As Filed with the Securities and Exchange Commission on July 23, 1998
Registration No: 333-__________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
MEDTRONIC, INC.
(Exact name of registrant as specified in its charter)
Minnesota 3845 41-0793183
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
(612) 514-4000
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
----------------------
Carol E. Malkinson
Senior Legal Counsel and Assistant Secretary
Medtronic, Inc.
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
(612) 514-4000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
David C. Grorud, Esq. C. Kent Carlson, Esq.
Mary E. Strand, Esq. Mark R. Beatty, Esq.
Fredrikson & Byron, P.A. Preston Gates & Ellis LLP
900 Second Avenue South, Suite 1100 701 Fifth Avenue, Suite 5000
Minneapolis, Minnesota 55402-3397 Seattle, Washington 98104-7078
(612) 347-7000 (206) 623-7580
----------------------
Approximate date of commencement of proposed sale of the securities to the
public: Upon consummation of the Merger, as described in this Registration
Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ---------------------------- ------------------- ----------------------- ------------------------ ---------------
Title of each class Proposed maximum Proposed maximum Amount of
of securities Amount to be offering price aggregate offering registration
to be registered registered(1) per share price fee(2)
- --------------------------- ------------------- ----------------------- ------------------------ ---------------
<S> <C> <C> <C> <C>
Common Stock, par 8,738,828
value $.10 per share(3) shares Not Applicable Not Applicable $156,903.13
- ---------------------------- ------------------- ----------------------- ------------------------ ---------------
</TABLE>
(1) Represents the approximate maximum number of shares issuable upon
consummation of the Merger as described in the Registration
Statement, based upon the anticipated maximum number of outstanding
shares of Physio-Control International Corporation Common Stock at
the Merger's Effective Time (20,000,000) and assuming for purposes
of this calculation that the Average Stock Price for Medtronic, Inc.
Common Stock is equal to $62.9375 (the reported closing sale price
of Medtronic, Inc. Common Stock as reported by the New York Stock
Exchange on June 26, 1998, the last trading day preceding
announcement of the Merger), thereby resulting in a Conversion
Fraction of 0.43694 of a Medtronic, Inc. share issued for each
Physio-Control International Corporation share.
(2) The registration fee was calculated pursuant to Section 6 of the
Securities Act of 1933 (the "Securities Act") and Rules 457(f)(1)
and 457(c) thereunder, as 0.000295 multiplied by the product of (A)
20,000,000, the anticipated maximum number of Physio-Control
International Corporation shares that may be exchanged pursuant to
the Merger, multiplied by (B) $26.59375, the average of the high and
low sale prices of Physio-Control International Corporation Common
Stock as reported by the Nasdaq National Market on July 20, 1998,
which date was within five business days prior to the date of this
filing.
(3) Each share of Medtronic Common Stock includes a Preferred Stock
Purchase Right pursuant to Medtronic's Shareholder Rights Plan.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to
said Section 8(a), may determine.
<PAGE>
[Physio-Control letterhead]
_____________, 1998
Dear Physio-Control Shareholder:
I am pleased to invite you to attend the Special Meeting of
Shareholders of Physio-Control International Corporation ("Physio-Control"),
which will be held on ___________, 1998, at 9:00 a.m., local time, at
Physio-Control's corporate headquarters, located at 11811 Willows Road NE,
Redmond, Washington. At the meeting you will be asked to consider and vote upon
a Plan of Merger and an Agreement and Plan of Merger dated as of June 27, 1998
(the "Merger Agreement") that provide for the merger of a wholly-owned
subsidiary of Medtronic, Inc. into Physio-Control.
Under the terms of the Plan of Merger and the Merger Agreement,
Physio-Control shareholders will receive $27.50 in shares of Medtronic Common
Stock in exchange for each of their shares of Physio-Control Common Stock.
The materials accompanying this letter include a Notice of Special
Meeting of Shareholders, a Proxy Statement/Prospectus relating to the proposal
to be voted upon at the Special Meeting, and a proxy card. The attached Proxy
Statement/Prospectus is intended to provide you with the information that you
will need to make an informed decision regarding how you should vote on the
proposed merger. It also serves as a Prospectus for Medtronic, describing the
investment in Medtronic that you will be making if the merger is approved and
you exchange your Physio-Control Common Stock for Medtronic Common Stock. Copies
of the Plan of Merger and the Merger Agreement are attached to the Proxy
Statement/Prospectus as Appendices A and B. I urge you to read this information
carefully before voting on the proposed merger.
The Board of Directors believes that the proposed transaction is fair
and in the best interests of Physio-Control and its shareholders and unanimously
recommends approval of the Plan of Merger and the Merger Agreement. The Board
believes that the merger will, among other things, permit Physio-Control
shareholders to continue their equity participation on a tax-free basis in a
larger, more diversified medical products enterprise.
The Board of Directors of Physio-Control retained the investment
banking firm of Morgan Stanley & Co. Incorporated to advise it with respect to
the consideration to be received in the merger. Such firm provided a written
opinion to the Physio-Control Board that, as of the date of such opinion and
subject to the assumptions made, matters considered, and limitations on the
review undertaken, the consideration to be received by the holders of
Physio-Control Common Stock pursuant to the Merger Agreement is fair from a
financial point of view to such holders. A copy of its opinion is attached to
the Proxy Statement/Prospectus as Appendix D.
The Plan of Merger and the Merger Agreement must be approved by the
holders of two-thirds of the outstanding shares of Physio-Control Common Stock.
Your vote on this matter is very important. We urge you to carefully review the
enclosed material and to return your proxy promptly.
Whether or not you plan to attend the meeting, please sign and promptly
return your proxy card in the enclosed postage-paid envelope. If you attend the
meeting, you may vote in person if you wish, even though you have previously
returned your proxy.
Sincerely,
Richard O. Martin
Chairman and Chief Executive Officer
<PAGE>
PHYSIO-CONTROL INTERNATIONAL CORPORATION
11811 Willows Road NE
Redmond, Washington 98073-9706
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held ___________, 1998
To the Shareholders of Physio-Control International Corporation:
A Special Meeting of the Shareholders of Physio-Control International
Corporation ("Physio-Control") will be held at Physio-Control's corporate
headquarters, located at 11811 Willows Road NE, Redmond, Washington, on
___________, 1998, at 9:00 a.m., local time, to consider and act upon a proposal
to approve a Plan of Merger and an Agreement and Plan of Merger (the "Merger
Agreement"), copies of which are included as Appendices A and B to the Proxy
Statement/Prospectus accompanying this Notice. Pursuant to the Plan of Merger
and the Merger Agreement, (a) PC Merger Corp. ("Merger Subsidiary") will be
merged into Physio-Control, with Physio-Control to be the surviving corporation
and to become a wholly-owned subsidiary of Medtronic, Inc. ("Medtronic"), and
(b) holders of Physio-Control common stock, par value $.01 per share
("Physio-Control Common Stock"), will receive shares of Medtronic common stock,
par value $.10 per share ("Medtronic Common Stock"), based upon a conversion
fraction described in the Proxy Statement/Prospectus accompanying this Notice.
With respect to the proposal to approve the Plan of Merger and the
Merger Agreement, Physio-Control shareholders have a right to dissent and obtain
payment in cash for their shares by complying with the terms and procedures of
Chapter 23B.13 of the Washington Business Corporation Act, a copy of which is
included as Appendix C to the Proxy Statement/Prospectus accompanying this
Notice.
Only shareholders of record as shown on the books of Physio-Control at
the close of business on ___________, 1998 are entitled to notice of and to vote
at the Special Meeting or any adjournments thereof.
Information relating to the above proposal is set forth in the attached
Proxy Statement/Prospectus. Approval of the Plan of Merger and the Merger
Agreement will require the affirmative vote of the holders of two-thirds of the
shares of Physio-Control Common Stock outstanding on the record date. All
shareholders are cordially invited to attend the Special Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
V. Marc Droppert
____________, 1998 Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY CARD AND MAIL IT
PROMPTLY IN THE ENCLOSED PROXY RETURN ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES
DO NOT SEND ANY STOCK CERTIFICATES WITH THE PROXY CARD
<PAGE>
PROXY STATEMENT/PROSPECTUS
Physio-Control International Corporation Medtronic, Inc.
11811 Willows Road NE 7000 Central Avenue N.E.
Redmond, Washington 98073-9706 Minneapolis, Minnesota 55432
Telephone: (425) 867-4000 Telephone: (612) 514-4000
SPECIAL MEETING OF SHAREHOLDERS OF
PHYSIO-CONTROL INTERNATIONAL CORPORATION
TO BE HELD ON ___________, 1998
This Proxy Statement/Prospectus is being furnished to the shareholders
of Physio-Control International Corporation ("Physio-Control") in connection
with the special meeting of shareholders (the "Meeting") of Physio-Control to be
held at Physio-Control's corporate headquarters, located at 11811 Willows Road
NE, Redmond, Washington, on ___________, 1998, at 9:00 a.m. At the Meeting,
Physio-Control shareholders will be asked to consider and act upon a proposal to
approve the Plan of Merger attached hereto as Appendix A and the Agreement and
Plan of Merger attached hereto as Appendix B, pursuant to which (a) PC Merger
Corp. ("Merger Subsidiary"), a wholly-owned subsidiary of Medtronic, Inc.
("Medtronic"), will be merged (the "Merger") into Physio-Control, which will be
the surviving corporation in the Merger and become a wholly-owned subsidiary of
Medtronic, and (b) each share of Physio-Control common stock, par value $.01 per
share ("Physio-Control Common Stock"), will be converted into a portion of a
share of Medtronic common stock, par value $.10 per share ("Medtronic Common
Stock"), as described in this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus also constitutes the Prospectus of
Medtronic with respect to the shares of Medtronic Common Stock to be issued in
the Merger. Medtronic has filed a Registration Statement on Form S-4 with the
Securities and Exchange Commission (the "Commission") covering the shares of
Medtronic Common Stock that may be issued in connection with the Merger, based
on the Conversion Fraction described in this Proxy Statement/Prospectus. The
Medtronic Common Stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "MDT." This Proxy Statement/Prospectus and accompanying letter to
Physio-Control shareholders, Notice of Special Meeting of Shareholders, and form
of proxy for use at the Meeting are first being mailed to Physio-Control
shareholders on or about _________, 1998.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Information contained or incorporated by reference in this Proxy
Statement/Prospectus regarding Medtronic has been supplied by Medtronic.
Information contained or incorporated by reference in this Proxy
Statement/Prospectus regarding Physio-Control has been supplied by
Physio-Control.
Additional copies of this Proxy Statement/Prospectus and the Proxy card
to be returned for the Meeting can be obtained from Physio-Control, 11811
Willows Road NE, Redmond, Washington 98073-9706, Attention: Corporate Secretary,
telephone (425) 867-4000. Questions or requests for assistance in completing and
submitting Proxy cards may also be directed to ________________________________.
The date of this Proxy Statement/Prospectus is ___________, 1998.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus or
the documents incorporated by reference herein, and any information or
representations not contained herein or therein may not be relied upon as having
been authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy the Medtronic Common Stock offered by
this Proxy Statement/Prospectus, or the solicitation of a proxy, in any
circumstances in which such offer or solicitation is unlawful. The delivery of
this Proxy Statement/Prospectus does not imply that the information herein is
correct as of any time subsequent to the date of such information.
AVAILABLE INFORMATION
This Proxy Statement/Prospectus is a prospectus of Medtronic delivered
in compliance with the Securities Act of 1933 (the "Securities Act"). This Proxy
Statement/Prospectus constitutes part of a Registration Statement on Form S-4
(the "Registration Statement") filed by Medtronic with the Commission under the
Securities Act with respect to the Medtronic Common Stock to be issued in
connection with the Merger. This Proxy Statement/Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to Medtronic,
Physio-Control, and the Medtronic Common Stock offered hereby, reference is made
to the Registration Statement, exhibits, and schedules. Statements contained in
this Proxy Statement/Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
Medtronic and Physio-Control are subject to the informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act"), and,
in accordance therewith, each files reports, proxy and information statements,
and other information with the Commission. The public may read and copy the
Registration Statement and the reports, proxy and information statements, and
other information filed by each of Medtronic and Physio-Control pursuant to the
Exchange Act at the Commission's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549, or at one of the Commission's regional offices:
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World
Trade Center, 13th Floor, New York, New York, 10048. Copies of all or any part
of such Medtronic material are available for inspection at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. Copies
of all or any part of such Physio-Control material are available for inspection
at the offices of the National Association of Securities Dealers, Inc. The
public may obtain information on the operation of the Commission's Public
Reference Room by calling the Commission at 1-800-SEC-0330. The Commission
maintains an Internet site at "http://www.sec.gov" containing reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission, including Medtronic and Physio-Control.
INFORMATION INCORPORATED BY REFERENCE
This Proxy Statement/Prospectus incorporates certain documents by
reference. Medtronic and Physio-Control will provide without charge to each
person, including any beneficial owner, to whom a copy of this Proxy
Statement/Prospectus is delivered, on written or oral request, copies of any and
all such documents (other than the exhibits thereto, unless such exhibits are
specifically incorporated by reference into the information that this Proxy
Statement/Prospectus incorporates) of Medtronic or Physio-Control, as the case
<PAGE>
may be, that are incorporated by reference. Requests should be directed to
Medtronic, Inc., 7000 Central Avenue N.E., Minneapolis, Minnesota 55432,
Attention: Investor Relations Department, M.S. 206, telephone (612) 514-3035 or
to Physio-Control International Corporation, 11811 Willows Road NE, Redmond,
Washington 98073-9706, Attention: Corporate Secretary, telephone (425) 867-4000.
In order to ensure timely delivery of the documents, any such request should be
made no later than [five business days prior to Meeting date], 1998.
The following Physio-Control documents are incorporated by reference
herein:
1. Physio-Control's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
2. Physio-Control's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998.
3. Physio-Control's Current Report on Form 8-K filed July 10, 1998.
4. The description of Physio-Control's Common Stock contained in
Physio-Control's Registration Statement on Form 8-A filed under Section 12 of
the Exchange Act.
All documents filed by Physio-Control with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof
and prior to the date of the Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents.
The following Medtronic documents are incorporated by reference herein:
1. Medtronic's Annual Report on Form 10-K for the fiscal year ended
April 30, 1998.
2. Medtronic's Current Reports on Form 8-K filed July 8, 1998 and July
16, 1998.
3. The description of Medtronic's Common Stock contained in Medtronic's
Registration Statement on Form 8-A filed under Section 12 of the Exchange Act.
4. The description of Medtronic's Preferred Stock Purchase Rights
attached to its Common Stock contained in Medtronic's Registration Statement on
Form 8-A filed under Section 12 of the Exchange Act.
All documents filed by Medtronic with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof
and prior to the date of the Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents.
Any statements contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently filed document
that also is incorporated by reference herein) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof except as so modified or superseded.
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
Certain statements contained in this Proxy Statement/Prospectus
(including information included or incorporated by reference herein) and other
written and oral statements made from time to time by Medtronic and
Physio-Control 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 terminology such as "anticipate," "believe," "estimate," "expect,"
"intend," "may," "could," "possible," "plan," "project," "will," "forecast" and
similar words or expressions. Medtronic's and Physio-Control's respective
forward-looking statements generally relate to their respective growth
strategies, financial results, product development and regulatory approval
programs, and sales efforts. One must 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.
Consequently, no forward-looking statement can be guaranteed and actual results
may vary materially. It is not possible to foresee or identify all factors
affecting Medtronic's or Physio-Control's respective forward-looking statements,
and investors therefore should not consider any list of factors affecting
Medtronic's or Physio-Control's respective forward-looking statements to be an
exhaustive statement of all risks, uncertainties, or potentially inaccurate
assumptions. Neither Medtronic nor Physio-Control undertakes any obligation to
update any forward-looking statement.
Although it is not possible to create a comprehensive list of all
factors that may cause actual results to differ from Medtronic's or
Physio-Control's forward-looking statements, such factors include, among others,
(i) 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 Physio-Control do business, that are placing
increased emphasis on the delivery of more cost-effective medical therapies;
(ii) 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; (iii) 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; (iv) efficacy or safety concerns with respect to marketed
products, whether scientifically justified or not, that may lead to product
recalls, withdrawals, or declining sales; (v) changes in governmental laws,
regulations, and accounting standards and the enforcement thereof that may be
adverse to Medtronic or Physio-Control; (vi) increased public interest in recent
years in product liability claims for implanted medical devices, including
pacemakers and leads; (vii) other legal factors including environmental concerns
and patent disputes with competitors; (viii) agency or government actions or
investigations affecting the industry in general or Medtronic or Physio-Control
in particular; (ix) the development of new products or technologies by
competitors, technological obsolescence, and other changes in competitive
factors; (x) risks associated with maintaining and expanding international
operations; (xi) business acquisitions, dispositions, discontinuations or
restructurings by Medtronic or Physio-Control; (xii) the integration of
businesses acquired by Medtronic or Physio-Control; and (xiii) economic factors
over which Medtronic or Physio-Control has no control, including changes in
inflation, foreign currency rates, and interest rates. Medtronic and
Physio-Control note these factors as permitted by the Private Securities
Litigation Reform Act of 1995.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY................................................................... 7
GENERAL INFORMATION....................................................... 19
THE MERGER................................................................ 20
General............................................................ 21
Effective Time of the Merger....................................... 21
Background of the Merger........................................... 21
Physio-Control's Reasons for the Merger; Recommendation
of the Physio-Control Board of Directors......................... 24
Medtronic's Reasons for the Merger................................. 26
Opinion of Physio-Control's Financial Advisor...................... 26
Vote Required...................................................... 30
Conversion of Physio-Control Common Stock in the Merger............ 30
Shareholder Rights Plan............................................ 32
Treatment of Stock Options......................................... 32
Conduct of Business of Physio-Control Pending the Merger........... 32
Interests of Certain Persons in the Merger......................... 33
Voting Agreements.................................................. 34
Stock Option Agreement............................................. 35
Conditions; Waiver................................................. 35
Amendment and Termination of the Merger Agreement.................. 36
Expenses and Fees.................................................. 37
Restrictions on Resale of Medtronic Common Stock................... 37
Deregistration of Physio-Control Common Stock...................... 38
Accounting Treatment of the Merger................................. 38
Certain Federal Income Tax Consequences............................ 39
Indemnification.................................................... 41
Regulatory Requirements............................................ 41
Rights of Dissenting Physio-Control Shareholders................... 42
COMPARATIVE STOCK PRICES AND DIVIDENDS...................................... 44
RECENT DEVELOPMENTS......................................................... 45
COMPARATIVE RIGHTS OF MEDTRONIC SHAREHOLDERS AND PHYSIO-CONTROL
SHAREHOLDERS................................................................ 45
Classification, Removal and Election of Directors.................. 46
Preferred Stock.................................................... 47
Special Meetings of Shareholders................................... 48
Voting Rights; Shareholder Approvals............................... 48
Cumulative Voting.................................................. 49
Preemptive Rights.................................................. 49
Amendment of the Articles of Incorporation......................... 49
Business Combinations and Control Share Acquisitions............... 50
Shareholder Rights Plan............................................ 50
Related Person Business Transactions............................... 51
CERTAIN TRANSACTIONS AND RELATIONSHIPS BETWEEN PHYSIO-CONTROL AND MEDTRONIC. 52
LEGAL MATTERS............................................................... 52
EXPERTS..................................................................... 52
APPENDIX A -- Plan of Merger................................................ A-1
APPENDIX B -- Agreement and Plan of Merger.................................. B-1
APPENDIX C -- Chapter 23B.13 of Washington Business Corporation Act......... C-1
APPENDIX D -- Opinion of Morgan Stanley & Co. Incorporated.................. D-1
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement/Prospectus and in the documents incorporated
herein by reference. Certain capitalized terms used in this Summary are defined
elsewhere in this Proxy Statement/Prospectus. Reference is made to, and this
Summary is qualified in its entirety by, the more detailed information contained
in this Proxy Statement/Prospectus, the Appendices hereto, and the documents
incorporated in this Proxy Statement/Prospectus by reference.
Parties to the Merger
Physio-Control: Physio-Control International Corporation ("Physio-Control"), a
Washington corporation, was founded in 1955 and reincorporated
in Washington in 1997. Physio-Control designs, manufactures,
markets and services an integrated line of noninvasive
emergency cardiac defibrillator and vital sign assessment
devices, disposable electrodes and data management software.
Physio-Control's products are used in both out-of-hospital and
hospital settings for the detection and treatment of
life-threatening events including trauma, heart attack and the
acute heart rhythm disturbances of ventricular fibrillation,
tachycardia and bradycardia.
Physio-Control's principal offices and corporate headquarters
are located at 11811 Willows Road NE, Redmond, Washington
98073-9706, telephone: (425) 867-4000. See "Information
Incorporated by Reference."
Medtronic: Medtronic, Inc. ("Medtronic"), a Minnesota corporation, was
incorporated in 1957. Medtronic 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.
Medtronic's principal offices and corporate headquarters are
located at 7000 Central Avenue N.E., Minneapolis, Minnesota
55432, telephone: (612) 514-4000. See "Information
Incorporated by Reference."
PC Merger Corp.: PC Merger Corp. ("Merger Subsidiary"), a Washington
corporation, is a corporation recently organized by Medtronic
for the purpose of effecting the Merger. It has no material
assets and has not engaged in any activities except in
connection with the proposed Merger.
Physio-Control Shareholders' Meeting
Time, Date, and
Place of Meeting:A special meeting of shareholders of Physio-Control will be
held on ___________, 1998, at 9:00 a.m., local time, at
Physio-Control's corporate headquarters, located at 11811
Willows Road NE, Redmond, Washington (the "Meeting").
<PAGE>
Purpose of the
Meeting: The purpose of the Meeting is to consider and vote upon a
proposal to approve the Plan of Merger attached hereto as
Appendix A and the Agreement and Plan of Merger dated as of
June 27, 1998 (the "Merger Agreement"), among Medtronic,
Physio-Control, and Merger Subsidiary, which is attached
hereto as Appendix B, providing for the merger (the "Merger")
of Merger Subsidiary into Physio-Control, as a result of which
Physio-Control will become a wholly-owned subsidiary of
Medtronic. Other terms and provisions related to the Merger
are set forth in the Merger Agreement, which is summarized in
this Proxy Statement/Prospectus.
Record Date: Only holders of record of Physio-Control Common Stock at the
close of business on ___________, 1998, will be entitled to
notice of and to vote at the Meeting or any adjournment or
adjournments thereof.
Vote Required: The affirmative vote by the holders of two-thirds of the
outstanding shares of Physio-Control Common Stock is required
to approve the Plan of Merger and the Merger Agreement. As of
the record date, 17,727,891 shares of Physio-Control Common
Stock were outstanding and entitled to vote. Of such shares,
136,979 shares (less than 1% of the shares entitled
to vote at the Meeting) are beneficially owned by directors
and executive officers of Physio-Control. Physio-Control's
directors and executive officers who hold stock or options to
purchase stock of Physio-Control have executed voting
agreements under which such persons agreed to vote the shares
of Physio-Control Common Stock beneficially owned by them in
favor of the Merger.
Physio-Control shareholders have the power to revoke proxies
previously given by them before the shares represented by any
such proxies are voted at the Meeting. See "General
Information."
Approval of the Plan of Merger and the Merger Agreement by
Medtronic shareholders is not required under Minnesota law
and, accordingly, will not be sought. See "The Merger--Vote
Required."
Dissenters' Rights:
Under Washington law, holders of Physio-Control Common Stock
who give proper notice to Physio-Control and who do not vote
in favor of the Merger have the right to receive in cash the
"fair value" of their Physio-Control shares in lieu of
Medtronic Common Stock pursuant to the Merger. See "The
Merger--Rights of Dissenting Physio-Control Shareholders" and
Chapter 23B.13 of the Washington Business Corporation Act (the
"WBCA"), a copy of which is attached hereto as Appendix C.
Holders of Medtronic Common Stock do not have dissenters'
rights in connection with the Merger.
<PAGE>
Description of the Merger
General; Exchange:
Upon consummation of the Merger, Merger Subsidiary will be
merged into Physio-Control and Physio-Control will become a
wholly-owned subsidiary of Medtronic. Each share of
Physio-Control Common Stock outstanding immediately prior to
the Merger (excluding any shares as to which dissenters'
rights have been properly exercised) will be converted into
the portion of a share (the "Conversion Fraction") of
Medtronic Common Stock equal to $27.50 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 19 consecutive NYSE trading days ending on the
first NYSE trading day immediately preceding the Effective
Time of the Merger.
The Conversion Fraction is subject to appropriate adjustment
in the event of a stock split, combination, stock dividend, or
other distribution of shares of the Medtronic Common Stock
prior to the Effective Time of the Merger. See "The Merger."
Each share of Medtronic Common Stock received in the Merger
will also represent one Preferred Stock Purchase Right under
Medtronic's Shareholder Rights Plan. See "The
Merger--Shareholder Rights Plan."
Persons entitled to fractional shares of Medtronic Common
Stock upon such conversion shall receive a cash payment in
lieu thereof. See "The Merger--Conversion of Physio-Control
Common Stock in the Merger--Fractional Shares."
If the Merger is approved and the Merger is completed,
Physio-Control shareholders will be instructed to deliver to
Medtronic's exchange agent for the Merger a letter of
transmittal, which will be sent to such shareholders following
the Merger, together with certificates evidencing each
shareholder's Physio-Control Common Stock, in exchange for the
Medtronic Common Stock and, if applicable, cash in lieu of any
fractional shares of Medtronic Common Stock. Physio-Control
shareholders should not send in their certificates until they
receive a letter of transmittal. See "The Merger--Conversion
of Physio-Control Common Stock in the Merger."
Effective Time of
the Merger: It is expected that the Merger will become effective within 10
business days following approval of the Plan of Merger and the
Merger Agreement by the requisite vote of the Physio-Control
shareholders and the satisfaction or waiver of the other
conditions to the Merger, upon the filing of articles of
merger with the Washington Secretary of State. See "The
Merger--Effective Time of the Merger" and "--Conditions;
Waiver."
Background of the
Merger: The terms of the Merger Agreement are the result of
arm's-length negotiations between representatives of Medtronic
and Physio-Control. The following is a brief discussion of the
background of these negotiations, the Merger and related
transactions.
In January 1998, Physio-Control engaged Morgan Stanley & Co.
Incorporated ("Morgan Stanley") to assist in a possible sale
of Physio-Control. On February 3, 1998, Morgan Stanley
contacted Medtronic regarding whether it had any interest in a
transaction with Physio-Control. Following that initial
contact, representatives of both companies and their financial
advisors held several meetings in March and April 1998
regarding a possible transaction.
<PAGE>
On April 16, 1998, the parties executed a confidentiality
agreement. Medtronic presented certain nonfinancial terms for
discussion with Physio-Control on April 28, 1998 and presented
certain financial terms for discussion on May 5, 1998.
Following further discussions of terms and negotiation of
definitive agreements among the parties and their advisors,
and Medtronic's review of due diligence information regarding
Physio-Control, on June 20, 1998, the parties reached
tentative agreement on possible resolutions of certain
outstanding issues, subject to approval of the parties'
respective Boards of Directors.
On June 25, 1998, the Board of Directors of Medtronic approved
the acquisition of Physio-Control, subject to final
negotiations of outstanding issues by senior management.
Negotiations continued through June 27, 1998. On June 27,
1998, the Board of Directors of Physio-Control unanimously
approved the terms of the Merger Agreement and the Plan of
Merger. The Merger Agreement was signed following the
conclusion of the meeting of the Board of Directors of
Physio-Control. See "The Merger--Background of the Merger,"
"--Physio-Control's Reasons for the Merger; Recommendation of
the Physio-Control Board of Directors," "--Medtronic's Reasons
for the Merger," and "--Opinion of Physio-Control's Financial
Advisor."
Reasons for the
Merger: In reaching its conclusions to approve the Merger Agreement
and to recommend the approval of the Plan of Merger and the
Merger Agreement by the Physio-Control shareholders, the
Physio-Control Board of Directors considered various factors,
including the opportunity for Physio-Control shareholders to
continue equity participation in a larger, more diversified
medical device company at a premium over current market prices
for Physio-Control Common Stock; the opportunity for enhanced
product development, marketing, and sales by Physio-Control;
Medtronic's reputation and resources; the terms and conditions
of the Merger Agreement; the fairness opinion provided by
Morgan Stanley; the price offered to Physio-Control
shareholders and historical trading prices for Physio-Control
Common Stock and Medtronic Common Stock; the likelihood of
consummation of the Merger; and the expectation that the
Merger will be nontaxable to the shareholders of
Physio-Control for United States federal income tax purposes.
The Board of Directors of Physio-Control has unanimously
approved the Merger, and the Board recommends that the
shareholders of Physio-Control vote in favor of the Plan of
Merger and the Merger Agreement.
See "The Merger--Physio-Control's Reasons for the Merger;
Recommendation of the Physio-Control Board of Directors,"
"--Medtronic's Reasons for the Merger," "--Opinion of
Physio-Control's Financial Advisor," and "Comparative Stock
Prices and Dividends." For information on the interests of
certain persons in the Merger, see "The Merger--Interests of
Certain Persons in the Merger."
<PAGE>
Physio-Control's
Financial Advisor:
Morgan Stanley was retained by Physio-Control to advise it
with respect to proposals for the acquisition of
Physio-Control. Morgan Stanley has rendered its written
opinion that, as of the date of such opinion, the
consideration to be received by the holders of
Physio-Control Common Stock pursuant to the Merger Agreement
is fair from a financial point of view to such holders. The
full text of the opinion of Morgan Stanley, which contains
information , among other things, as to the assumptions
made, matters considered, and the scope and limitations on
the review undertaken, is set forth as Appendix D to this
Proxy Statement/Prospectus, and holders of Physio-Control
Common Stock are urged to read the opinion in its entirety.
See "The Merger--Opinion of Physio-Control's Financial
Advisor."
Fluctuation in
Market Price: The number of shares of Medtronic Common Stock received in the
Merger will depend on the market value of Medtronic Common
Stock, which is subject to fluctuation. There can be no
assurance that the recent market prices of Medtronic Common
Stock will be maintained until or after the consummation of
the Merger. See "Comparative Stock Prices and Dividends" and
"The Merger--Conversion of Physio-Control Common Stock in the
Merger."
Certain Federal
Income Tax
Consequences: The Merger is expected to be treated as a tax-free
reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended
(the "Code"). Medtronic, Physio-Control and Merger Subsidiary
will each be a "party to the reorganization" within the
meaning of Section 368(b) of the Code.
Physio-Control has received an opinion of counsel to
Physio-Control to the effect that, assuming the Merger is
consummated in accordance with the Merger Agreement, no gain
or loss will be recognized by Physio-Control or its
shareholders upon their receipt of Medtronic Common Stock in
exchange for their Physio-Control Common Stock. A
Physio-Control shareholder receiving cash in lieu of
fractional shares or exercising dissenters' rights, however,
will be required to recognize gain, if any, realized in the
transaction but not in excess of the cash received by such
shareholder. The opinion is based upon and subject to
customary representations made to such counsel. See "The
Merger--Certain Federal Income Tax Consequences."
Accounting
Treatment: Medtronic intends to account for the Merger as a "pooling of
interests" for accounting and financial reporting purposes
under generally accepted accounting principles. Consummation
of the Merger may be conditioned upon Medtronic and
Physio-Control receiving letters from PricewaterhouseCoopers
LLP, Medtronic's and Physio-Control's independent accountants,
confirming that no conditions exist that would preclude
Medtronic from accounting for the Merger as a pooling of
interests transaction. In order to be eligible to use the
pooling of interests method to account for the Merger,
Medtronic will sell prior to the Merger a number of shares of
Medtronic Common Stock equal to that number of shares which
are tainted for purposes of pooling of interests accounting
and were purchased by Medtronic in the open market pursuant to
its share repurchase program. See "The Merger--Accounting
Treatment of the Merger."
<PAGE>
Treatment of Stock
Options: Pursuant to the terms of the outstanding options to purchase
Physio-Control Common Stock, such options that are not
otherwise vested will be accelerated and fully vested as a
result of the Merger. All options that are not exercised and
remain outstanding at the Effective Time will be assumed by
Medtronic and will thereafter be exercisable on the same terms
and conditions, except for appropriate adjustments to reflect
the Conversion Fraction and conversion into options to
purchase Medtronic Common Stock. See "The Merger--Treatment of
Stock Options" and "--Interests of Certain Persons in the
Merger."
Interests of
Certain Persons
in the Merger: In considering the recommendation of the Board of Directors of
Physio-Control with respect to the Plan of Merger, the Merger
Agreement, and the transactions contemplated thereby,
shareholders of Physio-Control should be aware that certain
executive officers and directors of Physio-Control have
certain interests in the Merger that are in addition to, and
may conflict with, the interests of shareholders of
Physio-Control generally. These interests include, among other
things, the interests of certain executives and directors of
Physio-Control in stock options that will vest and become
exercisable as a result of the Merger, and the obligation of
Medtronic to cause Physio-Control to continue to provide
certain indemnification, limited liability, and related
insurance coverage to directors, officers, employees, and
agents of Physio-Control following the Merger.
Four executive officers of Physio-Control have also executed
separate noncompetition agreements with Medtronic, conditioned
upon the effectiveness of the Merger, pursuant to which these
individuals have agreed that they will not be employed by,
associated with, or render services to certain competitive
businesses, anywhere in the world, for 42 months after the
Merger. In addition, those four executive officers are parties
to termination agreements with Physio-Control that provide
certain payments and other benefits to these individuals if,
during the two-year period following a "change in control" of
Physio-Control (such as the Merger), (i) such individual's
employment is terminated by Physio-Control other than for
death, disability, or "for cause" or (ii) the nature of such
individual's employment with Physio-Control is changed in a
materially adverse manner.
The Physio-Control Board of Directors was aware of each of
these interests and considered them, among other matters, in
approving the Merger Agreement. See "The Merger--Interests of
Certain Persons in the Merger."
Regulatory Approval:
The only federal or state regulatory approval needed to effect
the Merger is the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), which period is expected to expire on August 12, 1998.
Medtronic and Physio-Control do not expect international
regulatory filings that may be required, if any, to affect the
expected timing of the Merger. See "The Merger--Regulatory
Requirements."
<PAGE>
No Solicitation: Pursuant to the Merger Agreement, Physio-Control and its
representatives cannot, prior to the Effective Time or earlier
termination of the Merger Agreement, encourage, solicit,
discuss, or negotiate with any person (other than Medtronic)
concerning any merger, sale, or license of any significant
portion of the Physio-Control assets or similar transaction,
except to the extent required by the fiduciary obligations of
the Physio-Control Board and in accordance with the provisions
of the Merger Agreement. See "The Merger--Conduct of Business
of Physio-Control Pending the Merger."
Conditions
to Merger: The respective obligations of Medtronic, Merger Subsidiary,
and Physio-Control to effect the Merger are subject to the
satisfaction or waiver at or prior to the Merger of certain
conditions. See "The Merger--Conditions; Waiver."
Termination: The Merger Agreement may be terminated prior to the Effective
Time, whether before or after approval of the Merger by the
Physio-Control shareholders, in certain specified events. Upon
certain of such terminations, Physio-Control is required to
pay to Medtronic a termination fee of $15 million. See "The
Merger--Amendment and Termination of the Merger Agreement."
Stock Option
Agreement: In connection with the execution of the Merger Agreement,
Medtronic and Physio-Control entered into a Stock Option
Agreement pursuant to which Physio-Control granted to
Medtronic an option to purchase up to 3,526,683 shares of
Physio-Control Common Stock (or 19.9% of the outstanding
shares of Physio-Control Common Stock as of June 27, 1998) at
an exercise price of $27.50 per share. The option is
exercisable upon the occurrence of certain events and provides
Medtronic with the right, under certain circumstances, to
require Physio-Control to repurchase the option for its
in-the-money value, provided that the sum of any termination
fee and the amount paid to repurchase the option cannot exceed
$20 million. The option, which Medtronic required as a
condition to Medtronic's entering into the Merger Agreement,
may increase the likelihood of consummation of the Merger. See
"The Merger--Stock Option Agreement" and "--Amendment and
Termination of the Merger Agreement."
Comparison of Rights of Medtronic Shareholders and Physio-Control Shareholders
Medtronic and Physio-Control are incorporated under the laws of the
States of Minnesota and Washington, respectively. The rights of Physio-Control
shareholders are currently governed by the Articles of Incorporation and Bylaws
of Physio-Control. Upon consummation of the Merger, Physio-Control shareholders
will become shareholders of Medtronic and their rights as such will be governed
by the Restated Articles of Incorporation and Bylaws, as amended, of Medtronic.
See Comparative Rights of Medtronic Shareholders and Physio-Control
Shareholders."
<PAGE>
Recent Prices of Medtronic and Physio-Control Common Stock
On June 26, 1998, the last trading day preceding public announcement of
the Merger Agreement, the reported closing sale price of Medtronic Common Stock
on the NYSE was $62.9375 per share. On that day, the reported closing sale price
of Physio-Control Common Stock on the Nasdaq National Market was $23.00 per
share. On [July 21], 1998, the latest practicable trading day prior to the
printing of this Proxy Statement/Prospectus, the reported closing sale price of
Medtronic Common Stock on the NYSE was [$65.00] per share. On that day, the
reported closing sale price of Physio-Control Common Stock on the Nasdaq
National Market was [$26.50] per share.
Pursuant to the Merger, the actual portion of a Medtronic share into
which one Physio-Control share will be converted will be equal to $27.50 divided
by the Average Stock Price of Medtronic Common Stock for the 19 consecutive NYSE
trading days ending on the first trading day immediately preceding the Effective
Time of the Merger. Solely for illustrative purposes, the Conversion Fraction
would be .4369 if the Average Stock Price were calculated based on the reported
closing sale price of Medtronic Common Stock on June 26, 1998, or [.4231] if the
Average Stock Price were calculated based on the reported closing sale price of
Medtronic Common Stock on [July 21], 1998. See "Comparative Stock Prices and
Dividends" and "The Merger--Conversion of Physio-Control Common Stock in the
Merger."
<PAGE>
Selected Historical Financial Data
The following table sets forth selected historical financial data for
Medtronic for each of the five consecutive fiscal years ended April 30, 1998,
and for Physio-Control for each of the five consecutive fiscal years ended
December 31, 1997 and the three months ended March 31, 1998 and 1997. Such data
should be read in conjunction with the consolidated financial statements and the
unaudited condensed consolidated interim financial statements of Medtronic and
Physio-Control, all of which are incorporated by reference herein. Selected
unaudited financial data for Physio-Control for the three months ended March 31,
1998 and 1997 include all adjustments (consisting only of normal recurring
accruals) that Physio-Control considers necessary for a fair presentation of the
consolidated operating results for such interim periods. Results for the interim
periods are not necessarily indicative of results for the full years. See
"Information Incorporated by Reference."
MEDTRONIC, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended April 30,
1994 1995 1996 1997 1998(2)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales.................... $1,390,922 $1,742,392 $2,172,100 $2,438,224 $2,604,819
Net earnings................. 232,357 294,000 428,306 529,988 457,382
Basic earnings per share(1).. 0.51 0.64 0.90 1.11 0.98
Earnings per share assuming
dilution (1)................. 0.50 0.63 0.89 1.09 0.96
Total assets................. 1,623,252 1,946,732 2,554,700 2,409,210 2,774,727
Long-term debt............... 20,232 14,200 15,336 13,980 16,227
Cash dividends per share(1).. 0.09 0.10 0.13 0.19 0.22
</TABLE>
PHYSIO-CONTROL INTERNATIONAL CORPORATION
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended
March 31, March 31,
1993(3) 1994(3) 1995(4) 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............. $107,129 $150,028 $148,702 $173,165 $175,311 $40,727 $43,968
Net income (loss)..... (35,947) 3,233 6,254 15,339 9,332 2,653 2,816
Basic earnings per
share................. N/A N/A 0.42 0.91 0.54 0.16 0.16
Earnings per share
assuming dilution..... N/A N/A 0.40 0.87 0.53 0.15 0.16
Total assets.......... 83,045 93,544 78,500 95,862 106,659 100,098 112,660
Long-term debt........ 0 36,496 16,211 21,031 15,531 22,136 16,531
Cash dividends per
share................. 0 0 0 0 0 0 0
</TABLE>
- -------------------
(1) 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 in the Selected Historical
Consolidated Financial Data to earnings per share and cash dividends
per share have been restated to reflect these stock splits.
<PAGE>
(2) 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.
(3) Periods beginning July 30, 1994 reflect data of Physio-Control and its
subsidiaries after the acquisition of stock by Bain Capital, Inc.
Periods prior to and including July 29, 1994 reflect data of
Physio-Control as a wholly-owned subsidiary of Eli Lilly and Company
("Lilly"), which was acquired by Bain Capital, Inc. on July 29, 1994
from Lilly. The term "Predecessor" refers to Physio-Control during the
period in which it was a wholly-owned subsidiary of Lilly. The results
of operations of the Predecessor from January 1, 1994 to July 29, 1994
and of Physio-Control from July 30, 1994 to December 31, 1994 have been
combined. Operating results for 1993 were adversely affected by the
temporary suspension of Physio-Control's manufacturing operations
beginning in May 1992 after its receipt of notification of alleged
deficiencies in compliance with FDA regulations. Operating results for
1994 were positively impacted by a reduction of the large domestic
backlog during 1994. Earnings (loss) per share is not calculated due to
Physio-Control's status as a wholly-owned subsidiary.
(4) Net income, basic earnings per share, and earnings per share assuming
dilution reflect the impact of a $1.46 million extraordinary loss from
the early extinguishment of debt.
<PAGE>
Comparative Per Share Data
The following summary sets forth certain historical per share data of
Medtronic and Physio-Control and combined per share data on an unaudited pro
forma basis after giving effect to the Merger on a pooling of interests basis
assuming, solely for illustrative purposes of this presentation, that the
Average Stock Price for Medtronic Common Stock is [$65.00] (the reported closing
sale price of Medtronic Common Stock on [July 21], 1998). The actual Average
Stock Price that will be used in the Merger will be the Average Stock price of
Medtronic Common Stock for the 19 consecutive NYSE trading days ending on the
trading day immediately preceding the Effective Time of the Merger. The
unaudited pro forma data are provided for comparative purposes only and do not
purport to be indicative of actual or future operating results or financial
position that would have occurred or will occur upon consummation of the Merger.
