<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
SUNRISE MEDICAL INC.
AT
$10.00 NET PER SHARE
BY
V.S.M. ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
V.S.M. HOLDINGS, INC.
A WHOLLY OWNED SUBSIDIARY OF
V.S.M. INVESTORS, LLC
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON NOVEMBER 28, 2000 UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF
SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE ("COMMON STOCK"), OF SUNRISE
MEDICAL INC. (THE "COMPANY"), INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE
RIGHTS (THE "RIGHTS" AND, TOGETHER WITH THE COMMON STOCK, THE "SHARES"), WHICH
REPRESENTS AT LEAST A MAJORITY OF THE NUMBER OF THE SHARES OUTSTANDING ON A
FULLY DILUTED BASIS (ASSUMING THE EXERCISE OF ALL OUTSTANDING OPTIONS TO
PURCHASE SHARES (OTHER THAN OPTIONS HELD BY CERTAIN COMPANY EXECUTIVES WHO HAVE
ENTERED INTO AGREEMENTS NOT TO EXERCISE THEIR OPTIONS SO LONG AS THE AGREEMENT
AND PLAN OF MERGER, DATED AS OF OCTOBER 16, 2000 (THE "MERGER AGREEMENT") HAS
NOT BEEN TERMINATED) AND ANY OTHER RIGHTS TO ACQUIRE SHARES ON THE DATE OF
PURCHASE) (THE "MINIMUM CONDITION"), (II) ANY APPLICABLE WAITING PERIOD UNDER
THE HSR ACT (AS DEFINED HEREIN) (AND ANY EXTENSION THEREOF) HAVING EXPIRED OR
BEEN TERMINATED PRIOR TO THE EXPIRATION OF THE OFFER, (III) COMPLIANCE WITH ANY
APPLICABLE FOREIGN LEGAL REQUIREMENTS RELATING TO COMPETITION, AND
(IV) PURCHASER HAVING RECEIVED THE PROCEEDS OF THE FINANCING CONTEMPLATED BY THE
BANK COMMITMENT LETTERS (AS DEFINED HEREIN) ON THE TERMS AND CONDITIONS SET
FORTH THEREIN OR OTHERWISE ON TERMS REASONABLY SATISFACTORY TO THE PURCHASER IN
AMOUNTS SUFFICIENT TO PAY FOR ALL THE SHARES VALIDLY TENDERED PURSUANT TO THE
OFFER AND TO PAY ALL FEES AND EXPENSES RELATED TO THE OFFER (THE "FINANCING
CONDITION").
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD"), BASED ON THE
UNANIMOUS RECOMMENDATION OF A SPECIAL COMMITTEE OF THE COMPANY BOARD, HAS
UNANIMOUSLY (A) APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, (B) RESOLVED TO
RECOMMEND THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER, TENDER THEIR
SHARES PURSUANT TO THE OFFER AND ADOPT THE MERGER AGREEMENT, (C) DETERMINED THAT
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
OFFER AND THE MERGER, ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS
OF THE COMPANY, (D) DECLARED THE MERGER AND THE MERGER AGREEMENT TO BE
ADVISABLE, AND (E) RENDERED THE RIGHTS AGREEMENT (AS DEFINED BELOW) INAPPLICABLE
TO THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
--------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
--------------------------
<PAGE>
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (1) complete and sign the enclosed Letter of Transmittal
(or a facsimile thereof) in accordance with the instructions in the Letter of
Transmittal and mail or deliver it together with the certificate(s) evidencing
tendered Shares and any other required documents, to The Bank of New York (the
"Depositary"), (2) tender such Shares pursuant to the procedure for book-entry
transfer set forth in "The Tender Offer--Section 3" ("Procedures for Tendering
Shares") or (3) request such stockholder's broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for such stockholder.
Stockholders having Shares registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if they desire to tender
Shares so registered. Holders of Shares through the Profit Sharing/Savings Plan
should complete a Direction Form and deliver it to the American Express Trust
Company as the trustee.
In order to validly tender Shares, a stockholder must tender the associated
Rights. Unless a Distribution Date (as defined in the Rights Agreement) has
occurred, the tender of a Share will constitute the tender of the associated
Right.
A STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES
REPRESENTING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY
WITH THE PROCEDURE FOR BOOK-ENTRY TRANSFER ON A TIMELY BASIS, MAY TENDER SUCH
SHARES BY FOLLOWING THE PROCEDURES FOR GUARANTEED DELIVERY SET FORTH IN "THE
TENDER OFFER--SECTION 3" ("PROCEDURES FOR TENDERING SHARES").
Copies of this Offer to Purchase, the Letter of Transmittal or any related
documents must not be mailed to or otherwise distributed or sent in, into or
from any country where such distribution or offering would require any
additional measures to be taken or would be in conflict with any law or
regulation of such a country or any political subdivision thereof. Persons into
whose possession this document comes are required to inform themselves about and
to observe any such laws or regulations. This Offer to Purchase may not be used
for, or in connection with, any offer to, or solicitation by, anyone in any
jurisdiction or under any circumstances in which such offer or solicitation is
not authorized or is unlawful.
Questions and requests for assistance may be directed to MacKenzie
Partners, Inc. (the "Information Agent") at its address and telephone number set
forth on the back cover of this Offer to Purchase. Additional copies of this
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery or other related tender offer materials may also be obtained from the
Information Agent or from brokers, dealers, commercial banks or trust companies.
October 30, 2000
------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY TERM SHEET.......................................... i
INTRODUCTION................................................ 1
SPECIAL FACTORS............................................. 4
Background of the Transactions............................ 4
Recommendation of the Board of Directors; Fairness of the
Transactions.............................................. 11
Opinions of the Special Committee's Financial Advisors.... 12
Purpose and Structure of the Transactions................. 27
Appraisal Rights.......................................... 27
Certain Effects of the Transactions....................... 28
Future Plans in Addition to the Merger.................... 29
Interests of Certain Persons in the Transactions.......... 29
Financing of the Transactions............................. 33
The Merger Agreement...................................... 35
Effects of the Offer on the Markets for the Shares; Stock
Exchange Listing; Exchange Act Registration............... 44
THE TENDER OFFER............................................ 46
1. Terms of the Offer; Expiration Date................. 46
2. Acceptance for Payment and Payment for Shares....... 47
3. Procedure for Tendering Shares...................... 48
4. Withdrawal Rights................................... 51
5. Certain United States Federal Income Tax
Consequences............................................ 52
6. Price Range of Shares; Dividends.................... 53
7. Certain Information Concerning the Company.......... 53
8. Certain Information Concerning Purchaser, Holdings
and Parent.............................................. 57
9. Dividends and Distributions......................... 58
10. Certain Conditions of the Offer..................... 59
11. Certain Legal Matters and Regulatory Approvals...... 60
12. Fees and Expenses................................... 62
13. Miscellaneous....................................... 63
ANNEX A
OPINION OF DEUTSCHE BANK SECURITIES INC................... A-1
ANNEX B
OPINION OF BATCHELDER & PARTNERS, INC..................... B-1
</TABLE>
<TABLE>
<S> <C>
Schedule I Financial Information from the Company's Annual Report on
Form 10-K for the Fiscal Year ended June 30, 2000.
Schedule II Directors and Executive Officers of the Company
Schedule III Directors and Executive Officers of Parent, Holdings and the
Purchaser
Schedule IV Section 262 of the Delaware General Corporation Law
Schedule V Agreement and Plan of Merger, dated as of October 16, 2000,
among Parent, Holdings, the Purchaser and the Company
</TABLE>
<PAGE>
SUMMARY TERM SHEET
V.S.M. Acquisition Corp. is offering to buy all of the outstanding shares of
common stock of Sunrise Medical Inc. The tender price is $10.00 per share, net
to you in cash. Set out below are some of the questions you, as a stockholder of
Sunrise Medical Inc., may have and answers to those questions.
The information in this summary term sheet is not complete. The Offer to
Purchase and the Letter of Transmittal contain additional important information.
We urge you to carefully read all of the material about our offer that is sent
to you before you decide whether to accept our offer.
- WHO IS OFFERING TO BUY MY SECURITIES?
Our name is V.S.M. Acquisition Corp. We are a Delaware corporation formed
for the purpose of making this offer. We are a wholly-owned subsidiary of V.S.M.
Holdings, Inc., a Delaware corporation. See the "Introduction" and
Section 8--"Certain Information Concerning Purchaser, Holdings and Parent" of
the Offer to Purchase.
- WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER?
We are offering to buy all of the outstanding shares of common stock of
Sunrise Medical Inc. See the "Introduction" to this Offer to Purchase.
- HOW MUCH ARE YOU OFFERING TO PAY AND WHAT IS THE FORM OF PAYMENT?
We are offering to pay $10.00 per share, net to you, in cash.
- WILL I HAVE TO PAY ANY FEES OR COMMISSIONS?
If you are the record owner of your shares and you tender your shares to us
in the offer, you will not have to pay brokerage fees or similar expenses. If
you own your shares through a broker or other nominee, and your broker tenders
your shares on your behalf, your broker or nominee may charge you a fee for
doing so. You should consult your broker or nominee to determine whether any
charges will apply. See the "Introduction" to this Offer to Purchase.
- DO YOU HAVE THE FINANCIAL RESOURCES TO MAKE PAYMENT?
We have commitments (subject to customary conditions) from Bankers Trust
Company to provide up to $255 million (in the form of a combination of senior
loans and privately placed subordinated debt) and commitments (subject to
customary conditions) from Vestar Capital Partners IV, L.P. to provide the
balance of the required funds as equity financing. Park Avenue Equity Partners,
L.P. has agreed to provide to Vestar Capital Partners IV, L.P. (subject to
customary conditions) $20 million of the required equity financing. We believe
that these funds will be sufficient to finance both the offer and the merger and
to pay all fees and expenses related to the offer. See "Special Factors--The
Financing of the Transactions" in this Offer to Purchase.
- IS YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION ON WHETHER TO TENDER IN
THE OFFER?
We do not think that our financial condition is relevant to your decision
whether to tender shares and accept the offer because:
- the offer is being made for all outstanding shares;
- the offer price will be paid solely in the form of cash; and
- if we are successful with our offer, we will acquire all remaining shares
for the same cash price in the merger of Purchaser with and into the
Company.
<PAGE>
- HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
The offer will expire at 12:00 midnight, New York City time, on
November 28, 2000, unless we extend the offer. Please note that, if you cannot
deliver everything that is required in order to accept the offer by that time,
you may be able to use a guaranteed delivery procedure. The guaranteed delivery
procedure is described later in this Offer to Purchase. See Section 1--"Terms of
the Offer; Expiration Date" and Section 3--"Procedures for Tendering Shares" of
this Offer to Purchase.
- CAN THE OFFER BE EXTENDED, AND UNDER WHAT CIRCUMSTANCES?
Yes. We have agreed with Sunrise Medical Inc. that we may extend the offer
if:
- immediately prior to the expiration of the offer, any condition to the
offer has not been satisfied or waived; or
- required by law to extend the offer; or
- immediately prior to the expiration of the offer, if more than 50% but
less than 90% of the shares have been tendered and we agree to:
DEG. accept and promptly pay for all shares that have been duly tendered
and not withdrawn,
DEG. agree to accept and pay for all shares tendered during the extension
period when tendered, and
DEG. waive all conditions not then satisfied;
AND
- each such extension is for no more than 10 business days (unless otherwise
required by law).
In addition, we have agreed with Sunrise Medical Inc. that we must extend
the offer at its request if:
- the requirement that at least a majority of the outstanding shares of
Sunrise Medical Inc. have been tendered (and not withdrawn) has not been
satisfied; or
- other than due to a breach of the Merger Agreement by Sunrise
Medical Inc., there has been an action or proceeding or a threat in
writing of an action or proceeding by a governmental entity, a rule, order
or regulation by a governmental entity, or a court action that would
DEG. restrain, prohibit or materially delay the offer or the merger,
DEG. prohibit or restrict the ownership or operation by us of Sunrise
Medical Inc.'s business or assets,
DEG. force us to dispose of or hold separate any part of Sunrise
Medical Inc.'s business or assets,
DEG. limit our rights to acquire or hold or exercise rights over the
stock of Sunrise Medical Inc. or control its business and operations
or
DEG. obtain material damages from us for making the offer or completing
the merger; or
- a representation or warranty made by Sunrise Medical Inc. in the Merger
Agreement is untrue but is capable of being corrected within ten days by
Sunrise Medical Inc. using its reasonable best efforts; or
- a suspension of trading on the New York Stock Exchange, a banking
moratorium, a government-caused credit contraction, a war or other
international calamity involving the United States, a drop of 25% in the
Dow or the S&P 500 from the date of the Merger Agreement, or the worsening
of any of these conditions; or
ii
<PAGE>
- we have not received our financing; or
- United States or foreign antitrust legal requirements have not been
satisfied
AND
- each such extension is for no more than 10 business days and such
extensions total no more than 20 business days; or
- we are required by law to extend the offer.
