<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1998
REGISTRATION NO: 333-68677
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------
MEDTRONIC, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 3845 41-0793183
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
</TABLE>
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. CREIGHTON O'M. CONDON, ESQ.
MARY E. STRAND, ESQ. Shearman & Sterling
Fredrikson & Byron, P.A. 599 Lexington Avenue
900 Second Avenue South, Suite 1100 New York, New York 10022-6069
Minneapolis, Minnesota 55402-3397 (212) 848-4000
(612) 347-7000
------------------------------
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. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE FEE(2)(3)
<S> <C> <C> <C> <C>
Common stock, par value $.10 per share(4)... 55,309,914 shares Not Applicable Not Applicable $870,265.10
</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 Sofamor Danek
Group, Inc. common stock at the Merger's Effective Time (27,400,000) and
assuming the Average Stock Price for Medtronic, Inc. common stock is equal
to or less than $56.97, resulting in the maximum Conversion Ratio of 2.01861
Medtronic, Inc. shares issued for each Sofamor Danek Group, Inc. 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 0.000278 multiplied by the product of (A) 27,400,000, the
anticipated maximum number of Sofamor Danek Group, Inc. shares that may be
exchanged pursuant to the Merger, multiplied by (B) $114.25, the average of
the high and low sale prices of Sofamor Danek Group, Inc. common stock as
reported by the New York Stock Exchange on December 7, 1998, which date was
within five business days prior to the date of the original filing of the
Registration Statement on December 10, 1998.
(3) The entire registration fee was paid at the time of original filing of the
Registration Statement on December 10, 1998.
(4) 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.
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<PAGE>
[LOGO]
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Board of Directors of Sofamor Danek Group, Inc. has unanimously approved a
merger between Sofamor Danek and a subsidiary of Medtronic, Inc. As a result of
the proposed merger, Sofamor Danek will become a wholly-owned subsidiary of
Medtronic and you will become shareholders of Medtronic. The Sofamor Danek Board
believes that the merger will allow the combined company to develop new and
better products and devices more quickly and to deliver these products and
devices to physicians and their patients faster, more cost-effectively, and with
better customer support.
I cordially invite you to attend our special meeting of shareholders to vote on
a proposal to approve the plan of merger and the merger agreement. We cannot
complete the merger unless the holders of a majority of the shares of Sofamor
Danek common stock approve it.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO YOU AND IN
YOUR BEST INTERESTS. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
THE MERGER AT THE SPECIAL MEETING.
If the merger is completed, you will receive $115 in shares of Medtronic common
stock in exchange for each share of Sofamor Danek common stock that you own, if
the average price of Medtronic common stock during a 15-trading-day period
before the shareholder meeting is between $56.97 and $69.63 per share. You will
receive 2.01861 Medtronic shares per Sofamor Danek share if the price is below
$56.97 and 1.65159 shares if the price is above $69.63.
YOUR VOTE AT THE SPECIAL MEETING, IN PERSON OR BY PROXY, IS VERY IMPORTANT. Even
if you plan to attend the meeting, please mark, sign, and return the enclosed
proxy card promptly, so that your shares of common stock are voted at the
special meeting. If you do not return your proxy card, the effect will be a vote
against the merger unless you attend the meeting and vote for the merger. If you
do attend the meeting, you can of course vote your shares in person.
The date, time, and place of the meeting are:
January 27, 1999
9:00 a.m., local time
Sofamor Danek Group, Inc.
1800 Pyramid Place
Memphis, Tennessee 38132
This Proxy Statement/Prospectus gives you detailed information about the merger.
You can also obtain information about Sofamor Danek and Medtronic from documents
filed with the Securities and Exchange Commission. Please read this entire
document carefully.
WE ENTHUSIASTICALLY SUPPORT THE MERGER AND URGE YOU TO VOTE "FOR" THE PLAN OF
MERGER AND THE MERGER AGREEMENT.
Thank you, and I look forward to seeing you at the special meeting.
[SIGNATURE]
E.R. Pickard
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE MEDTRONIC SECURITIES TO BE ISSUED IN
THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/ PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Proxy Statement/Prospectus dated December 22, 1998, and first mailed
to shareholders on or about December 24, 1998
<PAGE>
SOFAMOR DANEK GROUP, INC.
1800 PYRAMID PLACE
MEMPHIS, TENNESSEE 38132
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 27, 1999
------------------------
To the Shareholders of Sofamor Danek Group, Inc.:
A Special Meeting of the shareholders of Sofamor Danek Group, Inc. ("Sofamor
Danek") will be held at Sofamor Danek's corporate headquarters, located at 1800
Pyramid Place, Memphis, Tennessee, on Wednesday, January 27, 1999, at 9:00 a.m.,
local time, for the following purposes:
1. To consider and vote upon a proposal to approve a Plan of Merger and an
Agreement and Plan of Merger dated as of November 1, 1998 (the "Merger
Agreement"), among Medtronic, Inc. ("Medtronic"), MSD Merger Corp.
("Merger Subsidiary"), and Sofamor Danek. Pursuant to the Merger
Agreement and the Plan of Merger (a) Merger Subsidiary will be merged
into Sofamor Danek and Sofamor Danek will become a wholly-owned
subsidiary of Medtronic, and (b) holders of Sofamor Danek common stock
will receive shares of Medtronic common stock based upon the conversion
ratio described in the accompanying Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement, including a proposal to
adjourn or postpone the Special Meeting.
The record date for the Special Meeting is the close of business on December
21, 1998. Only Sofamor Danek shareholders of record at that time are entitled to
notice of and to vote at the Special Meeting or any adjournment or postponement
of it. To approve the merger, the holders of a majority of the outstanding
shares of Sofamor Danek common stock must vote in favor of the merger.
Under Indiana law, Sofamor Danek shareholders do not have a right to dissent
from the merger and obtain payment in cash for their shares.
The attached Proxy Statement/Prospectus contains more detailed information
regarding the merger, the Plan of Merger, and Merger Agreement and includes a
copy of those documents.
YOUR VOTE IS IMPORTANT. EVEN IF YOU EXPECT TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. IF NO INSTRUCTIONS ARE INDICATED ON YOUR PROXY,
YOUR SHARES WILL BE VOTED "FOR" THE MERGER. IF YOU DO NOT RETURN YOUR PROXY OR
VOTE IN PERSON, THE EFFECT IS A VOTE AGAINST THE MERGER. YOU CAN REVOKE YOUR
PROXY AT ANY TIME BEFORE IT IS EXERCISED BY GIVING WRITTEN NOTICE TO THE
SECRETARY OF SOFAMOR DANEK, OR FILING ANOTHER PROXY, OR ATTENDING THE SPECIAL
MEETING AND VOTING IN PERSON.
THE SOFAMOR DANEK BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE MERGER.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
Stephen S. Phillips
SECRETARY
December 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER....... 1
SUMMARY...................................... 2
SPECIAL MEETING.............................. 11
Date, Place, and Time........................ 11
Purpose...................................... 11
Record Date; Voting Rights; Quorum;
Required Vote.............................. 11
Recommendation of Board of Directors of
Sofamor Danek.............................. 12
Proxies; Revocation.......................... 12
Solicitation of Proxies...................... 12
THE MERGER................................... 13
General...................................... 13
Effective Time of the Merger................. 13
Background of the Merger..................... 13
Sofamor Danek's Reasons for the Merger;
Recommendation of the Sofamor Danek Board
of Directors............................... 16
Medtronic's Reasons for the Merger........... 17
Opinion of Sofamor Danek's Financial
Advisor.................................... 17
Conversion of Sofamor Danek Common Stock in
the Merger................................. 21
Shareholder Rights Plan...................... 22
Treatment of Stock Options................... 23
Representations and Warranties............... 23
Certain Covenants by Sofamor Danek........... 23
Certain Covenants by Medtronic............... 24
Interests of Sofamor Danek's Directors and
Officers in the Merger..................... 25
Voting Agreements............................ 27
Stock Option Agreement....................... 27
Conditions to Consummation of the Merger;
Waiver..................................... 27
Amendment and Termination of the Merger
Agreement; Effects of Termination.......... 28
Expenses and Fees............................ 30
Restrictions on Resale of Medtronic Common
Stock...................................... 30
Deregistration of Sofamor Danek Common
Stock...................................... 31
Accounting Treatment of the Merger........... 31
Certain Federal Income Tax Consequences...... 31
<CAPTION>
PAGE
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<S> <C>
Indemnification.............................. 32
Regulatory Requirements...................... 33
No Dissenters' Rights........................ 33
COMPARATIVE STOCK PRICES AND DIVIDENDS....... 34
RECENT DEVELOPMENTS.......................... 35
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS....................... 36
COMPARISON OF RIGHTS OF MEDTRONIC AND SOFAMOR
DANEK SHAREHOLDERS......................... 44
Classification, Removal, and Nomination of
Directors.................................. 44
Preferred Stock.............................. 45
Special Meetings of Shareholders............. 46
Voting Rights; Shareholder Approvals......... 46
Cumulative Voting............................ 46
Preemptive Rights............................ 46
Amendment of the Articles of Incorporation... 46
Business Combinations and Control Share
Acquisitions............................... 47
Shareholder Rights Plan...................... 47
Related Person Business Transactions......... 48
CERTAIN TRANSACTIONS AND RELATIONSHIPS
BETWEEN SOFAMOR DANEK AND MEDTRONIC........ 49
LEGAL MATTERS................................ 49
EXPERTS...................................... 49
WHERE YOU CAN FIND MORE INFORMATION.......... 49
FORWARD-LOOKING INFORMATION.................. 51
LIST OF ANNEXES
ANNEX A--Plan of Merger
ANNEX B--Agreement and Plan of Merger
ANNEX C--Opinion of J.P. Morgan Securities
Inc.
</TABLE>
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. PLEASE DESCRIBE THE MERGER.
A. In the merger, Sofamor Danek will merge with a subsidiary of Medtronic and
become a wholly-owned subsidiary of Medtronic.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. If the merger is completed, you will receive $115 in shares of Medtronic
common stock in exchange for each share of Sofamor Danek common stock that you
own, if the average price of Medtronic stock during the 15 trading days ending
on the second trading day before the Special Meeting of Sofamor Danek's
shareholders is between $56.97 and $69.63 per share.
- If the average price is $56.97 or less, each Sofamor Danek share will
convert into 2.01861 Medtronic shares.
- If the average price is between $56.97 and $69.63, each Sofamor Danek
share will convert into the number of Medtronic shares equal to $115
divided by the average price.
- If the average price is $69.63 or more, each Sofamor Danek share will
convert into 1.65159 Medtronic shares.
You will receive cash instead of any fractional Medtronic shares that you would
otherwise receive, based on the average price.
Q. WHAT DO I NEED TO DO NOW?
A. Please sign, date, and mail your proxy card in the enclosed return envelope
as soon as possible. You can also attend the Special Meeting in person and vote,
even though you already returned your proxy card.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A. Just send in a later-dated, signed proxy card before the Special Meeting or
attend the meeting in person and vote.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. Your broker will vote your shares only if you provide instructions on how to
vote. You should instruct your broker to vote your shares, following the
directions your broker gives you.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After we complete the merger, we will send you written instructions that
describe how to exchange your Sofamor Danek stock certificates for Medtronic
stock certificates.
Q. WILL I OWE FEDERAL INCOME TAX ON WHAT I RECEIVE IN THE MERGER?
A. We expect that your exchange of Sofamor Danek stock for Medtronic stock will
be tax free for U.S. federal tax purposes, except to the extent you receive cash
for fractional Medtronic shares. The tax consequences of the merger to you will
depend on your own situation. You should talk to your tax advisor.
Q. WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A. We are working toward completing the merger as quickly as possible.
Medtronic and Sofamor Danek need to obtain both Sofamor Danek shareholder
approval and regulatory approvals. Medtronic shareholders do not need to approve
the merger. We hope to complete the merger shortly after the Special Meeting, if
regulatory approvals and other required matters are completed by that time.
Q. WHOM SHOULD I CALL WITH QUESTIONS?
A. If you have any questions about the merger, please call Sofamor Danek
Investor Relations, at (901) 396-2695.
1
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE
DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ CAREFULLY THIS
ENTIRE DOCUMENT AND THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU
CAN FIND MORE INFORMATION" ON PAGE 49. WE HAVE INCLUDED PAGE REFERENCES IN
PARENTHESES TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF SOME OF THE TOPICS
PRESENTED IN THIS SUMMARY.
THE COMPANIES
SOFAMOR DANEK GROUP, INC.
1800 Pyramid Place
Memphis, Tennessee 38132
(901) 396-2695
Sofamor Danek, an Indiana corporation founded in 1983, is primarily involved in
developing, manufacturing, and marketing devices, instruments, computer-assisted
visualization products, and biomaterials used in the treatment of spinal and
cranial disorders. In addition to its leadership position in the worldwide
spinal implant market, Sofamor Danek provides a comprehensive line of products
for the spinal surgeon and neurosurgeon.
MEDTRONIC, INC.
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
(612) 514-4000
Medtronic, a Minnesota corporation founded in 1957, is the world's leading
medical technology company specializing in implantable and interventional
therapies. Its primary products include those for bradycardia pacing,
tachyarrhythmia management, atrial fibrillation management, heart failure
management, coronary and peripheral vascular disease, heart valve replacement,
extracorporeal cardiac support, minimally invasive cardiac surgery, malignant
and non-malignant pain, movement disorders, neurosurgery, and neurodegenerative
disorders. Medtronic serves customers and patients in more than 120 countries.
THE SPECIAL MEETING (PAGE 11)
The Special Meeting will be held on January 27, 1999, at 9:00 a.m., local time,
at Sofamor Danek's corporate headquarters, located at 1800 Pyramid Place,
Memphis, Tennessee. At the Special Meeting, you will be asked to approve the
plan of merger and the merger agreement.
RECOMMENDATION TO SOFAMOR DANEK SHAREHOLDERS (PAGE 12)
The Sofamor Danek Board of Directors believes that the merger is in the best
interests of Sofamor Danek and its shareholders. The Board unanimously
recommends that you vote "FOR" approval of the plan of merger and the merger
agreement.
RECORD DATE
You can vote at the Special Meeting only if you owned shares of Sofamor Danek
common stock at the close of business on December 21, 1998, which was the record
date.
VOTE REQUIRED TO APPROVE THE MERGER
The merger requires the approval of the holders of a majority of the outstanding
shares of Sofamor Danek common stock. If you do not return your proxy or vote in
person, it will have the effect of a vote against the merger. Brokers who hold
your shares of Sofamor Danek common stock as nominees cannot vote those shares
unless you instruct them to, following the directions they give you.
2
<PAGE>
Medtronic shareholders do not need to vote to approve the merger.
VOTING POWER; VOTING BY MANAGEMENT
On the record date, 27,093,919 shares of Sofamor Danek common stock were
outstanding. Of these, 2,384,726 shares (approximately 8.8% of the shares
entitled to vote) were beneficially owned by directors and executive officers of
Sofamor Danek (not including options held by such persons).
Certain of Sofamor Danek's directors and executive officers, who collectively
beneficially own 2,321,986 shares (or 8.6%) of Sofamor Danek's outstanding
shares (not including options held by such persons), have executed voting
agreements in which they have agreed to vote the Sofamor Danek common stock
owned by them in favor of the merger.
REVOKING PROXIES (PAGE 12)
You can revoke a proxy previously given by you by giving written notice to the
Secretary of Sofamor Danek, by filing another proxy, or by attending the Special
Meeting and voting in person.
SUMMARY OF THE MERGER
THE PLAN OF MERGER (ANNEX A) AND THE MERGER AGREEMENT (ANNEX B) ARE ATTACHED AT
THE BACK OF THIS PROXY STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE PLAN
OF MERGER AND THE MERGER AGREEMENT, AS THEY ARE THE LEGAL DOCUMENTS THAT GOVERN
THE MERGER.
In the proposed merger, a subsidiary of Medtronic will merge into Sofamor Danek,
and Sofamor Danek will become a wholly-owned subsidiary of Medtronic. You will
receive shares of Medtronic common stock in exchange for your shares of Sofamor
Danek common stock.
EFFECTIVE TIME OF THE MERGER
Medtronic and Sofamor Danek hope to complete the merger shortly after the
Special Meeting, if regulatory approvals and other required matters are
completed by that time.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 21)
If the merger is completed, you will receive $115 in Medtronic common stock for
each share of Sofamor Danek common stock that you own, if the average closing
price of Medtronic stock is between $56.97 and $69.63 during the period
described in the next paragraph.
The exact number of Medtronic shares that you will receive in exchange for each
Sofamor Danek share will equal $115 divided by the average closing price of
Medtronic common stock during the 15 trading days ending on the second trading
day before the Special Meeting. However, if the average price is $56.97 or less,
each Sofamor Danek share will convert into 2.01861 Medtronic shares, and if the
average price is $69.63 or more, each Sofamor Danek share will convert into
1.65159 Medtronic shares.
Each share of Medtronic common stock that you receive in the merger will also
represent one preferred stock purchase right under Medtronic's Shareholder
Rights Plan.
Medtronic will not issue any fractional shares. Instead, you will receive cash
for any fractional share of Medtronic common stock owed to you, based on the
average price of Medtronic common stock described above.
Please do not send in your stock certificates until you receive written
instructions to do so, after the merger.
WHAT HAPPENS TO STOCK OPTIONS (PAGE 23)
Following the merger, each outstanding option that you hold to buy Sofamor Danek
common stock that was granted under one of Sofamor Danek's stock option plans
will become an option to buy Medtronic common stock. Your options will continue
to be governed by the Sofamor Danek stock option plans. However, the number of
shares of Medtronic common stock that you can purchase by exercising the
options, and the exercise price, will be adjusted to reflect the conversion
ratio in the merger.
3
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (PAGE 31)
We expect that neither Sofamor Danek nor its shareholders will recognize gain or
loss for U.S. federal income tax purposes as a result of the merger, except for
any taxes payable by Sofamor Danek shareholders on their receipt of cash instead
of fractional Medtronic shares. Sofamor Danek has received a legal opinion from
its counsel regarding these tax consequences.
TAX MATTERS ARE COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL
DEPEND ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO CONTACT YOUR OWN TAX
ADVISOR TO UNDERSTAND FULLY HOW THE MERGER WILL AFFECT YOU, INCLUDING HOW ANY
STATE, LOCAL, OR FOREIGN TAX LAWS MAY APPLY TO YOU.
SOFAMOR DANEK'S REASONS FOR THE MERGER (PAGE 16)
The Sofamor Danek Board believes that the merger offers you the opportunity to
own stock in a significantly larger and more actively traded business enterprise
with potentially greater growth opportunities compared with the opportunities
available to Sofamor Danek as an independent company. The Sofamor Danek Board
believes that the merger with Medtronic will allow the combined company to
develop new and better products and devices more quickly and to deliver these
products and devices to doctors and their patients faster, more
cost-effectively, and with better customer support.
FAIRNESS OPINION OF SOFAMOR DANEK'S FINANCIAL ADVISOR (PAGE 17)
In deciding to approve the merger, the Sofamor Danek Board considered an opinion
from its financial advisor, J.P. Morgan Securities Inc., that, as of the date of
such opinion, the consideration to be paid to Sofamor Danek's shareholders in
the merger is fair, from a financial point of view, to those shareholders. The
full text of the written opinion of J.P. Morgan is attached as Annex C to this
Proxy Statement/Prospectus. We encourage you to read this opinion.
INTERESTS OF SOFAMOR DANEK'S OFFICERS AND
DIRECTORS IN THE MERGER (PAGE 25)
When considering the recommendation by the Sofamor Danek Board to vote "FOR" the
merger, you should be aware that certain directors and officers of Sofamor Danek
have stock options, indemnification rights, change-in-control agreements or
rights, and other agreements or benefit plans that may provide them with
interests in the merger that are in addition to, and may conflict with, the
interests of shareholders of Sofamor Danek generally. The Sofamor Danek Board
was aware of these interests and considered them in approving the merger.
REGULATORY APPROVALS (PAGE 33)
Medtronic and Sofamor Danek must both make filings with or obtain approvals from
certain United States and international antitrust authorities before they can
complete the merger. Medtronic and Sofamor Danek have each filed the required
notification and report forms with the United States antitrust agencies and the
applicable waiting period under United States antitrust laws has expired.
CONDITIONS TO THE MERGER (PAGE 27)
The merger will be completed only if certain conditions, including the
following, are met:
- the Sofamor Danek shareholders approve the merger;
- the parties receive approvals, or waiting periods terminate, under
regulatory laws;
- no laws, court orders, or other legal prohibitions prevent the merger;
- Sofamor Danek and Medtronic both receive opinions from their accountants
that the merger qualifies for pooling of interests accounting treatment;
and
- Sofamor Danek receives an opinion from its tax counsel that the merger
will qualify as a tax-free transaction.
4
<PAGE>
TERMINATION OF THE MERGER AGREEMENT (PAGE 28)
Even if the Sofamor Danek shareholders approve the merger, Medtronic and Sofamor
Danek can agree at any time to terminate the merger agreement without completing
the merger. The merger agreement can also be terminated if any of the following
occurs:
- the merger is not completed by April 30, 1999 (or, if there is additional
regulatory review, September 30, 1999);
- a court or other governmental authority prohibits the merger; or
- the Sofamor Danek shareholders do not approve the merger.
Medtronic can terminate the merger agreement if the Sofamor Danek Board approves
or permits a different acquisition proposal, or otherwise changes its
recommendation of the merger.
Sofamor Danek can also terminate the merger agreement if it accepts a more
favorable acquisition proposal, Medtronic does not match the proposal, and
Sofamor Danek pays a termination fee to Medtronic.
TERMINATION FEES AND EXPENSES (PAGE 28)
Sofamor Danek must pay Medtronic a termination fee of $105 million in cash if
the merger agreement is terminated in any of the following circumstances:
- the Sofamor Danek Board recommends or approves a different acquisition
proposal or does not recommend against a competing tender offer or
exchange offer;
- the Sofamor Danek Board changes its recommendation of the merger (but only
if a different acquisition proposal has been made);
- Sofamor Danek accepts a more favorable acquisition proposal and Medtronic
does not match the proposal; or
- the Sofamor Danek shareholders do not approve the merger (but only if a
different acquisition proposal has been announced and, within 12 months
after the termination, Sofamor Danek enters into an agreement relating to
a different acquisition proposal).
In addition, if Medtronic terminates the merger agreement after the Sofamor
Danek Board changes its recommendation of the merger, then (even if a different
acquisition proposal has not been made), Sofamor Danek must pay Medtronic a
termination fee of $65 million. If Sofamor Danek then enters into an agreement
relating to a different acquisition proposal within 12 months, Sofamor Danek
must pay Medtronic an additional fee of $40 million.
STOCK OPTION AGREEMENT (PAGE 27)
Medtronic and Sofamor Danek have also entered into a stock option agreement,
which gives Medtronic an option to purchase from Sofamor Danek up to 19.9% of
Sofamor Danek's common stock for an exercise price of $115 per share. The option
becomes exercisable only if certain events related to termination of the merger
agreement occur. Medtronic can also, upon certain events related to termination
of the merger agreement, require Sofamor Danek to repurchase the option. The sum
of any termination fee and the amount paid to repurchase the option can never
exceed $105 million.
SOFAMOR DANEK CANNOT SOLICIT OTHER OFFERS (PAGE 24)
Sofamor Danek has agreed not to encourage, solicit, discuss, or negotiate with
anyone (other than Medtronic) regarding a merger, sale, or license of any
significant portion of Sofamor Danek's assets or stock, unless Sofamor Danek's
Board must do so to meet its fiduciary obligations to the Sofamor Danek
shareholders.
NO DISSENTERS' RIGHTS
Under Indiana law, Sofamor Danek shareholders do not have any right to an
appraisal of the value of their shares in connection with the merger, or to be
paid that value in cash.
5
<PAGE>
ACCOUNTING TREATMENT (PAGE 31)
Medtronic and Sofamor Danek expect the merger to qualify as a "pooling of
interests," which means that they will treat the two companies as if they had
always been combined for accounting and financial reporting purposes.
COMPARATIVE PRICES OF MEDTRONIC AND SOFAMOR DANEK COMMON STOCK (PAGE 34)
Medtronic and Sofamor Danek common stock are both listed on the New York Stock
Exchange. On October 30, 1998, the last trading day before public announcement
of the proposed merger, Medtronic common stock closed at $65.00 and Sofamor
Danek common stock closed at $101.625. On December 17, 1998, Medtronic common
stock closed at $71.9375 and Sofamor Danek common stock closed at $117.875.
FLUCTUATIONS IN MARKET PRICE (PAGE 21)
The number of shares of Medtronic common stock that Sofamor Danek shareholders
will receive in the merger will depend on the market value of Medtronic common
stock during a specific period prior to the Special Meeting. The market value of
Medtronic common stock is likely to change, both before and after the Special
Meeting and the merger. No one can accurately predict what the market value will
be at any particular time.
LISTING OF MEDTRONIC COMMON STOCK
Medtronic will list the shares of its common stock to be issued in the merger on
the New York Stock Exchange.
DIFFERENCES IN RIGHTS OF MEDTRONIC'S AND SOFAMOR DANEK'S SHAREHOLDERS (PAGE 44)
The rights of Sofamor Danek shareholders are governed by Indiana law and the
Articles of
Incorporation and Bylaws of Sofamor Danek. When the merger is completed, Sofamor
Danek shareholders will become shareholders of Medtronic, and their rights will
be governed by Minnesota law and the Articles of Incorporation and Bylaws of
Medtronic. The rights of Sofamor Danek shareholders and Medtronic shareholders
differ in certain respects.
Another significant difference between Medtronic common stock and Sofamor Danek
common stock is that Medtronic has historically paid regular quarterly cash
dividends on Medtronic common stock, and Sofamor Danek has never paid any cash
dividends.
FORWARD-LOOKING STATEMENTS (PAGE 51)
This document (and documents to which we refer you in this document) includes
various forward-looking statements about Medtronic, Sofamor Danek, and the
combined company that are subject to risks and uncertainties. Forward-looking
statements include information concerning future results of operations of
Medtronic, Sofamor Danek, and the combined company. Also, statements that use
the words "anticipates," "believes," "estimates," "expects," "intends," "plans,"
"should," "will," or similar expressions are forward-looking statements. Many
factors, some of which are discussed elsewhere in this document and in documents
to which we have referred you, could affect the future financial results of
Medtronic, Sofamor Danek, and the combined company. These factors could cause
actual results to differ materially from those expressed in forward-looking
statements contained in this document or related documents. These factors
include adverse changes in economic conditions and in the markets served by
Medtronic and Sofamor Danek and a significant delay in the completion of the
merger.
6
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables show summarized historical financial data for each of
Medtronic and Sofamor Danek. Medtronic's historical financial data has been
restated for its merger with Physio-Control International Corporation
("Physio-Control"), which occurred on September 30, 1998. The information in the
following tables is based on historical financial information that the companies
have included in their prior SEC filings. You should read all of the summary
financial information shown in the following tables in connection with this
historical financial information. This historical financial information has also
been incorporated into this document by reference. See "Where You Can Find More
Information" on page 49. Medtronic's, Physio-Control's, and Sofamor Danek's
audited historical financial statements were audited by PricewaterhouseCoopers
LLP, independent accountants.
MEDTRONIC, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
YEAR ENDED APRIL 30, OCTOBER
---------------------------------------------------------- OCTOBER 30,
1994 1995 1996 1997 1998(3) 31, 1997 1998(4)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................................... $1,498,051 $1,892,420 $2,326,836 $2,609,361 $2,783,371 $1,377,508 $1,434,060
Net earnings.................................. 196,410 297,233 436,138 544,584 466,877 294,359 299,435
Basic earnings per share(2)................... 0.42 0.64 0.90 1.12 0.98 0.62 0.62
Earnings per share assuming dilution(2)....... 0.42 0.62 0.89 1.10 0.96 0.61 0.61
Total assets.................................. 1,706,297 2,040,276 2,638,537 2,509,308 2,887,387 2,714,411 3,834,575
Long-term debt................................ 20,232 50,696 40,046 36,116 32,758 36,647 19,534
Cash dividends per share(2)................... 0.08 0.10 0.13 0.19 0.22 0.11 0.13
</TABLE>
SOFAMOR DANEK GROUP, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, --------------------
----------------------------------------------------- SEPT 30, SEPT 30,
1993 1994 1995(5) 1996(6) 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................ $ 161,794 $ 161,677 $ 188,799 $ 244,525 $ 312,902 $ 221,378 $ 283,683
Net earnings............................. 20,425 23,777 4,967 11,267 56,784 40,831 48,119
Basic earnings per share................. 0.85 0.99 0.21 0.46 2.29 1.65 1.83
Earnings per share assuming dilution..... 0.83 0.97 0.20 0.44 2.12 1.54 1.67
Total assets............................. 120,597 141,792 196,613 319,161 385,657 374,529 532,216
Long-term debt........................... 1,103 5,324 28,125 12,300 60,650 70,239 18,067
Cash dividends per share................. 0 0 0 0 0 0 0
</TABLE>
- ------------------------------
(1) Prior to the merger of Medtronic and Physio-Control, Physio-Control reported
its financial results on the basis of a fiscal year ending December 31,
while Medtronic reports its financial results on the basis of a fiscal year
ending April 30. The combined balance sheets of Medtronic at April 30
present the historical financial position of Medtronic at April 30 combined
with the historical financial position of Physio-Control at March 31. The
combined results of operations for the fiscal years ended April 30 represent
the historical results of operations of Medtronic for the fiscal years ended
April 30 combined with the historical results of operations of
Physio-Control for the 12 months ended March 31. The combined balance sheets
of Medtronic at October 31, 1997 present the historical financial position
of Medtronic at that date combined with the historical financial position of
Physio-Control at September 30, 1997. The combined results of operations for
the six months ended October 31, 1997 represent the historical results of
operations of Medtronic for the six months ended on that date combined with
the historical results of operations of Physio-Control for the six months
ended September 30, 1997.
7
<PAGE>
(2) In each of September 1994, September 1995, and September 1997, Medtronic
effected a two-for-one common stock split, paid in the form of a 100% stock
dividend. All references to earnings per share and cash dividends per share
have been restated to reflect these stock splits.
(3) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $205.3 million pre-tax nonrecurring charges
recorded in the third quarter of fiscal 1998.
(4) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $21.1 million pre-tax transaction-related
charges from the merger with Physio-Control.
(5) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of a $45.3 million purchased research and
development charge.
(6) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of a $50.0 million product liability litigation
charge.
8
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables show, for Medtronic and Sofamor Danek, summarized
historical information and summarized pro forma information reflecting the
merger. The pro forma information reflects the "pooling of interests" method of
accounting. The pro forma information, while helpful in showing the financial
characteristics of the combined company under one set of assumptions, does not
attempt to predict or suggest future operating results or financial position. It
also does not necessarily reflect what the historical results of the combined
company would have been if the two companies had been combined earlier. See
"Where You Can Find More Information" on page 49. For further pro forma
financial information regarding this and other pending transactions, see
"Unaudited Pro Forma Condensed Combined Financial Statements" on page 36.
<TABLE>
<CAPTION>
BASIC DILUTED
EARNINGS EARNINGS
FROM FROM
BOOK CONTINUING CONTINUING CASH
VALUE OPERATIONS OPERATIONS DIVIDENDS
----- ---------- ---------- ---------
<S> <C> <C> <C> <C>
MEDTRONIC HISTORICAL PER SHARE DATA(1):
At and for the 6 months ended October 30, 1998(2).......................... $5.95 $0.62 $0.61 $0.13
At and for the fiscal year ended April 30, 1998(3)......................... 4.41 0.98 0.96 0.22
For the fiscal year ended April 30, 1997................................... * 1.12 1.10 0.19
For the fiscal year ended April 30, 1996................................... * 0.90 0.89 0.13
SOFAMOR DANEK HISTORICAL PER SHARE DATA:
At and for the 9 months ended September 30, 1998........................... 14.16 1.83 1.67 0
At and for the 12 months ended March 31, 1998.............................. 12.33 2.42 2.22 0
For the fiscal year ended December 31, 1997................................ 8.39 2.29 2.12 0
For the 12 months ended March 31, 1997(4).................................. * 0.57 0.53 0
For the fiscal year ended December 31, 1996(4)............................. * 0.46 0.44 0
For the 12 months ended March 31, 1996..................................... * 1.53 1.44 0
MEDTRONIC AND SOFAMOR DANEK PRO FORMA COMBINED DATA:
MEDTRONIC PER SHARE PRO FORMA COMBINED DATA(1):
At and for the 6 months ended October 30, 1998(2)(5)....................... 6.17 0.63 0.62 0.12
At and for the fiscal year ended April 30, 1998(3)(6)...................... 4.67 1.02 1.00 0.20
For the fiscal year ended April 30, 1997(4)(7)............................. * 1.06 1.04 0.17
For the fiscal year ended April 30, 1996(8)................................ * 0.90 0.88 0.12
SOFAMOR DANEK PER SHARE EQUIVALENT(9) PRO FORMA
COMBINED DATA:
At and for the 6 months ended October 30, 1998(2)(5)....................... 10.18 1.04 1.02 0.20
At and for the fiscal year ended April 30, 1998(3)(6)...................... 7.71 1.68 1.65 0.33
For the fiscal year ended April 30, 1997(4)(7)............................. * 1.75 1.72 0.28
For the fiscal year ended April 30, 1996(8)................................ * 1.49 1.46 0.19
</TABLE>
- ------------------------------
(1) Medtronic's historical financial data has been restated for its merger with
Physio-Control, which occurred on September 30, 1998. Prior to that merger,
Physio-Control reported its financial results on the basis of a fiscal year
ending December 31, while Medtronic reports its financial results on the
basis of a fiscal year ending April 30. The balance sheets of Medtronic at
April 30 on a combined basis present the historical financial position of
Medtronic at April 30 combined with the historical financial position of
Physio-Control at March 31. The combined results of operations for the
fiscal years ended April 30 represent the historical results of operations
of Medtronic for the fiscal years ended April 30 combined with the
historical results of operations of Physio-Control for the 12 months ended
March 31.
(2) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $21.1 million pre-tax transaction-related
charges from the merger with Physio-Control.
9
<PAGE>
(3) Basic earnings from continuing operations and diluted earnings from
continuing operations reflect the impact of $205.3 million pre-tax
nonrecurring charges recorded in the third quarter of fiscal 1998.
(4) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of a $50.0 million product liability litigation
charge.
(5) The combined pro forma data combine the financial information of Medtronic
at and for the six months ended October 30, 1998 with the financial
information of Sofamor Danek at and for the six months ended September 30,
1998.
(6) 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
Sofamor Danek at and for the 12-month period ended March 31, 1998.
(7) The combined pro forma data combine the financial information of Medtronic
for the year ended April 30, 1997 with the financial information of Sofamor
Danek for the 12-month period ended March 31, 1997.
(8) The combined pro forma data combine the financial information of Medtronic
for the year ended April 30, 1996 with the financial information of Sofamor
Danek for the 12-month period ended March 31, 1996.
(9) The Sofamor Danek per share equivalent pro forma combined information
represents the Medtronic per share pro forma combined net income and book
value multiplied by 1.65159, which is the assumed Conversion Ratio (based on
an assumed Medtronic average stock price of $71.9375, which was the closing
price of Medtronic common stock on December 17, 1998) solely for purposes of
this illustration.
* Disclosure is not required.
10
<PAGE>
SPECIAL MEETING
Medtronic and Sofamor Danek are sending this Proxy Statement/Prospectus to
the shareholders of Sofamor Danek in connection with the solicitation by the
Board of Directors of Sofamor Danek of proxies to be voted at the Special
Meeting. This Proxy Statement/Prospectus is first being mailed to shareholders
of Sofamor Danek on or about December 24, 1998.