The information presented below should be read in conjunction with the selected
historical financial data and the separate historical financial statements of
Medtronic and Physio-Control, including the notes thereto, incorporated by
reference in this Proxy Statement/Prospectus. See "Information Incorporated by
Reference." Presentation of full pro forma financial statements is not included
because the Merger does not constitute a significant business combination and
the disclosure is not deemed to be material.
<TABLE>
<CAPTION>
Basic Diluted
Earnings Earnings
from from
Book Continuing Continuing Cash
Value Operations Operations Dividends
<S> <C> <C> <C> <C>
MEDTRONIC HISTORICAL DATA:
Per Medtronic share at and for the fiscal year ended April 30,
1998(1)............................................................ $4.36 $0.98 $0.96 $0.22
Per Medtronic share for the fiscal year ended April 30, 1997....... * 1.11 1.09 0.19
Per Medtronic share for the fiscal year ended April 30, 1996....... * 0.90 0.89 0.13
PHYSIO-CONTROL HISTORICAL DATA:
Per Physio-Control share at and for the 12 months ended March 31,
1998............................................................... 3.52 0.55 0.53 0
Per Physio-Control share at and for the 3 months ended March 31,
1998............................................................... 3.52 0.16 0.16 0
Per Physio-Control share for the fiscal year ended December 31,
1997............................................................... 3.25 0.54 0.53 0
Per Physio-Control share for the 12 months ended March 31, 1997.... * 0.86 0.83 0
Per Physio-Control share for the fiscal year ended December 31,
1996............................................................... * 0.91 0.87 0
Per Physio-Control share for the 12 months ended March 31, 1996(2).
* 0.47 0.45 0
MEDTRONIC AND PHYSIO-CONTROL PRO FORMA
COMBINED DATA:
Per Medtronic share at and for the fiscal year ended April 30,
1998(1) (3)........................................................ 4.42 0.98 0.97 0.22
Per Physio-Control share equivalent(4) at and for the fiscal year
ended April 30, 1998(1)(30......................................... 1.87 0.41 0.41 0.09
Per Medtronic share for the fiscal year ended April 30, 1997(5).... * 1.12 1.10 0.19
Per Physio-Control share equivalent(4) for the fiscal year ended
April 30, 1997(5).................................................. * 0.48 0.47 0.08
Per Medtronic share for the fiscal year ended April 30, 1996(2)(6) * 0.90 0.89 0.13
Per Physio-Control share equivalent(4) for the fiscal year ended
April 30, 1996(2)(6)............................................... * 0.38 0.38 0.05
</TABLE>
<PAGE>
- -------------------
(1) 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.
(2) Basic earnings from continuing operations and diluted earnings from
continuing operations reflect the impact of a $1.46 million
extraordinary loss from the early extinguishment of debt.
(3) 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 Physio-Control at and for the 12-month period ended
March 31, 1998.
(4) The equivalent pro forma combined information represents the pro forma
combined net income and book value multiplied by [.4231], which is the
assumed Conversion Fraction (based on an assumed Average Stock Price of
[$65.00]) solely for purposes of this illustration.
(5) The combined pro forma data combine the financial information of
Medtronic for the year ended April 30, 1997 with the financial
information of Physio-Control for the 12-month period ended March 31,
1997.
(6) The combined pro forma data combine the financial information of
Medtronic for the year ended April 30, 1996 with the financial
information of Physio-Control for the 12-month period ended March 31,
1996.
* Disclosure is not required.
<PAGE>
GENERAL INFORMATION
This Proxy Statement/Prospectus is being furnished to the shareholders
of Physio-Control in connection with the solicitation by the Board of Directors
of Physio-Control of proxies to be voted at the Meeting to be held on
___________, 1998.
At the Meeting, Physio-Control shareholders will be asked to consider
and vote upon the approval of the Plan of Merger and the Merger Agreement
attached to this Proxy Statement/Prospectus as Appendices A and B, respectively,
providing for the Merger of Merger Subsidiary, a wholly-owned subsidiary of
Medtronic, with and into Physio-Control, as a result of which Physio-Control
will become a wholly-owned subsidiary of Medtronic. Other terms and provisions
related to the Merger are set forth in the Merger Agreement, as described
herein.
The Board of Directors of Physio-Control has unanimously approved the
Merger. The Board of Directors of Medtronic has approved the Merger and the
issuance of shares of Medtronic Common Stock in the Merger. See "The
Merger--Background of the Merger." Applicable Minnesota law does not require
that Medtronic shareholders approve the Merger, and no such approval is being
sought. Medtronic, as the sole shareholder of Merger Subsidiary, has approved
the Merger.
Pursuant to the Plan of Merger, upon effectiveness of the Merger, each
outstanding share of Physio-Control Common Stock, except for shares of
Physio-Control Common Stock held by shareholders who properly exercise
dissenters' rights under Washington law, will be converted into the right to
receive a portion of a share of Medtronic Common Stock. See "The
Merger--General," "--Conversion of Physio-Control Common Stock in the Merger,"
and "--Rights of Dissenting Physio-Control Shareholders."
The close of business on __________, 1998 (the "Record Date") has been
fixed as the record date for determination of the holders of Physio-Control
Common Stock who are entitled to notice of and to vote at the Meeting or at any
adjournment thereof. Physio-Control has only one class of capital stock
outstanding, Common Stock, $.01 par value per share. As of the Record Date,
there were [17,727,891] shares of Physio-Control Common Stock outstanding held
by approximately 100 holders of record. The holders of record on the Record Date
of shares of Physio-Control Common Stock are entitled to one vote per share at
the Meeting. The presence at the Meeting in person or by proxy of the holders of
a majority of the outstanding shares of Physio-Control Common Stock entitled to
vote shall constitute a quorum for the transaction of business; however, the
affirmative vote of the holders of two-thirds of the outstanding shares of
Physio-Control Common Stock is required for approval of the Merger. Directors
and executive officers of Physio-Control have agreed to vote the Physio-Control
shares beneficially owned by them in favor of the Merger. See "The Merger--Vote
Required" and "--Voting Agreements."
Representatives of PricewaterhouseCoopers LLP, Physio-Control's
independent accountants, are expected to be present at the Meeting. Such
representatives will have the opportunity to make a statement if they so desire
and are expected to be available to respond to appropriate questions.
A proxy card is enclosed for use by Physio-Control shareholders. Such
shareholders are solicited on behalf of the Board of Directors of Physio-Control
to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING ENVELOPE. No postage is
required if mailed within the United States. Questions or requests for
assistance in completing and submitting Proxy cards may be directed to
____________________________ at the address or telephone number listed on the
cover of this Proxy Statement/Prospectus.
<PAGE>
All properly executed proxies not revoked will be voted at the Meeting
in accordance with the instructions contained therein. Proxies containing no
instructions will be voted in favor of approval of the Merger. A shareholder who
has executed and returned a proxy may revoke it at any time before it is voted,
but only by executing and returning a proxy bearing a later date, by giving
written notice of revocation to the corporate secretary of Physio-Control, or by
attending the Meeting and voting in person. Abstentions will be treated as
shares present for purposes of determining a quorum for the Meeting but will
have the same effect as a vote against approval of the Merger. If a broker or
other record holder or nominee indicates on a proxy that it does not have
direction or authority as to certain shares to vote on the Merger, those shares
will be considered present at the Meeting for purposes of determining a quorum
but will have the same effect as a vote against approval of the Merger.
If any other matters are properly presented for consideration at the
Meeting, the persons named in the enclosed form of proxy and acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment.
THE BOARD OF DIRECTORS OF PHYSIO-CONTROL RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER. See "The Merger--Interests of
Certain Persons in the Merger" for a discussion of conflicts of interest that
certain directors and members of management have in connection with the Merger.
SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR PROXY CARDS.
In addition to the solicitation of proxies by use of mail, the
directors, officers or regular employees of Physio-Control may, but without
compensation other than their regular compensation, solicit proxies personally
or by telephone or fax. In addition, _____________________________, a firm that
provides professional proxy soliciting services, has been engaged to assist in
the solicitation of proxies from brokers, bank nominees, institutional holders
and other Physio-Control shareholders and to serve as information agent in
connection with the Merger. ________________________________ will receive
reasonable and customary compensation for such services and reimbursement of
reasonable out-of-pocket expenses. Physio-Control 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 Physio-Control Common Stock held of record by such persons.
Physio-Control and Medtronic have agreed to share equally all expenses relating
to the printing and mailing of this Proxy Statement/Prospectus and the filing of
it with the Commission.
All information in this Proxy Statement/Prospectus with respect to
Medtronic has been furnished by Medtronic and all information with respect to
Physio-Control has been furnished by Physio-Control.
The mailing of this Proxy Statement/Prospectus to shareholders of
Physio-Control is expected to commence on or about ______________, 1998.
THE MERGER
Set forth below is a brief description of certain terms of the Merger
Agreement and related matters. This description does not purport to be complete
and is qualified in its entirety by reference to the Plan of Merger and the
Merger Agreement, which are attached hereto as Appendices A and B and are
incorporated herein by reference.
<PAGE>
General
Medtronic, Merger Subsidiary, and Physio-Control have entered into the
Merger Agreement, which provides that Merger Subsidiary will be merged with and
into Physio-Control, with Physio-Control becoming a wholly-owned subsidiary of
Medtronic. In the Merger, Physio-Control will change its name to "Medtronic
Physio-Control, Inc." Each outstanding share of Physio-Control Common Stock,
other than shares held by Physio-Control shareholders who perfect dissenters'
rights under Washington law, will be converted at the Effective Time (as defined
below) into the right to receive the portion of a share of Medtronic Common
Stock equal $27.50 divided by the Average Stock Price of Medtronic Common Stock
for a specified determination period, as described in further detail below. See
"The Merger--Conversion of Physio-Control 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, articles of merger containing the Plan of
Merger will be filed with the Secretary of State of the State of Washington, 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 Meeting, but not later than 10 business days
after approval of the Merger by the Physio-Control shareholders and the
satisfaction or waiver of the other conditions to the Merger. See "The
Merger--Conditions; Waiver" and "--Accounting Treatment of the Merger."
Background of the Merger
The terms of the Merger Agreement are the result of arm's-length
negotiations between representatives of Medtronic and Physio-Control. The
following is a brief discussion of the background of these negotiations, the
Merger, and related transactions.
On November 12, 1997, at a regularly scheduled meeting of the
Physio-Control Board of Directors, the Board discussed the strategic forces
driving consolidation within the medical device industry and other industry
factors that indicated a need for substantial growth by Physio-Control. The
Physio-Control Board of Directors considered the range of strategic alternatives
available to Physio-Control, including potential acquisitions by Physio-Control
that had been considered, and authorized the engagement of Morgan Stanley to act
as financial advisor to assist the Board of Directors of Physio-Control in also
actively considering proposals for the acquisition of Physio-Control.
Physio-Control management contacted Morgan Stanley following the
meeting and, in January 1998, an engagement letter (dated December 9, 1997) was
executed, which, among other terms, specified a limited number of companies that
Morgan Stanley could contact concerning a possible acquisition of
Physio-Control.
With the assistance of Physio-Control's management, Morgan Stanley
proceeded to contact the authorized group of companies concerning a possible
acquisition of Physio-Control. This group of potential acquirors consisted of
leading hospital supply and medical technology companies, including Medtronic.
<PAGE>
On February 3, 1998, Morgan Stanley, on behalf of Physio-Control,
contacted Michael Ellwein, then the Vice President Corporate Development and
Associate General Counsel of Medtronic, concerning whether Medtronic had any
interest in a strategic transaction involving Physio-Control. As a result of
that telephone call, and following arrangements coordinated by Morgan Stanley,
on March 16, 1998, Richard Martin and Robert Guezuraga, respectively the
Chairman and Chief Executive Officer and the President and Chief Operating
Officer of Physio-Control, Glen Nelson, M.D. and Bobby Griffin, respectively the
Vice Chairman and the Executive Vice President of Medtronic, and Mr. Ellwein met
in Bellevue, Washington, to discuss Physio-Control's business in general terms
and Medtronic's potential interest in a possible acquisition of Physio-Control.
After additional discussions among representatives of Morgan Stanley,
Medtronic, and Physio-Control, on March 26, 1998, Medtronic sent to
Physio-Control a draft confidentiality agreement to maintain the confidentiality
of information exchanged by Medtronic and Physio-Control. On April 16, 1998, the
confidentiality agreement was executed.
On March 30, 1998, Mr. Martin met with William W. George, the Chairman
and Chief Executive Officer of Medtronic, and Mr. Griffin, at the American
Conference of Cardiologists in Atlanta, Georgia, and held further discussions
regarding Physio-Control's business and Medtronic's potential interest in a
possible acquisition of Physio-Control.
On April 8, 1998, a representative of Morgan Stanley, on behalf of
Physio-Control, spoke by telephone with Mr. Ellwein regarding the general terms
of a possible acquisition of Physio-Control by Medtronic.
On April 23, 1998, Dr. Nelson, Messrs. Griffin and Ellwein, and Michael
Jeram of Medtronic's Corporate Development group, met in Bellevue, Washington,
with Messrs. Martin and Guezuraga, and Joseph Caffarelli and Marc Droppert,
respectively the Executive Vice President and Chief Financial Officer and the
Executive Vice President and General Counsel of Physio-Control. Representatives
of Morgan Stanley and Goldman, Sachs & Co. ("Goldman Sachs"), financial advisors
to Medtronic in connection with the Merger, were present. During the meeting,
the parties discussed, among other things, Physio-Control's business and the
strategic rationale for a combination between the two companies. Following the
meeting, Dr. Nelson and Messrs. Griffin and Ellwein toured Physio-Control's
facilities in Redmond, Washington, and received a product demonstration.
On April 28, 1998, Mr. Ellwein presented to Mr. Martin for discussion a
proposal containing certain nonfinancial terms for a possible business
combination between Physio-Control and Medtronic. Mr. Ellwein indicated that,
subject to the completion of some additional review, Medtronic expected to
propose financial terms within a few days.
On May 5, 1998, at a regularly scheduled meeting of the Physio-Control
Board of Directors, representatives of Morgan Stanley made a financial
presentation to the Board of Directors and also updated the Board on the status
of the discussions with the authorized companies and, specifically, Medtronic,
including the proposed discussion terms received from Medtronic.
<PAGE>
Also on May 5, 1998, Mr. Ellwein and Mr. Martin had a telephone
conversation and Mr. Ellwein presented to Mr. Martin for discussion a proposal
that, subject to completion of due diligence and completion of definitive
agreements, Medtronic would pay $27.00 for each share of Physio-Control Common
Stock, to be paid in Medtronic Common Stock. Mr. Martin reported the information
to the Physio-Control Board of Directors, which, after discussion, did not
approve the offered price but authorized Mr. Martin and Morgan Stanley to
continue discussions with Medtronic.
Following the Physio-Control Board meeting, representatives of Morgan
Stanley contacted Medtronic on behalf of Physio-Control and informed its
representatives that the current discussion terms were not acceptable either as
to price or as to the nonfinancial terms; however, due to Physio-Control's
ongoing interest in a strategic combination with Medtronic, Physio-Control was
prepared to allow Medtronic to begin its due diligence process in an effort to
encourage a proposal for a transaction more favorable to Physio-Control.
On May 18, 1998, Medtronic's counsel distributed an initial draft
merger agreement to Physio-Control and its legal advisors. Also, on May 20 and
21, Medtronic representatives met at the offices of Physio-Control's legal
counsel to review due diligence materials provided by Physio-Control. During the
week of May 25, 1998, Physio-Control and its counsel provided additional due
diligence information and provided Medtronic with specific comments on the draft
merger agreement.
On June 1, 1998, members of Medtronic management (Messrs. Griffin,
Collins, Johnson, Eastwood and Cybulski) met with Physio-Control management
(Messrs. Martin, Guezuraga, Caffarelli, and Droppert) in Redmond, Washington.
During the meeting, the parties discussed Physio-Control's business.
Between June 1 and 20, 1998, Medtronic, Physio-Control, their
respective outside counsel, Morgan Stanley, and Goldman Sachs held several
meetings and conference calls, which involved due diligence matters,
negotiations regarding the terms of the draft merger agreement and related
documents, integration planning, discussions regarding accounting treatment of a
potential business combination between Medtronic and Physio-Control, and other
matters related to the transaction.
On June 16, 1998, after a number of discussions with Mr. Martin and
other officers of Physio-Control, representatives of Morgan Stanley, on behalf
of Physio-Control, telephoned representatives of Medtronic and representatives
of Goldman Sachs to discuss financial considerations in the draft merger
agreement. During these discussions, representatives of Morgan Stanley
reiterated that the draft merger agreement was not acceptable either as to (i)
price, (ii) transaction protections, including the size, scope, and triggers of
any termination fee or termination option, and (iii) certain other nonfinancial
terms. At that time, Medtronic agreed to certain modifications to the
transaction protection clauses, but remained firm as to Medtronic's discussion
price of $27.00 per share. Representatives of Morgan Stanley, after discussions
with the management of Physio-Control, again rejected Medtronic's proposed
discussion price on behalf of Physio-Control.
On June 20, 1998, Physio-Control, Medtronic, and their respective
financial advisors and outside counsel held a number of discussions regarding
the outstanding financial and nonfinancial terms of the draft merger agreement.
At the conclusion of these discussions, Medtronic proposed an increase in the
Merger price to $27.50 for each share of Physio-Control Common Stock, to be paid
in Medtronic Common Stock, subject to approval of both companies' respective
Boards of Directors and negotiation of an acceptable merger agreement, and
indicated that this was the maximum value it would consider. After discussions
with representatives of Physio-Control, representatives of Morgan Stanley, on
behalf of Physio-Control, and Medtronic reached preliminary verbal agreement on
certain outstanding issues, other than certain transaction protection clauses
(consisting of the termination fee and the stock option to be granted to
Medtronic pursuant to the Stock Option Agreement) and the Merger price per
share, subject to the approval of Physio-Control's and Medtronic's respective
Boards of Directors.
On June 25, 1998, the Board of Directors of Medtronic approved the
acquisition of Physio-Control, subject to final negotiations of outstanding
issues by senior management, and authorized Medtronic's officers to undertake
all acts necessary or desirable to effect the Merger. At the time of its June 25
Board meeting, Medtronic anticipated the Merger price to be $27.50 per share.
<PAGE>
On June 26, 1998, the Physio-Control Board of Directors met by
telephone conference call at 5:30 a.m. (Pacific time) to receive a presentation
by representatives of Morgan Stanley updating the Board of Directors on (i) the
status of the discussions with the authorized companies and, specifically,
Medtronic and (ii) the proposed terms of the potential business combination
between Physio-Control and Medtronic. The Board of Directors directed
Physio-Control's management and representatives of Morgan Stanley to continue
negotiations on various aspects of the draft definitive agreements with
Medtronic.
On June 26 and 27, 1998, Physio-Control and its legal counsel and
financial advisors continued negotiations with Medtronic regarding the proposed
merger agreement and completion of various schedules and related documents.
During these negotiations, management of the parties reached tentative verbal
agreement on the transaction protection clauses (the termination fee and the
stock option to be granted to Medtronic) and the $27.50 price per share payable
in the Merger, subject to the approval of Physio-Control's Board of Directors.
At 4 p.m. (Pacific time) on June 27, the Physio-Control Board of
Directors met again by telephone conference call to discuss the proposed
transaction and received reports from Physio-Control's management,
representatives of Morgan Stanley, and its legal counsel. Morgan Stanley
delivered its oral opinion, subsequently confirmed in writing, that, as of the
date of such opinion, and subject to the various considerations set forth in the
opinion, the consideration to be received by the holders of Physio-Control
Common Stock pursuant to the Merger Agreement was fair from a financial point of
view to such holders. Having reviewed the terms of the draft definitive
agreements relating to the Merger, the Physio-Control Board unanimously approved
the Merger Agreement, Plan of Merger, and Stock Option Agreement, authorized
Physio-Control's officers to execute the agreements, and unanimously recommended
that Physio-Control's shareholders approve the Merger as provided in the Merger
Agreement and Plan of Merger.
Following the approval of the Merger Agreement and related documents by
Physio-Control's Board of Directors, representatives of Physio-Control and
Medtronic executed the Merger Agreement and Stock Option Agreement on June 27,
1998. On June 29, 1998, prior to the opening of trading on the Nasdaq National
Market, Medtronic and Physio-Control issued a joint press release announcing the
execution of the Merger Agreement.
Physio-Control's Reasons for the Merger; Recommendation of the Physio-Control
Board of Directors
The Board of Directors of Physio-Control has determined that the Merger
is fair to, and in the best interests of, Physio-Control and its shareholders.
Accordingly, the Board of Directors of Physio-Control has unanimously approved
the Plan of Merger and the Merger Agreement and recommends that the shareholders
of Physio-Control vote FOR approval and adoption of the Plan of Merger and the
Merger Agreement. In reaching its determination, the Board of Directors of
Physio-Control consulted with Physio-Control's management, as well as its legal
counsel and its financial advisor, and considered a number of factors,
including, without limitation, the following:
(1) The opportunity to continue to market its external
defibrillators with substantial additional financial resources,
including the benefit that Medtronic's reputation and resources would
bring to Physio-Control's product development, marketing and
distribution, and relationships with customers and potential customers;
<PAGE>
(2) The ability to provide Physio-Control shareholders with
Medtronic Common Stock in a tax-free exchange at a premium over the
market price for Physio-Control Common Stock;
(3) The opportunity to provide an integrated response to
cardiac care from initial arrest (with external defibrillator) through
definitive treatment with an implantable (internal defibrillator)
device; and
(4) The potential ability to increase international revenues
through Medtronic's broader international distribution and marketing
network.
In the course of its deliberations, the Board of Directors of
Physio-Control reviewed a number of additional factors relevant to the Merger.
In particular, the Physio-Control Board considered, among other things, the
following factors, each of which it determined were favorable to the Merger: (i)
information concerning Medtronic's and Physio-Control's respective businesses,
historical financial performance, operations and products, including possible
future product releases; (ii) the comparative trading prices of Medtronic and
Physio-Control Common Stock and other selected medical device companies; (iii)
premiums and multiples paid in other merger and acquisition transactions in
Physio-Control's industry and other industries; (iv) the compatibility of the
management and businesses of Medtronic and Physio-Control; (v) the financial
presentation by Morgan Stanley and the opinion of Morgan Stanley that, as of the
date of such opinion and subject to the assumptions and considerations set forth
in the opinion, the consideration to be received by the holders of
Physio-Control Common Stock pursuant to the Merger Agreement was fair from a
financial point of view to such holders; (vi) the likelihood of consummation of
the Merger, including the terms and conditions of the Merger Agreement and the
limited conditions to the consummation of the Merger; (vii) the fact that the
Merger Agreement would permit the Physio-Control Board to terminate such
agreement under certain circumstances; and (viii) no competing offer or proposal
of any kind had been received from any third party.
The Board of Directors of Physio-Control also considered certain
potentially negative factors in its deliberations concerning the Merger,
including, among other things: (i) the potential loss of revenues and business
opportunities in the external defibrillator market as a result of announcement
of the Merger; (ii) the possibility of management disruption associated with the
Merger and the risk of loss of key technical and management personnel of
Physio-Control; and (iii) the risk that the benefits sought to be achieved by
the Merger will not be achieved. In the view of the Physio-Control Board of
Directors, the potentially negative factors are not sufficient either
individually or collectively to outweigh the potential benefits of the Merger.
The foregoing discussion of the information, factors, and reasons for
the Merger considered by the Board of Directors of Physio-Control is not
intended to be exhaustive but includes the material factors considered by the
Board of Directors of Physio-Control. Morgan Stanley's opinion and financial
analyses were only one of many factors considered by the Physio-Control Board in
its evaluation of the Merger and should not be viewed as determinative of the
view of the Physio-Control Board or management with respect to the consideration
to be received by Physio-Control shareholders in the Merger. In view of the wide
variety of factors considered by the Board of Directors of Physio-Control in
connection with its evaluation of the Merger and the complexity of such matters,
the Board of Directors of Physio-Control did not consider it practicable to, nor
did it attempt to, quantify or otherwise assign relative weights to the specific
factors it considered in reaching its decision. In addition, the Physio-Control
Board did not make any determination as to whether any particular factor (or any
aspect of any particular factor) was determinative to its ultimate
determination. In considering the factors described above, individual members of
the Board of Directors of Physio-Control may have given different weights to
different factors. See "The Merger--Opinion of Physio-Control's Financial
Advisor" and "Comparative Stock Prices and Dividends."
<PAGE>
Medtronic's Reasons for the Merger
Medtronic believes that the acquisition of Physio-Control will
complement Medtronic's product offerings and that Physio-Control's broad line of
external defibrillators, when combined with Medtronic's implantable
defibrillators, will significantly enhance Medtronic's ability to deliver
lifesaving technologies, with the objective of increasing the survival of
patients who experience life-threatening cardiac events.
Opinion of Physio-Control's Financial Advisor
Pursuant to a letter agreement dated as of December 9, 1997 (the
"Morgan Stanley Engagement Letter"), Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the Merger. Morgan
Stanley was selected by the Physio-Control Board to act as Physio-Control's
financial advisor based on Morgan Stanley's qualifications, expertise, and
reputation and its knowledge of the business and affairs of Physio-Control. At
the meeting of the Physio-Control Board on June 27, 1998, Morgan Stanley
rendered its oral opinion, subsequently confirmed in writing, that as of June
27, 1998, based upon and subject to the various considerations set forth in the
opinion, the consideration to be received by the holders of Physio-Control
Common Stock pursuant to the Merger Agreement was fair from a financial point of
view to such holders.
The full text of the written opinion of Morgan Stanley dated June 27,
1998, which sets forth, among other things, assumptions made, procedures
followed, matters considered, and limitations on the scope of the review
undertaken by Morgan Stanley in rendering its opinion, is attached as Appendix D
to this Proxy Statement/Prospectus. Physio-Control shareholders are urged to,
and should, read the opinion carefully and in its entirety. Morgan Stanley's
opinion is directed to the Physio-Control Board and addresses only the fairness
of the consideration to be received by the holders of Physio-Control Common
Stock pursuant to the Merger Agreement from a financial point of view to such
holders as of the date of the opinion, and it does not address any other aspect
of the Merger and does not constitute a recommendation to any holder of
Physio-Control Common Stock as to how to vote at the Meeting. The summary of the
opinion of Morgan Stanley set forth in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things: (i) reviewed certain publicly available financial statements and other
information of Physio-Control and Medtronic, respectively; (ii) reviewed certain
internal financial statements and other financial and operating data concerning
Physio-Control prepared by the management of Physio-Control; (iii) discussed the
past and current operations and financial condition and the prospects of
Physio-Control, including information relating to certain strategic, financial,
and operational benefits, anticipated from the Merger with senior executives of
Physio-Control; (iv) discussed the past and current operations and financial
condition and the prospects of Medtronic, including information relating to
certain strategic, financial, and operational benefits anticipated from the
Merger with senior executives of Medtronic; (v) reviewed the pro forma impact of
the Merger on the earnings per share of Medtronic; (vi) reviewed the reported
prices and trading activity for the Physio-Control Common Stock and the
Medtronic Common Stock; (vii) compared the financial performance of
Physio-Control and Medtronic and the prices and trading activity of the
Physio-Control Common Stock and the Medtronic Common Stock with that of certain
other publicly-traded companies and their securities; (viii) reviewed the
<PAGE>
financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (ix) reviewed and discussed with the senior management
of Physio-Control the strategic rationale for the Merger and certain
alternatives to the Merger; (x) reviewed and discussed with the senior
management of Medtronic the strategic rationale for the Merger; (xi)
participated in discussions and negotiations among representatives of
Physio-Control and Medtronic and their financial and legal advisors; (xii)
reviewed the Merger Agreement and certain related agreements; and (xiii)
performed such other analysis and considered such other factors as Morgan
Stanley deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon
without independent verification the accuracy and completeness of the
information reviewed by it for the purposes of its opinion. With respect to the
internal financial statements of Physio-Control and other financial and
operating data and information relating to the strategic, financial, and
operational benefits anticipated from the Merger provided by Physio-Control and
Medtronic, Morgan Stanley assumed that they were reasonably prepared on bases
reflecting the best then-available estimates and judgments of the prospects of
Physio-Control and Medtronic, respectively. Morgan Stanley did not make any
independent valuation or appraisal of the assets, liabilities, or technology of
Physio-Control, nor was it furnished with any such appraisals. Morgan Stanley
assumed that the Merger will be accounted for as a "pooling-of-interests"
business combination in accordance with United States generally accepted
accounting principles and the Merger will be treated as a tax-free
reorganization and/or exchange pursuant to the Code. Morgan Stanley also assumed
that the Merger would be consummated in accordance with the terms set forth in
the Merger Agreement. Morgan Stanley's opinion is necessarily based on economic,
market, and other conditions as in effect on, and the information made available
to it as of, June 27, 1998.
The following is a brief summary of certain analyses performed by
Morgan Stanley in preparation of its opinion letter dated June 27, 1998.
Comparative Stock Price Performance. Morgan Stanley reviewed the recent
stock price performance of Physio-Control and Medtronic and compared such
performance with that of a group of cardiovascular companies (the
"Cardiovascular Companies"), patient monitoring companies (the "Patient
Monitoring Companies"), and hospital device and supplies companies (the
"Hospital Device and Supplies Companies"). Morgan Stanley observed that over the
period from December 11, 1995 until June 26, 1998, the market price of
Physio-Control Common Stock appreciated approximately 59% compared with an
approximate appreciation of 128% for Medtronic Common Stock, 130% for an index
of Cardiovascular Companies, 27% for an index of Patient Monitoring Companies,
and 60% for an index of Hospital Device and Supplies Companies.
Peer Group Comparison. Morgan Stanley compared certain financial
information of Physio-Control with that of the Patient Monitoring Companies and
certain financial information of Medtronic with that of the Cardiovascular
Companies. Such information included, among other things, market valuation and
stock price as a multiple of earnings per share. Such analysis showed that as of
June 26, 1998, based on earnings per share projections from securities research
analysts: Physio-Control traded at 22.2 times next 12 months projected earnings
per share and 19.6 times calendar year 1999 projected earnings per share,
compared to median multiples of 16.7 times next 12 months projected earnings per
share and 13.6 times calendar year 1999 projected earnings per share for the
Patient Monitoring Companies; Medtronic traded at 40.6 times next 12 months
projected earnings per share and 37.5 times calendar year 1999 projected
earnings per share, compared to median multiples of 21.2 times next 12 months
projected earnings per share and 18.9 times calendar year 1999 projected
earnings per share for the Cardiovascular Companies. No company utilized as a
<PAGE>
comparison in the peer group comparison is identical to Physio-Control or
Medtronic. In evaluating the comparable companies, Morgan Stanley made judgments
and assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Physio-Control and Medtronic, such as the impact of competition on
Physio-Control or Medtronic and the industry generally, industry growth, and the
absence of any adverse material change in the financial condition and prospects
of Physio-Control or Medtronic or the industry or in the financial markets in
general.
Analysis Of Selected Precedent Transactions. Morgan Stanley reviewed a
number of transactions (collectively, the "Hospital Supply/Medical Technology
Transactions") and compared certain statistics for the Hospital Supply/Medical
Technology Transactions to the relevant financial statistics for Physio-Control
based on a price of $27.50 for each share of Physio-Control Common Stock.
Analysis of the Hospital Supply/Medical Technology Transactions showed a median
multiple of next 12 months' earnings of 21.3 times and a median multiple of last
12 months revenues of 2.6 times and median premiums over target closing prices
of 22.1% based on one day prior to announcement and 33.7% based on one month
prior to announcement. These statistics compared to multiples of 28.6 times for
the next 12 months' earnings and 3.0 times last 12 months revenues and premiums
of 19.6% and 22.9% over the closing prices of Physio-Control Common Stock as of
June 26, 1998 and 30 trading days prior to that date, respectively, based on a
value of $27.50 for each share of Physio-Control Common Stock. No transaction
utilized as a comparison in the precedent transaction analysis is identical to
the Merger. In evaluating the precedent transactions, Morgan Stanley made
judgments and assumptions with regard to industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Physio-Control and Medtronic, such as the impact of
competition on Physio-Control or Medtronic and the industry generally, industry
growth and the absence of any adverse material change in the financial condition
and prospects of Physio-Control or Medtronic or the industry or in the financial
markets in general. Mathematical analysis (such as determining the average or
median) is not in itself a meaningful method of using comparable transaction
data.
Pro Forma Merger Analysis. Morgan Stanley analyzed the pro forma impact
of the Merger on Medtronic's projected earnings per share for calendar years
1998 and 1999. Such analysis was based on earnings projections by securities
research analysts for both companies. Morgan Stanley observed that, assuming
that the Merger was treated as a pooling transaction, the Merger would result in
earnings per share accretion for Medtronic shareholders of 0.6% and 0.8% for
calendar years 1998 and 1999, respectively, before taking into account any
one-time charges or synergies.
Discounted Cash Flow Value Analysis. Morgan Stanley performed a discounted
cash flow analysis to estimate the present value of the stand-alone unlevered
free cash flows that both Physio-Control and Medtronic are expected to generate
if Physio-Control and Medtronic perform in accordance with the scenarios based
upon certain financial forecasts. Morgan Stanley analyzed two sets of financial
forecasts for Physio-Control, a case developed by Morgan Stanley based on
information provided by and discussions with the management of Physio-Control
(the "Projected Case") and a case based on projections from securities research
analysts (the "Research Case"). Morgan Stanley analyzed financial forecasts for
Medtronic based on projections from securities research analysts. Unlevered free
cash flows were calculated as net income plus depreciation and amortization plus
deferred taxes plus minority interest plus other non-cash expenses plus
after-tax net interest expense less capital expenditures less investment in
working capital. The projected unlevered free cash flow streams of
Physio-Control and Medtronic were then discounted to
<PAGE>
their present values using a range of discount rates from 12% to 14% for both
Physio-Control and Medtronic. Terminal values were calculated as a multiple of
terminal year net income over a range of multiples from 18 times to 24 times for
Physio-Control and 32 times to 40 times for Medtronic and then discounted to
their present values using the aforementioned discount rates. The discount rate
ranges were selected based upon an analysis of weighted average cost of capital
for both Physio-Control and Medtronic. Adjustments were also made for cash and
indebtedness. Based on this analysis, Morgan Stanley calculated per share equity
values of Physio-Control ranging from $24.50 to $33.95 for the Projected Case
and $19.70 to $27.20 for the Research Case on a fully diluted share basis.
Morgan Stanley observed that, based on this analysis, the offered price of
$27.50 per share was higher than the range yielded by the Research Case and
within the range yielded by the Projected Case.
In connection with the review of the Merger by the Physio-Control Board
of Directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinion given in connection therewith. The summary
set forth above does not purport to be a complete description of the analyses
performed by Morgan Stanley in connection with the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuation resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Physio-Control or Medtronic. In performing
its analyses, Morgan Stanley made numerous assumptions with respect to industry
performance, general business and economic conditions, and other matters, many
of which are beyond the control of Physio-Control or Medtronic. Any estimates
contained in Morgan Stanley's analyses are not necessarily indicative of future
results or actual values, which may be significantly more or less favorable than
those suggested by such estimates. The analyses performed were prepared solely
as part of Morgan Stanley's analysis of the fairness from a financial point of
view of the consideration to be received by holders of Physio-Control Common
Stock pursuant to the Merger Agreement and were conducted in connection with the
delivery of Morgan Stanley's opinion to the Physio-Control Board of Directors.
The analyses do not purport to be appraisals or to reflect the prices at which
Physio-Control Common Stock or Medtronic Common Stock might actually trade. The
terms of the Merger were determined through arm's-length negotiations between
Physio-Control and Medtronic and were approved by the Physio-Control Board.
Morgan Stanley provided advice to Physio-Control during such negotiations;
however, Morgan Stanley did not recommend any specific consideration to
Physio-Control or that any specific consideration constituted the only
appropriate consideration for the Merger. In addition, as described above,
Morgan Stanley's opinion and presentation to the Physio-Control Board of
Directors was one of many factors taken into consideration by Physio-Control's
Board in making its decision to approve the Merger. Consequently, the Morgan
Stanley analyses as described above should not be viewed as determinative of the
opinion of the Physio-Control Board of Directors with respect to the value of
Physio-Control or of whether the Physio-Control Board of Directors would have
been willing to agree to a different consideration.
The Physio-Control Board of Directors retained Morgan Stanley based
upon Morgan Stanley's qualifications, experience, and expertise. Morgan Stanley
is an internationally recognized investment banking and advisory firm. Morgan
Stanley, as part of its investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and securities in connection
<PAGE>
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for corporate and other purposes. Morgan Stanley makes a market
in Physio-Control Common Stock. In the ordinary course of Morgan Stanley's
trading and brokerage activities, Morgan Stanley or its affiliates may at any
time hold long or short positions, and may trade or otherwise effect
transactions, for its own account or for the accounts of customers, in the
equity or debt securities or senior loans of Physio-Control or Medtronic.
Pursuant to the Morgan Stanley Engagement Letter, Morgan Stanley
provided financial advisory services and a financial opinion in connection with
the Merger, and Physio-Control agreed to pay Morgan Stanley a fee in connection
therewith equal to 1.25% of the aggregate value of the consideration that is
paid by Medtronic to the Physio-Control shareholders in the Merger.
Physio-Control has also agreed to reimburse Morgan Stanley for travel and other
out-of-pocket expenses incurred by Morgan Stanley in performing its services. In
addition, Physio-Control has also agreed to indemnify Morgan Stanley and its
affiliates, and their respective directors, officers, agents and employees, and
each person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities under the
federal securities laws, arising out of Morgan Stanley's engagement and any
related transactions. In the past, Morgan Stanley and its affiliates have
provided financial advisory and financing services for Physio-Control and have
received fees for rendering these services.
Vote Required
Approval of the Merger requires the affirmative vote of the holders of
two-thirds of the outstanding shares of Physio-Control Common Stock. Each holder
of Physio-Control Common Stock outstanding as of the Record Date is entitled to
one vote for each share held. On the Record Date, there were [17,727,891] shares
of Physio-Control Common Stock outstanding. Of such shares, [136,979] shares
(less than 1% of the shares of Physio-Control Common Stock entitled to vote at
the Meeting) are beneficially owned by directors and executive officers of
Physio-Control. Physio-Control's directors and executive officers who own stock
or options to purchase stock of Physio-Control have executed voting agreements
under which such persons have agreed to vote the shares of Physio-Control Common
Stock beneficially owned by them in favor of the Merger. See "The Merger--Voting
Agreements."
Medtronic, as the sole shareholder of Merger Subsidiary, has approved
the Plan of Merger and the Merger Agreement. Approval of the Plan of Merger and
the Merger Agreement by Medtronic's shareholders is not required under Minnesota
law and is not being sought.
Conversion of Physio-Control Common Stock in the Merger
At the Effective Time, each issued and outstanding share of
Physio-Control Common Stock, excluding any shares of Physio-Control Common Stock
held by holders who have perfected their dissenters' rights under the WBCA (see
"The Merger--Rights of Dissenting Physio-Control Shareholders"), will be
automatically converted into the right to receive the portion of a share (the
"Conversion Fraction") of Medtronic Common Stock equal to $27.50 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 19 consecutive
trading days ending on the first trading day immediately preceding the Effective
Time.
<PAGE>
The $27.50 amount per share of Physio-Control Common Stock, payable in
shares of Medtronic Common Stock as described above, shall be reduced
proportionately if the sum of the number of shares of Physio-Control Common
Stock outstanding at the Effective Time plus the number of shares subject to
outstanding options, warrants or other rights to acquire shares of
Physio-Control Common Stock (collectively, "Stock Rights") at the Effective Time
exceeds 20,693,456 (the number of Physio-Control shares, and options to purchase
such shares, outstanding on the date the Merger Agreement was signed) plus the
number of shares issuable under Physio-Control's Employee Share Purchase Plan
and Team Savings Plan, or if the aggregate exercise price of all outstanding
options and other rights to purchase Physio-Control Common Stock is less than
the aggregate exercise price reflected in Physio-Control's Disclosure Schedule
to the Merger Agreement. Physio-Control does not anticipate that any such
adjustment will be required.
If, prior to the Effective Time, Medtronic splits or combines the
Medtronic Common Stock or pays a stock dividend or other stock distribution in
shares of Medtronic Common Stock, then the Conversion Fraction will be
appropriately adjusted.
Based on the number of shares of Physio-Control Common Stock
outstanding on the Record Date (assuming a Conversion Fraction of [.4231], or
one Medtronic share for approximately every [2.36] Physio-Control shares,
calculated by using the [July 21], 1998 Medtronic closing sale price of $[65.00]
as the assumed Average Stock Price solely for illustrative purposes of this
paragraph), an estimated [7,500,670] shares of Medtronic Common Stock will be
issued in exchange for Physio-Control Common Stock upon consummation of the
Merger. Such shares would represent less than 2% of the shares of Medtronic
Common Stock that would be outstanding after consummation of the Merger.
Physio-Control shareholders should understand that shareholders
receiving Medtronic Common Stock in the Merger will receive a number of
Medtronic shares determined pursuant to the Conversion Fraction, as defined at
the beginning of this section. Because the market price of Medtronic Common
Stock is subject to fluctuation, the market value of the Medtronic shares that
Physio-Control shareholders receive in the Merger (whether measured at the
Effective Time of the Merger 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 of such fluctuations in the value of Medtronic shares, the
market value of the Medtronic Common Stock that Physio-Control shareholders
receive in the Merger may increase or decrease following the Merger. See
"Comparative Stock Prices and Dividends" for information regarding the
historical market prices of Medtronic Common Stock.
