<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5, 1999
REGISTRATION NO: 333-87439
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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)
MINNESOTA 3845 41-0793183
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
7000 CENTRAL AVENUE N.E., MINNEAPOLIS, MINNESOTA 55432
(612) 514-4000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
CAROL E. MALKINSON
SENIOR LEGAL COUNSEL AND ASSISTANT SECRETARY
MEDTRONIC, INC.
7000 CENTRAL AVENUE N.E.
MINNEAPOLIS, MINNESOTA 55432
(612) 514-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
DAVID C. GRORUD, ESQ. Steven J. Gartner, Esq.
Fredrikson & Byron, P.A. Willkie Farr & Gallagher
900 Second Avenue South, Suite 1100 787 Seventh Avenue
Minneapolis, Minnesota 55402-3397 New York, New York 10019-6099
(612) 347-7000 (212) 728-8000
------------------------------
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 PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) SHARE PRICE FEE(2)(3)
<S> <C> <C> <C> <C>
Common stock, par value $.10 per share(4)... 23,063,040 shares Not Applicable Not Applicable $206,720.80
</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 Xomed Surgical
Products, Inc. common stock at the Merger's Effective Time (12,800,000) and
assuming the Average Stock Price for Medtronic, Inc. common stock is equal
to or less than $33.30, resulting in the maximum conversion ratio of 1.80180
Medtronic, Inc. shares issued for each Xomed Surgical Products, 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) 12,800,000, the
anticipated maximum number of Xomed Surgical Products, Inc. shares that may
be exchanged pursuant to the Merger, multiplied by (B) $58.09375, the
average of the high and low sale prices of Xomed Surgical Products, Inc.
common stock as reported by the Nasdaq National Market on September 16,
1999, which date was within five business days prior to the date of the
original filing of this Registration Statement on September 21, 1999.
(3) The entire registration fee was paid at the time of the original filing of
the Registration Statement on September 21, 1999.
(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 Xomed Surgical Products, Inc. has approved a
merger between Xomed and a subsidiary of Medtronic, Inc. As a result of the
proposed merger, Xomed will become a wholly-owned subsidiary of Medtronic and
you will become a shareholder of Medtronic.
I cordially invite you to attend our special meeting of shareholders to vote
on a proposal to approve the merger and the merger agreement. We cannot complete
the merger unless the holders of a majority of the outstanding shares of Xomed
common stock approve it.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS ADVISABLE, 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 $60 in shares of Medtronic
common stock in exchange for each share of Xomed common stock that you own, if
the average price of Medtronic common stock during a 10-trading-day period
before the shareholder meeting is between $33.30 and $40.70 per share. For each
Xomed share, you will receive 1.80180 Medtronic shares if the average price is
below $33.30 and 1.47420 Medtronic shares if the average price is above $40.70.
We have adjusted these amounts to reflect the two-for-one stock split Medtronic
completed in September 1999 after the merger agreement was signed.
Medtronic common stock is traded on the New York Stock Exchange under the
symbol "MDT." Xomed common stock is traded on the Nasdaq National Market under
the symbol "XOMD."
Your vote at the special meeting, in person or by proxy, is very important.
Even if you plan to attend the meeting, please mark, sign, and return the
enclosed proxy card promptly, so that your shares of common stock are voted at
the special meeting. If you do not return your proxy card, the effect will be a
vote against the merger unless you attend the meeting and vote for the merger.
To change your vote, send in a later-dated, signed proxy card to First Union
National Bank at the address on the proxy card. If you do attend the meeting,
you can of course vote your shares in person.
The date, time, and place of the meeting are:
November 5, 1999
10:00 a.m., local time
Xomed Surgical Products, Inc.
6743 Southpoint Drive North
Jacksonville, Florida 32216
This Proxy Statement/Prospectus gives you detailed information about the
merger. You can also obtain information about Xomed and Medtronic from documents
filed with the Securities and Exchange Commission. Please read this entire
document carefully.
WE ENTHUSIASTICALLY SUPPORT THE MERGER AND URGE YOU TO VOTE "FOR" THE MERGER
AND THE MERGER AGREEMENT.
Thank you.
[LOGO]
James T. Treace
CHIEF EXECUTIVE OFFICER AND PRESIDENT
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE MEDTRONIC SECURITIES TO BE ISSUED IN
THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/ PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Proxy Statement/Prospectus dated October 5, 1999, and first mailed to
shareholders on or about October 6, 1999.
<PAGE>
XOMED SURGICAL PRODUCTS, INC.
6743 SOUTHPOINT DRIVE NORTH
JACKSONVILLE, FLORIDA 32216
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 5, 1999
------------------------
To the Shareholders of
XOMED SURGICAL PRODUCTS, INC.:
A Special Meeting of the shareholders of Xomed Surgical Products, Inc., a
Delaware corporation ("Xomed"), will be held at Xomed's corporate headquarters,
located at 6743 Southpoint Drive North, Jacksonville, Florida, on Friday,
November 5, 1999, at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt (i) an
Agreement and Plan of Merger dated as of August 26, 1999 (the "Merger
Agreement"), among Medtronic, Inc. ("Medtronic"), MXS Merger Corp.
("Merger Subsidiary"), and Xomed, and (ii) the merger of Merger
Subsidiary into Xomed, pursuant to which Xomed will become a wholly-owned
subsidiary of Medtronic and holders of Xomed 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
September 29, 1999. Only Xomed 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 Xomed common stock must vote in favor of the merger.
Under Delaware law, Xomed shareholders do not have any right to appraisal of
the value of their shares in connection with the Merger, or to be paid that
value in cash.
The attached Proxy Statement/Prospectus contains more detailed information
regarding the merger and the Merger Agreement and includes a copy of the Merger
Agreement.
YOUR VOTE IS IMPORTANT. EVEN IF YOU EXPECT TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. IF NO INSTRUCTIONS ARE INDICATED ON YOUR PROXY,
YOUR SHARES WILL BE VOTED "FOR" THE MERGER. IF YOU DO NOT RETURN YOUR PROXY OR
VOTE IN PERSON, THE EFFECT IS A VOTE AGAINST THE MERGER. YOU CAN REVOKE YOUR
PROXY AT ANY TIME BEFORE IT IS EXERCISED BY GIVING WRITTEN NOTICE TO FIRST UNION
NATIONAL BANK AT THE ADDRESS LISTED ON THE PROXY CARD OR FILING ANOTHER LATER
DATED PROXY, OR ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
IF THE MERGER AGREEMENT IS APPROVED AND ADOPTED AND THE MERGER IS
CONSUMMATED, YOU WILL BE SENT A LETTER OF TRANSMITTAL WITH INSTRUCTIONS FOR
SURRENDERING YOUR CERTIFICATES REPRESENTING SHARES OF XOMED COMMON STOCK. PLEASE
DO NOT SEND YOUR SHARE CERTIFICATES UNTIL YOU RECEIVE THESE MATERIALS.
THE XOMED BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
MERGER.
BY ORDER OF THE BOARD OF DIRECTORS
[LOGO]
Thomas E. Timbie
SECRETARY
October 5, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER................................ 1
SUMMARY............................................................... 3
SPECIAL MEETING....................................................... 13
Date, Place, and Time............................................... 13
Purpose............................................................. 13
Record Date; Voting Rights; Quorum; Required Vote................... 13
Recommendation of Board of Directors of Xomed....................... 14
Proxies; Revocation................................................. 14
Solicitation of Proxies............................................. 14
THE MERGER............................................................ 15
General............................................................. 15
Effective Time of the Merger........................................ 15
Background of the Merger............................................ 15
Xomed's Reasons for the Merger; Recommendation of the Xomed Board of
Directors......................................................... 17
Medtronic's Reasons for the Merger.................................. 19
Opinion of Xomed's Financial Advisor................................ 19
Conversion of Xomed Common Stock in the Merger...................... 25
Fractional Shares................................................... 26
Exchange of Xomed Stock Certificates................................ 26
Shareholder Rights Plans............................................ 27
Treatment of Stock Options.......................................... 27
Representations and Warranties...................................... 27
Certain Covenants by Xomed.......................................... 28
Certain Covenants by Medtronic...................................... 29
Interests of Xomed's Directors and Officers in the Merger........... 29
Voting Agreements................................................... 30
Stock Option Agreement.............................................. 31
Conditions to Consummation of the Merger; Waiver.................... 31
Amendment and Termination of the Merger Agreement; Effects of
Termination....................................................... 32
Expenses and Fees................................................... 34
Restrictions on Resale of Medtronic Common Stock.................... 34
<CAPTION>
PAGE
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<S> <C>
Deregistration of Xomed Common Stock................................ 35
Accounting Treatment of the Merger.................................. 35
Certain Federal Income Tax Consequences............................. 35
Indemnification..................................................... 37
Regulatory Requirements............................................. 37
No Appraisal Rights................................................. 37
COMPARATIVE STOCK PRICES AND DIVIDENDS................................ 38
COMPARISON OF RIGHTS OF MEDTRONIC AND XOMED SHAREHOLDERS.............. 39
Classification, Removal, and Nomination of Directors................ 39
Preferred Stock..................................................... 40
Special Meetings of Shareholders.................................... 41
Voting Rights; Shareholder Approvals................................ 41
Cumulative Voting................................................... 41
Preemptive Rights................................................... 41
Amendment of the Articles or Certificate of Incorporation........... 41
Business Combinations and Control Share Acquisitions................ 41
Shareholder Rights Plans............................................ 42
Related Person Business Transactions................................ 43
CERTAIN TRANSACTIONS AND RELATIONSHIPS BETWEEN XOMED AND MEDTRONIC.... 44
LEGAL MATTERS......................................................... 44
EXPERTS............................................................... 44
WHERE YOU CAN FIND MORE INFORMATION................................... 44
FORWARD-LOOKING INFORMATION 46
LIST OF ANNEXES
ANNEX A--Agreement and Plan of Merger
ANNEX B--Opinion of Deutsche Bank Securities Inc.
</TABLE>
<PAGE>
IN SEPTEMBER 1999, MEDTRONIC COMPLETED A TWO-FOR-ONE STOCK SPLIT THAT DOUBLED
THE NUMBER OF SHARES OF MEDTRONIC STOCK OUTSTANDING. IN THIS PROXY
STATEMENT/PROSPECTUS, WE HAVE ALREADY ADJUSTED ALL REFERENCES TO THE AMOUNT OF
MEDTRONIC STOCK YOU WILL RECEIVE IN THE MERGER TO REFLECT THE STOCK SPLIT. WE
HAVE ALSO ADJUSTED ANY OTHER MEDTRONIC SHARE AND PER SHARE INFORMATION TO
REFLECT THE STOCK SPLIT.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. PLEASE DESCRIBE THE MERGER.
A. In the merger, Xomed 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 $60 in shares of Medtronic
common stock in exchange for each share of Xomed common stock that you own, if
the average price of Medtronic stock during the 10 trading days ending on and
including the third trading day before the Special Meeting is between $33.30 and
$40.70 per share.
- If the average price of Medtronic common stock is $33.30 or less, each
Xomed share will convert into 1.80180 Medtronic shares.
- If the average price is between $33.30 and $40.70, each Xomed share will
convert into the number of Medtronic shares equal to $60 divided by the
average price.
- If the average price is $40.70 or more, each Xomed share will convert into
1.47420 Medtronic shares.
Because the conversion ratio will fluctuate based upon the market price of
Medtronic common stock prior to the Special Meeting, depending on the actual
market price of Medtronic common stock prior to the Special Meeting and on the
date of the merger, you may receive more or less than $60 in Medtronic common
stock at the time of the merger.
You will receive cash instead of any fractional Medtronic shares that you
would otherwise receive, based on the average price of Medtronic stock during
the 10-day period described above.
Q. HOW DOES MEDTRONIC'S TWO-FOR-ONE STOCK SPLIT AFFECT WHAT I WILL RECEIVE
IN THE MERGER?
Medtronic completed the stock split on September 24, 1999, approximately one
month after Medtronic and Xomed agreed to the merger. The stock split doubled
the number of Medtronic shares outstanding and doubled the number of shares you
will receive in the merger as well. We have adjusted the Medtronic per share
information and conversion ratios in the answer to the previous question and
throughout this Proxy Statement/Prospectus to reflect the stock split.
Q. WHAT DO I NEED TO DO NOW?
A. Please sign, date, and mail your proxy card in the enclosed return
envelope as soon as possible. You can also attend the Special Meeting in person
and vote, even though you may have previously returned your proxy card. If you
do not return your proxy or vote in person, it will have the effect of a vote
against the merger.
Q. WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A. Just send in a later-dated, signed proxy card before the Special Meeting
to First Union National Bank at the address on the proxy card or attend the
meeting in person and vote.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A. Your broker will vote your shares only if you provide instructions on
how to vote. You should instruct your broker to vote your shares, following the
procedure your broker gives you.
1
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Without instructions, your broker will not vote your shares.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After we complete the merger, we will send you written instructions
that describe how to exchange your Xomed 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 Xomed stock for Medtronic stock in the
merger will be tax free for U.S. federal tax purposes, except to the extent you
receive cash for fractional Medtronic shares. The tax consequences of the merger
to you will depend on your own situation. You should talk to your tax advisor.
Q. WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A. We are working toward completing the merger as quickly as possible.
Medtronic and Xomed need to obtain both Xomed 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 Mackenzie
Partners, Inc., Xomed's proxy solicitor, at (800) 322-2885 or Xomed Investor
Relations, at (904) 332-2452.
2
<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 44. 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
XOMED SURGICAL PRODUCTS, INC.
6743 Southpoint Drive North
Jacksonville, Florida 32216
(904) 296-9600
The business of Xomed was founded in 1970, and Xomed was incorporated as a
Delaware corporation in 1994. Xomed is a leading developer, manufacturer and
marketer of surgical products for use by ear, nose and throat and ophthalmic
physicians. Xomed offers a broad line of products including powered tissue-
removal systems, nerve monitoring systems, disposable fluid-control products,
image guided surgery systems, bioabsorbable products, and ophthalmic products.
MEDTRONIC, INC.
7000 Central Avenue N.E.
Minneapolis, Minnesota 55432
(612) 514-4000
Medtronic was founded in 1949 and incorporated as a Minnesota corporation in
1957. Medtronic is the world's leading medical technology company, specializing
in implantable and interventional therapies that restore health, extend life and
alleviate pain. 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, spinal and neurosurgery, and
neurodegenerative disorders. Medtronic serves customers and patients in more
than 120 countries.
THE SPECIAL MEETING (PAGE 13)
The Special Meeting will be held on November 5, 1999, at 10:00 a.m., local
time, at Xomed's corporate headquarters, located at 6743 Southpoint Drive North,
Jacksonville, Florida. At the Special Meeting, you will be asked to approve and
adopt the merger and the merger agreement.
RECOMMENDATION TO XOMED SHAREHOLDERS (PAGE 14)
The Xomed board of directors believes that the merger is advisable and in
the best interests of Xomed and its shareholders. The board unanimously
recommends that you vote "FOR" approval of the merger and the merger agreement.
RECORD DATE (PAGE 13)
You can vote at the Special Meeting only if you owned shares of Xomed common
stock at the close of business on September 29, 1999, which is the record date.
VOTE REQUIRED TO APPROVE THE MERGER (PAGE 13)
The merger requires the approval of the holders of a majority of the
outstanding shares of Xomed 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 Xomed common stock as nominees cannot vote those shares
unless you instruct them to, following the procedure they give you.
Medtronic shareholders do not need to vote to approve the merger.
VOTING POWER; VOTING BY MANAGEMENT (PAGE 13)
On the record date, 12,278,998 shares of Xomed common stock were
outstanding. Of these, 424,276 shares (approximately 3.5% of the
3
<PAGE>
shares entitled to vote) were beneficially owned by directors and executive
officers of Xomed (not including options held by such persons). Each share of
Xomed common stock entitles the holder to one vote.
All of Xomed's directors and executive officers, who collectively
beneficially owned 424,276 shares (or approximately 3.5%) of Xomed's outstanding
shares as of the record date (not including options held by such persons), have
executed voting agreements in which they have agreed to vote the Xomed common
stock owned by them in favor of the merger.
REVOKING PROXIES (PAGE 14)
You can revoke a proxy previously given by you by giving written notice to
First Union National Bank at the address on the proxy card, by filing another
proxy, or by attending the Special Meeting and voting in person.
SUMMARY OF THE MERGER
THE MERGER AGREEMENT (ANNEX A) IS ATTACHED AT THE BACK OF THIS PROXY
STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE MERGER AGREEMENT, AS IT IS
THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
In the proposed merger, a subsidiary of Medtronic will merge into Xomed, and
Xomed will become a wholly-owned subsidiary of Medtronic. You will receive
shares of Medtronic common stock in exchange for your shares of Xomed common
stock.
EFFECTIVE TIME OF THE MERGER (PAGE 15)
Medtronic and Xomed 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 25)
If the merger is completed, you will receive $60 in Medtronic common stock
for each share of Xomed common stock that you own, if the average closing price
of Medtronic common stock is between $33.30 and $40.70 during the period
described in the next paragraph.
The exact number of Medtronic shares that you will receive in exchange for
each Xomed share will equal $60 divided by the average closing price of
Medtronic common stock during the 10 trading days ending on and including the
third trading day before the Special Meeting. However, if the average price of
Medtronic common stock during the measurement period is $33.30 or less, each
Xomed share will convert into 1.80180 Medtronic shares, and if the average price
is $40.70 or more, each Xomed share will convert into 1.47420 Medtronic shares.
The maximum conversion ratio of 1.80180 (if the average closing price of
Medtronic common stock is less than $33.30) means that, at the time of the
merger, you may receive less than $60 in Medtronic common stock for each Xomed
share you own. Similarly, the minimum conversion ratio of 1.47420 (if the
average closing price is more than $40.70) means that you may receive more than
$60 in Medtronic common stock for each Xomed share you own.
Each share of Medtronic common stock that you receive in the merger will
also represent one preferred stock purchase right under Medtronic's Shareholder
Rights Plan.
Medtronic will not issue any fractional shares. Instead, you will receive
cash for any fractional share of Medtronic common stock owed to you, based on
the average closing price of Medtronic common stock during the 10 trading days
ending on and including the third trading day before the Special Meeting.
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 27)
Following the merger, each outstanding option to buy Xomed common stock that
was granted under Xomed's stock option plan will become an option to buy
Medtronic common stock. Options will continue to be governed by the terms of the
Xomed stock option plan. However, the number of shares of Medtronic common stock
that optionholders can purchase by exercising the options, and the exercise
price,
4
<PAGE>
will be adjusted to reflect the conversion ratio in the merger.
OWNERSHIP OF MEDTRONIC STOCK FOLLOWING THE MERGER (PAGE 26)
Following the merger, existing Xomed shareholders will own approximately
1.8% percent of the outstanding common stock of Medtronic (based upon the number
of shares of Medtronic and Xomed common stock outstanding on September 29, 1999
and assuming a conversion ratio of 1.72973).
FEDERAL INCOME TAX CONSEQUENCES (PAGE 35)
We expect that neither Xomed 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 Xomed shareholders on their receipt of cash instead of
fractional Medtronic shares. Xomed 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.
XOMED'S REASONS FOR THE MERGER (PAGE 17)
The Xomed board believes, among other things, 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 Xomed as an independent company and that the
merger would give Xomed the opportunity 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.
OPINION OF XOMED'S FINANCIAL ADVISOR (PAGE 19)
The Xomed board of directors has received an opinion of Xomed's financial
advisor, Deutsche Bank Securities Inc. ("Deutsche Banc Alex. Brown"), as to the
fairness, from a financial point of view, of the conversion ratio provided for
in the merger. The full text of Deutsche Banc Alex. Brown's written opinion
dated August 26, 1999 is attached to the back of this document as Annex B. We
encourage you to read this opinion carefully in its entirety for a description
of the assumptions made, matters considered and limitations on the review
undertaken. DEUTSCHE BANC ALEX. BROWN'S OPINION IS DIRECTED TO THE XOMED BOARD
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW TO VOTE
WITH RESPECT TO MATTERS RELATING TO THE PROPOSED MERGER.
INTERESTS OF XOMED'S OFFICERS AND DIRECTORS IN THE MERGER (PAGE 29)
When considering the recommendation by the Xomed board to vote "FOR" the
merger, you should be aware that certain directors and executive officers of
Xomed have interests in the merger that are different from, and may conflict
with, your interests. If we complete the merger, Medtronic will continue certain
indemnification arrangements for directors and officers of Xomed. Certain
directors and officers of Xomed will also receive certain benefits upon
completion of the merger, including accelerated vesting of stock options
pursuant to existing contractual arrangements. Some officers will also have the
right to receive severance benefits if Medtronic terminates their employment
under certain circumstances within a specified period after the merger. The
Xomed board was aware of these interests and considered them in approving the
merger.
REGULATORY APPROVALS (PAGE 37)
Medtronic and Xomed must both make filings with or obtain approvals from
certain United States and international antitrust authorities before they can
complete the merger. Medtronic and Xomed have each filed the required
notification and report forms with the United States antitrust agencies and have
received notice of early termination of the applicable waiting period under
United States antitrust laws.
5
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We cannot predict whether we will obtain all required regulatory approvals
for the merger, or whether any approvals will include conditions that may be
detrimental to Medtronic or Xomed.
CONDITIONS TO THE MERGER (PAGE 31)
The merger will be completed only if certain conditions, including the
following, are met or waived:
- the Xomed shareholders approve the merger;
- the waiting periods under the Hart-Scott-Rodino Act or foreign merger laws
expire or terminate;
- no court orders prevent the merger or impose material limitations on the
ownership or operation of Xomed after the merger;
- Xomed and Medtronic both receive letters from their accountants, dated the
closing date, stating they concur with management that the merger
qualifies for pooling of interests accounting treatment;
- Xomed receives an opinion from its tax counsel that the merger will
qualify as a tax-free transaction; and
- the representations and warranties made by Medtronic and Xomed continue to
be accurate except for inaccuracies that would not have a material adverse
effect.
TERMINATION OF THE MERGER AGREEMENT (PAGE 32)
Even if the Xomed shareholders approve the merger, Medtronic and Xomed 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 February 26, 2000 (or, if there is
additional antitrust regulatory review, April 11, 2000);
- a court or other governmental authority prohibits the merger; or
- the Xomed shareholders do not approve the merger.
Medtronic can terminate the merger agreement if Xomed violates its
obligations to refrain from soliciting acquisition proposals from others or if
the Xomed board approves or permits a different acquisition proposal, or
otherwise changes its recommendation of the merger in a manner that is
materially adverse to Medtronic.
Xomed can also terminate the merger agreement if prior to shareholder
approval of the merger Xomed authorizes acceptance of a more favorable
acquisition proposal, Medtronic does not match the proposal, and Xomed pays a
termination fee to Medtronic.
TERMINATION FEES AND EXPENSES (PAGE 32)
Xomed must pay Medtronic a termination fee of $24.1 million in cash if the
merger agreement is terminated in any of the following circumstances:
- Xomed violates its obligation to refrain from soliciting acquisition
proposals from others;
- the Xomed board withdraws its recommendation of the merger, recommends or
approves a different acquisition proposal, or recommends a competing
tender offer or exchange offer;
- the Xomed board takes no position on a competing tender offer or exchange
offer (but only if a competing acquisition occurs or Xomed enters into an
agreement relating to a competing acquisition within 12 months after the
termination of the merger agreement with Medtronic and a competing
acquisition is consummated);
- the Xomed board authorizes Xomed to enter into an agreement concerning a
more favorable acquisition proposal and Medtronic does not match the
proposal; or
- the Xomed shareholders do not approve the merger before February 26, 2000
or before April 11, 2000 in the event of
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additional regulatory review (but only if a competing acquisition proposal
has been announced and Xomed enters into an agreement with a third party
relating to a competing acquisition proposal within 12 months after the
termination of the merger agreement with Medtronic and a competing
acquisition is consummated).
STOCK OPTION AGREEMENT (PAGE 31)
Medtronic and Xomed have also entered into a stock option agreement, which
gives Medtronic an option to purchase from Xomed up to 2,442,453 shares
(approximately 19.9%) of Xomed's common stock for an exercise price of $60 per
share. The option becomes exercisable only if certain events related to
termination of the merger agreement occur. Medtronic can also, upon the
occurrence of these events, cancel the option in exchange for a cancellation
payment by Xomed. The sum of any termination fee and the amount of any option
cancellation payment can never exceed $30.1 million.
XOMED CANNOT SOLICIT OTHER OFFERS (PAGE 29)
Xomed has agreed not to encourage, solicit, discuss, or negotiate with
anyone (other than Medtronic) regarding a merger, sale, or license of a
specified portion of Xomed's assets or stock, unless Xomed receives an
unsolicited superior acquisition proposal and Xomed's board is required by law
to pursue the superior proposal in order to meet its fiduciary obligations to
the Xomed shareholders.
NO APPRAISAL RIGHTS
Under Delaware law, Xomed shareholders do not have any right to an appraisal
of the value of their shares in connection with the merger, or to be paid that
value in cash.
ACCOUNTING TREATMENT (PAGE 35)
Medtronic and Xomed 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 XOMED COMMON STOCK (PAGE 38)
Medtronic common stock is listed on the New York Stock Exchange and Xomed
common stock is traded on the Nasdaq National Market. On August 26, 1999, the
last trading day before the public announcement of the proposed merger,
Medtronic common stock closed at $38.34375 (as adjusted for the September 24,
1999 two-for-one stock split) and Xomed common stock closed at $51.25. On
September 29, 1999, Medtronic common stock closed at $34.6875 and Xomed common
stock closed at $56.00.
Following the merger, Xomed common stock will no longer trade on the Nasdaq
National Market or any other exchange.
FLUCTUATIONS IN MARKET PRICE (PAGE 25)
The number of shares of Medtronic common stock that Xomed 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 XOMED'S SHAREHOLDERS (PAGE 39)
The rights of Xomed shareholders are governed by Delaware law and the
Certificate of Incorporation and Bylaws of Xomed. When the merger is completed,
Xomed 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 Xomed shareholders and Medtronic shareholders differ in
certain respects.
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Another significant difference between Medtronic common stock and Xomed
common stock is that Medtronic has historically paid regular quarterly cash
dividends on Medtronic common stock, and Xomed has never paid any cash
dividends.
FORWARD-LOOKING STATEMENTS (PAGE 46)
This document (and documents to which we refer you in this document)
includes various forward-looking statements about Medtronic, Xomed, and the
combined company that are subject to risks and uncertainties. Forward-looking
statements include information concerning future results of operations of
Medtronic, Xomed, and the combined company. Also, statements that use the words
"anticipate," "believe," "could," "estimate," "expect," "forecast," "intend,"
"may," "plan," "possible," "project," "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, Xomed, 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 Xomed and a significant delay in the
completion of the merger.
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SELECTED HISTORICAL FINANCIAL DATA
The following tables show summarized historical financial data for each of
Medtronic and Xomed. 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 44.
Medtronic's audited historical financial statements were audited by
PricewaterhouseCoopers LLP, independent accountants, and Xomed's audited
historical financial statements were audited by Ernst & Young LLP, independent
accountants.