Under no circumstances can the offer be extended beyond January 10, 2001
unless the parties mutually agree otherwise. See Section 1--"Terms of the Offer;
Expiration Date" of this Offer to Purchase.
- HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
If we extend the offer, we will inform The Bank of New York, the depositary
for the offer, of that fact. We will also make a public announcement of the
extension, not later than 9:00 a.m., New York City time, on the next business
day after the day on which the offer was scheduled to expire. See
Section 1--"Terms of the Offer; Expiration Date" of this Offer to Purchase.
- WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THE OFFER?
We are not obligated to buy any shares unless:
- at least a majority of the outstanding shares of Sunrise Medical Inc.
(assuming the exercise of all outstanding stock options other than the
options held by eleven executives who signed letter agreements with us)
are validly tendered and not withdrawn prior to the expiration of the
offer;
- we receive our financing; and
- we receive U.S. federal and foreign antitrust clearance for the
acquisition.
The offer is also subject to a number of other conditions. See the
"Introduction" and Section 10--"Certain Conditions of the Offer" of this Offer
to Purchase.
- HOW DO I TENDER MY SHARES?
If you wish to accept our offer, this is what you must do:
- If you are a record holder and have your stock certificate, you must
complete and sign the enclosed Letter of Transmittal and send it along
with your stock certificate to the depositary for the offer or follow the
procedures described in the offer for book-entry transfer. These materials
must reach The Bank of New York before the offer expires. Detailed
instructions are contained in the Letter of Transmittal and
Section 3--"Procedures for Tendering Shares" of this document.
- If you are a record holder but your stock certificate is not available or
you cannot deliver it to the depositary before the offer expires, you may
be able to tender your shares using the enclosed Notice of Guaranteed
Delivery. Please contact our information agent, MacKenzie Partners, Inc.
at (800) 322-2885 (toll free) or, if you live outside of the U.S. and
Canada, at (212) 929-5500 (call collect) or by e-mail at
[email protected], for assistance. See Section 3--"Procedures
for Tendering Shares" for further details.
- If you hold your shares through a broker or bank, you should contact your
broker or bank and give instructions that your shares be tendered.
- If you hold your shares through Sunrise Medical Inc.'s Profit
Sharing/Savings Plan ("401(k) Plan"), you should fill out the Direction
Form and deliver it to the American Express Trust Company, as trustee for
the 401(k) Plan.
See Section 3--"Procedures for Tendering Shares" of this Offer to Purchase.
iii
<PAGE>
- UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES?
You can withdraw shares at any time until the offer has expired. In
addition, if we have not agreed to accept your shares for payment by
November 28, 2000 you can withdraw them at any time after that date until we
accept any shares for payment. See Section 1--"Terms of the Offer; Expiration
Date" and Section 4-"Withdrawal Rights" of this Offer to Purchase.
- HOW DO I WITHDRAW PREVIOUSLY TENDERED SHARES?
To withdraw shares, you must deliver a written notice of withdrawal, or a
copy of one, with the required information to The Bank of New York, the
depositary for the offer, while you still have the right to withdraw the shares.
If you tendered your shares by giving instructions to a broker or nominee, you
must instruct your broker or nominee or the American Express Trust Company to
arrange for the withdrawal of your shares. See Section 4--"Withdrawal Rights" of
this Offer to Purchase.
- WHAT DOES THE SUNRISE MEDICAL INC. BOARD OF DIRECTORS THINK OF THE OFFER?
We are making the offer pursuant to an agreement and plan of merger among us
and Sunrise Medical Inc. The board of directors of Sunrise Medical Inc. has
unanimously approved the Merger Agreement, our tender offer and our proposed
merger with and into Sunrise Medical Inc. Following the proposed merger, Sunrise
Medical Inc. will be the surviving corporation and a direct wholly owned
subsidiary of V.S.M. Holdings, Inc. The board of directors of Sunrise
Medical Inc. has determined that the terms of the offer and the merger are fair
to and in the best interests of, the stockholders of Sunrise Medical Inc. and
recommends that you tender your shares in the offer. See the "Introduction" to
this Offer to Purchase.
- IF A MAJORITY OF THE SHARES ARE TENDERED AND ACCEPTED FOR PAYMENT, WILL
SUNRISE MEDICAL INC. CONTINUE AS A PUBLIC COMPANY?
No. If the merger takes place, Sunrise Medical Inc. will no longer be
publicly owned. Even if the merger does not take place, if we purchase all of
the tendered shares, there may be so few remaining stockholders and publicly
held shares that:
- Sunrise Medical Inc. shares will no longer meet the published guidelines
of the New York Stock Exchange for continued listing and may be taken off
the New York Stock Exchange;
- there may not be a public trading market for Sunrise Medical Inc. shares;
and
- Sunrise Medical Inc. may cease making filings with the Securities and
Exchange Commission or otherwise cease being required to comply with the
Securities and Exchange Commission rules relating to publicly held
companies.
See "Special Factors--Effect of the Offer on the Markets for the Shares;
Stock Exchange Listing; Exchange Act Registration" of this Offer to Purchase.
- WILL THE TENDER OFFER BE FOLLOWED BY A MERGER IF ALL OF SUNRISE
MEDICAL INC.'S SHARES ARE NOT TENDERED IN THE OFFER?
If we accept for payment and pay for at least a majority of the outstanding
shares of Sunrise Medical Inc. (assuming the exercise of options other than
options whose holders have agreed not to exercise), we will be merged with and
into Sunrise Medical Inc. If that merger takes place, Holdings will own all of
the shares of Sunrise Medical Inc. and all remaining stockholders of Sunrise
Medical Inc., other than those who assert appraisal rights, will receive $10.00
per share in cash. See the "Introduction" to this Offer to Purchase.
iv
<PAGE>
- IF I DECIDE NOT TO TENDER, HOW WILL THE OFFER AFFECT MY SHARES?
If the merger takes place, stockholders who do not tender in the offer will
receive the same amount of cash per share that they would have received had they
tendered their shares in the offer (subject to any dissenters' rights being
properly exercised under Delaware law). Therefore, if the merger takes place,
the only difference to you between tendering your shares and not tendering your
shares is that you will be paid earlier if you tender your shares. However, if
the merger does not take place and we purchase shares pursuant to the offer, the
number of stockholders and of shares of Sunrise Medical Inc., which are still in
the hands of the public may be so small that there no longer will be an active
public trading market (or, possibly, there may not be any public trading market)
for the shares. Also:
- the shares may no longer be eligible to be traded on the New York Stock
Exchange; and
- Sunrise Medical Inc. may cease making filings with the Securities and
Exchange Commission or otherwise being required to comply with the
Securities and Exchange Commission rules relating to publicly held
companies.
See the "Introduction" and "Special Factors--Effect of the Offer on the
Markets for the Shares; Stock Exchange Listing; Exchange Act Registration" of
this Offer to Purchase.
- WHAT IS THE MARKET VALUE OF MY SHARES AS OF A RECENT DATE?
On October 16, 2000, the last trading day before we announced the tender
offer and the possible subsequent merger, the last sale price of Sunrise
Medical Inc. shares reported on the New York Stock Exchange was $6 7/16 per
share. On October 27, 2000, the last full trading day prior to the date of this
Offer to Purchase, the last reported closing sales price of the Shares was
$9 5/16 per share. We advise you to obtain a recent quotation for shares of
Sunrise Medical Inc. in deciding whether to tender your shares. See
Section 6--"Price Range of Shares; Dividends" of this Offer to Purchase.
- WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
MacKenzie Partners, Inc. is acting as the information agent for the
transaction.
You can contact MacKenzie Partners, Inc. at (800) 322-2885 (toll free) or,
if you live outside of the U.S. and Canada, at (212) 929-5500 (call collect) or
by e-mail at [email protected].
v
<PAGE>
To the Stockholders of Sunrise Medical Inc.:
INTRODUCTION
V.S.M. Acquisition Corp., a Delaware corporation ("Purchaser") and a wholly
owned subsidiary of V.S.M. Holdings, Inc., a Delaware corporation ("Holdings")
and a wholly owned subsidiary of V.S.M. Investors, LLC, a Delaware limited
liability company ("Parent"), hereby offers to purchase all of the outstanding
shares of Common Stock, par value $1.00 per share ("Common Stock"), of Sunrise
Medical Inc., a Delaware corporation (the "Company"), including the associated
common stock purchase rights (the "Rights" and, together with the Common Stock,
the "Shares"), at a purchase price of $10.00 per Share, net to the seller in
cash, without interest thereon, upon the terms and subject to the conditions set
forth in this Offer to Purchase and in the related Letter of Transmittal (which,
as amended from time to time, together constitute the "Offer").
In order to validly tender Shares, a stockholder must tender the associated
Rights. Unless a Distribution Date (as defined in the Rights Agreement (as
defined below)) has occurred, the tender of Shares will constitute the tender of
the associated Rights.
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, subject to Instruction 6 of the Letter of Transmittal, stock
transfer taxes on the transfer and sale of Shares pursuant to the Offer.
Purchaser will pay all fees and expenses of the Depositary and MacKenzie
Partners, Inc., which is acting as the Information Agent (the "Information
Agent"), incurred in connection with the Offer. See "The Tender
Offer--Section 12" ("Fees and Expenses").
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") BASED ON THE
UNANIMOUS RECOMMENDATION OF A SPECIAL COMMITTEE OF THE COMPANY BOARD (THE
"SPECIAL COMMITTEE"), UNANIMOUSLY (A) APPROVED AND ADOPTED THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER
(SUCH APPROVAL BEING SUFFICIENT TO RENDER SECTION 203 OF THE DELAWARE GENERAL
CORPORATION LAW ("DGCL") INAPPLICABLE TO THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY), (B) RECOMMENDED THAT THE STOCKHOLDERS OF THE
COMPANY ACCEPT THE OFFER, TENDER THEIR SHARES OF COMPANY COMMON STOCK PURSUANT
TO THE OFFER AND ADOPT THE MERGER AGREEMENT, (C) DETERMINED THAT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE
MERGER, ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE
COMPANY, (D) DECLARED THE MERGER AND THE MERGER AGREEMENT TO BE ADVISABLE, AND
(E) RENDERED THE RIGHTS AGREEMENT (AS DEFINED BELOW) INAPPLICABLE TO THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
The Special Committee has received separate written opinions dated
October 16, 2000 of Batchelder & Partners, Inc. ("Batchelder") and Deutsche Bank
Securities Inc. (also operating as Deutsche Banc Alex. Brown and referred to
herein as "Deutsche Banc Alex. Brown"), financial advisors to the Special
Committee, to the effect that, as of the date of such opinions and based on and
subject to the matters described in such opinions, the $10.00 per Share cash
consideration to be received in the Offer and the Merger by the holders of
Shares (other than Parent, the Executives referred to below and their respective
affiliates) was fair, from a financial point of view, to such holders. Copies of
the written opinions dated October 16, 2000 of Batchelder and Deutsche Banc
Alex. Brown are attached hereto as Annexes B and A, respectively. The Batchelder
and Deutsche Banc Alex. Brown opinions should be read carefully in their
entirety for the assumptions made, procedures followed, matters considered and
limitations on the review undertaken by Batchelder and Deutsche Banc Alex. Brown
in connection with their respective opinions. The Batchelder and Deutsche Banc
Alex. Brown opinions were prepared for the Special Committee and do not
constitute recommendations to any stockholder as to whether to tender Shares in
the Offer or as to any other matters relating to the Offer or the Merger.
Batchelder and Deutsche Banc Alex. Brown were not retained as advisors or agents
of the Company's stockholders.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE SATISFACTION OF EACH
OF THE MINIMUM CONDITION AND THE FINANCING CONDITION. SEE "SPECIAL
FACTORS--FINANCING OF THE TRANSACTIONS." IF PURCHASER PURCHASES AT LEAST THAT
NUMBER OF SHARES NEEDED TO SATISFY THE MINIMUM CONDITION, IT WILL
<PAGE>
BE ABLE TO EFFECT THE MERGER WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER
STOCKHOLDER OF THE COMPANY. SEE "SPECIAL FACTORS--PURPOSE AND STRUCTURE OF THE
TRANSACTIONS" AND "THE TENDER OFFER--SECTION 10" ("CERTAIN CONDITIONS OF THE
OFFER").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 16, 2000 (the "Merger Agreement"), among Parent, Holdings,
Purchaser and the Company. The Merger Agreement provides, among other things,
for the making of the Offer by Purchaser, and further provides that, following
the completion of the Offer, upon the terms and subject to the conditions of the
Merger Agreement and in accordance with the DGCL, Purchaser will be merged into
the Company (the "Merger"). Following the Merger, the separate corporate
existence of Purchaser will cease and the Company, as a wholly owned subsidiary
of Holdings, will continue as the surviving corporation (the "Surviving
Corporation").