Fractional Shares
No certificates or scrip representing fractional shares of Medtronic
Common Stock will be issued, and no Medtronic dividend, stock split or interest
will relate to any fractional share. No fractional share interests will entitle
the owner thereof to vote or to any rights of a shareholder of Medtronic. All
fractional shares of Medtronic Common Stock to which a holder of Physio-Control
Common Stock immediately prior to the Effective Time would otherwise be
entitled, at the Effective Time, shall be aggregated if and to the extent
multiple Physio-Control stock certificates of such holder are submitted together
to _________________, 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 Physio-Control Common Stock who otherwise would
be entitled to receive a fractional share of Medtronic Common Stock in the
Merger will receive an amount of cash (without interest) determined by
multiplying (i) the Average Stock Price by (ii) the fractional share interest of
Medtronic Common Stock to which such holder would otherwise be entitled.
<PAGE>
Exchange of Shares of Physio-Control Common Stock
As soon as practicable after the Effective Time, the Exchange Agent
will mail a letter of transmittal to holders of a certificate or certificates
that prior to the Effective Time represented shares of Physio-Control Common
Stock. The letter of transmittal will include instructions regarding the
surrender of certificates representing shares of Physio-Control 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 Physio-Control Common Stock, upon
surrender to the Exchange Agent of one or more certificates for such shares of
Physio-Control Common Stock for cancellation, together with a duly-executed
letter of transmittal, (i) one or more certificates representing the number of
whole shares of Medtronic Common Stock into which the shares represented by the
certificate(s) have been converted and (ii) a check in the amount of any cash in
lieu of fractional shares. Holders of Physio-Control Common Stock will not be
entitled to receive interest on any cash to be received in the Merger.
After the Effective Time, certificates representing shares of
Physio-Control Common Stock converted into Medtronic Common Stock in the Merger
will be deemed for all purposes to evidence ownership of the shares of Medtronic
Common Stock into which they were converted. Holders of Physio-Control Common
Stock will be entitled to any dividends that become payable to persons who are
holders of record of Medtronic Common Stock as of a record date that follows the
Effective Time, but only after they have surrendered their certificates
representing shares of Physio-Control Common Stock for exchange. Any such
dividends will be remitted to each Physio-Control shareholder entitled thereto,
without interest, at the time that such certificates representing shares of
Physio-Control Common Stock are surrendered for exchange, subject to any
applicable abandoned property, escheat or similar law. Holders of Physio-Control
Common Stock will not be entitled, however, to dividends that become payable
before or after the Effective Time to persons who were holders of record of
Medtronic Common Stock as of a record date prior to the Effective Time.
Shareholder Rights Plan
Each Physio-Control 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 "Comparative
Rights of Medtronic Shareholders and Physio-Control Shareholders--Shareholder
Rights Plan."
Treatment of Stock Options
Under the terms of the outstanding options to purchase shares of
Physio-Control Common Stock, any such options that are not otherwise vested will
become fully vested and exercisable at the Effective Time as a result of the
Merger. All such options that are not exercised and remain outstanding at the
Effective Time will be assumed by Medtronic and, following the Effective Time,
will be exercisable upon the same terms and conditions as prior to the Merger,
except that 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 Physio-Control
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 a Physio-Control option a written statement informing such holder
of the assumption by Medtronic of such option.
<PAGE>
Conduct of Business of Physio-Control Pending the Merger
Physio-Control has agreed that, prior to consummation of the Merger,
unless Medtronic agrees otherwise, it will conduct its business only in the
ordinary course, it will use all reasonable efforts to preserve intact its
business organization and relationships with third parties, and it will not:
declare or pay any dividends or other distributions; amend or alter any material
term of its securities; incur, assume or guarantee any indebtedness other than
in the ordinary course of business; create, assume or incur any lien on any
material asset; issue or repurchase any securities (other than issuances of
securities upon the exercise of stock options previously granted and pursuant to
other existing benefit plans); alter its accounting principles; increase the
compensation or benefits of any of its directors, officers or other employees
(except under existing agreements or in the ordinary course of business); amend
its Articles of Incorporation or Bylaws; sell any property, pay any liabilities
or waive any claims, except in the ordinary course of business; make capital
investments in any other company; purchase fixed assets exceeding a specified
aggregate purchase price; distribute mass communications to any group without
allowing Medtronic to comment on them; merge or consolidate with any person;
acquire the stock or assets of any business; take or fail to take any action
that would cause its representations and warranties in the Merger Agreement to
be inaccurate; enter into or make any material change in any material
agreements, except in the ordinary course and consistent with past practice;
institute, settle or compromise any claim or suit involving amounts in excess of
a specified amount; knowingly take any action that would jeopardize the
treatment of the Merger as a pooling of interests or as a tax-free transaction;
or agree or commit to do any of the foregoing.
Physio-Control has agreed that (except as is required by the fiduciary
duties of Physio-Control's directors and officers as so advised by independent
counsel) neither Physio-Control nor any of its representatives or affiliates
will, directly or indirectly, solicit, initiate or encourage any acquisition
proposal, or engage in any negotiations with, or provide any information to, any
person, entity or group (other than Medtronic) that has made or may make an
alternate proposal with respect to Physio-Control or any subsidiary. For these
purposes, an "alternate proposal" would include a proposal involving a merger or
consolidation, a sale, lease or licensing of any significant portion of the
assets, or a sale of shares of capital stock of Physio-Control or any
subsidiary. Physio-Control has agreed that it will notify Medtronic promptly,
and prior to furnishing information or entering into discussions or negotiations
with a third party, regarding the terms of any such proposal that Physio-Control
may receive.
Pursuant to the Merger Agreement and a confidentiality agreement
between Medtronic and Physio-Control, Physio-Control has agreed to give
Medtronic and its representatives access to Physio-Control's offices,
properties, books and records, and to furnish to Medtronic and its
representatives such financial and operating data and other information as
Medtronic may reasonably request, and will have its employees and
representatives cooperate with Medtronic in Medtronic's investigation of the
business of Physio-Control.
Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors of
Physio-Control with respect to the Plan of Merger, the Merger Agreement, and the
transactions contemplated thereby, shareholders of Physio-Control should be
aware that certain members of the management of Physio-Control and the Board of
Directors of Physio-Control have certain interests in the Merger that are in
addition to, and may be in conflict with, the interests of shareholders of
Physio-Control generally.
<PAGE>
Stock Options. Under the terms of the outstanding options to purchase
shares of Physio-Control Common Stock, any such options that are not otherwise
vested will become fully vested and exercisable at the Effective Time as a
result of the Merger. Physio-Control's executive officers and directors
collectively hold outstanding options to purchase 1,160,787 shares of
Physio-Control Common Stock, of which options to purchase an aggregate 596,998
shares will vest as a result of the Merger. The following executive officers and
directors hold the following number of options that will become vested as a
result of the Merger: Richard Martin, 184,666; Robert Guezuraga, 184,666; Joseph
Caffarelli, 129,000; and Marc Droppert, 98,666. See "--Treatment of Stock
Options."
Noncompetition Agreements. Simultaneously with or immediately following
the execution of the Merger Agreement, but specifically conditioned upon the
effectiveness of the Merger, four executive officers of Physio-Control (Messrs.
Martin, Guezuraga, Caffarelli, and Droppert) executed separate noncompetition
agreements with Medtronic, pursuant to which these individuals have agreed that
they will not be employed by, associated with or render services to any person
or entity (other than Physio-Control or another Medtronic affiliate) engaged in
the design, development, manufacture, marketing or sale of products that are
similar to current or planned products of Physio-Control anywhere in the world.
Each noncompetition agreement expires 42 months after the Effective Time. No
additional consideration beyond their interest as shareholders and optionholders
is to be received by such executive officers for executing such noncompetition
agreements.
Termination Agreements. On November 12, 1997, Physio-Control entered
into termination agreements with the four executive officers of Physio-Control
named above. The agreements provide certain payments and benefits to these
individuals in the event that, during the two-year period following a "change in
control" of Physio-Control, (i) such individual's employment is terminated by
Physio-Control for any reason other than for death, disability, or "for cause"
or (ii) certain material adverse changes in the executive's salary, bonus,
benefits, title, responsibilities, or city of work. The executive will be paid,
in that event, a lump sum equal to a specified multiple of the executive's
highest total cash compensation, including bonus, in any one of the three
calendar years preceding the termination. The specified multiples are as
follows: Mr. Martin, 2.5; Mr. Guezuraga, 2.5; Mr. Caffarelli, 1.5; and Mr.
Droppert, 1.0. The terminated executive will also be entitled to continue to
receive continuing health insurance coverage for 24 months. Consummation of the
Merger will constitute the occurrence of a "change in control" under the
termination agreements.
Indemnification. Medtronic has agreed to cause the articles and bylaws
of Physio-Control, for at least six years after the Merger, to contain
provisions regarding indemnification and exculpation from liability equivalent
to that provided by the Articles of Incorporation and Bylaws of Physio-Control
prior to the Effective Time. Medtronic has also agreed to guarantee the
obligations of Physio-Control under such provisions. Medtronic has also agreed
to extend, for three years, Physio-Control's current officers' and directors'
liability insurance coverage periods with respect to acts occurring prior to the
Effective Time. If that coverage is not available at a total cost not exceeding
150% of the annual premium currently paid by Physio-Control for the coverage,
then Medtronic is required to obtain the maximum extension of coverage that is
available for a cost not exceeding 150% of such annual premium. See
"--Indemnification."
Medtronic also agreed that Physio-Control, as the surviving corporation
in the Merger, will provide employees of Physio-Control and its subsidiaries
employee benefits and programs that are substantially comparable or more
favorable to such employees as those in effect on the date of the Merger
Agreement.
<PAGE>
Each of Messrs. Martin and Guezuraga participated in the discussions
and deliberations of the Physio-Control Board of Directors in connection with
the Merger, and Messrs. Martin and Guezuraga voted in favor of the Merger.
Messrs. Caffarelli and Droppert are not Board members.
Voting Agreements
Pursuant to agreements to facilitate merger between Medtronic and each
of the executive officers and directors of Physio-Control who own stock or
options to acquire stock of Physio-Control (Messrs. Martin, Guezuraga,
Caffarelli, Droppert, Dollens, and Sandler), such individuals have agreed to
vote the shares of Physio-Control Common Stock beneficially owned by them (i) in
favor of the approval, consent, and ratification of the Merger and (ii) against
any action that would impede, interfere with, or discourage the Merger, would
facilitate an acquisition of Physio-Control in any manner by a party other than
Medtronic, or would result in any breach of any representation, warranty,
covenant, or agreement of Physio-Control under the Merger Agreement. The voting
agreements terminate upon termination of the Merger Agreement by Medtronic. As
of the Record Date, the shareholders who executed the voting agreements owned an
aggregate [136,979] shares of Physio-Control Common Stock, representing
less than 1% of Physio-Control Common Stock outstanding on the Record
Date.
Stock Option Agreement
Simultaneously with the execution of the Merger Agreement,
Physio-Control and Medtronic entered into a Stock Option Agreement pursuant to
which Physio-Control granted to Medtronic an option, exercisable only under
certain specified circumstances, to purchase a number of shares of
Physio-Control Common Stock equal to an aggregate 19.9% of the shares of
Physio-Control Common Stock outstanding on the date of the Merger Agreement, or
3,526,683 such shares, at an exercise price of $27.50 per share. The specified
circumstances are the same as those that could result in the payment by
Physio-Control of a termination fee upon certain terminations of the Merger
Agreement.
Under the Stock Option Agreement, Medtronic also has the right, under
certain circumstances following the occurrence of specified proposals by third
parties to acquire stock or assets of Physio-Control or to merge or combine with
Physio-Control, and in lieu of exercising Medtronic's option, to require
Physio-Control to pay to Medtronic, in cancellation of Medtronic's option, the
in-the-money value of such option. Such value is calculated as the lesser of (i)
$15 million or (ii) the number of shares subject to Medtronic's option
multiplied by the excess of the then-current trading price of Physio-Control
Common Stock or the price per share offered in the third-party proposal,
whichever is greater, over $27.50. In no event, however, can the sum of such
cancellation amount and the $15 million termination fee under the Merger
Agreement, if then payable, exceed $20 million. See "--Amendment and Termination
of the Merger Agreement."
Conditions; Waiver
The respective obligations of Medtronic, Merger Subsidiary, and
Physio-Control 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 Physio-Control 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
federal or state court or other governmental body, agency, or official that
would prevent or materially delay consummation of the Merger.
<PAGE>
In addition, the obligations of Physio-Control 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 obligations under the Merger Agreement required to be
performed by them; (b) each representation and warranty of Medtronic contained
in the Merger Agreement is true in all material respects as of the Effective
Time; and (c) Physio-Control has received an opinion of Preston Gates & Ellis
LLP, to the effect that the Merger will constitute a "tax-free" reorganization
for federal income tax purposes. Physio-Control has already received such
opinion. See "The Merger--Certain Federal Income Tax Consequences."
In addition, the obligations of Medtronic and Merger Subsidiary to
effect the Merger are subject to the satisfaction at or prior to the Merger of
certain conditions, including that: (a) Physio-Control has performed in all
material respects its obligations under the Merger Agreement required to be
performed by it; (b) each representation and warranty of Physio-Control
contained in the Merger Agreement is true in all material respects as of the
Effective Time; (c) all necessary consents have been received; (d) Medtronic has
received written resignations from each of the directors and specified officers
of Physio-Control effective as of the Effective Time; (e) certain specified
executive officers of Physio-Control have agreed to continue their employment
with Physio-Control following the Merger; and (f) Medtronic has received certain
letters from PricewaterhouseCoopers LLP regarding Medtronic's eligibility to use
the pooling of interests method to account for the Merger, or such condition as
to Medtronic has been waived. See "The Merger--Accounting Treatment of the
Merger."
Amendment and Termination of the Merger Agreement
Any of the provisions of the Merger Agreement may be amended by written
agreement of the respective parties at any time before or after approval of the
Merger by the Physio-Control shareholders; however, after such approval, no
amendment may be made to the Plan of Merger attached hereto as Appendix A that
materially affects the rights of the Physio-Control shareholders without
shareholder approval.
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Effective Time, whether before or after approval of the Merger
by the Physio-Control shareholders, only as follows:
(a) By mutual consent of the Board of Directors of each of
Medtronic and Physio-Control;
(b) By either Medtronic or Physio-Control if the Merger has
not been effected by December 1, 1998, except that a party cannot
terminate the Merger Agreement if its own breach of the Merger
Agreement is the primary cause of, or results in, the Merger not being
effected by such date;
(c) By either Medtronic or Physio-Control if a court or other
governmental authority has issued a final, nonappealable order, decree,
or ruling that permanently enjoins or prohibits the Merger;
(d) By either Medtronic or Physio-Control if the
Physio-Control shareholders do not vote to approve the Merger, except
that a party cannot terminate the Merger Agreement if its own failure
to perform under the Merger Agreement is the primary cause of, or
results in, the failure of the Physio-Control shareholders to approve
the Merger;
<PAGE>
(e) By Medtronic if Physio-Control has solicited, entertained
or negotiated a competing offer to acquire Physio-Control in violation
of the Merger Agreement, or recommended, approved, or entered into an
agreement regarding any such offer, or withdrawn or modified (in a
manner adverse to Medtronic) its recommendation of the Merger, or if a
tender or exchange offer for 15% or more of the Physio-Control Common
Stock is commenced and the Physio-Control Board, within 10 business
days thereafter, fails to recommend against acceptance or takes no
position regarding acceptance of the offer;
(f) By Physio-Control if it is not in material breach of its
obligations under the Merger Agreement and its Board of Directors has
accepted a competing offer by a party other than Medtronic to acquire
Physio-Control, and has paid to Medtronic the termination fee described
below; or
(g) By Medtronic if it is not then in material breach and
there occurs a material breach of any representation, warranty, or
obligation under the Merger Agreement on the part of Physio-Control, or
by an affiliate of Physio-Control under its affiliate's letter, that
cannot be cured within 30 days.
(h) By Physio-Control if it is not then in material breach and
there occurs a material breach of any representation, warranty, or
obligation under the Merger Agreement on the part of Medtronic that
cannot be cured within 30 days.
Physio-Control has agreed to pay Medtronic $15 million if either (i)
the Merger Agreement is terminated as described in paragraph (e) or (f) above or
(ii) a third party either makes an acquisition proposal or in fact acquires 15%
or more of the outstanding Physio-Control Common Stock prior to the Meeting, and
either (A) the Physio-Control shareholders do not approve the Merger, (B) the
number of shares of Physio-Control Common Stock whose holders give notice of
exercise of dissenters' rights prevents the Merger from qualifying as a pooling
of interests, or (C) the Merger Agreement is terminated (except pursuant to
paragraph (a),(b), (c), or (h) above). See "The Merger--Stock Option Agreement."
Expenses and Fees
Whether or not the Merger is consummated, all out-of-pocket expenses
incurred in connection with the Merger (including but not limited to accounting
and legal fees) and the transactions contemplated thereby will be paid by the
party incurring such costs and expenses, except that Medtronic and
Physio-Control will share equally all expenses related to printing and mailing
the Registration Statement and this Proxy Statement/Prospectus, the filing fees
required under the HSR Act and any foreign merger laws, and the costs and fees
charged by PricewaterhouseCoopers LLP for the letters described in "The
Merger--Accounting Treatment of the Merger."
Goldman, Sachs & Co. provided certain financial advisory and investment
banking services to Medtronic in connection with the Merger, for which Medtronic
has agreed to pay a fee of $4 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, but this registration does not cover resales by shareholders of
Physio-Control who may be deemed to control or be under common control with
Physio-Control at the time of the Meeting ("Affiliates"). Affiliates may not
sell their shares of Medtronic Common Stock acquired in connection with the
<PAGE>
Merger except pursuant to an effective registration statement under the
Securities Act covering such shares, or in compliance with Rule 145 promulgated
under the Securities Act or another applicable exemption from the registration
requirements of the Securities Act. Physio-Control has delivered to Medtronic,
and agreed to update as necessary, a list identifying all persons who, in
Physio-Control's opinion, upon advice of counsel, are Affiliates of
Physio-Control for purposes of Rule 145. Physio-Control has delivered to
Medtronic from each person already identified as an Affiliate, and has agreed to
use all reasonable efforts to cause each person who is subsequently identified
as an Affiliate to deliver to Medtronic at or prior to the Effective Time, an
agreement that such persons (i) will not offer to sell, sell, or otherwise
dispose of any shares of Medtronic Common Stock received in the Merger in
violation of the Securities Act, (ii) have no present intention to sell,
transfer or otherwise dispose of any of the Medtronic Common Stock received in
the Merger and (iii) will not take any action that would jeopardize the
treatment of the Merger as a pooling of interests for accounting purposes. In
that regard, pursuant to Commission guidelines, such Affiliates should not sell,
transfer, or dispose of any shares of Physio-Control Common Stock or Medtronic
Common Stock or related stock options during the 30 days prior to the Effective
Time and should not sell, transfer, or dispose of any Medtronic Common Stock
received as a result of the Merger or otherwise until after such time as
Medtronic publicly releases a quarterly earnings report or files with the
Commission a registration statement or report, or makes any other public filing,
statement, or announcement that includes the combined financial results of
Medtronic and Physio-Control for a period of at least 30 days of combined
operations of Medtronic and Physio-Control following the Effective Time. It is
expected that Affiliates will be able to sell such shares without registration
and in accordance with the volume, manner of sale, and other applicable
limitations of the Securities Act and the rules and regulations of the
Commission thereunder.
It is estimated that Affiliates of Physio-Control will receive a maximum of
approximately [549,085] shares of Medtronic Common Stock upon consummation of
the Merger (assuming full exercise of all outstanding Physio-Control options
held by such Affiliates and assuming a Conversion Fraction of [.4231]). 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 Fraction was
calculated by using the [July 21], 1998 Medtronic closing sale price of $[65.00]
as the assumed Average Stock Price. See "The Merger--Conversion of
Physio-Control Common Stock in the Merger."
Deregistration of Physio-Control Common Stock
If the Merger is consummated, the Physio-Control Common Stock will
cease to be quoted on the Nasdaq National Market, and Medtronic will apply to
the Commission for the deregistration of Physio-Control Common Stock under the
Exchange Act.
Accounting Treatment of the Merger
Medtronic intends to account for the Merger as a "pooling of interests"
for accounting and financial reporting purposes under generally accepted
accounting principles. Under the pooling of interests method, the recorded
assets and liabilities of the companies are carried forward to the combined
corporation at their recorded amounts and the income (loss) of the companies
constitutes the income (loss) of the combined corporation for the entire fiscal
period in which the combination occurs as well as for prior fiscal periods. It
is a condition to the obligation of Medtronic and Merger Subsidiary to
<PAGE>
consummate the Merger that Medtronic and Physio-Control shall have received
letters from PricewaterhouseCoopers LLP, Medtronic's and Physio-Control's
independent accountants, dated the closing date, confirming the letters provided
by PricewaterhouseCoopers LLP as of the date of the Merger Agreement which
stated that (i) based upon the information furnished to PricewaterhouseCoopers
LLP and appropriate review and familiarity with Physio-Control, subject to
customary qualifications, no conditions exist that would preclude Physio-Control
from being a party to a pooling of interests business combination, and (ii)
based upon the information furnished to PricewaterhouseCoopers LLP, appropriate
review and familiarity with Medtronic, and review of the Merger Agreement,
subject to customary qualifications, no conditions exist that would preclude
Medtronic's accounting for the Merger as a pooling of interests.
To be eligible to use the pooling of interests method to account for the
Merger, Medtronic must, prior to the Merger, sell in one or more transactions
approximately 12.5 million shares of Medtronic Common Stock, which equals the
number of shares that are tainted for purposes of pooling of interests
accounting and were purchased by Medtronic in the open market pursuant to its
share repurchase program. If for any reason Medtronic is unable to complete such
sale of shares or such sale does not make Medtronic eligible for pooling of
interests treatment with respect to the Merger but all other conditions to the
Merger are met, Medtronic will be required to consummate the Merger within 10
business days after all other conditions to the Merger have been met. If the
Merger is consummated but Medtronic is not eligible to use the pooling of
interests method to account for the Merger (whether due to Medtronic's failure
to sell the necessary number of shares, the exercise of dissenters' rights by
holders of at least 10 percent of the outstanding shares of Physio-Control
Common Stock, or for any other reason), then the Merger would be accounted for
using the purchase accounting method. If, for any reason not within Medtronic's
control, Medtronic is not eligible to use the pooling of interests method to
account for the Merger, Medtronic will have the right to determine, in its sole
discretion, whether to proceed with the Merger. If the Merger were accounted for
using the purchase method of accounting, such accounting method would not
materially affect Medtronic's cash flow or the results of operations on a
continuing basis based on current and anticipated profitability levels. However,
the Merger could result in a one-time purchased in-process research and
development charge, which could be significant. See "Recent Developments."
Certain Federal Income Tax Consequences
The following is a discussion of certain material United States federal
income tax considerations relevant to Physio-Control and the Physio-Control
shareholders in connection with the Merger. This discussion merely summarizes
certain principal United States federal income tax consequences of the Merger
and does not purport to be a complete analysis or listing 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 Physio-Control shareholders in light of their particular circumstances,
such as dealers in securities, shareholders who do not hold their Physio-Control
Common Stock as capital assets, foreign persons, tax-exempt entities, or persons
who are subject to the alternative minimum tax provisions of the Code.
Furthermore, it does not address Physio-Control shareholders who acquired their
shares in connection with stock options or stock purchase plans or in other
compensatory transactions. Moreover, it does not address the tax consequences of
the Merger under foreign, state, or local tax laws.
Physio-Control shareholders are urged to consult their own tax advisors
as to the consequences of the Merger, including the applicable United States
federal, state, local, and foreign tax consequences to them.
Preston Gates & Ellis LLP, counsel to Physio-Control, has rendered an
opinion (the "Tax Opinion") that the Merger constitutes a reorganization under
section 368 of the Code. Neither Physio-Control 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 Opinion is
<PAGE>
based on and subject to certain assumptions and limitations as well as factual
representations received from Physio-Control 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, and no assurance can be given
that contrary positions may not be taken by the IRS or a court considering the
issues.
Subject to the accuracy of representations contained in certain
certificates received from Physio-Control and Medtronic, it is the opinion of
Preston Gates & Ellis LLP that the material United States federal income tax
consequences of the Merger are as follows:
Nature of the Merger. The Merger will constitute a reorganization as
defined in Section 368(a)(1)(A) of the Code by application of Section
368(a)(2)(E) of the Code, and Physio-Control, Medtronic, and Merger Subsidiary
will each be "a party to a reorganization" within the meaning of section 368(b)
of the Code if the Merger is carried out in the manner set forth in the Merger
Agreement.
Consequences to Physio-Control. Physio-Control will not recognize gain
or loss upon Medtronic's issuance of Medtronic Common Stock to the
Physio-Control shareholders in the Merger and the transfer by operation of law
of Merger Subsidiary's assets and liabilities to Physio-Control upon
consummation of the Merger.
Consequences to Physio-Control's Shareholders. No gain or loss will be
recognized by Physio-Control's shareholders upon their receipt in the Merger of
Medtronic 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 (including any fractional share deemed received) will be the same as the
aggregate tax basis of the Physio-Control Common Stock surrendered in exchange
therefor, increased by the amount of Medtronic Common Stock treated as a
dividend, if any, and the amount of gain recognized on the exchange (not
including any portion of such gain that was treated as a dividend).
The holding period of each share of Medtronic Common Stock received by
each of Physio-Control's shareholders in the Merger will include the period
during which such Physio-Control shareholder held his or her Physio-Control
Common Stock surrendered in exchange therefor, provided that the Physio-Control
Common Stock is held as a capital asset at the time of the Merger.
Cash payments in lieu of a fractional share should be treated as if a
fractional share of Medtronic Common Stock had been issued in the Merger and
then redeemed by Medtronic. A Physio-Control shareholder receiving such cash
should generally recognize gain or loss upon such payment equal to the
difference (if any) between the amount of cash received and such shareholder's
basis in the fractional share (which will be a pro rata portion of the
shareholder's basis in the Medtronic Common Stock received in the Merger).
Assuming that the Merger qualifies as a reorganization, a recipient of
shares of Medtronic Common Stock could nonetheless recognize income to the
extent that such shares are considered by the IRS to be received in exchange for
consideration other than the Physio-Control Common Stock, such as dividends
accrued on such Physio-Control Common Stock. All or a portion of such income may
be taxable as ordinary income. It is not anticipated, however, that the IRS
would make any such determination.
<PAGE>
A Physio-Control shareholder who receives solely cash for his or her
Physio-Control Common Stock pursuant to the exercise of dissenters' rights will
be obligated to report (i) either capital gain or loss equal to the difference
between the cash received by such shareholder and such shareholder's basis in
his or her Physio-Control Common stock, if the shareholder held his or her
Physio-Control Common Stock as a capital asset on the date of the Merger, or
(ii) dividend income, depending on whether the deemed redemption resulting from
the exercise of dissenters' rights qualifies for sale or exchange treatment
under the tests set forth in section 302(b) of the Code. Under those tests, most
Physio-Control shareholders who exercise their dissenters' rights should receive
capital gain or loss treatment (rather than dividend treatment), if the deemed
redemption of their Physio-Control Common Stock constitutes a "complete
redemption" of their interests in Physio-Control (and Medtronic, after the
Merger). To the extent that persons related to any such shareholder continue to
hold stock in Medtronic after the Merger, the rules of section 318 of the Code
may require dividend treatment unless section 302 of the Code permits those
rules to be waived in a particular instance.
Limitations on Opinion and Discussion. As noted earlier, the Tax
Opinion is subject to certain assumptions, including, but not limited to, the
truth and accuracy of certain representations made by Physio-Control and
Medtronic. Furthermore, the Tax Opinion will not bind the IRS and the IRS is,
therefore, not precluded from asserting a contrary position. The Tax Opinion 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 Opinion or of 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 challenge by the IRS to the tax-free reorganization status
of the Merger would result in Physio-Control's shareholders recognizing taxable
gain or loss with respect to each share of Physio-Control Common Stock
surrendered, equal to the difference between the shareholder's basis in such
share and the fair market value, as of the Effective Date, of the Medtronic
Common Stock and any cash received in exchange therefor. In such event, a
shareholder's aggregate basis in Medtronic Common Stock so received would equal
its fair market value at the Effective Date and the holding period for such
stock would begin on the day after the Effective Date.
Indemnification
Under the Merger Agreement, Medtronic has agreed to cause
Physio-Control, as the surviving corporation in the Merger, to continue to
indemnify the present and former officers and directors of Physio-Control
following the Merger with respect to acts or omissions occurring prior to the
Effective Time, to the extent that they were indemnified under Washington law
and Physio-Control's Articles of Incorporation and Bylaws as of the date of the
Merger Agreement. Medtronic has also agreed to purchase a three-year extension
of the directors' and officers' liability insurance coverage currently
maintained by Physio-Control. See "The Merger--Interests of Certain Persons in
the Merger."
Regulatory Requirements
Under the HSR Act, certain acquisition transactions, including the
Merger, cannot be consummated unless certain information has been furnished to
the Federal Trade Commission and the Antitrust Division of the United States
Department of Justice and certain waiting period requirements have been
satisfied. Medtronic and Physio-Control each furnished such information on July
13, 1998, and the requisite waiting period is expected to expire on August 12,
1998.
<PAGE>
The Antitrust Division of the United States Department of Justice and
the Federal Trade Commission ("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 such action under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the consummation of the Merger
or seeking the divestiture of substantial assets of Physio-Control or Medtronic.
Physio-Control 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 Physio-Control's
businesses, regulatory filings may also be required in certain European and
other jurisdictions. Medtronic and Physio-Control are in the process of
determining whether any such filings will be required, but they do not expect
any such filings to affect the expected timing of the Merger.
Other than as described herein, the Merger does not require the
approval of any federal, state, or other agency. See "The Merger--Conditions;
Waiver."
Rights of Dissenting Physio-Control Shareholders
If the Merger occurs, Physio-Control shareholders are entitled to
dissenters' rights under Chapter 23B.13 of the WBCA in connection with the
Merger. Medtronic shareholders are not entitled to dissenters' rights in
connection with the Merger.
The following discussion is not a complete statement of the law
pertaining to dissenters' rights under the WBCA and is qualified in its entirety
by reference to the full text of Chapter 23B.13 of the WBCA, which is attached
to this Proxy Statement/Prospectus as Appendix C. Any shareholder of
Physio-Control who wishes to exercise, or to preserve his or her right to
exercise, dissenters' rights should review the following discussion and Appendix
C carefully, because failure to timely and properly comply with the specified
procedures will result in the loss of dissenters' rights under the WBCA.
Under the WBCA, Physio-Control shareholders have the right to dissent
with respect to the Merger and, subject to certain conditions, will be entitled
to receive payment in cash of the "fair value" of their shares. Under the WBCA,
the "fair value" of dissenting shares means the value of the shares of
Physio-Control immediately before the effective date of the Merger, excluding
any appreciation or depreciation in anticipation of the Merger.
Each beneficial owner asserting dissenters' rights must assert such
rights with respect to all shares that such shareholder beneficially owns or
which such shareholder has power to direct the vote, and such shareholder must
submit to Physio-Control, with or prior to such shareholder's assertion of
dissenters' rights, the record shareholder's written consent to such dissent. A
record shareholder may assert dissenters' rights as to fewer than all the shares
registered in such shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies
Physio-Control in writing of the name and address of each person on whose behalf
such shareholder asserts dissenters' rights. A Physio-Control dissenting
shareholder (i) must deliver to Physio-Control, before the vote on the Merger is
taken, written notice of such shareholder's intent to demand payment for such
shareholder's shares if the Merger occurs and (ii) must not vote such
shareholder's shares in favor of the Merger. Such notice should be delivered to
Physio-Control at its principal executive offices, located at 11811 Willows Road
NE, Redmond, Washington 98073-9706, Attention: Corporate Secretary. A
shareholder who does not satisfy both of these requirements will not be entitled
to dissenters' rights.
<PAGE>
If the Merger is approved by the Physio-Control shareholders,
Physio-Control will send written notice not later than 10 days after the
Effective Time to each Physio-Control dissenting holder (i) stating where such
shareholder must send his or her written payment demand, (ii) stating where and
when certificates representing Physio-Control Common Stock must be deposited,
(iii) containing a form for demanding payment, which requires that the dissenter
certify whether or not he or she acquired beneficial ownership before the first
public announcement of the Merger on June 29, 1998, and (iv) setting a date by
which such written payment demand must be received. Such notice must be
accompanied by a copy of Chapter 23B.13 of the WBCA. A Physio-Control
shareholder who does not demand payment, certify that such shareholder acquired
the shares before June 29, 1998, and deposit his or her shares within the time
provided by such notice will not be entitled to dissenters' rights.
Physio-Control shall pay to each Physio-Control dissenting shareholder
who complies with the procedures described above, within 30 days after the
Effective Time, the amount that Physio-Control estimates to be the fair value of
such dissenter's shares, plus accrued interest. Physio-Control will provide,
along with such payment, certain financial information, including
Physio-Control's balance sheet, income statement, and statement of changes in
shareholders' equity for its last fiscal year and Physio-Control's latest
available interim financial statements, an explanation of how Physio-Control
estimated the fair value of the shares, an explanation of how the accrued
interest was calculated, and certain other information. Physio-Control may
elect, however, to withhold such payment from any dissenter who was not the
beneficial owner of the shares of Physio-Control Common Stock as to which
dissenters' rights are asserted before the date of first public announcement of
the Merger on June 29, 1998. Any dissenting shareholder who is dissatisfied with
such payment or such offer may, within 30 days after such payment or offer for
payment, notify Physio-Control in writing of such shareholder's estimate of fair
value of his or her shares and the amount of interest due, and demand payment
thereof.
If any Physio-Control dissenting shareholder's demand for payment is
not settled within 60 days after receipt by Physio-Control of such shareholder's
payment demand (as described above), the WBCA requires that Physio-Control
commence a proceeding, and petition the court to determine the fair value of the
shares and accrued interest, naming all Physio-Control dissenting shareholders
whose demands remain unsettled as parties to the proceeding. The court may
appoint one or more persons as appraisers to receive evidence and recommend the
fair value of the shares. The dissenters will be entitled to the same discovery
rights as parties in other civil actions. Each dissenter made a party to the
proceeding will be entitled to judgment for the amount, if any, by which the
court finds that the fair value of his or her shares, plus accrued interest,
exceeds the amount paid by Physio-Control.
Court costs and approval fees generally will be assessed against
Physio-Control, except that the court may assess such costs against some or all
of the dissenters to the extent that the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment. The court
may also assess the fees and expenses of counsel and experts of the respective
parties in amounts that the court finds equitable: (i) against Physio-Control,
if the court finds that it did not substantially comply with provisions of the
WBCA concerning dissenters' rights and (ii) against either the dissenter or
Physio-Control, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith. If
the court finds that services of counsel for any dissenter were of substantial
benefit to other dissenters similarly situated, and that the fees should not be
assessed against Physio-Control, the court may award to such counsel reasonable
fees to be paid out of the amounts awarded to dissenters who benefited from the
proceedings.
It is a condition to Medtronic's obligation to consummate the Merger
that Medtronic receive letters from PricewaterhouseCoopers LLP to the effect
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.
For the Merger to qualify as a pooling-of-interests transaction, holders of not
more than 10% of the outstanding Physio-Control Common Stock may assert
dissenters' rights.
<PAGE>
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. Physio-Control Common Stock is traded on the
Nasdaq National Market (symbol: PHYS).
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
Physio-Control Common Stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
Physio-Control
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 $22.50 $17.50
Second Quarter...................... $29.875 $24.375 $.0325 $23.75 $17.125
Third Quarter....................... $32.4375 $23.50 $.0475 $25.25 $15.375
Fourth Quarter...................... $34.9375 $30.25 $.0475 $24.125 $18.25
Calendar 1997
First Quarter....................... $35.875 $28.8125 $.0475 $23.50 $13.25
Second Quarter...................... $44.4375 $30.375 $.0475 $15.25 $11.375
Third Quarter....................... $49.25 $42.50 $.055 $19.125 $12.50
Fourth Quarter...................... $52.75 $40.5625 $.055 $17.50 $14.50
Calendar 1998
First Quarter....................... $58.4375 $45.4375 $.055 $19.875 $15.125
Second Quarter...................... $66.00 $47.9375 $.055 $26.50 $16.25
Third Quarter (through [July 20])... $72.75 $64.25 $.065 $26.6875 $26.3125
</TABLE>
Physio-Control has never paid cash dividends. Under the Merger
Agreement, Physio-Control has agreed not to pay any dividends on Physio-Control
Common Stock prior to the Merger. Medtronic has paid regular quarterly cash
dividends on Medtronic Common Stock since 1978. It is expected that the Board of
Directors of Medtronic will continue the practice of declaring cash dividends on
a quarterly basis; however, no assurance can be given as to the amount of future
dividends, which will necessarily be dependent on future earnings, financial
requirements of Medtronic and its subsidiaries, and other factors.
<PAGE>
In the Merger, shares of Physio-Control Common Stock will be converted
into shares of Medtronic Common Stock based on the Conversion Fraction, which
equals $27.50 divided by the Average Stock Price for the 19 consecutive NYSE
trading days ending on the first NYSE trading day immediately preceding the
Effective Time of the Merger. On June 26, 1998, the last trading day preceding
public announcement of the Merger, the reported closing sale price of Medtronic
Common Stock on the NYSE was $62.9375 per share, resulting in an implied
Conversion Fraction (if it were determined based on the closing sale price that
day) of .4369. On that day, the reported closing sale price of Physio-Control
Common Stock on the Nasdaq National Market was $23.00 per share. On [July 21],
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 [$65.00] per share, resulting in an implied Conversion Fraction (if it
were determined based on the closing sale price that day) of .4231. The reported
closing sale price of Physio-Control Common Stock on the Nasdaq National Market
on that day was $[26.50] per share. Shareholders are urged to obtain current
market quotations.
As of [July 2], 1998, there were approximately [32,850] registered
holders of Medtronic Common Stock and approximately [100] registered holders of
Physio-Control Common Stock.
RECENT DEVELOPMENTS
Medtronic Stock Offering
To be eligible to use the pooling of interests accounting method to
account for the Merger and other future acquisitions, Medtronic intends to sell
in one or more transactions up to approximately 12.5 million shares of Medtronic
Common Stock. The offering is expected to be completed prior to the Merger, but
there can be no assurance that the offering will be completed successfully. See
"The Merger--Accounting Treatment of the Merger" and "--Conditions; Waiver."
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. In the Avecor merger, which is valued at
approximately $91 million, each outstanding share of stock of Avecor will 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. It is expected
that the Avecor acquisition will be completed in the third or fourth quarter of
the 1998 calendar year, but there can be no assurance that the acquisition will
be completed successfully.
<PAGE>
COMPARATIVE RIGHTS OF MEDTRONIC SHAREHOLDERS AND
PHYSIO-CONTROL SHAREHOLDERS
Upon consummation of the Merger, shareholders of Physio-Control will
become shareholders of Medtronic. Medtronic and Physio-Control are incorporated
under the laws of the states of Minnesota and Washington, respectively. The
rights of Medtronic shareholders under Medtronic's Restated Articles of
Incorporation as amended ("Medtronic's Articles"), Medtronic's Bylaws, and the
Minnesota Business Corporation Act (the "MBCA") differ in certain respects from
the rights of Physio-Control shareholders under Physio-Control's Articles of
Incorporation ("Physio-Control's Articles"), Physio-Control's Bylaws, and the
WBCA. Certain significant differences between the rights of Medtronic
shareholders and Physio-Control 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 Physio-Control and the rights
of shareholders of Medtronic.
Classification, Removal and Election of Directors
Classification. Medtronic's Articles provide for a classified Board of
Directors, under which directors are elected to three-year terms, with one-third
of the directors being elected each year. Physio-Control's Articles similarly
classifies its Board of Directors. Both Medtronic's Articles and
Physio-Control's Articles provide for vacancies on the Board to be filled by a
majority of the remaining Board members.
The WBCA provides that the board of directors of a Washington
corporation shall consist of one or more directors as fixed by the corporation's
articles of incorporation or bylaws. The Physio-Control Articles and Bylaws
provide for a board of directors to be set by resolution of the Board adopted by
70% affirmative vote of the total number of directors then in office. The Board
currently consists of seven directors. As permitted under the WBCA, the
Physio-Control Board is classified into three classes which are as equal in
number as possible. Directors in each class serve for a three-year term, and
elections are staggered such that one class is elected each year. The WBCA
provides for cumulative voting for directors, unless a corporation has opted out
of such provision. Physio-Control has not opted out of this provision.
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.
The WBCA provides that a corporation's shareholders may remove one or
more directors with or without cause unless the articles of incorporation
provide that directors may be removed only for cause. The Physio-Control
Articles provide that any director may be removed only for cause and only at a
special meeting called for such purpose and then only if the affirmative vote to
remove by holders of shares of outstanding stock of Physio-Control entitled to
vote generally in the election of directors exceeds the numbers cast not to
remove the director.
Nomination and Election. Medtronic's Articles provide that nominations
for the election of directors may be made by or at the direction of the
Medtronic Board of Directors or by any shareholder entitled to vote in the
election of directors generally. Nominations by shareholders must be made
pursuant to timely notice in writing to the Secretary of Medtronic. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of Medtronic not less than 50 days nor more than
90 days prior to the meeting; provided, however, that if less than 60 days'
<PAGE>
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.
Physio-Control's Articles and Bylaws do not address the issue of nomination of
directors.
Amendment of Provisions. Medtronic's Articles require the affirmative
vote of not less than 75% of the voting power of all then outstanding voting
shares to amend, repeal or adopt any provisions inconsistent with these
provisions regarding classification, removal and nomination of directors.