MEDTRONIC, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED APRIL 30, ----------------------
----------------------------------------------------- JULY 31, JULY 30,
1995 1996 1997(2) 1998(3) 1999(4) 1998(5) 1999
--------- --------- --------- --------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................................... $ 2,097.0 $ 2,570.0 $ 2,944.6 $ 3,343.0 $ 4,134.1 $ 991.7 $ 1,104.9
Net earnings........................................ 311.9 488.0 583.2 587.8 468.4 228.5 248.9
Basic earnings per share(1)......................... 0.31 0.47 0.51 0.52 0.41 0.20 0.21
Earnings per share assuming dilution(1)............. 0.30 0.46 0.50 0.51 0.40 0.20 0.21
Total assets........................................ 2,234.9 2,881.1 2,988.1 3,646.2 4,870.3 3,790.8 5,002.6
Long-term debt...................................... 58.5 68.4 48.4 61.2 17.6 55.3 18.9
Cash dividends per share(1)......................... 0.05 0.07 0.10 0.11 0.13 0.03 0.04
</TABLE>
XOMED SURGICAL PRODUCTS, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ------------------
-------------------------------------- JUNE 27, JULY 3,
1994 1995 1996(7) 1997 1998(8) 1998 1999
----- ----- ------- ----- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... $42.5 $59.9 $65.7 $77.2 $91.4 $43.6 $57.0
Net earnings (loss)..................... (1.1) (1.9) (1.2) 6.1 7.1 3.9 5.8
Basic earnings (loss) per share(6)...... (3.47) (2.35) 0.76 0.56 0.61 0.35 0.48
Earnings (loss) per share assuming
dilution(6)........................... (3.47) (2.35) (0.15) 0.54 0.59 0.34 0.45
Total assets............................ 95.7 93.1 94.1 95.7 142.0 101.4 136.3
Long-term debt.......................... 90.0 90.5 3.6 0 13.1 0 0
Cash dividends per share................ 0 0 0 0 0 0 0
</TABLE>
- ------------------------------
(1) In each of September 1995, September 1997, and September 1999, 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.
(2) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $50.0 million pre-tax nonrecurring charges
recorded in fiscal 1997.
(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 fiscal 1998.
(4) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $551.2 million pre-tax nonrecurring charges
recorded in fiscal 1999.
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<PAGE>
(5) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $8.0 million pre-tax nonrecurring charges
recorded in the first quarter of fiscal 1999.
(6) In November 1998, Xomed effected a three-for-two common stock split, paid
in the form of a stock dividend. All references to earnings per share have
been restated to reflect this stock split.
(7) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $5.5 million pre-tax special charges recorded
in fiscal 1996.
(8) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $3.8 million pre-tax special charges recorded
in fiscal 1998.
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COMPARATIVE PER SHARE DATA
The following tables show, for Medtronic and Xomed, 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 44. Presentation of full pro forma financial
statements is not included because the merger does not constitute a significant
business combination and the disclosure is not deemed to be material.
<TABLE>
<CAPTION>
BASIC DILUTED
EARNINGS EARNINGS (LOSS)
FROM FROM
BOOK CONTINUING CONTINUING CASH
VALUE OPERATIONS OPERATIONS DIVIDENDS
--------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
MEDTRONIC HISTORICAL PER SHARE DATA:
At and for the 3 months ended July 30, 1999..................... $ 3.25 $ 0.21 $ 0.21 $ 0.04
At and for the fiscal year ended April 30, 1999(1).............. 3.12 0.41 0.40 0.13
For the fiscal year ended April 30, 1998(2)..................... * 0.52 0.51 0.11
For the fiscal year ended April 30, 1997(3)..................... * 0.51 0.50 0.10
XOMED HISTORICAL PER SHARE DATA:
At and for the 6 months ended July 3, 1999...................... 9.73 0.48 0.45 0
At and for the 12 months ended April 3, 1999(4)................. 9.48 0.67 0.64 0
For the fiscal year ended December 31, 1998(4).................. 9.41 0.61 0.59 0
For the 12 months ended March 28, 1998.......................... * 0.62 0.60 0
For the fiscal year ended December 31, 1997..................... * 0.56 0.54 0
For the 12 months ended March 29, 1997(5)....................... * 0.77 (0.05) 0
For the fiscal year ended December 31, 1996(5).................. * 0.76 (0.15) 0
MEDTRONIC AND XOMED
PRO FORMA COMBINED DATA:
MEDTRONIC PER SHARE PRO FORMA COMBINED DATA:
At and for the 3 months ended July 30, 1999(6).................. 3.29 0.21 0.21 0.04
At and for the fiscal year ended April 30, 1999(1)(4)(7)........ 3.16 0.40 0.39 0.13
For the fiscal year ended April 30, 1998(2)(8).................. * 0.52 0.51 0.11
For the fiscal year ended April 30, 1997(3)(5)(9)............... * 0.51 0.50 0.09
XOMED PER SHARE EQUIVALENT(10) PRO FORMA COMBINED DATA:
At and for the 3 months ended July 30, 1999(6).................. 5.69 0.37 0.36 0.07
At and for the fiscal year ended April 30, 1999(1)(4)(7)........ 5.47 0.70 0.68 0.22
For the fiscal year ended April 30, 1998(2)(8).................. * 0.89 0.87 0.19
For the fiscal year ended April 30, 1997(3)(5)(9)............... * 0.88 0.86 0.16
</TABLE>
- ------------------------
(1) Basic earnings from continuing operations and diluted earnings from
continuing operations reflect the impact of $551.2 million pre-tax
nonrecurring charges recorded in fiscal 1999.
(2) Basic earnings from continuing operations and diluted earnings from
continuing operations reflect the impact of $205.3 million pre-tax
nonrecurring charges recorded in fiscal 1998.
(3) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $50.0 million pre-tax nonrecurring charges
recorded in fiscal 1997.
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(4) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $3.8 million pre-tax special charges recorded
in fiscal 1998.
(5) Net earnings, basic earnings per share, and earnings per share assuming
dilution reflect the impact of $5.5 million pre-tax special charges recorded
in fiscal 1996.
(6) The combined pro forma data combine the financial information of Medtronic
at and for the three months ended July 30, 1999 with the financial
information of Xomed at and for the three months ended July 3, 1999.
(7) The combined pro forma data combine the financial information of Medtronic
at and for the year ended April 30, 1999 with the financial information of
Xomed at and for the 12-month period ended April 3, 1999.
(8) The combined pro forma data combine the financial information of Medtronic
for the year ended April 30, 1998 with the financial information of Xomed
for the 12-month period ended March 28, 1998.
(9) The combined pro forma data combine the financial information of Medtronic
for the year ended April 30, 1997 with the financial information of Xomed
for the 12-month period ended March 29, 1997.
(10) The Xomed per share equivalent pro forma combined information represents
the Medtronic per share pro forma combined net income and book value
multiplied by 1.72973, the conversion ratio for the merger assuming solely
for purposes of this illustration a Medtronic average stock price of
$34.6875, which was the closing price of Medtronic common stock on September
29, 1999.
* Disclosure is not required.
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SPECIAL MEETING
Medtronic and Xomed are sending this Proxy Statement/Prospectus to the
shareholders of Xomed in connection with the solicitation by the board of
directors of Xomed of proxies to be voted at the Special Meeting. This Proxy
Statement/Prospectus is first being mailed to shareholders of Xomed on or about
October 6, 1999.
DATE, PLACE, AND TIME
The Special Meeting will be held at 10:00 a.m., local time, on November 5,
1999, at Xomed's corporate headquarters, located at 6743 Southpoint Drive North,
Jacksonville, Florida.
PURPOSE
At the Special Meeting, Xomed shareholders will be asked to vote on a
proposal to approve and adopt the Agreement and Plan of Merger dated as of
August 26, 1999 (for convenience, referred to as the "merger agreement")
attached to this Proxy Statement/Prospectus as Annex A. That document provides
for the merger of MXS Merger Corp., a wholly-owned subsidiary of Medtronic
("Merger Subsidiary"), with and into Xomed, as a result of which Xomed will
become a wholly-owned subsidiary of Medtronic. Other terms and provisions
related to the merger are contained in the merger agreement.
Xomed shareholders may also be asked to vote upon a proposal to adjourn or
postpone the Special Meeting, in order to (among other things) allow additional
time for the companies to solicit additional votes to approve the merger. If any
matters other than approval of the merger are properly presented for
consideration at the Special Meeting, the persons named by shareholders in the
enclosed form of proxy will have discretion, as proxies, to vote on those
matters.
Under Delaware law, shareholders can consider at the Special Meeting only
the matters contained in the notice for the Special Meeting.
RECORD DATE; VOTING RIGHTS; QUORUM; REQUIRED VOTE
The close of business on September 29, 1999 is the record date for
determining the holders of Xomed common stock who are entitled to receive notice
of and to vote at the Special Meeting or at any adjournment or postponement of
the Special Meeting.
Xomed has only one class of capital stock outstanding, which is common
stock, par value $.01 per share. Each holder of Xomed 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 Xomed 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 Xomed common stock as
of the record date must vote in favor of the merger in order to approve the
merger. On the record date, 12,278,998 shares of Xomed common stock were
outstanding, held by approximately 134 holders of record. Of such shares,
424,276 shares (approximately 3.5% of the outstanding shares of Xomed common
stock) were beneficially owned by directors and executive officers of Xomed (not
including options held by such persons) who have executed voting agreements
under which they agreed to vote shares of Xomed common stock beneficially owned
by them in favor of the merger.
Abstentions will be treated as shares present in determining whether Xomed
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
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<PAGE>
purposes of determining a quorum but will have the same effect as a vote against
approval of the merger. See "The Merger--Voting Agreements."
The board of directors of Xomed has approved the merger. The board of
directors of Medtronic has approved the merger and the issuance of shares of
Medtronic common stock in the merger. See "The Merger--Background of the
Merger." 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 XOMED
THE BOARD OF DIRECTORS OF XOMED RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE APPROVAL OF THE MERGER AND ADOPTION OF THE MERGER AGREEMENT. See "The
Merger--Interests of Xomed'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 Xomed shareholders. The board of
directors of Xomed 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 MACKENZIE PARTNERS, INC., A FIRM THAT
PROVIDES PROFESSIONAL PROXY SOLICITING SERVICES THAT XOMED HAS RETAINED, AT
(800) 322-2885.
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 Xomed, or by attending the Special Meeting and
voting in person.
SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR PROXY CARDS.
SOLICITATION OF PROXIES
In addition to soliciting proxies by mail, Xomed'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, Xomed has retained
MacKenzie Partners, Inc. to assist in soliciting proxies from brokers, bank
nominees, institutional holders, and other Xomed shareholders and to serve as
information agent in connection with the merger. MacKenzie Partners, Inc. will
receive from Xomed reasonable and customary compensation for its services and
reimbursement of reasonable out-of-pocket expenses. Xomed 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 Xomed common stock held of record by those persons. Xomed
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").
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THE MERGER
THE FOLLOWING SUMMARY OF THE MERGER AND CERTAIN TERMS OF THE MERGER
AGREEMENT AND RELATED MATTERS IS NOT COMPLETE AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE MERGER AGREEMENT, WHICH IS ATTACHED AS ANNEX A AND IS
INCORPORATED IN THIS DOCUMENT BY REFERENCE.
GENERAL
Medtronic, Merger Subsidiary, and Xomed have entered into the merger
agreement, which provides that Merger Subsidiary will be merged with and into
Xomed, and Xomed will become a wholly-owned subsidiary of Medtronic. In the
merger, Xomed will change its name to "Medtronic Xomed Surgical Products, Inc."
Each outstanding share of Xomed common stock will be converted at the effective
time of the merger into the right to receive $60 in shares of Medtronic common
stock, if the Average Stock Price (as defined below) of Medtronic common stock
is between $33.30 and $40.70 for a specified period, as described in further
detail below. For a more detailed description of how the Xomed common stock
converts into Medtronic common stock in the merger, see "The Merger-- Conversion
of Xomed Common Stock in the Merger."
EFFECTIVE TIME OF THE MERGER
As soon as practicable after the conditions to consummation of the merger
described below have been satisfied or waived, and unless the merger agreement
has been terminated as provided below, a certificate of merger will be filed
with the Secretary of State of the State of Delaware, at which time the merger
will become effective (for convenience, referred to as the "effective time" of
the merger). It is presently contemplated that the effective time of the merger
will be as soon as practicable after approval of the merger at the Special
Meeting and after the waiting periods under the Hart-Scott-Rodino Act and any
applicable foreign merger laws expire or terminate. See "The Merger--Conditions
to the Merger; Waiver."
BACKGROUND OF THE MERGER
The terms of the merger agreement are the result of arm's-length
negotiations between representatives of Medtronic and Xomed. The following is a
brief discussion of the background of these negotiations, the merger, and
related transactions.
From time to time, Xomed has engaged in preliminary discussions with various
third parties concerning a possible strategic transaction, including
transactions involving an acquisition of Xomed. In late 1997, at the direction
of Xomed, a representative of BT Alex. Brown Incorporated (the predecessor
entity of Deutsche Banc Alex. Brown) contacted Michael Ellwein, Medtronic's Vice
President and Chief Development Officer, to determine if Medtronic had any
interest in a strategic relationship with Xomed. Xomed and Medtronic entered
into a confidentiality agreement on December 12, 1997, and at the direction of
Xomed, BT Alex. Brown Incorporated delivered certain material regarding Xomed to
Mr. Ellwein. Several weeks later, Mr. Ellwein communicated to BT Alex. Brown
Incorporated that Medtronic was not interested in pursuing a relationship with
Xomed at that time. No discussions between Medtronic and Xomed took place until
February 1999 as described below.
In December 1998, a representative of U.S. Bancorp Piper Jaffray contacted
Mr. Ellwein to determine whether he would be interested in meeting executives of
several medical device companies, including Xomed, at the upcoming Piper Jaffray
health care conference. On January 6, 1999, a representative of Piper Jaffray
contacted James Treace, Xomed's Chairman, President and Chief Executive Officer,
to determine whether he would be interested in meeting with Mr. Ellwein. On
February 2, 1999, during the Piper Jaffray conference, Mr. Treace met with Mr.
Ellwein for the first time and discussed Xomed's business.
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On March 16, 1999, Glen Nelson, M.D., Medtronic's Vice Chairman, Mr. Ellwein
and Pat Van Wert, Senior Associate, Corporate Development of Medtronic, visited
Xomed's facilities in Jacksonville, Florida. Mr. Treace, F. Barry Bays, Xomed's
Senior Vice President and Chief Operating Officer, and Thomas Timbie, Xomed's
Vice President-Finance and Chief Financial Officer, presented Xomed's general
business plan and gave a plant tour. The primary purpose of the meeting was to
provide a general understanding of Xomed's business and its markets and
opportunities.
On April 14, 1999, Mr. Ellwein suggested to Mr. Treace that Ron Pickard, the
President of Medtronic's Sofamor Danek subsidiary, visit Xomed. As a result, Dr.
Nelson and Messrs. Ellwein and Pickard visited Xomed on May 12, 1999. The
discussions between the participants were operational in nature, with particular
emphasis on Xomed's product lines and technology platforms.
On July 23, 1999, William George, Medtronic's Chairman and Chief Executive
Officer, Arthur D. Collins, Jr., Medtronic's President and Chief Operating
Officer, Dr. Nelson and Mr. Ellwein visited Xomed's facilities. Messrs. Treace,
Bays and Timbie provided another general business presentation and tour of the
facilities. Dr. Nelson and Mr. Ellwein discussed with Mr. Treace the possibility
of a strategic transaction.
On July 26, 1999, Mr. Ellwein indicated in a phone conversation with Xomed
that Medtronic was very interested in Xomed's strong position in the ear, nose
and throat market. Medtronic indicated that it intended to present a draft term
sheet for a proposed transaction with Xomed in the next several days.
On July 28, 1999, Xomed received a draft merger term sheet from Mr. Ellwein.
No pricing issues were discussed at this time.
On July 29, 1999, Mr. Ellwein and Dr. Nelson engaged in an initial
discussion of the draft term sheet with Mr. Treace, including a range of
potential purchase prices for Xomed's stock. On this date, Xomed also engaged
Deutsche Banc Alex. Brown to act as Xomed's exclusive financial advisor in
connection with a potential transaction with Medtronic.
On August 4, 1999, Xomed entered into a confidentiality agreement with
Medtronic covering information provided by Medtronic. On August 6, 1999,
Medtronic agreed that, for a period of 18 months, it would not acquire voting
securities of Xomed, engage in a proxy solicitation, solicit certain employees
of Xomed or take certain other actions without Xomed's consent.
In the second week of August 1999, Medtronic commenced a due diligence
investigation of Xomed and its operations and conducted management interviews
with Mr. Bays, Mr. Timbie and Dan Treace, Xomed's Vice President, Regulatory
Affairs and Quality Assurance.
In the second week of August 1999, members of Xomed's management and
representatives of Deutsche Banc Alex. Brown conducted a due diligence
investigation of Medtronic at its facilities in Minneapolis, Minnesota.
During the second through fourth weeks of August 1999, representatives of
Medtronic, together with its counsel, and representatives of Xomed, together
with its legal and financial advisors, communicated by telephone and met in
person to discuss various aspects of the proposed transaction. During this time,
drafts of the merger agreement, the stock option agreement and various ancillary
agreements were distributed, reviewed and negotiated. Among the matters
negotiated were the conversion ratio and the manner in which it adjusts, the
conditions on the parties' obligations to close the merger, the right of the
parties to terminate the merger agreement, the effect of termination, the amount
of the termination fee and profit on the stock option and the circumstances
under which the termination fee would be payable and the stock option would be
exercisable.
On August 16, 1999, Xomed's board convened a special telephonic meeting to
receive a status report as to overall events, process and timing with regard to
the potential Medtronic transaction. In
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<PAGE>
addition to the board, members of management and Xomed's legal and financial
advisors participated in the meeting.
On August 23, 1999, Xomed's board convened another special meeting in New
York. Xomed's legal and financial advisors again participated. The group engaged
in general discussions as to merger process, rationale, structure and valuation.
On August 25, 1999, Medtronic's board of directors approved the acquisition
of Xomed subject to final negotiations by senior management and authorized
Medtronic's officers to undertake all acts necessary or desirable to effect the
merger.
On August 26, 1999, Xomed's board met again with its legal and financial
advisors to consider the proposed Medtronic transaction. Xomed's counsel
reviewed the fiduciary duties of the board of directors in considering the
proposed transaction, and then made a detailed presentation to the board
regarding the terms of the merger agreement and related documents, including a
summary of the representations, warranties, covenants, conditions, termination
events and termination consequences, as well as the structure of the proposed
transaction. Deutsche Banc Alex. Brown then reviewed its financial analyses with
respect to the proposed conversion ratio and delivered its oral opinion, which
opinion was confirmed by delivery of a written opinion dated August 26, 1999, as
to the fairness, from a financial point of view, of the conversion ratio
provided for in the merger.
Xomed's board, after considering the presentations by Xomed's legal and
financial advisors, and the other matters discussed at the meeting, approved the
merger agreement and the transactions contemplated by that agreement by a
unanimous vote of those directors present. The parties executed the merger
agreement in the evening hours of August 26, 1999 and publicly announced the
transaction before the opening of trading on August 27, 1999.
XOMED'S REASONS FOR THE MERGER; RECOMMENDATION OF THE XOMED BOARD OF DIRECTORS
At its August 26, 1999 meeting, the Xomed board of directors approved the
merger and the merger agreement by a unanimous vote of those directors present.
In reaching its conclusion to approve the merger, the board of directors
considered the following information and factors:
- The general business and competitive conditions in Xomed's industry. In
particular, the board considered Xomed's growth opportunities as an
independent company compared with the growth opportunities available as
part of a larger company such as Medtronic. The board considered that
merging with Medtronic, which has significant financial resources and a
strong reputation and competitive position in the medical devices
industry, would give Xomed the opportunity 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 Xomed to offer its products as
part of a broader range of medical products and devices, thereby reducing
the risks inherent in Xomed's reliance on a limited number of products.
- The potential revenue synergies offered by the merger through the
broadening of existing product lines of both companies.
- The potential cost synergies offered by the merger through the elimination
of certain duplicative operations and functions.
- The premium that the merger consideration represents to historical trading
values for Xomed's common stock and the fact that Medtronic's common stock
has generated significant returns over recent years. Although the 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 Xomed's
shareholders will decline if the price of Medtronic's common stock
declines, the board
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<PAGE>
considered the provisions of the merger agreement that mitigate this risk
by protecting the value of the consideration to be received by Xomed'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 Xomed's shareholders. The
board believed that the merger offered Xomed's shareholders the
opportunity to own stock of a significantly larger and more actively
traded business enterprise and that Xomed's shareholders would have the
opportunity to participate in the potential growth of the combined company
after the closing of the merger.
- Information with respect to the financial condition, results of operations
and business of Medtronic, including the due diligence review by Xomed's
management and financial advisor regarding Medtronic's financial condition
and prospects.
- The opinion of Deutsche Banc Alex. Brown delivered to the board on August
26, 1999 to the effect that, as of that date and based on and subject to
the matters described in the opinion, the conversion ratio provided for in
the merger was fair, from a financial point of view, to the holders of
Xomed common stock, and the related financial analyses performed by
Deutsche Banc Alex. Brown in connection with its opinion. See "--Opinion
of Xomed's Financial Advisor."
- The likelihood of consummation of the merger, including the terms and
conditions of the merger agreement and the limited conditions to the
consummation of the merger.
- The terms and provisions of the merger agreement and related agreements,
including the provision of the merger agreement permitting the board to
receive unsolicited inquiries and proposals from, and, under certain
circumstances, negotiate and give information to, third parties. The board
further considered that the maximum aggregate termination fee and profit
with respect to the option that could be realized by Medtronic pursuant to
the merger agreement and the stock option agreement was $30.1 million. The
board concluded, after consultation with Xomed's legal and financial
advisors, that the aggregate of the profit on the option and the
termination fee was within the range of fees payable in comparable
transactions, that it would not in and of itself preclude alternative
proposals and that the protections it afforded Medtronic encouraged
Medtronic to submit its best possible offer. Xomed's legal advisors
advised the board that there had been extensive negotiations with
Medtronic over both the amount of the fee, the profit and the option and
the circumstances under which the fee became payable and the option became
exercisable. The board further considered that Medtronic had stated that
it would not enter into a transaction which did not include provisions
similar to the termination fee and the option.
- The tax-free nature of the merger to Xomed's U.S. shareholders, which will
permit those shareholders to receive Medtronic common stock in a tax-free
exchange at a premium over the market price for Xomed's common stock. See
"--Certain Federal Income Tax Consequences."
- The opportunity for Xomed's shareholders to receive future cash dividends
with respect to their shareholdings.
- The impact of the merger on Xomed's customers and employees.
The board of directors also considered certain potentially negative factors
in its deliberations concerning the merger, including, without limitation, the
following:
- The possibility that the merger would not be consummated following the
execution of the merger agreement;
- The risk that the combined company might not realize the anticipated
revenue synergies and cost savings of the merger;
- The risk that the combined company would be unable to retain key
employees;
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<PAGE>
- The possible disruption of Xomed's business pending completion of the
merger and risks associated with the integration by Medtronic of Xomed 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; and
- The structure and amount of the termination fee and the option could
affect the ability of another bidder to propose an alternative transaction
offering a premium to the merger consideration.
The board of directors concluded that the benefits of the transaction to
Xomed and its shareholders outweighed the risks associated with the foregoing
factors.
The above discussion of the information and factors considered by the Xomed
board is not all-inclusive but is believed to include all material factors
considered by the Xomed board. In view of the variety of factors considered by
the Xomed board, the Xomed board did not find it practicable to quantify or
otherwise attempt to assign relative weights to the specific factors considered
in making its determination. In addition, individual members of the Xomed board
may have given different weights to different factors. Consequently, the Xomed
board did not quantify the assumptions and results of its analysis in reaching
its determination that the merger is fair to, and in the best interests of,
Xomed and its shareholders.
THE XOMED BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS ADVISABLE AND IN
THE BEST INTERESTS OF XOMED AND ITS SHAREHOLDERS. THE XOMED BOARD, THEREFORE,
UNANIMOUSLY RECOMMENDS THAT ITS SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER.
See "The Merger--Background of the Merger," "--Opinion of Xomed'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 Xomed will broaden Medtronic's
base of businesses by providing access to the ear, nose and throat market and
complement its positions in the spinal and neurosurgery fields. Medtronic also
believes that the merger will provide opportunities to use Xomed's clinical
relationships to develop and market new products incorporating Medtronic's
significant core technologies, enhancing Medtronic's ability to fulfill its
mission of restoring patients to full and active lives.
OPINION OF XOMED'S FINANCIAL ADVISOR
Xomed engaged Deutsche Banc Alex. Brown to act as its exclusive financial
advisor in connection with the merger. On August 26, 1999, at a meeting of the
Xomed board held to evaluate the proposed merger, Deutsche Banc Alex. Brown
rendered an oral opinion, which opinion was confirmed by delivery of a written
opinion dated August 26, 1999, to the effect that, as of that date and based on
and subject to the matters described in its opinion, the conversion ratio
provided for in the merger was fair, from a financial point of view, to the
holders of Xomed common stock.
The full text of Deutsche Banc Alex. Brown's written opinion dated August
26, 1999, which describes the assumptions made, matters considered and
limitations of the review undertaken, is attached as Annex B and is incorporated
into this document by reference. DEUTSCHE BANC ALEX. BROWN'S OPINION IS DIRECTED
TO THE XOMED BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE CONVERSION RATIO FROM
A FINANCIAL POINT OF VIEW. THE OPINION DOES NOT ADDRESS THE MERITS OF THE
UNDERLYING DECISION BY XOMED TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW TO VOTE WITH RESPECT TO MATTERS
RELATING TO THE PROPOSED MERGER. The summary of Deutsche Banc Alex. Brown's
opinion described below is qualified in its entirety by reference to the full
text of its opinion.
In connection with Deutsche Banc Alex. Brown's role as Xomed's financial
advisor, and in arriving at its opinion, Deutsche Banc Alex. Brown:
- reviewed publicly available financial and other information concerning
Xomed and Medtronic and internal analyses and other information furnished
to or discussed with Deutsche Banc Alex. Brown by Xomed, Medtronic and
their advisors;
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<PAGE>
- held discussions with members of the senior management of Xomed and
Medtronic regarding the business and prospects of their companies and the
joint prospects of a combined company;
- reviewed the reported prices and trading activity for the Xomed common
stock and Medtronic common stock;
- compared financial and stock market information for Xomed and Medtronic
with similar information for other companies whose securities are publicly
traded;
- reviewed the financial terms of recent business combinations which
Deutsche Banc Alex. Brown deemed comparable in whole or in part;
- reviewed the terms of the merger agreement; and
- performed other studies and analyses and considered other factors as
Deutsche Banc Alex. Brown deemed appropriate.
Deutsche Banc Alex. Brown did not assume responsibility for independent
verification of, and did not independently verify, any information, whether
publicly available or furnished to Deutsche Banc Alex. Brown, concerning Xomed,
Medtronic or the combined company, including any financial information,
forecasts or projections considered in connection with the rendering of its
opinion. For purposes of its opinion, Deutsche Banc Alex. Brown assumed and
relied upon the accuracy and completeness of all information that it reviewed
and did not conduct a physical inspection of any of the properties or assets, or
prepare or obtain any independent evaluation or appraisal of any of the assets
or liabilities, of Xomed or Medtronic. With respect to the financial forecasts
and projections relating to Xomed made available to Deutsche Banc Alex. Brown
and used in its analyses, Xomed advised Deutsche Banc Alex. Brown, and Deutsche
Banc Alex. Brown assumed, that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the management of Xomed
as to the matters covered by the forecasts and projections. With respect to the
publicly available research analysts' estimates relating to Medtronic used in
Deutsche Banc Alex. Brown's analyses, Deutsche Banc Alex. Brown assumed that
they were reasonably prepared on bases reflecting the best currently available
estimates and judgments as to the future financial performance of Medtronic.
