencing increased consolidation and becoming
increasingly competitive. The Board of Directors of InStent believes that
a strategic alliance with a larger, more diversified medical device
company will allow InStent's products to be more effectively developed and
marketed.
(3) The Board of Directors of InStent believes that Medtronic's
worldwide sales and marketing presence in the cardiovascular and other
medical device markets will increase revenues from InStent's
self-expandable and balloon expandable stents.
In the course of its deliberations, the Board of Directors of InStent
reviewed and considered the following additional factors, each of which it
determined were favorable to the Merger: (i) the terms and conditions of the
Merger Agreement, including the amount and form of the consideration, in that
the consideration to be received by InStent shareholders afforded them a tax
deferred opportunity to gain equity participation in a more diversified
medical device company, with the additional opportunity to receive cash
dividends on their share holdings; (ii) the respective fairness opinions of
Dillon Read and Volpe, Welty & Company; (iii) the Conversion Ratio, which
presented InStent shareholders with the possibility of obtaining a premium
for their shares of InStent Common Stock relative to the historical trading
values of such Common Stock; (iv) the likelihood of consummation of the
Merger, including the terms and conditions of the Merger Agreement and the
limited conditions to the consummation of the Merger; and (v) the expectation
that the Merger will be nontaxable to the shareholders of InStent for United
States federal income tax purposes.
The Board of Directors of InStent believes that the Merger offers InStent the
opportunity to join a company with greater financial resources and
flexibility, a more diversified product line and a well-developed domestic
and international sales, marketing and distribution system, and provides
competitive strength and business opportunities not otherwise available to
InStent if it remained a separate company.
In view of the wide variety of factors considered in connection with its
evaluation of the proposed Merger, the Board of Directors of InStent did not
quantify or otherwise attempt to prioritize the specific factors considered
in reaching its decision. See "The Merger -- Opinions of InStent's Financial
Advisor" and "Comparative Stock Prices and Dividends."
MEDTRONIC'S REASONS FOR THE MERGER
Medtronic believes that the acquisition of InStent will enhance Medtronic's
product offerings and that InStent's broad line of self-expanding stents,
when combined with Medtronic's balloon expandable coronary stent, will give
Medtronic the broadest line of stents in the industry. Medtronic believes
that the Merger will position Medtronic to be a technology and market leader
in the stent therapy field, and will significantly strengthen its vascular
business.
OPINIONS OF INSTENT'S FINANCIAL ADVISORS
DILLON, READ & CO. INC.
On March 22, 1996, the InStent Board of Directors received Dillon Read's
opinion dated March 22, 1996 that, as of such date, the consideration to be
received by InStent shareholders pursuant to the Merger Agreement was fair to
such shareholders from a financial point of view. A COPY OF DILLON READ'S
WRITTEN OPINION IS ATTACHED AS APPENDIX B HERETO AND SHOULD BE READ IN ITS
ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, MATTERS CONSIDERED,
ASSUMPTIONS MADE AND METHODS EMPLOYED BY DILLON READ IN ARRIVING AT ITS
OPINION.
In arriving at its opinion Dillon Read (i) reviewed certain publicly
available information, including equity research analyst reports, relating to
the business, financial condition and operations of InStent and Medtronic;
(ii) reviewed certain financial and other information furnished to Dillon
Read by InStent and Medtronic that is not publicly available, including
financial forecasts prepared by the management of InStent; (iii) conducted
discussions with certain senior officers of InStent and Medtronic with
respect to the operations, financial condition, history and prospects of each
company; (iv) reviewed historical common stock price and trading volume data
of InStent Common Stock and Medtronic Common Stock; (v) compared the proposed
financial terms of the Merger with the financial terms of certain recent
mergers and acquisition transactions; (vi) reviewed publicly available
financial information relating to public companies whose operations are
generally comparable to those of InStent and Medtronic; (vii) conducted such
other financial studies, analyses and investigations and considered such
other information as Dillon Read deemed necessary in arriving at its opinion,
but none of which, either individually or in the aggregate, were determined
by Dillon Read to be material.
In connection with its review, at InStent's direction, Dillon Read did not
assume responsibility for independent verification of any of the publicly
available information or nonpublic financial or other information furnished
by InStent or Medtronic and, with InStent's consent, relied on its being
complete and accurate in all material respects. In addition, at InStent's
direction, Dillon Read did not make any independent evaluation or appraisal
of any of the assets or liabilities (contingent or otherwise) of InStent or
any of its subsidiaries, nor was Dillon Read furnished with any such
evaluation or appraisal. With respect to the financial forecasts, at
InStent's direction, Dillon Read assumed that they had been reasonably
prepared on a basis reflecting the best available estimates at the time and
judgments of InStent's management as to the future financial performance of
InStent. Dillon Read was not authorized to and did not solicit indications of
interest in a business combination with InStent from any party, and InStent
advised Dillon Read that it had not held discussions with any party other
than Medtronic or conducted an "auction process." For purposes of its
opinion, Dillon Read did not consider the impact any future acquisitions by
Medtronic may have on the fairness, from a financial point of view, of the
consideration to be received by the shareholders of InStent in the Merger.
Dillon Read's opinion was based upon market, economic and other circumstances
existing and disclosed to them as of the date of the opinion.
The amount of consideration to be received by the shareholders of InStent
pursuant to the Merger Agreement was determined through negotiations between
InStent and Medtronic.
In connection with rendering its opinion, Dillon Read considered a variety of
valuation methods. The material valuation methods used are summarized below.
These analyses taken together support Dillon Read's opinion.
COMPARABLE COMPANY ANALYSIS. Using publicly available information, Dillon
Read analyzed, based upon market trading values, multiples of certain
financial criteria (such as latest 12 months revenues, projected revenues and
book value) used to value certain other companies, which, in Dillon Read's
judgment, were generally comparable to InStent for the purpose of this
analysis. The primary comparable company analysis was comprised of eight
public medical device businesses. These businesses included: Arrow
International, Inc., Cardiometrics, Inc., Corvita Corporation, EndoVascular
Technologies, Inc., InControl, Inc., Perclose, Inc., Possis Medical, Inc.,
and Target Therapeutics, Inc.
The range and median for market capitalization as a multiple of book value
for the primary comparable companies were as follows: 4.7x to 12.9x with a
median of 6.4x. The adjusted market capitalization (defined as market
capitalization plus the book value of debt less cash and cash equivalents) as
a multiple of each of the indicated statistics for the primary comparable
companies were as follows: (a) latest 12 months revenues -- 4.6x to 13.7x
with a median of 4.7x; (b) estimated calendar 1996 revenues based upon
estimates from industry sources -- 3.2x to 32.8x with a median of 11.0x; (c)
estimated calendar 1997 revenues based upon estimates from industry sources
- -- 1.9x to 28.2x with a median of 7.7x; and (d) estimated calendar 1998
revenues -- 1.4x to 13.2x with a median of 4.1x.
A secondary group of companies, Arterial Vascular Engineering, Inc.,
CardioThoracic Systems, Inc. and Heartport, Inc., were also reviewed for
indicative purposes only. Each of these companies was in registration at the
time of Dillon Read's opinion and thus the multiples were not directly
comparable to the primary comparable company group or to InStent.
InStent's multiples based upon the consideration to be received by InStent
shareholders in connection with the Merger, which at the time of Dillon
Read's rendering of its opinion had a value of $22.38 per share, were as
follows: (a) book value -- 5.4x; (b) latest 12 months revenues -- 80.8x; (c)
estimated calendar year 1996 revenues -- 14.9x; (d) estimated calendar year
1997 revenues -- 5.2x; and (e) estimated calendar year 1998 revenues -- 2.6x.
Dillon Read believes that these multiples supported Dillon Read's view that
the consideration to be received by InStent shareholders is fair, from a
financial point of view, to such shareholders because, taken as a whole, the
ratios described above were within the range of, or exceeded, selected public
comparable multiples.
COMPARABLE MERGERS AND ACQUISITIONS. Using publicly available information,
Dillon Read analyzed, based upon the purchase price of the equity of the
acquired companies and total transaction values, multiples of certain
financial criteria (such as net income, projected net income for two years,
book value and revenues) used to value certain mergers and acquisitions of
acquired companies.
The merger and acquisition transactions that were analyzed included 12
transactions completed or pending in the medical device and supplies industry
which, in Dillon Read's judgment, were generally comparable to the Merger for
purposes of this analysis. The acquisitions reviewed by Dillon Read, in
reverse chronological order of announcement date, included: (a) the pending
acquisition of DAIG Corporation by St. Jude Medical, Inc., (b) the
acquisition of Cordis Corporation by Johnson & Johnson, (c) the acquisition
of EP Technologies, Inc. by Boston Scientific Corporation, (d) the
acquisition of Meadox Medicals, Inc. by Boston Scientific Corporation, (e)
the acquisition of Heart Technology, Inc. by Boston Scientific Corporation,
(f) the acquisition of Medrad, Inc. by Schering A.G., (g) the acquisition of
MedChem Products, Inc. by C.R. Bard, Inc., (h) the acquisition of Mitek
Surgical Products, Inc. by Johnson & Johnson, (i) the acquisition of SCIMED
Life Systems, Inc. by Boston Scientific Corporation, (j) the acquisition of
NAMIC USA Corporation by Pfizer Inc., (k) the acquisition of Cardiovascular
Imaging Systems, Inc. by Boston Scientific Corporation, and (l) the
acquisition of Webster Laboratories, Inc. by Cordis Corporation.
The range and median for the purchase price of equity as a multiple of each
of the indicated statistics for the above transactions were as follows: (a)
latest 12 months net income -- 20.4x to 48.3x with a median of 32.9x; (b)
estimated next fiscal year earnings (based upon estimates from industry
sources) -- 16.8x to 49.1x with a median of 25.9x; (c) estimated fiscal year
earnings two years following (based upon estimates from industry sources) --
13.2x to 32.9x with a median of 19.4x; and (d) book value -- 1.8x to 14.1x
with a median of 4.8x. The range and median for the transaction value
(defined as purchase price of equity plus the book value of debt less cash
and cash equivalents) as a multiple of latest 12 months revenues for the
group of comparable acquisitions were as follows: 2.1x to 11.1x with a median
of 4.7x.
InStent's multiples based upon the consideration to be received by InStent
shareholders in connection with the Merger, which at the time of Dillon
Read's rendering of its opinion had a value of $22.38 per share, were as
follows: (a) net income for fiscal year ending December 31, 1997 -- 21.3x;
(b) book value -- 5.4x; and (c) latest 12 months net revenues -- 80.8x.
Dillon Read believes that these multiples supported Dillon Read's view that
the consideration to be received by InStent shareholders is fair, from a
financial point of view, to such shareholders because, taken as a whole, the
ratios described above were within the range of, or exceeded, selected
comparable acquisition multiples. The following multiples were deemed not to
be meaningful due to a lack of significant historical and projected earnings:
net income for latest 12 months and net income for fiscal year ending
December 31, 1996.
DISCOUNTED CASH FLOW ANALYSIS. Dillon Read calculated the present value of
the future streams of after-tax cash flows that InStent could be expected to
produce in the future. The analysis utilized financial and operating
information relating to the business, operations and prospects of InStent
provided by InStent management and relied on certain assumptions with respect
to InStent's future business and operations. With respect to InStent
management's financial forecasts, Dillon Read noted variances between
InStent's financial forecasts and industry analyst estimates. Therefore,
Dillon Read deemed it appropriate to perform a discounted cash flow analysis
that examined a range of sensitivities where operating results were assumed
to be 70%, 80%, and 90% of InStent's financial projections. After-tax cash
flows were calculated as the after-tax operating earnings plus depreciation
and amortization less capital expenditures and net changes in working
capital. Dillon Read calculated terminal values for InStent by applying to
projected earnings before depreciation, amortization, interest and taxes, a
range of multiples based on the analysis of the trading multiples of
Medtronic comparable companies, because it provided market multiples of
operating results for a group of established medical device companies. The
cash flow streams and terminal values were then discounted to present values
using a range of discount rates from 25% to 35%, which were chosen based on
several assumptions regarding factors such as inflation rates, interest
rates, the inherent risk in InStent's business, products and technology as
well as the medical technology industry as a whole, and the cost of capital
of InStent. The analysis yielded a range of values for InStent's Common Stock
of $15.75 to $32.99 per share. Dillon Read believes that the discounted cash
flow analysis supported Dillon Read's opinion that the consideration to be
received by InStent shareholders is fair, from a financial point of view,
because the consideration valued at the time of Dillon Read's opinion was
within the range of present values of InStent's future cash flows.
TRADING HISTORY OF THE COMMON STOCK. Dillon Read analyzed (i) the price and
trading volume history of InStent and Medtronic and (ii) the distribution of
volume at various prices of InStent Common Stock and Medtronic Common Stock
during 1995 and the first calendar quarter of 1996. See "Comparative Stock
Prices and Dividends" for information concerning the price history of the
InStent Common Stock and the Medtronic Common Stock. The trading history of
Medtronic Common Stock was examined to evaluate the relative reasonableness
of the market price of Medtronic Common Stock in light of historical trading
levels and volumes. The data underlying Dillon Read's review of the trading
history of the respective Common Stock of InStent and Medtronic consisted
solely of the historic price and volume trading statistics of the respective
companies with a view toward confirming that the Conversion Ratio was
calculated within the range of such historical trading values. Dillon Read
believes that Medtronic's trading history supported Dillon Read's view that
the consideration to be received by InStent shareholders is fair, from a
financial point of view, pursuant to the calculation of the Conversion Ratio
as described herein.
FINANCIAL ANALYSIS OF MEDTRONIC. The public market valuation of the Medtronic
Common Stock was also examined to study the reasonableness of the market
price of the Medtronic Common Stock in light of certain financial criteria of
Medtronic and certain comparable companies. Using publicly available
information, Dillon Read analyzed, based upon market trading values, dividend
yields and multiples of certain financial criteria (such as latest 12 months
net income; projected net income for two years; latest 12 months earnings
before interest, taxes, depreciation and amortization and book value) used to
value certain other companies which, in Dillon Read's judgment, were
generally comparable to Medtronic for the purposes of this analysis. Dillon
Read compared Medtronic to five medical device companies: Boston Scientific
Corporation, C.R. Bard, Inc., Guidant Corporation, Johnson & Johnson and St.
Jude Medical, Inc.
The range and median for market capitalization as a multiple of each of the
indicated statistics for the Medtronic comparable companies were as follows: (a)
latest 12 months net income -- 15.3x to 38.2x with a median of 25.6x; (b)
estimated calendar 1996 earnings (based upon estimates from industry sources) --
16.6.x to 29.7x with a median of 22.3x; (c) estimated calendar 1997 earnings
(based upon estimates from industry sources) -- 15.0x to 24.0x with a median of
19.4x; and (d) book value -- 3.6x to 14.1x with a median of 6.8x. The adjusted
market capitalization (defined as market capitalization plus the book value of
debt less cash and cash equivalents) as a multiple of each of the indicated
statistics was as follows: (a) latest 12 months earnings before depreciation,
amortization, interest and taxes -- 11.2x to 14.6x with a median of 12.8x; and
(b) latest 12 months revenues -- 2.1x to 8.1x with a median of 3.9x. The range
and median for dividend yields for the Medtronic comparable companies were as
follows: 0.0% to 1.9% with a median of 0.2%.
Medtronic's multiples, based upon the market trading activity at the time of
the rendering of Dillon Read's opinion, were as follows: (a) latest 12 months
net income -- 33.7x; (b) net income for calendar year 1996 (based on industry
estimates) -- 27.0x; (c) net income for calendar year 1997 (based on industry
estimates) -- 22.5x; (d) book value -- 8.3x; (e) latest 12 months earnings
before depreciation, amortization, interest and taxes -- 18.7x; and (f)
latest 12 months revenues -- 6.4x. Medtronic's dividend yield based upon the
market trading activity at the time of the rendering of Dillon Read's opinion
was 0.4%. Dillon Read believes that Medtronic's trading multiples and
dividend yield supported Dillon Read's view that the consideration to be
received by InStent shareholders is fair, from a financial point of view,
pursuant to the calculation of the Conversion Ratio as described herein.
Dillon Read believes that its analyses must be considered as a whole and that
selecting portions of its analyses and other factors considered by it,
without considering all factors and analyses, could create a misleading view
of the processes underlying its opinion. Dillon Read did not quantify the
effect of each factor upon its opinion. Dillon Read made numerous assumptions
with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond InStent's and Dillon
Read's control. Any estimates contained in Dillon Read's analyses are not
necessarily indicative of actual values, which may be significantly more or
less favorable than as set forth therein. Estimates of the financial value of
companies do not purport to be appraisals or necessarily reflect the prices
at which companies actually may be sold. Because such estimates inherently
are subject to uncertainty, none of InStent, Medtronic, Dillon Read or any
other person assumes responsibility for their accuracy. In rendering its
opinion, Dillon Read expressed no view as to the range of values at which the
Medtronic Common Stock may trade following consummation of the Merger, nor
did Dillon Read make any recommendations to the InStent shareholders with
respect to how such shareholders should vote on the Merger, or to the
advisability of disposing of or retaining such Medtronic Common Stock
following the Merger.
The InStent Board of Directors selected Dillon Read as its financial advisor
because Dillon Read is a nationally recognized investment banking firm with
substantial experience in transactions similar to the Merger. As a part of
its investment banking business, Dillon Read is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions. Dillon Read participated in the initial public offering of
InStent Common Stock as a managing underwriter and continues to make a market
in InStent Common Stock. In the ordinary course of its business, Dillon Read
trades InStent Common Stock for its own account and the accounts of its
customers and, accordingly, may at any time hold a long or short position in
InStent Common Stock.
Pursuant to the engagement letter between InStent and Dillon Read, InStent
has paid to Dillon Read for its services a fee of $100,000 and has agreed to
pay Dillon Read for its services an additional $525,000 upon consummation of
the Merger. InStent has also agreed to reimburse Dillon Read for its
reasonable expenses, including attorneys' fees, and to indemnify Dillon Read
against certain liabilities in connection with its engagement.
VOLPE, WELTY & COMPANY
On March 22, 1996, Volpe, Welty & Company delivered their written opinion to
the Board of Directors of InStent that, as of the date of such opinion and
based on the matters described therein, the consideration to be received by
the shareholders of InStent in the Merger was fair, from a financial point of
view, to the holders of shares of InStent Common Stock. Volpe, Welty &
Company's opinion is directed only to the financial terms of the Merger
Agreement and does not constitute a recommendation to any shareholder of
InStent as to how such shareholder should vote at the Meeting. The full text
of the written opinion of Volpe, Welty & Company, dated March 22, 1996, which
sets forth the assumptions made and matters considered in, and the
limitations on, the review undertaken in connection with such opinion, is
attached as Appendix C to this Proxy Statement/Prospectus and is incorporated
herein by reference. HOLDERS OF SHARES OF INSTENT COMMON STOCK ARE URGED TO,
AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In arriving at its opinion, dated March 22, 1996, Volpe, Welty & Company
reviewed a draft of the Merger Agreement dated March 19, 1996 and certain
business and financial information relating to InStent and its subsidiaries,
including certain financial projections, estimates and analyses provided to
Volpe, Welty & Company by InStent, and reviewed and discussed the businesses and
prospects of InStent and its subsidiaries with representatives of InStent's
management. Volpe, Welty & Company considered certain financial and stock market
data of InStent and compared that information to similar data for certain other
publicly-held companies in businesses similar to that of InStent. Volpe, Welty &
Company also reviewed certain business and financial information relating to
Medtronic, including certain financial projections, estimates and analyses
provided to Volpe, Welty & Company by Medtronic, and had discussions with
certain representatives of management of Medtronic. Volpe, Welty & Company
considered certain financial and stock market data of Medtronic and compared
that information to similar data for certain other publicly-held companies in
businesses similar to that of Medtronic. In arriving at its opinion, Volpe,
Welty & Company also considered the financial terms of certain other mergers and
acquisitions that Volpe, Welty & Company believes to be generally comparable to
the Merger and considered such other information, financial studies and
analyses, and financial, economic and market criteria, as Volpe, Welty & Company
deemed relevant.
Volpe, Welty & Company relied without independent verification upon the
accuracy and completeness of all of the financial and other information
reviewed by them for purposes of their opinion. In addition, Volpe, Welty &
Company has not made an independent evaluation or appraisal of the assets and
liabilities of InStent or Medtronic or any of their respective subsidiaries,
and Volpe, Welty & Company has not been furnished with any such evaluation or
appraisal. Volpe, Welty & Company assumed, with InStent's consent, that (i)
the Merger will be accounted for under the pooling-of-interests method of
accounting, (ii) the Merger will be a tax-free reorganization, and (iii) any
material liabilities (contingent or otherwise, known or unknown) of InStent
and Medtronic are as set forth in the consolidated financial statements of
InStent and Medtronic, respectively. With respect to the financial
projections, estimates and analyses provided to Volpe, Welty & Company by
InStent and Medtronic, Volpe, Welty & Company assumed that such information
was reasonably prepared on bases reflecting the best currently available
estimates and judgments of management of InStent and Medtronic, respectively,
as to future financial performance. For purposes of its opinion, Volpe, Welty
& Company did not consider the impact any future acquisitions by Medtronic
may have on the fairness, from a financial point of view, of the
consideration to be received by the shareholders of InStent in the Merger.
Volpe, Welty & Company's opinion states that it is necessarily based on
economic, monetary, market and other conditions existing on, and on the
information made available to Volpe, Welty & Company as of, the date of such
opinion.
The following is a summary of certain of the financial analyses used by
Volpe, Welty & Company in connection with the meeting of the InStent Board on
March 22, 1996. The working assumptions utilized by Volpe, Welty & Company in
conducting their analyses assumed the Conversion Ratio of 0.3833 shares of
Medtronic Common Stock per share of InStent Common Stock and a value of
$21.625 per share of InStent Common Stock and a value of $58.375 per share of
Medtronic Common Stock, based on their respective closing prices on March 21,
1996.
PRO FORMA COMBINED FINANCIAL ANALYSIS. Volpe, Welty & Company reviewed
certain financial information for InStent, Medtronic and the pro forma
combined entity resulting from the Merger based on the earnings estimates of
the management of InStent and Volpe, Welty & Company for InStent and of a
composite of publicly available financial projections developed by equity
research analysts at various investment banking firms for Medtronic. Such
analysis indicated that, assuming a Conversion Ratio of 0.3833 shares of
Medtronic Common Stock per share of InStent Common Stock in the Merger,
holders of shares of Medtronic Common Stock would experience dilution in
earnings per share in calendar years 1996 and 1997 of 1.72% and 0.04%,
respectively, based on InStent management estimates for InStent and dilution
in earnings per share in calendar years 1996 and 1997 of 1.50% and 0.63%,
respectively, based on Volpe, Welty & Company estimates for InStent. Such
analysis assumed that no synergies would be achieved by the combined company.
STOCK TRADING AND STOCK PRICE PREMIUM ANALYSIS. Volpe, Welty & Company
reviewed the historical trading prices for shares of InStent Common Stock and
shares of Medtronic Common Stock, separately, and in comparison to each
other. Volpe, Welty & Company also reviewed the premiums (and discounts) paid
in nine transactions in the medical device industry from January 1, 1994
through March 21, 1996. Such analysis indicated that in such transactions,
the per share value of the consideration paid represented (i) a premium
(discount) ranging from (18.8%) to 52.7% to the market price of the acquired
company's common stock one day prior to the first day it was publicly
disclosed that the acquired company was an acquisition candidate; (ii) a
premium (discount) ranging from (9.6%) to 61.5% to the market price of the
acquired company's common stock one week prior to the first day it was
publicly disclosed that the acquired company was an acquisition candidate;
and (iii) a premium ranging from 6.1% to 71.9% to the market price of the
acquired company's common stock four weeks prior to the first day it was
publicly disclosed that the acquired company was an acquisition candidate.
Volpe, Welty & Company's analysis also indicated that, based on the average
premium of 25.5% and the median premium of 26.7% for the nine transactions
one day prior to the first day they were publicly disclosed; the average
premium of 28.8% and the median premium of 26.8% for the nine transactions
one week prior to the first day they were publicly disclosed; and the average
premium of 42.2% and the median premium of 34.4% for the nine transactions
four weeks prior to the first day they were publicly disclosed, the per share
value for InStent Common Stock would range between $25.99 and $28.80.
CONTRIBUTION ANALYSIS. Volpe, Welty & Company reviewed certain financial
information (including sales, gross profit, EBIT and net income) for InStent,
Medtronic and the pro forma combined entity resulting from the Merger based
on historical results, estimated future results of InStent forecasted by
InStent management and by Volpe, Welty & Company and Medtronic forecasted by
analysts. Based on such review, Volpe, Welty & Company analyzed the
contribution of each of InStent and Medtronic to the pro forma combined
entity resulting from the Merger and compared the results of such analysis to
the implied percentage ownership interest of holders of shares of InStent
Common Stock, weighted to match InStent's contribution to the pro forma
combined entity, based on the financial information. Such analysis indicated
that InStent would contribute to the pro forma combined entity resulting from
the Merger (i) based on actual results for the 12 months ended December 31,
1995 for InStent and January 26, 1996 for Medtronic, 0.1% of sales, 0.1% of
gross profit, (0.5%) of EBIT and (0.4%) of net income, (ii) based on
estimated results for the 12 months ending December 31, 1996 for InStent
(InStent management estimates) and for Medtronic (analyst estimates), 0.5% of
sales, 0.5% of gross profit, (0.3%) of EBIT and 0.0% of net income, and (iii)
based on estimated results for the 12 months ending December 31, 1996 for
InStent (Volpe, Welty & Company estimates) and for Medtronic (analyst
estimates), 0.6% of sales, 0.5% of gross profit, 0.0% of EBIT and 0.3% of net
income. Such analysis, which correlated percentage contribution to equity
valuation, indicated a range of $0.05 to $7.04 per share of InStent Common
Stock for InStent's contribution to the combined company.
DISCOUNTED CASH FLOW ANALYSIS. Based on InStent's projected loss in the
fiscal year ending December 31, 1996 and earnings in the fiscal years ending
December 31, 1997 and 1998 projected by InStent's management, estimates for
earnings in the fiscal years ending December 31, 1999 and 2000 projected by
Volpe, Welty & Company and assuming certain working capital requirements,
capital expenditures, and depreciation and amortization, Volpe, Welty &
Company estimated the net present value of InStent's future cash flows. In
conducting their analysis, Volpe, Welty & Company assumed terminal value
multiples of year 2000 EBIT ranging from 8.0x to 12.0x and discount rates
ranging from 30.0% to 40.0%. Such analysis, which included the value of cash
and cash equivalents as of December 31, 1995, indicated a range of $139.7
million to $245.5 million (or a range of $12.88 to $22.63 per share of
InStent Common Stock) for the net present value of InStent's future cash
flows.
SELECTED COMPARABLE PUBLIC COMPANIES ANALYSIS. Volpe, Welty & Company
reviewed and compared certain actual and estimated financial, operating and
stock market information of InStent and selected comparable companies in the
medical device industry, including Arrow International, Inc., Cardiometrics,
Inc., Corvita Corporation, Endosonics Corporation, EndoVascular Technologies,
Inc., InControl, Inc., Perclose, Inc., Possis Medical Inc., Sofamor Danek,
Spine-Tech, Inc., Target Therapeutics, Inc., Ventritex, Inc., Arterial
Vascular Engineering, Inc. (in registration), Heartport, Inc. (in
registration), and CardioThoracic Systems, Inc. (in registration)
(collectively, the "Selected Companies"). For the Selected Companies, such
analysis indicated (i) average and median values of market capitalization as
a multiple of latest 12 months ("LTM") sales (33.9x and 15.1x, respectively),
gross profit (29.3x and 14.0x, respectively), EBIT (37.5x and 19.7x,
respectively) and net income (47.3x and 28.3x, respectively), and (ii) based
on consensus analysts' estimates, average and median calendarized 1996
price/earnings multiples of 37.6x and 23.5x and 1997 price/earnings multiples
of 33.9x and 27.5x, respectively. Such analysis, which applied the relevant
comparable public company multiples to InStent financial information for the
LTM ended December 31, 1995 and InStent projections by InStent management and
Volpe, Welty & Company for the years ending December 31, 1996 and 1997,
indicated a range of $0.04 to $34.66 per share of InStent Common Stock.
SELECTED COMPARABLE MERGER AND ACQUISITION TRANSACTIONS ANALYSIS. Volpe,
Welty & Company analyzed certain information relating to selected
transactions (the "Selected Transactions") in the medical device industry
from January 1, 1994 through March 21, 1996. Such analysis indicated (i) for
eight of the Selected Transactions, average and median values of aggregate
consideration as a multiple of LTM sales of 5.4x and 4.5x, (ii) for seven of
the Selected Transactions, average and median values of aggregate
consideration as a multiple of LTM EBITDA of 23.7x and 21.6x, (iii) for six
of the Selected Transactions, average and median values of aggregate
consideration as a multiple of LTM EBIT of 26.4x and 25.4x, and (iv) for
eight of the Selected Transactions, average and median values of aggregate
consideration as a multiple of LTM net income of 37.9x and 33.7x. Such
analysis, which applied the relevant comparable merger and acquisition
transactions multiples to InStent financial information for the LTM ended
December 31, 1995, indicated a range of $1.00 to $1.19 per share of InStent
Common Stock.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying Volpe, Welty & Company's opinion. In arriving at their fairness
determination, Volpe, Welty & Company considered the results of all such
analyses. No company or transaction used in the above analysis as a comparison
is identical to InStent or Medtronic or the contemplated transaction. The
analyses were prepared solely for purposes of Volpe, Welty & Company providing
their opinion to the InStent Board as to the fairness of the Conversion Ratio to
the holders of shares of InStent Common Stock and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. Because such analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of InStent,
Medtronic, Volpe, Welty & Company or any other person assumes responsibility if
future results are materially different from those forecasted. As described
above, Volpe, Welty & Company's opinion to the InStent Board was one of many
factors taken into consideration by the InStent Board in making its
determination to approve the Merger Agreement. Volpe, Welty & Company was not
requested to, and did not, make any recommendations to the InStent Board of
Directors as to utilizing a specific exchange ratio. The Conversion Ratio was
determined through negotiations between InStent management and Medtronic
management. The foregoing summary does not purport to be a complete description
of the analysis performed by Volpe, Welty & Company and is qualified by
reference to the written opinion of Volpe, Welty & Company set forth in Appendix
C hereto.
Volpe, Welty & Company, as part of their investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate and
other purposes. Volpe, Welty & Company is familiar with InStent, having acted
as its financial advisor in connection with the Merger Agreement. Volpe,
Welty & Company has also provided certain investment banking services to
InStent from time to time, including acting as a managing underwriter of the
initial public offering of shares of InStent Common Stock. Volpe, Welty &
Company is not currently acting on behalf of Medtronic as an investment
banker but may provide investment banking services to Medtronic in the
future. InStent selected Volpe, Welty & Company as its financial advisor
because Volpe, Welty & Company is an investment banking firm that has
substantial experience in transactions similar to the Merger.
Volpe, Welty & Company provides a full range of financial, advisory and
brokerage services and in the course of its market making and normal trading
activities may from time to time effect transactions and hold positions in
the securities or options on securities of InStent and Medtronic for its own
account and for the account of customers.
Pursuant to a letter agreement dated March 19, 1996 (the "Engagement
Letter"), InStent engaged Volpe, Welty & Company to act as its financial
advisor in connection with the Merger. Pursuant to the terms of the
Engagement Letter, InStent has agreed to pay Volpe, Welty & Company $100,000
for services rendered to date and has agreed to pay Volpe, Welty & Company an
additional $400,000 upon consummation of the Merger. InStent has also agreed
to reimburse Volpe, Welty & Company for their reasonable out-of-pocket
expenses, including the fees and disbursements of legal counsel, arising in
connection with Volpe, Welty & Company's engagement and to indemnify Volpe,
Welty & Company against certain liabilities, including certain liabilities
under the federal securities laws.
VOTE REQUIRED
Approval of the Merger requires the affirmative vote of the holders of a
majority of the outstanding shares of InStent Common Stock. Each holder of
InStent Common Stock outstanding as of the Record Date is entitled to one
vote for each share held. On the Record Date, there were 10,043,427 shares of
InStent Common Stock outstanding. Of such shares, 3,715,332 shares
(approximately 37% of the outstanding shares of InStent Common Stock) are
beneficially owned by directors and executive officers of InStent or their
immediate family members. InStent's directors and executive officers have
executed voting agreements under which such persons have agreed to vote the
shares of InStent Common Stock beneficially owned by them or their immediate
family members in favor of the Merger. See "The Merger -- Voting Agreements."