The WBCA authorizes a corporation's board of directors to make various
changes to its articles of incorporation without shareholder action. These
so-called housekeeping changes include changes of corporate name, the number of
outstanding shares to effectuate a stock split or stock dividend in the
corporation's own shares, and the par value of its stock. Otherwise, amendments
to a corporation's articles of incorporation must be recommended to the
shareholders by the board of directors, unless the board of directors determines
that because of conflict of interest or other special circumstances it should
make no recommendation and communicates the basis for its determination to the
shareholders with the amendment, and must be approved by two-thirds, or in the
case of a public company, a majority of all the votes entitled to be cast by any
voting group entitled to vote thereon unless another proportion is specified in
the articles of incorporation, by the board of directors as a condition to its
recommendation, or by provisions of the WBCA. The Physio-Control Articles
specify that amendment requires at least two-thirds of the votes of then
outstanding shares of each voting group as specified in the WBCA to approve
amendment, alteration or repeal of any provision in the Physio-Control Articles
of Incorporation.
The above-described provisions of Medtronic's Articles regarding
directors will be subject to the terms of the certificate of designation or
other instrument creating any class or series of preferred stock giving the
holders of such class or series of preferred stock the right, voting separately
as a class, to elect one or more directors (such as is often required by the
terms of preferred stock in the event that dividend payments are in arrears for
a period of time). See "Comparative Rights of Medtronic Shareholders and
Physio-Control Shareholders--Preferred Stock."
These provisions regarding classification, removal and nomination of
directors afford some assurance of stability in the composition of the Medtronic
Board of Directors, but may discourage or deter attempts by individuals or
entities to take control of Medtronic by electing their own slate of directors.
To the extent that potential acquirers of Medtronic stock are deterred by the
classified Board, such provision also may deter certain mergers, tender offers,
or other future takeover attempts which some or a majority of holders of
Medtronic Common Stock may deem to be in their best interests. In addition, the
classified Medtronic Board would delay shareholders who do not favor the
policies of Medtronic's Board of Directors from removing a majority of the
Medtronic Board of Directors for two years, unless they can obtain the requisite
vote.
Liability of Directors. Both Medtronic's Articles and Physio-Control'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 and Washington law, respectively.
<PAGE>
Preferred Stock
Medtronic has 2,500,000 authorized but unissued shares of Preferred
Stock, par value $1 per share. Medtronic's Articles provide that whenever the
holders of a class or series of Preferred Stock have the right to elect any
directors, the election, term and other features of such directorships shall be
governed by the terms set forth in the resolution of the Medtronic Board of
Directors designating the rights and preferences of such class or series of
Preferred Stock, and any directors elected by the holders of Preferred Stock
shall not be divided into classes unless provision is expressly made for such
classification by the terms of such Preferred Stock. Shares of Medtronic
Preferred Stock could be issued that would have the right to elect directors,
either separately or together with the Medtronic Common Stock, with such
directors either divided or not divided into classes.
Under certain circumstances such Medtronic Preferred Stock could be
used to create voting impediments or to deter persons seeking to effect a
takeover or otherwise gain control of Medtronic in a transaction which holders
of some or a majority of the Medtronic Common Stock may deem to be in their best
interests. Such shares of Medtronic Preferred stock could be sold in public or
private transactions to purchasers who might support the Medtronic Board of
Directors in opposing a takeover bid that the Medtronic Board of Directors
determines not to be in the best interests of Medtronic and its shareholders. In
addition, the Medtronic Board of Directors could authorize holders of a class or
series of Preferred Stock to vote, either separately as a class or together with
the holders of Medtronic Common Stock, on any merger, sale, or exchange of
assets by Medtronic or any other extraordinary corporate transaction. The
ability to issue such Medtronic Preferred Stock might have the effect of
discouraging an attempt by another person or entity, through the acquisition of
a substantial number of shares of Medtronic Common Stock, to acquire control of
Medtronic with a view to imposing a merger, sale of all or any part of the
assets or a similar transaction, because the issuance of new shares could be
used to dilute the stock ownership of such person or entity. See "Comparative
Rights of Medtronic Shareholders and Physio-Control Shareholders--Shareholder
Rights Plan."
Physio-Control has 5,000,000 authorized but unissued shares of
Preferred Stock, par value $.01 per share, and the Board of Directors has the
authority to fix or alter the terms of such shares.
Special Meetings of Shareholders
Under Minnesota law, a special meeting of shareholders may be called by
certain officers, two or more directors, a person authorized to do so in the
articles or bylaws, or shareholders holding at least 10% of the voting power of
all shares entitled to vote, except that a special meeting for the purpose of
considering an action to effect, directly or indirectly, a business combination
must be called by shareholders holding at least 25% of the voting power of all
shares entitled to vote.
The WBCA provides that a special meeting of shareholders of a
corporation may be called by its board of directors, by holders of at least 10%
of all the votes entitled to be cast on any issue proposed to be considered at
the proposed special meeting, or by other persons authorized to do so by the
articles of incorporation or bylaws of the corporation. However, the WBCA allows
the right of shareholders to call a special meeting to be limited or denied to
the extent provided in the articles of incorporation. The Physio-Control
Articles deny this right by providing that a special meeting of shareholders may
only be called by either a majority of the total number of directors then in
office or the chief executive officer.
<PAGE>
Voting Rights; Shareholder Approvals
Under both Medtronic's Articles and Physio-Control's Articles, holders
of Medtronic Common Stock and Physio-Control Common Stock, respectively, are
entitled to one vote per share on all matters submitted to a vote of the
shareholders. Medtronic's Bylaws provide that, except as specifically required
otherwise under Medtronic's Articles, Bylaws or Minnesota law, all matters
submitted to the shareholders are decided by a majority vote of the shares
entitled to vote and represented at a meeting at which there is a quorum.
Under the WBCA, a merger or share exchange of a corporation must be
approved by the affirmative vote of a majority of directors when a quorum is
present, and by each shareholder voting group entitled to vote separately on the
plan by two-thirds of all the votes entitled to be cast on the plan by each
voting shareholder group, unless another proportion is specified in the articles
of incorporation. The Physio-Control Articles do not provide otherwise. The WBCA
also provides that certain mergers need not be approved by the shareholders of
the surviving corporation if (i) the articles of incorporation will not change
in the merger, except for specified permitted amendments, (ii) no change occurs
in the number, designations, preferences, limitations, and relative rights of
shares held by those shareholders who were shareholders prior to the merger;
(iii) the number of voting shares outstanding immediately after the merger, plus
the voting shares issuable as a result of the merger, will not exceed the
authorized voting shares specified in the surviving corporation's articles of
incorporation immediately prior to the merger; and (iv) the number of
participating shares outstanding immediately after the merger, plus the number
of participating shares issuable as a result of the merger, will not exceed the
authorized participating shares specified in the corporation's articles of
incorporation immediately prior to the merger. Under the WBCA, approval by the
Physio-Control shareholders of the Merger by a two-thirds vote is required. The
Board of Directors unanimously approved the Merger.
The WBCA also provides that, in general, a corporation may sell, lease,
exchange, or otherwise dispose of all, or substantially all, of its property,
other than in the usual and regular course of business or dissolve if the board
of directors recommends the proposed transaction to the shareholders and the
shareholders approve the transaction by two-thirds of all the votes entitled to
be cast in the transaction, unless another proportion is specified in the
articles of incorporation. The Physio-Control Articles do not provide otherwise.
Cumulative Voting
Medtronic's Articles do not provide for cumulative voting with regard
to the Medtronic Common Stock. Under the WBCA, unless otherwise provided in the
articles of incorporation, shareholders entitled to vote at an election of
directors are entitled to cumulative voting. Physio-Control's Articles do not
otherwise provide.
Preemptive Rights
Under Medtronic's Articles, holders of Medtronic stock are expressly
denied preemptive rights. The WBCA provides that a corporation's shareholders
have preemptive rights only if such rights are expressly granted in the
corporation's articles of incorporation. Physio-Control's Articles does not
grant preemptive rights.
Amendment of the Articles of Incorporation
Under Minnesota law, an amendment to the articles of incorporation
requires the affirmative vote of the holders of a majority of the shares present
and entitled to vote unless a larger affirmative vote is required by the
corporation's articles. Except as specifically described otherwise in this
<PAGE>
"Comparative Rights of Medtronic Shareholders and Physio-Control Shareholders,"
Medtronic's Articles do not contain any provisions that require a larger
affirmative vote in order to amend Medtronic's Articles.
Under Washington law, an amendment to the articles of incorporation
requires the affirmative vote of the holders of two-thirds of the shares
entitled to vote thereon, or, in the case of a public company, by a majority of
all shares entitled to vote thereon, unless the corporation's certificate
requires a greater or lesser number for approval. Physio-Control's Articles
contain a provision requiring two-thirds majority vote for approval.
Business Combinations and Control Share Acquisitions
Medtronic is governed by Sections 302A.671 and 302A.673 of the MBCA. In
general, Section 302A.671 provides that the shares of a corporation acquired in
a "control share acquisition" have no voting rights unless voting rights are
approved in a prescribed manner. A "control share acquisition" is an
acquisition, directly or indirectly, of beneficial ownership of shares that
would, when added to all other shares beneficially owned by the acquiring
person, entitle the acquiring person to have voting power of 20% or more in the
election of directors. In general, Section 302A.673 prohibits a public Minnesota
corporation from engaging in a "business combination" with an "interested
shareholder" for a period of four years after the date of the transaction in
which the person became an interested shareholder, unless the business
combination is approved in a prescribed manner. "Business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
the interested shareholder. An "interested shareholder" is a person who is the
beneficial owner, directly or indirectly, of 10% or more of the corporation's
voting stock or who is an affiliate or associate of the corporation and at any
time within four years prior to the date in question was the beneficial owner,
directly or indirectly, of 10% or more of the corporation's voting stock. Such
provisions of Minnesota law could have the effect of delaying, deferring or
preventing a change in control of Medtronic.
Chapter 23B.19 of the WBCA, which applies to all Washington
corporations which have a class of voting stock registered with the Commission
under the Exchange Act, prohibits a "target corporation," with certain
exceptions, from engaging in certain "significant business transactions" with a
person or group of persons which beneficially owns 10% or more of the voting
securities of the target corporation (i.e., an "Acquiror") for a period of five
years after such acquisition, unless the transaction or acquisition of shares is
approved by a majority of the members of the target corporation's board of
directors prior to the time of acquisition. Such prohibited transactions
include, among other things, a merger or consolidation with, disposition of
assets to, or issuance or redemption of stock to or from, the Acquiror,
termination of 5% or more of the employees of the target corporation as a result
of the Acquiror's acquisition of 10% or more of the shares, or allowing the
Acquiror to receive any disproportionate benefit as a shareholder. After the
five-year period, a "significant business transaction" may take place if it
complies with certain "fair price" provisions of the statute. A corporation may
"opt out" of this statute; however since it has not, Physio-Control is subject
to it. The Merger will not be subject to the provisions of the statute because
the Physio-Control Board has approved the Merger Agreement and the transactions
contemplated thereby.
Shareholder Rights Plan
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
<PAGE>
(a "Right") to be attached to each outstanding share of Medtronic Common Stock.
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 the Acquiring Person), instead, 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. 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.
Physio-Control does not have a shareholder rights plan.
Related Person Business Transactions
Medtronic's Articles provide that, in certain circumstances, an
affirmative vote of two-thirds 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 (i) a majority vote of "continuing directors" (as defined below) expressly
approves the related person business transaction, or (ii) the related person
business transaction is a merger, consolidation, exchange of shares or sale of
all or substantially all of the assets of Medtronic, and the cash or fair market
value of the property received by the Medtronic shareholders is equal to a
defined minimum purchase price. For purposes of this provision, a "continuing
director" means, generally, those directors who were directors before the
"related person" (as defined below) became a related person.
Generally, a related person business transaction includes (i) any
merger or consolidation of Medtronic with or into a related person, (ii) any
exchange of shares of Medtronic (or a subsidiary) for shares of a related person
which would have required an affirmative vote of at least a majority of the
voting power of the outstanding shares entitled to vote, (iii) any sale, lease,
exchange, transfer, or other disposition (in one transaction or a series of
transactions), including without limitation a mortgage or any other security
device, of all or any substantial part of the assets of Medtronic (or a
subsidiary) to or with a related person, (iv) any sale, lease, transfer, or
other disposition (in one transaction or a series of transactions) of all or any
substantial part of the assets of a related person to or with Medtronic (or a
subsidiary), (v) the issuance, sale, transfer or other disposition to a related
person of any securities of Medtronic (except pursuant to stock dividends, stock
splits, or similar transactions that would not have the effect of increasing the
proportion of voting power of a related person) or of a subsidiary (except
pursuant to a pro rata distribution to all holders of Medtronic Common Stock),
(vi) any recapitalization or reclassification that would have the effect of
increasing the proportionate voting power of a related person, and (vii) any
agreement, contract, arrangement or understanding providing for any of the
transactions described above.
<PAGE>
Generally, for purposes of a related person business transaction, the
term "related person" is broadly defined to include a wide range of potential
persons, including any person or entity that, together with affiliates and
associates, beneficially owns 15% or more of the outstanding voting stock of
Medtronic.
Such a provision could have the effect of impeding a potential acquirer
of Medtronic by requiring a larger than normal majority of Medtronic
shareholders to approve a transaction. There is no similar "related person
business transaction" provision in Physio-Control's Articles.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
BETWEEN PHYSIO-CONTROL AND MEDTRONIC
Stock Option Agreement. Physio-Control and Medtronic are parties to a
Stock Option Agreement dated June 27, 1998, pursuant to which Physio-Control has
granted to Medtronic an option, exercisable under certain specified
circumstances, to purchase 19.9% of the Physio-Common Stock. See "The
Merger--Stock Option Agreement."
LEGAL MATTERS
The validity of the Medtronic Common Stock to be issued in connection
with the Merger will be passed upon for Medtronic by Fredrikson & Byron, P.A.,
Minneapolis, Minnesota. Members of such firm own, in the aggregate,
approximately 86,000 shares of Medtronic Common Stock.
Certain legal matters for Physio-Control, including the federal income
tax consequences in connection with the Merger, were passed upon by Preston
Gates & Ellis LLP, Seattle, Washington. Members of such firm own, in the
aggregate, approximately 300 shares of Medtronic Common Stock.
EXPERTS
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K of
Medtronic, Inc. for the year ended April 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 incorporated in this Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K of
Physio-Control International Corporation for the year ended December 31, 1997
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.
<PAGE>
APPENDIX A
PLAN OF MERGER
OF
PC MERGER CORP.
INTO
PHYSIO-CONTROL INTERNATIONAL CORPORATION
ARTICLE 1
NAMES OF CONSTITUENT CORPORATIONS
1.1 Constituent Corporations. The names of the Constituent Corporations are
PC Merger Corp., a Washington corporation ("Merger Subsidiary"), and
Physio-Control International Corporation, a Washington corporation (the
"Company"). The Constituent Corporations shall be combined by the merger of
Merger Subsidiary into the Company as the Surviving Corporation (the "Merger"),
pursuant to the applicable provisions of the Washington Business Corporation Act
("WBCA").
1.2 Certain Definitions. As used in this Plan of Merger, the following
capitalized terms shall have the following meanings:
(a) "Company Common Stock" means common stock of the Company,
par value $.01 per share.
(b) "Company Options" means all options to purchase shares of
Company Common Stock that are outstanding at the Effective Time.
(c) "Conversion Fraction" means as defined in Section 2.2(a)
hereof.
(d) "Merger Agreement" means that certain Agreement and Plan
of Merger dated June ___, 1998, by and among Medtronic, Inc., a
Minnesota corporation and sole shareholder of Merger Subsidiary
("Parent"), Merger Subsidiary, and the Company, a copy of which shall
be maintained at the Surviving Corporation's principal executive office
and made available to any shareholder of either Constituent Corporation
upon request.
(e) "Merger Subsidiary Common Stock" means common stock of
Merger Subsidiary, par value $.01 per share.
(f) "Parent Average Stock Price" shall mean the average
(rounded to the nearest full cent, with the cents rounded up if the
third decimal place is 5 or more) of the 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 19 consecutive NYSE trading days ending on and including the first
NYSE trading day immediately preceding the Effective Time.
(g) "Parent Common Stock" means common stock of Parent, par
value $.10 per share.
(h) "Surviving Corporation" means the Company as the surviving
corporation of the merger of Merger Subsidiary with and into the
Company.
(i) "Surviving Corporation Common Stock" means common stock of
the Surviving Corporation, par value $.01 per share.
<PAGE>
ARTICLE 2
TERMS AND CONDITIONS
2.1 Merger; Effective Time. The Merger shall be effective upon the
filing with the Washington Secretary of State of Articles of Merger including
this Plan of Merger and such other documents as are required by the WBCA to be
filed with the Secretary of State of Washington (the time of such filing being
the "Effective Time"). At the Effective Time, the separate existence of Merger
Subsidiary shall cease and the Company shall alone continue in existence as the
Surviving Corporation. All transactions on and after the Effective Time shall be
deemed transactions of and for the account of the Company as the Surviving
Corporation.
2.2 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any share of capital
stock of the Company or Merger Subsidiary:
(a) Each share of Company Common Stock issued and outstanding
immediately prior thereto (except for Dissenting Shares, as defined in
Section 2.3 hereof, and except for shares referred to in Section 2.2(b)
hereof) shall be converted into the right to receive the fraction of a
share (subject to adjustment as provided below, the "Conversion
Fraction") of Parent Common Stock equal to $27.50 divided by the Parent
Average Stock Price.
Notwithstanding the foregoing, if the sum of the number of
shares of Company Common Stock outstanding immediately prior to the
Effective Time plus the number of shares subject to then outstanding
options, warrants, or other rights to acquire shares of Company Common
Stock (collectively, "Company Stock Acquisition Rights") is greater
than 20,693,456 shares plus that number of shares issuable under the
Company's Employee Share Purchase Plan and Team Savings Plan or if the
aggregate exercise price of all such Company Stock Acquisition Rights
then outstanding is less than the aggregate exercise price reflected in
Section 3.3 of the Company Disclosure Schedule to the Merger Agreement,
then the $27.50 amount per share of Company Common Stock, as described
above, shall be reduced to an amount equal to (i) $[27.50 times
20,693,456 shares plus that number of shares issuable under the
Company's Employee Share Purchase Plan and Team Savings Plan] minus the
aggregate exercise price reflected in Section 3.3 of the Company
Disclosure Schedule to the Merger Agreement plus the aggregate amount
received by the Company as a result of any issuance of Company Common
Stock after the date of the Merger Agreement and prior to the Effective
Time plus the aggregate exercise price of all Company Stock Acquisition
Rights outstanding immediately prior to the Effective Time divided by
(ii) the sum of (A) the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time plus (B) the number
of shares subject to Company Stock Acquisition Rights then outstanding.
An appropriate adjustment shall similarly be made in the event
that, prior to the Effective Time, the outstanding shares of Company
Common Stock, without new consideration, are changed into or exchanged
for a different kind of shares or securities through a reorganization,
reclassification, stock dividend, stock combination, or other like
change in the Company's capitalization. Notwithstanding the foregoing,
nothing in this section shall be deemed to constitute authorization or
permission for or consent from Parent or Merger Subsidiary to any
increase in the number of shares of Company Common Stock outstanding or
subject to outstanding Company Stock Acquisition Rights, to any
decrease in the exercise price of such Rights, or to any
reorganization, reclassification, stock dividend, stock combination, or
other like change in capitalization.
<PAGE>
(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 subsidiary of Parent or
the Company shall be cancelled without payment of any consideration
therefor and without any conversion thereof.
(c) Each share of any other class of capital stock of the
Company (other than Company Common Stock) shall be cancelled without
payment of any consideration therefor and without any conversion
thereof.
(d) Each share of Merger Subsidiary Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted
into one share of Surviving Corporation Common Stock.
2.3 Notwithstanding any provision of the Merger Agreement to the contrary,
each outstanding share of Company Common Stock, the holder of which has demanded
and perfected such holder's right to dissent from the Merger and to be paid the
fair value of such shares in accordance with Sections 23B.13.020 et seq. of the
WBCA and, as of the Effective Time, has not effectively withdrawn or lost such
dissenters' rights ("Dissenting Shares"), shall not be converted into or
represent a right to receive the Parent Common Stock into which shares of
Company Common Stock are converted pursuant to Section 2.2 hereof, but the
holder thereof shall be entitled only to such rights as are granted by the WBCA.
The Company shall give Parent (i) prompt written notice of any notice of intent
to demand fair value for any shares of Company Common Stock, withdrawals of such
notices, and any other instruments served pursuant to the WBCA or any other
provisions of Washington law and received by the Company, and (ii) the
opportunity to conduct jointly all negotiations and proceedings with respect to
demands for fair value for shares of Company Common Stock under the WBCA. The
Company shall not, except with the prior written consent of Parent, voluntarily
make any payment with respect to any demands for fair value for shares of
Company Common Stock or offer to settle or settle any such demands.
2.4 Exchange of Company Common Stock.
(a) Promptly after the Effective Time, Parent shall cause
Parent's stock transfer agent or such other person as Parent may
appoint to act as exchange agent (the "Exchange Agent") to mail to each
holder of record (other than Parent, Merger Subsidiary, the Company, or
any subsidiary of Parent or the Company) of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding shares of Company Common Stock ("Company Certificates") a
form letter of transmittal (which shall specify that delivery shall be
effective, and risk of loss and title to 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.
<PAGE>
(b) As soon as practicable after the Effective Time, the
Exchange Agent shall distribute to holders of shares of Company Common
Stock, upon surrender to the Exchange Agent of one or more Company
Certificates for cancellation, together with a duly-executed letter of
transmittal, (i) one or more Parent certificates representing the
number of whole shares of Parent Common Stock into which the shares
represented by the Company Certificate(s) shall have been converted
pursuant to Section 2.2(a), and (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 2.4(f) (relating to fractional
shares), and the Company Certificate(s) so surrendered shall be
cancelled. In the event of a transfer of ownership of Company Common
Stock that is not registered in the transfer records of the Company, it
shall be a condition to the issuance of shares of Parent Common Stock
that 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 shares of Parent Common Stock issued upon the
surrender for exchange of Company Common Stock in accordance with the
terms hereof (including any cash paid for fractional shares pursuant to
Section 2.4(f) hereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common
Stock.
(e) After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Company Certificates representing such shares are presented to the
Surviving Corporation, they shall be cancelled and exchanged as
provided in this Article 2. As of the Effective Time, the holders of
Company Certificates representing shares of Company Common Stock shall
cease to have any rights as shareholders of the Company, except such
rights, if any, as they may have pursuant to the WBCA. Except as
provided above, until such Company Certificates are surrendered for
exchange, each such Company Certificate shall, after the Effective
Time, represent for all purposes only the right to receive the number
of whole shares of Parent Common Stock into which the shares of Company
Common Stock shall have been converted pursuant to the Merger as
provided in Section 2.2(a) hereof and the right to receive the cash
value of any fraction of a share of Parent Common Stock as provided in
Section 2.4(f) hereof.
<PAGE>
(f) No fractional shares of Parent Common Stock and no
certificates or scrip therefor, or other evidence of ownership thereof,
shall be issued upon the surrender for exchange of Company
Certificates, no dividend or other distribution of Parent shall relate
to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any rights of a shareholder of
Parent. All fractional shares of Parent Common Stock to which a holder
of Company Common Stock immediately prior to the Effective Time would
otherwise be entitled, at the Effective Time, shall be aggregated if
and to the extent multiple Company Certificates of such holder are
submitted together to the Exchange Agent. If a fractional share results
from such aggregation, then (in lieu of such fractional share) the
Exchange Agent shall pay to each holder of shares of Company Common
Stock who otherwise would be entitled to receive such fractional share
of Parent Common Stock an amount of cash (without interest) determined
by multiplying (i) the Parent Average Stock Price 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 exchange
for 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 and cash for fractional shares, if any, as may
be required pursuant to this Article 2; provided, however, that Parent
may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed Company
Certificate to deliver a bond in such sum as Parent may direct as
indemnity against any claim that may be made against Parent or the
Exchange Agent with respect to such Company Certificate alleged to have
been lost, stolen, or destroyed.
(h) Each person entitled to receive shares of Parent Common
Stock pursuant to this Article 2 shall receive together with such
shares the number of Parent preferred share purchase rights (pursuant
to the Rights Agreement dated as of June 27, 1991, between Parent and
Norwest Bank Minnesota, N.A., the "Parent Rights Plan") per share of
Parent Common Stock equal to the number of Parent preferred share
purchase rights associated with one share of Parent Common Stock at the
Effective Time.
2.5 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 cancelled.
<PAGE>
2.6 Stock Options.
(a) Except as provided below with respect to the Company's
Employee Share Purchase Plan, each Company Option shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
assumed by Parent in such manner that Parent (i) is a corporation
"assuming a stock option in a transaction to which Section 424(a)
applies" within the meaning of Section 424 of the Code and the
regulations thereunder or (ii) to the extent that Section 424 of the
Code does not apply to any such Company Option, would be such a
corporation were Section 424 of the Code applicable to such Company
Option. From and after the Effective Time, all references to the
Company in the Company 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 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
Fraction multiplied by the number of shares of Company Common Stock
subject to such option immediately prior to the Effective Time, and
(ii) the option exercise price per share of Parent Common Stock shall
be an amount (rounded up to the nearest full cent) equal to the option
exercise price per share of Company Common Stock in effect immediately
prior to the Effective Time divided by the Conversion Fraction. 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.
(b) Immediately prior to the Effective Time, the current Plan
Period under the Company's Employee Share Purchase Plan shall be ended,
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 Plan Period end, the number
of whole shares of Company Common Stock at a per share price determined
pursuant to the provisions of the Company's Employee Share Purchase
Plan, 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, for each share of
Company Common Stock such participant has so purchased under the
Employee Share Purchase Plan, a fraction of a share of Parent Common
Stock equal to the Conversion Fraction. The Company's Employee Share
Purchase Plan and all purchase rights thereunder shall terminate
effective as of the Effective Time.
2.7 Capitalization Changes. If, between the date of the Merger
Agreement and the Effective Time, the outstanding shares of Parent Common Stock
shall have been changed into a different number of shares or a different class
by reason of any reclassification, recapitalization, split-up, combination,
exchange of shares, or stock dividend, the Conversion Fraction and all per-share
price amounts and calculations set forth in the Merger Agreement shall be
appropriately adjusted.
ARTICLE 3
ORGANIZATION OF THE SURVIVING CORPORATION
3.1 Articles of Incorporation of the Surviving Corporation. The
Articles of Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be amended so as to be restated in their entity to read as
set forth on Schedule A-1 attached to this Plan of Merger.
3.2 Bylaws of the Surviving Corporation. The Bylaws of Merger
Subsidiary, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
<PAGE>
3.3 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 4
GENERAL PROVISIONS
4.1 Certain Effects of the Merger. As of the Effective Time, the
Company, as the Surviving Corporation, shall succeed to and possess all the
rights, privileges, powers, immunities, franchises, concessions, certificates
and authority, of a public as well as a private nature, of each of the
Constituent Corporations; and all property, real, personal and mixed, and every
interest therein, and all other choses in action of or belonging to either of
the Constituent Corporations on whatever account shall be vested in the Company
as the Surviving Corporation, without any further act or deed; and all property,
assets, rights, privileges, powers, immunities, franchises, concessions,
certificates and authority shall be thereafter as effectively the property of
the Company, as the Surviving Corporation, as they were or would be of the
Constituent Corporations or either of them; and title to any real estate or any
interest therein vested by deed or otherwise in either of the Constituent
Corporations shall not revert or be in any way impaired by reason of the Merger.
4.2 Rights and Duties of Surviving Corporation. The Company, as the
Surviving Corporation, shall be responsible and liable for all the debts,
liabilities, duties and obligations of each of the Constituent Corporations, and
as of the Effective Time all such debts, liabilities, duties and obligations
shall attach to the Company, as the Surviving Corporation, and may be enforced
against it to the same extent as if such debts, liabilities, duties and
obligations had been originally incurred or contracted by it; and any claim
existing or action or proceeding pending by or against either of the Constituent
Corporations may be prosecuted to judgment as if the merger had not taken place;
or the Company, as the Surviving Corporation, may be substituted in its place;
and neither the rights of creditors nor any liens upon property of either of the
Constituent Corporations shall be impaired by the merger.
4.3 Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any instruments of
further assurance are desirable in order to evidence the vesting in it of the
title of either of the Constituent Corporations to any of the property rights of
the Constituent Corporations, the appropriate officers or directors of Merger
Subsidiary and the Company are hereby authorized to execute, acknowledge, and
deliver all such instruments of further assurance and to do all acts or things,
either in the name of Merger Subsidiary or the Company, as may be requisite or
desirable to carry out the provisions hereof.
<PAGE>
Schedule A-1
RESTATED ARTICLES OF INCORPORATION
OF
PHYSIO-CONTROL INTERNATIONAL CORPORATION
ARTICLE 1 - NAME
1.1)The name of the corporation shall be Medtronic Physio-Control, Inc.
ARTICLE 2 - REGISTERED OFFICE AND AGENT
2.1) The registered office of the corporation in the State of
Washington is 520 Pike Street, Seattle, Washington 98101. The name of its
registered agent at such address is C T Corporation System.
ARTICLE 3 - STOCK
3.1) Authorized Shares. The aggregate number of shares the corporation
has authority to issue shall be 2,500 shares of Common Stock, $.01 par value.
Holders of Common Stock shall be entitled to one vote for each share of Common
Stock held of record.
3.2) Issuance of Shares to Holders of Another Class or Series. The
Board of Directors is authorized to issue shares of the corporation of one class
or series to holders of that class or series or to holders of another class or
series to effectuate share dividends or splits.
ARTICLE 4 - RIGHTS OF SHAREHOLDERS
4.1) No Preemptive Rights. No holder of any class of stock of the
corporation shall be entitled to subscribe for or purchase such holder's
proportionate share of stock of any class of the corporation now or hereafter
authorized or issued.
4.2) No Cumulative Voting Rights. No shareholder shall be entitled to
cumulate votes for the election of directors and there shall be no cumulative
voting for any purpose whatsoever.
4.3) Voting Agreements. A written agreement among shareholders or
subscribers for shares to be issued, relating to the voting of their shares, is
valid and specifically enforceable by and against the parties to the agreement
under Section 23B.07.310 of the Act.
ARTICLE 5 - DIRECTORS
5.1) The number of directors of the corporation shall be fixed in the
manner specified by the Bylaws of the corporation.
ARTICLE 6 - LIMITATION OF DIRECTOR LIABILITY
6.1) Limitation. To the fullest extent permitted by the Act as
it now exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation to
provide broader limitation of liability than permitted prior thereto), and
except as otherwise provided in the corporation's Bylaws, no director of the
corporation shall be personally liable to the corporation or its shareholders
for monetary damages for conduct as a director, except for:
(a) Acts or omissions involving intentional misconduct
by the director or a knowing violation of law by the director;
(b) Conduct violating Section 23B.08.310 of the Act (which
involves certain distributions by the corporation);
(c) Any transaction from which the director will personally
receive a benefit in money, property, or services to which the director
is not legally entitled.
6.2) Rights of Directors. Any repeal or modification of the
foregoing paragraph by the shareholders of the corporation shall not adversely
affect any right or protection of a director of the corporation existing at the
time of such repeal or modification.
<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MEDTRONIC, INC.,
PC MERGER CORP.,
AND
PHYSIO-CONTROL INTERNATIONAL CORPORATION
JUNE 27, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 THE MERGER; CONVERSION OF SHARES...................................B-5
1.1 The Merger.................................................B-5
1.2 Effective Time.............................................B-5
1.3 Conversion of Shares.......................................B-6
1.4 Dissenting Shares..........................................B-7
1.5 Exchange of Company Common Stock...........................B-7
1.6 Exchange of Merger Subsidiary Common Stock.................B-9
1.7 Stock Options..............................................B-9
1.8 Capitalization Changes....................................B-10
1.9 Articles of Incorporation of the Surviving Corporation....B-10
1.10 Bylaws of the Surviving Corporation.......................B-10
1.11 Directors and Officers of the Surviving Corporation.......B-10
ARTICLE 2 CLOSING...........................................................B-10
2.1 Time and Place............................................B-10
2.2 Filings at the Closing....................................B-11
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................B-11
3.1 Organization..............................................B-11
3.2 Authorization.............................................B-11
3.3 Capitalization............................................B-12
3.4 Reports and Financial Statements..........................B-13
3.5 Absence of Undisclosed Liabilities........................B-13
3.6 Consents and Approvals....................................B-13
3.7 Compliance with Laws......................................B-14
3.8 Litigation................................................B-14
3.9 Absence of Material Adverse Changes.......................B-15
3.10 Environmental Laws and Regulations........................B-15
3.11 Officers, Directors and Employees.........................B-16
3.12 Taxes.....................................................B-16
3.13 Contracts.................................................B-17
3.14 Title to Properties; Liens................................B-18
3.15 Permits, Licenses, Etc....................................B-18
3.16 Intellectual Property Rights..............................B-18
3.17 Benefit Plans.............................................B-19
3.18 Minute Books..............................................B-21
3.19 Insurance Policies........................................B-21
3.20 Bank Accounts.............................................B-21
3.21 Powers of Attorney........................................B-21
3.22 Product Liability Claims..................................B-21
3.23 Warranties................................................B-22
3.24 Inventories...............................................B-22
3.25 Relations with Suppliers and Customers....................B-22
3.26 No Finders................................................B-22
3.27 Proxy Statement...........................................B-22
3.28 Merger Filings............................................B-23
3.29 Fairness Opinion..........................................B-23
3.30 State Takeover Laws.......................................B-23
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY....B-23
4.1 Organization..............................................B-23
4.2 Authorization.............................................B-24
4.3 Capitalization............................................B-24
4.4 Consents and Approvals....................................B-24
4.5 Reports; Financial Statements; Absence of Changes;
Litigation..............................................B-25
4.6 Registration Statement....................................B-25
4.7 Merger Filings............................................B-25
4.8 No Finders................................................B-25
<PAGE>
ARTICLE 5 COVENANTS.........................................................B-26
5.1 Conduct of Business of the Company........................B-26
5.2 No Solicitation...........................................B-28
5.3 Access and Information....................................B-29
5.4 Approval of Shareholders; Proxy Statement;
Registration Statement..................................B-29
5.5 Consents..................................................B-30
5.6 Affiliates' Letters.......................................B-30
5.7 Expenses..................................................B-31
5.8 Reasonable Efforts; Further Actions.......................B-31
5.9 Regulatory Approvals......................................B-31
5.10 Certain Notifications.....................................B-31
5.11 Voting of Shares..........................................B-32
5.12 Noncompetition Agreements.................................B-32
5.13 NYSE Listing Application..................................B-32
5.14 Indemnification, Exculpation and Insurance................B-32
5.15 Letters of the Company's and Parent's Accountants.........B-33
5.16 Subsidiary Shares.........................................B-33
5.17 Stock Option Agreement....................................B-33
5.18 Conduct of Business by Parent.............................B-33
5.19 Benefit Plans and Employee Matters........................B-34
5.20 Delivery of Specified Documents...........................B-34
ARTICLE 6 CLOSING CONDITIONS................................................B-35
6.1 Conditions to Obligations of Parent, Merger Subsidiary,
and the Company.........................................B-35
6.2 Conditions to Obligations of Parent and Merger
Subsidiary..............................................B-35
6.3 Conditions to Obligations of the Company..................B-37
ARTICLE 7 TERMINATION AND ABANDONMENT.......................................B-37
7.1 Termination...............................................B-37
7.2 Effect of Termination.....................................B-39
ARTICLE 8 MISCELLANEOUS.....................................................B-39
8.1 Amendment and Modification................................B-39
8.2 Waiver of Compliance; Consents............................B-40
8.3 Investigation; Survival of Representations
and Warranties..........................................B-40
8.4 Notices...................................................B-40
8.5 Assignment................................................B-41
8.6 Governing Law.............................................B-41
8.7 Counterparts..............................................B-41
8.8 Knowledge.................................................B-41
8.9 Interpretation............................................B-41
8.10 Publicity.................................................B-41
8.11 Entire Agreement..........................................B-42
EXHIBITS:
Exhibit A: Form of Plan of Merger
Exhibit B: Form of Affiliate's Letter
Exhibit C: Form of Agreement to Facilitate Merger
Exhibit D: Form of Noncompetition Agreement
Exhibit E: Form of Stock Option Agreement
Exhibit F: Form of Opinion of the Company's Counsel
Exhibit G: Form of Opinion of Parent's Counsel
Exhibit H: Form of Company's Certificate
(regarding tax opinion representations)
Exhibit I: Form of Parent's Certificate
(regarding tax opinion representations)
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT is dated as of June 27, 1998, by and among Medtronic,
Inc., a Minnesota corporation ("Parent"), PC Merger Corp., a Washington
corporation and wholly-owned subsidiary of Parent ("Merger Subsidiary"), and
Physio-Control International Corporation, a Washington 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)(1)(A) and (a)(2)(E) 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 5.17 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 Washington Business Corporation Act (the "WBCA"), 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 WBCA.
1.2 Effective Time. As soon as practicable after each of the
conditions set forth in Article 6 has been satisfied or waived, the Company and
Merger Subsidiary will file, or cause to be filed, with the Secretary of State
of the State of Washington Articles of Merger for the Merger, which Articles
shall be in the form required by and executed in accordance with the applicable
provisions of the WBCA and shall include as a part thereof a plan of merger (the
"Plan of Merger") substantially in the form attached hereto as Exhibit A. 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 Articles of
Merger (the "Effective Time").
1.3 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of any holder of any share of capital
stock of the Company or Merger Subsidiary:
<PAGE>
(a) Each share of common stock of the Company, par value $.01
per share ("Company Common Stock"), issued and outstanding immediately
prior thereto (except for Dissenting Shares, as defined in Section 1.4
hereof, and except for shares referred to in Section 1.3(b) hereof)
shall be converted into the right to receive the fraction of a share
(subject to adjustment as provided below, the "Conversion Fraction") of
common stock of Parent, par value $.10 per share ("Parent Common
Stock"), equal to $27.50 divided by the Parent Average Stock Price. The
"Parent Average Stock Price" shall mean the average (rounded to the
nearest full cent, with the cents rounded up if the third decimal place
is 5 or more) of the 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 19
consecutive NYSE trading days ending on and including the first NYSE
trading day immediately preceding the Effective Time.
Notwithstanding the foregoing, if the sum of the number of
shares of Company Common Stock outstanding immediately prior to the
Effective Time plus the number of shares subject to then outstanding
options, warrants, or other rights to acquire shares of Company Common
Stock (collectively, "Company Stock Acquisition Rights") is greater
than 20,693,456 shares plus that number of shares issuable under the
Company's Employee Share Purchase Plan and Team Savings Plan or if the
aggregate exercise price of all such Company Stock Acquisition Rights
then outstanding is less than the aggregate exercise price reflected in
Section 3.3 of the Company Disclosure Schedule, then the $27.50 amount
per share of Company Common Stock, as described above, shall be reduced
to an amount equal to (i) [$27.50 times 20,693,456 shares plus that
number of shares issuable under the Company's Employee Share Purchase
Plan and Team Savings Plan] minus the aggregate exercise price
reflected in Section 3.3 of the Company Disclosure Schedule plus the
aggregate amount received by the Company as a result of any issuance of
Company Common Stock after the date of this Agreement and prior to the
Effective Time plus the aggregate exercise price of all Company Stock
Acquisition Rights outstanding immediately prior to the Effective Time
divided by (ii) the sum of (A) the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time plus (B) the
number of shares subject to Company Stock Acquisition Rights then
outstanding.
An appropriate adjustment shall similarly be made in the event
that, prior to the Effective Time, the outstanding shares of Company
Common Stock, without new consideration, are changed into or exchanged
for a different kind of shares or securities through a reorganization,
reclassification, stock dividend, stock combination, or other like
change in the Company's capitalization. Notwithstanding the foregoing,
nothing in this section shall be deemed to constitute authorization or
permission for or consent from Parent or Merger Subsidiary to any
increase in the number of shares of Company Common Stock outstanding or
subject to outstanding Company Stock Acquisition Rights, to any
decrease in the exercise price of such Rights, or to any
reorganization, reclassification, stock dividend, stock combination, or
other like change in capitalization.
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time that is held in the treasury of
the Company or is then owned beneficially or of record by Parent,
Merger Subsidiary, or any direct or indirect subsidiary of Parent or
the Company shall be cancelled without payment of any consideration
therefor and without any conversion thereof.
<PAGE>
(c) Each share of any other class of capital stock of the
Company (other than Company Common Stock) shall be cancelled without
payment of any consideration therefor and without any conversion
thereof.
(d) Each share of common stock of 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 Notwithstanding any provision of this Agreement to the contrary,
each outstanding share of Company Common Stock, the holder of which has
demanded and perfected such holder's right to dissent from the Merger and to be
paid the fair value of such shares in accordance with Sections 23B.13.020 et
seq. of the WBCA and, as of the Effectiv Time, has not effectively withdrawn
or lost such dissenters' rights ("Dissenting Shares"), shall not be converted
into or represent a right to receive the Parent Common Stock into which
shares of Company Common Stock are converted pursuant to Section 1.3 hereof,
but the holder thereof shall be entitled only to such rights as are granted by
the WBCA. The Company shall give Parent (i) prompt written notice of any notice
of intent to demand fair value for any shares of Company Common Stock,
withdrawals of such notices, and any other instruments served pursuant to the
WBCA or any other provisions of Washington law and received by the Company,
and (ii) the opportunity to conduct jointly all negotiations and proceedings
with respect to demands for fair value for shares of Company Common Stock under
the WBCA. The Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to any demands for fair value
for shares of Company Common Stock or offer to settle or settle any such
demands.
1.5 Exchange of Company Common Stock.
(a) Promptly after the Effective Time, Parent shall cause
Parent's stock transfer agent or such other person as Parent may
appoint to act as exchange agent (the "Exchange Agent") to mail to each
holder of record (other than Parent, Merger Subsidiary, the Company, or
any subsidiary of Parent or the Company) of a certificate or
certificates that immediately prior to the Effective Time represented
outstanding shares of Company Common Stock ("Company Certificates") a
form letter of transmittal (which shall specify that delivery shall be
effective, and risk of loss and title to 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.