Deutsche Banc Alex. Brown's opinion was necessarily based on economic, market
and other conditions existing on, and the information made available to Deutsche
Banc Alex. Brown as of, the date of its opinion.
For purposes of rendering its opinion, Deutsche Banc Alex. Brown assumed
that, in all respects material to its analysis, the representations and
warranties of Xomed, Medtronic and Merger Subsidiary contained in the merger
agreement were true and correct, Xomed, Medtronic and Merger Subsidiary will
each perform all of the covenants and agreements to be performed by it under the
merger agreement and all conditions to the obligations of each of Xomed,
Medtronic and Merger Subsidiary to consummate the merger will be satisfied
without any waiver. Deutsche Banc Alex. Brown also assumed that all material
governmental, regulatory or other approvals and consents required in connection
with the consummation of the merger will be obtained and that in connection with
obtaining any necessary governmental, regulatory or other approvals and
consents, or any amendments, modifications or waivers to any agreements,
instruments or orders to which either Xomed or Medtronic is a party or is
subject or by which it is bound, no limitations, restrictions or conditions will
be imposed or amendments, modifications or waivers made that would have a
material adverse effect on Xomed or Medtronic or materially reduce the
contemplated benefits of the merger to Xomed, Medtronic or the combined company.
Xomed informed Deutsche Banc Alex. Brown, and for purposes of rendering its
opinion Deutsche Banc Alex. Brown assumed, that the merger is expected to
qualify as a tax-free reorganization for federal income tax purposes and be
accounted for as a pooling of interests. In connection with its opinion,
Deutsche Banc Alex. Brown was not authorized to, and did not, solicit interest
from any other party with respect to the acquisition of all or a part of Xomed.
Deutsche Banc Alex. Brown expressed
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<PAGE>
no opinion as to the price at which the Medtronic common stock will trade at any
time. No other instructions or limitations were imposed by the Xomed board on
Deutsche Banc Alex. Brown with respect to the investigations made or the
procedures followed by it in rendering its opinion.
The following is a summary of the material analyses performed by Deutsche
Banc Alex. Brown in connection with its opinion to the Xomed board dated August
26, 1999. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND DEUTSCHE BANC ALEX. BROWN'S
FINANCIAL ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH
SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE
FINANCIAL ANALYSES. CONSIDERING THE DATA SET FORTH BELOW WITHOUT CONSIDERING THE
FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING THE
METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A MISLEADING
OR INCOMPLETE VIEW OF DEUTSCHE BANC ALEX. BROWN'S FINANCIAL ANALYSES.
ANALYSIS OF SELECTED PUBLIC COMPANIES
Deutsche Banc Alex. Brown compared financial and stock market information
for Xomed and the following seven selected publicly held companies in the
medical device industry:
- Biomet, Inc.
- Boston Scientific Corporation
- CONMED Corporation
- Guidant Corporation
- Haemonetics Corporation
- Respironics, Inc.
- Stryker Corporation
Deutsche Banc Alex. Brown reviewed adjusted market values, calculated as
equity market value, plus debt, less cash, as multiples of latest 12 months
revenues, earnings before interest, taxes, depreciation and amortization,
commonly referred to as EBITDA, and earnings before interest and taxes, commonly
referred to as EBIT. Deutsche Banc Alex. Brown also reviewed equity market
values as a multiple of latest 12 months and estimated calendar years 1999 and
2000 net income. All multiples were based on closing stock prices on August 25,
1999. Estimated financial data for the selected companies were based on publicly
available research analysts' estimates and estimated financial data for Xomed
were based both on publicly available research analysts' estimates and Xomed
management estimates. This analysis indicated the following implied adjusted
market value and equity market value multiples for the selected companies, as
compared to the following multiples for Xomed implied by the conversion ratio
based on the closing price of Medtronic common stock on August 25, 1999:
<TABLE>
<CAPTION>
IMPLIED MULTIPLES OF
SELECTED COMPANIES
----------------------- MULTIPLES FOR XOMED IMPLIED
MEAN RANGE BY CONVERSION RATIO
----- ---------- ------------------------------
<S> <C> <C> <C>
ADJUSTED MARKET VALUES:
Latest 12 months revenues................................ 5.1x 1.1x-11.0x 7.2x
Latest 12 months EBITDA.................................. 17.1x 6.0x-30.8x 31.9x
Latest 12 months EBIT.................................... 21.7x 8.0x-34.7x 41.7x
EQUITY MARKET VALUES:
Latest 12 months net income.............................. 35.5x 11.6x-54.9x 67.6x
Estimated calendar year 1999 net income
(research analysts' estimates)......................... 29.7x 11.6x-45.8x 59.4x
Estimated calendar year 2000 net income
(research analysts' estimates)......................... 24.0x 9.9x-38.5x 47.2x
Estimated calendar year 1999 net income
(management estimates)................................. -- -- 59.7x
Estimated calendar year 2000 net income
(management estimates)................................. -- -- 43.3x
</TABLE>
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<PAGE>
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS
Deutsche Banc Alex. Brown reviewed the purchase prices and implied
transaction multiples in the following 17 selected transactions in the medical
device industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
- ------------------------------------ -------------------------------------
<S> <C> <C>
- - Abbott Laboratories, Inc. Perclose Inc.
- - Kimberly-Clark Ballard Medical Products
Corporation
- - Medtronic, Inc. Arterial Vascular Engineering Inc.
- - Maxxim Medical, Inc. Circon Corporation
- - Medtronic, Inc. Sofamor Danek Group, Inc.
- - Medtronic, Inc. Midas Rex, L.P.
- - GE Medical Systems Marquette Medical Systems, Inc.
- - Guidant Corporation Sulzer Medica USA Holding Company
(Electrophysiology business)
- - Medtronic, Inc. Physio-Control International
Corporation
- - Tyco International Ltd. United States Surgical Corporation
- - Sulzer Medica Ltd. Spine-Tech, Inc.
- - Boston Scientific Target Therapeutics, Inc.
Corporation
- - Baxter International, Research Medical Inc.
Inc.
- - Advanced Medical, Inc. Ivac Medical Systems, Inc.
- - Maxxim Medical, Inc. Sterile Concepts Holdings, Inc.
- - Genzyme Corporation Deknatel Snowden Pencer, Inc.
- - St. Jude Medical, Inc. Daig Corporation
</TABLE>
Deutsche Banc Alex. Brown reviewed adjusted market values in the selected
transactions as multiples of latest 12 months revenues, EBITDA and EBIT, and
equity market values as a multiple of latest 12 months and one-year forward net
income. All multiples were based on publicly available information at the time
of announcement of the relevant transaction. This analysis indicated the
following implied adjusted market value and equity market value multiples for
the selected transactions, as compared to the following multiples for Xomed
implied by the conversion ratio based on the closing price of Medtronic common
stock on August 25, 1999:
<TABLE>
<CAPTION>
IMPLIED MULTIPLES OF
SELECTED TRANSACTIONS
------------------------ MULTIPLES FOR XOMED
MEAN RANGE IMPLIED BY CONVERSION RATIO
----- ----------- ------------------------------
<S> <C> <C> <C>
ADJUSTED MARKET VALUES:
Latest 12 months revenues........................ 5.6x 0.9x-14.3x 7.2x
Latest 12 months EBITDA.......................... 22.3x 10.0x-69.1x 31.9x
Latest 12 months EBIT............................ 29.8x 12.2x-89.6x 41.7x
EQUITY MARKET VALUES:
Latest 12 months net income...................... 43.9x 16.4x-129.5x 67.6x
One-year forward net income
(research analysts' estimates)................. 29.5x 8.3x-85.2x 50.9x
One-year forward net income
(management estimates)......................... -- -- 47.9x
</TABLE>
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DISCOUNTED CASH FLOW ANALYSIS
Deutsche Banc Alex. Brown performed a discounted cash flow analysis to
estimate the present value of the unlevered, after-tax free cash flows that each
of Xomed and Medtronic could generate during fiscal years 2000 through 2004
based, in the case of Xomed, on internal estimates of the management of Xomed
and, in the case of Medtronic, on publicly available research analysts'
estimates. The range of estimated terminal values was calculated by applying
terminal value multiples ranging from 15.0x to 19.0x, in the case of Xomed, and
20.0x to 25.0x, in the case of Medtronic, to its respective estimated fiscal
year 2004 EBITDA. The present value of the cash flows and terminal values were
calculated using discount rates ranging from 13.0% to 17.0%, in the case of
Xomed, and 11.0% to 15.0%, in the case of Medtronic. This analysis yielded the
following implied per share equity reference range for Xomed, as compared to the
per share equity value for Xomed implied by the conversion ratio based on the
closing price of Medtronic common stock on August 25, 1999:
<TABLE>
<CAPTION>
IMPLIED PER SHARE EQUITY PER SHARE EQUITY VALUE FOR XOMED
REFERENCE RANGE FOR XOMED IMPLIED BY CONVERSION RATIO
- ------------------------- ---------------------------------
<S> <C>
$50.66-$73.54 $ 60.00
</TABLE>
PREMIUMS ANALYSIS
Deutsche Banc Alex. Brown reviewed the premiums paid in 165 selected merger
and acquisition transactions completed since January 1, 1996 having transaction
values between $600 million and $1.2 billion, including 22 selected transactions
in the health care industry and 13 selected transactions in the medical device
industry. Deutsche Banc Alex. Brown analyzed the premiums in these transactions
based on the target company's stock price one day and one month prior to public
announcement of the transaction. This analysis indicated the following premiums
for the target companies in the selected transactions, as compared to the
premiums implied for Xomed in the merger based on the closing prices of Xomed
common stock one day and one month prior to August 25, 1999 and the closing
price of Medtronic common stock on August 25, 1999:
<TABLE>
<CAPTION>
PREMIUM
-------------------------
MEAN RANGE IMPLIED MERGER PREMIUM
--------- -------------- ---------------------------
<S> <C> <C> <C>
SELECTED M&A TRANSACTIONS(165)
One Day Prior (August 24, 1999)................................. 28.7% (33.8%)-147.0% 20.5%
One Month Prior (July 26, 1999)................................. 38.1% (32.5%)-169.6% 40.4%
SELECTED HEALTH CARE M&A TRANSACTIONS(22)
One Day Prior (August 24, 1999)................................. 31.7% 1.9%-123.7% 20.5%
One Month Prior (July 26, 1999)................................. 45.3% 0.4%-169.6% 40.4%
SELECTED MEDICAL DEVICE M&A TRANSACTIONS(13)
One Day Prior (August 24, 1999)................................. 31.2% (0.5%)-66.8% 20.5%
One Month Prior (July 26, 1999)................................. 45.9% 12.0%-102.7% 40.4%
</TABLE>
EXCHANGE RATIO ANALYSIS
Deutsche Banc Alex. Brown performed an exchange ratio analysis comparing the
conversion ratio in the merger with the implied historical exchange ratios for
Xomed common stock and Medtronic common stock. The implied historical exchange
ratios were calculated by dividing the average per share prices of Xomed common
stock by the average per share prices of Medtronic common stock on August 25,
1999 and during the ten-day, 20-day, 30-day, 60-day and 120-day periods ended
August 25, 1999. This analysis resulted in the following implied historical
exchange ratios, as compared to 1.62162,
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<PAGE>
the mid-point between the upper and lower bounds of the conversion ratio under
the merger agreement, as adjusted for the two-for-one stock split Medtronic
completed on September 24, 1999:
<TABLE>
<CAPTION>
IMPLIED HISTORICAL EXCHANGE
PERIOD ENDED ON AUGUST 25, 1999 RATIOS
- ---------------------------------------------------------------- ---------------------------------
<S> <C>
August 25, 1999................................................. 1.372x
10-day trading average.......................................... 1.278x
20-day trading average.......................................... 1.288x
30-day trading average.......................................... 1.298x
60-day trading average.......................................... 1.278x
120-day trading average......................................... 1.216x
</TABLE>
PRO FORMA MERGER ANALYSIS
Deutsche Banc Alex. Brown analyzed potential pro forma financial effects
resulting from the merger, including the impact of the merger on Medtronic's
estimated earnings per share for calendar years 2000 and 2001. Estimated
financial data used in this analysis were based on internal estimates of the
management of Xomed, in the case of Xomed, and publicly available research
analysts' estimates, in the case of Medtronic, without taking into account cost
savings or other potential synergies from the merger. The results of the pro
forma merger analysis suggested that the merger could be dilutive, or represent
a reduction, to Medtronic's earnings per share in calendar year 2000 and neutral
to Medtronic's earnings per share in calendar year 2001 based on the closing
price of Medtronic common stock on August 25, 1999. The actual results achieved
by the combined company may vary from projected results and the variations may
be material.
OTHER FACTORS
In rendering its opinion, Deutsche Banc Alex. Brown also reviewed and
considered, among other things:
- historical and projected financial data for Xomed and Medtronic;
- a comparison of the contributions of Xomed and Medtronic to operational
measures of the combined company relative to the pro forma equity
ownership of the shareholders of Xomed and Medtronic in the combined
company upon consummation of the merger;
- selected published analysts' reports, including analysts' estimates as to
the earnings per share of Xomed and Medtronic; and
- a shareholder profile of Medtronic.
The above summary is not a complete description of Deutsche Banc Alex.
Brown's opinion to the Xomed board or the financial analyses performed and
factors considered by Deutsche Banc Alex. Brown in connection with its opinion.
The preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, a fairness opinion is not readily susceptible to
summary description. Deutsche Banc Alex. Brown believes that its analyses and
the summary above must be considered as a whole and that selecting portions of
its analyses and factors or focusing on information presented in tabular format,
without considering all analyses and factors or the narrative description of the
analyses, could create a misleading or incomplete view of the processes
underlying Deutsche Banc Alex. Brown's analyses and opinion.
In performing its analyses, Deutsche Banc Alex. Brown considered industry
performance, general business, economic, market and financial conditions and
other matters existing as of the date of its opinion, many of which are beyond
the control of Xomed and Medtronic. No company, transaction or business used in
the analyses as a comparison is identical to Xomed, Medtronic or the merger, and
an
24
<PAGE>
evaluation of the results of those analyses is not entirely mathematical.
Rather, the analyses involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments
or transactions analyzed.
The estimates contained in Deutsche Banc Alex. Brown's analyses and the
ranges of valuations resulting from any particular analysis are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by its analyses. In addition, analyses
relating to the value of businesses or securities do not necessarily purport to
be appraisals or to reflect the prices at which businesses or securities
actually may be sold. Accordingly, Deutsche Banc Alex. Brown's analyses and
estimates are inherently subject to substantial uncertainty.
The type and amount of consideration payable in the merger was determined
through negotiation between Xomed and Medtronic. Although Deutsche Banc Alex.
Brown provided financial advice to Xomed during the course of negotiations, the
decision to enter into the merger was solely that of the Xomed board. Deutsche
Banc Alex. Brown's opinion and financial analyses were only one of many factors
considered by the Xomed board in its evaluation of the merger and should not be
viewed as determinative of the views of the Xomed board or management with
respect to the conversion ratio or the merger.
Deutsche Banc Alex. Brown is an internationally recognized investment
banking firm and, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. Xomed selected Deutsche
Banc Alex. Brown based on Deutsche Banc Alex. Brown's reputation, expertise and
familiarity with Xomed. Deutsche Banc Alex. Brown and its predecessors and
affiliates have in the past provided financial services to Xomed unrelated to
the merger, for which services Deutsche Banc Alex. Brown and its predecessors
and affiliates have received compensation.
Deutsche Banc Alex. Brown maintains a market in Xomed common stock and
Medtronic common stock and regularly publishes research reports regarding the
businesses and securities of Xomed and Medtronic and other publicly traded
companies in the medical device industry. In the ordinary course of business,
Deutsche Banc Alex. Brown and its affiliates may actively trade or hold the
securities and other instruments and obligations of Xomed and Medtronic for
their own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in those securities, instruments or
obligations.
Under the terms of Deutsche Banc Alex. Brown's engagement, Xomed has agreed
to pay Deutsche Banc Alex. Brown for its services upon completion of the merger
an aggregate financial advisory fee equal to 0.60% of the total consideration,
including liabilities assumed, payable in the merger. In addition, Xomed has
agreed to reimburse Deutsche Banc Alex. Brown its reasonable travel and other
out-of-pocket expenses, including reasonable fees and disbursements of counsel,
and to indemnify Deutsche Banc Alex. Brown and related parties against
liabilities, including liabilities under the federal securities laws, relating
to, or arising out of, Deutsche Banc Alex. Brown's engagement.
CONVERSION OF XOMED COMMON STOCK IN THE MERGER
At the effective time of the merger, if the Average Stock Price (as defined
below) is between $33.30 and $40.70, each outstanding share of Xomed common
stock will convert automatically into the right to receive the fraction of a
share of Medtronic common stock (referred to for convenience as the "conversion
ratio") equal to $60 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 10 consecutive trading days ending on and including the
third trading day before the Special Meeting. Any shares of Xomed common stock
held by Medtronic, its subsidiaries, or Xomed or its subsidiaries will not be
treated as outstanding, however, and will not convert into Medtronic common
stock.
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The conversion ratio described above applies if the Average Stock Price is
between $33.30 and $40.70. If the Average Stock Price is $33.30 or less,
however, the conversion ratio is 1.80180 Medtronic shares. If the Average Stock
Price is $40.70 or more, the conversion ratio is 1.47420 Medtronic shares.
If, prior to the effective time of the merger, Medtronic or Xomed
recapitalizes, splits, or combines the Medtronic or Xomed common stock, as
applicable, or pays a stock dividend or other stock distribution in shares of
Medtronic or Xomed common stock, as applicable, then the conversion ratio will
be appropriately adjusted. The conversion ratio set forth in this Proxy
Statement/Prospectus has already been adjusted for Medtronic's September 1999
two-for-one stock split.
Based on the number of shares of Xomed common stock outstanding on the
record date (assuming a conversion ratio of 1.72973 Medtronic shares for each
Xomed share, calculated by using the September 29, 1999 Medtronic closing sale
price of $34.6875 as the assumed Average Stock Price solely for illustrative
purposes of this paragraph), an estimated 21,239,351 shares of Medtronic common
stock will be issued in exchange for Xomed common stock upon consummation of the
merger. Such shares would represent approximately 1.8% of the shares of
Medtronic common stock that would be outstanding after consummation of the
merger.
Xomed shareholders should understand that, because the market price of
Medtronic common stock fluctuates, the market value of the Medtronic shares that
Xomed shareholders will receive in the merger (whether measured at the effective
time of the merger or the date of the Special Meeting or another date) may be
less than or greater than the Average Stock Price used for purposes of
determining the conversion ratio. In addition, because the value of Medtronic
shares fluctuates, the market value of the Medtronic common stock that Xomed
shareholders will receive in the merger may increase or decrease following the
merger. The maximum conversion ratio of 1.80180 (if the Average Stock Price of
Medtronic common stock is less than $33.30) means that, at the time of the
merger, you may receive less than $60 in Medtronic common stock for each Xomed
share you own. Similarly, the minimum conversion ratio of 1.47420 (if the
Average Stock Price is more than $40.70) means that you may receive more than
$60 in Medtronic common stock for each Xomed share you own. In addition, the
Average Stock Price (which is calculated during a 10-day period ending on and
including the third trading day prior to the Special Meeting) could be different
from the closing price of Medtronic common stock at the time of the merger. See
"Comparative Stock Prices and Dividends" for information regarding the
historical market prices of Medtronic common stock.
FRACTIONAL SHARES
Medtronic will not issue any certificates or scrip representing fractional
shares of Medtronic common stock in the merger. All fractional shares of
Medtronic common stock that a Xomed shareholder would otherwise receive in the
merger will be aggregated, if and to the extent multiple Xomed stock
certificates of such holder are submitted together to Norwest Bank Minnesota,
N.A., the exchange agent for the merger. If a fractional share results from such
aggregation, then, in lieu of any such fractional share, each holder of Xomed
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 XOMED STOCK CERTIFICATES
As soon as practicable after the effective time of the merger, the exchange
agent will mail a letter of transmittal to Xomed shareholders. The letter of
transmittal will include instructions regarding the surrender of certificates
representing shares of Xomed common stock in exchange for certificates
representing shares of Medtronic common stock.
As soon as practicable after the effective time of the merger, the exchange
agent will distribute to holders of shares of Xomed common stock, after those
holders surrender to the exchange agent the
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Xomed 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 Xomed common stock will not receive
interest on any cash received in the merger.
After the effective time of the merger, Xomed stock certificates will
evidence ownership of the shares of Medtronic common stock into which they were
converted. Holders of Xomed 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 of the merger, but only after
they have surrendered their certificates representing shares of Xomed common
stock for exchange. Any such dividends will be paid to each Xomed shareholder
entitled to them, without interest, at the time that such certificates
representing shares of Xomed common stock are surrendered for exchange, subject
to any applicable abandoned property, escheat, or similar law. Holders of Xomed
common stock will not be entitled, however, to dividends that become payable
before or after the effective time of the merger to persons who were holders of
record of Medtronic common stock as of a record date prior to the effective time
of the merger.
SHAREHOLDER RIGHTS PLAN
Each Xomed 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 Xomed Shareholders--Shareholder Rights Plans."
TREATMENT OF STOCK OPTIONS
The officers, directors, and certain employees of and consultants to Xomed
hold outstanding options to purchase shares of Xomed common stock. All options
held by officers, directors and employees of Xomed will immediately become
exercisable as of the effective time of the merger under the terms of stock
option agreements. Options granted under Xomed's option plan to consultants will
continue to vest over the periods stated in stock option agreements between
Xomed and such consultants. All options that are not exercised and remain
outstanding at the effective time of the merger will be assumed by Medtronic
and, following the effective time of the merger, 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 Xomed common
stock are converted into shares of Medtronic common stock in the merger. As
promptly as practicable after the effective time of the merger, Medtronic will
provide to each holder of a Xomed option a written statement informing such
holder of the assumption by Medtronic of such option.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, Xomed makes certain representations and warranties
to Medtronic regarding Xomed and its subsidiaries, including as to: (1) their
corporate existence; (2) the authorization, execution, and enforceability of the
merger agreement and related agreements; (3) Xomed's capital structure; (4) the
accuracy of Xomed's recent SEC reports and financial statements; (5) the absence
of certain undisclosed material liabilities; (6) the absence of any need for
certain required third-party consents and other approvals; (7) compliance with
laws; (8) the absence of material litigation; (9) the absence of material
adverse changes since December 31, 1998; (10) Xomed'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)
Xomed's benefit plans;
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(15) Xomed'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 Deutsche Bank as to the fairness, from a financial
point of view, to holders of Xomed common stock of the conversion ratio for the
merger; (19) the inapplicability of certain Delaware antitakeover laws to the
merger; and (20) the accuracy of certain information for regulatory filings.
Medtronic and Merger Subsidiary also make certain representations and
warranties to Xomed regarding Medtronic and Merger Subsidiary, including as to:
(1) their corporate existence; (2) the authorization, execution, and
enforceability of the merger agreement and related agreements; (3) the capital
structure of Medtronic and Merger Subsidiary; (4) the absence of any need for
certain required third-party consents and approvals; (5) the accuracy of
Medtronic's recent SEC reports and financial statements; (6) the legal
compliance and the accuracy of information contained in the Registration
Statement that includes this Proxy Statement/Prospectus; (7) the absence of
brokerage commissions, finder's fees, or other payments in connection with the
merger; (8) the absence of certain undisclosed material liabilities; (9)
compliance with laws; (10) the absence of material litigation; (11) the absence
of material adverse changes since April 30, 1999; (12) the absence of actions by
Medtronic that would prevent the merger from constituting a tax-free
transaction; and (13) the accuracy of certain information for regulatory
filings.
CERTAIN COVENANTS BY XOMED
CONDUCT OF BUSINESS OF XOMED PENDING THE MERGER. With certain exceptions,
Xomed has agreed that, prior to consummation of the merger, unless Medtronic
agrees otherwise, to the extent commercially reasonable, it will conduct its
business in the ordinary course and consistent with past practice, 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. Xomed also agreed that, among other things,
it will not: amend its Certificate of Incorporation or Bylaws; authorize, issue,
sell, or pledge any stock or rights to purchase stock (except that it can issue
stock upon the exercise of outstanding options); 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 outstanding securities;
create, incur, or assume any indebtedness other than in the ordinary course of
business; create, assume, or incur any material lien; increase or modify the
compensation or benefits of any of its directors, officers, or other employees
(except under existing agreements or in the ordinary course of business and
consistent with past practice or as required by law); sell or dispose of any
material property other than in the ordinary course of business; buy or agree to
buy another business; buy any assets or make capital expenditures, except under
certain circumstances; enter into, materially change, or terminate any material
agreements, except as permitted by the merger agreement or except in the
ordinary course of business; materially change its general credit policies;
materially alter its accounting principles; institute, settle, or compromise any
claim involving amounts in excess of a specified amount; knowingly take any
action that would cause any of its representations, warranties, or agreements in
the merger agreement to be inaccurate or breached such that the closing
conditions in the merger agreement will not be satisfied as of the Closing Date;
knowingly take any action that would prevent the merger from qualifying as a
tax-free transaction or that would jeopardize the accounting treatment of the
merger as a "pooling of interests"; or agree to do any of the things described
above.
ACCESS. Pursuant to the merger agreement, Xomed also agreed to give
Medtronic and its representatives access to Xomed'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 Xomed.
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NO SOLICITATION OF COMPETING TRANSACTIONS. Xomed has agreed that (except as
is required by the fiduciary duties of Xomed's directors) neither Xomed 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 nonpublic information to, any person, entity, or
group (other than Medtronic or its affiliates or agents) that proposes an
alternative transaction with respect to Xomed or any subsidiary, or knowingly
facilitate an alternative transaction. An "alternative transaction" means a
tender offer, exchange offer, merger, or similar transaction, or a transaction
or series of related transactions pursuant to which a third party acquires more
than 20% of the stock of Xomed or any material subsidiary or more than 20% of
the combined assets of Xomed and its subsidiaries. Xomed has agreed that it will
notify Medtronic promptly if it receives any such proposal.