Eleven executives of the Company (the "Executives") who beneficially own, as
of the date hereof, approximately 0.2% of the outstanding Shares (approximately
6.6% after giving effect to the exercise of their options to purchase Shares
that have exercise prices below $10.00 per Share, excluding any such options
that they have agreed in the Letter Agreements will be cancelled without
consideration) have agreed (the "Letter Agreements") with Parent, among other
things, (a) to permit the cancellation of all of their options upon the purchase
of Shares pursuant to the Offer in exchange for a cash payment upon the
consummation of the Merger equal to an amount determined by multiplying the
excess, if any, of the $10.00 per Share purchase price over the applicable per
Share exercise price of their vested options, by the number of Shares underlying
such vested options, (b) to use 55% of the proceeds of the portion of such
payment received in connection with certain non-qualified options granted as a
special retention and incentive award to purchase units of Parent ("Parent
Units") (following Purchaser's purchase of Shares pursuant to the Offer)
pursuant to Management Unit Subscription Agreements (the "Management Unit
Subscription Agreements"), (c) to enter into a Securityholders Agreement with
Parent, Vestar Capital Partners IV, L.P. ("VCP IV"), Park Avenue Equity
Partners, L.P. ("PAE") and other members of Parent (the "Securityholders
Agreement"), (d) to enter into new employment agreements with the Surviving
Corporation (the "Employment Agreements"); and (e) that the Company, Holdings,
Parent, Vestar Capital Partners and Park Avenue Equity Management, LLC will
enter into a management agreement pursuant to which Vestar Capital Partners and
Park Avenue Equity Management, LLC will provide certain consulting and advisory
services following the consummation of the Merger for annual fees and will
collectively receive at the Effective Time a $5 million fee in connection with
the transactions contemplated by the Merger Agreement (the "Management
Agreement" and, together with the Letter Agreements, the Management Unit
Subscription Agreement, the Securityholders Agreement and the Employment
Agreements, the "Securityholder Documents"). See "Special Factors--Interests of
Certain Persons in the Transactions" for a discussion of the Securityholder
Documents. It is expected that, prior to the Effective Time, other members of
the current management of the Company will be offered the opportunity to acquire
Parent Units using a portion of the proceeds of the cash paid in cancellation of
their options.
In accordance with the Merger Agreement, if required by law and its
Certificate of Incorporation and By-laws, the Company will convene a meeting of
its stockholders as soon as practicable following consummation of the Offer for
the purpose of adopting the Merger Agreement. The Company also has agreed to
include in any proxy or information statement required for such meeting the
unanimous recommendation of the Company Board that the stockholders of the
Company vote in favor of the adoption of the Merger Agreement and to otherwise
use its reasonable best efforts to obtain the necessary approval of the Merger
Agreement by the stockholders. See "Special Factors--The Merger Agreement."
At the effective time of the Merger (the "Effective Time"), each then
outstanding Share (other than Shares owned by Holdings and Shares held by
stockholders who have not voted in favor of or consented to the Merger and who
have properly demanded appraisal of their Shares in accordance with
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Section 262 of the DGCL (the "Dissenting Shares")) will be cancelled, retired
and converted into the right to receive $10.00 in cash, or any higher price that
may be paid pursuant to the Offer (the "Merger Consideration"), payable to the
holder thereof, without interest, upon surrender of the certificate formerly
representing such Shares, less any withholding taxes required under applicable
law.
The Company has represented to Parent, Holdings and Purchaser that, as of
October 16, 2000, there were 40,000,000 shares of Common Stock authorized, of
which 22,359,218 Shares are outstanding and 5,000,000 shares of preferred stock,
par value $1.00 per share, of the Company authorized, none of which are
outstanding, and options outstanding representing the right to purchase
5,593,775 Shares, of which 2,505,100 are to be canceled in accordance with the
Letter Agreements upon the purchase of Shares pursuant to the Offer. Based upon
the foregoing, Purchaser, Holdings and Parent believe that the tender of
12,723,948 Shares would satisfy the Minimum Condition as of the date hereof.
The Company has advised Purchaser, Holdings and Parent that, to the
knowledge of the Company, all the directors and officers of the Company intend
to tender their Shares pursuant to the Offer.
The Merger Agreement is more fully described in "Special Factors--The Merger
Agreement" and is attached hereto as Schedule V. Certain federal income tax
consequences of the sale of the Shares pursuant to the Offer and the conversion
of Shares into the Merger Consideration pursuant to the Merger are described in
"The Tender Offer--Section 5" ("Certain United States Federal Income Tax
Consequences").
For information concerning pending litigation against the Company, its
directors and certain unidentified parties seeking, among other things, to
enjoin the transactions contemplated by the Merger Agreement, see "The Tender
Offer--Section 11" ("Certain Legal Matters and Regulatory Approvals").
The Offer to Purchase includes information required to be disclosed pursuant
to Rule 13e-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which Rule governs so-called "going private" transactions by
certain issuers or their affiliates. Parent, Holdings and the Purchaser do not
concede as a result of providing such information or otherwise complying with
Rule 13e-3 that they (or any of their affiliates) are affiliates of the Company
or subject to the requirements of such Rule.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
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SPECIAL FACTORS
BACKGROUND OF THE TRANSACTIONS
The Company has in recent years faced an increasingly competitive business
environment. Margins in the health care products industry have been pressured by
government and private sector payment restrictions, as well as increased cost
competition which added downward pressure on the Company's stock market
valuation. This pressure, when combined with the general market disfavor for
small capitalization enterprises, has in turn made it difficult for the Company
to provide appropriate equity-based incentives for its employees.
During the same period a number of the Company's institutional and retail
stockholders made clear to the Board their dissatisfaction with the Company's
financial and stock market performance. Facing these challenges, the Company
Board in recent years pursued a series of restructuring initiatives and
management modifications. None of these steps led, however, to the improvements
in performance sought by the Company's stockholders and the Company Board.
On October 5, 1999, the Company issued a press release announcing the
resignation of Richard Chandler, the Company's founder and chief executive
officer, and the retention of Deutsche Banc Alex. Brown to assist the Company in
its evaluation of alternatives. Following the press release, the Company
received inquiries from a number of third parties, primarily financial buyers,
interested in a potential transaction with the Company.
On November 17, 1999, the Company Board held a telephonic meeting which
included members of the Company's senior management, the Company's outside
counsel, Latham & Watkins, and representatives of Deutsche Banc Alex. Brown. The
matters considered by the Company Board at this meeting included the continuing
decline in the Company's stock price, the Company's growth prospects and its
financing options, particularly in light of the prospectively required
refinancing of the Company's Third Amended and Restated Credit Agreement dated
August 28, 1997, as amended (the "BofA Credit Agreement"), which was becoming
due in January 2001. The Company Board directed management to continue to pursue
financing alternatives. At this meeting, the Company Board was also updated by
representatives of Deutsche Banc Alex. Brown as to the inquiries received from
third parties after the Company's October 1999 press release.
On January 18, 2000, the Company announced that Michael Hammes had been
hired as its new chief executive officer. At that time, Mr. Hammes and members
of management began to develop plans for a restructuring program, which included
obtaining additional financing for the Company.
In the spring of 2000, members of the Company's senior management continued
to formulate and revise a series of internal restructuring plans and examined
various secured and unsecured financing alternatives. On February 29 and
April 25, 2000, the Company Board met and received briefings on these matters.
Also, members of senior management reported to the Company Board as to the
inquiries they had received from potential financial partners.
Following these Company Board meetings, at the request of the Company Board,
members of the Company's senior management met with representatives of a number
of prospective financial partners, answering questions regarding the Company and
its business and prospects. On May 11, 2000, the Company held a preliminary
meeting with representatives of PAE and VCP IV. Also on that same day, members
of senior management held a preliminary meeting with a representative of a
consortium consisting of four prospective merchant banking partners which
indicated interest in exploring a possible leveraged buyout or recapitalization
involving the Company.
The members of senior management again met with representatives of the
merchant banking consortium on June 1, 2000. On June 7, 2000, members of the
Company's senior management, together
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with representatives of Deutsche Banc Alex. Brown again met with the consortium
and senior management made a presentation.
On June 14, 2000, members of the Company's senior management, together with
representatives of Deutsche Banc Alex. Brown met with VCP IV and PAE. At this
meeting, members of the Company's senior management made a presentation to
representatives of VCP IV and PAE. Also at this meeting, representatives of VCP
IV and PAE discussed their preliminary interest in pursuing with the Company a
leveraged recapitalization transaction that potentially would value the Common
Stock at a price per Share of $10.00
In mid-June 2000, members of the Company's senior management, together with
representatives of Deutsche Banc Alex. Brown, also met again with
representatives of the consortium of four merchant banking firms to discuss
further the consortium's proposed leveraged buyout or recapitalization
transaction. In the week that followed, a member of the consortium contacted the
Company and orally suggested another form of transaction. During this time,
members of the Company's senior management, together with Deutsche Banc Alex.
Brown also met with another merchant banking firm to discuss a potential
transaction.
On June 21, 2000 the Company Board met to discuss, among other matters, the
progress made with respect to the Company's internal restructuring plan and
financing efforts. The Company Board was also updated as to the interest of, and
discussions held with, VCP IV, PAE and the other merchant banking firms
referenced above. In light of the high level of interest that was expressed by
potential financial partners at the previous meetings, the Company Board
directed senior management and Deutsche Banc Alex. Brown to continue to pursue
discussions with VCP IV, PAE and one other financial partner that had proposed
the highest transaction values. At this Company Board meeting, Deutsche Banc
Alex. Brown reviewed with the Company Board a list of potential strategic
partners, and the Company Board authorized Deutsche Banc Alex. Brown to contact
two strategic partners that the Company Board believed would be likely to
consider and consummate a possible business combination or other strategic
transaction with the Company.
In late June and July of 2000, discussions with VCP IV, PAE and the other
prospective financial partner continued.
On August 1, 2000, the other prospective financial partner returned the
information regarding the Company with which it had been provided, expressing
its unwillingness to proceed in a transaction that valued the Common Stock at or
above $10.00 per Share. After some discussion, the two strategic partners that
had been contacted also expressed no interest in pursuing a transaction.
In late July 2000 members of the Company's senior management and
representatives of Deutsche Banc Alex. Brown met with another prospective
financial partner. Shortly thereafter, that entity declined any further interest
in pursuing a transaction.
On August 3, 2000, members of the Company's senior management and
representatives of Deutsche Banc Alex. Brown met with representatives of VCP IV
and PAE. At that meeting the parties discussed the historical performance of the
Company and its proposed restructuring plans. Around that time, the Company
provided to VCP IV and PAE certain confidential information and access to the
Company's employees in connection with VCP IV and PAE's business diligence.
On August 10, 2000, the Company requested a formal bid from VCP IV and PAE.
VCP IV and PAE were requested to submit a proposal by August 24, 2000 and to
comment on the proposed form of merger agreement prepared by the Company's
outside counsel.
On August 17, 2000, a primary competitor of the Company ("Competitor")
delivered to Mr. Hammes, on an unsolicited basis, a confidential letter setting
forth a preliminary proposal for a business combination that placed a stated
value for the Common Stock of between $10.00 and $12.00
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per Share. From time to time in the past Competitor had broached to the Company
the possibility of such a business combination, with the Company responding, in
part, that such a transaction did not seem feasible in light of the antitrust
obstacles such a combination would likely face under the competition laws of the
United States and Europe. Apparently anticipating this concern, the August 17
letter suggested that those antitrust concerns be analyzed by an independent law
firm, which would then report its results to the two companies. Mr. Hammes
advised the chief executive officer of Competitor that the proposal would be
referred to the Company Board for consideration at its next meeting. In
response, the Company's general counsel requested that antitrust experts from
the Company's regular outside counsel, Latham & Watkins, and from a second firm,
Brobeck, Phleger & Harrison LLP, analyze the viability of a combination with
Competitor under applicable competition laws.
On August 24, 2000, Parent's representatives submitted a formal proposal to
acquire the Company in a leveraged transaction that placed a cash value of $9.50
per Share on the Common Stock. The transaction would involve a cash tender offer
for all of the outstanding Shares, to be followed by a second-step merger.