Medtronic, as the sole shareholder of Merger Subsidiary, has approved the
Merger Agreement. Approval of the Merger Agreement by Medtronic's
shareholders is not required under Minnesota law and is not being sought.
CONVERSION OF INSTENT COMMON STOCK IN THE MERGER
At the Effective Time, each share of InStent Common Stock issued and
outstanding immediately prior thereto will be automatically converted into
the right to receive 0.3833 of a share (the "Conversion Ratio") of Medtronic
Common Stock.
The 0.3833 of a share of Medtronic Common Stock to be received in exchange
for each share of InStent Common Stock shall be reduced proportionately if
the sum of the number of shares of InStent Common Stock outstanding at the
Effective Time plus the number of shares subject to outstanding options,
warrants or other rights to acquire shares of InStent Common Stock
(collectively, "Stock Rights") at the Effective Time exceeds 10,850,362 (the
sum of InStent shares outstanding and shares underlying options outstanding
on the date the Merger Agreement was signed) or if the aggregate exercise
price of all such Stock Rights is less than the aggregate exercise price
reflected in the Schedules to the Merger Agreement. InStent does not
anticipate that any such adjustment will be required.
If, prior to the Effective Time, Medtronic splits or combines the Medtronic
Common Stock or pays a stock dividend or other stock distribution in shares
of Medtronic Common Stock, then the Conversion Ratio will be appropriately
adjusted.
Based on the number of shares of InStent Common Stock outstanding on the
Record Date (assuming a Conversion Ratio of 0.3833 of a Medtronic share for
every InStent share and after giving effect to the exercise of all
outstanding options to acquire InStent Common Stock), an estimated 4,158,943
shares of Medtronic Common Stock will be issued in exchange for InStent
Common Stock upon consummation of the Merger. Such shares would represent
approximately 1.7% of the approximately 239,654,782 shares of Medtronic
Common Stock that would be outstanding after consummation of the Merger.
InStent shareholders receiving Medtronic Common Stock in the Merger will
receive a number of Medtronic shares determined pursuant to the Conversion
Ratio, as defined at the beginning of this section. The Conversion Ratio is
fixed and will not change based upon any increase or decrease in the market
price of Medtronic Common Stock at the Effective Time. Therefore, there is no
minimum or maximum value to be received for each share of InStent Common
Stock in the Merger. In addition, because of fluctuations in the value of
Medtronic shares, the market value of the Medtronic Common Stock that InStent
shareholders receive in the Merger may increase or decrease following the
Merger. See "Comparative Stock Prices and Dividends" for information
regarding the historical market prices of Medtronic Common Stock.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Medtronic Common
Stock will be issued, and no Medtronic dividend, stock split or interest will
relate to any fractional share. No fractional share interests will entitle
the owner thereof to vote or to any rights of a shareholder of Medtronic. All
fractional shares of Medtronic Common Stock to which a holder of InStent
Common Stock immediately prior to the Effective Time would otherwise be
entitled, at the Effective Time, shall be aggregated if and to the extent
multiple InStent stock certificates of such holder are submitted together to
the Exchange Agent. If a fractional share results from such aggregation,
then, in lieu of any such fractional share, each holder of InStent Common
Stock who otherwise would be entitled to receive a fractional share of
Medtronic Common Stock in the Merger will receive an amount of cash (without
interest) determined by multiplying (i) the Average Market Price by (ii) the
fractional share interest of Medtronic Common Stock to which such holder
would otherwise be entitled. For these purposes, "Average Market Price" shall
mean the average (rounded to the nearest full cent, with the cents rounded up
if the third decimal place is 5 or more) of the closing sale prices of a
share of Medtronic Common Stock as reported on the New York Stock Exchange
(the "NYSE") Composite Tape, as reported in The Wall Street Journal, for the
20 consecutive NYSE trading days ending and including the fifth NYSE trading
day immediately preceding the Effective Time.
EXCHANGE OF SHARES OF INSTENT COMMON STOCK
As soon as practicable after the Effective Time, the Exchange Agent will mail
a letter of transmittal to holders of a certificate or certificates that
prior to the Effective Time represented shares of InStent Common Stock. The
letter of transmittal will include instructions regarding the surrender of
certificates representing shares of InStent Common Stock in exchange for
certificates representing shares of Medtronic Common Stock.
As soon as practicable after the Effective Time, the Exchange Agent will
distribute to holders of shares of InStent Common Stock, upon surrender to
the Exchange Agent of one or more certificates for such shares of InStent
Common Stock for cancellation, together with a duly-executed letter of
transmittal, (i) one or more certificates representing the number of whole
shares of Medtronic Common Stock into which the shares represented by the
certificate(s) have been converted and (ii) a check in the amount of any cash
in lieu of fractional shares. Holders of InStent Common Stock will not be
entitled to receive interest on any cash to be received in the Merger.
After the Effective Time, certificates representing shares of InStent Common
Stock converted into Medtronic Common Stock in the Merger will be deemed for
all purposes to evidence ownership of the shares of Medtronic Common Stock
into which they were converted. Holders of InStent Common Stock will be
entitled to any dividends that become payable to persons who are holders of
record of Medtronic Common Stock as of a record date that follows the
Effective Time, but only after they have surrendered their certificates
representing shares of InStent Common Stock for exchange. Any such dividends
will be remitted to each InStent shareholder entitled thereto, without
interest, at the time that such certificates representing shares of InStent
Common Stock are surrendered for exchange, subject to any applicable
abandoned property, escheat or similar law. Holders of InStent Common Stock
will not be entitled, however, to dividends that become payable before or
after the Effective Time to persons who were holders of record of Medtronic
Common Stock as of a record date prior to the Effective Time.
SHAREHOLDER RIGHTS PLAN
Each InStent shareholder entitled to receive shares of Medtronic Common Stock
pursuant to the Merger will receive, together with each share of Medtronic
Common Stock, one Medtronic Preferred Stock Purchase Right pursuant to the
Medtronic Shareholder Rights Plan. Such Right will be represented by the
certificate representing such share of Medtronic Common Stock. Such Right is
not yet exercisable or separable from the share of Medtronic Common Stock to
which it relates. See "Comparative Rights of Medtronic Shareholders and
InStent Shareholders -- Shareholder Rights Plan."
TREATMENT OF STOCK OPTIONS
Under the terms of the Merger Agreement, at the Effective Time, each
outstanding option to purchase shares of InStent Common Stock not otherwise
vested will be accelerated and fully vested as a result of the Merger. All
such options that are not exercised and remain outstanding at the Effective
Time will be assumed by Medtronic and, following the Effective Time, will be
exercisable upon the same terms and conditions as prior to the Merger, except
that (i) each such option will entitle the holder to purchase from Medtronic
the number of shares of Medtronic Common Stock (rounded down to the nearest
whole number of such shares) that equals the product of the Conversion Ratio
multiplied by the number of shares of InStent Common Stock subject to such
option immediately prior to the Effective Time and (ii) the option exercise
price per share of Medtronic Common Stock will be an amount (rounded up to
the nearest full cent) equal to the option exercise price per share of
InStent Common Stock in effect immediately prior to the Effective Time
divided by the Conversion Ratio. As promptly as practicable after the
Effective Time, Medtronic shall provide to each holder of an InStent option a
written statement informing such holder of the assumption by Medtronic of
such option. Directors and executive officers of InStent hold in the
aggregate options to purchase 246,667 shares of InStent Common Stock. See "--
Conflicts of Interest."
CONDUCT OF BUSINESS OF INSTENT PENDING THE MERGER
InStent has agreed that, prior to consummation of the Merger, unless
Medtronic agrees otherwise, it will conduct its business only in the ordinary
course, it will use all reasonable efforts to preserve intact its business
organization and relationships with third parties, and it will not: declare
or pay any dividends or other distributions; amend or alter any material term
of its securities; incur, assume or guarantee any indebtedness other than in
the ordinary course of business; create, assume or incur any lien on any
material asset; issue or repurchase any securities (other than issuances of
securities upon the exercise of stock options previously granted); alter its
accounting principles; increase the compensation or benefits of any of its
directors, officers or other employees (except under existing agreements);
amend its Certificate of Incorporation or Restated Bylaws; sell any property,
pay any liabilities or waive any claims, except in the ordinary course of
business; make capital investments in any other company; purchase fixed
assets exceeding a specified aggregate purchase price; distribute mass
communications to any group without allowing Medtronic to comment on them;
merge or consolidate with any person; acquire the stock or assets of any
business; take or fail to take any action that would cause its
representations and warranties in the Merger Agreement to be inaccurate;
enter into or make any material change in any material agreements, except in
the ordinary course and consistent with past practice; institute, settle or
compromise any claim or suit involving amounts in excess of a specified
amount; knowingly take any action that would jeopardize the treatment of the
Merger as a pooling of interests or as a tax-free transaction; or agree or
commit to do any of the foregoing.
InStent has agreed that (except as is required by the fiduciary duties of
InStent's directors and officers as so advised by independent counsel) neither
InStent nor any of its representatives or affiliates will, directly or
indirectly, solicit, initiate or encourage any acquisition proposal, or engage
in any negotiations with, or provide any information to, any person, entity or
group (other than Medtronic) that has made or may make an acquisition proposal
with respect to InStent or any subsidiary. For these purposes, an "acquisition
proposal" would include a proposal involving a merger or consolidation, a sale,
lease or licensing of any significant portion of the assets, or a sale of shares
of capital stock of InStent or any subsidiary. InStent has agreed that it will
notify Medtronic promptly, and prior to entering into discussions or
negotiations with a third party, regarding the terms of any such proposal that
InStent may receive.
Pursuant to the Merger Agreement and a confidentiality agreement between
Medtronic and InStent, InStent has agreed to give Medtronic and its
representatives access to InStent's offices, properties, books and records,
and to furnish to Medtronic and its representatives such financial and
operating data and other information as Medtronic may reasonably request, and
will have its employees and representatives cooperate with Medtronic in
Medtronic's investigation of the business of InStent.
CONFLICTS OF INTEREST
In considering the recommendation of the Board of Directors of InStent with
respect to the Merger Agreement and the transactions contemplated thereby,
shareholders of InStent should be aware that certain members of the
management of InStent and the Board of Directors of InStent have certain
interests in the Merger that are in addition to the interests of shareholders
of InStent generally.
STOCK OPTIONS. Under the terms of the Merger Agreement, at the Effective
Time, each outstanding option to purchase shares of InStent Common Stock not
otherwise vested will be accelerated and fully vested as a result of the
Merger. Directors and executive officers of InStent hold options to acquire
an aggregate 246,667 shares of InStent Common Stock, the vesting of 122,334
of which will accelerate as a result of the Merger. The following are the
number of options held by the identified individual that will accelerate as a
result of the Merger: Kenneth Anstey, 3,000; Oren Globerman, 66,000; Karl
Groth, 10,000; and Sven Wehrwein, 43,334. See "-- Treatment of Stock
Options."
INDEMNIFICATION. Under the Merger Agreement, Medtronic has agreed to
indemnify the present and former officers and directors of InStent following
the Merger with respect to acts or omissions occurring prior to the Effective
Time, to the extent that they were indemnified under Delaware law and
InStent's Certificate of Incorporation and Bylaws as of the date of the
Merger Agreement.
NONCOMPETITION AGREEMENTS. Simultaneously with the execution of the Merger
Agreement, but specifically conditioned upon the effectiveness of the Merger,
each of Kenneth Anstey, Dr. Mordechay Beyar, Dr. Rafael Beyar, Warren Bielke,
Oren Globerman, Katsumi Oneda, Lewis Pell and Dr. Daniel Yachia has executed
separate noncompetition agreements with Medtronic (the "Noncompetition
Agreements"), pursuant to which these individuals have agreed that they will
not be employed by, associated with or render services to any person or
entity engaged in the design, development, manufacture, marketing or sale of
stents, stent graphs or any stent graph combination or stent delivery system
anywhere in the world. Each Noncompetition Agreement expires five years after
the Effective Time, except with respect to Dr. Yachia, whose Noncompetition
Agreement expires two years after the Effective Time.
CHANGE IN CONTROL AGREEMENTS. On January 1, 1996, InStent entered into change
in control agreements with Sven Wehrwein, an executive officer of INstent,
and three senior managers of InStent that provide certain benefits to these
individuals in the event that, during the 24-month period following a "change
in control" of InStent (i) such individual's employment is terminated by
InStent for any reason other than for death, "disability" or "for cause" or
(ii) the executive terminates his or her employment for "good reason." These
benefits include payment of any unpaid installment of base salary (to the
extent earned and accrued through the date of termination) plus accrued
vacation time and all other prorated and unpaid amounts to which the
executive is otherwise entitled, including a portion of the amount that
otherwise would have been earned under any executive bonus plan, plus
severance pay equal to the product of the sum of the executive's annual base
salary and the annual amount that would have been earned under any executive
bonus plan and a number that is equal to the number of months remaining
between the date of termination and the second anniversary of the date of the
change of control, divided by 12. The terminated individual will also be
entitled to continue to receive certain employee benefits including health
benefits. Consummation of the Merger will constitute the occurrence of a
"change in control" under the change in control agreements. InStent has
estimated that the maximum payments that may become owing to the executive
officer will not exceed $250,000 and that the maximum payments that may
become owing to the three senior managers will not exceed $548,000 in the
aggregate.
SECOND AMENDMENT TO PATENT ASSIGNMENT AGREEMENT. In connection with the
formation of InStent, each of Dr. M. Beyar, Dr. R. Beyar, and Dr. Daniel Yachia,
Modern Therapeutic Modalities Ltd., an Israeli corporation controlled by Dr.
Yachia ("MTML"), InStent, Mr. Lewis Pell, Mr. Katsumi Oneda, and Mr. Warren
Bielke entered into an Assignment Agreement, dated as of April 25, 1991, as
amended May 31, 1991, April 30, 1992, May 18, 1995 and June 27, 1995 (the
"Patent Assignment Agreement"), pursuant to which Dr. M. Beyar, Dr. Yachia, and
MTML transferred their rights in certain stents and stent-related technology
(the "Technology") to InStent. In partial consideration for the transfer of the
Technology, InStent agreed to pay MTML or its designee a royalty equal to 3% of
all net product sales that incorporated the transferred Technology, if the
Technology was covered by one or more patents or pending patent applications,
and a royalty equal to 1% of all net product sales if the Technology was not
covered by any patent or pending patent application. MTML has since dissolved
and its right to receive royalties under the Patent Assignment Agreement were
distributed to certain individuals, including Dr. M. Beyar, a director and a
principal shareholder of InStent. In anticipation of the execution of the Merger
Agreement, and as an inducement to Medtronic to execute the Merger Agreement and
consummate the transactions contemplated thereby, InStent, along with certain
other parties, including Dr. M. Beyar and Dr. Yachia, executed a Second
Amendment to Assignment Agreement (the "Second Amendment"), pursuant to which
the parties agreed to limit InStent's obligation to pay product royalties under
the Patent Assignment Agreement to a maximum of $3 million. The parties to the
Second Amendment also agreed to limit the duration of InStent's royalty payment
obligations under the Patent Assignment Agreement to a maximum of six years. The
Second Amendment is contingent upon the effectiveness of the Merger.
VOTING AGREEMENTS
Pursuant to voting agreements between Medtronic and each of Kenneth Anstey,
Dr. Mordechay Beyar, Dr. Rafael Beyar, Warren Bielke, Oren Globerman, Dr.
Karl Groth, Katsumi Oneda, Lewis Pell, Sven Wehrwein, Dr. Daniel Yachia and
Matilda Mengi Yahya, such individuals have agreed to vote the shares of
InStent Common Stock beneficially owned by them or their immediate family
members (i) in favor of the approval, consent and ratification of the Merger
Agreement and (ii) against any action that would impede, interfere or
discourage the Merger, would facilitate an acquisition of InStent in any
manner by a party (other than Medtronic), or would result in any breach of
any representation, warranty, covenant or agreement of InStent under the
Merger Agreement. The voting agreements terminate upon termination of the
Merger Agreement by Medtronic. As of the date of this Proxy
Statement/Prospectus, the shareholders who executed the voting agreements, or
their immediate family members, own an aggregate 3,715,332 shares of InStent
Common Stock, representing approximately 37% of InStent Common Stock
outstanding on the Record Date (assuming full exercise of all outstanding
InStent options held by such shareholders).
CONDITIONS; WAIVER
The respective obligations of Medtronic, Merger Subsidiary and InStent to
effect the Merger are subject to the satisfaction at or prior to the
consummation of the Merger of certain conditions, including, among others:
(a) the approval by the InStent shareholders of the Merger; (b) the
effectiveness of the Registration Statement; (c) the expiration or
termination of the waiting period applicable to the consummation of the
Merger under the HSR Act and any foreign merger laws; (d) the shares of
Medtronic Common Stock issuable in the Merger having been duly authorized for
listing by the NYSE, subject to official notice of issuance; and (e) the
absence of an order, decree or injunction by any federal or state court or
other governmental body, agency or official that would prevent or materially
delay consummation of the Merger.
In addition, the obligations of InStent to effect the Merger are subject to
the satisfaction at or prior to the Closing of the conditions that: (a)
Medtronic and Merger Subsidiary have performed in all material respects their
obligations under the Merger Agreement required to be performed by them; (b)
each representation and warranty of Medtronic and Merger Subsidiary contained
in the Merger Agreement shall be true in all material respects as of the
Effective Time; and (c) no change in facts or tax law shall have occurred
that would prevent InStent from receiving an opinion of Maslon Edelman Borman
& Brand, a Professional Limited Liability Partnership, to the effect that the
Merger will constitute a "tax-free" reorganization for federal income tax
purposes. See "The Merger -- Certain Federal Income Tax Consequences."
In addition, the obligations of Medtronic and Merger Subsidiary to effect the
Merger are subject to the satisfaction at or prior to the Closing of the
conditions that: (a) InStent shall have performed in all material respects
its obligations under the Merger Agreement required to be performed by it;
(b) each representation and warranty of InStent contained in the Merger
Agreement shall be true in all material respects as of the Effective Time;
(c) all necessary consents shall have been received; (d) Medtronic shall have
received written resignations from each of the directors and specified
officers of InStent effective as of the Effective Time; and (e) Medtronic
shall have received the letters from Price Waterhouse LLP referred to in "The
Merger -- Accounting Treatment of the Merger."
AMENDMENT AND TERMINATION OF THE MERGER AGREEMENT
Any of the provisions of the Merger Agreement may be amended by written
agreement of the respective parties at any time before or after approval of
the Merger Agreement by the InStent shareholders; provided, however, that
after such approval no amendment may be made to the Merger Agreement attached
hereto as Appendix A that materially affects the rights of the InStent
shareholders without shareholder approval.
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after approval of the Merger
Agreement by the InStent shareholders, only as follows:
(a) By mutual consent of the Board of Directors of each of Medtronic
and InStent;
(b) By either Medtronic or InStent if the Merger has not been effected
by September 30, 1996, except that a party cannot terminate the Merger
Agreement if its own willful failure to perform under the Merger Agreement
is the primary cause of, or results in, the Merger not being effected by
such date, and except that such deadline may be extended to October 31,
1996, if additional information is requested by governmental authorities
pursuant to the HSR Act or foreign merger laws;
(c) By either Medtronic or InStent if a court or other governmental
authority has issued a final, nonappealable order, decree or ruling that
permanently enjoins or prohibits the Merger;
(d) By either Medtronic or InStent if the InStent shareholders do not
vote to approve the Merger Agreement, except that a party cannot terminate
the Merger Agreement if its own willful failure to perform under the
Merger Agreement is the primary cause of, or results in, the failure of
the InStent shareholders to approve the Merger;
(e) By Medtronic if InStent has solicited, entertained or negotiated a
competing offer to acquire InStent in violation of the Merger Agreement,
or recommended, approved, or entered into an agreement regarding any such
offer, or withdrawn or modified (in a manner adverse to Medtronic) its
recommendation of the Merger;
(f) By InStent if it is not in material breach of its obligations
under the Merger Agreement and its Board of Directors has accepted a
competing offer by a party other than Medtronic to acquire InStent, and
has paid to Medtronic the termination fee described below; or
(g) By either Medtronic or InStent if there occurs a material breach
of any representation, warranty or obligation under the Merger Agreement
on the part of the other that cannot be cured within 30 days.
InStent has agreed to pay Medtronic $5 million if the Merger Agreement is
terminated as described in paragraph (e) or (f) above or if each of the
following occurs: (i) a third party either makes an acquisition proposal or
in fact acquires 10% or more of the outstanding InStent Common Stock prior to
the Meeting, (ii) the InStent shareholders do not approve the Merger, (iii)
the Merger Agreement is terminated, and (iv) within 12 months after such
termination either InStent enters into an agreement relating to an
acquisition proposal or an acquisition proposal is in fact consummated.
EXPENSES AND FEES
Whether or not the Merger is consummated, all out-of-pocket expenses incurred
in connection with the Merger (including but not limited to accounting and
legal fees) and the transactions contemplated thereby will be paid by the
party incurring such costs and expenses, except that Medtronic and InStent
will share equally all expenses related to printing and mailing the
Registration Statement and this Proxy Statement/Prospectus, all SEC
registration fees and Blue Sky registration fees applicable to the Merger,
the filing fees required under the HSR Act and any foreign merger laws and
the costs and fees charged by Price Waterhouse LLP for the letters described
in "The Merger -- Accounting Treatment of the Merger."
InStent has agreed to pay $2 million to Dr. Shlomo A. Ben-Haim in connection
with the Merger, in recognition of the services he provided to InStent and
Medtronic during the course of their negotiations. Dr. Ben-Haim is a world
renowned expert in the field of cardiopulmonary interactions and cardiac
arrhythmia, whom the parties came to regard as a mutual technical advisor,
serving to corroborate InStent's technology and assisting in the parties'
evaluation of potential realizable synergies between Medtronic and Instent.
See "The Merger -- Background of the Merger."
RESTRICTIONS ON RESALE OF MEDTRONIC COMMON STOCK
The Medtronic Common Stock issuable in connection with the Merger has been
registered under the Act, but this registration does not cover resales by
shareholders of InStent who may be deemed to control or be under common
control with InStent at the time of the Meeting ("Affiliates"). Affiliates
may not sell their shares of Medtronic Common Stock acquired in connection
with the Merger except pursuant to an effective registration statement under
the Act covering such shares, or in compliance with Rule 145 promulgated
under the Act or another applicable exemption from the registration
requirements of the Act. InStent has delivered to Medtronic, and agreed to
update as necessary, a list identifying all persons who, in InStent's
opinion, upon advice of counsel, are Affiliates of InStent for purposes of
Rule 145. InStent has delivered to Medtronic from each person already
identified as an Affiliate, and has agreed to use all reasonable efforts to
cause each person who is subsequently identified as an Affiliate to deliver
to Medtronic at or prior to the Effective Time, an agreement that such
persons (i) will not offer to sell, sell, or otherwise dispose of any shares
of Medtronic Common Stock received in the Merger in violation of the Act,
(ii) have no present intention to sell, transfer or otherwise dispose of any
of the Medtronic Common Stock received in the Merger and (iii) will not take
any action that would jeopardize the treatment of the Merger as a pooling of
interests for accounting purposes. It is expected that Affiliates will be
able to sell such shares without registration and in accordance with the
volume, manner of sale, and other applicable limitations of the Act and the
rules and regulations of the Commission thereunder.
It is estimated that Affiliates of InStent will receive a maximum of
approximately 1,518,634 shares of Medtronic Common Stock upon consummation of
the Merger (assuming full exercise of all outstanding InStent options held by
such Affiliates and assuming a Conversion Ratio of 0.3833). Such shares would
constitute less than approximately 0.6% of the total number of shares of
Medtronic Common Stock anticipated to be outstanding immediately after the
Effective Time after giving effect to the shares issued pursuant to the
Merger. See "The Merger -- Conversion of InStent Common Stock in the Merger."
DEREGISTRATION OF INSTENT COMMON STOCK
If the Merger is consummated, the InStent Common Stock will cease to be
quoted on the Nasdaq National Market and Medtronic will apply to the
Commission for the deregistration of InStent Common Stock under the Exchange
Act.
ACCOUNTING TREATMENT OF THE MERGER
Medtronic intends to account for the Merger as a "pooling of interests" for
accounting and financial reporting purposes under generally accepted
accounting principles. Under the pooling of interests method, the recorded
assets and liabilities of the companies are carried forward to the combined
corporation at their recorded amounts and the income (loss) of the companies
constitutes the income (loss) of the combined corporation for the entire
fiscal period in which the combination occurs as well as for prior fiscal
periods. It is a condition to the obligation of Medtronic and Merger
Subsidiary to consummate the Merger that Medtronic and InStent shall have
received letters from Price Waterhouse LLP, Medtronic's and InStent's
independent accountants, dated the closing date, confirming the letters
provided by Price Waterhouse LLP as of the date of the Merger Agreement which
stated that (i) after appropriate review and based on its familiarity with
InStent, InStent has not taken or agreed to take any action that would
prevent Medtronic from accounting for the Merger as a "pooling of interests"
transaction under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations, and (ii) after appropriate review of
the Merger Agreement and a letter from Medtronic describing the transaction
contemplated by the Merger Agreement, the Merger will qualify as a pooling of
interests transaction under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general description of the federal income tax consequences of
the Merger does not take into account the facts and circumstances of any
particular shareholder of InStent. Each InStent shareholder should consult
his or her advisor about the specific tax consequences to him or her of the
proposed transactions, including the application and effect of state, local,
foreign, and other tax laws. Neither Medtronic nor InStent has sought a
ruling from the Internal Revenue Service with respect to the income tax
consequences of the Merger and related transactions, and there can be no
assurance that the Internal Revenue Service will not take a different view of
the transaction.
Maslon Edelman Borman & Brand, a Professional Limited Liability Partnership
("Maslon"), counsel to InStent, has advised InStent concerning the United
States federal income tax consequences of the proposed Merger. In the opinion
of Maslon, the United States federal income tax consequences of the proposed
Merger will be:
(a) The Merger will be treated as a "reorganization" within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
(b) Medtronic, InStent, and Merger Subsidiary will each be "a party to
a reorganization" within the meaning of Section 368(b) of the Code.
(c) No gain or loss will be recognized by the InStent shareholders
upon their receipt of Medtronic Common Stock in exchange for their InStent
Common Stock pursuant to the Merger.
(d) The aggregate income tax basis of the Medtronic Common Stock to be
received by an InStent shareholder pursuant to the Merger, including any
fractional share interest deemed received, will be the same as the
aggregate basis of the InStent Common Stock surrendered in exchange
therefor.
(e) The holding period of the Medtronic Common Stock to be received by
an InStent shareholder pursuant to the Merger will include the period
during which the InStent Common Stock surrendered in exchange therefor was
held by such shareholder, provided that the InStent Common Stock was held
as a capital asset on the date of the exchange.
(f) An InStent shareholder who receives cash in lieu of a fractional
share of Medtronic Common Stock will be treated as having received the
fractional share of Medtronic Common Stock in the Merger and then having
received the cash payment in lieu of the fractional share as full payment
in exchange for the fractional share. Such payment will be subject to
income taxation in the same manner as a sale of such fractional share for
cash and a shareholder receiving such payment will generally be obligated
to report capital gain or loss equal to the difference between the cash
received and the shareholder's basis in his or her InStent Common Stock
for which the fractional share would otherwise be received.
In describing its conclusions as to the tax consequences of the transaction,
Maslon is relying on certain representations of Medtronic and InStent.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING
AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE
RULINGS AND COURT DECISIONS, ALL OF WHICH ARE SUBJECT TO CHANGE. ANY SUCH
CHANGE, WHICH MAY OR MAY NOT BE RETROACTIVE, COULD ALTER THE TAX CONSEQUENCES
TO INSTENT OR ITS SHAREHOLDERS DESCRIBED ABOVE. THE FOREGOING DISCUSSION DOES
NOT ADDRESS THE TAX CONSEQUENCES, IF ANY, OF THE MERGER UNDER APPLICABLE
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. INSTENT SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY
AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER APPLICABLE TAX LAWS AND THE
POSSIBLE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
INDEMNIFICATION
Under the Merger Agreement, Medtronic has agreed to indemnify the present and
former officers and directors of InStent following the Merger with respect to
acts or omissions occurring prior to the Effective Time, to the extent that
they were indemnified under Delaware law and InStent's Certificate of
Incorporation and Bylaws as of the date of the Merger Agreement. See "--
Conflicts of Interest."
REGULATORY REQUIREMENTS
Under the HSR Act, certain acquisition transactions, including the Merger,
cannot be consummated unless certain information has been furnished to the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice and certain waiting period requirements have been
satisfied. Medtronic and InStent each furnished such information and the
requisite waiting period expired on May 2, 1996. See "The Merger --
Conditions; Waiver."
RIGHTS OF DISSENTING INSTENT SHAREHOLDERS
Neither InStent shareholders nor Medtronic shareholders are entitled to
dissenters' appraisal rights in connection with the Merger.
COMPARATIVE STOCK PRICES AND DIVIDENDS
Medtronic Common Stock is listed and traded on the New York Stock Exchange
(symbol: MDT), and it is a condition to all parties' obligations to
consummate the Merger that the Medtronic Common Stock to be issued in the
Merger be approved for such listing. InStent Common Stock is traded on the
Nasdaq National Market (symbol: ININ).
The following table sets forth, for the quarters indicated, the high and low
sales prices per share of Medtronic Common Stock on the NYSE and the cash
dividends paid per share of Medtronic Common Stock. Also set forth, for the
calendar period indicated, are the high and low sales prices per share of
InStent Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
INSTENT
MEDTRONIC COMMON STOCK COMMON STOCK
HIGH LOW DIVIDENDS HIGH LOW
<S> <C> <C> <C> <C> <C>
CALENDAR 1994
First Quarter $21.88 $19.44 $.043
Second Quarter $21.41 $17.28 $.043
Third Quarter $26.50 $20.00 $.051
Fourth Quarter $27.94 $24.38 $.051
CALENDAR 1995
First Quarter $36.00 $26.19 $.051
Second Quarter $40.38 $34.13 $.051 $15.50* $14.12*
Third Quarter $54.44 $37.44 $.065 $18.50 $13.00
Fourth Quarter $60.00 $49.63 $.065 $18.25 $12.50
CALENDAR 1996
First Quarter $62.63 $44.50 $.065 $23.25 $15.12
Second Quarter (through May
31) $59.75 $48.75 $.065 $22.88 $18.50
</TABLE>
*From June 28, 1995
InStent has never paid cash dividends. Under the Merger Agreement, InStent
has agreed not to pay any dividends on InStent Common Stock prior to the
Merger. Medtronic has paid regular quarterly cash dividends on Medtronic
Common Stock since 1978. It is expected that the Board of Directors of
Medtronic will continue the practice of declaring cash dividends on a
quarterly basis; however, no assurance can be given as to the amount of
future dividends, which will necessarily be dependent on future earnings,
financial requirements of Medtronic and its subsidiaries, and other factors.
On March 22, 1996, the last trading day preceding public announcement of the
Merger, the reported closing sale price of Medtronic Common Stock on the NYSE
was $57.625 per share. On that day, the reported closing sale price of InStent
Common Stock on the Nasdaq National Market was $21.875 per share. On an
equivalent per share basis, the reported closing sale price of InStent Common
Stock on March 22, 1996 (calculated by multiplying the closing sale price of
Medtronic Common Stock by the Conversion Ratio of 0.3833) would have been
$22.09. The reported closing sale price of Medtronic Common Stock on the NYSE on
May 31, 1996, the latest practicable date prior to the mailing of this Proxy
Statement/Prospectus was $56.25 per share. On that day, the reported closing
sale price of InStent Common Stock on the Nasdaq National Market was $21.625 per
share. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
As of May 23, 1996, there were approximately 25,299 registered holders of
Medtronic Common Stock and approximately 100 registered holders of InStent
Common Stock.
COMPARATIVE RIGHTS OF MEDTRONIC SHAREHOLDERS AND
INSTENT SHAREHOLDERS
Upon consummation of the Merger, shareholders of InStent will become
shareholders of Medtronic. Medtronic and InStent are incorporated under the
laws of the states of Minnesota and Delaware, respectively. The rights of
Medtronic shareholders under Medtronic's Restated Articles of Incorporation
as amended ("Medtronic's Articles"), Medtronic's Bylaws, and the Minnesota
Business Corporation Act (the "MBCA") differ in certain respects from the
rights of InStent shareholders under InStent's Certificate of Incorporation,
as amended ("InStent's Certificate"), InStent's Restated Bylaws, and the
Delaware General Corporation Law (the "DGCL"). Certain significant
differences between the rights of Medtronic shareholders and InStent
shareholders are summarized below. This summary does not, however, purport to
be a complete description of all of the differences between the rights of
shareholders of InStent and the rights of shareholders of Medtronic.