The Xomed board can, however, prior to approval of the merger by Xomed's
shareholders furnish nonpublic information to or enter into negotiations with a
third party that makes an unsolicited superior proposal, but only if (1) the
Xomed board is required by law to do so to comply with its fiduciary duties to
shareholders, (2) prior to doing so, Xomed releases Medtronic from certain
standstill obligations, receives a confidentiality and standstill agreement from
the third party with terms no less favorable to Xomed than its confidentiality
agreement with Medtronic, gives Medtronic all nonpublic information that it
gives to the third party, and gives written notice to Medtronic that it is
furnishing nonpublic information or entering into negotiations with the person
proposing the superior proposal, and (3) Xomed keeps Medtronic informed of the
status of any negotiations. For these purposes, a "superior proposal" is a
proposal for an alternative transaction that the Xomed board reasonably and in
good faith determines is more favorable to Xomed 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 Xomed 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 and Medtronic's regular quarterly cash dividends); redeem or acquire
any of its stock (other than in a manner that would not preclude treatment of
the merger as a pooling of interests for accounting purposes); change any
material term of its securities; alter its accounting principles; knowingly take
any action that would suspend trading of Medtronic common stock on the NYSE;
knowingly take any action that would cause any of its representations,
warranties, or agreements in the merger agreement to be inaccurate or breached
as of the Closing Date; knowingly take any action that would prevent the merger
from qualifying as a tax-free transaction or that would jeopardize the
accounting treatment of the merger as a "pooling of interests"; 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 Xomed employees that, in the
aggregate, are substantially comparable to or more favorable than those in
existence as of the date of the merger agreement (and, for stock-based
compensation, comparable in the aggregate to what Medtronic and its subsidiaries
offer generally). Medtronic has also agreed to honor all employment and
severance agreements and all severance, incentive, and bonus plans as in effect
immediately prior to the effective time of the merger. Xomed employees will be
credited with service accrued prior to the effective time of the merger for
purposes of employee benefit plans, subject to certain exceptions.
INTERESTS OF XOMED'S DIRECTORS AND OFFICERS IN THE MERGER
In considering the recommendation of the Xomed board with respect to the
merger agreement and the transactions contemplated by that agreement,
shareholders of Xomed should be aware that certain members of the management and
board of directors of Xomed have certain interests in the merger that are in
addition to, and may be in conflict with, the interests of shareholders of Xomed
generally. All such interests are described below, to the extent material, and
Xomed believes that,
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except as described below, such persons do not have any material interest in the
merger that is different from those of Xomed shareholders generally. The Xomed
board was aware of, and considered the interests of, its directors and officers
when it approved the merger agreement and the merger.
EMPLOYMENT AGREEMENTS. The employment of the following executive officers
and members of senior management of Xomed is governed by the terms of individual
employment agreements: (i) James T. Treace, President and Chief Executive
Officer, (ii) F. Barry Bays, Senior Vice President of Operations and Chief
Operating Officer, (iii) R. Glen Coleman, Vice President, Marketing, (iv) Fred
B. Dinger, III, Vice President, Research and Development, (v) Mark J. Fletcher,
Vice President, Ophthalmic and President, Solan Division of Xomed, and (vi)
Thomas E. Timbie, Vice President, Finance and Chief Financial Officer. With
respect to Messrs. Treace and Bays, the agreements provide that if the
employee's employment with Xomed is terminated without "cause" (as such term is
defined in the agreements) the employee will receive continued salary and
certain benefits for the 12-month period after employment terminates. With
respect to the other four officers, each agreement provides that if the
employee's employment with Xomed is terminated within 12 months following the
merger without "cause" or the employee terminates employment for "good reason"
(as such terms are defined in the agreements), the employee will receive
continued salary and company-provided health and other fringe benefits to the
employee for the six-month period after employment terminates.
OPTION VESTING ACCELERATION. Xomed's directors and executive officers, as
well as many of Xomed's employees, hold options to purchase Xomed common stock.
All of these options will become fully vested as a result of the merger. Under
the merger agreement, at the effective time of the merger, each outstanding
option will be assumed by Medtronic and exercisable upon the same terms and
conditions immediately prior to the merger except that (i) such options shall
entitle the holder to purchase from Medtronic the number of shares of Medtronic
common stock (rounded down to the nearest whole number of shares) that equals
the conversion ratio for the merger multiplied by the number of shares of Xomed
common stock subject to such option immediately prior to the effective time of
the merger, and (ii) the option exercise price per share of Medtronic common
stock shall be an amount (rounded up to the nearest whole cent) equal to the
option exercise price per share of Xomed common stock in effect immediately
prior to the effective time of the merger divided by the conversion ratio.
INDEMNIFICATION. Pursuant to the merger agreement, Medtronic has agreed
that, after the effective time of the merger, it will provide certain
indemnification and liability insurance benefits to certain indemnified parties,
including directors and executive officers of Xomed. See "--Indemnification."
VOTING AGREEMENTS
Pursuant to voting agreements between Medtronic and all of the executive
officers and directors of Xomed who own stock or options to acquire stock of
Xomed (F. Barry Bays, Gerard J. Bussell, R. Glen Coleman, Fred B. Dinger III,
Richard B. Emmitt, Mark J. Fletcher, William R. Miller, James E. Thomas, Thomas
E. Timbie, Dan H. Treace, James T. Treace, John R. Treace, Elizabeth H.
Weatherman, John A. Williams, Guy K. Williamson), such individuals have agreed
to vote all of the outstanding shares of Xomed common stock beneficially owned
by them on the record date in favor of the approval, consent, and ratification
of the merger. Nothing in the voting agreements restricts or limits the right of
a shareholder or optionholder to act in his or her capacity as an officer or
director of Xomed 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 424,276 outstanding shares of Xomed common stock (not including
options held by such persons), representing approximately 3.5% of the Xomed
common stock outstanding on the record date.
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STOCK OPTION AGREEMENT
Simultaneously with the execution of the merger agreement, Xomed and
Medtronic entered into a Stock Option Agreement pursuant to which Xomed granted
to Medtronic an option, exercisable only under certain specified circumstances,
to purchase 2,442,453 shares of Xomed common stock (which equaled 19.9% of the
shares of Xomed common stock outstanding on the date of the merger agreement),
at an exercise price of $60 per share. The option is exercisable at any time
immediately prior to the occurrence of an Exercise Event (as defined below) up
to the earlier of (i) the effective time of the merger, (ii) six months after
the termination of the merger agreement under certain circumstances or six
months after an alternative control transaction (as defined in the merger
agreement) occurs in certain circumstances, or (iii) a termination of the merger
agreement in such a manner that a termination fee under the merger agreement
cannot become payable by Xomed. An Exercise Event is any event that obligates
Xomed to pay a termination fee under the merger agreement
If and when Medtronic's option under the Stock Option Agreement becomes
exercisable, Medtronic also has the right, which it can exercise in lieu of
exercising Medtronic's option, to require Xomed 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 Xomed common stock on the last trading day
prior to notice of exercise, (B) the highest price per share of Xomed 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 Xomed common stock then
outstanding; and (2) $30.1 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, the termination fee paid under
the merger agreement, and profits on certain sales of stock acquired through
exercise of the option can never, however, exceed $30.1 million.
Also, the option may not be exercised for a number of shares as would, as of
the date of the exercise notice, result in a Notional Total Profit (as defined
below) of more than $30.1 million and, if exercise of the option otherwise would
exceed such amount, Medtronic, at its discretion, may increase the purchase
price for that number of shares set forth in the exercise notice so that the
Notional Total Profit shall not exceed $30.1 million. The term "Notional Total
Profit" means the Total Profit (as defined below) determined as of the date of
the stock exercise notice assuming that the option were exercised on such date
for such number of shares and assuming that such shares, together with all other
option shares held by Medtronic as of such date, were sold for cash at the
closing market price for Xomed common stock as of the close of business on the
preceding trading day (less customary brokerage commissions). The term "Total
Profit" means the aggregate amount (before taxes) of the following: (i) the
termination fee paid to Medtronic; (ii) any option cancellation amount paid to
Medtronic; and (iii) the net cash amounts (less Medtronic's exercise price)
received by Medtronic due to any sale of option shares to any unaffiliated party
within six months after Medtronic's purchase of the option shares.
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 Xomed 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 Xomed
shareholders of the merger; (b) the effectiveness of the registration statement
registering the Medtronic shares to be issued in the merger; (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
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order, decree, or injunction by any court that makes the merger illegal or
prohibits consummation of the merger or would impose any material limitations on
the ownership or operation of Xomed after the merger.
In addition, the obligations of Medtronic and Merger Subsidiary to effect
the merger are subject to the satisfaction at or prior to the merger of certain
conditions, including that: (a) Xomed has performed in all material respects its
material obligations under the merger agreement required to be performed by it
at or prior to the closing; (b) each representation and warranty of Xomed
contained in the merger agreement is, without regard to any "material adverse
effect" qualifications, true and correct on the Closing Date (as though made
that date) except for (i) those representations and warranties that address
matters only as of the date of the merger agreement or another particular date,
which representations and warranties must be true and correct as of such date,
and (ii) except for any inaccuracies that do not have a material adverse effect
on Xomed; (c) Medtronic has received letters from PricewaterhouseCoopers LLP and
Ernst & Young LLP, dated the Closing Date and addressed to Medtronic and Xomed,
respectively, stating that they concur with management that it is appropriate to
account for the merger as a pooling of interests (the "Pooling Letters"); and
(d) neither the Chief Executive Officer nor the Chief Operating Officer of Xomed
has advised Xomed or Medtronic that he intends to terminate his employment with
Xomed after the merger.
In addition, the obligations of Xomed to effect the merger are subject to
the satisfaction at or prior to the merger of certain conditions, including
that: (a) Medtronic and Merger Subsidiary have performed in all material
respects their material obligations under the merger agreement required to be
performed by them at or prior to the closing; (b) each representation and
warranty of Medtronic contained in the merger agreement is, without regard to
any "material adverse effect" qualifications, true and correct on the Closing
Date (as though made that date) except for (i) those representations and
warranties that address matters only as of the date of the merger agreement or
another particular date, which representations and warranties must be true and
correct as of such date, and (ii) except for any inaccuracies that do no have a
material adverse effect on Medtronic; (c) Xomed has received the Pooling
Letters; and (d) Xomed has received an opinion of Willkie Farr & Gallagher, to
the effect that the merger will constitute a "tax-free" reorganization for
federal income tax purposes, and that opinion will not have been withdrawn or
materially changed. See "The Merger--Certain Federal Income Tax Consequences."
Either Medtronic or Xomed may waive (to the extent permitted by applicable
law) any failure to comply with any obligation, covenant, agreement, or
condition in the merger agreement that is for the benefit of that party. Any
waivers granted by Medtronic are conclusively binding on Merger Subsidiary.
If all conditions to Xomed's obligation to effect the merger are met, Xomed
would be required to proceed with the merger even if the Average Stock Price of
Medtronic common stock is below $33.30 per share and, accordingly, the value to
be received in the merger by a Xomed shareholder for each share of Xomed common
stock is below $60.
AMENDMENT AND TERMINATION OF THE MERGER AGREEMENT; EFFECTS OF TERMINATION
Subject to applicable law, any of the provisions of the merger agreement may
be amended by written agreement of the respective parties at any time prior to
the effective time of the merger. After approval of the merger by the Xomed
shareholders, however, no amendment may be made that reduces the amount or
changes the type of consideration into which each share of Xomed common stock
converts upon consummation of the merger, or which otherwise requires
shareholder approval under Delaware law (unless Xomed obtains that approval).
Even if the Xomed shareholders approve the merger, the boards of directors
of Medtronic and Xomed can agree at any time to terminate the merger agreement
without completing the merger.
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In addition, either company can terminate the merger agreement if:
- the merger is not completed by February 26, 2000 (or, if the companies
receive requests for additional information from antitrust regulatory
agencies, April 11, 2000), except that neither company can terminate the
merger agreement if its own material breach of its obligations under the
merger agreement is the reason the merger has not been completed, or
- a final court or governmental order prohibits the merger, or
- the Xomed shareholders do not approve the merger at the Special Meeting
(except that neither company can terminate the merger agreement if its own
material breach of its obligations under the merger agreement is the
reason the merger has not been completed), or
- the other company has materially breached its representations, warranties,
or obligations under the merger agreement such that the conditions to the
terminating company's obligation to complete the merger will not be
satisfied. If the breach is curable by the breaching company before
February 26, 2000 or April 11, 2000, as applicable, the non-breaching
company cannot terminate the merger agreement as long as the breaching
company is exercising its reasonable best efforts to cure the breach.
Medtronic can terminate the merger agreement if:
- the Xomed board materially breaches its obligations to not encourage,
solicit, discuss, or negotiate with anyone else any alternative
transaction, or
- the Xomed board recommends, approves, or authorizes Xomed's acceptance or
execution of an agreement regarding an alternative transaction, or
- the Xomed board withdraws or modifies its recommendation of the merger in
a manner materially adverse to Medtronic, or
- a third party makes a tender offer or exchange offer for Xomed common
stock, and the Xomed board either takes no position or recommends in favor
of accepting the offer.
Xomed can terminate the merger agreement prior to the Special Meeting if:
- Xomed has not breached its obligations under the merger agreement to hold
the Special Meeting and to comply with its nonsolicitation obligations,
and
- the Xomed board authorizes Xomed to enter into an agreement with a third
party regarding a transaction that the Xomed board reasonably and in good
faith determines is more favorable to the Xomed shareholders than the
merger with Medtronic, and Xomed notifies Medtronic in writing that it
intends to enter into such agreement, and
- Medtronic does not make a new offer within 5 business days that the Xomed
board determines is at least as favorable to the Xomed shareholders as the
proposal made by the third party, and
- Xomed pays the termination fee described below within two business days
after termination.
Xomed has agreed to pay Medtronic a termination fee of $24.1 million if any
of the following occurs:
- the merger agreement is terminated by Medtronic because:
- the Xomed board materially breaches its obligations to not encourage,
solicit, discuss, or negotiate with anyone else any alternative
transaction, or
- the Xomed board recommends, approves, or authorizes Xomed's
acceptance or execution of an alternative transaction, or
- the Xomed board withdraws or modifies in a manner materially adverse
to Medtronic its recommendation of the merger, or
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- a third party makes a tender offer or exchange offer for Xomed stock,
and the Xomed board recommends in favor of acceptance of the offer,
or
- a third party makes a tender offer or exchange offer for Xomed stock
and the Xomed board takes no position with respect to the acceptance
of such offer (but only if an alternative transaction occurs or Xomed
enters into an agreement relating to an alternative transaction
within 12 months and an alternative transaction is consummated); or
- the merger agreement is terminated by Xomed prior to approval by its
shareholders because:
- the Xomed board authorizes Xomed to enter into an agreement with a
third party regarding a transaction that the Xomed board reasonably
and in good faith determines is more favorable to the Xomed
shareholders than the merger, and Medtronic does not, within 5
business days after notice of the superior proposal, make an offer
that the Xomed board determines is at least as favorable to Xomed
shareholders as the proposal made by the third party, or
- the merger agreement is terminated by either company because:
- the requisite vote of Xomed shareholders is not obtained before
February 26, 2000 or before April 11, 2000 in the event of additional
regulatory review (but only if a proposal for a competing transaction
(as defined in the merger agreement) has been announced prior to the
termination of the merger agreement, Xomed enters into an agreement
with a third party for a competing transaction within 12 months after
termination of the merger agreement, and a competing transaction is
consummated).
The events that give rise to the payment of a termination fee also render
exercisable the option granted to Medtronic under the Stock Option Agreement.
See "The Merger--Stock Option Agreement." In no event is more than one
termination fee payable.
EXPENSES AND FEES
Whether or not the merger is consummated, all expenses incurred in
connection with the merger (including but not limited to accounting and legal
fees) and the transactions contemplated thereby will be paid by the party
incurring such costs and expenses, except that Medtronic and Xomed will share
equally all expenses related to filing and printing the Registration Statement
and this Proxy Statement/ Prospectus.
U.S. Bancorp Piper Jaffray Inc. provided certain financial advisory services
to Medtronic in connection with the merger, for which Medtronic has agreed to
pay a fee of $1 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 Xomed who may be deemed to control or be under common control with Xomed 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 of 1933
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. Xomed has delivered to Medtronic, and agreed to update as
necessary, a list identifying all persons who, in Xomed's opinion, upon advice
of counsel, are Affiliates of Xomed for purposes of Rule 145. Xomed 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 of the merger, an agreement that such person (1) will not
offer to sell, sell, or otherwise dispose of any shares of
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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 Xomed common stock
during the period commencing 30 days prior to the effective time of the merger
and ending at such time as Medtronic publishes financial results covering at
least 30 days of post-merger combined operations. It is expected that, after the
period described in clause (2) above, Affiliates will be able to sell such
shares without registration and in accordance with the volume, manner of sale,
and other applicable limitations of the Securities Act and the rules and
regulations of the SEC thereunder.
It is estimated that Affiliates of Xomed will receive a maximum of
approximately 1,574,317 shares of Medtronic common stock upon consummation of
the merger (assuming full exercise of all presently exercisable Xomed options
held by such Affiliates and assuming a conversion ratio for the merger of
1.72973). Such shares would constitute less than 1% of the total number of
shares of Medtronic common stock anticipated to be outstanding immediately after
the effective time of the merger 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 September 29, 1999
Medtronic closing sale price of $34.6875 as the assumed Average Stock Price. See
"The Merger--Conversion of Xomed Common Stock in the Merger."
DEREGISTRATION OF XOMED COMMON STOCK
If the merger is consummated, the Xomed common stock will cease to be quoted
on the Nasdaq National Market, and Medtronic will apply to the SEC for the
deregistration of Xomed common stock under the Securities Exchange Act of 1934.
ACCOUNTING TREATMENT OF THE MERGER
Medtronic intends to account for the merger as a pooling of interests for
accounting and financial reporting purposes under generally accepted accounting
principles. This means the companies will be treated as if they had always been
combined for accounting and financial reporting purposes. Under the pooling of
interests method, the recorded assets and liabilities of the companies are
carried forward to the combined corporation at their recorded amounts and the
income (loss) of the companies constitutes the income (loss) of the combined
corporation for the entire fiscal period in which the combination occurs as well
as for prior fiscal periods. It is a condition to the obligations of Medtronic,
Merger Subsidiary, and Xomed to consummate the merger that Medtronic and Xomed
shall have received letters from PricewaterhouseCoopers LLP and Ernst & Young
LLP, respectively, dated the Closing Date, stating that they concur with
management that it is appropriate to account 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 consequences of the merger. This discussion merely summarizes certain
principal United States federal income tax consequences of the merger and is not
a complete analysis of all of the potential tax effects relevant to the merger.
In this regard, this discussion does not deal with all federal income tax
considerations that may be relevant to certain Xomed 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 Xomed common stock as capital assets, foreign
persons, tax-exempt entities, banks, insurance companies, shareholders who hold
their shares as a hedge or as part of a hedging, straddle, conversion, or other
risk reduction transaction, or persons who are subject to the alternative
minimum tax provisions of the Internal Revenue Code of 1986, as amended (the
"Code"). Furthermore, it does not address Xomed 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.
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Xomed 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.
Xomed has received an opinion from Willkie Farr & Gallagher dated two days
prior to the mailing of this Proxy Statement/Prospectus that the merger will
constitute a "reorganization" within the meaning of Section 368(a) of the Code.
Such opinion is based on the Code, regulations and rulings then in effect,
current administrative rulings and practice and judicial precedent, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences discussed herein. The opinion is also based on
certain assumptions regarding the factual circumstances at the time of the
merger, including certain representations made by Xomed, Medtronic and Merger
Subsidiary. The inaccuracy of any of these factual assumptions may affect the
tax consequences of the merger. Neither Xomed 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.
Assuming the merger qualifies as a reorganization:
- Xomed, Medtronic, and Merger Subsidiary will each be a party to the
reorganization and will not recognize gain or loss solely as a result of
Medtronic's issuance of Medtronic common stock to the Xomed shareholders
in the merger and the transfer by operation of law of Merger Subsidiary's
assets and liabilities to Xomed pursuant to the merger;
- Xomed's shareholders will not recognize gain or loss upon their receipt in
the merger of Medtronic common stock in exchange for their shares of Xomed
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 Xomed 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
Xomed shareholder in the merger will include the period during which such
Xomed shareholder held his or her Xomed common stock surrendered in
exchange for such Medtronic common stock; and
- Cash payments in lieu of a fractional share will be treated as if a
fractional share of Medtronic common stock had been issued in the merger
and then redeemed by Medtronic, and capital gain or loss generally should
be recognized by a Xomed 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 description of
the tax consequences of the merger is subject to certain assumptions relating
to, among other things, the truth and accuracy of certain representations made
by Xomed and Medtronic, and the consummation of the merger in accordance with
the terms of the merger agreement and applicable state law. Furthermore, the IRS
is not precluded from asserting a contrary position. This discussion is 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 statements and
conclusions described in this document. Any such changes or interpretations
could be applied retroactively and could affect the tax consequences of the
merger.
A successful IRS challenge to the tax-free status of the merger would result
in significant adverse tax consequences to the Xomed shareholders. A Xomed
shareholder would recognize gain or loss with respect to each share of Xomed
common stock surrendered equal to the difference between the shareholder's basis
in such share and the fair market value, as of the effective time of the merger,
of
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the Medtronic common stock received in exchange for such Xomed common stock and
cash received in lieu of a fractional share of Medtronic common stock. In such
event, a shareholder's aggregate basis in the Medtronic common stock so received
would equal its fair market value, and the shareholder's holding period for such
stock would begin the day after the closing date of the merger.
Certain noncorporate Xomed shareholders may be subject to backup withholding
at a rate of 31% on cash payments received in lieu of a fractional share of
Medtronic common stock. Backup withholding will not apply, however, to a
shareholder who furnishes a correct taxpayer identification number and certifies
that he or she is not subject to backup withholding on the substitute Form W-9
included in the letter of transmittal, who provides a certificate of foreign
status on Form W-8, or who is otherwise exempt from backup withholding. A
shareholder who fails to provide the correct taxpayer identification number on
Form W-9 may be subject to a $50 penalty imposed by the IRS.
Each Xomed shareholder will be required to retain records and file with such
holder's U.S. federal income tax return a statement setting forth certain facts
relating to the merger.
INDEMNIFICATION
Under the merger agreement, Medtronic has agreed to continue to indemnify
the present and former officers and directors of Xomed for a period of at least
six years following the merger with respect to acts or omissions occurring prior
to the effective time of the merger, to the extent that they are currently
indemnified under Xomed's Certificate of Incorporation or 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 Xomed, for six years after the effective time of the merger. See "The
Merger--Interests of Xomed's Directors and Officers in the Merger."
REGULATORY REQUIREMENTS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), certain acquisition transactions, including the merger, cannot be
consummated unless certain information has been furnished to the Federal Trade
Commission ("FTC") and the Antitrust Division of the United States Department of
Justice ("Antitrust Division") and certain waiting period requirements have been
satisfied. Pursuant to the HSR Act, the merger cannot be completed until at
least 30 days after the parties furnished the required information, unless the
FTC and the Antitrust Division terminate the waiting period earlier. Medtronic
and Xomed have received notice of early termination of the applicable waiting
period under United States antitrust laws.
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 Xomed or Medtronic. Xomed
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 Xomed's businesses,
regulatory filings are also required in certain European and other
jurisdictions. Medtronic and Xomed do not expect any such filings to affect the
expected timing of the merger.
Other than as described in this Proxy Statement/Prospectus, the merger does
not require the approval of any federal, state, or other agency. See "The
Merger--Conditions to Consummation of the Merger; Waiver."
NO APPRAISAL RIGHTS
Under Delaware law, Xomed shareholders are not entitled to dissenters' or
appraisal rights in connection with the merger. Medtronic shareholders are also
not entitled to dissenters' or appraisal rights in connection with the merger.
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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. Xomed common stock is traded on the Nasdaq National
Market (symbol: XOMD).
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. (As previously noted, we
have already adjusted all Medtronic per share amounts to reflect the two-for-one
stock split Medtronic effected in September 1999.) Also set forth, for the
calendar period indicated, are the high and low sales prices per share of Xomed
common stock as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
XOMED
MEDTRONIC COMMON STOCK COMMON STOCK
------------------------------------- ------------------------
HIGH LOW DIVIDENDS HIGH LOW
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CALENDAR 1997
First Quarter............................................ $ 17.9375 $ 14.40625 $ .02375 $ 13.33 $ 7.8125
Second Quarter........................................... $ 22.21875 $ 15.1875 $ .02375 $ 20.4375 $ 10.1875
Third Quarter............................................ $ 24.625 $ 21.25 $ .0275 $ 16.4375 $ 12.4375
Fourth Quarter........................................... $ 26.375 $ 20.28125 $ .0275 $ 16.00 $ 13.1875
CALENDAR 1998
First Quarter............................................ $ 29.21875 $ 22.71875 $ .0275 $ 19.625 $ 14.00
Second Quarter........................................... $ 33.00 $ 23.96875 $ .0275 $ 22.125 $ 17.75
Third Quarter............................................ $ 36.375 $ 25.50 $ .0325 $ 27.125 $ 18.50
Fourth Quarter........................................... $ 38.375 $ 24.1875 $ .0325 $ 32.625 $ 24.625
CALENDAR 1999
First Quarter............................................ $ 44.63 $ 32.8125 $ .0325 $ 43.25 $ 27.625
Second Quarter........................................... $ 38.9375 $ 30.75 $ .0325 $ 51.00 $ 35.25
Third Quarter (through September 29, 1999)............... $ 41.0625 $ 32.375 $ .04 $ 61.125 $ 40.00
</TABLE>
Xomed has never paid cash dividends on its common stock. Under the merger
agreement, Xomed has agreed not to pay any dividends on Xomed 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 Xomed common stock will be converted into shares of
Medtronic common stock based on the conversion ratio for the merger, which
equals $60 divided by the Average Stock Price for the 10 consecutive NYSE
trading days ending on and including the third NYSE trading day immediately
preceding the Special Meeting, but subject to a minimum conversion ratio of
1.47420 and a maximum conversion ratio of 1.80180. On August 26, 1999, the last
trading day preceding public announcement of the merger, the reported closing
sale price of Medtronic common stock on the NYSE was $38.34375 per share (as
adjusted for the September 1999 two-for-one stock split), resulting in an
implied conversion ratio (if it were determined based on the closing sale price
that day) of 1.56480. On that day, the reported closing sale price of Xomed
common stock on the Nasdaq National Market was $51.25 per share. On September
29, 1999, 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 $34.6875 per share, resulting in an implied conversion ratio (if it
were determined based on the closing sale price that day) of 1.72973. The
reported closing sale price of Xomed common stock on the Nasdaq
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National Market on that day was $56.00 per share. SHAREHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS.
As of September 29, 1999, there were approximately 37,000 registered holders
of Medtronic common stock and approximately 134 registered holders of Xomed
common stock.
COMPARISON OF RIGHTS OF MEDTRONIC AND XOMED SHAREHOLDERS
Medtronic and Xomed are incorporated under the laws of Minnesota and
Delaware, respectively. Upon consummation of the merger, shareholders of Xomed
will become shareholders of Medtronic, and their rights will be governed by the
laws of Minnesota, not Delaware. The rights of Medtronic shareholders under
Medtronic's Restated Articles of Incorporation as amended ("Medtronic's
Articles") and Medtronic's Bylaws differ in certain respects from the rights of
Xomed shareholders under Xomed's Second Restated Certificate of Incorporation
("Xomed's Certificate") and Xomed's Restated Bylaws. Certain significant
differences between the rights of Medtronic shareholders and Xomed 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
Xomed 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. Xomed's Certificate does not similarly
classify its board of directors, and directors are elected each year for a
one-year term. Both Medtronic's Articles and Xomed'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. Xomed's Bylaws provide that directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote for the election of directors.
