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Filed pursuant to Rule 424(b)(3)
Registration No. 333-69271
[LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Board of Directors of Arterial Vascular Engineering, Inc. has
unanimously approved a merger between AVE and a subsidiary of Medtronic, Inc. As
a result of the proposed merger, AVE will become a wholly-owned subsidiary of
Medtronic and you will become a shareholder of Medtronic. The AVE Board believes
that the complementary product lines and businesses of Medtronic and AVE create
an overall strategic fit. It also believes that the merger should better allow
the combined company to benefit from developments in the health care industry
and to accelerate its product development and technological innovation.
I cordially invite you to attend our special meeting of shareholders to vote
on a proposal to approve the merger and the merger agreement. We cannot complete
the merger unless the holders of a majority of the outstanding shares of AVE
common stock approve it.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO YOU AND IN
YOUR BEST INTERESTS. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
THE MERGER AT THE SPECIAL MEETING.
If the merger is completed, you will receive $54 in shares of Medtronic
common stock in exchange for each share of AVE common stock that you own, if the
average price of Medtronic common stock during a 15-trading-day period before
the shareholder meeting is between $61.20 and $74.80 per share. For each AVE
share, you will receive 0.88235 of a Medtronic share if the average price is
below $61.20 and 0.72193 of a Medtronic share if the average price is above
$74.80.
Medtronic common stock is traded on the New York Stock Exchange under the
symbol "MDT." AVE common stock is traded on the Nasdaq National Market under the
symbol "AVEI."
YOUR VOTE AT THE SPECIAL MEETING, IN PERSON OR BY PROXY, IS VERY IMPORTANT.
Even if you plan to attend the meeting, please mark, sign, and return the
enclosed proxy card promptly, so that your shares of common stock are voted at
the special meeting. If you do not return your proxy card, the effect will be a
vote against the merger unless you attend the meeting and vote for the merger.
To change your vote, send in a later-dated, signed proxy card to Boston
Equiserve at the address on the proxy card. If you do attend the meeting, you
can of course vote your shares in person.
The date, time, and place of the meeting are:
January 28, 1999
10:00 a.m., local time
Luther Burbank Center for the Arts
East Auditorium
50 Mark West Springs Road
Santa Rosa, California 95043
This Proxy Statement/Prospectus gives you detailed information about the
merger. You can also obtain information about AVE and Medtronic from documents
filed with the Securities and Exchange Commission. Please read this entire
document carefully.
WE ENTHUSIASTICALLY SUPPORT THE MERGER AND URGE YOU TO VOTE "FOR" THE MERGER
AND THE MERGER AGREEMENT.
Thank you, and I look forward to seeing you at the special meeting.
[SIGNATURE]
Scott J. Solano
CHIEF EXECUTIVE OFFICER AND PRESIDENT
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE MEDTRONIC SECURITIES TO BE ISSUED IN
THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/ PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Proxy Statement/Prospectus dated December 22, 1998, and first mailed to
shareholders on or about December 24, 1998.
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ARTERIAL VASCULAR ENGINEERING, INC.
3576 UNOCAL PLACE
SANTA ROSA, CALIFORNIA 95403
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 28, 1999
To the Shareholders of Arterial Vascular Engineering, Inc.:
A Special Meeting of the shareholders of Arterial Vascular Engineering,
Inc., a Delaware corporation ("AVE"), will be held at Luther Burbank Center for
the Arts, East Auditorium, 50 Mark West Springs Road, Santa Rosa, California, on
Thursday, January 28, 1999, at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve (i) an Agreement and
Plan of Merger dated as of November 29, 1998 (the "Merger Agreement"),
among Medtronic, Inc. ("Medtronic"), MAV Merger Corp. ("Merger
Subsidiary"), and AVE, and (ii) the merger of Merger Subsidiary into AVE,
pursuant to which AVE will become a wholly-owned subsidiary of Medtronic
and holders of AVE common stock will receive shares of Medtronic common
stock based upon the conversion ratio described in the accompanying Proxy
Statement/Prospectus.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement, including a proposal to
adjourn or postpone the Special Meeting.
The record date for the Special Meeting is the close of business on December
21, 1998. Only AVE shareholders of record at that time are entitled to notice of
and to vote at the Special Meeting or any adjournment or postponement of it. To
approve the merger, the holders of a majority of the outstanding shares of AVE
common stock must vote in favor of the merger.
Under Delaware law, AVE shareholders do not have any right to appraisal of
the value of their shares in connection with the Merger, or to be paid that
value in cash.
The attached Proxy Statement/Prospectus contains more detailed information
regarding the merger and the Merger Agreement and includes a copy of the Merger
Agreement.
YOUR VOTE IS IMPORTANT. EVEN IF YOU EXPECT TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. IF NO INSTRUCTIONS ARE INDICATED ON YOUR PROXY,
YOUR SHARES WILL BE VOTED "FOR" THE MERGER. IF YOU DO NOT RETURN YOUR PROXY OR
VOTE IN PERSON, THE EFFECT IS A VOTE AGAINST THE MERGER. YOU CAN REVOKE YOUR
PROXY AT ANY TIME BEFORE IT IS EXERCISED BY GIVING WRITTEN NOTICE TO THE
SECRETARY OF AVE, OR FILING ANOTHER PROXY, OR ATTENDING THE SPECIAL MEETING AND
VOTING IN PERSON.
IF THE MERGER AGREEMENT IS APPROVED AND THE MERGER IS CONSUMMATED, YOU WILL
BE SENT A LETTER OF TRANSMITTAL WITH INSTRUCTIONS FOR SURRENDERING YOUR
CERTIFICATES REPRESENTING SHARES OF AVE COMMON STOCK. PLEASE DO NOT SEND YOUR
SHARE CERTIFICATES UNTIL YOU RECEIVE THESE MATERIALS.
THE AVE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
MERGER.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
Lawrence J. Fassler
SECRETARY
December 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER......... 1
SUMMARY........................................ 2
SPECIAL MEETING................................ 11
Date, Place, and Time.......................... 11
Purpose........................................ 11
Record Date; Voting Rights; Quorum; Required
Vote......................................... 11
Recommendation of Board of Directors of AVE.... 12
Proxies; Revocation............................ 12
Solicitation of Proxies........................ 12
THE MERGER..................................... 13
General........................................ 13
Effective Time of the Merger................... 13
Background of the Merger....................... 13
AVE's Reasons for the Merger; Recommendation of
the AVE Board of Directors................... 15
Medtronic's Reasons for the Merger............. 17
Opinion of AVE's Financial Advisor............. 17
Conversion of AVE Common Stock in the Merger... 22
Shareholder Rights Plans....................... 24
Treatment of Stock Options..................... 24
Representations and Warranties................. 24
Certain Covenants by AVE....................... 25
Certain Covenants by Medtronic................. 26
Interests of AVE's Directors and Officers in
the Merger................................... 26
Voting Agreements.............................. 28
Stock Option Agreement......................... 28
Conditions to Consummation of the Merger;
Waiver....................................... 29
Amendment and Termination of the Merger
Agreement; Effects of Termination............ 30
Expenses and Fees.............................. 31
Restrictions on Resale of Medtronic Common
Stock........................................ 31
Deregistration of AVE Common Stock............. 32
Accounting Treatment of the Merger............. 32
Certain Federal Income Tax
Consequences................................. 32
Indemnification................................ 34
Regulatory Requirements........................ 34
No Appraisal Rights............................ 35
COMPARATIVE STOCK PRICES AND DIVIDENDS......... 35
RECENT DEVELOPMENTS............................ 36
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS......................... 38
COMPARISON OF RIGHTS OF MEDTRONIC AND AVE
SHAREHOLDERS................................. 46
Classification, Removal, and Nomination of
Directors.................................... 46
Preferred Stock................................ 47
Special Meetings of Shareholders............... 48
Voting Rights; Shareholder Approvals........... 48
Cumulative Voting.............................. 48
Preemptive Rights.............................. 48
Amendment of the Articles or Certificate of
Incorporation................................ 48
Business Combinations and Control Share
Acquisitions................................. 49
Shareholder Rights Plans....................... 49
Related Person Business Transactions........... 50
CERTAIN TRANSACTIONS AND RELATIONSHIPS BETWEEN
AVE AND MEDTRONIC............................ 51
LEGAL MATTERS.................................. 51
EXPERTS........................................ 51
WHERE YOU CAN FIND MORE INFORMATION............ 51
FORWARD-LOOKING
INFORMATION.................................. 53
LIST OF ANNEXES
ANNEX A--Agreement and Plan of Merger
ANNEX B--Opinion of SG Cowen Securities
Corporation
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. PLEASE DESCRIBE THE MERGER.
A. In the merger, AVE will merge with a subsidiary of Medtronic and become a
wholly-owned subsidiary of Medtronic.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. If the merger is completed, you will receive $54 in shares of Medtronic
common stock in exchange for each share of AVE common stock that you own, if the
average price of Medtronic stock during the 15 trading days ending on the second
trading day before the Special Meeting is between $61.20 and $74.80 per share.
- If the average price of Medtronic common stock is $61.20 or less, each AVE
share will convert into 0.88235 of a Medtronic share.
- If the average price is between $61.20 and $74.80, each AVE share will
convert into the portion of a Medtronic share equal to $54 divided by the
average price.
- If the average price is $74.80 or more, each AVE share will convert into
0.72193 of a Medtronic share.
Because the conversion ratio will fluctuate based upon the market price of
Medtronic common stock prior to the Special Meeting, depending on the actual
market price of Medtronic common stock prior to the Special Meeting and on the
date of the merger, you may receive more or less than $54 in Medtronic common
stock at the time of the merger.
You will receive cash instead of any fractional Medtronic shares that you would
otherwise receive, based on the closing sale price of Medtronic stock on the
date of the merger.
Q. WHAT DO I NEED TO DO NOW?
A. Please sign, date, and mail your proxy card in the enclosed return
envelope as soon as possible. You can also attend the Special Meeting in person
and vote, even though you may have previously returned your proxy card. If you
do not return your proxy or vote in person, it will have the effect of a vote
against the merger.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A. Just send in a later-dated, signed proxy card before the Special Meeting
to Boston Equiserve at the address on the proxy card or attend the meeting in
person and vote.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A. Your broker will vote your shares only if you provide instructions on how
to vote. You should instruct your broker to vote your shares, following the
procedure your broker gives you. Without instructions, your broker will not vote
your shares.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After we complete the merger, we will send you written instructions
that describe how to exchange your AVE stock certificates for Medtronic stock
certificates.
Q. WILL I OWE FEDERAL INCOME TAX ON WHAT I RECEIVE IN THE MERGER?
A. We expect that your exchange of AVE stock for Medtronic stock in the
merger will be tax free for U.S. federal tax purposes, except to the extent you
receive cash for fractional Medtronic shares. The tax consequences of the merger
to you will depend on your own situation. You should talk to your tax advisor.
Q. WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A. We are working toward completing the merger as quickly as possible.
Medtronic and AVE need to obtain both AVE shareholder approval and regulatory
approvals. Medtronic shareholders do not need to approve the merger. We hope to
complete the merger shortly after the Special Meeting, if regulatory approvals
and other required matters are completed by that time.
Q. WHOM SHOULD I CALL WITH QUESTIONS?
A. If you have any questions about the merger, please call AVE Investor
Relations, at (707) 541-3135.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS
ENTIRE DOCUMENT AND THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU
CAN FIND MORE INFORMATION" ON PAGE 51. WE HAVE INCLUDED PAGE REFERENCES IN
PARENTHESES TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF SOME OF THE TOPICS
PRESENTED IN THIS SUMMARY.
THE COMPANIES
ARTERIAL VASCULAR ENGINEERING, INC.
3576 Unocal Place
Santa Rosa, California 95403
(707) 525-0111
AVE, a Delaware corporation founded in 1991, designs, develops, manufactures,
and markets a variety of highly specialized stent systems and percutaneous
transluminal coronary angioplasty ("PTCA") catheters and related devices
designed to be used in connection with less invasive treatment of cardiovascular
disease. AVE's stents are used as arterial support devices in connection with
balloon angioplasty or other minimally invasive treatments of atherosclerosis
(the formation of deposits in the arteries) and to prevent abrupt closure of
vessels in higher risk angioplasty procedures.
MEDTRONIC, INC.
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
(612) 514-4000
Medtronic, a Minnesota corporation founded in 1957, is the world's leading
medical technology company specializing in implantable and interventional
therapies. Its primary products include those for bradycardia pacing,
tachyarrhythmia management, atrial fibrillation management, heart failure
management, coronary and peripheral vascular disease, heart valve replacement,
extracorporeal cardiac support, minimally invasive cardiac surgery, malignant
and non-malignant pain, movement disorders, neurosurgery, and neurodegenerative
disorders. Medtronic serves customers and patients in more than 120 countries.
THE SPECIAL MEETING (PAGE 11)
The Special Meeting will be held on January 28, 1999, at 10:00 a.m., local time,
at Luther Burbank Center for the Arts, East Auditorium, 50 Mark West Springs
Road, Santa Rosa, California. At the Special Meeting, you will be asked to
approve the merger and the merger agreement.
RECOMMENDATION TO AVE SHAREHOLDERS (PAGE 12)
The AVE Board of Directors believes that the merger is in the best interests of
AVE and its shareholders. The Board unanimously recommends that you vote "FOR"
approval of the merger and the merger agreement.
RECORD DATE (PAGE 11)
You can vote at the Special Meeting only if you owned shares of AVE common stock
at the close of business on December 21, 1998, which was the record date.
VOTE REQUIRED TO APPROVE THE MERGER (PAGE 11)
The merger requires the approval of the holders of a majority of the outstanding
shares of AVE common stock. If you do not return your proxy or vote in person,
it will have the effect of a vote against the merger. Brokers who hold your
shares of AVE common stock as nominees cannot vote those shares unless you
instruct them to, following the procedure they give you.
Medtronic shareholders do not need to vote to approve the merger.
VOTING POWER; VOTING BY MANAGEMENT (PAGE 11)
On the record date, 64,466,327 shares of AVE common stock were outstanding. Of
these, 4,346,773 shares (approximately 6.7% of the shares entitled to vote) were
beneficially owned by directors and executive officers of AVE (not including
options held by such persons). Each share of AVE common stock entitles the
holder to one vote.
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All of AVE's directors and executive officers, who collectively beneficially own
4,346,773 shares (or approximately 6.7%) of AVE's outstanding shares as of the
record date (not including options held by such persons), have executed voting
agreements in which they have agreed to vote the AVE common stock owned by them
in favor of the merger.
REVOKING PROXIES (PAGE 12)
You can revoke a proxy previously given by you by giving written notice to
Boston Equiserve at the address on the proxy card, by filing another proxy, or
by attending the Special Meeting and voting in person.
SUMMARY OF THE MERGER
THE MERGER AGREEMENT (ANNEX A) IS ATTACHED AT THE BACK OF THIS PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT, AS IT IS
THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
In the proposed merger, a subsidiary of Medtronic will merge into AVE, and AVE
will become a wholly-owned subsidiary of Medtronic. You will receive shares of
Medtronic common stock in exchange for your shares of AVE common stock.
EFFECTIVE TIME OF THE MERGER (PAGE 13)
Medtronic and AVE hope to complete the merger shortly after the Special Meeting,
if regulatory approvals and other required matters are completed by that time.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 22)
If the merger is completed, you will receive $54 in Medtronic common stock for
each share of AVE common stock that you own, if the average closing price of
Medtronic stock is between $61.20 and $74.80 during the period described in the
next paragraph.
The exact number of Medtronic shares that you will receive in exchange for each
AVE share will equal $54 divided by the average closing price of Medtronic
common stock during the 15 trading days ending on the second trading day before
the Special Meeting. However, if the average price of Medtronic common stock
during the measurement period is $61.20 or less, each AVE share will convert
into 0.88235 of a Medtronic share, and if the average price is $74.80 or more,
each AVE share will convert into 0.72193 of a Medtronic share.
The maximum conversion ratio of 0.88235 (if the average closing price of
Medtronic common stock is less than $61.20) means that, at the time of the
merger, you may receive less than $54 in Medtronic common stock for each AVE
share you own. Similarly, the minimum conversion ratio of 0.72193 (if the
average closing price is more than $74.80) means that you may receive more than
$54 in Medtronic common stock for each AVE share you own.
Each share of Medtronic common stock that you receive in the merger will also
represent one preferred stock purchase right under Medtronic's Shareholder
Rights Plan.
Medtronic will not issue any fractional shares. Instead, you will receive cash
for any fractional share of Medtronic common stock owed to you, based on the
closing sale price of Medtronic common stock on the date of the merger.
Please do not send in your stock certificates until you receive written
instructions to do so, after the merger.
WHAT HAPPENS TO STOCK OPTIONS (PAGE 24)
Following the merger, each outstanding option to buy AVE common stock that was
granted under one of AVE's stock option plans will become an option to buy
Medtronic common stock. Options will continue to be governed by the terms of the
AVE stock option plans. However, the number of shares of Medtronic common stock
that optionholders can purchase by exercising the options, and the exercise
price, will be adjusted to reflect the conversion ratio in the merger.
OWNERSHIP OF MEDTRONIC STOCK FOLLOWING THE MERGER (PAGE 22)
Following the merger, existing AVE shareholders will own approximately 9 percent
of the outstanding common stock of Medtronic (based upon the number of shares of
Medtronic and
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AVE common stock outstanding on December 21, 1998).
FEDERAL INCOME TAX CONSEQUENCES (PAGE 32)
We expect that neither AVE nor its shareholders will recognize gain or loss for
U.S. federal income tax purposes as a result of the merger, except for any taxes
payable by AVE shareholders on their receipt of cash instead of fractional
Medtronic shares. Each of AVE and Medtronic has received a legal opinion from
its counsel regarding these tax consequences.
TAX MATTERS ARE COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL
DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO CONTACT YOUR OWN TAX
ADVISOR TO UNDERSTAND FULLY HOW THE MERGER WILL AFFECT YOU, INCLUDING HOW ANY
STATE, LOCAL, OR FOREIGN TAX LAWS MAY APPLY TO YOU.
AVE'S REASONS FOR THE MERGER (PAGE 15)
The AVE Board believes that the merger offers you the opportunity to own stock
in a significantly larger and more actively traded business enterprise. The AVE
Board sees an overall strategic fit between AVE and Medtronic in view of their
complementary product lines and businesses. It also believes that the merger
should allow the combined company to better benefit from developments in the
health care industry and, as a result, to accelerate its product development and
technological innovation.
FAIRNESS OPINION OF AVE'S FINANCIAL ADVISOR (PAGE 17)
In deciding to approve the merger, the AVE Board considered the opinion of its
financial advisor, SG Cowen Securities Corporation, that, as of the date of such
opinion, and based upon the assumptions and limitations contained in it, the
Conversion Ratio (as defined below) was fair to AVE's shareholders from a
financial point of view. SG Cowen performed several analyses in connection with
its opinion. The opinion of SG Cowen is attached as Annex B to this Proxy
Statement/Prospectus. YOU SHOULD READ SG COWEN'S ENTIRE OPINION CAREFULLY.
INTERESTS OF AVE'S OFFICERS AND DIRECTORS IN THE MERGER (PAGE 26)
When considering the recommendation by the AVE Board to vote "FOR" the merger,
you should be aware that certain directors and executive officers of AVE have
interests in the merger that are different from, and may conflict with, your
interests. If we complete the merger, Medtronic will continue certain
indemnification arrangements for directors and officers of AVE. Certain
directors and officers of AVE will also receive certain benefits upon completion
of the merger, including accelerated vesting of stock options pursuant to
existing contractual arrangements. Some officers will also have the right to
receive severance benefits if Medtronic terminates their employment under
certain circumstances within a specified period after the merger. The AVE Board
was aware of these interests and considered them in approving the merger.
REGULATORY APPROVALS (PAGE 34)
Medtronic and AVE must both make filings with or obtain approvals from certain
United States and international antitrust authorities before they can complete
the merger. The merger cannot be completed until the companies receive approvals
or until a specified waiting period (typically 30 or more days) has passed after
the date of each filing. The waiting period may be extended by requests for
additional information. On December 8, 1998, Medtronic and AVE each filed the
required notification and report forms with the United States antitrust
agencies.
We cannot predict whether we will obtain all required regulatory approvals for
the merger, or whether any approvals will include conditions that may be
detrimental to Medtronic or AVE.
CONDITIONS TO THE MERGER (PAGE 29)
The merger will be completed only if certain conditions, including the
following, are met or waived:
- the AVE shareholders approve the merger;
- the waiting periods under the HSR Act or foreign merger laws expire or
terminate;
4
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- no court orders prevent the merger or impose material limitations on the
ownership or operation of AVE after the merger;
- AVE and Medtronic both receive letters from their accountants stating that
the merger qualifies for pooling of interests accounting treatment;
- AVE receives an opinion from its tax counsel that the merger will qualify
as a tax-free transaction; and
- the representations and warranties made by Medtronic and AVE continue to
be accurate except for inaccuracies that would not have a material adverse
effect.
TERMINATION OF THE MERGER AGREEMENT (PAGE 30)
Even if the AVE shareholders approve the merger, Medtronic and AVE can agree at
any time to terminate the merger agreement without completing the merger. The
merger agreement can also be terminated if any of the following occurs:
- the merger is not completed by May 31, 1999 (or, if there is additional
regulatory review, October 31, 1999);
- a court or other governmental authority prohibits the merger; or
- the AVE shareholders do not approve the merger.
Medtronic can terminate the merger agreement if the AVE Board approves or
permits a different acquisition proposal, or otherwise changes its
recommendation of the merger.
AVE can also terminate the merger agreement if it authorizes acceptance of a
more favorable acquisition proposal, Medtronic does not match the proposal, and
AVE pays a termination fee to Medtronic.
TERMINATION FEES AND EXPENSES (PAGE 30)
AVE must pay Medtronic a termination fee of $135 million in cash if the merger
agreement is terminated in any of the following circumstances:
- the AVE Board withdraws its recommendation of the merger, recommends or
approves a different acquisition proposal, or does not recommend against a
competing tender offer or exchange offer;
- the AVE Board authorizes AVE to enter into an agreement concerning a more
favorable acquisition proposal and Medtronic does not match the proposal;
or
- the AVE shareholders do not approve the merger (but only if a competing
acquisition proposal has been announced, AVE enters into an agreement with
a third party relating to a competing acquisition proposal within 12
months after the termination of the merger agreement with Medtronic, and
AVE consummates a competing acquisition transaction with the same third
party or its affiliates within 24 months after entering into such
agreement).
STOCK OPTION AGREEMENT (PAGE 28)
Medtronic and AVE have also entered into a stock option agreement, which gives
Medtronic an option to purchase from AVE up to 12,807,795 shares (approximately
19.9%) of AVE's common stock for an exercise price of $54 per share. The option
becomes exercisable only if certain events related to termination of the merger
agreement occur. Medtronic can also, upon certain events related to termination
of the merger agreement, cancel the option in exchange for a cancellation
payment by AVE. The sum of any termination fee and the amount of any option
cancellation payment can never exceed $150 million.
AVE CANNOT SOLICIT OTHER OFFERS (PAGE 25)
AVE has agreed not to encourage, solicit, discuss, or negotiate with anyone
(other than Medtronic) regarding a merger, sale, or license
5
<PAGE>
of a specified portion of AVE's assets or stock, unless AVE receives an
unsolicited superior acquisition proposal and AVE's Board must do so to meet its
fiduciary obligations to the AVE shareholders.
NO APPRAISAL RIGHTS
Under Delaware law, AVE shareholders do not have any right to an appraisal of
the value of their shares in connection with the merger, or to be paid that
value in cash.
ACCOUNTING TREATMENT (PAGE 32)
Medtronic and AVE expect the merger to qualify as a "pooling of interests,"
which means that they will treat the two companies as if they had always been
combined for accounting and financial reporting purposes.
COMPARATIVE PRICES OF MEDTRONIC AND AVE COMMON STOCK (PAGE 35)
Medtronic common stock is listed on the New York Stock Exchange and AVE common
stock is traded on the Nasdaq National Market. On November 27, 1998, the last
trading day before the public announcement of the proposed merger, Medtronic
common stock closed at $70.00 and AVE common stock closed at $32.375. On
December 17, 1998, Medtronic common stock closed at $71.9375 and AVE common
stock closed at $51.125.
Following the merger, AVE common stock will no longer trade on the Nasdaq
National Market or any other exchange.
FLUCTUATIONS IN MARKET PRICE (PAGE 22)
The number of shares of Medtronic common stock that AVE shareholders will
receive in the merger will depend on the market value of Medtronic common stock
during a specific period prior to the Special Meeting. The market value of
Medtronic common stock is likely to change, both before and after the Special
Meeting and the merger. No one can accurately predict what the market value will
be at any particular time.
LISTING OF MEDTRONIC COMMON STOCK
Medtronic will list the shares of its common stock to be issued in the merger on
the New York Stock Exchange.
DIFFERENCES IN RIGHTS OF MEDTRONIC'S AND AVE'S SHAREHOLDERS (PAGE 43)
The rights of AVE shareholders are governed by Delaware law and the Certificate
of Incorporation and Bylaws of AVE. When the merger is completed, AVE
shareholders will become shareholders of Medtronic, and their rights will be
governed by Minnesota law and the Articles of Incorporation and Bylaws of
Medtronic. The rights of AVE shareholders and Medtronic shareholders differ in
certain respects.
Another significant difference between Medtronic common stock and AVE common
stock is that Medtronic has historically paid regular quarterly cash dividends
on Medtronic common stock, and AVE has never paid any cash dividends.
FORWARD-LOOKING STATEMENTS (PAGE 53)
This document (and documents to which we refer you in this document) includes
various forward-looking statements about Medtronic, AVE, and the combined
company that are subject to risks and uncertainties. Forward-looking statements
include information concerning future results of operations of Medtronic, AVE,
and the combined company. Also, statements that use the words "anticipates,"
"believes," "estimates," "expects," "intends," "plans," "should," "will," or
similar expressions are forward-looking statements. Many factors, some of which
are discussed elsewhere in this document and in documents to which we have
referred you, could affect the future financial results of Medtronic, AVE, and
the combined company. These factors could cause actual results to differ
materially from those expressed in forward-looking statements contained in this
document or related documents. These factors include adverse changes in economic
conditions and in the markets served by Medtronic and AVE and a significant
delay in the completion of the merger.
6
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables show summarized historical financial data for each of
Medtronic and AVE. Medtronic's historical financial data has been restated for
its merger with Physio-Control International Corporation ("Physio-Control"),
which occurred on September 30, 1998. The information in the following tables is
based on historical financial information that the companies have included in
their prior SEC filings. You should read all of the summary financial
information shown in the following tables in connection with this historical
financial information. This historical financial information has also been
incorporated into this document by reference. See "Where You Can Find More
Information" on page 51. Medtronic's audited historical financial statements
were audited by PricewaterhouseCoopers LLP, independent accountants, and AVE's
audited historical financial statements were audited by Ernst & Young LLP,
independent accountants.
MEDTRONIC, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, --------------------
----------------------------------------------------- OCT 31, OCT 30,
1994 1995 1996 1997 1998(3) 1997 1998(4)
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $1,498,051 $1,892,420 $2,326,836 $2,609,361 $2,783,371 $1,377,508 $1,434,060
Net earnings......................... 196,410 297,233 436,138 544,584 466,877 294,359 299,435
Basic earnings per share(2).......... 0.42 0.64 0.90 1.12 0.98 0.62 0.62
Earnings per share assuming
dilution(2)........................ 0.42 0.62 0.89 1.10 0.96 0.61 0.61
Total assets......................... 1,706,297 2,040,276 2,638,537 2,509,308 2,887,387 2,714,411 3,834,575
Long-term debt....................... 20,232 50,696 40,046 36,116 32,758 36,647 19,534
Cash dividends per share(2).......... 0.08 0.10 0.13 0.19 0.22 0.11 0.13
</TABLE>
ARTERIAL VASCULAR ENGINEERING, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, --------------------
----------------------------------------------------- SEPT 30, SEPT 30,
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................ $ 2,897 $ 17,141 $ 55,228 $ 79,420 $ 387,645 $ 26,263 $ 161,268
Net earnings............................. (538) 6,640 20,440 21,750 115,120 5,710 53,177
Basic earnings per share................. (0.02) 0.18 0.44 0.37 1.86 0.10 0.84
Earnings per share assuming dilution..... (0.02) 0.13 0.36 0.34 1.76 0.09 0.80
Total assets............................. 3,086 13,089 122,157 147,979 387,469 165,934 437,927
Long-term debt........................... 0 0 0 0 0 0 0
Cash dividends per share................. 0 0 0 0 0 0 0
</TABLE>
- ------------------------------
(1) Prior to the merger of Medtronic and Physio-Control, Physio-Control reported
its financial results on the basis of a fiscal year ending December 31,
while Medtronic reports its financial results on the basis of a fiscal year
ending April 30. The combined balance sheets of Medtronic at April 30
present the historical financial position of Medtronic at April 30 combined
with the historical financial position of Physio-Control at March 31. The
combined results of operations for the fiscal years ended April 30 represent
the historical results of operations of Medtronic for the fiscal years ended
April 30 combined with the historical results of operations of
Physio-Control for the 12 months ended March 31. The combined balance sheet
of Medtronic at October 31, 1997 presents the historical financial position
of Medtronic at that date combined with the historical financial position of
Physio-Control at September 30, 1997. The combined results of operations for
the six months ended October 31, 1997 represent the historical results of
operations of Medtronic for the six months ended on that date combined with
the historical results of operations of Physio-Control for the six months
ended September 30, 1997.
7
<PAGE>
(2) In each of September 1994, September 1995, and September 1997, Medtronic
effected a two-for-one common stock split, paid in the form of a 100% stock
dividend. All references to earnings per share and cash dividends per share
have been restated to reflect these stock splits.
(3) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $205.3 million pre-tax nonrecurring charges
recorded in the third quarter of fiscal 1998.
(4) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $21.1 million pre-tax transaction-related
charges from the merger with Physio-Control.
8
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables show, for Medtronic and AVE, summarized historical
information and summarized pro forma information reflecting the merger. The pro
forma information reflects the "pooling of interests" method of accounting. The
pro forma information, while helpful in showing the financial characteristics of
the combined company under one set of assumptions, does not attempt to predict
or suggest future operating results or financial position. It also does not
necessarily reflect what the historical results of the combined company would
have been if the two companies had been combined earlier. See "Where You Can
Find More Information" on page 51. For further pro forma financial information
regarding this and other pending transactions, see "Unaudited Pro Forma
Condensed Combined Financial Statements" on page 38.
<TABLE>
<CAPTION>
BASIC DILUTED
EARNINGS EARNINGS
FROM FROM
BOOK CONTINUING CONTINUING CASH
VALUE OPERATIONS OPERATIONS DIVIDENDS
--------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
MEDTRONIC HISTORICAL PER SHARE DATA(1):
At and for the 6 months ended October 30, 1998(2).................... $ 5.95 $ 0.62 $ 0.61 $ 0.13
At and for the fiscal year ended April 30, 1998(3)................... 4.41 0.98 0.96 0.22
For the fiscal year ended April 30, 1997............................. * 1.12 1.10 0.19
For the fiscal year ended April 30, 1996............................. * 0.90 0.89 0.13
AVE HISTORICAL PER SHARE DATA:
At and for the 3 months ended September 30, 1998..................... 5.26 0.84 0.80 0
For the fiscal year ended June 30, 1998.............................. 4.33 1.86 1.76 0
At and for the 12 months ended March 31, 1998........................ 3.38 0.99 0.93 0
For the fiscal year ended June 30, 1997.............................. * 0.37 0.34 0
For the 12 months ended March 31, 1997............................... * 0.43 0.39 0
For the fiscal year ended June 30, 1996.............................. * 0.44 0.36 0
For the 12 months ended March 31, 1996............................... * 0.36 0.28 0
MEDTRONIC(1) AND AVE PRO FORMA COMBINED DATA:
MEDTRONIC PER SHARE PRO FORMA COMBINED DATA(1):
At and for the 6 months ended October 30, 1998(2)(4)................. 6.04 0.78 0.77 0.12
At and for the fiscal year ended April 30, 1998(3)(5)................ 4.52 1.01 0.99 0.20
For the fiscal year ended April 30, 1997(6).......................... * 1.08 1.05 0.17
For the fiscal year ended April 30, 1996(7).......................... * 0.88 0.85 0.12
AVE PER SHARE EQUIVALENT(8) PRO FORMA COMBINED DATA:
At and for the 6 months ended October 30, 1998(2)(4)................. 4.54 0.59 0.58 0.09
At and for the fiscal year ended April 30, 1998(3)(5)................ 3.32 0.76 0.74 0.15
For the fiscal year ended April 30, 1997(6).......................... * 0.81 0.79 0.13
For the fiscal year ended April 30, 1996(7).......................... * 0.66 0.64 0.09
</TABLE>
- ------------------------------
(1) Medtronic's historical financial data has been restated for its merger with
Physio-Control, which occurred on September 30, 1998. Prior to that merger,
Physio-Control reported its financial results on the basis of a fiscal year
ending December 31, while Medtronic reports its financial results on the
basis of a fiscal year ending April 30. The combined balance sheets of
Medtronic at April 30 present the historical financial position of Medtronic
at April 30 combined with the historical financial position of
Physio-Control at March 31. The combined results of operations for the
fiscal years ended April 30 represent the historical results of operations
of Medtronic for the fiscal years ended April 30 combined with the
historical results of operations of Physio-Control for the 12 months ended
March 31.
(2) Basic earnings from continuing operations and diluted earnings from
continuing operations reflect the impact of $21.1 million pre-tax
transaction-related charges from the merger with Physio-Control.
9
<PAGE>
(3) Basic earnings from continuing operations and diluted earnings from
continuing operations reflect the impact of $205.3 million pre-tax
nonrecurring charges recorded in the third quarter of fiscal 1998.
(4) The combined pro forma data combine the financial information of Medtronic
at and for the six months ended October 30, 1998 with the financial
information of AVE at and for the six months ended September 30, 1998.
(5) The combined pro forma data combine the financial information of Medtronic
at and for the year ended April 30, 1998 with the financial information of
AVE at and for the 12-month period ended March 31, 1998.
(6) The combined pro forma data combine the financial information of Medtronic
for the year ended April 30, 1997 with the financial information of AVE for
the 12-month period ended March 31, 1997.