DATE, PLACE, AND TIME
The Special Meeting will be held at 9:00 a.m. on January 27, 1999, local
time, at Sofamor Danek's corporate headquarters, located at 1800 Pyramid Place,
Memphis, Tennessee.
PURPOSE
At the Special Meeting, Sofamor Danek shareholders will be asked to vote on
a proposal to approve the Plan of Merger and the Agreement and Plan of Merger
dated as of November 1, 1998 (the "Merger Agreement") attached to this Proxy
Statement/Prospectus as Annexes A and B. Those documents provide for the merger
(the "Merger") of MSD Merger Corp., a wholly-owned subsidiary of Medtronic
("Merger Subsidiary"), with and into Sofamor Danek, as a result of which Sofamor
Danek will become a wholly-owned subsidiary of Medtronic. Other terms and
provisions related to the Merger are contained in the Merger Agreement.
Sofamor Danek shareholders may also be asked to vote upon a proposal to
adjourn or postpone the Special Meeting, in order to (among other things) allow
additional time for the companies to solicit additional votes to approve the
Merger. If any matters other than approval of the Merger are properly presented
for consideration at the Special Meeting, the persons named by shareholders in
the enclosed form of proxy will have discretion, as proxies, to vote on those
matters in accordance with their best judgment.
Under Indiana law, shareholders can consider at the Special Meeting only the
matters contained in the notice for the Special Meeting.
RECORD DATE; VOTING RIGHTS; QUORUM; REQUIRED VOTE
The close of business on December 21, 1998 is the record date for
determining the holders of Sofamor Danek common stock who are entitled to
receive notice of and to vote at the Special Meeting or at any adjournment of
the Special Meeting.
Sofamor Danek has only one class of capital stock outstanding, which is
common stock, without par value. Each holder of Sofamor Danek common stock
outstanding on the record date is entitled to one vote for each share held. The
holders of a majority of the outstanding shares of Sofamor Danek common stock
entitled to vote must be present at the Special Meeting, in person or by proxy,
to constitute a quorum to transact business.
The holders of a majority of the outstanding shares of Sofamor Danek common
stock must vote in favor of the Merger in order to approve the Merger. On the
record date, 27,093,919 shares of Sofamor Danek common stock were outstanding,
held by approximately 825 holders of record. Of such shares, 2,321,986 shares
(approximately 8.6% of the outstanding shares of Sofamor Danek common stock)
were beneficially owned by directors and executive officers of Sofamor Danek
(not including options held by such persons) who have executed voting agreements
under which they agreed to vote shares of Sofamor Danek common stock
beneficially owned by them in favor of the Merger. See "The Merger--Voting
Agreements."
The Board of Directors of Sofamor Danek 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
11
<PAGE>
the Merger. See "The Merger--Background of the Merger." Minnesota law does not
require that Medtronic shareholders approve the Merger. Medtronic, as the sole
shareholder of Merger Subsidiary, has approved the Merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF SOFAMOR DANEK
THE BOARD OF DIRECTORS OF SOFAMOR DANEK RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR THE APPROVAL OF THE PLAN OF MERGER AND THE MERGER AGREEMENT. See "The
Merger--Interests of Sofamor Danek's Directors and Officers in the Merger" for a
discussion of conflicts of interest that certain directors and members of
management may have in connection with the Merger.
PROXIES; REVOCATION
A proxy card is enclosed for use by Sofamor Danek shareholders. The Board of
Directors of Sofamor Danek requests that shareholders SIGN AND RETURN THE PROXY
CARD IN THE ACCOMPANYING ENVELOPE. No postage is required if mailed within the
United States. IF YOU HAVE QUESTIONS OR REQUESTS FOR ASSISTANCE IN COMPLETING
AND SUBMITTING PROXY CARDS, PLEASE CONTACT CORPORATE COMMUNICATIONS, INC., A
FIRM THAT PROVIDES PROFESSIONAL PROXY SOLICITING SERVICES THAT SOFAMOR DANEK HAS
RETAINED, AT THE FOLLOWING ADDRESS AND TELEPHONE NUMBER:
Corporate Communications, Inc.
523 Third Avenue South
Nashville, Tennessee 37210
Telephone: (615) 254-3376
All properly executed proxies that are not revoked will be voted at the
Special Meeting as instructed on those proxies. Proxies containing no
instructions will be voted in favor of the Merger. A shareholder who executes
and returns a proxy may revoke it at any time before it is voted, but only by
executing and returning a proxy bearing a later date, by giving written notice
of revocation to an officer of Sofamor Danek, or by attending the Special
Meeting and voting in person. Abstentions will be treated as shares present in
determining whether Sofamor Danek has a quorum for the Special Meeting, but
abstentions will have the same effect as a vote against approval of the Merger.
If a broker or other record holder or nominee indicates on a proxy that it does
not have direction or authority to vote certain shares, those shares will be
considered present at the Special Meeting for purposes of determining a quorum
but will have the same effect as a vote against approval of the Merger.
SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
SOLICITATION OF PROXIES
In addition to soliciting proxies by mail, Sofamor Danek's directors,
officers, and employees may, if they do not receive extra compensation for doing
so, solicit proxies personally or by telephone or fax. In addition, Sofamor
Danek has retained Corporate Communications, Inc., a firm that provides
professional proxy soliciting services, to assist in soliciting proxies from
brokers, bank nominees, institutional holders, and other Sofamor Danek
shareholders and to serve as information agent in connection with the Merger.
Corporate Communications, Inc. will receive reasonable and customary
compensation for such services and reimbursement of reasonable out-of-pocket
expenses. Sofamor Danek 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
Sofamor Danek common stock held of record by those persons. Sofamor Danek and
Medtronic have agreed to share equally all expenses relating to the printing and
mailing of this Proxy Statement/Prospectus and the filing of it with the
Securities and Exchange Commission (the "SEC").
12
<PAGE>
THE MERGER
THE FOLLOWING SUMMARY OF THE MERGER AND CERTAIN TERMS OF THE MERGER
AGREEMENT AND RELATED MATTERS IS NOT COMPLETE AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE PLAN OF MERGER AND THE MERGER AGREEMENT, WHICH ARE ATTACHED
AS ANNEXES A AND B AND ARE INCORPORATED HEREIN BY REFERENCE.
GENERAL
Medtronic, Merger Subsidiary, and Sofamor Danek have entered into the Merger
Agreement, which provides that Merger Subsidiary will be merged with and into
Sofamor Danek, and Sofamor Danek will become a wholly-owned subsidiary of
Medtronic. In the Merger, Sofamor Danek will change its name to "Medtronic
Sofamor Danek, Inc." Each outstanding share of Sofamor Danek common stock will
be converted at the Effective Time (as defined below) into the right to receive
$115 in shares of Medtronic common stock, if the Average Stock Price (as defined
below) of Medtronic common stock is between $56.97 and $69.63 for a specified
period, as described in further detail below. See "The Merger-- Conversion of
Sofamor Danek 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 Indiana, at
which time the Merger will become effective (the "Effective Time"). It is
presently contemplated that the Effective Time will be as soon as practicable
after approval of the Merger at the Special Meeting. See "The Merger--Conditions
to the Merger; Waiver."
BACKGROUND OF THE MERGER
The terms of the Merger Agreement are the result of arm's-length
negotiations between representatives of Medtronic and Sofamor Danek. The
following is a brief discussion of the background of these negotiations, the
Merger, and related transactions.
On July 7, 1998, John Meslow, the President of Medtronic's Neurological
Division, telephoned L.D. Beard, the retired Chairman of the Sofamor Danek Board
of Directors, and asked whether Mr. Beard could arrange for Ron Pickard, the
Chairman and Chief Executive Officer of Sofamor Danek, to meet with William
George, the Chairman and Chief Executive Officer of Medtronic.
Following this conversation, Mr. Pickard met with Mr. George and Glen
Nelson, M.D., the Vice Chairman of Medtronic, in New York on July 15, 1998. At
this meeting, the parties discussed their respective strategic plans and
business philosophies. At the end of the meeting, Mr. George invited Mr. Pickard
to visit Medtronic's offices to learn more about Medtronic.
In mid-July, Mr. Pickard telephoned representatives of J.P. Morgan
Securities, Inc. ("J.P. Morgan") and outside counsel to Sofamor Danek to request
their assistance in potential discussions with Medtronic.
On August 6, 1998, Mr. Pickard met with Mr. George, Dr. Nelson, and Mr.
Meslow at Medtronic's offices in Minneapolis, Minnesota. At this meeting, the
Medtronic executives discussed Medtronic's business and prospects with Mr.
Pickard. At the end of the meeting, Mr. George asked Mr. Pickard whether Sofamor
Danek might be interested in pursuing some form of strategic partnership with
Medtronic, including a possible business combination between Sofamor Danek and
Medtronic. Mr. Pickard indicated that he would consider the possibility of a
business combination and suggested that it would be advisable for them to visit
Sofamor Danek's offices to learn more about Sofamor Danek and its strategic
direction and vision.
13
<PAGE>
On August 20, 1998, Mr. George, Dr. Nelson, and Michael Ellwein, the Vice
President and Chief Development Officer of Medtronic, met with Mr. Pickard and
Robert Compton, the President and Chief Operating Officer of Sofamor Danek, at
Sofamor Danek's offices in Memphis, Tennessee. At this meeting, the parties
discussed their respective business philosophies and corporate values and the
complementary nature of their product lines. Medtronic expressed its view that
Sofamor Danek's employees and customers could benefit from being associated with
Medtronic. Mr. Pickard indicated that, while Sofamor Danek was not seeking to
pursue a sale, management and the Board of Directors of Sofamor Danek might be
interested in pursuing a strategic transaction that would benefit Sofamor
Danek's shareholders, customers, and employees.
After this meeting, Mr. Pickard advised Dr. Nelson that Medtronic should
have initial discussions on the financial terms of any proposed transaction with
Mr. Beard, a non-executive member of the Sofamor Danek Board of Directors and a
significant shareholder. On September 8, 1998, Mr. Beard met with Dr. Nelson and
Mr. Ellwein in Chicago, Illinois. A representative of Sofamor Danek's outside
counsel was also present. At this meeting, Dr. Nelson indicated that Medtronic
might be interested in acquiring Sofamor Danek at a premium in the range of 30%
to 40% over the then prevailing trading price (approximately $85) of Sofamor
Danek common stock.
Following this meeting, Dr. Nelson and Mr. Ellwein met with Mr. Pickard and
Mr. Beard on September 30, 1998 at Sofamor Danek's offices in Memphis,
Tennessee. At this meeting, Dr. Nelson indicated that Medtronic would be willing
to consider an acquisition that valued Sofamor Danek's common stock at a price
of $113 per share. Mr. Pickard and Mr. Beard indicated that the price was in a
range at which Sofamor Danek was willing to pursue negotiations regarding an
acquisition, but indicated that they were not willing to engage in substantive
price negotiations until an understanding was reached on certain nonfinancial
terms of any proposed merger, such as Medtronic's position with respect to
pending litigation against Sofamor Danek.
On October 1, 1998, Medtronic and Sofamor Danek signed a confidentiality
agreement, pursuant to which the parties agreed to maintain the confidentiality
of information exchanged by Medtronic and Sofamor Danek.
During the period from October 7, 1998 until October 9, 1998,
representatives of Medtronic and outside counsel to Medtronic met on several
occasions with Stephen Phillips, the Executive Vice President and General
Counsel of Sofamor Danek, and representatives of outside counsel to Sofamor
Danek. At these meetings, the parties reviewed the status of certain pending
litigation involving Sofamor Danek, the status of Sofamor Danek's products under
regulations promulgated by the Food & Drug Administration, and Sofamor Danek's
intellectual property.
On October 14, 1998, Mr. Pickard, Mr. Compton, and Mr. Phillips met in
Minneapolis, Minnesota, with Mr. George and several other senior executives of
Medtronic. At this meeting, Mr. Pickard discussed Sofamor Danek's business and
prospects with Medtronic's representatives. After the meeting, Mr. Pickard met
with Mr. George, Dr. Nelson, Mr. Ellwein, and Arthur Collins, the President and
Chief Operating Officer of Medtronic, to discuss the terms of a possible
transaction between the two companies. Medtronic's representatives again
indicated that they were willing to consider an acquisition that valued Sofamor
Danek's common stock at $113 per share. Mr. Pickard indicated that any price
proposal would have to entail an exchange ratio mechanism (a "collar") that
would afford some protection to Sofamor Danek's shareholders in the event of
movements in the trading price of Medtronic common stock. Mr. Pickard also
reiterated the importance of certainty of closing if a transaction was entered
into and requested that Medtronic provide to him a draft of a proposed merger
agreement.
On or about October 16, 1998, Mr. George and Mr. Pickard proposed that any
acquisition of Sofamor Danek would value Sofamor Danek's common stock at $115
per share, subject to the completion of due diligence, the negotiation of
definitive agreements, and agreement on a mutually acceptable exchange ratio
mechanism, including the specifics of a collar mechanism on the exchange ratio.
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On October 19, 1998, Sofamor Danek and J.P. Morgan executed an engagement
letter pursuant to which Sofamor Danek retained J.P. Morgan to provide financial
advisory services to Sofamor Danek in connection with the proposed Merger.
On October 19, 1998, Medtronic's counsel distributed an initial draft merger
agreement to Sofamor Danek and its legal advisors. Between October 19, 1998 and
October 31, 1998, Sofamor Danek and Medtronic and their respective legal counsel
held discussions to negotiate the terms of the Merger Agreement and related
documents.
Between October 20, 1998 and October 26, 1998, Mr. Pickard held continuing
discussions with Sofamor Danek's directors regarding the proposed Merger and the
status of negotiations.
On October 23, 1998, Mr. George and Mr. Pickard confirmed the proposal,
subject to the completion of due diligence and the negotiation of definitive
agreements, that any acquisition of Sofamor Danek would value Sofamor Danek's
common stock at $115 per share, and they also proposed the exchange ratio
mechanism for the Merger.
On October 22, 1998, representatives of J.P. Morgan and Sofamor Danek's
outside counsel met with senior executives of Medtronic at Medtronic's offices
in Minneapolis, Minnesota. At these meetings, the parties discussed Medtronic's
business and financial condition. On October 27, 1998, representatives of
Medtronic visited Sofamor Danek's manufacturing facility in Warsaw, Indiana. On
October 28 and 29, 1998, representatives of Medtronic and outside counsel to
Medtronic conducted additional due diligence at Sofamor Danek's offices in
Memphis, Tennessee.
On October 29, 1998, the Board of Directors of Medtronic approved the
acquisition of Sofamor Danek, subject to final negotiations by senior
management, and authorized Medtronic's officers to undertake all acts necessary
or desirable to effect the Merger.
On October 30, 1998, the Sofamor Danek Board met to discuss the proposed
Merger at a specially convened meeting in Memphis, Tennessee. At this meeting,
representatives of J.P. Morgan made a presentation to the Sofamor Danek Board on
the financial aspects of the proposed merger and representatives of Sofamor
Danek's outside counsel reviewed with the Sofamor Danek Board the principal
transaction documents and explained certain legal aspects of the proposed
merger.
On October 31, 1998, the Sofamor Danek Board met again at a specially
convened meeting in Memphis, Tennessee. At this meeting, the Sofamor Danek Board
again discussed the proposed Merger and the terms of the principal agreements.
Also at this meeting, J.P. Morgan delivered to the Sofamor Danek Board its oral
opinion, subsequently confirmed in writing on November 1, 1998, 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 Sofamor Danek common
stock pursuant to the Merger Agreement was fair from a financial point of view
to such holders. The Sofamor Danek Board then unanimously approved the Merger
Agreement and related documents, authorized Sofamor Danek's officers to execute
the agreements, and unanimously recommended that Sofamor Danek's shareholders
approve the Merger as provided in the Merger Agreement.
On November 1, 1998, representatives of Medtronic and Sofamor Danek executed
the Merger Agreement and Stock Option Agreement. On November 2, 1998, prior to
the opening of trading on the New York Stock Exchange ("NYSE"), Medtronic and
Sofamor Danek issued a joint press release announcing the execution of the
Merger Agreement.
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SOFAMOR DANEK'S REASONS FOR THE MERGER; RECOMMENDATION OF THE SOFAMOR DANEK
BOARD OF DIRECTORS
At a meeting of the Sofamor Danek Board on October 31, 1998, the Sofamor
Danek Board unanimously approved the Merger, the Merger Agreement, and the Plan
of Merger. In reaching its conclusion to approve the Merger, the Sofamor Danek
Board considered the following factors:
- The general business and competitive conditions in its industry. In
particular, the Sofamor Danek Board considered Sofamor Danek's growth
opportunities as an independent company compared with the growth
opportunities available as part of a larger company such as Medtronic. The
Sofamor Danek Board considered that the merger with Medtronic, which has
significant financial resources and a strong reputation and competitive
position in the medical devices industry, would enable Sofamor Danek to
develop new and better products and devices more quickly and to deliver
these products and devices to doctors and their patients faster, more
cost-effectively, and with better customer support.
- The opportunity that the Merger affords Sofamor Danek to offer its
products as part of a broader range of medical products and devices,
thereby reducing the risks inherent in Sofamor Danek's reliance on a
limited number of products.
- The premium that the Merger consideration represents to historical trading
values for Sofamor Danek's common stock and the fact that Medtronic's
common stock has generated significant returns over recent years and is
currently trading at a high price to earnings multiple. Although the
Sofamor Danek Board noted that the price of Medtronic's common stock has
fluctuated in the past and that the value of the consideration to be
received by Sofamor Danek shareholders will decline if the price of
Medtronic's common stock declines, the Sofamor Danek Board considered the
provisions of the Merger Agreement that protect the value of the
consideration to be received by Sofamor Danek's shareholders at the
Effective Time of the Merger over an agreed range of trading prices of
Medtronic common stock.
- The increased liquidity offered by the Merger to Sofamor Danek
shareholders. The Sofamor Danek Board believed that the Merger offered
Sofamor Danek shareholders the opportunity to own stock of a significantly
larger and more actively traded business enterprise and that Sofamor Danek
shareholders would have the opportunity to participate in the potential
growth of the combined company after the closing of the Merger.
- The presentation of J.P. Morgan delivered to the Sofamor Danek Board on
October 30, 1998 and J.P. Morgan's opinion, delivered orally to the
Sofamor Danek Board on October 31, 1998 and confirmed in writing on
November 1, 1998, to the effect that as of such date, the consideration to
be received by Sofamor Danek shareholders was fair, from a financial point
of view, to such shareholders. See "--Opinion of Sofamor Danek's Financial
Advisor."
- The terms and provisions of the Merger Agreement, including the parties'
representations, warranties, and covenants and the conditions to their
respective obligations. The Sofamor Danek Board concluded that such terms
and provisions provide a high degree of certainty that the Merger can be
completed on the agreed terms.
- Its conclusion that Medtronic, with its significant financial resources,
strong reputation, and competitive position in the medical devices
industry and strategic objectives and management philosophies comparable
to those of Sofamor Danek, was the best strategic partner for Sofamor
Danek and that it was unlikely that any other potential strategic partner
would be able to offer a superior economic or strategic proposal to
Sofamor Danek. As a result, and considering the high degree of certainty
of closing that the provisions of the Merger Agreement provide, the
Sofamor Danek Board concluded that it was appropriate to agree to enter
into the Stock Option Agreement and to pay a fee to Medtronic in the event
of the termination of the Merger Agreement in certain circumstances.
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- That Medtronic's management shared the view of the Sofamor Danek Board of
the lack of merit of the product liability litigation pending against
Sofamor Danek and that Medtronic's management indicated that it was
determined to continue to defend vigorously against such actions.
- The risks associated with the fact that the current Sofamor Danek Board
and senior management will no longer be able to control the operation and
future direction of the business of Sofamor Danek.
- The possible disruption of Sofamor Danek's business pending completion of
the Merger and risks associated with the integration by Medtronic of
Sofamor Danek and other businesses that Medtronic has recently acquired
and whether the potential benefits sought in the Merger and such other
acquisitions might not be fully realized.
- The tax-free nature of the Merger to U.S. shareholders, which will permit
U.S. shareholders of Sofamor Danek to receive Medtronic common stock in a
tax-free exchange at a premium over the market price for Sofamor Danek
common stock. See "--Certain Federal Income Tax Consequences."
The above discussion of the information and factors considered by the
Sofamor Danek Board is not exhaustive and does not include all factors
considered by the Sofamor Danek Board. In view of the variety of factors
considered in connection with its evaluation of the Merger, the Sofamor Danek
Board did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Sofamor Danek Board may
have given different weights to different factors. Based on the factors outlined
above, the Sofamor Danek Board determined that the Merger is in the best
interests of Sofamor Danek and its shareholders.
THE SOFAMOR DANEK BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
SOFAMOR DANEK AND ITS SHAREHOLDERS. THE SOFAMOR DANEK BOARD, THEREFORE,
UNANIMOUSLY RECOMMENDS THAT ITS SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER.
See "The Merger--Background of the Merger," "--Opinion of Sofamor Danek's
Financial Advisor," "--Certain Federal Income Tax Considerations," and
"Comparative Stock Prices and Dividends."
MEDTRONIC'S REASONS FOR THE MERGER
Medtronic believes that the acquisition of Sofamor Danek will considerably
broaden and strengthen Medtronic's market position in the neurological and
spinal field and will permit Medtronic to bring a wider range of technological
innovations to the treatment of neurological and spinal disorders. Medtronic
also believes that the two companies' businesses are very complementary and
offer significant customer synergies without overlap or duplication in product
lines, which will enhance Medtronic's ability to fulfill its mission of
restoring patients to full and active lives.
OPINION OF SOFAMOR DANEK'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated October 19, 1998, Sofamor Danek
retained J.P. Morgan to act as its financial advisor with respect to the
proposed Merger and to deliver a fairness opinion.
At the meeting of the Sofamor Danek Board on October 31, 1998, J.P. Morgan
rendered its oral opinion to the Sofamor Danek Board that, as of such date, the
consideration to be paid by Medtronic to Sofamor Danek shareholders in the
proposed Merger was fair from a financial point of view to such shareholders.
J.P. Morgan confirmed its oral opinion by delivering written opinions to the
Sofamor Danek Board, dated November 1, 1998 and the date of this Proxy
Statement/Prospectus, that, as of such dates, the consideration to be paid by
Medtronic to Sofamor Danek shareholders in the proposed Merger was fair from a
financial point of view to such shareholders. No limitations were imposed by the
Sofamor Danek
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Board upon J.P. Morgan with respect to the investigations made or procedures
followed by it in rendering its opinions.
The full text of the written opinion of J.P. Morgan dated the date hereof,
which sets forth the assumptions made, matters considered, and limits on the
review undertaken, is attached as Annex C to this Proxy Statement/Prospectus and
is incorporated herein by reference. Sofamor Danek's shareholders are urged to
read the opinion in its entirety. J.P. Morgan's written opinion is addressed to
the Sofamor Danek Board, is directed only to the consideration to be paid in the
Merger, and does not constitute a recommendation to any shareholder of Sofamor
Danek as to how such shareholder should vote at the Special Meeting. The summary
of the opinion of J.P. Morgan set forth in this Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.
In arriving at its opinions, J.P. Morgan reviewed, among other things, the
Merger Agreement and, in the case of its opinion dated the date of this Proxy
Statement/Prospectus, this Proxy Statement/Prospectus; the audited financial
statements of Sofamor Danek for the fiscal year ended December 31, 1997 and of
Medtronic for the fiscal year ended April 30, 1998, and the unaudited financial
statements of Sofamor Danek for the period ended September 30, 1998 and of
Medtronic for the period ended July 31, 1998; current and historical market
prices of Sofamor Danek's common stock and Medtronic's common stock; certain
publicly available information concerning the businesses of Sofamor Danek and
Medtronic and of certain other companies engaged in businesses comparable to
those of Sofamor Danek and Medtronic, and the reported market prices for certain
other companies' securities deemed comparable; publicly available terms of
certain transactions involving companies comparable to Sofamor Danek and the
consideration paid for such companies; the terms of other business combinations
deemed relevant by J.P. Morgan; certain internal financial analyses and
forecasts prepared by Sofamor Danek and its management; and certain agreements
with respect to outstanding indebtedness or obligations of Sofamor Danek and
Medtronic. J.P. Morgan also held discussions with certain members of the
management of Sofamor Danek and Medtronic with respect to certain aspects of the
Merger, the past and current business operations of Sofamor Danek and Medtronic,
the financial condition and future prospects and operations of Sofamor Danek and
Medtronic, the effects of the Merger on the financial condition and future
prospects of Sofamor Danek and Medtronic, and certain other matters that J.P.
Morgan believed necessary or appropriate to its inquiry. In addition, J.P.
Morgan visited certain representative facilities of Sofamor Danek and Medtronic
and reviewed such other financial studies and analyses and considered such other
information as it deemed appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by Sofamor Danek and Medtronic or otherwise reviewed by J.P.
Morgan, and J.P. Morgan has not assumed any responsibility or liability
therefor. J.P. Morgan has not conducted any valuation or appraisal of any assets
or liabilities, nor have any valuations or appraisals been provided to J.P.
Morgan. In relying on financial analyses and forecasts provided to J.P. Morgan,
J.P. Morgan has assumed that they have been reasonably prepared based on
assumptions reflecting the best currently available estimates and judgments by
management as to the expected future results of operations and financial
condition of Sofamor Danek to which such analyses or forecasts relate. J.P.
Morgan has also assumed that the Merger will have the tax consequences described
in this Proxy Statement/Prospectus and in discussions with, and materials
furnished to J.P. Morgan by, representatives of Sofamor Danek, and that the
other transactions contemplated by the Merger Agreement will be consummated as
described in the Merger Agreement and this Proxy Statement/Prospectus.
The projections furnished to J.P. Morgan for Sofamor Danek were prepared by
the management of Sofamor Danek. Sofamor Danek does not publicly disclose
internal management projections of the type provided to J.P. Morgan in
connection with J.P. Morgan's analysis of the Merger, and such projections were
not prepared with a view toward public disclosure. These projections were based
on numerous variables and assumptions that are inherently uncertain and may be
beyond the control of management, including,
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without limitation, factors related to general economic and competitive
conditions and prevailing interest rates. Accordingly, actual results could vary
significantly from those set forth in such projections.
J.P. Morgan's opinions are based on economic, market, and other conditions
as in effect on, and the information made available to J.P. Morgan as of, the
date of such opinions. Subsequent developments may affect the written opinion
dated the date of this Proxy Statement/Prospectus, and J.P. Morgan does not have
any obligation to update, revise, or reaffirm such opinion. J.P. Morgan
expressed no opinion as to the price at which Medtronic's common stock will
trade at any future time.
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses utilized by J.P.
Morgan in connection with providing its opinion.
PUBLIC TRADING MULTIPLES. Using publicly available information, J.P. Morgan
compared selected financial data of Sofamor Danek with similar data for selected
publicly traded companies engaged in businesses which J.P. Morgan judged to be
analogous to Sofamor Danek. The companies selected by J.P. Morgan included:
Medtronic, Boston Scientific Corp., Guidant Corp., Biomet, Inc. and Stryker
Corp. These companies were selected, among other reasons, because they are
leaders in the medical device industry in the fields of cardiology and
orthopedics. For each comparable company, publicly available financial
performance through the 12 months ended September 30, 1998 was measured. J.P.
Morgan selected the mean and the median value for each multiple, specifically:
multiples of enterprise value to latest 12 months sales (4.6x to 8.0x),
operating income (19.2x to 27.3x), and earnings before interest, taxes, and
depreciation ("EBITDA") (16.8x to 23.4x) and multiples of market value to
projected 1998 net income (26.6x to 35.6x), projected 1999 net income (23.7x to
29.2x), and projected 2000 net income (19.0x to 23.9x). In addition, J.P. Morgan
compared the market value to 1999 net income divided by a consensus long-term
earnings growth rate published by the Institutional Brokerage Estimate Service
("IBES") (1.4x). These multiples were then applied to Sofamor Danek's latest 12
months sales, operating income, and EBITDA, net income, 1998 projected net
income, 1999 projected net income, 2000 projected net income, and IBES long-term
earnings growth rate, yielding implied trading values for Sofamor Danek's common
stock of approximately $70.00 to $100.00 per share.
SELECTED TRANSACTION ANALYSIS. Using publicly available information, J.P.
Morgan examined selected transactions with respect to size, growth prospects,
and industry fit. Specifically, J.P. Morgan reviewed the following transactions:
DePuy Inc.'s acquisition of Acromed Corporation, Sulzer Medica Ltd.'s
acquisition of SpineTech Inc., Johnson & Johnson's acquisition of DePuy Corp.,
Boston Scientific Corp.'s acquisition of Schneider International, Inc., Boston
Scientific Corp.'s acquisition of Target Therapeutics, Inc., and Johnson &
Johnson's acquisition of Cordis Corporation. J.P. Morgan applied a range of
multiples derived from such analysis to latest 12 months sales (5.5x to 7.5x),
operating income (20.4x to 30.7x), and net income (32.0x to 36.8x), and arrived
at an estimated range of equity values for Sofamor Danek's common stock of
between $67.00 and $90.00 per share.
DISCOUNTED CASH FLOW ANALYSIS. J.P. Morgan conducted a discounted cash flow
analysis for the purpose of determining the fully diluted equity value per share
for Sofamor Danek's common stock. J.P. Morgan calculated the unlevered free cash
flows that Sofamor Danek is expected to generate during fiscal years 1999
through 2007 based upon financial projections prepared by the management of
Sofamor Danek through the years ended 2001 and growth rates deemed reasonable
for the period 2002 to 2007. J.P. Morgan also calculated a range of terminal
asset values of Sofamor Danek at the end of the 10-year period ending December
31, 2007 by applying a perpetual growth rate ranging from 4.5% to 5.5% of the
unlevered free cash flow of Sofamor Danek during the final year of the 10-year
period. The unlevered free cash flows and the range of terminal asset values
were then discounted to present values using a range of discount rates from
12.0% to 13.0%, which were chosen by J.P. Morgan based upon an analysis of the
weighted average cost of capital of Sofamor Danek as well as J.P. Morgan's view
of rates used by other companies in the medical device industry. The present
value of the unlevered free cash flows and the range
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of terminal asset values were then adjusted for Sofamor Danek's estimated 1998
fiscal year-end excess cash, option exercise proceeds, and total debt. Based on
the adjusted management projections and a discount rate of 12.0% to 13.0%, the
discounted cash flow analysis indicated a range of equity values of between
$91.00 and $115.00 per share of Sofamor Danek's common stock on a stand-alone
basis (I.E., without synergies).
ANALYSIS OF MEDTRONIC COMMON STOCK. As noted above and in its written
opinion dated the date of this Proxy Statement/Prospectus, J.P. Morgan has
expressed no opinion as to the price at which Medtronic's common stock will
trade at any time in the future. J.P. Morgan summarized for the Sofamor Danek
Board certain analyses that it conducted related to the value of Medtronic's
common stock at the time J.P. Morgan rendered its oral opinion to the Sofamor
Danek Board and the appropriateness of a collar mechanism on the conversion
ratio. Such analyses were conducted prior to Medtronic's announcement of its
proposed merger with Arterial Vascular Engineering, Inc. J.P. Morgan analyzed
recent historical trading performance and recent historical price/earnings
ratios of Medtronic common stock relative to comparable data for Sofamor Danek,
the cardiovascular device companies Boston Scientific Corp. and Guidant Corp.,
the orthopedic device companies Biomet Inc. and Stryker Corp., and the S&P 500
Index.
J.P. Morgan also performed a discounted cash flow analysis of Medtronic
similar to that performed for Sofamor Danek. In this analysis, J.P. Morgan used
publicly available consensus earnings estimates for Medtronic for its 1999 and
2000 fiscal years and applied a growth rate deemed reasonable for the period
2001 to 2008. J.P. Morgan assumed terminal growth rates ranging from 5% to 6.5%
and applied discount rates ranging from 10.5% to 11.5%.
J.P. Morgan also compared, using publicly available information, selected
financial data for Medtronic with similar data for selected publicly traded
companies judged by J.P. Morgan to be analogous to Medtronic for these purposes.
The companies selected by J.P. Morgan included the cardiovascular device
companies Boston Scientific Corp. and Guidant Corp., the medical supply
companies Abbott Laboratories, Baxter International, Inc., Becton Dickinson &
Co., C.R. Bard, and Johnson & Johnson Inc., and the pharmaceutical companies
American Home Products Corp., Bristol-Myers Squibb Co., Eli Lilly & Co., Merck &
Co., Inc., Pfizer Inc., and Warner-Lambert Co. For each company, J.P. Morgan
determined multiples of market value to projected 1999 earnings (23.8x to 32.1x)
and 2000 earnings (20.1x to 27.3x) and multiples of 1999 projected
price/earnings multiples to consensus long-term earnings growth rates published
by IBES (1.1x to 2.0x). Based upon the foregoing analyses, J.P. Morgan concluded
that, without taking into account the proposed Merger with Sofamor Danek or
Medtronic's subsequently announced proposed merger with Arterial Vascular
Engineering, Inc., Medtronic's stock was trading at a premium to many of its
peers and that, given recent volatility in the equity markets, a collar
mechanism was appropriate.
In connection with its opinion dated the date of this Proxy
Statement/Prospectus, J.P. Morgan reviewed the analyses used to render its
October 31, 1998 oral opinion and November 1, 1998 written opinion to the
Sofamor Danek Board by performing procedures to update certain of such analyses
and by reviewing the assumptions upon which such analyses were based and the
factors considered in connection therewith.
The summary set forth above does not purport to be a complete description of
the analyses or data presented by J.P. Morgan. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. J.P. Morgan believes that the summary set forth
above and its analyses must be considered as a whole and that selecting portions
thereof, without considering all of its analyses, could create an incomplete
view of the processes underlying its analyses and opinions. J.P. Morgan based
its analyses on assumptions that it deemed reasonable, including assumptions
concerning general business and economic conditions and industry-specific
factors. The other principal assumptions upon which J.P. Morgan based its
analyses are set forth above under the description of each such analysis. J.P.
Morgan's analyses are not necessarily indicative of actual values or actual
future results
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that might be achieved, which values may be higher or lower than those
indicated. Moreover, J.P. Morgan's analyses are not and do not purport to be
appraisals or otherwise reflective of the prices at which businesses actually
could be bought or sold.
As a part of its investment banking business, J.P. Morgan and its affiliates
are continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate,
and other purposes. J.P. Morgan was selected to advise Sofamor Danek and to
deliver an opinion to the Sofamor Danek Board with respect to the Merger on the
basis of such experience and its familiarity with Sofamor Danek.
For services rendered in connection with the Merger and the delivery of its
opinion, Sofamor Danek has agreed to pay J.P. Morgan a fee of 0.30% of the
aggregate amount of consideration received by Sofamor Danek's shareholders
(treating any shares issuable upon exercise of options, warrants, or other
rights of conversion as outstanding) in the Merger, plus, without duplication,
the value of any securities, cash, or other assets distributed to shareholders
of Sofamor Danek. Sofamor Danek has also agreed to reimburse J.P. Morgan for its
expenses incurred in connection with its services, including the reasonable fees
and disbursements of counsel, and will indemnify J.P. Morgan against certain
liabilities in connection with its engagement.
J.P. Morgan has acted as financial advisor to Sofamor Danek on several
acquisition, joint venture, and licensing assignments. In addition, J.P. Morgan
managed equity offerings for both Sofamor Danek and Medtronic in the past year.
In the ordinary course of their businesses, affiliates of J.P. Morgan may
actively trade the debt and equity securities of Sofamor Danek or Medtronic for
their own accounts or for the accounts of customers and, accordingly, they may
at any time hold long or short positions in such securities.