NOMINATION. Medtronic's Articles provide that nominations for the election
of directors may be made by or at the direction of the Medtronic board of
directors or by any shareholder entitled to vote in the election of directors
generally. Nominations by shareholders must be made pursuant to timely notice in
writing to the Secretary of Medtronic. To be timely, a shareholder's notice must
be delivered to or mailed and received at the principal executive offices of
Medtronic not less than 50 days nor more than 90 days prior to the meeting;
provided, however, that if less than 60 days' notice or prior public disclosure
of the date of the meeting is given or made to the shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the tenth day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. The notice must set
forth certain information concerning such shareholder and his or her nominee(s),
including their names and addresses, the principal occupation or employment of
the nominee(s), the class and number of shares of capital stock of Medtronic
that are beneficially owned by such persons, such other information as would be
required to be included in a proxy statement soliciting proxies for the election
of the nominees of such shareholder, and the consent of each nominee to serve as
a director of Medtronic if so elected.
Xomed's Certificate and Bylaws do not address the issue of nomination of
directors.
AMENDMENT OF PROVISIONS. Medtronic's Articles require the affirmative vote
of not less than 75% of the voting power of all then outstanding voting shares
to amend, repeal or adopt any provisions inconsistent with these provisions
regarding classification, removal and nomination of directors. Xomed's Bylaws
require the affirmative vote of a majority of the directors to modify such
provisions or
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the affirmative vote of a majority of the voting power of all of the outstanding
shares of Xomed common stock entitled to vote.
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.
Xomed's Certificate contains a similar provision.
PREFERRED STOCK
Medtronic has 2,500,000 authorized but unissued shares of preferred stock,
par value $1 per share. Medtronic's Articles provide that whenever the holders
of a class or series of preferred stock have the right to elect any directors,
the election, term and other features of such directorships shall be governed by
the terms set forth in the resolution of the Medtronic board of directors
designating the rights and preferences of such class or series of preferred
stock, and any directors elected by the holders of preferred stock shall not be
divided into classes unless provision is expressly made for such classification
by the terms of such preferred stock. Shares of Medtronic preferred stock could
be issued that would have the right to elect directors, either separately or
together with the Medtronic common stock, with such directors either divided or
not divided into classes.
Under certain circumstances such Medtronic preferred stock could be used to
create voting impediments or to deter persons seeking to effect a takeover or
otherwise gain control of Medtronic in a transaction which holders of some or a
majority of the Medtronic common stock may deem to be in their best interests.
Such shares of Medtronic preferred stock could be sold in public or private
transactions to purchasers who might support the Medtronic board of directors in
opposing a takeover bid that the Medtronic board of directors determines not to
be in the best interests of Medtronic and its shareholders. In addition, the
Medtronic board of directors could authorize holders of a class or series of
preferred stock to vote, either separately as a class or together with the
holders of Medtronic common stock, on any merger, sale, or exchange of assets by
Medtronic or any other extraordinary corporate transaction. The ability to issue
such Medtronic preferred stock might have the effect of discouraging an attempt
by another person or entity, through the acquisition of a substantial number of
shares of Medtronic common stock, to acquire control of Medtronic with a view to
imposing a merger, sale of all or any part of the assets or a 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."
Xomed has 1,000,000 authorized but unissued shares of preferred stock, par
value $.01 per share, and the board of directors has the authority to fix the
terms of such shares without further shareholder voting, consent, or
ratification.
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SPECIAL MEETINGS OF SHAREHOLDERS
Under Minnesota law, a special meeting of shareholders may be called by
certain officers, two or more directors, a person authorized to do so in the
articles or bylaws, or shareholders holding at least 10% of the voting power of
all shares entitled to vote, except that a special meeting for the purpose of
considering an action to effect, directly or indirectly, a business combination
must be called by shareholders holding at least 25% of the voting power of all
shares entitled to vote.
Under Delaware law, special meetings of shareholders of a corporation may be
called by the corporation's board of directors or by persons specifically
authorized to do so by the corporation's articles of incorporation or bylaws.
Xomed's Bylaws provide that special meetings may be called only by the Chairman
of the Board, the Chief Executive Officer, or the board of directors, or at the
request of holders of 30% of the outstanding shares of Xomed capital stock
entitled to vote.
VOTING RIGHTS; SHAREHOLDER APPROVALS
Under both Medtronic's Articles and Xomed's Certificate, holders of
Medtronic common stock and Xomed 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. Xomed's Bylaws provide that
at any meeting of shareholders, all matters, except as otherwise provided in
Xomed's Certificate or Bylaws or by Delaware law, are decided by the vote of a
majority in voting interest of the shareholders present in person or by proxy
and entitled to vote.
CUMULATIVE VOTING
Neither Medtronic's Articles nor Xomed's Certificate or Bylaws provide for
cumulative voting with regard to the Medtronic common stock or the Xomed common
stock, respectively.
PREEMPTIVE RIGHTS
Under Medtronic's Articles, holders of Medtronic stock are expressly denied
preemptive rights. Xomed's Certificate does not contain any provision concerning
preemptive rights. Under Delaware law, shareholders of a Delaware corporation do
not have preemptive rights, except to the extent provided in a corporation's
Certificate.
AMENDMENT OF THE ARTICLES OR CERTIFICATE OF INCORPORATION
Under Minnesota law and Delaware law, an amendment to the articles or
certificate of incorporation requires the affirmative vote of the holders of a
majority of the shares present and entitled to vote unless a larger affirmative
vote is required by the corporation's articles or certificate. Xomed's
Certificate does not contain any provisions that require a larger affirmative
vote to approve an amendment. Any amendment to the provisions of Medtronic's
Articles providing for the classification, removal and nomination of directors
or the appropriateness of business to be brought before a shareholder meeting
requires approval by 75% of the Medtronic shares entitled to vote. Any amendment
to the provisions of Medtronic's Articles providing for the approval of
transactions with related persons requires approval by two-thirds of the
Medtronic shares entitled to vote.
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
41
<PAGE>
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.
Xomed is subject to the provisions of Section 203 of the Delaware General
Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
a stockholder became an interested stockholder, unless: (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (Xomed did not make such an election); (ii) the business combination
was approved by the board of directors of the corporation before the other party
to the business combination became an interested stockholder; (iii) upon
consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to tender or vote stock held by
the plan); or (iv) the business combination was approved by the board of
directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an interested
stockholder, transactions with an interested stockholder involving the assets or
stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. Section 203 could
prohibit or delay a merger, takeover or other change in control of Xomed and
therefore could discourage attempts to acquire Xomed.
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 1/3200(th) 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 $18.75 per 1/3200(th) of a Series A Preferred
Share. The Rights are not currently exercisable or transferable apart from the
Medtronic common stock.
42
<PAGE>
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 $.0003125
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 the fair market
value.
Xomed 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
Xomed's Certificate.
43
<PAGE>
CERTAIN TRANSACTIONS AND RELATIONSHIPS
BETWEEN XOMED AND MEDTRONIC
STOCK OPTION AGREEMENT. Xomed and Medtronic are parties to a Stock Option
Agreement dated August 26, 1999, pursuant to which Xomed has granted to
Medtronic an option, exercisable under certain specified circumstances related
to the termination of the merger agreement, to purchase 2,442,453 shares of
Xomed common stock, which equaled approximately 19.9% of Xomed's shares
outstanding on August 26, 1999. See "The Merger--Stock Option Agreement."
VOTING AGREEMENTS. All of the executive officers and directors of Xomed who
own stock or options to acquire stock of Xomed have entered into voting
agreements with Medtronic pursuant to which they have agreed to vote all of the
outstanding shares of Xomed common stock beneficially owned by them on the
record date in favor of the merger. See "The Merger--Voting Agreements."
LEGAL MATTERS
The validity of the Medtronic common stock to be issued in connection with
the merger will be passed upon for Medtronic by Fredrikson & Byron, P.A.,
Minneapolis, Minnesota. Attorneys at Fredrikson & Byron, P.A. own, in the
aggregate, approximately 26,000 shares of Medtronic common stock.
The federal income tax consequences in connection with the merger were
passed upon for Xomed by Willkie Farr & Gallagher, New York, New York.
EXPERTS
The consolidated financial statements of Medtronic, Inc. as of April 30,
1999 and 1998 and for each of the three years in the period ended April 30, 1999
incorporated in this Proxy Statement/ Prospectus by reference to the Medtronic,
Inc. Annual Report on Form 10-K for the year ended April 30, 1999, 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 Xomed appearing in Xomed's Annual
Report on Form 10-K for the year ended December 31, 1998 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
Medtronic and Xomed 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 Xomed 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 Xomed, that file electronically with the SEC.
You can also inspect reports, proxy statements, and other information about
Medtronic at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005. You can inspect information about Xomed at the offices of
the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006
44
<PAGE>
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 Xomed for the
Special Meeting. As allowed by SEC rules, this Proxy Statement/Prospectus does
not contain all the information you can find in the Registration Statement and
the exhibits to the Registration Statement.
The SEC allows us to "incorporate by reference" information into this Proxy
Statement/ Prospectus, which means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered part of this Proxy
Statement/Prospectus, except for any information superseded by information in
(or incorporated by reference in) this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates by reference the documents
listed below that Medtronic and Xomed have previously filed with the SEC. These
documents contain important information about Medtronic and Xomed 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, 1999
Quarterly Report on Form 10-Q........................... Quarter ended July 30, 1999
Current Reports on Form 8-K............................. Filed August 25, 1999 and August 27, 1999
Description of Medtronic's common stock contained in
Medtronic's registration statement on Form 8-A
Description of Medtronic's preferred stock purchase
rights attached to its common stock contained in
Medtronic's registration statement on Form 8-A
</TABLE>
<TABLE>
<CAPTION>
XOMED SEC FILINGS (FILE NO. 0-21517) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K.............................. Year ended December 31, 1998
Quarterly Reports on Form 10-Q.......................... Quarters ended April 3, 1999 and July 3, 1999
Current Report on Form 8-K.............................. Filed August 30, 1999
Description of Xomed's common stock contained in Xomed's
registration statement on Form 8-A
</TABLE>
Medtronic and Xomed 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 Xomed, Medtronic and Xomed may have
sent you some of the documents incorporated by reference, but you can obtain any
of them from Medtronic, Xomed, or the SEC. Documents incorporated by reference
are available from Medtronic or Xomed without charge, except for any exhibits to
those documents unless we have specifically incorporated by reference a
particular exhibit in this Proxy Statement/Prospectus. Shareholders may obtain
documents
45
<PAGE>
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>
Xomed Surgical Products,
Medtronic, Inc. Inc.
7000 Central Avenue, N.E. 6743 Southpoint Drive North
Minneapolis, Minnesota 55432 Jacksonville, Florida 32216
Attention: Investor Relations Attention: Investor
Department Relations
(612) 514-3035 (904) 332-2452
</TABLE>
If you would like to request documents from Medtronic or Xomed, please do so
by October 29, 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 Xomed's proxy solicitor for the Special Meeting:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
Telephone: (800) 322-2885 or (212) 929-5500
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 Xomed has supplied all such information relating to Xomed. 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 Xomed 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 Xomed'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 Xomed's respective
forward-looking statements, and investors therefore should not consider any list
of factors affecting Medtronic's or Xomed's respective forward-looking
statements to be an exhaustive statement of all risks, uncertainties, or
potentially inaccurate assumptions. Neither Medtronic nor Xomed undertakes any
obligation to update any forward-looking statement.
Also, 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
46
<PAGE>
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.
Although we cannot give a comprehensive list of all factors that may cause
actual results to differ from Medtronic's or Xomed's forward-looking statements,
the factors include those noted in Medtronic's and Xomed's SEC filings
incorporated by reference into this Proxy Statement/Prospectus, as well as:
- 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 Xomed 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 clearance 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 Xomed;
- increased public interest in recent years in product liability claims for
implanted medical devices, including pacemakers, leads and spinal systems,
and adverse developments in litigation involving Medtronic or Xomed;
- 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 Xomed 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 Xomed;
- the integration of businesses acquired by Medtronic or Xomed;
- 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 Xomed has any control,
including changes in inflation, foreign currency rates, and interest
rates.
Medtronic and Xomed note these factors as permitted by the Private
Securities Litigation Reform Act of 1995.
47
<PAGE>
ANNEX A
NOTE: MEDTRONIC COMPLETED A TWO-FOR-ONE STOCK SPLIT IN SEPTEMBER 1999 AFTER
THE PARTIES ENTERED INTO THE AGREEMENT AND PLAN OF MERGER. THIS ANNEX A IS A
COPY OF THE AGREEMENT AND PLAN OF MERGER AS ENTERED INTO BY THE PARTIES. THE
MEDTRONIC SHARE PRICES AND CONVERSION RATIO AMOUNTS SET FORTH IN SECTION 1.3 OF
THIS ANNEX, THEREFORE, HAVE NOT BEEN ADJUSTED TO REFLECT MEDTRONIC'S STOCK
SPLIT.
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MEDTRONIC, INC.,
MXS MERGER CORP., AND
XOMED SURGICAL PRODUCTS, INC.
AUGUST 26, 1999
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1 THE MERGER; CONVERSION OF SHARES............................................. A-5
1.1 The Merger.................................................................. A-5
1.2 Effective Time.............................................................. A-5
1.3 Conversion of Shares........................................................ A-5
1.4 No Appraisal Rights......................................................... A-6
1.5 Exchange of Company Common Stock............................................ A-6
1.6 Exchange of Merger Subsidiary Common Stock.................................. A-8
1.7 Stock Options............................................................... A-8
1.8 Capitalization Changes...................................................... A-9
1.9 Certificate of Incorporation of the Surviving Corporation................... A-10
1.10 Bylaws of the Surviving Corporation......................................... A-10
1.11 Directors of the Surviving Corporation...................................... A-10
ARTICLE 2 CLOSING...................................................................... A-10
2.1 Time and Place.............................................................. A-10
2.2 Filings at the Closing...................................................... A-10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................ A-10
3.1 Organization................................................................ A-10
3.2 Authorization............................................................... A-11
3.3 Capitalization.............................................................. A-11
3.4 Reports and Financial Statements............................................ A-12
3.5 Absence of Undisclosed Liabilities.......................................... A-13
3.6 Consents and Approvals...................................................... A-13
3.7 Compliance with Laws........................................................ A-14
3.8 Litigation.................................................................. A-14
3.9 Absence of Material Adverse Changes......................................... A-14
3.10 Officers, Directors and Employees........................................... A-14
3.11 Taxes....................................................................... A-15
3.12 Contracts................................................................... A-15
3.13 Intellectual Property Rights................................................ A-16
3.14 Benefit Plans............................................................... A-16
3.15 Minute Books................................................................ A-18
3.16 No Finders.................................................................. A-18
3.17 Proxy Statement............................................................. A-18
3.18 Fairness Opinion............................................................ A-18
3.19 State Takeover Laws......................................................... A-18
3.20 Merger Filings.............................................................. A-18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY...............
A-18
4.1 Organization................................................................ A-19
4.2 Authorization............................................................... A-19
4.3 Capitalization.............................................................. A-19
4.4 Consents and Approvals...................................................... A-20
4.5 Reports; Financial Statements; Absence of Changes........................... A-20
4.6 Registration Statement...................................................... A-20
4.7 No Finders.................................................................. A-21
4.8 Absence of Undisclosed Liabilities.......................................... A-21
4.9 Compliance with Laws........................................................ A-21
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C> <C>
4.10 Litigation.................................................................. A-21
4.11 Absence of Material Adverse Changes......................................... A-21
4.12 Reorganization.............................................................. A-21
4.13 Merger Filings.............................................................. A-22
ARTICLE 5 COVENANTS.................................................................... A-22
5.1 Conduct of Business of the Company.......................................... A-22
5.2 Conduct of Business of Parent............................................... A-24
5.3 No Solicitation............................................................. A-24
5.4 Access and Information...................................................... A-26
5.5 Approval of Stockholders; Proxy Statement; Registration Statement........... A-26
5.6 Consents.................................................................... A-28
5.7 Affiliates' Letters......................................................... A-28
5.8 Expenses.................................................................... A-28
5.9 Further Actions............................................................. A-28
5.10 Regulatory Approvals........................................................ A-29
5.11 Certain Notifications....................................................... A-29
5.12 Voting of Shares............................................................ A-29
5.13 Stock Option Agreement...................................................... A-30
5.14 NYSE Listing Application.................................................... A-30
5.15 Indemnification............................................................. A-30
5.16 Letters of the Company's and Parent's Accountants........................... A-31
5.17 Subsidiary Shares........................................................... A-31
5.18 Benefit Plans and Employee Matters.......................................... A-31
5.19 Obligations of Merger Subsidiary............................................ A-32
5.20 Plan of Reorganization...................................................... A-32
5.21 Pooling..................................................................... A-32
ARTICLE 6 CLOSING CONDITIONS........................................................... A-32
6.1 Conditions to Obligations of Parent, Merger Subsidiary, and the Company..... A-32
6.2 Conditions to Obligations of Parent and Merger Subsidiary................... A-33
6.3 Conditions to Obligations of the Company.................................... A-33
ARTICLE 7 TERMINATION AND ABANDONMENT.................................................. A-34
7.1 Termination................................................................. A-34
7.2 Effect of Termination....................................................... A-36
ARTICLE 8 MISCELLANEOUS................................................................ A-37
8.1 Amendment and Modification.................................................. A-37
8.2 Waiver of Compliance; Consents.............................................. A-37
8.3 Investigation; Survival of Representations and Warranties................... A-38
8.4 Notices..................................................................... A-38
8.5 Assignment.................................................................. A-38
8.6 Governing Law............................................................... A-39
8.7 Counterparts................................................................ A-39
8.8 Knowledge................................................................... A-39
8.9 Interpretation.............................................................. A-39
8.10 Publicity................................................................... A-39
8.11 Entire Agreement............................................................ A-39
8.12 Severability................................................................ A-39
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C> <C>
8.13 Specific Performance........................................................ A-39
</TABLE>
<TABLE>
<S> <C>
EXHIBITS:
Exhibit A: Form of Certificate of Incorporation
Exhibit B: Form of Bylaws
Exhibit C: Form of Affiliate's Letter
Exhibit D: Form of Agreement to Facilitate Merger
Exhibit E: Form of Stock Option Agreement
</TABLE>
A-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT is dated as of August 26, 1999, by and among MEDTRONIC, INC.,
a Minnesota corporation ("Parent"), MXS MERGER CORP., a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Subsidiary"), and XOMED SURGICAL
PRODUCTS, INC., a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary, and the
Company have approved the merger of Merger Subsidiary with and into the Company
(the "Merger") upon the terms and subject to the conditions set forth herein;
and
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
recorded as a "pooling of interests" within the meaning of Accounting Principles
Board Opinion No. 16 ("APB 16"), and the rules and regulations of the Securities
and Exchange Commission (the "SEC"); and
WHEREAS, as a condition to, and upon or immediately following the execution
of, this Agreement, Parent and the Company are entering into the Stock Option
Agreement described in Section 5.13 hereof; and
WHEREAS, the parties hereto desire to make certain representations,
warranties, and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties, covenants, and agreements contained herein, the
parties hereto agree as follows:
ARTICLE 1
THE MERGER; CONVERSION OF SHARES
1.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.2 hereof), Merger Subsidiary shall
be merged with and into the Company in accordance with the provisions of the
Delaware General Corporation Law (the "DGCL"), whereupon the separate corporate
existence of Merger Subsidiary shall cease, and the Company shall continue as
the surviving corporation (the "Surviving Corporation"). From and after the
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, powers, and franchises and be subject to all the restrictions,
disabilities, and duties of the Company and Merger Subsidiary, all as more fully
described in the DGCL.
1.2 EFFECTIVE TIME. As soon as practicable after each of the conditions
set forth in Article 6 has been satisfied or waived on the Closing Date (as
defined in Section 2.1), the Company will file, or cause to be filed, with the
Secretary of State of the State of Delaware a Certificate of Merger for the
Merger, which Certificate shall be in the form required by and executed in
accordance with the applicable provisions of the DGCL. The Merger shall become
effective at the time such filing is made or, if agreed to by Parent and the
Company, such later time or date set forth in the Certificate of Merger (the
"Effective Time").
1.3 CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of the Company, Parent, Merger Subsidiary or
any holder of any share of capital stock of the Company or Merger Subsidiary:
(a) Each share of common stock of the Company, $.01 par value per share
("Company Common Stock"), issued and outstanding immediately prior thereto
(except for shares referred to in Section 1.3(b) hereof) shall be converted,
subject to Section 1.5(f), into the right to receive a
A-5
<PAGE>
number of shares (carried out to five decimal places and rounded up if the
sixth decimal place is 5 or greater) (the "Conversion Ratio") of common
stock of Parent, par value $.10 per share (the "Parent Common 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 ten (10) consecutive NYSE trading days ending
on and including the NYSE trading day that is three NYSE trading days prior
to the Company Stockholders Meeting (as defined in Section 5.5) (the
"Determination Period"), determined as follows:
(i) if the Parent Average Stock Price for the Determination Period
is greater than $66.60 and less than $81.40, then the Conversion Ratio
shall equal $60 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 $66.60, then the Conversion Ratio shall equal
.90090; or
(iii) if the Parent Average Stock Price for the Determination Period
is equal to or greater than $81.40, then the Conversion Ratio shall equal
.73710.
An appropriate adjustment to the Conversion Ratio shall be made in the
event that, prior to the Effective Time, the outstanding shares of Company
Common Stock, without new consideration, are changed into or exchanged for a
different number of shares or a different class by reason of any
reorganization, reclassification, subdivision, recapitalization, split-up,
combination, exchange of shares, stock dividend or other similar
transaction. Notwithstanding the foregoing, nothing in this section shall be
deemed to constitute authorization or permission for or consent from Parent
or Merger Subsidiary to any reorganization, reclassification, subdivision,
recapitalization, split-up, combination, exchange of shares, or other
similar transaction.
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time that is held in the treasury of the
Company or is then owned beneficially or of record by Parent, Merger
Subsidiary, or any direct or indirect wholly owned subsidiary of Parent or
the Company shall be canceled in accordance with applicable laws without
payment of any consideration therefor and without any conversion thereof.
(c) Each share of any other class of capital stock of the Company (other
than Company Common Stock) shall be canceled without payment of any
consideration therefor and without any conversion thereof.
(d) Each share of common stock of Merger Subsidiary, par value $.01 per
share ("Merger Subsidiary Common Stock"), issued and outstanding immediately
prior to the Effective Time shall be converted into one share of the common
stock of the Surviving Corporation, par value $.01 per share ("Surviving
Corporation Common Stock").
1.4 NO APPRAISAL RIGHTS. The parties acknowledge that, pursuant to Section
262 of the DGCL, no holders of Company Common Stock shall have appraisal rights
in connection with the Merger.
1.5 EXCHANGE OF COMPANY COMMON STOCK.
(a) At or prior to the Effective Time, Parent shall cause Parent's stock
transfer agent or such other person as Parent may appoint and is reasonably
satisfactory to the Company to act as exchange agent (the "Exchange Agent")
hereunder. As promptly as practicable after the Effective Time, with respect
to the shares of Parent Common Stock into which shares of Company Common
Stock have been converted pursuant to Section 1.3(a), (i) if the Exchange
Agent is Parent's stock transfer agent, Parent shall deliver written
instructions to the transfer agent instructing Parent's transfer agent to
issue such shares of Parent Common Stock pursuant to the provisions of this
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Section 1.5, or (ii) if the Exchange Agent is not Parent's stock transfer
agent, Parent shall deposit, or cause to be deposited, with the Exchange
Agent for the benefit of holders of shares of Company Common Stock,
certificates representing such shares of Parent Common Stock. As promptly as
practicable after the Effective Time, Parent shall cause the Exchange Agent
to mail to each holder of record (other than Parent, Merger Subsidiary, the
Company, or any wholly owned subsidiary of Parent or the Company) of a
certificate or certificates that immediately prior to the Effective Time
represented outstanding shares of Company Common Stock ("Company
Certificates") a form letter of transmittal (which shall specify that
delivery shall be effective, and risk of loss and title to the Company
Certificate(s) shall pass, only upon delivery of the Company Certificate(s)
to the Exchange Agent) and instructions for such holder's use in effecting
the surrender of the Company Certificates in exchange for certificates
representing shares of Parent Common Stock and cash in lieu of any
fractional shares.
(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. Parent shall deposit with the Exchange Agent any such dividend or
other distributions, and subject to the effect, if any, of applicable law,
the Exchange Agent shall receive, hold, and remit any such dividends or
other distributions to each such record holder entitled thereto, without
interest, at the time that such Company Certificates are surrendered to the
Exchange Agent for exchange. Holders of Company Common Stock will not be
entitled, however, to dividends or other distributions that become payable
before or after the Effective Time to persons who were holders of record of
Parent Common Stock as of a record date that is prior to the Effective Time.
(d) All certificates evidencing shares of Parent Common Stock that are
issued upon the surrender for exchange of Company Certificates in accordance
with the terms hereof, together with any cash paid for fractional shares
pursuant to Section 1.5(f) hereof, shall be deemed to have been issued in
full satisfaction of all rights pertaining to the shares of Company Common
Stock represented by the surrendered Company Certificates.
(e) After the Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Common Stock that were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Company Certificates
representing such shares are presented to the Surviving Corporation, they
shall be canceled and exchanged as provided in this Article 1. As of the
Effective Time, the holders of Company Certificates representing shares of
Company Common Stock shall cease to have any
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rights as stockholders of the Company, except such rights, if any, as they
may have pursuant to the DGCL or this Agreement. Except as provided above,
until such Company Certificates are surrendered for exchange, each such
Company Certificate shall, after the Effective Time, represent for all
purposes only the right to receive a certificate or certificates evidencing
the number of whole shares of Parent Common Stock into which the shares of
Company Common Stock shall have been converted pursuant to the Merger as
provided in Section 1.3(a) hereof, the right to receive the cash value of
any fraction of a share of Parent Common Stock as provided in Section 1.5(f)
hereof and the right to receive any dividends or distributions as provided
in Section 1.5(c).
(f) No fractional shares of Parent Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, shall be issued in
connection with the Merger, no dividend or other distribution of Parent
shall relate to any fractional share, and such fractional share interests
shall not entitle the owner thereof to vote or to any rights of a
shareholder of Parent. All fractional shares of Parent Common Stock to which
a holder of Company Common Stock immediately prior to the Effective Time
would otherwise be entitled, at the Effective Time, shall be aggregated if
and to the 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 for the Determination Period, by (ii) the fractional
share of Parent Common Stock to which such holder would otherwise be
entitled. Parent will make available to the Exchange Agent any cash
necessary for this purpose.
(g) In the event any Company Certificates shall have been lost, stolen,
or destroyed, the Exchange Agent shall issue in respect of such lost,
stolen, or destroyed Company Certificates, upon the making of an affidavit
of that fact by the holder thereof, such shares of Parent Common Stock, cash
for fractional shares, if any, and dividends or other distributions, if any,
as may be required pursuant to this Article 1; provided, however, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed Company
Certificate to deliver a bond in such sum as Parent may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to such Company Certificate alleged to have been lost,
stolen, or destroyed.
(h) The parties hereto acknowledge that each certificate representing a
share of Parent Common Stock issued pursuant to this Article 1 will,
pursuant to the Rights Agreement dated as of June 27, 1991, between Parent
and Norwest Bank Minnesota, N.A. (the "Parent Rights Plan"), also represent
the number of Parent preferred share purchase rights associated with one
share of Parent Common Stock at the Effective Time.