Certain proposed break-up fee and expense reimbursement arrangements also were
proposed. The proposal was subject to a number of conditions, including the
receipt of required third-party financing and the completion of Parent's
representatives' due diligence investigation of the Company. Parent's
representatives also delivered a preliminary commitment letter with its offer
covering the required third-party debt financing.
On August 25, 2000, the Company Board met to discuss the proposal submitted
by Parent's representatives (the "Proposal") and the letter sent by Competitor.
Because Mr. Hammes, as a member of senior management of the Company, was likely
to have a continuing financial interest in any transaction resulting from the
Proposal, the Company Board determined to establish a special committee of the
Company Board (the "Special Committee") to consider the Proposal, the Competitor
letter and, more generally, any further analysis of strategic alternatives
available to the Company. Messrs. Lee A. Ault III, Murray H. Hutchison, William
Pierpoint, Joseph Stemler and J. R. Woodhull, were named as the members of the
Special Committee, and these individuals selected Mr. Hutchison as their
chairman. These directors were chosen because of their independence in relation
to Mr. Hammes and all of the known prospective financial partners. The Company
Board authorized the Special Committee to establish such procedures, review such
information and engage such financial advisors and legal counsel as it deemed
necessary to fully and adequately make determinations about the proposals
received and any matters that came before it. The Special Committee was given
authority to negotiate with respect to any such proposal or matter, and was
asked to make a recommendation to the full Company Board with respect to a
suggested course when and as it thought it appropriate to do so.
On August 25, 2000, the Special Committee discussed the selection of legal
counsel and a financial advisor. Following discussion of their qualifications
and prior contacts with members of the Company's management and Parent's
representatives, the Special Committee determined to retain Latham & Watkins as
its legal counsel and Deutsche Banc Alex. Brown as its financial advisor. The
Special Committee, however, reserved the option of retaining additional counsel
and a second investment banking firm if deemed advisable. Latham & Watkins then
reviewed for the Special Committee the procedures to be followed by the Special
Committee and the role of the Special Committee.
The Special Committee then deliberated with respect to the appropriate
response to the letter from Competitor. The antitrust counsel from Latham &
Watkins reported that both Latham & Watkins and Brobeck Phelger & Harrison LLP
shared the view that the Department of Justice and the Federal Trade Commission
would likely challenge a merger between the Company and Competitor, and that
there was a strong likelihood that the challenge would be successful, and both
delivered written opinions to that effect to the Company. Both concurred as well
that structural remedies such as
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divestitures were unlikely to satisfy regulators in light of the very high
percentage of the relevant market that the combined firms would hold. The
representatives of Latham & Watkins also observed that it would be difficult, as
a practical matter, to craft an agreement that would unconditionally commit
Competitor to a transaction, irrespective of ensuing antitrust objections.
Subsequent to the receipt of this advice, the members of the Special
Committee agreed that the prospects of a successful combination with Competitor
seemed highly uncertain at best and concluded that a failed transaction with
Competitor could deprive the Company of the option to pursue other available
alternatives, and could alienate customers and regulators. Nonetheless, in light
of the stated transaction value asserted by Competitor, the Special Committee
directed both Latham & Watkins and Brobeck Phleger & Harrison LLP to reconsider
their respective views, and to report back to the Special Committee as to
whether, upon such reconsideration, a possible combination of the two companies
could be consummated.
The members of the Special Committee then reviewed the Proposal. The
principal issues of concern to the Special Committee were the price, the
conditionality of the offer (particularly the financing and diligence
conditions) and the proposed break-up fee and other termination arrangements.
The Special Committee directed Deutsche Banc Alex. Brown to communicate these
concerns to Parent's representatives, and directed Latham & Watkins not to
participate in further discussions regarding the proposed form of merger
agreement until Parent's representatives responded.
On August 28, 2000, as directed by the Special Committee, representatives of
Deutsche Banc Alex. Brown approached Parent's representatives to discuss the
terms of the Proposal. After considerable discussion, Parent's representatives
agreed to raise Parent's proposed offer price to $10.00 per share, but indicated
that such price was its final offer and no further price increases would be
forthcoming (the "Revised Proposal"). In addition, Parent's representatives
agreed to limit and to accelerate its remaining due diligence investigation, but
insisted that any transaction must be conditioned upon the availability of
financing.
On August 29, 2000, the Special Committee held a telephonic meeting to
discuss developments since its previous meeting. The initial item of business
concerned the retention of the firm of Richards, Layton & Finger as special
Delaware counsel to the Special Committee. Mr. Hutchison said that he had
determined, after discussing the matter with representatives of Latham & Watkins
and a representative of Richards, Layton & Finger, that the retention of a firm
with no significant prior relationship with the Company was appropriate, and the
other members of the Special Committee agreed. A representative of Deutsche Banc
Alex. Brown then updated the Special Committee as to the status of the
discussions with Parent's representatives and informed the Special Committee
that Parent's representatives had increased Parent's offer price to $10.00 per
Share. The Special Committee also was informed that certain business issues had
arisen during the due diligence review conducted by Parent's representatives and
that Parent's representatives had indicated that further diligence would be
required. At the meeting, the Special Committee determined that it was in the
best interests of the Company's stockholders to continue to consider the Revised
Proposal in detail. The Special Committee did, however, express its concern that
if, after entering into an agreement, Parent did not receive the financing and
the transaction were terminated, it could have a material adverse effect on the
Company's stock and market perception.
In late August 2000 and early September of 2000, Parent's representatives
proceeded with their due diligence investigation of the Company, which included
written requests for information, inspections of documents and telephone
conferences with representatives of the Company.
On September 8, 2000, the Special Committee held a telephonic meeting, which
included representatives of Latham & Watkins and Deutsche Banc Alex. Brown. At
this meeting, the Special Committee discussed the status of the ongoing due
diligence review of the Company by Parent's representatives, the principal
issues raised by the Revised Proposal, the efforts by Parent's
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representatives in arranging the required third-party debt financing and the
status of discussions regarding management's prospective participation as equity
investors in Parent. The Special Committee was informed that Parent's
representatives were conducting negotiations with proposed lenders to discuss
the provision of binding commitment letters. The Special Committee again
directed Deutsche Banc Alex. Brown to convey to Parent's representatives that a
financing condition was not desirable.
On September 11, 2000, the Company's general counsel traveled to New York to
discuss management's prospective participation as equity investors in Parent. On
or about September 11, 2000, the members of management retained separate
counsel, Debevoise & Plimpton, to represent them in their negotiations with
Parent.
On September 14, 2000, the Special Committee held a telephonic meeting which
included representatives of Latham & Watkins, Richards, Layton & Finger and
Deutsche Banc Alex. Brown. At the meeting, the Special Committee was informed
that Parent's accountants were continuing their review of the Company, focusing
on its cash flow and EBITDA. The Special Committee directed Latham & Watkins to
forward to Parent's counsel a revised version of the draft merger agreement,
incorporating the points that had been agreed to and circulating a list of the
business and legal points that remained open. Deutsche Banc Alex. Brown informed
the Special Committee that Parent's representatives were in discussions with one
of its affiliates as a possible source of all or a portion of the financing
Parent would need to consummate the transaction. The Special Committee discussed
the possible retention of a second investment banking firm to provide a
supplemental opinion if an affiliate of Deutsche Banc Alex. Brown participated
in such financing. Thereafter Latham & Watkins engaged in extensive discussions
of the draft merger agreement with Parent's counsel, Simpson Thacher & Bartlett.
On September 22, 2000, the Special Committee held a telephonic meeting which
included representatives of Latham & Watkins, Richards, Layton & Finger and
Deutsche Banc Alex. Brown. At this meeting, the Special Committee was updated
regarding Parent's efforts to secure the required debt financing.
Representatives of Latham & Watkins summarized for the members of the Special
Committee the principal legal issues that remained, in the view of that firm and
of Richards, Layton & Finger. Counsel suggested that they had concerns regarding
several terms of the proposed merger agreement, including, among others:
- the limitation on the Company's ability to consider unsolicited
acquisition proposals;
- the ability of the Company to compel an extension of the tender offer; and
- the circumstances under which the Company might be obligated to pay a
break-up fee to Parent or to reimburse Parent for its expenses.
On September 26, 2000, the Special Committee held a telephonic meeting,
which included representatives of Latham & Watkins, Richards, Layton & Finger
and Deutsche Banc Alex. Brown. At this meeting, the Special Committee was
informed that Parent had indicated that the most likely source of debt financing
for the transaction would, in fact, be a corporate affiliate of Deutsche Banc
Alex. Brown. In light of that fact, the members of the Special Committee
directed Mr. Hutchison to retain formally a second investment banking firm to
consider the fairness of any transaction that might be considered by the full
Special Committee. Mr. Hutchison noted that he had contacted several firms, and
had determined that the Special Committee should retain the firm of
Batchelder & Partners, LLC ("Batchelder"). Mr. Hutchison was authorized to
negotiate and execute, on behalf of the Special Committee, any engagement letter
(or other appropriate document or instrument) necessary or advisable to evidence
such retention.
On September 29, 2000 the Special Committee held a telephonic meeting, which
included representatives of Latham & Watkins, Richards, Layton & Finger and
Deutsche Banc Alex. Brown. Latham & Watkins reported that the new comments
received from Parent's representatives included a
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proposed additional transaction condition, which required that certain members
of management enter into equity subscription and employment arrangements with
Parent between the execution of the Merger Agreement and the closing of the
tender offer. Latham & Watkins recommended, and the Special Committee
unanimously agreed, that the offer should not be conditioned upon arrangements
with management. The Special Committee again was updated as to Parent's
financing and was informed that the prospective source of that financing
appeared to be Deutsche Banc Alex. Brown's affiliate, Bankers Trust Company.
Throughout the balance of September 2000 until the execution of the Merger
Agreement in October 2000, representatives of Latham & Watkins and Simpson
Thacher & Bartlett continued to negotiate the terms of the Revised Proposal and
the unresolved legal and business issues. These issues included, among others, a
proposed cap on the Company's damages under the draft merger agreement, the
ability of the Company to require extension of the tender offer, the fees and
expenses payable by the Company in the event of a termination, the financing
contingency, and the conditions to the tender offer.
On October 5, 2000, the Special Committee held a telephonic meeting, which
included representatives of Latham & Watkins, Deutsche Banc Alex. Brown and
Batchelder. Latham & Watkins reported on the status of its negotiations with
Simpson Thacher & Bartlett. A principal set of issues continued to surround the
circumstances under which the Company could be obligated to pay a break-up fee
to Parent, or to reimburse Parent for its expenses. The members of the Special
Committee gave negotiating instructions to Latham & Watkins, advocating, among
other matters, more limited payment arrangements from the Company's perspective.
On October 11, 2000, the Special Committee had a telephonic meeting, which
included representatives of Richards, Layton & Finger, Latham & Watkins and
Deutsche Banc Alex. Brown. The Special Committee was informed at this meeting
that the Company had fallen short of its internal earnings estimates for
September 2000, but that Parent's representatives had not proposed a price
reduction or indicated that it would not otherwise continue to pursue the
transaction.
On October 16, 2000, the Special Committee held a telephonic meeting, which
included representatives of Latham & Watkins, Richards, Layton & Finger,
Deutsche Banc Alex. Brown and Batchelder. At that meeting, a representative of
Latham & Watkins summarized for the Special Committee the terms of management's
equity arrangements with Parent, noting that members of senior management
collectively would have the opportunity to rollover a portion of their current
option position in the Company and would collectively hold approximately 10% of
the equity interest in Parent (of which approximately one-third would be held by
Mr. Hammes). Management would also be granted options representing an additional
12.1% of the equity interests in Parent, which would vest over time and upon the
realization of certain performance standards. The Latham & Watkins
representatives also apprised the members of the Special Committee of the other
material details of Parent's proposed economic arrangements with members of the
Company's management.
After being advised by representatives of Latham & Watkins and Richards,
Layton & Finger regarding the scope of their fiduciary duties under applicable
law, the members of the Special Committee then considered the status of the
Revised Proposal, as well as the potential business combination with Competitor.
Addressing the latter topic first, antitrust counsel from Latham & Watkins
advised the members of the Special Committee that both Latham & Watkins and
Brobeck Phelger & Harrison LLP had delivered written opinions reaffirming their
original legal conclusions. Specifically, both firms had concluded that a
possible business combination of the Company and Competitor faced extremely
significant, and potentially insurmountable, regulatory impediments under United
States antitrust laws. In light of this advice, and considering the other issues
with respect to the Competitor proposal, the members of the Special Committee
determined not to consider further the prospect of such a business combination
with Competitor.