CONVERSION OF SOFAMOR DANEK COMMON STOCK IN THE MERGER
At the Effective Time, each outstanding share of Sofamor Danek common stock
will convert automatically into the right to receive the number of shares of
Medtronic common stock (the "Conversion Ratio") equal to $115 divided by the
average of the daily closing sale prices of Medtronic common stock, as reported
on the NYSE Composite Tape (the "Average Stock Price"), for the 15 consecutive
trading days ending on and including the second trading day before the Special
Meeting. Any shares of Sofamor Danek common stock held by its subsidiaries will
not be treated as outstanding, however, and will not convert into Medtronic
common stock.
The Conversion Ratio described above applies if the Average Stock Price is
between $56.97 and $69.63. If the Average Stock Price is $56.97 or less,
however, each Sofamor Danek share converts into 2.01861 Medtronic shares. If the
Average Stock Price is $69.63 or more, each Sofamor Danek share converts into
1.65159 Medtronic shares.
If, prior to the Effective Time, Medtronic recapitalizes, splits, or
combines the Medtronic common stock or pays a stock dividend or other stock
distribution in shares of Medtronic common stock, then the Conversion Ratio will
be appropriately adjusted.
Based on the number of shares of Sofamor Danek common stock outstanding on
the record date (assuming a Conversion Ratio of 1.65159 Medtronic shares for
each Sofamor Danek share, calculated by using the December 17, 1998 Medtronic
closing sale price of $71.9375 as the assumed Average Stock Price solely for
illustrative purposes of this paragraph), an estimated 44,748,045 shares of
Medtronic common stock will be issued in exchange for Sofamor Danek common stock
upon consummation of the Merger. Such shares would represent approximately 8% of
the shares of Medtronic common stock that would be outstanding after
consummation of the Merger.
Sofamor Danek shareholders should understand that shareholders receiving
Medtronic common stock in the Merger will receive a number of Medtronic shares
determined pursuant to the Conversion Ratio, as
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described above. Because the market price of Medtronic common stock fluctuates,
the market value of the Medtronic shares that Sofamor Danek shareholders will
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 the value of
Medtronic shares fluctuates, the market value of the Medtronic common stock that
Sofamor Danek shareholders will 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
Medtronic will not issue any certificates or scrip representing fractional
shares of Medtronic common stock in the Merger. All fractional shares of
Medtronic common stock that a Sofamor Danek shareholder would otherwise receive
in the Merger will be aggregated, if and to the extent multiple Sofamor Danek
stock certificates of such holder are submitted together to Norwest Bank
Minnesota, N.A., the exchange agent for the Merger (the "Exchange Agent"). If a
fractional share results from such aggregation, then, in lieu of any such
fractional share, each holder of Sofamor Danek common stock who otherwise would
be entitled to receive a fractional share of Medtronic common stock in the
Merger will receive an amount of cash (without interest) determined by
multiplying (1) the Average Stock Price by (2) the fractional share interest of
Medtronic common stock to which such holder would otherwise be entitled.
EXCHANGE OF SOFAMOR DANEK STOCK CERTIFICATES
As soon as practicable after the Effective Time, the Exchange Agent will
mail a letter of transmittal to Sofamor Danek shareholders. The letter of
transmittal will include instructions regarding the surrender of certificates
representing shares of Sofamor Danek 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 Sofamor Danek common stock, after those
holders surrender to the Exchange Agent the Sofamor Danek stock certificates
held by them for cancellation, together with executed letters of transmittal,
(1) one or more certificates representing the number of whole shares of
Medtronic common stock into which the shares represented by the certificate(s)
have been converted and (2) a check in the amount of any cash in lieu of
fractional shares. Holders of Sofamor Danek common stock will not receive
interest on any cash received in the Merger.
After the Effective Time, Sofamor Danek stock certificates will evidence
ownership of the shares of Medtronic common stock into which they were
converted. Holders of Sofamor Danek common stock will be entitled to any
dividends that become payable to persons who are holders of record of Medtronic
common stock as of a record date on or after the Effective Time, but only after
they have surrendered their certificates representing shares of Sofamor Danek
common stock for exchange. Any such dividends will be paid to each Sofamor Danek
shareholder entitled to them, without interest, at the time that such
certificates representing shares of Sofamor Danek common stock are surrendered
for exchange, subject to any applicable abandoned property, escheat, or similar
law. Holders of Sofamor Danek 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 Sofamor Danek shareholder entitled to receive shares of Medtronic
common stock pursuant to the Merger will receive, together with each share of
Medtronic common stock, one Medtronic Preferred Stock Purchase Right pursuant to
the Medtronic Shareholder Rights Plan. Such Right will be represented by the
certificate representing such share of Medtronic common stock. See "Comparison
of Rights of Medtronic and Sofamor Danek Shareholders--Shareholder Rights Plan."
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TREATMENT OF STOCK OPTIONS
Sofamor Danek has five different option plans under which it has granted
options to its officers, directors, and employees to purchase shares of Sofamor
Danek common stock. The 1993 Long-Term Incentive Plan states that outstanding
options under the plan that are not otherwise vested (other than options granted
during the period between the date of execution of the Merger Agreement and the
Effective Time, subject to certain exceptions) will become fully vested and
exercisable upon approval of the Merger by the Sofamor Danek shareholders.
Options granted under Sofamor Danek's other four option plans will continue to
vest at the times stated in those plans. All options that are not exercised and
remain outstanding at the Effective Time will be assumed by Medtronic and,
following the Effective Time, will be exercisable upon the same terms and
conditions as such options were exercisable prior to the Merger, except that the
exercise price and the number of shares of Medtronic common stock that can be
purchased upon exercise of the options will be revised to reflect conversion of
the options on the same basis as shares of Sofamor Danek 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
Sofamor Danek option a written statement informing such holder of the assumption
by Medtronic of such option.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, Sofamor Danek makes certain representations and
warranties to Medtronic regarding Sofamor Danek and its subsidiaries, including
as to: (1) their corporate existence; (2) the authorization, execution, and
enforceability of the Merger Agreement and related agreements; (3) Sofamor
Danek's capital structure; (4) the accuracy of Sofamor Danek's recent SEC
reports and financial statements; (5) the absence of undisclosed material
liabilities; (6) the absence of any need for certain required third-party
consents and approvals; (7) compliance with laws; (8) the absence of material
litigation; (9) the absence of material adverse changes; (10) Sofamor Danek's
relations with officers, directors, and employees; (11) certain tax matters;
(12) the absence of material violations of agreements; (13) the right to use
intellectual property; (14) Sofamor Danek's benefit plans; (15) Sofamor Danek's
minute books; (16) the absence of brokerage commissions, finder's fees, or other
payments in connection with the Merger; (17) the accuracy of information
provided in connection with this Proxy Statement/ Prospectus; (18) the receipt
of an opinion of J.P. Morgan as to the fairness, from a financial point of view,
of the consideration to be paid to Sofamor Danek shareholders in the Merger; and
(19) the inapplicability of certain Indiana antitakeover laws to the Merger.
Medtronic and Merger Subsidiary also make certain representations and
warranties to Sofamor Danek regarding Medtronic and Merger Subsidiary, including
as to: (1) their corporate existence; (2) the authorization, execution, and
enforceability of the Merger Agreement and related agreements; (3) the capital
structure of Medtronic and Merger Subsidiary; (4) the absence of any need for
certain required third-party consents and approvals; (5) the accuracy of
Medtronic's recent SEC reports and financial statements; (6) the legal
compliance and the accuracy of information contained in the Registration
Statement that includes this Proxy Statement/Prospectus; (7) the absence of
brokerage commissions, finder's fees, or other payments in connection with the
Merger; (8) the absence of undisclosed material liabilities; (9) compliance with
laws; (10) the absence of material litigation; and (11) the absence of actions
by Medtronic that would prevent the Merger from constituting a tax-free
transaction.
CERTAIN COVENANTS BY SOFAMOR DANEK
CONDUCT OF BUSINESS OF SOFAMOR DANEK PENDING THE MERGER. Sofamor Danek 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
reasonable efforts to keep substantially intact its business organization, keep
available its officers' and employees' services, and maintain satisfactory
relationships with third parties that are material to its business. Sofamor
Danek also agreed that it will not: amend its Articles of Incorporation or
Bylaws; authorize, issue, sell, or pledge any stock or rights to purchase stock
(except that it can issue
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stock upon the exercise of outstanding options and except that it can grant up
to 50,000 new options under existing option plans); split, combine, or
reclassify its stock; declare or pay any dividend or other distribution; redeem
or acquire any of its stock; change any material term of its securities; create,
incur, or assume any indebtedness other than in the ordinary course of business;
create, assume, or incur any material lien; increase the compensation of any of
its directors, officers, or other employees (except under existing agreements or
in the ordinary course of business and consistent with past practice); sell or
dispose of any material property; buy or agree to buy another business; buy any
assets costing more than a specified price; enter into, materially change, or
terminate any material agreements, except as permitted by the Merger Agreement
or except in the ordinary course of business; materially change its credit
policies; materially alter its accounting principles; institute, settle, or
compromise any claim involving amounts in excess of a specified amount;
knowingly take any action that would cause any of its representations,
warranties, or agreements in the Merger Agreement to be inaccurate or breached
as of the Closing Date; knowingly take any action that would jeopardize the
treatment of the Merger as a tax-free transaction and as a "pooling of
interests" for accounting purposes; or agree to do any of the things described
above.
ACCESS. Pursuant to the Merger Agreement and a confidentiality agreement
between Medtronic and Sofamor Danek, Sofamor Danek also agreed to give Medtronic
and its representatives access to Sofamor Danek's offices, properties, books,
and records; to furnish to Medtronic and its representatives any financial and
operating data and other information that Medtronic may reasonably request; and
to have its employees and representatives cooperate with Medtronic in
Medtronic's investigation of the business of Sofamor Danek.
NO SOLICITATION OF COMPETING TRANSACTIONS. Sofamor Danek has agreed that
(except as is required by the fiduciary duties of Sofamor Danek's directors and
officers as so advised by independent counsel) neither Sofamor Danek nor any of
its representatives or affiliates will, directly or indirectly, solicit,
knowingly encourage, initiate, or participate in discussions or negotiations
with, or knowingly provide any information to, any person, entity, or group
(other than Medtronic) that proposes an alternative transaction with respect to
Sofamor Danek or any subsidiary, or knowingly facilitate an alternative
transaction. An "alternative transaction" means a merger, sale or licensing of
any significant portion of the assets, sale of shares of capital stock
(including offers to shareholders), or similar transactions involving Sofamor
Danek or any subsidiary. Sofamor Danek has agreed that it will notify Medtronic
promptly if it receives any such proposal.
The Sofamor Danek Board can, however, furnish information to or enter into
negotiations with any person or entity that makes an unsolicited (after the date
of the Merger Agreement) superior proposal, but only if (1) the Sofamor Danek
Board determines, after consulting with outside counsel, that it must do so to
comply with its fiduciary duty to shareholders under Indiana law, (2) prior to
doing so, Sofamor Danek gives written notice to Medtronic that it is furnishing
information or entering into negotiations with the person proposing the superior
proposal, and (3) Sofamor Danek keeps Medtronic informed of the status of any
negotiations. For these purposes, a "superior proposal" is a proposal for an
alternative transaction that the Sofamor Danek Board determines in its good
faith judgment is more favorable to Sofamor Danek shareholders than the Merger.
CERTAIN COVENANTS BY MEDTRONIC
CONDUCT OF BUSINESS OF MEDTRONIC PENDING THE MERGER. Medtronic has agreed
that, prior to consummation of the Merger, unless Sofamor Danek agrees
otherwise, it will not: combine or reclassify its stock; declare or pay any
extraordinary dividend or other distribution (except for stock splits in the
form of stock dividends); redeem or acquire any of its stock (other than
pursuant to Medtronic's stock repurchase program or to ensure the Merger is
treated as a pooling of interests for accounting purposes); change any material
term of its securities; buy or agree to buy another business, or sell or agree
to sell any assets, if it could reasonably be expected to delay or threaten the
consummation of the Merger; alter its accounting principles; knowingly take any
action that would suspend trading of Medtronic common stock on the
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NYSE; knowingly take any action that would cause any of its representations,
warranties, or agreements in the Merger Agreement to be inaccurate or breached
as of the Closing Date; knowingly take any action that would jeopardize the
treatment of the Merger as a tax-free transaction and as a "pooling of
interests" for accounting purposes; or agree to do any of the things described
above.
EMPLOYEE MATTERS. Medtronic has agreed, to the extent practicable, to
provide employee benefits and programs to Sofamor Danek employees that, in the
aggregate, are substantially comparable to or more favorable than, as a whole,
those in existence prior to the date of the Merger Agreement. Medtronic has also
agreed to honor all employment and severance agreements and all severance,
incentive and bonus plans as in effect immediately prior to the Effective Time.
Sofamor Danek employees will be credited with service accrued prior to the
Effective Time for purposes of employee benefit plans, subject to certain
exceptions.
INTERESTS OF SOFAMOR DANEK'S DIRECTORS AND OFFICERS IN THE MERGER
In considering the recommendation of the Sofamor Danek Board with respect to
the Plan of Merger, the Merger Agreement, and the transactions contemplated
thereby, shareholders of Sofamor Danek should be aware that certain members of
the management and Board of Directors of Sofamor Danek have certain interests in
the Merger that are in addition to, and may be in conflict with, the interests
of shareholders of Sofamor Danek generally. All such interests are described
below, to the extent material, and Sofamor Danek believes that, except as
described below, such persons do not have any material interest in the Merger
that is different from those of Sofamor Danek shareholders generally. The
Sofamor Danek Board was aware of, and considered the interests of, its directors
and officers when it approved the Merger Agreement, the Plan of Merger, and the
Merger.
STOCK OWNERSHIP. Sofamor Danek's directors and executive officers
collectively beneficially own 2,384,726 shares of Sofamor Danek common stock
(not including options, which are described below).
STOCK OPTIONS. Pursuant to the terms of the outstanding options to purchase
shares of Sofamor Danek common stock that were granted under Sofamor Danek's
1993 Long-Term Incentive Plan prior to November 1, 1998, any such options that
are not otherwise vested will become fully vested and exercisable upon approval
of the Merger by the Sofamor Danek shareholders. Sofamor Danek's executive
officers and directors collectively hold outstanding options to purchase
3,077,050 shares of Sofamor Danek common stock, of which, as of December 17,
1998, options to purchase an aggregate of 1,052,550 shares were vested and
options to purchase an aggregate 2,024,500 shares will vest either prior to the
Merger or as a result of the Merger. See "--Treatment of Stock Options."
CHANGE IN CONTROL AGREEMENTS. Sofamor Danek is a party to change in control
agreements with 21 of its officers (the "Change in Control Agreements"). The
agreements are substantially similar, and the material terms of the agreements
are summarized below.
Upon the Merger, the term of the Change in Control Agreements will
automatically extend for a period of three years. The Change in Control
Agreements fix each officer's base compensation, permit the officer to
participate in employee benefit plans that Sofamor Danek adopts from time to
time for its management or supervisory personnel, provide for reimbursement of
travel and certain other expenses, and contain other customary employment terms.
In the event that an officer's employment is terminated without "cause" or
the officer resigns for "good reason" (as those terms are generally defined
below), the officer must provide consulting services to Medtronic for a period
of (1) three years in the event of termination during the first year following
the Effective Time; (2) two years in the event of termination during the second
year following the Effective Time; and (3) one year in the event of termination
during the third year following the Effective Time. If the officer provides the
consulting services and complies with the restrictive covenants, such officer
will receive a lump sum payment equal to (A) such officer's base salary
immediately prior to such termination
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(without taking into account any salary reduction that gave rise to a "good
reason" termination), multiplied by (B) the number of years in the consulting
period. The officer would also be entitled to receive payment for all unused
accrued vacation days and a pro rata portion of his projected annual bonus for
the year in which termination occurs, calculated on the basis of the target
bonus for such year. Such officer will continue to be eligible to participate in
the medical, dental, health, life and other fringe benefit plans and
arrangements applicable to the officer immediately prior to the termination
during the consulting period or, if earlier, until such officer and such
officer's dependents are eligible and elect substantially equivalent (or
greater) benefits with a subsequent employer.
The circumstances that constitute "cause" for termination of an executive's
employment include the executive's (1) felony conviction, (2) willful disclosure
of material confidential information, or (3) willful and continued failure to
substantially perform such executive's duties. The circumstances that constitute
"good reason" include (1) the officer's position, titles, nature and status of
responsibilities, and reporting obligations no longer being substantially
equivalent to those that such officer enjoyed prior to the Effective Time (with
respect to certain individuals, such features will be deemed less than
substantially equivalent by reason of Sofamor Danek ceasing to be a public
company), (2) reduction in base salary or failure to increase the officer's
salary at a rate commensurate with other key executives, (3) failure to
participate in at least as favorable compensation and benefit plans, or (4)
relocation.
Certain executive officers and vice presidents are party to letter
agreements with Sofamor Danek pursuant to which, in the event any payments or
benefits provided to them (including the accelerated vesting of options) result
in the imposition of golden parachute excise taxes under Section 4999 of the
Internal Revenue Code, Sofamor Danek will pay them gross-up payments to hold
them harmless against any parachute tax liability and put them in the same
after-tax position he would have had had no excise tax been payable; provided
however that no gross-up will be provided, and the relevant payments and
benefits will instead be capped, if such gross-up would result in them receiving
less than $20,000 more after-tax than if the amounts were capped. The
determination of golden parachute tax liability will be made by independent
auditors of Sofamor Danek at its expense. Some of the Change in Control
Agreements, however, provide that any payments made, or benefits provided, to
them in connection with a change in control that would otherwise result in the
imposition of golden parachute excise taxes under Section 4999 of the Internal
Revenue Code will be subject to reduction to fall under the statutory safe
harbor (three times average W-2 pay for the five years preceding the change in
control) unless such officer's after-tax position would be at least $10,000
better if such cap were not applied.
LOAN FORGIVENESS AGREEMENT. Sofamor Danek had loaned (the "Loans") E. R.
Pickard, its Chairman and Chief Executive Officer, $1,740,000 with respect to
the exercise of certain stock options and $2,424,997 for taxes related to the
exercise of such stock options. The Loans have a maturity date of March 31, 2006
and are secured by shares of Sofamor Danek common stock. Pursuant to the Amended
and Restated Loan Forgiveness Agreement, commencing on December 31, 1996 and
each December 31 thereafter, $450,000 (and the remaining balance of $114,997 on
March 31, 2005) of the Loans was or will be forgiven if (1) Mr. Pickard remains
employed by Sofamor Danek and (2) Sofamor Danek meets certain operational
performance thresholds. However, on the date on which the shareholders of
Sofamor Danek approve the Merger, the remainder of the Loans will be forgiven.
In addition, Sofamor Danek has agreed to pay to Mr. Pickard a payment to cover
any applicable taxes, and interest and penalties thereon, resulting from the
forgiveness of the Loans.
INDEMNIFICATION. Medtronic has agreed to provide to the individuals who
have served as officers and directors of Sofamor Danek, for at least six years
after the Merger, indemnification equivalent to that provided by the Articles of
Incorporation and Bylaws of Sofamor Danek prior to the Effective Time. Medtronic
has also agreed to provide, for three years, officers' and directors' liability
insurance coverage comparable to that currently provided by Sofamor Danek with
respect to acts occurring prior to the Effective Time. See "--Indemnification."
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VOTING AGREEMENTS
Pursuant to agreements to facilitate merger between Medtronic and certain
executive officers and directors of Sofamor Danek who own stock or options to
acquire stock of Sofamor Danek (L.D. Beard, George Bryan, Sr., Dr. Yves Paul
Cotrel, James Gallogly, Dr. Samuel Hulbert, Ron Pickard, Dr. George Rapp, Robert
Compton, Laurence Fairey, George Griffin, Stephen Phillips, and Marie-Helene
Plais), such individuals have agreed to vote all of the shares of Sofamor Danek
common stock beneficially owned by them in favor of the approval, consent, and
ratification of the Merger. Nothing in the voting agreements restricts or limits
the right of a shareholder or optionholder to act in his or her capacity as an
officer or director of Sofamor Danek consistent with his or her fiduciary
obligations. The voting agreements terminate upon termination of the Merger
Agreement. As of the record date, the shareholders who executed the voting
agreements beneficially owned an aggregate 2,321,986 shares of Sofamor Danek
common stock, representing approximately 8.6% of the Sofamor Danek common stock
outstanding on the record date (not including options held by such persons).
STOCK OPTION AGREEMENT
Simultaneously with the execution of the Merger Agreement, Sofamor Danek and
Medtronic entered into a Stock Option Agreement pursuant to which Sofamor Danek
granted to Medtronic an option, exercisable only under certain specified
circumstances, to purchase 5,366,478 shares of Sofamor Danek common stock (which
equaled 19.9% of the shares of Sofamor Danek common stock outstanding on the
date of the Merger Agreement), at an exercise price of $115 per share. The
specified circumstances are the same as those that could result in the payment
by Sofamor Danek of a termination fee upon certain terminations of the Merger
Agreement.
If and when Medtronic's option under the Stock Option Agreement becomes
exercisable, Medtronic also has the right, which it can exercise in lieu of
exercising Medtronic's option, to require Sofamor Danek to pay to Medtronic, in
cancellation of Medtronic's option, a cancellation amount equal to (a) the
lesser of (1) the excess, if any, over the option price of the greater of (A)
the last sale price of a share of Sofamor Danek common stock on the last trading
day prior to notice of exercise, (B) the highest price per share of Sofamor
Danek common stock offered or paid in connection with an alternative
transaction, and (C) in the case of an alternative transaction structured as an
asset acquisition, the highest aggregate consideration offered or paid in any
such transaction or proposed transaction, divided by the number of shares of
Sofamor Danek common stock then outstanding; and (2) $105 million divided by the
initial number of shares subject to the option, multiplied by (b) the number of
shares then covered by the option. The sum of such cancellation amount and the
termination fee paid under the Merger Agreement can never, however, exceed $105
million. See "--Amendment and Termination of the Merger Agreement; Effects of
Termination."
CONDITIONS TO CONSUMMATION OF THE MERGER; WAIVER
The respective obligations of Medtronic, Merger Subsidiary, and Sofamor
Danek 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
Sofamor Danek shareholders of the Merger; (b) the effectiveness of the
Registration Statement; (c) the expiration or termination of the waiting periods
applicable to the consummation of the Merger under the HSR Act and any foreign
merger laws; (d) the shares of Medtronic common stock issuable in the Merger
having been duly authorized for listing by the NYSE, subject to official notice
of issuance; and (e) the absence of an order, decree, or injunction by any court
that makes the Merger illegal or prohibits consummation of the Merger.
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) Sofamor Danek has performed in all material
respects its obligations under the Merger Agreement required to be performed
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by it; (b) each representation and warranty of Sofamor Danek contained in the
Merger Agreement is true as of the Effective Time, except for any inaccuracies
that could not reasonably be expected to have a material adverse effect (as
defined in the Merger Agreement); (c) Medtronic has received written
resignations from each of the directors and specified officers of Sofamor Danek
specified by Medtronic effective as of the Effective Time; and (d) Medtronic has
received letters from PricewaterhouseCoopers LLP, dated the Closing Date and
addressed to Medtronic and Sofamor Danek, that as of such date neither Sofamor
Danek nor any of its shareholders that are affiliates have taken or agreed to
take any actions that would prevent Medtronic from accounting for the Merger as
a pooling of interests (the "Pooling Letters"). Medtronic has agreed that
certain matters, including, in particular, developments related to certain
product liability litigation pending against Sofamor Danek, will not be relevant
for purposes of determining whether any of the conditions to consummation of the
Merger have been satisfied.
In addition, the obligations of Sofamor Danek 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 as of the Effective Time, except for any
inaccuracies that could not reasonably be expected to have a material adverse
effect (as defined in the Merger Agreement); (c) Sofamor Danek has received the
Pooling Letters; and (d) Sofamor Danek has received an opinion of Shearman &
Sterling, to the effect that the Merger will constitute a "tax-free"
reorganization for federal income tax purposes, and that opinion will not have
been withdrawn or materially changed. Sofamor Danek has already received such
tax opinion. See "The Merger--Certain Federal Income Tax Consequences."
Medtronic, on the one hand, and Sofamor Danek, on the other hand, may waive
any failure to comply with any obligation, covenant, agreement, or condition in
the Merger Agreement on the part of Sofamor Danek and Medtronic and Merger
Subsidiary, respectively. Any waivers granted by Medtronic are conclusively
binding on Merger Subsidiary.
AMENDMENT AND TERMINATION OF THE MERGER AGREEMENT; EFFECTS OF TERMINATION
Any of the provisions of the Merger Agreement may be amended by written
agreement of the respective parties at any time prior to the Effective Time of
the Merger. After approval of the Merger by the Sofamor Danek shareholders,
however, no amendment may be made that reduces the amount or changes the type of
consideration into which each share of Sofamor Danek common stock converts upon
consummation of the Merger.
Even if the Sofamor Danek shareholders approve the Merger, the Boards of
Directors of Medtronic and Sofamor Danek can agree at any time to terminate the
Merger Agreement without completing the Merger.
In addition, either company can terminate the Merger Agreement if:
- the Merger is not completed by April 30, 1999 (or, if the companies
receive requests for additional information from regulatory agencies,
September 30, 1999), except that neither company can terminate the
Merger Agreement if its own breach is the reason the Merger has not
been completed, or
- a law or final court order prohibits the Merger, or
- the Sofamor Danek shareholders do not approve the Merger, or
- the other company has materially breached its representations,
warranties, or obligations under the Merger Agreement such that the
conditions to Closing will not be satisfied. If the breach is curable
by the breaching company before April 30, 1999 or September 30, 1999,
as the case
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may be, the non-breaching company cannot terminate the Merger Agreement
as long as the breaching company is exercising its best efforts to cure
the breach.
Medtronic can terminate the Merger Agreement if:
- the Sofamor Danek Board recommends, approves, accepts, or enters into
an agreement regarding an alternative transaction, or
- the Sofamor Danek Board withdraws or modifies its recommendation of the
Merger in a manner adverse to Medtronic, or
- a third party makes a tender offer or exchange offer for Sofamor Danek
common stock, and the Sofamor Danek Board either takes no position or
does not recommend against acceptance of the offer within 10 business
days.
Sofamor Danek can terminate the Merger Agreement if:
- Sofamor Danek has not breached the Merger Agreement, and
- the Sofamor Danek Board authorizes it to enter into an agreement
regarding a transaction that the Board believes is more favorable to
the Sofamor Danek shareholders than the Merger with Medtronic, and
Sofamor Danek notifies Medtronic in writing that it intends to enter
into such agreement, and
- Medtronic does not make a new offer within five business days that is
at least as favorable to the Sofamor Danek shareholders, and
- Sofamor Danek pays the termination fee described below as requested by
Medtronic.
Sofamor Danek has agreed to pay Medtronic a termination fee of $105 million
if either:
the Merger Agreement is terminated by Medtronic because:
- the Sofamor Danek Board recommends, approves, accepts or enters into an
alternative transaction, or
- after an alternative proposal has been made and the Sofamor Danek Board
has not reinstated its recommendation of the Merger prior to
termination by Medtronic, the Sofamor Danek Board withdraws or modifies
in a manner materially adverse to Medtronic its recommendation of the
Merger, or
- a third party makes a tender offer or exchange offer for Sofamor Danek
stock, and the Sofamor Danek Board, within 10 business days, either
takes no position or does not recommend against acceptance of the
offer, or
the Merger Agreement is terminated by Sofamor Danek because:
- the Sofamor Danek Board, while in compliance with the Merger Agreement,
has authorized Sofamor Danek's entry into a transaction that
constitutes a superior proposal and Medtronic has not, within five
business days of notice of the superior proposal, made an offer that
the Sofamor Danek Board, in good faith after consultation with its
financial and legal advisors, determines is at least as favorable to
Sofamor Danek shareholders, or
the Merger Agreement is terminated by either company because:
- the requisite vote of Sofamor Danek shareholders is not obtained and
either a proposal for an alternative transaction is announced or
Sofamor Danek enters into an alternative transaction within 12 months
of termination of the Merger Agreement.
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Sofamor Danek has agreed to pay Medtronic a termination fee of $65 million:
- if the Merger Agreement is terminated by Medtronic because the Sofamor
Danek Board has withdrawn or modified in a manner materially adverse to
Medtronic its recommendation of the Merger and no proposal for an
alternative transaction has been made, or
- if the Merger Agreement is terminated by either company pursuant to any
of the termination provisions specified in the Merger Agreement, but
termination is available to Medtronic because the Sofamor Danek Board
has withdrawn or modified in a manner materially adverse to Medtronic
its recommendation of the Merger.
If, however, Sofamor Danek enters into an agreement providing for an
alternative transaction within 12 months of the termination that triggered
payment of the $65 million fee, Sofamor Danek will then pay Medtronic an
additional fee of $40 million.
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 Sofamor Danek
will share equally all expenses related to filing and printing the Registration
Statement and this Proxy Statement/Prospectus, the filing fees required under
the HSR Act (as defined below) and any foreign merger laws, and the fees charged
by PricewaterhouseCoopers for the Pooling Letters.
Goldman, Sachs & Co. provided certain financial advisory services to
Medtronic in connection with the Merger, for which Medtronic has agreed to pay a
fee of $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, except that this registration does not cover resales by shareholders
of Sofamor Danek who may be deemed to control or be under common control with
Sofamor Danek at the time of the Special Meeting ("Affiliates"). Affiliates may
not sell their shares of Medtronic common stock acquired in connection with the
Merger except pursuant to an effective registration statement under the
Securities Act covering such shares, or in compliance with Rule 145 under the
Securities Act or another applicable exemption from the registration
requirements of the Securities Act. Sofamor Danek has delivered to Medtronic,
and agreed to update as necessary, a list identifying all persons who, in
Sofamor Danek's opinion, upon advice of counsel, are Affiliates of Sofamor Danek
for purposes of Rule 145. Sofamor Danek has delivered to Medtronic from each
person already identified as an Affiliate, and has agreed to use all reasonable
efforts to cause each person who is subsequently identified as an Affiliate to
deliver to Medtronic at or prior to the Effective Time, an agreement that such
persons (1) will not offer to sell, sell, or otherwise dispose of any shares of
Medtronic common stock received in the Merger in violation of the Securities
Act, and (2) will not sell, transfer, pledge, dispose of, or otherwise reduce
such person's risk relative to Medtronic common stock or Sofamor Danek common
stock during the period commencing 30 days prior to the Effective Time of the
Merger and ending at such time as Medtronic publishes financial results covering
at least 30 days of post-Merger combined operations. It is expected that
Affiliates will be able to sell such shares without registration and in
accordance with the volume, manner of sale, and other applicable limitations of
the Securities Act and the rules and regulations of the SEC thereunder.
It is estimated that Affiliates of Sofamor Danek will receive a maximum of
approximately 9,020,614 shares of Medtronic common stock upon consummation of
the Merger (assuming full exercise of all outstanding Sofamor Danek options held
by such Affiliates and assuming a Conversion Ratio of 1.65159). Such shares
would constitute approximately 1.7% of the total number of shares of Medtronic
common
30
<PAGE>
stock anticipated to be outstanding immediately after the Effective Time after
giving effect to the shares issued pursuant to the Merger. Solely for
illustrative purposes of the foregoing estimate, the Conversion Ratio was
calculated by using the December 17, 1998 Medtronic closing sale price of
$71.9375 as the assumed Average Stock Price. See "The Merger--Conversion of
Sofamor Danek Common Stock in the Merger."
DEREGISTRATION OF SOFAMOR DANEK COMMON STOCK
If the Merger is consummated, the Sofamor Danek common stock will cease to
be quoted on the NYSE, and Medtronic will apply to the SEC for the
deregistration of Sofamor Danek common stock under the Exchange Act.
ACCOUNTING TREATMENT OF THE MERGER
Medtronic intends to account for the Merger as a pooling of interests for
accounting and financial reporting purposes under generally accepted accounting
principles. Under the pooling of interests method, the recorded assets and
liabilities of the companies are carried forward to the combined corporation at
their recorded amounts and the income (loss) of the companies constitutes the
income (loss) of the combined corporation for the entire fiscal period in which
the combination occurs as well as for prior fiscal periods. It is a condition to
the obligation of Medtronic and Merger Subsidiary to consummate the Merger that
Medtronic and Sofamor Danek shall have received letters from
PricewaterhouseCoopers LLP, Medtronic's and Sofamor Danek'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 (1) based upon the information furnished to PricewaterhouseCoopers LLP and
appropriate review and familiarity with Sofamor Danek, subject to customary
qualifications, no conditions exist that would preclude Sofamor Danek from being
a party to a pooling of interests business combination, and (2) 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain material United States federal
income tax considerations in connection with the Merger. This discussion merely
summarizes certain principal United States federal income tax consequences of
the Merger and is not a complete analysis of all of the potential tax effects
relevant to the Merger. In this regard, this discussion does not deal with all
federal income tax considerations that may be relevant to certain Sofamor Danek
shareholders in light of their particular circumstances, or to shareholders
subject to special rules under United States federal income tax law, including
dealers in securities, shareholders who do not hold their Sofamor Danek common
stock as capital assets, foreign persons, tax-exempt entities, or persons who
are subject to the alternative minimum tax provisions of the Internal Revenue
Code (the "Code"). Furthermore, it does not address Sofamor Danek shareholders
who acquired their shares in connection with stock options or stock purchase
plans or in other compensatory transactions. It also does not address the tax
consequences of the Merger under foreign, state, or local tax laws.
SOFAMOR DANEK SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL,
AND FOREIGN TAX CONSEQUENCES TO THEM.
Shearman & Sterling, counsel to Sofamor Danek, has rendered an opinion (the
"Tax Opinion") that the Merger will constitute a reorganization under Section
368 of the Code, and that each of Sofamor Danek, Medtronic and Merger Subsidiary
will be a party to such reorganization. Neither Sofamor Danek 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 based on and subject
31
<PAGE>
to certain assumptions and limitations as well as factual representations
received from Sofamor Danek and Medtronic, as discussed below. An opinion of
counsel represents only counsel's best legal judgment and has no binding effect
or official status of any kind. No assurance can be given that contrary
positions may not be taken by the IRS or a court considering the issues.
In accordance with the Tax Opinion, and subject to the assumptions,
limitations, and qualifications described in the Tax Opinion and in this
discussion, it is the opinion of Shearman & Sterling that the material United
States federal income tax consequences of the Merger can be summarized as
follows:
- Sofamor Danek, Medtronic, and Merger Subsidiary will not recognize gain or
loss solely as a result of Medtronic's issuance of Medtronic common stock
to the Sofamor Danek shareholders in the Merger and the transfer by
operation of law of Merger Subsidiary's assets and liabilities to Sofamor
Danek pursuant to the Merger;
- Sofamor Danek's shareholders will not recognize gain or loss upon their
receipt in the Merger of Medtronic common stock in exchange for their
shares of Sofamor Danek common stock, except to the extent of cash
received in lieu of a fractional share of Medtronic common stock;
- The aggregate tax basis of Medtronic common stock received in the Merger
will be the same as the aggregate tax basis of the Sofamor Danek common
stock surrendered in exchange for the Medtronic common stock (reduced by
any amount of tax basis allocable to a fractional share interest in
Medtronic common stock for which cash is received);
- The holding period of each share of Medtronic common stock received by a
Sofamor Danek shareholder in the Merger will include the period during
which such Sofamor Danek shareholder held his or her Sofamor Danek common
stock surrendered in exchange therefor; and
- 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, and capital gain or loss generally should
be recognized by a Sofamor Danek shareholder in respect of such payment
equal to the difference (if any) between the amount of cash received and
such shareholder's allocable tax basis in the fractional share (which will
be a pro rata portion of the shareholder's tax basis in the Medtronic
common stock received in the Merger).