1.6 EXCHANGE OF MERGER SUBSIDIARY COMMON STOCK. From and after the
Effective Time, each outstanding certificate previously representing shares of
Merger Subsidiary Common Stock shall be deemed for all purposes to evidence
ownership of and to represent the number of shares of Surviving Corporation
Common Stock into which such shares of Merger Subsidiary Common Stock shall have
been converted. Promptly after the Effective Time, the Surviving Corporation
shall issue to Parent a stock certificate or certificates representing such
shares of Surviving Corporation Common Stock in exchange for the certificate or
certificates that formerly represented shares of Merger Subsidiary Common Stock,
which shall be canceled.
1.7 STOCK OPTIONS.
(a) 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"),
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shall, without any action on the part of the Company or the holder thereof,
be assumed by Parent in such manner that Parent (i) is a corporation
"assuming a stock option in a transaction to which Section 424(a) applies"
within the meaning of Section 424 of the Code and the regulations thereunder
or (ii) to the extent that Section 424 of the Code does not apply to any
such Company Option, would be such a corporation were Section 424 of the
Code applicable to such Company Option. From and after the Effective Time,
all references to the Company in the Company Options shall be deemed to
refer to Parent. The Company Options assumed by Parent shall be exercisable
upon the same terms and conditions as under the Company Options (including
provisions regarding vesting and the acceleration thereof) except that (i)
such Company Options shall entitle the holder to purchase from Parent the
number of shares of Parent Common Stock (rounded down to the nearest whole
number of such shares) that equals the product of the Conversion Ratio
multiplied by the number of shares of Company Common Stock subject to such
Company Option immediately prior to the Effective Time, (ii) the option
exercise price per share of Parent Common Stock shall be an amount (rounded
up to the nearest full cent) equal to the option exercise price per share of
Company Common Stock in effect immediately prior to the Effective Time
divided by the Conversion Ratio, and (iii) the Company Options shall vest to
the extent required pursuant to the current terms of such Company Options or
other agreements as described in Section 1.7 of the Company Disclosure
Schedule (as defined below); provided that if such vesting of Company
Options or other provisions with respect to the Company Options would
jeopardize the Merger being accounted for as a "pooling of interests," then
the Company shall, subject to Parent's written consent not to be
unreasonably withheld, use reasonable best efforts to prevent such vesting
or effect of other provisions. Except to the extent required pursuant to the
current terms of such Company Options or other agreements as described in
Section 1.7 of the Company Disclosure Schedule, the Company shall not take
any action to accelerate the vesting of any Company Options. Prior to the
Effective Time, the Board of Directors of Parent shall, for purposes of Rule
16b-3(d)(1) promulgated under Section 16 of the Securities Exchange Act of
1934, and the rules and regulations thereunder (the "1934 Act"),
specifically approve (i) the assumption by Parent of the Company Options and
(ii) the issuance of Parent Common Stock in the Merger to directors,
officers and stockholders of the Company subject to Section 16 of the 1934
Act.
(b) As promptly as practicable after the Effective Time, Parent shall
issue to each holder of a Company Option a written instrument informing such
holder of the assumption by Parent of such Company Option. As soon as
reasonably practicable after the Effective Time (and in any event no later
than five business days after the Effective Time, provided current option
information required therefor is delivered to Parent at the Effective Time),
Parent shall file a registration statement on Form S-8 (or any successor
form) with respect to the shares of Parent Common Stock subject to Company
Options and shall use commercially reasonable efforts to maintain such
registration statement (or any successor form), including the current status
of any related prospectus or prospectuses, for so long as the Company
Options remain outstanding. In addition, Parent shall use commercially
reasonable efforts to cause the shares of Parent Common Stock subject to
Company Options to be listed on the NYSE and such other exchanges as Parent
shall determine. Parent shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Parent Common Stock for
delivery upon exercise of Company Options pursuant to the terms set forth in
this Section 1.7. Parent shall comply with the terms of the Company Option
Plan (as defined in Section 3.3) and use commercially reasonable efforts to
cause those Company Options that qualified as incentive stock options prior
to the Effective Time to continue to qualify as incentive stock options
immediately after 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 or exchanged in accordance with the terms of Section 5.2 for a
different number of shares or a different class by reason of any
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reorganization, reclassification, subdivision, recapitalization, split-up,
combination, exchange of shares, stock dividend or other similar transaction,
the Conversion Ratio and all per-share price amounts and calculations set forth
in this Agreement shall be appropriately adjusted to reflect such
reorganization, reclassification, subdivision, recapitalization, split-up,
combination, exchange of shares, stock dividend or other similar transaction.
1.9 CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION. The
Certificate of Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be amended as of the Effective Time to read as set
forth on EXHIBIT A to this Agreement.
1.10 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of the Company, as in
effect immediately prior to the Effective Time, shall be amended as of the
Effective Time to read as set forth on EXHIBIT B to this Agreement.
1.11 DIRECTORS OF THE SURVIVING CORPORATION. The directors of Merger
Subsidiary immediately prior to the Effective Time shall be the directors of the
Surviving Corporation until their respective successors shall be duly elected
and qualified.
ARTICLE 2
CLOSING
2.1 TIME AND PLACE. Subject to the satisfaction or waiver of the
provisions of Article 6, the closing of the Merger (the "Closing") shall take
place at 1:00 p.m., local time, on the date that the Required Company
Stockholder Vote (as defined in Section 3.2) is obtained, or as soon thereafter
as, and in any event no later than the second business day after, all conditions
to Closing have been satisfied or waived, or on such other date and/or at such
other time as Parent and the Company may mutually agree. The date on which the
Closing actually occurs is herein referred to as the "Closing Date." The Closing
shall take place by telecopy exchange of signature pages with originals to
follow by overnight delivery, or in such other manner or at such place as the
parties hereto may agree.
2.2 FILINGS AT THE CLOSING. At the Closing, subject to the provisions of
Article 6, Parent, Merger Subsidiary, and the Company shall cause the
Certificate of Merger to be filed in accordance with the provisions of Section
251 of the DGCL, and take any and all other lawful actions and do any and all
other lawful things necessary to cause the Merger to become effective.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
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 that identifies by section number to which such disclosure
relates (the "Company Disclosure Schedule"), or (ii) as specifically described
through express disclosure of specific facts set forth or incorporated by
reference in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 or in any other filing by the Company with the SEC (as defined
in Section 3.4) filed after the date of filing such Form 10-K and prior to the
date hereof, 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
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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 would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect (as defined below). "Company
Material Adverse Effect" means an effect that 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 the
Merger; or (iii) to the ability of the Surviving Corporation or Parent to
conduct such business, as presently conducted, following the Effective Time or
the ability of Parent to exercise full rights of ownership of the Company or its
assets or business (excluding effects resulting from agreements previously
entered into or actions previously taken by Parent), except in each case for (i)
any such effects directly resulting from 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
Certificate of Incorporation, Bylaws and other governing instruments of the
Company and each Subsidiary, 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 stockholders, to consummate the transactions
contemplated hereby. The execution and delivery by the Company of this Agreement
and the other agreements contemplated hereby to which the Company is a party,
and the consummation by the Company of the transactions contemplated hereby and
thereby, have been duly and validly authorized and approved by the Company's
Board of Directors, no other action of the Company's Board of Directors or
corporate proceeding on the part of the Company or any Subsidiary are necessary
to authorize this Agreement, and, subject to obtaining the approval and adoption
of this Agreement and approval of the Merger by the holders of a majority of the
shares of the Company Common Stock outstanding as of the record date of the
Company's stockholder meeting (the "Required Company Stockholder Vote"), no
other action of the Company's Board of Directors or corporate action on the part
of the Company or any Subsidiary is necessary to consummate the transactions
contemplated hereby. The Merger has been declared advisable by the Board of
Directors of the Company. This Agreement has been duly and validly executed and
delivered by the Company and, 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) 30,000,000 shares of Company Common Stock, par value
$.01 per share, of which 12,273,636 shares are issued and outstanding and no
shares are held in the Company's treasury, and (ii) 1,000,000 shares of Company
Preferred Stock, par value $.01 per share, 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
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other charge of any kind ("Lien"), other than Liens granted in connection with
the Company's credit facility. 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 1,710,764 shares
of Company Common Stock granted pursuant to the Company's Third Amended and
Restated 1996 Stock Option Plan (the "Company Option Plan") listed, together
with their respective exercise prices, in the Company Disclosure Schedule, and
for Liens granted in connection with the Company's credit facility, 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 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 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 Plan to allow for the treatment of Company
Options as is provided in Section 1.7, has been, or prior to the Closing will
be, validly taken by the Company. In no event will the aggregate number of
shares of Company Common Stock outstanding at the Effective Time (including all
shares subject to then outstanding Company Options or other rights to acquire or
commitments to issue shares of Company stock, other than the Stock Option
Agreement referenced in Section 5.13) exceed by more than 1,000 shares the sum
of the outstanding shares of Company Common Stock described in the first
sentence of this Section 3.3, plus any shares of Company Common Stock issued
upon the exercise of outstanding options to purchase Company Common Stock
identified in Section 3.3.
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 October 11, 1996 (such
forms, reports, registration statements, and documents, together with any
amendments thereto, are referred to as the "Company SEC Filings"). As of their
respective dates, the Company SEC Filings (i) complied as to form in all
material respects with the applicable requirements of the Securities Act of 1933
and the rules and regulations thereunder (the "1933 Act") and the Securities
Exchange Act of 1934 and the rules and regulations thereunder (the "1934 Act"),
as the case may be, and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading. The audited financial statements and unaudited
interim financial statements included or incorporated by reference in the
Company SEC Filings, including but not limited to the Company's audited
financial statements at and for the year ended December 31, 1998 (the "Company
1998 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 stockholders' equity for the periods involved (subject, in
the case of unaudited statements, to normal and recurring year-end adjustments
that were not and are not, individually or in the aggregate, expected to have a
Company
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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, 1998
contained in the Company 1998 Financials (the "Company Audited Balance Sheet")
or in the unaudited consolidated balance sheet of the Company as of July 3, 1999
contained in the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 3, 1999 (the "Company Interim Balance Sheet"), or referred to in the
notes thereto, (b) liabilities incurred since July 3, 1999 in the ordinary
course of business and of a type and in an amount consistent with past practice,
and (c) liabilities or obligations that would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
3.6 CONSENTS AND APPROVALS. Except for (i) any applicable requirements of
the 1933 Act, the 1934 Act, state securities laws, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the regulations thereunder (the "HSR
Act"), and the antitrust, competition, foreign investment, or similar laws of
any foreign countries or supranational commissions or boards that require
pre-merger notifications or filings with respect to the Merger (collectively,
"Foreign Merger Laws"), (ii) obtaining the Required Company Stockholder Vote,
and (iii) the filing and recordation of appropriate merger documents as required
by the DGCL, the authorization and approval by the Company's Board of Directors
and 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 Certificate of Incorporation or
Bylaws of the Company or any Subsidiary; (b) violate any statute, law, rule,
regulation, order, or decree of any federal, state, local, or foreign
governmental or regulatory body or authority (including, but not limited to, the
Food and Drug Administration (the "FDA") (a "Governmental Body") or any
nongovernmental self-regulatory agency) by which the Company or any Subsidiary
or any of their respective properties or assets may be bound; (c) require any
filing with or permit, consent, or approval to be obtained from any Governmental
Body or any nongovernmental self-regulatory agency; or (d) result in any
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default under, result in the loss of any material benefit under,
or give rise to any right of termination, cancellation, increased payments, or
acceleration under, or result in the creation of any Lien (as defined in Section
3.3) on any of the properties or assets of the Company or any Subsidiary under,
any of the terms, conditions, or provisions of any note, bond, mortgage,
indenture, license, franchise, permit, authorization, agreement, or other
instrument or obligation to which the Company or any Subsidiary is a party, or
by which it or any of its properties or assets may be bound, except, in the case
of clauses (b), (c) and (d), for any such filings, permits, consents or
approvals or violations, breaches, defaults, or other occurrences that would
not, individually or in the aggregate, 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 would not,
individually or in the aggregate, 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, under or with respect to which the transactions contemplated by this
Agreement will 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 benefit under, or give rise to any right
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of termination, cancellation, increased payments, or acceleration under, or
result in the creation of any Lien on any of the properties or assets of the
Company or any Subsidiary, except for violations, defaults, losses, rights and
Liens that would not, individually or in the aggregate, reasonably be expected
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 Body (and including those of
any nongovernmental self-regulatory agency and including environmental laws or
regulations), except for such defaults or violations that would not,
individually or in the aggregate, 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 Governmental Body with jurisdiction over the manufacture, use, or sale of
the Regulated Products, and all regulatory licenses or approvals in respect
thereof are in full force and effect, except where the failure to file timely
such registrations, reports, data, information, and applications or the failure
to have such licenses and approvals in full force and effect would not,
individually or in the aggregate, 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
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect.
3.9 ABSENCE OF MATERIAL ADVERSE CHANGES. Since December 31, 1998 there has
not been any (a) Company Material Adverse Effect; (b) damage, destruction, or
loss, not covered by insurance, that would, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect; or (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.
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 executive officer of the Company
or of any Subsidiary whose total remuneration for the last fiscal year was, or
for the current fiscal year is expected to be, in excess of $100,000, 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 executive
officers of the Company or of any Subsidiary whose employment with the Company
or any Subsidiary has terminated either voluntarily or involuntarily during the
preceding 12-month period; and (ii) the names of the executive officers (with
all positions and titles indicated) and directors of the Company and of each
Subsidiary. Except as would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect: (i) no unfair labor practice
complaint against the Company or any Subsidiary is pending before the National
Labor Relations Board, and there is no labor strike, slowdown or stoppage
pending or, to the knowledge of the Company, threatened in writing against or
involving the Company or any Subsidiary; (ii) no unionizing efforts have, to the
knowledge of the Company, been made by employees of the Company or any
Subsidiary, 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
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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, individually or in the
aggregate, would not have a Company Material Adverse Effect, (i) the Company and
each Subsidiary have filed, or have obtained extensions to file (which
extensions have not expired without filing), all state, local, United States,
foreign, or other tax reports and returns required to be filed by any of them;
(ii) the Company and each Subsidiary have duly paid, or accrued on their books
of account, all taxes (including estimated taxes) shown as due on such reports
and returns (or such extension requests), or assessed against them, other than
taxes being contested in good faith in proper proceedings and (iii) 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, individually and in the aggregate, 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, 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 Sections 368(a)(2)(E) and 368(a)(1)(B) of the
Code. The Company is not aware of any agreement, plan or other circumstance that
would prevent the Merger from so qualifying under Sections 368(a)(2)(E) and
368(a)(1)(B) of the Code.
For the purposes of this Agreement, "tax" shall mean and include taxes,
duties, withholdings, assessments, and charges assessed or imposed by any
governmental authority (together with any interest, penalties and additions to
tax imposed with respect thereto), including but not limited to all federal,
state, county, local, and foreign income, profits, gross receipts, import, ad
valorem, real and personal property, franchise, license, sales, use, value
added, stamp, transfer, withholding, payroll, employment, excise, custom, duty,
and any other taxes, obligations and assessments of any kind whatsoever; "tax"
shall also include any liability for taxes arising as a result of being (or
ceasing to be) a member of any affiliated, consolidated, combined, or unitary
group as well as any liability for taxes under any tax allocation, tax sharing,
tax indemnity, or similar agreement.
3.12 CONTRACTS. The Company Disclosure Schedule lists, and the Company has
heretofore furnished to Parent complete and accurate copies of (or, if oral, the
Company Disclosure Schedule states all material provisions of), (a) every
employment, material consulting, severance or change of control agreement or
arrangement for the benefit of any director, officer, employee, other person or
stockholder of the Company or any Subsidiary or any affiliate thereof in effect
as of the date of this Agreement to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary or any of their properties or
assets is bound, (b) every contract with physicians, scientific advisory board
members or material consultants in effect as of the date of this Agreement to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their properties or assets is bound, and (c) every
contract, agreement, or understanding to which the Company or any Subsidiary is
a party that would reasonably be expected to involve payments by or to the
Company or any Subsidiary in excess of $100,000 during the Company's current
1999 fiscal year or in excess of $250,000 in the aggregate during the Company's
1999, 2000 and 2001 fiscal years, or would have a Company Material Adverse
Effect, or that is material and was not made in the ordinary course of business.
Neither the Company nor any Subsidiary is in material violation of or in default
under any contract, plan, agreement, understanding, arrangement or obligation
that is material to the Company and its Subsidiaries considered as a whole,
except for such violations or defaults that would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
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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) that restricts the Company's, or after the Merger would restrict the
Surviving Corporation's or Parent's, ability to conduct any line of business,
(ii) that imposes on the Company or any Subsidiary material obligations
(including, without limitation, to pay material milestone payments or material
license fees) not reflected in the Company 1998 Financials, 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), other than Liens
granted in connection with the Company's credit facility and Liens that would
not be reasonably expected to have a Company Material Adverse Effect, 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, individually or in the aggregate, would 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, individually or in
the aggregate, would reasonably be expected to have a Company Material Adverse
Effect. Except as would not, individually or in the aggregate, 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
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect.
3.14 BENEFIT PLANS.
(a) Neither the Company nor any Subsidiary sponsors, maintains,
contributes to, or has, 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 would
not, individually or in the aggregate, 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.
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(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 would 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 that would, individually or in
the aggregate, 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 or made available
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 or made available to Parent (i) copies of all employment agreements
with officers of any of the Company or its 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 or any Subsidiary with or relating to any of
its employees; and (iii) copies of all plans, programs, agreements and other
arrangements of any of the Company or any Subsidiary with or relating to any
of its employees that contain change in control provisions.
(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. The aggregate amount that (i) would 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 all employees,
officers, or directors of the Company or any of its affiliates who are a
"disqualified individuals" (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, and (ii) would constitute an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the
Code), shall not exceed $4,500,000.
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3.15 MINUTE BOOKS. The Company has previously made available to Parent or
its representatives all of its minutes of meetings of and corporate actions or
written consents by the stockholders, 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 Stockholders Meeting, or at the
Effective Time contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that no representation or warranty is
made by 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 Board of Directors of the Company has received
an opinion from Deutsche Bank Securities Inc. to the effect that, as of the date
of this Agreement, the Conversion Ratio is fair, from a financial point of view,
to the holders of Company Common Stock, and the Company will promptly deliver a
copy of such opinion to Parent.
3.19 STATE TAKEOVER LAWS. The Board of Directors of the Company has
approved the transactions contemplated by this Agreement, such that the
provisions of Section 203 (entitled "Business Combinations with Interested
Shareholders") of the DGCL will not apply to this Agreement or the Agreements to
Facilitate Merger or the Stock Option Agreement or any of the transactions
contemplated hereby or thereby.
3.20 MERGER FILINGS. The information as to the Company or any of its
affiliates or stockholders included in the Company's filing, or submitted to
Parent and Merger Subsidiary for inclusion in their filing, if any, required to
be submitted under the HSR Act or under any Foreign Merger Laws shall be true,
correct, and complete in all material respects and shall comply in all material
respects with the applicable requirements of the HSR Act, the rules and
regulations issued by the Federal Trade Commission pursuant thereto, and Foreign
Merger Laws.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUBSIDIARY
Except (i) as set forth in a document of even date herewith, referring
specifically to the representations and warranties in this Agreement that
identifies by section number to which such disclosure relates (the "Parent
Disclosure Schedule"), or (ii) as specifically described through express
disclosure of specific facts set forth or incorporated by reference in Parent's
Annual Report on Form 10-K for the fiscal year ended April 30, 1999 or in any
other filing by Parent with the SEC filed after the date of filing such Form
10-K and prior to the date hereof, to the extent the relevancy of such
disclosure to such particular representation and warranty is readily apparent,
Parent and Merger
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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 Delaware. Each of Parent and Merger Subsidiary has all requisite
corporate power and authority to own, lease, and operate its properties and to
carry on its business as now being conducted, except where the failure to be so
organized, existing or in good standing or to have such corporate power and
authority would not, individually or in the aggregate, have a Parent Material
Adverse Effect (as defined below). Each of Parent and Merger Subsidiary is duly
qualified and in good standing to do business in each jurisdiction in which the
property owned, leased, or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified or in good standing would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect (as defined
below). "Parent Material Adverse Effect" means an effect that 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 stockholder of Merger Subsidiary,
and no other action of Parent's or Merger Subsidiary's Boards of Directors or
corporate proceeding on the part of Parent and Merger Subsidiary, and no vote,
consent, or approval of Parent's shareholders, are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. The Merger has
been declared advisable by the Board of Directors of Merger Subsidiary. This
Agreement has been duly and validly executed and delivered by each of Parent and
Merger Subsidiary and, assuming due execution and delivery by the Company,
constitutes the valid and binding obligation of Parent and Merger Subsidiary,
enforceable against each of them in accordance with its terms, subject to laws
of general application relating to bankruptcy, insolvency, and the relief of
debtors and rules of law governing specific performance, injunctive relief, or
other equitable remedies.
4.3 CAPITALIZATION. As of August 25, 1999, the authorized capital stock of
Parent consisted of (a) 1,600,000,000 shares of Common Stock with a par value of
$.10 per share, of which there were 586,744,542 shares issued and outstanding
and no shares held in Parent's treasury, and (b) 2,500,000 shares of Preferred
Stock with a par value of $1.00 per share, of which there were no shares issued
and outstanding. The authorized capital stock of Merger Subsidiary consists of
2,500 shares of Merger Subsidiary Common Stock, 100 of which are issued and
outstanding and owned by Parent. All issued and outstanding shares of Parent
Common Stock and Merger Subsidiary Common Stock are, and the shares of Parent
Common Stock to be issued and delivered in the Merger pursuant to Article 1
hereof shall be, at the time of issuance and delivery, validly issued, fully
paid, nonassessable, and free of preemptive rights. The shares of Parent Common
Stock to be issued and delivered in the Merger
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pursuant to Article 1 hereof shall be registered under the 1933 Act and duly
listed for trading on the NYSE, subject to official notice of issuance.
4.4 CONSENTS AND APPROVALS. Except for (i) any applicable requirements of
the 1933 Act, the 1934 Act, state securities laws, the NYSE, the HSR Act, and
Foreign Merger Laws, and (ii) the filing and recordation of appropriate merger
documents as required by the DGCL, the authorization and approval by parent's
and Merger Subsidiary's Boards of Directors and 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 or Certificate of Incorporation or Bylaws
of Parent or Merger Subsidiary; (b) violate any statute, law, rule, regulation,
order, or decree of any Governmental Body or any nongovernmental self-regulatory
agency by which Parent or any of its subsidiaries or any of their respective
properties or assets may be bound; (c) require any filing with or permit,
consent, or approval to be obtained from any Governmental Body or any
nongovernmental self-regulatory agency; or (d) result in any violation or breach
of, or constitute (with or without due notice or lapse of time or both) a
default under, result in the loss of any material benefit under, or give rise to
any right of termination, cancellation, increased payments, or acceleration
under, or result in the creation of any Lien on any of the properties or assets
of Parent or its subsidiaries under, any of the terms, conditions, or provisions
of any note, bond, mortgage, indenture, license, franchise, permit, agreement,
or other instrument or obligation to which Parent or any of its subsidiaries is
a party, or by which any of them or any of their respective properties or assets
may be bound, except, in the case of clauses (b), (c) and (d), for any such
filings, permits, consents or approvals or violations, breaches, defaults, or
other occurrences that would not, individually or in the aggregate, 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
would not, individually or in the aggregate, 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, 1996 (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), subject, in the case of
unaudited interim financial statements, to the absence of notes and to year-end
adjustments, (ii) complied as of their respective dates in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, and (iii) fairly present in all material
respects the consolidated financial position of Parent 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 that were not and are
not expected to have a Parent Material Adverse Effect).
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
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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
Stockholders Meeting, or at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that no representation or warranty is made by Parent with respect to information
supplied by the Company or any affiliate of the Company specifically for
inclusion in the Registration Statement.
4.7 NO FINDERS. No act of Parent or Merger Subsidiary has given or will
give rise to any claim against any of the parties hereto for a brokerage
commission, finder's fee, or other like payment in connection with the
transactions contemplated herein, except for payments to US Bancorp Piper
Jaffray for financial advisory services to Parent in connection herewith.
4.8 ABSENCE OF UNDISCLOSED LIABILITIES. To the best of Parent's knowledge,
neither Parent nor any of its subsidiaries has any liabilities or obligations of
any nature (whether absolute, accrued, contingent or otherwise) except (a)
liabilities or obligations that are accrued or reserved against in the audited
consolidated balance of Parent as of April 30, 1999 contained in the Parent SEC
Filings or referred to in the notes thereto, (b) liabilities incurred since
April 30, 1999 in the ordinary course of business and of a type and in an amount
consistent with past practice, and (c) liabilities or obligations that would
not, individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect.
4.9 COMPLIANCE WITH LAWS. Neither Parent nor any of its subsidiaries is in
default or violation of any applicable federal, state, local or foreign laws,
ordinances, regulations, interpretations, judgments, decrees, injunctions,
permits, licenses, certificates, governmental requirements, orders or other
similar items of any court or other Governmental Body (and including those of
any nongovernmental self-regulatory agency and including environmental laws or
regulations), except for such defaults or violations that would not,
individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect. Parent and each of its subsidiaries has timely filed or
otherwise provided all registrations, reports, data and other information and
applications with respect to its Regulated Products required to be filed with or
otherwise provided to the FDA or any other Governmental Body with jurisdiction
over the manufacture, use of sale of the Regulated Products, and all regulatory
licenses or approvals in respect thereof are in full force and effect, except
where the failure to file timely such registrations, reports, data, information
and applications or the failure to have such licenses and approvals in full
force and effect would not, individually or in the aggregate, 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 would not, individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect.
4.11 ABSENCE OF MATERIAL ADVERSE CHANGES. Since April 30, 1999, there has
not been any (a) Parent Material Adverse Effect, (b) damage, destruction or
loss, not covered by insurance, that would, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect, or (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.
4.12 REORGANIZATION. Neither Parent nor, to the knowledge of Parent, any
of its subsidiaries has taken or agreed to take any action (other than actions
contemplated by this Agreement) that would prevent the Merger from constituting
a reorganization qualifying under Sections 368(a)(2)(E) and 368(a)(1)(B) of the
Code. Parent is not aware of any agreement, plan or other circumstances that
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would prevent the Merger from so qualifying under Sections 368(a)(2)(E) and
368(a)(1)(B) of the Code.
4.13 MERGER FILINGS. The information as to Parent and Merger Subsidiary or
any of their affiliates or shareholders included in Parent's filing, or
submitted to the Company for inclusion in its filing, if any, required to be
submitted under the HSR Act or under any Foreign Merger Laws shall be true,
correct, and complete in all material respects and shall comply in all material
respects with the applicable requirements of the HSR Act, the rules and
regulations issued by the Federal Trade Commission pursuant thereto, and Foreign
Merger Laws.