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The Special Committee then discussed the Revised Proposal. Representatives
of Latham & Watkins and Richards, Layton & Finger advised the members of the
Special Committee on the results of the negotiations that had occurred since the
preceding meeting, and confirmed that all remaining legal issues had been
resolved, subject to the Special Committee's approval, with Parent's legal
counsel. The results of the negotiations that had transpired since that meeting
were summarized for the members of the Special Committee. The representatives of
the two law firms then reviewed with the members of the Special Committee the
draft Merger Agreement, as so negotiated, including the ability of the Company
under the provisions of the Merger Agreement to solicit acquisition proposals
and the amount of the termination fee and expenses and the circumstances under
which such termination fee and expenses would be payable if the Company accepted
an alternative acquisition proposal. In this regard, Deutsche Banc Alex. Brown
reviewed for the Special Committee the range of termination fees and expenses
payable in comparable transactions, which indicated that the termination fee
payable in the proposed transaction with Parent was within the range of
termination fees and expenses paid in such transactions.
Each of Deutsche Banc Alex. Brown and Batchelder then reviewed with the
Special Committee its financial analysis of the consideration payable in the
Offer and the Merger. Thereafter, Deutsche Banc Alex. Brown and Batchelder
delivered separate oral opinions to the Special Committee to the effect that, as
of the date of such opinions and based on and subject to the matters described
in such opinions, the $10.00 per Share cash consideration to be received in the
Offer and the Merger by holders of Shares (other than Parent, the Executives and
their respective affiliates) was fair, from a financial point of view, to such
holders.
After discussion and consideration, the Special Committee unanimously
approved the Merger Agreement and the transactions contemplated thereby,
determined that the terms of the Offer and the Merger are fair to, and in the
best interests of, the Company's public stockholders and recommended that the
Company Board approve and adopt the Merger Agreement.
Following the Special Committee meeting, a meeting of the full Company Board
was convened. All directors were present, except for Mr. Pierpoint and Mr.
Hammes who participated by telephone. Representatives of Deutsche Banc Alex.
Brown, Batchelder, Latham & Watkins and Richards, Layton & Finger were also
present. Mr. Hutchison, on behalf of the Special Committee, reported that the
Special Committee had resolved to recommend to the Company Board that the
pending proposal from Parent be accepted. He indicated that the Special
Committee had received a presentation from Latham & Watkins and Richards,
Layton & Finger on the terms of the proposed Merger Agreement, including various
provisions that had been negotiated to improve the draft Merger Agreement from
the perspective of the Company's public stockholders. He also indicated that the
Special Committee had received a financial presentation and opinion from each of
Deutsche Banc Alex. Brown and Batchelder as to the fairness, from a financial
point of view, of the $10.00 per Share cash consideration to be received in the
Offer and the Merger by the holders of Shares (other than Parent, the Executives
and their respective affiliates). Representatives of Latham & Watkins and
Richards, Layton & Finger also summarized the fiduciary standards applicable to
directors in approving transactions of this nature. Representatives from
Latham & Watkins then reviewed with the Company Board draft resolutions relating
to the proposed transaction.
Following further discussion, there was a motion to approve and adopt the
resolutions pertaining to the Merger Agreement and related transactions. The
resolutions were approved and adopted by the Company Board unanimously.
Immediately following the meeting of the full Board, the Company, Parent,
Holdings and Purchaser entered into the definitive Merger Agreement and promptly
thereafter the Company, VCP IV and PAE issued a press release announcing that
Company Board had accepted Parent's proposal and entered into the definitive
Merger Agreement.
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RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE TRANSACTIONS
In reaching its recommendation described above the Company Board considered
a number of factors, including the following:
1. The fact that the Revised Proposal represented the most attractive offer
received by the Company Board after a select group of potential parties
which had been given an opportunity to receive confidential information
about the Company declined to submit a proposal or submitted a proposal
that the Company Board considered to be less attractive to the Company's
stockholders than the Revised Proposal.
2. The Company Board considered the relationship of the Offer price to the
historical market prices of the Shares, and the fact that the cash
consideration that the Company's stockholders would receive for each
Share under the Revised Proposal was at a significant premium to the
Company's then-current market price.
3. The fact that the Company Board had explored the possibility of pursuing
various other possible transactions that would enhance stockholder value,
including the Company's alternative to remain an independent public
company and the possibility of curtailing operations in an attempt to
increase profitability, and other extraordinary corporate transactions,
as well as the risks and uncertainties associated with such alternatives.
The Company Board considered the current and historical financial
condition and results of operations of the Company, as well as the
prospects and strategic objectives of the Company, including the risks
involved in achieving those prospects and objectives, and the current and
expected conditions in the industry in which the Company's business
operates.
4. The Company's business, prospects, financial condition, current business
strategy and competitive position in the health care industry.
5. The separate financial presentations of the Special Committee's
financial advisors, including their respective opinions to the Special
Committee as to the fairness, from a financial point of view and as of
the date of such opinions, of the cash consideration payable in the Offer
and the Merger, as more fully described in "Special Factors--Opinions of
the Special Committee's Financial Advisors."
6. The terms and conditions of the Merger Agreement, including the fact
that the Offer is subject to various conditions, including the Financing
Condition, and that the Merger Agreement contemplates under certain
circumstances the payment of a termination fee to Parent and its
subsidiaries and the reimbursement of certain expenses of Parent and
Purchaser (including financing commitment fees and related expenses). In
analyzing the conditions to the Offer, the Company Board considered,
among other things, the risks of failing to consummate the Offer and the
Merger. In assessing the termination fee and expense reimbursement
provisions, the Company Board recognized that their effect would be to
increase by the amount of such fee and expenses the cost of acquiring the
Company in a third party offer made by someone other than Parent and its
subsidiaries.
7. The nature of the financing commitments received by Parent and its
subsidiaries with respect to the Offer and the Merger, including the
identity of the institutions providing such commitments and their proven
experience in consummating transactions such as the Offer and the Merger
and the conditions to the obligations of such institutions to fund such
commitments.
8. The likelihood of soliciting a firm offer from a third party to acquire
the Company at a price in excess of that to be paid in the Offer and the
Merger, the timing of the receipt of any such offer, and the possible
consequences of unsuccessfully seeking to solicit such an offer.
11
<PAGE>
9. The terms of the non-solicitation covenant described in "Special
Factors--The Merger Agreement--No Solicitations." The Company Board
considered the possible effect of these provisions of the Merger
Agreement on third parties who might be interested in exploring an
acquisition of the Company. In this regard, the Company Board recognized
that the provisions of the Merger Agreement relating to the termination
fees and expense reimbursement and solicitation of acquisition proposals
were insisted upon by Parent as a condition to entering into the Merger
Agreement and that the amount of the termination fees and expense
reimbursement that would be payable if the Merger Agreement were to be
terminated to accept an alternative acquisition proposal was within the
range of the amounts of termination fees and expense reimbursement
customarily paid under similar circumstances in transactions comparable
to those provided for in the Merger Agreement.
10. The Company Board considered the opinions of Latham & Watkins and
Brobeck Phelger & Harrison LLP concluding that it was highly likely that
a possible business combination of the Company and Competitor would face
extremely significant, and potentially insurmountable, regulatory
impediments under United States antitrust laws.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer and the Merger, the Company Board did not find it
practicable to, and did not, qualify or otherwise assign relative weights to the
individual factors considered in reaching its determinations. As discussed
above, the Merger Agreement does not require the transactions contemplated
thereby to be approved by a majority of the unaffiliated stockholders of the
Company.
PURCHASER, HOLDINGS AND PARENT. Purchaser, Holdings and Parent regard the
acquisition of the Company as an attractive investment opportunity because they
believe that the Company's future business prospects are favorable. Although the
investment will involve a substantial risk, Parent believes that the long-term
value of the equity investment could appreciate significantly. Purchaser,
Holdings and Parent believe that the price per Share offered hereby and the
Merger Consideration is fair to the Company's stockholders. In reaching this
conclusion, they have taken into consideration the recent and historical prices
of the Shares, see "The Tender Offer--Section 6" ("Price Range of Shares;
Dividends"), and their due diligence review of the Company. Their conclusions as
to the fairness of the Offer and the Merger are supported by the conclusions of
the Special Committee and by the fact that the terms of the transactions were
negotiated with the Special Committee and its representatives at a time when
Purchaser, Holdings and Parent did not beneficially own any Shares and after
representatives of the Company had solicited proposals to purchase the Company
from third parties. Purchaser, Holdings and Parent did not assign a particular
weight to any one factor.
OPINIONS OF THE SPECIAL COMMITTEE'S FINANCIAL ADVISORS
OPINION OF DEUSTCHE BANC ALEX. BROWN. The Special Committee has engaged
Deutsche Banc Alex. Brown to act as its financial advisor in connection with the
Offer and the Merger. On October 16, 2000, at a meeting of the Special Committee
held to evaluate the Offer and the Merger, Deutsche Banc Alex. Brown rendered to
the Special Committee an oral opinion, confirmed by delivery of a written
opinion dated October 16, 2000, to the effect that, as of that date and based on
and subject to the matters described in its opinion, the $10.00 per Share cash
consideration to be received in the Offer and the Merger by holders of Shares
was fair, from a financial point of view, to such holders (other than Parent,
the Executives and their respective affiliates).
The full text of Deutsche Banc Alex. Brown's written opinion dated
October 16, 2000, which describes the assumptions made, matters considered and
limitations of the review undertaken, is attached as Annex A and is incorporated
into this document by reference. DEUTSCHE BANC ALEX. BROWN'S OPINION IS DIRECTED
TO THE SPECIAL COMMITTEE AND ADDRESSES ONLY THE FAIRNESS OF THE $10.00 PER SHARE
CASH CONSIDERATION FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF SHARES
(OTHER THAN PARENT,
12
<PAGE>
THE EXECUTIVES AND THEIR RESPECTIVE AFFILIATES). THE OPINION DOES NOT ADDRESS
THE MERITS OF THE UNDERLYING DECISION BY THE COMPANY TO ENGAGE IN THE OFFER AND
THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO
WHETHER SUCH HOLDER SHOULD TENDER SHARES IN THE OFFER OR AS TO ANY OTHER MATTERS
RELATING TO THE OFFER OR THE 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 arriving at its opinion, Deutsche Banc Alex. Brown:
- reviewed publicly available financial and other information concerning the
Company and internal analyses and other information furnished to or
discussed with Deutsche Banc Alex. Brown by the Company and its advisors;
- held discussions with members of the senior management of the Company
regarding the business and prospects of the Company;
- reviewed the reported prices and trading activity for the Shares;
- compared financial and stock market information for the Company 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 the
Company, including, without limitation, any financial information, forecasts or
projections considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, Deutsche Banc Alex. Brown assumed and
relied on 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, contingent or otherwise, of the Company. With respect to the
financial forecasts and projections made available to Deutsche Banc Alex. Brown
and used in its analyses, Deutsche Banc Alex. Brown assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the Company as to the matters covered by the forecasts and
projections. In rendering its opinion, Deutsche Banc Alex. Brown expressed no
view as to the reasonableness of the forecasts and projections used by it or the
assumptions on which the forecasts and projections were based. In connection
with its engagement, Deutsche Banc Alex. Brown was authorized to approach, and
held discussions with, third parties to solicit indications of interest with
respect to the acquisition of the Company. Deutsche Banc Alex. Brown's opinion
was necessarily based on economic, market and other conditions as in effect 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, (a) the representations and
warranties of the Company, Parent, Holdings and Purchaser contained in the
Merger Agreement were true and correct, (b) the Company, Parent, Holdings, and
Purchaser would each perform all of the covenants and agreements to be performed
by it under the Merger Agreement and (c) all conditions to the obligations of
each of the Company, Parent, Holdings, and Purchaser to consummate the Offer and
the Merger would 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 Offer and the
Merger would be obtained and that in connection with obtaining any necessary
governmental,
13
<PAGE>
regulatory or other approvals and consents, or any amendments, modifications or
waivers to any agreements, instruments or orders to which the Company, Parent,
Holdings, or Purchaser is a party or is subject or by which it is bound, no
limitations, restrictions or conditions would be imposed or amendments,
modifications or waivers made that would have a material adverse effect on the
Offer or the Merger. No other instructions or limitations were imposed by the
Special Committee on Deutsche Banc Alex. Brown with respect to the
investigations made or the procedures followed by it in rendering its opinion.