LIMITATIONS ON OPINION AND DISCUSSION. As noted earlier, the Tax Opinion is
subject to certain assumptions, relating to, among other things, the truth and
accuracy of certain representations made by Sofamor Danek and Medtronic, and the
consummation of the Merger in accordance with the terms of the Merger Agreement
and applicable state law. Furthermore, the Tax Opinion will not bind the IRS
and, therefore, the IRS is 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 the statements and conclusions set forth
herein. Any such changes or interpretations could be applied retroactively and
could affect the tax consequences of the Merger.
INDEMNIFICATION
Under the Merger Agreement, Medtronic has agreed to continue to indemnify
the present and former officers and directors of Sofamor Danek for a period of
at least six years following the Merger with respect to acts or omissions
occurring prior to the Effective Time, to the extent that they are currently
indemnified under Sofamor Danek's Articles of Incorporation and Bylaws as of the
date of the Merger Agreement. Medtronic has also agreed to provide directors'
and officers' liability insurance coverage, comparable to that currently
maintained by Sofamor Danek, for three years after the Effective Time. See "The
Merger-- Interests of Sofamor Danek's Directors and Officers in the Merger."
32
<PAGE>
REGULATORY REQUIREMENTS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), certain acquisition transactions, including the Merger, cannot be
consummated unless certain information has been furnished to the Federal Trade
Commission ("FTC") and the Antitrust Division of the United States Department of
Justice ("Antitrust Division") and certain waiting period requirements have been
satisfied. Medtronic and Sofamor Danek each furnished such information, and the
applicable waiting period under the HSR Act expired on December 12, 1998.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Merger. At any time before or
after the consummation of the Merger, the Antitrust Division or the FTC could
take any action under the antitrust laws that it deems necessary or desirable in
the public interest, including seeking to enjoin the consummation of the Merger
or seeking the divestiture of substantial assets of Sofamor Danek or Medtronic.
Sofamor Danek 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 Sofamor Danek's
businesses, regulatory filings may also be required in certain European and
other jurisdictions. Medtronic and Sofamor Danek 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 in this Proxy Statement/Prospectus, the Merger does
not require the approval of any federal, state, or other agency. See "The
Merger--Conditions to Consummation of the Merger; Waiver."
NO DISSENTERS' RIGHTS
Under Indiana law, Sofamor Danek shareholders are not entitled to
dissenters' rights in connection with the Merger. Medtronic shareholders are
also not entitled to dissenters' rights in connection with the Merger.
33
<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. Sofamor Danek common stock is also traded on the NYSE
(symbol: SDG).
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
Sofamor Danek common stock as reported by the NYSE.
<TABLE>
<CAPTION>
SOFAMOR DANEK
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 $ 35.75 $ 23.50
Second Quarter...................................... $ 29.875 $ 24.375 $ .0325 $ 37.25 $ 24.625
Third Quarter....................................... $ 32.4375 $ 23.50 $ .0475 $ 30.875 $ 21.00
Fourth Quarter...................................... $ 34.9375 $ 30.25 $ .0475 $ 32.625 $ 23.75
CALENDAR 1997
First Quarter....................................... $ 35.875 $ 28.8125 $ .0475 $ 44.00 $ 30.375
Second Quarter...................................... $ 44.4375 $ 30.375 $ .0475 $ 47.25 $ 35.25
Third Quarter....................................... $ 49.25 $ 42.50 $ .055 $ 57.125 $ 43.9375
Fourth Quarter...................................... $ 52.75 $ 40.5625 $ .055 $ 73.8125 $ 56.25
CALENDAR 1998
First Quarter....................................... $ 58.4375 $ 45.4375 $ .055 $ 87.00 $ 60.9375
Second Quarter...................................... $ 66.00 $ 47.9375 $ .055 $ 89.625 $ 77.375
Third Quarter....................................... $ 72.75 $ 51.00 $ .065 $ 98.00 $ 77.00
Fourth Quarter (through December 17)................ $ 72.125 $ 48.375 $ .065 $ 118.625 $ 73.625
</TABLE>
Sofamor Danek has never paid cash dividends. Under the Merger Agreement,
Sofamor Danek has agreed not to pay any dividends on Sofamor Danek 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.
In the Merger, shares of Sofamor Danek common stock will be converted into
shares of Medtronic common stock based on the Conversion Ratio, which equals
$115 divided by the Average Stock Price for the 15 consecutive NYSE trading days
ending on the second NYSE trading day immediately preceding the Special Meeting,
but subject to a minimum Conversion Ratio of 1.65159 and a maximum Conversion
Ratio of 2.01861. On October 30, 1998, the last trading day preceding public
announcement of the Merger, the reported closing sale price of Medtronic common
stock on the NYSE was $65.00 per share, resulting in an implied Conversion Ratio
(if it were determined based on the closing sale price that day) of 1.76923. On
that day, the reported closing sale price of Sofamor Danek common stock on the
NYSE was $101.625 per share. On December 17, 1998, the latest practicable
trading day prior to the printing of this Proxy Statement/Prospectus, the
closing sale price of Medtronic common stock on the NYSE was $71.9375 per share,
resulting in an implied Conversion Ratio (if it were determined based on the
closing sale price that day) of 1.65159. The reported closing sale price of
Sofamor Danek common stock on the NYSE on that day was $117.875 per share.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
As of December 21, 1998, there were approximately 32,500 registered holders
of Medtronic common stock and approximately 825 registered holders of Sofamor
Danek common stock.
34
<PAGE>
RECENT DEVELOPMENTS
AVECOR CARDIOVASCULAR INC.
On July 13, 1998, Medtronic announced that it had entered into an agreement
to acquire AVECOR Cardiovascular Inc. ("Avecor"), a company that develops,
manufactures, and markets specialty medical devices for heart/lung bypass
surgery and long-term respiratory support. Pursuant to the acquisition
agreement, upon the fulfillment or waiver of certain conditions, a wholly-owned
subsidiary of Medtronic created for the Avecor acquisition will merge with and
into Avecor. Avecor will then become a wholly-owned subsidiary of Medtronic in a
stock-for-stock merger that is expected to be tax-free and accounted for using
the purchase accounting method. Under the original agreement, each outstanding
share of stock of Avecor would be exchanged for the right to receive the portion
of a share of Medtronic common stock equal to $11.125 divided by the average of
the daily closing sale prices of a share of Medtronic common stock as reported
on the NYSE Composite Tape for the 18 consecutive NYSE trading days ending on
the second NYSE trading day immediately preceding the effective time of the
Avecor merger. The shareholders of Avecor voted and approved the acquisition on
October 28, 1998.
On November 24, 1998, Avecor announced that it had received an unsolicited
offer from a third party to purchase all of Avecor's outstanding common stock at
a price of $13 per share. On December 6, 1998, Medtronic and Avecor announced an
amendment to their acquisition agreement, which calls for $13 in Medtronic
common stock to be issued in the transaction for each Avecor share, or a total
of approximately $106 million. Avecor agreed not to explore alternative
acquisition proposals and ceased discussions with the third party. The amended
agreement also requires Medtronic to pay up to $10 million to Avecor if the
merger is not completed by March 15, 1999, due to failure to obtain FTC
clearance by that date. Medtronic intends to complete the acquisition following
receipt of FTC clearance.
ARTERIAL VASCULAR ENGINEERING, INC.
On November 30, 1998, Medtronic announced that it had entered into an
agreement to acquire Arterial Vascular Engineering, Inc. ("AVE"), a company that
designs and manufactures minimally invasive solutions for the treatment of
coronary artery and peripheral vascular disease. Pursuant to the acquisition
agreement, upon the fulfillment or waiver of certain conditions, a wholly-owned
subsidiary of Medtronic created for the AVE acquisition will merge with and into
AVE. AVE will then become a wholly-owned subsidiary of Medtronic in a
stock-for-stock merger that is expected to be tax-free and accounted for using
the pooling-of-interests method. In the AVE merger, which is valued at
approximately $3.7 billion, each outstanding share of stock of AVE will be
exchanged for the right to receive shares of Medtronic common stock equal to
$54.00 divided by the average of the daily closing sale prices of a share of
Medtronic common stock as reported on the NYSE Composite Tape for the 15 NYSE
trading days ending on the second NYSE trading day preceding the AVE
shareholders' meeting for the merger. The price is subject to certain collar
provisions. It is expected that the AVE acquisition will be completed in the
first or second calendar quarter of 1999, but there can be no assurance that the
acquisition will be completed successfully.
On October 1, 1998, AVE completed the acquisition of the coronary catheter
lab business of C.R. Bard, Inc. In connection with the acquisition, AVE recorded
an in-process research and development charge of $98 million. In addition, on
December 14 AVE acquired World Medical Manufacturing Corporation for
approximately $62 million in AVE common stock. In connection with the purchase,
AVE expects to record an in-process research and development charge of
approximately $42 million. For more information on these AVE acquisitions, see
Note 4 of the Notes to Unaudited Pro Forma Condensed Combined Financial
Statements on page 43.
OTHER INVESTMENTS AND ACQUISITIONS
Medtronic has historically been, and continues to be, actively engaged in
exploring business opportunities through investments and acquisitions. As such,
at any particular time, in addition to investments and acquisitions for which
definitive agreements have been executed and publicly announced, Medtronic is
routinely reviewing several other investment and acquisition opportunities of
varying magnitude and significance or negotiating the terms of such potential
investments and acquisitions prior to the execution of definitive agreements and
public announcements thereof.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma financial statements give effect to the
mergers of Medtronic with each of Sofamor Danek and Arterial Vascular
Engineering, Inc. (AVE), each of which will be accounted for as a pooling of
interests. The unaudited pro forma condensed combined balance sheets give effect
to these transactions as if they had occurred on October 30, 1998. The unaudited
pro forma condensed combined statements of operations give effect to these
transactions as if they had occurred as of May 1, 1995, the beginning of the
earliest period presented.
The operating results for Sofamor Danek have been converted as described
below from its fiscal year end (December 31) to Medtronic's fiscal year end
(April 30). The operating results for AVE have been converted as described below
from its fiscal year end (June 30) to Medtronic's fiscal year end (April 30).
For pro forma purposes, (i) Medtronic's unaudited consolidated balance sheet
as of October 30, 1998 has been combined with Sofamor Danek's and AVE's
unaudited consolidated balance sheets as of September 30, 1998, and (ii)
Medtronic's unaudited consolidated statements of operations for the six months
ended October 30, 1998 and October 31, 1997 and audited statements of operations
for the fiscal years ended April 30, 1998, 1997 and 1996 have been combined with
Sofamor Danek's and AVE's unaudited consolidated statements of operations for
the six months ended September 30, 1998 and 1997 and 12 months ended March 31,
1998, 1997 and 1996, respectively, on a pooling of interests basis.
These pro forma financial statements are presented for illustrative purposes
only and therefore are not necessarily indicative of the operating results or
financial position that might have been achieved had the transactions occurred
as of an earlier date, nor are they necessarily indicative of operating results
or financial position that may occur in the future. These pro forma financial
statements should be read in conjunction with the historical consolidated
financial statements and notes thereto of Medtronic and Sofamor Danek
incorporated by reference herein. Additional information on AVE may be obtained
through review of AVE's public filings with the SEC.
As indicated in the footnotes to these pro forma financial statements,
certain pro forma adjustments have been made assuming, solely for the
illustrative purposes of these pro forma financial statements, a conversion
ratio of 1.65159 for the Sofamor Danek merger and a conversion ratio of 0.75065
for the AVE merger (in each case, based on the closing price of Medtronic common
stock on December 17, 1998).
36
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF OCTOBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MEDTRONIC AND PRO FORMA
SOFAMOR PRO FORMA SOFAMOR DANEK PRO FORMA MEDTRONIC AND
MEDTRONIC DANEK ADJUSTMENTS COMBINED AVE ADJUSTMENTS AVE COMBINED
----------- ----------- ----------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 572,341 $ 70,132 $ 642,473 $ 135,555 $ 707,896
Short-term investments..... 244,044 9,535 253,579 96,729 340,773
Accounts receivable, net... 706,531 108,027 814,558 90,456 796,987
Inventories:
Finished goods........... 205,722 41,417 247,139 5,486 211,208
Work in process.......... 88,273 4,771 93,044 2,786 91,059
Raw materials............ 130,596 2,704 133,300 3,272 133,868
----------- ----------- ----------- ------------- --------- ------------- -------------
Total inventories...... 424,591 48,892 473,483 11,544 436,135
Prepaid expenses and other
current assets............. 324,031 67,967 391,998 23,729 347,760
----------- ----------- ----------- ------------- --------- ------------- -------------
Total current assets..... 2,271,538 304,553 2,576,091 358,013 2,629,551
Property, plant, and
equipment, net............. 565,107 56,449 621,556 78,573 643,680
Goodwill and other intangible
assets, net................ 673,357 103,803 777,160 -- 673,357
Long-term investments........ 210,801 1,397 212,198 -- 210,801
Other assets................. 113,772 66,014 179,786 1,341 115,113
----------- ----------- ----------- ------------- --------- ------------- -------------
Total assets............. $3,834,575 $ 532,216 -- $ 4,366,791 $ 437,927 -- $ 4,272,502
----------- ----------- ----------- ------------- --------- ------------- -------------
----------- ----------- ----------- ------------- --------- ------------- -------------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings...... $ 201,320 $ 18,085 $ 219,405 -- $ 201,320
Accounts payable........... 96,179 8,909 105,088 $ 11,718 107,897
Accrued liabilities........ 476,594 85,605 562,199 87,227 563,821
----------- ----------- ----------- ------------- --------- ------------- -------------
Total current
liabilities............ 774,093 112,599 886,692 98,945 873,038
Long-term debt............... 19,534 18,067 37,601 -- 19,534
Deferred tax liabilities..... 509 -- 509 -- 509
Other long-term
liabilities................ 130,293 20,317 150,610 -- 130,293
----------- ----------- ----------- ------------- --------- ------------- -------------
Total liabilities........ 924,429 150,983 1,075,412 98,945 1,023,374
Shareholders' equity:
Common stock............... 48,934 182,977 $(178,532)(a) 53,379 64 $ 4,769(b) $ 53,767
Retained earnings.......... 2,963,360 199,682 $ 178,532(a) 3,341,574 339,909 $ (4,769)(b) 3,298,500
Accumulated other non-owner
changes in equity........ (75,998) (1,426) (77,424) (991) (76,989)
Receivable from Employee
Stock Ownership Plan..... (26,150) -- (26,150) -- (26,150)
----------- ----------- ----------- ------------- --------- ------------- -------------
Total shareholders'
equity................. 2,910,146 381,233 -- 3,291,379 338,982 -- 3,249,128
----------- ----------- ----------- ------------- --------- ------------- -------------
Total liabilities and
shareholders' equity... $3,834,575 $ 532,216 -- $ 4,366,791 $ 437,927 -- $ 4,272,502
----------- ----------- ----------- ------------- --------- ------------- -------------
----------- ----------- ----------- ------------- --------- ------------- -------------
<CAPTION>
PRO FORMA
MEDTRONIC,
SOFAMOR
DANEK AND
AVE
COMBINED
-----------
<S> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 778,028
Short-term investments..... 350,308
Accounts receivable, net... 905,014
Inventories:
Finished goods........... 252,625
Work in process.......... 95,830
Raw materials............ 136,572
-----------
Total inventories...... 485,027
Prepaid expenses and other
current assets............. 415,727
-----------
Total current assets..... 2,934,104
Property, plant, and
equipment, net............. 700,129
Goodwill and other intangible
assets, net................ 777,160
Long-term investments........ 212,198
Other assets................. 181,127
-----------
Total assets............. $4,804,718
-----------
-----------
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Short-term borrowings...... $ 219,405
Accounts payable........... 116,806
Accrued liabilities........ 649,426
-----------
Total current
liabilities............ 985,637
Long-term debt............... 37,601
Deferred tax liabilities..... 509
Other long-term
liabilities................ 150,610
-----------
Total liabilities........ 1,174,357
Shareholders' equity:
Common stock............... 58,212
Retained earnings.......... 3,676,714
Accumulated other non-owner
changes in equity........ (78,415)
Receivable from Employee
Stock Ownership Plan..... (26,150)
-----------
Total shareholders'
equity................. 3,630,361
-----------
Total liabilities and
shareholders' equity... $4,804,718
-----------
-----------
</TABLE>
- ------------------------------
(a) Reflects 26,914,000 Sofamor Danek no par common shares outstanding at
September 30, 1998 exchanged for 44,450,883 Medtronic $.10 par common shares
assuming a 1.65159 conversion ratio.
(b) Reflects 64,386,000 AVE $.001 par common shares outstanding at September 30,
1998 exchanged for 48,331,351 Medtronic $.10 par common shares assuming a
0.75065 conversion ratio.
37
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MEDTRONIC AND PRO FORMA
SOFAMOR PRO FORMA SOFAMOR DANEK PRO FORMA MEDTRONIC AND
MEDTRONIC DANEK ADJUSTMENTS COMBINED AVE ADJUSTMENTS AVE COMBINED
----------- ----------- ------------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $1,434,060 $ 195,230 $ 1,629,290 $ 343,145 $ 1,777,205
Costs and expenses:
Cost of products sold...... 402,085 35,883 437,968 56,573 458,658
Research and development
expense.................. 160,048 14,850 174,898 27,535 187,583
Selling, general, and
administrative expense... 413,196 89,157 502,353 78,281 491,477
Non-recurring charges...... 21,101 8,000 29,101 -- 21,101
Interest expense........... 5,222 1,345 6,567 -- 5,222
Interest income............ (17,163) -- (17,163) (5,274) (22,437)
----------- ----------- ------ ------------- --------- ------------- -------------
Total costs and
expenses............... 984,489 149,235 1,133,724 157,115 1,141,604
----------- ----------- ------ ------------- --------- ------------- -------------
Earnings before income
taxes...................... 449,571 45,995 495,566 186,030 635,601
Provision for income taxes... 150,136 14,371 164,507 73,438 223,574
----------- ----------- ------ ------------- --------- ------------- -------------
Net earnings................. $ 299,435 $ 31,624 $ 331,059 $ 112,592 $ 412,027
----------- ----------- ------ ------------- --------- ------------- -------------
----------- ----------- ------ ------------- --------- ------------- -------------
Weighted average shares
outstanding................ 479,553 26,669 17,377(c) 523,599 62,853 (15,672)(d) 526,734
Basic earnings per share..... $ 0.62 $ 1.19 $ 0.63 $ 1.79 $ 0.78
Earnings per share assuming
dilution................... $ 0.61 $ 1.08 $ 0.62 $ 1.71 $ 0.77
Weighted average shares
outstanding assuming
dilution................... 486,909 29,194 19,022(c) 535,125 65,964 (16,448)(d) 536,425
<CAPTION>
PRO FORMA
MEDTRONIC,
SOFAMOR
DANEK AND
AVE
COMBINED
-----------
<S> <C>
Net sales.................... $1,972,435
Costs and expenses:
Cost of products sold...... 494,541
Research and development
expense.................. 202,433
Selling, general, and
administrative expense... 580,634
Non-recurring charges...... 29,101
Interest expense........... 6,567
Interest income............ (22,437)
-----------
Total costs and
expenses............... 1,290,839
-----------
Earnings before income
taxes...................... 681,596
Provision for income taxes... 237,945
-----------
Net earnings................. $ 443,651
-----------
-----------
Weighted average shares
outstanding................ 570,780
Basic earnings per share..... $ 0.78
Earnings per share assuming
dilution................... $ 0.76
Weighted average shares
outstanding assuming
dilution................... 584,641
</TABLE>
- ------------------------------
(c) Represents 26,669,000 weighted average shares outstanding and 29,194,000
weighted average shares outstanding assuming dilution of Sofamor Danek
common stock converted to 44,046,000 weighted average shares outstanding and
48,216,000 weighted average shares outstanding assuming dilution of
Medtronic common stock assuming a 1.65159 conversion ratio.
(d) Represents 62,853,000 weighted average shares outstanding and 65,964,000
weighted average shares outstanding assuming dilution of AVE common stock
converted to 47,181,000 weighted average shares outstanding and 49,516,000
weighted average shares outstanding assuming dilution of Medtronic common
stock assuming a 0.75065 conversion ratio.
38
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MEDTRONIC AND PRO FORMA
SOFAMOR PRO FORMA SOFAMOR DANEK PRO FORMA MEDTRONIC AND
MEDTRONIC DANEK ADJUSTMENTS COMBINED AVE ADJUSTMENTS AVE COMBINED
----------- ----------- ------------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $1,377,508 $ 151,619 $ 1,529,127 $ 48,485 $ 1,425,993
Costs and expenses:
Cost of products sold....... 364,127 27,291 391,418 10,466 374,593
Research and development
expense................... 151,820 9,589 161,409 9,600 161,420
Selling, general, and
administrative expense.... 417,777 71,161 488,938 14,328 432,105
Interest expense............ 4,661 3,045 7,706 -- 4,661
Interest income............. (10,331) -- (10,331) (1,996) (12,327)
----------- ----------- ------ ------------- --------- ------------- -------------
Total costs and
expenses................ 928,054 111,086 1,039,140 32,398 960,452
----------- ----------- ------ ------------- --------- ------------- -------------
Earnings before income
taxes....................... 449,454 40,533 489,987 16,087 465,541
Provision for income taxes.... 155,095 12,476 167,571 5,631 160,726
----------- ----------- ------ ------------- --------- ------------- -------------
Net earnings.................. $ 294,359 $ 28,057 $ 322,416 $ 10,456 $ 304,815
----------- ----------- ------ ------------- --------- ------------- -------------
----------- ----------- ------ ------------- --------- ------------- -------------
Weighted average shares
outstanding................. 476,872 24,786 16,150(e) 517,808 59,366 (14,803)(f) 521,435
Basic earnings per share...... $ 0.62 $ 1.13 $ 0.62 $ 0.18 $ 0.58
Earnings per share assuming
dilution.................... $ 0.61 $ 1.05 $ 0.61 $ 0.16 $ 0.57
Weighted average shares
outstanding assuming
dilution.................... 484,847 26,696 17,394(e) 528,937 64,005 (15,960)(f) 532,892
<CAPTION>
PRO FORMA
MEDTRONIC,
SOFAMOR
DANEK AND
AVE
COMBINED
-----------
<S> <C>
Net sales..................... $1,577,612
Costs and expenses:
Cost of products sold....... 401,884
Research and development
expense................... 171,009
Selling, general, and
administrative expense.... 503,266
Interest expense............ 7,706
Interest income............. (12,327)
-----------
Total costs and
expenses................ 1,071,538
-----------
Earnings before income
taxes....................... 506,074
Provision for income taxes.... 173,202
-----------
Net earnings.................. $ 332,872
-----------
-----------
Weighted average shares
outstanding................. 562,371
Basic earnings per share...... $ 0.59
Earnings per share assuming
dilution.................... $ 0.58
Weighted average shares
outstanding assuming
dilution.................... 576,982
</TABLE>
- ------------------------------
(e) Represents 24,786,000 weighted average shares outstanding and 26,696,000
weighted average shares outstanding assuming dilution of Sofamor Danek
common stock converted to 40,936,000 weighted average shares outstanding and
44,090,000 weighted average shares outstanding assuming dilution of
Medtronic common stock assuming a 1.65159 conversion ratio.
(f) Represents 59,366,000 weighted average shares outstanding and 64,005,000
weighted average shares outstanding assuming dilution of AVE common stock
converted to 44,563,000 weighted average shares outstanding and 48,045,000
weighted average shares outstanding assuming dilution of Medtronic common
stock assuming a 0.75065 conversion ratio.
39
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MEDTRONIC AND PRO FORMA
SOFAMOR PRO FORMA SOFAMOR DANEK PRO FORMA MEDTRONIC AND
MEDTRONIC DANEK ADJUSTMENTS COMBINED AVE ADJUSTMENTS AVE COMBINED
----------- ----------- ------------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................... $2,783,371 $ 331,596 $ 3,114,967 $ 227,991 $ 3,011,362
Costs and expenses:
Cost of products sold...... 760,016 61,446 821,462 45,668 805,684
Research and development
expense.................. 317,957 21,251 339,208 28,732 346,689
Selling, general, and
administrative expense... 809,546 155,939 965,485 61,881 871,427
Non-recurring charges...... 192,400 -- 192,400 -- 192,400
Interest expense........... 9,756 5,498 15,254 -- 9,756
Interest income............ (22,927) -- (22,927) (4,438) (27,365)
----------- ----------- ------ ------------- --------- ------------- -------------
Total costs and
expenses............... 2,066,748 244,134 2,310,882 131,843 2,198,591
----------- ----------- ------ ------------- --------- ------------- -------------
Earnings before income
taxes...................... 716,623 87,462 804,085 96,148 812,771
Provision for income taxes... 249,746 26,957 276,703 35,696 285,442
----------- ----------- ------ ------------- --------- ------------- -------------
Net earnings................. $ 466,877 $ 60,505 $ 527,382 $ 60,452 $ 527,329
----------- ----------- ------ ------------- --------- ------------- -------------
----------- ----------- ------ ------------- --------- ------------- -------------
Weighted average shares
outstanding................ 477,243 25,039 16,314(g) 518,596 61,136 (15,244)(h) 523,135
Basic earnings per share..... $ 0.98 $ 2.42 $ 1.02 $ 0.99 $ 1.01
Earnings per share assuming
dilution................... $ 0.96 $ 2.22 $ 1.00 $ 0.93 $ 0.99
Weighted average shares
outstanding assuming
dilution................... 484,126 27,197 17,721(g) 529,044 64,675 (16,127)(h) 532,674
<CAPTION>
PRO FORMA
MEDTRONIC,
SOFAMOR
DANEK AND
AVE
COMBINED
-----------
<S> <C>
Net sales.................... $3,342,958
Costs and expenses:
Cost of products sold...... 867,130
Research and development
expense.................. 367,940
Selling, general, and
administrative expense... 1,027,366
Non-recurring charges...... 192,400
Interest expense........... 15,254
Interest income............ (27,365)
-----------
Total costs and
expenses............... 2,442,725
-----------
Earnings before income
taxes...................... 900,233
Provision for income taxes... 312,399
-----------
Net earnings................. $ 587,834
-----------
-----------
Weighted average shares
outstanding................ 564,488
Basic earnings per share..... $ 1.04
Earnings per share assuming
dilution................... $ 1.02
Weighted average shares
outstanding assuming
dilution................... 577,592
</TABLE>
- ------------------------------
(g) Represents 25,039,000 weighted average shares outstanding and 27,197,000
weighted average shares outstanding assuming dilution of Sofamor Danek
common stock converted to 41,353,000 weighted average shares outstanding and
44,918,000 weighted average shares outstanding assuming dilution of
Medtronic common stock assuming a 1.65159 conversion ratio.
(h) Represents 61,136,000 weighted average shares outstanding and 64,675,000
weighted average shares outstanding assuming dilution of AVE common stock
converted to 45,892,000 weighted average shares outstanding and 48,548,000
weighted average shares outstanding assuming dilution of Medtronic common
stock assuming a 0.75065 conversion ratio.
40
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MEDTRONIC AND PRO FORMA
SOFAMOR PRO FORMA SOFAMOR DANEK PRO FORMA MEDTRONIC AND
MEDTRONIC DANEK ADJUSTMENTS COMBINED AVE ADJUSTMENTS AVE COMBINED
----------- ----------- ------------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $2,609,361 $ 260,066 $ 2,869,427 $ 75,123 $ 2,684,484
Costs and expenses:
Cost of products sold....... 692,964 46,759 739,723 13,991 706,955
Research and development
expense................... 299,662 17,018 316,680 8,792 308,454
Selling, general, and
administrative expense.... 807,852 125,109 932,961 18,593 826,445
Non-recurring charges....... -- 50,000 50,000 -- --
Interest expense............ 11,254 4,143 15,397 -- 11,254
Interest income............. (34,047) -- (34,047) (4,255) (38,302)
----------- ----------- ------ ------------- --------- ------------- -------------
Total costs and
expenses................ 1,777,685 243,029 2,020,714 37,121 1,814,806
----------- ----------- ------ ------------- --------- ------------- -------------
Earnings before income
taxes....................... 831,676 17,037 848,713 38,002 869,678
Provision for income taxes.... 287,092 3,181 290,273 13,286 300,378
----------- ----------- ------ ------------- --------- ------------- -------------
Net earnings.................. $ 544,584 $ 13,856 $ 558,440 $ 24,716 $ 569,300
----------- ----------- ------ ------------- --------- ------------- -------------
----------- ----------- ------ ------------- --------- ------------- -------------
Weighted average shares
outstanding................. 485,506 24,384 15,888(i) 525,778 57,647 (14,374)(j) 528,779
Basic earnings per share...... $ 1.12 $ 0.57 $ 1.06 $ 0.43 $ 1.08
Earnings per share assuming
dilution.................... $ 1.10 $ 0.53 $ 1.04 $ 0.39 $ 1.05
Weighted average shares
outstanding assuming
dilution.................... 494,019 26,137 17,031(i) 537,187 62,905 (15,686)(j) 541,238
<CAPTION>
PRO FORMA
MEDTRONIC,
SOFAMOR
DANEK AND
AVE
COMBINED
-----------
<S> <C>
Net sales..................... $2,944,550
Costs and expenses:
Cost of products sold....... 753,714
Research and development
expense................... 325,472
Selling, general, and
administrative expense.... 951,554
Non-recurring charges....... 50,000
Interest expense............ 15,397
Interest income............. (38,302)
-----------
Total costs and
expenses................ 2,057,835
-----------
Earnings before income
taxes....................... 886,715
Provision for income taxes.... 303,559
-----------
Net earnings.................. $ 583,156
-----------
-----------
Weighted average shares
outstanding................. 569,051
Basic earnings per share...... $ 1.02
Earnings per share assuming
dilution.................... $ 1.00
Weighted average shares
outstanding assuming
dilution.................... 584,406
</TABLE>
- ------------------------------
(i) Represents 24,384,000 weighted average shares outstanding and 26,137,000
weighted average shares outstanding assuming dilution of Sofamor Danek
common stock converted to 40,272,000 weighted average shares outstanding and
43,168,000 weighted average shares outstanding assuming dilution of
Medtronic common stock assuming a 1.65159 conversion ratio.
(j) Represents 57,647,000 weighted average shares outstanding and 62,905,000
weighted average shares outstanding assuming dilution of AVE common stock
converted to 43,273,000 weighted average shares outstanding and 47,219,000
weighted average shares outstanding assuming dilution of Medtronic common
stock assuming a 0.75065 conversion ratio.
41
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
MEDTRONIC AND PRO FORMA
SOFAMOR PRO FORMA SOFAMOR DANEK PRO FORMA MEDTRONIC AND
MEDTRONIC DANEK ADJUSTMENTS COMBINED AVE ADJUSTMENTS AVE COMBINED
----------- ----------- ------------- ------------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $2,326,836 $ 199,077 $ 2,525,913 $ 44,128 $ 2,370,964
Costs and expenses:
Cost of products sold....... 664,531 40,906 705,437 9,726 674,257
Research and development
expense................... 263,933 14,264 278,197 5,379 269,312
Selling, general, and
administrative expense.... 747,245 93,166 840,411 6,545 753,790
Interest expense............ 10,531 3,400 13,931 -- 10,531
Interest income............. (31,124) -- (31,124) (502) (31,626)
----------- ----------- ------ ------------- --------- ------------- -------------
Total costs and
expenses................ 1,655,116 151,736 1,806,852 21,148 1,676,264
----------- ----------- ------ ------------- --------- ------------- -------------
----------- ----------- ------ ------------- --------- ------------- -------------
Earnings before income
taxes....................... 671,720 47,341 719,061 22,980 694,700
Provision for income taxes.... 235,582 10,677 246,259 7,762 243,344
----------- ----------- ------ ------------- --------- ------------- -------------
Net earnings.................. $ 436,138 $ 36,664 $ 472,802 $ 15,218 $ 451,356
----------- ----------- ------ ------------- --------- ------------- -------------
----------- ----------- ------ ------------- --------- ------------- -------------
Weighted average shares
outstanding................. 482,923 23,934 15,595(k) 522,452 42,184 (10,519)(l) 514,588
Basic earnings per share...... $ 0.90 $ 1.53 $ 0.90 $ 0.36 $ 0.88
Earnings per share assuming
dilution.................... $ 0.89 $ 1.44 $ 0.88 $ 0.28 $ 0.85
Weighted average shares
outstanding assuming
dilution.................... 492,209 25,533 16,637(k) 534,379 54,773 (13,657)(l) 533,325
<CAPTION>
PRO FORMA
MEDTRONIC,
SOFAMOR
DANEK AND
AVE
COMBINED
-----------
<S> <C>
Net sales..................... $2,570,041
Costs and expenses:
Cost of products sold....... 715,163
Research and development
expense................... 283,576
Selling, general, and
administrative expense.... 846,956
Interest expense............ 13,931
Interest income............. (31,626)
-----------
Total costs and
expenses................ 1,828,000
-----------
-----------
Earnings before income
taxes....................... 742,041
Provision for income taxes.... 254,021
-----------
Net earnings.................. $ 488,020
-----------
-----------
Weighted average shares
outstanding................. 554,117
Basic earnings per share...... $ 0.88
Earnings per share assuming
dilution.................... $ 0.85
Weighted average shares
outstanding assuming
dilution.................... 575,495
</TABLE>
- ------------------------------
(k) Represents 23,934,000 weighted average shares outstanding and 25,533,000
weighted average shares outstanding assuming dilution of Sofamor Danek
common stock converted to 39,529,000 weighted average shares outstanding and
42,170,000 weighted average shares outstanding assuming dilution of
Medtronic common stock assuming a 1.65159 conversion ratio.
(l) Represents 42,184,000 weighted average shares outstanding and 54,773,000
weighted average shares outstanding assuming dilution of AVE common stock
converted to 31,665,000 weighted average shares outstanding and 41,116,000
weighted average shares outstanding assuming dilution of Medtronic common
stock assuming a 0.75065 conversion ratio.
42
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1
The unaudited pro forma financial statements give effect to the mergers of
Medtronic with each of Sofamor Danek and Arterial Vascular Engineering, Inc.
(AVE) using the pooling of interests method of accounting. The unaudited pro
forma condensed combined balance sheets give effect to these transactions as if
they had occurred on October 30, 1998. The unaudited pro forma condensed
combined statements of operations give effect to these transactions as if they
had occurred as of May 1, 1995, the beginning of the earliest period presented.
The pro forma financial statements are presented for illustrative purposes
only and therefore are not necessarily indicative of the operating results or
financial position that might have been achieved had the transactions occurred
as of an earlier date, nor are they necessarily indicative of operating results
or financial position that may occur in the future.
These pro forma financial statements should be read in conjunction with the
historical consolidated financial statements and notes thereto of Medtronic and
Sofamor Danek incorporated by reference herein. Additional information on AVE
may be obtained through review of AVE's public filings with the Securities and
Exchange Commission.
NOTE 2
The unaudited pro forma condensed combined balance sheets reflect
Medtronic's unaudited consolidated balance sheet as of October 30, 1998 combined
with Sofamor Danek's and AVE's unaudited consolidated balance sheets as of
September 30, 1998.
NOTE 3
The unaudited pro forma condensed combined statements of operations reflect
Medtronic's unaudited consolidated statements of operations for the six months
ended October 30, 1998 and October 31, 1997 and audited statements of operations
for the fiscal years ended years ended April 30, 1998, 1997 and 1996 combined
with Sofamor Danek's and AVE's unaudited consolidated statements of operations
for the six months ended September 30, 1998 and 1997 and 12 months ended March
31, 1998, 1997 and 1996, respectively, on a pooling of interests basis.