(7) The combined pro forma data combine the financial information of Medtronic
for the year ended April 30, 1996 with the financial information of AVE for
the 12-month period ended March 31, 1996.
(8) The AVE per share equivalent pro forma combined information represents the
Medtronic per share pro forma combined net income and book value multiplied
by 0.75065, which is the assumed Conversion Ratio (based on an assumed
Medtronic average stock price of $71.9375, which was the closing price of
Medtronic common stock on December 17, 1998) solely for purposes of this
illustration.
* Disclosure is not required.
10
<PAGE>
SPECIAL MEETING
Medtronic and AVE are sending this Proxy Statement/Prospectus to the
shareholders of AVE in connection with the solicitation by the Board of
Directors of AVE of proxies to be voted at the Special Meeting. This Proxy
Statement/Prospectus is first being mailed to shareholders of AVE on or about
December 24, 1998.
DATE, PLACE, AND TIME
The Special Meeting will be held at 10:00 a.m. on January 28, 1999, local
time, at Luther Burbank Center for the Arts, East Auditorium, 50 Mark West
Springs Road, Santa Rosa, California.
PURPOSE
At the Special Meeting, AVE shareholders will be asked to vote on a proposal
to approve the Agreement and Plan of Merger dated as of November 29, 1998 (the
"Merger Agreement") attached to this Proxy Statement/Prospectus as Annex A. That
document provides for the merger (the "Merger") of MAV Merger Corp., a
wholly-owned subsidiary of Medtronic ("Merger Subsidiary"), with and into AVE,
as a result of which AVE will become a wholly-owned subsidiary of Medtronic.
Other terms and provisions related to the Merger are contained in the Merger
Agreement.
AVE shareholders may also be asked to vote upon a proposal to adjourn or
postpone the Special Meeting, in order to (among other things) allow additional
time for the companies to solicit additional votes to approve the Merger. If any
matters other than approval of the Merger are properly presented for
consideration at the Special Meeting, the persons named by shareholders in the
enclosed form of proxy will have discretion, as proxies, to vote on those
matters.
Under Delaware law, shareholders can consider at the Special Meeting only
the matters contained in the notice for the Special Meeting.
RECORD DATE; VOTING RIGHTS; QUORUM; REQUIRED VOTE
The close of business on December 21, 1998 is the record date for
determining the holders of AVE common stock who are entitled to receive notice
of and to vote at the Special Meeting or at any adjournment or postponement of
the Special Meeting.
AVE has only one class of capital stock outstanding, which is common stock,
par value $.001 per share. Each holder of AVE common stock outstanding on the
record date is entitled to one vote for each share held. The holders of a
majority of the outstanding shares of AVE common stock entitled to vote must be
present at the Special Meeting, in person or by proxy, to constitute a quorum to
transact business.
The holders of a majority of the outstanding shares of AVE common stock as
of the record date must vote in favor of the Merger in order to approve the
Merger. On the record date, 64,466,327 shares of AVE common stock were
outstanding, held by approximately 345 holders of record. Of such shares,
4,346,773 shares (approximately 6.7% of the outstanding shares of AVE common
stock) were beneficially owned by directors and executive officers of AVE (not
including options held by such persons) who have executed voting agreements
under which they agreed to vote shares of AVE common stock beneficially owned by
them in favor of the Merger.
Abstentions will be treated as shares present in determining whether AVE has
a quorum for the Special Meeting, but abstentions will have the same effect as a
vote against approval of the Merger. If a broker or other record holder or
nominee indicates on a proxy that it does not have direction or authority to
vote certain shares, those shares will be considered present at the Special
Meeting for purposes of determining a quorum but will have the same effect as a
vote against approval of the Merger. See "The Merger--Voting Agreements."
The Board of Directors of AVE 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.
11
<PAGE>
See "The Merger--Background of the Merger." Minnesota law does not require that
Medtronic shareholders approve the Merger. Medtronic, as the sole shareholder of
Merger Subsidiary, has approved the Merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF AVE
THE BOARD OF DIRECTORS OF AVE RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE MERGER AND ADOPTION OF THE MERGER AGREEMENT. See "The
Merger--Interests of AVE's Directors and Officers in the Merger" for a
discussion of conflicts of interest that certain directors and members of
management may have in connection with the Merger.
PROXIES; REVOCATION
A proxy card is enclosed for use by AVE shareholders. The Board of Directors
of AVE requests that shareholders SIGN AND RETURN THE PROXY CARD IN THE
ACCOMPANYING ENVELOPE. No postage is required if mailed within the United
States. IF YOU HAVE QUESTIONS OR REQUESTS FOR ASSISTANCE IN COMPLETING AND
SUBMITTING PROXY CARDS, PLEASE CONTACT CORPORATE INVESTOR COMMUNICATIONS, A FIRM
THAT PROVIDES PROFESSIONAL PROXY SOLICITING SERVICES THAT AVE HAS RETAINED, AT
THE FOLLOWING ADDRESS AND TELEPHONE NUMBER:
Corporate Investor Communications
111 Commerce Road
Carlstadt, NJ 07072
Telephone: (888) 296-3503
All properly executed proxies that are not revoked will be voted at the
Special Meeting as instructed on those proxies. Proxies containing no
instructions will be voted in favor of the Merger. A shareholder who executes
and returns 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 AVE, or by attending the Special Meeting and
voting in person.
SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
SOLICITATION OF PROXIES
In addition to soliciting proxies by mail, AVE's directors, officers, and
employees may, if they do not receive extra compensation for doing so, solicit
proxies personally or by telephone or fax. In addition, AVE has retained
Corporate Investor Communications to assist in soliciting proxies from brokers,
bank nominees, institutional holders, and other AVE shareholders and to serve as
information agent in connection with the Merger. Corporate Investor
Communications will receive from AVE reasonable and customary compensation for
its services and reimbursement of reasonable out-of-pocket expenses. AVE 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 AVE common stock held of record by
those persons. AVE 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 Securities and Exchange Commission (the "SEC").
12
<PAGE>
THE MERGER
THE FOLLOWING SUMMARY OF THE MERGER AND CERTAIN TERMS OF THE MERGER
AGREEMENT AND RELATED MATTERS IS NOT COMPLETE AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE MERGER AGREEMENT, WHICH IS ATTACHED AS ANNEX A AND IS
INCORPORATED IN THIS DOCUMENT BY REFERENCE.
GENERAL
Medtronic, Merger Subsidiary, and AVE have entered into the Merger
Agreement, which provides that Merger Subsidiary will be merged with and into
AVE, and AVE will become a wholly-owned subsidiary of Medtronic. In the Merger,
AVE will change its name to "Medtronic Arterial Vascular Engineering, Inc." Each
outstanding share of AVE common stock will be converted at the Effective Time
(as defined below) into the right to receive $54 in shares of Medtronic common
stock, if the Average Stock Price (as defined below) of Medtronic common stock
is between $61.20 and $74.80 for a specified period, as described in further
detail below. For a more detailed description of how the AVE common stock
converts into Medtronic common stock in the Merger, see "The Merger--Conversion
of AVE 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
at the Special Meeting and after the waiting periods under the HSR Act and any
applicable foreign merger laws expire or terminate. See "The Merger--Conditions
to the Merger; Waiver."
BACKGROUND OF THE MERGER
The terms of the Merger Agreement are the result of arm's-length
negotiations between representatives of Medtronic and AVE. The following is a
brief discussion of the background of these negotiations, the Merger, and
related transactions.
On November 5, 1998, Scott Solano, Chief Executive Officer and President of
AVE, received a telephone call from Glen Nelson, M.D., Vice Chairman of
Medtronic, who indicated an interest in meeting to discuss a potential business
combination transaction. Mr. Solano agreed to explore the issue. On November 10,
1998, Mr. Solano met with William George, Medtronic's Chairman and Chief
Executive Officer, Dr. Nelson, and Michael Ellwein, Medtronic's Vice President
and Chief Development Officer, at a health care conference in Dallas, Texas.
They first discussed the general state of the vascular marketplace and
consolidation in the medical device industry and then the possible structure and
financial terms of a business combination, particular patent matters affecting
both AVE and Medtronic, and other issues involved with a business combination
transaction. Both parties agreed to have more detailed discussions about the
matter.
On November 12, 1998, the AVE Board of Directors held a regularly scheduled
meeting at which Mr. Solano informed the members of the AVE Board of his meeting
with Medtronic. The AVE Board discussed a framework for discussions regarding a
possible combination of AVE and Medtronic, including that any transaction be
tax-free to AVE shareholders, that any definitive acquisition agreement have a
limited number of closing conditions, and that any negotiations be conducted
rapidly and efficiently to assure minimal impact on the continued operations of
AVE or other potential business opportunities if an agreement were not reached.
The AVE Board authorized Mr. Solano to continue discussions with Medtronic
regarding the potential business combination.
On November 13, 1998, AVE and Medtronic executed a confidentiality agreement
and began to exchange non-public information. In addition, representatives of SG
Cowen Securities Corporation ("SG
13
<PAGE>
Cowen"), AVE's financial advisor, discussed the proposed transaction with
management members of the AVE Board.
On November 17, 1998, Medtronic's legal counsel delivered to AVE an initial
draft of the Merger Agreement, the Stock Option Agreement, and related
transaction agreements.
On November 18 and 19, 1998, members of Medtronic's senior management and
representatives of its legal and financial advisors met in Santa Rosa,
California, to hear presentations by members of AVE's senior management about
AVE's product opportunities, market positioning, patent matters, and other
business matters and to ask questions about such matters. In addition, Medtronic
representatives began a due diligence investigation of AVE's financial
information, legal relationships, and other due diligence materials. Mr. Solano
and Mr. George also further discussed their views regarding the strategic fit
between the two companies and the importance of the role of key members of AVE's
management in the combined company in order to optimize the expected benefits of
the proposed merger.
On November 20, 1998, internal and outside counsel for both companies spoke
by telephone to discuss various issues regarding the draft Merger Agreement.
Related telephone conversations among the parties and their advisors continued
regularly until final drafts of the Merger Agreement and the related transaction
documents were prepared for execution.
On November 20, 1998, the AVE Board held an informal meeting, which included
representatives of AVE's legal and financial advisors. Representatives of AVE's
financial advisor held further discussions with the AVE Board regarding the
potential business combination. Mr. Solano led a detailed discussion of the
status of the proposed transaction, the strategic fit between the two companies,
the merits and risks of the proposed transaction, and the potential financial
terms of the proposed transaction.
On November 23, 1998, Mr. Solano and Mr. Miller met with Dr. Nelson to
discuss the financial terms of the proposed business combination and certain
other issues relating to the transaction. That evening, Mr. Solano and Mr.
Miller informally advised the other members of the AVE Board, as well as
representatives of AVE's financial advisor, regarding the status of the
negotiations.
On November 24, 1998, members of AVE's senior management and representatives
of its legal and financial advisors met at Medtronic's facility to hear
presentations by members of Medtronic's senior management about Medtronic's
product opportunities, recent and pending acquisitions, ongoing litigation, and
other business matters and to ask questions about such matters. In addition,
throughout that day, Mr. Solano, Mr. Miller, and representatives of AVE's
financial advisor continued discussions with Dr. Nelson, Mr. Ellwein, and
representatives of Medtronic's financial advisor regarding the financial terms
of the proposed business combination.
On November 24, 1998, the Board of Directors of Medtronic approved the
acquisition of AVE, subject to final negotiations by senior management, and
authorized Medtronic's officers to undertake all acts necessary or desirable to
effect the Merger.
Early in the evening of November 24, 1998, Mr. Solano stated that he would
discuss with the AVE Board the financial terms ultimately reflected in the
Merger Agreement.
From November 24 through 29, 1998, AVE, Medtronic, and their respective
legal counsel negotiated the terms of the Merger Agreement and related
transaction documents.
On November 29, 1998, the AVE Board held a special meeting. Representatives
of SG Cowen discussed the financial analysis of the Conversion Ratio and
delivered its opinion to the AVE Board that, as of such date, the Conversion
Ratio was fair, from a financial point of view, to AVE's shareholders. See Annex
B for a copy of such opinion, which sets forth the assumptions made and matters
considered in, and the limitations on, the review undertaken by SG Cowen. See
also "--Opinion of AVE's Financial Advisor" for a discussion of the
methodologies used by SG Cowen in its analysis. AVE's legal advisors then
reviewed with the AVE Board the terms of the final drafts of the Merger
Agreement, the Stock Option Agreement, and the related transaction documents.
The AVE Board discussed and considered the materials presented at the meeting,
including final drafts of the agreements and SG Cowen's analysis of the
Conversion Ratio.
14
<PAGE>
Members of Medtronic management were also at AVE's Santa Rosa facilities at the
time of the AVE Board meeting, and they continued to negotiate certain
outstanding issues with members of AVE management. Following discussion of the
issues and materials presented, the AVE Board unanimously determined that the
Merger was fair to, and in the best interests of, AVE and its shareholders. The
AVE Board also approved the Merger Agreement, the Stock Option Agreement, and
related transaction documents and recommended that AVE's shareholders approve
the Merger Agreement and the Merger.
On November 29, 1998, following the conclusion of the meeting of the AVE
Board, representatives of Medtronic and AVE executed the Merger Agreement and
Stock Option Agreement. At the same time, the appropriate parties executed
certain related voting agreements and affiliates' letters of executive officers
and directors of AVE, and Mr. Solano and Mr. Miller executed noncompetition
agreements with Medtronic (which become effective only upon completion of the
Merger). On November 30, 1998, prior to the opening of trading on the New York
Stock Exchange ("NYSE") and the Nasdaq National Market, Medtronic and AVE issued
a joint press release announcing the execution of the Merger Agreement.
AVE'S REASONS FOR THE MERGER; RECOMMENDATION OF THE AVE BOARD OF DIRECTORS
At the meeting of the AVE Board on November 29, 1998, the AVE Board
unanimously approved the Merger and the Merger Agreement, the Stock Option
Agreement, and the other agreements related to the Merger. In reaching its
determination, the AVE Board considered the following material factors:
- The opportunity the Merger affords the combined company to increase its
presence in the interventional cardiovascular market, which should enable
it to offer its customers a broader and more varied array of products and
should also help to create an extensive intellectual property portfolio in
the interventional products area;
- The expectation that the combined company would be better positioned than
either company on its own could be, to benefit from technological and
other developments in the health care industry, which the AVE Board
believes should result in the acceleration of product development and
technological innovation;
- The overall strategic fit between AVE and Medtronic in view of their
respective product lines and the complementary businesses of AVE in
interventional cardiology and Medtronic in the cardiac rhythm management,
cardiac surgery, and neurological spinal surgery fields, which should
result in or improve the combined company's ability to provide treatment
on all aspects of cardiovascular diseases, to provide a wide array of
cardiovascular and neurological therapies, and to meet the needs of
physicians in catherization labs;
- The advantages of combining two highly capable management teams, each with
established track records. AVE's Board expects the health care industry to
continue to be characterized by substantial uncertainty and the likelihood
of continuing consolidation and believes that, by combining the expertise
of AVE's and Medtronic's managements, the combined company should be
better able to respond to these changes and to take advantage of the
opportunities that these changes may create;
- The potential revenue synergies offered by the Merger through the
broadening of existing product lines of both companies;
- The potential cost synergies offered by the Merger through consolidation
and integration of certain distribution, sales, and administrative
operations and functions; and
- The changing health care environment and the increasing emphasis on cost
containment, including the emergence of large managed care buying groups
and hospital consolidations, which suggests to the AVE Board that a
certain critical mass is required to compete effectively in the market and
to absorb the pressures of the managed care structure. The AVE Board
believes the Merger is integral to achieving the necessary critical mass.
In addition to the factors set forth above, the AVE Board reviewed and
considered a wide variety of information relevant to the Merger, including:
15
<PAGE>
- The business, earnings, operations, financial condition, and prospects of
Medtronic and AVE, both individually and on a combined basis, including,
but not limited to, AVE's and Medtronic's respective recent and historic
stock and earnings performance;
- The amount and form of the consideration to be received by AVE
shareholders in the Merger, the historical trading ranges of AVE common
stock and Medtronic common stock, and the estimated future financial
results of AVE and Medtronic;
- AVE's strategic alternatives, including remaining a separate company and
growing internally or through acquisitions, remaining a separate company
for the near term while continuing to explore a future acquisition of AVE,
or engaging in a merger of equals or joint venture transaction with
another party, including certain risks involved in remaining a separate
company such as the risks of being unable to meet or exceed projections
and anticipated growth rates due to increasing competitive pressures in
the markets for its products;
- The opinion of SG Cowen rendered at the November 29, 1998 meeting of the
AVE Board that, based upon and subject to the various assumptions and
conditions set forth in that opinion, the Conversion Ratio was fair, from
a financial point of view, to holders of AVE common stock as of November
29, 1998;
- The expectation that the Merger will not result in the payment of federal
income tax for AVE and its shareholders and that the Merger will be
accounted for as a pooling of interests;
- The opportunity for AVE shareholders to receive a premium over the market
price for their shares immediately prior to the announcement of the Merger
(with the consideration to be received representing a premium of
approximately 67% over the closing price of $32.375 per share of AVE
common stock on the last trading day prior to the announcement of the
Merger, if the average stock price per share of Medtronic common stock is
between $61.20 and $74.80 on the date of the Merger);
- The opportunity for AVE shareholders to continue equity participation in a
larger, more diversified medical products enterprise and to share in the
long-term growth of Medtronic following the Merger, if achieved;
- The opportunity for AVE shareholders to receive future cash dividends with
respect to their shareholdings;
- The belief that the terms of the Merger Agreement, including the parties'
representations, warranties, and covenants, and the conditions to their
respective obligations, are reasonable; and
- The impact of the Merger on AVE's customers and employees.
The AVE Board also considered certain potentially negative factors in its
deliberations concerning the Merger, including, without limitation, the
following:
- The possibility that the Merger would not be consummated following the
execution of the Merger Agreement;
- The risk that the combined company might not realize the anticipated cost
savings and revenue synergies of the Merger;
- The risk that the combined company would be unable to retain key
employees;
- The risk that the other benefits sought to be achieved by the Merger may
not be achieved; and
- The risk of intellectual property or other litigation associated with the
activities of Medtronic.
The AVE Board concluded that the benefits of the transaction to AVE and its
shareholders outweighed the risks associated with the foregoing factors.
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The above discussion of the information and factors considered by the AVE
Board is not all-inclusive but is believed to include all material factors
considered by the AVE Board. In view of the variety of factors considered by the
AVE Board, the AVE Board did not find it practicable to quantify or otherwise
attempt to assign relative weights to the specific factors considered in making
its determination. In addition, individual members of the AVE Board may have
given different weights to different factors. Consequently, the AVE Board did
not quantify the assumptions and results of its analysis in reaching its
determination that the Merger is fair to, and in the best interests of, AVE and
its shareholders.
THE AVE BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF AVE AND
ITS SHAREHOLDERS. THE AVE BOARD, THEREFORE, UNANIMOUSLY RECOMMENDS THAT ITS
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER.
See "The Merger--Background of the Merger," "--Opinion of AVE's Financial
Advisor," "--Certain Federal Income Tax Considerations," and "Comparative Stock
Prices and Dividends."
MEDTRONIC'S REASONS FOR THE MERGER
Medtronic believes that the acquisition of AVE will considerably broaden and
strengthen Medtronic's market position in the interventional cardiology field
and will complement Medtronic's positions in the cardiac rhythm management,
cardiac surgery, and neurological and spinal surgery fields. Medtronic also
believes that the two companies' businesses are very complementary and offer
significant customer synergies without significant overlap or duplication in
product lines, which will enhance Medtronic's ability to fulfill its mission of
restoring patients to full and active lives.
OPINION OF AVE'S FINANCIAL ADVISOR
AVE retained SG Cowen to serve as financial advisor to the AVE Board in
connection with any acquisition proposals that AVE might receive. As part of
this assignment, SG Cowen was asked to render an opinion to the AVE Board as to
the fairness, from a financial point of view, to the holders of AVE common stock
of the Conversion Ratio.
On November 29, 1998, SG Cowen delivered certain of its written analyses and
its oral opinion to the AVE Board, subsequently confirmed in writing as of the
same date, to the effect that, subject to the various assumptions set forth
therein, as of November 29, 1998, the Conversion Ratio was fair, from a
financial point of view, to the holders of AVE common stock. THE FULL TEXT OF
THE WRITTEN OPINION OF SG COWEN, DATED NOVEMBER 29, 1998, IS ATTACHED HERETO AS
ANNEX B AND IS INCORPORATED BY REFERENCE. HOLDERS OF AVE COMMON STOCK ARE URGED
TO READ THE OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY SG COWEN. THE
SUMMARY OF THE WRITTEN OPINION OF SG COWEN SET FORTH HEREIN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. SG COWEN'S ANALYSES AND
OPINION WERE PREPARED FOR AND ADDRESSED TO THE AVE BOARD AND ARE DIRECTED ONLY
TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONVERSION RATIO AND DO
NOT CONSTITUTE AN OPINION AS TO THE MERITS OF THE MERGER OR A RECOMMENDATION TO
ANY SHAREHOLDER AS TO HOW TO VOTE ON THE PROPOSED MERGER. THE CONVERSION RATIO
WAS DETERMINED THROUGH NEGOTIATIONS BETWEEN AVE AND MEDTRONIC AND NOT PURSUANT
TO RECOMMENDATIONS OF SG COWEN.
In arriving at its opinion, SG Cowen reviewed and considered such financial
and other matters as it deemed relevant, including, among other things:
- the Merger Agreement dated November 29, 1998, provided to SG Cowen by AVE;
- certain publicly available information for AVE, including each of the
annual reports of AVE filed on Form 10-K for the fiscal years ended June
30, 1996, 1997 and 1998 and the quarterly report on Form 10-Q for the
fiscal quarter ended September 30, 1998, and certain other relevant
financial and operating data for AVE furnished to SG Cowen by management
of AVE;
- certain publicly available information for Medtronic, including each of
the annual reports of Medtronic filed on Form 10-K for the fiscal years
ended April 30, 1996, 1997 and 1998, the
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quarterly report on Form 10-Q for the fiscal quarter ended July 31, 1998,
and the unaudited financial statements for the fiscal quarter ended
October 31, 1998, and certain other relevant financial and operating data
for Medtronic furnished to SG Cowen by management of Medtronic;
- discussions SG Cowen had with management and senior personnel of each of
AVE and Medtronic concerning the historical and current business
operations, financial conditions, and prospects of AVE and Medtronic and
such other matters SG Cowen deemed relevant;
- the reported price and trading histories of the shares of AVE common stock
and Medtronic common stock as compared to the reported price and trading
histories of certain publicly traded companies SG Cowen deemed relevant;
- First Call consensus earnings per share estimates of financial
institutions (the "First Call Estimates") for AVE and Medtronic,
respectively, and financial projections provided in currently available
Wall Street analyst reports (the "Analyst Projections") for AVE and
Medtronic, respectively, including, among other things, the capital
structure, sales, net income, cash flow, capital requirements, and other
data of AVE and Medtronic SG Cowen deemed relevant;
- discussions with management and senior personnel of AVE and Medtronic
concerning the First Call Estimates and Analyst Projections;
- based on the Analyst Projections, the potential pro forma financial
effects of the Merger;
- certain aspects of the respective financial conditions of AVE and
Medtronic as compared to such aspects of the financial conditions of
certain other companies SG Cowen deemed relevant;
- certain financial terms of the Merger as compared to the financial terms
of selected other business combinations SG Cowen deemed relevant; and
- such other information, financial studies, analyses, and investigations
and such other factors that SG Cowen deemed relevant for the purposes of
its opinion.
In conducting its review and arriving at its opinion, SG Cowen, with the AVE
Board's consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information provided to SG
Cowen by AVE and Medtronic or which was publicly available, and SG Cowen did not
undertake any responsibility for the accuracy, completeness, or reasonableness
of, and did not independently verify, such information. In addition, SG Cowen
did not assume any obligation to conduct any physical inspection of the
properties or facilities of AVE or Medtronic. SG Cowen further relied upon the
assurance of management of AVE that they are unaware of any facts that would
make the information provided to SG Cowen by AVE or Medtronic or which was
publicly available (including, without limitation, the First Call Estimates and
Analyst Projections (including reports of SG Cowen research analysts))
incomplete or misleading in any respect. SG Cowen, with the AVE Board's consent,
assumed that the First Call Estimates and Analyst Projections (including reports
of SG Cowen research analysts) reviewed by SG Cowen provided a reasonable basis
for its opinion and indicated reasonable estimates of the future performance of
AVE and Medtronic, and SG Cowen relied upon such estimates and projections. SG
Cowen did not make or obtain any independent evaluations, valuations, or
appraisals of the assets or liabilities of AVE or Medtronic, nor was SG Cowen
furnished with such materials. With respect to all legal matters relating to AVE
and Medtronic, SG Cowen relied on the advice of legal counsel to AVE. AVE
informed SG Cowen of its expectation, and SG Cowen assumed, that the Merger (i)
will be recorded as a pooling-of-interests under generally accepted accounting
principles and (ii) will be treated as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
SG Cowen's opinion is necessarily based upon economic and market conditions
and other circumstances as they existed and could be evaluated by SG Cowen on
the date of its opinion. It should be understood that, although subsequent
developments may affect SG Cowen's opinion, SG Cowen does not
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have any obligation to update, revise, or reaffirm its opinion, and SG Cowen
expressly disclaims any responsibility to do so. Without limiting the generality
of the foregoing, SG Cowen is not opining as to the effect of the consummation
of, or failure to consummate, the acquisition of Sofamor Danek Group, Inc. by
Medtronic. Additionally, SG Cowen was not authorized or requested to, and did
not, solicit alternative offers for AVE or its assets.
SG Cowen's opinion does not constitute a recommendation to any shareholder
as to how such shareholder should vote with respect to the Merger or to take any
other action in connection with the Merger or otherwise. SG Cowen has not been
requested to opine as to, and SG Cowen's opinion does not in any manner address,
AVE's underlying business decision to effect the Merger. SG Cowen does not
express any opinion as to what the value of Medtronic common stock actually will
be when issued to AVE's shareholders pursuant to the Merger. Furthermore, SG
Cowen expresses no view as to the price or trading range for shares of AVE
common stock or Medtronic common stock following consummation of the Merger or
otherwise.
For purposes of rendering its opinion, SG Cowen assumed, in all respects
material to its analysis, that the representations and warranties of each party
contained in the Merger Agreement are true and correct, that each party would
perform all of the covenants and agreements required to be performed by it under
the Merger Agreement and that all conditions to the consummation of the Merger
would be satisfied without waiver thereof. SG Cowen also assumed that all
governmental, regulatory, and other consents and approvals contemplated by the
Merger Agreement would be obtained and that in the course of obtaining any of
those consents no restrictions would be imposed or waivers made that would have
an adverse effect on the contemplated benefits of the Merger.
The following is a summary of the principal financial analyses performed by
SG Cowen to arrive at its opinion. SG Cowen performed certain procedures,
including each of the financial analyses described below, and reviewed with the
management of AVE the assumptions on which such analyses were based and other
factors, including the historical and projected financial results of AVE and
Medtronic. No limitations were imposed by the AVE Board with respect to the
investigations made or procedures followed by SG Cowen in rendering its opinion.
HISTORICAL EXCHANGE RATIO ANALYSIS. SG Cowen analyzed the ratios of the
closing prices of AVE common stock to those of Medtronic common stock (the
"Historical Exchange Ratio") over certain periods ending November 25, 1998. Such
periods included the latest 12 months, latest six months, latest three months,
and the latest one month. Such analysis indicated that the mean Historical
Exchange Ratio for each of such periods was 0.635, 0.603, 0.597, and 0.470,
respectively, and that the Historical Exchange Ratio implied by the closing
stock prices for AVE common stock and Medtronic common stock on November 25,
1998 was 0.448. Such analysis also indicated that the high and low Historical
Exchange Ratios over the last 12 months were 0.840 and 0.433, respectively. SG
Cowen noted that the exchange ratio implied by Medtronic's offer, based on the
closing price for Medtronic common stock on November 25, 1998, is 0.776.
ANALYSIS OF CERTAIN TRANSACTIONS. SG Cowen reviewed the financial terms, to
the extent publicly available, of 12 selected transactions (collectively, the
"Selected Transactions") involving the acquisition of companies in the
cardiology industry with equity value or Enterprise Value (as defined below)
greater than $200 million, which were announced or completed since June 28,
1994. The Selected Transactions consisted of (listed as acquiror/target):
AVE/C.R. Bard - Coronary Cath Lab Business; Medtronic/Physio-Control
International Corporation; Boston Scientific Corporation/Schneider Worldwide;
Boston Scientific Corporation/Target Therapeutics; Genzyme Corporation/Deknatel
Snowden Pencer, Inc.; Medtronic/ InStent, Inc.; St. Jude Medical, Inc./Daig
Corporation; Johnson & Johnson/Cordis Corp.; Boston Scientific
Corporation/Meadox Medicals, Inc.; Boston Scientific Corporation/Heart
Technology, Inc.; Boston Scientific Corporation/SCIMED Life Systems, Inc.; and
St. Jude Medical, Inc./Siemens - Pacesetter / Elema Cardiac Systems.
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SG Cowen reviewed the market capitalization of common stock plus total debt
less cash and equivalents ("Enterprise Value") paid in the Selected Transactions
as a multiple of latest reported 12 month ("LTM") revenues and also examined the
multiples of equity value paid in the Selected Transactions to book value,
tangible assets and LTM earnings. In addition, SG Cowen reviewed the premium of
the offer price over the trading prices one trading day and four weeks (that is,
20 trading days) prior to the announcement date of each Selected Transaction.
Such analyses indicated that, (i) on the basis of the Enterprise Value paid,
the Selected Transactions had mean and median valuations of 5.82x and 3.97x LTM
revenues, respectively; (ii) on the basis of equity value paid, the Selected
Transactions had mean and median valuations of 6.84x and 6.03x book value, 5.59x
and 4.60x tangible assets and 26.7x and 28.6x LTM earnings, respectively; and
(iii) the mean and median premiums by which the offer prices exceeded the
closing stock prices one trading day and four weeks prior to announcement date
of the respective Selected Transactions were 22.5% and 19.6%, respectively, for
one trading day prior and 31.9% and 31.3%, respectively, for four weeks prior.
The corresponding multiple of LTM revenues implied by Medtronic's offer is
5.47x. The corresponding multiples of book value, tangible assets, and LTM
earnings implied by Medtronic's offer is 9.93x, 3.38x, and 25.0x, respectively.
In addition, Medtronic's offer represented premiums of 76.7% and 95.5%,
respectively, over the AVE common stock closing price one trading day and four
weeks prior to November 25, 1998.
Although the Selected Transactions were used for comparison purposes, none
of such transactions is directly comparable to the Merger, and none of the
companies in such transactions (other than AVE and Medtronic) is directly
comparable to AVE or Medtronic. Accordingly, an analysis of the results of such
a comparison is not purely mathematical but instead involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the companies involved and other
factors that could affect the acquisition value of such companies or AVE to
which they are being compared.
ANALYSIS OF CERTAIN PUBLICLY TRADED COMPANIES. To provide contextual data
and comparative market information, SG Cowen compared selected historical
operating and financial data and ratios for AVE to the corresponding financial
data and ratios of certain other companies whose securities are publicly traded
and which SG Cowen believes have operating, market valuation and trading
valuations similar to what might be expected of AVE. These companies included:
Guidant Corporation, Boston Scientific Corporation, St. Jude Medical, Inc., and
Arrow International, Inc. (the "Selected Companies"). Such data and ratios
included the Enterprise Value of such Selected Companies as a multiple of LTM
revenues, and the market capitalization of common stock of such Selected
Companies as a multiple of the book value of common shareholders' equity. SG
Cowen also examined the ratios of the current prices of the Selected Companies
to the estimated 1999 calendar year earnings per share ("EPS") and estimated EPS
for the following (2000) calendar year (in each case, as available from SG Cowen
research analyst reports or, if not so available, First Call) for these
companies.
Such analysis indicated that, for the Selected Companies, (i) the mean and
median values of Enterprise Value as a multiple of LTM revenue were 4.38x and
3.93x, respectively; (ii) the mean and median market capitalizations of common
stock as a multiple of the book value of common shareholders' equity were 11.06x
and 8.32x, respectively; and (iii) the mean and median prices per share as a
multiple of estimated EPS for the 1999 and 2000 calendar years were 21.5x and
20.2x, respectively, for the 1999 calendar year, and 20.6x and 20.9x,
respectively, for the 2000 calendar year.
The corresponding multiple of LTM revenues for AVE implied by Medtronic's
offer is 5.47x. The corresponding multiple of market capitalization of common
stock as a multiple of the book value of common shareholders' equity for AVE
implied by Medtronic's offer is 9.93x. In addition, the corresponding multiples
of the estimated EPS for the 1999 and 2000 calendar years for AVE implied by
Medtronic's offer are 20.3x and 16.7x, respectively.
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Although the Selected Companies were used for comparison purposes, none of
such companies is directly comparable to AVE. Accordingly, an analysis of the
results of such a comparison is not purely mathematical but instead involves
complex considerations and judgments concerning differences in historical and
projected financial and operating characteristics of the Selected Companies and
other factors that could affect the public trading value of the Selected
Companies or AVE to which they are being compared.
CONTRIBUTION ANALYSIS. SG Cowen analyzed the respective contributions of
LTM revenues, EBIT and net income, and 1999 and 2000 calendar year estimated net
income of AVE and Medtronic, to the combined company based upon the historical
and projected financial results of AVE and Medtronic, based on SG Cowen research
analyst estimates for AVE and Medtronic. This analysis showed that AVE would
contribute to the combined company 20.2% of revenues, 23.1% of EBIT, and 18.9%
of net income on an LTM basis, and 18.3% and 18.5% of estimated net income for
the 1999 and 2000 calendar years, respectively.
SG Cowen also noted that holders of AVE common stock would own approximately
9.9% of the combined company, assuming the Medtronic Average Stock Price for the
15 consecutive trading days ending on and including the second trading day
before the Special Meeting is $68.00 (the average closing stock price of
Medtronic common stock for the 10 trading days ended November 27, 1998).