In connection with rendering its opinion to the Special Committee, Deutsche
Banc Alex. Brown performed a variety of financial analyses which are summarized
below. The following summary does not purport to be a complete description of
all analyses performed and factors considered by Deutsche Banc Alex. Brown in
connection with its opinion. A copy of Deutsche Banc Alex. Brown's written
presentation to the Special Committee in connection with its opinion has been
filed as an exhibit to the Tender Offer Statement and Schedule 13E-3 on the
Schedule TO (the "Schedule TO") filed by Parent, Holdings and Purchaser with the
Securities and Exchange Commission and will be available for inspection and
copying at the principal executive offices of the Company during regular
business hours by any interested stockholder of the Company or representatives
of such stockholder who has been so designated in writing, and also may be
inspected and copied, and obtained by mail, from the Securities and Exchange
Commission. The Securities and Exchange Commission maintains an Internet
worldwide web site that contains reports, proxy statements and other information
about issuers, including the Company, which file electronically with the
Securities and Exchange Commission. The address of that site is
http://:www.sec.gov. You can find a copy of Deutsche Banc Alex. Brown's written
presentation at that site.
The following is a summary of the material financial analyses performed by
Deutsche Banc Alex. Brown in connection with its opinion to the Special
Committee dated October 16, 2000. 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 IN
THE TABLES 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 the Company and the following five selected publicly held companies in the
medical device and equipment sector of the health care industry:
- Arrow International, Inc.
- CONMED Corporation
- Hillenbrand Industries, Inc.
- Invacare Corporation
- Respironics, Inc.
Deutsche Banc Alex. Brown reviewed enterprise values, calculated as equity
market value, plus debt, less cash and cash equivalents, as multiples of latest
12 months 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 2000 and
2001 net income. All multiples
14
<PAGE>
were based on closing stock prices on October 13, 2000, the latest trading day
prior to public announcement of the Offer and the Merger. Estimated financial
data for the selected companies were based on publicly available research
analysts' estimates. Estimated financial data for the Company were based on
publicly available research analysts' estimates, referred to as the "Street
Case," and internal estimates of the Company's management (excluding
restructuring charges), referred to as the "Management Case."
Deutsche Banc Alex. Brown applied a range of selected multiples derived from
the selected companies of latest 12 months EBITDA and EBIT and latest 12 months
and estimated calendar years 2000 and 2001 net income to corresponding financial
data of the Company. This analysis yielded the following implied per Share
equity reference ranges for the Company, as compared to the cash consideration
payable in the Offer and the Merger of $10.00 per Share:
<TABLE>
<CAPTION>
IMPLIED EQUITY REFERENCE
RANGE PER SHARE
--------------------------------
MEAN RANGE
-------- ---------------------
<S> <C> <C>
Enterprise Value as a Multiple of:
Latest 12 Months EBITDA................................... $13.53 $ 8.14-$15.48
Latest 12 Months EBIT..................................... $ 8.63 $ 4.12-$11.11
Equity Value as a Multiple of:
Latest 12 Months Net Income............................... $ 5.21 $ 2.57-$ 6.51
Estimated Calendar Year 2000 Net Income based on Street
Case.................................................... $ 5.65 $ 3.84-$ 6.95
Estimated Calendar Year 2000 Net Income based on
Management Case......................................... $ 5.87 $ 3.99-$ 7.22
Estimated Calendar Year 2001 Net Income based on Street
Case.................................................... $ 5.98 $ 3.95-$ 6.94
Estimated Calendar Year 2001 Net Income based on
Management Case......................................... $15.00 $ 10.41-$17.16
</TABLE>
In reviewing the results of its analysis, Deutsche Banc Alex. Brown took
into consideration the following:
- the mean historical three-year compounded annual revenue growth rate of
the selected companies was 19.9% as compared to the Company's compounded
annual revenue growth rate over the same period of negative 0.9%;
- the mean of the latest 12 months EBITDA margin of the selected companies
was 21.2% as compared to the Company's latest 12 months EBITDA margin of
8.1%; and
- the mean historical three-year compounded annual net income growth rate of
the selected companies was 11.1% as compared to the Company's compounded
annual net income growth rate over the same period of negative 36.2%.
15
<PAGE>
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS.
Deutsche Banc Alex. Brown reviewed the purchase prices and implied
transaction multiples in the following 10 selected transactions in the medical
device and equipment sector of, and six selected leveraged recapitalization
transactions in, the health care industry:
SELECTED MEDICAL DEVICE AND EQUIPMENT TRANSACTIONS
<TABLE>
<CAPTION>
ACQUIROR TARGET
--------------------------------------------- ---------------------------------------------
<S> <C>
- Invacare Corporation Scandinavian Mobility International A/S
- Thermo Electron Corporation Bear Medical Systems, Inc. (a subsidiary of
Allied Healthcare Products, Inc.)
- Richard C. Blum and Associates, L.P. and
Fremont Partners, L.P. Kinetic Concepts, Inc.
- Graham-Field Health Products, Inc. Fuqua Enterprises, Inc.
- Kimberly-Clark Corporation TECNOL Medical Products, Inc.
- Nellcor Puritan Bennett, Inc. Aequitron Medical, Inc.
- Respironics, Inc. LIFECARE International, Inc.
- Graham-Field Health Products, Inc. Everest & Jennings International Ltd.
- Thermo Electron Corporation Bird Medical Technologies, Inc.
- Sunrise Medical Inc. Corona Group
</TABLE>
SELECTED HEALTH CARE LEVERAGED RECAPITALIZATION TRANSACTIONS
<TABLE>
<CAPTION>
ACQUIROR TARGET
--------------------------------------------- ---------------------------------------------
<S> <C>
-Kohlberg, Kravis, Roberts & Co. Alliance Imaging, Inc.
-TA MergerCo, Inc. Physicians' Specialty Corp.
-Kelso & Company Unilab Corporation
-Vestar/Sheridan Holdings, Inc. Sheridan Heathcare, Inc.
-Madison Dearborn Partners, Inc. et al. Team Health, Inc.
-Welsh, Carson, Anderson & Stowe VIII L.P. Concentra Managed Care, Inc.
</TABLE>
Deutsche Banc Alex. Brown reviewed enterprise values in the selected
transactions as multiples of latest 12 months EBITDA and EBIT, and equity market
values as a multiple of latest 12 months and one-year forward 2001 net income.
All multiples for the selected transactions were based on publicly available
information at the time of announcement of the relevant transaction. Deutsche
Banc Alex. Brown then applied a range of selected multiples derived from the
selected transactions of latest 12 months EBITDA and EBIT and latest 12 months
and one-year forward net income to corresponding financial data of the Company.
Estimated financial data for the selected transactions were based on research
analysts' estimates. Estimated financial data for the Company were based on the
Street Case and the Management Case. This analysis yielded the following implied
per Share equity reference
16
<PAGE>
ranges for the Company, as compared to the cash consideration payable in the
Offer and the Merger of $10.00 per Share:
SELECTED MEDICAL DEVICE AND EQUIPMENT TRANSACTIONS
<TABLE>
<CAPTION>
IMPLIED EQUITY REFERENCE
RANGE PER SHARE
-------------------------------
MEAN RANGE
-------- --------------------
<S> <C> <C>
Enterprise Value as a Multiple of:
Latest 12 Months EBITDA................................... $18.13 $ 14.49-$22.12
Latest 12 Months EBIT..................................... $10.89 $ 3.98-$16.99
Equity Value as a Multiple of:
Latest 12 Months Net Income............................... $ 7.27 $ 3.46-$11.23
Estimated Fiscal Year 2001 Net Income based on Street
Case...................................................... $ 8.06 $ 6.95-$ 9.95
Estimated Fiscal Year 2001 Net Income based on Management
Case...................................................... $12.51 $ 10.81-$15.69
</TABLE>
SELECTED HEALTH CARE LEVERAGED RECAPITALIZATION TRANSACTIONS
<TABLE>
<CAPTION>
IMPLIED EQUITY REFERENCE
RANGE PER SHARE
------------------------------
MEAN RANGE
-------- -------------------
<S> <C> <C>
Enterprise Value as a Multiple of:
Latest 12 Months EBITDA................................... $11.95 $ 7.59-$17.04
Latest 12 Months EBIT..................................... $ 7.06 $ 2.58-$10.07
Equity Value as a Multiple of:
Latest 12 Months Net Income............................... $ 5.14 $ 2.98-$ 6.96
Estimated Fiscal Year 2001 Net Income Based on Street
Case...................................................... $ 5.51 $ 3.82-$ 7.36
Estimated Fiscal Year 2001 Net Income Based on Management
Case...................................................... $ 8.88 $ 6.42-$11.36
</TABLE>
In reviewing the results of its analysis, Deutsche Banc Alex. Brown took
into consideration the following:
- the mean historical three-year compounded annual revenue growth rate of
the selected medical device and equipment and the selected health care
leveraged recapitalization transactions was 6.7% and 21.9%, respectively,
as compared to the Company's compounded annual revenue growth rate over
the same period of negative 0.9%;
- the mean of the latest 12 months EBITDA margin of the target companies
involved in the selected medical device and equipment transactions and the
selected health care leveraged recapitalization transactions was 16.4% and
20.3% as compared to the Company's latest 12 months EBITDA margin of 8.1%;
and
- the mean historical three-year compounded annual net income growth rate of
the target companies involved in the selected medical device and equipment
transactions and the selected health care leveraged recapitalization
transactions was 23.5% and 16.1%, respectively, as compared to the
Company's compounded annual net income growth rate over the same period of
negative 36.2%.
17
<PAGE>
PREMIUMS ANALYSIS.
Deutsche Banc Alex. Brown reviewed the premiums paid in 527 selected merger
and acquisition transactions in various industries and 54 selected merger and
acquisition transactions in the health care industry involving a change in
control of the target company, in each case effected since January 1, 1998 and
having an enterprise value of $100 million to $500 million. Deutsche Banc Alex.
Brown also reviewed the premiums paid in 10 selected merger and acquisition
transactions in the medical device and equipment sector of, and six selected
leveraged recapitalization transactions in, the health care industry. Deutsche
Banc Alex. Brown analyzed the premiums in these transactions based on the target
company's closing stock price one day and one month prior to public announcement
of the transaction. Deutsche Banc Alex. Brown then applied a selected range of
premiums derived from the selected transactions to the average closing stock
price of the Shares for corresponding periods prior to October 13, 2000. This
analysis indicated the following implied per Share equity reference ranges for
the Company, as compared to the cash consideration payable in the Offer and the
Merger of $10.00 per Share:
<TABLE>
<CAPTION>
IMPLIED EQUITY REFERENCE
RANGE PER SHARE
------------------------------
SELECTED MERGER AND ACQUISITION TRANSACTIONS MEAN RANGE
------------------------------------------------------------ -------- -------------------
<S> <C> <C>
One Day Prior............................................... $8.43 $ 6.28-$14.53
One Month Prior............................................. $8.67 $ 5.78-$20.35
<CAPTION>
SELECTED HEALTH CARE MERGER AND ACQUISITION TRANSACTIONS
------------------------------------------------------------
One Day Prior. $ 8.16 $ 6.39-$12.61
<S> <C> <C>
One Month Prior............................................. $8.71 $ 5.93-$12.55
<CAPTION>
SELECTED MEDICAL DEVICE AND EQUIPMENT MERGER AND ACQUISITION TRANSACTIONS
-------------------------------------------------------------------------
One Day Prior. $ 7.70 $ 5.69-$ 8.89
<S> <C> <C>
One Month Prior................................................... $8.43 $ 5.29-$10.90
<CAPTION>
SELECTED HEALTH CARE LEVERAGED RECAPITALIZATION TRANSACTIONS
-------------------------------------------------------------------------
One Day Prior. 9.00 $6.80-$14.32
<S> <C> <C>
One Month Prior................................................... $8.82 $ 6.75-$13.82
</TABLE>
18
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS.
Deutsche Banc Alex. Brown performed a discounted cash flow analysis to
estimate the present value of the unleveraged, after-tax free cash flows that
the Company could generate during estimated fiscal years 2001 through 2005 based
on two scenarios reflecting the potential for different revenue growth rates and
EBITDA margins for the Company. For purposes of this analysis, Deutsche Banc
Alex. Brown utilized internal estimates of the Company's management. The first
scenario, Case 1, assumed a six-year compounded annual revenue growth rate for
the Company of 5.0% and a fiscal year 2005 EBITDA Margin of 17.4%. The second
scenario, Case 2, reflected certain adjustments to the Case 1 estimates and
assumed a six-year compounded annual revenue growth rate of 0.0% and a fiscal
year EBITDA margin of 11.7%. The range of estimated terminal values was
calculated by applying terminal value multiples ranging from 6.5x to 8.5x to the
Company's estimated fiscal year 2005 EBITDA. The present value of the cash flows
and terminal values were calculated using discount rates ranging from 12.0% to
16.0%. This analysis yielded the following implied per Share equity reference
ranges for the Company, as compared to the cash consideration payable in the
Offer and the Merger of $10.00 per Share:
<TABLE>
<CAPTION>
IMPLIED EQUITY REFERENCE
SCENARIO RANGE PER SHARE
------------------------------------------------- -------------------------------
<S> <C>
Case 1........................................... $17.12-$26.42
Case 2........................................... $ 8.11-$12.99
</TABLE>
In reviewing the results of this analysis, Deutsche Banc Alex. Brown took
into consideration the following:
- the projected six-year compounded annual revenue growth rate was assumed
to be 5.0% under Case 1 and 0.0% under Case 2 as compared to the
historical three-year compounded annual revenue growth rate of negative
0.9%;
- the 2005 EBITDA margin was assumed to be 17.4% under Case 1 and 11.7%
under Case 2 as compared to the latest 12 months margin of 8.1%; and
- the profitability targets under both Case 1 and Case 2 were predicated on
the success of the restructuring program and implementation of a global
information technology system.