NOTE 4
The unaudited pro forma condensed combined financial statements do not give
effect to AVE's acquisition of the Bard Cath Lab Business which was consummated
on October 1, 1998. The Bard Cath Lab acquisition has not been included in the
unaudited pro forma condensed combined financial statements because it does not
constitute a significant business combination and disclosure is not deemed to be
material. The Bard Cath Lab business includes a broad range of catheter-based
technologies including PTCA balloon catheters, guidewires, guide catheters,
coronary diagnostic catheters and guidewires, introducers and vessel closure
devices, coronary stents, and various other components and accessories. AVE's
acquisition of Bard Cath Lab was accounted for as a purchase business
combination. The purchase price of $550 million was allocated to tangible net
assets of $54 million, in process research and development of $98 million,
intangible assets of $73 million and goodwill of $325 million. The in-process
research and development charge of $98 million was recorded by AVE in October
1998.
On December 14, 1998, AVE acquired World Medical Manufacturing Corporation
(World Medical), a manufacturer of medical devices for the treatment of
abdominal aortic aneurysms, for $62 million. The World Medical acquisition has
not been included in the unaudited pro forma condensed combined financial
statements because it does not constitute a significant business combination and
disclosure is not deemed to be material. In connection with the purchase
business combination, AVE expects to record an in-process research and
development charge of approximately $42 million.
NOTE 5
In addition to professional fees and change-in-control payments in
connection with the AVE transaction, Medtronic expects that there will be
additional costs incurred related to closing duplicate facilities and
eliminating duplicate administrative functions. The total costs incurred may
exceed $100 million.
NOTE 6
The accounting policies of the separate companies are currently being
studied from a conformity perspective. The impact of conforming accounting
principles, if any, is not expected to be material.
43
<PAGE>
COMPARISON OF RIGHTS OF MEDTRONIC AND SOFAMOR DANEK SHAREHOLDERS
Medtronic and Sofamor Danek are incorporated under the laws of Minnesota and
Indiana, respectively. Upon consummation of the Merger, shareholders of Sofamor
Danek will become shareholders of Medtronic, and their rights will be governed
by the laws of Minnesota, not Indiana. The rights of Medtronic shareholders
under Medtronic's Restated Articles of Incorporation as amended ("Medtronic's
Articles") and Medtronic's Bylaws differ in certain respects from the rights of
Sofamor Danek shareholders under Sofamor Danek's Articles of Incorporation
("Sofamor Danek's Articles") and Sofamor Danek's Bylaws. Certain significant
differences between the rights of Medtronic shareholders and Sofamor Danek
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 Sofamor Danek and the rights of shareholders of Medtronic.
CLASSIFICATION, REMOVAL, AND NOMINATION OF DIRECTORS
CLASSIFICATION. Medtronic's Articles provide for a classified Board of
Directors, under which directors are elected to three-year terms, with one-third
of the directors being elected each year. Sofamor Danek's Articles and Bylaws do
not similarly classify its Board of Directors, and directors are elected each
year for a one-year term. Both Medtronic's Articles and Sofamor Danek's Bylaws
provide for vacancies on the Board to be filled by a vote of the majority of the
remaining Board members.
REMOVAL. Medtronic's Articles provide that directors may be removed, with
or without cause, only by the vote of not less than 75% of the voting power of
all then outstanding voting shares. Sofamor Danek's Bylaws provide that
directors may be removed, with or without cause, at any meeting of the Board by
the affirmative vote of a majority of the other directors. In addition, any
Sofamor Danek director may be removed, with or without cause, by the holders of
a majority of shares entitled to vote for the election of directors. If a
Sofamor Danek director is elected by a voting group of shareholders, however,
only the shareholders of that voting group may participate in the vote to remove
that director.
NOMINATION. Medtronic's Articles provide that nominations for the election
of directors may be made by or at the direction of the Medtronic Board of
Directors or by any shareholder entitled to vote in the election of directors
generally. Nominations by shareholders must be made pursuant to timely notice in
writing to the Secretary of Medtronic. To be timely, a shareholder's notice must
be delivered to or mailed and received at the principal executive offices of
Medtronic not less than 50 days nor more than 90 days prior to the meeting;
provided, however, that if less than 60 days' notice or prior public disclosure
of the date of the meeting is given or made to the shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. The notice must set
forth certain information concerning such shareholder and his or her nominee(s),
including their names and addresses, the principal occupation or employment of
the nominee(s), the class and number of shares of capital stock of Medtronic
that are beneficially owned by such persons, such other information as would be
required to be included in a proxy statement soliciting proxies for the election
of the nominees of such shareholder, and the consent of each nominee to serve as
a director of Medtronic if so elected.
Sofamor Danek's Bylaws provide that nominations for the election of
directors may be made by the Sofamor Danek Board or by any shareholder entitled
to vote in the election of directors, provided, however, that a shareholder may
nominate a person for election as a director at a meeting only if written notice
of such shareholder's intent has been given to the Secretary of Sofamor Danek
not later than 60 nor more than 90 days in advance of the anniversary of the
previous year's annual meeting or, if later, the seventh day following the first
public announcement of the date of the meeting at which the shareholder wishes
to bring business. The notice must contain the name and address of the
shareholder and of the person or persons to be nominated, a representation that
the shareholder is a holder of record of Sofamor Danek stock entitled to vote at
the meeting and intends to appear in person or by proxy at the meeting and
44
<PAGE>
nominate the person or persons specified in the notice, a description of all
arrangements, understandings or relationships between the shareholder and each
nominee and any other person (naming such person), such other information as
would be required to be included to be in a proxy statement filed pursuant to
the proxy rules of the SEC had the nominee been nominated, or intended to be
nominated, by the Sofamor Danek Board, and the consent of each nominee to serve
as a director of Sofamor Danek if so elected.
AMENDMENT OF PROVISIONS. Medtronic's Articles require the affirmative vote
of not less than 75% of the voting power of all then outstanding voting shares
to amend, repeal or adopt any provisions inconsistent with these provisions
regarding classification, removal and nomination of directors. Sofamor Danek's
Bylaws require only the affirmative vote of a majority of the directors to
modify such provisions.
The above-described provisions of Medtronic's Articles regarding directors
will be subject to the terms of the certificate of designation or other
instrument creating any class or series of preferred stock giving the holders of
such class or series of preferred stock the right, voting separately as a class,
to elect one or more directors (such as is often required by the terms of
preferred stock in the event that dividend payments are in arrears for a period
of time). See "--Preferred Stock."
These provisions regarding classification, removal, and nomination of
directors afford some assurance of stability in the composition of the Medtronic
Board of Directors, but may discourage or deter attempts by individuals or
entities to take control of Medtronic by electing their own slate of directors.
To the extent that potential acquirers of Medtronic stock are deterred by the
classified Board, such provision also may deter certain mergers, tender offers,
or other future takeover attempts which some or a majority of holders of
Medtronic common stock may deem to be in their best interests. In addition, the
classified Medtronic Board would delay shareholders who do not favor the
policies of Medtronic's Board of Directors from removing a majority of the
Medtronic Board of Directors for two years, unless they can obtain the requisite
vote.
LIABILITY OF DIRECTORS. Medtronic's Articles exempt directors from personal
liability to the corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director to the full extent permitted by Minnesota law.
Sofamor Danek's Bylaws contain a similar provision.
PREFERRED STOCK
Medtronic has 2,500,000 authorized but unissued shares of preferred stock,
par value $1 per share. Medtronic's Articles provide that whenever the holders
of a class or series of preferred stock have the right to elect any directors,
the election, term and other features of such directorships shall be governed by
the terms set forth in the resolution of the Medtronic Board of Directors
designating the rights and preferences of such class or series of preferred
stock, and any directors elected by the holders of preferred stock shall not be
divided into classes unless provision is expressly made for such classification
by the terms of such preferred stock. Shares of Medtronic preferred stock could
be issued that would have the right to elect directors, either separately or
together with the Medtronic common stock, with such directors either divided or
not divided into classes.
Under certain circumstances such Medtronic preferred stock could be used to
create voting impediments or to deter persons seeking to effect a takeover or
otherwise gain control of Medtronic in a transaction which holders of some or a
majority of the Medtronic common stock may deem to be in their best interests.
Such shares of Medtronic preferred stock could be sold in public or private
transactions to purchasers who might support the Medtronic Board of Directors in
opposing a takeover bid that the Medtronic Board of Directors determines not to
be in the best interests of Medtronic and its shareholders. In addition, the
Medtronic Board of Directors could authorize holders of a class or series of
preferred stock to vote, either separately as a class or together with the
holders of Medtronic common stock, on any merger, sale, or exchange of assets by
Medtronic or any other extraordinary corporate transaction. The ability to issue
such Medtronic preferred stock might have the effect of discouraging an attempt
by another person or entity, through the acquisition of a substantial number of
shares of Medtronic common stock, to
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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
"--Shareholder Rights Plan."
Sofamor Danek has 5,000,000 authorized but unissued shares of preferred
stock, without par value, and the Board of Directors has the authority to fix
the terms of such shares without further shareholder voting, consent, or
ratification.
SPECIAL MEETINGS OF SHAREHOLDERS
Under Minnesota law, a special meeting of shareholders may be called by
certain officers, two or more directors, a person authorized to do so in the
articles or bylaws, or shareholders holding at least 10% of the voting power of
all shares entitled to vote, except that a special meeting for the purpose of
considering an action to effect, directly or indirectly, a business combination
must be called by shareholders holding at least 25% of the voting power of all
shares entitled to vote.
Under Indiana law, special meetings of shareholders of a corporation with
more than 50 shareholders (such as Sofamor Danek) may be called by the
corporation's Board of Directors or by persons specifically authorized to do so
by the corporation's articles of incorporation or bylaws. Sofamor Danek's Bylaws
provide that special meetings may be called only by the Chairman of the Board,
the President, or the Secretary of Sofamor Danek and must be called by such
officer at the request of the Board. Shareholders are not permitted to call
special meetings or to require the Board to call a special meeting. Any request
for a special meeting must be submitted in writing to the Chairman of the Board,
the President, or the Secretary of Sofamor Danek and must state the purpose of
the proposed special meeting.
VOTING RIGHTS; SHAREHOLDER APPROVALS
Under both Medtronic's Articles and Sofamor Danek's Articles, holders of
Medtronic common stock and Sofamor Danek common stock, respectively, are
entitled to one vote per share on all matters submitted to a vote of the
shareholders. Medtronic's Bylaws provide that, except as specifically required
otherwise under Medtronic's Articles or Bylaws or Minnesota law, all matters
submitted to the shareholders are decided by a majority vote of the shares
entitled to vote and represented at a meeting at which there is a quorum.
Sofamor Danek's Bylaws provide that at any meeting of shareholders, all matters,
except as otherwise provided in Sofamor Danek's Articles or Bylaws or by Indiana
law, are decided by the vote of a majority in voting interest of the
shareholders present in person or by proxy and entitled to vote.
CUMULATIVE VOTING
Neither Medtronic's Articles nor Sofamor Danek's Articles or Bylaws provide
for cumulative voting with regard to the Medtronic common stock or the Sofamor
Danek common stock, respectively.
PREEMPTIVE RIGHTS
Under Medtronic's Articles, holders of Medtronic stock are expressly denied
preemptive rights. Sofamor Danek's Articles do not contain any provision
concerning preemptive rights. Under Indiana law, shareholders of an Indiana
corporation do not have preemptive rights, except to the extent provided in a
corporation's Articles.
AMENDMENT OF THE ARTICLES OF INCORPORATION
Under Minnesota law and Indiana 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. Medtronic's Articles do not contain any
provisions that require a larger affirmative vote in order to amend Medtronic's
Articles. Sofamor Danek's
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Bylaws provide that the Bylaws cannot be altered, amended, or repealed without
the affirmative vote of a majority of the Board.
BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITIONS
Medtronic is governed by Sections 302A.671 and 302A.673 of the Minnesota
Business Corporation Act. In general, Section 302A.671 provides that the shares
of a corporation acquired in a "control share acquisition" have no voting rights
unless voting rights are approved in a prescribed manner. A "control share
acquisition" is an acquisition, directly or indirectly, of beneficial ownership
of shares that would, when added to all other shares beneficially owned by the
acquiring person, entitle the acquiring person to have voting power of 20% or
more in the election of directors. In general, Section 302A.673 prohibits a
public Minnesota corporation from engaging in a "business combination" with an
"interested shareholder" for a period of four years after the date of the
transaction in which the person became an interested shareholder, unless the
business combination is approved in a prescribed manner. "Business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested shareholder. An "interested shareholder" is a person
who is the beneficial owner, directly or indirectly, of 10% or more of the
corporation's voting stock or who is an affiliate or associate of the
corporation and at any time within four years prior to the date in question was
the beneficial owner, directly or indirectly, of 10% or more of the
corporation's voting stock. Such provisions of Minnesota law could have the
effect of delaying, deferring, or preventing a change in control of Medtronic.
Under Indiana law, no business combination (defined to include certain
mergers, sales of assets, sales of five percent or more of outstanding stock,
loans, recapitalizations or liquidations or dissolutions) involving an Indiana
corporation and an interested shareholder (defined to be any holder of 10% or
more of the corporation's voting stock) may be entered into unless (i) either
the share acquisition or business combination was approved by the board of
directors of the corporation before the shareholder became an interested
shareholder or (ii) (a) five years have expired since the acquisition of shares
of the corporation by the interested shareholder, (b) all requirements of the
corporation's articles of incorporation relating to business combinations are
satisfied and (c) either (1) a majority of shareholders of the corporation
(excluding the interested shareholder) approves the business combination or (2)
all shareholders are paid fair value for their stock. However, such law does not
restrict any offer to purchase all of a corporation's shares.
In addition, under Indiana law, shares acquired in a "control share
acquisition" have only such voting rights as are approved by the disinterested
shareholders. In general, a "control share acquisition" is the acquisition of
issued and outstanding shares that, when added to all other shares owned or
controlled by a person, would except for these provisions entitle that person to
exercise voting power in the election of directors within any of three ranges:
(1) 1/5 or more but less than 1/3 of all voting power; (2) 1/3 or more but less
than a majority of all voting power; and (3) a majority or more of all voting
power. This Indiana law related to control share acquisitions does not apply to
Sofamor Danek.
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
(a "Right") to be attached to each outstanding share of Medtronic common stock.
As a result of the Merger, each share of Medtronic common stock received in the
Merger will also represent one Right. The Right associated with each outstanding
share of Medtronic common stock entitles the holder to buy 1/1600th of a Series
A Junior Participating Preferred Share (the "Series A Preferred Shares") of
Medtronic, which is substantially equivalent to one share of Medtronic common
stock, at an exercise price of $37.50 per 1/1600th of a Series A Preferred
Share. The Rights are not currently exercisable or transferable apart from the
Medtronic common stock.
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The Rights will become exercisable if a person or group acquires 15% or more
of the Medtronic common stock (and thereby becomes an "Acquiring Person") or
announces a tender offer or exchange offer that would increase the Acquiring
Person's beneficial ownership to 15% or more of the outstanding Medtronic common
stock, subject to certain exceptions. After the Rights become exercisable, each
Right entitles the holder (other than the Acquiring Person) to purchase
Medtronic common stock that has a market value of two times the exercise price
of the Right. If Medtronic is acquired in a merger or other business combination
transaction, each exercisable Right entitles the holder to purchase common stock
of the Acquiring Person or an affiliate that has a market value of two times the
exercise price of the Right. 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.
Sofamor Danek 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 (1) a
majority vote of "continuing directors" (as defined below) expressly approves
the related person business transaction, or (2) the related person business
transaction is a merger, consolidation, exchange of shares or sale of all or
substantially all of the assets of Medtronic, and the cash or fair market value
of the property received by the Medtronic shareholders is equal to a defined
minimum purchase price. For purposes of this provision, a "continuing director"
means, generally, those directors who were directors before the "related person"
(as defined below) became a related person.
Generally, a related person business transaction includes (1) any merger or
consolidation of Medtronic with or into a related person, (2) any exchange of
shares of Medtronic (or a subsidiary) for shares of a related person which would
have required an affirmative vote of at least a majority of the voting power of
the outstanding shares entitled to vote, (3) any sale, lease, exchange,
transfer, or other disposition (in one transaction or a series of transactions),
including without limitation a mortgage or any other security device, of all or
any substantial part of the assets of Medtronic (or a subsidiary) to or with a
related person, (4) any sale, lease, transfer, or other disposition (in one
transaction or a series of transactions) of all or any substantial part of the
assets of a related person to or with Medtronic (or a subsidiary), (5) the
issuance, sale, transfer, or other disposition to a related person of any
securities of Medtronic (except pursuant to stock dividends, stock splits, or
similar transactions that would not have the effect of increasing the proportion
of voting power of a related person) or of a subsidiary (except pursuant to a
pro rata distribution to all holders of Medtronic common stock), (6) any
recapitalization or reclassification that would have the effect of increasing
the proportionate voting power of a related person, and (7) any agreement,
contract, arrangement, or understanding providing for any of the transactions
described above.
Generally, for purposes of a related person business transaction, the term
"related person" is broadly defined to include a wide range of potential
persons, including any person or entity that, together with affiliates and
associates, beneficially owns 15% or more of the outstanding voting stock of
Medtronic.
Such a provision could have the effect of impeding a potential acquirer of
Medtronic by requiring a larger than normal majority of Medtronic shareholders
to approve a transaction. There is no similar "related person business
transaction" provision in Sofamor Danek's Articles.
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CERTAIN TRANSACTIONS AND RELATIONSHIPS
BETWEEN SOFAMOR DANEK AND MEDTRONIC
STOCK OPTION AGREEMENT. Sofamor Danek and Medtronic are parties to a Stock
Option Agreement dated November 1, 1998, pursuant to which Sofamor Danek has
granted to Medtronic an option, exercisable under certain specified
circumstances related to the termination of the Merger Agreement, to purchase
5,366,478 shares of Sofamor Danek common stock, which equaled 19.9% of Sofamor
Danek's shares outstanding on November 1, 1998. See "The Merger--Stock Option
Agreement."
VOTING AGREEMENTS. Certain executive officers and directors of Sofamor
Danek who own stock or options to acquire stock of Sofamor Danek have entered
into voting agreements with Medtronic pursuant to which they have agreed to vote
all of the shares of Sofamor Danek common stock beneficially owned by them in
favor of the Merger. See "The Merger--Voting Agreements."
LEGAL MATTERS
The validity of the Medtronic common stock to be issued in connection with
the Merger will be passed upon for Medtronic by Fredrikson & Byron, P.A.,
Minneapolis, Minnesota. Members of such firm own, in the aggregate,
approximately 86,400 shares of Medtronic common stock.
Certain legal matters for Sofamor Danek, including certain federal income
tax consequences in connection with the Merger, were passed upon by Shearman &
Sterling, New York, New York.
EXPERTS
The consolidated financial statements of Medtronic incorporated in this
Proxy Statement/Prospectus by reference to the Current Report on Form 8-K of
Medtronic, Inc. that was filed with the SEC on November 30, 1998 have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Sofamor Danek incorporated in this
Proxy Statement/ Prospectus by reference to Sofamor Danek's Current Report on
Form 8-K that was filed with the SEC on February 3, 1998 have been audited by
PricewaterhouseCoopers LLP, independent accountants, as stated in their report
that is incorporated in this Proxy Statement/Prospectus by reference, and has
been so incorporated in reliance upon the report of such firm given on the
authority of such firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Medtronic and Sofamor Danek file annual, quarterly, and special reports,
proxy statements, and other information with the SEC. You may read and copy any
reports, statements, or other information filed by Medtronic or Sofamor Danek at
the SEC's public reference rooms at 450 5th Street, N.W., Washington, D.C.
20549, or at 7 World Trade Center, Suite 1300, New York, New York 10048, or at
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms. The SEC also maintains an Internet site at "http://www.sec.gov"
that contain reports, proxy and information statements, and other information
regarding issuers, like Medtronic and Sofamor Danek, that file electronically
with the SEC.
You can also inspect reports, proxy statements, and other information about
Medtronic and Sofamor Danek at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
Medtronic has filed with the SEC a Registration Statement on Form S-4 to
register the Medtronic common stock to be issued in the Merger. This Proxy
Statement/Prospectus is a part of that Registration Statement and constitutes a
prospectus of Medtronic in addition to being a proxy statement of Sofamor Danek
for the Special Meeting. As allowed by SEC rules, this Proxy
Statement/Prospectus does not contain
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all the information you can find in the Registration Statement and the exhibits
to the Registration Statement.
The SEC allows us to "incorporate by reference" information into this Proxy
Statement/ Prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered part of this Proxy
Statement/Prospectus, except for any information superseded by information in
(or incorporated by reference in) this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates by reference the documents
listed below that Medtronic and Sofamor Danek have previously filed with the
SEC. These documents contain important information about Medtronic and Sofamor
Danek and their finances.
<TABLE>
<CAPTION>
MEDTRONIC SEC FILINGS
(FILE NO. 1-07707) PERIOD
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Annual Report on Form 10-K, as amended Year ended April 30, 1998
Quarterly Reports on Form 10-Q Quarters ended July 31, 1998 and October 30, 1998
Current Reports on Form 8-K Filed July 8, 1998, July 16, 1998, August 20, 1998,
September 17, 1998, September 22, 1998, September
23, 1998, October 1, 1998, November 9, 1998,
November 19, 1998, November 30, 1998, and December
3, 1998
Description of Medtronic's common stock contained
in Medtronic's registration statement on Form 8-A
Description of Medtronic's preferred stock purchase
rights attached to its common stock contained in
Medtronic's registration statement on Form 8-A
<CAPTION>
SOFAMOR DANEK SEC FILINGS
(FILE NO. 1-12544) PERIOD
- --------------------------------------------------- ---------------------------------------------------
<S> <C>
Annual Report on Form 10-K, as amended Year ended December 31, 1997
Quarterly Reports on Form 10-Q or 10-Q/A Quarters ended March 31, 1998, June 30, 1998 and
September 30, 1998
Current Reports on Form 8-K Filed February 3, 1998 and November 9, 1998
Description of Sofamor Danek's common stock Year ended December 31, 1993
contained in Annual Report on Form 10-K
</TABLE>
Medtronic and Sofamor Danek are also incorporating by reference all
additional documents that either company may file with the SEC between the date
of this Proxy Statement/Prospectus and the date of the Special Meeting.
If you are a shareholder of Medtronic or Sofamor Danek, Medtronic and
Sofamor Danek may have sent you some of the documents incorporated by reference,
but you can obtain any of them from Medtronic, Sofamor Danek, or the SEC.
Documents incorporated by reference are available from Medtronic or Sofamor
Danek without charge, except for any exhibits to those documents unless we have
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specifically incorporated by reference a particular exhibit in this Proxy
Statement/Prospectus. Shareholders may obtain documents incorporated by
reference in this Proxy Statement/Prospectus by requesting them in writing or by
telephone from the appropriate party at the following addresses:
<TABLE>
<S> <C>
Medtronic, Inc. Sofamor Danek Group, Inc.
7000 Central Avenue, N.E. Minneapolis, 1800 Pyramid Place
Minnesota 55432 Memphis, Tennessee 38132
Attention: Investor Relations Department Attention: Investor Relations
(612) 514-3035 (901) 396-2695
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM MEDTRONIC OR SOFAMOR DANEK,
PLEASE DO SO BY JANUARY 20, 1999 TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
You can also direct any questions or requests for assistance in completing
and submitting Proxy cards to Sofamor Danek's proxy solicitor for the Special
Meeting:
CORPORATE COMMUNICATIONS, INC.
523 3RD AVENUE SOUTH
NASHVILLE, TENNESSEE, 37210
(615) 254-3376
We have not authorized anyone to provide you with information that is
different from, or in addition to, what is contained or referred to in this
Proxy Statement/Prospectus. Medtronic has supplied all information contained or
incorporated by reference in this Proxy Statement/Prospectus relating to
Medtronic, and Sofamor Danek has supplied all such information relating to
Sofamor Danek. If you are in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or buy, the securities offered by this
document or the solicitation of proxies is unlawful, or if you are a person to
whom it is unlawful to direct these types of activities, then the offer
presented in this document does not extend to you. The information contained in
this document speaks only as of the date of this document unless the information
specifically indicates that another date applies.
FORWARD-LOOKING INFORMATION
Certain statements contained in this Proxy Statement/Prospectus (including
information incorporated by reference) and other written and oral statements
made from time to time by Medtronic and Sofamor Danek do not relate strictly to
historical or current facts. As such, they are considered "forward-looking
statements" which provide current expectations or forecasts of future events.
Such statements can be identified by the use of words such as "anticipate,"
"believe," "could," "estimate," "expect," "forecast," "intend," "may," "plan,"
"possible," "project," "should," "will," and similar words or expressions.
Medtronic's and Sofamor Danek's respective forward-looking statements generally
relate to their respective growth strategies, financial results, product
development and regulatory approval programs, and sales efforts. You should
carefully consider forward-looking statements and understand that such
statements involve a variety of risks and uncertainties, known and unknown, and
may be affected by inaccurate assumptions. Because of that, we cannot guarantee
any forward-looking statement and actual results may differ materially. It is
not possible to foresee or identify all factors affecting Medtronic's or Sofamor
Danek's respective forward-looking statements, and investors therefore should
not consider any list of factors affecting Medtronic's or Sofamor Danek's
respective forward-looking statements to be an exhaustive statement of all
risks, uncertainties, or potentially inaccurate assumptions. Neither Medtronic
nor Sofamor Danek undertakes any obligation to update any forward-looking
statement.
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Although we cannot give a comprehensive list of all factors that may cause
actual results to differ from Medtronic's or Sofamor Danek's forward-looking
statements, the factors include:
- trends toward managed care, health care cost containment, and other
changes in government and private sector initiatives, in the United States
and other countries in which Medtronic or Sofamor Danek do business, that
are placing increased emphasis on the delivery of more cost-effective
medical therapies;
- the trend of consolidation in the medical device industry as well as among
customers of medical device manufacturers, resulting in more significant,
complex, and long-term contracts than in the past and potentially greater
pricing pressures;
- the difficulties and uncertainties associated with the lengthy and costly
new product development and regulatory approval processes, which may
result in lost market opportunities or preclude product commercialization;
- efficacy or safety concerns with respect to marketed products, whether
scientifically justified or not, that may lead to product recalls,
withdrawals, or declining sales;
- changes in governmental laws, regulations, and accounting standards and
the enforcement thereof that may be adverse to Medtronic or Sofamor Danek;
- increased public interest in recent years in product liability claims for
implanted medical devices, including pacemakers and leads and spinal
implants, and adverse developments in certain litigation involving
Medtronic or Sofamor Danek;
- other legal factors including environmental concerns and patent disputes
with competitors;
- agency or government actions or investigations affecting the industry in
general or Medtronic or Sofamor Danek in particular;
- the development of new products or technologies by competitors,
technological obsolescence, and other changes in competitive factors;
- risks associated with maintaining and expanding international operations;
- business acquisitions, dispositions, discontinuations or restructurings by
Medtronic or Sofamor Danek;
- the integration of businesses acquired by Medtronic or Sofamor Danek;
- the price and volume fluctuations in the stock markets and their effect on
the market prices of technology and health care companies; and
- economic factors over which neither Medtronic nor Sofamor Danek has any
control, including changes in inflation, foreign currency rates, and
interest rates.
Medtronic and Sofamor Danek note these factors as permitted by the Private
Securities Litigation Reform Act of 1995.
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ANNEX A
PLAN OF MERGER
OF
MSD MERGER CORP.
INTO
SOFAMOR DANEK GROUP, INC.
ARTICLE 1
NAMES OF CONSTITUENT CORPORATIONS
1.1 CONSTITUENT CORPORATIONS. The names of the Constituent Corporations
are MSD Merger Corp., an Indiana corporation ("Merger Subsidiary"), and Sofamor
Danek Group, Inc., an Indiana 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 Indiana Business Corporation Law ("IBCL"). The name of the
Surviving Corporation shall be Medtronic Sofamor Danek, Inc.
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, no par
value.
(b) "Company Options" means all options to purchase shares of Company
Common Stock that are outstanding at the Effective Time.
(c) "Conversion Ratio" shall have the meaning set forth in Section
2.2(a) hereof.
(d) "Effective Time" shall have the meaning set forth in Section 2.1
hereof.
(e) "Merger Agreement" means that certain Agreement and Plan of Merger
dated November 1, 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.
(f) "Merger Subsidiary Common Stock" means common stock of Merger
Subsidiary, par value $.01 per share.
(g) "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.
(h) "Parent Common Stock" means common stock of Parent, par value $.10
per share.
(i) "Surviving Corporation" means the Company as the surviving
corporation of the merger of Merger Subsidiary with and into the Company.
(j) "Surviving Corporation Common Stock" means common stock of the
Surviving Corporation, par value $.01 per share.
A-1
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ARTICLE 2
TERMS AND CONDITIONS
2.1 MERGER; EFFECTIVE TIME. The Merger shall be effective upon the filing
with the Indiana Secretary of State of Articles of Merger including this Plan of
Merger and such other documents as are required by the IBCL to be filed with the
Secretary of State of Indiana (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 as of 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 the Company, Parent, Merger Subsidiary or
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 shares referred to in Section 2.2(b)
hereof) shall be converted, subject to Section 2.4(f), into the right to
receive a number of shares (carried out to five decimal places and rounded
up if the sixth decimal place is 5 or greater) (the "Conversion Ratio") of
Parent Common Stock based on the Parent Average Stock Price for the fifteen
consecutive NYSE trading days ending on and including the NYSE trading day
that is two NYSE trading days prior to the Company's Shareholders Meeting as
defined in the Merger Agreement (the "Determination Period") determined as
follows:
(i) if the Parent Average Stock Price for the Determination Period is
greater than $56.97 and less than $69.63, then the Conversion Ratio
shall equal $115 divided by the Parent Average Stock Price for the
Determination Period;
(ii) if the Parent Average Stock Price for the Determination Period is
equal to or less than $56.97, then the Conversion Ratio shall equal
2.01861; or
(iii) if the Parent Average Stock Price for the Determination Period is
equal to or greater than $69.63, then the Conversion Ratio shall
equal 1.65159.
An appropriate adjustment to the Conversion Ratio shall be made in the
event that, prior to the Effective Time, the outstanding shares of Company
Common Stock, without new consideration, are changed into or exchanged for a
different 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 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 in accordance with applicable laws without payment of any
consideration therefor and without any conversion thereof.
(c) Each share of any other class of capital stock of the Company (other
than Company Common Stock) shall be 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 NO DISSENTERS' RIGHTS. Pursuant to Section 23-1-44-8 of the IBCL, no
holders of Company Common Stock shall have dissenters' rights in connection with
the Merger.
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<PAGE>
2.4 EXCHANGE OF COMPANY COMMON STOCK.
(a) At or prior to the Effective Time, Parent shall cause Parent's stock
transfer agent or such other person as Parent may appoint and is reasonably
satisfactory to the Company to act as exchange agent (the "Exchange Agent")
hereunder. As promptly as practicable after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record (other than
Parent, Merger Subsidiary, the Company, or any subsidiary of Parent or the
Company) of a certificate or certificates that immediately prior to the
Effective Time represented outstanding shares of Company Common Stock
("Company Certificates") a form letter of transmittal (which shall specify
that delivery shall be effective, and risk of loss and title to the Company
Certificate(s) shall pass, only upon delivery of the Company Certificate(s)
to the Exchange Agent) and instructions for such holder's use in effecting
the surrender of the Company Certificates in exchange for certificates
representing shares of Parent Common Stock and cash in lieu of any
fractional shares.
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall distribute to holders of shares of Company Common Stock, upon
surrender to the Exchange Agent of one or more Company Certificates for
cancellation, together with a duly-executed letter of transmittal, (i) one
or more certificates representing the number of whole shares of Parent
Common Stock into which the shares represented by the Company Certificate(s)
shall have been converted pursuant to Section 2.2(a), (ii) a bank check in
the amount of cash into which the shares represented by the Company
Certificate(s) shall have been converted pursuant to Section 2.4(f)
(relating to fractional shares), and (iii) any dividends or other
distributions to which such holder is entitled pursuant to Section 2.4(c),
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 IBCL
or the Merger Agreement. Except as provided above, until such Company
Certificates are surrendered for exchange, each such Company Certificate
shall, after the Effective Time, represent for all purposes only the right
A-3
<PAGE>
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 and the right to receive any dividends or
distributions as provided in Section 2.4(c).
(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, cash
for fractional shares, if any, and dividends or other distributions, 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.
2.6 STOCK OPTIONS.
(a) Except as provided in (b) below with respect to the Company's
Employee Stock 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
A-4
<PAGE>
such Company Option. Prior to the Effective Time, the Company's Board of
Directors and Compensation Committee shall adopt resolutions preventing the
value of any outstanding Company Options, stock appreciation rights,
restricted stock, performance units or other stock based awards from being
paid in cash to the holders thereof. From and after the Effective Time, all
references to the Company in the Company Options shall be deemed to refer to
Parent. The Company Options assumed by Parent shall be exercisable upon the
same terms and conditions as under the Company Options (including provisions
regarding vesting and the acceleration thereof, and if and to the extent
caused by and in accordance with the current terms of a Company Option, such
Company Option shall vest fully as of the date on which the Merger is
approved by the Company's shareholders) except that (i) such Company Options
shall entitle the holder to purchase from Parent the number of shares of
Parent Common Stock (rounded down to the nearest whole number of such
shares) that equals the product of the Conversion Ratio multiplied by the
number of shares of Company Common Stock subject to such Company Option
immediately prior to the Effective Time, and (ii) the option exercise price
per share of Parent Common Stock shall be an amount (rounded up to the
nearest full cent) equal to the option exercise price per share of Company
Common Stock in effect immediately prior to the Effective Time divided by
the Conversion Ratio. Prior to the Effective Time, the Board of Directors of
the Parent shall, for purposes of Rule 16b-3(d)(1) promulgated under Section
16 of the 1934 Act, specifically approve (i) the assumption by Parent of the
Company Options and (ii) the issuance of Parent Common Stock in the Merger
to directors, officers and shareholders of the Company subject to Section 16
of the 1934 Act. As promptly as practicable after the Effective Time, Parent
shall issue to each holder of a Company Option a written instrument
informing such holder of the assumption by Parent of such Company Option. As
soon as reasonably practicable after the Effective Time (and in any event no
later than five business days after the Effective Time), Parent shall file a
registration statement on Form S-8 (or any successor form) with respect to
such shares of Parent Common Stock and shall use its best efforts to
maintain such registration statement (or any successor form), including the
current status of any related prospectus or prospectuses, for so long as the
Company Options remain outstanding. In addition, Parent shall use all
reasonable efforts to cause the shares of Parent Common Stock subject to
Company Options to be listed on the NYSE and such other exchanges as Parent
shall determine. Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for
delivery upon exercise of Company Options pursuant to the terms set forth in
this Section 2.6.
(b) The current phase in process as of the date of the Merger Agreement
under the Company's Employee Stock Purchase Plan shall continue and shares
shall be issued to participants thereunder as provided under, and subject to
the terms and conditions of, such Plan; provided, however, that if the
Effective Time occurs prior to the originally scheduled expiration of such
current phase, then immediately prior to the Effective Time, the current
phase under the Company's Employee Stock 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 phase 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 Stock 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 Stock Purchase Plan, such number of shares of Parent Common
Stock equal to the Conversion Ratio. No phases under the Company's Employee
Stock Purchase Plan that are subsequent to the phase in process as of the
date of the Merger Agreement shall be commenced, and the Company's Employee
Stock 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
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<PAGE>
or a different class by reason of any reclassification, subdivision,
recapitalization, split-up, combination, exchange of shares, or stock dividend,
the Conversion Ratio and all per-share price amounts and calculations set forth
in this Plan of Merger shall be appropriately adjusted to reflect such
reclassification, subdivision, recapitalization, split-up, combination, exchange
of shares or stock dividend.