ARTICLE 5
COVENANTS
5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this
Agreement or as set forth in Section 5.1 of the Company Disclosure Schedule,
unless Parent shall otherwise consent in writing (such consent not to be
unreasonably withheld or delayed), during the period from the date of this
Agreement to the Effective Time, the Company and each Subsidiary will 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, 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 Certificate of Incorporation or Bylaws;
(b) authorize for issuance, issue, sell, pledge, or deliver (whether
through the issuance or granting of additional options, warrants,
commitments, subscriptions, rights to purchase, or otherwise) any stock of
any class or any securities convertible into shares of stock of any class
(other than the issuance of shares of Company Common Stock pursuant to the
exercise of stock options outstanding on the date of this Agreement);
(c) split, combine, or reclassify any shares of its capital stock,
declare, set aside, or pay any dividend or other distribution (whether in
cash, stock, or property or any combination thereof) in respect of its
capital stock; or redeem or otherwise acquire any shares of its capital
stock or 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
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contributions to, or investments in, any other person; or create, incur or
assume any material Lien on any material asset;
(e) (i) increase in any manner the compensation of any of its directors,
officers, employees, or consultants, or accelerate the payment of any such
compensation, except in each case in the ordinary course of business and
consistent with past practice (including, without limitation, annual year
end increases and accelerated payments customarily made upon termination of
employment) or consistent with existing contractual commitments or as
required by applicable law; (ii) pay or accelerate or otherwise modify in
any material respect the payment, vesting, exercisability, or other feature
or requirement of any pension, retirement allowance, severance, change of
control, stock option, or other employee benefit 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, materials and
supplies in the ordinary course of business consistent with past practice;
(h) make or agree to make any new capital expenditure or expenditures,
except for capital expenditures not in excess of an aggregate $7,500,000;
(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), or enter into any contract, plan, agreement, understanding,
arrangement or obligation that restricts the Company's, or after the Merger
would restrict the Surviving Corporation's or Parent's, ability to conduct
any line of business;
(k) change in any material respect its general credit policy as to sales
of inventories or collection of receivables or its inventory consignment
practices;
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(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;
(n) institute, settle, or compromise any claim, action, suit, or
proceeding pending or threatened by or against it involving amounts in
excess of $1,000,000, at law or in equity or before any Governmental Body
(including, but not limited to, the FDA) or any nongovernmental
self-regulatory agency;
(o) knowingly take any action that would render any representation,
warranty, covenant, or agreement of the Company in this Agreement inaccurate
or breached such that the conditions in Section 6.2 will not be satisfied as
of the Closing Date; 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 Parent's capital stock (whether
by merger, consolidation, reorganization or otherwise), declare, set aside
or pay any 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 and excluding Parent's regular quarterly cash
dividends) in respect of Parent's capital stock, or redeem or otherwise
acquire (other than as would not violate Section 5.21) any shares of
Parent's capital stock or amend or alter any material term of any of
Parent's outstanding securities;
(b) 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;
(c) knowingly take any action that would result in a failure to maintain
the trading of Parent Common Stock on the NYSE;
(d) 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
(e) agree, whether in writing or otherwise, to do any of the foregoing.
5.3 NO SOLICITATION. The Company and its Subsidiaries shall not, and shall
cause their respective officers, directors, employees, representatives, agents,
or affiliates (including, but not limited to any investment banker, attorney, or
accountant retained by the Company or any Subsidiary), not to, directly or
indirectly, solicit, knowingly encourage, initiate, or participate in any way in
discussions or negotiations with, or knowingly provide any nonpublic information
to, any corporation, partnership, person, or other entity or group (other than
Parent or any affiliate or agent of Parent) concerning any proposed Alternative
Transaction, or otherwise knowingly facilitate any effort or attempt to make or
implement an Alternative Transaction. For purposes of this Agreement,
"Alternative Transaction" shall mean any of the following involving the Company
or any Subsidiary: (i) any tender offer, exchange offer, merger, consolidation,
share exchange, business combination or similar transaction involving capital
stock of the Company or any material Subsidiary; (ii) any transaction or series
of related
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transactions pursuant to which any person or entity (or its shareholders), other
than Parent, or Merger Subsidiary or any of their affiliates (a "Third Party")
acquires shares (or securities exercisable for or convertible into shares)
representing more than 20% of the outstanding shares of any class of capital
stock of the Company or any material Subsidiary; or (iii) any sale, lease,
exchange, licensing, transfer or other disposition pursuant to which a Third
Party acquires control of more than 20% of the assets (including, but not
limited to, intellectual property assets) of the Company and its Subsidiaries
taken as a whole (determined by reference to the fair market value of such
assets), in a single transaction or series of related transactions. The Company
will immediately terminate all discussions with Third Parties concerning any
proposed Alternative Transaction, and will request that such Third Parties
promptly return any confidential information furnished by the Company in
connection with any proposed Alternative Transaction. The Company will not waive
any provision of any confidentiality, standstill or similar agreement entered
into with any third party regarding any proposed Alternative Transaction, and
prior to the Closing shall enforce all such agreements in accordance with their
terms. The Company will promptly communicate to Parent the name of the person or
entity submitting, and the terms and conditions of, any proposal or written
inquiry that it receives after the date hereof in respect of any proposed
Alternative Transaction or a reasonably detailed description of any such
information requested from it after the date hereof or of any such negotiations
or discussions being sought to be initiated or continued with the Company after
the date hereof in respect of a proposed Alternative Transaction; provided,
however, that this Agreement shall not prohibit the Board of Directors of the
Company from (i) prior to the Required Company Stockholder Vote, furnishing
nonpublic information to or entering into discussions or negotiations with, any
person or entity that makes an unsolicited Superior Proposal (as defined below),
if, and only to the extent that, (a) such action is so required under applicable
law in order for the Board of Directors to comply with its applicable fiduciary
duties to its stockholders imposed by law, (b) prior to first furnishing
nonpublic information to, or first entering into substantive discussions and
negotiations with, such person or entity after the date hereof, the Company (I)
(x) releases Parent from the 18-month standstill provisions of the
Confidentiality Agreement (as defined in Section 5.4(b)) with respect to any
proposal submitted by Parent to the Company's Board of Directors for a
transaction that, by the proposal's terms, would only be consummated with the
cooperation and approval of the Company's Board of Directors (which proposal
shall be submitted by Parent on a confidential basis unless the Company or such
person or entity proposing the Superior Proposal publicly discloses the Superior
Proposal), and (y) provides at least 24 hours' prior written notice to Parent to
the effect that it intends to furnish information to, or enter into discussions
or negotiations with, such person or entity, and naming and identifying the
person or entity making the Superior Proposal, and (II) receives from such
person or entity an executed confidentiality and standstill agreement with terms
no less favorable to the Company than the Confidentiality Agreement (as defined
in Section 5.4(b)) entered into with Parent as modified by clause (I)(x) of this
sentence, and (c) the Company concurrently provides Parent with all non-public
information to be provided to such person or entity that Parent has not
previously received from the Company, and the Company keeps Parent informed, on
a regular basis as frequently as reasonably requested by Parent, of the status,
terms and conditions and all other material information with respect to any such
discussions or negotiations; and (ii) to the extent applicable, complying with
Rule 14e-2 or 14d-9 promulgated under the 1934 Act with regard to a proposed
Alternative Transaction. Nothing in this section shall (x) permit the Company to
terminate this Agreement (except as specifically provided in Article 7 hereof),
or (y) permit the Company to enter into any agreement providing for an
Alternative Transaction (other than the confidentiality and standstill agreement
as provided, and in the circumstances and under the conditions set forth, above)
for as long as this Agreement remains in effect. For purposes of this Agreement,
a "Superior Proposal" shall mean a proposal for an Alternative Transaction that
the Board of Directors of the Company has reasonably and in good faith
determined (with the advice of its financial advisors and taking into account
all legal, financial and regulatory aspects of the likelihood of the
consummation of such Alternative Transaction, including, but not limited to, the
conditions to consummation and the consequences under such Alternative
Transaction
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proposal of any material adverse effects or changes in the Company) to be more
favorable to the Company's stockholders than the transactions contemplated by
this Agreement.
5.4 ACCESS AND INFORMATION.
(a) Except as required pursuant to any confidentiality agreement or
similar agreement or arrangement to which the Company or any of its
Subsidiaries is a party (in which case the Company shall use 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 December
12, 1997, between Parent and the Company, as supplemented by an agreement
dated August 6, 1999 (as so supplemented, the "Confidentiality Agreement").
5.5 APPROVAL OF STOCKHOLDERS; PROXY STATEMENT; REGISTRATION STATEMENT.
(a) The Company shall promptly take all action necessary in accordance
with the DGCL and the Company's Certificate of Incorporation and Bylaws to
cause a special meeting of the Company's stockholders (the "Company
Stockholders Meeting") to be duly called and held as soon as reasonably
practicable following the date upon which the Registration Statement (as
defined below) becomes effective for the purpose of voting upon the Merger
and the adoption and approval of this Agreement and at such Meeting to
submit this Agreement and the Merger to a vote of the stockholders. The
stockholder vote or consent required for adoption and approval of this
Agreement and the approval of the Merger shall be no greater than that set
forth in the DGCL and the Company's Certificate of Incorporation as
previously provided to Parent. Accordingly, the Company represents and
warrants that the affirmative vote of the holders of record of a majority of
the shares of Company Common Stock outstanding on the record date for the
Company Stockholders Meeting is all that is necessary to obtain stockholder
adoption and approval of this Agreement and approval of the Merger. The
Company shall use reasonable best efforts to obtain the adoption and
approval by the Company's stockholders of this Agreement and the approval by
the Company's stockholders of the Merger, unless otherwise required under
applicable law in order for the Board of Directors to comply with its
applicable fiduciary duties to its stockholders imposed by law. In
accordance therewith, the Company shall, with the cooperation of Parent,
prepare and file, as soon as reasonably practicable, a proxy
statement/prospectus
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included as part of the Registration Statement (such proxy
statement/prospectus, together with notice of meeting, form of proxy, and
any letter or other materials to the Company's stockholders included therein
are referred to in this Agreement as the "Proxy Statement/Prospectus").
Parent shall furnish to the Company all information concerning Parent and
its subsidiaries, officers, directors and shareholders, and shall take such
other action and otherwise cooperate, as the Company may reasonably request
in connection with any such action. The Company shall use reasonable best
efforts to cause the definitive Proxy Statement/Prospectus to be mailed to
the stockholders of the Company, as soon as reasonably practicable after the
Registration Statement shall have become effective, with the date of mailing
as mutually determined by the Company and Parent. The Proxy
Statement/Prospectus shall include the recommendation of the Company's Board
of Directors in favor of the Merger, unless otherwise required under
applicable law in order for the Board of Directors to comply with its
applicable fiduciary duties to its stockholders imposed by law. Unless and
until this Agreement is validly terminated pursuant to Article 7, nothing
herein shall limit or eliminate in any way the Company's obligation to call,
give notice of, convene and hold the Company Stockholders Meeting and at
such meeting submit this Agreement and the Merger to a vote of the Company's
stockholders (and not postpone or adjourn such meeting or the vote by the
Company's stockholders upon this Agreement and the Merger to another date
without Parent's approval, not to be unreasonably withheld if and only to
the extent such postponement or adjournment is required by law or by SEC or
Nasdaq regulation).
(b) Parent shall, with the cooperation of the Company, prepare and file,
as soon as reasonably practicable, a registration statement under the 1933
Act registering the shares of Parent Common Stock to be issued in the Merger
(the "Registration Statement"), which Registration Statement shall include
the Proxy Statement/Prospectus. Parent will use commercially reasonable
efforts to have the Registration Statement declared effective by the SEC as
promptly thereafter as practicable. Parent shall also take any action
required to be taken under state blue sky or securities laws in connection
with the issuance of Parent Common Stock pursuant to the Merger. The Company
shall furnish to Parent all information concerning the Company and its
Subsidiaries and the holders of its capital stock, and shall take such other
action and otherwise cooperate, as Parent may reasonably request in
connection with any such action.
(c) Parent shall notify the Company promptly (i) of the receipt of the
comments of the SEC, (ii) of any request by the SEC for amendments or
supplements to the Registration Statement, (iii) of the time when the
Registration Statement has become effective or any supplement or amendment
has been filed, or the issuance of any stop order and (iv) of the suspension
of the qualification of the Parent Common Stock issuable in connection with
the Merger for offering or sale in any jurisdiction and shall supply the
Company with copies of all correspondence with the SEC with respect to the
Registration Statement.
(d) If at any time prior to the Effective Time, any event or
circumstance relating to the Company, any Subsidiary, or the Company's
officers or directors should occur and be discovered by the Company that is
required to be described in an amendment or supplement to the definitive
Proxy Statement/Prospectus or the Registration Statement, the Company shall
promptly inform Parent. If at any time prior to the Effective Time, any
event or circumstance relating to Parent or any of its subsidiaries or their
respective officers or directors should occur and be discovered by Parent
that is required to be described in an amendment or supplement to the
definitive Proxy Statement/Prospectus or the Registration Statement, Parent
shall promptly inform the Company. Whenever any event occurs that should be
described in an amendment of, or supplement to, the definitive Proxy
Statement/Prospectus or the Registration Statement, the Company or Parent,
as the case may be, shall, upon learning of such event, promptly notify the
other and consult and cooperate with the other in connection with the
preparation of a mutually acceptable amendment or supplement. The parties
shall promptly file such amendment or supplement with the SEC and
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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 C, executed by each of the
Affiliates of the Company identified in the foregoing list, who were
available, and shall use reasonable best efforts to deliver or cause to be
delivered to Parent as soon as practicable after the date hereof such an
affiliate's letter executed by any Affiliate who was not available to sign
and deliver such letter on or prior to the date hereof and by any additional
persons who, to the knowledge of the Company, become Affiliates after the
date hereof. Parent shall be entitled to place legends as specified in such
affiliates' letters on the certificates evidencing any of the Parent Common
Stock received by such Affiliates pursuant to the terms of this Agreement,
and to issue appropriate stop transfer instructions to the transfer agent
for the Parent Common Stock, consistent with the terms of such letters.
(b) For so long as resales of shares of Parent Common Stock issued
pursuant to the Merger are subject to the resale restrictions set forth in
Rule 145 under the 1933 Act, Parent will use commercially reasonable efforts
to comply with Rule 144(c)(1) under the 1933 Act.
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
"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 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.
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5.10 REGULATORY APPROVALS.
(a) The Company and Parent each agree to use commercially reasonable
efforts to take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things as may be necessary under federal or state
securities laws or the HSR Act or Foreign Merger Laws applicable to or
necessary for, and will file as soon as reasonably practicable and, if
appropriate, use commercially reasonable efforts to have declared effective
or approved all documents and notifications with the SEC and other
governmental or regulatory bodies (including, without limitation, the FDA
and equivalent foreign regulatory bodies, and other foreign regulatory
bodies that administer Foreign Merger Laws, and any foreign labor councils
or bodies as may be required) that they deem necessary or appropriate for,
the consummation of the Merger or any of the other transactions contemplated
hereby, and each party shall give the other information reasonably requested
by such other party pertaining to it and its subsidiaries and affiliates to
enable such other party to take such actions.
(b) Although the parties do not anticipate any legislative,
administrative or judicial objection to the consummation of the Merger or
any of the transactions contemplated by this Agreement, each of the Company,
Parent and Merger Subsidiary agrees to use commercially reasonable efforts
vigorously to contest and resist any action, including legislative,
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent) (an "Order") that is in effect and that
restricts, prevents or prohibits the consummation of the Merger or any of
the other transactions contemplated by this Agreement, including, without
limitation, by vigorously pursuing available avenues of administrative and
judicial appeal. Each of the Company, Parent and Merger Subsidiary also
agrees to use commercially reasonable efforts to take any and all actions
necessary to avoid or eliminate each and every impediment under any
antitrust law that may be asserted by any governmental antitrust authority
or any other party so as to enable the parties to close by the date
specified in Section 7.1(b) the transactions contemplated hereby.
Notwithstanding the foregoing provisions of this Section 5.10 or anything in
this Agreement to the contrary, nothing shall require Parent or Merger
Subsidiary to make or agree to make, or to cause or permit the Company or
any Subsidiary to make or agree to make, any divestiture of any portion of
any business or assets of Parent, Merger Subsidiary, the Company, or any of
their affiliates in order to obtain any waiver, consent or approval, and
neither Parent nor Merger Subsidiary shall be required to hold separate or
otherwise take or commit to take any action that limits its freedom of
action with respect to, or its ability to retain, as of and after the
Closing any businesses or assets of the Company, Parent or any of their
respective affiliates.
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 included in the list of
"Affiliates" referenced in Section 5.7 have executed and delivered as of the
date hereof Agreements to Facilitate Merger in the form attached hereto as
EXHIBIT D (the "Agreement to Facilitate Merger"), pursuant to which each such
person has agreed to vote his or her shares of Company Common Stock in favor of
the Merger at the Company Stockholders Meeting. The Company will use reasonable
best efforts to have all other such Affiliates execute and deliver to Parent
Agreements to Facilitate Merger as soon as practicable after the date hereof.
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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 E (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 equals
19.9% of the aggregate number of outstanding shares of Company Common Stock at
an exercise price equal to $60.00 per share. Such option shall become
exercisable only in the events described in the Stock Option Agreement.
5.14 NYSE LISTING APPLICATION. Parent shall promptly prepare and submit to
the NYSE a listing application for the Parent Common Stock to be issued in the
Merger pursuant to Article 1 of this Agreement and pursuant to the Company
Options assumed by Parent, and shall use 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 Certificate of Incorporation and the bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification,
payment of fees and expenses and exculpation from liability set forth in the
Company's Certificate of Incorporation and bylaws on the date of this
Agreement, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner
that would adversely affect the rights thereunder of individuals who on or
at any time prior to the Effective Time were directors, officers, employees
or agents of the Company, 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 Certificate 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 six years after the Effective Time, Parent shall
cause to be maintained in effect the Company's current directors' and
officers' liability insurance policy with respect to claims arising from
facts or events that occurred at or prior to the Effective Time; provided,
however, that (i) Parent may substitute therefor coverage under Parent's
directors' and officers' liability insurance or coverage under other
policies providing coverage on terms and conditions that are no less
advantageous to such persons than the Company's current insurance, and (ii)
Parent may satisfy its obligations hereunder by extending the discovery or
reporting period under such policy for six years from the Effective Time to
maintain in effect directors' and officers' liability insurance covering
pre-acquisition acts (including acts in connection with this Agreement and
the transactions contemplated hereby) for 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 200% 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 200% amount, Parent shall be obligated to obtain such
coverage as is available for a cost per year not exceeding such amount. The
Company represents that Section 5.15(b) of the Company Disclosure Schedule
sets forth the annual premium currently paid by the Company for such
insurance.
(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
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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 all other individuals
who on or at any time prior to the Effective Time were directors, officers,
employees or agents of the Company or any Subsidiary, and shall be binding
on all successors and assigns of Parent and the Surviving Corporation.
5.16 LETTERS OF THE COMPANY'S AND PARENT'S ACCOUNTANTS.
(a) The Company shall cooperate with Parent and use its reasonable
efforts to cause to be delivered to Parent and the Company the following
letters from Ernst & Young LLP addressed to the Company: (i) a letter dated
the date of this Agreement, stating that they concur with the Company's
management's conclusions as to the appropriateness of pooling of interest
accounting for the Merger under APB 16 and applicable SEC rules and
regulations if closed and consummated in accordance with this Agreement; and
(ii) a letter dated as of the Closing Date stating that they concur with the
Company's management's conclusions as to the appropriateness of pooling of
interest accounting for the Merger under APB 16 and applicable SEC rules and
regulations if closed and consummated in accordance with this Agreement.
(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 Pricewaterhouse Coopers LLP addressed to Parent: (i)
a letter dated the date of this Agreement, stating that they concur with
Parent's management's conclusions as to the appropriateness of pooling of
interest accounting for the Merger under APB 16 and applicable SEC rules and
regulations if closed and consummated in accordance with this Agreement; and
(ii) a letter dated as of the Closing Date stating that they concur with
Parent's management's conclusions as to the appropriateness of pooling of
interest accounting for the Merger under APB 16 and applicable SEC rules and
regulations if closed and consummated in accordance with this Agreement.
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. To the extent
Parent satisfies its obligations under this Section by maintaining Company
benefit plans, Parent shall not be required to include employees of the
Company in Parent's benefit plans. From and after the Effective Time, Parent
shall honor or cause the Surviving Corporation to 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
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with the Company or such Subsidiary, as the case may be. Except as required
by law or the applicable plan with respect to foreign pension benefit plans,
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.
5.19 OBLIGATIONS OF MERGER SUBSIDIARY. Parent shall take all action
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and subject to the
conditions set forth in this Agreement.
5.20 PLAN OF REORGANIZATION. This Agreement is intended to constitute a
"plan of reorganization" within the meaning of Section 1.368-2(g) of the income
tax regulations promulgated under the Code. From and after the date of this
Agreement, 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 that
could prevent the Merger from qualifying as a reorganization under the
provisions of Sections 368(a)(2)(E) and 368(a)(1)(B) 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
(i) has the effect of making the Merger illegal or otherwise prohibiting the
consummation of the Merger, or (ii) would impose any material limitation on
the ability of Parent to effectively exercise full rights of ownership of
the Company or the assets or business of the Company.
(b) STOCKHOLDER APPROVAL. The approval of the stockholders of the
Company referred to in Section 5.5 hereof shall have been obtained, in
accordance with the DGCL and the Company's Certificate of Incorporation and
Bylaws.
(c) REGISTRATION STATEMENT. The Registration Statement (as amended or
supplemented) shall have become effective under the 1933 Act and shall not
be subject to any "stop order," and no action, suit, proceeding, or
investigation by the SEC to suspend the effectiveness or qualification
thereof shall have been initiated and be continuing.
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(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. The representations and
warranties of the Company contained in this Agreement, without regard to any
qualification or reference to "Company Material Adverse Effect," shall be
true and correct on the Closing Date as though such representations and
warranties were made on such date, except that those representations and
warranties that address matters only as of the date hereof or another
particular date shall remain true and correct as of such date, and except in
any case for any inaccuracies of representations and warranties that,
individually or in the aggregate, have not had, or would not reasonably be
expected to have, a Company Material Adverse Effect; provided, however,
notwithstanding the foregoing, this Section 6.2(a) shall not be considered
fulfilled or satisfied if the representation and warranty set forth in the
last sentence of Section 3.3 is incorrect by more than 1,000 shares as of
the Closing Date. Parent shall have received a certificate to the foregoing
effect signed by the Chief Executive Officer of the Company or other
authorized Officer of the Company.
(b) PERFORMANCE. The Company shall have performed and complied in all
material respects with all material covenants required by this Agreement to
be performed or complied with by it 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) POOLING OPINION. Parent shall have received each of the letters
described in Section 5.16.
(e) CONTINUED EMPLOYMENT OF KEY EXECUTIVES. Neither the chief
executive officer nor the chief operating officer of the Company shall have
advised Parent or the Company that he intends to terminate his employment
with the Company following the Merger for any reason other than death or
disability.
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. The representations and
warranties 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 of representations and warranties that, individually or in the
aggregate, have not had, or would not reasonably be expected to have, a
Parent Material Adverse Effect. The Company shall have received a
certificate to the foregoing effect signed by the Chief Executive Officer or
other authorized officer of Parent.
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(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 Willkie
Farr & Gallagher, counsel to the Company, addressed to the Company's
stockholders, based upon representations of Parent, Merger Subsidiary and
the Company and normal assumptions, and dated on or about the date that is
two business days prior to the date the Proxy Statement/Prospectus is first
mailed to the Company's stockholders, which opinion shall not have been
withdrawn or modified in any material respect prior to the Effective Time,
to the effect that, subject to customary conditions and representations, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code, and that each of Parent,
Merger Subsidiary, and the Company will be considered a party to such
reorganization. Parent, Merger Subsidiary, and the Company hereby agree to
provide to such counsel certificates acceptable to such counsel setting
forth the customary representations which may be relied upon by such counsel
in rendering such opinion.
(d) POOLING OPINION. The Company shall have received each of the
letters described in Section 5.16.
ARTICLE 7
TERMINATION AND ABANDONMENT
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the stockholders of the
Company, only:
(a) by mutual written consent duly authorized by the Board of Directors
of Parent and the Board of Directors of the Company;
(b) by either Parent or the Company if the Merger shall not have been
consummated on or before February 26, 2000; provided, however, that the
terminating party shall not have breached in any material respect its
obligations under this Agreement in any manner that shall have been the
proximate cause of, or resulted in, the failure to consummate the Merger by
such date; and provided further, however, that, if a request for additional
information is received from the U.S. Federal Trade Commission ("FTC") or
Department of Justice ("DOJ") pursuant to the HSR Act or additional
information is requested by a governmental authority (a "Foreign Authority")
pursuant to Foreign Merger Laws, such date shall be extended for an
additional 45 days;
(c) by either Parent or the Company if a court of competent jurisdiction
or an administrative, governmental, or regulatory authority has issued a
final nonappealable order, decree, or ruling, or taken any other action,
having the effect of permanently restraining, enjoining, or otherwise
prohibiting the Merger;
(d) by either Parent or the Company if, at the Company Stockholders
Meeting, the requisite vote of the stockholders of the Company for approval
and adoption of this Agreement and the Merger is not obtained, except that
the right to terminate this Agreement under this Section 7.1(d) will not be
available to any party whose failure to perform any material obligation
under this Agreement has been the proximate cause of, or resulted in, the
failure to obtain the requisite vote of the stockholders of the Company;
(e) by Parent if either (i) the Company has breached its obligations
under Section 5.3 in any material respect, (ii) the Board of Directors of
the Company has recommended, approved, or
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authorized the Company's acceptance or execution of a definitive agreement
providing for, an Alternative Transaction, as defined in Section 5.3, (iii)
the Board of Directors of the Company has modified in a manner materially
adverse to Parent or withdrawn its recommendation of this Agreement, or (iv)
a tender offer or exchange offer for any outstanding shares of Company
Common Stock is commenced, and the Board of Directors of the Company either
(A) recommends in favor of acceptance of such tender offer or exchange offer
by its stockholders, or (B) takes no position with respect to the acceptance
of such tender offer or exchange offer by its stockholders;
(f) by the Company prior to the Required Company Stockholder Vote if (i)
it is not in material breach of its obligations under this Agreement and has
complied with, and continues to comply with, all requirements and procedures
of Section 5.3 in all material respects, (ii) the Board of Directors of the
Company has complied with, and continues to comply with, all requirements
and procedures of Section 5.3 in all material respects and has authorized,
subject to complying with the terms of this Agreement, the Company to enter
into a binding written agreement concerning a transaction that constitutes a
Superior Proposal and the Company notifies Parent in writing that it intends
to enter into such agreement, attaching the most current version of such
agreement to such notice, (iii) Parent does not make, within five business
days after receipt of the Company's written notice of its intention to enter
into a binding agreement for a Superior Proposal, any offer that the Board
of Directors of the Company reasonably and in good faith determines, after
consultation with its financial and legal advisors, is at least as favorable
to the stockholders of the Company as the Superior Proposal and during such
five business-day period the Company reasonably considers and discusses in
good faith all proposals submitted by Parent and, without limiting the
foregoing, meets with, and causes its financial advisors and legal advisors
to meet with, Parent and its advisors from time to time as requested by
Parent to reasonably consider and discuss in good faith Parent's proposals,
and (iv) promptly (in no event more than two business days) after the
Company's termination pursuant to this Section 7.1(f), the Company pays to
Parent the fee required by Section 7.2 to be paid to Parent in the manner
therein provided. The Company agrees (x) that it will not enter into a
binding agreement referred to in clause (ii) above until at least the sixth
business day after Parent has received the notice to Parent required by
clause (ii) above, and (y) to notify Parent promptly if its intention to
enter into a binding agreement referred to in its notice to Parent shall
change at any time after giving such notice;
(g) by Parent if (i) Parent is not in material breach of its obligations
under this Agreement and (ii) there has been a material breach by the
Company of any of its representations, warranties, or obligations under this
Agreement such that the conditions in Section 6.2 will not be satisfied
("Terminating Company Breach"); provided, however, that, if such Terminating
Company Breach is curable by the Company through the exercise of reasonable
best efforts and such cure is reasonably likely to be completed prior to the
applicable date specified in Section 7.1(b), then for so long as the Company
continues to exercise reasonable best efforts, Parent may not terminate this
Agreement under this Section 7.1(g); or
(h) by the Company if (i) the Company is not in material breach of its
obligations under this Agreement and (ii) there has been a material breach
by Parent of any of its representations, warranties, or obligations under
this Agreement such that the conditions in Section 6.3 will not be satisfied
("Terminating Parent Breach"); provided, however, that, if such Terminating
Parent Breach is curable by Parent through the exercise of reasonable best
efforts and such cure is reasonably likely to be completed prior to the
applicable date specified in Section 7.1(b), then for so long as Parent
continues to exercise reasonable best efforts, the Company may not terminate
this Agreement under this Section 7.1(h).