OTHER FACTORS.
In rendering its opinion, Deutsche Banc Alex. Brown also reviewed and
considered, among other things:
- historical market prices and trading volumes for the Shares and the
relationship between movements in the common stock of the selected
companies and movements in the S&P 500 Index;
- the Company's earnings performance; and
- selected published analysts' reports, including analysts' estimates as to
the Company's earnings per Share.
The above summary is not a complete description of Deutsche Banc Alex.
Brown's opinion to the Special Committee 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
19
<PAGE>
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 the Company. No company, transaction or business used in the
analyses as a comparison is identical to the Company or the Offer or the Merger,
and an 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 Offer and the Merger
were determined through negotiation among the Company and Parent's
representatives and the decision to enter into the Merger Agreement was solely
that of the Company Board and the Special Committee. Deutsche Banc Alex. Brown's
opinion and financial analyses were only one of many factors considered by the
Special Committee in its evaluation of the Offer and the Merger and should not
be viewed as determinative of the views of the Special Committee with respect to
the Offer or the Merger or the consideration payable in the Offer and 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. The Special Committee
selected Deutsche Banc Alex. Brown as its financial advisor based on Deutsche
Banc Alex. Brown's reputation and expertise.
Deutsche Banc Alex. Brown and its affiliates in the past have provided
financial services to the Company and VCP IV and its affiliates unrelated to the
Offer and the Merger, for which services Deutsche Banc Alex. Brown and its
affiliates have received compensation. Deutsche Banc Alex. Brown and its
affiliates also have an outstanding bank credit facility with the Company and
investments in affiliates of VCP IV. In addition, Deutsche Banc Alex. Brown and
its affiliates will participate in the financing of the Offer and the Merger,
for which services Deutsche Banc Alex. Brown and its affiliates will receive
compensation.
Deutsche Banc Alex. Brown maintains a market in, and regularly publishes
research reports regarding, publicly traded companies in the health care
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 the Company, VCP IV, PAE and their respective affiliates for
Deutsche Banc Alex. Brown's and its affiliates' accounts 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, the Company has
agreed to pay Deutsche Banc Alex. Brown for its financial advisory services upon
the completion of the Offer and the Merger an aggregate fee based on a
percentage of the total consideration, including liabilities assumed, payable in
the Offer and the Merger. It is currently estimated that the aggregate fee
payable to Deutsche Banc Alex. Brown for such financial advisory services will
be approximately $3.7 million, of
20
<PAGE>
which $3.3 million is payable at closing. In addition, the Company has agreed to
reimburse Deutsche Banc Alex. Brown for 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.
OPINION OF BATCHELDER & PARTNERS, INC. The Special Committee has retained
Batchelder to act as its financial advisor in connection with the Offer and the
Merger. Batchelder is a nationally recognized investment banking and financial
advisory firm and, as part of its investment banking activities, is regularly
engaged in the valuation of businesses and their securities in connection with
merger transactions and other types of acquisitions, dispositions, business
combinations, private placements, and valuations for corporate and other
purposes.
On October 16, 2000, at a meeting of the Special Committee, Batchelder
delivered an oral opinion to the Special Committee, and subsequently confirmed
the opinion in writing as of that date, that, as of the date of the opinion and
subject to the considerations set forth therein, the $10.00 per Share cash
consideration to be received by the holders of Shares (other than the Parent,
the Management Group, any other members of management who have agreed to invest
in the Parent, and their affiliates) pursuant to the Merger Agreement was fair
to such holders from a financial point of view. The full text of Batchelder's
opinion, dated October 16, 2000, which sets forth the qualifications,
assumptions made, matters considered, limitations on the review undertaken in
connection with the opinion, and circumstances where the opinion should not be
relied upon, is attached as Annex B and is incorporated by reference. Some of
these assumptions relate to future market conditions and other matters beyond
the control or influence of the Company. No limitations were imposed by the
Special Committee on Batchelder with respect to the investigations made or
procedures followed in rendering its opinion. Batchelder was not retained or
requested to consider any strategic or financial alternatives to the Merger or
to seek indications of interest from other potential buyers in connection with
rendering its opinion nor did Batchelder do so.
The summary of Batchelder's opinion in this Offer to Purchase is qualified
in its entirety by the full text of its written opinion. You should read the
full written opinion carefully. A copy of Batchelder's written presentation to
the Special Committee in connection with its opinion has been filed as an
exhibit to the Schedule TO filed by Parent, Holdings and Purchaser with the
Securities and Exchange Commission and will be available for inspection and
copying at the principal executive offices of the Company during regular
business hours by any interested stockholder of the Company or representatives
of such stockholder who has been so designated in writing, and also may be
inspected and copied, and obtained by mail, from the Securities and Exchange
Commission. The Securities and Exchange Commission maintains an Internet
worldwide web site that contains reports, proxy statements and other information
about issuers, including the Company, which file electronically with the
Securities and Exchange Commission. The address of that site is
http://:www.sec.gov. You can find a copy of Batchelder's written presentation in
that site.
BATCHELDER'S OPINION IS DIRECTED SOLELY TO THE SPECIAL COMMITTEE FOR ITS
CONSIDERATION IN CONNECTION WITH THE MERGER AND IS NOT A RECOMMENDATION TO ANY
HOLDER OF SHARES AS TO WHETHER ANY HOLDER SHOULD TENDER SHARES IN THE OFFER OR
AS TO ANY OTHER MATTERS RELATING TO THE OFFER OR THE MERGER. BATCHELDER'S
OPINION ADDRESSES ONLY THE FINANCIAL FAIRNESS OF THE CONSIDERATION TO BE
RECEIVED BY THE STOCKHOLDERS OF THE COMPANY (OTHER THAN THE PARENT, THE
MANAGEMENT GROUP, ANY OTHER MEMBERS OF MANAGEMENT WHO HAVE AGREED TO INVEST IN
THE PARENT, AND THEIR AFFILIATES) AS OF OCTOBER 16, 2000, AND DOES NOT ADDRESS
ANY OTHER ASPECT OF THE OFFER OR THE MERGER. Batchelder's opinion states that it
is not a report or valuation within the meaning of Section 11 of the Securities
Act, and Batchelder has not assumed responsibility under the terms of its
engagement for performing the level of diligence or independent verification
that would be required for Batchelder to render a report or valuation within the
meaning of the applicable provisions of the Securities Act.
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In connection with its opinion, Batchelder, among other things:
- reviewed publicly available and internal financial and other data of the
Company, including the details of the Parker Bath divestiture;
- reviewed the audited financial statements of the Company for the fiscal
years ended June 30, 2000, July 2, 1999 and July 3, 1998 and reviewed
quarterly unaudited financial statements for those fiscal years as filed
with the Securities and Exchange Commission;
- reviewed the financial terms and conditions of various draft merger
agreements and the final Merger Agreement;
- reviewed publicly available information concerning the trading of, and the
trading market for, the Shares;
- compared the Company from a financial point of view with other publicly
traded companies deemed to be comparable;
- considered the financial terms, as they relate to the Company and, to the
extent publicly available, of recent business combinations deemed to be
comparable in whole or in part;
- discussed with the Company's management the prospects for, and business
challenges facing, the Company without the Merger;
- reviewed and discussed with management of the Company, business and
financial information regarding the Company furnished to Batchelder,
including, management's financial forecasts and the related assumptions
including the projections of restructuring charges;
- made inquires regarding and discussed the Merger and the Merger Agreement
and other related matters with the Company's legal counsel; and
- performed other analyses and examinations as Batchelder deemed
appropriate.
In connection with its review, Batchelder did not assume any obligation to
verify independently this information, whether publicly available or furnished
to Batchelder by the Company, and relied on its accuracy and completeness in all
material respects. With respect to the financial forecasts provided to
Batchelder by the management of the Company, including projections of expected
reorganization costs, Batchelder assumed that (i) the forecasts accurately
reflect the judgement of management, (ii) the forecasts were reasonably prepared
on bases reflecting the best available estimates and judgments as to the future
financial performance of the Company, and (iii) these projections provide a
reasonable basis upon which Batchelder can form its opinion. In rendering its
opinion, Batchelder expressed no view as to the reasonableness of the forecasts
provided to Batchelder by the Company's management or the assumptions on which
such forecasts are based. Batchelder also assumed that there had been no
material changes in the Company's assets, financial condition, results of
operations, business, or prospects since the date of their last financial
statements made available to Batchelder. The management of the Company advised
Batchelder, and Batchelder assumed, that management was not aware of any facts
or circumstances that would make the information reviewed by Batchelder
inaccurate or misleading. Batchelder relied on advice of the Company's legal
counsel and independent accountants as to all legal and financial reporting
matters with respect to the Company, the Merger, and the Merger Agreement.
Batchelder also assumed that the Merger will be completed in a manner that
complies in all respects with the applicable provisions of the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, and all other applicable
federal and state statutes, rules, and regulations, including applicable laws of
foreign regulatory authorities. In addition, Batchelder did not make an
independent evaluation, appraisal, or physical inspection of any of the assets
or liabilities of the Company, nor has Batchelder been furnished with any
appraisals.
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Batchelder's opinion is based on economic, monetary, currency exchange,
financial market and other conditions as in effect on, and the information made
available to Batchelder as of October 16, 2000. Although subsequent developments
may affect its opinion, and except to the extent provided below, Batchelder did
not assume any obligation to update, revise, or reaffirm its opinion.
Batchelder further assumed that the representations and warranties of each
party in the Merger Agreement are true and correct, that each party to the
Merger Agreement will perform all of the covenants and agreements required to be
performed by that party under the Merger Agreement, and that the Merger will be
completed in accordance with the terms described in the Merger Agreement,
without any amendment, and without waiver by the Company of any of the
conditions to its obligations. Batchelder also assumed that in the course of
obtaining the necessary regulatory or other consents or approvals (contractual
or otherwise) for the Merger, no restrictions, amendments, or modifications will
be imposed that will have a material adverse effect on the contemplated benefits
of the Merger.
The following is a summary of the report presented by Batchelder to the
Special Committee on October 16, 2000 in connection with its written opinion
dated October 16, 2000.
COMMON STOCK PERFORMANCE. Batchelder reviewed the Company's common stock
performance including a historical analysis of closing prices and trading
volumes for the period beginning October 14, 1999 and ending on October 13,
2000, which included a high of $7.13, a low of $3.75, and an average of $5.26
for the period, for the period beginning October 14, 1997 and ending on
October 13, 2000, which included a high of $16.75, a low of $3.75, and an
average of $9.11, and for the period beginning October 14, 1995 and ending on
October 13, 2000 which indicated a high of $24.75, a low of $3.75, and an
average of $11.74 for the period. Batchelder's analysis of the Company's common
stock performance also included a historical analysis of the Company's indexed
performance relative to the S&P 500 and an index of the Selected Companies
(hereinafter defined) (i) for the period beginning June 30, 2000 and ending
September 29, 2000, (ii) for the period beginning March 31, 1999 and ending
September 29, 2000, (iii) for the period beginning September 30, 1999 and ending
September 29, 2000, (iv) for the period beginning September 30, 1997 and ending
September 29, 2000, and (v) for the period beginning September 29, 1995, and
ending September 29, 2000. In periods (ii) through (v), the Company
underperformed the S&P 500 and the Selected Companies. In period (i), the
Company outperformed the S&P 500 and the Selected Companies.