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 and restated in their entity to read as set forth on
Exhibit A-1 attached to this Plan of Merger, and shall constitute the Articles
of Incorporation of the Surviving Corporation.
3.2 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Merger Subsidiary,
as in effect immediately prior to the Effective Time, shall, subject to Section
5.15 of the Merger Agreement, be the Bylaws of the Surviving Corporation until
thereafter amended in accordance with applicable law.
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.
A-6
<PAGE>
EXHIBIT A-1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
SOFAMOR DANEK GROUP, INC.
ARTICLE 1--NAME
1.1) The name of the Corporation shall be Medtronic Sofamor Danek, Inc.
ARTICLE 2--REGISTERED OFFICE AND AGENT
2.1) The registered office of the Corporation in the State of Indiana is
One North Capitol Avenue, Indianapolis, Indiana 46204. 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 10,000,000 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. All shares of Common Stock shall have the same relative
rights, preferences, limitations and restrictions.
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 two or more shareholders
relating to the voting of their shares is valid and specifically enforceable by
and against the parties to the agreement under Section 23-1-31-2 of the Indiana
Business Corporation Law.
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--INCORPORATOR
6.1) The name and mailing address of the incorporator are as follows:
Gene E. Wilkins
500 Union Federal Building
Indianapolis, Indiana 46204
A-7
<PAGE>
ANNEX B
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MEDTRONIC, INC.,
MSD MERGER CORP.,
AND
SOFAMOR DANEK GROUP, INC.
November 1, 1998
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
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-5
1.4 No Dissenters' Rights...................................................... B-6
1.5 Exchange of Company Common Stock........................................... B-6
1.6 Exchange of Merger Subsidiary Common Stock................................. B-8
1.7 Stock Options.............................................................. B-8
1.8 Capitalization Changes..................................................... B-9
1.9 Articles of Incorporation of the Surviving Corporation..................... B-9
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-10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................. B-10
3.1 Organization............................................................... B-10
3.2 Authorization.............................................................. B-11
3.3 Capitalization............................................................. B-11
3.4 Reports and Financial Statements........................................... B-12
3.5 Absence of Undisclosed Liabilities......................................... B-12
3.6 Consents and Approvals..................................................... B-13
3.7 Compliance with Laws....................................................... B-13
3.8 Litigation................................................................. B-14
3.9 Absence of Material Adverse Changes........................................ B-14
3.10 Officers, Directors and Employees.......................................... B-14
3.11 Taxes...................................................................... B-14
3.12 Contracts.................................................................. B-15
3.13 Intellectual Property Rights............................................... B-15
3.14 Benefit Plans.............................................................. B-16
3.15 Minute Books............................................................... B-17
3.16 No Finders................................................................. B-17
3.17 Proxy Statement............................................................ B-17
3.18 Fairness Opinion........................................................... B-17
3.19 State Takeover Laws........................................................ B-17
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY..............
B-18
4.1 Organization............................................................... B-18
4.2 Authorization.............................................................. B-18
4.3 Capitalization............................................................. B-18
4.4 Consents and Approvals..................................................... B-19
4.5 Reports; Financial Statements; Absence of Changes.......................... B-19
4.6 Registration Statement..................................................... B-20
4.7 No Finders................................................................. B-20
4.8 Absence of Undisclosed Liabilities......................................... B-20
4.9 Compliance with Laws....................................................... B-20
</TABLE>
B-2
<PAGE>
<TABLE>
<C> <S> <C>
4.10 Litigation................................................................. B-20
4.11 Absence of Material Adverse Changes........................................ B-20
4.12 Reorganization............................................................. B-20
ARTICLE 5 COVENANTS................................................................... B-21
5.1 Conduct of Business of the Company......................................... B-21
5.2 Conduct of Business of Parent.............................................. B-23
5.3 No Solicitation............................................................ B-23
5.4 Access and Information..................................................... B-24
5.5 Approval of Shareholders; Proxy Statement; Registration Statement.......... B-24
5.6 Consents................................................................... B-26
5.7 Affiliates' Letters........................................................ B-26
5.8 Expenses................................................................... B-26
5.9 Further Actions............................................................ B-26
5.10 Regulatory Approvals....................................................... B-27
5.11 Certain Notifications...................................................... B-27
5.12 Voting of Shares........................................................... B-27
5.13 Stock Option Agreement..................................................... B-27
5.14 NYSE Listing Application................................................... B-28
5.15 Indemnification............................................................ B-28
5.16 Letters of the Company's and Parent's Accountants.......................... B-29
5.17 Subsidiary Shares.......................................................... B-29
5.18 Benefit Plans and Employee Matters......................................... B-29
5.19 Obligations of Merger Subsidiary........................................... B-29
5.20 Plan of Reorganization..................................................... B-30
5.21 Pooling.................................................................... B-30
ARTICLE 6 CLOSING CONDITIONS.......................................................... B-30
6.1 Conditions to Obligations of Parent, Merger Subsidiary, and the Company.... B-30
6.2 Conditions to Obligations of Parent and Merger Subsidiary.................. B-30
6.3 Conditions to Obligations of the Company................................... B-31
ARTICLE 7 TERMINATION AND ABANDONMENT................................................. B-32
7.1 Termination................................................................ B-32
7.2 Effect of Termination...................................................... B-33
ARTICLE 8 MISCELLANEOUS............................................................. B-35
8.1 Amendment and Modification................................................. B-35
8.2 Waiver of Compliance; Consents............................................. B-35
8.3 Investigation; Survival of Representations and Warranties.................. B-35
8.4 Notices.................................................................... B-35
8.5 Assignment................................................................. B-36
8.6 Governing Law.............................................................. B-36
8.7 Counterparts............................................................... B-36
8.8 Knowledge.................................................................. B-36
8.9 Interpretation............................................................. B-36
8.10 Publicity.................................................................. B-36
8.11 Entire Agreement........................................................... B-36
8.12 Severability............................................................... B-36
8.13 Specific Performance....................................................... B-37
8.14 Section 3.1 of Company Disclosure Schedule................................. B-37
</TABLE>
B-3
<PAGE>
<TABLE>
<S> <C>
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 Stock Option Agreement
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT is dated as of November 1, 1998, by and among MEDTRONIC,
INC., a Minnesota corporation ("Parent"), MSD MERGER CORP., an Indiana
corporation and wholly-owned subsidiary of Parent ("Merger Subsidiary"), and
SOFAMOR DANEK GROUP, INC., an Indiana corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary, and the
Company have approved the merger of Merger Subsidiary with and into the Company
(the "Merger") upon the terms and subject to the conditions set forth herein;
and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
recorded as a "pooling of interests" within the meaning of Accounting Principles
Board Opinion No. 16, and the rules and regulations of the Securities and
Exchange Commission (the "SEC"); and
WHEREAS, as a condition to, and upon or immediately following the execution
of, this Agreement, Parent and the Company are entering into the Stock Option
Agreement described in Section 5.13 hereof; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties, covenants, and agreements contained herein, the
parties hereto agree as follows:
ARTICLE 1
THE MERGER; CONVERSION OF SHARES
1.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.2 hereof), Merger Subsidiary shall
be merged with and into the Company in accordance with the provisions of the
Indiana Business Corporation Law (the "IBCL"), 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 IBCL.
1.2 EFFECTIVE TIME. As soon as practicable after each of the conditions
set forth in Article 6 has been satisfied or waived on the Closing Date (as
defined in Section 2.1), the Company and Merger Subsidiary will file, or cause
to be filed, with the Secretary of State of the State of Indiana 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 IBCL 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 the Company, Parent, Merger Subsidiary or
any holder of any share of capital stock of the Company or Merger Subsidiary:
(a) Each share of common stock of the Company, no par value ("Company
Common Stock"), issued and outstanding immediately prior thereto (except for
shares referred to in Section 1.3(b) hereof) shall be converted, subject to
Section 1.5(f), into the right to receive a number of
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<PAGE>
shares (carried out to five decimal places and rounded up if the sixth
decimal place is 5 or greater) (the "Conversion Ratio") of common stock of
Parent, par value $.10 per share (the "Parent Common Stock"), based on the
average (rounded to the nearest full cent, with the cents rounded up if the
third decimal place is 5 or more) of the daily closing sale prices of a
share of Parent Common Stock as reported on the New York Stock Exchange
("NYSE") Composite Tape, as reported in The Wall Street Journal (the "Parent
Average Stock Price"), for the fifteen consecutive NYSE trading days ending
on and including the NYSE trading day that is two NYSE trading days prior to
the Company Shareholders Meeting (as defined in Section 5.5) (the
"Determination Period"), determined as follows:
(i) if the Parent Average Stock Price for the Determination Period is
greater than $56.97 and less than $69.63, then the Conversion Ratio
shall equal $115 divided by the Parent Average Stock Price for the
Determination Period;
(ii) if the Parent Average Stock Price for the Determination Period is
equal to or less than $56.97, then the Conversion Ratio shall equal
2.01861; or
(iii) if the Parent Average Stock Price for the Determination Period is
equal to or greater than $69.63, then the Conversion Ratio shall
equal 1.65159.
An appropriate adjustment to the Conversion Ratio shall be made in the
event that, prior to the Effective Time, the outstanding shares of Company
Common Stock, without new consideration, are changed into or exchanged for a
different 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 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 canceled in accordance with applicable laws without payment of any
consideration therefor and without any conversion thereof.
(c) Each share of any other class of capital stock of the Company (other
than Company Common Stock) shall be canceled without payment of any
consideration therefor and without any conversion thereof.
(d) Each share of common stock of Merger Subsidiary, par value $.01 per
share ("Merger Subsidiary Common Stock"), issued and outstanding immediately
prior to the Effective Time shall be converted into one share of the common
stock of the Surviving Corporation, par value $.01 per share ("Surviving
Corporation Common Stock").
1.4 NO DISSENTERS' RIGHTS. The parties acknowledge that, pursuant to
Section 23-1-44-8 of the IBCL, no holders of Company Common Stock shall have
dissenter's rights in connection with the Merger.
1.5 EXCHANGE OF COMPANY COMMON STOCK.
(a) At or prior to the Effective Time, Parent shall cause Parent's stock
transfer agent or such other person as Parent may appoint and is reasonably
satisfactory to the Company to act as exchange agent (the "Exchange Agent")
hereunder. As promptly as practicable after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record (other than
Parent, Merger Subsidiary, the Company, or any 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
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surrender of the Company Certificates in exchange for certificates
representing shares of Parent Common Stock and cash in lieu of any
fractional shares.
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall distribute to holders of shares of Company Common Stock, upon
surrender to the Exchange Agent of one or more Company Certificates for
cancellation, together with a duly-executed letter of transmittal, (i) one
or more certificates representing the number of whole shares of Parent
Common Stock into which the shares represented by the Company Certificate(s)
shall have been converted pursuant to Section 1.3(a), (ii) a bank check in
the amount of cash into which the shares represented by the Company
Certificate(s) shall have been converted pursuant to Section 1.5(f)
(relating to fractional shares), and (iii) any dividends or other
distributions to which such holder is entitled pursuant to Section 1.5(c),
and the Company Certificate(s) so surrendered shall be canceled. In the
event of a transfer of ownership of Company Common Stock that is not
registered in the transfer records of the Company, it shall be a condition
to the issuance of shares of Parent Common Stock that the Company
Certificate(s) so surrendered shall be properly endorsed or be otherwise in
proper form for transfer and that such transferee shall (i) pay to the
Exchange Agent any transfer or other taxes required or (ii) establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(c) Holders of Company Common Stock will be entitled to any dividends or
other distributions pertaining to the Parent Common Stock received in
exchange therefor that become payable to persons who are holders of record
of Parent Common Stock as of a record date that follows the Effective Time,
but only after they have surrendered their Company Certificates for
exchange. Subject to the effect, if any, of applicable law, the Exchange
Agent shall receive, hold, and remit any such dividends or other
distributions to each such record holder entitled thereto, without interest,
at the time that such Company Certificates are surrendered to the Exchange
Agent for exchange. Holders of Company Common Stock will not be entitled,
however, to dividends or other distributions that become payable before or
after the Effective Time to persons who were holders of record of Parent
Common Stock as of a record date that is prior to the Effective Time.
(d) All shares of Parent Common Stock issued upon the surrender for
exchange of Company Common Stock in accordance with the terms hereof
(including any cash paid for fractional shares pursuant to Section 1.5(f)
hereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Common Stock.
(e) After the Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Common Stock that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Company Certificates
representing such shares are presented to the Surviving Corporation, they
shall be canceled and exchanged as provided in this Article 1. As of the
Effective Time, the holders of Company Certificates representing shares of
Company Common Stock shall cease to have any rights as shareholders of the
Company, except such rights, if any, as they may have pursuant to the IBCL
or this Agreement. Except as provided above, until such Company Certificates
are surrendered for exchange, each such Company Certificate shall, after the
Effective Time, represent for all purposes only the right to receive the
number of whole shares of Parent Common Stock into which the shares of
Company Common Stock shall have been converted pursuant to the Merger as
provided in Section 1.3(a) hereof, the right to receive the cash value of
any fraction of a share of Parent Common Stock as provided in Section 1.5(f)
hereof and the right to receive any dividends or distributions as provided
in Section 1.5(c).
(f) No fractional shares of Parent Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, shall be issued 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
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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, cash
for fractional shares, if any, and dividends or other distributions, if any,
as may be required pursuant to this Article 1; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed Company
Certificate to deliver a bond in such sum as Parent may 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.
1.6 EXCHANGE OF MERGER SUBSIDIARY COMMON STOCK. From and after the
Effective Time, each outstanding certificate previously representing shares of
Merger Subsidiary Common Stock shall be deemed for all purposes to evidence
ownership of and to represent the number of shares of Surviving Corporation
Common Stock into which such shares of Merger Subsidiary Common Stock shall have
been converted. Promptly after the Effective Time, the Surviving Corporation
shall issue to Parent a stock certificate or certificates representing such
shares of Surviving Corporation Common Stock in exchange for the certificate or
certificates that formerly represented shares of Merger Subsidiary Common Stock,
which shall be canceled.
1.7 STOCK OPTIONS.
(a) Except as provided in (b) below with respect to the Company's
Employee Stock Purchase Plan, each option to purchase shares of Company
Common Stock that is outstanding at the Effective Time, whether or not
exercisable and whether or not vested (a "Company Option") shall, by virtue
of the Merger and without any action on the part of the Company or the
holder thereof, be assumed by Parent in such manner that Parent (i) is a
corporation "assuming a stock option in a transaction to which Section
424(a) applies" within the meaning of Section 424 of the Code and the
regulations thereunder or (ii) to the extent that Section 424 of the Code
does not apply to any such Company Option, would be such a corporation were
Section 424 of the Code applicable to such Company Option. Prior to the
Effective Time, the Company's Board of Directors and Compensation Committee
thereof shall adopt resolutions preventing the value of any outstanding
Company Options, stock appreciation rights, restricted stock, performance
units or other stock based awards from being paid in cash to the holders
thereof. From and after the Effective Time, all references to the Company in
the Company Options shall be deemed to refer to Parent. The Company Options
assumed by Parent shall be exercisable upon the same terms and conditions as
under the Company Options (including provisions regarding vesting and the
acceleration thereof, and if and to the extent caused by and in accordance
with the current terms of a Company Option, such Company Option shall vest
fully as of
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the date on which the Merger is approved by the Company's shareholders)
except that (i) such Company Options shall entitle the holder to purchase
from Parent the number of shares of Parent Common Stock (rounded down to the
nearest whole number of such shares) that equals the product of the
Conversion Ratio multiplied by the number of shares of Company Common Stock
subject to such Company Option immediately prior to the Effective Time, and
(ii) the option exercise price per share of Parent Common Stock shall be an
amount (rounded up to the nearest full cent) equal to the option exercise
price per share of Company Common Stock in effect immediately prior to the
Effective Time divided by the Conversion Ratio. Prior to the Effective Time,
the Board of Directors of the Parent shall, for purposes of Rule 16b-3(d)(1)
promulgated under Section 16 of the 1934 Act, specifically approve (i) the
assumption by Parent of the Company Options and (ii) the issuance of Parent
Common Stock in the Merger to directors, officers and shareholders of the
Company subject to Section 16 of the 1934 Act. As promptly as practicable
after the Effective Time, Parent shall issue to each holder of a Company
Option a written instrument informing such holder of the assumption by
Parent of such Company Option. As soon as reasonably practicable after the
Effective Time (and in any event no later than five business days after the
Effective Time), Parent shall file a registration statement on Form S-8 (or
any successor form) with respect to such shares of Parent Common Stock and
shall use its best efforts to maintain such registration statement (or any
successor form), including the current status of any related prospectus or
prospectuses, for so long as the Company Options remain outstanding. In
addition, Parent shall use all reasonable efforts to cause the shares of
Parent Common Stock subject to Company Options to be listed on the NYSE and
such other exchanges as Parent shall determine. Parent shall take all
corporate action necessary to reserve for issuance a sufficient number of
shares of Parent Common Stock for delivery upon exercise of Company Options
pursuant to the terms set forth in this Section 1.7.
(b) The current phase in process as of the date of this Agreement under
the Company's Employee Stock Purchase Plan shall continue and shares shall
be issued to participants thereunder as provided under, and subject to the
terms and conditions of, such Plan; provided, however, that if the Effective
Time occurs prior to the originally scheduled expiration of such current
phase, then immediately prior to the Effective Time, the current phase under
the Company's Employee Stock 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 phase 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 Stock 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 Stock Purchase Plan, such number of shares of Parent Common
Stock equal to the Conversion Ratio. No phases under the Company's Employee
Stock Purchase Plan that are subsequent to the phase in process as of the
date of this Agreement shall be commenced, and, the Company's Employee Stock
Purchase Plan and all purchase rights thereunder shall terminate effective
as of the Effective Time.
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, subdivision, recapitalization, split-up, combination, exchange
of shares, or stock dividend, the Conversion Ratio and all per-share price
amounts and calculations set forth in this Agreement shall be appropriately
adjusted to reflect such reclassification, subdivision, recapitalization,
split-up, combination, exchange of shares or stock dividend.
1.9 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 and restated in their entity to read as set forth on
EXHIBIT A-1 attached to the Plan of Merger.
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1.10 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Merger Subsidiary,
as in effect immediately prior to the Effective Time, shall, subject to Section
5.15, be the Bylaws of the Surviving Corporation until thereafter amended in
accordance with applicable law.
1.11 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors
and officers of Merger Subsidiary immediately prior to the Effective Time shall
be the directors and officers, respectively, of the Surviving Corporation until
their respective successors shall be duly elected and qualified.
ARTICLE 2
CLOSING
2.1 TIME AND PLACE. Subject to the satisfaction or waiver of the
provisions of Article 6, the closing of the Merger (the "Closing") shall take
place at 1:00 p.m., local time, on the day the Merger is approved by the
shareholders of the Company at the Company Shareholders Meeting (as defined in
Section 5.5 hereof), or as soon thereafter as, and in any event no later than
the second business day after, all conditions to Closing have been satisfied or
waived, or on such other date and/or at such other time as Parent and the
Company may mutually agree. The date on which the Closing actually occurs is
herein referred to as the "Closing Date." The Closing shall take place at the
corporate headquarters offices of Parent, or at such other place or in such
other manner (E.G., by telecopy exchange of signature pages with originals to
follow by overnight delivery) as the parties hereto may agree.
2.2 FILINGS AT THE CLOSING. At the Closing, subject to the provisions of
Article 6, Parent, Merger Subsidiary, and the Company shall cause Articles of
Merger to be filed in accordance with the provisions of Section 23-1-40-5 of the
IBCL, and take any and all other lawful actions and do any and all other lawful
things necessary to cause the Merger to become effective.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except (i) as set forth in a document of even date herewith and concurrently
delivered herewith, referring specifically to the representations and warranties
in this Agreement which identifies by section number to which such disclosure
relates (the "Company Disclosure Schedule") or (ii) as specifically described
through express disclosure of current, specific facts set forth in the Company's
Annual Report on Form 10-K for the fiscal year ended December 30, 1997 or in any
other filing by the Company with the SEC (as defined in Section 3.4) filed after
the date of filing such Form 10-K and prior to the date hereof to the extent the
relevancy of such disclosure to such particular representation and warranty is
readily apparent, the Company hereby makes the following representations and
warranties to Parent and Merger Subsidiary:
3.1 ORGANIZATION. The Company and each subsidiary of the Company (referred
to herein as a "Subsidiary") is a corporation duly organized, validly existing,
and in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite corporate power and authority to own, lease,
and operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing or in good standing or to
have such corporate power and authority would not, individually or in the
aggregate, have a Company Material Adverse Effect (as defined below). The
Company and each Subsidiary is duly qualified and in good standing to do
business in each jurisdiction in which the property owned, leased, or operated
by it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified or in good standing could
not reasonably be expected to have a Company Material Adverse Effect (as defined
below). "Company Material Adverse Effect" means an effect that, individually or
in the aggregate with other effects, is or would reasonably at the time of such
effect be expected to be materially adverse: (i) to the business, results of
operation, or financial condition of the Company and its Subsidiaries,
considered as a whole; or (ii) to the Company's ability to perform any of its
material obligations under this Agreement or to consummate
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the Merger, except in each case as provided in Section 3.1 of the Company
Disclosure Schedule but subject to Section 8.14 hereof and except in each case
for any such effects resulting from or arising out of (i) this Agreement or the
transactions contemplated by this Agreement or the announcement hereof, (ii) any
occurrence or condition affecting the medical device industry generally, or
(iii) any changes in general economic, regulatory or political conditions. The
jurisdictions in which the Company and each Subsidiary are incorporated are
listed in the Company Disclosure Schedule. The Company has heretofore delivered
or made available to Parent or its advisers complete and accurate copies of the
Articles of Incorporation and Bylaws of the Company, as currently in effect, and
of the organizational documents and agreements defining the rights of the
Company or any Subsidiary with respect to any material joint ventures,
partnerships or other business in which the Company owns a less-than-100%
interest. Neither the Company nor any Subsidiary, directly or indirectly, owns
or controls or has any equity, partnership, or other ownership interest in any
corporation, partnership, joint venture, or other business association or entity
that is material to the Company and its Subsidiaries, considered as a whole.
3.2 AUTHORIZATION. The Company has all necessary corporate power and
authority to execute and deliver this Agreement and, subject to obtaining the
necessary approval of its shareholders, to consummate the transactions
contemplated hereby. The execution and delivery by the Company of this Agreement
and the other agreements contemplated hereby to which the Company is a party,
and the consummation of the transactions contemplated hereby and thereby, have
been duly and validly authorized and approved by the Company's Board of
Directors, no other corporate proceedings on the part of the Company or any
Subsidiary are necessary to authorize this Agreement, 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, assuming due execution and delivery
by the other parties hereto, constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to laws of general application relating to bankruptcy, insolvency, and the
relief of debtors and rules of law governing specific performance, injunctive
relief, or other equitable remedies.
3.3 CAPITALIZATION. As of the date hereof, the authorized capital stock of
the Company consists of (i) 150,000,000 shares of Company Common Stock, no par
value, of which 26,967,228 shares are issued and outstanding and 4,023,180
shares are held in the Company's treasury, and (ii) 5,000,000 shares of Company
Preferred Stock, no par value, none of which are issued or outstanding. All
issued and outstanding shares of capital stock of each Subsidiary are owned,
beneficially and of record, by the Company, free and clear of any mortgage,
pledge, security interest, encumbrance, lien or other charge of any kind
("Lien"). 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 of 5,473,619 shares of Company Common Stock
granted pursuant to the Company's 1993 Long-Term Incentive Plan, Non-Qualified
Stock Option Plan, Non-Employee Director's Stock Option Plan, Incentive Stock
Option Plan, Non-Qualified Stock Option Plan for Distributors and Consultants
and the Option Agreement dated July 8, 1992 between the Company and George Bryan
(collectively, the "Company Option Plans") listed, together with their
respective exercise prices, in the Company Disclosure Schedule, and except for
the rights to purchase under the Company's Employee Stock Purchase Plan shares
of Company Common Stock (estimated to be approximately 3,000 shares with respect
to the quarterly phases commenced July 1 and October 1, 1998, at per share
prices equal to the market prices on the last day of the respective quarterly
phase thereof based on the current contribution rates of the participants and
assuming the current Plan phase in process as of the date of this Agreement is
ended on December 31, 1998 for this purpose), as of the date of this Agreement
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
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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,
number of shares, exercisability schedule, and, in the case of options, the type
of option under the Code. No consent of holders or participants under the
Company Option Plans or the Company's Employee Stock 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 Stock Purchase
Plan to allow for the treatment of Company Options and the Employee Stock
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 Stock Purchase Plan or any enrollments (other than new hires, if
required by such Plan) or re-enrollments in such Plan (other than re-enrollments
without any increases in historical contribution rates, if permitted by such
Plan).
3.4 REPORTS AND FINANCIAL STATEMENTS. The Company has filed all forms,
reports, registration statements, and documents required to be filed by it with
the Securities and Exchange Commission ("SEC") since January 1, 1995 (such
forms, reports, registration statements, and documents, together with any
amendments thereto, are referred to as the "Company SEC Filings"). As of their
respective dates, the Company SEC Filings (i) complied as to form in all
material respects with the applicable requirements of the Securities Act of 1933
and the rules and regulations thereunder (the "1933 Act") and the Securities
Exchange Act of 1934 and the rules and regulations thereunder (the "1934 Act"),
as the case may be, and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. The audited financial statements and unaudited
interim financial statements included or incorporated by reference in the
Company SEC Filings, 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 or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC), (ii) complied as of
their respective dates in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, and (iii) fairly present in all material respects the consolidated
financial position of the Company as of the dates thereof and the income, cash
flows, and changes in shareholders' equity for the periods involved (subject, in
the case of unaudited statements, to normal and recurring year-end adjustments
which were not and are not expected, individually or in the aggregate, to have a
Company Material Adverse Effect). 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 required to be disclosed separately in
accordance with GAAP, except as expressly specified in the applicable statement
of operations or notes thereto.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES. To the best of the Company's
knowledge, neither the Company nor any Subsidiary has any liabilities or
obligations of any nature (whether absolute, accrued, contingent, or otherwise)
except (a) liabilities or obligations 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 June 30,
1998 contained in the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1998 (the "Company Interim Balance Sheet") or referred to
in the notes thereto, and (b) liabilities or obligations that could not
reasonably be expected to have a Company Material Adverse Effect.
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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 IBCL,
and (iv) compliance with Chapter 44 (Sections 23-1-44-1 ET. SEQ.) of the IBCL,
the execution and delivery by the Company of this Agreement and the other
agreements contemplated hereby to which the Company is a party and the
consummation by the Company of the transactions contemplated hereby and thereby
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 governmental or
regulatory 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 governmental or regulatory 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 3.3) on any of the
properties or assets of the Company or any Subsidiary under, any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, authorization, agreement, or other instrument or obligation
to which the Company or any Subsidiary is a party, or by which it or any of its
properties or assets may be bound, except, in the case of clauses (c) and (d),
for any such filings, permits, consents or approvals or violations, breaches,
defaults, or other occurrences that could not reasonably be expected to prevent
or delay consummation of any of the transactions contemplated hereby in any
material respect, or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect, and could not
reasonably be expected to have a Company Material Adverse Effect. Section 3.6 of
the Company Disclosure Schedule lists each note, bond, mortgage, indenture,
license, franchise, permit, authorization, agreement, or other instrument or
obligation to which the Company or any Subsidiary is a party, or by which it or
any of its properties or assets may be bound and which is material to the
Company and its Subsidiaries, considered as a whole, under or with respect to
which the transactions contemplated by this Agreement will result in any
material violation or breach of, or constitute (with or without due notice or
lapse of time or both) a material default under, result in the loss of any
material benefit under, or give rise to any material right of termination,
cancellation, increased payments, or acceleration under, or result in the
creation of any material Lien on any of the material properties or assets of the
Company or any Subsidiary. None of the matters described in Section 3.6 of the
Company Disclosure Schedule could reasonably be expected to prevent or delay
consummation of any of the transactions contemplated hereby in any material
respect or otherwise prevent the Company from performing its obligations under
this Agreement in any material respect, or to have a Company Material Adverse
Effect.
3.7 COMPLIANCE WITH LAWS. Neither the Company nor any Subsidiary is in
default or violation of any applicable federal, state, local, or foreign laws,
ordinances, regulations, interpretations, judgments, decrees, injunctions,
permits, licenses, certificates, governmental requirements, orders, or other
similar items of any court or other governmental entity (including, but not
limited to, those of the FDA or any nongovernmental self-regulatory agency and
including environmental laws or regulations), except for such defaults or
violations that could not reasonably be expected to have a Company Material
Adverse Effect. The Company and each Subsidiary 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
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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 could not reasonably
be expected to have a Company Material Adverse Effect.
3.8 LITIGATION. There are no claims, actions, suits, proceedings or, to
the knowledge of the Company, investigations or reviews of any kind, pending or,
to the knowledge of the Company, threatened in writing, against the Company or
any Subsidiary or any asset or property of the Company or any Subsidiary, except
for such claims, actions, suits, proceedings, investigations or reviews that
could not reasonably be expected to have a Company Material Adverse Effect.
3.9 ABSENCE OF MATERIAL ADVERSE CHANGES. Since December 31, 1997 there has
not been any (a) Company Material Adverse Effect; (b) damage, destruction, or
loss, not covered by insurance, that could reasonably be expected to have a
Company Material Adverse Effect; (c) material change by the Company or any
Subsidiary in accounting methods or principles used for financial reporting
purposes, except as required by a change in applicable law or generally accepted
accounting principles and concurred with by the Company's independent public
accountants; or (d) agreement, whether in writing or otherwise, to take any
action described or referenced in this Section 3.9.
3.10 OFFICERS, DIRECTORS AND EMPLOYEES. Prior to the date hereof, the
Company has provided to Parent a list that completely and accurately sets forth
the name and current annual salary rate of each officer of the Company whose
total remuneration for the last fiscal year was, or for the current fiscal year
has been set at, in excess of $150,000, together with a summary of the bonuses,
commissions, additional compensation, and other like cash benefits, if any, paid
or payable to such persons for the last fiscal year and proposed for the current
fiscal year. The Company Disclosure Schedule completely and accurately sets
forth (i) the names of all former officers of the Company whose employment with
the Company has terminated either voluntarily or involuntarily during the
preceding 12-month period; and (ii) the names of the officers (with all
positions and titles indicated) and directors of the Company. Except as could
not reasonably by expected to have a Company Material Adverse Effect: (i) no
unfair labor practice complaint against the Company or any Subsidiary is pending
before the National Labor Relations Board, and there is no labor strike,
slowdown or stoppage pending or, to the knowledge of the Company, threatened in
writing against or involving the Company or any Subsidiary; (ii) no unionizing
efforts have, to the knowledge of the Company, been made by employees of the
Company or any Subsidiary, neither the Company nor any Subsidiary is a party to
or subject to any collective bargaining agreement, and no collective bargaining
agreement is currently being negotiated by the Company or any Subsidiary; and
(iii) there is no labor dispute pending or, to the knowledge of the Company,
threatened in writing between the Company or any Subsidiary and its employees.
3.11 TAXES. Except for such matters that would not have a Company Material
Adverse Affect (i) the Company and each Subsidiary have filed, or have obtained
extensions to file (which extensions have not expired without filing), all
state, local, United States, foreign, or other tax reports and returns required
to be filed by any of them; (ii) the Company and each Subsidiary have duly paid,
or accrued on their books of account, all taxes (including estimated taxes)
shown as due on such reports and returns (or such extension requests), or
assessed against them, other than taxes being contested in good faith in proper
proceedings and (iii) the liabilities and reserves for taxes reflected on the
Company Audited Balance Sheet or the Company Interim Balance Sheet are adequate
to cover all taxes payable by the Company and its Subsidiaries for all taxable
periods and portions thereof ending on or before the dates thereof. To the
Company's knowledge, no tax audits are pending against and no claims for taxes
have been received in writing by the Company or any of its Subsidiaries, other
than audits and claims that are not reasonably expected to have a Company
Material Adverse Effect. Neither the Company nor any Subsidiary has, with regard
to any assets or property held, acquired or to be acquired by any of them, filed
a consent to the application of Section 341(f)(2) of the Code. Neither the
Company nor, to the knowledge of the Company,
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any of its Subsidiaries has taken or agreed to take any action (other than
actions contemplated by this Agreement) that would prevent the Merger from
constituting a reorganization qualifying under Section 368(a) of the Code. The
Company is not aware of any agreement, plan or other circumstance that would
prevent the Merger from so qualifying under Section 368(a) of the Code.
For the purposes of this Agreement, "tax" shall mean and include taxes,
duties, withholdings, assessments, and charges assessed or imposed by any
governmental authority (together with any interest, penalties and additions to
tax imposed with respect thereto), including but not limited to all federal,
state, county, local, and foreign income, profits, gross receipts, import, ad
valorem, real and personal property, franchise, license, sales, use, value
added, stamp, transfer, withholding, payroll, employment, excise, custom, duty,
and any other taxes, obligations and assessments of any kind whatsoever; "tax"
shall also include any liability for taxes arising as a result of being (or
ceasing to be) a member of any affiliated, consolidated, combined, or unitary
group as well as any liability for taxes under any tax allocation, tax sharing,
tax indemnity, or similar agreement.
3.12 CONTRACTS. Neither the Company nor any Subsidiary is, nor, to the
knowledge of the Company, is any other party thereto, in material violation of
or in default under any contract, plan, agreement, understanding, arrangement or
obligation that is material to the Company and its Subsidiaries considered as a
whole, except for such violations or defaults that could not reasonably be
expected to have a Company Material Adverse Effect. As of the date of this
Agreement, neither the Company nor any Subsidiary is a party to any contract,
plan, agreement, understanding, arrangement or obligation (i) which restricts
the Company's, or after the Merger would restrict Parent's, ability to conduct
any line of business, (ii) which imposes on the Company material obligations
(including, without limitation, to pay milestone payments or license fees) not
reflected in the Company's financial statements included within the Company's
SEC Filings, or (iii) that would be required to be filed with the SEC in a
filing to which paragraph (b)(10) of Item 601 of Regulation S-K of the Rules and
Regulations of the SEC is applicable, which has not been so filed.
3.13 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 (the "Company Intellectual Property"). The Company and each Subsidiary
owns, free and clear of any Lien (as defined in Section 3.3), or is licensed to
use, all patents, trademarks, trade names, service marks, copyrights,
applications for or registrations of any of the foregoing comprising the Company
Intellectual Property. No claim has been asserted or, to the knowledge of the
Company, threatened in writing 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, except for such
claims that could not reasonably be expected to have a Company Material Adverse
Effect. To the knowledge of the Company, neither the use of the Company
Intellectual Property by the Company or any Subsidiary in the present conduct of
its business nor any product or service of the Company or any Subsidiary
infringes on the valid intellectual property rights of any person in a manner
that could reasonably be expected to have a Company Material Adverse Effect.
Except as could not reasonably be expected to have a Company Material Adverse
Effect, (i) all Company Intellectual Property listed in the Company Disclosure
Schedule has the status indicated therein and, unless provided otherwise, all
applications are still pending in good standing and have not been abandoned, and
(ii) to the knowledge of the Company, the Company Intellectual Property is valid
and has not been challenged in any judicial or administrative proceeding. To the
knowledge of the Company, no person or entity nor such person's or entity's
business or products has infringed, or misappropriated any Company Intellectual
Property, or currently is infringing, or misappropriating any Company
Intellectual Property, except as could not reasonably be expected to have a
Company Material Adverse Effect.