<PAGE>
(b) As soon as practicable after the Effective Time, the
Exchange Agent shall distribute to holders of shares of Company Common
Stock, upon surrender to the Exchange Agent of one or more Company
Certificates for cancellation, together with a duly-executed letter of
transmittal, (i) one or more Parent certificates representing the
number of whole shares of Parent Common Stock into which the shares
represented by the Company Certificate(s) shall have been converted
pursuant to Section 1.3(a), and (ii) a bank check in the amount of cash
into which the shares represented by the Company Certificate(s) shall
have been converted pursuant to Section 1.5(f) (relating to fractional
shares), and the Company Certificate(s) so surrendered shall be
cancelled. In the event of a transfer of ownership of Company Common
Stock that is not registered in the transfer records of the Company, it
shall be a condition to the issuance of shares of Parent Common Stock
that 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 shares of Parent Common Stock issued upon the
surrender for exchange of Company Common Stock in accordance with the
terms hereof (including any cash paid for fractional shares pursuant to
Section 1.5(f) hereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common
Stock.
<PAGE>
(e) After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Company Certificates representing such shares are presented to the
Surviving Corporation, they shall be cancelled and exchanged as
provided in this Article 1. As of the Effective Time, the holders of
Company Certificates representing shares of Company Common Stock shall
cease to have any rights as shareholders of the Company, except such
rights, if any, as they may have pursuant to the WBCA. Except as
provided above, until such Company Certificates are surrendered for
exchange, each such Company Certificate shall, after the Effective
Time, represent for all purposes only the right to receive the number
of whole shares of Parent Common Stock into which the shares of Company
Common Stock shall have been converted pursuant to the Merger as
provided in Section 1.3(a) hereof and the right to receive the cash
value of any fraction of a share of Parent Common Stock as provided in
Section 1.5(f) hereof.
(f) No fractional shares of Parent Common Stock and no
certificates or scrip therefor, or other evidence of ownership thereof,
shall be issued upon the surrender for exchange of Company
Certificates, no dividend or other distribution of Parent shall relate
to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any rights of a shareholder of
Parent. All fractional shares of Parent Common Stock to which a holder
of Company Common Stock immediately prior to the Effective Time would
otherwise be entitled, at the Effective Time, shall be aggregated if
and to the extent multiple Company Certificates of such holder are
submitted together to the Exchange Agent. If a fractional share results
from such aggregation, then (in lieu of such fractional share) the
Exchange Agent shall pay to each holder of shares of Company Common
Stock who otherwise would be entitled to receive such fractional share
of Parent Common Stock an amount of cash (without interest) determined
by multiplying (i) the Parent Average Stock Price 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 exchange
for 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 and cash for fractional shares, if any, as may
be required pursuant to this Article 1; provided, however, that Parent
may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed Company
Certificate to deliver a bond in such sum as Parent may direct as
indemnity against any claim that may be made against Parent or the
Exchange Agent with respect to such Company Certificate alleged to have
been lost, stolen, or destroyed.
(h) Each person entitled to receive shares of Parent Common
Stock pursuant to this Article 1 shall receive together with such
shares the number of Parent preferred share purchase rights (pursuant
to the Rights Agreement dated as of June 27, 1991, between Parent and
Norwest Bank Minnesota, N.A., the "Parent Rights Plan") per share of
Parent Common Stock equal to the number of Parent preferred share
purchase rights associated with one share of Parent Common Stock at the
Effective Time.
<PAGE>
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 cancelled.
1.7 Stock Options.
(a) Except as provided below with respect to the Company's
Employee Share Purchase Plan, each option to purchase shares of Company
Common Stock that is outstanding at the Effective Time (a "Company
Option") shall, by virtue of the Merger and without any action on the
part of the holder thereof, be assumed by Parent in such manner that
Parent (i) is a corporation "assuming a stock option in a transaction
to which Section 424(a) applies" within the meaning of Section 424 of
the Code and the regulations thereunder or (ii) to the extent that
Section 424 of the Code does not apply to any such Company Option,
would be such a corporation were Section 424 of the Code applicable to
such Company Option. From and after the Effective Time, all references
to the Company in the Company 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 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 Fraction multiplied by the number of shares of Company
Common Stock subject to such option immediately prior to the Effective
Time, and (ii) the option exercise price per share of Parent Common
Stock shall be an amount (rounded up to the nearest full cent) equal to
the option exercise price per share of Company Common Stock in effect
immediately prior to the Effective Time divided by the Conversion
Fraction. 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.
(b) Immediately prior to the Effective Time, the current Plan
Period under the Company's Employee Share Purchase Plan shall be ended,
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 Plan Period end, the number
of whole shares of Company Common Stock at a per share price determined
pursuant to the provisions of the Company's Employee Share Purchase
Plan, 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, for each share of
Company Common Stock such participant has so purchased under the
Employee Share Purchase Plan, a fraction of a share of Parent Common
Stock equal to the Conversion Fraction. The Company's Employee Share
Purchase Plan and all purchase rights thereunder shall terminate
effective as of the Effective Time.
<PAGE>
1.8 Capitalization Changes. If, between the date of this Agreement and
the Effective Time, the outstanding shares of Parent Common Stock shall have
been changed into a different number of shares or a different class by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares, or stock dividend, the Conversion Fraction and all per-share price
amounts and calculations set forth in this Agreement shall be appropriately
adjusted.
1.9 Articles of Incorporation of the Surviving Corporation. The
Articles of Incorporation of Merger Subsidiary, as in effect immediately prior
to the Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable law;
provided, however, that upon the Effective Time, Article 1 of the Articles of
Incorporation of the Surviving Corporation shall be amended to read in its
entirety as follows: "The name of the corporation shall be Medtronic
Physio-Control, Inc."
1.10 Bylaws of the Surviving Corporation. The Bylaws of Merger
Subsidiary, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
1.11 Directors and Officers of the Surviving Corporation. The directors
and officers of 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 3:00 p.m., local time, on the day the Merger is approved by the
shareholders of the Company at the Company Shareholders Meeting (as defined in
Section 5.4 hereof), or as soon thereafter as 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 the Company, 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 Articles of
Merger to be filed in accordance with the provisions of Section 23B.11.050 of
the WBCA, 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 as set forth in a document of even date herewith, referring
specifically to the representations and warranties in this Agreement which
identifies by section number to which such disclosure relates (the "Company
Disclosure Schedule"), the Company hereby makes the following representations
and warranties to Parent and Merger Subsidiary:
<PAGE>
3.1 Organization. The Company and each subsidiary of the Company
(referred to herein as a "Subsidiary") is a corporation duly organized and
validly existing under the laws of its respective jurisdiction of incorporation
and has all requisite corporate power and authority to own, lease, and operate
its properties and to carry on its business as now being conducted. The Company
and each Subsidiary is duly qualified and in good standing to do business in
each jurisdiction in which the property owned, leased, or operated by it or the
nature of the business conducted by it makes such qualification necessary and
where the failure to qualify could reasonably be expected to have a Company
Material Adverse Effect (as defined below). "Company Material Adverse Effect"
means an effect that, individually or in the aggregate with other effects, is or
would reasonably be expected to be materially adverse: (i) to the present or
specifically planned business, properties, liabilities, results of operation, or
financial condition of the Company and its Subsidiaries, considered as a whole;
(ii) to the ability of Parent or the Surviving Corporation to conduct such
businesses, as presently conducted, following the Effective Time; or (iii) to
the Company's ability to perform any of its obligations under this Agreement or
to consummate the Merger. The jurisdictions in which the Company and each
Subsidiary are qualified are listed on the Company Disclosure Schedule. The
Company has heretofore delivered to Parent complete and accurate copies of the
Articles of Incorporation and Bylaws of the Company and each Subsidiary, as
currently in effect. Except to the extent specifically disclosed on the Company
Disclosure Schedule, neither the Company nor any Subsidiary, directly or
indirectly, owns or controls or has any capital, equity, partnership,
participation, or other ownership interest in any corporation, partnership,
joint venture, or other business association or entity.
3.2 Authorization. The Company has full corporate power and authority
to execute and deliver this Agreement and, subject to obtaining the necessary
approval of its shareholders, to consummate the transactions contemplated
hereby, and to file and distribute the Proxy Statement/Prospectus (as defined in
Section 5.4 hereof). The execution and delivery of this Agreement by the Company
and the consummation of the transactions contemplated hereby have been duly and
validly authorized and approved by the Company's Board of Directors, no other
corporate proceedings on the part of the Company or any Subsidiary are necessary
to recommend and submit this Agreement to the Company's shareholders, and,
subject to obtaining the approval of the Company's shareholders, no other
corporate action on the part of the Company or any Subsidiary is necessary to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company, enforceable 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. To the Company's
knowledge, each Agreement to Facilitate Merger and Affiliate's Letter (as
described in Sections 5.11 and 5.6) has been duly and validly executed and
delivered by the Company shareholder who is a party thereto and constitutes the
valid and binding obligation of such shareholder, enforceable in accordance with
its terms, subject to laws of general application relating to bankruptcy,
insolvency, and the relief of debtors and rules of law governing specific
performance, injunctive relief, or other equitable remedies.
<PAGE>
3.3 Capitalization. As of June 24, 1998, the authorized capital stock
of the Company consists of (i) 40,000,000 shares of Company Common Stock, par
value $.01 per share, of which 17,722,021 shares are issued and outstanding and
no shares are held in the Company's treasury, and (ii) 5,000,000 shares of
Company Preferred Stock, par value $.01 per share, none of which are issued or
outstanding. Except as set forth on the Company Disclosure Schedule, all issued
and outstanding shares of capital stock of each Subsidiary are owned,
beneficially and of record, by the Company, free and clear of any Liens (as
defined in Section 3.14). All issued and outstanding shares of Company Common
Stock have been validly issued, are fully paid and nonassessable, and have not
been issued in violation of and are not currently subject to any preemptive
rights. Except for options to purchase an aggregate 2,971,435 shares of Company
Common Stock granted pursuant to the Company 1994 Stock Purchase and Option Plan
and the 1997 Stock and Incentive Plan (collectively, the "Company Option Plans")
listed, together with their respective exercise prices, in Section 3.3 of the
Company Disclosure Schedule, and except for the rights to purchase under the
Company's Team Savings Plan shares of Company Common Stock (estimated to be the
number of shares equal to approximately $105,000 of matching contributions per
quarter divided by the trading price of the Company Common Stock at the end of
any such quarter, based on the current match rates, as listed in Section 3.3 of
the Company Disclosure Schedule) and except for the rights to purchase under the
Company's Employee Share Purchase Plan shares of Company Common Stock (estimated
to be approximately 50,000 shares, at a per share price of $13.4938, based on
the current contribution rates of the participants, as listed in Section 3.3 of
the Company Disclosure Schedule, and assuming the current Plan Period is ended
at the Effective Time (which is assumed to be not later than September 30, 1998
for this purpose)), there are not any outstanding or authorized subscriptions,
options, warrants, calls, rights, convertible securities, commitments,
restrictions, arrangements, or any other agreements of any character to which
the Company or any Subsidiary is a party that, directly or indirectly, (i)
obligate the Company or any Subsidiary to issue any shares of capital stock or
any securities convertible into, or exercisable or exchangeable for, or
evidencing the right to subscribe for, any shares of capital stock, (ii) call
for or relate to the sale, pledge, transfer, or other disposition or encumbrance
by the Company or any Subsidiary of any shares of its capital stock, or (iii) to
the knowledge of the Company, relate to the voting or control of such capital
stock. The Company Disclosure Schedule sets forth a complete and accurate list
of all stock options, warrants, and other rights to acquire Company Common
Stock, including the name of the holder, the date of grant, acquisition price,
expiration date, number of shares, exercisability schedule, and, in the case of
options, the type of option under the Code. The Company Disclosure Schedule also
sets forth the restrictions to which any shares of Company Common Stock issued
pursuant to the Company Option Plans or otherwise are currently subject and also
sets forth the restrictions to which such shares will be subject immediately
after the Effective Time. No consent of holders or participants under the
Company Option Plans or Employee Share Purchase Plan 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 Option Plans or Employee Share Purchase Plan to allow
for the treatment of Company Options and the Employee Share Purchase Plan as is
provided in Section 1.7, has been, or prior to the Closing will be, validly
taken by the Company, and the Company will not from and after the date hereof
allow any increase in the rate of a participant's contributions to the Employee
Share Purchase Plan or any enrollments or re-enrollments in such Plan.
<PAGE>
3.4 Reports and Financial Statements. The Company has filed all forms,
reports, registration statements, and documents required to be filed by it with
the Securities and Exchange Commission ("SEC") since January 1, 1996 (such
forms, reports, registration statements, and documents, together with any
amendments thereto, are referred to as the "Company SEC Filings"). As of their
respective dates, the Company SEC Filings (i) complied as to form in all
material respects with the applicable requirements of the Securities Act of 1933
and the rules and regulations thereunder (the "1933 Act") and the Securities
Exchange Act of 1934 and the rules and regulations thereunder (the "1934 Act"),
as the case may be, and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. The audited financial statements and unaudited
interim financial statements included or incorporated by reference in the
Company SEC Filings, including but not limited to the Company's audited
financial statements at and for the year ended December 31, 1997 (the "Company
1997 Financials"), (i) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto), (ii) complied as
of their respective dates in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, and (iii) fairly present the consolidated financial position of the
Company as of the dates thereof and the income, cash flows, and changes in
shareholders' equity for the periods involved. The statements of earnings
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, except as expressly
specified in the applicable statement of operations or notes thereto. Prior to
the date hereof, the Company has delivered to Parent complete and accurate
copies of all Company SEC Filings since January 1, 1995. The Company has filed
in a timely manner all reports required to be filed by it pursuant to Sections
13, 14, or 15(d) of the 1934 Act.
3.5 Absence of Undisclosed Liabilities. Except to the extent
specifically disclosed on the Company Disclosure Schedule, neither the Company
nor any Subsidiary has any liabilities or obligations of any nature (whether
absolute, accrued, contingent, or otherwise) except (a) liabilities or
obligations required by generally accepted accounting principles to be
recognized or disclosed on a consolidated balance sheet of Company and its
consolidated subsidiaries or in the notes thereto that are accrued or reserved
against in the audited consolidated balance sheet of the Company as of December
31, 1997 contained in the Company 1997 Financials (the "Company Audited Balance
Sheet") or in the unaudited consolidated balance sheet of the Company as of
March 31, 1998 contained in the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998 (the "Company Interim Balance Sheet"), and
(b) liabilities or obligations arising since March 31, 1998 in the ordinary
course of business and consistent with past practice that would not have a
Company Material Adverse Effect.
<PAGE>
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) approval by the Company's shareholders, (iii) the
filing and recordation of appropriate merger documents as required by the WBCA,
(iv) compliance with Chapter 13 of the WBCA regarding dissenters' rights, and
(v) any items disclosed on the Company Disclosure Schedule, the execution and
delivery of this Agreement by the Company, and, to the Company's knowledge, the
execution and delivery of the Agreements to Facilitate Merger, and the
consummation of the transactions contemplated hereby and thereby will not: (a)
violate any provision of the Articles of Incorporation or Bylaws of the Company
or any Subsidiary; (b) violate any statute, rule, regulation, order, or decree
of any federal, state, local, or foreign body or authority (including, but not
limited to, the Food and Drug Administration (the "FDA") or any nongovernmental
self-regulatory agency) by which the Company or any Subsidiary or any of their
respective properties or assets may be bound; (c) require any filing with or
permit, consent, or approval of any federal, state, local, or foreign public
body or authority (including, but not limited to, the FDA or any nongovernmental
self-regulatory agency); or (d) result in any violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default
under, result in the loss of any material benefit under, or give rise to any
right of termination, cancellation, increased payments, or acceleration under,
or result in the creation of any Lien (as defined in Section 3.14) on any of the
properties or assets of the Company or any Subsidiary under, any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, authorization, agreement, or other instrument or obligation
to which the Company or any Subsidiary is a party, or by which it or any of its
properties or assets may be bound, except, in the case of clause (d), for any
such violations, breaches, defaults, or other occurrences that would not prevent
or delay consummation of any of the transactions contemplated hereby in any
material respect, or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect, and would not have a
Company Material Adverse Effect.
3.7 Compliance with Laws. Except to the extent specifically described
on the Company Disclosure Schedule, all activities of the Company and each
Subsidiary have been, and are currently being, conducted in compliance with all
applicable federal, state, local, and foreign laws, ordinances, regulations,
interpretations, judgments, decrees, injunctions, permits, licenses,
certificates, governmental requirements, orders, and other similar items of any
court or other governmental entity (including, but not limited to, those of the
FDA or any nongovernmental self-regulatory agency), the failure to comply with
which could reasonably be expected to have a Company Material Adverse Effect.
The Company and each Subsidiary has timely filed or otherwise provided all
registrations, reports, data, and other information and applications with
respect to its medical device, pharmaceutical, consumer, health care, and other
governmentally regulated products (the "Regulated Products") required to be
filed with or otherwise provided to the FDA or any other federal, state, local,
or foreign governmental authorities with jurisdiction over the manufacture, use,
or sale of the Regulated Products, and all regulatory licenses or approvals in
respect thereof are in full force and effect, except where the failure to file
timely such registrations, reports, data, information, and applications or the
failure to have such licenses and approvals in full force and effect would not
have a Company Material Adverse Effect.
<PAGE>
3.8 Litigation. Except to the extent specifically disclosed on the
Company Disclosure Schedule, to the Company's knowledge, no investigation or
review by any federal, state, local, or foreign body or authority (including,
but not limited to, the FDA or any nongovernmental self-regulatory agency) with
respect to the Company or any Subsidiary is pending or threatened, nor has any
such body or authority (including, but not limited to, the FDA or any
nongovernmental self-regulatory agency) indicated to the Company or any
Subsidiary an intention to conduct the same. Except to the extent specifically
disclosed on the Company Disclosure Schedule, there are no claims, actions,
suits, or proceedings by any private party that could reasonably be expected to
involve individually an amount in excess of $50,000 or collectively an aggregate
amount in excess of $200,000, or by any governmental body or authority
(including, but not limited to, the FDA or any nongovernmental self-regulatory
agency), against or affecting the Company or any Subsidiary, pending or, to the
knowledge of the Company, threatened at law or in equity, or before any federal,
state, local, foreign, or other governmental department, commission, board,
bureau, agency, or instrumentality (including, but not limited to, the FDA or
any nongovernmental self-regulatory agency), and, to the knowledge of the
Company, there is no basis for any such investigation, review, claim, action,
suit, or proceeding that could reasonably be expected to have a Company Material
Adverse Effect.
3.9 Absence of Material Adverse Changes. Except to the extent
specifically disclosed on the Company Disclosure Schedule, since December 31,
1997 there has not been any (a) change or circumstance that could reasonably be
expected to have a Company Material Adverse Effect; (b) action by the Company or
any Subsidiary that, if taken on or after the date of this Agreement, would
require the consent or approval of Parent pursuant to Section 5.1 hereof, except
for actions as to which consent or approval has been given as provided therein;
(c) damage, destruction, or loss, whether or not covered by insurance, that
could reasonably be expected to have a Company Material Adverse Effect; (d)
change by the Company or any Subsidiary in accounting methods or principles used
for financial reporting purposes, except as required by a change in generally
accepted accounting principles and concurred with by the Company's independent
public accountants; or (e) agreement, whether in writing or otherwise, to take
any action described or referenced in this Section 3.9.
3.10 Environmental Laws and Regulations. The Company Disclosure
Schedule completely and accurately sets forth the following: (a) a list of all
above-ground storage tanks or underground storage tanks for Hazardous Materials
(as defined below) on the Company's principal facility located at 11811 Willows
Road N.E., Redmond, WA 98052 (the "Principal Facility"); (b) the identity of any
Hazardous Materials (as defined below) used, generated, transported or disposed
of by the Company or any Subsidiary now or at any time in the past, together
with a brief description and location of each activity using such Hazardous
Materials (with respect to sites other than Redmond, only to the extent of
material Hazardous Materials); (c) a summary of the identity of, to the
Company's knowledge, any Hazardous Materials that have been disposed of or found
on, above or below the Principal Facility; and (d) a list of all reports,
studies, and tests in the possession of the Company or any Subsidiary or
initiated by the Company or any Subsidiary pertaining to the existence of
Hazardous Materials on, above, or below real property now or at any time owned,
leased or occupied by the Company or any Subsidiary (such real property referred
to in this Section as the "Real Property") or any property adjoining or which
could reasonably be expected to affect the Real Property, or concerning
compliance with or liability under the Regulations (as defined below). The
Company has heretofore delivered to Parent complete and accurate copies of such
reports, studies, and tests.
<PAGE>
The Company and each Subsidiary have obtained, and maintained in full
force and effect, all required environmental permits and other governmental
approvals and are in compliance with all applicable Regulations (as defined
below), except where the failure to so obtain and maintain or to be in
compliance would not have a Company Material Adverse Effect. Neither the Company
nor any Subsidiary (i) has received a written notice or Claim (as defined below)
alleging potential liability under any of the Regulations or alleging a
violation of the Regulations or (ii) has any knowledge that such a notice or
Claim may be issued in the future. Neither the Company nor any Subsidiary has
any knowledge of any notices to or Claims against any persons, or reasonable
basis therefor, alleging potential liability under any of the Regulations with
respect to the Real Property or any adjoining properties or which could
reasonably be expected to affect the Real Property. Neither the Company nor any
Subsidiary (i) has been or is presently subject to or, to the knowledge of the
Company, threatened with any administrative or judicial proceeding pursuant to
the Regulations, or (ii) has any information that it may be subject to or, to
the knowledge of the Company, threatened with such a proceeding in the future.
Neither the Company nor any Subsidiary has knowledge of any conditions or
circumstances that could reasonably be expected to result in the determination
of liability against the Company or any Subsidiary relating to environmental
matters that would have a Company Material Adverse Effect, including, but not
limited to, any Claim arising from past or present environmental practices with
respect to Hazardous Materials, the Real Property, or any disposal sites. No
Hazardous Materials have been or are threatened to be discharged, emitted, or
released into the air, water, soil, or subsurface at or from the Real Property
by the Company or, to the Company's knowledge, by any other person.
For purposes of this Section 3.10, the following terms shall have the
following meanings: (i) "Hazardous Materials" means asbestos, urea formaldehyde,
polychlorinated biphenyls, nuclear fuel or materials, chemical waste,
radioactive materials, explosives, known human carcinogens, petroleum products
or other substances or materials listed, identified, or designated as toxic or
hazardous or as a pollutant or contaminant in, or the use, release or disposal
of which is regulated by, the Regulations; (ii) "Regulations" means the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"),
42 U.S.C. ss.ss. 9601 et seq.; the Federal Resource Conservation and Recovery
Act of 1976 ("RCRA"), 42 U.S.C. ss.ss. 6901 et seq.; the Clean Water Act, 33
U.S.C. ss.ss. 1321 et seq.; the Clean Air Act, 42 U.S.C. ss.ss. 7401 et seq.,
and any other federal, state, county, local, foreign, or other governmental
statute, regulation, or ordinance, as now in existence, that relates to or deals
with employee safety and human health, pollution, health, or the environment
including, but not limited to, the use, generation, discharge, transportation,
disposal, recordkeeping, notification, and reporting of Hazardous Materials; and
(iii) "Claim" means any and all claims, demands, causes of actions, suits,
proceedings, administrative proceedings, losses, judgments, decrees, debts,
damages, liabilities, court costs, penalties, attorneys' fees, and any other
expenses incurred, assessed, sustained or alleged by or against the Company or
any Subsidiary.
<PAGE>
3.11 Officers, Directors and Employees. Prior to the date hereof, the
Company has provided to Parent a list that completely and accurately sets forth
the name and current annual salary rate of each officer or employee of the
Company or any Subsidiary whose total remuneration for the last fiscal year was,
or for the current fiscal year has been set at, in excess of $50,000, together
with a summary of the bonuses, commissions, additional compensation, and other
like benefits, if any, paid or payable to such persons for the last fiscal year
and proposed for the current fiscal year. The Company Disclosure Schedule
completely and accurately sets forth the names of the officers (with all
positions and titles indicated) and directors of the Company and each
Subsidiary. No unfair labor practice complaint against the Company or any
Subsidiary is pending before the National Labor Relations Board, and there is no
labor strike, slowdown or stoppage pending or, to the knowledge of the Company,
threatened against or involving the Company or any Subsidiary. No unionizing
efforts have, to the knowledge of the Company, been made by employees of the
Company or any Subsidiary, neither the Company nor any Subsidiary is a party to
or subject to any collective bargaining agreement, and no collective bargaining
agreement is currently being negotiated by the Company or any Subsidiary. There
is no labor dispute pending or, to the knowledge of the Company, threatened
between the Company or any Subsidiary and its employees. During the 12-month
period preceding the date of this Agreement there has not been any material
increase in the rate of turnover of employees of the Company or any Subsidiary
over historical rates.
3.12 Taxes. The Company has previously furnished to Parent complete and
accurate copies of all federal income tax returns actually filed by the Company
for each of the fiscal years ended December 31, 1995 and 1996 and has made
available for review by Parent (or, with respect to those that are not available
at the Company's Principal Facility, will make available for review by Parent
within 15 days after execution of this Agreement) complete and accurate copies
of all other tax or assessment reports and tax returns (including any applicable
information returns) required by any law or regulation (whether United States,
foreign, state, local or other jurisdiction) and filed by the Company for the
fiscal years ended December 31, 1995, 1996 or 1997, and of all such returns
filed separately by any Subsidiary for fiscal years ended during or after 1995.
The Company and each Subsidiary has filed, or has obtained extensions to file
(which extensions have not expired without filing), all state, local, United
States, foreign, or other tax reports and returns required to be filed by any of
them. The Company and each Subsidiary has duly paid, or accrued on its books of
account, all taxes (including estimated taxes) shown as due on such reports and
returns (or such extension requests), or assessed against it, or that it is
obligated to withhold from amounts owed by it to any person. The liabilities and
reserves for taxes reflected on the Company Audited Balance Sheet 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. There are no Liens (as defined in Section 3.14) for
taxes upon any property or asset of the Company or any Subsidiary. Neither the
Company nor any Subsidiary is delinquent in the payment of any tax assessment
(including, but not limited to, any applicable withholding taxes). None of the
tax returns or reports for the tax periods ended December 31, 1995, 1996, and
1997 have been audited by the Internal Revenue Service (the "IRS") or by any
other taxing authority. Further, to the knowledge of the Company, except to the
extent specifically disclosed on the Company Disclosure Schedule, no state of
facts exists or has existed that would subject the Company or any Subsidiary to
an additional material tax liability for any taxes assessable by either the IRS
or any separate state, local, foreign, or other taxing authority with respect to
any reports or returns filed on or before the date hereof (other than extension
requests for which returns have not been filed as of the date hereof). Neither
the Company nor any Subsidiary has, with regard to any assets or property held,
acquired or to be acquired by any of them, filed a consent to the application of
Section 341(f)(2) of the Code. Except to the extent specifically disclosed on
the Company Disclosure Schedule, neither the Company nor any Subsidiary has (i)
received notification of any pending or proposed examination by either the IRS
or any state, local, foreign, or other taxing authority, (ii) received
notification of any pending or proposed deficiency by either the IRS or any
state, local, foreign, or other taxing authority, or (iii) granted any extension
of the limitations period applicable to any claim for taxes.
<PAGE>
For the purposes of this Section 3.12, "tax" shall mean and include
taxes, additions to tax, penalties, interest, fines, duties, withholdings,
assessments, and charges assessed or imposed by any governmental authority,
including but not limited to all federal, state, county, local, and foreign
income, profits, gross receipts, import, ad valorem, real and personal property,
franchise, license, sales, use, value added, stamp, transfer, withholding,
payroll, employment, excise, custom, duty, and any other taxes, obligations and
assessments of any kind whatsoever; "tax" shall also include any liability
arising as a result of being (or ceasing to be) a member of any affiliated,
consolidated, combined, or unitary group as well as any liability under any tax
allocation, tax sharing, tax indemnity, or similar agreement.
3.13 Contracts. 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
independent sales representative, noncompetition (except only for standard
noncompetition agreements entered into with the Company's employees, the forms
of which have been provided to Parent), loan, credit, escrow, security,
mortgage, guaranty, pledge, buy-sell, letter of credit, OEM, supply,
distribution, manufacturers' representative, dealer, agency, lease (except for
immaterial personal property leases), licensing (except for immaterial licenses,
which include, without limitation, licenses for off-the-shelf software),
franchise, development, joint development, joint venture, research and
development, or similar contract, agreement, or understanding material to the
Company and to which the Company or any Subsidiary is a party or may be bound,
(b) every material employment or consulting agreement or arrangement with or for
the benefit of any director, officer, employee, other person or shareholder of
the Company or any Subsidiary or any affiliate thereof, (c) every contract,
agreement, or understanding to which the Company or any Subsidiary is a party
that could reasonably be expected to involve payments by or to the Company or
any Subsidiary in excess of $150,000 during the Company's current 1998 fiscal
year or in excess of $250,000 in the aggregate during the Company's 1998, 1999
and 2000 fiscal years, or would have a Company Material Adverse Effect, or that
was not made in the ordinary course of business, (d) every agreement or contract
between the Company or any Subsidiary and any of the Company's officers,
directors, or more than 5% shareholders or any entity in which any of the
Company's officers, directors, or more than 5% shareholders has a greater than
2% equity interest, and (e) every other contract, plan, agreement, or
understanding to which the Company or any Subsidiary is a party or may be bound
and which would be required to be filed with the SEC in a filing to which
paragraph (b)(10) of Item 601 of Regulation S-K of the Rules and Regulations of
the SEC would be applicable. The Company and each Subsidiary has performed all
obligations required to be performed by it under any listed or material
contract, plan, agreement, understanding, or arrangement made or obligation owed
by or to the Company or any Subsidiary, except where the failure would not have
a Company Material Adverse Effect; to the Company's knowledge, there has not
been any event of default (or any event or condition which with notice or the
lapse of time, both or otherwise, would constitute an event of default)
thereunder on the part of the Company, any Subsidiary, or any other party to any
thereof that would have a Company Material Adverse Effect; the same are in full
force and effect and valid and enforceable by the Company or its Subsidiaries in
accordance with their respective terms subject to laws of general application
relating to bankruptcy, insolvency, and the relief of debtors and rules or law
governing specific performance, injunctive relief, and other equitable remedies;
and the performance of any such contracts, plans, agreements, understandings,
arrangements, or obligations would not have a Company Material Adverse Effect.
<PAGE>
3.14 Title to Properties; Liens. The Company and/or its Subsidiaries
have good and marketable title to all properties and assets reflected on the
Company Audited Balance Sheet or the Company Interim Balance Sheet or acquired
after the dates thereof (except for properties and assets sold or otherwise
disposed of in the ordinary course of business since the dates thereof), which
includes each asset the absence or unavailability of which would have a Company
Material Adverse Effect, subject only to (a) statutory Liens arising or incurred
in the ordinary course of business with respect to which the underlying
obligations are not delinquent, (b) with respect to personal property, the
rights of customers of the Company or any Subsidiary with respect to inventory
or work in progress under orders or contracts entered into by the Company or any
Subsidiary in the ordinary course of business, (c) Liens reflected on the
Company Audited Balance Sheet or the Company Interim Balance Sheet, (d) Liens
for taxes not yet delinquent, and (e) and defects in title that would not have a
Company Material Adverse Effect. The term "Lien" as used in this Agreement means
any mortgage, pledge, security interest, encumbrance, lien, claim, or charge of
any kind. All properties and assets purported to be leased by the Company or any
Subsidiary are subject to valid and effective leases that are in full force and
effect, and there does not exist, and the Merger will not result in, any default
or event that with notice or lapse of time, or both or otherwise, would
constitute a default under any such leases which would have a Company Material
Adverse Effect. The properties and assets of the Company and each Subsidiary
have been kept in good condition and repair in the ordinary course of business.
3.15 Permits, Licenses, Etc.. Except as set forth on the Company
Disclosure Schedule, the Company and each Subsidiary has all rights, permits,
certificates, licenses, consents, franchises, approvals, registrations, and
other authorizations necessary to sell its products and services and otherwise
carry on and conduct its business and to own, lease, use, and operate its
properties and assets at the places and in the manner now conducted and
operated, except those the absence of which would not have a Company Material
Adverse Effect. Neither the Company nor any Subsidiary has received any notice
or claim pertaining to the failure to obtain any permit, certificate, license,
franchise, approval, registration, or other authorization required by any
federal, state, local, or foreign body or authority (including, but not limited
to, the FDA or any nongovernmental self-regulatory agency).
<PAGE>
3.16 Intellectual Property Rights. The Company Disclosure Schedule
contains a complete and accurate list of all material patents, trademarks, trade
names, service marks, copyrights, and all applications for or registrations of
any of the foregoing as to which the Company or any Subsidiary is the owner or a
licensee (indicating whether such license is exclusive or nonexclusive). The
Company and each Subsidiary exclusively owns, free and clear of any Lien (as
defined in Section 3.14), or is exclusively (unless otherwise indicated in the
Company Disclosure Schedule) licensed to use, all patents, trademarks, trade
names, service marks, copyrights, applications for or registrations of any of
the foregoing, processes, inventions, designs, technology, formulas, computer
software programs, know-how, and trade secrets used in or necessary for the
conduct of its respective business as currently conducted or proposed to be
conducted (the "Company Intellectual Property"). Except to the extent
specifically disclosed on the Company Disclosure Schedule, no claim has been
asserted or, to the knowledge of the Company, threatened by any person with
respect to the use of the Company Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement with
respect thereto. To the knowledge of the Company, neither the use of the Company
Intellectual Property by the Company or any Subsidiary in the present or planned
conduct of its business nor any product or service of the Company or any
Subsidiary infringes on the intellectual property rights of any person. No
current or former shareholder, employee, or consultant of the Company or any
Subsidiary has any rights in or to any of the Company Intellectual Property. All
Company Intellectual Property listed on the Company Disclosure Schedule has the
status indicated therein and all applications are still pending in good standing
and have not been abandoned. Except to the extent specifically disclosed on the
Company Disclosure Schedule: (i) the Company Intellectual Property is valid and
has not been challenged in any judicial or administrative proceeding; (ii) the
Company and each Subsidiary have made all statutorily required filings, if any,
to record their interests, and taken reasonable actions to protect their rights,
in the Company Intellectual Property; (iii) to the knowledge of the Company, no
person or entity nor such person's or entity's business or products has
infringed, misused, or misappropriated any Company Intellectual Property or
currently is infringing, misusing, or misappropriating any Company Intellectual
Property; and (iv) no other person or entity has any right to receive or any
obligation to pay a royalty with respect to any Company Intellectual Property or
any product or service of the Company or any Subsidiary.
3.17 Benefit Plans. Except as set forth in the Company Disclosure
Schedule:
(a) Neither the Company nor any Subsidiary sponsors,
maintains, contributes to, or has sponsored, maintained, or contributed
to or been required to contribute to, any "employee pension benefit
plan" ("Pension Plan"), as such term is defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, solely for the purpose of this subsection, a plan excluded
from coverage by Section 4(b)(5) of ERISA. Each such Pension Plan
presently maintained by the Company or any Subsidiary is, in all
material respects, in compliance with applicable provisions of ERISA,
the Code, and other applicable law.
(b) Neither the Company nor any Subsidiary sponsors,
maintains, contributes to, or has sponsored, maintained, or contributed
to or been required to contribute to, any Pension Plan that is a
"Multiemployer Plan" within the meaning of Section 4001(a)(3) of ERISA.
<PAGE>
(c) Neither the Company nor any Subsidiary sponsors,
maintains, contributes to, or has sponsored, maintained, contributed
to, or been required to contribute to, any "employee welfare benefit
plan" ("Welfare Plan"), as such term is defined in Section 3(1) of
ERISA, whether insured or otherwise, and any such Welfare Plan
presently maintained by the Company or any Subsidiary is, in all
material respects, in compliance with the provisions of ERISA, the
Code, and all other applicable laws, including, but not limited to,
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 sponsors,
maintains, or contributes to, or has sponsored, maintained, or
contributed to, a "self-insured medical reimbursement plan" within the
meaning of Section 105(h) of the Code and the regulations thereunder.
(e) Neither the Company nor any Subsidiary currently maintains
or contributes to any oral or written bonus, profit-sharing,
compensation (incentive or otherwise), commission, stock option, or
other stock-based compensation, retirement, severance, change of
control, vacation, sick or parental leave, dependent care, deferred
compensation, cafeteria, disability, hospitalization, medical, death,
retiree, insurance, or other benefit or welfare or other similar plan,
policy, agreement, trust, fund, or arrangement providing for the
remuneration or benefit of all or any employees or shareholders or any
other person, that is neither a Pension Plan nor a Welfare Plan
(collectively, the "Compensation Plans").
(f) To the knowledge of the Company, neither any Pension Plans
or Welfare Plans nor any trust created or insurance contract issued
thereunder nor any trustee, fiduciary, custodian, or administrator
thereof, nor any officer, director, or employee of the Company or any
Subsidiary, custodian, or any other "disqualified person" within the
meaning of Section 4975(e)(2) of the Code, or "party in interest"
within the meaning of Section 3(14) of ERISA, with respect to any such
plan has engaged in any act or omission that could reasonably be
expected to subject the Company or any Subsidiary, either directly or
indirectly, to a liability for breach of fiduciary duties under ERISA
or a tax or penalty imposed by Section 502 of ERISA.
(g) Full and timely payment has been made of all amounts that
the Company or any Subsidiary is required, under applicable law, with
respect to any Pension Plan, Welfare Plan, or Compensation Plan, or any
agreement relating to any Pension Plan, Welfare Plan, or Compensation
Plan, to have paid as a contribution to each Pension Plan, Welfare
Plan, or Compensation Plan. To the extent required by generally
accepted accounting principles, the Company has made adequate
provisions for reserves to meet contributions that have not been made
because they are not yet due under the terms of any Pension Plan,
Welfare Plan, or Compensation Plan or related agreements. There will be
no change on or before the Closing Date in the operation of any Pension
Plan, Welfare Plan, or Compensation Plan or documents under which any
such plan is maintained that will result in an increase in the benefit
liabilities under such plan, except as may be required by law. The IRS
has issued favorable determination letters with respect to all Company
and Subsidiary Pension Plans that are intended to be qualified under
Section 401(a) of the Code. The Company has provided to Parent complete
and accurate copies of all Pension Plans, Welfare Plans, Compensation
Plans, and related agreements, annual reports (Form 5500), favorable
determination letters, current summary plan descriptions, and all
employee handbooks or manuals.
<PAGE>
(h) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Pension Plan, Welfare Plan, Compensation Plan, or other
arrangement that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits, or obligation to fund
benefits. No amount that could be received (whether in cash or property
or the vesting of property) as a result of any of the transactions
contemplated by this Agreement by any employee, officer, or director of
the Company or any of its affiliates who is a "disqualified individual"
(as such term is defined in proposed Treasury Regulation Section
1.280G-1) under any Pension Plan, Welfare Plan, or Compensation Plan
currently in effect would be an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code).
3.18 Minute Books. The minute books of the Company and the
Subsidiaries, as previously made available to Parent and its representatives,
contain, in all material respects, complete and accurate records of all meetings
of and corporate actions or written consents by the shareholders, Boards of
Directors, and committees of the Boards of Directors of the Company and the
Subsidiaries.
3.19 Insurance Policies. The Company Disclosure Schedule sets forth a
complete and accurate list, including the term, coverages, premium rates, limits
and deductibles thereof, of all material policies of insurance maintained by the
Company or any Subsidiary with respect to any of its officers, directors,
employees, shareholders, agents, properties, buildings, machinery, equipment,
furniture, fixtures or operations and a description of each claim made by the
Company or any Subsidiary during the three-year period preceding the date hereof
under any such policy of insurance. The Company has previously delivered to
Parent complete and accurate copies of all such policies of insurance and
complete and accurate copies of all documentation regarding claims made
thereunder. All such policies of insurance are in full force and effect, have
been issued for the benefit of the Company, its Subsidiaries, and/or their
respective directors, officers and employees by properly licensed insurance
carriers, and are adequate and customary for the assets, business, and
operations of the Company and its Subsidiaries. The Company has promptly and
properly notified its insurance carriers of any and all claims known to it with
respect to its operations or products for which it is insured.
3.20 Bank Accounts. The Company Disclosure Schedule sets forth a list
of each bank, broker, or other depository with which the Company or any
Subsidiary has an account or safe deposit box (other than those having a balance
or value not exceeding $25,000 individually or $250,000 in the aggregate), the
names and numbers of such accounts or boxes and the names of all persons
authorized to draw thereon or execute transactions.
3.21 Powers of Attorney. The Company Disclosure Schedule sets forth the
names of all persons, if any, holding powers of attorney from the Company or any
Subsidiary relating to authority for actions taken in the United States and a
description of the scope of each such power of attorney. The Company has
delivered to Parent prior to the date hereof complete and accurate copies of all
such powers of attorney. Within 15 days after execution of this Agreement, the
Company shall provide Parent with a list setting forth the names of all persons
holding any other powers of attorney from the Company or any Subsidiary not
included in the Company Disclosure Schedule and a description of the scope of
each such other power of attorney (other than powers of attorney granted in the
ordinary course of business for the prosecution of intellectual property filing
matters).
<PAGE>
3.22 Product Liability Claims. During the three-year period preceding
the date hereof, neither the Company nor any Subsidiary has ever received a
claim, or incurred any uninsured or insured liability, for or based upon breach
of product warranty (other than warranty service, repair claims and MDR's in the
ordinary course of business not material in amount or significance), strict
liability in tort, negligent manufacture of product, negligent provision of
services or any other allegation of liability, including or resulting in, but
not limited to, product recalls, arising from the materials, design, testing,
manufacture, packaging, labeling (including instructions for use), or sale of
its products or from the provision of services (hereafter collectively referred
to as "Product Liability"). To the knowledge of the Company, no basis for any
claim based upon alleged Product Liability exists that would have a Company
Material Adverse Effect.