STOCK TRADING HISTORY. To provide contextual data and comparative market
data, SG Cowen reviewed the historical market prices and trading volumes of AVE
common stock from April 3, 1996 (the first trading day of AVE common stock) to
November 25, 1998 and for the 12-month period ended November 25, 1998. SG Cowen
noted that over the indicated periods the high and low prices for shares of AVE
were $48.13 and $4.50, and $48.13 and $24.44, respectively. SG Cowen also
reviewed the historical market prices and trading volumes of Medtronic common
stock over the 12-month and three-year periods ended November 25, 1998. SG Cowen
noted that over the indicated periods the high and low prices for shares of
Medtronic were $72.75 and $45.44, and $72.75 and $22.25, respectively.
The summary set forth above is not a complete description of all the
analyses performed by SG Cowen. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analyses and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. SG Cowen did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, notwithstanding the separate factors summarized above, SG
Cowen believes, and has advised the AVE Board, that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the process underlying its opinion. In performing
its analyses, SG Cowen made numerous assumptions with respect to industry
performance, business and economic conditions and other matters, many of which
are beyond the control of AVE and Medtronic. These analyses performed by SG
Cowen are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses or securities may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors. None of AVE, Medtronic, SG
Cowen or any other person assumes responsibility if future results are
materially different from those projected. As mentioned above, the analyses
supplied by SG Cowen and its opinion were among several factors taken into
consideration by the AVE Board in making its decision to enter into the Merger
Agreement and should not be considered as determinative of such decision.
SG Cowen was selected by the AVE Board as its financial advisor, and to
render an opinion to the AVE Board, because SG Cowen is a nationally recognized
investment banking firm and because, as part of
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its investment banking business, SG Cowen is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for corporate and other
purposes. SG Cowen currently is providing other financial services for AVE for
which it will receive customary fees. Societe Generale, the sole shareholder of
SG Cowen, and its affiliates, including SG Cowen, in the ordinary course of
business have from time to time provided, and in the future may continue to
provide, commercial and investment banking services to AVE, including serving as
a financial advisor on potential acquisitions and as an underwriter on equity
offerings, and have received and may in the future receive fees for the
rendering of such services. In particular, in April 1996, SG Cowen acted as lead
manager of AVE's initial public offering, and was selected to serve as
co-manager on a proposed offering which was subsequently withdrawn before a
registration statement was filed with the SEC. SG Cowen also acted as financial
advisor to AVE in connection with the acquisition by AVE of World Medical
Manufacturing Corporation, and received a fee for its services in connection
with that transaction. In addition, in the ordinary course of its business, SG
Cowen and its affiliates trade the equity securities of AVE and Medtronic for
their own account and for the accounts of their customers, and accordingly, may
at any time hold a long or short position in such securities.
AVE has agreed to pay a fee to SG Cowen for its financial advisory services
provided in connection with the Merger, all of which is contingent upon
consummation thereof. If the Merger is consummated, SG Cowen will be entitled to
receive a transaction fee equal to approximately 0.33% of the aggregate
consideration paid to AVE shareholders in the Merger, payable upon consummation
of the Merger. Assuming the Medtronic Average Stock Price for the 15 consecutive
trading days ending on the second trading day before the Special Meeting is
between $61.20 and $74.80, such transaction fee is estimated to be approximately
$12 million. Additionally, AVE has agreed to reimburse SG Cowen for its
out-of-pocket expenses, including attorneys' fees, and has agreed to indemnify
SG Cowen against certain liabilities, including liabilities under the federal
securities laws. The terms of the fee arrangement with SG Cowen, which are
customary in transactions of this nature, were negotiated at arm's length
between AVE and SG Cowen, and the AVE Board was aware of such arrangement.
CONVERSION OF AVE COMMON STOCK IN THE MERGER
At the Effective Time, if the Average Stock Price (as defined below) is
between $61.20 and $74.80, each outstanding share of AVE common stock will
convert automatically into the right to receive the fraction of a share of
Medtronic common stock (the "Conversion Ratio") equal to $54 divided by the
average of the daily closing sale prices of Medtronic common stock, as reported
on the NYSE Composite Tape (the "Average Stock Price"), for the 15 consecutive
trading days ending on and including the second trading day before the Special
Meeting. Any shares of AVE common stock held by Medtronic, its subsidiaries, or
AVE's subsidiaries will not be treated as outstanding, however, and will not
convert into Medtronic common stock.
The Conversion Ratio described above applies if the Average Stock Price is
between $61.20 and $74.80. If the Average Stock Price is $61.20 or less,
however, the Conversion Ratio is 0.88235 of a Medtronic share. If the Average
Stock Price is $74.80 or more, the Conversion Ratio is 0.72193 of a Medtronic
share.
If, prior to the Effective Time, Medtronic or AVE recapitalizes, splits, or
combines the Medtronic or AVE common stock, as applicable, or pays a stock
dividend or other stock distribution in shares of Medtronic or AVE common stock,
as applicable, then the Conversion Ratio will be appropriately adjusted.
Based on the number of shares of AVE common stock outstanding on the record
date (assuming a Conversion Ratio of 0.75065 of a Medtronic share for each AVE
share, calculated by using the December 17, 1998 Medtronic closing sale price of
$71.9375 as the assumed Average Stock Price solely for illustrative purposes of
this paragraph), an estimated 48,391,648 shares of Medtronic common stock will
be
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issued in exchange for AVE common stock upon consummation of the Merger. Such
shares would represent approximately 9% of the shares of Medtronic common stock
that would be outstanding after consummation of the Merger.
AVE shareholders should understand that, because the market price of
Medtronic common stock fluctuates, the market value of the Medtronic shares that
AVE shareholders will receive in the Merger (whether measured at the Effective
Time of the Merger or the date of the Special Meeting or another date) may be
less than or greater than the Average Stock Price used for purposes of
determining the Conversion Ratio. In addition, because the value of Medtronic
shares fluctuates, the market value of the Medtronic common stock that AVE
shareholders will receive in the Merger may increase or decrease following the
Merger. The maximum Conversion Ratio of 0.88235 (if the Average Closing Price of
Medtronic common stock is less than $61.20) means that, at the time of the
Merger, you may receive less than $54 in Medtronic common stock for each AVE
share you own. Similarly, the minimum Conversion Ratio of 0.72193 (if the
Average Closing Price is more than $74.80) means that you may receive more than
$54 in Medtronic common stock for each AVE share you own. In addition, the
Average Stock Price (which is calculated during a 15-day period ending on and
including the second trading day prior to the Special Meeting) could be
different from the closing price of Medtronic common stock at the time of the
Merger. See "Comparative Stock Prices and Dividends" for information regarding
the historical market prices of Medtronic common stock.
FRACTIONAL SHARES
Medtronic will not issue any certificates or scrip representing fractional
shares of Medtronic common stock in the Merger. All fractional shares of
Medtronic common stock that an AVE shareholder would otherwise receive in the
Merger will be aggregated, if and to the extent multiple AVE stock certificates
of such holder are submitted together to Norwest Bank Minnesota, N.A., the
exchange agent for the Merger (the "Exchange Agent"). If a fractional share
results from such aggregation, then, in lieu of any such fractional share, each
holder of AVE 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 (1) the closing sale price
of Medtronic common stock on the date of the Merger by (2) the fractional share
interest of Medtronic common stock to which such holder would otherwise be
entitled.
EXCHANGE OF AVE STOCK CERTIFICATES
As soon as practicable after the Effective Time, the Exchange Agent will
mail a letter of transmittal to AVE shareholders. The letter of transmittal will
include instructions regarding the surrender of certificates representing shares
of AVE 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 AVE common stock, after those holders
surrender to the Exchange Agent the AVE stock certificates held by them for
cancellation, together with executed letters of transmittal, (1) 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
(2) a check in the amount of any cash in lieu of fractional shares. Holders of
AVE common stock will not receive interest on any cash received in the Merger.
After the Effective Time, AVE stock certificates will evidence ownership of
the shares of Medtronic common stock into which they were converted. Holders of
AVE 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
on or after the Effective Time, but only after they have surrendered their
certificates representing shares of AVE common stock for exchange. Any such
dividends will be paid to each AVE
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shareholder entitled to them, without interest, at the time that such
certificates representing shares of AVE common stock are surrendered for
exchange, subject to any applicable abandoned property, escheat, or similar law.
Holders of AVE 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 PLANS
Medtronic will not become an "Acquiring Person" and the Merger will not
cause a "Distribution Date" or a "Shares Acquisition Date" under AVE's Rights
Agreement, as amended by AVE on November 29, 1998, as those terms are defined in
that agreement. Under the terms of the AVE Rights Agreement, each outstanding
AVE Right (as defined in that agreement) will expire automatically pursuant to
the terms of the AVE Rights Agreement upon completion of the Merger and without
any action on the part of AVE shareholders.
Each AVE 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. See "Comparison
of Rights of Medtronic and AVE Shareholders--Shareholder Rights Plans."
TREATMENT OF STOCK OPTIONS
The officers, directors, and certain employees of AVE hold outstanding
options to purchase shares of AVE common stock. All options held by certain
employees of AVE who are parties to certain employment agreements or vesting
acceleration agreements with AVE will either immediately become exercisable as
of the Effective Time or will become subject to immediate exercisability in the
event of certain changes in employment circumstances following the Merger, all
as more fully described in "--Interests of AVE's Directors and Officers in the
Merger." All other options granted under AVE's option plans will continue to
vest at the times stated in those plans. All 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 such options were exercisable prior to the Merger, except that the
exercise price and the number of shares of Medtronic common stock that can be
purchased upon exercise of the options will be revised to reflect conversion of
the options on the same basis as shares of AVE common stock are converted into
shares of Medtronic common stock in the Merger. As promptly as practicable after
the Effective Time, Medtronic will provide to each holder of an AVE option a
written statement informing such holder of the assumption by Medtronic of such
option.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, AVE makes certain representations and warranties to
Medtronic regarding AVE and its subsidiaries, including as to: (1) their
corporate existence; (2) the authorization, execution, and enforceability of the
Merger Agreement and related agreements; (3) AVE's capital structure; (4) the
accuracy of AVE's recent SEC reports and financial statements; (5) the absence
of certain undisclosed material liabilities; (6) the absence of any need for
certain required third-party consents and other approvals; (7) compliance with
laws; (8) the absence of material litigation; (9) the absence of material
adverse changes between June 30 and November 29, 1998; (10) AVE's relations with
officers, directors, and employees; (11) certain tax matters; (12) the absence
of material violations of agreements; (13) the right to use intellectual
property; (14) AVE's benefit plans; (15) AVE's minute books; (16) the absence of
brokerage commissions, finder's fees, or other payments in connection with the
Merger; (17) the accuracy of information provided in connection with this Proxy
Statement/Prospectus; (18) the receipt of an opinion of SG Cowen as to the
fairness, from a financial point of view, to holders of AVE common stock of the
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Conversion Ratio in the Merger; (19) the inapplicability of certain Delaware
antitakeover laws to the Merger; and (20) the accuracy of certain information.
Medtronic and Merger Subsidiary also make certain representations and
warranties to AVE regarding Medtronic and Merger Subsidiary, including as to:
(1) their corporate existence; (2) the authorization, execution, and
enforceability of the Merger Agreement and related agreements; (3) the capital
structure of Medtronic and Merger Subsidiary; (4) the absence of any need for
certain required third-party consents and approvals; (5) the accuracy of
Medtronic's recent SEC reports and financial statements; (6) the legal
compliance and the accuracy of information contained in the Registration
Statement that includes this Proxy Statement/Prospectus; (7) the absence of
brokerage commissions, finder's fees, or other payments in connection with the
Merger; (8) the absence of certain undisclosed material liabilities; (9)
compliance with laws; (10) the absence of material litigation; (11) the absence
of material adverse changes between April 30 and November 29, 1998; (12) the
absence of actions by Medtronic that would prevent the Merger from constituting
a tax-free transaction; and (13) the accuracy of certain information.
CERTAIN COVENANTS BY AVE
CONDUCT OF BUSINESS OF AVE PENDING THE MERGER. With certain exceptions, AVE
has agreed that, prior to consummation of the Merger, unless Medtronic agrees
otherwise, to the extent commercially reasonable, it will conduct its business
only in the ordinary course, keep substantially intact its business
organization, keep available its officers' and employees' services, and maintain
satisfactory relationships with third parties that are material to its business.
AVE also agreed that, among other things, it will not: amend its Certificate of
Incorporation or Bylaws; authorize, issue, sell, or pledge any stock or rights
to purchase stock (except that it can issue stock upon the exercise of
outstanding options and except that it can grant certain new options under
existing option plans to the extent that it does not jeopardize the parties'
ability to account for the Merger as a pooling of interests, and except that it
can grant rights and issue shares pursuant to its employee share purchase plan);
split, combine, or reclassify its stock; declare or pay any dividend or other
distribution; redeem or acquire any of its stock (with certain exceptions for
existing agreements and other circumstances that do not jeopardize the
accounting treatment of the Merger); change any material term of its outstanding
securities; create, incur, or assume any indebtedness other than in the ordinary
course of business; create, assume, or incur any material lien other than
intercompany indebtedness; increase or modify the compensation or benefits of
any of its directors, officers, or other employees (except under existing
agreements or in the ordinary course of business and consistent with past
practice or as required by law); sell or dispose of any material property other
than in the ordinary course of business; buy or agree to buy another business;
buy any assets or make capital expenditures, except under certain circumstances;
enter into, materially change, or terminate any material agreements, except as
permitted by the Merger Agreement or except in the ordinary course of business;
materially change its credit policies; materially alter its accounting
principles; institute, settle, or compromise any claim involving amounts in
excess of a specified amount; knowingly take any action that would cause any of
its representations, warranties, or agreements in the Merger Agreement to be
inaccurate or breached such that the closing conditions in the Merger Agreement
will not be satisfied as of the Closing Date; knowingly take any action that
would prevent the Merger from qualifying as a tax-free transaction; or agree to
do any of the things described above.
ACCESS. Pursuant to the Merger Agreement, AVE also agreed to give Medtronic
and its representatives access to AVE's offices, properties, books, and records;
to furnish to Medtronic and its representatives any financial and operating data
and other information that Medtronic may reasonably request; and to have its
employees and representatives cooperate with Medtronic in Medtronic's
investigation of the business of AVE.
NO SOLICITATION OF COMPETING TRANSACTIONS. AVE has agreed that (except as
is required by the fiduciary duties of AVE's directors) neither AVE nor any of
its representatives or affiliates will, directly or indirectly, solicit,
knowingly encourage, initiate, or participate in discussions or negotiations
with, or knowingly
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provide any nonpublic information to, any person, entity, or group (other than
Medtronic or its affiliates or agents) that proposes an alternative transaction
with respect to AVE or any subsidiary, or knowingly facilitate an alternative
transaction. An "alternative transaction" means a tender offer, exchange offer,
merger, or similar transaction, or a transaction or series of related
transactions pursuant to which a third party acquires more than 20% of the stock
of AVE or any subsidiary or more than 20% of the combined assets of AVE and its
subsidiaries, except that the transaction with World Medical Manufacturing
Corporation is not an alternative transaction. AVE has agreed that it will
notify Medtronic promptly if it receives any such proposal.
The AVE Board can, however, prior to the Special Meeting furnish nonpublic
information to or enter into negotiations with a third party that makes an
unsolicited superior proposal, but only if (1) the AVE Board must do so to
comply with its fiduciary duties to shareholders imposed by law, (2) prior to
doing so, AVE releases Medtronic from certain standstill obligations, receives a
confidentiality and standstill agreement from the third party with terms no less
favorable to AVE than its confidentiality agreement with Medtronic, gives
Medtronic all nonpublic information that it gives to the third party, and gives
written notice to Medtronic that it is furnishing nonpublic information or
entering into negotiations with the person proposing the superior proposal, and
(3) AVE keeps Medtronic informed of the status of any negotiations. For these
purposes, a "superior proposal" is a proposal for an alternative transaction
that the AVE Board reasonably and in good faith determines is more favorable to
AVE shareholders than the Merger.
CERTAIN COVENANTS BY MEDTRONIC
CONDUCT OF BUSINESS OF MEDTRONIC PENDING THE MERGER. Medtronic has agreed
that, prior to consummation of the Merger, unless AVE agrees otherwise, it will
not and will not permit any of its subsidiaries to: combine or reclassify its
stock; declare or pay any extraordinary dividend or other distribution (except
for stock splits in the form of stock dividends); redeem or acquire any of its
stock (other than pursuant to Medtronic's stock repurchase program or in such a
manner that the Merger is treated as a pooling of interests for accounting
purposes); change any material term of its securities; buy or agree to buy
another business, or sell or agree to sell any assets, if it could reasonably be
expected to delay or threaten the consummation of the Merger; alter its
accounting principles; knowingly take any action that would suspend trading of
Medtronic common stock on the NYSE; knowingly take any action that would cause
any of its representations, warranties, or agreements in the Merger Agreement to
be inaccurate or breached as of the Closing Date; knowingly take any action that
would prevent the Merger from qualifying as a tax-free transaction; or agree to
do any of the things described above.
EMPLOYEE MATTERS. Medtronic has agreed, to the extent practicable, to
provide employee benefits and programs to AVE employees that, in the aggregate,
are substantially comparable to or more favorable than those in existence as of
the date of the Merger Agreement (and, for stock-based compensation, comparable
in the aggregate to what Medtronic and its subsidiaries offer generally).
Medtronic has also agreed to honor all employment and severance agreements and
all severance, incentive, and bonus plans as in effect immediately prior to the
Effective Time. AVE employees will be credited with service accrued prior to the
Effective Time for purposes of employee benefit plans, subject to certain
exceptions.
INTERESTS OF AVE'S DIRECTORS AND OFFICERS IN THE MERGER
In considering the recommendation of the AVE Board with respect to the
Merger Agreement and the transactions contemplated by that agreement,
shareholders of AVE should be aware that certain members of the management and
Board of Directors of AVE have certain interests in the Merger that are in
addition to, and may be in conflict with, the interests of shareholders of AVE
generally. All such interests are described below, to the extent material, and
AVE believes that, except as described below, such persons do not have any
material interest in the Merger that is different from those of AVE shareholders
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generally. The AVE Board was aware of, and considered the interests of, its
directors and officers when it approved the Merger Agreement and the Merger.
EMPLOYMENT AND RELATED AGREEMENTS. AVE has previously entered into
employment agreements with each of the following officers: Kevin Bedsole (Vice
President of International Sales), Greg French (Vice President of
Manufacturing), John Miller (Chief Financial Officer and Treasurer), John A.
Schiek (Vice President of Compliance), and Scott Solano (President, Chief
Executive Officer, and Chairman of the Board).
The employment agreements of Messrs. French, Miller, Bedsole, and Schiek
provide that if, within two years after a "change of control," the officer's
employment involuntarily terminates (as defined in the employment agreement)
other than for cause, the officer will become entitled to receive a severance
payment equal to his aggregate annual salary and a continuation of benefits for
12 months. The employment agreements also provide that if the officer's
employment voluntarily terminates at any time after a "change of control," the
officer will be entitled to receive severance payments equal to one-half of his
annual salary. In addition, the employment agreements provide that upon a
"change of control," (i) all shares of AVE common stock that were granted to
such officers under restricted stock purchase agreements (and are therefore
subject to repurchase by AVE) will be released from any AVE repurchase options,
and (ii) all unvested stock options held by such officers will immediately
become vested and exercisable. The Merger constitutes a "change of control"
under such employment agreements. As of December 21, 1998, Messrs. French,
Bedsole, Miller, and Schiek held an aggregate (i) 354,063 shares of AVE common
stock subject to such repurchase option and (ii) no unvested options to purchase
shares of AVE common stock.
The employment agreement with Mr. Solano provides that, subject to certain
limitations, if, within two years after a "change of control," Mr. Solano's
employment involuntarily terminates (as defined in the employment agreement)
other than for cause, (i) all of Mr. Solano's unvested stock options will
immediately become vested, subject to certain limitations, and (ii) Mr. Solano
will be entitled to receive a severance payment equal to his aggregate annual
salary and a continuation of his benefits for 12 months. The employment
agreement also provides that if Mr. Solano's employment is voluntarily
terminated for certain reasons, at any time after a "change of control," he will
be entitled to receive severance payments equal to one-half of his annual
salary. The Merger constitutes a "change of control" under Mr. Solano's
employment agreement. As of December 21, 1998, Mr. Solano held unvested options
to purchase an aggregate 180,000 shares of AVE common stock at a weighted
average price of $6.5625 per share (at exercise prices of $6.50 to $6.625 per
share).
CHANGE OF CONTROL VESTING ACCELERATION AGREEMENTS. AVE has entered into
vesting acceleration agreements with certain key employees of AVE, including the
following officers: Lawrence Fassler (Vice President of Legal Affairs, General
Counsel and Secretary), Robert Harris (Vice President of Finance), Glenn Foley
(Vice President of Sales), and Andrew Rasdal (Vice President of Marketing).
Pursuant to such agreements, and subject to certain limitations, if, within one
year after a "change of control," such officer's employment is involuntarily
terminated (as defined in the vesting acceleration agreements) or such officer
terminates his employment for certain reasons (as described in the vesting
acceleration agreements), all unvested stock options held by such officer will
immediately become vested and exercisable. The Merger constitutes a "change of
control" under the vesting acceleration agreements. As of December 21, 1998,
Messrs. Fassler, Foley, Rasdal, and Harris held unvested options to purchase an
aggregate 265,209 shares of AVE common stock at a weighted average price of
$19.76 per share (at exercise prices of $4.7728 to $41.625 per share).
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. The Merger will cause the
acceleration of vesting of outstanding stock options under the 1996 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"). All such options will
terminate if not exercised at or prior to the Effective Time. As of December 21,
1998, non-employee directors of AVE held options to purchase an aggregate 44,000
shares
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of AVE common stock at a weighted average price of $25.53 per share (at exercise
prices ranging from $18.00 to $36.25 per share).
INDEMNIFICATION. Pursuant to the Merger Agreement, Medtronic has agreed
that, after the Effective Time of the Merger, it will provide certain
indemnification and liability insurance benefits to certain indemnified parties,
including directors and executive officers of AVE. See "--Indemnification."
VOTING AGREEMENTS
Pursuant to voting agreements between Medtronic and all of the executive
officers and directors of AVE who own stock or options to acquire stock of AVE
(Kevin Bedsole, George Borkow, Mark Brister, Creg Dance, Craig Dauchy, Lawrence
Fassler, Glenn Foley, Gregory French, Robert Harris, Richard Klein, John Miller,
Azin Parhizgar, Andrew Rasdal, John Schiek, Scott Solano, Scott Wade, and Peter
Walsh), such individuals have agreed to vote all of the outstanding shares of
AVE common stock beneficially owned by them on the record date in favor of the
approval, consent, and ratification of the Merger. Nothing in the voting
agreements restricts or limits the right of a shareholder or optionholder to act
in his or her capacity as an officer or director of AVE consistent with his or
her fiduciary obligations. The voting agreements terminate upon termination of
the Merger Agreement. As of the record date, the shareholders who executed the
voting agreements beneficially owned an aggregate 4,346,773 outstanding shares
of AVE common stock (not including options held by such persons), representing
approximately 6.7% of the AVE common stock outstanding on the record date.
STOCK OPTION AGREEMENT
Simultaneously with the execution of the Merger Agreement, AVE and Medtronic
entered into a Stock Option Agreement pursuant to which AVE granted to Medtronic
an option, exercisable only under certain specified circumstances, to purchase
12,807,795 shares of AVE common stock (which equaled 19.9% of the shares of AVE
common stock outstanding on the date of the Merger Agreement), at an exercise
price of $54 per share. The option is exercisable at any time following the
occurrence of an Exercise Event (as defined below) up to the earlier of (i) the
Effective Time, (ii) one year after the termination of the Merger Agreement
under certain circumstances or one year after a competing transaction (as
defined in the Merger Agreement) occurs in certain circumstances, or (iii) a
termination of the Merger Agreement in such a manner that a fee cannot become
payable by AVE. Each of the termination events described in "--Amendment and
Termination of the Merger Agreement; Effects of Termination" that could obligate
AVE to pay a termination fee pursuant to the Merger Agreement constitutes an
"Exercise Event," except that a termination by either company because (i) the
AVE shareholders do not vote to approve the Merger, (ii) a proposal for a
competing transaction is announced prior to the failure to approve the Merger,
and (iii) AVE enters into an agreement for a competing transaction within 12
months after termination of the Merger Agreement with a third party, constitutes
an Exercise Event even if AVE does not consummate a competing transaction with
the same third party that entered into such definitive agreement within two
years after entering into the agreement for a competing transaction, as would be
required to trigger a termination fee under the Merger Agreement.
If and when Medtronic's option under the Stock Option Agreement becomes
exercisable, Medtronic also has the right, which it can exercise in lieu of
exercising Medtronic's option, to require AVE to pay to Medtronic, in
cancellation of Medtronic's option, a cancellation amount equal to (a) the
greater of (1) the excess, if any, over the option price of the greater of (A)
the last sale price of a share of AVE common stock on the last trading day prior
to notice of exercise, (B) the highest price per share of AVE common stock
offered or paid in connection with an alternative transaction, and (C) in the
case of an alternative transaction structured as an asset acquisition, the
highest net consideration to be distributed to the AVE shareholders in any such
transaction or proposed transaction after other payments and deductions
(including the payment of all indebtedness of AVE that is not assumed), divided
by the number of shares of AVE common stock then outstanding on a fully-diluted
basis; and (2) $150 million divided by the initial
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number of shares subject to the option, multiplied by (b) the number of shares
then covered by the option. The sum of such cancellation amount, the termination
fee paid under the Merger Agreement, and certain other amounts that Medtronic
could receive if it exercises the option and sells the AVE shares it acquires
upon exercise can never, however, exceed $150 million. See "--Amendment and
Termination of the Merger Agreement; Effects of Termination."
CONDITIONS TO CONSUMMATION OF THE MERGER; WAIVER
The respective obligations of Medtronic, Merger Subsidiary, and AVE to
effect the Merger are subject to the satisfaction at or prior to the Merger of
certain conditions, including, among others: (a) the approval by the AVE
shareholders of the Merger; (b) the effectiveness of the Registration Statement;
(c) the expiration or termination of the waiting periods 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 court that makes the
Merger illegal or prohibits consummation of the Merger or would impose any
material limitations on the ownership or operation of AVE after the Merger.
In addition, the obligations of Medtronic and Merger Subsidiary to effect
the Merger are subject to the satisfaction at or prior to the Merger of certain
conditions, including that: (a) AVE has performed in all material respects its
material obligations under the Merger Agreement required to be performed by it
at or prior to the closing; (b) each representation and warranty of AVE
contained in the Merger Agreement is, without regard to any "material adverse
effect" qualifications, true and correct on the date of the Merger (as though
made that date) except for (i) those representations and warranties that address
matters only as of the date of the Merger Agreement or another particular date,
which representations and warranties must be true and correct as of such date,
and (ii) except for any inaccuracies that do not have a material adverse effect
on AVE; (c) Medtronic has received letters from PricewaterhouseCoopers LLP and
Ernst & Young LLP, dated the Closing Date and addressed to Medtronic and AVE,
that as of such date no conditions exist that would prevent Medtronic from
accounting for the Merger as a pooling of interests (the "Pooling Letters"); and
(d) neither the Chief Executive Officer nor a majority of the other executive
officers of AVE shall have terminated their employment with AVE after the
Merger.
In addition, the obligations of AVE to effect the Merger are subject to the
satisfaction at or prior to the Merger of certain conditions, including that:
(a) Medtronic and Merger Subsidiary have performed in all material respects
their material obligations under the Merger Agreement required to be performed
by them at or prior to the closing; (b) each representation and warranty of
Medtronic contained in the Merger Agreement is, without regard to any "material
adverse effect" qualifications, true and correct on the date of the Merger (as
though made that date) except for (i) those representations and warranties that
address matters only as of the date of the Merger Agreement or another
particular date, which representations and warranties must be true and correct
as of such date, and (ii) except for any inaccuracies that do no have a material
adverse effect on Medtronic; (c) AVE has received the Pooling Letters; and (d)
AVE has received an opinion of Cooley Godward LLP, to the effect that the Merger
will constitute a "tax-free" reorganization for federal income tax purposes, and
that opinion will not have been withdrawn or materially changed. See "The
Merger--Certain Federal Income Tax Consequences."
Either Medtronic or AVE may waive (to the extent permitted by applicable
law) any failure to comply with any obligation, covenant, agreement, or
condition in the Merger Agreement that is for the benefit of that party. Any
waivers granted by Medtronic are conclusively binding on Merger Subsidiary.
AVE cannot terminate the Merger Agreement due to any material adverse change
to Medtronic's business or operations, and AVE would be required to proceed with
the Merger even if any such material adverse change to Medtronic's business or
operations occurs (provided all of the conditions to AVE's obligation to
consummate the Merger are satisfied). AVE also would be required to proceed with
the
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Merger even if the average closing price of Medtronic common stock drops below
$61.20 per share and, accordingly, the value per share of AVE common stock drops
below $54 per share.
AMENDMENT AND TERMINATION OF THE MERGER AGREEMENT; EFFECTS OF TERMINATION
Subject to applicable law, any of the provisions of the Merger Agreement may
be amended by written agreement of the respective parties at any time prior to
the Effective Time of the Merger. After approval of the Merger by the AVE
shareholders, however, no amendment may be made that reduces the amount or
changes the type of consideration into which each share of AVE common stock
converts upon consummation of the Merger, or which otherwise requires
shareholder approval under Delaware law (unless AVE obtains that approval).
Even if the AVE shareholders approve the Merger, the Boards of Directors of
Medtronic and AVE can agree at any time to terminate the Merger Agreement
without completing the Merger.
In addition, either company can terminate the Merger Agreement if:
- the Merger is not completed by May 31, 1999 (or, if the companies receive
requests for additional information from regulatory agencies, October 31,
1999), except that neither company can terminate the Merger Agreement if
its own material breach of its obligations under the Merger Agreement is
the reason the Merger has not been completed, or
- a final court or governmental order prohibits the Merger, or
- the AVE shareholders do not approve the Merger (except that neither
company can terminate the Merger Agreement if its own material breach of
its obligations under the Merger Agreement is the reason the Merger has
not been completed), or
- the other company has materially breached its representations, warranties,
or obligations under the Merger Agreement such that the conditions to the
terminating company's obligation to complete the Merger will not be
satisfied. If the breach is curable by the breaching company before May
31, 1999 or October 31, 1999, as applicable, the non-breaching company
cannot terminate the Merger Agreement as long as the breaching company is
exercising its reasonable best efforts to cure the breach.
Medtronic can terminate the Merger Agreement if:
- the AVE Board materially breaches its obligations to not encourage,
solicit, discuss, or negotiate with anyone else any alternative
transaction, or
- the AVE Board recommends, approves, or authorizes AVE's acceptance or
execution of an agreement regarding an alternative transaction, or
- the AVE Board withdraws or modifies its recommendation of the Merger in a
manner adverse to Medtronic, or
- a third party makes a tender offer or exchange offer for AVE common stock,
and the AVE Board either takes no position or does not recommend against
acceptance of the offer within 10 business days.
AVE can terminate the Merger Agreement prior to the Special Meeting if:
- AVE has not breached its obligations under the Merger Agreement to hold
the Special Meeting and to comply with its nonsolicitation obligations,
and
- the AVE Board authorizes AVE to enter into an agreement with a third party
regarding a transaction that the AVE Board reasonably and in good faith
determines is more favorable to the AVE shareholders than the Merger with
Medtronic, and AVE notifies Medtronic in writing that it intends to enter
into such agreement, and
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- Medtronic does not make a new offer within 10 business days that the AVE
Board determines is at least as favorable to the AVE shareholders as the
proposal made by the third party, and
- AVE pays the termination fee described below as requested by Medtronic.
AVE has agreed to pay Medtronic a termination fee of $135 million if any of
the following occurs:
the Merger Agreement is terminated by Medtronic because:
- the AVE Board materially breaches its obligations to not encourage,
solicit, discuss, or negotiate with anyone else any alternative
transaction, or
- the AVE Board recommends, approves, or authorizes AVE's acceptance or
execution of an alternative transaction, or
- the AVE Board withdraws or modifies in a manner materially adverse to
Medtronic its recommendation of the Merger, or
- a third party makes a tender offer or exchange offer for AVE stock, and
the AVE Board, within 10 business days, either takes no position or
does not recommend against acceptance of the offer, or
the Merger Agreement is terminated by AVE prior to the Special Meeting
because:
- the AVE Board authorizes AVE to enter into an agreement with a third
party regarding a transaction that the AVE Board reasonably and in good
faith determines is more favorable to the AVE shareholders than the
Merger, and Medtronic does not, within 10 business days after notice of
the superior proposal, make an offer that the AVE Board determines is
at least as favorable to AVE shareholders as the proposal made by the
third party, or
the Merger Agreement is terminated by either company because:
- the requisite vote of AVE shareholders is not obtained and a proposal
for a competing transaction (as defined in the Merger Agreement) has
been announced prior to the failure to approve the Merger, AVE enters
into an agreement with a third party for a competing transaction within
12 months after termination of the Merger Agreement, and AVE
consummates a competing transaction with the same third party or one of
its affiliates within two years after entering into the agreement for a
competing transaction.
EXPENSES AND FEES
Whether or not the Merger is consummated, all 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 AVE will share
equally all expenses related to filing and printing the Registration Statement
and this Proxy Statement/Prospectus, and the filing fees required under the HSR
Act and any foreign merger laws.
Goldman, Sachs & Co. provided certain financial advisory services to
Medtronic in connection with the Merger, for which Medtronic has agreed to pay a
fee of $14 million.
RESTRICTIONS ON RESALE OF MEDTRONIC COMMON STOCK
The Medtronic common stock issuable in connection with the Merger has been
registered under the Securities Act and will be freely transferable by the
recipients, except that this registration does not cover resales by shareholders
of AVE who may be deemed to control or be under common control with AVE at the
time of the Special 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 Securities Act covering such
shares, or in compliance with Rule 145 under the Securities Act or another
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applicable exemption from the registration requirements of the Securities Act.
AVE has delivered to Medtronic, and agreed to update as necessary, a list
identifying all persons who, in AVE's opinion, upon advice of counsel, are
Affiliates of AVE for purposes of Rule 145. AVE 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 (1) will not offer to sell, sell, or otherwise
dispose of any shares of Medtronic common stock received in the Merger in
violation of the Securities Act, and (2) will not sell, transfer, pledge,
dispose of, or otherwise reduce such person's risk relative to Medtronic common
stock or AVE common stock during the period commencing 30 days prior to the
Effective Time of the Merger and ending at such time as Medtronic publishes
financial results covering at least 30 days of post-Merger combined operations.