CLASSIFICATION, REMOVAL AND ELECTION OF DIRECTORS
CLASSIFICATION. Medtronic's Articles provide for a classified Board of
Directors, under which directors are elected to three-year terms, with
one-third of the directors being elected each year. InStent's Certificate
similarly classifies its Board of Directors. Both Medtronic's Articles and
InStent's Certificate provide for vacancies on the Board to be filled by a
majority of the remaining Board members.
REMOVAL. Medtronic's Articles provide that directors may be removed, with or
without cause, only by the vote of not less than 75% of the voting power of
all then outstanding voting shares. InStent's Bylaws provide that directors
may be removed, with or without cause, by the vote of the holders of a
majority of the shares then entitled to vote at an election of directors.
NOMINATION AND ELECTION. Medtronic's Articles provide that nominations for
the election of directors may be made by or at the direction of the Medtronic
Board of Directors or by any shareholder entitled to vote in the election of
directors generally. Nominations by shareholders must be made pursuant to
timely notice in writing to the Secretary of Medtronic. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of Medtronic not less than 50 days nor more than
90 days prior to the meeting; provided, however, that if less than 60 days'
notice or prior public disclosure of the date of the meeting is given or made
to the shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. The notice must set forth certain information concerning
such shareholder and his or her nominee(s), including their names and
addresses, the principal occupation or employment of the nominee(s), the
class and number of shares of capital stock of Medtronic that are
beneficially owned by such persons, such other information as would be
required to be included in a proxy statement soliciting proxies for the
election of the nominees of such shareholder, and the consent of each nominee
to serve as a director of Medtronic if so elected. InStent's Certificate and
Bylaws do not address the issue of nomination of directors.
AMENDMENT OF PROVISIONS. Medtronic's Articles require the affirmative vote of
not less than 75% of the voting power of all then outstanding voting shares
to amend, repeal or adopt any provisions inconsistent with these provisions
regarding classification, removal and nomination of directors. InStent's
Bylaws permit either the directors or the shareholders to amend or modify
such provisions.
The above-described provisions of Medtronic's Articles regarding directors
will be subject to the terms of the certificate of designation or other
instrument creating any class or series of preferred stock giving the holders
of such class or series of preferred stock the right, voting separately as a
class, to elect one or more directors (such as is often required by the terms
of preferred stock in the event that dividend payments are in arrears for a
period of time). See "Comparative Rights of Medtronic Shareholders and
InStent Shareholders -- Preferred Stock."
These provisions regarding classification, removal and nomination of
directors afford some assurance of stability in the composition of the
Medtronic Board of Directors, but may discourage or deter attempts by
individuals or entities to take control of Medtronic by electing their own
slate of directors. To the extent that potential acquirers of Medtronic stock
are deterred by the classified Board, such provision also may deter certain
mergers, tender offers, or other future takeover attempts which some or a
majority of holders of Medtronic Common Stock may deem to be in their best
interests. In addition, the classified Medtronic Board would delay
shareholders who do not favor the policies of Medtronic's Board of Directors
from removing a majority of the Medtronic Board of Directors for two years,
unless they can obtain the requisite vote.
LIABILITY OF DIRECTORS. Both Medtronic's Articles and InStent's Certificate
exempt directors from personal liability to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director
to the full extent permitted by Minnesota and Delaware law, respectively.
PREFERRED STOCK
Medtronic has 2,500,000 authorized but unissued shares of Preferred Stock,
par value $1 per share. Medtronic's Articles provide that whenever the
holders of a class or series of Preferred Stock have the right to elect any
directors, the election, term and other features of such directorships shall
be governed by the terms set forth in the resolution of the Medtronic Board
of Directors designating the rights and preferences of such class or series
of Preferred Stock, and any directors elected by the holders of Preferred
Stock shall not be divided into classes unless provision is expressly made
for such classification by the terms of such Preferred Stock. Shares of
Medtronic Preferred Stock could be issued that would have the right to elect
directors, either separately or together with the Medtronic Common Stock,
with such directors either divided or not divided into classes.
Under certain circumstances such Medtronic Preferred Stock could be used to
create voting impediments or to deter persons seeking to effect a takeover or
otherwise gain control of Medtronic in a transaction which holders of some or
a majority of the Medtronic Common Stock may deem to be in their best
interests. Such shares of Medtronic Preferred stock could be sold in public
or private transactions to purchasers who might support the Medtronic Board
of Directors in opposing a takeover bid that the Medtronic Board of Directors
determines not to be in the best interests of Medtronic and its shareholders.
In addition, the Medtronic Board of Directors could authorize holders of a
class or series of Preferred Stock to vote, either separately as a class or
together with the holders of Medtronic Common Stock, on any merger, sale, or
exchange of assets by Medtronic or any other extraordinary corporate
transaction. The ability to issue such Medtronic Preferred Stock might have
the effect of discouraging an attempt by another person or entity, through
the acquisition of a substantial number of shares of Medtronic Common Stock,
to acquire control of Medtronic with a view to imposing a merger, sale of all
or any part of the assets or a similar transaction, because the issuance of
new shares could be used to dilute the stock ownership of such person or
entity. See "Comparative Rights of Medtronic Shareholders and InStent
Shareholders -- Shareholder Rights Plan."
InStent has 3,000,000 authorized but unissued shares of Preferred Stock, par
value $.01 per share, and the Board of Directors has the authority to fix or
alter the terms of such shares.
SPECIAL MEETINGS OF SHAREHOLDERS
Under Minnesota law, a special meeting of shareholders may be called by
certain officers, two or more directors, a person authorized to do so in the
articles or bylaws, or shareholders holding at least 10% of the voting power
of all shares entitled to vote, except that a special meeting for the purpose
of considering an action to effect, directly or indirectly, a business
combination must be called by shareholders holding at least 25% of the voting
power of all shares entitled to vote.
Under Delaware law and InStent's Certificate, a special meeting of
shareholders may be called by the Board of Directors or by shareholders
holding at least a majority of the voting power of all shares entitled to
vote.
VOTING RIGHTS; SHAREHOLDER APPROVALS
Under both Medtronic's Articles and InStent's Certificate, holders of
Medtronic Common Stock and InStent Common Stock, respectively, are entitled
to one vote per share on all matters submitted to a vote of the shareholders.
Medtronic's Bylaws provide that, except as specifically required otherwise
under Medtronic's Articles, Bylaws or Minnesota law, all matters submitted to
the shareholders are decided by a majority vote of the shares entitled to
vote and represented at a meeting at which there is a quorum.
Under Delaware law, all matters submitted to the shareholders are decided by
a majority vote of the shares entitled to vote and represented at a meeting
at which there is a quorum, unless the DGCL or a corporation's certificate of
incorporation or bylaws requires a different number. InStent's Bylaws provide
that the affirmative vote of the holders of 80% of the stock of InStent then
issued and outstanding and having voting power is required to approve a
transaction in which a director or a shareholder has a direct or indirect
interest, unless 80% of the members of the Board of Directors has approved
the transaction. The Board of Directors unanimously approved the Merger.
CUMULATIVE VOTING
Neither Medtronic's Articles nor InStent's Certificate provide for cumulative
voting with regard to the Medtronic Common Stock or the InStent Common Stock,
respectively.
PREEMPTIVE RIGHTS
Under Medtronic's Articles, holders of Medtronic stock are expressly denied
preemptive rights. The DGCL provides that a corporation's shareholders have
preemptive rights only if such rights are expressly granted in the
corporation's certificate of incorporation. InStent's Certificate does not
grant preemptive rights.
AMENDMENT OF THE ARTICLES OF INCORPORATION
Under Minnesota law, an amendment to the articles of incorporation requires
the affirmative vote of the holders of a majority of the shares present and
entitled to vote unless a larger affirmative vote is required by the
corporation's articles. Except as specifically described otherwise in this
"Comparative Rights of Medtronic Shareholders and InStent Shareholders,"
Medtronic's Articles do not contain any provisions that require a larger
affirmative vote in order to amend Medtronic's Articles.
Under Delaware law, an amendment to the certificate of incorporation requires
the affirmative vote of the holders of a majority of the shares entitled to
vote thereon, unless the corporation's certificate requires a greater or
lesser number for approval. InStent's Certificate does not contain any
provision requiring a different number for approval.
BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITIONS
Medtronic is governed by Sections 302A.671 and 302A.673 of the MBCA. In
general, Section 302A.671 provides that the shares of a corporation acquired
in a "control share acquisition" have no voting rights unless voting rights
are approved in a prescribed manner. A "control share acquisition" is an
acquisition, directly or indirectly, of beneficial ownership of shares that
would, when added to all other shares beneficially owned by the acquiring
person, entitle the acquiring person to have voting power of 20% or more in
the election of directors. In general, Section 302A.673 prohibits a public
Minnesota corporation from engaging in a "business combination" with an
"interested shareholder" for a period of four years after the date of the
transaction in which the person became an interested shareholder, unless the
business combination is approved in a prescribed manner. "Business
combination" includes mergers, asset sales and other transactions resulting
in a financial benefit to the interested shareholder. An "interested
shareholder" is a person who is the beneficial owner, directly or indirectly,
of 10% or more of the corporation's voting stock or who is an affiliate or
associate of the corporation and at any time within four years prior to the
date in question was the beneficial owner, directly or indirectly, of 10% or
more of the corporation's voting stock. Such provisions of Minnesota law
could have the effect of delaying, deferring or preventing a change in
control of Medtronic.
Delaware law contains similar provisions regarding business combinations with
interested shareholders, but it has not enacted provisions similar to the
control share acquisition provisions in the MBCA.
SHAREHOLDER RIGHTS PLAN
Medtronic adopted a Shareholder Rights Plan in 1991, which replaced the
Shareholder Rights Plan that it adopted in 1986, and has entered into a
Rights Agreement with Norwest Bank Minnesota, National Association, as Rights
Agent. Pursuant to its Rights Plan, Medtronic declared and paid a dividend of
one preferred stock purchase right (a "Right") on each outstanding share of
Medtronic Common Stock. As a result of Medtronic's 2-for-1 stock splits
effective August 30, 1991, September 30, 1994, and September 29, 1995, the
Right associated with each outstanding share of Medtronic Common Stock now
entitles a holder, until July 10, 2001, to buy 1/800th of a Series A Junior
Participating Preferred Share (the "Series A Preferred Shares") of Medtronic
at a price of $75 per 1/800th of a Series A Preferred Share, subject to
adjustment. The Rights are not currently exercisable or transferable apart
from the Medtronic Common Stock.
The Rights will not be exercisable until the 15th day after a third party
acquires beneficial ownership of 15% or more of the outstanding Medtronic
Common Stock (and thereby becomes an "Acquiring Person") or announces a
tender offer or exchange offer that would increase the Acquiring Person's
beneficial ownership to 15% or more of the outstanding Medtronic Common
Stock. In the event that any person becomes an Acquiring Person, then each
Right, other than Rights held by an Acquiring Person, will entitle the holder
to receive, upon exercise thereof at the then current exercise price,
Medtronic Common Stock that has a value of two times the exercise price of
the Right. In the event that Medtronic is acquired in a merger or other
business combination transaction, or 50% or more of its assets or earning
power is sold, each Right will entitle the holder to receive, upon exercise
thereof at the then current exercise price, Common Stock of the acquiring
entity that has a value of two times the exercise price of the Right.
In certain events the Medtronic Board of Directors may exchange Rights for
Medtronic Common Stock or equivalent securities having a market price equal
to the exercise price of the Rights. Each Right is redeemable by Medtronic at
$.00125 any time before a person or group triggers the 15% threshold to
become an Acquiring Person.
The Rights issued under the Medtronic Shareholder Rights Plan may make any
merger not approved by Medtronic's Board of Directors prohibitively
expensive, because the Rights allow Medtronic shareholders to purchase the
voting securities of either Medtronic or a potential acquirer at one-half of
the securities' fair market value.
InStent does not have a shareholder rights plan.
RELATED PERSON BUSINESS TRANSACTIONS
Medtronic's Articles provide that, in certain circumstances, an affirmative
vote of two-thirds (66.7%) of the voting power of all then outstanding voting
shares is required for the approval or authorization of any "related person
business transaction." Such two-thirds (66.7%) approval is not required,
however, if (i) a majority vote of "continuing directors" (as defined below)
expressly approves the related person business transaction, or (ii) the
related person business transaction is a merger, consolidation, exchange of
shares or sale of all or substantially all of the assets of Medtronic, and
the cash or fair market value of the property received by the Medtronic
shareholders is equal to a defined minimum purchase price. For purposes of
this provision, a "continuing director" means, generally, those directors who
were directors before the "related person" (as defined below) became a
related person.
Generally, a related person business transaction includes (i) any merger or
consolidation of Medtronic with or into a related person, (ii) any exchange
of shares of Medtronic (or a subsidiary) for shares of a related person which
would have required an affirmative vote of at least a majority of the voting
power of the outstanding shares entitled to vote, (iii) any sale, lease,
exchange, transfer, or other disposition (in one transaction or a series of
transactions), including without limitation a mortgage or any other security
device, of all or any substantial part of the assets of Medtronic (or a
subsidiary) to or with a related person, (iv) any sale, lease, transfer, or
other disposition (in one transaction or a series of transactions) of all or
any substantial part of the assets of a related person to or with Medtronic
(or a subsidiary), (v) the issuance, sale, transfer or other disposition to a
related person of any securities of Medtronic (except pursuant to stock
dividends, stock splits, or similar transactions that would not have the
effect of increasing the proportion of voting power of a related person) or
of a subsidiary (except pursuant to a pro rata distribution to all holders of
Medtronic Common Stock), (vi) any recapitalization or reclassification that
would have the effect of increasing the proportionate voting power of a
related person, and (vii) any agreement, contract, arrangement or
understanding providing for any of the transactions described above.
Generally, for purposes of a related person business transaction, the term
"related person" is broadly defined to include a wide range of potential
persons, including any person or entity that, together with affiliates and
associates, beneficially owns 15% or more of the outstanding voting stock of
Medtronic.
Such a provision could have the effect of impeding a potential acquirer of
Medtronic by requiring a larger than normal majority of Medtronic
shareholders to approve a transaction. There is no similar "related person
business transaction" provision in InStent's Certificate.
INFORMATION REGARDING INSTENT
GENERAL
InStent designs, develops, manufactures and markets a variety of
highly-specialized stents for a broad range of medical indications. InStent's
stents are designed to hold open passageways in the body, such as the
arterial vasculature, the esophagus, bile duct and male urethra, that may
have closed or become obstructed as a result of aging, disease or trauma. To
date, InStent has focused its product development efforts on the coronary,
vascular, carotid, esophageal, biliary, and urology markets to treat
obstructions due to atherosclerosis, cancerous tumor ingrowth, fibrous tissue
formation, and benign prostatic hypertrophy ("BPH"). InStent believes these
are the primary markets for application of stent technology. Stents are
increasingly being used as an alternative or adjunct to many surgical and
minimally-invasive procedures or drug therapies.
InStent's stents include self-expanding, nitinol (nickel-titanium alloy) wire
coils that are inserted into the body non-surgically via InStent's patented,
catheter-based stent delivery systems. InStent also is developing a series of
balloon expandable stents. Once placed, stents exert radial force against the
walls of passageways to enable the passageways to remain open and functional.
InStent manufactures stents with differing flexibilities and radial forces
and in a variety of shapes and sizes to treat specific medical indications,
ranging from relatively rigid esophageal stents that resist tumor ingrowth to
more pliant urethral, coronary and vascular stents that must conform to
delicate and intricate anatomy. The combination of InStent's stents and
delivery systems enables the accurate, non-surgical placement of a variety of
stents at multiple sites within the body.
To date, a majority of InStent's revenues have been derived from
international sales. InStent believes that the international market for
stents is substantial; however, InStent also believes that the United States
market is the largest single market for stents and InStent intends to expend
significant resources to pursue additional clearances and approvals to market
its products in the United States.
TECHNOLOGY
InStent's self-expanding stents are manufactured from nitinol wire that is
shaped into coils and then tightly wrapped around InStent's patented,
catheter-based delivery system. Nitinol has unique shape-memory properties
that enable the stents to return to a predetermined shape when released from
the delivery system. InStent produces these delivery systems in various
diameters, lengths and shapes, depending on the passageway of the body that
is closed or obstructed by the stricture. During manufacturing, the stent is
secured to the catheter-based delivery system. After the stent is positioned
over the stricture or obstruction, the physician may either turn or pull the
deployment handle on the delivery catheter, releasing the stent. As it
releases, the stent expands radially to its predetermined shape, either
reducing the stricture or holding open the passageway. Although InStent's
stents are designed to be permanently implanted, the designs of the UroCoil
urethral stent and the ProstaCoil prostatic stent are such that they can be
removed, if clinically appropriate. InStent's stents are also biocompatible
and may be coated with additional materials, such as anticoagulant coatings
for vascular and coronary stents, to enhance their performance in specific
applications. The stents are available in a variety of sizes, shapes and
flexibilities to match the stricture and the surrounding anatomy. InStent
also has the ability to manufacture custom stents upon physician request for
patients with particularly challenging strictures.
InStent uses its core technology to produce stents with the following
features:
* Clinical Adaptability. InStent's technology enables it to
produce stents with varying radial forces, flexibilities and
sizes, permitting broad-based applications ranging from rigid
esophageal stents to more pliant urethral, peripheral vascular
and coronary stents.
* Site-Specific Delivery Systems. InStent's catheter-based
delivery systems are specifically designed with differing
flexibilities, lengths and diameters to ease stent delivery to
specific parts of the body.
* Ease of Deployment. InStent's self-expanding stents are sold
as a unit with the stent pre-mounted on its catheter-based
delivery system. This system simplifies stent insertion and
positioning and allows different sequences of release,
depending upon the application, thereby facilitating accurate
placement.
* Variability of Radial Strength. The radial strength of
InStent's stent can be varied for different medical
indications. For example, the tight coil and high radial
strength design of the EsophaCoil esophageal stent is intended
to resist tumor ingrowth, while the widely-spaced, more pliant
coil design of the CardioCoil coronary stent is intended to
help reduce restenosis with appropriate radial strength, while
minimizing the risk of damage to the vessel wall.
* Flexibility. The longitudinal flexibility of InStent's stents
eases insertion and allows normal functioning of the anatomy
into which the stent is inserted.
* Stability.The continuous outward pressure exerted by the stent
reduces the possibility of unintended stent migration from the
stricture site.
PRODUCTS
InStent has focused its product development efforts on the coronary,
vascular, carotid, esophageal, biliary, and urology treatment markets, which
InStent believes are the primary markets for application of stent technology.
InStent's currently marketed products and products in development are:
CARDIOCOIL
Accumulations of atherosclerotic plaque in the coronary vasculature
often cause stenosis or blockage of the arteries that provide blood to the
heart. Most commonly, coronary artery disease reduces blood flow to the
heart, causing heart attacks. Coronary PTA ("PTCA") is a common balloon
dilatation procedure used worldwide to re-establish blood flow in coronary
vessels that have stenosed due to atherosclerotic plaque. The
effectiveness of PTCA is limited by the tendency of treated arteries to
restenose or abruptly close after treatment, as well as the elastic recoil
of the arteries, a condition in which the walls of the arteries return to
their stenosed state. To reduce the incidence of restenosis, abrupt
reclosure and elastic recoil, an increasing number of PTCAs include stent
insertion after balloon dilatation. Existing stents for coronary disease
include balloon-expandable or self-expanding metallic mesh stents.
InStent has developed the CardioCoil coronary stent, which is intended
for use in the coronary arteries to reduce the incidence of restenosis
following PTCA. InStent has initiated marketing clinical trials in Europe
and Israel. As of March 15, 1996, approximately 80 patients have been
treated with the CardioCoil. InStent anticipates commercial introduction
of the CardioCoil coronary stent internationally during the second half of
1996.
In the United States, the Food and Drug Administration ("FDA")
classifies the CardioCoil coronary stent as a Class III medical device,
which requires receipt of a PMA prior to marketing. In September 1995,
InStent received conditional approval from the FDA to begin a clinical
trial of the CardioCoil coronary stent in the U.S. under an IDE. Upon
completion of Phase I of the trial, which will number 70 patients, InStent
anticipates following on with Phase II. The final parameters of the Phase
II trial have not yet been determined. There is no assurance that such
trials will be successful or will lead to a PMA submission, or of the
timing or outcome of any such PMA submission.
VASCUCOIL
Accumulations of atherosclerotic plaque in the peripheral vasculature
often cause stenosis or blockage of the arteries that provide blood to the
limbs and organs. Most commonly, the disease reduces blood flow to the
muscles of the leg, causing muscle pain and cramps and, in severe cases,
tissue damage that may require amputation. Percutaneous Transluminal
Angioplasty ("PTA") is a common balloon dilation procedure used worldwide
to re-establish blood flow in vessels that have stenosed due to
atherosclerotic plaque. The effectiveness of PTA is limited by the
tendency of treated arteries to restenose or abruptly close after
treatment. To reduce the incidence of restenosis and abrupt reclosure, an
increasing number of PTA procedures incorporate stent insertion after
balloon dilation. Existing stents for vascular disease include
balloon-expandable or self-expanding metallic mesh stents.
The VascuCoil peripheral vascular stent was designed for treatment of
peripheral vascular disease. InStent believes that the coil design
provides sufficient flexibility for normal physical activity while
retaining adequate radial strength to hold the artery open. Additionally,
InStent believes that the VascuCoil stent may be easier to deploy since it
is mounted on a smaller-diameter, more flexible delivery catheter, rather
than on a conventional balloon expansion catheter.
InStent commenced limited international sales of the VascuCoil
peripheral vascular stent in the third quarter of 1994. In the United
States, the FDA classifies the VascuCoil stent as a Class III medical
device that requires receipt of a PMA prior to marketing in the United
States. InStent has collected two-year clinical data from 45 patients who
received VascuCoil stents in European clinical trials, and InStent intends
to include this data to support an IDE submission in the third quarter of
1996. There is no assurance that InStent will meet these schedules, that
the FDA will approve the IDE, that such trials will be successful or will
lead to a PMA submission, or of the timing or outcome of any such PMA
submission.
CAROTIDCOIL
Another area of the vasculature susceptible to the build-up of plaque
is the carotid arteries, those arteries that supply blood to the head and
the neck. The plaque build-up in these arteries is most often removed in a
surgical procedure known as a carotid endarterectomy. In keeping with the
trend toward minimally invasive procedures, clinicians have begun to
review new techniques for keeping these vessels open, including the
application of stenting technology. There is also a subset of patients
requiring treatment of this disease who are contraindicated for surgery
because of other medical problems. Like other cardiovascular procedures
that utilize stents, the deployment of a stent in the carotid arteries
occurs immediately after balloon angioplasty.
InStent is developing the CarotidCoil stent, which is designed for use
in the carotid arteries to reduce the incidence of restenosis following
PTA. InStent believes that these arteries are vulnerable to compression,
and therefore its CarotidCoil stent features strong hoop strength to
resist external crushing or crimping of the stent. Other key features of
the CarotidCoil are its shape memory and flexibility.
InStent began animal trials of the CarotidCoil stent in the fourth
quarter of 1995. Because the FDA classifies the CarotidCoil stent as a
Class III medical device, a PMA will be required prior to marketing in the
United States. InStent anticipates filing, during the second or third
quarter of 1996, an IDE requesting permission to begin a clinical trial of
the CarotidCoil stent in the United States. There is no assurance that
InStent will meet these schedules, that the FDA will approve the IDE, that
such trials will be successful or will lead to a PMA submission, or of the
timing or outcome of any such PMA submission.
ENDOCOIL
Patients with pancreatic cancer often develop biliary strictures, a
narrowing of the bile duct caused by tumor ingrowth. These biliary
strictures may cause the patient to become jaundiced and develop a fever,
and frequently will result in hospitalization. These strictures have been
conventionally treated with endoscopically-inserted plastic stents that
have a relatively narrow diameter (because of the limitations imposed by
endoscope channel size) or by self-expanding metallic stents. Because the
plastic stents are relatively narrow, they tend to become clogged with
bile and require frequent replacement. Self-expanding metallic stents
currently marketed by competing companies have a larger diameter than
plastic stents and are less prone to clog with bile, but their open-weave
or mesh designs generally have not resisted tumor ingrowth effectively.
The EndoCoil biliary stent's unique design combines a larger internal
diameter than plastic stents to reduce bile clogging and tight coils that
help resist tumor ingrowth. The EndoCoil biliary stent is inserted
non-surgically either through a narrow, flexible endoscope placed down the
patient's throat, through the stomach and into the duodenum, or
percutaneously over a guide wire. Upon release within the bile duct, the
EndoCoil stent self-expands to a larger diameter to permit bile passage.
The EndoCoil insertion procedure generally can be performed on an
outpatient basis under intravenous sedation.
InStent commenced international sales of the EndoCoil stent in the
third quarter of 1994. The FDA classifies the EndoCoil as a Class II
medical device, and in September 1995, InStent received FDA 510(k)
clearance to market the EndoCoil stent in the U.S. for malignant biliary
obstructions due to pancreatic cancer. See " -- Sales and Marketing."
ESOPHACOIL
Patients in the terminal stages of esophageal cancer often develop
esophageal strictures, a narrowing of the esophagus caused by tumor
ingrowth. The stricture may cause the patient to lose the ability to
swallow, often leading to significant weight loss and requiring extended
hospitalization. Malignant esophageal strictures are typically treated
with repeat dilations, fixed-caliber, plastic stents or laser ablations.
Dilations and fixed-caliber stents can be painful, traumatic and have a
high rate of complications, including a significant risk of mortality.
Laser ablation requires sophisticated equipment and highly trained
physicians, and often requires expensive repeat procedures.
The EsophaCoil esophageal stent is designed to hold open the esophagus
by exerting radial force against the stricture. The EsophaCoil stent's
tight coil design resists tumor ingrowth, and its unique delivery catheter
allows it to be inserted non-surgically. The EsophaCoil stent insertion
procedure generally can be performed on an outpatient basis under topical
anesthesia.
InStent commenced international sales of the EsophaCoil esophageal
stent in the third quarter of 1994. The FDA classifies the EndoCoil as a
Class II medical device, and in February 1995, InStent received FDA 510(k)
clearance to market the EsophaCoil in the United States for malignant
obstructions of the esophagus due to cancer and commenced sales in March
1995.
UROCOIL
Men with recurrent urethral strictures experience limitations on their
ability to urinate, which may cause extreme discomfort and, if left
untreated, may cause complications that could necessitate Foley
catheterization. Urethral strictures are generally due to fibrous tissue
growth resulting from a reaction to catheters or cystoscopes or from
injury, birth defect or disease and are commonly treated by urethral
dilation, catheterization or surgery. Dilation is accomplished by passing
successively larger diameter urethral dilation tubes through the urethra
to increase the size of the lumen, a procedure that is painful and
traumatic to the patient. Surgical treatment of strictures involves
surgical risks as well as complications, including infection, bleeding and
restenosis, which requires further treatment.
The UroCoil urethral stent was designed to be implanted in the male
urethra as an alternative to dilation, catheterization and surgery and is
intended to keep the urethra open by exerting radial force against the
stricture, thereby permitting passage of urine. It is a temporary,
implantable stent that generally is not incorporated by the urethral
mucosa, thereby permitting removal, if necessary. The large internal
diameter of the UroCoil urethral stent permits cystoscopies, thereby
allowing the urologist to examine the bladder without removing the stent.
The UroCoil urethral stent is typically inserted in an outpatient
procedure using topical anesthesia.
InStent commenced limited international sales of the UroCoil urethral
stent in 1992. In the United States, the FDA classifies the UroCoil
urethral stent as a Class III medical device, which requires receipt of a
PMA from the FDA prior to marketing. InStent is evaluating its development
and marketing options for the UroCoil urethral stent, which may include
development or marketing arrangements with third parties. While InStent
has engaged in preliminary discussions with respect to such arrangements,
there is no assurance InStent will enter into any such arrangements.
PROSTACOIL
As many men age, their prostates become enlarged and obstruct the flow
of urine through the urethra. This condition is known as BPH, and results
in a partial or total inability to urinate. The most common surgical
intervention for BPH, transurethral resection of the prostate (known as
"TURP"), presents a high operative risk for many patients. Such patients
are commonly treated with an indwelling Foley catheter as an alternative
to a TURP procedure. The potential disadvantages of Foley catheterization
include urinary tract infections, urethral irritation, discomfort and
sexual dysfunction.
The ProstaCoil prostatic stent, indicated for bladder outlet
obstructions, is designed for BPH patients who are not able to undergo
TURP and patients with prostatic cancer. The ProstaCoil prostatic stent
allows the urethra in the area of the prostate to remain open. The
ProstaCoil stent maintains its shape with enough radial force to resist
pressure from the prostate on the urethra, but with sufficient flexibility
to accommodate the anatomy of the urethra. The ProstaCoil prostatic stent
is inserted in the urethra under fluoroscopy and may be inserted in an
outpatient procedure using topical anesthesia.
InStent commenced limited international sales of the ProstaCoil
prostatic stent in 1992. In the United States, the FDA classifies the
ProstaCoil prostatic stent as a Class III medical device, which requires
receipt of a PMA from the FDA prior to marketing. InStent is evaluating
its development and marketing options for the ProstaCoil prostatic stent,
which may include development or marketing arrangements with third
parties. While InStent has engaged in preliminary discussions with respect
to such arrangements, there is no assurance InStent will enter into any
such arrangements.
STENT GRAFT
Certain diseases of the arterial vasculature, as well as trauma, birth
defect and injury, cause weakening in sections of arterial walls. This
weakening may result in a bulge or aneurysm in the artery, which becomes
susceptible to rupturing. Such a rupture can lead to death. One of the
most common and dangerous aneurysms is an abdominal aortic aneurysm
("AAA"). Currently, the only means of AAA repair is open thoracic surgery.
InStent believes that a stent/graft combination using a minimally-invasive
delivery technique may address the needs of the AAA market. InStent
believes its current technology may be used to create a stent/graft
combination and delivery system.
In the United States, the FDA classifies stent/graft combinations as a
Class III medical device, which requires receipt of a PMA prior to
marketing. InStent is currently developing a prototype stent/graft
combination.
BIOABSORBABLE STENTS
InStent has developed a bioabsorbable esophageal stent and a
bioabsorbable urethral stent. Bioabsorbable stents are designed for use
with benign strictures, which are commonly treated with dilation. InStent
believes that insertion of a bioabsorbable stent after dilation may help
reduce recurrence of the stricture, thus reducing the need for repeat
dilations. Because bioabsorbable stents dissolve over time, stent removal
procedures are not required after the stricture has been eliminated.
InStent has commenced initial safety clinical trials of a bioabsorbable
esophageal stent and of a bioabsorbable prostatic stent in Israel and
Europe. No determination has been made as to whether the bioabsorbable
stents under development will require 510(k) market clearance or approval
of a PMA by the FDA prior to marketing in the United States.
BALLOON EXPANDABLE STENTS
InStent also is developing a series of balloon expandable stents of
varying lengths to complement its core technology of self-expanding
stents. The balloon expandable stents will be manufactured from medical
grade stainless steel or other materials, and, like competing balloon
expandable stents, will be deployed on a balloon catheter. The balloon
expandable stent and stent delivery systems markets have been
characterized by substantial litigation regarding patent and other
intellectual property rights. Certain aspects of InStent's balloon
expandable technology may be in conflict with certain patents held by
competitors of InStent. These competitors are larger and have
substantially more resources than InStent, and can be expected to expend
substantial resources to enforce and/or defend the validity of their
patents. The validity, scope and enforceability of one such patent held by
a competitor currently is being challenged in litigation not involving
InStent. While the validity, scope and enforceability of such patents
cannot be determined, in the event that such patents are upheld and
InStent's balloon expandable technology is determined to conflict with
such patents, InStent may be precluded from selling its balloon expandable
stent in certain markets, including the United States.
In the United States, the FDA classifies the balloon expandable stent
as a Class III medical device, which requires receipt of a PMA prior to
marketing the balloon expandable stent in the United States.
SALES AND MARKETING
InStent markets the EsophaCoil esophageal stent and the EndoCoil biliary
stent in the United States through C.R. Bard, Inc. ("Bard") pursuant to a
three-year exclusive distribution agreement entered into in January 1996.
Prior thereto, InStent had marketed the EndoCoil and EsophaCoil stents
through independent sales representatives. The EsophaCoil, EndoCoil,
VascuCoil, ProstaCoil and UroCoil stents are marketed in Canada through Bard
pursuant to a five-year exclusive distribution agreement entered into in
January 1996. On March 27, 1996, InStent entered into a five-year exclusive
worldwide distribution agreement with Medtronic pursuant to which Medtronic
will distribute InStent's CardioCoil, CarotidCoil and balloon expandable
tubular coronary stents. See "Certain Transactions and Relationships Between
InStent and Medtronic." In addition, InStent utilizes independent
distributors for all of its other products in international markets. The
distributors generally have the exclusive right to sell certain of InStent's
products within a defined territory. The distributors may also market other
medical products. InStent's distributors purchase InStent's products at
discounts that vary by product and market. The distributors generally resell
the products to health care providers such as hospitals at prices that are
determined by the distributor. InStent's pricing policies continue to evolve
as InStent introduces new products, develops new markets and adds new
distributors.