3.23 Warranties. To the knowledge of the Company, all products
manufactured or sold, and all services provided, by the Company or any
Subsidiary have complied, and are in compliance, in all material respects with
all contractual requirements, warranties or covenants, express or implied,
applicable thereto, and with all applicable governmental, trade association or
regulatory specifications therefor or applicable thereto, including, to the
extent applicable, FDA Good Manufacturing Practices. The terms of all product
and service warranties of the Company and each Subsidiary are specifically set
forth on the Company Disclosure Schedule. The Company has delivered to Parent
prior to the date hereof complete and accurate copies of the forms of all such
warranties and policies used by the Company in the last twenty (20) months, and
no warranties with terms of more than twelve (12) months have been used by the
Company other than those used in the last twenty (20) months.
3.24 Inventories. Except as specifically set forth on the Company
Disclosure Schedule, all inventories owned by the Company and its Subsidiaries
consist of items of merchantable quality and quantity usable or salable in the
ordinary course of business, are salable at prevailing market prices that are
not less than the book value amounts thereof or the price customarily charged by
the Company or the applicable Subsidiary therefor, conform to the specifications
established therefor, and have been manufactured in accordance with applicable
regulatory requirements, except to the extent that the failure of such
inventories so to consist, be saleable, conform, or be manufactured would not
have a Company Material Adverse Effect. Except as specifically set forth on the
Company Disclosure Schedule, the quantities of all inventories, materials, and
supplies of the Company and each Subsidiary (net of the obsolescence reserve
therefor shown on the Company Interim Balance Sheet and determined in the
ordinary course of business consistent with past practice) are not obsolete,
damaged, slow-moving, defective, or excessive, and are reasonable and balanced
in the circumstances of the Company and its Subsidiaries, except to the extent
that the failure of such inventories to be in such conditions would not have a
Company Material Adverse Effect. The Company Disclosure Schedule sets forth a
true and complete list of the addresses of all warehouses or other facilities in
which inventories of the Company or any Subsidiary are located.
3.25 Relations with Suppliers and Customers. No material current
supplier of the Company or any Subsidiary has cancelled any contract or order
for provision of, and, to the knowledge of the Company, there has been no threat
by or basis for any such supplier not to provide, raw materials, products,
supplies, or services to the businesses of the Company and its Subsidiaries
either prior to or following the Merger. Except as specifically set forth on the
Company Disclosure Schedule, neither the Company nor any Subsidiary has, to the
knowledge of the Company, received any information from any customer that
accounted for more than 5% of the revenues of the Company and its Subsidiaries
during the last full fiscal year to the effect that such customer intends to
materially decrease the amount of business it does with the businesses of the
Company and its Subsidiaries either prior to or following the Merger. The
Company Disclosure Schedule lists each supplier to the Company or any Subsidiary
that is the sole source of a particular raw material, product, supply, or
service.
<PAGE>
3.26 No Finders. No act of the Company or any Subsidiary has given or
will give rise to any claim against any of the parties hereto for a brokerage
commission, finder's fee, or other like payment in connection with the
transactions contemplated herein, except payments in the amounts specified on
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 to Parent
prior to the date of this Agreement.
3.27 Proxy Statement. The Proxy Statement/Prospectus (as defined in
Section 5.4 hereof) and any amendments or supplements thereto will comply in all
material respects with all applicable laws, and none of the information relating
to the Company or its affiliates included or incorporated therein or in any
amendments or supplements thereto, or any schedules required to be filed with
the SEC in connection therewith, will, at any time during the period beginning
at the time it is mailed to shareholders and ending at the time of the Company
Shareholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that no representation or warranty is
made by the Company with respect to information relating to Parent or any
affiliate of Parent supplied by Parent specifically for inclusion in the Proxy
Statement/Prospectus.
3.28 Merger Filings. The information as to the Company and the
Subsidiaries or any of their affiliates or shareholders included in the
Company's filing, or submitted to Parent for inclusion in its filing, if any,
required to be submitted under the HSR Act or under any Foreign Merger Laws
shall be true, correct, and complete in all material respects and shall comply
in all material respects with the applicable requirements of the HSR Act, the
rules and regulations issued by the Federal Trade Commission pursuant thereto,
and the Foreign Merger Laws.
3.29 Fairness Opinion. The Company has received an opinion from Morgan
Stanley & Co. Incorporated to the effect that, as of the date hereof, the
consideration to be received by the holders of Company Common Stock in the
Merger is fair to such holders from a financial point of view, and the Company
will promptly deliver a copy of such opinion to Parent.
3.30 State Takeover Laws. The Board of Directors of the Company has
approved the transactions contemplated by this Agreement, the Agreements to
Facilitate Merger described in Section 5.11 hereof, and the Stock Option
Agreement described in Section 5.17 hereof such that the provisions of Section
23B.19.040 of the WBCA 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.
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUBSIDIARY
Except as set forth in a document of even date herewith, referring
specifically to the representations and warranties in this Agreement which
identifies by section number to which such disclosure relates (the "Parent
Disclosure Schedule"), Parent and Merger Subsidiary hereby jointly and severally
make the following representations and warranties to the Company:
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 Washington. 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. 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 and
where the failure to qualify could reasonably be expected to have a Parent
Material Adverse Effect (as defined below). "Parent Material Adverse Effect"
means an effect that, individually or in the aggregate with other effects, is or
would reasonably be expected to be materially adverse: (i) to the present or
planned business, properties, liabilities, 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 obligations under this Agreement or to
consummate the Merger.
4.2 Authorization. Each of Parent and Merger Subsidiary has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, and Parent has full corporate
power and authority to prepare, file, and distribute the Registration Statement
(as defined in Section 5.4 hereof). The execution and delivery of this Agreement
by Parent and Merger Subsidiary and the consummation of the transactions
contemplated hereby have been duly and validly authorized and approved by the
Boards of Directors of Parent and 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 are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by each of Parent and Merger Subsidiary and
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 June 12, 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 469,344,895 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.
<PAGE>
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, (ii) the filing and recordation of appropriate merger
documents as required by the WBCA, and (iii) compliance with Chapter 13 of the
WBCA regarding dissenters' rights of the Company's shareholders, the execution
and delivery of this Agreement by Parent and Merger Subsidiary and the
consummation of the transactions contemplated hereby will not: (a) violate any
provision of the Articles of Incorporation or Bylaws of Parent or Merger
Subsidiary; (b) violate any statute, rule, regulation, order, or decree of any
public body or authority (including, but not limited to, the FDA or any
nongovernmental self-regulatory agency) by which Parent or any of its
subsidiaries or any of their respective properties or assets may be bound; (c)
require any filing with or permit, consent, or approval of any public body or
authority (including, but not limited to, the FDA or any nongovernmental
self-regulatory agency); or (d) result in any violation or breach of, or
constitute (with or without due notice or lapse of time or both) a default
under, result in the loss of any material benefit under, or give rise to any
right of termination, cancellation, increased payments, or acceleration under,
or result in the creation of any Lien on any of the properties or assets of
Parent or its subsidiaries under, any of the terms, conditions, or provisions of
any note, bond, mortgage, indenture, license, franchise, permit, agreement, or
other instrument or obligation to which Parent or any of its subsidiaries is a
party, or by which any of them or any of their respective properties or assets
may be bound, except, in the case of clause (d), for any such violations,
breaches, defaults, or other occurrences that would not prevent or delay
consummation of any of the transaction contemplated hereby in any material
respect, or otherwise prevent Parent from performing its obligations under this
Agreement in any material respect, and would not have a Parent Material Adverse
Effect.
4.5 Reports; Financial Statements; Absence of Changes; Litigation.
Parent has filed all forms, reports, registration statements, and documents
required to be filed by it with the SEC since May 1, 1995 (such forms, reports,
registration statements and documents, together with any amendments thereto, are
referred to as the "Parent SEC Filings"). As of their respective dates, the
Parent SEC Filings (i) complied as to form in all material respects with the
applicable requirements of the 1933 Act and the 1934 Act, as the case may be,
and (ii) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. The audited financial statements and unaudited interim
financial statements included or incorporated by reference in the Parent SEC
Filings (i) were prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto), (ii) complied as of their
respective dates in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, and (iii) fairly present the consolidated financial position of Parent
as of the dates thereof and the income, cash flows, and changes in shareholders'
equity for the periods involved. Except to the extent disclosed in Parent's
subsequent filings with the SEC or specifically disclosed in the Parent
Disclosure Schedule, since April 30, 1997, there has not been any change or
circumstance that would have a Parent Material Adverse Effect. Except to the
extent disclosed in the Parent SEC Filings or in the Parent Disclosure Schedule,
to Parent's knowledge, there is no investigation, review, claim, action, suit or
proceeding by any federal, state, local or foreign body or authority (including,
but not limited to, the FDA or any non-governmental self-regulatory agency) or
private party with respect to Parent that could reasonably be expected to have a
Parent Material Adverse Effect.
<PAGE>
4.6 Registration Statement. The Registration Statement (as defined in
Section 5.4 hereof) and any amendments or supplements thereto will comply in all
material respects with the 1933 Act, and none of the information relating to
Parent or its affiliates included or incorporated therein or in any amendments
or supplements thereto, or any schedules required to be filed with the SEC in
connection therewith, will, at the time the Registration Statement becomes
effective or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that no
representation or warranty is made by Parent with respect to information
supplied by the Company or any affiliate of the Company specifically for
inclusion in the Registration Statement.
4.7 Merger Filings. The information as to Parent and 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.
4.8 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 payments to Goldman, Sachs & Co., who
has been retained by Parent as its financial advisor.
ARTICLE 5
COVENANTS
5.1 Conduct of Business of the Company. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, the Company and each Subsidiary will conduct its respective operations
according to its ordinary and usual course of business and consistent with past
practice, and the Company and each Subsidiary will use all reasonable efforts to
preserve intact its respective business organizations, to maintain its present
and planned business, to keep available the services of its respective officers
and employees and to maintain satisfactory relationships with licensors,
licensees, suppliers, contractors, distributors, physicians, consultants,
customers, and others having business relationships with it. The Company will
promptly advise Parent orally and in writing of any material change in the
management, present or planned business, properties, liabilities, results of
operations, or financial condition of the Company or any Subsidiary. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in or contemplated by this Agreement, prior to the Effective Time,
neither the Company nor any Subsidiary will, without the prior written consent
of Parent:
<PAGE>
(a) amend its Articles of Incorporation or Bylaws;
(b) authorize for issuance, issue, sell, pledge, or deliver
(whether through the issuance or granting of additional options,
warrants, commitments, subscriptions, rights to purchase, or otherwise
other than in the ordinary course of business consistent with past new
hire practices) any stock of any class or any securities convertible
into shares of stock of any class (other than the issuance of the
number of shares of Company Common Stock indicated in Section 3.3
hereof upon the exercise in accordance with the current terms of the
stock options listed in Schedule 3.3 hereof as outstanding on the date
of this Agreement);
(c) split, combine, or reclassify any shares of its capital
stock, declare, set aside, or pay any dividend or other distribution
(whether in cash, stock, or property or any combination thereof) in
respect of its capital stock; or redeem or otherwise acquire any shares
of its capital stock or other securities; or amend or alter any
material term of any of its outstanding securities;
(d) other than in the ordinary course of business and
consistent with past practice, create, incur, or assume any
indebtedness for borrowed money, or assume, guarantee, endorse, or
otherwise become liable or responsible (whether directly, contingently,
or otherwise) for the obligations of any other person; 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;
(e) knowingly take any action that would have the effect of
(i) jeopardizing the treatment of the acquisition of the Company by
Parent as a "pooling of interests" for accounting purposes, or (ii)
jeopardizing the qualification of the Merger as a reorganization within
the meaning of Section 368(a)(2)(E) of the Code;
(f) (i) increase in any manner the compensation of any of its
directors, officers, employees, shareholders, or consultants, except in
the ordinary course of business and consistent with past practice or
consistent with existing contractual commitments, in each case to the
extent disclosed in writing to Parent prior to the date hereof, or
accelerate the payment of any such compensation (whether or not any
such acceleration is consistent with past practice); (ii) pay or
accelerate or otherwise modify the payment, vesting, exercisability,
increase in matching amount, or other feature or requirement of any
pension, retirement allowance, severance, change of control, stock
option, or other employee benefit not required by any existing plan,
agreement, or arrangement to any such director, officer, employee,
shareholder, or consultant, whether past or present; or (iii) except
for normal increases in the ordinary course of business in accordance
with its customary past practices or consistent with existing
contractual commitments, in each case to the extent disclosed in
writing to the Parent prior to the date hereof, commit itself to any
additional or increased pension, profit-sharing, bonus, incentive,
deferred compensation, stock purchase, stock option, stock appreciation
right, group insurance, severance, change of control, retirement or
other benefit, plan, agreement, or arrangement, or to any employment or
consulting agreement, with or for the benefit of any person, or amend
any of such plans or any of such agreements in existence on the date
hereof;
(g) except in the ordinary course of business and consistent
with past practice, or pursuant to contractual obligations existing on
the date hereof, (i) sell, transfer, mortgage, or otherwise dispose of
or encumber any real or personal property, (ii) pay, discharge, or
satisfy claims, liabilities, or obligations (absolute, accrued,
contingent, or otherwise), or (iii) cancel any debts or waive any
claims or rights, which involve payments or commitments to make
payments that individually exceed $50,000 or, in the aggregate, exceed
$100,000;
<PAGE>
(h) acquire or agree to acquire (i) by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any portion of the assets of, or by
any other manner, any business of any corporation, partnership, joint
venture, association, or other business organization or division
thereof or (ii) any assets that are material, individually or in the
aggregate, to the Company, except as provided in subsection (i) below
and except purchases of inventory in the ordinary course of business
consistent with past practice or consistent with the Company's 1998
budget delivered to Parent prior to the execution of this Agreement
(the "1998 Budget");
(i) make or agree to make any new capital expenditure or
expenditures that, individually, is in excess of $50,000 or, in the
aggregate, are in excess of $100,000 unless in the ordinary course of
business consistent with the Company's 1998 Budget;
(j) enter into, amend, or terminate any joint ventures or any
other agreements, commitments, or contracts that, individually or in
the aggregate, are material to the Company or any Subsidiary (except
agreements, commitments, or contracts expressly provided for or
contemplated by this Agreement or for the purchase, sale, or lease of
goods, services, or properties in the ordinary course of business,
consistent with past practice or capital expenditures or inventory
purchases consistent with the 1998 Budget), or otherwise make any
material change in the conduct of the business or operations of the
Company or any Subsidiary;
(k) enter into or terminate, or amend, extend, renew, or
otherwise modify (including, but not limited to, by default or by
failure to act) any distribution, OEM, independent sales
representative, noncompetition, licensing, franchise, research and
development, supply, or similar contract, agreement, or understanding
(except agreements, commitments, or contracts expressly provided for or
contemplated by this Agreement or for the purchase, sale, or lease of
goods, services, or properties in the ordinary course of business,
consistent with past practice or capital expenditures or inventory
purchases consistent with the Company's 1998 Budget);
(l) change in any material respect its credit policy as to
sales of inventories or collection of receivables or its inventory
consignment practices;
(m) remove or permit to be removed from any building,
facility, or real property any machinery, equipment, fixture, vehicle,
or other personal property or parts thereof, except in the ordinary
course of business;
(n) alter or revise its accounting principles, procedures,
methods, or practices, except as required by a change in generally
accepted accounting principles and concurred with by the Company's
independent public accountants;
(o) institute, settle, or compromise any claim, action, suit,
or proceeding pending or threatened by or against it involving amounts
in excess of $100,000 (limited to the Company's retention amount, if
insured), at law or in equity or before any federal, state, local,
foreign, or other governmental department, commission, board, bureau,
agency, or instrumentality (including, but not limited to, the FDA or
any nongovernmental self-regulatory agency);
<PAGE>
(p) distribute or otherwise circulate any notices, directives,
or other communications directed to all or groups of customers,
vendors, employees, distributors, or others associated with its
business relating to the transactions contemplated hereby or to the
operation of business after consummation of such transactions without
consulting with Parent, giving Parent reasonable opportunity to comment
thereon, and obtaining prior to distribution Parent's approval thereof,
which shall not unreasonably be withheld;
(q) knowingly take any action that would render any
representation, warranty, covenant, or agreement of the Company in this
Agreement inaccurate or breached as of the Closing Date; or
(r) agree, whether in writing or otherwise, to do any of the
foregoing.
5.2 No Solicitation. Neither the Company nor any Subsidiary, nor any of
their respective officers, directors, employees, representatives, agents, or
affiliates (including, but not limited to any investment banker, attorney, or
accountant retained by the Company or any Subsidiary), shall, directly or
indirectly, solicit, encourage, initiate, or participate in any way in
discussions or negotiations with, or knowingly provide any information to, any
corporation, partnership, person, or other entity or group (other than Parent or
any affiliate or agent of Parent) concerning any merger, sale or licensing of
any significant portion of the assets, sale of shares of capital stock
(including without limitation any proposal or offer to the Company's
shareholders), or similar transactions involving the Company or any Subsidiary
(an "Alternative Proposal"), or otherwise facilitate any effort or attempt to
make or implement an Alternative Proposal; provided, however, that this section
shall not prohibit the Board of Directors of the Company from (i) furnishing
information to or entering into discussions or negotiations with, any person or
entity that makes an unsolicited bona fide Alternative Proposal, if, and only to
the extent that, (a) the Board of Directors of the Company determines in good
faith that such action is so required for the Board of Directors to comply with
its fiduciary duties to shareholders imposed by law, the Board has been so
advised in writing by outside counsel, in its judgment and opinion, as being so
required and the Board so represents to Parent that the Board has been so
advised, (b) prior to furnishing information to, or entering into discussions
and negotiations with, such person or entity, the Company promptly provides
written notice to Parent to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person or entity, and (c)
the Company keeps Parent informed of all material terms and events with respect
to any such Alternative Proposal; and (ii) to the extent applicable, complying
with Rule 14e-2 promulgated under the 1934 Act with regard to an Alternative
Proposal. Nothing in this section shall (x) permit the Company to terminate this
Agreement (except as specifically provided in Article 7 hereof), (y) permit the
Company to enter into any agreement with respect to an Alternative Proposal for
as long as this Agreement remains in effect (it being agreed that for as long as
this Agreement remains in effect, the Company shall not enter into any agreement
with any person that provides for, or in any way facilitates, an Alternative
Proposal), or (z) affect any other obligation of the Company under this
Agreement.
5.3 Access and Information. The Company shall afford to Parent, and to
Parent's accountants, officers, directors, employees, counsel, and other
representatives, reasonable access during normal business hours, from the date
hereof through the Effective Time, to all of its properties, books, contracts,
commitments, and records, and, during such period, the Company shall furnish
promptly to Parent all information concerning the Company's and its
Subsidiaries' businesses, prospects, properties, liabilities, results of
operations, financial condition, testing, clinicals, officers, employees,
investigators, distributors, customers, suppliers, and others having dealings
with the Company as Parent may reasonably request and reasonable opportunity to
contact and obtain information from such officers, employees, investigators,
distributors, customers, suppliers, and others having dealings with the Company
as Parent may reasonably request; provided, with respect to certain designated
matters subject to existing confidentiality agreements as referenced in separate
disclosure letters dated June 1 and 26, 1998, access for Parent shall be
provided as set forth in such separate disclosure letter. During the period from
the date hereof to the Effective Time, the parties shall in good faith meet and
correspond on a regular basis for mutual consultation concerning the conduct of
the Company's and the Subsidiaries' businesses and, in connection therewith,
Parent shall be entitled to have employees or other representatives present at
the offices of the Company and its Subsidiaries to observe, and be kept informed
concerning, the Company's and the Subsidiaries' operations and business
planning. Parent shall hold in confidence all such nonpublic information as
required and in accordance with the confidentiality agreement dated April 16,
1998, between Parent and the Company (the "Confidentiality Agreement").
<PAGE>
5.4 Approval of Shareholders; Proxy Statement; Registration Statement.
(a) The Company shall promptly take all action necessary in
accordance with Washington law and the Company's Articles of
Incorporation and Bylaws to cause a special meeting of the Company's
shareholders (the "Company Shareholders Meeting") to be duly called and
held as soon as reasonably practicable following the date upon which
the Registration Statement (as defined below) becomes effective for the
purpose of voting upon the Merger. The shareholder vote or consent
required for approval of the Plan of Merger and the Merger shall be no
greater than that set forth in the WBCA and the Company's Articles of
Incorporation as previously provided to Parent. Accordingly, the
Company represents and warrants that the affirmative vote of the
holders of record of two-thirds of the outstanding shares of Company
Common Stock is all that is necessary to obtain shareholder approval of
the Plan of Merger and the Merger. The Company shall use all reasonable
efforts to obtain the approval by the Company's shareholders of this
Agreement, the Plan of Merger, and the Merger. In accordance therewith,
the Company shall, with the cooperation of Parent, prepare and file, as
soon as reasonably practicable, a proxy statement/prospectus included
as part of the Registration Statement (such proxy statement/prospectus,
together with notice of meeting, form of proxy, and any letter or other
materials to the Company's shareholders included therein are referred
to in this Agreement as the "Proxy Statement/Prospectus"). The Company
shall use all reasonable efforts to cause the definitive Proxy
Statement/Prospectus to be mailed to the shareholders of the Company,
as soon as reasonably practicable following its effectiveness, with the
date of mailing as mutually determined by the Company and Parent. The
Company will, through its Board of Directors, recommend to its
shareholders approval of the Merger in the definitive Proxy
Statement/Prospectus.
(b) Parent shall, with the cooperation of the Company, prepare
and file, as soon as reasonably practicable, a registration statement
under the 1933 Act registering the shares of Parent Common Stock to be
issued in the Merger (the "Registration Statement"), which Registration
Statement shall include the Proxy Statement/Prospectus. Parent will use
all reasonable efforts to have the Registration Statement declared
effective by the SEC as promptly thereafter as practicable. Parent
shall also take any action required to be taken under state blue sky or
securities laws in connection with the issuance of Parent Common Stock
pursuant to the Merger. The Company shall furnish to Parent all
information concerning the Company and its Subsidiaries and the holders
of its capital stock, and shall take such other action and otherwise
cooperate, as Parent may reasonably request in connection with any such
action.
(c) Parent shall notify the Company promptly of the receipt of
the comments of the SEC and of any request by the SEC for amendments or
supplements to the Registration Statement and shall supply the Company
with copies of all correspondence with the SEC with respect to the
Registration Statement.
(d) If at any time prior to the Company Shareholders Meeting,
any event should occur relating to the Company, any Subsidiary, or the
Company's officers or directors that is required to be described in an
amendment or supplement to the definitive Proxy Statement/Prospectus or
the Registration Statement, the Company shall promptly inform Parent.
If at any time prior to the Company Shareholders Meeting, any event
shall occur relating to Parent or Merger Subsidiary or their respective
officers or directors that is required to be described in an amendment
or supplement to the definitive Proxy Statement/Prospectus or the
Registration Statement, Parent shall promptly inform the Company.
Whenever any event occurs that should be described in an amendment of,
or supplement to, the definitive Proxy Statement/Prospectus or the
Registration Statement, the Company or Parent, as the case may be,
shall, upon learning of such event, promptly notify the other and
consult and cooperate with the other in connection with the preparation
of a mutually acceptable amendment or supplement. The parties shall
promptly file such amendment or supplement with the SEC and mail such
amendment or supplement as soon as practicable after it is cleared by
the SEC.
<PAGE>
5.5 Consents. The Company will, at its cost and expense, use all
reasonable efforts to obtain all approvals and consents of all third parties
necessary on the part of the Company or its Subsidiaries to consummate the
transactions contemplated hereby. Parent agrees to cooperate with the Company in
connection with obtaining such approvals and consents. Parent will, at its cost
and expense, use all reasonable efforts to obtain all approvals and consents of
all third parties necessary on the part of Parent to consummate the transactions
contemplated hereby. The Company agrees to cooperate with Parent in connection
with obtaining such approvals and consents.
5.6 Affiliates' Letters.
(a) The Company has delivered to Parent a list of names of
those persons, in the Company's reasonable judgment after consultation
with outside legal counsel, who, as of the date hereof, are affiliates
within the meaning of Rule 145 of the rules and regulations promulgated
under the Securities Act or otherwise applicable SEC accounting
releases with respect to pooling-of-interests accounting treatment
(each such person, 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 caused 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, and shall use all reasonable
efforts to deliver or cause to be delivered to Parent prior to the
Effective Time such an affiliate's letter executed by any additional
persons who 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 to be
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 Securities Act, Parent will use all
reasonable efforts to comply with Rule 144(c)(1) under the Securities
Act.
5.7 Expenses. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement, the transactions
contemplated hereby, the Proxy Statement/Prospectus, and the Registration
Statement will be paid by the party incurring such costs and expenses, except
that the Company and Parent will share equally the cost of printing and filing
with the SEC the Proxy Statement/Prospectus and the Registration Statement, the
filing fees required under the HSR Act or any Foreign Merger Laws, and the fees
charged by Price Waterhouse LLP for the letters described in Section 5.15 (the
"Shared Expenses").
5.8 Reasonable Efforts; 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 within 90 days of the date of 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.
<PAGE>
5.9 Regulatory Approvals. The Company and Parent will take all
reasonable action as may be necessary under federal or state securities laws or
the HSR Act or Foreign Merger Laws applicable to or necessary for, and will file
as soon as reasonably practicable and, if appropriate, use all reasonable
efforts to have declared effective or approved all documents and notifications
with the SEC and other governmental or regulatory bodies (including, without
limitation, the FDA and equivalent foreign regulatory bodies, and other foreign
regulatory bodies that administer Foreign Merger Laws, and any foreign labor
councils or bodies as may be required) that they deem necessary or appropriate
for, the consummation of the Merger and the transactions contemplated hereby,
and each party shall give the other information reasonably requested by such
other party pertaining to it and its subsidiaries and affiliates to enable such
other party to take such actions. Notwithstanding the foregoing or anything
herein to the contrary, neither Parent nor Merger Subsidiary shall be required
to make arrangements for or to effect the cessation, sale, or other disposition
of particular assets or categories of assets or businesses of Parent, Merger
Subsidiary, the Company, or any of their affiliates.
5.10 Certain Notifications. The Company shall promptly notify Parent in
writing of the occurrence of any event that will or could reasonably be expected
to result in the failure by the Company or its affiliates to satisfy any of the
conditions specified in Section 6.1 or 6.2. Parent shall promptly notify the
Company in writing of the occurrence of any event that will or could reasonably
be expected to result in the failure by Parent or its affiliates to satisfy any
of the conditions specified in Section 6.1 or 6.3.
5.11 Voting of Shares. To induce Parent to execute this Agreement, all
of the officers and directors of the Company have executed and delivered as of
the date hereof Agreements to Facilitate Merger in the form attached hereto as
Exhibit C, 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
Shareholders Meeting.
5.12 Noncompetition Agreements. To induce Parent to execute this
Agreement, the Company has caused the executives who, as of the date hereof, are
the Company's Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer and General Counsel to execute and deliver to Parent as of the date
hereof (but expressly contingent upon the Closing of the Merger) noncompetition
agreements substantially in the form of Exhibit D hereto.
5.13 NYSE Listing Application. Parent shall prepare and submit to the
NYSE a listing application for the Parent Common Stock to be issued in the
Merger pursuant to Article 1 of this Agreement. The Company shall cooperate with
Parent in such listing application.
5.14 Indemnification, Exculpation and Insurance.
(a) The articles of incorporation and the bylaws of the
Surviving Corporation shall contain the provisions with respect to
indemnification and exculpation from liability set forth in the
Company's articles 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 prior to the Effective Time were directors, officers,
employees or agents of the Company, unless such modification is
required by law. Parent shall guarantee the obligations of the
Surviving Corporation with respect to the indemnification provisions
contained in the Surviving Corporation's articles of incorporation and
bylaws.
<PAGE>
(b) To the extent coverage is reasonably available under the
Company's current directors' and officers' liability insurance policy
or otherwise, Parent will extend the discovery or reporting period
under such policy for up to three years from the Effective Time to
maintain in effect directors' and officers' liability insurance
covering pre-acquisition acts for those persons who are currently
covered by the Company's directors' and officers' liability insurance
policy (a copy of which has been heretofore delivered to Parent) (the
"Indemnification 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 such three-year extension an
amount in excess of 150% of the annual premium currently paid by the
Company for such insurance; and provided further that if the cost of
such three-year extension exceeds such 150% amount, Parent shall be
obligated to obtain such extension as is available for a cost not
exceeding such amount.
(c) In the event Parent, the Surviving Corporation or any of
their successors or assigns (i) consolidates with or merges into any
other person 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
5.14.
(d) This Section 5.14 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit the Company,
Parent, the Surviving Corporation and the Indemnified Parties, and
shall be binding on all successors and assigns of Parent and the
Surviving Corporation.
5.15 Letters of the Company's and Parent's Accountants. (A) The Company
shall cooperate with Parent and use all reasonable efforts to cause to be
delivered to Parent the following letters from Price Waterhouse LLP ("PW")
addressed to the Company and Parent: (i) a letter dated the date of this
Agreement, stating that after appropriate review and based on its familiarity
with the Company, neither the Company nor any of its shareholders who are
affiliates has taken or agreed to take any action that would prevent Parent from
accounting for the Merger as a pooling of interests transaction under Opinion 16
of the Accounting Principles Board and applicable SEC rules and regulations; and
(ii) a letter dated as of the Closing Date stating that after appropriate review
and based on its familiarity with the Company, neither the Company nor any of
its shareholders has taken or agreed to take any action that would prevent
Parent from accounting for the Merger as a pooling of interests under Opinion 16
of the Accounting Principles Board and applicable SEC rules and regulations. (B)
The Company shall cooperate with Parent and Parent shall use all reasonable
means to cause to be delivered to the Company the following letters from PW
addressed to Parent and the Company: (i) a letter dated the date of this
Agreement, stating that after appropriate review of this Agreement and a letter
from the Parent describing the transaction and describing actions to be taken by
Parent with respect to the sale of certain shares of Parent Common Stock, the
Merger will qualify as a pooling of interests transaction under Opinion 16 of
the Accounting Principles Board and applicable SEC rules and regulations; and
(ii) a letter dated as of the Closing Date confirming as of the Closing Date
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.
The fees charged by PW for such letters shall be shared equally by Parent and
the Company.
5.16 Subsidiary Shares. At or prior to the Closing, the Company shall
cause all issued and outstanding Subsidiary shares owned by any person other
than the Company to be transferred for no or nominal consideration to such
person or persons designated by Parent.
<PAGE>
5.17 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 E,
pursuant to which the Company has granted to Parent an option to acquire from
the Company such number of shares of Company Common Stock as equals 19.9% of the
aggregate number of outstanding shares of Company Common Stock, at an exercise
price equal to $27.50 per share or such lesser amount as is described in the
second paragraph of Section 1.3(a) hereof. Such option shall become exercisable
only in the events described in the Stock Option Agreement.
5.18 Conduct of Business by Parent. During the period from the date of
this Agreement to the Effective Time, Parent shall, and shall cause its
subsidiaries to, carry on their respective businesses in the ordinary course and
use all reasonable efforts to preserve their relationships with customers,
suppliers and others having business dealings with them; provided that the
foregoing shall not prevent Parent or any of its subsidiaries from discounting
or disposing of any part of its assets or business or from acquiring any assets
or businesses or from entering into any financing transactions if such action
is, in the judgment of Parent, desirable in the conduct of the business of
Parent and its subsidiaries. Without limiting the generality of the foregoing,
during the period from the date of this Agreement to the Effective Time, except
as (i) contemplated by this Agreement or (ii) as set forth in a writing
delivered to the Company prior to the execution hereof, Parent shall not, and
shall not permit any of its subsidiaries to:
(a) (i) declare, set aside or pay (whether in cash or
property) any dividends on, or make any other distributions in respect
of, any capital stock other than dividends and distributions by any
direct or indirect wholly owned subsidiary of Parent to its parent and
except for regular quarterly cash dividends (in an amount determined in
a manner consistent with Parent's past practice) declared by the Board
of Directors of Parent with customary record and payment dates and
except distributions pursuant to the Parent Rights Plan, (ii)
reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution
for shares of Parent's capital stock (other than pursuant to the Parent
Rights Plan);
(b) amend its articles of incorporation (except for the
purpose of increasing its authorized capitalization), bylaws or other
comparable charter or organizational documents in a manner which would
reasonably be expected to be materially adverse to the stockholders of
the Company; or
(c) authorize, or commit or agree to take any of, the
foregoing actions.
5.19 Benefit Plans and Employee Matters. 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 employees that, in the
aggregate, are substantially comparable or more favorable than those in
existence as of the date hereof and disclosed in writing to Parent prior to the
date hereof.
<PAGE>
5.20 Delivery of Specified Documents.
(a) Notwithstanding anything contained in this Agreement to
the contrary, the parties acknowledge that the affiliates' letters
described in Section 5.6, the Agreements to Facilitate Merger described
in Section 5.11, the noncompetition agreements described in Section
5.12, and the letters of PW dated the date of this Agreement (as
opposed to the letter of PW to be dated as of the Closing Date)
described in Section 5.15 have not been delivered as of the date
hereof. The Company agrees that it will use best efforts to deliver all
such documents and agreements within two business days after the
execution of this Agreement on the date hereof.
(b) Notwithstanding anything contained in this Agreement to
the contrary, the parties acknowledge that portions of Sections 3.6,
3.10, 3.13, and 3.17 of the Company Disclosure Schedule have not been
delivered as of the date hereof. The Company agrees that it will use
best efforts to deliver all such portions of the Company Disclosure
Schedule within three business days (or, as to any particular item,
such greater number of days specified in the above-referenced sections
of the Company Disclosure Schedule) after the execution of this
Agreement on the date hereof. Following the Company's delivery of all
such portions of the Company Disclosure Schedule, Parent shall have
three business days thereafter to object in writing to the Company if
any of the information set forth therein is materially different from
the information previously provided to Parent in its due diligence
review of the Company. If Parent so objects, the Company shall have
three business days thereafter to resolve with Parent each of the
matters to which Parent so objected. If Parent and the Company cannot
resolve all such matters, the Chairman of each of Parent and the
Company shall have five business days thereafter to resolve all such
matters. If the Chairmen cannot do so, then, if the aggregate impact of
such matters as to which Parent and the Company disagree could
reasonably be expected to be equal in amount to at least one percent of
the aggregate value of the Parent Common Stock delivered to the
Company's shareholders in the Merger (based on the Parent Average Stock
Price), then the provisions of Section 6.2(k) shall apply.
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:
(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 (i)
prevents or materially delays the consummation of the Merger, or (ii)
would impose any material limitation on the ability of Parent
effectively to exercise full rights of ownership of the Company or the
assets or business of the Company.
(b) Shareholder Approval. The approval of the shareholders of
the Company referred to in Section 5.4 hereof shall have been obtained,
in accordance with the WBCA and the Company's Articles of Incorporation
and Bylaws.
(c) Registration Statement. The Registration Statement (as
amended or supplemented) shall have become effective under the 1933 Act
and shall not be subject to any "stop order," and no action, suit,
proceeding, or investigation by the SEC to suspend the effectiveness or
qualification thereof shall have been initiated and be continuing or
have been threatened and be unresolved. Parent shall also have received
all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated hereby.
(d) NYSE Listing. The shares of Parent Common Stock to be
delivered pursuant to the Merger shall have been duly listed on the
NYSE, subject to official notice of issuance.
(e) Waiting Periods. The waiting periods applicable to the
consummation of the Merger under the HSR Act and any Foreign Merger
Laws shall have expired or been terminated.
<PAGE>
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:
(a) Representations and Warranties True. Each representation
and warranty of the Company contained in this Agreement, without regard
to any qualification or reference to immateriality or "Company Material
Adverse Effect," shall be true and correct on the date hereof and on
the Closing Date as though such representations and warranties were
made on such date (except those representations and warranties that
address matters only as of a particular date shall remain true and
correct as of such date), except for any inaccuracies that,
individually or in the aggregate, have not had, and would not have, a
Company Material Adverse Effect.
(b) Performance. The Company shall have performed and complied
in all material respects with all agreements, obligations, and
conditions required by this Agreement to be performed or complied with
by it on or prior to the Closing, and Parent shall have received a
certificate to such effect signed by the Chief Executive Officer of the
Company.
(c) Consents. The Company shall have obtained all permits,
authorizations, consents, and approvals required on its part to perform
its obligations under, and consummate the transactions contemplated by,
this Agreement, in form and substance satisfactory to Parent, and
Parent and Merger Subsidiary shall have received evidence satisfactory
to them of the receipt of such permits, authorizations, consents, and
approvals.
(d) Opinion of Counsel for the Company. Parent and Merger
Subsidiary shall have received an opinion of Preston Gates & Ellis LLP,
counsel to the Company, dated the Closing Date, in form and substance
reasonably satisfactory to Parent, to the effect set forth in Exhibit F
hereto.
(e) Affiliates' Letters. Parent shall have received a letter
from each of the Affiliates pursuant to Section 5.6 hereof.
(f) Noncompetition Agreements. Parent shall have received
executed agreements from such persons, and in such form satisfactory to
Parent, as described in Section 5.12 hereof.
(g) Resignations. Such officers and directors of the Company
or of any Subsidiary as shall have been specified Parent shall have
tendered their respective resignations effective as of the Effective
Time.
(h) Pooling Opinion. Parent shall have received each of the
letters described in Section 5.15; provided, however, if within 10
business days after the date on which all other closing conditions of
Section 6.1 and 6.3 have been satisfied (including, but not limited to,
receipt of the letters described in Section 5.15(A)), Parent has not
received the letter described in Section 5.15(B)(ii) solely because of
actions on the part of Parent or its shareholders who are affiliates
which prevent the Merger from qualifying as a pooling of interests
transaction, then the condition that such letter be received shall be
deemed waived by Parent.
(i) Continued Employment of Key Executives. The chief
executive officer and other executive employees of the Company
designated in writing by Parent on or before the date of this Agreement
shall have agreed to continue their employment with the Company
following the Merger on such terms as are mutually satisfactory to
Parent and such employees.
<PAGE>
(j) Subsidiary Shares. The transfer of Subsidiary shares as
provided in Section 5.16 shall have occurred.
(k) Delivery of Specified Documents. The Company shall have
delivered or caused to be delivered to Parent, within five business
days (or, as to any particular item, such greater number of days
specified in Sections 3.6, 3.10, 3.13, and 3.17 of the Company
Disclosure Schedule) after the execution of this Agreement on the date
hereof, the above-referenced sections of the Company Disclosure
Schedule described in Article 3, the affiliates' letters described in
Section 5.6, the noncompetition agreements described in Section 5.12,
and the letters of PW dated the date of this Agreement described in
Section 5.15. Further, each of the portions of the Company Disclosure
Schedule as so delivered shall not contain information as to which
Parent shall object and which cannot be resolved between Parent and the
Company in the manner described in Section 5.20(b) and which has an
aggregate impact at least equal to the amount described in Section
5.20(b); provided, however, that the condition described in this
sentence shall expire unless Parent delivers written notice to the
Company, within one business day after expiration of the final
five-business-day period described in Section 5.20(b) for resolution of
the matters in dispute.
6.3 Conditions to Obligations of the Company. The obligation of the
Company to consummate the Merger shall be subject to the fulfillment at or prior
to the Closing of the following additional conditions:
(a) Representations and Warranties True. Each representation
and warranty of Parent contained in this Agreement, without regard to
any qualification or reference to immateriality or "Parent Material
Adverse Effect," shall be true and correct on the date of this
Agreement and on the Closing Date as though such representations and
warranties were made on such date (except those representations and
warranties that address matters only as of a particular date shall
remain true and correct as of such date), except for any inaccuracies
that, individually or in the aggregate, have not had, and would not
have, a Parent Material Adverse Effect.
(b) Performance. Parent and Merger Subsidiary shall have
performed and complied in all material respects with all agreements,
obligations, and conditions required by this Agreement to be performed
or complied with by them on or prior to the Closing.
(c) Consents. Parent and Merger Subsidiary shall have obtained
all permits, authorizations, consents, and approvals required on their
part to perform their obligations under, and consummate the
transactions contemplated by, this Agreement, in form and substance
satisfactory to the Company, and the Company shall have received
evidence satisfactory to it of the receipt of such permits,
authorizations, consents, and approvals.
(d) Opinion of Counsel for Parent. The Company shall have
received an opinion of Fredrikson & Byron, P.A., counsel to Parent,
dated the Closing Date, in form and substance reasonably satisfactory
to the Company, to the effect set forth in Exhibit G hereto.
(e) Tax Opinion. The Company shall have received an opinion of
Preston Gates & Ellis LLP, counsel to the Company, 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)(2)(E) of the Code. This condition shall be
deemed waived in the event that such tax opinion is not rendered
because the Company or its shareholders have failed to provide such
customary representations. The Company hereby agrees to provide to
Parent a certificate setting forth the representations set forth in
Exhibit H hereto which may be relied upon by such counsel in rendering
such opinion, and Parent hereby agrees to provide to the Company a
certificate setting forth the representations set forth in Exhibit I
hereto which may be relied upon by such counsel in rendering such
opinion.