It is expected that, after the period described in clause (2) above, 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 Securities Act
and the rules and regulations of the SEC thereunder.
It is estimated that Affiliates of AVE will receive a maximum of
approximately 4,087,205 shares of Medtronic common stock upon consummation of
the Merger (assuming full exercise of all outstanding AVE options held by such
Affiliates and assuming a Conversion Ratio of 0.75065). Such shares would
constitute less than 1% 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. Solely for illustrative
purposes of the foregoing estimate, the Conversion Ratio was calculated by using
the December 17, 1998 Medtronic closing sale price of $71.9375 as the assumed
Average Stock Price. See "The Merger--Conversion of AVE Common Stock in the
Merger."
DEREGISTRATION OF AVE COMMON STOCK
If the Merger is consummated, the AVE common stock will cease to be quoted
on the Nasdaq National Market, and Medtronic will apply to the SEC for the
deregistration of AVE 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. This means the companies will be treated as if they had always been
combined for accounting and financial reporting purposes. 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 obligations of Medtronic,
Merger Subsidiary, and AVE to consummate the Merger that Medtronic and AVE shall
have received the following: (1) a letter from Ernst & Young LLP, AVE's
independent accountants, dated the closing date, stating that, based upon
discussions with certain AVE officials and information furnished to Ernst &
Young LLP, no conditions exist related to AVE that would preclude Medtronic from
accounting for the Merger as a pooling of interests business combination, and
(2) a letter from PricewaterhouseCoopers LLP, Medtronic's independent
accountants, dated the closing date, confirming that the Merger will qualify as
a pooling of interests.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain material United States federal
income tax consequences of the Merger. This discussion merely summarizes certain
principal United States federal income tax consequences of the Merger and is not
a complete analysis of all of the potential tax effects relevant to the Merger.
In this regard, this discussion does not deal with all federal income tax
considerations that may be relevant to certain AVE shareholders in light of
their particular circumstances, or to shareholders subject to special rules
under United States federal income tax law, including dealers in securities,
shareholders
32
<PAGE>
who do not hold their AVE common stock as capital assets, foreign persons,
tax-exempt entities, banks, insurance companies, shareholders who hold their
shares as a hedge or as part of a hedging, straddle, conversion, or other risk
reduction transaction, or persons who are subject to the alternative minimum tax
provisions of the Internal Revenue Code (the "Code"). Furthermore, it does not
address AVE shareholders who acquired their shares in connection with stock
options or stock purchase plans or in other compensatory transactions. It also
does not address the tax consequences of the Merger under foreign, state, or
local tax laws.
AVE SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL, AND
FOREIGN TAX CONSEQUENCES TO THEM.
Cooley Godward LLP, counsel to AVE, has rendered an opinion to AVE and
Fredrikson & Byron, P.A., counsel to Medtronic, has rendered an opinion to
Medtronic (collectively, the "Tax Opinions") that the Merger will constitute a
reorganization under Section 368 of the Code, and that each of AVE, Medtronic
and Merger Subsidiary will be a party to such reorganization. Neither AVE nor
Medtronic will request a ruling from the Internal Revenue Service (the "IRS")
with regard to any of the United States federal income tax consequences of the
Merger. The Tax Opinions are based on and subject to certain assumptions and
limitations as well as factual representations received from AVE and Medtronic,
as discussed below. An opinion of counsel represents only counsel's best legal
judgment and has no binding effect or official status of any kind. No assurance
can be given that contrary positions may not be taken by the IRS or a court
considering the issues.
Subject to the assumptions, limitations, and qualifications described in the
Tax Opinions and in this discussion, it is the opinion of Cooley Godward LLP and
Fredrikson & Byron, P.A. that the material United States federal income tax
consequences of the Merger can be summarized as follows:
- AVE, Medtronic, and Merger Subsidiary will not recognize gain or loss
solely as a result of Medtronic's issuance of Medtronic common stock to
the AVE shareholders in the Merger and the transfer by operation of law of
Merger Subsidiary's assets and liabilities to AVE pursuant to the Merger;
- AVE's shareholders will not recognize gain or loss upon their receipt in
the Merger of Medtronic common stock in exchange for their shares of AVE
common stock, except to the extent of cash received in lieu of a
fractional share of Medtronic common stock;
- The aggregate tax basis of Medtronic common stock received in the Merger
will be the same as the aggregate tax basis of the AVE common stock
surrendered in exchange for the Medtronic common stock (reduced by any
amount of tax basis allocable to a fractional share interest in Medtronic
common stock for which cash is received);
- The holding period of each share of Medtronic common stock received by an
AVE shareholder in the Merger will include the period during which such
AVE shareholder held his or her AVE common stock surrendered in exchange
therefor; and
- Cash payments in lieu of a fractional share will be treated as if a
fractional share of Medtronic common stock had been issued in the Merger
and then redeemed by Medtronic, and capital gain or loss generally should
be recognized by an AVE shareholder in respect of such payment equal to
the difference (if any) between the amount of cash received and such
shareholder's allocable tax basis in the fractional share (which will be a
pro rata portion of the shareholder's tax basis in the Medtronic common
stock received in the Merger).
LIMITATIONS ON OPINION AND DISCUSSION. As noted earlier, the Tax Opinions
are subject to certain assumptions, relating to, among other things, the truth
and accuracy of certain representations made by AVE and Medtronic, and the
consummation of the Merger in accordance with the terms of the Merger Agreement
and applicable state law. Furthermore, the Tax Opinions will not bind the IRS
and, therefore,
33
<PAGE>
the IRS is not precluded from asserting a contrary position. The Tax Opinions
and this discussion are based on currently existing provisions of the Code,
existing and proposed Treasury regulations, and current administrative rulings
and court decisions. There can be no assurance that future legislative,
judicial, or administrative changes or interpretations will not adversely affect
the accuracy of the Tax Opinions or of the statements and conclusions set forth
herein. Any such changes or interpretations could be applied retroactively and
could affect the tax consequences of the Merger.
A successful IRS challenge to the tax-free status of the Merger would result
in significant adverse tax consequences to the AVE shareholders. An AVE
shareholder would recognize gain or loss with respect to each share of AVE
common stock surrendered equal to the difference between the shareholder's basis
in such share and the fair market value, as of the Effective Time of the Merger,
of the Medtronic common stock received in exchange for such AVE common stock and
cash received in lieu of a fractional share of Medtronic common stock. In such
event, a shareholder's aggregate basis in the Medtronic common stock so received
would equal its fair market value, and the shareholder's holding period for such
stock would begin the day after the closing date of the Merger.
Certain noncorporate AVE shareholders may be subject to backup withholding
at a rate of 31% on cash payments received in lieu of a fractional share of
Medtronic common stock. Backup withholding will not apply, however, to a
shareholder who furnishes a correct taxpayer identification number and certifies
that he or she is not subject to backup withholding on the substitute Form W-9
included in the letter of transmittal, who provides a certificate of foreign
status on Form W-8, or who is otherwise exempt from backup withholding. A
shareholder who fails to provide the correct taxpayer identification number on
Form W-9 may be subject to a $50 penalty imposed by the IRS.
Each AVE shareholder will be required to retain records and file with such
holder's U.S. federal income tax return a statement setting forth certain facts
relating to the Merger.
INDEMNIFICATION
Under the Merger Agreement, Medtronic has agreed to continue to indemnify
the present and former officers and directors of AVE for a period of at least
six years following the Merger with respect to acts or omissions occurring prior
to the Effective Time, to the extent that they are currently indemnified under
AVE's Certificate of Incorporation, Bylaws, and indemnification agreements as of
the date of the Merger Agreement. Medtronic has also agreed to provide
directors' and officers' liability insurance coverage, comparable to that
currently maintained by AVE, for six years after the Effective Time. See "The
Merger--Interests of AVE's Directors and Officers in the Merger."
REGULATORY REQUIREMENTS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), certain acquisition transactions, including the Merger, cannot be
consummated unless certain information has been furnished to the Federal Trade
Commission ("FTC") and the Antitrust Division of the United States Department of
Justice ("Antitrust Division") and certain waiting period requirements have been
satisfied. Medtronic and AVE each furnished such information on December 8,
1998. Pursuant to the HSR Act, the Merger cannot be completed until at least 30
days after the parties furnished the required information, unless the FTC and
the Antitrust Division terminate the waiting period earlier. If the parties
receive any requests for additional information relating to their filings, those
requests will extend the waiting period until 20 days after the companies
substantially comply with any such request. It is possible, therefore, that the
necessary waiting periods may not expire until after the Special Meeting is held
and the AVE shareholders vote on the Merger.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the consummation of the Merger, the Antitrust Division or the FTC could
take any action under the antitrust laws that it deems necessary or
34
<PAGE>
desirable in the public interest, including seeking to enjoin the consummation
of the Merger or seeking the divestiture of substantial assets of AVE or
Medtronic. AVE and Medtronic believe that the Merger will not violate the
antitrust laws. There can be no assurance, however, that a challenge to the
Merger on antitrust grounds will not be made or, if such a challenge is made,
what the results will be.
Due to the international scope of Medtronic's and AVE's businesses,
regulatory filings are also required in certain European and other
jurisdictions. Medtronic and AVE do not expect any such filings to affect the
expected timing of the Merger.
Other than as described in this Proxy Statement/Prospectus, the Merger does
not require the approval of any federal, state, or other agency. See "The
Merger--Conditions to Consummation of the Merger; Waiver."
NO APPRAISAL RIGHTS
Under Delaware law, AVE shareholders are not entitled to dissenters' or
appraisal rights in connection with the Merger. Medtronic shareholders are also
not entitled to dissenters' or 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. AVE common stock is traded on the Nasdaq National
Market (symbol: AVEI).
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 AVE
common stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
AVE
MEDTRONIC COMMON STOCK COMMON STOCK
----------------------------------- ----------------------
HIGH LOW DIVIDENDS HIGH LOW
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CALENDAR 1996
First Quarter........................................ $ 31.3125 $ 22.25 $ .0325 * *
Second Quarter....................................... $ 29.875 $ 24.375 $ .0325 $ 24.75 $ 14.75
Third Quarter........................................ $ 32.4375 $ 23.50 $ .0475 $ 18.125 $ 9.125
Fourth Quarter....................................... $ 34.9375 $ 30.25 $ .0475 $ 14.5625 $ 4.50
CALENDAR 1997
First Quarter........................................ $ 35.875 $ 28.8125 $ .0475 $ 9.625 $ 5.75
Second Quarter....................................... $ 44.4375 $ 30.375 $ .0475 $ 16.125 $ 6.125
Third Quarter........................................ $ 49.25 $ 42.50 $ .055 $ 28.6875 $ 15.1875
Fourth Quarter....................................... $ 52.75 $ 40.5625 $ .055 $ 33.25 $ 21.00
CALENDAR 1998
First Quarter........................................ $ 58.4375 $ 45.4375 $ .055 $ 45.375 $ 24.4375
Second Quarter....................................... $ 66.00 $ 47.9375 $ .055 $ 41.375 $ 28.00
Third Quarter........................................ $ 72.75 $ 51.00 $ .065 $ 48.125 $ 32.00
Fourth Quarter (through December 17)................. $ 72.125 $ 48.375 $ .065 $ 52.125 $ 27.125
</TABLE>
- ------------------------
* AVE did not trade publicly until April 3, 1996, the initial public offering
date of AVE common stock.
AVE has never paid cash dividends. Under the Merger Agreement, AVE has
agreed not to pay any dividends on AVE common stock prior to the Merger.
Medtronic has paid regular quarterly cash dividends
35
<PAGE>
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.
In the Merger, shares of AVE common stock will be converted into shares of
Medtronic common stock based on the Conversion Ratio, which equals $54 divided
by the Average Stock Price for the 15 consecutive NYSE trading days ending on
the second NYSE trading day immediately preceding the Special Meeting, but
subject to a minimum Conversion Ratio of 0.72193 and a maximum Conversion Ratio
of 0.88235. On November 27, 1998, the last trading day preceding public
announcement of the Merger, the reported closing sale price of Medtronic common
stock on the NYSE was $70.00 per share, resulting in an implied Conversion Ratio
(if it were determined based on the closing sale price that day) of 0.77143. On
that day, the reported closing sale price of AVE common stock on the Nasdaq
National Market was $32.375 per share. On December 17, 1998, the latest
practicable trading day prior to the printing of this Proxy
Statement/Prospectus, the closing sale price of Medtronic common stock on the
NYSE was $71.9375 per share, resulting in an implied Conversion Ratio (if it
were determined based on the closing sale price that day) of 0.75065. The
reported closing sale price of AVE common stock on the Nasdaq National Market on
that day was $51.125 per share. SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS.
As of December 21, 1998, there were approximately 32,500 registered holders
of Medtronic common stock and approximately 345 registered holders of AVE common
stock.
RECENT DEVELOPMENTS
AVECOR CARDIOVASCULAR INC.
On July 13, 1998, Medtronic announced that it had entered into an agreement
to acquire AVECOR Cardiovascular Inc. ("Avecor"), a company that develops,
manufactures, and markets specialty medical devices for heart/lung bypass
surgery and long-term respiratory support. Pursuant to the acquisition
agreement, upon the fulfillment or waiver of certain conditions, a wholly-owned
subsidiary of Medtronic created for the Avecor acquisition will merge with and
into Avecor. Avecor will then become a wholly-owned subsidiary of Medtronic in a
stock-for-stock merger that is expected to be tax-free and accounted for using
the purchase accounting method. Under the original agreement, each outstanding
share of stock of Avecor would be exchanged for the right to receive the portion
of a share of Medtronic common stock equal to $11.125 divided by the average of
the daily closing sale prices of a share of Medtronic common stock as reported
on the NYSE Composite Tape for the 18 consecutive NYSE trading days ending on
the second NYSE trading day immediately preceding the effective time of the
Avecor merger. The shareholders of Avecor voted and approved the acquisition on
October 28, 1998.
On November 24, 1998, Avecor announced that it had received an unsolicited
offer from a third party to purchase all of Avecor's outstanding common stock at
a price of $13 per share. On December 6, 1998, Medtronic and Avecor announced an
amendment to their acquisition agreement, which calls for $13 in Medtronic
common stock to be issued in the transaction for each Avecor share, or a total
of approximately $106 million. Avecor agreed not to explore alternative
acquisition proposals and ceased discussions with the third party. The amended
agreement also requires Medtronic to pay up to $10 million to Avecor if the
merger is not completed by March 15, 1999, due to failure to obtain FTC
clearance by that date. Medtronic intends to complete the acquisition following
receipt of FTC clearance.
SOFAMOR DANEK GROUP, INC.
On November 2, 1998, Medtronic announced that it had entered into an
agreement to acquire Sofamor Danek Group, Inc. ("Sofamor Danek"), a company that
designs and manufactures devices, instruments, computer-assisted visualization
products, and biomaterials used in the treatment of spinal and cranial
disorders. Pursuant to the acquisition agreement, upon the fulfillment or waiver
of certain
36
<PAGE>
conditions, a wholly-owned subsidiary of Medtronic created for the Sofamor Danek
acquisition will merge with and into Sofamor Danek. Sofamor Danek will then
become a wholly-owned subsidiary of Medtronic in a stock-for-stock merger that
is expected to be tax-free and accounted for using the pooling-of-interests
method. In the Sofamor Danek merger, which is valued at approximately $3.6
billion, each outstanding share of stock of Sofamor Danek will be exchanged for
the right to receive shares of Medtronic common stock equal to $115.00 divided
by the average of the daily closing sale prices of a share of Medtronic common
stock as reported on the NYSE Composite Tape for the 15 NYSE trading days ending
on the second NYSE trading day preceding the Sofamor Danek shareholders' meeting
for the merger. The price is subject to certain collar provisions. It is
expected that the Sofamor Danek acquisition will be completed in the first
calendar quarter of 1999, but there can be no assurance that the acquisition
will be completed successfully.
OTHER INVESTMENTS AND ACQUISITIONS
Medtronic has historically been, and continues to be, actively engaged in
exploring business opportunities through investments and acquisitions. As such,
at any particular time, in addition to investments and acquisitions for which
definitive agreements have been executed and publicly announced, Medtronic is
routinely reviewing several other investment and acquisition opportunities of
varying magnitude and significance or negotiating the terms of such potential
investments and acquisitions prior to the execution of definitive agreements and
public announcements thereof.
37
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
mergers of Medtronic with each of AVE and Sofamor Danek Group, Inc. (Sofamor
Danek), each of which will be accounted for as a pooling of interests. The
unaudited pro forma condensed combined balance sheets give effect to these
transactions as if they had occurred on October 30, 1998. The unaudited pro
forma condensed combined statements of operations give effect to these
transactions as if they had occurred as of May 1, 1995, the beginning of the
earliest period presented.
The operating results for AVE have been converted as described below from
its fiscal year end (June 30) to Medtronic's fiscal year end (April 30). The
operating results for Sofamor Danek have been converted as described below from
its fiscal year end (December 31) to Medtronic's fiscal year end (April 30).
For pro forma purposes, (i) Medtronic's unaudited consolidated balance sheet
as of October 30, 1998 has been combined with AVE's and Sofamor Danek's
unaudited consolidated balance sheets as of September 30, 1998, and (ii)
Medtronic's unaudited consolidated statements of operations for the six months
ended October 30, 1998 and October 31, 1997 and audited statements of operations
for the fiscal years ended April 30, 1998, 1997 and 1996 have been combined with
AVE's and Sofamor Danek's unaudited consolidated statements of operations for
the six months ended September 30, 1998 and 1997 and 12 months ended March 31,
1998, 1997 and 1996, respectively, on a pooling of interests basis.
These pro forma financial statements are presented for illustrative purposes
only and therefore are not necessarily indicative of the operating results or
financial position that might have been achieved had the transactions occurred
as of an earlier date, nor are they necessarily indicative of operating results
or financial position that may occur in the future. These pro forma financial
statements should be read in conjunction with the historical consolidated
financial statements and notes thereto of Medtronic and AVE incorporated by
reference herein. AVE's recent purchases of the catheter lab business of C.R.
Bard, Inc. (the "Bard Cath Lab business") and World Medical Manufacturing
Corporation have not been included in the unaudited pro forma condensed combined
financial statements because they do not constitute significant business
combinations and disclosure is not deemed to be material. Information on the
impact of these transactions is included in AVE's Current Report on Form 8-K/A
that was filed with the SEC on December 14, 1998. Additional information on
Sofamor Danek may be obtained through review of Sofamor Danek's public filings
with the SEC.
As indicated in the footnotes to these pro forma financial statements,
certain pro forma adjustments have been made assuming, solely for the
illustrative purposes of these pro forma financial statements, a conversion
ratio of 0.75065 for the AVE merger and a conversion ratio of 1.65159 for the
Sofamor Danek merger (in each case, based on the closing price of Medtronic
common stock on December 17, 1998).
38
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF OCTOBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA MEDTRONIC AND
PRO FORMA MEDTRONIC AND SOFAMOR PRO FORMA SOFAMOR DANEK
MEDTRONIC AVE ADJUSTMENTS AVE COMBINED DANEK ADJUSTMENTS COMBINED
----------- --------- ------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 572,341 $ 135,555 $ 707,896 $ 70,132 $ 642,473
Short-term investments..... 244,044 96,729 340,773 9,535 253,579
Accounts receivable, net... 706,531 90,456 796,987 108,027 814,558
Inventories:
Finished goods........... 205,722 5,486 211,208 41,417 247,139
Work in process.......... 88,273 2,786 91,059 4,771 93,044
Raw materials............ 130,596 3,272 133,868 2,704 133,300
----------- --------- ------------- ------------- ----------- ----------- -------------
Total inventories...... 424,591 11,544 436,135 48,892 473,483
Prepaid expenses and other
current assets............. 324,031 23,729 347,760 67,967 391,998
----------- --------- ------------- ------------- ----------- ----------- -------------
Total current assets..... 2,271,538 358,013 2,629,551 304,553 2,576,091
Property, plant, and
equipment, net............. 565,107 78,573 643,680 56,449 621,556
Goodwill and other intangible
assets, net................ 673,357 -- 673,357 103,803 777,160
Long-term investments........ 210,801 -- 210,801 1,397 212,198
Other assets................. 113,772 1,341 115,113 66,014 179,786
----------- --------- ------------- ------------- ----------- ----------- -------------
Total assets............. $3,834,575 $ 437,927 -- $ 4,272,502 $ 532,216 -- $ 4,366,791
----------- --------- ------------- ------------- ----------- ----------- -------------
----------- --------- ------------- ------------- ----------- ----------- -------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings...... $ 201,320 -- $ 201,320 $ 18,085 $ 219,405
Accounts payable........... 96,179 $ 11,718 107,897 8,909 105,088
Accrued liabilities........ 476,594 87,227 563,821 85,605 562,199
----------- --------- ------------- ------------- ----------- ----------- -------------
Total current
liabilities............ 774,093 98,945 873,038 112,599 886,692
Long-term debt............... 19,534 -- 19,534 18,067 37,601
Deferred tax liabilities..... 509 -- 509 -- 509
Other long-term
liabilities................ 130,293 -- 130,293 20,317 150,610
----------- --------- ------------- ------------- ----------- ----------- -------------
Total liabilities........ 924,429 98,945 1,023,374 150,983 1,075,412
Shareholders' equity:
Common stock............... 48,934 64 $ 4,769(a) $ 53,767 182,977 $(178,532)(b) 53,379
Retained earnings.......... 2,963,360 339,909 $ (4,769)(a) 3,298,500 199,682 $ 178,532(b) 3,341,574
Accumulated other non-owner
changes in equity........ (75,998) (991) (76,989) (1,426) (77,424)
Receivable from Employee
Stock Ownership Plan..... (26,150) -- (26,150) -- (26,150)
----------- --------- ------------- ------------- ----------- ----------- -------------
Total shareholders'
equity................. 2,910,146 338,982 -- 3,249,128 381,233 -- 3,291,379
----------- --------- ------------- ------------- ----------- ----------- -------------
Total liabilities and
shareholders' equity... $3,834,575 $ 437,927 -- $ 4,272,502 $ 532,216 -- $ 4,366,791
----------- --------- ------------- ------------- ----------- ----------- -------------
----------- --------- ------------- ------------- ----------- ----------- -------------
<CAPTION>
PRO FORMA
MEDTRONIC,
AVE AND
SOFAMOR
DANEK
COMBINED
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 778,028
Short-term investments..... 350,308
Accounts receivable, net... 905,014
Inventories:
Finished goods........... 252,625
Work in process.......... 95,830
Raw materials............ 136,572
-----------
Total inventories...... 485,027
Prepaid expenses and other
current assets............. 415,727
-----------
Total current assets..... 2,934,104
Property, plant, and
equipment, net............. 700,129
Goodwill and other intangible
assets, net................ 777,160
Long-term investments........ 212,198
Other assets................. 181,127
-----------
Total assets............. $4,804,718
-----------
-----------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings...... $ 219,405
Accounts payable........... 116,806
Accrued liabilities........ 649,426
-----------
Total current
liabilities............ 985,637
Long-term debt............... 37,601
Deferred tax liabilities..... 509
Other long-term
liabilities................ 150,610
-----------
Total liabilities........ 1,174,357
Shareholders' equity:
Common stock............... 58,212
Retained earnings.......... 3,676,714
Accumulated other non-owner
changes in equity........ (78,415)
Receivable from Employee
Stock Ownership Plan..... (26,150)
-----------
Total shareholders'
equity................. 3,630,361
-----------
Total liabilities and
shareholders' equity... $4,804,718
-----------
-----------
</TABLE>
- ------------------------------
(a) Reflects 64,386,000 AVE $.001 par common shares outstanding at September 30,
1998 exchanged for 48,331,351 Medtronic $.10 par common shares assuming a
0.75065 conversion ratio.
(b) Reflects 26,914,000 Sofamor Danek no par common shares outstanding at
September 30, 1998 exchanged for 44,450,893 Medtronic $.10 par common shares
assuming a 1.65159 conversion ratio.
39
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA MEDTRONIC AND
PRO FORMA MEDTRONIC AND SOFAMOR PRO FORMA SOFAMOR DANEK
MEDTRONIC AVE ADJUSTMENTS AVE COMBINED DANEK ADJUSTMENTS COMBINED
----------- --------- ------------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $1,434,060 $ 343,145 $ 1,777,205 $ 195,230 $ 1,629,290
Costs and expenses:
Cost of products sold...... 402,085 56,573 458,658 35,883 437,968
Research and development
expense.................. 160,048 27,535 187,583 14,850 174,898
Selling, general, and
administrative expense... 413,196 78,281 491,477 89,157 502,353
Non-recurring charges...... 21,101 -- 21,101 8,000 29,101
Interest expense........... 5,222 -- 5,222 1,345 6,567
Interest income............ (17,163) (5,274) (22,437) -- (17,163)
----------- --------- ------------- ------------- --------- ------------- -------------
Total costs and
expenses............... 984,489 157,115 1,141,604 149,235 1,133,724
----------- --------- ------------- ------------- --------- ------------- -------------
Earnings before income
taxes...................... 449,571 186,030 635,601 45,995 495,566
Provision for income taxes... 150,136 73,438 223,574 14,371 164,507
----------- --------- ------------- ------------- --------- ------------- -------------
Net earnings................. $ 299,435 $ 112,592 $ 412,027 $ 31,624 $ 331,059
----------- --------- ------------- ------------- --------- ------------- -------------
----------- --------- ------------- ------------- --------- ------------- -------------
Weighted average shares
outstanding................ 479,553 62,853 (15,672)(c) 526,734 26,669 17,377(d) 523,599
Basic earnings per share..... $ 0.62 $ 1.79 $ 0.78 $ 1.19 $ 0.63
Earnings per share assuming
dilution................... $ 0.61 $ 1.71 $ 0.77 $ 1.08 $ 0.62
Weighted average shares
outstanding assuming
dilution................... 486,909 65,964 (16,448)(c) 536,425 29,194 19,022(d) 535,125
<CAPTION>
PRO FORMA
MEDTRONIC,
AVE AND
SOFAMOR
DANEK
COMBINED
-----------
<S> <C>
Net sales.................... $1,972,435
Costs and expenses:
Cost of products sold...... 494,541
Research and development
expense.................. 202,433
Selling, general, and
administrative expense... 580,634
Non-recurring charges...... 29,101
Interest expense........... 6,567
Interest income............ (22,437)
-----------
Total costs and
expenses............... 1,290,839
-----------
Earnings before income
taxes...................... 681,596
Provision for income taxes... 237,945
-----------
Net earnings................. $ 443,651
-----------
-----------
Weighted average shares
outstanding................ 570,780
Basic earnings per share..... $ 0.78
Earnings per share assuming
dilution................... $ 0.76
Weighted average shares
outstanding assuming
dilution................... 584,641
</TABLE>
- ------------------------------
(c) Represents 62,853,000 weighted average shares outstanding and 65,964,000
weighted average shares outstanding assuming dilution of AVE common stock
converted to 47,181,000 weighted average shares outstanding and 49,516,000
weighted average shares outstanding assuming dilution of Medtronic common
stock assuming a 0.75065 conversion ratio.
(d) Represents 26,669,000 weighted average shares outstanding and 29,194,000
weighted average shares outstanding assuming dilution of Sofamor Danek
common stock converted to 44,046,000 weighted average shares outstanding and
48,216,000 weighted average shares outstanding assuming dilution of
Medtronic common stock assuming a 1.65159 conversion ratio.
40
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA MEDTRONIC AND
PRO FORMA MEDTRONIC AND SOFAMOR PRO FORMA SOFAMOR DANEK
MEDTRONIC AVE ADJUSTMENTS AVE COMBINED DANEK ADJUSTMENTS COMBINED
----------- --------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $1,377,508 $ 48,485 $ 1,425,993 $ 151,619 $ 1,529,127
Costs and expenses:
Cost of products sold....... 364,127 10,466 374,593 27,291 391,418
Research and development
expense................... 151,820 9,600 161,420 9,589 161,409
Selling, general, and
administrative expense.... 417,777 14,328 432,105 71,161 488,938
Interest expense............ 4,661 -- 4,661 3,045 7,706
Interest income............. (10,331) (1,996) (12,327) -- (10,331)
----------- --------- ------------- ------------- ----------- ------ -------------
Total costs and
expenses................ 928,054 32,398 960,452 111,086 1,039,140
----------- --------- ------------- ------------- ----------- ------ -------------
Earnings before income
taxes....................... 449,454 16,087 465,541 40,533 489,987
Provision for income taxes.... 155,095 5,631 160,726 12,476 167,571
----------- --------- ------------- ------------- ----------- ------ -------------
Net earnings.................. $ 294,359 $ 10,456 $ 304,815 $ 28,057 $ 322,416
----------- --------- ------------- ------------- ----------- ------ -------------
----------- --------- ------------- ------------- ----------- ------ -------------
Weighted average shares
outstanding................. 476,872 59,366 (14,803)(e) 521,435 24,786 16,150(f) 517,808
Basic earnings per share...... $ 0.62 $ 0.18 $ 0.58 $ 1.13 $ 0.62
Earnings per share assuming
dilution.................... $ 0.61 $ 0.16 $ 0.57 $ 1.05 $ 0.61
Weighted average shares
outstanding assuming
dilution.................... 484,847 64,005 (15,960)(e) 532,892 26,696 17,394(f) 528,937
<CAPTION>
PRO FORMA
MEDTRONIC,
AVE AND
SOFAMOR
DANEK
COMBINED
-----------
<S> <C>
Net sales..................... $1,577,612
Costs and expenses:
Cost of products sold....... 401,884
Research and development
expense................... 171,009
Selling, general, and
administrative expense.... 503,266
Interest expense............ 7,706
Interest income............. (12,327)
-----------
Total costs and
expenses................ 1,071,538
-----------
Earnings before income
taxes....................... 506,074
Provision for income taxes.... 173,202
-----------
Net earnings.................. $ 332,872
-----------
-----------
Weighted average shares
outstanding................. 562,371
Basic earnings per share...... $ 0.59
Earnings per share assuming
dilution.................... $ 0.58
Weighted average shares
outstanding assuming
dilution.................... 576,982
</TABLE>
- ------------------------------
(e) Represents 59,366,000 weighted average shares outstanding and 64,005,000
weighted average shares outstanding assuming dilution of AVE common stock
converted to 44,563,000 weighted average shares outstanding and 48,045,000
weighted average shares outstanding assuming dilution of Medtronic common
stock assuming a 0.75065 conversion ratio.
(f) Represents 24,786,000 weighted average shares outstanding and 26,696,000
weighted average shares outstanding assuming dilution of Sofamor Danek
common stock converted to 40,936,000 weighted average shares outstanding and
44,090,000 weighted average shares outstanding assuming dilution of
Medtronic common stock assuming a 1.65159 conversion ratio.
41
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA MEDTRONIC AND
PRO FORMA MEDTRONIC AND SOFAMOR PRO FORMA SOFAMOR DANEK
MEDTRONIC AVE ADJUSTMENTS AVE COMBINED DANEK ADJUSTMENTS COMBINED
----------- --------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $2,783,371 $ 227,991 $ 3,011,362 $ 331,596 $ 3,114,967
Costs and expenses:
Cost of products sold...... 760,016 45,668 805,684 61,446 821,462
Research and development
expense.................. 317,957 28,732 346,689 21,251 339,208
Selling, general, and
administrative expense... 809,546 61,881 871,427 155,939 965,485
Non-recurring charges...... 192,400 -- 192,400 -- 192,400
Interest expense........... 9,756 -- 9,756 5,498 15,254
Interest income............ (22,927) (4,438) (27,365) -- (22,927)
----------- --------- ------------- ------------- ----------- ------ -------------
Total costs and
expenses............... 2,066,748 131,843 2,198,591 244,134 2,310,882
----------- --------- ------------- ------------- ----------- ------ -------------
Earnings before income
taxes...................... 716,623 96,148 812,771 87,462 804,085
Provision for income taxes... 249,746 35,696 285,442 26,957 276,703
----------- --------- ------------- ------------- ----------- ------ -------------
Net earnings................. $ 466,877 $ 60,452 $ 527,329 $ 60,505 $ 527,382
----------- --------- ------------- ------------- ----------- ------ -------------
----------- --------- ------------- ------------- ----------- ------ -------------
Weighted average shares
outstanding................ 477,243 61,136 (15,244)(g) 523,135 25,039 16,314(h) 518,596
Basic earnings per share..... $ 0.98 $ 0.99 $ 1.01 $ 2.42 $ 1.02
Earnings per share assuming
dilution................... $ 0.96 $ 0.93 $ 0.99 $ 2.22 $ 1.00
Weighted average shares
outstanding assuming
dilution................... 484,126 64,675 (16,127)(g) 532,674 27,197 17,721(h) 529,044
<CAPTION>
PRO FORMA
MEDTRONIC,
AVE AND
SOFAMOR
DANEK
COMBINED
-----------
<S> <C>
Net sales.................... $3,342,958
Costs and expenses:
Cost of products sold...... 867,130
Research and development
expense.................. 367,940
Selling, general, and
administrative expense... 1,027,366
Non-recurring charges...... 192,400
Interest expense........... 15,254
Interest income............ (27,365)
-----------
Total costs and
expenses............... 2,442,725
-----------
Earnings before income
taxes...................... 900,233
Provision for income taxes... 312,399
-----------
Net earnings................. $ 587,834
-----------
-----------
Weighted average shares
outstanding................ 564,488
Basic earnings per share..... $ 1.04
Earnings per share assuming
dilution................... $ 1.02
Weighted average shares
outstanding assuming
dilution................... 577,592
</TABLE>
- ------------------------------
(g) Represents 61,136,000 weighted average shares outstanding and 64,675,000
weighted average shares outstanding assuming dilution of AVE common stock
converted to 45,892,000 weighted average shares outstanding and 48,548,000
weighted average shares outstanding assuming dilution of Medtronic common
stock assuming a 0.75065 conversion ratio.
(h) Represents 25,039,000 weighted average shares outstanding and 27,197,000
weighted average shares outstanding assuming dilution of Sofamor Danek
common stock converted to 41,353,000 weighted average shares outstanding and
44,918,000 weighted average shares outstanding assuming dilution of
Medtronic common stock assuming a 1.65159 conversion ratio.