Prior to March 1995, all of InStent's revenues were derived from export sales
to nonaffiliated international distributors, primarily in Europe. To date,
sales to foreign distributors have been denominated in U.S. dollars. In 1995,
sales were initiated in the United States and amounted to 13% of net sales.
International sales were primarily to European distributors representing 65%
of company-wide sales. Exports to non-European countries totaled 23%, 19% and
19% of net sales for 1993, 1994 and 1995, respectively.
InStent may also investigate sales and marketing alliances with established
medical products companies that have distribution strengths in specific
markets. InStent may also seek to act as an original equipment supplier of
certain stents to established medical companies where complementary product
combinations exist. While InStent has engaged in preliminary discussions
concerning certain of these types of arrangements, there is no assurance
InStent will enter into any such arrangements.
PATENTS AND PROPRIETARY RIGHTS
InStent believes that its success is dependent to a large extent on the
patent protection and proprietary nature of its technology. InStent intends
to file and prosecute patent applications for technology for which it
believes patent protection is effective and advisable.
InStent holds two United States patents relating to certain aspects of
InStent's stent delivery and release system. These patents expire in 2010 and
2011, respectively. InStent has six United States patent applications as well
as 23 Patent Cooperation Treaty (PCT) and foreign patent applications that
cover the delivery and release system and certain aspects of stent
technology. With respect to two of the PCT patent applications, the
corresponding National Stage phases have not yet been filed. InStent's
foreign patent applications have been filed in Australia, Canada, Israel,
Japan, and the European Patent Office.
The patent positions of medical device companies, including those of InStent,
are uncertain and involve complex and evolving legal and factual questions.
The coverage sought in a patent application either can be denied or
significantly reduced before or after the patent is issued. Consequently,
InStent does not know whether any of its pending patent applications will
result in the issuance of patents, any existing or future patents will
provide significant protection or commercial advantage or any existing or
future patents will be circumvented by others. Since patent applications are
secret until patents are issued in the United States or corresponding
applications are published in foreign countries, and since publication of
discoveries in the scientific or patent literature often lags behind actual
discoveries, InStent cannot be certain that it was the first to make the
inventions covered by each of its pending patent applications or that it was
the first to file patent applications for such inventions. There can be no
assurance that patents will issue from InStent's pending or future patent
applications or, if issued, that such patents will be of commercial benefit,
afford InStent adequate protection from competing products or not be
challenged or declared invalid.
In the event a third party has also filed a patent application relating to an
invention claimed in an InStent patent application, InStent may be required
to participate in an interference proceeding declared by the United States
Patent and Trademark Office to determine priority of invention, which could
result in substantial uncertainties and cost for InStent, even if the
eventual outcome is favorable to InStent. There can be no assurance that
InStent's patents, if issued, would be held valid by a court of competent
jurisdiction.
A number of medical device and other companies, universities and research
institutions have filed patent applications or have been issued patents
relating to stent implantations. If third-party patents or patent
applications contain claims infringed by InStent's technology and such claims
or claims in issued patents are ultimately determined to be valid, there can
be no assurance that InStent would be able to obtain licenses to these
patents at a reasonable cost, if at all, or be able to develop or obtain
alternative technology, either of which could have a material adverse effect
on InStent's business, financial condition and results of operations. There
can be no assurance that InStent will not be obliged to defend itself in
court against allegations of infringement of third-party patents. Patent
litigation is very expensive and could subject InStent to significant
liabilities to third parties, require disputed rights to be licensed from
third parties or require InStent to cease using such technology.
On September 12, 1995, InStent received a notice from a third party regarding
a claim of an alleged patent infringement by InStent's UroCoil and ProstaCoil
stent products. InStent's patent counsel has advised InStent that this claim
is without merit and, if necessary, InStent intends to vigorously contest
such claim.
InStent relies upon trade secret protection for certain unpatented aspects of
other proprietary technology. There is no assurance that others will not
independently develop or otherwise acquire substantially equivalent
proprietary information or techniques, others will not otherwise gain access
to InStent's proprietary technology or disclose such technology, or InStent
can meaningfully protect its trade secrets.
InStent has seven trademarks, five of which (EndoCoil, EsophaCoil, UroCoil,
ProstaCoil and InStent) are registered in the U.S. Patent and Trademark
Office. Applications have been filed for registration of the marks
CardioCoil, VascuCoil and CarotidCoil.
COMPETITION
Competition in the medical device industry, and specifically in the stent
industry, is intense. Johnson & Johnson Interventional Systems Co. ("JJIS"),
Medtronic, Schneider, Inc., Cook, Inc. and Boston Scientific Corporation
("Boston Scientific"), among others, currently compete against InStent in the
development, production and marketing of stents and stent technology. Other
companies, including large pharmaceutical and medical device companies, may
also enter the stent technology market. Many of InStent's competitors and
potential competitors have substantially greater name recognition and capital
resources than does InStent and also have greater resources and expertise in
the areas of research and development, obtaining regulatory approvals,
manufacturing and marketing. There can be no assurance that InStent's
competitors and potential competitors will not succeed in developing and
marketing technologies and products that are more effective than those
developed and marketed by InStent or that would render InStent's technology
and products obsolete or noncompetitive. Additionally, there is no assurance
that InStent will be able to compete effectively against such competitors and
potential competitors in terms of manufacturing, marketing and sales.
Several self-expanding metallic stents are approved by the FDA for malignant
biliary obstructions, including the WallStent, which is distributed by
Schneider, Inc., the Gianturco "Z" stent, which is distributed by Cook, Inc.,
the Palmaz-Schatz stent, which is distributed by JJIS and the Strecker stent,
which is distributed by Boston Scientific. Two other self-expanding metallic
stents are approved by the FDA for malignant esophageal obstructions, an
esophageal version of the WallStent and the Ultraflex stent, which is
distributed by Boston Scientific. These stents and several others are
marketed internationally for malignant biliary or esophageal obstructions.
The JJIS Palmaz-Schatz stent is approved by the FDA for the prevention of
restenosis following PTA. This stent and several others are also marketed
internationally for prevention of restenosis following PTA. Currently, one
coronary stent, the JJIS Palmaz-Schatz balloon-expandable stent, is approved
by the FDA for the prevention of restenosis following PTCA. In addition, the
Cook Gianturco-Roubin balloon-expandable stent is approved for acute or
threatened collapse or closure of the artery following PTCA. These stents,
and others, are marketed internationally for prevention of restenosis, and
several coronary stents are in clinical trials internationally.
Some of InStent's competitors have already claimed significant market shares.
InStent believes that the coronary stent marketed by JJIS and the biliary
stent marketed by Schneider, Inc. have each captured in excess of 75% of
their respective markets and that the vascular stents marketed by each of
JJIS and Schneider, Inc. have together captured in excess of 75% of the
vascular stent market. InStent believes that its products currently have an
insignificant share of each stent market in which they compete. InStent
believes the innovative designs of its stents may offer certain advantages
over competing products. Nevertheless, earlier entrants in the market in a
therapeutic area often obtain and maintain significant market share relative
to later entrants into the market. There is no assurance that InStent's
products will have advantages over competing products, or that the clinical
trials will demonstrate such advantages.
Several competitors are developing new stent designs, including absorbable or
biodegradable stents, removable stents, stents with antithrombogenic
coatings, stents that are covered or coated to resist tumor ingrowth, stents
that are deployed using ultrasound and drug-impregnated stents as drug
delivery devices. Many of these devices target the coronary stent market.
Much research is focused on developing antithrombogenic coated stents to
reduce the risks of blood clot formation associated with coronary and
vascular stents. There is no assurance that InStent's competitors will not
develop products that are more effective than those developed by InStent or
that may even render InStent's products obsolete or noncompetitive.
The medical indications that can be treated by stents can also be treated by
surgery, drugs or other medical devices, many of which are widely accepted in
the medical community. There is no assurance that a procedure using stent
technology will be able to replace such established treatments. InStent
believes that its stents currently have an insignificant share of the total
treatment market for each indication that can be treated by stents relative
to such alternative treatments. Additionally, new surgical procedures and
medications could be developed that replace or reduce the importance of
current procedures that use InStent's products. Additionally, the medical
device industry is characterized by rapid and significant technological
change. Accordingly, InStent's success will depend in part on its ability to
respond quickly to medical and technological changes through the development
and introduction of new products. Product development involves a high degree
of risk and there is no assurance that InStent's new product development
efforts will result in any commercially successful products.
MANUFACTURING
InStent maintains manufacturing facilities in Eden Prairie, Minnesota and
Holon, Israel. InStent's Minnesota facility is regulated by the FDA, and its
international facilities may be subject to FDA and other international
regulatory agencies' requirements.
InStent's primary manufacturing facility, located in Eden Prairie, Minnesota,
currently produces the EsophaCoil and the EndoCoil stent product lines. All
aspects of product manufacture, from receipt of raw materials to shipping of
finished EsophaCoil and EndoCoil stents and delivery system combinations, are
conducted at this facility. InStent utilizes a third party for sterilization
of the EsophaCoil and EndoCoil product lines, and has and expects to qualify
alternate sources of sterilization services. The Eden Prairie facility also
manufactures components of the UroCoil and the ProstaCoil stents for export
and assembly by a third party in the Netherlands. Commencing in February
1996, the Eden Prairie facility also manufactured components of the
CardioCoil and VascuCoil stents. The Eden Prairie facility may manufacture
other products in the future, subject to market demand. The Eden Prairie
facility has a current annual manufacturing capacity of approximately 60,000
stents. The Eden Prairie facility was most recently inspected by the FDA in
December 1994, at which time it was determined to be in GMP compliance.
In 1995, InStent's Israel facility produced the VascuCoil peripheral vascular
stent, which is in limited commercial release internationally. The Israel
facility also manufactures the CardioCoil coronary stent for use in clinical
trials. InStent intends to lease additional space in Israel related to
development and production activities associated with its balloon expandable
and CardioCoil coronary stents to support international sales.
InStent contracts with a third party in the Netherlands to assemble,
sterilize, package and distribute the UroCoil urethral stent and the
ProstaCoil prostatic stent from components manufactured in the Eden Prairie
facility. Other stents may be similarly completed in the Netherlands in the
future.
InStent has qualified alternate sources for its key raw materials, which
include nitinol wire, plastic tubing and injection molded components. To
date, InStent generally has manufactured products as required to meet current
orders and does not maintain large inventories of finished products. InStent
currently does not have an order backlog.
GOVERNMENT REGULATION
The medical devices manufactured and marketed by InStent are subject to
extensive regulation by the FDA and, in some instances, by foreign
governments. Pursuant to the Federal Food, Drug, and Cosmetic Act, as
amended, and the regulations promulgated thereunder (the "Act"), the FDA
regulates the clinical testing, manufacture, labeling, distribution, and
promotion of medical devices.
A medical device manufacturer may seek clearance to market a medical device
by filing a 510(k) premarket notification with the FDA if a medical device
manufacturer establishes that a newly developed device is "substantially
equivalent" to a device that was legally marketed prior to May 28, 1976, the
date upon which the Medical Device Amendments of 1976 were enacted, or to a
device that is currently legally marketed and has received 510(k) premarket
clearance from the FDA. The 510(k) premarket notification must be supported
by appropriate data establishing the claim of substantial equivalence to the
satisfaction of the FDA.
If substantial equivalence cannot be established or if the FDA determines
that a device or a particular application for a device requires a more
rigorous review, the FDA will require that the manufacturer submit a PMA that
must be carefully reviewed and approved by the FDA prior to marketing the
device in the United States. The first step in the PMA approval process is
the submission to the FDA of the results of laboratory and animal studies and
a request for permission to clinically evaluate the device in humans under an
IDE. Initiation of the study requires the approval of the institutional
review board of the hospital or clinic participating in the clinical trial
and written informed consent from all participating patients. The PMA
application must contain the results of the clinical trials, the results of
all relevant bench tests, laboratory and animal studies, a complete
description of the device and its components, and a detailed description of
the methods, facilities and controls used for manufacture, including the
method of sterilization and its assurance. In addition, the submission must
include the proposed labeling, advertising literature and training methods
(if required). After completion of the FDA's preliminary review, the
submission is sent to an FDA-selected scientific advisory panel composed of
physicians and scientists with expertise in the particular field. The FDA
scientific advisory panel issues a recommendation to the FDA that may include
conditions for approval. The FDA is not bound by the recommendations of the
advisory panel. Toward the end of the PMA review process, the FDA will
conduct an inspection of the manufacturer's facilities to ensure that the
facilities are in compliance with applicable GMP requirements. If FDA
evaluations of both the PMA application and the manufacturing facilities are
favorable, the FDA will issue an approval letter, which usually contains a
number of conditions that must be met in order to secure final approval of
the PMA. When those conditions have been fulfilled to the satisfaction of the
FDA, the agency will issue a PMA approval letter, authorizing commercial
marketing of the device for certain indications. The PMA review and approval
process generally takes more than a year to complete from the date of filing,
and may take substantially longer, depending upon, among other things, the
particular FDA review division. The FDA may also determine that additional
clinical trials are necessary, in which case the PMA may be delayed for
several years while additional clinical trials are conducted and submitted in
an amendment to the PMA. Certain alterations in medical devices require FDA
clearance, either under the 510(k) premarket notification, IDE or PMA
supplement. Such IDE, 510(k) and PMA supplements relating to product
alterations require the submission of the same type of information required
for an initial application, but because such subsequent filings need only
contain sufficient information to support the change, they are generally more
brief, and the FDA attempts to act upon them in a shorter period of time. The
FDA generally does not use an advisory panel review for PMA supplements.
International sales of medical devices are subject to the regulatory agency
product registration requirements of each country. The regulatory review
process varies from country to country. Many countries also impose product
standards, packaging requirements, labeling requirements and import
restrictions that are similar to those of the FDA. In addition, each country
has its own tariff regulations, duties and tax requirements. InStent relies
on its independent distributors to register its products and comply with
foreign regulatory requirements in most countries. InStent is able to export
to and sell the ProstaCoil prostatic stent, UroCoil urethral stent, EndoCoil
biliary stent and EsophaCoil esophageal stent in 32 countries
internationally, including the countries that InStent believes represent the
most significant international markets, other than Japan. InStent is able to
sell the VascuCoil peripheral vascular stent in all international markets,
except Canada or Japan. InStent has applied for additional approvals and will
continue to apply for others. There is no assurance as to when or whether
additional approvals will be received.
InStent also plans to implement policies and procedures intended to allow
InStent to receive ISO 9002 certification for its manufacturing facilities in
Eden Prairie, Minnesota, and Holon, Israel. ISO 9002 certification is based
on adherence to established standards in the areas of quality assurance and
manufacturing process control. This certification is a significant European
Union sales requirement that will permit InStent to affix the prescribed "CE"
mark to its products. The European Union requires that medical devices
receive a CE mark by mid-1998 in order to commercially market and sell
medical products in the countries of the European Economic Area. While
InStent intends to satisfy the requisite policies and procedures that will
permit it to receive the CE mark certification by mid-1998, there is no
assurance that it will be successful in meeting such certification
requirements within this time frame or at all. InStent is also required to
register with the FDA as a device manufacturer. As such, InStent's
manufacturing facilities are inspected on a routine basis for compliance with
GMP. The GMP regulations require that InStent manufacture its products and
maintain its documents in a prescribed manner with respect to manufacturing,
testing and control activities. InStent is required to comply with various
FDA requirements for labeling.
InStent is required to provide information to the FDA on death or serious
injuries alleged to have been associated with the use of its medical devices,
as well as product malfunctions that would likely cause or contribute to
death or serious injury if the malfunction were to recur. In addition, the
FDA prohibits an approved device from being marketed for unapproved
applications. If the FDA believes that a company is not in compliance with
the law, it can institute proceedings to detain or seize products, issue a
recall, enjoin future violations and assess civil and criminal penalties
against InStent, its officers and its employees. Failure to comply with the
regulatory requirements could have a material adverse effect on InStent's
business, financial condition and results of operations.
THIRD-PARTY REIMBURSEMENT
Health care providers, such as hospitals and physicians, that purchase
medical devices such as stents, generally rely on third-party payors,
principally Medicare, Medicaid and private health insurance plans, to
reimburse all or part of the costs and fees associated with stents. In
foreign markets, reimbursement is obtained from a variety of sources,
including government authorities, private health insurance plans and labor
unions. InStent's international independent distributors, and the health care
providers to whom such distributors sell, generally obtain any necessary
reimbursement approvals. InStent believes that domestic and international
health care providers currently are reimbursed in full for the cost of
purchasing InStent's stents. While InStent does not anticipate problems with
third-party reimbursement, such problems could arise in the event that
InStent's stents were substantially more expensive than competing stents.
PRODUCT LIABILITY AND INSURANCE
InStent's business involves the risk of product liability claims. InStent has
not experienced any product liability claims to date. Although InStent
maintains product liability insurance with coverage limits of $3 million per
occurrence and an annual aggregate maximum of $3 million, there can be no
assurance that product liability claims will not exceed such insurance
coverage limits, which could have a material adverse effect on InStent, or
that such insurance will be available on commercially reasonable terms or at
all.
EMPLOYEES
As of March 1, 1996, InStent had approximately 72 full-time employees,
including 39 in the United States and 33 in Israel. InStent also had
consulting or other contract arrangements with 9 persons. Approximately 35
persons are engaged in research and development activities, 30 persons are
engaged in manufacturing and engineering, 10 persons are engaged in sales and
marketing, and 6 persons are devoted to support and administrative functions.
No employees are covered by collective bargaining agreements, and InStent
believes it maintains good relations with its employees.
SELECTED FINANCIAL DATA OF INSTENT
STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM (UNAUDITED)
APRIL 17, 1991 THREE MONTHS ENDED
(INCEPTION) TO YEARS ENDED DECEMBER 31, MARCH 31,
DECEMBER 31,
1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $ -- $ 36 $ 132 $ 772 $ 2,403 $ 422 $ 1,004
Cost of goods sold -- 56 278 498 918 165 354
Gross profit (loss) -- (20) (146) 274 1,485 257 650
Expenses:
Selling, general and
administrative 255 733 1,468 1,558 2,517 434 1,022
Research and development 217 368 587 1,122 1,825 251 889
Expenses related to proposed
merger -- -- -- -- -- -- 245
Total operating expenses 472 1,101 2,055 2,680 4,342 685 2,156
Loss from operations (472) (1,121) (2,201) (2,406) (2,857) (428) (1,506)
Other income (expense):
Interest income, net 24 15 27 59 1,215 5 570
Loss on sale of assets -- (4) -- (29) (22) -- --
Total other income, net 24 11 27 30 1,193 5 570
Loss before income taxes (448) (1,110) (2,174) (2,376) (1,664) (423) (936)
Provision for income taxes -- -- -- -- 77 -- 15
Net loss $ (448) $(1,110) $(2,174) $(2,376) $(1,741) (423) (951)
Net loss per common share $(0.09) $ (0.23) $ (0.45) $ (0.37) $ (0.22) $(0.07) $ (0.09)
Weighted average common shares and
equivalents 4,800 4,801 4,875 6,433 8,061 6,234 10,020
</TABLE>
BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH
AS OF DECEMBER 31, 31,
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Working capital $576 $ 845 $3,180 $ 981 $43,344 $42,055
Total assets 719 1,064 3,682 1,754 44,764 43,899
Stockholders' equity 627 998 3,472 1,327 43,926 43,006
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF INSTENT
The following discussion of the financial condition and results of operations
of InStent should be read in conjunction with the Consolidated Financial
Statements and the related Notes thereto included elsewhere in this Proxy
Statement/Prospectus.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
REVENUE: For the first quarter of 1996, revenue increased 138% to $1,004,000,
compared to the first quarter of 1995 revenue of $422,000. The first quarter
increase was due to a 100% increase in unit sales complemented by a 19%
increase in the average selling price. Two-thirds of the increase in sales
volume was the result of an increase in domestic sales, made possible by both
FDA clearances to market two of InStent's products domestically and InStent's
distribution agreement with Bard. A change in product mix contributed to the
increased average selling price as sales shifted from the lower priced
urology products to the higher priced esophageal and biliary products.
GROSS PROFIT: Gross margins improved from 61% in the first quarter of 1995 to
65% in the first quarter of 1996. The improved margins were generated by the
higher average selling prices, offset slightly by the change in product mix
to products with a greater average product cost. The increase in sales volume
resulted in improved production efficiencies causing overall product costs to
decline.
OPERATING EXPENSES: Operating expenses increased 176% in the first quarter of
1996, excluding expenses related to the proposed merger, to $1,911,000,
compared to $685,000 in the first quarter of 1995. Selling, general and
administrative expenses increased 135%, proportionate with the increase in
sales, due to expenses incurred to support InStent's growth as well as costs
associated with being a public company. Research and development expense
increased 254% to $889,000 for the first quarter of 1996 compared to $251,000
for the first quarter of 1995, due to the acceleration of new product
development, particularly a balloon expandable stent, and work related to FDA
IDE submissions.
OTHER INCOME: Other income, which consists primarily of interest income,
increased in the first quarter of 1996 to $570,000 from $5,000 for the first
quarter of 1995, due to significantly higher cash and investment balances as
a result of proceeds from InStent's initial public offering which closed on
July 5, 1995.
NET LOSS: InStent recorded a net loss of $951,000 in the first quarter of
1996, compared to a net loss of $423,000 for the first quarter of 1995.
Although the gross margins improved with the increased average selling
prices, the acceleration of new product development and product introductions
were greater, creating a larger loss in the first quarter of 1996 than the
comparable period in 1995, excluding the first quarter 1996 expenses related
to the Merger.
YEARS ENDED DECEMBER 31, 1995 AND 1994
NET SALES: In 1995, net sales increased 211% to $2,403,000 compared to 1994
net sales of $772,000. Unit sales increased 153% and the average selling
price increased 23%. The unit sales increase is primarily due to increased
market penetration in Europe. Additional increases in the unit sales occurred
in the U.S. after receiving FDA clearance for marketing InStent's EsophaCoil
esophageal stent and EndoCoil biliary stent in February 1995 and September
1995, respectively. The average selling price increased in 1995 over 1994 due
to shifts in product mix to higher priced products and shifts in market mix
to the generally higher-priced U.S. market.
GROSS PROFIT: Gross profit margins improved from 36% in 1994 to 62% in 1995.
The increased volume contributed directly to the improved utilization of
InStent's manufacturing capacity, and the increase in the average selling
price positively affected the margin.
OPERATING EXPENSES: Operating expenses increased 62% from $2,680,000 in 1994
to $4,342,000 in 1995. Selling, general and administrative expenses increased
62% to support the sales increase of 211%. The expense increase was largely
due to activity in the U.S. market for the introduction of new products which
includes increased participation in trade shows and sales commissions.
Research and development expenses increased 63% due to the acceleration of
new product development in support of international clinical studies and FDA
IDE submissions.
OTHER INCOME: Other income, which consists primarily of interest income,
increased from $30,000 in 1994 to $1,193,000 in 1995, due to significantly
higher cash and investment balances as a result of proceeds from the initial
public offering that closed on July 5, 1995.
NET LOSS: InStent recorded a net loss of $1,741,000 for 1995, compared to a
net loss of $2,376,000 in 1994, or a reduction in net loss of 27%. The
increase in net sales, improving gross margins and increase in interest
income were offset by the additional operating expenses incurred to support
InStent's growth.
YEARS ENDED DECEMBER 31, 1994 AND 1993
NET SALES. In 1994, net sales increased 485% to $772,000 compared to 1993 net
sales of $132,000. Unit sales increased 193% from 1993 to 1994. The unit
sales increase is largely attributable to the introduction of new products,
InStent's expanded distributor network and, to a lesser extent, increased
market penetration in each of its markets. Approximately 50% of InStent's
unit sales were attributable to sales of InStent's EsophaCoil esophageal
stent and EndoCoil biliary stent, which were introduced in the third quarter
of 1994. The addition of new distributors in Korea, Spain, Greece and Finland
contributed an aggregate of $132,000 toward the increase in net sales.
InStent's sales in Germany, France and Italy each increased 400% or more as
compared to 1993. In addition, InStent's average selling price to
distributors doubled as InStent phased out its introductory distributor
pricing for its then-current products.
GROSS PROFIT (LOSS). Margins improved from a negative 111% margin in 1993 to
a positive 36% margin in 1994. InStent increased production during 1994 due
to the 193% increase in unit sales compared with 1993, resulting in a more
efficient utilization of manufacturing capacity, which InStent had increased
in the second half of 1993 in anticipation of increases in sales volumes.
OPERATING EXPENSES. Operating expenses increased 30% in 1994 to $2,680,000,
compared to $2,055,000 in 1993. The increase is primarily due to a 92%
increase in research and development expenses, from $587,000 in 1993 to
$1,122,000 in 1994, as InStent accelerated development activity for its
vascular and coronary stents. The increase is also due to increased selling
and marketing expenses and operating expenses for InStent Europe B.V., which
InStent established during 1994.
OTHER INCOME. Interest income for 1994 increased to $59,000 from $27,000 in
1993, resulting from a full year's interest on proceeds received from the
sales of its capital stock.
NET LOSS. InStent experienced a net loss of $2,376,000 in 1994, an increase
of 9% over the prior year's loss of $2,174,000. The increase in sales
activity partially offset the increased research and development expenses.
LIQUIDITY AND CAPITAL RESOURCES
InStent's cash and cash equivalents and short-term investments increased
$41,837,000 to $42,566,000 at December 31, 1995. Cash used by InStent's
operations was $1,942,000, $2,101,000 and $1,945,000 for 1993, 1994 and 1995,
respectively. Until July 1995, proceeds from private placements provided the
required working capital. On July 5, 1995 InStent's initial public offering
closed, resulting in approximately $41,500,000 of net proceeds, including the
partial exercise of the Underwriters' over-allotment option. InStent believes
that the net proceeds from the initial public offering and cash flows from
current product sales will be sufficient to fund its operations and planned
new product development for the foreseeable future.
Historically, capital expenditures have not been significant. However, as
InStent accelerates its growth through new product introductions, capital
expenditures have increased. For the first three months of 1996, capital
expenditures were $437,000.
InStent's exposure to foreign currency fluctuations has been limited to date
since most of InStent's sales have been denominated in U.S. currency and
because neither of InStent's international subsidiaries has had significant
assets.
As of December 31, 1995, InStent had no outstanding debt. Working capital, at
the end of 1995 increased to $43,344,000 primarily due to the initial public
offering, compared to $981,000 at December 31, 1994. Working capital at the
end of the first quarter of 1996 decreased slightly to $42,055,000 primarily
due to the accelerated spending in support of new products.
OUTLOOK
Although InStent currently markets five stents internationally, to date only
the EsophaCoil esophageal and EndoCoil biliary product lines are cleared to
market in the United States. InStent will incur substantial clinical research
and other costs in connection with obtaining regulatory approvals for its
products in the United States. InStent expects to continue to incur losses
until at least such time, if ever, as its products achieve broader market
acceptance internationally and domestically, and as it receives additional
regulatory approvals to market a broad line of its products in the more
significant geographic markets. InStent's longer-term prospects are highly
dependent on successful development, timely receipt of regulatory approvals
and market acceptance of InStent's products.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF INSTENT
The following table sets forth certain information regarding the beneficial
ownership of InStent Common Stock as of the date hereof, by: (i) each person
known by InStent to be the beneficial owner of more than 5% of InStent's
Common Stock, (ii) each director, (iii) each executive officer for whom
disclosure is required pursuant to Item 403 of Regulation S-K and (iv) all
executive officers and directors of the InStent as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
<S> <C> <C>
Lewis Pell 740,667(2) 7.3
40 Ramland Road South
Orangeburg, NY 10962
Mordechay Beyar, M.D. 731,833 7.2
5 Hazorff Street
Holon, Israel
Katsumi Oneda 674,000 6.6
40 Ramland Road South
Orangeburg, NY 10962
Warren Bielke 533,333(3) 5.2
6271 Bury Drive
Eden Prairie, MN 55346
Rafael Beyar, M.D. D.Sc. 469,167 4.6
Daniel Yachia, M.D. 181,166(4) 1.8
Kenneth W. Anstey 7,000(5) *
All executive officers and
directors as a group (10 persons)(4) 3,563,665(6) 35.0
</TABLE>
* Less than 0.1%
(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes generally voting power
and/or investment power with respect to securities. Shares of InStent
Common Stock subject to options currently exercisable or exercisable
within 60 days of the date hereof are deemed outstanding for computing
the percentage ownership of the person holding such options but are not
deemed outstanding for computing the percentage ownership of any other
person. Shares of InStent Common Stock that are subject to options that
will vest upon consummation of the Merger, but are not otherwise
exercisable within 60 days from the date hereof, are not deemed
outstanding. Except as otherwise indicated, InStent believes that the
beneficial owners of the Common Stock listed above, based on information
furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where
applicable, and that there are no other affiliations among the
stockholders listed in the table.
(2) Does not include an aggregate 100,000 shares of InStent Common Stock held
by immediate family members who share such person's household, as to
which shares Mr. Pell disclaims beneficial ownership.
(3) Includes 66,667 shares of InStent Common Stock held by Mr. Bielke as
custodian for the benefit of his two minor children, as to which shares
Mr. Bielke disclaims beneficial ownership.
(4) Does not include an aggregate 176,000 shares of InStent Common Stock held
by immediate family members sharing such person's household, as to which
shares Dr. Yachia disclaims beneficial ownership.
(5) Includes 7,000 shares of InStent Common Stock issuable upon exercise of
options. Does not include 3,000 shares of InStent Common Stock issuable
upon exercise of options that will vest and become exercisable upon
consummation of the Merger.
(6) See notes 2, 4, 5 and 6 above. Includes an aggregate 124,333 shares of
InStent Common Stock issuable upon exercise of options within 60 days.
Does not include an aggregate 122,334 shares of InStent Common Stock
issuable upon exercise of options that will vest and become exercisable
upon consummation of the Merger.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
BETWEEN INSTENT AND MEDTRONIC
Subsequent to their execution of the Merger Agreement, InStent and Medtronic
also executed a five-year Distribution Agreement, dated as of March 27, 1996
(the "Distribution Agreement"), pursuant to which InStent appointed Medtronic
its exclusive worldwide distributor of coronary and carotid stent products.
Under the Distribution Agreement, InStent is prohibited from appointing any
other distributor of identified products and is also prohibited from
marketing such products itself or effecting direct sales to dealers or
retailers. Additionally, Medtronic is prohibited from selling or accepting
orders for any other expandable coronary or carotid stents, other than with
respect to stent products that Medtronic owns, develops or otherwise acquires
for sale and distribution. The Distribution Agreement runs through April 1,
2001, and its effectiveness is not contingent upon consummation of the
Merger.
LEGAL MATTERS
The validity of the Medtronic Common Stock to be issued in connection with
the Merger will be passed upon for Medtronic by Fredrikson & Byron, P.A.,
Minneapolis, Minnesota. Members of such firm own, in the aggregate,
approximately 46,600 shares of Medtronic Common Stock.
Certain legal matters for InStent, including the federal income tax
consequences in connection with the Merger, were passed upon by Maslon
Edelman Borman & Brand, a Professional Limited Liability Partnership,
Minneapolis, Minnesota. Members of such firm own, in the aggregate,
approximately 6,426 shares of Medtronic Common Stock. Such firm also renders
legal services to Medtronic from time to time.
EXPERTS
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K of
Medtronic, Inc. for the fiscal year ended April 30, 1995 have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The consolidated financial statements of InStent Inc. as of
December 31, 1994 and 1995 and for each of the three years in the period
ended December 31, 1995 included in this Proxy Statement/Prospectus have been
so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INSTENT INC.