<PAGE>
ARTICLE 7
TERMINATION AND ABANDONMENT
7.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the shareholders of the
Company, only:
(a) by mutual written consent duly authorized by the Board of
Directors of Parent and the Board of Directors of the Company;
(b) by either Parent or the Company if the Merger shall not
have been consummated on or before December 1, 1998; 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;
(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
Shareholders Meeting, the requisite vote of the shareholders of the
Company is not obtained, except that the right to terminate this
Agreement under this Section 7.1(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 shareholders of the Company;
(e) by Parent if either (i) the Company has breached its
obligations under Section 5.2 in any material respect, (ii) the Board
of Directors of the Company has recommended, approved, accepted, or
entered into an agreement regarding, an Alternative Proposal, as
defined in Section 5.2, (iii) the Board of Directors of the Company has
withdrawn or modified in a manner adverse to Parent its recommendation
of the Merger, or (iv) a tender offer or exchange offer under Section
14 of the 1934 Act for 15% or more of the 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 shareholders or takes no position with
respect to the acceptance of such tender offer or exchange offer by its
shareholders;
(f) by the Company if (i) it is not in material breach of its
obligations under this Agreement, (ii) the Board of Directors of the
Company has authorized acceptance of an Alternative Proposal, and (iii)
the Company has paid to Parent the fee required by Section 7.2 to be
paid to Parent in the manner therein provided;
(g) by Parent if (i) Parent is not in material breach of its
obligations under this Agreement and (ii) there has been a material
breach by the Company of any of its representations, warranties, or
obligations under this Agreement or by an Affiliate of the Company
under the Affiliate's letter described in Section 5.6 such that the
conditions in Section 6.2 will not be satisfied, and the breach is not
curable or, if curable, is not cured by the Company within 30 calendar
days after receipt by the Company of written notice from Parent of such
breach;
(h) by the Company if (i) the Company is not in material
breach of its obligations under this Agreement and (ii) there has been
a material breach by Parent of any of its representations, warranties,
or obligations under this Agreement such that the conditions in Section
6.3 will not be satisfied, and the breach is not curable or, if
curable, is not cured by Parent within 30 calendar days after receipt
by Parent of written notice from the Company of such breach.
<PAGE>
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 terminated pursuant to Section
7.1(e) or 7.1(f); or
(ii) any third party makes an Alternative Proposal or
acquires 15% or more of the outstanding Company Common Stock
prior to the Company Shareholders Meeting, and either (A) the
requisite vote of the shareholders of the Company to approve
the Merger is not obtained or (B) the number of shares of
Company Common Stock for which notice of exercise of
dissenters' rights under WBCA has been given would prevent the
Merger from qualifying as a pooling of interests for
accounting purposes or (C) this Agreement is terminated (other
than pursuant to Section 7.1(a), (b), (c) or (h)),
then, in any such event, the Company will pay to Parent, upon the
termination date in the event of termination pursuant to Section
7.1(f), within five business days after demand by Parent in the case of
termination pursuant to Section 7.1(e), and immediately upon the first
to occur of the failure to obtain the requisite shareholder vote or the
termination of this Agreement 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 $15
million. The Company acknowledges that the agreements contained in this
Section 7.2 are an integral part of the transactions contemplated by
this Agreement and 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 this Section 7.2, 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. Any change in the
interest rate hereunder resulting from a change in such prime rate
shall be effective at the beginning of the day of such change in such
prime rate.
(b) Except as provided in the next sentence of this paragraph,
in the event of the termination of this Agreement pursuant to any
paragraph of Section 7.1, the obligations of the parties to consummate
the Merger will expire, and none of the parties will have any further
obligations under this Agreement except pursuant to Sections 5.3, 5.7,
and 7.2(a) and Article 8. In the event of the termination of this
Agreement pursuant to any paragraph of Section 7.1 that is caused by a
breach of a party, the party whose breach was the basis for the
termination will not be relieved from any liability for its breach or
its obligations pursuant to Section 7.2(a), and the other party will
have no further obligations under this Agreement except as provided in
Sections 5.3 and 5.7 and Article 8.
ARTICLE 8
MISCELLANEOUS
8.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified, or supplemented only by written agreement of
Parent, Merger Subsidiary, and the Company at any time prior to the Effective
Time with respect to any of the terms contained herein. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
<PAGE>
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 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. Each and every representation and warranty contained
herein shall be deemed to be conditions to the Merger and shall not survive the
Merger. This Section 8.3 shall have no effect upon any other obligation of the
parties hereto, whether to be performed before or after the Closing.
8.4 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally by commercial
courier service or otherwise, or by telecopier, or three days after such notice
is mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or 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:
Physio-Control International Corporation
11811 Willows Road N.E.
Redmond, WA 98073-9706
FAX: (425) 867-4142
Attention: Executive Vice President and General Counsel
with a copy to:
Preston Gates & Ellis LLP
5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7078
FAX: (206) 623-7022
Attention: C. Kent Carlson
<PAGE>
8.5 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties, nor
is this Agreement intended to confer upon any other person except the parties
hereto any rights or remedies hereunder.
8.6 Governing Law. Except to the extent that Washington law is
mandatorily applicable to the Merger and the rights of the shareholders of the
Company and Merger Subsidiary, this Agreement shall be governed by the laws of
the State of Minnesota (regardless of the laws that might otherwise govern under
applicable Minnesota principles of conflicts of law).
8.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
8.8 Knowledge. As used in this Agreement or the instruments,
certificates or other documents required hereunder, the term "knowledge" shall
mean actual knowledge of a fact or the knowledge that such person or, if such
person is a corporation, its directors, officers, or other key employees could
reasonably be expected to have based on reasonable investigation and inquiry.
The knowledge of an entity shall be deemed to include the knowledge of its
subsidiaries.
8.9 Interpretation. The Table of Contents, article and section headings
contained in this Agreement are inserted for reference purposes only and shall
not affect the meaning or interpretation of this Agreement. This Agreement shall
be construed without regard to any presumption or other rule requiring the
resolution of any ambiguity regarding the interpretation or construction hereof
against the party causing this Agreement to be drafted.
8.10 Publicity. Upon execution of this Agreement by Parent, 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. Further, the provisions of this
Agreement supersede the provisions of the Confidentiality Agreement relating to
the 21-day exclusivity period described therein.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MEDTRONIC, INC.
By /s/ Michael D. Ellwein
Its Vice President
PC MERGER CORP.
By /s/ Michael D. Ellwein
Its President
PHYSIO-CONTROL INTERNATIONAL CORPORATION
By /s/ Richard O. Martin
Its Chairman/CEO
<PAGE>
APPENDIX C
TITLE 23B. WASHINGTON BUSINESS CORPORATION ACT
CHAPTER 23B.13. DISSENTERS' RIGHTS
23B.13.010. Definitions
As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
23B.13.020. Right to dissent
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW 23B.11.030,
23B.11.080, or the articles of incorporation and the shareholder is entitled to
vote on the merger, or (ii) if the corporation is a subsidiary that is merged
with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
<PAGE>
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a share
if the fractional share so created is to be acquired for cash under RCW
23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation.
23B.13.030. Dissent by nominees and beneficial owners
(1) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one person and
notifies the corporation in writing of the name and address of each person on
whose behalf the shareholder asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to which the
dissenter dissents and the dissenter's other shares were registered in the names
of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote.
<PAGE>
23B.13.200. Notice of dissenters' rights
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020
is taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220.
23B.13.210. Notice of intent to demand payment
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effected, and (b) not
vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter.
23B.13.220. Dissenters' notice
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days after the
effective date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial ownership of the shares
before that date;
<PAGE>
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the notice in subsection (1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230. Duty to demand payment
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter.
23B.13.240. Share restrictions
(1) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is effected or the restriction is released under RCW
23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action.
23B.13.250. Payment
(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the payment
demand is received, the corporation shall pay each dissenter who complied with
RCW 23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for that
year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter.
<PAGE>
23B.13.260. Failure to take action
(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure.
23B.13.270. After-acquired shares
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280.
23B.13.280. Procedure if shareholder dissatisfied with payment or offer
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW 23B.13.270 and demand
payment of the dissenter's estimate of the fair value of the dissenter's shares
and interest due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250 or
offered under RCW 23B.13.270 is less than the fair value of the dissenter's
shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions imposed
on uncertificated shares within sixty days after the date set for demanding
payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares.
23B.13.300. Court action
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
<PAGE>
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270.
23B.13.310. Court costs and counsel fees
(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess the costs against all
or some of the dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
<PAGE>
APPENDIX D
MORGAN STANLEY & CO.
INCORPORATED
2725 SAND HILL ROAD
BUILDING C - SUITE 200
MENLO PARK, CALIFORNIA 94025
June 27, 1998
Board of Directors
Physio-Control International Corporation
11811 Willows Road N.E.
Redmond, WA 98052
Members of the Board:
We understand that Physio-Control International Corporation ("Physio-Control"),
Medtronic, Inc. ("Medtronic") and PC Merger Corp. ("Acquisition Sub"), a
wholly-owned subsidiary of Medtronic, have entered into an Agreement and Plan of
Merger, dated as of June 27, 1998 (the "Merger Agreement"), which provides,
among other things, for the merger (the "Merger") of Acquisition Sub with and
into Physio-Control. Pursuant to the Merger, Physio-Control will become a
wholly-owned subsidiary of Medtronic and each issued and outstanding share of
common stock, par value $0.01 per share, of Physio-Control (the "Physio-Control
Common Stock"), other than shares held in treasury or held by Medtronic or any
affiliate of Medtronic or as to which dissenters' rights have been perfected,
will be converted into the right to receive a certain number of shares of common
stock, par value $0.10 per share, of Medtronic (the "Medtronic Common Stock")
determined pursuant to a certain formula set forth in the Merger Agreement. The
terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the consideration to be received by
the holders of Physio-Control Common Stock pursuant to the Merger Agreement is
fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Physio-Control and Medtronic, respectively;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning Physio-Control prepared by the management of
Physio-Control;
(iii) discussed the past and current operations and financial condition and
the prospects of Physio-Control, including information relating to
certain strategic, financial and operational benefits, anticipated from
the Merger, with senior executives of Physio-Control;
(iv) discussed the past and current operations and financial condition and
the prospects of Medtronic, including information relating to certain
strategic, financial and operational benefits anticipated from the
Merger, with senior executives of Medtronic;
(v) reviewed the pro forma impact of the Merger on the earnings per share
of Medtronic;
(vi) reviewed the reported prices and trading activity for the
Physio-Control Common Stock and the Medtronic Common Stock;
(vii) compared the financial performance of Physio-Control and Medtronic and
the prices and trading activity of the Physio-Control Common Stock and
the Medtronic Common Stock with that of certain other publicly-traded
companies and their securities;
(viii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
<PAGE>
(ix) reviewed and discussed with the senior management of Physio-Control the
strategic rationale for the Merger and certain alternatives to the
Merger;
(x) reviewed and discussed with the senior management of Medtronic the
strategic rationale for the Merger;
(xi) participated in discussions and negotiations among representatives of
Physio-Control and Medtronic and their financial and legal advisors;
(xii) reviewed the Merger Agreement and certain related agreements; and
(xiii) performed such other analysis and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the internal financial statements of Physio-Control and
other financial and operating data and information relating to the strategic,
financial and operational benefits, anticipated from the Merger provided by
Physio-Control and Medtronic, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the prospects of Physio-Control and Medtronic, respectively. We
have not made any independent valuation or appraisal of the assets, liabilities
or technology of Physio-Control, nor have we been furnished with any such
appraisals. We have assumed that the Merger will be accounted for as a
"pooling-of-interests" business combination in accordance with U.S. Generally
Accepted Accounting Principles and the Merger will be treated as a tax-free
reorganization and/or exchange pursuant to the Internal Revenue Code of 1986, as
amended. We have also assumed that the Merger will be consummated in accordance
with the terms set forth in the Merger Agreement. Our opinion is necessarily
based on economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
We have acted as financial advisor to the Board of Directors of Physio-Control
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Physio-Control and have received
fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Physio-Control and may not be used for any other purpose without
our prior written consent, except that this opinion may be included in its
entirety in any filing made by Physio-Control in respect of the transaction with
the Securities and Exchange Commission. In addition, this opinion does not in
any manner address the prices at which the Medtronic Common Stock will actually
trade at any time and we express no recommendation or opinion as to how the
holders of Physio-Control Common Stock should vote at the shareholders' meeting
held in conjunction with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of Physio-Control
Common Stock pursuant to the Merger Agreement is fair from a financial point of
view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Mark S. Menell
Mark S. Menell
Principal
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Minnesota Statutes Section 302A.521, subd. 2, requires Medtronic to
indemnify a person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of the person with respect to
Medtronic, against judgments, penalties, fines, settlements, and reasonable
expenses, including attorneys' fees and disbursements, incurred by the person in
connection with the proceeding if certain statutory standards are met. In
addition, Section 302A.521, subd. 3, requires payment by Medtronic, upon written
request, of reasonable expenses in advance of final disposition of the
proceeding in certain circumstances. A decision as to required indemnification
is made by a disinterested majority of the Board of Directors present at a
meeting at which a disinterested quorum is present, or by a designated committee
of the Board, by special legal counsel, by the shareholders, or by a court.
Section 302A.521 contains detailed terms regarding such right of indemnification
and reference is made thereto for a complete statement of such indemnification
rights.
Medtronic's Bylaws provide for indemnification by Medtronic to the full
extent permitted by Minnesota Statutes Section 302A.521, as now enacted or
hereafter amended, against and with respect to threatened, pending, or completed
actions, suits, or proceedings arising from, or alleged to arise from, a party's
actions or omissions as a director, officer, employee, or agent of Medtronic or
any subsidiary of Medtronic or of any other corporation, partnership, joint
venture, trust, or other enterprise that has served in such capacity at the
request of Medtronic if such acts or omissions occurred, or were or are alleged
to have occurred, while such party was a director or officer of Medtronic.
Generally, under Minnesota law, indemnification will be available only where an
officer or director can establish that he or she acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of Medtronic. As permitted by Minnesota Statutes Section 302A.521,
Medtronic's Restated Articles of Incorporation provide that a director shall
have no personal liability to Medtronic or its shareholders for breach of his or
her fiduciary duty as a director, to the fullest extent permitted by law.
In addition to providing indemnification as outlined above, Medtronic
also purchases individual insurance coverage for its directors and officers.
Subject to the stated conditions, the policy insures the directors and officers
of Medtronic against liability arising out of actions taken in their official
capacities. To the extent that such actions cannot be indemnified by Medtronic,
the policy provides individual liability insurance protection for the directors
and officers of Medtronic.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
2 Agreement and Plan of Merger, dated June 27, 1998, by and
among Medtronic, Inc., Physio-Control International
Corporation, and PC Merger Corp., including the Exhibits
thereto. (The Agreement and Plan of Merger and Exhibit A
thereto are furnished as Appendices B and A, resepctively, to
the Proxy Statement/Prospectus forming a part of this
Registration Statement.) Upon the request of the Commission,
Medtronic agrees to furnish supplementally to the Commission
a copy of any disclosure schedules to the Agreement and Plan
of Merger.
5 Opinion and Consent of Fredrikson & Byron, P.A. regarding
validity of shares.
8 Form of Opinion and Consent of Preston Gates & Ellis LLP
regarding certain tax matters.
23.1 Consent of Fredrikson & Byron, P.A. (included in Exhibit 5).
23.2* Consent of Preston Gates & Ellis LLP regarding certain tax
matters (included in Exhibit 8).
23.3 Consent of PricewaterhouseCoopers LLP, independent accountants
for Medtronic, Inc.
23.4 Consent of PricewaterhouseCoopers LLP, independent accountants
for Physio-Control International Corporation.
23.5 Consent of Morgan Stanley & Co. Incorporated.
24 Power of Attorney.
99.1 Form of Proxy to be used by Physio-Control International
Corporation shareholders.
(b) Financial Statement Schedules.
Not applicable.
(c) Reports, Opinions and Appraisals Materially Related to the
Transaction.
Opinion of Morgan Stanley & Co. Incorporated is furnished as
Appendix D to the Proxy Statement/Prospectus forming a part of
this Registration Statement.
- ---------------------------
* To be filed by amendment.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) (i) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(ii) The registrant undertakes that every prospectus [a] that
is filed pursuant to paragraph (b)(i) immediately preceding, or [b] that
purports to meet the requirements of Section 10(a)(3) of the Securities Act and
is used in connection with an offering of securities subject to Rule 415, will
be filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on July 23, 1998.
MEDTRONIC, INC.
By /s/ William W. George
William W. George, Chairman
and Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title
/s/ William W. George Chairman, Chief Executive July 23, 1998
William W. George Officer and Director (principal
executive officer)
/s/ Robert L. Ryan Senior Vice President and July 23, 1998
Robert L. Ryan Chief Financial Officer
(principal financial and accounting
officer)
* Vice Chairman and Director )
- ---------------------------------
Glen D. Nelson, M.D. )
)
* Director )
- ---------------------------------
William R. Brody, M.D., Ph.D. )
)
* Director ) * By /s/ William W. George
- --------------------------------- ---------------------
Paul W. Chellgren ) William W. George
) Attorney-in-Fact
* Director )
- ---------------------------------
Arthur D. Collins, Jr. ) Date: July 23, 1998
)
* Director )
- ---------------------------------
Antonio M. Gotto, Jr., M.D. )
)
* Director )
- ---------------------------------
Bernadine P. Healy, M.D. )
)
* Director )
- ---------------------------------
Thomas E. Holloran )
)
* Director )
- ---------------------------------
Richard L. Schall )
)
* Director )
- ---------------------------------
Jack W. Schuler )
)
* Director )
- ---------------------------------
Gerald W. Simonson )
)
* Director )
- ---------------------------------
Gordon M. Sprenger )
)
* Director )
- ---------------------------------
Richard A. Swalin, Ph.D. )
)
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
EXHIBIT INDEX
TO
FORM S-4 REGISTRATION STATEMENT
---------------------
MEDTRONIC, INC.
2 Agreement and Plan of Merger, dated June 27, 1998, by and among
Medtronic, Inc., Physio-Control International Corporation, and
PC Merger Corp., including the Exhibits thereto (The Agreement and
Plan of Merger and Exhibit A thereto are furnished as Appendices B
and A, respectively, to the Proxy Statement/Prospectus forming a
part of this Registration Statement)
5 Opinion and Consent of Fredrikson & Byron, P.A. regarding
validity of shares
8 Form of Opinion and Consent of Preston Gates & Ellis LLP regarding
certain tax matters
23.1 Consent of Fredrikson & Byron, P.A. (included in Exhibit 5)
23.2* Consent of Preston Gates & Ellis LLP regarding certain tax matters
(included in Exhibit 8)
23.3 Consent of PricewaterhouseCoopers LLP, independent accountants for
Medtronic, Inc.
23.4 Consent of PricewaterhouseCoopers LLP, independent accountants for
Physio-Control International Corporation
23.5 Consent of Morgan Stanley & Co. Incorporated (furnished as Appendix D
to the Proxy Statement/Prospectus forming a part of this Registration
Statement)
24 Power of Attorney of certain officers and directors
99.1 Form of Proxy to be used by Physio-Control International Corporation
shareholders
- ------------------------
* To be filed by amendment.
EXHIBIT 2
Exhibit B
AFFILIATE'S LETTER
Medtronic, Inc.
7000 Central Avenue, N.E.
Minneapolis, MN 55432
Ladies and Gentlemen:
The undersigned officer and/or director of Physio-Control International
Corporation (the "Company") has been advised that the undersigned is deemed by
the Company to be an "affiliate" of the Company, as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act of 1933, as amended
(the "Securities Act") (such rule, as amended or replaced by any successor rule,
referred to herein as "Rule 145"). Pursuant to the terms of the Agreement and
Plan of Merger dated on or about the date hereof (the "Merger Agreement"), among
Medtronic, Inc. ("Parent"), PC Merger Corp. ("Merger Subsidiary"), and the
Company, Merger Subsidiary will be merged with and into the Company (the
"Merger"). As a result of the Merger, outstanding shares of common stock, $.01
par value per share, of the Company ("Company Common Stock") will be converted
into the right to receive shares of common stock, $.10 par value per share, of
Parent ("Parent Common Stock"), as determined pursuant to the Merger Agreement.
In order to induce Parent and the Company to enter into the Merger Agreement,
the undersigned (referred to herein as "Affiliate") represents, warrants and
agrees as follows:
1. Affiliate will not directly or indirectly take any action that would have
the effect of jeopardizing the treatment of the Merger as a "pooling of
interests" for accounting purposes, including but not limited to any sale,
transfer, pledge, disposal of, or other reduction in Affiliate's risk
relative to, any Parent Common Stock or Company Common Stock during the
period specified by Accounting Series Release No. 130 and 135 of the
Securities and Exchange Commission (the "SEC"), which period generally
includes the period commencing 30 days prior to the Merger and ending at
such time as financial statements covering at least 30 days of the
post-Merger combined operations of Parent and the Company have been
published by Parent.
2. Affiliate has been advised that the issuance of the Parent Common Stock, if
any, to Affiliate pursuant to the Merger is being registered with the SEC
under the Securities Act and the rules and regulations promulgated
thereunder on a Registration Statement on Form S-4. However, Affiliate has
also been advised that, because Affiliate is deemed to be an "affiliate" of
the Company (as that term is used in paragraphs (c) and (d) of Rule 145),
any sale, transfer or other disposition by Affiliate of any Parent Common
Stock issued pursuant to the Merger will, under current law, require either
(a) further registration under the Securities Act of the Parent Common
Stock to be sold, transferred, or otherwise disposed of, or (b) compliance
with Rule 145, or (c) the availability of another exemption from such
registration.
3. Affiliate will not offer to sell, sell, or otherwise dispose of any Parent
Common Stock issued pursuant to the Merger except pursuant to an effective
registration statement or in compliance with Rule 145 or another exemption
from the registration requirements of the Securities Act (the compliance
with Rule 145 or the availability of such other exemption to be established
by Affiliate to the satisfaction of Parent's counsel).
4. Affiliate consents to the placement of a stop transfer order with the
Company's and Parent's stock transfer agent and registrar, and to the
placement of the following legend on certificates representing the Company
Common Stock and Parent Common Stock issued or to be issued to Affiliate:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH AN AFFILIATE'S LETTER
FROM THE UNDERSIGNED TO [PARENT], AND IN COMPLIANCE WITH RULE 145 OF
THE SECURITIES ACT OF 1933."
5. Affiliate has carefully read this letter and has discussed with counsel for
Affiliate or counsel for the Company, to the extent Affiliate felt
necessary, the requirements of this letter and other applicable limitations
on the ability of Affiliate to sell, transfer, or otherwise dispose of
Company Common Stock and Parent Common Stock.
6. The Company agrees to take all reasonable actions up to the date of the
Merger, including but not limited to the placement of a stop transfer order
with the Company's stock transfer agent and registrar, to ensure compliance
by Affiliate with the provisions of this letter.
Very truly yours,
_________________, 1998 ________________________________________
(Signature)
________________________________________
(Name) (Please Print)
PHYSIO-CONTROL INTERNATIONAL CORPORATION
By:_____________________________________
Its:_________________________________
<PAGE>
Exhibit C
AGREEMENT TO FACILITATE MERGER
DATE: ___________, 1998
PARTIES:
Medtronic, Inc., (hereinafter "Parent")
a Minnesota corporation
and
-------------------------,
an individual officer and/or director
of Physio-Control International Corporation (hereinafter "Shareholder")
RECITALS:
A. Shareholder is the legal or beneficial owner of __________ shares of
Common Stock of Physio-Control International Corporation, a Washington
corporation (the "Company"), and the holder of options, warrants, or other
rights to acquire __________ shares of Company Common Stock.
B. Parent, the Company, and a wholly-owned subsidiary of Parent are
entering, or have entered, into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which it is proposed that Parent's subsidiary will merge
with and into the Company (the "Merger") and as a result of which the
outstanding shares of Company Common Stock shall be converted into Parent Common
Stock.
C. Shareholder deems it to be in Shareholder's best interest and in the
best interests of the Company and all other shareholders of the Company that the
Merger Agreement be approved, ratified, and confirmed by the shareholders of the
Company, and it is a condition to Parent's obligations under the Merger
Agreement that Individual enter into this Agreement.
D. It is understood and acknowledged by the Shareholder that Parent's
execution of the Merger Agreement is being done in reliance upon the
contemporaneous or prompt subsequent execution and delivery of this Agreement,
that Parent will incur substantial expenses proceeding toward consummation of
the Merger as contemplated by the Merger Agreement, and that such expenses will
be undertaken in reliance upon and as a result of the agreements and
undertakings of Shareholder set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and in order to
induce Parent to execute the Merger Agreement and to proceed as contemplated by
the Merger Agreement toward the consummation of the Merger, and for other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
AGREEMENTS:
1. Vote in Favor of Merger. Shareholder, in his or her capacity as a
shareholder of the Company or as a representative with the authority to vote
shares of Company Common Stock, agrees to vote (or caused to be voted) all
shares of Company Common Stock with respect to which Shareholder presently owns
or controls voting power, and all shares of Company Common Stock with respect to
which Shareholder in the future acquires ownership or voting power, at any
meeting of the shareholders of the Company, and in any action by written consent
of the shareholders of the Company, (i) in favor of the approval, consent, and
ratification of the Merger Agreement and the Merger, and (ii) against any action
that would impede, interfere, or discourage the Merger, would facilitate an
acquisition of the Company, in any manner, by a party (other than Parent), or
would result in any breach of representation, warranty, covenant, or agreement
of the Company under the Merger Agreement. To the extent inconsistent with the
foregoing provisions of this Section 1, Shareholder hereby revokes any and all
previous proxies with respect to any shares of Company Common Stock that
Shareholder owns or has the right to vote. Nothing in this Agreement shall be
deemed to restrict or limit Shareholder's right to act in his capacity as an
officer or director of the Company consistent with his fiduciary obligations in
such capacity.
2. Representations and Warranties of Shareholder. Shareholder
represents and warrants to Parent that Shareholder has the legal capacity to
enter into and perform all of Shareholder's obligations under this Agreement.
The execution, delivery, and performance of this Agreement by Shareholder will
not violate any other agreement to which Shareholder is a party, including,
without limitation, any voting agreement, shareholders agreement, or voting
trust. This Agreement has been duly executed and delivered by Shareholder and
constitutes a legal, valid, and binding agreement of Shareholder, enforceable in
accordance with its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium, and
similar laws, now or hereafter in effect.
3. Successors and Assigns. This Agreement shall be binding upon any
permitted purchasers, donees, pledgees, and other transferees of Company Common
stock legally or beneficially owned by Shareholder. Shareholder agrees not to
make any sales, gifts, transfers, pledges, or other dispositions of Company
Common Stock without first making any such transferee or pledgee fully aware of
the obligations under this Agreement and obtaining such transferee's or
pledgee's written agreement to comply with the terms hereof.
4. Injunctive Relief. Shareholder agrees that in the event of
Shareholder's breach of any provision of this Agreement, Parent may be without
an adequate remedy at law. Shareholder therefore agrees that in the event of
Shareholder's breach of any provision of this Agreement, Parent may elect to
institute and prosecute proceedings in any court of competent jurisdiction to
enforce specific performance or to enjoin the continuing breach of such
provision, as well as to obtain damages for breach of this Agreement. By seeking
or obtaining any such relief, Parent will not be precluded from seeking or
obtaining any other relief to which it may be entitled.
5. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same document.
6. Further Assurances. Shareholder shall execute and deliver such
additional documents and take such further action as may be necessary or
desirable to consummate the transactions contemplated by this Agreement.
7. Third-Party Beneficiaries. Nothing in this Agreement, expressed or
implied, shall be construed to give any person other than the parties hereto any
legal or equitable right, remedy, or claim under or by reason of this Agreement
or any provision contained herein.
8. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota (regardless of the laws that
might otherwise govern under applicable Minnesota principles of conflicts of
laws).
9. Effectiveness. If this Agreement is executed by Shareholder prior to
the approval of the Merger Agreement by the Company's Board of Directors, then
this Agreement shall be subject to, and shall become effective only upon, the
approval of the Merger Agreement by the Company's Board of Directors. This
Agreement shall terminate upon termination of the Merger Agreement by Parent.
IN WITNESS WHEREOF, Parent has caused this Agreement to Facilitate
Merger to be executed by its duly authorized officer, and Shareholder has
executed this Agreement, as of the date and year first above written.
MEDTRONIC, INC.
By:___________________________________
Its:_______________________________
SHAREHOLDER:
______________________________________
[signature]
______________________________________
[print name]
<PAGE>
Exhibit D
NONCOMPETITION AGREEMENT
THIS AGREEMENT is entered into by and between __________________
("Individual") and Medtronic, Inc., a Minnesota corporation ("Parent"), as of
___________, 1998, but effective commencing on the date of the consummation of
the Merger described in the Merger Agreement referred to herein (the "Effective
Date").
RECITALS:
WHEREAS, Individual is an employee, consultant, officer, director or a
shareholder of Physio-Control International Corporation, a Washington
corporation (the "Company"); and
WHEREAS, Parent, the Company, and a wholly-owned subsidiary of Parent
("Merger Subsidiary") propose to enter into an Agreement and Plan of Merger
dated on or about the date hereof (the "Merger Agreement"), pursuant to which,
on the Effective Date, Parent will acquire the capital stock and business
(including goodwill) of the Company by the merger of Merger Subsidiary with and
into the Company (the "Merger"); and
WHEREAS, Individual will receive Parent common stock in the Merger; and
WHEREAS, Individual desires to induce Parent to enter into the Merger
Agreement and consummate the transactions contemplated thereby, and it is a
condition to Parent's obligations under the Merger Agreement that Individual
enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and to induce Parent to
enter into the Merger Agreement and to consummate the Merger, and subject to the
terms and conditions set forth herein, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the meanings set forth or referenced below:
"Company Product" means any product, product line, process, formulation, or
service (including any component thereof or research to develop information
useful in connection therewith) that as of the Effective Date, is being
designed, developed, manufactured, marketed, or sold by the Company or is
planned by the Company for design, development, manufacture, marketing, or sale.
"Competitive Product" means any product, product line, process,
formulation, or service (including any component thereof or research to develop
information useful in connection therewith) that is designed, developed,
manufactured, marketed, or sold by anyone other than Parent and is of a similar
type, performs similar functions, or is used for the same purposes as a Company
Product.
"Parent" means Medtronic, Inc. and all of its subsidiary and affiliated
corporations and the operating divisions of any of them (including but not
limited to the Company from and after the Merger).
2. Noncompetition Covenant. From and after the Effective Date until the
forty-two (42) month anniversary of the Effective Date, Individual will not,
either alone or in any capacity with another person or legal entity:
(a) directly or indirectly own any interest in, control, be
employed by or associated with, or render services (including but not
limited to services in research) to any person or entity, or
subsidiary, subdivision, division, or joint venture of such entity
(except Parent), in connection with the design, development,
manufacture, marketing, or sale of a Competitive Product; provided,
however, that the foregoing shall not prohibit Individual from holding
a passive equity ownership interest of less than 2% in an entity and,
if Individual is an employee of Parent, to the extent such ownership
is permitted by Parent's conflict policies as generally applied;
(b) directly or indirectly hire or solicit any of the Company's
present employees for the purpose of hiring them or inducing them to
leave their employment with the Company;
(c) directly or indirectly solicit, attempt to solicit,
interfere, or attempt to interfere with the Company's or Parent's
relationship with its customers for Company Products, on behalf of
Individual or any other person or entity engaged in the design,
development, manufacture, marketing, or sale of a Competitive Product;
or
(d) directly or indirectly design, develop, manufacture, market,
or sell any Competitive Product.
3. Geographic Scope. Individual acknowledges that each of the Company and
Parent operates throughout the world and that the market for Company Products is
worldwide. Individual therefore agrees that the covenants contained in Section 2
shall apply within all counties of all states of the United States and within
all counties, provinces, districts, and/or other comparable legal boundaries
elsewhere throughout the world.
4. Injunctive Relief. In addition to any other relief or remedies afforded
by law or in equity, if Individual breaches this Agreement, Individual agrees
that Parent shall be entitled, as a matter of right, to injunctive relief in any
court of competent jurisdiction plus reasonable attorneys' fees if successful in
securing such relief. Individual recognizes that products and inventions
generated by Individual while an employee of the Company or pursuant to the
consulting while a consultant to the Company are the property of the Company,
the value of which would be adversely affected by Individual's violation of this
Agreement, and Individual hereby admits that irreparable damage will result to
Company if Individual violates or threatens to violate the terms of this
Agreement. This Section 4 shall not preclude the granting of any other
appropriate relief including, without limitation, money damages against
Individual for breach of such sections of this Agreement.
5. Severability. If it is determined by a court of competent jurisdiction
that any term or provision of this Agreement is invalid or unenforceable, then
(i) the remaining terms and provisions hereof shall be unimpaired, and (ii) the
invalid or unenforceable term or provision shall be deemed replaced by a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision.
6. Authority. Individual represents and warrants to Parent as follows: (a)
Individual has full capacity and authority to enter into this Agreement and to
perform Individual's obligations hereunder; (b) this Agreement has been duly
executed and delivered by Individual and constitutes a legal, valid, and binding
agreement of Individual, enforceable against Individual in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium, and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles; and (c) neither the
execution and delivery of this Agreement nor compliance by Individual with its
terms and provisions will violate (i) any permit or license of Individual, or
(ii) any law, statute, regulation, injunction, order, or decree of any
government agency or authority or court to which Individual is subject.
7. Complete Agreement; Effectiveness. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements between the parties, whether written or
oral, relating hereto. Notwithstanding any contrary provisions of this
Agreement, the effectiveness of this Agreement is conditioned upon and subject
to the occurrence of the Merger.
8. Waiver, Discharge, Amendment, Etc. The failure of any party hereto to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part thereof or the right of the party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.
Any amendment to this Agreement shall be in writing and signed by the parties
hereto. This Agreement shall not be superseded by any future agreement entered
into between Individual and Parent unless such future agreement specifically
refers to this Agreement by date and states specifically by section reference
the portions of this Agreement that such future agreement is intended to
supersede.
9. Titles and Headings; Construction. The titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
Individual acknowledges that Individual and Parent have jointly participated in
the negotiation and drafting of this Agreement, and the parties agree that this
Agreement shall be construed without regard to any presumption or other rule
requiring construction hereof against the party causing this Agreement to be
drafted.
10. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, this Agreement may not be assigned without the
express written consent of all parties, except Company or Parent may assign this
Agreement to a subsidiary of Parent or to such business organization that shall
succeed to the business of Company or of such subsidiary to which this Agreement
relates.
11. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Minnesota, including all matters of
construction, validity, performance, and enforcement, without giving effect to
principles of conflict of laws.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, each of the parties has caused this Noncompetition
Agreement to be executed in the manner appropriate to each, as of the date first
above written.
____________________________________
[Individual]
MEDTRONIC, INC.
By:_________________________________
Its:_____________________________
<PAGE>
Exhibit E
STOCK OPTION AGREEMENT
THIS AGREEMENT is dated as of June ___, 1998, between Medtronic, Inc.,
a Minnesota corporation ("Grantee"), and Physio-Control International
Corporation, a Washington corporation ("Issuer").
RECITALS
A. Grantee, Issuer, and PC Merger Corp., a Washington corporation and
wholly-owned subsidiary of Grantee ("Merger Subsidiary"), have entered into an
Agreement and Plan of Merger (the "Merger Agreement") which provides, among
other things, that, upon the terms and subject to the conditions thereof, Merger
Subsidiary will be merged with and into Issuer (the "Merger").
B. As a condition to its willingness to enter into the Merger
Agreement, Grantee has required that Issuer enter into this Agreement, which
provides, among other things, that Issuer grant to Grantee an option to purchase
shares of Issuer's Common Stock, par value $.0l per share ("Issuer Common
Stock"), upon the terms and subject to the conditions provided for herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements contained in this Agreement and the Merger Agreement, the parties
agree as follows:
1. Grant of Option. Subject to the terms and conditions of this
Agreement, Issuer hereby grants to Grantee an irrevocable option (the "Option")
to purchase 3,526,683 shares of Issuer Common Stock (the "Option Shares"), in
the manner set forth below, at an exercise price of $27.50 per share of Issuer
Common Stock, subject to adjustment as provided below (the "Option Price").
Issuer represents that the Option Shares represent at least 19.9% of the number
of shares of Issuer Common Stock outstanding on the date hereof. Capitalized
terms used herein but not defined herein shall have the meanings set forth in
the Merger Agreement.
2. Exercise of option.
(a) Subject to the satisfaction or waiver of the conditions
set forth in Section 9 of this Agreement, prior to the termination or
expiration of this Agreement in accordance with its terms, Grantee or
its designee (which shall be a wholly-owned subsidiary of Grantee) may
exercise the option, in whole or in part, at any time or from time to
time on or after the public disclosure of, or the time at which Grantee
shall have learned of, the earliest of (i) or (ii) below to occur:
(i) the Merger Agreement is terminated pursuant
to Section 7.1(e) or 7.1(f) of the Merger Agreement; or
(ii) any third party makes an Alternative Proposal or
acquires 15% or more of the outstanding Issuer Common Stock
prior to the Company Shareholders Meeting, and either (A) the
requisite vote of the shareholders of Issuer to approve the
Merger is not obtained or (B) the number of shares of Issuer
Common Stock for which notice of exercise of dissenters'
rights under the WBCA has been given would prevent the Merger
from qualifying as a pooling of interests for accounting
purposes or (C) the Merger Agreement is terminated (other than
pursuant to Section 7.1(a), (b), (c) or (h) of the Merger
Agreement),
(b) In the event Grantee wishes to exercise the Option at such
time as the Option is exercisable, Grantee shall deliver written notice
(the "Exercise Notice") to Issuer specifying its intention to exercise
the Option, the total number of Option Shares it wishes to purchase,
and a date and time for the closing of such purchase (a "Closing") not
less than three nor more than 30 business days after the later of (i)
the date such Exercise Notice is given and (ii) the expiration or
termination of any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). If prior to the Expiration Date (as defined in Section 11
below) any person or group (other than Grantee or its affiliates) shall
have made a bona fide proposal that becomes publicly disclosed, with
respect to a tender offer or exchange offer for 50% or more of the then
outstanding shares of Issuer Common Stock (a "Share Proposal"), a
merger, consolidation, or other business combination (a "Merger
Proposal"), or any acquisition of a material portion of the assets of
Issuer (an "Asset Proposal"), or shall have acquired 50% or more of the
then outstanding shares of Issuer Common Stock (a "Share Acquisition"),
and this Option is then exercisable, then Grantee, in lieu of
exercising the Option, shall have the right at any time thereafter (for
so long as the option is exercisable under Section 2(a)) to request in
writing that Issuer pay, and promptly (but in any event not more than
five business days) after Grantee makes such request, Issuer shall,
subject to Section 2(c) below, pay to Grantee by certified check,
official bank check or wire transfer pursuant to Grantee's
instructions, in cancellation of the option, an amount in cash (the
"Cancellation Amount") equal to (i) the lesser of
(x) the excess over the Option Price of the greater
of (A) the last sale price of a share of Issuer Common Stock
as reported on the Nasdaq National Market on the last trading
day prior to the date of the Exercise Notice, or (B)(1) the
highest price per share of Issuer Common Stock offered to be
paid or paid by any such person or group pursuant to or in
connection with a Share Proposal, a Share Acquisition, or a
Merger Proposal, or (2) the aggregate consideration offered to
be paid or paid in any transaction or proposed transaction in
connection with an Asset Proposal, divided by the number of
shares of Issuer Common Stock then outstanding, and
(y) $4.25 [$15 million divided by initial number of
Option Shares],
multiplied by (ii) the number of Option Shares then covered by the
Option; provided, however, that if, prior to payment of the
Cancellation Amount, Grantee has been paid or is payable by its terms
by Issuer the termination fee described in Section 7.2 of the Merger
Agreement (the "Termination Fee"), then the Cancellation Amount shall
be reduced (but not below zero) to the extent necessary so that the sum
of the Termination Fee and the Cancellation Amount shall not exceed $20
million. If all or a portion of the price per share of Issuer Common
Stock offered, paid, or payable or the aggregate consideration offered,
paid, or payable for the assets of Issuer, each as contemplated by the
preceding sentence, consists of noncash consideration, such price or
aggregate consideration shall be the cash consideration, if any, plus
the fair market value of the noncash consideration as mutually
determined by the investment bankers of Issuer and the investment
bankers of Grantee.
(c) Following exercise of the Option by Grantee, in the event
that Grantee sells, pledges, or otherwise disposes of (including,
without limitation, by merger or exchange) any of the Option Shares (a
"Sale"), then any Termination Fee due and payable by Issuer following
such time shall be reduced to the extent necessary so that the sum of
(x) the Termination Fee and
(y) the amount received (whether in cash, loan
proceeds, securities, or otherwise) by Grantee in such Sale
less the exercise price of such Option Shares sold in the Sale
(the "Option Share Profit")
shall not exceed $20 million. If Issuer has paid to Grantee the
Termination Fee prior to the Sale, then Grantee shall immediately remit
to Issuer the excess, if any, of the Option Share Profit over $5
million.
3. Payment of Option Price and Delivery of Certificate. Any Closings
under Section 2 of this Agreement shall be held at the principal executive
offices of Issuer, or at such other place as Issuer and Grantee may agree. At
any Closing hereunder, (a) Grantee or its designee will make payment to Issuer
of the aggregate price for the Option Shares being so purchased by delivery of a
certified check, official bank check, or wire transfer of funds pursuant to
Issuer's instructions payable to Issuer in an amount equal to the product
obtained by multiplying the Option Price by the number of Option Shares to be
purchased, and (b) upon receipt of such payment Issuer will deliver to Grantee
or its designee (which shall be a wholly-owned subsidiary of Grantee) a
certificate or certificates representing the number of validly issued, fully
paid, and nonassessable Option Shares so purchased, in the denominations and
registered in such names (which shall be Grantee or a wholly-owned subsidiary of
Grantee) designated in writing to Issuer by Grantee.
4. Registration and Listing of Option Shares.
(a) Issuer agrees to use its reasonable best efforts to (i)
effect as promptly as possible upon the request of Grantee and (ii)
cause to become and remain effective for a period of not less than six
months (or such shorter period as may be necessary to effect the
distribution of such shares) the registration under the 1933 Act, and
any applicable state securities laws, of all or any part of the Option
Shares as may be specified in such request; provided, however, that (i)
Grantee shall have the right to select the managing underwriter for any
such offering after consultation with Issuer, which managing
underwriter shall be reasonably acceptable to Issuer, and (ii) Grantee
shall not be entitled to more than two effective registration
statements hereunder.
(b) In addition to such demand registrations, if Issuer
proposes to effect a registration of Issuer Common Stock for its own
account or for the account of any other shareholder of Issuer, Issuer
will give prompt written notice to all holders of Options or Option
Shares of its intention to do so and shall use its reasonable best
efforts to include therein all Option Shares requested by Grantee to be
so included. No registration effected under this Section 4(b) shall
relieve Issuer of its obligations to effect demand registrations under
Section 4(a) hereof.