42
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA MEDTRONIC AND
PRO FORMA MEDTRONIC AND SOFAMOR PRO FORMA SOFAMOR DANEK
MEDTRONIC AVE ADJUSTMENTS AVE COMBINED DANEK ADJUSTMENTS COMBINED
----------- --------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $2,609,361 $ 75,123 $ 2,684,484 $ 260,066 $ 2,869,427
Costs and expenses:
Cost of products sold....... 692,964 13,991 706,955 46,759 739,723
Research and development
expense................... 299,662 8,792 308,454 17,018 316,680
Selling, general, and
administrative expense.... 807,852 18,593 826,445 125,109 932,961
Non-recurring charges....... -- -- -- 50,000 50,000
Interest expense............ 11,254 -- 11,254 4,143 15,397
Interest income............. (34,047) (4,255) (38,302) -- (34,047)
----------- --------- ------------- ------------- ----------- ------ -------------
Total costs and
expenses................ 1,777,685 37,121 1,814,806 243,029 2,020,714
----------- --------- ------------- ------------- ----------- ------ -------------
Earnings before income
taxes....................... 831,676 38,002 869,678 17,037 848,713
Provision for income taxes.... 287,092 13,286 300,378 3,181 290,273
----------- --------- ------------- ------------- ----------- ------ -------------
Net earnings.................. $ 544,584 $ 24,716 $ 569,300 $ 13,856 $ 558,440
----------- --------- ------------- ------------- ----------- ------ -------------
----------- --------- ------------- ------------- ----------- ------ -------------
Weighted average shares
outstanding................. 485,506 57,647 (14,374)(i) 528,779 24,384 15,888(j) 525,778
Basic earnings per share...... $ 1.12 $ 0.43 $ 1.08 $ 0.57 $ 1.06
Earnings per share assuming
dilution.................... $ 1.10 $ 0.39 $ 1.05 $ 0.53 $ 1.04
Weighted average shares
outstanding assuming
dilution.................... 494,019 62,905 (15,686)(i) 541,238 26,137 17,031(j) 537,187
<CAPTION>
PRO FORMA
MEDTRONIC,
AVE AND
SOFAMOR
DANEK
COMBINED
-----------
<S> <C>
Net sales..................... $2,944,550
Costs and expenses:
Cost of products sold....... 753,714
Research and development
expense................... 325,472
Selling, general, and
administrative expense.... 951,554
Non-recurring charges....... 50,000
Interest expense............ 15,397
Interest income............. (38,302)
-----------
Total costs and
expenses................ 2,057,835
-----------
Earnings before income
taxes....................... 886,715
Provision for income taxes.... 303,559
-----------
Net earnings.................. $ 583,156
-----------
-----------
Weighted average shares
outstanding................. 569,051
Basic earnings per share...... $ 1.02
Earnings per share assuming
dilution.................... $ 1.00
Weighted average shares
outstanding assuming
dilution.................... 584,406
</TABLE>
- ------------------------------
(i) Represents 57,647,000 weighted average shares outstanding and 62,905,000
weighted average shares outstanding assuming dilution of AVE common stock
converted to 43,273,000 weighted average shares outstanding and 47,219,000
weighted average shares outstanding assuming dilution of Medtronic common
stock assuming a 0.75065 conversion ratio.
(j) Represents 24,384,000 weighted average shares outstanding and 26,137,000
weighted average shares outstanding assuming dilution of Sofamor Danek
common stock converted to 40,272,000 weighted average shares outstanding and
43,168,000 weighted average shares outstanding assuming dilution of
Medtronic common stock assuming a 1.65159 conversion ratio.
43
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA MEDTRONIC AND
PRO FORMA MEDTRONIC AND SOFAMOR PRO FORMA SOFAMOR DANEK
MEDTRONIC AVE ADJUSTMENTS AVE COMBINED DANEK ADJUSTMENTS COMBINED
----------- --------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $2,326,836 $ 44,128 $ 2,370,964 $ 199,077 $ 2,525,913
Costs and expenses:
Cost of products sold....... 664,531 9,726 674,257 40,906 705,437
Research and development
expense................... 263,933 5,379 269,312 14,264 278,197
Selling, general, and
administrative expense.... 747,245 6,545 753,790 93,166 840,411
Interest expense............ 10,531 -- 10,531 3,400 13,931
Interest income............. (31,124) (502) (31,626) -- (31,124)
----------- --------- ------------- ------------- ----------- ------ -------------
Total costs and
expenses................ 1,655,116 21,148 1,676,264 151,736 1,806,852
----------- --------- ------------- ------------- ----------- ------ -------------
----------- --------- ------------- ------------- ----------- ------ -------------
Earnings before income
taxes....................... 671,720 22,980 694,700 47,341 719,061
Provision for income taxes.... 235,582 7,762 243,344 10,677 246,259
----------- --------- ------------- ------------- ----------- ------ -------------
Net earnings.................. $ 436,138 $ 15,218 $ 451,356 $ 36,664 $ 472,802
----------- --------- ------------- ------------- ----------- ------ -------------
----------- --------- ------------- ------------- ----------- ------ -------------
Weighted average shares
outstanding................. 482,923 42,184 (10,519)(k) 514,588 23,934 15,595(l) 522,452
Basic earnings per share...... $ 0.90 $ 0.36 $ 0.88 $ 1.53 $ 0.90
Earnings per share assuming
dilution.................... $ 0.89 $ 0.28 $ 0.85 $ 1.44 $ 0.88
Weighted average shares
outstanding assuming
dilution.................... 492,209 54,773 (13,657)(k) 533,325 25,533 16,637(l) 534,379
<CAPTION>
PRO FORMA
MEDTRONIC,
AVE AND
SOFAMOR
DANEK
COMBINED
-----------
<S> <C>
Net sales..................... $2,570,041
Costs and expenses:
Cost of products sold....... 715,163
Research and development
expense................... 283,576
Selling, general, and
administrative expense.... 846,956
Interest expense............ 13,931
Interest income............. (31,626)
-----------
Total costs and
expenses................ 1,828,000
-----------
-----------
Earnings before income
taxes....................... 742,041
Provision for income taxes.... 254,021
-----------
Net earnings.................. $ 488,020
-----------
-----------
Weighted average shares
outstanding................. 554,117
Basic earnings per share...... $ 0.88
Earnings per share assuming
dilution.................... $ 0.85
Weighted average shares
outstanding assuming
dilution.................... 575,495
</TABLE>
- ------------------------------
(k) Represents 42,184,000 weighted average shares outstanding and 54,773,000
weighted average shares outstanding assuming dilution of AVE common stock
converted to 31,665,000 weighted average shares outstanding and 41,116,000
weighted average shares outstanding assuming dilution of Medtronic common
stock assuming a 0.75065 conversion ratio.
(l) Represents 23,934,000 weighted average shares outstanding and 25,533,000
weighted average shares outstanding assuming dilution of Sofamor Danek
common stock converted to 39,529,000 weighted average shares outstanding and
42,170,000 weighted average shares outstanding assuming dilution of
Medtronic common stock assuming a 1.65159 conversion ratio.
44
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1
The unaudited pro forma financial statements give effect to the mergers of
Medtronic with each of AVE and Sofamor Danek Group, Inc. (Sofamor Danek) using
the pooling of interests method of accounting. The unaudited pro forma condensed
combined balance sheets give effect to these transactions as if they had
occurred on October 30, 1998. The unaudited pro forma condensed combined
statements of operations give effect to these transactions as if they had
occurred as of May 1, 1995, the beginning of the earliest period presented.
The pro forma financial statements are presented for illustrative purposes
only and therefore are not necessarily indicative of the operating results or
financial position that might have been achieved had the transactions occurred
as of an earlier date, nor are they necessarily indicative of operating results
or financial position that may occur in the future.
These pro forma financial statements should be read in conjunction with the
historical consolidated financial statements and notes thereto of Medtronic and
AVE incorporated by reference herein. Additional information on Sofamor Danek
may be obtained through review of Sofamor Danek's public filings with the
Securities and Exchange Commission.
NOTE 2
The unaudited pro forma condensed combined balance sheets reflect
Medtronic's unaudited consolidated balance sheet as of October 30, 1998 combined
with AVE's and Sofamor Danek's unaudited consolidated balance sheets as of
September 30, 1998.
NOTE 3
The unaudited pro forma condensed combined statements of operations reflect
Medtronic's unaudited consolidated statements of operations for the six months
ended October 30, 1998 and October 31, 1997 and audited statements of operations
for the fiscal years ended years ended April 30, 1998, 1997 and 1996 combined
with AVE's and Sofamor Danek's unaudited consolidated statements of operations
for the six months ended September 30, 1998 and 1997 and 12 months ended March
31, 1998, 1997 and 1996, respectively, on a pooling of interests basis.
NOTE 4
The unaudited pro forma condensed combined financial statements do not give
effect to AVE's acquisition of the Bard Cath Lab Business which was consummated
on October 1, 1998. The Bard Cath Lab acquisition has not been included in the
unaudited pro forma condensed combined financial statements because it does not
constitute a significant business combination and disclosure is not deemed to be
material. The Bard Cath Lab business includes a broad range of catheter-based
technologies including PTCA balloon catheters, guidewires, guide catheters,
coronary diagnostic catheters and guidewires, introducers and vessel closure
devices, coronary stents, and various other components and accessories. AVE's
acquisition of the Bard Cath Lab business was accounted for as a purchase
business combination. The purchase price of $550 million (which is subject to
adjustment) was allocated to tangible net assets of $54 million, in process
research and development of $98 million, intangible assets of $73 million and
goodwill of $325 million. The in-process research and development charge of $98
million was recorded by AVE in October 1998.
On December 14, 1998, AVE acquired World Medical Manufacturing Corporation
(World Medical), a manufacturer of medical devices for the treatment of
abdominal aortic aneurysms, for approximately $62 million in AVE common stock.
The World Medical acquisition has not been included in the unaudited pro forma
condensed combined financial statements because it does not constitute a
significant business combination and disclosure is not deemed to be material. In
connection with the purchase business combination, AVE expects to record an
in-process research and development charge of approximately $42 million.
NOTE 5
In addition to professional fees and change-in-control payments in
connection with the AVE transaction, Medtronic expects that there will be
additional costs incurred related to closing duplicate facilities and
eliminating duplicate administrative functions. The total costs incurred may
exceed $100 million.
NOTE 6
The accounting policies of the separate companies are currently being
studied from a conformity perspective. The impact of conforming accounting
principles, if any, is not expected to be material.
45
<PAGE>
COMPARISON OF RIGHTS OF MEDTRONIC AND AVE SHAREHOLDERS
Medtronic and AVE are incorporated under the laws of Minnesota and Delaware,
respectively. Upon consummation of the Merger, shareholders of AVE will become
shareholders of Medtronic, and their rights will be governed by the laws of
Minnesota, not Delaware. The rights of Medtronic shareholders under Medtronic's
Restated Articles of Incorporation as amended ("Medtronic's Articles") and
Medtronic's Bylaws differ in certain respects from the rights of AVE
shareholders under AVE's Certificate of Incorporation ("AVE's Certificate") and
AVE's Bylaws. Certain significant differences between the rights of Medtronic
shareholders and AVE 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 AVE and the rights of shareholders of Medtronic.
CLASSIFICATION, REMOVAL, AND NOMINATION 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. AVE's Certificate and Bylaws do not
similarly classify its Board of Directors, and directors are elected each year
for a one-year term. Both Medtronic's Articles and AVE's Bylaws provide for
vacancies on the Board to be filled by a vote of the 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. AVE's Bylaws provide that directors may be
removed, with or without cause, at any meeting of the Board by the affirmative
vote of a majority of the other directors. In addition, any AVE director may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote for the election of directors.
NOMINATION. 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.
AVE's Bylaws provide that nominations for the election of directors may be
made by the AVE Board or by any shareholder entitled to vote in the election of
directors, provided, however, that a shareholder may nominate a person for
election as a director at a meeting only if written notice of such shareholder's
intent has been given to the Secretary of AVE not later than 60 nor more than 90
days in advance of the anniversary of the previous year's annual meeting. The
notice must contain the name and address of the shareholder and of the person or
persons to be nominated, a representation that the shareholder is a holder of
record of AVE stock entitled to vote at the meeting and intends to appear in
person or by proxy at the meeting and nominate the person or persons specified
in the notice, a description of all arrangements, understandings or
relationships between the shareholder and each nominee and any other person
(naming such person), such other information as would be required to be included
to be in a proxy statement filed pursuant to the proxy rules of the SEC had the
nominee been nominated, or intended to be
46
<PAGE>
nominated, by the AVE Board, and the consent of each nominee to serve as a
director of AVE if so elected.
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. AVE's Bylaws
require the affirmative vote of a majority of the directors to modify such
provisions or the affirmative vote of at least 80 percent of the voting power of
all of the then outstanding shares of AVE common stock.
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 "--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. Medtronic's Articles 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 law.
AVE's Certificate contains a similar provision.
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
47
<PAGE>
similar transaction, because the issuance of new shares could be used to dilute
the stock ownership of such person or entity. See "--Shareholder Rights Plans."
AVE has 5,000,000 authorized but unissued shares of preferred stock, par
value $.001 per share, and the Board of Directors has the authority to fix the
terms of such shares without further shareholder voting, consent, or
ratification.
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, special meetings of shareholders of a corporation may be
called by the corporation's Board of Directors or by persons specifically
authorized to do so by the corporation's articles of incorporation or bylaws.
AVE's Bylaws provide that special meetings may be called only by the Chairman of
the Board, the Chief Executive Officer, or the Board of Directors pursuant to a
resolution adopted by a majority of the Board. Shareholders are not permitted to
call special meetings or to require the Board to call a special meeting. Any
request for a special meeting must be submitted in writing to the Chairman of
the Board, the President, or the Secretary of AVE and must state the purpose of
the proposed special meeting.
VOTING RIGHTS; SHAREHOLDER APPROVALS
Under both Medtronic's Articles and AVE's Certificate, holders of Medtronic
common stock and AVE 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 or 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. AVE's Bylaws provide that at any meeting
of shareholders, all matters, except as otherwise provided in AVE's Certificate
or Bylaws or by Delaware law, are decided by the vote of a majority in voting
interest of the shareholders present in person or by proxy and entitled to vote.
CUMULATIVE VOTING
Neither Medtronic's Articles nor AVE's Certificate or Bylaws provide for
cumulative voting with regard to the Medtronic common stock or the AVE common
stock, respectively.
PREEMPTIVE RIGHTS
Under Medtronic's Articles, holders of Medtronic stock are expressly denied
preemptive rights. AVE's Certificate does not contain any provision concerning
preemptive rights. Under Delaware law, shareholders of a Delaware corporation do
not have preemptive rights, except to the extent provided in a corporation's
Certificate.
AMENDMENT OF THE ARTICLES OR CERTIFICATE OF INCORPORATION
Under Minnesota law and Delaware law, an amendment to the articles or
certificate 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 or certificate. Medtronic's
Articles do not contain any provisions that require a larger affirmative vote in
order to amend Medtronic's Articles. AVE's Bylaws provide that the Bylaws cannot
be altered, amended, or repealed without the affirmative vote of a
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majority of the Board or the affirmative vote of at least 80 percent of the
voting power of the then outstanding shares of common stock.
BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITIONS
Medtronic is governed by Sections 302A.671 and 302A.673 of the Minnesota
Business Corporation Act. 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.
Under Delaware law, no business combination (defined to include certain
mergers, sales of assets, sales of five percent or more of outstanding stock,
loans, recapitalizations or liquidations or dissolutions) involving a Delaware
corporation and an interested shareholder (defined to be any holder of 10% or
more of the corporation's voting stock) may be entered into unless (i) either
the share acquisition or business combination was approved by the board of
directors of the corporation before the shareholder became an interested
shareholder or (ii) (a) five years have expired since the acquisition of shares
of the corporation by the interested shareholder, (b) all requirements of the
corporation's articles of incorporation relating to business combinations are
satisfied and (c) either (1) a majority of shareholders of the corporation
(excluding the interested shareholder) approves the business combination or (2)
all shareholders are paid fair value for their stock. However, such law does not
restrict any offer to purchase all of a corporation's shares.
SHAREHOLDER RIGHTS PLANS
MEDTRONIC. Medtronic has in effect a Shareholder Rights Plan and has
entered into a Rights Agreement with Norwest Bank Minnesota, N.A., as Rights
Agent. The Rights Plan provides for a dividend distribution of one preferred
stock purchase right (a "Right") to be attached to each outstanding share of
Medtronic common stock. As a result of the Merger, each share of Medtronic
common stock received in the Merger will also represent one Right. The Right
associated with each outstanding share of Medtronic common stock entitles the
holder to buy 1/1600th of a Series A Junior Participating Preferred Share (the
"Series A Preferred Shares") of Medtronic, which is substantially equivalent to
one share of Medtronic common stock, at an exercise price of $37.50 per 1/1600th
of a Series A Preferred Share. The Rights are not currently exercisable or
transferable apart from the Medtronic common stock.
The Rights will become exercisable if a person or group acquires 15% or more
of the 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, subject to certain exceptions. After the Rights become exercisable, each
Right entitles the holder (other than the Acquiring Person) to purchase
Medtronic common stock that has a market value of two times the exercise price
of the Right. If Medtronic is acquired in a merger or other business combination
transaction, each exercisable Right entitles the holder to purchase common stock
of the Acquiring Person or an affiliate that has a market value of two times the
exercise price of the Right.
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Each Right is redeemable by Medtronic at $.000625 any time before a person or
group triggers the 15% threshold to become an Acquiring Person. The Rights
expire on July 10, 2001.
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 Medtronic or a potential acquirer at one-half of its fair market
value.
AVE. AVE has a Rights Agreement, which is intended to deter hostile or
coercive attempts to acquire AVE and which was amended in May 1998 to account
for the recent increase in the market price of AVE common stock (the "AVE Rights
Agreement"). The AVE Rights Agreement enables shareholders to acquire shares of
AVE common stock, or the common stock of an acquiror, at a substantial discount
to the public market price if any person or group acquires more than 15% of AVE
common stock without the approval of the AVE Board under certain circumstances.
AVE has reserved 1,000,000 shares of Series A Junior Participating Preferred
Stock for issuance in connection with the AVE Rights Agreement. While the AVE
Board has no current intentions or plans to issue any preferred stock, issuance
of these shares could also be used as an anti-takeover device. Immediately prior
to execution of the Merger Agreement, the AVE Rights Agreement was amended so
that Medtronic would not become an Acquiring Person and the Merger will not
cause a Distribution Date or Shares Acquisition Date, as such terms are defined
in the Rights Agreement. See "The Merger--Shareholder Rights Plans."
RELATED PERSON BUSINESS TRANSACTIONS
Medtronic's Articles provide that, in certain circumstances, an affirmative
vote of two-thirds 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 approval is not required, however, if (1) a
majority vote of "continuing directors" (as defined below) expressly approves
the related person business transaction, or (2) 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 (1) any merger or
consolidation of Medtronic with or into a related person, (2) 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, (3) 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, (4) 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), (5) 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), (6) any
recapitalization or reclassification that would have the effect of increasing
the proportionate voting power of a related person, and (7) 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.
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There is no similar "related person business transaction" provision in AVE's
Certificate.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
BETWEEN AVE AND MEDTRONIC
STOCK OPTION AGREEMENT. AVE and Medtronic are parties to a Stock Option
Agreement dated November 29, 1998, pursuant to which AVE has granted to
Medtronic an option, exercisable under certain specified circumstances related
to the termination of the Merger Agreement, to purchase 12,807,795 shares of AVE
common stock, which equaled approximately 19.9% of AVE's shares outstanding on
November 29, 1998. See "The Merger--Stock Option Agreement."
VOTING AGREEMENTS. All of the executive officers and directors of AVE who
own stock or options to acquire stock of AVE have entered into voting agreements
with Medtronic pursuant to which they have agreed to vote all of the outstanding
shares of AVE common stock beneficially owned by them on the record date in
favor of the Merger. See "The Merger--Voting Agreements."
LEGAL MATTERS
The validity of the Medtronic common stock to be issued in connection with
the Merger and certain other legal matters for Medtronic, including the federal
income tax consequences 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 86,400 shares of Medtronic common
stock.
Certain legal matters for AVE, including the federal income tax consequences
in connection with the Merger, were passed upon by Cooley Godward LLP, Palo
Alto, California.
EXPERTS
The consolidated financial statements of Medtronic as of April 30, 1998 and
1997 and for each of the three years in the period ended April 30, 1998
incorporated in this Proxy Statement/Prospectus by reference to the Current
Report on Form 8-K that was filed with the SEC on November 30, 1998 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of AVE appearing in AVE's Annual
Report (Form 10-K) for the year ended June 30, 1998 have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Medtronic and AVE file annual, quarterly, and special reports, proxy
statements, and other information with the SEC. You may read and copy any
reports, statements, or other information filed by Medtronic or AVE at the SEC's
public reference rooms at 450 5th Street, N.W., Washington, D.C. 20549, or at 7
World Trade Center, Suite 1300, New York, New York 10048, or at Citicorp Center,
500 W. Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC
at 1-800-SEC-0330 for more information on the public reference rooms. The SEC
also maintains an Internet site at "http://www.sec.gov" that contain reports,
proxy and information statements, and other information regarding issuers, like
Medtronic and AVE, that file electronically with the SEC.
You can also inspect reports, proxy statements, and other information about
Medtronic at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005. You can inspect
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information about AVE at the offices of the Nasdaq National Market, 1735 K
Street, N.W., Washington, D.C. 20006
Medtronic has filed with the SEC a Registration Statement on Form S-4 to
register the Medtronic common stock to be issued in the Merger. This Proxy
Statement/Prospectus is a part of that Registration Statement and constitutes a
prospectus of Medtronic in addition to being a proxy statement of AVE for the
Special Meeting. As allowed by SEC rules, this Proxy Statement/Prospectus does
not contain all the information you can find in the Registration Statement and
the exhibits to the Registration Statement.
The SEC allows us to "incorporate by reference" information into this Proxy
Statement/ Prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered part of this Proxy
Statement/Prospectus, except for any information superseded by information in
(or incorporated by reference in) this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates by reference the documents
listed below that Medtronic and AVE have previously filed with the SEC. These
documents contain important information about Medtronic and AVE and their
finances.
<TABLE>
<CAPTION>
MEDTRONIC SEC FILINGS
(FILE NO. 1-07707) PERIOD
- --------------------------------------------- ---------------------------------------------
<S> <C>
Annual Report on Form 10-K, as amended Year ended April 30, 1998
Quarterly Reports on Form 10-Q Quarters ended July 31, 1998 and October 30,
1998
Current Reports on Form 8-K Filed July 8, 1998, July 16, 1998, August 20,
1998, September 17, 1998, September 22, 1998,
September 23, 1998, October 1, 1998, November
9, 1998, November 19, 1998, November 30,
1998, and December 3, 1998
Description of Medtronic's common stock
contained in Medtronic's registration
statement on Form 8-A
Description of Medtronic's preferred stock
purchase rights attached to its common stock
contained in Medtronic's registration
statement on Form 8-A
</TABLE>
<TABLE>
<CAPTION>
AVE SEC FILINGS
(FILE NO. 0-27802) PERIOD
- --------------------------------------------- ---------------------------------------------
<S> <C>
Annual Report on Form 10-K, as amended Year ended June 30, 1998
Quarterly Report on Form 10-Q Quarter ended September 30, 1998
Current Report on Form 8-K or 8-K/A Filed July 23, 1998, October 15, 1998,
November 12, 1998, December 1, 1998, and
December 14, 1998
Description of AVE's common stock contained
in AVE's registration statement on Form 8-A
</TABLE>
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Medtronic and AVE are also incorporating by reference all additional
documents that either company may file with the SEC between the date of this
Proxy Statement/Prospectus and the date of the Special Meeting.
If you are a shareholder of Medtronic or AVE, Medtronic and AVE may have
sent you some of the documents incorporated by reference, but you can obtain any
of them from Medtronic, AVE, or the SEC. Documents incorporated by reference are
available from Medtronic or AVE without charge, except for any exhibits to those
documents unless we have specifically incorporated by reference a particular
exhibit in this Proxy Statement/Prospectus. Shareholders may obtain documents
incorporated by reference in this Proxy Statement/Prospectus by requesting them
in writing or by telephone from the appropriate party at the following
addresses:
<TABLE>
<S> <C> <C>
Medtronic, Inc. Arterial Vascular Engineering, Inc.
7000 Central Avenue, N.E. 3576 Unocal Place
Minneapolis, Minnesota 55432 Santa Rosa, California 95403
Attention: Investor Relations Department Attention: Investor Relations
(612) 514-3035 (707) 541-3135
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM MEDTRONIC OR AVE, PLEASE DO SO
BY JANUARY 21, 1999 TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
You can also direct any questions or requests for assistance in completing
and submitting Proxy cards to AVE's proxy solicitor for the Special Meeting:
CORPORATE INVESTOR COMMUNICATIONS
111 Commerce Road
Carlstadt, NJ 07072
Telephone: (888) 296-3503
We have not authorized anyone to provide you with information that is
different from, or in addition to, what is contained or referred to in this
Proxy Statement/Prospectus. Medtronic has supplied all information contained or
incorporated by reference in this Proxy Statement/Prospectus relating to
Medtronic, and AVE has supplied all such information relating to AVE. If you are
in a jurisdiction where offers to exchange or sell, or solicitations of offers
to exchange or buy, the securities offered by this document or the solicitation
of proxies is unlawful, or if you are a person to whom it is unlawful to direct
these types of activities, then the offer presented in this document does not
extend to you. The information contained in this document speaks only as of the
date of this document unless the information specifically indicates that another
date applies.
FORWARD-LOOKING INFORMATION
Certain statements contained in this Proxy Statement/Prospectus (including
information incorporated by reference) and other written and oral statements
made from time to time by Medtronic and AVE do not relate strictly to historical
or current facts. As such, they are considered "forward-looking statements"
which provide current expectations or forecasts of future events. Such
statements can be identified by the use of words such as "anticipate,"
"believe," "could," "estimate," "expect," "forecast," "intend," "may," "plan,"
"possible," "project," "should," "will," and similar words or expressions.
Medtronic's and AVE's respective forward-looking statements generally relate to
their respective growth strategies, financial results, product development and
regulatory approval programs, and sales efforts. You should carefully consider
forward-looking statements and understand that such statements involve a variety
of risks and uncertainties, known and unknown, and may be affected by inaccurate
assumptions. Because of that, we cannot guarantee any forward-looking statement
and actual results may differ materially. It is not possible
53
<PAGE>
to foresee or identify all factors affecting Medtronic's or AVE's respective
forward-looking statements, and investors therefore should not consider any list
of factors affecting Medtronic's or AVE's respective forward-looking statements
to be an exhaustive statement of all risks, uncertainties, or potentially
inaccurate assumptions. Neither Medtronic nor AVE undertakes any obligation to
update any forward-looking statement.
Although we cannot give a comprehensive list of all factors that may cause
actual results to differ from Medtronic's or AVE's forward-looking statements,
the factors include:
- trends toward managed care, health care cost containment, and other
changes in government and private sector initiatives, in the United States
and other countries in which Medtronic or AVE do business, that are
placing increased emphasis on the delivery of more cost-effective medical
therapies;
- the trend of consolidation in the medical device industry as well as among
customers of medical device manufacturers, resulting in more significant,
complex, and long-term contracts than in the past and potentially greater
pricing pressures;
- the difficulties and uncertainties associated with the lengthy and costly
new product development and regulatory approval processes, which may
result in lost market opportunities or preclude product commercialization;
- efficacy or safety concerns with respect to marketed products, whether
scientifically justified or not, that may lead to product recalls,
withdrawals, or declining sales;
- changes in governmental laws, regulations, and accounting standards and
the enforcement thereof that may be adverse to Medtronic or AVE;
- increased public interest in recent years in product liability claims for
implanted medical devices, including pacemakers and leads, and adverse
developments in certain litigation involving Medtronic or AVE;
- other legal factors including environmental concerns and patent disputes
with competitors;
- agency or government actions or investigations affecting the industry in
general or Medtronic or AVE in particular;
- the development of new products or technologies by competitors,
technological obsolescence, and other changes in competitive factors;
- risks associated with maintaining and expanding international operations;
- business acquisitions, dispositions, discontinuations or restructurings by
Medtronic or AVE;
- the integration of businesses acquired by Medtronic or AVE;
- the price and volume fluctuations in the stock markets and their effect on
the market prices of technology and health care companies; and
- economic factors over which neither Medtronic nor AVE has any control,
including changes in inflation, foreign currency rates, and interest
rates.
Medtronic and AVE note these factors as permitted by the Private Securities
Litigation Reform Act of 1995.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MEDTRONIC, INC.,
MAV MERGER CORP.,
AND
ARTERIAL VASCULAR ENGINEERING, INC.
NOVEMBER 29, 1998
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <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 No Appraisal Rights............................................................................... A-6
1.5 Exchange of Company Common Stock.................................................................. A-6
1.6 Exchange of Merger Subsidiary Common Stock........................................................ A-8
1.7 Stock Options..................................................................................... A-8
1.8 Capitalization Changes............................................................................ A-10
1.9 Certificate of Incorporation of the Surviving Corporation......................................... A-10
1.10 Bylaws of the Surviving Corporation.............................................................. A-10
1.11 Directors and Officers of the Surviving Corporation.............................................. A-10
ARTICLE 2 CLOSING......................................................................................... A-10
2.1 Time and Place.................................................................................... A-10
2.2 Filings at the Closing............................................................................ A-10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................... A-10
3.1 Organization...................................................................................... A-11
3.2 Authorization..................................................................................... A-11
3.3 Capitalization.................................................................................... A-12
3.4 Reports and Financial Statements.................................................................. A-13
3.5 Absence of Undisclosed Liabilities................................................................ A-13
3.6 Consents and Approvals............................................................................ A-13
3.7 Compliance with Laws.............................................................................. A-14
3.8 Litigation........................................................................................ A-14
3.9 Absence of Material Adverse Changes............................................................... A-15
3.10 Officers, Directors and Employees................................................................ A-15
3.11 Taxes............................................................................................ A-15
3.12 Contracts........................................................................................ A-16
3.13 Intellectual Property Rights..................................................................... A-16
3.14 Benefit Plans.................................................................................... A-17
3.15 Minute Books..................................................................................... A-18
3.16 No Finders....................................................................................... A-18
3.17 Proxy Statement.................................................................................. A-18
3.18 Fairness Opinion................................................................................. A-19
3.19 State Takeover Laws; Rights Plan................................................................. A-19
3.20 Merger Filings................................................................................... A-19
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY.................................. A-19
4.1 Organization...................................................................................... A-20
4.2 Authorization..................................................................................... A-20
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
4.3 Capitalization.................................................................................... A-20
4.4 Consents and Approvals............................................................................ A-21
4.5 Reports; Financial Statements; Absence of Changes................................................. A-21
4.6 Registration Statement............................................................................ A-22
4.7 No Finders........................................................................................ A-22
4.8 Absence of Undisclosed Liabilities................................................................ A-22
4.9 Compliance with Laws.............................................................................. A-22
4.10 Litigation....................................................................................... A-22
4.11 Absence of Material Adverse Changes.............................................................. A-22
4.12 Reorganization................................................................................... A-23
4.13 Merger Filings................................................................................... A-23
ARTICLE 5 COVENANTS....................................................................................... A-23
5.1 Conduct of Business of the Company................................................................ A-23
5.2 Conduct of Business of Parent..................................................................... A-25
5.3 No Solicitation................................................................................... A-26
5.4 Access and Information............................................................................ A-27
5.5 Approval of Stockholders; Proxy Statement; Registration Statement................................. A-28
5.6 Consents.......................................................................................... A-29
5.7 Affiliates' Letters............................................................................... A-29
5.8 Expenses.......................................................................................... A-30
5.9 Further Actions................................................................................... A-30
5.10 Regulatory Approvals............................................................................. A-30
5.11 Certain Notifications............................................................................ A-30
5.12 Voting of Shares................................................................................. A-31
5.13 Stock Option Agreement........................................................................... A-31
5.14 NYSE Listing Application......................................................................... A-31
5.15 Indemnification.................................................................................. A-31
5.16 Letters of the Company's and Parent's Accountants................................................ A-32
5.17 Subsidiary Shares................................................................................ A-32
5.18 Benefit Plans and Employee Matters............................................................... A-32
5.19 Obligations of Merger Subsidiary................................................................. A-33
5.20 Plan of Reorganization........................................................................... A-33
5.21 Pooling.......................................................................................... A-33
5.22 Tax Matters...................................................................................... A-33
ARTICLE 6 CLOSING CONDITIONS.............................................................................. A-33
6.1 Conditions to Obligations of Parent, Merger Subsidiary, and the Company........................... A-33
6.2 Conditions to Obligations of Parent and Merger Subsidiary......................................... A-34
6.3 Conditions to Obligation of the Company........................................................... A-35
ARTICLE 7 TERMINATION AND ABANDONMENT..................................................................... A-35
7.1 Termination....................................................................................... A-35
7.2 Effect of Termination............................................................................. A-37
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
ARTICLE 8 MISCELLANEOUS................................................................................... A-38
8.1 Amendment and Modification........................................................................ A-38
8.2 Waiver of Compliance; Consents.................................................................... A-38
8.3 Investigation; Survival of Representations and Warranties......................................... A-39
8.4 Notices........................................................................................... A-39
8.5 Assignment........................................................................................ A-39
8.6 Governing Law..................................................................................... A-40
8.7 Counterparts...................................................................................... A-40
8.8 Knowledge......................................................................................... A-40
8.9 Interpretation.................................................................................... A-40
8.10 Publicity........................................................................................ A-40
8.11 Entire Agreement................................................................................. A-40
8.12 Severability..................................................................................... A-40
8.13 Specific Performance............................................................................. A-41
EXHIBITS:
Exhibit A: Certificate of Incorporation
Exhibit B: Form of Affiliate's Letter
Exhibit C: Form of Agreement to Facilitate Merger
Exhibit D: Form of Stock Option Agreement
</TABLE>
A-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT is dated as of November 29, 1998, by and among MEDTRONIC,
INC., a Minnesota corporation ("Parent"), MAV MERGER CORP., a Delaware
corporation and wholly owned subsidiary of Parent ("Merger Subsidiary"), and
ARTERIAL VASCULAR ENGINEERING, INC., a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary, and the
Company have approved the merger of Merger 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(a) 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, as a condition to, and upon or immediately following the execution
of, this Agreement, Parent and the Company are entering into the Stock Option
Agreement described in Section 5.13 hereof; 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), Merger 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 Merger 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 Merger 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 on the Closing Date (as
defined in Section 2.1), the Company 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 the Company, Parent, Merger Subsidiary or
any holder of any share of capital stock of the Company or Merger Subsidiary:
(a) Each share of common stock of the Company, $.001 par value per share
("Company Common Stock"), issued and outstanding immediately prior thereto
(except for shares referred to in Section 1.3(b) hereof) shall be converted,
subject to Section 1.5(f), into the right to receive a number of shares
(carried out to five decimal places and rounded up if the sixth decimal
place is 5 or greater) (the "Conversion Ratio") of common stock of Parent,
par value $.10 per share (the "Parent Common
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Stock"), based on the average (rounded to the nearest full cent, with the
cents rounded up if the third decimal place is 5 or more) of the daily
closing sale prices of a share of Parent Common Stock as reported on the New
York Stock Exchange ("NYSE") Composite Tape, as reported in The Wall Street
Journal (the "Parent Average Stock Price"), for the fifteen consecutive NYSE
trading days ending on and including the NYSE trading day that is two NYSE
trading days prior to the Company Stockholders Meeting (as defined in
Section 5.5) (the "Determination Period"), determined as follows:
(i) if the Parent Average Stock Price for the Determination Period is
greater than $61.20 and less than $74.80, then the Conversion Ratio shall
equal $54.00 divided by the Parent Average Stock Price for the
Determination Period;
(ii) if the Parent Average Stock Price for the Determination Period
is equal to or less than $61.20, then the Conversion Ratio shall equal
0.88235; or
(iii) if the Parent Average Stock Price for the Determination Period
is equal to or greater than $74.80, then the Conversion Ratio shall equal
0.72193.