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3.14 BENEFIT PLANS.
(a) Neither the Company nor any Subsidiary sponsors, maintains,
contributes to, or has, within the past five years, sponsored, maintained,
or contributed to or been required to contribute to, any "employee pension
benefit plan" ("Pension Plan"), as such term is defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, solely for the purpose of this subsection, a plan excluded from
coverage by Section 4(b)(5) of ERISA. Each such Pension Plan presently
maintained by the Company or any Subsidiary is, in all material respects, in
compliance with applicable provisions of ERISA, the Code, and other
applicable law and the Company or such Subsidiary has performed all of its
obligations under such Pension Plan except for such obligations that could
not reasonably be expected to have a Company Material Adverse Effect.
(b) Neither the Company nor any Subsidiary sponsors, maintains,
contributes to, or has, within the past five years, sponsored, maintained,
or contributed to or been required to contribute to, any Pension Plan that
is subject to Title IV of ERISA.
(c) Neither the Company nor any Subsidiary sponsors, maintains, or
contributes to any "employee welfare benefit plan" ("Welfare Plan"), as such
term is defined in Section 3(1) of ERISA, whether insured or otherwise, and
any such Welfare Plan presently maintained by the Company or any Subsidiary
is, in all material respects, in compliance with the provisions of ERISA,
the Code, and all other applicable laws, including, but not limited to,
Section 4980B of the Code and the regulations thereunder, and Part 6 of
Title I of ERISA. Neither the Company nor any Subsidiary has established or
contributed to any "voluntary employees' beneficiary association" within the
meaning of Section 501(c)(9) of the Code.
(d) Neither the Company nor any Subsidiary currently maintains or
contributes to any oral or written bonus, profit-sharing, compensation
(incentive or otherwise), commission, stock option, or other stock-based
compensation, retirement, severance, change of control, vacation, sick or
parental leave, dependent care, deferred compensation, cafeteria,
disability, hospitalization, medical, death, retiree, insurance, or other
benefit or welfare or other similar plan, policy, agreement, trust, fund, or
arrangement providing for the remuneration or benefit of all or any
employees, directors or any other person, that is neither a Pension Plan nor
a Welfare Plan (collectively, the "Compensation Plans").
(e) With respect to the Pension Plans, Welfare Plans or Compensation
Plans, no event has occurred and, to the knowledge of the Company, there
exists no condition or set of circumstances, in connection with which the
Company or any of its Subsidiaries could be subject to any liability under
the terms of such Plans (other than the payment of benefits thereunder),
ERISA, the Code or any other applicable Law which could reasonably be
expected to have a Company Material Adverse Effect.
(f) The 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
summaries of all Pension Plans, Welfare Plans, Compensation Plans, and
related agreements, and complete and accurate copies of all annual reports
(Form 5500), favorable determination letters, current summary plan
descriptions, and all employee handbooks or manuals. The Company has
provided to Parent (i) copies of all employment agreements with officers of
any of the Company, its U.S. Subsidiaries or, to the extent reasonably
available, its non-U.S. Subsidiaries (or copies of forms of agreements
setting forth representative employment terms and conditions); (ii) copies
of all severance, bonus or incentive agreements, programs and policies of
any of the Company, any U.S. Subsidiary or, to the extent reasonably
available, its non-U.S. Subsidiaries with or relating to any of its
employees; and (iii) copies of all plans, programs, agreements and other
arrangements of any of the Company, any Subsidiary or, to the extent
reasonably available, its non-U.S. Subsidiaries with or relating to any of
its employees which contain change in control provisions. With respect to
any items that would be described in the immediately preceding sentence but
for the
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fact that such copies relate to non-U.S. Subsidiaries and are not reasonably
available to the Company, the Company (i) shall deliver copies thereof to
Parent prior to the Effective Time, and (ii) represents and warrants to
Parent that such items will not, individually or in the aggregate, be
material to the Company and its Subsidiaries.
(g) The execution 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).
3.15 MINUTE BOOKS. The Company has previously made available to Parent or
its representatives all of its minutes of meetings of and corporate actions or
written consents by the shareholders, Boards of Directors, and committees of the
Boards of Directors of the Company.
3.16 NO FINDERS. No act of the Company or any Subsidiary has given or will
give rise to any claim against any of the parties hereto for a brokerage
commission, finder's fee, or other like payment in connection with the
transactions contemplated herein, except payments in the amounts specified in
the Company Disclosure Schedule to those parties identified thereon who have
acted as a finder for the Company or have been retained by the Company as
financial advisors pursuant to the agreements or other documents described in
the Company Disclosure Schedule, copies of which have been provided or made
available to Parent or its advisors prior to the date of this Agreement.
3.17 PROXY STATEMENT. The Proxy Statement/Prospectus (as defined in
Section 5.5 hereof) and any amendments or supplements thereto will comply as to
form in all material respects with all applicable laws, and none of the
information supplied by the Company specifically for inclusion or incorporation
therein or in any amendments or supplements thereto, or any schedules required
to be filed with the SEC in connection therewith, will, at the date the Proxy
Statement/Prospectus (or any amendment or supplement thereto) is first mailed to
stockholders, at the time of the Company Shareholders Meeting, or at the
Effective Time contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that no representation or warranty is
made by the Company with respect to information relating to Parent or any
affiliate of Parent supplied by Parent specifically for inclusion in the Proxy
Statement/Prospectus.
3.18 FAIRNESS OPINION. The Company has received an opinion from J.P.
Morgan Securities Inc. to the effect that, as of the date hereof, the
consideration to be paid to the holders of Company Common Stock is fair, from a
financial point of view, to such shareholders, and the Company will promptly
deliver a copy of such opinion to Parent.
3.19 STATE TAKEOVER LAWS. The Board of Directors of the Company has
approved the transactions contemplated by this Agreement, such that, assuming
that, and Parent hereby represents to the Company that, Parent and Merger
Subsidiary are not "interested shareholders" (as such term is defined in IBCL
Section 23-1-43-10) prior to entering into this Agreement and the agreements
contemplated hereby, the Merger is not subject to the provisions of Chapter 43
(Sections 23-1-43-1 ET. SEQ.) (entitled "Business Combinations") of the IBCL.
The Company and the Company Common Stock is not subject to Chapter 42 (Sections
23-1-42-1 ET. SEQ.) (entitled "Control Share Acquisitions") of the IBCL.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUBSIDIARY
Except (i) 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") or (ii) as specifically described through express
disclosure of current, specific facts set forth in Parent's Annual Report on
Form 10-K for the fiscal year ended April 30, 1998 or in any other filing with
the SEC filed by Parent after the date of filing such Form 10-K and prior to the
date hereof to the extent the relevancy of such disclosure to such particular
representation and warranty is readily apparent, 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 Indiana. Each of Parent and Merger Subsidiary has all requisite
corporate power and authority to own, lease, and operate its properties and to
carry on its business as now being conducted, except where the failure to be so
organized, existing or in good standing or to have such corporate power and
authority would not, individually or in the aggregate, have a Parent Material
Adverse Effect (as defined below). Each of Parent and Merger Subsidiary is duly
qualified and in good standing to do business in each jurisdiction in which the
property owned, leased, or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified or in good standing could not reasonably be expected to have a
Parent Material Adverse Effect (as defined below). "Parent Material Adverse
Effect" means an effect that, individually or in the aggregate with other
effects, is or would reasonably at the time of such effect be expected to be
materially adverse: (i) to the business, results of operation, or financial
condition of Parent and its subsidiaries, considered as a whole, or (ii) to
Parent's ability to perform any of its material obligations under this Agreement
or to consummate the Merger, except in each case for any such effects resulting
from or arising out of (i) this Agreement or the transactions contemplated by
this Agreement or the announcement hereof, (ii) any occurrence or condition
affecting the medical device industry generally, or (iii) any changes in general
economic, regulatory or political conditions. Parent has heretofore delivered or
made available to the Company or its advisors complete and accurate copies of
the Articles of Incorporation and Bylaws of Parent, as currently in effect.
4.2 AUTHORIZATION. Each of Parent and Merger Subsidiary has all necessary
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery by
Parent and Merger Subsidiary of this Agreement and the other agreements
contemplated hereby to which Parent or Merger Subsidiary is a party, and the
consummation of the transactions contemplated hereby and thereby, have been duly
and validly authorized and approved by the Boards of Directors of Parent and
Merger Subsidiary and by Parent as the sole shareholder of Merger Subsidiary,
and no other corporate proceedings on the part of Parent and Merger Subsidiary,
and no vote, consent or approval of Parent's shareholders, are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by each of
Parent and Merger Subsidiary and, assuming due execution and delivery by the
Company, constitutes the valid and binding obligation of Parent and Merger
Subsidiary, enforceable against each of them in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency, and
the relief of debtors and rules of law governing specific performance,
injunctive relief, or other equitable remedies.
4.3 CAPITALIZATION. As of October 23, 1998, the authorized capital stock
of Parent consisted of (a) 800,000,000 shares of Common Stock with a par value
of $.10 per share, of which there were 489,262,955 shares issued and outstanding
and no shares held in Parent's treasury, and (b) 2,500,000 shares of Preferred
Stock with a par value of $1.00 per share, of which there were no shares issued
and
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outstanding. The authorized capital stock of Merger Subsidiary consists of
10,000,000 shares of Merger Subsidiary Common Stock, 1,000 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.
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 IBCL, and (iii) compliance with Chapter 44
(Sections 23-1-44-1 ET. SEQ.) of the IBCL regarding dissenters' rights of the
Company's shareholders, the execution and delivery by Parent and Merger
Subsidiary of this Agreement and the other agreements contemplated hereby to
which Parent and Merger Subsidiary are parties, and the consummation of the
transactions contemplated hereby and thereby will not: (a) violate any provision
of the Articles of Incorporation or Bylaws of Parent or Merger Subsidiary; (b)
violate any statute, rule, regulation, order, or decree of any federal, state,
local or foreign governmental or regulatory body or authority (including, but
not limited to, the 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 federal, state, local or foreign governmental or regulatory 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 clauses (c) and (d), for any such filings,
permits, consents or approvals or violations, breaches, defaults, or other
occurrences that could not reasonably be expected to prevent or delay
consummation of any of the transaction contemplated hereby in any material
respect, or otherwise prevent Parent from performing its obligations under this
Agreement in any material respect, and could not reasonably be expected to have
a Parent Material Adverse Effect.
4.5 REPORTS; FINANCIAL STATEMENTS; ABSENCE OF CHANGES. Parent has filed
all forms, reports, registration statements, and 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 or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC), (ii) complied as of their
respective dates in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, and (iii) fairly present in all material respects the consolidated
financial position of Parent as of the dates thereof and the income, cash flows,
and changes in shareholders' equity for the periods involved, except as
otherwise noted therein (subject, in the case of unaudited statements, to normal
and recurring year-end adjustments which were not and are not expected,
individually or in the aggregate, to have a Parent Material Adverse Effect).
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4.6 REGISTRATION STATEMENT. The Registration Statement (as defined in
Section 5.5 hereof) and any amendments or supplements thereto will comply as to
form in all material respects with the 1933 Act, and none of the information
supplied by Parent specifically for inclusion or incorporation therein or in any
amendments or supplements thereto, or any schedules required to be filed with
the SEC in connection therewith, will, at the time the Registration Statement
becomes effective, at the date the Proxy Statement/ Prospectus (or any amendment
or supplement thereto) is first mailed to stockholders, at the time of the
Company Shareholders Meeting, or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided, however,
that no representation or warranty is made by Parent with respect to information
supplied by the Company or any affiliate of the Company specifically for
inclusion in the Registration Statement.
4.7 NO FINDERS. No act of Parent or Merger Subsidiary has given or will
give rise to any claim against any of the parties hereto for a brokerage
commission, finder's fee, or other like payment in connection with the
transactions contemplated herein.
4.8 ABSENCE OF UNDISCLOSED LIABILITIES. To the best of Parent's knowledge,
neither Parent nor any of its subsidiaries has any liabilities or obligations of
any nature (whether absolute, accrued, contingent or otherwise) except (a)
liabilities or obligations that are accrued or reserved against in the audited
consolidated balance of Parent as of April 30, 1998 contained in the Parent SEC
Filings or in the unaudited consolidated balance sheet of Parent as of July 31,
1998 contained in Parent's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 31, 1998 or referred to in the notes thereto, and (b) liabilities or
obligations that could not reasonably be expected to have a Parent Material
Adverse Effect.
4.9 COMPLIANCE WITH LAWS. Neither Parent nor any of its subsidiaries is in
default or violation of any applicable federal, state, local or foreign laws,
ordinances, regulations, interpretations, judgments, decrees, injunctions,
permits, licenses, certificates, governmental requirements, orders or other
similar items of any court or other governmental entity (including, but not
limited to, those of the FDA or any nongovernmental self-regulatory agency and
including environmental laws or regulations), except for such defaults or
violations that could not reasonably be expected to have a Parent Material
Adverse Effect. Parent and each of its subsidiaries has timely filed or
otherwise provided all registrations, reports, data and other information and
applications with respect to its Regulated Products required to be filed with or
otherwise provided to the FDA or any other federal, state, local or foreign
governmental authorities with jurisdiction over the manufacture, use of sale of
the Regulated Products, and all regulatory licenses or approvals in respect
thereof are in full force and effect, except where the failure to file timely
such registrations, reports, data, information and applications or the failure
to have such licenses and approvals in full force and effect could not
reasonably be expected to have a Parent Material Adverse Effect.
4.10 LITIGATION. There are no claims, actions, suits, proceedings, or, to
the knowledge of Parent, investigations or reviews of any kind, pending or, to
the knowledge of Parent, threatened in writing, against Parent or any of its
subsidiaries or any asset or property of Parent or any of its subsidiaries,
except for such claims, actions, suits, proceedings, investigations or reviews
that could not reasonably be expected to have a Parent Material Adverse Effect.
4.11 ABSENCE OF MATERIAL ADVERSE CHANGES. Since April 30, 1998, there has
not been any (a) Parent Material Adverse Effect, (b) damage, destruction or
loss, not covered by insurance, that could reasonably be expected to have a
Parent Material Adverse Effect, (c) material change by Parent or any of its
subsidiaries in accounting methods or principles used for financial reporting
purposes, except as required by a change in applicable law or generally accepted
accounting principles and concurred with by Parent's independent public
accountants, or (d) agreement, whether in writing or otherwise, to take any
action described or referenced in this Section 4.11.
4.12 REORGANIZATION. Neither Parent nor, to the knowledge of Parent, any
of its subsidiaries has taken or agreed to take any action (other than actions
contemplated by this Agreement) that would
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prevent the Merger from constituting a reorganization qualifying under Section
368(a) of the Code. Parent is not aware of any agreement, plan or other
circumstances that would prevent the Merger from so qualifying under Section
368(a) of the Code.
ARTICLE 5
COVENANTS
5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this
Agreement or as set forth in Section 5.1 of the Company Disclosure Schedule,
unless Parent shall otherwise consent in writing (such consent not to be
unreasonably withheld or delayed), during the period from the date of this
Agreement to the Effective Time, the Company and each Subsidiary will conduct
its respective operations, to the extent commercially reasonable, according to
its ordinary and usual course of business and consistent with past practice, and
the Company and each Subsidiary will use its commercially reasonable efforts to
preserve substantially intact its respective business organizations, to keep
available the services of its respective officers and employees and to maintain
satisfactory relationships with licensors, licensees, suppliers, contractors,
distributors, physicians, consultants, customers, and others having material
business relationships with it. The Company will promptly advise Parent of any
material change in the management, present or planned business, properties,
liabilities, results of operations, or financial condition of the Company or any
material Subsidiary. The Company will keep Parent reasonably advised on a
current basis as to the status of the matters described in Section 3.1 of the
Company Disclosure Schedule, and will not settle, resolve or compromise any of
such matters without reasonable prior notice to Parent and after giving due
consideration to Parent's recommendations with respect thereto. The Company
will, prior to distributing or otherwise circulating any notices, directives, or
other communications directed to all or groups of customers, vendors, employees,
distributors, or others associated with its business relating to the
transactions contemplated hereby or to the operation of business after
consummation of such transactions, consult with Parent and give Parent
reasonable opportunity to comment thereon. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in or contemplated by
this Agreement or as set forth in Section 5.1 of the Company Disclosure
Schedule, from the date of the Agreement until the Effective Time, neither the
Company nor any Subsidiary will, without the prior written consent of Parent
(such consent not to be unreasonably withheld or delayed):
(a) amend its 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) any stock of
any class or any securities convertible into shares of stock of any class
(other than the issuance of shares of Company Common Stock pursuant to the
exercise of stock options outstanding on the date of this Agreement and, so
long as treatment of the Merger as a pooling of interests is not
jeopardized, the issuance, in the ordinary course of business and consistent
with past practice, of stock options to purchase, at not less than fair
market value on the date of grant of such option, a maximum of 50,000 shares
of Company Common Stock pursuant to the Company Option Plans in effect on
the date of this Agreement and the shares of Company Common Stock issuable
pursuant to such stock options);
(c) split, combine, or reclassify any shares of its capital stock,
declare, set aside, or pay any dividend or other distribution (whether in
cash, stock, or property or any combination thereof) in respect of its
capital stock; or redeem or otherwise acquire any shares of its capital
stock or its other securities; or amend or alter any material term of any of
its outstanding securities;
(d) other than indebtedness incurred in the ordinary course of business
and consistent with past practice and other than intercompany indebtedness,
create, incur or assume any indebtedness for borrowed money, or assume,
guarantee, endorse, or otherwise agree to become liable or responsible for
the obligations of any other person, or make any loans, advances or capital
contributions to, or investments in, any other person; or create, incur or
assume any material Lien on any material asset;
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(e) (i) increase in any manner the compensation of any of its directors,
officers, employees, or consultants, or accelerate the payment of any such
compensation, except in each case in the ordinary course of business and
consistent with past practice (including, without limitation, annual year
end increases) or consistent with existing contractual commitments or as
required by applicable law (other than accelerated payments customarily made
upon termination of employment); (ii) pay or accelerate or otherwise modify
in any material respect the payment, vesting, exercisability, or other
feature or requirement of any pension, retirement allowance, severance,
change of control, stock option, or other employee benefit not required by
any existing plan, agreement, or arrangement to any such director, officer,
employee or consultant; or (iii) except for normal increases in the ordinary
course of business in accordance with its customary past practices or
consistent with existing contractual commitments or as required by
applicable laws, commit itself to any additional or increased pension,
profit-sharing, bonus, incentive, deferred compensation, group insurance,
severance, change of control, retirement or other benefit, plan, agreement,
or arrangement, or to any employment or consulting agreement, with or for
the benefit of any person, or amend any of such plans or any of such
agreements in existence on the date hereof (except any amendment required by
law or that would not materially increase benefits under the relevant plan);
(f) except in the ordinary course of business and consistent with past
practice or pursuant to contractual obligations existing on the date hereof,
sell, transfer, mortgage, or otherwise dispose of or encumber any assets or
properties material to the Company and its Subsidiaries, considered as a
whole;
(g) acquire or agree to acquire (i) by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business of any corporation, partnership, joint venture,
association, or other business organization or division thereof or (ii) any
assets that are material, individually or in the aggregate, to the Company
and its Subsidiaries, considered as a whole, except as provided in
subsection (h) below and except purchases of inventory in the ordinary
course of business consistent with past practice;
(h) make or agree to make any new capital expenditure or expenditures
that, individually, is in excess of $1,000,000 or, in the aggregate, are in
excess of $4,000,000;
(i) enter into, amend in any material respect, or terminate any joint
ventures or any other agreements, commitments, or contracts that are
material to the Company and its Subsidiaries, considered as a whole (except
agreements, commitments, or contracts expressly provided for or contemplated
by this Agreement or for the purchase, sale, or lease of goods, services, or
properties in the ordinary course of business, consistent with past
practice);
(j) enter into or terminate, or amend, extend, renew, or otherwise
modify in any material respect (including, but not limited to, by default or
by failure to act) any material distribution, OEM, independent sales
representative, noncompetition, licensing, franchise, research and
development, supply, or similar contract, agreement, or understanding
(except agreements, commitments, or contracts expressly provided for or
contemplated by this Agreement or for the purchase, sale, or lease of goods,
services, or properties in the ordinary course of business, consistent with
past practice);
(k) change in any material respect its credit policy as to sales of
inventories or collection of receivables or its inventory consignment
practices;
(l) remove or permit to be removed from any building, facility, or real
property any material machinery, equipment, fixture, vehicle, or other
personal property or parts thereof, except in the ordinary course of
business;
(m) alter or revise its accounting principles, procedures, methods, or
practices in any material respect, except as required by applicable law or
by a change in generally accepted accounting principles and concurred with
by the Company's independent public accountants;
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(n) institute, settle, or compromise any claim, action, suit, or
proceeding pending or threatened by or against it involving amounts in
excess of $1,000,000, at law or in equity or before any 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);
(o) knowingly take any action that would render any representation,
warranty, covenant, or agreement of the Company in this Agreement inaccurate
or breached such that the conditions in Section 6.2 will not be satisfied as
of the Closing Date; or
(p) agree, whether in writing or otherwise, to do any of the foregoing.
5.2 CONDUCT OF BUSINESS OF PARENT. Except as contemplated by this
Agreement, from the date of this Agreement until the Effective Time, Parent will
not do, and will not permit any of its subsidiaries to do, any of the following
without the prior written consent of the Company (such consent not to be
unreasonably withheld or delayed):
(a) combine or reclassify any shares of its capital stock, declare, set
aside or pay any extraordinary dividend or other distribution (whether in
cash, stock or property or any combination thereof, but excluding a stock
split effected in the form of a stock dividend) in respect of its capital
stock, or redeem or otherwise acquire (other than pursuant to Parent's
previously established stock repurchase program or as would not violate
Section 5.21) any shares of its capital stock or amend or alter any material
term of any of its outstanding securities;
(b) acquire or agree to acquire, by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner,
any business of any corporation, partnership, joint venture, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire, or dispose or agree to dispose, any assets of any other
person, which, in each case, could reasonably be expected to delay
materially the consummation of, or increase materially the risk of
non-consummation of, the transactions contemplated by this Agreement;
(c) alter or revise its accounting principles, procedures, methods or
practices in any material respect, except as required by applicable law or
regulation or by a change in generally accepted accounting principles and
concurred with by Parent's independent public accountants;
(d) knowingly take any action that would result in a failure to maintain
the trading of Parent Common Stock on the NYSE; or
(e) knowingly take any action, or knowingly fail to take any action,
that would render any representation, warranty, covenant or agreement of
Parent in this Agreement inaccurate or breached such that the conditions in
Section 6.3 will not be satisfied; or
(f) agree, whether in writing or otherwise, to do any of the foregoing.
5.3 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, knowingly 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 proposed 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 Transaction"), or otherwise knowingly facilitate any effort or
attempt to make or implement an Alternative Transaction. The Company will
promptly inform Parent of any proposal or inquiry that it has received or may
receive in respect of any proposed Alternative Transaction or of any such
information requested from it or of any such negotiations or discussions being
sought to be initiated with the Company
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in respect of a proposed Alternative Transaction; 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 (from the date of this Agreement)
Superior 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, after consultation with independent, outside counsel (who may be the
Company's regularly engaged legal counsel), and (b) prior to first furnishing
information to, or first entering into substantive discussions or negotiations
with, such person or entity, the Company provides written notice to Parent to
the effect that it is furnishing information to, or entering into substantive
discussions or negotiations with, such person or entity, and (c) the Company
keeps Parent informed of the status of any such discussions or negotiations; and
(ii) to the extent applicable, complying with Rule 14e-2 promulgated under the
1934 Act with regard to a proposed Alternative Transaction. Nothing in this
section shall (x) permit the Company to terminate this Agreement (except as
specifically provided in Article 7 hereof), (y) permit the Company to enter into
any agreement providing for an Alternative Transaction (other than a usual and
customary confidentiality agreement) for as long as this Agreement remains in
effect, or (z) affect any other obligation of the Company under this Agreement.
For purposes of this Agreement, a "Superior Proposal" shall mean a proposal for
an Alternative Transaction that the Board of Directors of the Company has
determined in its good faith judgment to be more favorable to the Company's
shareholders than the transactions contemplated by this Agreement.
5.4 ACCESS AND INFORMATION.
(a) Except as required pursuant to any confidentiality agreement or
similar agreement or arrangement to which the Company or any of its
Subsidiaries is a party (in which case the Company shall use all
commercially reasonable efforts to provide acceptable alternative
arrangements, not in violation of such agreement or arrangement, for
disclosure to Parent or its advisors) or pursuant to applicable Law, the
Company shall afford to Parent, and to Parent's accountants, officers,
directors, employees, counsel, and other representatives, reasonable access
during normal business hours upon reasonable prior notice, from the date
hereof through the Effective Time, to all of its properties, books,
contracts, commitments, and records, and, during such period, the Company
shall furnish promptly to Parent all information concerning the Company's
and its Subsidiaries' businesses, prospects, properties, liabilities,
results of operations, financial condition, testing, clinicals, officers,
employees, investigators, distributors, customers, suppliers, and others
having material dealings with the Company as Parent may reasonably request
and reasonable opportunity to contact and obtain information from such
officers, employees, investigators, distributors, customers, suppliers, and
others having dealings with the Company as Parent may reasonably request.
During the period from the date hereof to the Effective Time, the parties
shall in good faith meet and correspond on a regular basis for mutual
consultation concerning the conduct of the Company's and the Subsidiaries'
businesses and, in connection therewith, Parent shall be entitled, during
normal business hours upon reasonable prior notice and in a manner that does
not unreasonably interfere with the Company's business, to have employees or
other representatives present at the offices of the Company and its
Subsidiaries to observe, and be kept informed concerning, the Company's and
the Subsidiaries' operations and business planning.
(b) Parent shall hold in confidence all such nonpublic information as
required and in accordance with the confidentiality agreement dated October
1, 1998, between Parent and the Company (the "Confidentiality Agreement").
5.5 APPROVAL OF SHAREHOLDERS; PROXY STATEMENT; REGISTRATION STATEMENT.
(a) The Company shall promptly take all action necessary in accordance
with Indiana 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 (unless prohibited by the
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IBCL as advised by Indiana counsel to the Company) 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 IBCL 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 a majority 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, unless
otherwise required by the applicable fiduciary duties of the directors of
the Company, as determined by such directors in good faith after
consultation with independent legal counsel (who may be the Company's
regularly engaged legal counsel). 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"). Parent shall furnish to the Company all
information concerning Parent, and shall take such other action and
otherwise cooperate, as the Company may reasonably request in connection
with any such action. The Company shall use all reasonable efforts to cause
the definitive Proxy Statement/Prospectus to be mailed to the shareholders
of the Company, as soon as reasonably practicable after the Registration
Statement shall have become effective, with the date of mailing as mutually
determined by the Company and Parent. The Proxy Statement/Prospectus shall
include the recommendation of the Company's Board of Directors in favor of
the Merger, unless otherwise required by the applicable fiduciary duties of
the directors of the Company, as determined by such directors in good faith
after consultation with independent legal counsel (who may be the Company's
regularly engaged legal counsel).
(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 of the time when the Registration
Statement has become effective or any supplement or amendment has been
filed, or the issuance of any stop order, of the suspension of the
qualification of the Parent Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction and shall supply the Company
with copies of all correspondence with the SEC with respect to the
Registration Statement.
(d) If at any time prior to the Effective Time, any event or
circumstance relating to the Company, any Subsidiary, or the Company's
officers or directors should occur or be discovered by the Company that is
required to be described in an amendment or supplement to the definitive
Proxy Statement/Prospectus or the Registration Statement, the Company shall
promptly inform Parent. If at any time prior to the Effective Time, any
event or circumstance relating to Parent or Merger Subsidiary or their
respective officers or directors should occur or be discovered by Parent
that is required to be described in an amendment or supplement to the
definitive Proxy Statement/
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Prospectus or the Registration Statement, Parent shall promptly inform the
Company. Whenever any event occurs that should be described in an amendment
of, or supplement to, the definitive Proxy Statement/Prospectus or the
Registration Statement, the Company or Parent, as the case may be, shall,
upon learning of such event, promptly notify the other and consult and
cooperate with the other in connection with the preparation of a mutually
acceptable amendment or supplement. The parties shall promptly file such
amendment or supplement with the SEC and mail such amendment or supplement
as soon as practicable after it is cleared by the SEC. No amendment or
supplement to the Proxy Statement/Prospectus or the Registration Statement
will be made by Parent or the Company without the approval of the other
party (such approval not to be unreasonably withheld or delayed).
5.6 CONSENTS. The Company will, at its cost and expense, use 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.
5.7 AFFILIATES' LETTERS.
(a) The Company has delivered to Parent a list of names and addresses of
those persons, in the Company's reasonable judgment after consultation with
outside legal counsel, who, as of the date hereof, are affiliates within the
meaning of Rule 145 of the rules and regulations promulgated under the 1933
Act or otherwise applicable SEC accounting releases with respect to
pooling-of-interests accounting treatment (each such person, an "Affiliate")
of the Company. The Company shall provide Parent such information and
documents as Parent shall reasonably request for purposes of reviewing such
list and shall promptly update such list to reflect any changes thereto. The
Company has delivered or caused to be delivered, or will, promptly after the
execution hereof, deliver or cause to be delivered, to Parent an affiliate's
letter in the form attached hereto as EXHIBIT B, executed by each of the
Affiliates of the Company identified in the foregoing list, 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, to the knowledge of the Company, become Affiliates after the
date hereof. Parent shall be entitled to place legends as specified in such
affiliates' letters on the certificates evidencing any of the Parent Common
Stock 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.
5.8 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement, the transactions
contemplated hereby, the Proxy Statement/Prospectus, and the Registration
Statement will be paid by the party incurring such costs and expenses, except
that the Company and Parent will share equally the cost of printing and filing
with the SEC the Proxy Statement/ Prospectus and the Registration Statement, the
filing fees required under the HSR Act or any Foreign Merger Laws, and the fees
charged by PricewaterhouseCoopers LLP for the letters described in Section 5.16
(the "Shared Expenses").
5.9 FURTHER ACTIONS. Subject to the terms and conditions herein provided
and without being required to waive any conditions herein (whether absolute,
discretionary, or otherwise), each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper, or advisable to consummate and
make effective the transactions contemplated by this Agreement. In case at any
time after the Effective Time any further action is
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necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall take all such
necessary action.
5.10 REGULATORY APPROVALS.
(a) The Company and Parent each agree to use its best efforts to take,
or cause to be taken, all appropriate action, and do, or cause to be done,
all things as may be necessary under federal or state securities laws or the
HSR Act or Foreign Merger Laws applicable to or necessary for, and will file
as soon as reasonably practicable and, if appropriate, use its best 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.
(b) Although the parties do not anticipate any legislative,
administrative or judicial objection to the consummation of the Merger or
any of the transactions contemplated by this Agreement, each of the Company,
Parent and Merger Subsidiary agrees to use its best efforts vigorously to
contest and resist any action, including legislative, administrative or
judicial action, and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order (whether temporary, preliminary
or permanent) (an "ORDER") that is in effect and that restricts, prevents or
prohibits the consummation of the Merger or any other transactions
contemplated by this Agreement, including, without limitation, by vigorously
pursuing available avenues of administrative and judicial appeal. Each of
the Company, Parent and Merger Subsidiary also agrees to use its best
efforts to take any and all actions necessary to avoid or eliminate each and
every impediment under any antitrust law that may be asserted by any
governmental antitrust authority or any other party so as to enable the
parties to close by the date specified in Section 7.1(b) the transactions
contemplated hereby, including without limitation, committing to and/or
effecting, by consent decree, hold separate orders, or otherwise, the sale
or disposition of such assets or businesses as are required to be divested
in order to avoid the entry of, or to effect the dissolution of, any
injunction, temporary restraining order or other order in any suit or
proceeding, which would otherwise have the effect of preventing the
consummation by the date specified in Section 7.1(b) of all or any material
part of the transactions contemplated hereby. Notwithstanding the foregoing
or anything herein to the contrary, in no event shall Parent be required
under this Section 5.10 to make arrangements for or to effect the sale,
cessation, or other disposition of product lines or businesses or take any
action materially adverse to Parent.
5.11 CERTAIN NOTIFICATIONS. The Company shall promptly notify Parent in
writing of the occurrence of any event that will or could reasonably be expected
to result in the failure by the Company or its affiliates to satisfy any of the
conditions specified in Section 6.1 or 6.2. Parent shall promptly notify the
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.
5.12 VOTING OF SHARES. To induce Parent to execute this Agreement, certain
executive 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.
5.13 STOCK OPTION AGREEMENT. To induce Parent to execute this Agreement,
the Company has executed and delivered to Parent as of the date hereof a Stock
Option Agreement in the form attached hereto as EXHIBIT D (the "Stock Option
Agreement"), pursuant to which the Company has granted to Parent an option to
acquire from the Company such number of shares of Company Common Stock as
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equals 19.9% of the aggregate number of outstanding shares of Company Common
Stock at an exercise price equal to $115 per share. Such option shall become
exercisable only in the events described in the Stock Option Agreement.
5.14 NYSE LISTING APPLICATION. Parent shall promptly prepare and submit to
the NYSE a listing application for the Parent Common Stock to be issued in the
Merger pursuant to Article 1 of this Agreement and pursuant to the Company
Options assumed by Parent, and shall use its reasonable best efforts to obtain,
prior to the Effective Time, approval for the listing of such Parent Common
Stock, subject to official notice to the NYSE of issuance. The Company shall
cooperate with Parent in such listing application.
5.15 INDEMNIFICATION.
(a) The articles of incorporation and the bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification,
payment of fees and expenses and exculpation from liability set forth in the
Company's 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
at any time 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 and payment of fees and expenses provisions
contained in the Surviving Corporation's articles of incorporation and
bylaws with respect to acts occurring at or before the Effective Time
(including the transactions contemplated by this Agreement).
(b) For a period of three years after the Effective Time, Parent shall
cause to be maintained in effect the Company's current directors' and
officers' liability insurance policy with respect to claims arising from
facts or events that occurred at or prior to the Effective Time; provided,
however, that (i) Parent may substitute therefor policies providing coverage
on terms and conditions that are no less advantageous to such persons, and
(ii) Parent may satisfy its obligations hereunder by extending the discovery
or reporting period under such policy for three years from the Effective
Time to maintain in effect directors' and officers' liability insurance
covering pre-acquisition acts (including acts in connection with this
Agreement and the transactions contemplated hereby) for those persons who
are currently covered by the Company's directors' and officers' liability
insurance policy (a copy of which has been heretofore delivered or made
available to Parent or its advisors ) (the "INDEMNIFIED PARTIES") on terms
no less favorable than the terms of such current insurance coverage;
PROVIDED, HOWEVER, that in no event shall Parent be required to expend for
any such coverage an amount per year in excess of 150% of the annual premium
currently paid by the Company for such insurance; and PROVIDED FURTHER that
if the cost per year of such coverage exceeds such 150% amount, Parent shall
be obligated to obtain such coverage as is available for a cost per year 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 5.15.
(d) This Section 5.15 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.
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5.16 LETTERS OF THE COMPANY'S AND PARENT'S ACCOUNTANTS.
(a) The Company shall cooperate with Parent and use its reasonable
efforts to cause to be delivered to Parent and the Company the following
letters from PricewaterhouseCoopers LLP addressed to Parent and the Company:
(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 its
reasonable efforts to cause to be delivered to the Company and Parent the
following letters from PricewaterhouseCoopers LLP addressed to the Company
and Parent: (i) a letter dated the date of this Agreement, stating that
after appropriate review of this Agreement and a letter from the Parent
describing the transaction, the Merger will qualify as a pooling of
interests transaction under Opinion 16 of the Accounting Principles Board
and applicable SEC rules and regulations; and (ii) a letter dated as of the
Closing Date confirming as of the Closing Date that the Merger will qualify
as a pooling of interests transaction under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations.