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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 Section
7.1(e)(ii), (e)(iii) or (e)(iv)(A); or
(ii) this Agreement is terminated by the Company pursuant to Section
7.1(f); or
(iii) (A) this Agreement is terminated by Parent or the Company
pursuant to Section 7.1(d) due to the failure of the Company's
stockholders to approve the Merger or pursuant to Section 7.1(b) due to
the expiration of the date specified therein (provided that prior to such
termination pursuant to Section 7.1(b) the Company's stockholders have
not approved the Merger), (B) at any time prior to such termination a
proposal for an "Alternative Control Transaction" (as defined below)
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 Control Transaction. For purposes of this
Agreement, "Alternative Control Transaction" shall mean any of the
following involving the Company or any material Subsidiary: (i) any
tender offer, exchange offer, merger, consolidation, share exchange,
business combination or similar transaction involving a majority of the
outstanding capital stock of the Company or any material Subsidiary; (ii)
any transaction or series of related transactions pursuant to which any
person or entity (or its shareholders), other than Parent, or Merger
Subsidiary or any of their affiliates (a "Third Party") acquires shares
(or securities exercisable for or convertible into shares) representing
more than 50% of the outstanding shares of any class of capital stock of
the Company or any material Subsidiary; or (iii) any sale, lease,
exchange, licensing, transfer or other disposition pursuant to which a
Third Party acquires control of more than 50% of the assets (including,
but not limited to, intellectual property assets) of the Company and its
Subsidiaries taken as a whole (determined by reference to the fair market
value of such assets), in a single transaction or series of related
transactions; or
(iv) this Agreement is terminated by Parent pursuant to Section
7.1(e)(iv)(B) and, within 12 months of the date of such termination, an
Alternative Control Transaction shall have occurred or the Company shall
have entered into an agreement providing for an Alternative Control
Transaction; or
(v) this Agreement is terminated by Parent pursuant to Section
7.1(e)(i) due to a material breach by the Company of the first sentence
of Section 5.3;
then, in any such event, the Company will pay to Parent, (1) promptly (in no
event more than two business days) after the termination date in the event
of termination pursuant to Section 7.1(f), and (2) within five business days
after demand by Parent in the case of termination pursuant to Section
7.1(e)(i), (e)(ii), (e)(iii), or (e)(iv)(A), and (3) within two business
days after consummation of an Alternative Control Transaction, in the case
of the events specified in clause (iii) or (iv) above (in each case by wire
transfer of immediately available funds to an account designated by Parent
for such purpose), a fee equal to $24,100,000; provided in the event the fee
is payable pursuant to one or more of clauses (i), (ii), (iii), (iv) or (v)
above, the fee shall be due and payable pursuant to the clause calling for
payment at the earliest time.
(b) The Company acknowledges that the agreements contained in this
Section 7.2 are an integral part of the transactions contemplated by this
Agreement and are not a penalty, and that, without these agreements, Parent
would not enter into this Agreement. If the Company fails to pay promptly
the fee due pursuant to this Section 7.2, the Company shall also pay to
Parent Parent's
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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.
(c) Parent agrees that the payments provided for in Section 7.2(a) 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 sum stipulated in such Section 7.2(a),
regardless of the circumstances giving rise to such termination; PROVIDED,
HOWEVER, that nothing herein shall relieve any party from liability for the
willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement. In no event shall the Company be
required to pay to Parent more than one fee pursuant to Section 7.2(a). In
no event shall the sum of (i) the termination fee paid pursuant to Section
7.2(a), (ii) the Cancellation Amount (as defined in the Stock Option
Agreement) paid pursuant to the Stock Option Agreement, and (iii) the
aggregate Option Share Profit (as defined in the Stock Option Agreement) not
remitted to the Company pursuant to Section 2(c) of the Stock Option
Agreement exceed $30,100,000. In addition, the fee payable by the Company
pursuant to Section 7.2(a) shall be reduced (but not below zero) by any
Cancellation Amount paid pursuant to the Stock Option Agreement and any
Option Share Profit not remitted to the Company pursuant to Section 2(c) of
the Stock Option Agreement.
(d) Except as provided in the next sentence of this paragraph, in the
event of the termination of this Agreement pursuant to any paragraph of
Section 7.1, the obligations of the parties to consummate the Merger will
expire, and none of the parties will have any further obligations under this
Agreement except pursuant to Sections 5.4(b), 5.8, 7.2(a), 7.2(b) and 7.2(c)
and Article 8. Nothing herein shall relieve any party from liability for the
willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
ARTICLE 8
MISCELLANEOUS
8.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this Agreement
may be amended, modified, or supplemented only by written agreement of Parent,
Merger Subsidiary, and the Company at any time prior to the Effective Time with
respect to any of the terms contained herein; provided, however, that, after the
approval of this Agreement by the stockholders of the Company, no amendment may
be made that would reduce the amount or change the type of consideration into
which each share of Company Common Stock shall be converted upon consummation of
the Merger or which would otherwise require stockholder approval under
applicable law unless such stockholder approval shall have been obtained. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
8.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Parent or Merger
Subsidiary on the one hand, or the Company on the other hand, to comply with any
obligation, covenant, agreement, or condition 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
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consent by or on behalf of any party hereto, such consent shall be given in
writing. Merger Subsidiary agrees that any consent or waiver of compliance given
by Parent hereunder shall be conclusively binding upon Merger Subsidiary,
whether or not given expressly on its behalf.
8.3 INVESTIGATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
respective representations and warranties of Parent and the Company contained
herein or in any certificates or other documents delivered prior to or at the
Closing shall not be deemed waived or otherwise affected by any investigation
made by any party hereto. The representations, warranties and agreements in this
Agreement and in any certificate delivered pursuant hereto shall terminate at
the Effective Time, except that the agreements set forth in Articles I and II
and Sections 5.7(b), 5.8, 5.9, 5.15, 5.18, 5.19, 5.20, 5.21 and this Article
VIII shall survive the Effective Time.
8.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally by commercial
courier service or otherwise, or by telecopier, or three days after such notice
is mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or Merger Subsidiary, to it at:
Medtronic, Inc.
7000 Central Avenue, N.E.
Minneapolis, Minnesota 55402
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:
Xomed Surgical Products, Inc.
6743 Southpoint Drive North
Jacksonville, Florida 32216
FAX: (904) 279-7548
Attention: Jaime A. Frias, Esq.
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
FAX: (212) 728-8111
Attention: Steven J. Gartner, 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
A-38
<PAGE>
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. This Agreement shall be governed by the laws of the
State of Delaware (regardless of the laws that might otherwise govern under
applicable Delaware 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, except as provided in the following
sentence. Neither party shall, without such mutual agreement or the prior
consent of the other, file any documents or issue any statement or communication
to the public or to the press regarding this Agreement, or any of the terms,
conditions, or other matters with respect to this Agreement, except as required
by law or the rules of the NYSE or Nasdaq and then only (a) upon the advice of
such party's legal counsel; (b) to the extent required by law or the rules of
the NYSE or Nasdaq; and (c) following prior notice to, and consultation with,
the other party (which notice shall include a copy of the proposed statement or
communication to be issued to the press or public). The foregoing shall not
restrict Parent's or the Company's communications with their employees or
customers in the ordinary course of business.
8.11 ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules hereto and the Confidentiality Agreement referred to herein, embodies
the entire agreement and understanding of the parties hereto in respect of the
subject matter contained herein. This Agreement and the Confidentiality
Agreement supersede all prior agreements and the understandings between the
parties with respect to such subject matter.
8.12 SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the 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.
A-39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and Plan
of Merger as of the date first above written.
MEDTRONIC, INC.
By: /s/ MICHAEL D. ELLWEIN
-----------------------------------------
Michael D. Ellwein,
VICE PRESIDENT AND CHIEF DEVELOPMENT
OFFICER
MXS MERGER CORP.
By: /s/ MICHAEL D. ELLWEIN
-----------------------------------------
Michael D. Ellwein,
VICE PRESIDENT
XOMED SURGICAL PRODUCTS, INC.
By: /s/ JAMES T. TREACE
-----------------------------------------
Its: Chairman, President and CEO
-----------------------------------------
A-40
<PAGE>
ANNEX B
NOTE: MEDTRONIC COMPLETED A TWO-FOR-ONE STOCK SPLIT IN SEPTEMBER 1999 AFTER THE
PARTIES ENTERED INTO THE AGREEMENT AND PLAN OF MERGER AND DEUTSCHE BANK
SECURITIES INC. DELIVERED ITS OPINION. THIS ANNEX B IS A COPY OF DEUTSCHE BANK
SECURITIES INC.'S OPINION AS IT WAS DELIVERED. THE MEDTRONIC PER SHARE PRICES
AND CONVERSION RATIO STATEMENTS IN THIS ANNEX, THEREFORE, HAVE NOT BEEN ADJUSTED
TO REFLECT MEDTRONIC'S STOCK SPLIT.
<PAGE>
[LETTERHEAD OF DEUTSCHE BANK SECURITIES INC.]
August 26, 1999
The Board of Directors
Xomed Surgical Products, Inc.
6743 Southpoint Drive North
Jacksonville, Florida 32216
Members of the Board:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to Xomed Surgical Products, Inc. ("Xomed") in connection with the
proposed transaction involving Xomed and Medtronic, Inc. ("Medtronic") pursuant
to an Agreement and Plan of Merger, dated as of August 26, 1999 (the
"Agreement"), by and among Medtronic, MXS Merger Corp., a wholly owned
subsidiary of Medtronic ("Merger Subsidiary"), and Xomed, which provides, among
other things, for the merger of Merger Subsidiary with and into Xomed (the
"Merger"). As set forth more fully in the Agreement, as a result of the Merger,
each outstanding share of the common stock, par value $0.01 per share, of Xomed
(the "Xomed Common Stock") will be converted into the right to receive that
number of shares of the common stock, par value $0.10 per share, of Medtronic
(the "Medtronic Common Stock") equal to the Conversion Ratio (as defined below).
The Agreement provides that the Conversion Ratio will be that number of shares
of Medtronic Common Stock, based on the average of the daily closing sale prices
of a share of Medtronic Common Stock as reported on the New York Stock Exchange
(the "NYSE") Composite Tape (the "Medtronic Average Stock Price") for ten
consecutive NYSE trading days ending on and including the NYSE trading day that
is three NYSE trading days prior to the Xomed stockholders meeting in respect of
the Merger (the "Determination Period"), determined as follows: (i) if the
Medtronic Average Stock Price for the Determination Period is greater than
$66.60 and less than $81.40, then the Conversion Ratio will be $60.00 divided by
the Medtronic Average Stock Price for the Determination Period, (ii) if the
Medtronic Average Stock Price for the Determination Period is equal to or less
than $66.60, then the Conversion Ratio will be 0.9009; or (iii) if the Medtronic
Average Stock Price for the Determination Period is equal to or greater than
$81.40, then the Conversion Ratio will be 0.7371.
You have requested Deutsche Bank's opinion as to the fairness, from a
financial point of view, of the Conversion Ratio to the holders of Xomed Common
Stock.
In connection with Deutsche Bank's role as financial advisor to Xomed, and
in arriving at its opinion, Deutsche Bank has reviewed certain publicly
available financial and other information concerning Xomed and Medtronic and
certain internal analyses and other information furnished to or discussed with
it by Xomed, Medtronic and their respective advisors. Deutsche Bank has also
held discussions with members of the senior management of Xomed and Medtronic
regarding the business and prospects of their respective companies and the joint
prospects of a combined company. In addition, Deutsche Bank has (i) reviewed the
reported prices and trading activity for Xomed Common Stock and Medtronic Common
Stock, (ii) compared certain financial and stock market information for Xomed
and Medtronic with similar information for certain other companies whose
securities are publicly traded, (iii) reviewed the financial terms of certain
recent business combinations which it deemed comparable in whole or in part,
(iv) reviewed the terms of the Agreement, and (v) performed such other studies
and analyses and considered such other factors as it deemed appropriate.
Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning Xomed, Medtronic or the combined
company, including, without limitation, any financial information, forecasts or
projections considered in connection with the rendering of its opinion.
Accordingly, for
B-1
<PAGE>
Board of Directors
Xomed Surgical Products, Inc.
August 26, 1999
Page 2
purposes of its opinion, Deutsche Bank has assumed and relied upon the accuracy
and completeness of all such information and Deutsche Bank has not conducted a
physical inspection of any of the properties or assets, and has not prepared or
obtained any independent evaluation or appraisal of any of the assets or
liabilities, of Xomed or Medtronic. With respect to the financial forecasts and
projections made available to Deutsche Bank and used in its analyses, Deutsche
Bank has been advised and has assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of Xomed and Medtronic as to the matters covered thereby. Deutsche
Bank's opinion is necessarily based upon economic, market and other conditions
as in effect on, and the information made available to it as of, the date
hereof.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of
Xomed, Medtronic and Merger Subsidiary contained in the Agreement are true and
correct, Xomed, Medtronic and Merger Subsidiary will each perform all of the
covenants and agreements to be performed by it under the Agreement and all
conditions to the obligations of each of Xomed, Medtronic and Merger Subsidiary
to consummate the Merger will be satisfied without any waiver thereof. Deutsche
Bank has also assumed that all material governmental, regulatory or other
approvals and consents required in connection with the consummation of the
Merger will be obtained and that in connection with obtaining any necessary
governmental, regulatory or other approvals and consents, or any amendments,
modifications or waivers to any agreements, instruments or orders to which
either Xomed or Medtronic is a party or is subject or by which it is bound, no
limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect on Xomed
or Medtronic or materially reduce the contemplated benefits of the Merger to
Xomed, Medtronic or the combined company. In addition, you have informed
Deutsche Bank, and accordingly for purposes of rendering its opinion Deutsche
Bank has assumed, that the Merger is expected to qualify as a tax-free
reorganization for federal income tax purposes and be accounted for as a pooling
of interests. In connection with its opinion, Deutsche Bank was not authorized
to, and did not, solicit interest from any other party with respect to the
acquisition of all or a part of Xomed. Deutsche Bank is expressing no opinion as
to the price at which the Medtronic Common Stock will trade at any time.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of Xomed and is not a recommendation to any stockholder as to how such
stockholder should vote with respect to matters relating to the proposed Merger.
This opinion is limited to the fairness, from a financial point of view, of the
Conversion Ratio to the holders of Xomed Common Stock, and Deutsche Bank
expresses no opinion as to the merits of the underlying decision by Xomed to
engage in the Merger.
Deutsche Bank, as a customary part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. We have acted as financial
advisor to Xomed in connection with the Merger and will receive a fee for our
services, a significant portion of which is contingent upon the consummation of
the Merger and a portion of which is payable upon delivery of this opinion.
Deutsche Bank and its predecessors and affiliates have in the past provided
financial services to Xomed unrelated to the proposed Merger, for which services
Deutsche Bank and its predecessors and affiliates have received compensation.
Deutsche Bank maintains a market in Xomed Common Stock and Medtronic Common
Stock and regularly publishes research reports regarding the businesses and
securities of Xomed and Medtronic and other publicly traded companies in the
medical device industry. In the ordinary course of business, Deutsche Bank and
its
B-2
<PAGE>
Board of Directors
Xomed Surgical Products, Inc.
August 26, 1999
Page 3
affiliates also may actively trade or hold the securities and other instruments
and obligations of Xomed and Medtronic for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities, instruments or obligations.
Based upon and subject to the foregoing, it is Deutsche Bank's opinion that,
as of the date of this letter, the Conversion Ratio is fair, from a financial
point of view, to the holders of Xomed Common Stock.
Very truly yours,
/s/ Deutsche Bank Securities Inc.
DEUTSCHE BANK SECURITIES INC.
B-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Minnesota Statutes Section 302A.521, subd. 2, requires Medtronic to
indemnify a person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of the person with respect to
Medtronic, against judgments, penalties, fines, settlements, and reasonable
expenses, including attorneys' fees and disbursements, incurred by the person in
connection with the proceeding if certain statutory standards are met. In
addition, Section 302A.521, subd. 3, requires payment by Medtronic, upon written
request, of reasonable expenses in advance of final disposition of the
proceeding in certain circumstances. A decision as to required indemnification
is made by a disinterested majority of the board of directors present at a
meeting at which a disinterested quorum is present, or by a designated committee
of the board, by special legal counsel, by the shareholders, or by a court.
Section 302A.521 contains detailed terms regarding such right of indemnification
and reference is made thereto for a complete statement of such indemnification
rights.
Medtronic's Bylaws provide for indemnification by Medtronic to the full
extent permitted by Minnesota Statutes Section 302A.521, as now enacted or
hereafter amended, against and with respect to threatened, pending, or completed
actions, suits, or proceedings arising from, or alleged to arise from, a party's
actions or omissions as a director, officer, employee, or agent of Medtronic or
any subsidiary of Medtronic or of any other corporation, partnership, joint
venture, trust, or other enterprise that has served in such capacity at the
request of Medtronic if such acts or omissions occurred, or were or are alleged
to have occurred, while such party was a director or officer of Medtronic.
Generally, under Minnesota law, indemnification will be available only where an
officer or director can establish that he or she acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of Medtronic. As permitted by Minnesota Statutes Section 302A.521,
Medtronic's Restated Articles of Incorporation provide that a director shall
have no personal liability to Medtronic or its shareholders for breach of his or
her fiduciary duty as a director, to the fullest extent permitted by law.
In addition to providing indemnification as outlined above, Medtronic also
purchases individual insurance coverage for its directors and officers. Subject
to the stated conditions, the policy insures the directors and officers of
Medtronic against liability arising out of actions taken in their official
capacities. To the extent that such actions cannot be indemnified by Medtronic,
the policy provides individual liability insurance protection for the directors
and officers of Medtronic.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
2 * Agreement and Plan of Merger, dated August 26, 1999, by and among Medtronic, Inc.,
Xomed Surgical Products, Inc., and MXS Merger Corp., including the Exhibits thereto.
(The Agreement and Plan of Merger is furnished as Annex A to the Proxy
Statement/Prospectus forming a part of this Registration Statement.) Upon the request
of the Commission, Medtronic agrees to furnish supplementally to the Commission a copy
of any disclosure schedules to the Agreement and Plan of Merger.
5 * Opinion and Consent of Fredrikson & Byron, P.A. regarding validity of shares.
8.1 Opinion and Consent of Willkie Farr & Gallagher regarding certain tax matters.
23.1* Consent of Fredrikson & Byron, P.A. (included in Exhibit 5).
23.2 Consent of Willkie Farr & Gallagher regarding certain tax matters (included in Exhibit
8.1).
23.3 Consent of PricewaterhouseCoopers LLP, independent accountants for Medtronic, Inc.
23.4 Consent of Ernst & Young LLP, independent auditors for Xomed Surgical Products, Inc.
24 * Power of Attorney.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
99.1 Form of Proxy to be used by Xomed Surgical Products, Inc. shareholders.
99.2 Consent of Deutsche Bank Securities Inc.
</TABLE>
- ------------------------
* Previously Filed.
(b) Financial Statement Schedules. Not applicable.
(c) Reports, Opinions and Appraisals Materially Related to the Transaction.
Opinion of Deutsche Bank Securities Inc. is furnished as Annex B to the
Proxy Statement/Prospectus forming a part of this Registration Statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) (i) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(ii) The registrant undertakes that every prospectus [a] that is filed
pursuant to paragraph (b)(i) immediately preceding, or [b] that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<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 October 1, 1999.
MEDTRONIC, INC.
By: /s/ WILLIAM W. GEORGE
-----------------------------------------
William W. George
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
II-3
<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
October 1, 1999 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ------------------------------
<C> <S> <C>
Chairman, Chief Executive
/s/ WILLIAM W. GEORGE Officer and Director
- ------------------------------ (principal executive
William W. George officer)
Senior Vice President and
/s/ ROBERT L. RYAN Chief Financial Officer
- ------------------------------ (principal financial and
Robert L. Ryan accounting officer)
*
- ------------------------------ Director
Michael R. Bonsignore
*
- ------------------------------ Director
William R. Brody, M.D., Ph.D.
*
- ------------------------------ Director
Paul W. Chellgren
*
- ------------------------------ Director
Arthur D. Collins, Jr.
*
- ------------------------------ Director
Antonio M. Gotto, Jr., M.D.
*
- ------------------------------ Director
Bernadine P. Healy, M.D.
*By /s/ DAVID J.
SCOTT
-----------------
*
- ------------------------------ Director David J. Scott
Thomas E. Holloran ATTORNEY-IN-FACT
*
- ------------------------------ Director
Glen D. Nelson, M.D.
*
- ------------------------------ Director
Jean-Pierre Rosso
*
- ------------------------------ Director
Richard L. Schall
*
- ------------------------------ Director
Jack W. Schuler
*
- ------------------------------ Director
Gerald W. Simonson
*
- ------------------------------ Director
Gordon M. Sprenger
</TABLE>
II-4
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBIT INDEX
TO
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4 REGISTRATION STATEMENT
---------------------
- --------------------------------------------------------------------------------
MEDTRONIC, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2* Agreement and Plan of Merger, dated August 26, 1999, by and among Medtronic, Inc., Xomed Surgical
Products, Inc., and MXS Merger Corp., including the Exhibits thereto. (The Agreement and Plan of Merger
is furnished as Annex A to the Proxy Statement/Prospectus forming a part of this Registration Statement.)
Upon the request of the Commission, Medtronic agrees to furnish supplementally to the Commission a copy
of any disclosure schedules to the Agreement and Plan of Merger.
5* Opinion and Consent of Fredrikson & Byron, P.A. regarding validity of shares.
8.1 Opinion and Consent of Willkie Farr & Gallagher regarding certain tax matters.
23.1* Consent of Fredrikson & Byron, P.A. (included in Exhibit 5).
23.2 Consent of Willkie Farr & Gallagher regarding certain tax matters (included in Exhibit 8.1).
23.3 Consent of PricewaterhouseCoopers LLP, independent accountants for Medtronic, Inc.
23.4 Consent of Ernst & Young LLP, independent auditors for Xomed Surgical Products, Inc.
24* Power of Attorney.
99.1 Form of Proxy to be used by Xomed Surgical Products, Inc. shareholders.
99.2 Consent of Deutsche Bank Securities Inc.
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 8.1
[LETTERHEAD OF WILLKIE FARR & GALLAGHER]
October 4, 1999
Xomed Surgical Products, Inc.
6743 Southpoint Drive North
Jacksonville, FL 32216
Re: Agreement and Plan of Merger by and among MXS Merger Corp., Medtronic,
Inc., and Xomed Surgical Products, Inc. dated as of August 26, 1999.
Ladies and Gentlemen:
You have requested our opinion as to certain United States federal
income tax consequences of the merger ("Merger") of MXS Merger Corp. ("Merger
Subsidiary"), a Delaware corporation and a wholly-owned subsidiary of
Medtronic, Inc. ("Parent"), a Minnesota corporation, with and into Xomed
Surgical Products, Inc. ("Company"), a Delaware 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 August 26, 1999
("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 September 21, 1999, 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 as of the date hereof 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 considered a party to the reorganization within the meaning
of Section 368(b) of the Code.
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 Willkie Farr & Gallagher under
the captions "The Merger--Certain Federal Income Tax Consequences" and "Legal
Matters" in the Proxy Statement/Prospectus. It is intended and understood
that the shareholders of the Company will rely upon this opinion.
Very truly yours,
/s/ Willkie Farr & Gallagher
WILLKIE FARR & GALLAGHER
-2-
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of our report dated May 27, 1999 relating to the
financial statements of Medtronic, Inc. which appears in Medtronic's 1999
Annual Report - Financial Review, which is incorporated by reference in its
Annual Report on Form 10-K for the year ended April 30, 1999. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 16 of such Annual Report on Form
10-K. We also consent to the reference to us under the heading "Experts" in
this Registration Statement.
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
October 4, 1999
<PAGE>
Exhibit 23.4
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Medtronic, Inc.
for the registration of 23,063,040 shares by Medtronic, Inc. of its common
stock and to the incorporation by reference therein of our report dated
February 22, 1999, with respect to the consolidated financial statements of
Xomed Surgical Products, Inc., included in its Annual Report (Form 10-K) for
the year ended December 31, 1998, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Jacksonville, Florida
October 5, 1999
<PAGE>
Exhibit 99.1
XOMED SURGICAL PRODUCTS, INC.
SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned shareholder hereby appoints James T. Treace and Thomas
E. Timbie and each of them as proxies, each with full power of substitution,
to vote as designated below all shares of common stock of Xomed Surgical
Products, Inc. held of record as of September 29, 1999, which the undersigned
would be entitled to vote if personally present at the Special Meeting of
Shareholders to be held on November 5, 1999, at 10:00 a.m., local time, at
the Company's corporate headquarters, located at 6743 Southpoint Drive North,
Jacksonville, Florida, and at any adjournment or adjournments thereof, upon
the following matters:
Proposal to approve and adopt the Agreement and Plan of Merger
providing for the merger of MXS Merger Corp. into Xomed Surgical Products,
Inc., with Xomed Surgical Products, Inc. to be the surviving corporation and
a wholly-owned subsidiary of Medtronic, Inc., a copy of which Agreement and
Plan of Merger is attached as Annex A to the Proxy Statement/Prospectus for
the Special Meeting.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED AND TO BE SIGNED AND DATED ON THE OTHER SIDE)
This proxy will be voted as specified by the shareholder, but if no
choice is specified, this proxy will be voted FOR approval of the Agreement and
Plan of 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: , 1999
----------------
-----------------------------------------------
(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 FIRST UNION NATIONAL BANK, 1525
WEST WT HARRIS BOULEVARD, CHARLOTTE, NC
28288.
<PAGE>
Exhibit 99.2
[LETTERHEAD OF DEUTSCHE BANK SECURITIES INC.]
October 5, 1999
The Board of Directors
Xomed Surgical Products, Inc.
6743 Southpoint Drive North
Jacksonville, Florida 32216
Members of the Board:
We hereby consent to the inclusion of our opinion letter to the Board
of Directors of Xomed Surgical Products, Inc. ("Xomed") as Annex B to the
Proxy Statement/Prospectus of Xomed and Medtronic, Inc. ("Medtronic")
relating to the proposed merger transaction involving Xomed and Medtronic. In
giving such consent, we do not admit that we come within the category of
persons whose consent is required under, and we do not admit that we are
"experts" for purposes of, the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
By:/s/Deutsche Bank Securities Inc.
------------------------------
DEUTSCHE BANK SECURITIES INC.