An appropriate adjustment to the Conversion Ratio 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 number of shares or a different class by reason of any
reorganization, reclassification, subdivision, recapitalization, split-up,
combination, exchange of shares, stock dividend or other similar
transaction. Notwithstanding the foregoing, nothing in this section shall be
deemed to constitute authorization or permission for or consent from Parent
or Merger Subsidiary to any reorganization, reclassification, subdivision,
recapitalization, split-up, combination, exchange of shares, or other
similar transaction.
(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, Merger
Subsidiary, or any direct or indirect wholly owned subsidiary of Parent or
the Company shall be canceled in accordance with applicable laws 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 canceled without payment of any
consideration therefor and without any conversion thereof.
(d) Each share of common stock of Merger Subsidiary, par value $.01 per
share ("Merger 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, par value $.01 per share ("Surviving
Corporation Common Stock").
1.4 NO APPRAISAL RIGHTS. The parties acknowledge that, pursuant to Section
262 of the DGCL, no holders of Company Common Stock shall have appraisal rights
in connection with the Merger.
1.5 EXCHANGE OF COMPANY COMMON STOCK.
(a) At or prior to the Effective Time, Parent shall cause Parent's stock
transfer agent or such other person as Parent may appoint and is reasonably
satisfactory to the Company to act as exchange agent (the "Exchange Agent")
hereunder. As promptly as practicable after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record (other than
Parent, Merger Subsidiary, the Company, or any wholly owned 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 the
Company Certificate(s) shall pass, only upon delivery of the Company
Certificate(s) to the Exchange Agent) and instructions for such holder's use
in effecting the surrender of the Company Certificates in exchange for
certificates representing shares of Parent Common Stock and cash in lieu of
any fractional shares.
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(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 certificates representing the number of whole shares of Parent
Common Stock into which the shares represented by the Company Certificate(s)
shall have been converted pursuant to Section 1.3(a), (ii) a bank check in
the amount of cash into which the shares represented by the Company
Certificate(s) shall have been converted pursuant to Section 1.5(f)
(relating to fractional shares), and (iii) any dividends or other
distributions to which such holder is entitled pursuant to Section 1.5(c),
and the Company Certificate(s) so surrendered shall be canceled. 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 the 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 certificates evidencing shares of Parent Common Stock that are
issued upon the surrender for exchange of Company Certificates in accordance
with the terms hereof, together with 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 the shares of Company Common
Stock represented by the surrendered Company Certificates.
(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 canceled 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 stockholders of the
Company, except such rights, if any, as they may have pursuant to the DGCL
or this Agreement. 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 a
certificate or certificates evidencing the number of whole shares of Parent
Common Stock into which the shares of Company Common Stock shall have been
converted pursuant to the Merger as provided in Section 1.3(a) hereof, 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 and the right to receive any
dividends or distributions as provided in Section 1.5(c).
(f) No fractional shares of Parent Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, shall be issued in
connection with the Merger, 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
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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 closing sale price of a
share of Parent Common Stock as reported on the NYSE Composite Tape, as
reported in The Wall Street Journal, on the Closing Date 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.
(g) In the event any Company Certificates shall have been lost, stolen,
or destroyed, the Exchange Agent shall issue in respect of such lost,
stolen, or destroyed Company Certificates, upon the making of an affidavit
of that fact by the holder thereof, such shares of Parent Common Stock, cash
for fractional shares, if any, and dividends or other distributions, 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 reasonably 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) The parties hereto acknowledge that each certificate representing a
share of Parent Common Stock issued pursuant to this Article 1 will,
pursuant to the Rights Agreement dated as of June 27, 1991, between Parent
and Norwest Bank Minnesota, N.A. (the "Parent Rights Plan"), also represent
the number of Parent preferred share purchase rights associated with one
share of Parent Common Stock at the Effective Time.
1.6 EXCHANGE OF MERGER SUBSIDIARY COMMON STOCK. From and after the
Effective Time, each outstanding certificate previously representing shares of
Merger 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 Merger 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 Merger Subsidiary Common Stock,
which shall be canceled.
1.7 STOCK OPTIONS.
(a) Except as provided in (c) below with respect to the Company's 1997
Employee Stock Purchase Plan, as amended (the "Company ESPP"), each option
to purchase shares of Company Common Stock that is outstanding at the
Effective Time, whether or not exercisable and whether or not vested (a
"Company Option") shall, without any action on the part of the Company or
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 Options
shall be deemed to refer to Parent. The Company Options assumed by Parent
shall be exercisable upon the same terms and conditions as under the Company
Options (including provisions regarding vesting and the acceleration
thereof) except that (i) such Company Options 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 multiplied by the number of shares of Company Common
Stock subject to such Company Option immediately prior to the Effective
Time, (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
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Conversion Ratio, and (iii) the Company Options shall vest to the extent
required pursuant to the current terms of such Company Options or other
agreements as described in Section 1.7 of the Company Disclosure Schedule
(as defined below); provided that if such vesting of Company Options or
other provisions with respect to the Company Options would jeopardize the
Merger being accounted for as a "pooling of interests", then the Company
shall, subject to Parent's written consent not to be unreasonably withheld,
use reasonable best efforts to prevent such vesting or effect of other
provisions. Except to the extent required pursuant to the current terms of
such Company Options or other agreements as described in Section 1.7 of the
Company Disclosure Schedule (as defined below), the Company shall not take
any action to accelerate the vesting of any Company Options. Prior to the
Effective Time, the Board of Directors of Parent shall, for purposes of Rule
16b-3(d)(1) promulgated under Section 16 of the Securities Exchange Act of
1934, and the rules and regulations thereunder (the "1934 Act"),
specifically approve (i) the assumption by Parent of the Company Options and
(ii) the issuance of Parent Common Stock in the Merger to directors,
officers and stockholders of the Company subject to Section 16 of the 1934
Act.
(b) 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. As soon as
reasonably practicable after the Effective Time (and in any event no later
than five business days after the Effective Time, provided current option
information required therefor is delivered to Parent at the Effective Time),
Parent shall file a registration statement on Form S-8 (or any successor
form) with respect to the shares of Parent Common Stock subject to Company
Options and shall use commercially reasonable efforts to maintain such
registration statement (or any successor form), including the current status
of any related prospectus or prospectuses, for so long as the Company
Options remain outstanding. In addition, Parent shall use commercially
reasonable efforts to cause the shares of Parent Common Stock subject to
Company Options to be listed on the NYSE and such other exchanges as Parent
shall determine. Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for
delivery upon exercise of Company Options pursuant to the terms set forth in
this Section 1.7. Parent shall comply with the terms of the Company Stock
Option Plans (as defined in Section 3.3) and use commercially reasonable
efforts to cause those Company Options which qualified as incentive stock
options prior to the Effective Time to continue to qualify as incentive
stock options immediately after the Effective Time.
(c) The current offerings in process as of the date of this Agreement
under the Company ESPP shall continue, and shares shall be issued to
participants thereunder on the next currently scheduled purchase dates
thereunder occurring after the date hereof as provided under, and subject to
the terms and conditions of, the Company ESPP. The Company may, consistent
with past practice, commence a new offering period under the Company ESPP on
or after February 1, 1999 and prior to the Effective Time at an exercise
price for such offering not less than as is required under the Company ESPP.
Immediately prior to the Effective Time, pursuant to Section 12(b) of the
Company ESPP, all offerings under the Company ESPP shall be terminated, and
each participant shall be deemed to have purchased immediately prior to the
Effective Time, to the extent of payroll deductions accumulated by such
participant as of such offering period end, the number of whole shares of
Company Common Stock at a per share price determined pursuant to the
provisions of the Company ESPP, and each participant shall receive a cash
payment equal to the balance, if any, of such accumulated payroll deductions
remaining after such purchase of such shares. As of the Effective Time, each
participant shall receive, by virtue of the Merger, the number of whole
shares of Parent Common Stock into which the shares of Company Common Stock
such participant has so purchased under the Company ESPP have been converted
pursuant to the Merger as provided in Section 1.3(a) hereof, plus the cash
value of any fraction of a share of Parent Common Stock as provided in
Section 1.5(f) hereof, plus any dividends or distributions as provided in
Section 1.5(c). The Company ESPP and all purchase rights thereunder shall
terminate effective as of the Effective Time.
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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 or exchanged for a different number of shares or a different class
by reason of any reorganization, reclassification, subdivision,
recapitalization, split-up, combination, exchange of shares, stock dividend or
other similar transaction, the Conversion Ratio and all per-share price amounts
and calculations set forth in this Agreement shall be appropriately adjusted to
reflect such reorganization, reclassification, subdivision, recapitalization,
split-up, combination, exchange of shares, stock dividend or other similar
transaction.
1.9 CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. The
Certificate of Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be amended to read as set forth on EXHIBIT A to this
Agreement.
1.10 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Merger Subsidiary,
as in effect immediately prior to the Effective Time, shall, subject to Section
5.15, 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 Merger 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 1:00 p.m., local time, on the date that the Required Company
Stockholder Vote (as defined in Section 3.2) is obtained, or as soon thereafter
as, and in any event no later than the second business day after, all conditions
to Closing have been satisfied or waived, or on such other date and/or at such
other time as Parent and the Company may mutually agree. The date on which the
Closing actually occurs is herein referred to as the "Closing Date." The Closing
shall take place at the corporate headquarters offices of Parent, or at such
other place or in such other manner (e.g., by telecopy exchange of signature
pages with originals to follow by overnight delivery) as the parties hereto may
agree.
2.2 FILINGS AT THE CLOSING. At the Closing, subject to the provisions of
Article 6, Parent, Merger Subsidiary, and the Company shall cause the
Certificate of Merger to be filed in accordance with the provisions of Section
252 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
Except: (i) as set forth in a document of even date herewith and
concurrently delivered herewith (the "Company Disclosure Schedule"); (ii) as
specifically described through express disclosure of current, specific facts set
forth in the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1998 or in any other filing by the Company with the SEC (as defined in
Section 3.4) filed after the date of filing such Form 10-K and prior to the date
hereof and the Company's Registration Statement on Form S-4 with respect to the
acquisition of World Medical (as defined below) as amended or supplemented prior
to the date hereof and previously delivered to Parent; (iii) as specifically
described in the schedules referred to in Section 3.1 of the Stock and Asset
Purchase Agreement dated July 9, 1998 between C. R. Bard, Inc. and the Company
(the "Bard Schedules"), as amended or supplemented prior to the date hereof and
previously delivered to Parent; or (iv) as specifically described in the
Disclosure Schedule delivered pursuant to Article 2 of the Agreement and Plan of
Merger and Reorganization dated April 10, 1998 between World Medical
Manufacturing Corporation ("World Medical"), Walleye Acquisition Corporation and
the Company (the "World Medical Schedules"), as amended or supplemented prior to
the date hereof
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and previously delivered to Parent (for purposes of clauses (i), (ii), (iii) and
(iv) above, disclosures in the Company Disclosure Schedule, such Company SEC
filings, the Bard Schedules or the World Medical Schedules shall be deemed to
qualify or limit only those particular representations and warranties set forth
in this Article 3 to which the relevancy of such disclosures is readily
apparent); the Company hereby makes the following representations and warranties
to Parent and Merger Subsidiary:
3.1 ORGANIZATION. The Company and each subsidiary of the Company (referred
to herein as a "Subsidiary") is an entity duly organized, validly existing, and
in good standing (where such concept is recognized) under the laws of its
respective jurisdiction of organization 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, except where the failure to be so organized,
existing or in good standing or to have such corporate power and authority would
not, individually or in the aggregate, have a Company Material Adverse Effect
(as defined below). 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, except where the failure to be so qualified or in
good standing could not reasonably be expected to have a Company Material
Adverse Effect (as defined below). "Company Material Adverse Effect" means an
effect that, in the aggregate with other favorable and unfavorable effects
arising from breaches of the Company's representations and warranties, is or
would reasonably at the time of such effect be expected to be materially
adverse: (i) to the business, results of operation, or financial condition of
the Company and its Subsidiaries, considered as a whole; (ii) to the ability of
the Surviving Corporation to conduct such business, as presently conducted,
following the Effective Time or the ability of Parent to derive the benefits of
owning all of the stock of the Surviving Corporation; or (iii) to the Company's
ability to perform any of its material obligations under this Agreement or to
consummate the Merger, except in each case for any such effects resulting from
or arising out of (i) this Agreement or the transactions contemplated by this
Agreement or the announcement or pendency of the Merger, (ii) any occurrence or
condition affecting the medical device or stent industries generally, or (iii)
any changes in general economic, regulatory or political conditions, and
provided, that the probability of the Company being indemnified by C.R. Bard,
Inc. against such effects or related losses or expenses (assuming a claim
therefor is asserted as soon as reasonably practicable) shall be taken into
account for purposes of determining whether there has been a Company Material
Adverse Effect. The jurisdictions in which the Company and each Subsidiary are
incorporated are listed in the Company Disclosure Schedule. The Company has
heretofore delivered or made available to Parent or its advisers complete and
accurate copies of the Certificate of Incorporation and Bylaws of the Company,
as currently in effect, and of the organizational documents and agreements
defining the rights of the Company or any Subsidiary with respect to any
material joint ventures, partnerships or other business in which the Company
owns less than substantially all of the outstanding equity interest. As of the
date hereof, neither the Company nor any Subsidiary, directly or indirectly,
owns or controls or has any material equity, partnership, or other similar
ownership interest in any corporation, partnership, joint venture, or other
business association or entity that is material to the Company and its
Subsidiaries, considered as a whole.
3.2 AUTHORIZATION. The Company has all necessary corporate power and
authority to execute and deliver this Agreement and, subject to obtaining the
necessary approval of its stockholders, to consummate the transactions
contemplated hereby. The execution and delivery by the Company of this Agreement
and the other agreements contemplated hereby to which the Company is a party,
and the consummation by the Company of the transactions contemplated hereby and
thereby, 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
are necessary to authorize this Agreement, and, subject to obtaining the
approval and adoption of this Agreement and approval of the Merger by a majority
of the shares of the Company Common Stock outstanding as of the record date of
the Company's stockholder meeting (the "Required Company Stockholder Vote"), no
other corporate action on the part of the Company is necessary to consummate the
transactions contemplated hereby. The Merger has been declared advisable by the
Board of Directors of the Company. This Agreement has been duly and validly
executed and delivered by the Company and,
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assuming due execution and delivery by the other parties hereto, constitutes the
valid and binding obligation of the Company, enforceable against the Company 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. As of the close of business on November 25, 1998, the
authorized capital stock of the Company consisted of (i) 300,000,000 shares of
Company Common Stock, $.001 par value per share, of which 64,360,781 were issued
and outstanding and 60,000 shares were held in the Company's treasury, and (ii)
5,000,000 shares of Company Preferred Stock, $.001 par value per share, of which
1,000,000 have been designated as Series A Preferred Stock and none of which
were issued or outstanding. 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 mortgage, pledge, security interest, encumbrance, lien or other
charge of any kind ("Lien") that would materially affect the Company's interest
in such shares. 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 (i) Company Options to purchase an aggregate of 346,332 shares of Company
Common Stock not granted pursuant to any Company Stock Option Plan (as defined
below) and that are listed, together with their respective exercise prices, in
the Company Disclosure Schedule, (ii) Company Options to purchase an aggregate
of 3,901,835 shares of Company Common Stock that were granted pursuant to the
Company's 1996 Equity Incentive Plan and the Company's 1996 Non-Employee
Directors' Stock Option Plan (collectively, the "Company Stock Option Plans")
and that are listed, together with their respective exercise prices, in the
Company Disclosure Schedule, (iii) the rights to purchase shares of Company
Common Stock under the Company ESPP (estimated to be approximately 250,000
shares as of the next purchase date under the Company ESPP, based on the current
contribution rates of the participants for the current Company ESPP offerings in
process as of the date of this Agreement) and (iv) the rights outstanding
pursuant to the Company Rights Agreement (as defined in Section 3.19), as of
November 25, 1998, there were 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 was a party that, directly or indirectly, (A)
obligated 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, (B) called
for or related to the sale, pledge, transfer, or other disposition or
encumbrance by the Company or any Subsidiary of any shares of its capital stock,
or (C) to the knowledge of the Company, related to the voting or control of such
capital stock. The Company Disclosure Schedule sets forth a complete and
accurate list of all stock options, warrants, and other rights to acquire
Company Common Stock that were outstanding as of November 25, 1998, including
the name of the holder, the date of grant, acquisition price, number of shares,
exercisability schedule, and, in the case of options, the type of option under
the Code. No consent of holders or participants under the Company Stock Option
Plans or the Company ESPP is required to carry out the provisions of Section
1.7. All actions, if any, required on the part of the Company under the Company
Stock Option Plans or the Company ESPP to allow for the treatment of Company
Options and the Company ESPP as is provided in Section 1.7, have been, or prior
to the Closing will be, validly taken by the Company. In no event will the
aggregate number of shares of Company Common Stock outstanding at the Effective
Time (including all shares subject to then outstanding Company Options or other
rights to acquire or commitments to issue shares of Company stock, other than
the Stock Option Agreement referenced in Section 5.13) exceed the sum of (w) the
outstanding shares of Company Common Stock described in the first sentence of
this Section 3.3, plus (x) any shares of Company Common Stock issued upon the
exercise of outstanding options to purchase Company Common Stock identified in
Section 3.3, plus (y) any shares of Company Common Stock issued by the Company
upon the exercise of rights under the Company ESPP, plus (z) any additional
shares identified in Section 3.3 of the Company Disclosure Schedule or permitted
to be issued under Section 5.1(b) hereof.
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3.4 REPORTS AND FINANCIAL STATEMENTS. The Company has filed all forms,
reports, registration statements, and other 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 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
included or incorporated by reference in the Company SEC Filings, including but
not limited to the Company's audited financial statements at and for the year
ended June 30, 1998 (the "Company June 30, 1998 Financials"), and the unaudited
interim financial statements at and for periods commencing on or after July 1,
1998, included or incorporated by reference in the forms, reports, registration
statements and other documents filed by the Company with the SEC (i) were
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q filed with the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto), subject, in the case of unaudited
interim financial statements, to the absence of notes and to year-end
adjustments, (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 and its consolidated
subsidiaries as of the dates thereof and the consolidated income, cash flows,
and changes in stockholders' equity of the Company and its consolidated
subsidiaries for the periods involved, except as otherwise noted therein and
subject, in the case of unaudited statements, to normal year-end audit
adjustments. The statements of operations included in the audited or unaudited
interim financial statements in the Company SEC Filings do not contain any items
of special or nonrecurring income or any other income not earned in the ordinary
course of business required to be disclosed separately in accordance with
generally accepted accounting principles, except as expressly specified in the
applicable statement of operations or notes thereto.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES. To the best of the Company's
knowledge, neither the Company nor any Subsidiary has any liabilities or
obligations of any nature (whether absolute, accrued, contingent or otherwise)
of the type required to be reflected on or reserved against in, or disclosed in
the notes to, a balance sheet prepared in accordance with U.S. generally
accepted accounting principles except: (a) liabilities or obligations that are
accrued or reserved against in the audited consolidated balance sheet of the
Company and its consolidated subsidiaries as of June 30, 1998 contained in the
Company June 30, 1998 Financials (the "Company Audited Balance Sheet") or in the
unaudited consolidated balance sheet of the Company and its consolidated
subsidiaries as of September 30, 1998 contained in the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1998 (the
"Company Interim Balance Sheet") or referred to in the notes thereto, (b)
liabilities incurred in the ordinary course of business since September 30, 1998
and (c) liabilities or obligations that could not reasonably be expected to 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) obtaining the Required Company Stockholder Vote and
any stockholder vote necessary under the requirements of Nasdaq with respect to
issuance of shares of Company Common Stock pursuant to the Stock Option
Agreement described in Section 5.13, (iii) the filing and recordation of
appropriate merger documents as required by the DGCL, the execution and delivery
by the Company of this Agreement and the other agreements contemplated hereby to
which the Company is a party and the consummation by the Company of the
transactions
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contemplated hereby and thereby will not: (a) violate any provision of the
Certificate or Articles of Incorporation or Bylaws of the Company or any
Subsidiary; (b) violate any material statute, rule, regulation, order, or decree
of any federal, state, local, or foreign governmental or regulatory body or
authority (including, but not limited to, the Food and Drug Administration (the
"FDA")) (a "Governmental Body") 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 by the Company with or permit,
consent, or approval to be obtained by the Company from any Governmental Body 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 3.3) 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 clauses (c)
and (d), for any such filings, permits, consents or approvals or violations,
breaches, defaults, or other occurrences that could not reasonably be expected
to 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 could not
reasonably be expected to have a Company Material Adverse Effect. Section 3.6 of
the Company Disclosure Schedule lists each 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 and which is material to the
Company and its Subsidiaries, considered as a whole, under or with respect to
which the transactions contemplated by this Agreement will result in any
material violation or breach of, or constitute (with or without due notice or
lapse of time or both) a material default under, result in the loss of any
material benefit under, or give rise to any material right of termination,
cancellation, increased payments, or acceleration under, or result in the
creation of any material Lien on any of the material properties or assets of the
Company or any Subsidiary.
3.7 COMPLIANCE WITH LAWS. Neither the Company nor any Subsidiary is in
default or violation of any applicable federal, state, local, or foreign laws,
ordinances, regulations, interpretations, judgments, decrees, injunctions,
permits, licenses, certificates, governmental requirements, orders, or other
similar items of any court or other Governmental Body (and including those of
any nongovernmental self-regulatory agency and including environmental laws or
regulations), except for such defaults or violations that could not reasonably
be expected to have a Company Material Adverse Effect. The Company and each
Subsidiary have 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 Governmental Body 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 could not reasonably be expected to have a Company Material Adverse
Effect.
3.8 LITIGATION.
(a) As of the date of this Agreement, there is no Merger-Related
Proceeding pending, or to the knowledge of the Company, threatened in
writing against the Company. (For purposes of this Agreement,
"Merger-Related Proceeding" shall mean any meritorious asserted claim,
action, suit, proceeding, or to the Company's knowledge, governmental
investigation or governmental review of any kind: (i) challenging or seeking
to prevent, enjoin or delay the Merger or any of the other transactions
contemplated by this Agreement, or (ii) seeking material damages from the
Company or
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any of its Subsidiaries or from Parent or any of its subsidiaries in
connection with the consummation or anticipated consummation of the Merger.)
(b) There are no meritorious asserted claims, actions, suits,
proceedings or, to the knowledge of the Company, governmental investigations
or governmental reviews of any kind pending, or to the knowledge of the
Company, threatened in writing against the Company or any Subsidiary or any
asset or property of the Company or any Subsidiary, other than
Merger-Related Proceedings and except for such claims, actions, suits,
proceedings, governmental investigations or governmental reviews that could
not reasonably be expected to have a Company Material Adverse Effect.
3.9 ABSENCE OF MATERIAL ADVERSE CHANGES. Between June 30, 1998 and the
date hereof, there has not been any (a) Company Material Adverse Effect; (b)
damage, destruction, or loss, not covered by insurance, that could reasonably be
expected to have a Company Material Adverse Effect; (c) material change by the
Company or any Subsidiary in accounting methods or principles used for financial
reporting purposes, except as required by a change in applicable law or
generally accepted accounting principles and concurred with by the Company's
independent public accountants; or (d) agreement, whether in writing or
otherwise, to take any action described or referenced in this Section 3.9. To
the knowledge of the Company, between June 30, 1998 and the date of this
Agreement, there have been no events, occurrences or developments with respect
to the business or assets of World Medical that could, assuming the Company's
acquisition of World Medical, reasonably be expected to have a Company Material
Adverse Effect.
3.10 OFFICERS, DIRECTORS AND EMPLOYEES. Prior to the date hereof, the
Company has provided to Parent a list that completely and accurately sets forth,
as of the date hereof, the name and current annual salary rate of each current
officer of the Company whose total remuneration for the last fiscal year was, or
for the current fiscal year has been set at, in excess of $150,000, together
with a summary of the bonuses, commissions, additional compensation, and other
like cash benefits, if any, paid or payable to such persons for the last fiscal
year and proposed for the current fiscal year. The Company Disclosure Schedule
completely and accurately sets forth (i) the names of all former officers of the
Company whose employment with the Company has terminated either voluntarily or
involuntarily during the 12-month period preceding the date of this Agreement;
and (ii) the names of the officers (with all positions and titles indicated) and
directors of the Company as of the date hereof. Except as could not reasonably
be expected to have a Company Material Adverse Effect: (i) 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 in writing
against or involving the Company or any Subsidiary; (ii) no unionizing efforts
have, to the knowledge of the Company, been made by employees of the Company or
any Subsidiary, (iii) 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; and
(iv) there is no labor dispute pending or, to the knowledge of the Company,
threatened in writing, between the Company or any Subsidiary and its employees.
3.11 TAXES. Except for such matters that would not have a Company Material
Adverse Effect, (i) the Company and each Subsidiary have filed, or have 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, (ii) the Company and each Subsidiary have duly paid,
or accrued on their books of account, all taxes (including estimated taxes)
shown as due on such reports and returns (or such extension requests), or
assessed against them, other than taxes being contested in good faith in proper
proceedings, and (iii) to the Company's knowledge, the liabilities and reserves
for taxes reflected on the Company Audited Balance Sheet or the Company Interim
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. To the Company's knowledge, no tax audits are pending against
and no claims for taxes have been received in writing by the Company or any of
its Subsidiaries, other than audits and claims that are not reasonably expected
to have a Company Material Adverse Effect. Neither the Company nor
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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. Neither the Company nor, to the knowledge of the Company,
any of its Subsidiaries has taken or agreed to take any action (other than
actions contemplated by this Agreement) that would prevent the Merger from
constituting a reorganization qualifying under Section 368(a) of the Code. The
Company is not aware of any agreement, plan or other circumstance that would
prevent the Merger from so qualifying under Section 368(a) of the Code.
For the purposes of this Agreement, "tax" shall mean and include taxes,
duties, withholdings, assessments, and charges assessed or imposed by any
governmental authority (together with any interest, penalties and additions to
tax imposed with respect thereto), 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 for taxes 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 for taxes under any tax allocation, tax sharing,
tax indemnity, or similar agreement.
3.12 CONTRACTS. The Company Disclosure Schedule lists, and the Company has
heretofore furnished to Parent complete and accurate copies of (or, if oral, the
Company Disclosure Schedule states all material provisions of), (a) every
employment, material consulting, severance or change of control agreement or
arrangement for the benefit of any director, officer, employee, other person or
stockholder of the Company or any Subsidiary or any affiliate thereof in effect
as of the date of this Agreement to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary or any of their properties or
assets is bound, and (b) every contract with physicians, scientific advisory
board members or material consultants in effect as of the date of this Agreement
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their properties or assets is bound. Neither the Company
nor any Subsidiary is in material violation of or in default under any contract,
plan, agreement, understanding, arrangement or obligation that is material to
the Company and its Subsidiaries considered as a whole, except for such
violations or defaults that could not reasonably be expected to have a Company
Material Adverse Effect. As of the date of this Agreement, neither the Company
nor any Subsidiary is a party to any contract, plan, agreement, understanding,
arrangement or obligation (i) which materially restricts the Company's, or after
the Merger would materially restrict the Surviving Corporation's or Parent's,
ability to conduct any material line of business, (ii) which imposes on the
Company or any Subsidiary material obligations (including, without limitation,
to pay material milestone payments or material license fees) not reflected in
the Company's financial statements included within the Company's SEC Filings, or
(iii) that 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 is applicable, which has not been so filed. To the Company's knowledge,
as of the date hereof, World Medical is not a party to any contract, plan,
agreement, understanding, arrangement or obligation which materially restricts
World Medical's, or after the Merger would materially restrict the Surviving
Corporation's or Parent's, ability to conduct any material line of business.
3.13 INTELLECTUAL PROPERTY RIGHTS. For purposes of this Section,
"Intellectual Property" shall mean patents, registered trademarks, registered
trade names, registered service marks, registered copyrights, and all
applications for or registrations of any of the foregoing. As of the date of
this Agreement, the Company Disclosure Schedule contains a complete and accurate
list of all material Intellectual Property owned by or licensed exclusively or
(with respect to patents material to the products or operations of the Company
which would be infringed by the Company, any Subsidiary or their products but
for such license) non-exclusively to the Company or any Subsidiary (the "Company
Intellectual Property"). The Company Intellectual Property is owned by or
licensed to the Company or a Subsidiary free and clear of any Lien (as defined
in Section 3.3) that would materially adversely affect the Company's rights
thereunder. No claim is being asserted and, to the knowledge of the Company, no
person is threatening in a writing delivered to the Company to assert a claim,
with respect to the use of the Company Intellectual Property owned by the
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Company or challenging or questioning the validity or effectiveness of any
license or agreement with respect to any Company Intellectual Property, except
for such claims that could not reasonably be expected to have a Company Material
Adverse Effect. To the knowledge of the Company, neither the use by the Company
or any Subsidiary of the Company Intellectual Property in the present conduct of
its business nor any product or service of the Company or any Subsidiary
infringes on the valid intellectual property rights of any person in a manner
that could reasonably be expected to have a Company Material Adverse Effect.
Except as could not reasonably be expected to have a Company Material Adverse
Effect, (i) all Company Intellectual Property listed in the Company Disclosure
Schedule that is owned by the Company has the status indicated therein and,
unless provided otherwise, all applications are still pending in good standing
and have not been abandoned, and (ii) to the knowledge of the Company, the
Company Intellectual Property is valid and is not being challenged in any
judicial or administrative (excluding any patent-office or registration)
proceeding. To the knowledge of the Company, no person or entity nor such
person's or entity's business or products has infringed, or misappropriated any
Company Intellectual Property, or currently is infringing, or misappropriating
any Company Intellectual Property, except as could not reasonably be expected to
have a Company Material Adverse Effect.
3.14 BENEFIT PLANS.
(a) Neither the Company nor any Subsidiary sponsors, maintains,
contributes to, or has, during the five year period ending on the date of
this Agreement, 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 and the Company or such Subsidiary has
performed all of its obligations under such Pension Plan except for such
obligations that could not reasonably be expected to have a Company Material
Adverse Effect.
(b) Neither the Company nor any Subsidiary sponsors, maintains,
contributes to, or has, during the five year period ending on the date of
this Agreement, sponsored, maintained, or contributed to or been required to
contribute to, any Pension Plan that is subject to Title IV of ERISA.
(c) Neither the Company nor any Subsidiary sponsors, maintains, or
contributes 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,
Section 4980B of the Code and the regulations thereunder, and Part 6 of
Title I of ERISA. 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 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, directors or any other person, that is neither a Pension Plan nor
a Welfare Plan (collectively, the "Compensation Plans").
(e) With respect to the Pension Plans, Welfare Plans or Compensation
Plans, no event has occurred and, to the knowledge of the Company, there
exists no condition or set of circumstances, in connection with which the
Company or any of its Subsidiaries could be subject to any liability under
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the terms of such Plans (other than the payment of benefits thereunder),
ERISA, the Code or any other applicable law which could reasonably be
expected to have a Company Material Adverse Effect.
(f) The Internal Revenue Service has issued favorable determination
letters with respect to all Company and Subsidiary Pension Plans that are
intended to be qualified under Section 401(a) of the Code. The Company has
provided to Parent the written documents setting forth the terms of all
Pension Plans, Welfare Plans, Compensation Plans, and related agreements,
and complete and accurate copies of all annual reports (Form 5500),
favorable determination letters, current summary plan descriptions, and all
employee handbooks or manuals. The Company has provided to Parent (i) copies
of all employment agreements with officers of any of the Company, its U.S.
Subsidiaries or, to the extent reasonably available, the Company's non-U.S.
Subsidiaries (or copies of forms of agreements setting forth representative
employment terms and conditions); (ii) copies of all severance, bonus or
incentive agreements, programs and policies of any of the Company, any U.S.
Subsidiary or, to the extent reasonably available, the Company's non-U.S.
Subsidiaries with or relating to any of its employees; and (iii) copies of
all plans, programs, agreements and other arrangements of any of the
Company, any U.S. Subsidiary or, to the extent reasonably available, the
Company's non-U.S. Subsidiaries with or relating to any of its employees
which contain change in control provisions. With respect to any items that
would be described in the immediately preceding sentence but for the fact
that such copies relate to non-U.S. Subsidiaries and are not reasonably
available to the Company, the Company (i) shall deliver copies thereof to
Parent prior to the Effective Time, and (ii) represents and warrants to
Parent that such items will not, individually or in the aggregate, be
material to the Company and its Subsidiaries.