5.17 SUBSIDIARY SHARES. At or prior to the Closing, the Company shall use
its reasonable efforts to cause all issued and outstanding Subsidiary shares
(other than any interests in joint ventures or similar arrangements) owned by
any person other than the Company or any of its Subsidiaries to be transferred
for no or nominal consideration to such person or persons designated by Parent.
5.18 BENEFIT PLANS AND EMPLOYEE MATTERS.
(a) From and after the Effective Time, Parent shall to the extent
practicable cause the Surviving Corporation to provide employee benefits and
programs to the Company's employees that, in the aggregate, are
substantially comparable or more favorable, as a whole, than those in
existence as of the date hereof and disclosed in writing to Parent prior to
the date hereof; PROVIDED THAT stock-based compensation shall be comparable
to that offered by Parent and its subsidiaries generally. From and after the
Effective time, the Parent shall honor, in accordance with their terms, all
employment and severance agreements and all severance, incentive and bonus
plans as in effect immediately prior to the Closing Date that are applicable
to any current or former employees or directors of the Company or any of its
Subsidiaries and that were disclosed to Parent prior to the date hereof.
(b) To the extent that service is relevant for purposes of eligibility,
level of participation, or vesting under any employee benefit plan, program
or arrangement established or maintained by Parent, the Company or any of
their respective subsidiaries, employees of the Company and its Subsidiaries
shall be credited for service accrued or deemed accrued prior to the
Effective Time with the Company or such Subsidiary, as the case may be.
Under no circumstances shall employees receive credit for service accrued or
deemed accrued prior to the Effective Time with the Company or such
Subsidiary, as the case may be, for benefit accruals under any employee
pension benefit plan (as defined by Section 3(2) of ERISA) or any retiree
health plan. To the extent Parent satisfies its obligations under this
Section by maintaining Company benefit plans, Parent shall not be required
to include employees of the Company in Parent's benefit plans.
5.19 OBLIGATIONS OF MERGER SUBSIDIARY. Parent shall take all action
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and subject to the
conditions set forth in this Agreement.
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5.20 PLAN OF REORGANIZATION. This Agreement is intended to constitute a
"plan of reorganization" within the meaning of Section 1.368-2(g) of the income
tax regulations promulgated under the Code. From and after the date of this
Agreement, each party hereto shall use all reasonable efforts to cause the
Merger to qualify, and shall not, without the prior written consent of the other
parties hereto, knowingly take any actions or cause any actions to be taken
which could prevent the Merger from qualifying as a reorganization under the
provisions of Section 368(a) of the Code.
5.21 POOLING. From and after the date of this Agreement and until the
Effective Time, neither Parent nor the Company, nor any of their respective
subsidiaries or other affiliates, shall knowingly take any action, or knowingly
fail to take any action, that is reasonably likely to jeopardize the treatment
of the Merger as a "pooling of interests" for accounting purposes. Between the
date of this Agreement and the Effective Time, Parent and the Company each shall
take all reasonable actions necessary to cause the characterization of the
Merger as a pooling of interests for accounting purposes if such a
characterization were jeopardized by action taken by Parent or the Company,
respectively, prior to the Effective Time. Following the Effective Time, Parent
shall not knowingly take any action, or fail to take any action, that would
jeopardize the characterization of the Merger as a "pooling of interests" for
accounting purposes.
ARTICLE 6
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATIONS OF PARENT, MERGER SUBSIDIARY, AND THE
COMPANY. The respective obligations of each party to consummate the Merger
shall be subject to the fulfillment at or prior to the Closing of the following
conditions, any or all of which may be waived, in whole or in part, to the
extent permitted by applicable Law:
(a) NO INJUNCTION. None of Parent, Merger Subsidiary, or the Company
shall be subject to any final order, decree, or injunction of a court of
competent jurisdiction within the United States that is then in effect and
has the effect of making the Merger illegal or otherwise prohibiting the
consummation of the Merger.
(b) SHAREHOLDER APPROVAL. The approval of the shareholders of the
Company referred to in Section 5.5 hereof shall have been obtained, in
accordance with the IBCL 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.
(d) NYSE LISTING. The shares of Parent Common Stock to be delivered
pursuant to the Merger shall have been duly authorized for listing on the
NYSE, subject to official notice of issuance.
(e) WAITING PERIODS. The waiting periods (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act and any
Foreign Merger Laws shall have expired or been terminated.
6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY. The
respective obligations of Parent and Merger Subsidiary to consummate the Merger
shall be subject to the fulfillment at or prior to the Closing of the following
additional conditions, any or all of which may be waived by Parent, in whole or
in part, to the extent permitted by applicable Law:
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each representation and
warranty of the Company contained in this Agreement, without regard to any
qualification or reference to "Company Material Adverse Effect," shall be
true and correct on the Closing Date as though such representations and
warranties were made on such date, except that those representations and
warranties that address
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matters only as of a particular date shall remain true and correct as of
such date, and except in any case for any inaccuracies that have not had, or
could not reasonably be expected to have a Company Material Adverse Effect,
and except as provided in Section 3.1 of the Company Disclosure Schedule but
subject to the provisions of Section 8.14 hereof. Parent shall have received
a certificate to the foregoing effect signed by the Chief Executive Officer
of the Company.
(b) PERFORMANCE. The Company shall have performed and complied in all
material respects with all material covenants required by this Agreement to
be performed or complied with by it 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) AFFILIATES' LETTERS. Parent shall have received a letter from each
of the Affiliates pursuant to Section 5.7 hereof.
(d) RESIGNATIONS AND WAIVERS. Such officers and directors of the
Company or of any Subsidiary as shall have been specified by Parent shall
have tendered their respective resignations effective as of the Effective
Time (without prejudice to rights and obligations under employment
agreements). Parent shall have received from any person having a right to
designate one or more nominees to the Board of Directors of the Company a
signed waiver of such right, in form reasonably acceptable to Parent.
(e) POOLING OPINION. Parent shall have received each of the letters
described in Section 5.16.
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, any or all of which may
be waived by the Company, in whole or in part, to the extent permitted by
applicable Law:
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each representation and
warranty of Parent contained in this Agreement, without regard to any
qualification or reference to "Parent Material Adverse Effect," shall be
true and correct on the Closing Date as though such representations and
warranties were made on such date, except that those representations and
warranties that address matters only as of a particular date shall remain
true and correct as of such date, and except in any case for any
inaccuracies that have not had, or could not reasonably be expected to have
a Parent Material Adverse Effect. The Company shall have received a
certificate to the foregoing effect signed by the Chief Executive Officer or
other authorized officer of Parent.
(b) PERFORMANCE. Parent and Merger Subsidiary shall have performed and
complied in all material respects with all material covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing, and the Company shall have received a certificate to such effect
signed by the Chief Executive Officer or other authorized officer of Parent.
(c) TAX OPINION. The Company shall have received an opinion of
Shearman & Sterling, counsel to the Company, based upon representations of
Parent, Merger Sub and the Company and normal assumptions, and dated on or
about the date that is two business days prior to the date the Proxy
Statement/Prospectus is first mailed to Company shareholders, which opinion
shall not have been withdrawn or modified in any material respect prior to
the Effective Time, to the effect that, subject to customary conditions and
representations, the Merger will be treated for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code, and
that each of Parent, Merger Subsidiary and the Company will be considered a
party to such reorganization. Parent, Merger Subsidiary and the Company
hereby agree to provide to such counsel certificates acceptable to such
counsel setting forth the customary representations which may be relied upon
by such counsel in rendering such opinion.
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<PAGE>
(d) POOLING OPINION. The Company shall have received each of the
letters described in Section 5.16.
ARTICLE 7
TERMINATION AND ABANDONMENT
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the 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 April 30, 1999; provided, however, that the
terminating party shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have been the
proximate cause of, or resulted in, the failure to consummate the Merger by
such date and provided further, however, that, if a request for additional
information is received from the U.S. Federal Trade Commission ("FTC") or
Department of Justice ("DOJ") pursuant to the HSR Act or additional
information is requested by an authority (a "Foreign Authority") pursuant to
Foreign Merger Laws, such date shall be extended to the 90th day following
acknowledgment by the FTC, DOJ, or Foreign Authority, as applicable, that
Parent and the Company have complied with such request, but in any event not
later than September 30, 1999;
(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 Board of Directors of the Company has
recommended, approved, accepted, or entered into an agreement regarding, an
Alternative Transaction, as defined in Section 5.3, (ii) the Board of
Directors of the Company has withdrawn or modified in a manner materially
adverse to Parent its recommendation of the Merger, or (iii) a tender offer
or exchange offer for any outstanding shares of Company Common Stock is
commenced, and the Board of Directors of the Company, within 10 business
days after such tender offer or exchange offer is so commenced, either fails
to recommend against acceptance of such tender offer or exchange offer by
its 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, subject to complying with the terms of this Agreement, the
Company to enter into a binding written agreement concerning a transaction
that constitutes a Superior Proposal and the Company notifies Parent in
writing that it intends to enter into such agreement, attaching the most
current version of such agreement to such notice, (iii) Parent does not
make, within five business days after receipt of the Company's written
notice of its intention to enter into a binding agreement for a Superior
Proposal, an offer that the Board of Directors of the Company determines, in
good faith after consultation with its financial and legal advisors, is at
least as favorable to the shareholders of the Company as the Superior
Proposal, and (iv) if so requested by Parent prior to the Company's
termination pursuant to this Section 7.1(f), the Company pays to
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<PAGE>
Parent the fee required by Section 7.2 to be paid to Parent in the manner
therein provided. The Company agrees (x) that it will not enter into a
binding agreement referred to in clause (ii) above until at least the sixth
business day after it has provided the notice to Parent required by clause
(ii) above, and (y) to notify Parent promptly if its intention to enter into
a binding agreement referred to in its notice to Parent shall change at any
time after giving such notice;
(g) by Parent if (i) Parent is not in material breach of its obligations
under this Agreement and (ii) there has been a material breach by the
Company of any of its representations, warranties, or obligations under this
Agreement such that the conditions in Section 6.2 will not be satisfied
("Terminating Company Breach"); PROVIDED, HOWEVER, that, if such Terminating
Company Breach is curable by the Company through the exercise of its best
efforts and such cure is reasonably likely to be completed prior to the
applicable date specified in Section 7.1(b), then for so long as the Company
continues to exercise such best efforts, Parent may not terminate this
Agreement under this Section 7.1(g) and; PROVIDED, FURTHER, that Parent's
right to terminate this Agreement for any Terminating Company Breach is
subject to the provisions of Section 3.1 of the Company Disclosure Schedule
and Section 8.14 of this Agreement;
(h) by the Company if (i) the Company is not in material breach of its
obligations under this Agreement and (ii) there has been a material breach
by Parent of any of its representations, warranties, or obligations under
this Agreement such that the conditions in Section 6.3 will not be
satisfied, ("Terminating Parent Breach"); PROVIDED, HOWEVER, that, if such
Terminating Parent Breach is curable by Parent through the exercise of its
best efforts and such cure is reasonably likely to be completed prior to the
applicable date specified in Section 7.1(b), then for so long as Parent
continues to exercise such best efforts, the Company may not terminate this
Agreement under this Section 7.1(h).
7.2 EFFECT OF TERMINATION.
(a) In recognition of the time, efforts, and expenses expended and
incurred by Parent with respect to the Company and the opportunity that the
acquisition of the Company presents to Parent, if:
(i) this Agreement is terminated by Parent pursuant to Sections
7.1(e)(i) or 7.1(e)(iii); or
(ii) this Agreement is terminated by Parent pursuant to Section
7.1(e)(ii) and at or prior to the time that the Board of Directors of the
Company shall have withdrawn or modified its recommendation of the Merger
as described in Section 7.1(e)(ii), a proposal for an Alternative
Transaction shall have been made and the Board of Directors of the
Company shall not have reinstated its recommendation of the Merger prior
to such termination by Parent.
(iii) this Agreement is terminated by the Company pursuant to Section
7.1(f); or
(iv) (A) this Agreement is terminated by Parent or the Company
pursuant to Section 7.1(d) due to the failure of the Company's
shareholders to approve the Merger, (B) at any time prior to the time of
such failure to so approve the Merger a proposal for an Alternative
Transaction shall have been publicly announced and (C) within 12 months
of the date of such termination, the Company shall have entered into an
agreement providing for an Alternative Transaction.
then, in any such event, the Company will pay to Parent, (1) upon demand by
Parent on or after the termination date in the event of termination pursuant
to Section 7.1(f), and (2) within ten business days after demand by Parent
in the case of termination in the case of the events specified in clause (i)
or (ii) above, and (3) within ten business days after demand by Parent after
the date of entering into an agreement providing for an Alternative
Transaction, in the case of the events specified in clause (iv) above (in
each case by wire transfer of immediately available funds to an account
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<PAGE>
designated by Parent for such purpose), a fee equal to $105,000,000;
provided in the event the fee is payable pursuant to one or more of clauses
(i), (ii), (iii) or (iv) above, the fee shall be due and payable pursuant to
the clause calling for payment at the earliest time.
(b) 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 this Agreement is
terminated by Parent pursuant to Section 7.1(e)(ii), where the conditions of
Section 7.2(a)(ii) do not apply, or if this Agreement is terminated (other
than in the case of the events described in Section 7.2(a) above) pursuant
to other provisions but termination pursuant to Section 7.1(e)(ii) is
available to Parent, then the Company will pay to Parent, within ten
business days after demand by Parent after the termination date (by wire
transfer of immediately available funds to an account designated by Parent
for such purpose), a fee equal to $65,000,000; provided, however, if within
12 months of such termination the Company has entered into an agreement
providing for an Alternative Transaction, then within ten business days
after demand by Parent after the date of entering into an agreement
providing for an Alternative Transaction, the Company shall pay to Parent
(by wire transfer of immediately available funds to an account designated by
Parent for such purpose) an additional fee of $40,000,000.
(c) 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.;
provided, however, that Parent shall pay to the Company the Company's costs
and expenses (including legal fees and expenses) incurred in connection with
any such legal action if Parent's claims against the Company in such legal
action do not prevail. Any change in the interest rate hereunder resulting
from a change in such prime rate shall be effective at the beginning of the
date of such change in such prime rate.
(d) Parent agrees that the payments provided for in Sections 7.2(a) and
(b) shall be the sole and exclusive remedies of Parent upon termination of
this Agreement pursuant to Section 7.1(d), (e) and (f), as the case may be,
and such remedies shall be limited to the sums stipulated in such Sections
7.2(a) and (b), regardless of the circumstances giving rise to such
termination; provided, however, that nothing herein shall relieve any party
from liability for the willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement. In no event
shall the Company be required to pay to Parent more than one fee pursuant to
Section 7.2(a) and 7.2(b) (except in the case of Section 7.2(b) for the
additional fee payable pursuant to such section); PROVIDED THAT, in the
event Section 7.2(b) and one or more clauses of Section 7.2(a) have become
applicable, Section 7.2(a) shall govern. In no event shall the sum of the
termination fee paid pursuant to Section 7.2(a) or Section 7.2(b) plus the
Cancellation Amount (as defined in the Stock Option Agreement) paid pursuant
to the Stock Option Agreement exceed $105,000,000.
(e) Except as provided in the next sentence of this paragraph, in the
event of the termination of this Agreement pursuant to any paragraph of
Section 7.1, the obligations of the parties to consummate the Merger will
expire, and none of the parties will have any further obligations under this
Agreement except pursuant to Sections 5.4(b), 5.8, 7.2(a), 7.2(b) and 7.2(c)
and Article 8. Nothing herein shall relieve any party from liability for the
willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
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ARTICLE 8
MISCELLANEOUS
8.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this Agreement
may be amended, modified, or supplemented only by written agreement of Parent,
Merger Subsidiary, and the Company at any time prior to the Effective Time with
respect to any of the terms contained herein PROVIDED, HOWEVER, that, after the
approval of this Agreement by the shareholders of the Company, no amendment may
be made which would reduce the amount or change the type of consideration into
which each share of Company Common Stock shall be converted upon consummation of
the Merger. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
8.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Parent or Merger
Subsidiary on the one hand, or the Company on the other hand, to comply with any
obligation, covenant, agreement, or condition herein may be waived by the
Company or Parent, respectively, only by a written instrument signed by an
officer of the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement, or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent shall be given in writing. Merger
Subsidiary agrees that any consent or waiver of compliance given by Parent
hereunder shall be conclusively binding upon Merger Subsidiary, whether or not
given expressly on its behalf.
8.3 INVESTIGATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
respective representations and warranties of Parent and the Company contained
herein or in any certificates or other documents delivered prior to or at the
Closing shall not be deemed waived or otherwise affected by any investigation
made by any party hereto. The representations, warranties and agreements in this
Agreement and in any certificate delivered pursuant hereto shall terminate at
the Effective Time, except that the agreements set forth in Articles I and II
and Sections 5.8, 5.9, 5.15, 5.18, 5.19, 5.20, 5.21 and this Article VIII shall
survive the Effective Time.
8.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally by commercial
courier service or otherwise, or by telecopier, or three days after such notice
is mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a)if to Parent or Merger Subsidiary, to it at:
Medtronic, Inc.
7000 Central Avenue, N.E.
Minneapolis, MN 55432
with separate copies thereof addressed to:
Attention: General Counsel
FAX: (612) 572-5459
and
Attention: Vice President and Chief Development Officer
FAX: (612) 572-5404
(b)If to the Company, to it at:
Sofamor Danek Group, Inc.
1800 Pyramid Place
Memphis, TN 38132
FAX: (901) 344-1576
Attention: Stephen S. Phillips, Executive Vice President and General
Counsel
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<PAGE>
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
FAX: (212) 848-7179
Attention: Creighton O'M. Condon, Esq.
8.5 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties. Except
for the provisions of Article II and Section 5.15 (the "Third Party
Provisions"), this Agreement is not intended to confer upon any other person,
except the parties hereto, any rights or remedies hereunder, and no third person
shall be a third party beneficiary of this Agreement. The Third Party Provisions
may be enforced by the beneficiaries thereof.
8.6 GOVERNING LAW. Except to the extent that Indiana law is mandatorily
applicable, this Agreement shall be governed by the laws of the State of
Minnesota (regardless of the laws that might otherwise govern under applicable
Minnesota principles of conflicts of law).
8.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
8.8 KNOWLEDGE. As used in this Agreement or the instruments, certificates
or other documents required hereunder, the term "knowledge" of a party hereto
shall mean actual knowledge of the directors or executive officers of such
party.
8.9 INTERPRETATION. The Table of Contents, article and section headings
contained in this Agreement are inserted for reference purposes only and shall
not affect the meaning or interpretation of this Agreement. This Agreement shall
be construed without regard to any presumption or other rule requiring the
resolution of any ambiguity regarding the interpretation or construction hereof
against the party causing this Agreement to be drafted.
8.10 PUBLICITY. Upon execution of this Agreement by Parent, Merger
Subsidiary, and the Company, the parties shall jointly issue a press release, as
agreed upon by them. The parties intend that all future statements or
communications to the public or press regarding this Agreement or the Merger
will be mutually agreed upon by them. Neither party shall, without such mutual
agreement or the prior consent of the other, issue any statement or
communication to the public or to the press regarding this Agreement, or any of
the terms, conditions, or other matters with respect to this Agreement, except
as required by law or the rules of the NYSE 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; and (c) following prior notice to, and consultation with, the other
party (which notice shall include a copy of the proposed statement or
communication to be issued to the press or public). The foregoing shall not
restrict Parent's or the Company's communications with their employees or
customers in the ordinary course of business.
8.11 ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules hereto and the Confidentiality Agreement referred to herein, embodies
the entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. This Agreement and the Confidentiality
Agreement supersede all prior agreements and the understandings between the
parties with respect to such subject matter.
8.12 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the
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<PAGE>
transactions contemplated by this Agreement is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by this Agreement be
consummated as originally contemplated to the fullest extent possible.
8.13 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
8.14 SECTION 3.1 OF COMPANY DISCLOSURE SCHEDULE. The provisions and
effects of Section 3.1 of the Disclosure Schedule, as described therein, shall
not apply and shall have no effect on any representations, warranties,
conditions, termination rights or otherwise under this Agreement in the event
the Company has fraudulently or with an intent to deceive misrepresented or
omitted any material information in the disclosures made by the Company to
Parent prior to the date hereof regarding the matters described in Section 3.1
of the Company Disclosure Schedule.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and Plan
of Merger as of the date first above written.
<TABLE>
<S> <C> <C>
MEDTRONIC, INC.
By: /s/ WILLIAM W. GEORGE
-----------------------------------------
William W. George, Chairman
and Chief Executive Officer
MSD MERGER CORP.
By: /s/ WILLIAM W. GEORGE
-----------------------------------------
William W. George, Chairman
and Chief Executive Officer
SOFAMOR DANEK GROUP, INC.
By: /s/ E. R. PICKARD
-----------------------------------------
E.R. Pickard, Chairman
and Chief Executive Officer
</TABLE>
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<PAGE>
ANNEX C
JP MORGAN
J.P. Morgan Securities Inc.
60 Wall Street
New York, NY
10260-0060
December 22, 1998
The Board of Directors
Sofamor Danek Group, Inc.
1800 Pyramid Place
Memphis, TN 38132
Attention: Mr. E. R. Pickard
Chairman of the Board and Chief Executive Officer
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Sofamor Danek Group, Inc. (the "Company") of the
consideration proposed to be paid to them in connection with the proposed merger
(the "Merger") of the Company with MSD Merger Corp. ("Merger Subsidiary"), a
wholly-owned subsidiary of Medtronic, Inc. (the "Buyer"). Pursuant to the
Agreement and Plan of Merger, dated as of November 1, 1998 (the "Agreement"), by
and among the Company, the Buyer and Merger Subsidiary, Merger Subsidiary will
merge with and into the Company, the Company will continue as the surviving
corporation and become a wholly-owned subsidiary of the Buyer, and each share of
common stock of the Company, no par value, issued and outstanding immediately
prior to the effective time of the Merger (other than shares cancelled pursuant
to the Agreement) shall be converted into the right to receive a number of
shares of common stock of the Buyer, par value $.10 per share (the "Buyer's
Common Stock"), as calculated pursuant to a formula contained in the Agreement.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) the
Proxy Statement/Prospectus relating to the Merger (the "Proxy Statement"); (iii)
certain publicly available information concerning the business of the Company
and of certain other companies engaged in businesses comparable to those of the
Company, and the reported market prices for certain other companies' securities
deemed comparable; (iv) publicly available terms of certain transactions
involving companies comparable to the Company and the consideration received for
such companies; (v) current and historical market prices of the common stock of
the Company and the Buyer; (vi) the audited financial statements of the Company
for the fiscal year ended December 31, 1997 and of the Buyer for the fiscal year
ended April 30, 1998, and the unaudited financial statements of the Company for
the period ended September 30, 1998 and of the Buyer for the period ended July
31, 1998; (vii) certain agreements with respect to outstanding indebtedness or
obligations of the Company and the Buyer; (viii) certain internal financial
analyses and forecasts prepared by the Company and its management; and (ix) the
terms of other business combinations that we deemed relevant.
In addition, we have held discussions with certain members of the management
of the Company and the Buyer with respect to certain aspects of the Merger, the
past and current business operations of the Company and the Buyer, the financial
condition and future prospects and operations of the Company and the Buyer, the
effects of the Merger on the financial condition and future prospects of the
Company and the Buyer, and certain other matters we believed necessary or
appropriate to our inquiry. We have visited certain representative facilities of
the Company and the Buyer, and reviewed such other financial studies
C-1
<PAGE>
and analyses and considered such other information as we deemed appropriate for
the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and the Buyer or otherwise
reviewed by us, and we have not assumed any responsibility or liability
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses and forecasts provided to us, we have assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of the Company and the
Buyer to which such analyses or forecasts relate. We have also assumed that the
Merger will have the tax consequences described in the Proxy Statement and in
discussions with, and materials furnished to us by, representatives of the
Company, and that the other transactions contemplated by the Agreement will be
consummated as described in the Proxy Statement and the Agreement. We have
relied as to all legal matters relevant to rendering our opinion upon the advice
of counsel.
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.
It should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We are expressing no opinion herein as to the price at which the Buyer's Common
Stock will trade at any future time.
We have acted as financial advisor to the Company with respect to the
proposed Merger and will receive a fee from the Company for our services. We
will also receive such fee if the proposed Merger is consummated. As you are
aware, J.P. Morgan has acted as financial advisor to the Company on several
acquisition, joint venture and licensing assignments. In addition, J.P. Morgan
managed equity offerings for both the Company and the Buyer in the past year. In
the ordinary course of their businesses, our affiliates may actively trade the
debt and equity securities of the Company or the Buyer for their own account or
for the accounts of customers and, accordingly, they may at any time hold long
or short positions in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be paid to the Company's shareholders in
the proposed Merger is fair, from a financial point of view, to such
shareholders.
This letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the Merger. This
opinion does not constitute a recommendation to any shareholder of the Company
as to how such shareholder should vote with respect to the Merger.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: /s/ Jacques Aigrain
-----------------------------------------
Name: Jacques Aigrain
Title: Managing Director
C-2
<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
<TABLE>
<C> <S>
(a) Exhibits
2* Agreement and Plan of Merger, dated November 1, 1998, by and among Medtronic,
Inc., Sofamor Danek Group, Inc., and MSD Merger Corp., including the Exhibits
thereto. (The Agreement and Plan of Merger and Exhibit A thereto are not included
in Exhibit 2 but are instead furnished as Annexes B and A, respectively, to the
Proxy Statement/Prospectus forming a part of this Registration Statement; all
other Exhibits to the Agreement and Plan of Merger are included in Exhibit 2.)
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 Opinion and Consent of Shearman & Sterling regarding certain tax matters.
23.1* Consent of Fredrikson & Byron, P.A. (included in Exhibit 5).
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
23.2 Consent of Shearman & Sterling 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 Sofamor Danek
Group, Inc.
23.5 Consent of J.P. Morgan Securities Inc.
24* Power of Attorney.
99.1 Form of Proxy to be used by Sofamor Danek Group, Inc. shareholders.
(b) Financial Statement Schedules.
Not applicable.
(c) Reports, Opinions and Appraisals Materially Related to the Transaction.
Opinion of J.P. Morgan Securities Inc. is furnished as Annex C to the Proxy
Statement/ Prospectus forming a part of this Registration Statement.
</TABLE>
- ------------------------
* Previously filed.
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
II-2
<PAGE>
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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Minneapolis, State of Minnesota, on December 21, 1998.
MEDTRONIC, INC.
By /s/ WILLIAM W. GEORGE
-----------------------------------------
William W. George, Chairman
and Chief Executive Officer
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed on
December 21, 1998 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------------ ---------------------------------
<S> <C> <C>
/s/ WILLIAM W. GEORGE Chairman, Chief Executive Officer
- --------------------------------- and Director (principal
William W. George executive officer)
Senior Vice President and Chief
/s/ ROBERT L. RYAN Financial Officer (principal
- --------------------------------- financial and accounting
Robert L. Ryan officer)
*
- --------------------------------- Vice Chairman and Director
Glen D. Nelson, M.D.
*
- --------------------------------- Director*
William R. Brody, M.D., Ph.D.
*
- --------------------------------- Director
Paul W. Chellgren
*By /s/ RONALD E. LUND
* --------------------------
- --------------------------------- Director Ronald E. Lund
Arthur D. Collins, Jr. ATTORNEY-IN-FACT
*
- --------------------------------- Director
Antonio M. Gotto, Jr., M.D.
*
- --------------------------------- Director
Bernadine P. Healy, M.D.
*
- --------------------------------- Director
Thomas E. Holloran
*
- --------------------------------- Director
Jean-Pierre Rosso
*
- --------------------------------- Director
Richard L. Schall
*
- --------------------------------- Director
Jack W. Schuler
*
- --------------------------------- Director
Gerald W. Simonson
*
- --------------------------------- Director
Gordon M. Sprenger
*
- --------------------------------- Director
Richard A. Swalin, Ph.D.
</TABLE>
II-5
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBIT INDEX
TO
FORM S-4 REGISTRATION STATEMENT
---------------------
MEDTRONIC, INC.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------------------------
<S> <C>
2 * Agreement and Plan of Merger, dated November 1, 1998, by and among Medtronic, Inc., Sofamor Danek Group,
Inc., and MSD Merger Corp., including the Exhibits thereto. (The Agreement and Plan of Merger and
Exhibit A thereto are not included in Exhibit 2 but are instead furnished as Annexes B and A,
respectively, to the Proxy Statement/Prospectus forming a part of this Registration Statement; all
other Exhibits to the Agreement and Plan of Merger are included in Exhibit 2.)
5 * Opinion and Consent of Fredrikson & Byron, P.A. regarding validity of shares
8 Opinion and Consent of Shearman & Sterling regarding certain tax matters
23.1* Consent of Fredrikson & Byron, P.A. (included in Exhibit 5)
23.2 Consent of Shearman & Sterling 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 Sofamor Danek Group, Inc.
23.5 Consent of J.P. Morgan Securities Inc. (furnished as Annex C 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 Sofamor Danek Group, Inc. shareholders
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 8
OPINION AND CONSENT OF SHEARMAN & STERLING
December 21, 1998
Sofamor Danek Group, Inc.
1800 Pyramid Place
Memphis, Tennessee 38132
Agreement and Plan of Merger by and among
Medtronic, Inc., MSD Merger Corp., and Sofamor Danek Group, Inc.
dated as of November 1, 1998
----------------------------------------------------------------
Ladies and Gentlemen:
You have requested our opinion as to certain United States federal income
tax consequences of the merger (the "Merger") of MSD Merger Corp. ("Merger
Subsidiary"), an Indiana corporation and a wholly-owned subsidiary of Medtronic,
Inc. ("Parent"), a Minnesota corporation, with and into Sofamor Danek Group,
Inc. (the "Company"), an Indiana corporation. The Merger is being consummated
pursuant to the Agreement and Plan of Merger by and among Parent, Merger
Subsidiary and the Company dated as of November 1, 1998 (the "Merger
Agreement"). Unless otherwise defined, capitalized terms used herein have the
meanings assigned to them in the Merger Agreement.
In connection with rendering our opinion, we have reviewed the Merger
Agreement, including the Exhibits thereto, the Proxy Statement/Prospectus
constituting part of the Registration Statement on Form S-4 filed by Parent
with the Securities and Exchange Commission on December 10, 1998, as amended,
and such other documents and corporate records as we have deemed necessary or
appropriate as a basis therefor. We have assumed that the representations
and warranties contained in the Merger Agreement were true, correct and
complete when made and will continue to be true, correct and complete through
the Effective Time, and that the parties have complied with and, if
applicable, will continue to comply with the covenants contained in the
Merger Agreement. We also have assumed that statements as to factual matters
contained in the Proxy Statement/Prospectus are true, correct and complete,
and will continue to be true, correct and complete through the Effective
Time. Finally, we have relied on the representations made by Parent, Merger
Subsidiary and the Company in tax certificates provided to us dated December
21, 1998, and we have assumed that such representations will continue to be
true, correct and complete through the Effective Time.
<PAGE>
Based upon the foregoing, in reliance thereon and subject thereto, and
based upon the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations promulgated thereunder, judicial decisions, revenue rulings
and revenue procedures of the Internal Revenue Service, and other administrative
pronouncements, all as in effect on the date hereof, and assuming that the
Merger and related transactions will be consummated in accordance with the terms
of the Merger Agreement, it is our opinion that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code, and that each
of Parent, Merger Subsidiary and the Company will be a party to such
reorganization within the meaning of Section 368(b) of the Code. Furthermore,
we hereby confirm that the discussion set forth under the caption "The
Merger--Certain Federal Income Tax Consequences" in the Proxy
Statement/Prospectus, insofar as such discussion constitutes statements of
United States federal income tax law or legal conclusions, subject to the
assumptions, limitations and qualifications set forth therein, accurately
reflects our opinion of the material United States federal income tax
consequences of the Merger.
No opinion is expressed as to any matter not specifically addressed above,
including the accuracy of the representations or reasonableness of the
assumptions relied upon by us in rendering the opinion set forth above. Our
opinion is based on current United States federal income tax law and
administrative practice and we do not undertake to advise you as to any future
changes in United States federal income tax law or administrative practice that
may affect our opinion unless we are specifically retained to do so. We consent
to the use of this opinion as an Exhibit to the Proxy Statement/Prospectus, and
to the references to Shearman & Sterling under the captions "The Merger--Certain
Federal Income Tax Consequences" and "Legal Matters" in the Proxy
Statement/Prospectus.
Very truly yours,
/s/ Shearman & Sterling
SHEARMAN & STERLING
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Pre-Effective Amendment No. 1
to the Registration Statement on Form S-4 of Medtronic, Inc. of our report
dated May 26, 1998, except as to Note 16 which is as of November 2, 1998 and
Note 2 which is as of September 30, 1998, appearing in the Current Report on
Form 8-K of Medtronic, Inc. filed November 30, 1998. We also consent to the
incorporation by reference of our report on the Supplemental Financial
Statement Schedule, which appears in Exhibit 23.1 of such Current Report on
Form 8-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
December 21, 1998
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in the Proxy Statement/Prospectus
constituting part of this Pre-Effective Amendment No. 1 to the Registration
Statement on Form S-4 of Medtronic, Inc. of our report, dated February 2,
1998, on the consolidated financial statements of Sofamor Danek Group, Inc.,
which is incorporated from the Current Report on Form 8-K of Sofamor Danek
Group, Inc. that was filed with the Securities and Exchange Commission on
February 3, 1998. We also consent to the reference to us under the heading
"Experts" in the Proxy Statement/Prospectus.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Memphis, Tennessee
December 21, 1998
<PAGE>
Exhibit 23.5
CONSENT OF J.P. MORGAN SECURITIES INC.
We hereby consent to (i) the use of our opinion letter to the Board of Directors
of Sofamor Danek Group, Inc. (the "Company") included as Annex C to the Proxy
Statement/Prospectus which forms a part of the Registration on Form S-4 relating
to the proposed merger of MSD Merger Corp., a wholly-owned subsidiary of
Medtronic, Inc., with and into the Company, and (ii) the references to such
opinion in such Proxy Statement/Prospectus. 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 of the Securities and Exchange Commission thereunder, nor do we
hereby admit that we are experts with respect to any part of such 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.
J.P. MORGAN SECURITIES INC.
By: /s/ Robbie Huffines
------------------------------------
Name: Robbie Huffines
Title: Vice President
December 21, 1998
<PAGE>
Exhibit 99.1
SOFAMOR DANEK GROUP, INC.
SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned shareholder hereby appoints E.R. Pickard and
Stephen S. Phillips and each of them as proxies, each with full power of
substitution, to vote as designated below all shares of common stock of Sofamor
Danek Group, Inc. held of record as of December 21, 1998, which the undersigned
would be entitled to vote if personally present at the Special Meeting of
Shareholders to be held on January 27, 1999, at 9:00 a.m., local time, at 1800
Pyramid Place, Memphis, Tennessee, 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 MSD Merger Corp. into Sofamor Danek Group,
Inc., with Sofamor Danek Group, Inc. 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 Annexes 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 Plan of Merger
and the Agreement and Plan of Merger. If this proxy is not returned, the effect
will be a vote against the Merger. The persons acting as proxies will have
discretion to vote on any other matters properly presented for consideration at
the Special Meeting or any adjournment or adjournments thereof in accordance
with their best judgment.
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
SUNTRUST BANK ATLANTA, ANNEX ROOM 225, 58
EDGEWOOD AVENUE, ATLANTA, GEORGIA 30303.