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995
and March 31, 1996 (unaudited) F-3
Consolidated Statements of Operations for the years ended
December 31, 1993, 1994 and 1995 and the three months ended
March 31, 1995 and 1996 (unaudited) F-4
Consolidated Statements of Stockholders' Equity for the years
ended
December 31, 1993, 1994 and 1995 and the three months ended
March 31, 1996 (unaudited) F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1994 and 1995 and the three months ended
March 31, 1995 and 1996 (unaudited) F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of InStent Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
InStent Inc. and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Minneapolis, Minnesota
February 19, 1996
INSTENT INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, MARCH 31,
1994 1995 1996
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 729 $23,494 $35,933
Short-term investments -- 19,072 5,164
Accounts receivable, net 264 974 1,280
Inventories 355 162 63
Prepaid expenses and other current assets 60 480 508
Total current assets 1,408 44,182 42,948
Equipment and fixtures, net 239 451 826
Intangible assets, net 107 131 125
Total assets $ 1,754 $44,764 $43,899
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 200 $ 544 $ 506
Accrued compensation and related benefits 48 90 162
Accrued royalties to related parties 28 54 19
Other current liabilities 151 150 206
Total current liabilities 427 838 893
Commitments -- -- --
Stockholders' equity:
Common stock, par value $.01 per share; 25,000,000 shares
authorized, 6,432,963, 10,016,560 and 10,026,360 issued
and outstanding, respectively 64 100 100
Additional paid-in capital 7,361 51,686 51,706
Accumulated deficit (6,108) (7,849) (8,800)
Cumulative translation adjustment 10 (11) --
Total stockholders' equity 1,327 43,926 43,006
Total liabilities and stockholders' equity $ 1,754 $44,764 $43,899
</TABLE>
See accompanying notes to consolidated financial statements.
INSTENT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Net sales $ 132 $ 772 $ 2,403 $ 422 $ 1,004
Cost of goods sold 278 498 918 165 354
Gross profit (loss) (146) 274 1,485 257 650
Expenses:
Selling, general and administrative 1,468 1,558 2,517 434 1,022
Research and development 587 1,122 1,825 251 889
Expenses related to proposed merger -- -- -- -- 245
Total operating expenses 2,055 2,680 4,342 685 2,156
Loss from operations (2,201) (2,406) (2,857) (428) (1,506)
Other income (expense):
Interest income, net 27 59 1,215 5 570
Loss on sale of assets -- (29) (22) -- --
Total other income, net 27 30 1,193 5 570
Loss before income taxes (2,174) (2,376) (1,664) (423) (936)
Provision for income taxes -- -- 77 -- 15
Net loss $(2,174) $(2,376) $(1,741) $ (423) $ (951)
Net loss per common share $ (.45) $ (.37) $ (.22) $ (.07) $ (.09)
Weighted average common shares 4,875 6,433 8,061 6,234 10,020
</TABLE>
See accompanying notes to consolidated financial statements.
INSTENT INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK
SERIES A AND B COMMON STOCK
ADDITIONAL CUMULATIVE
NUMBER NUMBER PAID-IN ACCUMULATED TRANSLATION
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 703 $ 35 4,814 $ 48 $ 2,466 $(1,558) $ 7 $ 998
Sales of stock for cash 230 11 -- -- 851 -- -- 862
Sales of stock for cash,
less
expense of $103 -- -- 686 7 3,390 -- -- 3,397
Conversion of preferred
stock to common stock (933) (46) 933 9 37 -- -- --
Stock options recognized as
compensation -- -- -- -- 382 -- -- 382
Net loss for 1993 -- -- -- -- -- (2,174) -- (2,174)
Adjustment for foreign
currency translation -- -- -- -- -- -- 7 7
Balance, December 31, 1993 -- -- 6,433 64 7,126 (3,732) 14 3,472
Stock options recognized as
compensation -- -- -- -- 235 -- -- 235
Net loss for 1994 -- -- -- -- -- (2,376) -- (2,376)
Adjustment for foreign
currency translation -- -- -- -- -- -- (4) (4)
Balance, December 31, 1994 -- -- 6,433 64 7,361 (6,108) 10 1,327
Redemption of shares -- -- (412) -- (4) 4 -- --
Stock options exercised -- -- 93 1 192 -- -- 193
Stock options recognized as
compensation -- -- -- -- 159 -- -- 159
Sales of stock for cash -- -- 412 4 2,467 -- -- 2,471
Initial public offering,
less
expenses of $3,841 -- -- 3,491 35 41,503 -- -- 41,538
Net loss for 1995 -- -- -- -- -- (1,741) -- (1,741)
Adjustment for foreign
currency translation -- -- -- -- -- -- (21) (21)
Balance, December 31, 1995 -- -- 10,017 100 51,686 (7,849) (11) 43,926
Stock options exercised
(unaudited) -- -- 9 -- 18 -- -- 18
Stock options recognized as
compensation (unaudited) -- -- -- -- 2 -- -- 2
Net loss for three months
ended March 31, 1996
(unaudited) -- -- -- -- -- (951) -- (951)
Adjustment for foreign
currency translation
(unaudited) -- -- -- -- -- -- 11 11
Balance, March 31, 1996
(unaudited) -- $ -- 10,026 $100 $51,706 $(8,800) $ -- $43,006
</TABLE>
See accompanying notes to consolidated financial statements.
INSTENT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss $(2,174) $(2,376) $ (1,741) $ (423) $ (951)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 66 81 141 19 70
Loss on disposal of equipment and fixtures -- 29 22 -- --
Stock options recognized as compensation 382 235 159 55 2
Changes in operating assets and liabilities:
Receivables (156) (149) (710) (115) (306)
Inventories (164) (158) 193 78 99
Prepaid expenses and other (8) 21 (420) (1) (28)
Current liabilities 112 216 411 (146) 55
Net cash used by operating activities (1,942) (2,101) (1,945) (533) (1,059)
Investing activities:
Purchase of equipment and fixtures (161) (105) (373) (33) (437)
Proceeds from sale of equipment -- 8 28 -- --
Patents and trademarks (23) (68) (54) -- (2)
Net purchases of short-term investments -- -- (19,072) -- 13,908
Net cash used by investing activities (184) (165) (19,471) (33) 13,469
Financing activities:
Proceeds from sale/issuance of stock 4,259 -- 44,202 1,100 18
Net cash provided by financing activities 4,259 -- 44,202 1,100 18
Effects of exchange rate changes on cash 7 (4) (21) 1 11
Net increase (decrease) in cash and
cash equivalents 2,140 (2,270) 22,765 535 12,439
Cash and cash equivalents:
Beginning of period 859 2,999 729 729 23,494
End of period $ 2,999 $ 729 $ 23,494 $1,264 $35,933
Supplemental disclosures of cash flow
information:
Cash paid for interest $ 5 $ 4 $ 2 $ 1 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
INSTENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
NOTE 1 -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF COMPANY
InStent Inc. (the Company) was incorporated on April 17, 1991 to design,
develop, manufacture and market a variety of stents with non-surgical
applications in the coronary, vascular, gastroenterology and urology markets.
The Company commenced sales in the United States in 1995 with
gastroenterology products while continuing to sell a majority of its product
lines internationally. The Company is currently developing and awaiting
regulatory clearance for other products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its 99% owned subsidiary, InStent (Israel) Ltd. and its 100% owned
subsidiary, InStent B.V. All intercompany transactions have been eliminated
in consolidation. The minority interest in InStent (Israel), Ltd. is included
in other current liabilities and other income and is insignificant.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated at the exchange
rates in effect at the balance sheet date. Expenses are translated at the
average exchange rates prevailing during the period. Translation adjustments
arising from the use of differing exchange rates are included in the foreign
currency translation adjustment account in stockholders' equity.
DISCLOSURE OF SIGNIFICANT RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an initial maturity
of three months or less to be cash equivalents.
REVENUE RECOGNITION
Sales are recognized generally at the time products are shipped to the
customer. The allowance for doubtful accounts was $25,000 and $50,000 at
December 31, 1994 and 1995, respectively. Additionally, the Company has a
$72,000 provision for product returns at December 31, 1995.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Equipment and Fixtures
Equipment and fixtures are recorded at cost. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
assets of five to seven years. Depreciation for 1993, 1994 and 1995 was
approximately $50,000, $64,000 and $111,000, respectively.
INTANGIBLE ASSETS
Costs incurred to obtain and secure patents and trademarks are capitalized
and amortized using the straight-line method over five to seven years.
Amortization expense for 1993, 1994, and 1995 was approximately $16,000,
$17,000 and $30,000, respectively. Accumulated amortization at December 31,
1994 and 1995 was approximately $53,000 and $83,000, respectively. Management
assesses the future realizability of these intangible assets based upon
projected future undiscounted cash flows in accordance with Statement of
Financial Accounting Standards No. 121.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred.
NET LOSS PER COMMON SHARE
Net loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the period
presented. Common stock equivalents such as options and warrants were not
included in this calculation as the effect on amounts reported would be
antidilutive.
UNAUDITED INFORMATION
The unaudited March 31, 1995 and 1996 financial statements, included herein,
have been prepared by the Company. The information furnished in the unaudited
financial statements includes only normal recurring adjustments which are, in
the opinion of management, necessary for a fair presentation of such
financial statements. Results for the three months ended March 31, 1995 and
1996, are not necessarily indicative of results for the full years.
NOTE 2 -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
<S> <C> <C>
Raw materials and assemblies $129,000 $ 83,000
Finished goods 226,000 79,000
$355,000 $162,000
</TABLE>
NOTE 3 -- EQUIPMENT AND FIXTURES
Equipment and fixtures consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
<S> <C> <C>
Manufacturing and lab equipment $ 265,000 $ 418,000
Furniture and office equipment 89,000 234,000
354,000 652,000
Less: Accumulated depreciation (115,000) (201,000)
$ 239,000 $ 451,000
</TABLE>
NOTE 4 -- INVESTMENTS
The Company accounts for its investments in accordance with FAS 115,
"Accounting for Certain Investments in Debt and Equity Securities". At
December 31, 1995, the entire portfolio consists of fixed income securities
which are categorized as held-to-maturity.
The Company's held-to-maturity investments are carried at amortized cost and
approximate market value as noted below:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1995 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Treasury Securities $16,067,000 $17,000 $-- $16,084,000
Corporate Securities 3,005,000 1,000 -- 3,006,000
Total investment portfolio $19,072,000 $18,000 $-- $19,090,000
</TABLE>
The investments held at December 31, 1995 are interest bearing securities
with maturities ranging from ninety days to less than one year.
NOTE 5 -- STOCKHOLDERS' EQUITY
RECAPITALIZATION
On June 2, 1995, the Company declared a 4 for 3 stock split of its common
stock effective June 15, 1995, and increased its authorized common stock to
25,000,000 shares and authorized 3,000,000 shares of undesignated preferred
stock. All share and per share data included in the financial statements and
related notes have been adjusted to give retroactive effect to the split.
STOCK OPTIONS
The Company's 1995 Stock Option Plan provides for the issuance of up to
700,000 options to acquire shares of common stock. Options under the plan may
be incentive or non-qualified stock options and may be issued, at the
Company's discretion, to employees, directors and others. As of December 31,
1995, the Company has granted 391,000 options from the plan.
The Company's 1993 Stock Option Plan was closed in May 1995 after issuing
550,668 options to acquire shares of common stock.
A summary of stock option transactions is as follows:
<TABLE>
<CAPTION>
INCENTIVE
STOCK NON-QUALIFIED TOTAL PRICE RANGE
OPTIONS STOCK OPTIONS OPTIONS PER SHARE
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 -- 430,000 430,000 $ .01 - $ 1.50
Granted 26,667 -- 26,667 $5.10
Outstanding at December 31, 1994 26,667 430,000 456,667 $ .01 - $ 5.10
Granted 287,370 197,631 485,001 $5.10 - $15.25
Exercised 29,532 63,334 92,866 $ .01 - $ 5.10
Outstanding at December 31, 1995 284,505 564,297 848,802 $ .01 - $15.25
Exercised (unaudited) 3,134 6,666 9,800 $ .75 - $ 5.10
Cancelled (unaudited) 15,000 -- 15,000 $15.25
Outstanding at March 31, 1996
(unaudited) 266,371 557,631 824,002 $ .01 - $15.25
Exercisable at March 31, 1996
(unaudited) 41,226 411,443 452,669 $ .01 - $15.25
</TABLE>
Incentive and non-qualified stock options are generally exercisable on the
anniversary of the date of grant in cumulative yearly amounts ranging from
twenty to fifty percent per year.
The Financial Accounting Standards Board has issued FAS 123, "Accounting for
Stock Based Compensation." FAS 123 establishes a fair value based method of
accounting for employee stock based compensation plans and encourages
companies to adopt that method. However, it also allows companies to continue
to apply the intrinsic value based method currently prescribed under APB
Opinion No. 25, provided certain pro forma disclosures are made. FAS 123 is
not required to be adopted by the Company until 1996 and the adoption of FAS
123 will not have a material impact on the Company.
COMPENSATORY OPTIONS
When the option price for non-qualified options is less than the fair market
value at the date of grant, the Company recognizes compensation expense
ratably over the vesting period. The Company recorded compensation expense
related to stock options of approximately $382,000, $235,000 and $159,000 in
1993, 1994 and 1995, respectively.
SHARE REDEMPTION
On February 17, 1995, the Company terminated its development and other
agreements with a corporation which had purchased 686,296 shares of the
Company's common stock in 1993. As part of this agreement, the corporation
returned 411,779 shares to the Company. In February 1995, through a private
placement offering, the Company sold the 411,779 shares at $6.00 per share
and received proceeds of $2.5 million. Because these transactions were with a
significant shareholder, no gain was recognized. The shares returned were
treated as a treasury stock transaction at par value.
NOTE 6 -- INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standard No. 109 (SFAS 109). SFAS 109 is an asset and
liability approach that requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events recognized in
the Company's financial statements.
At December 31, 1994 and 1995, the Company has deferred tax assets which
consist primarily of the future benefit of net operating loss carryforwards
and the difference in financial and tax bases of certain assets and
liabilities. The valuation allowance limits the recognition of the benefit of
deferred tax assets until realization is reasonably assured by future
profitability.
The following is a summary of deferred taxes:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Net operating loss $ 1,880,000 $ 1,439,000
Compensatory stock options 228,000 284,000
Allowance for doubtful accounts 9,000 18,000
Inventories 30,000 80,000
Intangible assets 19,000 30,000
Other 43,000 84,000
Total deferred tax assets 2,209,000 1,935,000
Less: Valuation allowance (2,209,000) (1,935,000)
Net deferred tax asset $ 0 $ 0
</TABLE>
The Company has net operating loss carryforwards available for income tax
purposes at December 31, 1995 of approximately $3,950,000 which may be
applied against future taxable income and expires between 2006 and 2010.
The 1995 tax provision represents taxes imposed by foreign jurisdictions.
NOTE 7 -- LEASE COMMITMENTS
The Company occupies its corporate office and its facilities in Israel under
operating leases. Minimum rental commitments of more than one year are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
<S> <C>
1996 $145,000
1997 150,000
1998 120,000
1999 55,000
$470,000
</TABLE>
The Company is responsible for its portion of shared expenses, as defined in
the agreement, in addition to the base rent. Rent and shared expenses were
approximately $95,000, $128,000 and $163,000 in 1993, 1994 and 1995,
respectively.
NOTE 8 -- RELATED PARTY TRANSACTIONS
In 1991, the Company entered into annually renewable consulting agreements
with three stockholders who are also directors, which provide for payments of
$35,000 to each per year for consulting services. One of these agreements was
amended effective August, 1995 to increase payments to $120,000 per year.
Total consulting expenses under these agreements were $105,000 for 1993 and
1994 and $168,000 for 1995. These agreements also require royalty payments of
3% of net sales less certain expenses. Royalties for 1993, 1994 and 1995 were
approximately $4,000, $23,000 and $65,000, respectively.
In January 1994, the Company entered into a consulting agreement with another
corporation. A director and stockholder of the Company controls this
corporation. The agreement provides for payments of $1,500 per month, amended
November 1995, to increase payments to $2,500 per month and may be cancelled
at the discretion of either party. The costs related to this agreement
totalled $18,000 and $20,000 in 1994 and 1995, respectively.
NOTE 9 -- EXPORT SALES AND MAJOR CUSTOMERS
In 1995, sales were initiated in the United States and amounted to 13% of net
sales. International sales were primarily to European distributors
representing 65% of Company-wide sales.
Exports to non-European countries, which consisted primarily of Australia,
Israel, Korea, Canada, Hong Kong and Venezuela, totalled 23%, 19% and 19% of
net sales for 1993, 1994 and 1995, respectively. No geographical area outside
the United States has assets of more than ten percent of consolidated assets;
however, substantially all research and development expenses were incurred by
the Company's subsidiary in Israel. Sales to major distributors that exceeded
10% of annual net sales were as follows:
<TABLE>
<CAPTION>
DISTRIBUTOR A B C D E F G
<S> <C> <C> <C> <C> <C> <C> <C>
1993 18% 13% 11% 13% 15% 17%
1994 17% 14% 13%
1995 13% 20% 16%
</TABLE>
NOTE 10 -- SUBSEQUENT EVENTS (UNAUDITED)
A three-year exclusive distribution agreement was signed January 9, 1996 with
C.R. Bard, Inc. to distribute the Company's EsophaCoil esophageal stents and
EndoCoil biliary stents in the United States.
On March 22, 1996, InStent, entered into a merger agreement with Medtronic,
Inc., pursuant to which InStent shareholders will receive 0.3833 shares of
Medtronic common stock for each share of InStent common stock. Outstanding
options exercisable for InStent common stock will be exercisable for
Medtronic common stock at the same conversion ratio. The Merger Agreement
calls for a pooling of interests transaction. Consummation of the Merger is
subject to customary conditions, including registration with the Securities
and Exchange Commission, approval of InStent's shareholders and receipt of
Hart-Scott-Rodino approvals. The Company's principal shareholders, directors,
executive officers and certain of their family members, who in the aggregate
own approximately 37% of the Company's outstanding common stock, have agreed
to vote their shares for the Merger. During the three months ended March 31,
1996, the Company expensed $245,000 related to the proposed Merger.
Subsequent to the execution of the Merger Agreement, the Company and
Medtronic also executed a five-year Distribution Agreement dated as of March
27, 1996, pursuant to which the Company appointed Medtronic its exclusive
worldwide distributor of coronary and carotid stent products. This agreement
is not contingent upon the consummation of the Merger.
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
MEDTRONIC, INC.,
BYR ACQUISITION CORP.,
AND
INSTENT INC.
March 22, 1996
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
ARTICLE 1 THE MERGER; CONVERSION OF SHARES.....................................................A-5
1.1 The Merger...........................................................................A-5
1.2 Effective Time.......................................................................A-5
1.3 Conversion of Shares.................................................................A-5
1.4 Dissenting Shares....................................................................A-6
1.5 Exchange of Company Common Stock.....................................................A-6
1.6 Exchange of Acquisition Subsidiary Common Stock......................................A-8
1.7 Stock Options........................................................................A-8
1.8 Capitalization Changes...............................................................A-8
1.9 Certificate of Incorporation of the Surviving Corporation............................A-8
1.10 Bylaws of the Surviving Corporation..................................................A-9
1.11 Directors and Officers of the Surviving Corporation..................................A-9
ARTICLE 2 CLOSING..............................................................................A-9
2.1 Time and Place.......................................................................A-9
2.2 Filings at the Closing...............................................................A-9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................A-9
3.1 Organization.........................................................................A-9
3.2 Authorization........................................................................A-9
3.3 Capitalization......................................................................A-10
3.4 Reports and Financial Statements....................................................A-10
3.5 Absence of Undisclosed Liabilities..................................................A-11
3.6 Consents and Approvals..............................................................A-11
3.7 Compliance with Laws................................................................A-11
3.8 Litigation..........................................................................A-12
3.9 Absence of Material Adverse Changes.................................................A-12
3.10 Environmental Laws and Regulations..................................................A-12
3.11 Officers, Directors and Employees...................................................A-13
3.12 Taxes...............................................................................A-13
3.13 Contracts...........................................................................A-14
3.14 Title to Properties; Liens..........................................................A-15
3.15 Permits, Licenses, Etc..............................................................A-15
3.16 Intellectual Property Rights........................................................A-15
3.17 Benefit Plans.......................................................................A-15
3.18 Minute Books........................................................................A-17
3.19 Insurance Policies..................................................................A-17
3.20 Bank Accounts.......................................................................A-17
3.21 Powers of Attorney..................................................................A-17
3.22 Product Liability Claims............................................................A-17
3.23 Warranties..........................................................................A-18
3.24 Inventories.........................................................................A-18
3.25 Relations with Suppliers and Customers..............................................A-18
3.26 No Finders..........................................................................A-18
3.27 Proxy Statement.....................................................................A-18
3.28 Merger Filings......................................................................A-19
3.29 Fairness Opinion....................................................................A-19
3.30 Disclosure..........................................................................A-19
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
SUBSIDIARY..........................................................................A-19
4.1 Organization........................................................................A-19
4.2 Authorization.......................................................................A-19
4.3 Capitalization......................................................................A-19
4.4 Consents and Approvals..............................................................A-20
4.5 Reports; Financial Statements; Absence of Changes...................................A-20
4.6 Registration Statement..............................................................A-20
4.7 Merger Filings......................................................................A-21
4.8 No Finders..........................................................................A-21
ARTICLE 5 COVENANTS...........................................................................A-21
5.1 Conduct of Business of the Company..................................................A-21
5.2 No Solicitation.....................................................................A-23
5.3 Access and Information..............................................................A-23
5.4 Approval of Shareholders; Proxy Statement; Registration Statement...................A-24
5.5 Consents............................................................................A-25
5.6 Affiliates' Letters.................................................................A-25
5.7 Expenses............................................................................A-25
5.8 Further Actions.....................................................................A-25
5.9 Regulatory Approvals................................................................A-25
5.10 Certain Notifications...............................................................A-26
5.11 Voting of Shares....................................................................A-26
5.12 Noncompetition Agreements...........................................................A-26
5.13 NYSE Listing Application............................................................A-26
5.14 Indemnification.....................................................................A-26
5.15 Letters of the Company's and Parent's Accountants...................................A-27
5.16 Royalty Revision....................................................................A-27
5.17 Pooling; Reorganization.............................................................A-27
5.18 Subsidiary Shares...................................................................A-27
ARTICLE 6 CLOSING CONDITIONS..................................................................A-27
6.1 Conditions to Obligations of Parent, Acquisition Subsidiary and the Company.........A-27
6.2 Conditions to Obligations of Parent and Acquisition Subsidiary......................A-28
6.3 Conditions to Obligations of the Company............................................A-29
ARTICLE 7 TERMINATION AND ABANDONMENT.........................................................A-29
7.1 Termination.........................................................................A-29
7.2 Effect of Termination...............................................................A-30
ARTICLE 8 MISCELLANEOUS.......................................................................A-31
8.1 Amendment and Modification..........................................................A-31
8.2 Waiver of Compliance; Consents......................................................A-31
8.3 Investigation; Survival of Representations and Warranties...........................A-31
8.4 Notices.............................................................................A-31
8.5 Assignment..........................................................................A-32
8.6 Governing Law.......................................................................A-32
8.7 Counterparts........................................................................A-32
8.8 Knowledge...........................................................................A-32
8.9 Interpretation......................................................................A-32
8.10 Publicity...........................................................................A-33
8.11 Entire Agreement....................................................................A-33
EXHIBITS:
Exhibit A: Form of Pooling Affiliate's Letter
Exhibit B: Form of Agreement to Facilitate Merger
Exhibit C: Form of Noncompetition Agreement
Exhibit D: Form of Opinion of the Company's Counsel
Exhibit E: Form of Opinion of Parent's Counsel
</TABLE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT is dated as of March 22, 1996, by and among MEDTRONIC,
INC., a Minnesota corporation ("Parent"), BYR ACQUISITION CORP., a Delaware
corporation ("Acquisition Subsidiary"), and INSTENT INC., a Delaware corporation
(the "Company").
WHEREAS, the Boards of Directors of Parent, Acquisition Subsidiary and
the Company have approved the merger of Acquisition Subsidiary with and into the
Company (the "Merger") upon the terms and subject to the conditions set forth
herein; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall
be recorded as a "pooling of interests" within the meaning of Accounting
Principles Board Opinion No. 16, and the rules and regulations of the Securities
and Exchange Commission (the "SEC"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements contained herein,
the parties hereto agree as follows:
ARTICLE 1
THE MERGER; CONVERSION OF SHARES
1.1 The Merger. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.2 hereof), Acquisition Subsidiary
shall be merged with and into the Company in accordance with the provisions of
the Delaware General Corporation Law (the "DGCL"), whereupon the separate
corporate existence of Acquisition Subsidiary shall cease, and the Company shall
continue as the surviving corporation (the "Surviving Corporation"). From and
after the Effective Time, the Surviving Corporation shall possess all the
rights, privileges, powers and franchises and be subject to all the
restrictions, disabilities and duties of the Company and Acquisition Subsidiary,
all as more fully described in the DGCL.
1.2 Effective Time. As soon as practicable after each of the conditions
set forth in Article 6 has been satisfied or waived, the Company and Acquisition
Subsidiary will file, or cause to be filed, with the Secretary of State of the
State of Delaware a Certificate of Merger for the Merger, which Certificate
shall be in the form required by and executed in accordance with the applicable
provisions of the DGCL. The Merger shall become effective at the time such
filing is made or, if agreed to by Parent and the Company, such later time or
date set forth in the Certificate of Merger (the "Effective Time").
1.3 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any share of capital
stock of the Company or Acquisition Subsidiary:
(a) Each share of common stock of the Company, $.01 par value,
(the "Company Common Stock") issued and outstanding immediately prior
thereto (except for the shares referred to in Section 1.3(b) hereof)
shall be converted into the right to receive 0.3833 of a share (subject
to adjustment as provided below, the "Conversion Ratio") of common
stock of Parent, par value $.10 per share, ("Parent Common Stock").
Notwithstanding the foregoing, if the sum of the number of
shares of Company Common Stock outstanding immediately prior to the
Effective Time plus the number of shares subject to then outstanding
options, warrants or other rights to acquire shares of Company Common
Stock (collectively, "Company Stock Acquisition Rights") is greater
than 10,850,362 such shares or if the aggregate exercise price of all
such Company Stock Acquisition Rights then outstanding is less than the
aggregate exercise price reflected in Schedule 3.3, then the Conversion
Ratio shall be the lower of 0.3833 and the amount (rounded to the
nearest ten thousandth, with the fourth decimal place rounded up if the
fifth decimal place is 5 or more) equal to (i) $[23.00 times
10,850,362] minus the aggregate exercise price reflected in Schedule
3.3 plus the aggregate amount received by the Company as a result of
any issuance of Company Common Stock after the date of this Agreement
and prior to the Effective Time plus the aggregate exercise price of
all Company Stock Acquisition Rights outstanding immediately prior to
the Effective Time divided by (ii) $60.00 times the sum of (A) the
number of shares of Company Common Stock outstanding immediately prior
to the Effective Time plus (B) the number of shares subject to Company
Stock Acquisition Rights then outstanding.
An appropriate adjustment shall be made in the event that,
prior to the Effective Time, the outstanding shares of Company Common
Stock, without new consideration, are changed into or exchanged for a
different kind of shares or securities through a reorganization,
reclassification, stock dividend, stock combination or other like
change in the Company's capitalization. Notwithstanding the foregoing,
nothing in this Section shall be deemed to constitute authorization or
permission for or consent from Parent or Acquisition Subsidiary to any
increase in the number of shares of Company Common Stock outstanding or
subject to outstanding Company Stock Acquisition Rights, to any
decrease in the exercise price of such Rights or to any reorganization,
reclassification, stock dividend, stock combination or other like
change in capitalization.
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time that is held in the treasury of
the Company or is then owned beneficially or of record by Parent,
Acquisition Subsidiary or any direct or indirect subsidiary of Parent
or the Company shall be cancelled without payment of any consideration
therefor and without any conversion thereof.
(c) Each share of any other class of capital stock of the
Company (other than Company Common Stock) shall be cancelled without
payment of any consideration therefor and without any conversion
thereof.
(d) Each share of common stock of Acquisition Subsidiary, par
value $.01 per share, (the "Acquisition Subsidiary Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into one share of the common stock of the Surviving
Corporation, $.01 par value, (the "Surviving Corporation Common
Stock").
1.4 Dissenting Shares. The Merger does not give rise to appraisal
rights of the Company shareholders.
1.5 Exchange of Company Common Stock.
(a) Promptly after the Effective Time, Parent shall cause
Parent's stock transfer agent or such other person as Parent may
appoint to act as exchange agent (the "Exchange Agent") to mail to each
holder of record (other than Parent, Acquisition Subsidiary, the
Company or any subsidiary of Parent or the Company) of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding shares of Company Common Stock ("Company Certificates") a
form letter of transmittal (which shall specify that delivery shall be
effective, and risk of loss and title to Company Certificate(s) shall
pass, only upon delivery of Company Certificate(s) to the Exchange
Agent) and instructions for such holder's use in effecting the
surrender of Company Certificates in exchange for certificates
representing shares of Parent Common Stock.
(b) As soon as practicable after the Effective Time, the
Exchange Agent shall distribute to holders of shares of Company Common
Stock, upon surrender to the Exchange Agent of one or more Company
Certificates for cancellation, together with a duly-executed letter of
transmittal, (i) one or more Parent certificates representing the
number of whole shares of Parent Common Stock into which the shares
represented by Company Certificate(s) shall have been converted
pursuant to Section 1.3(a), and (ii) a bank check in the amount of cash
into which the shares represented by Company Certificate(s) shall have
been converted pursuant to Section 1.5(f) (relating to fractional
shares), and Company Certificate(s) so surrendered shall be cancelled.
In the event of a transfer of ownership of Company Common Stock that is
not registered in the transfer records of the Company, it shall be a
condition to the issuance of shares of Parent Common Stock that Company
Certificate(s) so surrendered shall be properly endorsed or be
otherwise in proper form for transfer and that such transferee shall
(i) pay to the Exchange Agent any transfer or other taxes required, or
(ii) establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not payable.
(c) Holders of Company Common Stock will be entitled to any
dividends or other distributions pertaining to the Parent Common Stock
received in exchange therefor that become payable to persons who are
holders of record of Parent Common Stock as of a record date that
follows the Effective Time, but only after they have surrendered their
Company Certificates for exchange. Subject to the effect, if any, of
applicable law, the Exchange Agent shall receive, hold, and remit any
such dividends or other distributions to each such record holder
entitled thereto, without interest, at the time that such Company
Certificates are surrendered to the Exchange Agent for exchange.
Holders of Company Common Stock will not be entitled, however, to
dividends or other distributions that become payable before or after
the Effective Time to persons who were holders of record of Parent
Common Stock as of a record date that is prior to the Effective Time.
(d) All shares of Parent Common Stock issued upon the
surrender for exchange of Company Common Stock in accordance with the
terms hereof (including any cash paid for fractional shares pursuant to
Section 1.5(f) hereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common
Stock.
(e) After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Company Certificates representing such shares are presented to the
Surviving Corporation, they shall be cancelled and exchanged as
provided in this Article 1. As of the Effective Time, the holders of
Company Certificates representing shares of Company Common Stock shall
cease to have any rights as shareholders of the Company, except such
rights, if any, as they may have pursuant to the DGCL. Except as
provided above, until such Company Certificates are surrendered for
exchange, each such Company Certificate shall, after the Effective
Time, represent for all purposes only the right to receive the number
of whole shares of Parent Common Stock into which the shares of Company
Common Stock shall have been converted by the Merger as provided in
Section 1.3(a) hereof and the right to receive the cash value of any
fraction of a share of Parent Common Stock as provided in Section
1.5(f) hereof.
(f) No fractional shares of Parent Common Stock and no
certificates or scrip therefor, or other evidence of ownership thereof,
shall be issued upon the surrender for exchange of Company
Certificates, no dividend or other distribution of Parent shall relate
to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any rights of a shareholder of
Parent. All fractional shares of Parent Common Stock to which a holder
of Company Common Stock immediately prior to the Effective Time would
otherwise be entitled, at the Effective Time, shall be aggregated if
and to the extent multiple Company Certificates of such holder are
submitted together to the Exchange Agent. If a fractional share results
from such aggregation, then (in lieu of such fractional share) the
Exchange Agent shall pay to each holder of shares of Company Common
Stock who otherwise would be entitled to receive such fractional share
of Parent Common Stock an amount of cash (without interest) determined
by multiplying (i) the Parent Average Market Price (defined below) by
(ii) the fractional share of Parent Common Stock to which such holder
would otherwise be entitled. Parent will make available to the Exchange
Agent any cash necessary for this purpose. For purposes hereof, "Parent
Average Market Price" shall mean the average (rounded to the nearest
full cent, with the cents rounded up if the third decimal place is 5 or
more) of the closing sale prices of a share of Parent Common Stock as
reported on the New York Stock Exchange (the "NYSE") Composite Tape, as
reported in The Wall Street Journal, for the twenty consecutive NYSE
trading days ending and including the fifth NYSE trading day
immediately preceding the Effective Time.