(g) The execution by the Company of, and performance by the Company 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 result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits, or obligation to fund benefits. 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
Prop. Treas. Reg. 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).
3.15 MINUTE BOOKS. The Company has previously made available to Parent or
its representatives all of its minutes of meetings of and corporate actions or
written consents by the stockholders, Board of Directors, and committees of the
Board of Directors of the Company.
3.16 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 in
the Company Disclosure Schedule 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 agreements or other documents described in
the Company Disclosure Schedule, copies of which have been provided or made
available to Parent or its advisors prior to the date of this Agreement.
3.17 PROXY STATEMENT. The Proxy Statement/Prospectus (as defined in
Section 5.5 hereof) and any amendments or supplements thereto will comply as to
form in all material respects with all applicable laws, and none of the
information supplied by the Company specifically for inclusion or incorporation
therein or in any amendments or supplements thereto, or in any schedules
required to be filed with the SEC in connection therewith, will, at the date the
Proxy Statement/Prospectus (or any amendment or supplement thereto) is first
mailed to stockholders, or at the time of the Company Stockholders' Meeting,
contain any
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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.
3.18 FAIRNESS OPINION. The Company has received an opinion from SG Cowen
Securities Corporation to the effect that, as of the date of such opinion, the
Conversion Ratio is fair, from a financial point of view, to the holders of
Company Common Stock, and the Company will promptly deliver a copy of such
opinion to Parent.
3.19 STATE TAKEOVER LAWS; RIGHTS PLAN.
(a) The Board of Directors of the Company has approved the transactions
contemplated by this Agreement, such that the provisions of Section 203
(entitled "Business Combinations with Interested Shareholders") of the DGCL
will not apply to this Agreement or the Agreements to Facilitate Merger or
the Stock Option Agreement or any of the transactions contemplated hereby or
thereby.
(b) The Company has taken all actions and completed all amendments, if
any, necessary or appropriate so that (i) the Rights Agreement dated as of
February 26, 1997, as amended, between the Company and BankBoston, N.A. (the
"Company Rights Agreement"), is inapplicable to the transactions
contemplated by the Agreements to Facilitate Merger, the Stock Option
Agreement and this Agreement, (ii) the execution of this Agreement, the
Stock Option Agreement, and the Agreements to Facilitate Merger, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not (w) result in Parent being an "Acquiring Person" (as such term is
defined in the Company Rights Agreement), (x) result in the ability of any
person to exercise any Rights under the Company Rights Agreement, (y) enable
or require the Rights to separate from the shares of Company Common Stock to
which they are attached or to be triggered or become exercisable, or (z)
otherwise result in the occurrence of a "Distribution Date" or "Shares
Acquisition Date" (as such terms are defined in the Company Rights
Agreement), and (iii) immediately prior to the Effective Time, the Rights
under the Company Rights Agreement shall, without any payment by the Company
or Parent, expire with neither the Company nor Parent having any obligations
under, and no holder of Rights having any rights under, the Company Rights
Agreement.
3.20 MERGER FILINGS. The information as to the Company or any of its
affiliates or stockholders included in the Company's filing, or submitted to
Parent and Merger Subsidiary for inclusion in their 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.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUBSIDIARY
Except (i) as set forth in a document of even date herewith and concurrently
delivered herewith (the "Parent Disclosure Schedule") or (ii) as specifically
described through express disclosure of current, specific facts set forth in
Parent's Annual Report on Form 10-K for the fiscal year ended April 30, 1998 or
in any other filing by Parent with the SEC filed after the date of filing such
Form 10-K and prior to the date hereof (for purposes of clauses (i) and (ii)
above, disclosures in the Parent Disclosure Schedule and such Parent SEC filings
shall be deemed to qualify or limit only those particular representations and
warranties set forth in this Article 4 to which the relevancy of such
disclosures is readily apparent), Parent and Merger Subsidiary hereby jointly
and severally make the following representations and warranties to the Company:
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4.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing, and in good standing
under the laws of the State of Minnesota. Merger Subsidiary is a corporation
duly organized and validly existing under the laws of the State of Delaware.
Each of Parent and Merger Subsidiary has all requisite corporate power and
authority to own, lease, and operate its properties and to carry on its business
as now being conducted, except where the failure to be so organized, existing or
in good standing or to have such corporate power and authority would not,
individually or in the aggregate, have a Parent Material Adverse Effect (as
defined below). Each of Parent and Merger 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, except where the failure to be so qualified or in
good standing could not reasonably be expected to have a Parent Material Adverse
Effect (as defined below). "Parent Material Adverse Effect" means an effect
that, in the aggregate with other favorable and unfavorable effects arising from
breaches of Parent's and Merger Subsidiary's representations and warranties, is
or would reasonably at the time of such effect be expected to be materially
adverse: (i) to the business, results of operation, or financial condition of
Parent and its subsidiaries, considered as a whole, or (ii) to Parent's ability
to perform any of its material obligations under this Agreement or to consummate
the Merger, except in each case for any such effects resulting from or arising
out of (i) this Agreement or the transactions contemplated by this Agreement or
the announcement or pendency of the Merger, (ii) any occurrence or condition
affecting the medical device industry generally or affecting Parent's principal
market sector generally, or (iii) any changes in general economic, regulatory or
political conditions. Parent has heretofore delivered or made available to the
Company or its advisors complete and accurate copies of the Articles of
Incorporation and Bylaws of Parent, as currently in effect.
4.2 AUTHORIZATION. Each of Parent and Merger Subsidiary has all necessary
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery by
Parent and Merger Subsidiary of this Agreement and the other agreements
contemplated hereby to which Parent or Merger Subsidiary is a party, and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby and thereby, have been duly and validly authorized and approved by the
Boards of Directors of Parent and Merger Subsidiary and by Parent as the sole
shareholder of Merger Subsidiary, and no other corporate proceedings on the part
of Parent and Merger Subsidiary, and no vote, consent or approval of Parent's
shareholders, are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. The Merger has been declared advisable by the
Board of Directors of Merger Subsidiary. This Agreement has been duly and
validly executed and delivered by each of Parent and Merger Subsidiary and,
assuming due execution and delivery by the Company, constitutes the valid and
binding obligation of Parent and Merger 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 October 23, 1998, 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 489,262,955 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 Merger Subsidiary consists of
2,500 shares of Merger Subsidiary Common Stock, 100 of which are issued and
outstanding and owned by Parent. All issued and outstanding shares of Parent
Common Stock and Merger 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.
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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 DGCL, the execution and delivery by Parent and
Merger Subsidiary of this Agreement and the other agreements contemplated hereby
to which Parent and Merger Subsidiary are parties, and the consummation of the
transactions contemplated hereby and thereby will not: (a) violate any provision
of the Certificate or Articles of Incorporation or Bylaws of Parent or Merger
Subsidiary; (b) violate any material statute, rule, regulation, order, or decree
of any Governmental Body 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 by Parent or Merger Subsidiary with
or permit, consent, or approval to be obtained by Parent or Merger Subsidiary
from any (Governmental Body 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 clauses (c) and (d), for any such filings, permits, consents or approvals or
violations, breaches, defaults, or other occurrences that could not reasonably
be expected to 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
could not reasonably be expected to have a Parent Material Adverse Effect.
4.5 REPORTS; FINANCIAL STATEMENTS; ABSENCE OF CHANGES. Parent has filed
all forms, reports, registration statements, and other documents required to be
filed by it with the SEC since May 1, 1995 (such forms, reports, registration
statements and other 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 included or incorporated
by reference in the Parent SEC Filings, including but not limited to Parent's
audited financial statements at and for the year ended April 30, 1998 (the
"Parent April 30, 1998 Financials"), and the unaudited interim financial
statements at and for periods commencing on or after May 1, 1998 included or
incorporated by reference in the forms, reports, registration statements and
other documents filed by Parent with the SEC (i) were prepared in accordance
with generally accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q filed with the SEC) applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto) subject, in the case of unaudited interim financial
statements, to the absence of notes and to year-end adjustments, (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 Parent and its consolidated subsidiaries as of the dates
thereof and the consolidated income, cash flows, and changes in shareholders'
equity of Parent and its consolidated subsidiaries for the periods involved,
except as otherwise noted therein and subject, in the case of unaudited
statements, to normal year-end audit adjustments. The statements of operations
included in the audited or unaudited interim financial statements in the Parent
SEC Filings do not contain any items of special or nonrecurring income or any
other income not earned in the ordinary course of business required to be
disclosed separately in accordance with generally accepted accounting
principles, except as expressly specified in the applicable statement of
operations or notes thereto.
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4.6 REGISTRATION STATEMENT. The Registration Statement (as defined in
Section 5.5 hereof) and any amendments or supplements thereto will comply as to
form in all material respects with the 1933 Act, and none of the information
supplied by Parent specifically for inclusion or incorporation therein or in any
amendments or supplements thereto, or in any schedules required to be filed with
the SEC in connection therewith, will, at the time the Registration Statement
becomes effective, at the date the Proxy Statement/ Prospectus (or any amendment
or supplement thereto) is first mailed to stockholders, or at the time of the
Company Stockholders' Meeting, 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 NO FINDERS. No act of Parent or Merger 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 for payments to Goldman Sachs & Co. for
financial advisory services to Parent in connection herewith.
4.8 ABSENCE OF UNDISCLOSED LIABILITIES. To the best of Parent's knowledge,
neither Parent nor any of its subsidiaries has any liabilities or obligations of
any nature (whether absolute, accrued, contingent or otherwise) of the type
required to be reflected on or reserved against in, or disclosed in the notes
to, a balance sheet prepared in accordance with U.S. generally accepted
accounting principles except: (a) liabilities or obligations that are accrued or
reserved against in the audited consolidated balance of Parent as of April 30,
1998 contained in the Parent SEC Filings or in the unaudited consolidated
balance sheet of Parent as of July 31, 1998 contained in Parent's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 31, 1998 or referred to in
the notes thereto, (b) liabilities incurred in the ordinary course of business
since July 31, 1998 and (c) liabilities or obligations that could not reasonably
be expected to have a Parent Material Adverse Effect.
4.9 COMPLIANCE WITH LAWS. Neither Parent nor any of its subsidiaries is in
default or violation of any applicable federal, state, local or foreign laws,
ordinances, regulations, interpretations, judgments, decrees, injunctions,
permits, licenses, certificates, governmental requirements, orders or other
similar items of any court or other Governmental Body (and including those of
any nongovernmental self-regulatory agency and including environmental laws or
regulations), except for such defaults or violations that could not reasonably
be expected to have a Parent Material Adverse Effect. Parent and each of its
subsidiaries has timely filed or otherwise provided all registrations, reports,
data and other information and applications with respect to its Regulated
Products required to be filed with or otherwise provided to the FDA or any other
Governmental Body with jurisdiction over the manufacture, use of 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 could not reasonably
be expected to have a Parent Material Adverse Effect.
4.10 LITIGATION.
(a) As of the date of this Agreement, there is no Merger-Related
Proceeding pending, or to the knowledge of Parent, threatened in writing
against Parent.
(b) There are no meritorious asserted claims, actions, suits,
proceedings or to the knowledge of Parent, governmental investigations or
governmental reviews of any kind pending, or to the knowledge of Parent,
threatened in writing against Parent or any of its subsidiaries or any asset
or property of Parent or any of its subsidiaries, other than Merger-Related
Proceedings and except for such claims, actions, suits, proceedings,
governmental investigations or governmental reviews that could not
reasonably be expected to have a Parent Material Adverse Effect.
4.11 ABSENCE OF MATERIAL ADVERSE CHANGES. Between April 30, 1998 and the
date hereof, there has not been any (a) Parent Material Adverse Effect, (b)
damage, destruction or loss, not covered by
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insurance, that could reasonably be expected to have a Parent Material Adverse
Effect, (c) material change by Parent or any of its subsidiaries in accounting
methods or principles used for financial reporting purposes, except as required
by a change in applicable law or generally accepted accounting principles and
concurred with by Parent's independent public accountants, or (d) agreement,
whether in writing or otherwise, to take any action described or referenced in
this Section 4.11. To the knowledge of Parent, between April 30, 1998 and the
date of this Agreement, there have been no events, occurrences or developments
with respect to the business or assets of either AVECOR Cardiovascular Inc. or
Sofamor Danek Group, Inc. that could, assuming Parent's acquisition of either
such entity, reasonably be expected to have a Parent Material Adverse Effect.
4.12 REORGANIZATION. Neither Parent nor, to the knowledge of Parent, any
of its subsidiaries has taken or agreed to take any action (other than actions
contemplated by this Agreement) that would prevent the Merger from constituting
a reorganization qualifying under Section 368(a) of the Code. Parent is not
aware of any agreement, plan or other circumstances that would prevent the
Merger from so qualifying under Section 368(a) of the Code.
4.13 MERGER FILINGS. The information as to Parent and Merger 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.
ARTICLE 5
COVENANTS
5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this
Agreement or as set forth in Section 5.1 of the Company Disclosure Schedule,
unless Parent shall otherwise consent in writing (such consent not to be
unreasonably withheld or delayed), during the period from the date of this
Agreement to the Effective Time, the Company and each Subsidiary will, and the
Company shall use commercially reasonable efforts to cause to World Medical to,
(i) conduct its respective operations, to the extent commercially reasonable,
according to its ordinary and usual course of business and consistent with past
practice, and (ii) use commercially reasonable efforts to preserve substantially
intact its respective business organizations, 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 material business relationships with
it. The Company will promptly advise Parent of any material change in the
management, present or planned business, properties, liabilities, results of
operations, or financial condition of the Company or any material Subsidiary.
The Company will, prior to distributing or otherwise circulating 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, consult with Parent and give Parent
reasonable opportunity to comment thereon. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in or contemplated by
this Agreement or as set forth in Section 5.1 of the Company Disclosure
Schedule, from the date of this Agreement until the Effective Time, neither the
Company nor any Subsidiary will, without the prior written consent of Parent
(such consent not to be unreasonably withheld or delayed):
(a) amend its Certificate or Articles of Incorporation or, pursuant to
action by the Company's Board of Directors, amend its 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, so long as treatment of the Merger as a pooling of interests is
not reasonably expected by Parent's or the
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Company's independent accounts to be jeopardized, the (i) issuance of shares
of Company Common Stock pursuant to the exercise of stock options
outstanding on the date of this Agreement or granted in accordance with this
subsection (b), (ii) the issuance, in the ordinary course of business and
consistent with past practice, of stock options to purchase, at not less
than the fair market value on the date of grant, up to the number of shares
specified in Section 5.1 of the Company Disclosure Schedule, and (iii)
subject to the limitations set forth in Section 1.7(c), grant of purchase
rights pursuant to the Company ESPP or the issuance of shares upon exercise
of such purchase rights);
(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 its other securities (other than, so long as treatment of the
Merger as a pooling of interests is not jeopardized, pursuant to contractual
agreements with employees, directors or consultants existing as of the date
of this Agreement); or amend or alter any material term of any of its
outstanding securities;
(d) other than indebtedness incurred in the ordinary course of business
and consistent with past practice and other than intercompany indebtedness,
create, incur or assume any indebtedness for borrowed money, or assume,
guarantee, endorse, or otherwise agree to become liable or responsible for
the obligations of any other person, or make any loans, advances or capital
contributions to, or investments in, any other person; or create, incur or
assume any Lien on any material asset other than any Lien that would not
materially adversely affect the Company's or any Subsidiary's rights with
respect thereto;
(e) (i) increase in any manner the compensation of any of its directors,
officers, employees, or consultants, or accelerate the payment of any such
compensation, except in each case in the ordinary course of business and
consistent with past practice (including, without limitation, annual year
end increases and accelerated payments customarily made upon termination of
employment) or consistent with existing contractual commitments or as
required by applicable law; (ii) pay or accelerate or otherwise modify in
any material respect the payment, vesting, exercisability, or other feature
or requirement of any pension, retirement allowance, severance, change of
control, stock option, or other employee benefit to any of its directors,
officers, employees or consultants except as required by any existing plan,
agreement, or arrangement; or (iii) except for normal increases in the
ordinary course of business in accordance with its customary past practices
or consistent with existing contractual commitments or as required by
applicable laws, commit itself to any additional or increased pension,
profit-sharing, bonus, incentive, deferred compensation, 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 (except any amendment required by
law or that would not materially increase benefits under the relevant plan);
(f) except in the ordinary course of business and consistent with past
practice or pursuant to contractual obligations existing on the date hereof,
sell, transfer, mortgage, or otherwise dispose of or encumber any assets or
properties material to the Company and its Subsidiaries, considered as a
whole other than any Lien that would not materially adversely affect the
Company's and its Subsidiaries' rights with respect to such assets or
properties;
(g) 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 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
and its Subsidiaries, considered as a whole, except as provided in
subsection (h) below and except purchases of inventory in the ordinary
course of business consistent with past practice;
(h) make or agree to make any new capital expenditure or expenditures,
except for up to $30,000,000 of capital expenditures pursuant to the
Company's budget previously provided to Parent;
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(i) enter into, amend in any material respect, or terminate any joint
ventures or any other agreements, commitments, or contracts that are
material to the Company and its Subsidiaries, considered as a whole (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);
(j) enter into or terminate, or amend, extend, renew, or otherwise
modify in any material respect (including, but not limited to, by default or
by failure to act) any material 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), or enter into any contract, plan, agreement, understanding,
arrangement or obligation which materially restricts the Company's, or after
the Merger would restrict the Surviving Corporation's or Parent's, ability
to conduct any material line of business;
(k) change in any material respect its credit policy as to sales of
inventories or collection of receivables or its inventory consignment
practices;
(l) remove or permit to be removed from any building, facility, or real
property any material machinery, equipment, fixture, vehicle, or other
personal property or parts thereof, except in the ordinary course of
business or unless the same is replaced with similar items of equal quality;
(m) alter or revise its accounting principles, procedures, methods, or
practices in any material respect, except as required by applicable law or
by a change in generally accepted accounting principles and concurred with
by the Company's independent public accountants;
(n) institute, settle, or compromise any claim, action, suit, or
proceeding pending or threatened by or against it involving amounts in
excess of $1,000,000, at law or in equity or before any Governmental Body
(including, but not limited to, the FDA) or any nongovernmental
self-regulatory agency;
(o) knowingly take any action that would render any representation,
warranty, covenant, or agreement of the Company in this Agreement inaccurate
or breached such that the conditions in Section 6.2 will not be satisfied as
of the Closing Date;
(p) fail to use commercially reasonable efforts to cause World Medical
to refrain from taking any actions described in subsections (d), (e), (f),
(g), (i), (j), (k), (l), (m), (n), or (o) above; or
(q) agree, whether in writing or otherwise, to do any of the foregoing.
5.2 CONDUCT OF BUSINESS OF PARENT. Except as contemplated by this
Agreement, from the date of this Agreement until the Effective Time, Parent will
not do, and will not permit any of its subsidiaries to do, any of the following
without the prior written consent of the Company (such consent not to be
unreasonably withheld or delayed):
(a) combine or reclassify any shares of its capital stock, declare, set
aside or pay any extraordinary dividend or other distribution (whether in
cash, stock or property or any combination thereof, but excluding a stock
split effected in the form of a stock dividend) in respect of its capital
stock, or redeem or otherwise acquire (other than pursuant to Parent's
previously established stock repurchase program or as would not violate
Section 5.21) any shares of its capital stock or amend or alter any material
term of any of its outstanding securities;
(b) acquire or agree to acquire, by merging or consolidating with, or by
purchasing a substantial 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 otherwise acquire or
agree to acquire, or dispose of or agree to dispose of, any assets of any
person, which, in each case, could
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reasonably be expected to delay materially the consummation of, or increase
materially the risk of non-consummation of, the transactions contemplated by
this Agreement;
(c) alter or revise its accounting principles, procedures, methods or
practices in any material respect, except as required by applicable law or
regulation or by a change in generally accepted accounting principles and
concurred with by Parent's independent public accountants;
(d) knowingly take any action that would result in a failure to maintain
the trading of Parent Common Stock on the NYSE;
(e) knowingly take any action, or knowingly fail to take any action,
that would render any representation, warranty, covenant or agreement of
Parent in this Agreement inaccurate or breached such that the conditions in
Section 6.3 will not be satisfied; or
(f) fail to use commercially reasonable efforts to cause AVECOR
Cardiovascular Inc. and Sofamor Danek Group, Inc. to refrain from taking any
actions described in subsection (e) above; or
(g) agree, whether in writing or otherwise, to do any of the foregoing.
5.3 NO SOLICITATION. The Company and its Subsidiaries shall not, and shall
cause 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), not to, directly or
indirectly, solicit, knowingly encourage, initiate, or participate in any way in
discussions or negotiations with, or knowingly provide any nonpublic information
to, any corporation, partnership, person, or other entity or group (other than
Parent or any affiliate or agent of Parent) concerning any proposed Alternative
Transaction, or otherwise knowingly facilitate any effort or attempt to make or
implement an Alternative Transaction. For purposes of this Agreement,
"Alternative Transaction" shall mean any of the following involving the Company
or any Subsidiary: (i) any tender offer, exchange offer, merger, consolidation,
share exchange, business combination or similar transaction; (ii) any
transaction or series of related transactions pursuant to which any person or
entity (or its shareholders), other than Parent, or Merger Subsidiary or any of
their affiliates (a "Third Party") acquires shares (or securities exercisable
for or convertible into shares) representing more than 20% of the outstanding
shares of any class of capital stock of the Company or any Subsidiary; or (iii)
any sale, lease, exchange, licensing, transfer or other disposition pursuant to
which a Third Party acquires control of more than 20% of the assets (including,
but not limited to, intellectual property assets) of the Company and its
Subsidiaries taken as a whole (determined by reference to the fair market value
of such assets), in a single transaction or series of related transactions;
provided, however, that the proposed transaction with World Medical shall not
constitute an Alternative Transaction. The Company will immediately terminate
all discussions with Third Parties concerning any proposed Alternative
Transaction, and will request that such Third Parties promptly return any
confidential information furnished by the Company in connection with any
proposed Alternative Transaction. The Company will not waive any provision of
any confidentiality, standstill or similar agreement entered into with any third
party regarding any proposed Alternative Transaction, and prior to the Closing
shall enforce all such agreements in accordance with their terms. The Company
will promptly communicate to Parent the name of the person or entity submitting,
and the terms and conditions of, any proposal or inquiry that it receives after
the date hereof in respect of any proposed Alternative Transaction or a
reasonably detailed description of any such information requested from it after
the date hereof or of any such negotiations or discussions being sought to be
initiated or continued with the Company after the date hereof in respect of a
proposed Alternative Transaction; provided, however, that this Agreement shall
not prohibit the Board of Directors of the Company from (i) prior to the
Required Company Stockholder Vote, furnishing nonpublic information to or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited Superior Proposal (as defined below), if, and only to the extent
that, (a) such action is so required under applicable law in order for the Board
of Directors to comply with its applicable fiduciary duties to its stockholders
imposed by law, (b) prior to first furnishing nonpublic information to, or first
entering into substantive discussions and negotiations with, such person or
entity after the date hereof, the Company (I) (x) releases Parent from the
two-year standstill provisions of the Confidentiality Agreement
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with respect to any proposal submitted by Parent to the Company's Board of
Directors for a transaction that, by the proposal's terms, would only be
consummated with the cooperation and approval of the Company's Board of
Directors (which proposal shall be submitted by Parent on a confidential basis
unless the Company or such person or entity proposing the Superior Proposal
publicly discloses the Superior Proposal), and (y) provides written notice to
Parent to the effect that it intends to furnish information to, or enter into
discussions or negotiations with, such person or entity, and naming and
identifying the person or entity making the Superior Proposal, and (II) receives
from such person or entity an executed confidentiality and standstill agreement
with terms no less favorable to the Company than the Confidentiality Agreement
entered into with Parent, as modified by clause (I)(x) of this sentence, and (c)
the Company provides Parent with all non-public information to be provided to
such person or entity which Parent has not previously received from the Company,
and the Company keeps Parent informed, on a daily or more regular basis if the
context requires or Parent so requests, of the status, terms and conditions and
all other material information with respect to any such discussions or
negotiations; and (ii) to the extent applicable, complying with Rule 14e-2 or
14d-9 promulgated under the 1934 Act with regard to a proposed Alternative
Transaction. Nothing in this section shall (x) permit the Company to terminate
this Agreement (except as specifically provided in Article 7 hereof), or (y)
permit the Company to enter into any agreement providing for an Alternative
Transaction (other than the confidentiality and standstill agreement as
provided, and in the circumstances and under the conditions set forth, above)
for as long as this Agreement remains in effect. For purposes of this Agreement,
a "Superior Proposal" shall mean a proposal for an Alternative Transaction that
the Board of Directors of the Company has reasonably and in good faith
determined (with the advice of its financial advisors and taking into account
all legal, financial and regulatory aspects of the likelihood of the
consummation of such Alternative Transaction, including, but not limited to, the
conditions to consummation and the consequences under such Alternative
Transaction proposal of any material adverse effects or changes in the Company)
to be more favorable to the Company's stockholders than the transactions
contemplated by this Agreement.
5.4 ACCESS AND INFORMATION.
(a) Except as required pursuant to any confidentiality agreement or
similar agreement or arrangement to which the Company or any of its
Subsidiaries is a party (in which case the Company shall use commercially
reasonable efforts to provide acceptable alternative arrangements, not in
violation of such agreement or arrangement, for disclosure to Parent or its
advisors) or pursuant to applicable law, the Company shall afford to Parent,
and to Parent's accountants, officers, directors, employees, counsel, and
other representatives, reasonable access during normal business hours upon
reasonable prior notice, 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, clinical trials, officers, employees, investigators,
distributors, customers, suppliers, and others having material 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, and 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, during normal business hours upon
reasonable prior notice and in a manner that does not unreasonably interfere
with the Company's business, 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.
(b) Parent shall hold in confidence all such nonpublic information as
required by and in accordance with the confidentiality agreement dated
November 13, 1998, between Parent and the Company (the "Confidentiality
Agreement").
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5.5 APPROVAL OF STOCKHOLDERS; PROXY STATEMENT; REGISTRATION STATEMENT.
(a) The Company shall promptly take all action necessary in accordance
with the DGCL and the Company's Certificate of Incorporation and Bylaws to
cause a special meeting of the Company's stockholders (the "Company
Stockholders 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 the adoption and approval of this Agreement and at such Meeting to
submit this Agreement and the Merger to a vote of the stockholders. The
stockholder vote or consent required for adoption and approval of this
Agreement and the approval of the Merger shall be no greater than that set
forth in the DGCL and the Company's Certificate of Incorporation as
previously provided to Parent. Accordingly, the Company represents and
warrants that the affirmative vote of the holders of record of a majority of
the shares of Company Common Stock outstanding on the record date for the
Company Stockholders Meeting is all that is necessary to obtain stockholder
adoption and approval of this Agreement and approval of the Merger. The
Company shall use best efforts to obtain the adoption and approval by the
Company's stockholders of this Agreement and the approval by the Company's
stockholders of the Merger, unless otherwise required under applicable law
in order for the Board of Directors to comply with its applicable fiduciary
duties to its stockholders imposed by law. 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's stockholders included therein are referred to in this Agreement as
the "Proxy Statement/Prospectus"). Parent shall furnish to the Company all
information concerning Parent and its subsidiaries, officers, directors and
shareholders, and shall take such other action and otherwise cooperate, as
the Company may reasonably request in connection with any such action. The
Company shall use best efforts to cause the definitive Proxy
Statement/Prospectus to be mailed to the stockholders of the Company, as
soon as reasonably practicable after the Registration Statement shall have
become effective, with the date of mailing as mutually determined by the
Company and Parent. The Proxy Statement/Prospectus shall include the
recommendation of the Company's Board of Directors in favor of the Merger,
unless otherwise required under applicable law in order for the Board of
Directors to comply with its applicable fiduciary duties to its stockholders
imposed by law. Unless and until this Agreement is validly terminated
pursuant to Article 7, nothing herein shall limit or eliminate in any way
the Company's obligation to call, give notice of, convene and hold the
Company Stockholders Meeting and at such meeting submit this Agreement and
the Merger to a vote of the Company's stockholders (and not postpone or
adjourn such meeting or the vote by the Company's stockholders upon this
Agreement and the Merger to another date without Parent's approval, not to
be unreasonably withheld if and only to the extent such postponement or
adjournment is required by law or by SEC or Nasdaq regulation).
(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 commercially 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 (i) of the receipt of the
comments of the SEC, (ii) of any request by the SEC for amendments or
supplements to the Registration Statement, (iii) of the time when the
Registration Statement has become effective or any supplement or amendment
has
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been filed, or the issuance of any stop order and (iv) of the suspension of
the qualification of the Parent Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction 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 Effective Time, any event or
circumstance relating to the Company, any Subsidiary, or the Company's
officers or directors should occur and be discovered by the Company 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 Effective Time, any
event or circumstance relating to Parent or any of its subsidiaries or their
respective officers or directors should occur and be discovered by Parent
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. No amendment or supplement to the Proxy Statement/Prospectus or the
Registration Statement will be made by Parent or the Company without the
approval of the other party (such approval not to be unreasonably withheld
or delayed).
5.6 CONSENTS. The Company will, at its cost and expense, use commercially
reasonable efforts to obtain all material 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 commercially reasonable efforts to obtain all
material approvals and consents of all third parties necessary on the part of
Parent to consummate the transactions contemplated hereby. The Company and
Parent agree to cooperate with each other in connection with obtaining such
approvals and consents.
5.7 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 1933
Act or otherwise applicable SEC accounting releases with respect to
pooling-of-interests accounting treatment (each such person, an "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 delivered or caused to be delivered, or will, promptly after the
execution hereof, deliver or cause to be delivered, to Parent an affiliate's
letter in the form attached hereto as EXHIBIT B, executed by each of the
Affiliates of the Company identified in the foregoing list, who were
available, and shall use reasonable best efforts to deliver or cause to be
delivered to Parent as soon as practicable after the date hereof such an
affiliate's letter executed by any Affiliate who was not available to sign
and deliver such letter on or prior to the date hereof and by any additional
persons who, to the knowledge of the Company, become Affiliates after the
date hereof. Parent shall be entitled to place legends as specified in such
affiliates' letters on the certificates evidencing any of the Parent Common
Stock received by such 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 1933 Act, Parent will use commercially reasonable efforts
to comply with Rule 144(c)(1) under the 1933 Act.
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5.8 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 and
the filing fees required under the HSR Act or any Foreign Merger Laws.
5.9 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
commercially 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.
5.10 REGULATORY APPROVALS.
(a) The Company and Parent each agree to use commercially reasonable
efforts to take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things 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 commercially 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 or any of the other 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.
(b) Although the parties do not anticipate any legislative,
administrative or judicial objection to the consummation of the Merger or
any of the transactions contemplated by this Agreement, each of the Company,
Parent and Merger Subsidiary agrees to use commercially reasonable efforts
vigorously to contest and resist any action, including legislative,
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent) (an "Order") that is in effect and that
restricts, prevents or prohibits the consummation of the Merger or any of
the other transactions contemplated by this Agreement, including, without
limitation, by vigorously pursuing available avenues of administrative and
judicial appeal. Each of the Company, Parent and Merger Subsidiary also
agrees to use commercially reasonable efforts to take any and all actions
necessary to avoid or eliminate each and every impediment under any
antitrust law that may be asserted by any governmental antitrust authority
or any other party so as to enable the parties to close by the date
specified in Section 7.1(b) the transactions contemplated hereby, including
without limitation, committing to and/or effecting, by consent decree, hold
separate orders, or otherwise, the sale or disposition of such assets or
businesses as are required to be divested in order to avoid the entry of, or
to effect the dissolution of, any injunction, temporary restraining order or
other order in any suit or proceeding, which would otherwise have the effect
of preventing the consummation by the date specified in Section 7.1(b) of
all or any material part of the transactions contemplated hereby.
Notwithstanding the foregoing or anything herein to the contrary, in no
event shall any party hereto be required under this Section 5.10 to make
arrangements for or to effect the sale, cessation, or other disposition of
product lines or businesses or take any action materially adverse to such
party.
5.11 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
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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, 6.2(e) or 6.3.
5.12 VOTING OF SHARES. To induce Parent to execute this Agreement, certain
executive officers and directors of the Company included in the list of
"Affiliates" referenced in Section 5.7 have executed and delivered as of the
date hereof Agreements to Facilitate Merger in the form attached hereto as
EXHIBIT C (the "Agreement to Facilitate Merger"), pursuant to which each such
person has agreed to vote his or her shares of Company Common Stock in favor of
the Merger at the Company Stockholders Meeting. The Company will use reasonable
best efforts to have all other such Affiliates execute and deliver to Parent
Agreements to Facilitate Merger as soon as practicable after the date hereof.
5.13 STOCK OPTION AGREEMENT. To induce Parent to execute this Agreement,
the Company has executed and delivered to Parent as of the date hereof a Stock
Option Agreement in the form attached hereto as EXHIBIT D (the "Stock Option
Agreement"), pursuant to which the Company has granted to Parent an option to
acquire from the Company 12,807,795 shares of Company Common Stock at an
exercise price equal to $54.00 per share. Such option shall become exercisable
only in the events described in the Stock Option Agreement.
5.14 NYSE LISTING APPLICATION. Parent shall promptly 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 and pursuant to the Company
Options assumed by Parent, and shall use commercially reasonable efforts to
obtain, prior to the Effective Time, approval for the listing of such Parent
Common Stock, subject to official notice to the NYSE of issuance. The Company
shall cooperate with Parent in such listing application.
5.15 INDEMNIFICATION.
(a) The certificate of incorporation and the bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification,
payment of fees and expenses and exculpation from liability set forth in the
Company's certificate of incorporation and bylaws on the date of this
Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner
that would adversely affect the rights thereunder of individuals who on or
at any time prior to the Effective Time were directors, officers, employees
or agents of the Company (the "Indemnified Parties"), unless such
modification is required by law. From and after the Effective Time, Parent
will cause the Surviving Corporation to fulfill and honor in all respects
the obligations of the Company pursuant to each indemnification agreement in
effect between the Company and an Indemnified Party. Parent shall guarantee
the obligations of the Surviving Corporation with respect to the
indemnification and payment of fees and expenses provisions contained in the
Surviving Corporation's certificate of incorporation and bylaws and in the
indemnification agreements described in the Company Disclosure Schedule in
effect between the Company and an Indemnified Party as of the Effective Time
with respect to acts occurring at or before the Effective Time (including
the transactions contemplated by this Agreement).