(c) Registrations effected under this Section 4 shall be
effected at Issuer's expense, including the fees and expenses of
counsel to the holder of Options or Option Shares, but excluding
underwriting discounts and commissions to brokers or dealers. In
connection with each registration under this Section 4, Issuer shall
indemnify and hold each holder of Options or Option Shares
participating in such offering (a "Holder"), its underwriters, and each
of their respective affiliates harmless against any and all losses,
claims, damage, liabilities, and expenses (including, without
limitation, investigation expenses and fees and disbursements of
counsel and accountants), joint or several, to which such Holder, its
underwriters, and each of their respective affiliates may become
subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages, liabilities, or expenses (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (including any prospectus therein), or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
other than such losses, claims, damages, liabilities, or expenses (or
actions in respect thereof) that arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact
contained in written information furnished by a Holder to Issuer
expressly for use in such registration statement.
(d) In connection with any registration statement pursuant to
this Section 4, each Holder agrees to furnish Issuer with such
information concerning itself and the proposed sale or distribution as
shall reasonably be required in order to ensure compliance with the
requirements of the 1933 Act. In addition, Grantee shall indemnify and
hold Issuer, its underwriters and each of their respective affiliates
harmless against any and all losses, claims, damages, liabilities, and
expenses (including, without limitation, investigation expenses and
fees and disbursements of counsel and accountants), joint or several,
to which Issuer, its underwriters, and each of their respective
affiliates may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages, liabilities, or expenses (or actions
in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in written
information furnished by any Holder to Issuer expressly for use in such
registration statement.
(e) Upon the issuance of Option Shares hereunder, Issuer will
use its reasonable best efforts promptly to list such Option Shares
with the Nasdaq National Market or on such national or other exchange
on which the shares of Issuer Common Stock are at the time listed.
5. Representations and Warranties of Issuer. Issuer hereby represents
and warrants to Grantee as follows:
(a) Issuer is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Washington and has
requisite power and authority to enter into and perform this Agreement.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Issuer, and no other
corporate proceedings on the part of Issuer are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby.
The Board of Directors of Issuer has duly approved the issuance and
sale of the Option Shares, upon the terms and subject to the conditions
contained in this Agreement, and the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed
and delivered by Issuer and, assuming this Agreement has been duly and
validly authorized, executed, and delivered by Grantee, constitutes a
valid and binding obligation of Issuer enforceable against Issuer in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting or relating
to creditors, rights generally; the availability of injunctive relief
and other equitable remedies; and limitations imposed by law on
indemnification for liability under federal securities laws.
(c) Issuer has taken all necessary action to authorize and
reserve for issuance and to permit it to issue, and at all times from
the date of this Agreement through the date of expiration of the Option
will have reserved for issuance upon exercise of the Option, such
number of authorized shares of Issuer Common Stock as is equal to the
number of Option Shares (or such other amount as may be required
pursuant to Section 10 hereof), each of which, upon issuance pursuant
to this Agreement and when paid for as provided herein, will be validly
issued, fully paid, and nonassessable, and shall be delivered free and
clear of all claims, liens, charges, encumbrances, and security
interests and not subject to any preemptive rights.
(d) The execution, delivery, and performance of this Agreement
by Issuer and the consummation by it of the transactions contemplated
hereby except as required by the HSR Act (if applicable), and, with
respect to Section 4, compliance with the provisions of the 1933 Act
and any applicable state securities laws, do not require the consent,
waiver, approval, license, or authorization of or result in the
acceleration of any obligation under, or constitute a default under,
any term, condition, or provision of any charter or bylaw, or any
indenture, mortgage, lien, lease, agreement, contract, instrument,
order, judgment, ordinance, regulation, or decree or any restriction to
which Issuer or any property of Issuer or its subsidiaries is bound,
except where the failure to obtain such consents, waivers, approvals,
licenses, or authorizations or where such acceleration or defaults
could not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.
6. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer that:
(a) Grantee is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Minnesota and has
requisite power and authority to enter into and perform this Agreement.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of Grantee, and no other
corporate proceedings on the part of Grantee are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by
Grantee and, assuming this Agreement has been duly executed and
delivered by Issuer, constitutes a valid and binding obligation of
Grantee enforceable against Grantee in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium, or other
similar laws affecting or relating to creditors' rights generally; the
availability of injunctive relief and other equitable remedies; and
limitations imposed by law on indemnification for liability under
federal securities laws.
(c) Grantee or its designee is acquiring the Option and it
will acquire the Option Shares issuable upon the exercise thereof for
its own account and not with a view to the distribution or resale
thereof in any manner not in accordance with applicable law.
7. Covenants of Grantee. Grantee agrees not to transfer or otherwise
dispose of the Option or the Option Shares, or any interest therein, except in
compliance with the 1933 Act and any applicable state securities law. Grantee
further agrees to the placement of the following legend on the certificates)
representing the Option Shares (in addition to any legend required under
applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER EITHER (1) THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR (2) ANY APPLICABLE STATE LAW GOVERNING
THE OFFER AND SALE OF SECURITIES. NO TRANSFER OR OTHER
DISPOSITION OF THESE SHARES, OR OF ANY INTEREST THEREIN, MAY
BE MADE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND SUCH OTHER STATE LAWS OR PURSUANT TO
EXEMPTIONS FROM REGISTRATION UNDER THE ACT, SUCH OTHER STATE
LAWS, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER."
8. Reasonable Best Efforts. Grantee and Issuer shall take, or cause to
be taken, all reasonable action to consummate and make effective the
transactions contemplated by this Agreement, including, without limitation,
reasonable best efforts to obtain any necessary consents of third parties and
governmental agencies and the filing by Grantee and Issuer promptly after the
date hereof of any required HSR Act notification forms and the documents
required to comply with the HSR Act.
9. Certain Conditions. The obligation of Issuer to issue Option Shares
under this Agreement upon exercise of the Option shall be subject to the
satisfaction or waiver of the following conditions:
(a) any waiting periods applicable to the acquisition of the
Option Shares by Grantee pursuant to this Agreement under the HSR Act
shall have expired or been terminated;
(b) the representations and warranties of Grantee made in
Section 6 of this Agreement shall be true and correct in all material
respects as of the date of the Closing for the issuance of such Option
Shares; and
(c) no order, decree, or injunction entered by any court of
competent jurisdiction or governmental, regulatory, or administrative
agency or commission in the United States shall be in effect that
prohibits the exercise of the option or acquisition of Option Shares
pursuant to this Agreement.
10. Adjustments Upon Changes in Capitalization. In the event of any
change in the number of issued and outstanding shares of Issuer Common Stock by
reason of any stock dividend, stock split, recapitalization, merger, rights
offering, share exchange, or other change in the corporate or capital structure
of Issuer, Grantee shall receive, upon exercise of the Option, the stock or
other securities, cash, or property to which Grantee would have been entitled if
Grantee had exercised the Option and had been a holder of record of shares of
Issuer Common Stock on the record date fixed for determination of holders of
shares of Issuer Common Stock entitled to receive such stock or other
securities, cash, or property at the same aggregate price as the aggregate
Option Price of the Option Shares.
11. Expiration. The Option shall expire at the earlier of (a) the
Effective Time (as defined in the Merger Agreement) or (b) if exercisable
pursuant to Section 2 hereof, one year after termination of the Merger Agreement
in accordance with the terms thereof (such expiration date is referred to as the
"Expiration Date").
12. General Provisions.
(a) Survival. All of the representations, warranties, and
covenants contained herein shall survive each Closing and shall be
deemed to have been made as of the date hereof and as of the date of
each Closing.
(b) Further Assurances. If Grantee exercises the Option, or
any portion thereof, in accordance with the terms of this Agreement,
Issuer and Grantee will execute and deliver all such further documents
and instruments and use their reasonable best efforts to take all such
further action as may be necessary in order to consummate the
transactions contemplated thereby.
(c) Severability. It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, in the event
that any provision of this Agreement would be held in any jurisdiction
to be invalid, prohibited, or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any other
jurisdiction. Notwithstanding the foregoing, if such provision could be
more narrowly drawn so as not be invalid, prohibited, or unenforceable
in such jurisdiction, it shall, as to such jurisdiction, be so narrowly
drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any
other jurisdiction.
(d) Assignment. This Agreement shall be binding on and inure
to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that Issuer shall not be entitled to
assign or otherwise transfer any of its rights or obligations
hereunder, and Grantee shall not be entitled to assign or otherwise
transfer any of its rights or obligations hereunder prior to the Option
becoming exercisable pursuant to Section 2 hereof.
(e) Specific Performance. The parties agree and acknowledge
that in the event of a breach of any provision of this Agreement, the
aggrieved party would be without an adequate remedy at law. The parties
therefore agree that in the event of a breach of any provision of this
Agreement, the aggrieved party may elect to institute and prosecute
proceedings in any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach of such provision, as
well as to obtain damages for breach of this Agreement. By seeking or
obtaining any such relief, the aggrieved party will not be precluded
from seeking or obtaining any other relief to which it may be entitled.
(f) Amendments. This Agreement may not be modified, amended,
altered, or supplemented except upon the execution and delivery of a
written agreement executed by Grantee and Issuer.
(g) Notices. All notices, requests, claims, demands, and other
communications hereunder shall be in writing and shall be deemed to be
sufficient if contained in a written instrument and shall be deemed
given if delivered personally, telecopied, sent by
nationally-recognized overnight courier or mailed by registered or
certified mail (return receipt requested), postage prepaid, to the
other party at the following addresses (or such other address for a
party as shall be specified by like notice):
If to Grantee:
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
If to Issuer:
Physio-Control International Corporation
11811 Willows Road N.E.
Redmond, WA 98073-9706
FAX: (425) 867-4142
Attention: Executive Vice President and General Counsel
with a copy to:
Preston Gates & Ellis LLP
5000 Columbia Center
701 Fifth Avenue
Seattle, WA 98104-7078
FAX: (206) 623-7022
Attention: C. Kent Carlson
(h) Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be an original, but all of which
together shall constitute one and the same agreement.
(j) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Washington
applicable to contracts made and to be performed therein.
(k) Jurisdiction and Venue. Each of Issuer and Grantee hereby
agrees that any proceeding relating to this Agreement shall be brought
in a state court of Minnesota. Each of Issuer and Grantee hereby
consents to personal jurisdiction in any such action brought in any
such Minnesota court, consents to service of process by registered mail
made upon such party and such party's agent, and waives any objection
to venue in any such Minnesota court or to any claim that any such
Minnesota court is an inconvenient forum.
(l) Entire Agreement. This Agreement, the Confidentiality
Agreement, and the Merger Agreement and any documents and instruments
referred to herein and therein constitute the entire agreement between
the parties hereto and thereto with respect to the subject matter
hereof and thereof and supersede all other prior agreements and
understandings, both written and oral, between the parties with respect
to the subject matter hereof and thereof. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by the
successors and permitted assigns of the parties hereto. Nothing in this
Agreement shall be construed to give any person other than the parties
to this Agreement or their respective successors or permitted assigns
any legal or equitable right, remedy, or claim under or in respect of
this Agreement or any provision contained herein.
(m) Expenses. Except as otherwise provided in this Agreement
or the Merger Agreement, each party shall pay its own expenses incurred
in connection with this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized as of the date first
written above.
MEDTRONIC, INC.
By /s/ Michael D. Ellwein
Its Vice President
PHYSIO-CONTROL INTERNATIONAL CORPORATION
By /s/ Richard O. Martin
Its Chairman/CEO
<PAGE>
Exhibit F
OPINION OF THE COMPANY'S COUNSEL
1. The Company has the requisite corporate power to execute, deliver,
and perform the Merger Agreement and to consummate the transactions contemplated
thereby.
2. The execution, delivery, and performance by the Company of the
Merger Agreement and the consummation by the Company of the transactions
contemplated thereby have been duly authorized by the shareholders and the Board
of Directors of the Company, and no other corporate action on the part of the
Company is necessary to authorize the execution, delivery, and performance by
the Company of the Merger Agreement and the consummation by the Company of the
transactions contemplated thereby.
3. The Merger Agreement has been duly and validly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
4. Except as specifically disclosed in Section 3.6 of the Merger
Agreement or Section 3.6 of the Company Disclosure Schedule, the execution,
delivery and performance by the Company of the Merger Agreement, the compliance
by the Company with the provisions thereof, and the consummation by the Company
of the transactions contemplated thereby will not: (i) violate any provision of
the Articles of Incorporation or Bylaws of the Company or any Subsidiary; (ii)
violate any statute, rule, regulation, order or decree of any public body or
authority (including, but not limited to, the FDA or any non-governmental
self-regulatory agency) by which the Company or any Subsidiary or any of their
respective properties or assets may be bound; (iii) require any filing with or
permit, consent or approval of any federal, state, local or foreign public body
or authority (including, but not limited to, the FDA or any non-governmental
self-regulatory agency); or (iv) 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, a
result in the creation of any Lien on any of the properties or assets of the
Company or 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 known to such counsel to which the
Company or any Subsidiary is a party, or by which it or any of its properties or
assets may be bound, except, in the case of clause (iv), for any such
violations, breaches, defaults, or other occurrences that would not prevent or
delay consummation of any of the transactions contemplated by the Merger
Agreement in any material respect, or otherwise prevent the Company from
performing its obligations under the Merger Agreement in any material respect,
and would not have a Company Material Adverse Effect.
<PAGE>
Exhibit G
OPINION OF PARENT'S COUNSEL
1. Each of Parent and Merger Subsidiary has the requisite corporate
power to execute, deliver, and perform the Merger Agreement and to consummate
the transactions contemplated thereby.
2. The execution, delivery, and performance by Parent and Merger
Subsidiary of the Merger Agreement and the consummation by them of the
transactions contemplated thereby have been duly authorized by the Board of
Directors of Parent and the shareholder and the Board of Directors of Merger
Subsidiary, and no other corporate action on the part of Parent or Merger
Subsidiary is necessary to authorize the execution, delivery, and performance by
Parent and Merger Subsidiary of the Merger Agreement and the consummation by
them of the transactions contemplated thereby.
3. The Merger Agreement has been duly and validly executed and
delivered by Parent and Merger Subsidiary and constitutes a valid and binding
obligation of them, enforceable against them in accordance with its terms.
4. Except as specifically disclosed in Section 4.4 of the Merger
Agreement or in Section 4.4 of the Parent Disclosure Schedule, the execution,
delivery and performance by Parent and Merger Subsidiary of the Merger
Agreement, the compliance by them with the provisions thereof, and the
consummation by them of the transactions contemplated thereby will not: (i)
violate any provision of the Articles of Incorporation or Bylaws of Parent or
Merger Subsidiary; (ii) violate any statute, rule, regulation, order, or decree
of any public body or authority (including, but not limited to, the FDA or any
non-governmental self-regulatory agency) by which Parent or any of its
subsidiaries or any of their respective properties or assets may be bound; (iii)
require any filing with or permit, consent or approval of any public body or
authority (including, but not limited to, the FDA or any non-governmental
self-regulatory agency); or (iv) 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 known to such counsel to which Parent or any of
its subsidiaries is a party, or by which any of them or any of their respective
properties or assets may be bound, except in the case of clause (iv), for any
such violations, breaches, defaults or other occurrences that would not prevent
or delay consummation of any of the transactions contemplated by the Merger
Agreement in any material respect, or otherwise prevent Parent from performing
its obligations under the Merger Agreement in any material respect, and would
not have a Parent Material Adverse Effect.
<PAGE>
Exhibit H
COMPANY LETTERHEAD
____________, 1998
Medtronic, Inc.
7000 Central Avenue, NE
Minneapolis, MN 55432
RE: Merger transaction pursuant to that certain Agreement and Plan
of Merger dated June 27, 1998 by and among Medtronic, Inc., a
Minnesota corporation ("Parent"), PC Merger Corp., a
Washington corporation and wholly-owned subsidiary of Parent
("Merger Subsidiary"), and Physio-Control International
Corporation, a Washington corporation (the "Company")
Ladies and Gentlemen:
The undersigned officers of the Company on behalf of the Company, after
consulting with legal counsel and financial auditors regarding the meaning of
and the factual support for the following representations, hereby represent, in
connection with the proposed merger of Merger Subsidiary with and into the
Company, with the Company surviving the merger, in a statutory merger and
related transactions (the "Merger") pursuant to that certain Agreement and Plan
of Merger among Parent, Merger Subsidiary, and the Company dated June 27, 1998,
and Exhibits and Disclosure Schedules thereto (the "Merger Agreement"), that as
of the time this certificate is executed, the following facts are now true and
will continue to be true as of the Effective Time and closing of the Merger and
thereafter where relevant. Capitalized terms not otherwise defined herein shall
have the meaning assigned to such terms under the Merger Agreement.
1. The Merger is being effected for bona fide business reasons and will
be carried out strictly in accordance with the Agreement, except as the parties
may otherwise mutually agree. The consideration to be received in the Merger by
the shareholders of the Company was determined by arms-length negotiations
between the managements of Parent and Merger Subsidiary on the one hand and the
Company on the other hand. In connection with the Merger, no shareholder of the
Company (other than dissenting shareholders who perfect their right to dissent
under the WBCA) will receive in exchange for such shareholder's Company stock,
directly or indirectly, any consideration other than shares of Parent voting
common stock ("Parent Shares") and cash in lieu of a fractional share thereof.
2. Following the Merger, the Company will hold at least 90 percent of
the fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets, and it will hold at least 90 percent of the
fair market value of Merger Subsidiary's net assets and at least 70 percent of
the fair market value of Merger Subsidiary's gross assets held immediately prior
to the Merger. For purposes hereof, amounts paid by the Company or Merger
Subsidiary to dissenters, amounts paid by the Company or Merger Subsidiary to
shareholders who receive cash or other property, amounts used by the Company or
Merger Subsidiary to pay reorganization expenses, all redemptions and
distributions (except for regular, normal dividends) made by the Company, and
assets of the Company or Merger Subsidiary disposed of by the Company or Merger
Subsidiary prior to the Merger and in contemplation thereof (including without
limitation, any asset disposed of, other than in the ordinary course of
business, during the period ending on the Effective Time of the Merger and
beginning with the commencement of negotiations between Parent and the Company
regarding the Merger), will be included as assets of the Company or Merger
Subsidiary, respectively, immediately prior to the Merger.
<PAGE>
3. Except as may be specifically provided for in the Merger Agreement,
each of the parties to the Merger will pay separately its or their own expenses,
if any, incurred in connection with the Merger. Parent will pay or assume only
those expenses of the Company that are solely and directly related to the
Merger.
4. There is no intercorporate indebtedness existing between Parent and
the Company or between Merger Subsidiary and the Company that was issued,
acquired or will be settled at a discount.
5. In the Merger, shares of Company stock representing "control" of the
company, as defined in section 368(c) of the Internal Revenue Code of 1986, as
amended (the "Code"), will be exchanged solely for Parent Shares. For purposes
hereof, any shares of Company stock acquired in connection with the Merger by
Parent, Merger Subsidiary, or any person related to Parent (within the meaning
of Treasury Regulations section 1.368-1(e)(2) and 1.368-1(e)(3)) for
consideration other than Parent Shares or shares of Company stock will be
treated as outstanding shares of Company stock at the Effective Time. The phrase
"in connection with" the Merger has the meaning assigned thereto in Treasury
Regulations section 1.368-1(e)(2) and 1.368-1(e)(3).
6. At the Effective Time, the Company will not have outstanding any
warrants, options, convertible securities or any other type of right pursuant to
which any person could acquire shares of Company stock that, if exercised or
converted, would affect Parent's acquisition or retention of "control" of the
company, as defined in section 368(c) of the Code.
7. The Company is not and will not be as of the Effective Time an
"investment company" within the meaning of section 368(a)(2)(F)(iii) and (iv) of
the Code.
8. The Company is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of section 368(a)(3)(A) of the Code.
9. On the date of the Merger, the fair market value of the Company's
assets will exceed the aggregate liabilities of the Company plus the amount of
liabilities, if any, to which such assets are subject.
10. the Company has no plan or intention to issue additional shares of
Company stock that would result in Parent losing "control" of the Company.
11. The liabilities of the Company and the liabilities to which the
assets of the Company are subject were incurred by the Company in the ordinary
course of its business.
12. The payment of cash by Parent to holders of Company stock in lieu
of issuing fractional Parent Shares is solely for the purpose of avoiding the
expense and inconvenience to Parent of issuing fractional shares and does not
represent separately bargained-for consideration. The total cash consideration
that will be paid in the Merger to Company shareholders will not exceed one
percent (1%) of the total consideration that will be issued in the Merger to the
Company shareholders in exchange for their Company stock. The Parent fractional
share interests to which each Company shareholder may be entitled in the Merger
will be aggregated so that no Company shareholder will receive cash in an amount
which would equal or exceed, in the aggregate, the value of one whole share of
Parent Share.
13. None of the payments received by any Company shareholder-employees
from the Company which are designated as compensation will be separate
consideration for, or allocable to, any of their Company stock; none of the
Parent Shares received by any shareholder-employees of the Company will be
separate consideration for, or allocable to, any employment agreement; and the
compensation paid by the Company to any shareholder-employee of the Company is
for services actually rendered and is commensurate with amounts paid to third
parties bargaining at arms length for similar services.
<PAGE>
14. The Company is authorized to make all of the representations set
forth herein.
(the remainder of this page has intentionally been left blank)
<PAGE>
The undersigned recognizes that counsel to and auditors for the Company
will rely upon the foregoing representations in evaluating the United States
federal income tax consequences of the Merger and in rendering the opinion
described in Section 6.3(e) of the Merger Agreement that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of section 368(a)(2)(E) of the Code. Company covenants that it will refrain from
taking any actions inconsistent with the representations set out in this letter
that would cause the Merger to fail to qualify as a reorganization within the
meaning of section 368(a)(2)(E) of the Code.
COMPANY
Physio-Control International Corporation,
a Washington corporation
by:______________________________________
its____________________________________
<PAGE>
Exhibit I
PARENT LETTERHEAD
______________, 1998
Physio-Control International Corporation
11811 Willows Road, NE
Redmond, WA 98073
Re: Merger transaction pursuant to that certain Agreement and Plan
of Merger dated June 27, 1998 by and among Medtronic, Inc., a
Minnesota corporation ("Parent"), PC MergerCorp., a Washington
corporation and wholly-owned subsidiary of Parent ("Merger
Subsidiary"), and Physio-Control International Corporation, a
Washington corporation (the "Company")
Ladies and Gentlemen:
The undersigned officers of each of Parent and Merger Subsidiary, on
behalf of Parent and Merger Subsidiary, after consulting with legal counsel and
financial auditors regarding the meaning of and the factual support for the
following representations, hereby represent, in connection with the proposed
merger of Merger Subsidiary with and into the Company, with the Company
surviving the merger, in a statutory merger and related transactions (the
"Merger") pursuant to that certain Agreement and Plan of Merger among Parent,
Merger Subsidiary, and the Company dated June 27, 1998, and Exhibits and
Disclosure Schedules thereto (the "Merger Agreement"), that as of the time this
certificate is executed, the following facts are now true and will continue to
be true as of the Effective Time and closing of the Merger and thereafter where
relevant. Capitalized terms not otherwise defined herein shall have the meaning
assigned to such terms under the Merger Agreement.
1. The Merger is being effected for bona fide business reasons and will
be carried out strictly in accordance with the Agreement, except as the parties
may otherwise mutually agree. The consideration to be received in the Merger by
the shareholders of the Company was determined by arm's-length negotiations
between the managements of Parent and Merger Subsidiary on the one hand and the
Company on the other hand. In connection with the Merger, no shareholder of the
Company (other than dissenting shareholders who perfect their right to dissent
under the WBCA) will receive in exchange for such shareholder's Company stock,
directly or indirectly, any consideration other than shares of Parent voting
common stock ("Parent Shares") and cash in lieu of a fractional share thereof.
2. Immediately prior to the Effective Time, Parent will be in control
of Merger Subsidiary within the meaning of section 368(c) of the Internal
Revenue Code of 1986, as amended (the "Code").
3. Merger Subsidiary was formed solely to carry out the Merger and has
conducted no other business.
4. Parent has no present plan or intention to cause the Company to
issue additional shares of stock after the Merger, or take any other action,
that would result in Parent losing control of the Company within the meaning of
section 368(c) of the Code.
5. Neither Parent nor any subsidiary of Parent owns, or has owned
during the past five (5) years, directly or indirectly, any shares of Company
stock.
<PAGE>
6. Parent has no present plan or intention to reacquire or to permit
any "related person," as defined in Treasury Regulations section 1.368-1(e)(3),
to acquire any Parent Shares issued in the Merger.
7. Parent has no present plan or intention to (i) liquidate the
Company; (ii) to merge the Company with or into another corporation; (iii) to
sell or otherwise dispose of the capital stock of the Company, except for
transfers of such capital stock to corporations controlled by Parent; or (iv) to
cause the Company to sell or otherwise dispose of any of the Company's assets or
any assets acquired from Merger Subsidiary except for dispositions made in the
ordinary course of business or transfers described in section 368(a)(2)(C) of
the Code.
8. Following the Merger, Parent shall cause the Company (or a
transferee of the Company's stock or business to which the stock or assets of
the Company are transferred in a transaction described in section 368(a)(2)(C)
of the Code or other transferee described in Treasury Regulation section
1.368-1(d)(4)) to either continue the Company's business, as conducted by the
Company immediately prior to the Merger, or to use a significant portion of its
business assets, as held by the Company immediately prior to the Merger, in a
business.
9. The payment of cash in lieu of fractional Parent Shares in the
Merger is solely for the purpose of avoiding the expense and inconvenience to
Parent of issuing fractional shares and does not represent separately
bargained-for-consideration. The fractional share interests of each shareholder
of the Company will be aggregated and no shareholder of the Company will receive
cash in an amount equal to or greater than the value of one full Parent Share.
10. In the Merger, shares of Company stock representing "control" of
the Company, as defined in section 368(c) of the Code, will be exchanged solely
for Parent Shares. For purposes hereof, any shares of Company stock acquired in
connection with the Merger by Parent, Merger Subsidiary, or any person related
to Parent (within the meaning of Treasury Regulations section 1.368-1(e)(2) and
1.368-1(e)(3)) for consideration other than Parent Shares or shares of Company
stock will be treated as outstanding shares of Company stock on the Effective
Time.
Neither Parent nor any person related to Parent will acquire any of the Parent
Shares issued for "control" of the Company in the Merger from a person to whom
such Parent Shares were so issued in the Merger. The phrase "in connection with"
the Merger has the meaning assigned thereto in Treasury Regulations section
1.368-1(e)(2) and 1.368-1(e)(3).
11. Neither Parent nor Merger Subsidiary is an investment company as
defined in section 368(a)(2)(f)(iii) and (iv) of the Code.
12. In the Merger, Merger Subsidiary will have no liabilities assumed
by Company and will not transfer to the Company any assets subject to
liabilities.
13. No shares of Merger Subsidiary stock have been or will be used as
consideration or issued to shareholders of the Company in the Merger.
14. None of the payments to be received by any shareholder of the
Company that are designated as compensation are actually separate consideration
for, or allocable to, any of the shares of Company stock. None of the shares of
stock received by any shareholder-employees of Company will be separate
consideration for any employment agreement or other arrangement for the
provision of services or for any covenants not to compete, and the compensation
paid to any shareholder-employee of the Company by Parent will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
<PAGE>
15. There is no intercorporate indebtedness existing between Parent and
the Company or between Merger Subsidiary and the Company that was issued,
acquired, or will be settled at a discount.
16. Parent and Merger Subsidiary are authorized to make all of the
representations set forth herein.
(the remainder of this page has intentionally been left blank)
<PAGE>
The undersigned recognize that counsel to and auditors for the Company
will rely upon the foregoing representations in evaluating the United States
federal income tax consequences of the Merger and in rendering the opinion
described in Section 6.3(e) of the Merger Agreement that the Merger will be
treated for federal income tax purposes as a reorganization within the meaning
of section 368(a)(2)(E) of the Code. Parent covenants that it will refrain from
taking any actions inconsistent with the representations set out in this letter
that would cause the Merger to fail to qualify as a reorganization within the
meaning of section 368(a)(2)(E) of the Code.
PARENT
Medtronic, Inc.
a Minnesota corporation
by:____________________________
its__________________________
MERGER SUBSIDIARY
PC MergerCorp,
a Washington corporation
by:____________________________
its__________________________
Exhibit 5
FREDRIKSON & BYRON, P.A.
Attorneys At Law
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402-3397
(612) 347-7000
FAX: (612) 347-7077
July ___, 1998
Medtronic, Inc.
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
Re: Registration Statement on Form S-4
Ladies/Gentlemen:
We are acting as counsel for Medtronic, Inc. (the "Company"), a
Minnesota corporation, in connection with the registration by the Company of
8,738,828 shares of the Company's Common Stock, par value $.10 (the "Shares"),
each of which shares includes the Preferred Stock Purchase Rights attached
thereto (the "Rights"), pursuant to the Company's Registration Statement on Form
S-4 being filed with the Securities and Commission (the "Registration
Statement"). The Shares and the Rights are to be issued in connection with the
merger of PC Merger Corp. ("Merger Subsidiary"), a wholly-owned subsidiary of
the Company, with and into Physio-Control International Corporation
("Physio-Control"), pursuant to the Agreement and Plan of Merger dated as of
June 27, 1998 by and among the Company, Merger Subsidiary and Physio-Control
(the "Merger Agreement").
In connection with rendering this opinion, we have examined and relied
upon originals or copies, certified or otherwise identified to our satisfaction,
of such corporate records, agreements and other instruments, certificates of
officers, certificates of public officials and other documents as we have deemed
necessary or appropriate as a basis for the opinions expressed herein.
In connection with our examination, we have assumed the genuineness of
all signatures, the authenticity of all documents tendered to us as originals,
the legal capacity of all natural persons and the conformity to original
documents of all documents submitted to us as certified or photostatic copies.
Based on, and subject to, the foregoing, it is our opinion that:
1. The Company has the corporate authority to issue the Shares and the
Rights in the manner and under the terms set forth in the Registration
Statement.
2. The Shares have been duly authorized and, when issued and delivered
to holders of Physio-Control common stock in accordance with the Merger
Agreement, will be validly issued, fully paid and nonassessable.
3. The Rights have been duly authorized and, when issued and delivered
in accordance with the Shareholder Rights Plan referred to in the Registration
Statement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement, to its use as a part of the Registration Statement and
to the use of our name under the caption "Legal Matters" in the Proxy
Statement/Prospectus constituting a part of the Registration Statement.
Very truly yours,
/s/ Fredrikson & Byron, P.A.
FREDRIKSON & BYRON, P.A.
Exhibit 8
FORM OF OPINION AND CONSENT OF PRESTON GATES & ELLIS LLP
_______________, 1998
Physio-Control International Corporation
11811 Willows Road N.E.
Redmond, WA 98073-9706
Re: Merger of PC Merger Corp., a Washington corporation and wholly-owned
subsidiary of Medtronic, Inc., with and into Physio-Control International
Corporation
Ladies and Gentlemen:
We have acted as counsel to Physio-Control International Corporation ("Company")
in connection with the planned merger (the "Merger") into Company of PC Merger
Corp., a Washington corporation ("Merger Subsidiary"), which is a newly formed
and wholly-owned subsidiary of Medtronic, Inc., a Minnesota corporation
("Parent"), pursuant to an Agreement and Plan of Merger dated as of June 27,
1998 (the "Agreement") by and among Company, Parent, and Merger Subsidiary. This
opinion is being delivered to you pursuant to Section 6.3(e) of the Agreement.
Unless otherwise specified, capitalized terms shall have the meaning assigned to
such terms in the Agreement. All section references unless otherwise indicated
are to the Internal Revenue Code of 1986, as amended (the "Code").
For the purpose of rendering this opinion, we have examined and are relying upon
(without any independent investigation or review thereof) the truth and accuracy
at all relevant times of the statements, covenants, representations and
warranties contained in the following documents:
the Agreement;
the Proxy Statement/Prospectus jointly filed by the Company and Parent
with the Securities and Exchange Commission ("SEC") in connection with
the Merger (the "Proxy Statement/Prospectus");
the representation letters dated the date hereof which were provided to
us by Company and Parent, forms of which are attached hereto as
exhibits; and
such other instruments and documents related to the formation,
organization, and operation of the Company, Parent and Merger
Subsidiary, the consummation of the Merger, and the transactions
contemplated thereby as we deemed necessary or appropriate.
In reviewing these documents, we have assumed that original documents (including
signatures) are authentic, documents submitted to us as copies conform to the
original documents, and there has been, or will be by the Effective Time, due
execution and delivery of all documents where executions and delivery are
prerequisites to the effectiveness thereof. In addition, we assume that the
Merger will be consummated in accordance with the Agreement and as described in
the Proxy Statement/Prospectus.
Any inaccuracy in any of the aforementioned statements, representations, and
assumptions or breach of any of the aforementioned covenants could adversely
affect our opinion.
On the basis of and subject to the foregoing and subject to the limitations set
forth below, it is our opinion that, under presently applicable federal income
tax law, the Merger will be a tax-free reorganization within the meaning of
sections 368(a)(1)(A) and 368(a)(2)(E) of the Code and that the Company, Parent
and Merger Subsidiary will each be "a party to a reorganization" within the
meaning of section 368(b) of the Code. As a result, the following U.S. federal
income tax consequences will occur:
No gain or loss will be recognized by Company as a result of the
Merger.
No gain or loss will be recognized by holders of Company Common Stock
upon their receipt in the Merger of Parent Common Stock in exchange
therefor.
The tax basis of the shares of Parent Common Stock received by a
Company shareholder in the Merger will be the same as the tax basis of
the Company Common Stock surrendered in exchange therefor.
The holding period of the shares of Parent Common Stock received by a
Company shareholder in the Merger will include the holding period of
the Company Common Stock surrendered in exchange therefor, provided
that such shares of Company Common Stock are held as capital assets at
the Effective Time.
Gain or loss will be recognized with respect to cash received in lieu
of fractional shares of Parent Common Stock in an amount equal to the
difference between the cash received and the basis that such
shareholder would have had in such fractional share of Parent Common
Stock if such fractional share had actually been received.
It is also our opinion that the discussion in the Proxy Statement/Prospectus
under the caption "Certain Federal Income Tax Consequences" insofar it
constitutes statements of United States federal income tax law or legal
conclusions, subject to the assumptions, limitations and qualification set forth
therein, is a fair and accurate summary of such matters.
Our opinions are based on our interpretation of the Code, applicable Treasury
regulations, judicial authority, and administrative rulings and practice, all as
of the date hereof. There can be no assurance that future legislative, judicial
or administrative changes or interpretations will not adversely affect the
accuracy of the conclusions set forth herein. We do not undertake to advise you
as to any such future changes or interpretations unless we are specifically
retained to do so. Our opinion will not be binding upon the Internal Revenue
Service (the "Service"), and the Service will not be precluded from adopting a
contrary position.
No opinion is expressed as to any matter not specifically addressed above
including, without limitation, the tax consequences of the Merger under any
foreign, state, or local tax law or the tax consequences of any transaction
other than the Merger. Moreover, tax consequences which are different from or in
addition to those described herein may apply to Company shareholders who are
subject to special treatment under the U.S. federal income tax laws, such as
foreign persons and persons who acquired their shares in compensatory
transactions.
If the Service successfully challenged the status of the Merger as a tax-free
reorganization, a Company shareholder would recognize a gain or loss in an
amount equal to the difference between the shareholder's basis in his or her
Company Common Stock and the fair market value, as of the Effective Time, of the
Parent Common Stock received in exchange therefor. In such event, the
shareholder's basis in the Parent Common Stock so received would be equal to its
fair market value as of the Effective Time, and the holding period for such
stock would begin on the day after the Effective Time. A Company shareholder
would also recognize gain or loss on any cash received in lieu of fractional
shares in an amount equal to the difference between the cash received and the
basis that such shareholder would have had in such fractional share of Parent
Common Stock if such fractional share had actually been received.
This opinion may not be relied upon by any person other than the Company and its
shareholders; nor may it be filed with any governmental agency or be used for
any other purpose; except that we hereby consent to the filing of this opinion
as an exhibit to the Registration Statement on Form S-4 of Medtronic, Inc. in
which the Proxy Statement/Prospectus forms a part, and to the references to
Preston Gates & Ellis, LLP under the captions "The Merger--Federal Income Tax
Consequences" and "Legal Matters" in the Proxy Statement/Prospectus.
Very truly yours,
Preston Gates & Ellis LLP
By
Lance W. Behnke
Attachments
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of Medtronic, Inc. of our report dated May 26, 1998, which appears on page 5
of Medtronic's 1998 Annual Report--Financial Review, which is incorporated by
reference in its Annual Report on Form 10-K for the year ended April 30, 1998.
We also consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 14 of such Annual Report on Form 10-K.
We also consent to the reference to us under the heading "Experts" in the Proxy
Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
July 21, 1998
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of Medtronic, Inc. of our report dated January 27, 1998, appearing on page
21 of Physio-Control International Corporation's Annual Report on Form 10-K for
the year ended December 31, 1997. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule, which appears on
page 47 of such Annual Report on Form 10-K. We also consent to the reference to
us under the heading "Experts" in the Proxy Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Seattle, Washington
July 21, 1998
Exhibit 23.5
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
We hereby consent to inclusion of our opinion as Appendix D to the Proxy
Statement/Prospectus of Physio-Control International Corporation and
Registration Statement on Form S-4 of Medtronic, Inc., and further consent to
reference therein to such opinion under the headings "The Merger--Opinion of
Physio-Control's Financial Advisor" and "Summary" and in the Physio-Control
letter to shareholders regarding the proposed Merger. In giving such consent, we
do not admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations thereunder, nor do we admit that we are experts with respect to
any part of the Registration Statement within the meaning of the term "experts"
as used in the Securities Act of 1933, as amended, or the rules and regulations
of the Securities and Exchange Commission thereunder.
/s/ Morgan Stanley & Co. Incorporated
MORGAN STANLEY & CO. INCORPORATED
July 23, 1998
Exhibit 24
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each of the undersigned directors and
officers of Medtronic, Inc., a Minnesota corporation ("Medtronic"), hereby
constitutes and appoints WILLIAM W. GEORGE and RONALD E. LUND, or either of
them, their true and lawful attorneys-in-fact and agents, each with full power
and authority to act as such without the other, with full power of substitution
and resubstitution, for the undersigned and in the undersigned's name, place and
stead, in any and all capacities, to do any and all acts and things and to
execute any and all instruments that any of said attorneys and agents may deem
necessary or advisable in connection with Medtronic's acquisition of
Physio-Control International Corporation, to enable Medtronic to comply with the
Securities Act of 1933, as amended, with any regulations, rules or requirements
of the Securities and Exchange Commission thereunder, and with any state Blue
Sky laws or regulations in connection therewith, including specifically, but
without limiting the generality of the foregoing, power and authority to sign
the names of the undersigned to the Registration Statement on Form S-4, to any
amendment to such Registration Statement, and to any other registration
statement, prospectus, instrument or document filed with said Commission as a
part of or in connection with such Registration Statement or any amendment
thereto; and the undersigned hereby ratify and confirm all that said attorneys
and agents, or their substitutes or resubstitutes, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these presents
effective as of the 25th day of June, 1998.
/s/ William R. Brody, M.D., Ph.D. /s/ Glen D. Nelson, M.D.
William R. Brody, M.D., Ph.D. Glen D. Nelson, M.D.
/s/ Paul W. Chellgren /s/ Robert L. Ryan
Paul W. Chellgren Robert L. Ryan
/s/ Arthur D. Collins, Jr. /s/ Richard L. Schall
Arthur D. Collins, Jr. Richard L. Schall
/s/ William W. George /s/ Jack W. Schuler
William W. George Jack W. Schuler
/s/ Antonio M. Gotto, Jr., M.D. /s/ Gerald W. Simonson
Antonio M. Gotto, Jr., M.D. Gerald W. Simonson
/s/ Bernadine P. Healy, M.D. /s/ Gordon M. Sprenger
Bernadine P. Healy, M.D. Gordon M. Sprenger
/s/ Thomas E. Holloran /s/ Richard A. Swalin, Ph.D.
Thomas E. Holloran Richard A. Swalin, Ph.D.
Exhibit 99.1
PHYSIO-CONTROL
SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned shareholder hereby appoints Richard O. Martin and V.
Marc Droppert and each of them as proxies, each with full power of substitution,
to vote as designated below all shares of common stock of Physio-Control
International Corporation held of record as of __________, 1998, which the
undersigned would be entitled to vote if personally present at the Special
Meeting of Shareholders to be held on ___________, 1998, at 9:00 a.m., local
time, at 11811 Willows Road NE, Redmond, Washington, and at any adjournment or
adjournments thereof, upon the following matters:
Proposal to approve the Plan of Merger and the Agreement and Plan of
Merger providing for the merger of PC Merger Corp. into Physio-Control
International Corporation, with Physio-Control International Corporation to be
the surviving corporation and a wholly-owned subsidiary of Medtronic, Inc.,
copies of which Plan of Merger and Agreement and Plan of Merger are attached as
Appendices A and B to the Proxy Statement/Prospectus for the Special Meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed and dated on the other side)
This proxy will be voted as specified by the shareholder, but if no
choice is specified, this proxy will be voted FOR approval of the Agreement and
Plan of Merger.
IMPORTANT: Please sign exactly as name or names appear on this Proxy.
Joint owners should each sign personally. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title as such. When
signing as a corporation or a partnership, please sign in the name of the entity
by an authorized person.
Dated: __________________ ______________________________________________
(Please sign name exactly as it appears hereon)
______________________________________________
(Signature of joint owner, if any)
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY
IN THE ENCLOSED PROXY RETURN ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. IF AN ENVELOPE IS NOT ENCLOSED OR HAS
BEEN MISPLACED, PLEASE RETURN THIS COMPLETED
PROXY TO ____________________________________.