(g) In the event any Company Certificates shall have been
lost, stolen or destroyed, the Exchange Agent shall issue in exchange
for such lost, stolen or destroyed Company Certificate, upon the making
of an affidavit of that fact by the holder thereof, such shares of
Parent Common Stock and cash for fractional shares, if any, as may be
required pursuant to this Article 1; provided, however, that Parent
may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Company
Certificate to deliver a bond in such sum as Parent may direct as
indemnity against any claim that may be made against Parent or the
Exchange Agent with respect to such Company Certificate alleged to have
been lost, stolen or destroyed.
(h) Each person entitled to receive shares of Parent Common
Stock pursuant to this Article 1 shall receive together with such
shares the number of Parent Common Stock Purchase Rights (pursuant to
the Rights Agreement dated as of June 27, 1991, between Parent and
Norwest Bank Minnesota, N.A., the "Parent Rights Plan") per share of
Parent Common Stock equal to the number of Parent Common Stock Purchase
Rights associated with one share of Parent Common Stock at the
Effective Time.
1.6 Exchange of Acquisition Subsidiary Common Stock. From and after the
Effective Time, each outstanding certificate previously representing shares of
Acquisition Subsidiary Common Stock shall be deemed for all purposes to evidence
ownership of and to represent the number of shares of Surviving Corporation
Common Stock into which such shares of Acquisition Subsidiary Common Stock shall
have been converted. Promptly after the Effective Time, the Surviving
Corporation shall issue to Parent a stock certificate or certificates
representing such shares of Surviving Corporation Common Stock in exchange for
the certificate or certificates that formerly represented shares of Acquisition
Subsidiary Common Stock, which shall be cancelled.
1.7 Stock Options. Each option to purchase shares of Company Common
Stock that is outstanding at the Effective Time (a "Company Option") shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be assumed by Parent in such manner that Parent (i) is a corporation "assuming a
stock option in a transaction to which Section 424(a) applies" within the
meaning of Section 424 of the Code and the regulations thereunder or (ii) to the
extent that Section 424 of the Code does not apply to any such Company Option,
would be such a corporation were Section 424 of the Code applicable to such
Company Option. From and after the Effective Time, all references to the Company
in the Company Option shall be deemed to refer to Parent. The Company Option
assumed by Parent shall be exercisable upon the same terms and conditions as
under the Company Option except that (i) such Company Option shall entitle the
holder to purchase from Parent the number of shares of Parent Common Stock
(rounded down to the nearest whole number of such shares) that equals the
product of the Conversion Ratio times the number of shares of Company Common
Stock subject to such option immediately prior to the Effective Time and (ii)
the option exercise price per share of Parent Common Stock shall be an amount
(rounded up to the nearest full cent) equal to the option exercise price per
share of Company Common Stock in effect immediately prior to the Effective Time
divided by the Conversion Ratio. As promptly as practicable after the Effective
Time, Parent shall issue to each holder of a Company Option a written instrument
informing such holder of the assumption by Parent of such Company Option.
1.8 Capitalization Changes. If, between the date of this Agreement and
the Effective Time, the outstanding shares of Parent Common Stock shall have
been changed into a different number of shares or a different class by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares, or stock dividend, the Conversion Ratio and all per share price amounts
and calculations set forth in this Agreement shall be appropriately adjusted.
1.9 Certificate of Incorporation of the Surviving Corporation. The
Certificate of Incorporation of Acquisition Subsidiary, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended in accordance with applicable
law; provided that upon the Effective Time, Article I of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read in its
entirety as follows: "The name of the Corporation is [Buyer][Global], Inc."
1.10 Bylaws of the Surviving Corporation. The Bylaws of Acquisition
Subsidiary, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
1.11 Directors and Officers of the Surviving Corporation. The directors
and officers of Acquisition Subsidiary immediately prior to the Effective Time
shall be the directors and officers, respectively, of the Surviving Corporation
until their respective successors shall be duly elected and qualified.
ARTICLE 2
CLOSING
2.1 Time and Place. Subject to the satisfaction or waiver of the
provisions of Article 6, the closing of the Merger (the "Closing") shall take
place at the offices of Fredrikson & Byron, P.A., 1100 International Centre, 900
Second Avenue South, Minneapolis, Minnesota 55402, at 10:00 a.m., local time, on
the day the Merger is approved by the shareholders of the Company at a special
meeting of shareholders called pursuant to Section 5.4 hereof (the "Company
Shareholders Meeting") or at such other place, time or date as Parent and the
Company may mutually agree. The date on which the Closing actually occurs is
herein referred to as the "Closing Date."
2.2 Filings at the Closing. At the Closing, subject to the provisions
of Article 6, Parent, Acquisition Subsidiary and the Company shall cause a
Certificate of Merger to be filed in accordance with the provisions of Section
251 of the DGCL, and take any and all other lawful actions and do any and all
other lawful things necessary to cause the Merger to become effective.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby makes the following representations and warranties
to Parent and Acquisition Subsidiary:
3.1 Organization. The Company and each subsidiary of the Company
(referred to herein as a "Subsidiary") is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
The Company and each Subsidiary is duly qualified and in good standing to do
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification
necessary and where the failure to qualify would have a Company Material Adverse
Effect (as defined below). "Company Material Adverse Effect" means an effect
that, individually or in the aggregate with other effects, is or would
reasonably be expected to be materially adverse: (i) to the present or planned
business, properties, liabilities, results of operation or financial condition
of the Company and its Subsidiaries, considered as a whole; (ii) to the ability
of Parent or the Surviving Corporation to conduct such businesses, as presently
conducted, following the Effective Time; or (iii) to the Company's ability to
perform any of its obligations under this Agreement or to consummate the Merger.
The jurisdictions in which the Company and each Subsidiary are qualified are
listed on SCHEDULE 3.1. The Company has heretofore delivered to Parent complete
and accurate copies of the Certificate of Incorporation and Bylaws of the
Company and each Subsidiary, as currently in effect. Except to the extent
specifically disclosed on SCHEDULE 3.1, neither the Company nor any Subsidiary,
directly or indirectly, owns or controls or has any capital, equity,
partnership, participation or other ownership interest in any corporation,
partnership, joint venture or other business association or entity.
3.2 Authorization. The Company has full corporate power and authority
to execute and deliver this Agreement and, subject to obtaining the necessary
approval of its shareholders, to consummate the transactions contemplated
hereby, and to file and distribute the Proxy Statement/Prospectus (as defined in
Section 5.4 hereof). The execution and delivery of this Agreement by the Company
and the consummation of the transactions contemplated hereby have been duly and
validly authorized and approved by the Company's Board of Directors, no other
corporate proceedings on the part of the Company or any Subsidiary are necessary
to authorize this Agreement, and, subject to obtaining the approval of its
shareholders, no other corporate action on the part of the Company or any
Subsidiary is necessary to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Company and
constitutes the valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. To the
Company's knowledge, each Agreement to Facilitate Merger and Affiliate's Letter
(as described in Sections 5.11 and 5.6) has been duly and validly executed and
delivered by the Company shareholder who is a party thereto and constitutes the
valid and binding obligation of such shareholder, enforceable in accordance with
its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies.
3.3 Capitalization. The authorized capital stock of the Company
consists of (i) 25,000,000 shares of Company Common Stock, $.01 par value, of
which 10,024,693 shares are issued and outstanding and no shares are held in the
Company's treasury, and (ii) 3,000,000 shares of the Company Preferred Stock,
$.01 par value, none of which are issued or outstanding. Except as set forth on
SCHEDULE 3.3, all issued and outstanding shares of capital stock of each
Subsidiary are owned, beneficially and of record, by the Company, free and clear
of any Liens (as defined in Section 3.14). All issued and outstanding shares of
Company Common Stock have been validly issued, are fully paid and nonassessable,
and have not been issued in violation of and are not currently subject to any
preemptive rights. Except for options to purchase an aggregate 825,669 shares of
Company Common Stock granted pursuant to the Company 1993 Stock Option Plan and
the 1995 Stock Option and Compensation Plan, (the "Company Option Plans"), there
are not any outstanding or authorized subscriptions, options, warrants, calls,
rights, convertible securities, commitments, restrictions, arrangements or any
other agreements of any character to which the Company or any Subsidiary is a
party that, directly or indirectly, (i) obligate the Company or any Subsidiary
to issue any shares of capital stock or any securities convertible into, or
exercisable or exchangeable for, or evidencing the right to subscribe for, any
shares of capital stock, (ii) call for or relate to the sale, pledge, transfer
or other disposition or encumbrance by the Company or any Subsidiary of any
shares of its capital stock, or (iii) to the knowledge of the Company, relate to
the voting or control of such capital stock. To the Company's knowledge, except
as specifically disclosed on SCHEDULE 3.3, no shares of Company Common Stock
beneficially owned by an affiliate of the Company are subject to a pledge,
security interest or other security agreement or arrangement. SCHEDULE 3.3 sets
forth a complete and accurate list of all stock options, warrants and other
rights to acquire Company Common Stock, including the name of the holder, the
date of grant, acquisition price, expiration date, number of shares,
exercisability schedule, and, in the case of options, the type of option under
the Code. SCHEDULE 3.3 also sets forth the restrictions to which any shares of
Company Common Stock issued pursuant to the Company Option Plans or otherwise
are currently subject and also sets forth the restrictions to which such shares
will be subject immediately after the Effective Time. Section 1.7 hereof is
consistent with the terms and provisions of the Company Option Plans, and no
consent of holders or participants under such Plans is required to carry out the
provisions of such Section.
3.4 Reports and Financial Statements. The Company has filed all forms,
reports, registration statements and documents required to be filed by it with
the Securities and Exchange Commission ("SEC") since January 1, 1995 (such
forms, reports, registration statements and documents, together with any
amendments thereto, are referred to as the "Company SEC Filings"). As of their
respective dates, the Company SEC Filings (i) complied as to form in all
material respects with the applicable requirements of the Securities Act of 1933
and the rules and regulations thereunder (the "1933 Act") and the Securities
Exchange Act of 1934 and the rules and regulations thereunder (the "1934 Act"),
as the case may be, and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. The audited financial statements and unaudited
interim financial statements included or incorporated by reference in the
Company SEC Filings and the Company's audited financial statements at and for
the year ended December 31, 1995 (the "Company 1995 Financials") (i) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated
therein or in the notes thereto), (ii) complied as of their respective dates in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, and (iii) fairly present,
in all material respects, the consolidated financial position of the Company as
of the dates thereof and the income, cash flows and changes in shareholder's
equity for the periods involved. The statements of operations included in the
audited or unaudited interim financial statements in the Company SEC Filings and
in the 1995 Financials do not contain any items of special or nonrecurring
income or any other income not earned in the ordinary course of business, except
as expressly specified in the applicable statement of operations or notes
thereto. Prior to the date hereof, the Company has delivered to Parent complete
and accurate copies of all the Company SEC Filings since January 1, 1995 and of
the Company 1995 Financials and has also delivered to Parent complete and
accurate copies of all statements on Schedule 13D and Schedule 13G known to the
Company to have been filed with the SEC with respect to capital stock of the
Company. The Company has filed in a timely manner all reports required to be
filed by it pursuant to Sections 13, 14 or 15(d) of the 1934 Act.
3.5 Absence of Undisclosed Liabilities. Except to the extent
specifically disclosed on SCHEDULE 3.5, neither the Company nor any Subsidiary
has any liabilities or obligations of any nature (whether absolute, accrued,
contingent or otherwise) except (a) liabilities or obligations that are accrued
or reserved against in the audited consolidated balance sheet of the Company as
of December 31, 1995 contained in the Company 1995 Financials (the "Company
Audited Balance Sheet"), and (b) liabilities or obligations arising since
December 31, 1995 in the ordinary course of business and consistent with past
practice that would not have a Company Material Adverse Effect.
3.6 Consents and Approvals. Except for (i) any applicable requirements
of the 1933 Act, the 1934 Act, state securities laws, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the regulations thereunder (the "HSR
Act"), and the antitrust, competition, foreign investment or similar laws of any
foreign countries or supranational commissions or boards that require pre-merger
notifications or filings with respect to the Merger (collectively, "Foreign
Merger Laws"), (ii) the Company shareholders' approval, (iii) the filing and
recordation of appropriate merger documents as required by the DGCL, and (iv)
any items disclosed on SCHEDULE 3.6, the execution and delivery of this
Agreement by the Company, and, to the Company's knowledge, the execution and
delivery of the Agreements to Facilitate Merger, and the consummation of the
transactions contemplated hereby and thereby will not: (a) violate any provision
of the Certificate of Incorporation or Bylaws of the Company or any Subsidiary;
(b) violate any statute, rule, regulation, order or decree of any federal,
state, local or foreign body or authority (including, but not limited to, the
Food and Drug Administration (the "FDA") or any nongovernmental self-regulatory
agency) by which the Company or any Subsidiary or any of their respective
properties or assets may be bound; (c) require any filing with or permit,
consent or approval of any federal, state, local or foreign public body or
authority (including, but not limited to, the FDA or any nongovernmental
self-regulatory agency); or (d) result in any violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default
under, result in the loss of any material benefit under, or give rise to any
right of termination, cancellation, increased payments or acceleration under, or
result in the creation of any Lien (as defined in Section 3.14) on any of the
properties or assets of the Company or any Subsidiary under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, authorization, agreement or other instrument or obligation to
which the Company or any Subsidiary is a party, or by which it or any of its
properties or assets may be bound, except, in the case of clause (d), for any
such violations, breaches, defaults or other occurrences which would not prevent
or delay consummation of any of the transactions contemplated hereby in any
material respect, or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect, and would not have a
Company Material Adverse Effect.
3.7 Compliance with Laws. All activities of the Company and each
Subsidiary have been, and are currently being, conducted in compliance with all
applicable federal, state, local or foreign laws, ordinances, regulations,
interpretations, judgments, decrees, injunctions, permits, licenses,
certificates, governmental requirements, orders and other similar items of any
court or other governmental entity (including, but not limited to, those of the
FDA or any nongovernmental self-regulatory agency), the failure to comply with
which would have a Company Material Adverse Effect. The Company and each
Subsidiary has timely filed or otherwise provided all registrations, reports,
data, and other information and applications with respect to its medical device,
pharmaceutical, consumer, health-care and other governmentally regulated
products (the "Regulated Products") required to be filed with or otherwise
provided to the FDA or any other federal, state, local or foreign governmental
authorities with jurisdiction over the manufacture, use or sale of the Regulated
Products, and all regulatory licenses or approvals in respect thereof are in
full force and effect, except where the failure to file timely such
registrations, reports, data, information and applications or the failure to
have such licenses and approvals in full force and effect would not have a
Company Material Adverse Effect.
3.8 Litigation. Except to the extent specifically disclosed on SCHEDULE
3.8, to the Company's knowledge, no investigation or review by any federal,
state, local or foreign body or authority (including, but not limited to, the
FDA or any nongovernmental self-regulatory agency) with respect to the Company
or any Subsidiary is pending or threatened, nor has any such body or authority
(including, but not limited to, the FDA or any nongovernmental self-regulatory
agency) indicated to the Company or any Subsidiary an intention to conduct the
same. Except to the extent specifically disclosed on SCHEDULE 3.8, there are no
claims, actions, suits or proceedings by any private party that could reasonably
be expected to involve individually an amount in excess of $25,000 or
collectively an aggregate amount in excess of $100,000, or by any governmental
body or authority (including, but not limited to, the FDA or any nongovernmental
self-regulatory agency), against or affecting the Company or any Subsidiary,
pending or, to the knowledge of the Company, threatened at law or in equity, or
before any federal, state, local, foreign or other governmental department,
commission, board, bureau, agency or instrumentality (including, but not limited
to, the FDA or any nongovernmental self-regulatory agency) and, to the knowledge
of the Company, there is no basis for any such investigation, review, claim,
action, suit or proceeding that would have a Company Material Adverse Effect.
3.9 Absence of Material Adverse Changes. Except to the extent
specifically disclosed on SCHEDULE 3.9, since December 31, 1995 there has not
been any (a) change or circumstance that would have a Company Material Adverse
Effect; (b) action by the Company or any Subsidiary that, if taken on or after
the date of this Agreement, would require the consent or approval of Parent
pursuant to Section 5.1 hereof, except for actions as to which consent or
approval has been given as provided therein; (c) damage, destruction or loss,
whether covered by insurance or not, that would have a Company Material Adverse
Effect; (d) change by the Company or any Subsidiary in accounting methods or
principles used for financial reporting purposes, except as required by a change
in generally accepted accounting principles and concurred with by the Company's
independent public accountants; or (e) agreement, whether in writing or
otherwise, to take any action described or referenced in this Section 3.9.
3.10 Environmental Laws and Regulations. SCHEDULE 3.10 completely and
accurately sets forth the following: (a) a list of, to the Company's knowledge,
all above-ground storage tanks or underground storage tanks for Hazardous
Materials (as defined below) on real property now or at any time in the past
owned, leased or occupied by the Company or any Subsidiary (such real property
referred to in this Section as the "Real Property"); (b) the identity of any
Hazardous Materials (as defined below) used, generated, transported or disposed
of by the Company or any Subsidiary now or at any time in the past, together
with a brief description and location of each activity using such Hazardous
Materials; (c) a summary of the identity of, to the Company's knowledge, any
Hazardous Materials that have been disposed of or found on, above or below any
Real Property; and (d) a list of all reports, studies or tests in the possession
of the Company or any Subsidiary or initiated by the Company or any Subsidiary
pertaining to the existence of Hazardous Materials on, above or below any Real
Property or any property adjoining or which could reasonably be expected to
affect Real Property, or concerning compliance with or liability under the
Regulations (as defined below). The Company has heretofore delivered to Parent
complete and accurate copies of such reports, studies or tests.
The Company and each Subsidiary have obtained, and maintained in full
force and effect, all required environmental permits and other governmental
approvals and are in compliance with all applicable Regulations (as defined
below), except where the failure to so obtain and maintain or to be in
compliance would not have a Company Material Adverse Effect. Neither the Company
nor any Subsidiary (i) has received a written notice or Claim (as defined below)
alleging potential liability under any of the Regulations or alleging a
violation of the Regulations or (ii) has any knowledge that such a notice or
Claim may be issued in the future. Neither the Company nor any Subsidiary has
any knowledge of any notices to or Claims against any persons, or reasonable
basis therefor, alleging potential liability under any of the Regulations with
respect to the Real Property or any adjoining properties or which could
reasonably be expected to affect the Real Property. Neither the Company nor any
Subsidiary (i) has been or is presently subject to or, to the knowledge of the
Company, threatened with any administrative or judicial proceeding pursuant to
the Regulations, or (ii) has any information that it may be subject to or, to
the knowledge of the Company, threatened with such a proceeding in the future.
Neither the Company nor any Subsidiary has knowledge of any conditions or
circumstances that could reasonably be expected to result in the determination
of liability against the Company or any Subsidiary relating to environmental
matters that would have a Company Material Adverse Effect, including, but not
limited to, any Claim arising from past or present environmental practices with
respect to Hazardous Materials, the Real Property or to any disposal sites. No
Hazardous Materials have been or are threatened to be discharged, omitted or
released into the air, water, soil, or subsurface at or from any Real Property
by the Company or, to the Company's knowledge, by any other person.
For purposes of this Section 3.10, the following terms shall have the
following meanings: (i) "Hazardous Materials" means asbestos, urea formaldehyde,
polychlorinated biphenyls, nuclear fuel or materials, chemical waste,
radioactive materials, explosives, known human carcinogens, petroleum products
or other substances or materials listed, identified or designated as toxic or
hazardous or as a pollutant or contaminant in, or the use, release or disposal
of which is regulated by, the Regulations; (ii) "Regulations" means the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"),
42 U.S.C. ss.ss. 9601 et seq.; the Federal Resource Conservation and Recovery
Act of 1976 ("RCRA"), 42 U.S.C. ss.ss. 6901 et seq.; the Clean Water Act, 33
U.S.C. ss.ss. 1321 et seq.; the Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq.,
and any other federal, state, county, local, foreign or other governmental
statute, regulation, or ordinance, as now in existence, that relates to or deals
with employee safety and human health, pollution, health or the environment
including, but not limited to, the use, generation, discharge, transportation,
disposal, recordkeeping, notification and reporting of Hazardous Materials; and
(iii) "Claim" means any and all claims, demands, causes of actions, suits,
proceedings, administrative proceedings, losses, judgments, decrees, debts,
damages, liabilities, court costs, penalties, attorneys' fees and any other
expenses incurred, assessed, sustained or alleged by or against the Company or
any Subsidiary.
3.11 Officers, Directors and Employees. Prior to the date hereof, the
Company has provided to Parent a list that completely and accurately sets forth
the name and current annual salary rate of each officer or employee of the
Company or any Subsidiary whose total remuneration for the last fiscal year was,
or for the current fiscal year has been set at, in excess of $50,000, together
with a summary of the bonuses, commissions, additional compensation and other
like benefits, if any, paid or payable to such persons for the last fiscal year
and proposed for the current fiscal year. SCHEDULE 3.11 completely and
accurately sets forth (i) the names of all former employees whose employment
with the Company or any Subsidiary has terminated either voluntarily or
involuntarily during the preceding 12-month period; and (ii) the names of the
officers (with all positions and titles indicated) and directors of the Company
and each Subsidiary. No unfair labor practice complaint against the Company or
any Subsidiary is pending before the National Labor Relations Board, and there
is no labor strike, slowdown or stoppage pending or, to the knowledge of the
Company, threatened against or involving the Company or any Subsidiary. No
unionizing efforts have, to the knowledge of the Company, been made by employees
of the Company or any Subsidiary, neither the Company nor any Subsidiary is a
party to or subject to any collective bargaining agreement, and no collective
bargaining agreement is currently being negotiated by the Company or any
Subsidiary. There is no labor dispute pending or, to the knowledge of the
Company, threatened between the Company or any Subsidiary and its employees.
3.12 Taxes. The Company has previously furnished to Parent complete and
accurate copies of all tax or assessment reports and tax returns (including any
applicable information returns) required by any law or regulation (whether
United States, foreign, state, local or other jurisdiction) filed by the Company
for each of the three fiscal years ended December 31, 1992, 1993 and 1994 and of
all such returns filed separately by any Subsidiary for fiscal years ending
during or after 1992. The Company and each Subsidiary has filed, or has obtained
extensions to file (which extensions have not expired without filing), all
state, local, United States, foreign or other tax reports and returns required
to be filed by any of them. The Company and each Subsidiary has duly paid, or
accrued on its books of account, all taxes (including estimated taxes) shown as
due on such reports and returns (or such extension requests), or assessed
against it, or that it is obligated to withhold from amounts owed by it to any
person. The liabilities and reserves for taxes reflected on the Company Audited
Balance Sheet are adequate to cover all taxes payable by the Company and its
Subsidiaries for all taxable periods and portions thereof ending on or before
the dates thereof. There are no Liens (as defined in Section 3.14) for taxes
upon any property or asset of the Company or any Subsidiary. Neither the Company
nor any Subsidiary is delinquent in the payment of any tax assessment
(including, but not limited to, any applicable withholding taxes). None of the
tax returns or reports for the tax periods ended December 31, 1992, 1993 and
1994 have been audited by the Internal Revenue Service (the "IRS") or by any
other taxing authority. Further, to the knowledge of the Company, except to the
extent specifically disclosed on SCHEDULE 3.12, no state of facts exists or has
existed that would subject the Company or any Subsidiary to an additional
material tax liability for any taxes assessable by either the IRS or any
separate state, local, foreign or other taxing authority with respect to any
reports or returns filed on or before the date hereof (other than extension
requests for which returns have not been filed as of the date hereof). Neither
the Company nor any Subsidiary has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the application of
Section 341(f)(2) of the Code. Except to the extent specifically disclosed on
SCHEDULE 3.12, neither the Company nor any Subsidiary has (i) received
notification of any pending or proposed examination by either the IRS or any
state, local, foreign or other taxing authority, (ii) received notification of
any pending or proposed deficiency by either the IRS or any state, local,
foreign or other taxing authority, or (iii) granted any extension of the
limitations period applicable to any claim for taxes.
For the purposes of this Section 3.12, "tax" shall mean and include
taxes, additions to tax, penalties, interest, fines, duties, withholdings,
assessments, and charges assessed or imposed by any governmental authority,
including but not limited to all federal, state, county, local and foreign
income, profits, gross receipts, import, ad valorem, real and personal property,
franchise, license, sales, use, value added, stamp, transfer, withholding,
payroll, employment, excise, custom, duty, and any other taxes, obligations and
assessments of any kind whatsoever; "tax" shall also include any liability
arising as a result of being (or ceasing to be) a member of any affiliated,
consolidated, combined, or unitary group as well as any liability under any tax
allocation, tax sharing, tax indemnity or similar agreement.
3.13 Contracts. SCHEDULE 3.13 lists, and the Company has heretofore
furnished to Parent complete and accurate copies of (or, if oral, SCHEDULE 3.13
states all material provisions of), (a) every independent sales representative,
noncompetition (except only for standard noncompetition agreements entered into
with the Company's employees, the forms of which have been provided to Parent),
loan, credit, escrow, security, mortgage, guaranty, pledge, buy-sell, letter of
credit, OEM, supply, distribution, manufacturers' representative, dealer,
agency, lease (except for immaterial personal property leases), licensing
(except for immaterial licenses, which include, without limitation, licenses for
off-the-shelf software), franchise, development, joint development, joint
venture, research and development, or similar contract, agreement or
understanding to which the Company or any Subsidiary is a party or may be bound,
(b) every employment or consulting agreement or arrangement with or for the
benefit of any director, officer, employee, other person or shareholder of the
Company or any Subsidiary or any affiliate thereof, (c) every contract,
agreement or understanding to which the Company or any Subsidiary is a party
that could reasonably be expected to involve payments by or to the Company or
any Subsidiary in excess of $50,000, or would have a Company Material Adverse
Effect, or that was not made in the ordinary course of business, (d) every
agreement or contract between the Company or any Subsidiary and any of the
Company's officers, directors or more than 5% shareholders or any entity in
which any of the Company's officers, directors or more than 5% shareholders has
a greater than 2% equity interest, and (e) every other contract, plan, agreement
or understanding to which the Company or any Subsidiary is a party or may be
bound and which would be required to be filed with the SEC in a filing to which
paragraph (b)(10) of Item 601 of Regulation S-K of the Rules and Regulations of
the SEC would be applicable. The Company and each Subsidiary has performed all
obligations required to be performed by it under any listed or material
contract, plan, agreement, understanding or arrangement made or obligation owed
by or to the Company or any Subsidiary, except where the failure would not have
a Company Material Adverse Effect; there has not been any event of default (or
any event or condition which with notice or the lapse of time, both or
otherwise, would constitute an event of default) thereunder on the part of the
Company, any Subsidiary or, to the Company's knowledge, any other party to any
thereof that would have a Company Material Adverse Effect; the same are in full
force and effect and valid and enforceable by the Company or its Subsidiaries in
accordance with their respective terms subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules or law
governing specific performance, injunctive relief and other equitable remedies;
and the performance of any such contracts, plans, agreements, understandings,
arrangements or obligations would not have a Company Material Adverse Effect.
3.14 Title to Properties; Liens. The Company and/or its Subsidiaries
have good and marketable title to all properties and assets reflected on the
Company Audited Balance Sheet or acquired after the dates thereof (except for
properties and assets sold or otherwise disposed of in the ordinary course of
business since the dates thereof), which includes each asset the absence or
unavailability of which would have a Company Material Adverse Effect, subject
only to (a) statutory Liens arising or incurred in the ordinary course of
business with respect to which the underlying obligations are not delinquent,
(b) with respect to personal property, the rights of customers of the Company or
any Subsidiary with respect to inventory or work in progress under orders or
contracts entered into by the Company or any Subsidiary in the ordinary course
of business, (c) Liens reflected on the Company Audited Balance Sheet, (d) Liens
for taxes not yet delinquent and (e) and defects in title that would not have a
Company Material Adverse Effect. The term "Lien" as used in this Agreement means
any mortgage, pledge, security interest, encumbrance, lien, claim or charge of
any kind. All properties and assets purported to be leased by the Company or any
Subsidiary are subject to valid and effective leases that are in full force and
effect, and there does not exist, and the Merger will not result in, any default
or event that with notice or lapse of time, or both or otherwise, would
constitute a default under any such leases which would have a Company Material
Adverse Effect. The properties and assets of the Company and each Subsidiary
have been kept in good condition and repair in the ordinary course of business.
3.15 Permits, Licenses, Etc. The Company and each Subsidiary has all
rights, permits, certificates, licenses, consents, franchises, approvals,
registrations, and other authorizations necessary to sell its products and
services and otherwise carry on and conduct its business and to own, lease, use
and operate its properties and assets at the places and in the manner now
conducted and operated, except those the absence of which would not have a
Company Material Adverse Effect. Neither the Company nor any Subsidiary has
received any notice or claim pertaining to the failure to obtain any permit,
certificate, license, franchise, approval, registration or other authorization
required by any federal, state, local or foreign body or authority (including,
but not limited to, the FDA or any nongovernmental self-regulatory agency).
3.16 Intellectual Property Rights. SCHEDULE 3.16 contains a complete
and accurate list of all patents, trademarks, trade names, service marks,
copyrights and applications for or registrations of any of the foregoing as to
which the Company or any Subsidiary is the owner or a licensee (indicating
whether such license is exclusive or nonexclusive). The Company and each
Subsidiary exclusively owns, free and clear of any Lien (as defined in Section
3.14), or is exclusively (unless otherwise indicated in SCHEDULE 3.16) licensed
to use, all patents, trademarks, trade names, service marks, copyrights,
applications for or registrations of any of the foregoing, processes,
inventions, designs, technology, formulas, computer software programs, know-how
and trade secrets used in or necessary for the conduct of its respective
business as currently conducted or proposed to be conducted (the "Company
Intellectual Property"). Except to the extent specifically disclosed on SCHEDULE
3.16, no claim has been asserted or, to the knowledge of the Company, threatened
by any person, and, to the Company's knowledge, no basis for any claim exists,
with respect to the use of the Company Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement with
respect thereto. To the knowledge of the Company, neither the use of the Company
Intellectual Property by the Company or any Subsidiary in the present or planned
conduct of its business nor any product or service of the Company or any
Subsidiary infringes on the intellectual property rights of any person. No
current or former shareholder, employee or consultant of the Company or any
Subsidiary has any rights in or to any of the Company Intellectual Property. All
the Company Intellectual Property listed on SCHEDULE 3.16 has the status
indicated therein and all applications are still pending in good standing and
have not been abandoned. Except to the extent specifically disclosed on SCHEDULE
3.16: (i) the Company Intellectual Property is valid and has not been challenged
in any judicial or administrative proceeding; (ii) the Company and each
Subsidiary has made all statutorily required filings, if any, to record its
interests, and taken reasonable actions to protect its rights, in the Company
Intellectual Property; (iii) to the knowledge of the Company, no person or
entity nor such person's or entity's business or products has infringed, misused
or misappropriated the Company Intellectual Property or currently is infringing,
misusing or misappropriating the Company Intellectual Property; and (iv) no
other person or entity has any right to receive or any obligation to pay a
royalty with respect to any the Company Intellectual Property or any product or
service of the Company or any Subsidiary.
3.17 Benefit Plans.
(a) Except to the extent specifically disclosed on SCHEDULE
3.17(A), neither the Company nor any Subsidiary sponsors, maintains,
contributes to, or has sponsored, maintained or contributed to or been
required to contribute to, any "employee pension benefit plan"
("Pension Plan"), as such term is defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, solely for the purpose of this subsection, a plan excluded
from coverage by Section 4(b)(5) of ERISA. Each such Pension Plan
presently maintained by the Company or any Subsidiary is, in all
material respects, in compliance with applicable provisions of ERISA,
the Code and other applicable law.
(b) Neither the Company nor any Subsidiary sponsors,
maintains, contributes to, or has sponsored, maintained or contributed
to or been required to contribute to, any Pension Plan that is a
"Multiemployer Plan" within the meaning of Section 4001(a)(3) of ERISA.
(c) Except to the extent specifically disclosed on SCHEDULE
3.17(C), neither the Company nor any Subsidiary sponsors, maintains,
contributes to, or has sponsored, maintained, contributed to, or been
required to contribute to, any "employee welfare benefit plan"
("Welfare Plan"), as such term is defined in Section 3(1) of ERISA,
whether insured or otherwise, and any such Welfare Plan presently
maintained by the Company or any Subsidiary is, in all material
respects, in compliance with the provisions of ERISA, the Code and all
other applicable laws, including, but not limited to, Sections 4980B of
the Code and the regulations thereunder, and Part 6 of Title I of
ERISA. Except to the extent specifically disclosed on SCHEDULE 3.17(C),
neither the Company nor any Subsidiary has established or contributed
to any "voluntary employees' beneficiary association" within the
meaning of Section 501(c)(9) of the Code.