(b) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect the Company's current directors' and
officers' liability insurance policy with respect to claims arising from
facts or events that occurred at or prior to the Effective Time; provided,
however, that (i) Parent may substitute therefor policies providing coverage
on terms and conditions that are no less advantageous to the Indemnified
Parties, and (ii) Parent may satisfy its obligations hereunder by extending
the discovery or reporting period under such policy for six years from the
Effective Time to maintain in effect directors' and officers' liability
insurance covering pre-acquisition acts (including acts in connection with
this Agreement and the transactions contemplated hereby) for the Indemnified
Parties on terms no less favorable than the terms of such current insurance
coverage; provided, however, that in no event shall Parent be required to
expend for any such coverage an amount per year in excess of $798,000; and
provided further that if the cost per year of such coverage exceeds
$798,000, Parent shall be obligated to obtain such coverage as is available
for a cost per year not
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exceeding such amount. The Company represents that the annual premium
currently paid by the Company for such insurance is approximately $399,000.
(c) In the event Parent, the Surviving Corporation or any of their
successors or assigns (i) consolidates with or merges into any other person
or entity and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers all or substantially all
of its properties and assets to any person, then and in each such case,
proper provisions shall be made so that the successors and assigns of Parent
or the Surviving Corporation, as the case may be, shall assume the
obligations set forth in this Section 5.15.
(d) This Section 5.15 shall survive the consummation of the Merger at
the Effective Time, is intended to benefit the Indemnified Parties, may be
enforced by the Indemnified Parties as third party beneficiaries and shall
be binding on all successors and assigns of Parent and the Surviving
Corporation.
5.16 LETTERS OF THE COMPANY'S AND PARENT'S ACCOUNTANTS.
(a) The Company shall cooperate with Parent and use reasonable best
efforts to cause to be delivered to Parent and the Company, letters from
Ernst & Young LLP addressed to the Company, as of the Closing Date, stating
that based upon discussions with officials of the Company responsible for
financial and accounting matters, and information furnished to Ernst & Young
LLP to the date of its letter, Ernst & Young LLP concurs with the Company's
management's conclusion that, as of the date of its letter, no conditions
exist related to the Company that would preclude Parent's accounting for the
merger with the Company as a pooling of interests.
(b) The Company shall cooperate with Parent and Parent shall use
reasonable best efforts to cause to be delivered to the Company and Parent,
letters from PricewaterhouseCoopers LLP addressed to Parent, dated as of the
Closing Date, confirming as of the Closing Date that the Merger will qualify
as a pooling of interests transaction under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations.
5.17 SUBSIDIARY SHARES. At or prior to the Closing, the Company shall use
commercially reasonable efforts to cause all issued and outstanding Subsidiary
shares (other than any interests in joint ventures or similar arrangements)
owned by any person other than the Company or any of its Subsidiaries to be
transferred for no or nominal consideration to such qualified person or persons
designated by Parent.
5.18 BENEFIT PLANS AND EMPLOYEE MATTERS.
(a) From and after the Effective Time, Parent shall to the extent
practicable cause the Surviving Corporation to provide employee benefits and
programs to the Company's and its Subsidiaries' employees that, in the
aggregate, are substantially comparable to or more favorable than those in
existence as of the date hereof and disclosed in writing to Parent prior to
the date hereof; PROVIDED THAT stock-based compensation shall be comparable,
in the aggregate, to that offered by Parent and its subsidiaries generally.
To the extent Parent satisfies its obligations under this Section by
maintaining Company benefit plans, Parent shall not be required to include
employees of the Company in Parent's benefit plans. From and after the
Effective Time, Parent shall honor, in accordance with their terms, all
employment and severance agreements and all severance, incentive and bonus
plans as in effect immediately prior to the Closing Date that are applicable
to any current or former employees or directors of the Company or any of its
Subsidiaries and that are disclosed in the Company Disclosure Schedule.
(b) To the extent that service is relevant for purposes of eligibility,
level of participation, or vesting under any employee benefit plan, program
or arrangement established or maintained by Parent, the Company or any of
their respective subsidiaries, employees of the Company and its Subsidiaries
shall be credited for service accrued or deemed accrued prior to the
Effective Time with the Company or such Subsidiary, as the case may be.
Under no circumstances shall employees receive credit for service accrued or
deemed accrued prior to the Effective Time with the Company or such
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Subsidiary, as the case may be, for benefit accruals under any employee
pension benefit plan (as defined by Section 3(2) of ERISA) or any retiree
health plan.
(c) As soon as reasonably practicable after the Effective Time, Parent
shall take whatever action is reasonably necessary to provide for a special
phase under Parent's employee stock purchase plan (the "Parent ESPP") to
permit those employees of the Surviving Corporation who have satisfied the
eligibility requirements of the Parent ESPP to purchase Parent Common Stock
under the Parent ESPP, with such phase to be operated under the terms and
conditions of the Parent ESPP.
5.19 OBLIGATIONS OF MERGER SUBSIDIARY. Parent shall take all action
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and subject to the
conditions set forth in this Agreement.
5.20 PLAN OF REORGANIZATION. This Agreement is intended to constitute a
"plan of reorganization" within the meaning of Section 1.368-2(g) of the income
tax regulations promulgated under the Code. From and after the date of this
Agreement and after the Effective Time, each party hereto shall use reasonable
best efforts to cause the Merger to qualify, and shall not, without the prior
written consent of the other parties hereto, knowingly take any actions or cause
any actions to be taken which could prevent the Merger from qualifying as a
reorganization under the provisions of Section 368(a) of the Code.
5.21 POOLING. From and after the date of this Agreement and until the
Effective Time, neither Parent nor the Company, nor any of their respective
subsidiaries or other affiliates, shall knowingly take any action, or knowingly
fail to take any action, that is reasonably likely to jeopardize the treatment
of the Merger as a "pooling of interests" for accounting purposes. Between the
date of this Agreement and the Effective Time, Parent and the Company each shall
use reasonable best efforts to cause the characterization of the Merger as a
pooling of interests for accounting purposes if such a characterization were
jeopardized by action taken by Parent or the Company, respectively, prior to the
Effective Time. Following the Effective Time, Parent shall not knowingly take
any action, or fail to take any action, that would jeopardize the
characterization of the Merger as a "pooling of interests" for accounting
purposes.
5.22 TAX MATTERS. At or prior to the filing of the Registration Statement
and at or prior to the Closing, the Company and Parent shall execute and deliver
to Cooley Godward LLP and to Fredrikson & Byron, P.A. tax representation letters
reasonably satisfactory to such counsel setting forth customary representations
which may be relied upon by such counsel in rendering any opinions contemplated
by this Agreement. Parent shall use commercially reasonable efforts to cause
Fredrikson & Byron, P.A. to deliver to Parent a legal opinion, satisfying the
requirements of Item 601 of Regulation S-K promulgated under the 1933 Act and
dated as of a date that is no more than two business days prior to the date of
filing of the Registration Statement, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code,
based in part on the tax representation letters described in this Section 5.22.
The Company shall use commercially reasonable efforts to cause Cooley Godward
LLP to deliver to the Company a legal opinion, satisfying the requirements of
Item 601 of Regulation S-K promulgated under the 1933 Act and dated as of a date
that is no more than two business days prior to the date of filing of the
Registration Statement, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, based in part
on the tax representation letters described in this Section 5.22.
ARTICLE 6
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATIONS OF PARENT, MERGER 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, any or all of which may be waived, in whole or in part, to the
extent permitted by applicable law:
(a) NO INJUNCTION. None of Parent, Merger Subsidiary, or the Company
shall be subject to any final order, decree, or injunction of a court of
competent jurisdiction within the United States that is then in effect and
(i) has the effect of making the Merger illegal or otherwise prohibiting the
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consummation of the Merger, or (ii) would impose any material limitation on
the ability of Parent to effectively exercise full rights of ownership of
the stock of the Surviving Corporation or of the Surviving Corporation to
own and operate the assets and business of the Company.
(b) STOCKHOLDER APPROVAL. The approval of the stockholders of the
Company referred to in Section 5.5 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 thereof shall have
been initiated and be continuing.
(d) NYSE LISTING. The shares of Parent Common Stock to be delivered
pursuant to the Merger shall have been duly authorized for listing on the
NYSE, subject to official notice of issuance.
(e) WAITING PERIODS. The waiting periods (and any extension thereof)
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 MERGER SUBSIDIARY. The
respective obligations of Parent and Merger Subsidiary to consummate the Merger
shall be subject to the fulfillment at or prior to the Closing of the following
additional conditions, any or all of which may be waived by Parent, in whole or
in part, to the extent permitted by applicable Law:
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each representation and
warranty of the Company contained in this Agreement, without regard to any
qualification or reference to "Company Material Adverse Effect," shall be
true and correct on the Closing Date as though such representations and
warranties were made on such date, except that those representations and
warranties that address matters only as of the date hereof or another
particular date shall remain true and correct as of such date, and except in
any case for any inaccuracies that have not had, or would not reasonably be
expected to have, a Company Material Adverse Effect; provided, however,
notwithstanding the foregoing, this Section 6.2(a) shall not be considered
fulfilled or satisfied if the representation and warranty set forth in the
last sentence of Section 3.3 is incorrect as of the Closing Date by
understating the number of shares of Company Common Stock by more than
20,000 shares. Parent shall have received a certificate to the foregoing
effect signed by the Chief Executive Officer of the Company or other
authorized Officer of the Company.
(b) PERFORMANCE. The Company shall have performed and complied in all
material respects with all material covenants required by this Agreement to
be performed or complied with by it at or prior to the Closing, and Parent
shall have received a certificate to such effect signed by the Chief
Executive Officer of the Company or other authorized Officer of the Company
(provided that for purposes of this subsection (b), actions of
representatives or agents of the Company who are not officers, directors or
employees of the Company which do not result in a proposal for an
Alternative Transaction shall not be deemed to be a breach of Section 5.3 so
long as the Company has used commercially reasonable efforts to cause such
representatives and agents to comply with Section 5.3).
(c) AFFILIATES' LETTERS. Parent shall have received a letter from each
of the Affiliates pursuant to Section 5.7 hereof.
(d) POOLING OPINION. Parent shall have received each of the letters
described in Section 5.16.
(e) CONTINUED EMPLOYMENT OF KEY EXECUTIVES. There shall not have been
since the date hereof any termination of employment (excluding any
termination due to death or disability) involving the Chief Executive
Officer or a majority of the other executive officers of the Company as of
the date hereof, or any notice or announcement that such Chief Executive
Officer or a majority of such other executive officers of the Company as of
the date hereof will not continue their employment with the Surviving
Corporation after the Merger.
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6.3 CONDITIONS TO OBLIGATION 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, any or all of which may be
waived by the Company, in whole or in part, to the extent permitted by
applicable law:
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each representation and
warranty of Parent contained in this Agreement, without regard to any
qualification or reference to "Parent Material Adverse Effect," shall be
true and correct on the Closing Date as though such representations and
warranties were made on such date, except that those representations and
warranties that address matters only as of the date hereof or another
particular date shall remain true and correct as of such date, and except in
any case for any inaccuracies that have not had, or would not reasonably be
expected to have a Parent Material Adverse Effect. The Company shall have
received a certificate to the foregoing effect signed by the Chief Executive
Officer or other authorized officer of Parent.
(b) PERFORMANCE. Parent and Merger Subsidiary shall have performed and
complied in all material respects with all material covenants required by
this Agreement to be performed or complied with by them at or prior to the
Closing, and the Company shall have received a certificate to such effect
signed by the Chief Executive Officer or other authorized officer of Parent.
(c) TAX OPINION. The Company shall have received an opinion of Cooley
Godward LLP, counsel to the Company, addressed to the Company's
stockholders, based upon representations of Parent, Merger Subsidiary and
the Company and normal assumptions, and dated on or about the date that is
two business days prior to the date the Proxy Statement/Prospectus is first
mailed to Company's stockholders, which opinion shall not have been
withdrawn or modified in any material respect prior to the Effective Time,
to the effect that, subject to customary conditions and representations, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that each of Parent,
Merger Subsidiary and the Company will be considered a party to such
reorganization. Parent, Merger Subsidiary and the Company hereby agree to
provide to such counsel certificates acceptable to such counsel setting
forth the customary representations which may be relied upon by such counsel
in rendering such opinion.
(d) POOLING OPINION. The Company shall have received each of the
letters described in Section 5.16.
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 stockholders 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 May 31, 1999; 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 a governmental 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, 1999;
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(c) by either Parent or the Company if a court of competent jurisdiction
or an administrative, governmental, or regulatory authority has issued a
final nonappealable 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 Stockholders
Meeting, the requisite vote of the stockholders of the Company for approval
and adoption of this Agreement and the Merger is not obtained, except that
the right to terminate this Agreement under this Section 7.1(d) 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 stockholders of the Company;
(e) by Parent if either (i) the Company has breached its obligations
under Section 5.3 in any material respect (provided that for purposes of
this clause (i), actions of representatives or agents of the Company who are
not officers, directors or employees of the Company which do not result in a
proposal for an Alternative Transaction shall not be deemed to be a breach
of Section 5.3 so long as the Company has used commercially reasonable
efforts to cause such representatives and agents to comply with Section
5.3), (ii) the Board of Directors of the Company has recommended, approved,
or authorized the Company's acceptance or execution of a definitive
agreement providing for an Alternative Transaction, as defined in Section
5.3, (iii) the Board of Directors of the Company has modified in a manner
materially adverse to Parent or withdrawn its recommendation of this
Agreement, or (iv) a tender offer or exchange offer for any outstanding
shares of Company Common Stock is commenced, and the Board of Directors of
the Company, within 10 business days after such tender offer or exchange
offer is so commenced, either fails to recommend against acceptance of such
tender offer or exchange offer by its stockholders or takes no position with
respect to the acceptance of such tender offer or exchange offer by its
stockholders;
(f) by the Company prior to the Required Company Stockholder Vote if (i)
it is not in breach of its obligations under Section 5.5 in any material
respect and has complied with, and continues to comply with, all
requirements and procedures of Section 5.3 in all material respects, (ii)
the Board of Directors of the Company has complied with, and continues to
comply with, all requirements and procedures of Section 5.3 in all material
respects and has authorized, subject to complying with the terms of this
Agreement, the Company to enter into a binding written agreement concerning
a transaction that constitutes a Superior Proposal and the Company notifies
Parent in writing that it intends to enter into such agreement, attaching
the most current version of such agreement to such notice, (iii) Parent does
not make, within ten business days after receipt of the Company's written
notice of its intention to enter into a binding agreement for a Superior
Proposal, any offer that the Board of Directors of the Company reasonably
and in good faith determines, after consultation with its financial and
legal advisors, is at least as favorable to the stockholders of the Company
as the Superior Proposal and during such ten business-day period the Company
reasonably considers and discusses in good faith all proposals submitted by
Parent and, without limiting the foregoing, meets with, and causes its
financial advisors and legal advisors to meet with, Parent and its advisors
from time to time as requested by Parent to reasonably consider and discuss
in good faith Parent's proposals, and (iv) prior to the Company's
termination pursuant to this Section 7.1(f), the Company pays to Parent the
fee required by Section 7.2 to be paid to Parent in the manner therein
provided. The Company agrees (x) that it will not enter into a binding
agreement referred to in clause (ii) above until at least the 11th business
day after Parent has received the notice to Parent required by clause (ii)
above, and (y) to notify Parent promptly if its intention to enter into a
binding agreement referred to in its notice to Parent shall change at any
time after giving such notice;
(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
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("Terminating Company Breach"); provided, however, that, if such Terminating
Company Breach is curable by the Company through the exercise of reasonable
best efforts and such cure is reasonably likely to be completed prior to the
applicable date specified in Section 7.1(b), then for so long as the Company
continues to exercise reasonable best efforts, Parent may not terminate this
Agreement under this Section 7.1(g); and provided further that for purposes
of this subsection (g), actions of representatives or agents of the Company
who are not officers, directors or employees of the Company which do not
result in a proposal for an Alternative Transaction shall not be deemed to
be a breach of Section 5.3 so long as the Company has used commercially
reasonable efforts to cause such representatives and agents to comply with
Section 5.3); or
(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
("Terminating Parent Breach"); provided, however, that, if such Terminating
Parent Breach is curable by Parent through the exercise of reasonable best
efforts and such cure is reasonably likely to be completed prior to the
applicable date specified in Section 7.1(b), then for so long as Parent
continues to exercise reasonable best efforts, the Company may not terminate
this Agreement under this Section 7.1(h).
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 that the
acquisition of the Company presents to Parent, if:
(i) this Agreement is validly terminated pursuant to Section 7.1(e)
or 7.1(f); or
(ii) (A) this Agreement is validly terminated by Parent or the
Company pursuant to Section 7.1(d) due to the failure of the Company's
stockholders to approve the Merger, (B) at any time between the date
hereof and the time of such failure to so approve the Merger, a proposal
for a Competing Transaction shall have been publicly announced, (C)
within 12 months after the date of such termination, the Company shall
have entered into a definitive agreement with a Third Party providing for
a Competing Transaction, and (D) a Competing Transaction is consummated
by the Company with the same Third Party that entered into the definitive
agreement referenced in clause (C) above or any affiliate of such Third
Party within two years after entering into the agreement referenced in
clause (C) above;
then, in any such event (but subject to Section7.2(c)), 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), or within five business days
after consummating the Competing Transaction referenced in clause (ii) (D)
above 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 $135,000,000. For purposes of this
Agreement, "Competing Transaction" means: (i) any consolidation, exchange of
shares or merger of the Company with any Third Party, other than a
consolidation, exchange or shares or merger as a result of which the holders
of Company Common Stock immediately prior to such transaction beneficially
own 50% or more of the voting stock of the Company, the surviving
corporation or any parent entity immediately after the transaction, (ii) any
transaction or series of related transactions pursuant to which a Third
Party acquires shares (or securities exercisable for or convertible into
shares) representing more than 50% of the outstanding shares of any class of
capital stock of the Company; or (iii) any sale, lease, exchange, licensing,
transfer or other disposition pursuant to which a Third Party acquires
control of more than 50% of the assets (including, but not limited to,
intellectual property assets) of the Company and its Subsidiaries taken as a
whole (determined by reference to the fair market value of such assets), in
a single transaction or series of related transactions.
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(b) The Company acknowledges that the agreements contained in this
Section 7.2 are an integral part of the transactions contemplated by this
Agreement and are not a penalty, and that, without these agreements, Parent
would not enter into this Agreement. If the Company fails to pay promptly
the fee due pursuant to Section 7.2(a), the Company shall also pay to Parent
Parent's costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other
legal action, taken to collect payment, together with interest on the amount
of the unpaid fee under this section, accruing from its due date, at an
interest rate per annum equal to two percentage points in excess of the
prime commercial lending rate quoted by Norwest Bank Minnesota, N.A.;
provided, however, that Parent shall pay to the Company the Company's costs
and expenses (including legal fees and expenses) incurred in connection with
any such legal action if Parent's claims against the Company in such legal
action do not prevail. 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.
(c) Parent agrees that the payment provided for in Section 7.2(a) shall
be the sole and exclusive remedy of Parent upon termination of this
Agreement pursuant to Section 7.1(e) and 7.1(f), as the case may be, and
such remedy shall be limited to the sum stipulated in such Section 7.2(a),
regardless of the circumstances giving rise to such termination; provided,
however, that nothing herein shall relieve any party from liability for the
willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement. In no event shall the Company be
required to pay to Parent more than one fee pursuant to Section 7.2(a). In
no event shall the sum of (i) the termination fee paid pursuant to Section
7.2(a), (ii) the Cancellation Amount (as defined in the Stock Option
Agreement) paid pursuant to the Stock Option Agreement, (iii) the aggregate
Option Share Profit (as defined in the Stock Option Agreement) not remitted
to the Company pursuant to Section 2(c) of the Stock Option Agreement, and
(iv) the Section 5 Repurchase Consideration (as defined in the Stock Option
Agreement) paid to Parent exceed $150,000,000. In addition, the fee payable
by the Company pursuant to Section 7.2(a) shall be reduced (but not below
zero) by any Cancellation Amount paid pursuant to the Stock Option
Agreement, any Option Share Profit not remitted to the Company pursuant to
Section 2(c) of the Stock Option Agreement and any Section 5 Repurchase
Consideration paid pursuant to the Stock Option Agreement. 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 Sections 5.4(b), 5.8, 7.2(a), 7.2(b) and 7.2(c) and Article 8.
Nothing herein shall relieve any party from liability for the willful breach
of any of its representations, warranties, covenants or agreements set forth
in this Agreement.
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,
Merger Subsidiary, and the Company at any time prior to the Effective Time with
respect to any of the terms contained herein; provided, however, that, after the
approval of this Agreement by the stockholders of the Company, no amendment may
be made which would reduce the amount or change the type of consideration into
which each share of Company Common Stock shall be converted upon consummation of
the Merger or which would otherwise require stockholder approval under
applicable law unless such stockholder approval shall have been obtained. 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 Merger
Subsidiary on the one hand, or the Company on the other hand, to comply with any
obligation, covenant, agreement, or condition
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<PAGE>
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. Merger Subsidiary agrees that any consent or waiver
of compliance given by Parent hereunder shall be conclusively binding upon
Merger Subsidiary, whether or not given expressly on its behalf.
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. The representations, warranties and agreements in this
Agreement and in any certificate delivered pursuant hereto shall terminate at
the Effective Time, except that the agreements set forth in Articles I and II
and Sections 5.7(b), 5.8, 5.9, 5.15, 5.18, 5.19, 5.20, 5.21 and this Article
VIII shall survive the Effective Time.
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 Merger Subsidiary, to it at:
Medtronic, Inc.
7000 Central Avenue N.E.
Minneapolis, MN 55432
with separate copies thereof addressed to:
Attention: General Counsel
FAX: (612) 572-5459
and
Attention: Vice President and Chief Development Officer
FAX: (612) 572-5404
(b) If to the Company, to it at:
Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
FAX: (707) 541-3190
Attention: General Counsel
with a copy to:
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
FAX: (650) 857-0663
Attention: Craig E. Dauchy, Esq. and
Richard E. Climan, Esq.
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
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<PAGE>
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. Except for the provisions of Article II and Section 5.15 (the
"Third Party Provisions"), this Agreement is not intended to confer upon any
other person, except the parties hereto, any rights or remedies hereunder, and
no third person shall be a third party beneficiary of this Agreement. The Third
Party Provisions may be enforced by the beneficiaries thereof.
8.6 GOVERNING LAW. Except to the extent that Delaware law is mandatorily
applicable, 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). The parties hereby (i) agree and
consent to be subject to the jurisdiction of any state or federal court in the
state of Delaware or in Minneapolis or St. Paul, Minnesota, with respect to all
actions and proceedings arising out of or relating to this Agreement (although
each party reserves the right to bring such action or proceedings in any other
jurisdiction to which the other party is subject); (ii) agree that all claims
with respect to any such action or proceeding may be heard and determined in
such court; (iii) irrevocably waive any defense of an inconvenient forum to the
maintenance of any action or proceeding in such court; (iv) consent to service
of process by mailing or delivering such service to the party at its respective
principal business address; and (v) agree that a final judgment in any such
action or proceeding from which there is no further appeal shall be conclusive
and may be enforced in any other jurisdictions by suit on the judgment or in any
manner provided by 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" of a party hereto
shall mean actual knowledge of the directors or executive officers of such
party.
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, Merger
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.
8.12 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the
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<PAGE>
transactions contemplated by this Agreement is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by this Agreement be
consummated as originally contemplated to the fullest extent possible.
8.13 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and Plan
of Merger as of the date first above written.
<TABLE>
<S> <C> <C>
MEDTRONIC, INC.
By: /s/ MICHAEL D. ELLWEIN
-----------------------------------------
Michael D. Ellwein, Vice President and Chief
Development Officer
MAV MERGER CORP.
By: /s/ MICHAEL D. ELLWEIN
-----------------------------------------
Michael D. Ellwein, President
ARTERIAL VASCULAR ENGINEERING, INC.
By: /s/ LAWRENCE J. FASSLER
-----------------------------------------
Its: Vice President, General Counsel and
Secretary
</TABLE>
A-41
<PAGE>
ANNEX B
November 29, 1998
[LOGO]
Board of Directors
Arterial Vascular Engineering, Inc.
3576 Unocal Place
Santa Rosa, CA 95403
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a
financial point of view, to the stockholders of Arterial Vascular
Engineering, Inc., a Delaware corporation (the "Company"), of the
Conversion Ratio (as defined below) provided for in that certain
Agreement and Plan of Merger dated as of the date hereof (the
"Transaction Agreement"), by and among the Company, Medtronic, Inc.,
a Minnesota corporation (the "Parent"), and MAV Merger Corp., a
Delaware corporation and wholly owned subsidiary of the Parent
("Merger Subsidiary").
As more specifically set forth in the Transaction Agreement, and
subject to the terms and conditions thereof, the Company has agreed
to be acquired by the Parent through the merger of Merger Subsidiary
with and into the Company, with the Company as the surviving company
(the "Merger"). In the Merger, among other things, each share of the
common stock of the Company, par value $0.001 per share ("Company
Common Stock"), outstanding as of the effective time of the Merger
other than shares held in the treasury of the Company or owned
beneficially or of record by the Parent or any direct or indirect
wholly owned subsidiary of the Parent or the Company, will be
converted into the right to receive a number of shares (the
"Conversion Ratio") of the common stock of the Parent, par value
$0.10 per share ("Parent Common Stock"), equal to the quotient of (i)
$54.00 divided by (ii) the Parent Average Stock Price (as defined
below), provided, that if the Parent Average Stock Price is equal to
or less than $61.20, then the Conversion Ratio will be equal to
0.88235, and that if the Parent Average Stock Price is equal to or
greater than $74.80, then the Conversion Ratio will be equal to
0.72193.
For purposes of the determination above, "Parent Average Stock
Price" shall equal the average (rounded to the nearest full cent,
with the cents rounded up if the third decimal place is 5 or more) of
the daily closing sale prices of a share of Parent Common Stock as
reported on the New York Stock Exchange ("NYSE") Composite Tape, as
reported in THE WALL STREET JOURNAL, for the fifteen consecutive NYSE
trading days ending on and including the NYSE trading day that is two
NYSE trading days prior to the Company Stockholders Meeting (as
defined in the Transaction Agreement).
SG COWEN SECURITIES CORPORATION
Four Embarcadero Center
Suite 1200
San Francisco, CA 94111 B-1
<PAGE>
Board of Directors
Arterial Vascular Engineering, Inc.
November 29, 1998
Page 2 of 4
SG Cowen Securities Corporation ("SG Cowen"), as part of its
investment banking business, is continually engaged in the valuation
of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for
corporate and other purposes. In the ordinary course of our business,
we and our affiliates actively trade the equity securities of the
Company and the Parent 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.
We are acting as financial advisor to the Board of Directors of
the Company in connection with the Merger and will receive a fee from
the Company for our services pursuant to the terms of our engagement
letter with the Company, dated as of March 3, 1997 (the "Engagement
Letter"), the payment of which is contingent upon the consummation of
the Merger. Societe Generale, the sole shareholder of SG Cowen, and
its affiliates, including SG Cowen, in the ordinary course of
business have from time to time provided, and in the future may
continue to provide, commercial and investment banking services to
the Company, including serving as financial advisor on potential
acquisitions and as an underwriter on equity offerings, and have
received fees for the rendering of such services. In particular, SG
Cowen acted as lead manager of the Company's initial public offering
in April 1996, and was selected to serve as co-manager on a proposed
secondary offering which was subsequently withdrawn before filing. SG
Cowen also is acting as financial advisor to the Company in
connection with the pending acquisition by the Company of World
Medical Manufacturing Corporation, and will receive a fee for its
services in connection with that transaction, a significant portion
of which is contingent upon the consummation of that transaction.
In connection with our opinion, we have reviewed and considered
such financial and other matters as we have deemed relevant,
including, among other things:
(i) the Transaction Agreement provided to us by the Company;
(ii) certain publicly available information for the Company,
including each of the annual reports of the Company filed on Form
10-K for the fiscal years ended June 30, 1996, 1997 and 1998 and
the quarterly report on Form 10-Q for the fiscal quarter ended
September 30, 1998, and certain other relevant financial and
operating data for the Company furnished to SG Cowen by
management of the Company;
(iii) certain publicly available information for the Parent,
including each of the annual reports of the Parent filed on Form
10-K for the fiscal years ended April 30, 1996, 1997 and 1998,
the quarterly report on Form 10-Q for the fiscal quarter ended
July 31, 1998 and the unaudited financial statements for the
fiscal quarter ended October 31, 1998, and certain other relevant
financial and operating data for the Parent furnished to SG Cowen
by management of the Parent;
(iv) discussions we have had with management and senior
personnel of each of the Company and the Parent concerning the
historical and current business operations, financial conditions
and prospects of the Company and the Parent and such other
matters we deemed relevant;
B-2
<PAGE>
Board of Directors
Arterial Vascular Engineering, Inc.
November 29, 1998
Page 3 of 4
(v) the reported price and trading histories of the shares of
Company Common Stock and Parent Common Stock as compared to the
reported price and trading histories of certain publicly traded
companies we deemed relevant;
(vi) First Call consensus earnings per share estimates of
financial institutions (the "First Call Estimates") for the
Company and the Parent, respectively, and financial projections
provided in currently available Wall Street analyst reports (the
"Analyst Projections") for the Company and the Parent,
respectively, including, among other things, the capital
structure, sales, net income, cash flow, capital requirements and
other data of the Company and the Parent we deemed relevant;
(vii) discussions with management and senior personnel of the
Company and the Parent concerning the First Call Estimates and
Analyst Projections;
(viii) based on the Analyst Projections, the potential pro
forma financial effects of the Merger;
(ix) certain aspects of the respective financial conditions
of the Company and the Parent as compared to such aspects of the
financial conditions of certain other companies we deemed
relevant;
(x) certain financial terms of the Merger as compared to the
financial terms of selected other business combinations we deemed
relevant; and
(xi) such other information, financial studies, analyses and
investigations and such other factors that we deemed relevant for
the purposes of this opinion.
In conducting our review and arriving at our opinion, we have,
with your consent, assumed and relied, without independent
investigation, upon the accuracy and completeness of all financial
and other information provided to us by the Company and the Parent or
which is publicly available, and we have not undertaken any
responsibility for the accuracy, completeness or reasonableness of,
or independently verified, such information. In addition, we have not
assumed any obligation to conduct any physical inspection of the
properties or facilities of the Company or the Parent. We have
further relied upon the assurance of management of the Company that
they are unaware of any facts that would make the information so
provided to us by the Company or the Parent or which is publicly
available (including, without limitation, the First Call Estimates
and Analyst Projections) incomplete or misleading in any respect.
With your consent, we have assumed that the First Call Estimates and
Analyst Projections reviewed by us provide a reasonable basis for our
opinion and indicate reasonable estimates of the future performance
of the Company and the Parent, and we have relied upon such estimates
and projections. We have not made or obtained any independent
evaluations, valuations or appraisals of the assets or liabilities of
the Company or the Parent, nor have we been furnished with any such
materials. With respect to all legal matters relating to the Company
and the Parent, we have relied on the advice of legal counsel to the
Company. You have informed us, and we have assumed, that the Merger
(i) will be recorded as a pooling-of-interests under generally
accepted accounting principles and (ii) will be treated as a tax-free
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended.
Our opinion is necessarily based upon economic and market
conditions and other circumstances as they exist and can be evaluated
by us on the date hereof. It should be
B-3
<PAGE>
Board of Directors
Arterial Vascular Engineering, Inc.
November 29, 1998
Page 4 of 4
understood that although subsequent developments may affect our
opinion, we do not have any obligation to update, revise or reaffirm
our opinion and we expressly disclaim any responsibility to do so.
Without limiting the generality of the foregoing, we are not opining
as to the effect of the consummation of, or the failure to
consummate, the acquisition of Sofamor Danek Group, Inc. by the
Parent. Additionally, we have not been authorized or requested to,
and did not, solicit alternative offers for the Company or its
assets.
For purposes of rendering our opinion we have assumed, in all
respects material to our analysis, that the representations and
warranties of each party contained in the Transaction Agreement are
true and correct, that each party will perform all of the covenants
and agreements required to be performed by it under the Transaction
Agreement and that all conditions to the consummation of the Merger
will be satisfied without waiver thereof. We also have assumed that
all governmental, regulatory and other consents and approvals
contemplated by the Transaction Agreement will be obtained, and that
in the course of obtaining any of those consents no restrictions will
be imposed or waivers made that would have an adverse effect on the
contemplated benefits of the Merger.
It is understood that this letter is intended for the benefit and
use of the Board of Directors of the Company in its consideration of
the Merger and may not be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for
any purpose without our prior written consent, provided, however,
that this letter may be reproduced in its entirety in any proxy
statement or registration statement relating to the Merger filed by
the Company or the Parent under the Securities Exchange Act of 1934,
as amended, or the Securities Act of 1933, as amended (the
"Securities Act"), and distributed to stockholders of the Company in
accordance therewith, provided that it will be reproduced in such
proxy statement or registration statement in full, and any
description of or reference to SG Cowen or summary of this letter in
such proxy statement or registration statement will be in a form
acceptable to SG Cowen and its counsel, and provided further that, in
consenting to such inclusion, we do not admit or acknowledge that we
come within the category of persons whose consent is required under
Section 7 of the Securities Act or the rules and regulations
promulgated thereunder. This letter does not constitute a
recommendation to any stockholder as to how such stockholder should
vote with respect to the Merger or to take any other action in
connection with the Merger or otherwise. We have not been requested
to opine as to, and our opinion does not in any manner address, the
Company's underlying business decision to effect the Merger. We are
not expressing any opinion as to what the value of the Parent Common
Stock actually will be when issued to the Company's stockholders
pursuant to the Merger. Furthermore, we express no view as to the
price or trading range for shares of Company Common Stock or Parent
Common Stock following consummation of the Merger or otherwise.
Based upon and subject to the foregoing, including the various
assumptions and limitations set forth herein, it is our opinion that,
as of the date hereof, the Conversion Ratio is fair, from a financial
point of view, to the stockholders of the Company.
Very truly yours,
/s/ SG COWEN SECURITIES
CORPORATION
SG COWEN SECURITIES CORPORATION
B-4