(d) Neither the Company nor any Subsidiary sponsors, maintains
or contributes to, or has sponsored, maintained or contributed to, a
"self-insured medical reimbursement plan" within the meaning of Section
105(h) of the Code and the regulations thereunder.
(e) Except to the extent specifically disclosed on SCHEDULE
3.17(E), neither the Company nor any Subsidiary currently maintains or
contributes to any oral or written bonus, profit-sharing, compensation
(incentive or otherwise), commission, stock option or other stock-based
compensation, retirement, severance, change of control, vacation, sick
or parental leave, dependent care, deferred compensation, cafeteria,
disability, hospitalization, medical, death, retiree, insurance or
other benefit or welfare or other similar plan, policy, agreement,
trust, fund or arrangement providing for the remuneration or benefit of
all or any employees or shareholders or any other person, that is
neither a Pension Plan nor a Welfare Plan (collectively, the
"Compensation Plans").
(f) To the knowledge of the Company, neither any Pension Plans
or Welfare Plans nor any trust created or insurance contract issued
thereunder nor any trustee, fiduciary, custodian, or administrator
thereof, nor any officer, director or employee of the Company or any
Subsidiary, custodian or any other "disqualified person" within the
meaning of Section 4975(e)(2) of the Code, or "party in interest"
within the meaning of Section 3(14) of ERISA, with respect to any such
plan has engaged in any act or omission which could reasonably be
expected to subject the Company or any Subsidiary, either directly or
indirectly, to a liability for breach of fiduciary duties under ERISA
or a tax or penalty imposed by Section 502 of ERISA.
(g) Full and timely payment has been made of all amounts that
the Company or any Subsidiary is required, under applicable law, with
respect to any Pension Plan, Welfare Plan or Compensation Plan, or any
agreement relating to any Pension Plan, Welfare Plan or Compensation
Plan, to have paid as a contribution to each Pension Plan, Welfare Plan
or Compensation Plan. To the extent required by generally accepted
accounting principles, the Company has made adequate provisions for
reserves to meet contributions that have not been made because they are
not yet due under the terms of any Pension Plan, Welfare Plan or
Compensation Plan or related agreements. There will be no change on or
before the Closing Date in the operation of any Pension Plan, Welfare
Plan or Compensation Plan or documents under which any such plan is
maintained that will result in an increase in the benefit liabilities
under such plan, except as may be required by law. The IRS has issued
favorable determination letters with respect to all the Company and
Subsidiary Pension Plans that are intended to be qualified under
Section 401(a) of the Code. The Company has provided to Parent complete
and accurate copies of all Pension Plans, Welfare Plans, Compensation
Plans and related agreements, annual reports (Form 5500), favorable
determination letters, current summary plan descriptions, and all
employee handbooks or manuals.
(h) Except to the extent specifically disclosed on SCHEDULE
3.17(H), the execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Pension Plan, Welfare Plan, Compensation Plan or other
arrangement that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund
benefits. Except to the extent specifically disclosed on SCHEDULE
3.17(H), no amount that could be received (whether in cash or property
or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer or director of
the Company or any of its affiliates who is a "disqualified individual"
(as such term is defined in proposed Treasury Regulation Section
1.280G-1) under any Pension Plan, Welfare Plan or Compensation Plan
currently in effect would be an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code).
3.18 Minute Books. The minute books of the Company and the
Subsidiaries, as previously made available to Parent and its representatives,
contain, in all material respects, complete and accurate records of all meetings
of and corporate actions or written consents by the shareholders, Boards of
Directors, and committees of the Boards of Directors of the Company and the
Subsidiaries.
3.19 Insurance Policies. SCHEDULE 3.19 sets forth a complete and
accurate list, including the term, coverages, premium rates, limits and
deductibles thereof, of all policies of insurance maintained by the Company or
any Subsidiary with respect to any of its officers, directors, employees,
shareholders, agents, properties, buildings, machinery, equipment, furniture,
fixtures or operations and a description of each claim made by the Company or
any Subsidiary during the three-year period preceding the date hereof under any
such policy of insurance. The Company has previously delivered to Parent
complete and accurate copies of all such policies of insurance and complete and
accurate copies of all documentation regarding claims made thereunder. All such
policies of insurance are in full force and effect, have been issued for the
benefit of the Company or its Subsidiary by properly licensed insurance
carriers, and are adequate and customary for the assets, business and operations
of the Company and its Subsidiaries. The Company has promptly and properly
notified its insurance carriers of any and all claims known to it with respect
to its operations or products for which it is insured.
3.20 Bank Accounts. SCHEDULE 3.20 sets forth a list of each bank,
broker or other depository with which the Company or any Subsidiary has an
account or safe deposit box, the names and numbers of such accounts or boxes and
the names of all persons authorized to draw thereon or execute transactions.
3.21 Powers of Attorney. SCHEDULE 3.21 sets forth the names of all
persons, if any, holding powers of attorney from the Company or any Subsidiary
and a description of the scope of each such power of attorney. The Company has
delivered to Parent prior to the date hereof complete and accurate copies of all
such powers of attorney.
3.22 Product Liability Claims. Except to the extent specifically
disclosed on SCHEDULE 3.22, during the three-year period preceding the date
hereof, neither the Company nor any Subsidiary has ever received a claim, or
incurred any uninsured or insured liability, for or based upon breach of product
warranty (other than warranty service and repair claims in the ordinary course
of business not material in amount or significance), strict liability in tort,
negligent manufacture of product, negligent provision of services or any other
allegation of liability, including or resulting in, but not limited to, product
recalls, arising from the materials, design, testing, manufacture, packaging,
labeling (including instructions for use) or sale of its products or from the
provision of services (hereafter collectively referred to as "Product
Liability"). To the knowledge of the Company, no basis for any claim based upon
alleged Product Liability exists which would have a Company Material Adverse
Effect.
3.23 Warranties. To the knowledge of the Company, all products
manufactured or sold, and all services provided, by the Company or any
Subsidiary have complied, and are in compliance, in all material respects with
all contractual requirements, warranties or covenants, express or implied,
applicable thereto, and with all applicable governmental, trade association or
regulatory specifications therefor or applicable thereto, including, to the
extent applicable, FDA Good Manufacturing Practices. The terms of all product
and service warranties and product return, sales credit, discount, warehouse
allowance, advertising allowance, demo sales and credit policies of the Company
and each Subsidiary are specifically set forth on SCHEDULE 3.23. The Company has
delivered to Parent prior to the date hereof complete and accurate copies of all
such warranties and policies.
3.24 Inventories. Except as specifically set forth on SCHEDULE 3.24,
all inventories of the Company and its Subsidiaries consist of items of
merchantable quality and quantity usable or salable in the ordinary course of
business, are salable at prevailing market prices not less than the book value
amounts thereof or the price customarily charged by the Company or the
applicable Subsidiary therefor, conform to the specifications established
therefor and have been manufactured in accordance with applicable regulatory
requirements, except to the extent that the failure of such inventories so to
consist, be saleable, conform or be manufactured would not have a Company
Material Adverse Effect. Except as specifically set forth on SCHEDULE 3.24, the
quantities of all inventories, materials and supplies of the Company and each
Subsidiary (net of the obsolescence reserve therefor shown on the Company
Audited Balance Sheet and determined in the ordinary course of business
consistent with past practice) are not obsolete, damaged, slow-moving, defective
or excessive, and are reasonable and balanced in the circumstances of the
Company and its Subsidiaries, except to the extent that the failure of such
inventories to be in such conditions would not have a Company Material Adverse
Effect. SCHEDULE 3.24 sets forth a true and complete list of the addresses of
all warehouses or other facilities in which inventories of the Company or any
Subsidiary are located.
3.25 Relations with Suppliers and Customers. No material current
supplier of the Company or any Subsidiary has cancelled any contract or order
for provision of, and, to the knowledge of the Company, there has been no threat
by or basis for any such supplier not to provide, raw materials, products,
supplies, or services to the businesses of the Company and its Subsidiaries
either prior to or following the Merger. Except as specifically set forth on
SCHEDULE 3.25, neither the Company nor any Subsidiary has, to the knowledge of
the Company, received any information from any customer that accounted for more
than 5% of the revenues of the Company and its Subsidiaries during the last full
fiscal year to the effect that such customer intends to materially decrease the
amount of business it does with the businesses of the Company and its
Subsidiaries either prior to or following the Merger. SCHEDULE 3.25 lists each
supplier to the Company or any Subsidiary that is the sole source of a
particular raw material, product, supply, or service.
3.26 No Finders. No act of the Company or any Subsidiary has given or
will give rise to any claim against any of the parties hereto for a brokerage
commission, finder's fee or other like payment in connection with the
transactions contemplated herein, except payments in the amounts specified on
SCHEDULE 3.26 to those parties identified thereon who have acted as a finder for
the Company or have been retained by the Company as financial advisors pursuant
to the writings described in SCHEDULE 3.26 and copies of which have been
provided to Parent prior to the date of this Agreement.
3.27 Proxy Statement. The Proxy Statement/Prospectus (as defined in
Section 5.4 hereof), and any amendments or supplements thereto, will comply in
all material respects with all applicable laws, and none of the information
relating to the Company or its affiliates included or incorporated therein or in
any amendments or supplements thereto, or any schedules required to be filed
with the SEC in connection therewith, will, at any time during the period
beginning at the time it is mailed to shareholders and ending at the time of the
Company Shareholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that no representation or
warranty is made by the Company with respect to information relating to Parent
or any affiliate of Parent supplied by Parent specifically for inclusion in the
Proxy Statement/Prospectus.
3.28 Merger Filings. The information as to the Company and the
Subsidiaries or any of their affiliates or shareholders included in the
Company's filing, or submitted to Parent for inclusion in its filing, if any,
required to be submitted under the HSR Act or under any Foreign Merger Laws
shall be true, correct and complete in all material respects and shall comply in
all material respects with the applicable requirements of the HSR Act, the rules
and regulations issued by the Federal Trade Commission pursuant thereto and the
Foreign Merger Laws.
3.29 Fairness Opinion. The Company has received an oral opinion from
each of Dillon, Read & Co., Inc. and Volpe, Welty & Company, each to the effect
that, as of the date hereof, the consideration to be received by the holders of
Company Common Stock in the Merger is fair to such holders from a financial
point of view and will receive promptly hereafter a signed written copy of each
such opinion and will thereupon deliver a copy of each opinion to Parent.
3.30 Disclosure. To the knowledge of the Company, no representation or
warranty by the Company in this Agreement, and no information disclosed in the
Schedules supplied by the Company (taken as a whole), contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION SUBSIDIARY
Parent and Acquisition Subsidiary hereby jointly and severally make the
following representations and warranties to the Company:
4.1 Organization. Each of Parent and Acquisition Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and each has all requisite corporate power and
authority to own, lease and operate its respective properties and to carry on
its business as now being conducted. Each of Parent and Acquisition Subsidiary
is duly qualified and in good standing to do business in each jurisdiction in
which the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary and where the failure to
qualify could have a Parent Material Adverse Effect (as defined below). The term
"Parent Material Adverse Effect" means an effect that, individually or in the
aggregate with other effects, is or would reasonably be expected to be
materially adverse to the present or planned business, properties, liabilities,
results of operation or financial condition of Parent and its subsidiaries,
considered as a whole, or to Parent's ability to perform any of its obligations
under this Agreement or to consummate the Merger.
4.2 Authorization. Each of Parent and Acquisition Subsidiary has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, and Parent has full corporate
power and authority to prepare, file and distribute the Registration Statement.
The execution and delivery of this Agreement by Parent and Acquisition
Subsidiary and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by the Boards of Directors of
Parent and Acquisition Subsidiary and by Parent as the sole shareholder of
Acquisition Subsidiary, and no other corporate proceedings on the part of Parent
and Acquisition Subsidiary are necessary to authorize this Agreement or the
consummation of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by each of Parent and Acquisition
Subsidiary and constitutes the valid and binding obligation of Parent and
Acquisition Subsidiary, enforceable against each of them in accordance with its
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance
injunctive relief or other equitable remedies.
4.3 Capitalization. As of February 29, 1996, the authorized capital
stock of Parent consisted of (a) 800,000,000 shares of Common Stock with a par
value of $.10 per share, of which there were 234,131,829 shares issued and
outstanding and no shares held in Parent's treasury, and (b) 2,500,000 shares of
Preferred Stock with a par value of $1.00 per share, of which there were no
shares issued and outstanding. The authorized capital stock of Acquisition
Subsidiary consists of 2,500 shares of Acquisition Subsidiary Common Stock, 100
of which are issued and outstanding and owned by Parent. All issued and
outstanding shares of Parent Common Stock and Acquisition Subsidiary Common
Stock are, and the shares of Parent Common Stock to be issued and delivered in
the Merger pursuant to Article 1 hereof shall be, at the time of issuance and
delivery, validly issued, fully paid, nonassessable and free of preemptive
rights. The shares of Parent Common Stock to be issued and delivered in the
Merger pursuant to Article 1 hereof shall be registered under the 1933 Act and
duly listed for trading on the NYSE, subject to official notice of issuance.
4.4 Consents and Approvals. Except for (i) any applicable requirements
of the 1933 Act, the 1934 Act, state securities laws, the NYSE, the HSR Act, and
Foreign Merger Laws and (ii) the filing and recordation of appropriate merger
documents as required by the MBCA, the execution and delivery of this Agreement
by Parent and Acquisition Subsidiary and the consummation of the transactions
contemplated hereby will not: (a) violate any provision of the Articles or
Certificate of Incorporation or Bylaws of Parent or Acquisition Subsidiary; (b)
violate any statute, rule, regulation, order or decree of any public body or
authority (including, but not limited to, the FDA or any nongovernmental
self-regulatory agency) by which Parent or any of its subsidiaries or any of
their respective properties or assets may be bound; (c) require any filing with
or permit, consent or approval of any public body or authority (including, but
not limited to, the FDA or any nongovernmental self-regulatory agency); or (d)
result in any violation or breach of, or constitute (with or without due notice
or lapse of time or both) a default under, result in the loss of any material
benefit under, or give rise to any right of termination, cancellation, increased
payments or acceleration under, or result in the creation of any Lien on any of
the properties or assets of Parent or its subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement or other instrument or obligation to which Parent
or any of its subsidiaries is a party, or by which any of them or any of their
respective properties or assets may be bound, except, in the case of clause (d),
for any such violations, breaches, defaults or other occurrences which would not
prevent or delay consummation of any of the transaction contemplated hereby in
any material respect, or otherwise prevent Parent from performing its
obligations under this Agreement in any material respect, and would not have a
Parent Material Adverse Effect.
4.5 Reports; Financial Statements; Absence of Changes. Parent has filed
all forms, reports, registration statements and documents required to be filed
by it with the Securities and Exchange Commission ("SEC") since December 31,
1994 (such forms, reports, registration statements and documents, together with
any amendments thereto, are referred to as the "Parent SEC Filings"). As of
their respective dates, the Parent SEC Filings (i) complied as to form in all
material respects with the applicable requirements of the 1933 Act and the 1934
Act, as the case may be, and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The audited financial statements and
unaudited interim financial statements included or incorporated by reference in
the Parent SEC Filings (i) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto), (ii) complied as
of their respective dates in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, and (iii) fairly present the consolidated financial position of Parent
as of the dates thereof and the income, cash flows and changes in shareholder's
equity for the periods it involved. Except to the extent disclosed in Parent's
subsequent filings with the SEC or specifically disclosed on SCHEDULE 4.5, since
April 30, 1995 there has not been any change or circumstance that would have a
Parent Material Adverse Effect.
4.6 Registration Statement. The Registration Statement (as defined in
Section 5.4 hereof) and any amendments or supplements thereto will comply in all
material respects with the 1933 Act, and none of the information relating to
Parent or its affiliates included or incorporated therein or in any amendments
or supplements thereto, or any schedules required to be filed with the SEC in
connection therewith will, at the time the Registration Statement becomes
effective or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that no
representation or warranty is made by Parent with respect to information
supplied by the Company or any affiliate of the Company specifically for
inclusion in the Registration Statement.
4.7 Merger Filings. The information as to Parent and Acquisition
Subsidiary or any of their affiliates or shareholders included in Parent's
filing, or submitted to the Company for inclusion in its filing, if any,
required to be submitted under the HSR Act or under any Foreign Merger Laws
shall be true, correct and complete in all material respects and shall comply in
all material respects with the applicable requirements of the HSR Act, the rules
and regulations issued by the Federal Trade Commission pursuant thereto and
Foreign Merger Laws.
4.8 No Finders. No act of Parent or Acquisition Subsidiary has given or
will give rise to any claim against any of the parties hereto for a brokerage
commission, finder's fee or other like payment in connection with the
transactions contemplated herein.
ARTICLE 5
COVENANTS
5.1 Conduct of Business of the Company. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, the Company and each Subsidiary will conduct its respective operations
according to its ordinary and usual course of business and consistent with past
practice, and the Company and each Subsidiary will use all reasonable efforts to
preserve intact its respective business organizations, to maintain its present
and planned business, to keep available the services of its respective officers
and employees and to maintain satisfactory relationships with licensors,
licensees, suppliers, contractors, distributors, physicians, consultants,
customers and others having business relationships with it. The Company will
promptly advise Parent orally and in writing of any material change in the
management, present or planned business, properties, liabilities, results of
operations or financial condition of the Company or any Subsidiary. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in or contemplated by this Agreement, prior to the Effective Time,
neither the Company nor any Subsidiary will, without the prior written consent
of Parent:
(a) amend its Certificate of Incorporation or Bylaws;
(b) authorize for issuance, issue, sell, pledge or deliver
(whether through the issuance or granting of additional options,
warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any securities convertible into shares of
stock of any class (other than the issuance of the number of shares of
Company Common Stock indicated in Section 3.3 hereof upon the exercise
in accordance with the current terms of the stock options listed in
Schedule 3.3 hereof as outstanding on the date of this Agreement);
(c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of its capital stock; or redeem or otherwise acquire any shares
of its capital stock or other securities; or amend or alter any
material term of any of its outstanding securities;
(d) create, incur or assume any indebtedness for borrowed
money, or assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person, other than in the ordinary course of
business and consistent with past practice; or make any loans, advances
or capital contributions to, or investments in, any other person,
except loans to employees in the ordinary course of business consistent
with past practice and in an aggregate amount not to exceed $25,000
beyond the aggregate amount of all such loans outstanding on the date
of this Agreement; or create, incur or assume any Lien on any material
asset;
(e) knowingly take any action that would have the effect of
(i) jeopardizing the treatment of the acquisition of the Company by
Parent as a "pooling of interests" for accounting purposes, or (ii)
jeopardizing the qualification of the Merger as a reorganization within
the meaning of Section 368(a)(2)(E) of the Code;
(f) (i) increase in any manner the compensation of any of its
directors, officers, employees, shareholders or consultants, except in
the ordinary course of business and consistent with past practice, or
accelerate the payment of any such compensation (whether or not any
such acceleration is consistent with past practice); (ii) pay or
accelerate or otherwise modify the payment, vesting, exercisability, or
other feature or requirement of any pension, retirement allowance,
severance, change of control, stock option or other employee benefit
not required by any existing plan, agreement or arrangement to any such
director, officer, employee, shareholder or consultant, whether past or
present; or (iii) except for normal increases in the ordinary course of
business in accordance with its customary past practices, commit itself
to any additional or increased pension, profit-sharing, bonus,
incentive, deferred compensation, stock purchase, stock option, stock
appreciation right, group insurance, severance, change of control,
retirement or other benefit, plan, agreement or arrangement, or to any
employment or consulting agreement, with or for the benefit of any
person, or amend any of such plans or any of such agreements in
existence on the date hereof;
(g) except in the ordinary course of business and consistent
with past practice or pursuant to contractual obligations existing on
the date hereof, (i) sell, transfer, mortgage, or otherwise dispose of
or encumber any real or personal property, (ii) pay, discharge or
satisfy claims, liabilities or obligations (absolute, accrued,
contingent or otherwise), or (iii) cancel any debts or waive any claims
or rights, which involve payments or commitments to make payments which
individually exceeds $25,000 or, in the aggregate, exceed $100,000;
(h) acquire or agree to acquire (i) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any portion of the assets of, or by
any other manner, any business of any corporation, partnership, joint
venture, association or other business organization or division thereof
or (ii) any assets that are material, individually or in the aggregate,
to the Company, except as provided in (i) below and except purchases of
inventory in the ordinary course of business consistent with past
practice;
(i) make or agree to make any new capital expenditure or
expenditures which, individually, is in excess of $25,000 or, in the
aggregate, are in excess of $50,000 (other than up to an aggregate
$250,000 for investment in and lease costs for capital equipment
related to the Company's balloon expandable stent);
(j) enter into, amend or terminate any joint ventures or any
other agreements, commitments or contracts that, individually or in the
aggregate, are material to the Company or any Subsidiary (except
agreements, commitments or contracts expressly provided for or
contemplated by this Agreement or for the purchase, sale or lease of
goods, services or properties in the ordinary course of business,
consistent with past practice), or otherwise make any material change
in the conduct of the business or operations of the Company or any
Subsidiary;
(k) enter into or terminate, or amend, extend, renew or
otherwise modify (including, but not limited to, by default or by
failure to act) any distribution, OEM, independent sales
representative, noncompetition, licensing, franchise, research and
development, supply or similar contract, agreement or understanding
(except agreements, commitments or contracts expressly provided for or
contemplated by this Agreement or for the purchase, sale or lease of
goods, services or properties in the ordinary course of business,
consistent with past practice);
(l) change in any material respect its credit policy as to
sales of inventories or collection of receivables or its inventory
consignment practices;
(m) remove or permit to be removed from any building, facility
or real property any machinery, equipment, fixture, vehicle or other
personal property or parts thereof, except in the ordinary course of
business;
(n) alter or revise its accounting principles, procedures,
methods or practices, except as required by a change in generally
accepted accounting principles and concurred with by the Company's
independent public accountants;
(o) institute, settle or compromise any claim, action, suit or
proceeding pending or threatened by or against it involving amounts in
excess of $50,000, at law or in equity or before any federal, state,
local, foreign or other governmental department, commission, board,
bureau, agency or instrumentality (including, but not limited to, the
FDA or any nongovernmental self-regulatory agency);
(p) distribute or otherwise circulate any notices, directives
or other communications directed to all or groups of customers,
vendors, employees, distributors or others associated with its business
relating to the transactions contemplated hereby or to the operation of
business after consummation of such transactions without consulting
with Parent, giving Parent reasonable opportunity to comment thereon
and obtaining prior to distribution Parent's approval thereof, which
shall not unreasonably be withheld;
(q) knowingly take any action that would render any
representation, warranty, covenant or agreement of the Company in this
Agreement inaccurate or breached as of the Closing Date; or
(r) agree, whether in writing or otherwise, to do any of the
foregoing.
5.2 No Solicitation. Neither the Company nor any Subsidiary, nor any of
their respective officers, directors, employees, representatives, agents or
affiliates (including, but not limited to any investment banker, attorney or
accountant retained by the Company or any Subsidiary), shall, directly or
indirectly, solicit, encourage, initiate or participate in any way in
discussions or negotiations with, or knowingly provide any information to, any
corporation, partnership, person or other entity or group (other than Parent or
any affiliate or agent of Parent) concerning any merger, sale or licensing of
any significant portion of the assets, sale of shares of capital stock
(including without limitation any proposal or offer to the Company's
shareholders) or similar transactions involving the Company or any Subsidiary
(an "Alternative Proposal"), or otherwise facilitate any effort or attempt to
make or implement an Alternative Proposal. The Company will promptly communicate
to Parent the terms of any proposal or inquiry that it has received or may
receive in respect of any such transaction or of any such information requested
from it or of any such negotiations or discussions being sought to be initiated
with the Company; provided, however, that this Section shall not prohibit the
Board of Directors of the Company from (i) furnishing information to or entering
into discussions or negotiations with, any person or entity that makes an
unsolicited bona fide Alternative Proposal, if, and only to the extent that, (a)
the Board of Directors of the Company determines in good faith that such action
is so required for the Board of Directors to comply with its fiduciary duties to
shareholders imposed by law and the Board has been so advised in writing (with a
copy furnished to Parent) by independent, outside counsel, in its judgment and
opinion, as being so required, (b) prior to furnishing information to, or
entering into discussions and negotiations with, such person or entity, the
Company provides written notice to Parent to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity, and (c) the Company keeps Parent informed of the status and all
material information with respect to any such discussions or negotiations; and
(ii) to the extent applicable, complying with Rule 14e-2 promulgated under the
1934 Act with regard to an Alternative Proposal. Nothing in this Section shall
(x) permit the Company to terminate this Agreement (except as specifically
provided in Article 7 hereof), (y) permit the Company to enter into any
Agreement with respect to an Alternative Proposal for as long as this Agreement
remains in effect (it being agreed that for as long as this Agreement remains in
effect, the Company shall not enter into any Agreement with any person that
provides for, or in any way facilitates, an Alternative Proposal), or (z) affect
any other obligation of the Company under this Agreement.
5.3 Access and Information. The Company shall afford to Parent, and to
Parent's accountants, officers, directors, employees, counsel and other
representatives, reasonable access during normal business hours, from the date
hereof through the Effective Time, to all of its properties, books, contracts,
commitments and records, and, during such period, the Company shall furnish
promptly to Parent all information concerning the Company's and its
Subsidiaries' businesses, prospects, properties, liabilities, results of
operations, financial condition, testing, clinicals, officers, employees,
investigators, distributors, customers, suppliers or others having dealings with
the Company as Parent may reasonably request and reasonable opportunity to
contact and obtain information from such officers, employees, investigators,
distributors, customers, suppliers or others having dealings with the Company as
Parent may reasonably request. During the period from the date hereof to the
Effective Time, the parties shall in good faith meet and correspond on a regular
basis for mutual consultation concerning the conduct of the Company's and the
Subsidiaries' businesses and, in connection therewith, Parent shall be entitled
to have employees or other representatives present at the offices of the Company
and its Subsidiaries to observe, and be kept informed concerning, the Company's
and the Subsidiaries' operations and business planning. Parent shall hold in
confidence all such nonpublic information as required and in accordance with the
confidentiality agreement dated January 19, 1996 between Parent and the Company
(the "Confidentiality Agreement").
5.4 Approval of Shareholders; Proxy Statement; Registration Statement.
(a) the Company shall promptly take all action necessary in
accordance with Delaware law and the Company's Certificate of
Incorporation and Bylaws to cause a meeting of the Company's
shareholders (the "Company Shareholders Meeting") to be duly called and
held as soon as reasonably practicable following the date upon which
the Registration Statement (as defined below) becomes effective for the
purpose of voting upon the Merger, and shall use all reasonable efforts
to obtain the Company shareholder approval of this Agreement and the
Merger. In accordance therewith, the Company shall, with the
cooperation of Parent, prepare and file, as soon as reasonably
practicable, a proxy statement/prospectus included as part of the
Registration Statement (such proxy statement/prospectus, together with
notice of meeting, form of proxy and any letter or other materials to
the Company shareholders included therein are referred to in this
Agreement as the "Proxy Statement/Prospectus"). The Company shall use
all reasonable efforts to cause the definitive Proxy
Statement/Prospectus to be mailed to the shareholders of the Company,
as soon as reasonably practicable following its effectiveness, with the
date of mailing as mutually determined by the Company and Parent. The
Company will, through its Board of Directors, recommend to its
shareholders approval of the Merger in the definitive Proxy
Statement/Prospectus.
(b) Parent shall, with the cooperation of the Company, prepare
and file, as soon as reasonably practicable, a registration statement
under the 1933 Act registering the shares of Parent Common Stock to be
issued in the Merger (the "Registration Statement"), which Registration
Statement shall include the Proxy Statement/Prospectus. Parent will use
all reasonable efforts to have the Registration Statement declared
effective by the SEC as promptly thereafter as practicable. Parent
shall also take any action required to be taken under state blue sky or
securities laws in connection with the issuance of Parent Common Stock
pursuant to the Merger. The Company shall furnish to Parent all
information concerning the Company and its Subsidiaries and the holders
of its capital stock, and shall take such other action and otherwise
cooperate, as Parent may reasonably request in connection with any such
action.
(c) Parent shall notify the Company promptly of the receipt of
the comments of the SEC and of any request by the SEC for amendments or
supplements to the Registration Statement and shall supply the Company
with copies of all correspondence with the SEC with respect to the
Registration Statement.
(d) If at any time prior to the Company Shareholders Meeting,
any event should occur relating to the Company, any Subsidiary or the
Company's officers or directors that is required to be described in an
amendment or supplement to the definitive Proxy Statement/Prospectus or
the Registration Statement, the Company shall promptly inform Parent.
If at any time prior to the Company Shareholders Meeting, any event
shall occur relating to Parent or Acquisition Subsidiary or their
respective officers or directors that is required to be described in an
amendment or supplement to the definitive Proxy Statement/Prospectus or
the Registration Statement, Parent shall promptly inform the Company.
Whenever any event occurs that should be described in an amendment of,
or supplement to, the definitive Proxy Statement/Prospectus or the
Registration Statement, the Company or Parent, as the case may be,
shall, upon learning of such event, promptly notify the other and
consult and cooperate with the other in connection with the preparation
of a mutually acceptable amendment or supplement. The parties shall
promptly file such amendment or supplement with the SEC and mail such
amendment or supplement as soon as practicable after it is cleared by
the SEC.
5.5 Consents. The Company will, at its cost and expense, use all
reasonable efforts to obtain all approvals and consents of all third parties
necessary on the part of the Company or its Subsidiaries to consummate the
transactions contemplated hereby. Parent agrees to cooperate with the Company in
connection with obtaining such approvals and consents. Parent will, at its cost
and expense, use all reasonable efforts to obtain all approvals and consents of
all third parties necessary on the part of Parent to consummate the transactions
contemplated hereby. The Company agrees to cooperate with Parent in connection
with obtaining such approvals and consents.
5.6 Affiliates' Letters.
(a) the Company has delivered to Parent a list of names and
addresses of those persons, in the Company's reasonable judgment after
consultation with outside legal counsel, who, as of the date hereof,
are affiliates within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act or otherwise
applicable SEC accounting releases with respect to pooling-of-interests
accounting treatment (each such person, a "Pooling Affiliate") of the
Company. The Company shall provide Parent such information and
documents as Parent shall reasonably request for purposes of reviewing
such list, and shall promptly update such list to reflect any changes
thereto. The Company has caused to be delivered to Parent an affiliate
letter in the form attached hereto as EXHIBIT A, executed by each of
the Pooling Affiliates of the Company identified in the foregoing list,
and shall use all reasonable efforts to deliver or cause to be
delivered to Parent prior to the Effective Time such an affiliate
letter executed by any additional persons who become Pooling Affiliates
after the date hereof. Parent shall be entitled to place legends as
specified in such affiliate letters on the certificates evidencing any
of the Parent Common Stock to be received by such Pooling Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the Parent Common
Stock, consistent with the terms of such letters.
(b) For so long as resales of shares of Parent Common Stock
issued pursuant to the Merger are subject to the resale restrictions
set forth in Rule 145 under the Securities Act, Parent will use all
reasonable efforts to comply with Rule 144(c)(1) under the Securities
Act.
5.7 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement, the transactions
contemplated hereby, the Proxy Statement/Prospectus and the Registration
Statement will be paid by the party incurring such costs and expenses, except
that the Company and Parent will share equally the cost of printing and filing
with the SEC the Proxy Statement/Prospectus and the Registration Statement, the
filing fees required under the HSR Act or any Foreign Merger Laws and the fees
charged by Price Waterhouse LLP for the letters described in Section 5.16 (the
"Shared Expenses").
5.8 Further Actions. Subject to the terms and conditions herein
provided and without being required to waive any conditions herein (whether
absolute, discretionary or otherwise), each of the parties hereto agrees to use
all reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
each party to this Agreement shall take all such necessary action.
5.9 Regulatory Approvals. The Company and Parent will take all
reasonable action as may be necessary under federal or state securities laws or
the HSR Act or Foreign Merger Laws applicable to or necessary for, and will file
as soon as reasonably practicable and, if appropriate, use all reasonable
efforts to have declared effective or approved all documents and notifications
with the SEC and other governmental or regulatory bodies (including, without
limitation, the FDA and equivalent foreign regulatory bodies, and other foreign
regulatory bodies that administer Foreign Merger Laws, and any foreign labor
councils or bodies as may be required) that they deem necessary or appropriate
for, the consummation of the Merger and the transactions contemplated hereby,
and each party shall give the other information reasonably requested by such
other party pertaining to it and its subsidiaries and affiliates to enable such
other party to take such actions. Notwithstanding the foregoing or anything
herein to the contrary, neither Parent nor Acquisition Subsidiary shall be
required to make arrangements for or to effect the cessation, sale or other
disposition of particular assets or categories of assets or businesses of
Parent, Acquisition Subsidiary, the Company or any of their affiliates.
5.10 Certain Notifications. The Company shall promptly notify Parent in
writing of the occurrence of any event that will or could reasonably be expected
to result in the failure by the Company or its affiliates to satisfy any of the
conditions specified in Section 6.1 or 6.2. Parent shall promptly notify the
Company in writing of the occurrence of any event that will or could reasonably
be expected to result in the failure by Parent or its affiliates to satisfy any
of the conditions specified in Section 6.1 or 6.3.
5.11 Voting of Shares. To induce Parent to execute this Agreement,
certain shareholders of the Company have executed and delivered as of the date
hereof Agreements to Facilitate Merger in the form attached hereto as EXHIBIT B,
whereby each such shareholder has agreed to vote his/her shares of the Company
in favor of the Merger at the Company Shareholders Meeting.
5.12 Noncompetition Agreements. To induce Parent to execute this
Agreement, the Company has caused certain individuals to execute and deliver to
Parent as of the date hereof (but expressly contingent upon the Closing of
Merger) noncompetition agreements substantially in the form of EXHIBIT C hereto.
5.13 NYSE Listing Application. Parent shall prepare and submit to the
NYSE a listing application for the Parent Common Stock to be issued in the
Merger pursuant to Article 1 of this Agreement. The Company shall cooperate with
Parent in such listing application.
5.14 Indemnification. Parent shall indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date hereof or who
becomes prior to the Effective Time, an officer, director or employee of the
Company or any of its Subsidiaries (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses (including reasonable attorneys' fees
and expenses), liabilities or judgments, or amounts that are paid in settlement
with the approval of Parent (which approval shall not be unreasonably withheld),
of or in connection with any claim, action, suit, proceeding or investigation
based in whole or in part on or arising in whole or in part out of the fact that
such person is or was a director, officer or employee of the Company or any
Subsidiary, whether pertaining to any matter existing or occurring at or prior
to the Effective Time and whether asserted or claimed prior to, or at or after,
the Effective Time, including, without limitation, this Agreement and the
transactions contemplated hereby ("Indemnified Liabilities"), in each case to
the full extent the Company would have been permitted under Delaware law and its
Certificate of Incorporation and Bylaws as of the Effective Time to indemnify
such person (and Parent shall pay expenses in advance of the final disposition
of any such action or proceeding to each Indemnified Party to the full extent
permitted by law upon receipt of any affirmation or undertaking required by
Section 145(e) of the DGCL). Without limiting the foregoing, in the event any
such claim, action, suit, proceeding or investigation is brought against any
Indemnified Party (whether arising before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time shall be reasonably satisfactory to Parent; (ii) after the Effective Time,
Parent shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; and (iii)
after the Effective Time, Parent will use all reasonable efforts to assist in
the vigorous defense of any such matter, provided that Parent shall not be
liable for any settlement of any claim effected without its written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 5.14, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify Parent
(but the failure so to notify Parent shall not relieve it from any liability
which it may have under this Section 5.14 except to the extent such failure
materially prejudices Parent), and shall deliver to Parent the affirmation and
undertaking, if any, required by Section 145(e) of the DGCL. The Indemnified
Parties as a group may retain only one law firm to represent them with respect
to each such matter unless there is, under applicable standards of professional
conduct, a conflict of any significant issue between the positions of any two or
more Indemnified Parties. In the event of any dispute as to the enforcement or
interpretation of an Indemnified Party's rights under this Section 5.14 and the
Indemnified Parties are held by a court of competent jurisdiction to have been
entitled to indemnification under this Section 5.14, Parent shall promptly
reimburse the Indemnified Party's fees and expenses (including reasonable
attorneys' fees and expenses) incurred in connection with such matter. The
obligations of Parent to an Indemnified Party under this Section 5.14 shall
survive and continue after the Effective Time, and shall inure to the benefit of
the Indemnified Party for all Indemnified Party's heirs, legal representatives,
administrators and other successors in interest. It is expressly understood and
agreed that (i) each Indemnified Party shall be considered a third party
beneficiary of this Section 5.14 and (ii) the parties hereto will not amend or
modify the provisions of this Section 5.14 so as to adversely affect the rights
of an Indemnified Party without in each instance first obtaining the prior
written consent to such amendment or modification of all Indemnified Parties.
5.15 Letters of the Company's and Parent's Accountants. (A) The Company
shall cooperate with Parent and use all reasonable efforts to cause to be
delivered to Parent the following letters from Price Waterhouse LLP ("PW")
addressed to the Company and Parent: (i) a letter dated the date of this
Agreement, stating that after appropriate review and based on its familiarity
with the Company, the Company has not taken or agreed to take any action that
would prevent Parent from accounting for the Merger as a pooling of interests
transaction under Option 16 of the Accounting Principles Board and applicable
SEC rules and regulations; and (ii) a letter dated as of the Closing Date
confirming as of the Closing Date the previously delivered letter referred to
above. (B) The Company shall cooperate with Parent and Parent shall use all
reasonable means to cause to be delivered to the Company the following letters
from PW addressed to Parent and the Company: (i) a letter dated the date of this
Agreement, stating that after appropriate review of this Agreement and a letter
from the Parent describing the transaction, the Merger will qualify as a pooling
of interests transaction under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations; and (ii) a letter dated as of the Closing
Date confirming as of the Closing Date the previously delivered letter referred
to above. The fees charged by PW for such letters shall be shared equally by
Parent and the Company
5.16 Royalty Revision. The Company shall use all reasonable efforts to
revise, to such terms as are mutually satisfactory to the Company and Parent,
the Company's royalty payment obligations to the parties to that certain
Assignment Agreement dated April 25, 1991, as amended, among the Company and
others.
5.17 Pooling; Reorganization. From the date hereof to the Effective
Time, Parent agrees that it will not knowingly take any action that would have
the effect of (i) jeopardizing the treatment of the acquisition of the Company
by Parent as a "pooling of interests" for accounting purposes, or (ii)
jeopardizing the qualification of the Merger as a reorganization within the
meaning of Section 368(a)(2)(E) of the Code.
5.18 Subsidiary Shares. At or prior to the Closing, the Company shall
cause all issued and outstanding Subsidiary shares owned by any person other
than the Company to be transferred for no or nominal consideration to such
person or persons designated by Parent.
ARTICLE 6
CLOSING CONDITIONS
6.1 Conditions to Obligations of Parent, Acquisition Subsidiary and the
Company. The respective obligations of each party to consummate the Merger shall
be subject to the fulfillment at or prior to the Closing of the following
conditions:
(a) No Injunction. Neither Parent, Acquisition Subsidiary, nor
the Company shall be subject to any final order, decree or injunction
of a court of competent jurisdiction within the United States that (i)
prevents or materially delays the consummation of the Merger, or (ii)
would impose any material limitation on the ability of Parent
effectively to exercise full rights of ownership of the Company or the
assets or business of the Company.
(b) Shareholder Approval. The approval of the shareholders of
the Company referred to in Section 5.4 hereof shall have been obtained,
in accordance with the DGCL and the Company's Certificate of
Incorporation and Bylaws.
(c) Registration Statement. The Registration Statement (as
amended or supplemented) shall have become effective under the 1933 Act
and shall not be subject to any "stop order," and no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness or
qualification thereof shall have been initiated and be continuing or
have been threatened and be unresolved. Parent shall also have received
all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated hereby.
(d) NYSE Listing. The shares of Parent Common Stock to be
delivered pursuant to the Merger shall have been duly listed on the
NYSE, subject to official notice of issuance.
(e) Waiting Periods. The waiting periods applicable to the
consummation of the Merger under the HSR Act and any Foreign Merger
Laws shall have expired or been terminated.
6.2 Conditions to Obligations of Parent and Acquisition Subsidiary. The
respective obligations of Parent and Acquisition Subsidiary to consummate the
Merger shall be subject to the fulfillment at or prior to the Closing of the
following additional conditions:
(a) Representations and Warranties True. Each representation
and warranty of the Company contained in this Agreement, without regard
to any qualification or reference to immateriality or "Company Material
Adverse Effect", shall be true and correct as of the date hereof and on
the Closing Date as though such representations and warranties were
made on such date (except those representations and warranties that
address matters only as of a particular date shall remain true and
correct as of such date), except for any inaccuracies which,
individually or in the aggregate, have not had, and would not have, a
Company Material Adverse Effect.
(b) Performance. The Company shall have performed and complied
in all material respects with all agreements, obligations and
conditions required by this Agreement to be performed or complied with
by it on or prior to the Closing and Parent shall have received a
certificate to such effect signed by the Chief Executive Officer of the
Company.
(c) Consents. The Company shall have obtained all permits,
authorizations, consents and approvals required on its part to perform
its obligations under, and consummate the transactions contemplated by,
this Agreement, in form and substance satisfactory to Parent, and
Parent and Acquisition Subsidiary shall have received evidence
satisfactory to them of the receipt of such permits, authorizations,
consents and approvals.
(d) Opinion of Counsel for the Company. Parent and Acquisition
Subsidiary shall have received an opinion of Maslon, Edelman, Borman &
Brand, a Professional Limited Liability Partnership, counsel to the
Company, dated the Closing Date, in form and substance reasonably
satisfactory to Parent, to the effect set forth in EXHIBIT D hereto.
(e) Affiliates' Letters. Parent shall have received a letter
from each of the Affiliates pursuant to Section 5.6 hereof.
(f) Noncompetition Agreements. Parent shall have received
executed agreements from such persons, and in such form satisfactory to
Parent, as described in Section 5.12 hereof.
(g) Resignations. Such officers and directors (as shall have
been specified Parent) of the Company or of any Subsidiary shall have
tendered their respective resignations effective as of the Effective
Time.
(h) Pooling Opinion. Parent shall have received each of the
letters described in Sections 5.15.
(i) Royalty Revision. The Company's royalty obligations
referenced in Section 5.16 shall have been revised to such terms as are
mutually satisfactory to Parent and the Company.
(j) Subsidiary Shares. The transfer of Subsidiary shares as
provided in Section 5.18 shall have occurred.
6.3 Conditions to Obligations of the Company. The obligation of the
Company to consummate the Merger shall be subject to the fulfillment at or prior
to the Closing of the following additional conditions:
(a) Representations and Warranties True. Each representation
and warranty of Parent contained in this Agreement without regard to
any qualification or reference to immateriality or "Parent Material
Adverse Effect", shall be true and correct on the date of this
Agreement and on the Closing Date as though such representations and
warranties were made on such date (except those representations and
warranties that address matters only as of a particular date shall
remain true and correct as of such date), except for any inaccuracies
which, individually or in the aggregate, have not had, and would not
have, a Parent Material Adverse Effect.
(b) Performance. Parent and Acquisition Subsidiary shall have
performed and complied in all material respects with all agreements,
obligations and conditions required by this Agreement to be performed
or complied with by them on or prior to the Closing.
(c) Consents. Parent and Acquisition Subsidiary shall have
obtained all permits, authorizations, consents and approvals required
on its part to perform its obligations under, and consummate the
transactions contemplated by, this Agreement, in form and substance
satisfactory to Parent, and the Company shall have received evidence
satisfactory to it of the receipt of such permits, authorizations,
consents and approvals.
(d) Opinion of Counsel for Parent. The Company shall have
received an opinion of Fredrikson & Byron, P.A., counsel to Parent,
dated the Closing Date, in form and substance reasonably satisfactory
to the Company, to the effect set forth in EXHIBIT E hereto.
(e) Tax Opinion. Since the date of this Agreement, there shall
not have been any change in the facts, circumstances or applicable
federal tax laws that would prevent the Company from receiving an
opinion, dated the Closing Date, of Maslon, Edelman, Borman & Brand, a
Professional Limited Liability Partnership, counsel to the Company, to
the effect that, subject to customary conditions, the Merger will be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a)(2)(E) of the Code.
ARTICLE 7
TERMINATION AND ABANDONMENT
7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the shareholders of the
Company, only:
(a) by mutual written consent duly authorized by the Board of
Directors of Parent and the Board of Directors of the Company;
(b) by either Parent or the Company if the Merger shall not
have been consummated on or before September 30, 1996; provided,
however, that the terminating party shall not have breached in any
material respect its obligations under this Agreement in any manner
that shall have been the proximate cause of, or resulted in, the
failure to consummate the Merger by such date and provided further,
however, that, if a request for additional information is received from
the U.S. Federal Trade Commission ("FTC") or Department of Justice
("DOJ") pursuant to the HSR Act or additional information is requested
by an authority (a "Foreign Authority") pursuant to Foreign Merger
Laws, such date shall be extended to the 90th day following
acknowledgment by the FTC, DOJ or Foreign Authority, as applicable,
that Parent and the Company have complied with such request, but in any
event not later than October 31, 1996;
(c) by either Parent or the Company if a court of competent
jurisdiction or an administrative, governmental, or regulatory
authority has issued a final non-appealable order, decree or ruling, or
taken any other action, having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger;
(d) by either Parent or the Company if, at the Company
Shareholders Meeting, the requisite vote of the shareholders of the
Company is not obtained, except that the right to terminate this
Agreement under this Section 7.1(e) will not be available to any party
whose failure to perform any material obligation under this Agreement
has been the proximate cause of, or resulted in, the failure to obtain
the requisite vote of the shareholders of the Company;
(e) by Parent if either (i) the Company has breached its
obligations under Section 5.2 in any material respect, (ii) the Board
of Directors of the Company has recommended, approved, accepted, or
entered into an agreement regarding, an Alternative Proposal, as
defined in Section 5.2, or (iii) the Board of Directors of the Company
has withdrawn or modified in a manner adverse to Parent its
recommendation of the Merger;
(f) by the Company if (i) it is not in material breach of its
obligations under this Agreement, (ii) the Board of Directors of the
Company has accepted an Alternative Proposal, and (iii) the Company has
paid to Parent the fee required to be paid to Parent by Section 7.2 in
the manner therein provided;
(g) by Parent if (i) Parent is not in material breach of its
obligations under this Agreement and (ii) there has been a material
breach by the Company of any of its representations, warranties or
obligations under this Agreement such that the conditions in Section
6.2 will not be satisfied, and the breach is not curable or, if
curable, is not cured by the Company within 30 calendar days after
receipt by the Company of written notice from Parent of such breach;
(h) by the Company if (i) the Company is not in material
breach of its obligations under this Agreement and (ii) there has been
a material breach by Parent of any of its representations, warranties
or obligations under this Agreement such that the conditions in Section
6.3 will not be satisfied, and the breach is not curable or, if
curable, is not cured by Parent within 30 calendar days after receipt
by Parent of written notice from the Company of such breach.
7.2 Effect of Termination.
(a) In recognition of the time, efforts and expenses expended
and incurred by Parent with respect to the Company and the opportunity
the Company presents to Parent, if:
(i) this Agreement is terminated pursuant to Section
7.1(e) or 7.1(f); or
(ii) (A) any third party makes an Alternative
Proposal or acquires 10% or more of the outstanding Company
Common Stock prior to the Company Shareholders Meeting, (B)
the requisite vote of the shareholders of the Company to
approve the Merger is not obtained, (C) this Agreement is
terminated, and (D) within 12 months after such termination
(x) the Company enters into an agreement relating to an
Alternative Proposal or (y) an Alternative Proposal is
consummated,
then, in any such event, the Company will pay to Parent, upon the
termination date in the event of termination pursuant to Section
7.1(f), within five business days after demand by Parent in the case of
termination pursuant to Section 7.1(e), and immediately upon the first
to occur of the entering into an agreement providing for, or the
consummation of, an Alternative Proposal in the case of the events
specified in clause (ii) above (by wire transfer of immediately
available funds to an account designated by Parent for such purpose), a
fee equal to $5 million. The Company acknowledges that the agreements
contained in this Section 7.2 are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements,
Parent would not enter into this Agreement. If the Company fails to pay
promptly the fee due pursuant to this Section 7.2, the Company shall
also pay to Parent interest on the amount of the fee under this
Section, accruing from its due date, at an interest rate per annum
equal to 2% plus the prime commercial lending rate quoted by Norwest
Bank Minnesota, N.A. Any change in the interest rate hereunder
resulting from a change in such prime rate shall be effective at the
beginning of the day of such change in such prime rate.
(b) Except as provided in the next sentence of this paragraph,
in the event of the termination of this Agreement pursuant to any
paragraph of Section 7.1, the obligations of the parties to consummate
the Merger will expire, and none of the parties will have any further
obligations under this Agreement except pursuant to Section 7.2(a),
Sections 5.3 and 5.7 and Article 8. In the event of the termination of
this Agreement pursuant to any paragraph of Section 7.1 that is caused
by a breach of a party, the party whose breach was the basis for the
termination will not be relieved from any liability for its breach or
its obligations pursuant to Section 7.2(a), and the other party will
have no further obligations under this Agreement except as provided in
Sections 5.3 and 5.7 and Article 8.
ARTICLE 8
MISCELLANEOUS
8.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement of
Parent, Acquisition Subsidiary and the Company at any time prior to the
Effective Time with respect to any of the terms contained herein. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto.
8.2 Waiver of Compliance; Consents. Any failure of Parent or
Acquisition Subsidiary on the one hand, or the Company on the other hand, to
comply with any obligation, covenant, agreement or condition herein may be
waived by the Company or Parent, respectively, only by a written instrument
signed by an officer of the party granting such waiver, but such waiver or
failure to insist upon strict compliance with such obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be given
in writing. Acquisition Subsidiary agrees that any consent or waiver of
compliance given by Parent hereunder shall be conclusively binding upon
Acquisition Subsidiary, whether given expressly on its behalf or not.
8.3 Investigation; Survival of Representations and Warranties. The
respective representations and warranties of Parent and the Company contained
herein or in any certificates or other documents delivered prior to or at the
Closing shall not be deemed waived or otherwise affected by any investigation
made by any party hereto. Each and every representation and warranty contained
herein shall be deemed to be conditions to the Merger and shall not survive the
Merger. This Section 8.3 shall have no effect upon any other obligation of the
parties hereto, whether to be performed before or after the Closing.
8.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally by commercial
courier service or otherwise, or by telecopier, or three days after such notice
is mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or Acquisition Subsidiary, to it at:
Medtronic, Inc.
7000 Central Avenue Northeast
Minneapolis, Minnesota 55432
with separate copies thereof addressed to
Attention: General Counsel
and FAX: (612) 572-5459
Attention: Vice President, Corporate
Development and Associate
General Counsel
FAX: (612) 572-5404
(b) If to the Company, to it at:
InStent Inc.
6271 Bury Drive
Eden Prairie, Minnesota 55436
FAX: (612) 937-0312
Attention: Warren L. Bielke, Chief Executive Officer
with a copy to:
Maslon, Edelman, Borman & Brand
a Professional Limited Liability Partnership
3300 Norwest Center
Minneapolis, Minnesota 55402-4140
FAX: (612) 672-8397
Attention: Joseph Alexander
8.5 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties, nor
is this Agreement intended to confer upon any other person except the parties
any rights or remedies hereunder.
8.6 Governing Law. Except to the extent that Delaware law is
mandatorily applicable to the Merger and the rights of the shareholders of the
Company and Acquisition Subsidiary, this Agreement shall be governed by the laws
of the State of Minnesota (regardless of the laws that might otherwise govern
under applicable Minnesota principles of conflicts of law).
8.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
8.8 Knowledge. As used in this Agreement or the instruments,
certificates or other documents required hereunder, the term "knowledge" shall
mean actual knowledge of a fact or the knowledge that such person or, if such
person is a corporation, its directors, officers or other key employees could
reasonably be expected to have based on reasonable investigation and inquiry.
The knowledge of an entity shall be deemed to include the knowledge of its
subsidiaries.
8.9 Interpretation. The Table of Contents, article and section headings
contained in this Agreement are inserted for reference purposes only and shall
not affect the meaning or interpretation of this Agreement. This Agreement shall
be construed without regard to any presumption or other rule requiring the
resolution of any ambiguity regarding the interpretation or construction hereof
against the party causing this Agreement to be drafted.
8.10 Publicity. Upon execution of this Agreement by Parent, Acquisition
Subsidiary and the Company, the parties shall jointly issue a press release, as
agreed upon by them. The parties intend that all future statements or
communications to the public or press regarding this Agreement or the Merger
will be mutually agreed upon by them. Neither party shall, without such mutual
agreement or the prior consent of the other, issue any statement or
communication to the public or to the press regarding this Agreement, or any of
the terms, conditions or other matters with respect to this Agreement, except as
required by law or the rules of the NYSE or Nasdaq and then only (a) upon the
advice of such party's legal counsel; (b) to the extent required by law or the
rules of the NYSE or Nasdaq; and (c) following prior notice to, and consultation
with, the other party (which notice shall include a copy of the proposed
statement or communication to be issued to the press or public). The foregoing
shall not restrict Parent's or the Company's communications with their employees
or customers in the ordinary course of business.
8.11 Entire Agreement. This Agreement, including the exhibits and
schedules hereto and the Confidentiality Agreement referred to herein, embodies
the entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. This Agreement and the Confidentiality
Agreement supersede all prior agreements and the understandings between the
parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Medtronic, Inc.
By /s/ Michael D. Ellwein
Its Vice President
BYR Acquisition Corp.
By /s/ Michael D. Ellwein
Its Vice President
InStent Inc.
By /s/ Warren Bielke
Its President and CEO
CERTIFICATION BY SECRETARY
OF
BYR ACQUISITION CORP.
The undersigned, being the duly elected, qualified and acting Secretary
of BYR GLOBAL Acquisition Corp., a Delaware corporation ("Acquisition
Subsidiary"), hereby certifies that on March 22, 1996, the foregoing Agreement
and Plan of Reorganization was approved by the sole shareholder of Acquisition
Subsidiary.
/s/ Michael R. Kroll
Michael R. Kroll, Secretary
BYR Acquisition Corp.
CERTIFICATION BY SECRETARY
OF
INSTENT INC.
The undersigned, being the duly elected, qualified and acting Secretary
of InStent Inc., a Delaware corporation (the "Company"), hereby certifies that
on March 22, 1996, the foregoing Agreement and Plan of Reorganization was
approved by the vote of at least a majority of the outstanding stock of the
Company entitled to vote thereon.
Patricia Berg, Secretary
InStent Inc.
APPENDIX B
OPINION OF DILLON, READ & CO. INC.
[LOGO - GRAPHIC OMITTED]
535 Madison Avenue
New York, New York 10022
212-906-7000
March 22, 1996
The Board of Directors
InStent Inc.
6271 Bury Drive
Eden Prairie, MN 55346
Gentlemen:
You have requested our opinion as to the fairness from a financial
point of view of the consideration to be received by the holders (the
"Stockholders") of common stock, par value $0.01 per share ("Company Common
Stock") of InStent Inc. ("InStent" or the "Company") pursuant to an Agreement
and Plan of Merger, dated as of March 22, 1996 (the "Agreement"), among InStent,
Medtronic, Inc. ("Medtronic") and BYR Acquisition Corporation, a wholly owned
subsidiary of Medtronic ("Sub"). The Agreement provides for a merger (the
"Merger") of Sub into the Company upon which each outstanding share of Company
Common Stock shall be converted into the right to receive 0.3833 shares of
Medtronic common stock, par value $0.10 per share ("Medtronic Common Stock"), as
is determined in accordance with the formula set forth in Section 1.3(a) of the
Agreement.
In arriving at our opinion we (i) reviewed certain publicly available
information, including equity research analyst reports, relating to the
business, financial condition and operations of InStent and Medtronic; (ii)
reviewed certain financial and other information furnished to us by InStent and
Medtronic that is not publicly available, including financial forecasts prepared
by the management of InStent; (iii) conducted discussions with certain senior
officers of InStent and Medtronic with respect to the operations, financial
condition, history and prospects of each company; (iv) reviewed historical
common stock price and trading volume data of the Company Common Stock and
Medtronic Common Stock; (v) compared the proposed financial terms of the Merger
with the financial terms of certain recent merger and acquisition transactions;
(vi) reviewed publicly available financial information relating to public
companies whose operations are generally comparable to those of InStent and
Medtronic; (vii) conducted such other financial studies, analyses and
investigations, and considered such other information as we have deemed
necessary in arriving at our opinion.
In connection with its review, we have at your direction not assumed
any responsibility for independent verification of any of the publicly available
information or non-public financial or other information furnished by InStent or
Medtronic and have, with your consent, relied on its being complete and accurate
in all material respects. In addition, we have at your direction not made any
independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) of the Company or any of its subsidiaries, nor was
Dillon Read furnished with any such evaluation or appraisal. With respect to the
financial forecasts, we have at your direction assumed that they had been
reasonably prepared on a basis reflecting the best available estimates at the
time and judgments of the InStent's management as to the future financial
performance of InStent. Dillon, Read & Co. Inc. has not been authorized to and
has not solicited indications of interest in a business combination with InStent
from any party and the Company has advised us that it has not held discussions
with any party other than Medtronic or conducted an "auction process". For
purposes of this opinion, we have not considered the impact any future
acquisitions by Medtronic may have on the fairness, from a financial point of
view, of the consideration to be received by the Stockholders in the Merger. Our
opinion herein is based upon market, economic and other circumstances existing
and disclosed to us as of the date hereof.
In rendering our opinion, we have assumed that the Merger will receive
pooling treatment and be a tax-free reorganization.
Dillon, Read & Co. Inc. has acted as financial advisor to the Board of
Directors of the Company in connection with rendering this opinion, for which we
will receive a fee. In the ordinary course of business, we have traded the
securities of the Company and Medtronic for our own account and the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
In rendering this opinion, we express no view as to the range of values
at which Medtronic Common Stock may trade following consummation of the Merger,
and we are not making any recommendation to the shareholders with respect to the
advisability of disposing or retaining such Medtronic Common Stock following the
Merger.
Based upon and subject to the foregoing, we are of the opinion that as
of the date hereof, the consideration to be received by the holders of Company
Common Stock pursuant to the Agreement is fair to the Stockholders from a
financial point of view.
Very truly yours,
/s/ Dillon, Read & Co. Inc.
Dillon, Read & Co. Inc.
APPENDIX C
OPINION OF VOLPE, WELTY & COMPANY
VOLPE, WELTY & COMPANY
INVESTMENT BANKERS
One Maritime Plaza, 11th Floor San Francisco, California 9411
(415) 956-8120 FAX (415) 986-6754
March 22, 1996
Board of Directors
InStent Inc.
6271 Bury Drive
Eden Prairie, MN 55346
Dear Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders (the "Stockholders") of common stock, $.01 par value
("Company Common Stock"), of InStent Inc. (the "Company"), of the consideration
to be received by the Stockholders from Medtronic, Inc. ("Medtronic") in a
proposed merger (the "Merger") of a subsidiary of Medtronic with and into the
Company pursuant to the Agreement and Plan of Reorganization, dated as of March
22, 1996 (the "Merger Agreement"), by and among Medtronic, such subsidiary and
the Company.
In the event the Merger is consummated, each issued and outstanding share of
Company Common Stock, other than shares of Company Common Stock to be canceled
pursuant to the Merger Agreement, would be converted into the right to receive
0.3833 of a share of Medtronic Common Stock ("Medtronic Shares"), subject to
adjustment as provided in the Merger Agreement. The terms and conditions of the
Merger are more fully set forth in the Merger Agreement.
Volpe, Welty & Company has acted as financial advisor to the Board of Directors
of the Company in connection with the Merger, will receive a fee for our
services in rendering this opinion and will receive an additional fee that is
contingent on consummation of the Merger. We were not authorized to solicit, and
did not solicit, interest from any party with respect to an acquisition of the
Company. In addition, we have performed investment banking services for, and
received compensation from, the Company from time to time.
In arriving at our opinion we have reviewed a draft of the Merger Agreement
dated March 19, 1996 and certain business and financial information relating to
the Company and its subsidiaries, including certain financial projections,
estimates and analyses provided to us by the Company, and have reviewed and
discussed the businesses and prospects of the Company and its subsidiaries with
representatives of the Company's management. We have considered certain
financial and stock market data of the Company and have compared that
information to similar data for certain other publicly-held companies in
businesses similar to that of the Company.
We have also reviewed certain business and financial information relating to
Medtronic, including certain financial projections, estimates and analyses
provided to us by Medtronic, and have had discussions with certain
representatives of management of Medtronic. We have considered certain financial
and stock market data of Medtronic and have compared that information to similar
data for certain other publicly-held companies in businesses similar to that of
Medtronic.
In arriving at our opinion, we have also considered the financial terms of
certain other mergers and acquisitions which we believe to be generally
comparable to the Merger and have considered such other information, financial
studies and analyses, and financial, economic and market criteria as we deemed
relevant.
In connection with our review, we have not assumed responsibility for
verification of any of the foregoing information and have relied on its being
complete and accurate in all respects. We have assumed, with your consent, that
(i) the Merger will be a tax-free reorganization, (ii) the Merger will be
accounted for under the pooling-of-interests method of accounting, (iii) any
material liabilities (contingent or otherwise, known or unknown) of the Company
and Medtronic are as set forth in the consolidated financial statements of the
Company and Medtronic, respectively, and (iv) the terms set forth in the
executed Merger Agreement will not differ materially from the proposed terms
provided to us in the draft Merger Agreement dated March 19, 1996. We have not
made an independent evaluation or appraisal of any assets or liabilities
(contingent or otherwise) of the Company or Medtronic or any of their respective
subsidiaries, nor have we been furnished with any such evaluation or appraisal
that has not been publicly disclosed. With respect to the financial projections,
estimates and analyses provided to us by the Company and by Medtronic, we have
assumed, with your permission, that such information was reasonably prepared on
bases reflecting the best currently available estimates and judgments of
management of the Company and of Medtronic, respectively, as to future financial
performance. For purposes of this opinion, we have not considered the impact any
future acquisitions by Medtronic may have on the fairness, from a financial
point of view, of the consideration to be received by the Stockholders in the
Merger. Our opinion is necessarily based on economic, monetary, market and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Furthermore, we express no opinion as to the
price or trading range at which the shares of Medtronic Common Stock will trade
after the date hereof and we do not address the Company's underlying business
decision to engage in the Merger.
In rendering this opinion, we are not making any recommendation to the
Stockholders in respect of the advisability of disposing of or retaining
Medtronic Shares received pursuant to the Merger or as to how any Stockholder
should vote on the proposed Merger. In the ordinary course of business, we have
traded and may trade the securities of the Company and Medtronic for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Company only and may not be used for any other purpose without
our prior written consent, except that this letter may be disclosed in
connection with any registration statement or proxy statement used in connection
with the Merger so long as this letter is quoted in full in such registration
statement or proxy statement.
Based upon and subject to the foregoing, we are of the opinion, as of the date
hereof, that the consideration to be received by the Stockholders in the Merger
is fair, from a financial point of view, to the Stockholders.
Very truly yours,
VOLPE, WELTY & COMPANY
By: /s/ Volpe, Welty & Company
INSTENT INC. SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned shareholder hereby appoints Warren Bielke and Sven Wehrwein
and each of them as proxies, each with full power of substitution, to vote as
designated below all shares of common stock of InStent Inc. held of record as
of May 24, 1996, which the undersigned would be entitled to vote if
personally present at the Special Meeting of Shareholders to be held on June
28, 1996, at 8:30 a.m., local time, at 6271 Bury Drive, Eden Prairie,
Minnesota, and at any adjournment or adjournments thereof, upon the following
matters:
Proposal to approve the Agreement and Plan of Reorganization providing for
the merger of BYR Acquisition Corp. with and into InStent Inc., with InStent
Inc. to be the surviving corporation and a wholly-owned subsidiary of
Medtronic, Inc., a copy of which Agreement and Plan of Reorganization is
attached as Appendix A to the Proxy Statement/Prospectus for the Special
Meeting.
FOR AGAINST ABSTAIN
(CONTINUED AND TO BE SIGNED AND DATED ON THE OTHER SIDE)
THIS PROXY WILL BE VOTED AS SPECIFIED BY THE SHAREHOLDER, BUT IF NO CHOICE IS
SPECIFIED, THIS PROXY WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND PLAN OF
REORGANIZATION.
IMPORTANT: Please sign exactly as name or names appear on this Proxy. Joint
owners should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title as such. When
signing as a corporation or a partnership, please sign in the name of the
entity by an authorized person.
Dated:
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(Please sign name exactly as it appears hereon)
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(Signature of joint owner, if any)
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY
IN THE ENCLOSED PROXY RETURN ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IF AN ENVELOPE IS NOT ENCLOSED OR HAS
BEEN MISPLACED, PLEASE RETURN THIS COMPLETED
PROXY TO NORWEST SHAREOWNER SERVICES, STOCK
TRANSFER DEPARTMENT, P.O. BOX 119, SOUTH SAINT
PAUL, MINNESOTA 55075-9988.