COMPARABLE PUBLIC COMPANY ANALYSIS. Batchelder reviewed and compared
certain financial information relating to the Company to corresponding financial
information, ratios and public market trading multiples of seven public
companies: Invacare Corporation, Respironics, Inc., Hillenbrand
Industries, Inc., Conmed Corporation, Vital Signs, Inc., Mallinckrodt Inc. and
Arrow International, Inc. (the "Selected Companies"). The Selected Companies
were chosen because they are publicly traded companies with operations that for
purposes of analysis may be considered similar to the Company. Using publicly
available information and other information provided by the Company, Batchelder
calculated a range of implied values for Common Stock based on a comparison of
the last twelve months' revenues ("LTM Revenues"), last twelve months' earnings
before interest, taxes, depreciation and amortization ("LTM EBITDA"), last
twelve months' earnings before interest and taxes ("LTM EBIT") and last twelve
months' pre-tax income ("LTM Pre-tax Income"). Batchelder adjusted this
information for non-recurring charges as necessary. With respect to the Selected
Companies, Batchelder considered enterprise value (i.e., market value of common
equity plus preferred stock, plus debt, less cash) as a multiple of LTM
Revenues, as a multiple of LTM EBITDA, as a multiple of LTM EBIT and considered
equity market capitalization as a multiple of LTM Pre-tax Income and last twelve
months' earnings ("LTM Price/Earnings"). Batchelder's analysis of the Selected
Companies indicated enterprise value multiples of LTM revenues, which ranged
from a low of 1.35x, to a high of 2.64x, with a median of 1.53x; LTM EBITDA,
which ranged from a low of 6.01x, to a high of 11.62x, with a median of 9.16x;
LTM EBIT, which ranged from a low of 8.25x, to a high of 16.58x, with a median
of 12.26x; LTM Pre-tax Income which ranged from a low of 5.63x, to a high of
16.64x, with a median of
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11.39x; and LTM Price/Earnings ratios, which ranged from a low of 8.82x, to a
high of 25.31x, with a median of 17.35x. Using publicly available information on
the Selected Companies, Batchelder calculated a range of implied values for
Common Stock based on a comparison of projected twelve months' revenues
("Projected Revenues"), projected twelve months' earnings before interest,
taxes, depreciation and amortization ("Projected EBITDA"), projected twelve
months' earnings before interest and taxes ("Projected EBIT") and projected
twelve months' pre-tax income ("Projected Pre-tax Income"). With respect to the
Selected Companies, Batchelder considered enterprise value (i.e., market value
of common equity plus preferred stock, plus debt, less cash) as a multiple of
Projected Revenues, as a multiple of Projected EBITDA, as a multiple of
Projected EBIT and considered equity market capitalization as a multiple of
Projected Pre-tax Income and projected twelve months' earnings ("Projected
Price/Earnings"). Batchelder's analysis of the Selected Companies indicated
enterprise value multiples of Projected Revenues, which ranged from a low of
1.22x, to a high of 2.39x, with a median of 1.47x; Projected EBITDA, which
ranged from a low of 6.65x, to a high of 9.13x, with a median of 8.31x;
Projected EBIT, which ranged from a low of 9.50x, to a high of 12.35x, with a
median of 10.39x; Projected Pre-tax Income which ranged from a low of 7.00x, to
a high of 11.79x, with a median of 10.23x; and Projected Price/Earnings Ratios,
which ranged from a low of 11.23x, to a high of 18.67x, with a median of 15.52x.
Batchelder gave more weight to the multiples of reported EBITDA, EBIT, pre-tax
income, and net income in this analysis and considered that the comparable
companies had a mean three-year revenue compounded annual growth rate and
profitability levels in excess of those for the Company.
COMPARABLE TRANSACTION ANALYSIS. In order to estimate the value per Share
assuming the Company were sold, Batchelder reviewed the consideration paid in
seven mergers and acquisition transactions in the medical device and equipment
industry announced since June 1996 for which financial data was available (the
"Selected Transactions"). Batchelder analyzed the consideration paid in these
transactions as a multiple of (1) enterprise value to the target companies' LTM
Revenues, LTM EBITDA, and LTM EBIT and (2) equity value to the target companies'
LTM Pre-tax Income, LTM net income and book value. Such analysis indicated that
for the Selected Transactions (i) enterprise value as a multiple of revenue
ranged from a low of 0.9x, to a high of 2.6x with a mean of 1.7x and a median of
1.5x, compared to enterprise value to be received in the Merger as a multiple of
2000 revenue of 0.6x, and estimated 2001 revenues of 0.6x; (ii) enterprise value
as a multiple of EBITDA ranged from a low of 8.7x, to a high of 16.3x, with a
mean of 11.5x, and a median of 9.0x, compared to enterprise value to be received
in the Merger as a multiple of 2000 EBITDA of 7.8x, and estimated 2001 EBITDA of
9.8x; (iii) enterprise value as a multiple of EBIT ranged from a low of 12.2x,
to a high of 20.1x, with a mean of 15.0x, and a median of 14.1x, compared to
enterprise value to be received in the Merger as a multiple of 2000 EBIT of
17.2x, and estimated 2001 EBIT of 28.6x; (iv) equity value as a multiple of
Pre-tax Income ranged from a low of 10.9x, to a high of 28.8x, with a mean of
18.7x, and a median of 14.2x, compared to equity value to be received in the
Merger as a multiple of 2000 pre-tax income of 53.0x, and estimated 2001 pre-tax
income of 253.2x; (v) equity value as a multiple of net income ranged from a low
of 17.2x to a high of 48.1x, with a mean of 28.0x, and a median of 22.1x,
compared to equity value to be received in the Merger as a multiple of 2000 net
income of 115.3x, and estimated 2001 net income of 422.1x; and (vi) equity value
as a multiple of book value ranging from a low of 2.3x, to a high of 6.6x,
compared to equity value to be received in the Merger as a multiple of 2000 book
value of 1.4x. Batchelder noted that one of the acquirors involved in two of the
seven mergers and acquisitions selected above had recently filed for voluntary
bankruptcy. Batchelder excluded these two comparable transactions and analyzed
the consideration paid in these transactions as a multiple of (1) enterprise
value to the target companies' LTM Revenues, LTM EBITDA, and LTM EBIT and
(2) equity value to the target companies' LTM Pre-tax Income, LTM net income and
book value. Such analysis indicated that for the Selected Transactions
(i) enterprise value as a multiple of revenue ranged from a low of 1.2x, to a
high of 2.6x with a mean of 1.8x and a median of 1.5x, compared to enterprise
value to be received in the Merger as a multiple of 2000 revenue of 0.6x, and
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estimated 2001 revenues of 0.6x; (ii) enterprise value as a multiple of EBITDA
ranged from a low of 8.7x, to a high of 16.3x, with a mean of 11.3x, and a
median of 9.0x, compared to enterprise value to be received in the Merger as a
multiple of 2000 EBITDA of 7.8x, and estimated 2001 EBITDA of 9.8x;
(iii) enterprise value as a multiple of EBIT ranged from a low of 12.2x, to a
high of 20.1x, with a mean of 14.8x, and a median of 14.1x, compared to
enterprise value to be received in the Merger as a multiple of 2000 EBIT of
17.2x, and estimated 2001 EBIT of 28.6x; (iv) equity value as a multiple of
Pre-tax Income ranged from a low of 10.9x, to a high of 28.8x, with a mean of
18.3x, and a median of 14.2x, compared to equity value to be received in the
Merger as a multiple of 2000 pre-tax income of 53.0x, and estimated 2001 pre-tax
income of 253.2x; (v) equity value as a multiple of net income ranged from a low
of 17.2x to a high of 48.1x, with a mean of 27.4x, and a median of 22.1x,
compared to equity value to be received in the Merger as a multiple of 2000 net
income of 115.3x, and estimated 2001 net income of 422.1x; and (vi) equity value
as a multiple of book value ranging from a low of 3.2x, to a high of 6.6x,
compared to equity value to be received in the Merger as a multiple of 2000 book
value of 1.4x. Batchelder gave more weight to the multiples of reported EBITDA,
EBIT, pre-tax income and net income in this analysis and considered that the
companies acquired had a mean three-year revenue compounded annual growth rate
and a mean EBITDA margin in excess of those for the Company.
PREMIUMS PAID ANALYSIS. Batchelder compared certain premiums represented by
the Merger price to premiums offered in 64 completed acquisitions of
$250 million to $500 million in size which were announced from the beginning of
1999 to October 13, 2000, excluding technology and biotechnology transactions
(the "Comparable Acquisitions"). Such analysis indicated that for the Comparable
Acquisitions, (i) premiums to market price one day prior to announcement ranged
from a low of 0.2%, to a high of 100.0%, with a mean of 34.6% and a median of
29.6%, compared to the Merger price premium of 55.3% to market price one day
prior to the announcement of the Merger price of October 17, 2000 (the
"Announcement Date"); (ii) premiums to market price one week prior to
announcement ranged from a low of 1.0%, to a high of 107.4%, with a mean of
41.4% and a median of 33.9%, compared to the Merger price premium of 64.9% to
market price one week prior to the Announcement Date; (iii) premiums to market
price one month prior to announcement ranged from a low of 2.8%, to a high of
253.8%, with a mean of 52.3%, and a median of 41.1%, compared to the Merger
price premium of 66.7% one month prior to the Announcement Date.
DISCOUNTED CASH FLOW ANALYSIS. In order to calculate an estimate of the
value of the Company from a cash flow perspective, Batchelder performed a
discounted cash flow analysis using the financial forecasts for the Company for
2001 through 2005 prepared and supplied by the Company's management. Using these
financial projections, Batchelder considered management's estimate of the future
unlevered, after-tax free cash flows that the Company could produce through 2005
and then calculated a range of the Company terminal values at the end of 2005 by
applying a range of EBITDA exit multiples from 7.0x to 9.0x to the Company's
estimated EBITDA in 2005. The cash flow stream and terminal values were
discounted to present values using discount rates ranging from 12.0% to 16.0%,
which were chosen to reflect reasonable ranges of the Company's estimated cost
of capital. This analysis indicated an implied equity value of the Company of
between $17.25 and $24.18 per share. Batchelder ascribed less weight to this
discounted cash flow analysis using management's projections because (i) the
five-year compounded annual revenue growth rate was projected to be 5.8%
compared to the historical three-year compounded annual growth rate for the
Company of negative 1.3%; (ii) in 2005 the EBITDA margins were projected to
reach 17.5% compared to the current EBITDA margins for the most recent fiscal
year of 7.3%; (iii) the Company has not historically achieved the projected
EBITDA margins and profitability levels; (iv) the levels of profitability and
growth assume the successful execution of a significant restructuring effort and
the implementation of a global information technology system; and (v) the
Company has historically initiated several restructuring efforts which have not
resulted in the anticipated levels of profitability.
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No company or transaction used in the comparable company analysis, the
comparable transaction analysis, or the premiums paid analysis is identical to
the Company. Accordingly, an evaluation of the results of these analyses is not
simply a mathematical calculation. It involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies being analyzed. The summary above is not a comprehensive
description of all analyses and examinations actually conducted by Batchelder in
the preparation of its opinion. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Selecting portions of the analyses and of the factors
considered by Batchelder, without considering all analyses and factors, would
create an incomplete view of the process underlying Batchelder's presentation to
the Special Committee. In addition, Batchelder may have given some analyses more
or less weight than other analyses and may have deemed various assumptions more
or less probable than other assumptions. Accordingly, the ranges of valuations
resulting from any particular analysis described above should not be taken to be
Batchelder's or the Company's view of the actual value of the Company or the
Shares. To the contrary, Batchelder expressed no opinion on the actual value of
the Company, the Shares, or the actual value of the consideration to be received
by the Company stockholders in exchange for their Shares. Its opinion, which is
addressed to the Special Committee, extends only to the opinion expressed by
Batchelder that the value of the consideration to be received by holders of
Shares (other than the Parent, the Management Group, any other members of
management who have agreed to invest in the Parent, and their affiliates), from
a financial point of view, based on facts and circumstances existing at the date
of the opinion and in reliance on material assumptions described in this
summary, is within the range of values that might fairly be ascribed to the
Shares as of October 16, 2000, the date of Batchelder's opinion.
In performing its analyses, Batchelder made numerous assumptions with
respect to industry performance, general business and economic conditions, and
other matters, many of which are beyond the control of the Company. The analyses
performed by Batchelder are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
those suggested by these analyses. Batchelder prepared these analyses solely as
part of Batchelder's analysis for the Special Committee of the fairness of the
Offer and Merger to the Company stockholders from a financial point of view and
provided these analyses solely to the Special Committee in connection with the
Special Committee's consideration of the Offer and Merger. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at any time in
the future. Batchelder used in its analyses various projections of future
performance prepared by the management of the Company. The projections are based
on numerous uncertain variables and assumptions that are inherently
unpredictable. Accordingly, actual results could vary significantly from those
assumed in these projections.
The opinion of Batchelder and the presentation to the Special Committee
summarized above were among the many factors taken into consideration by the
Special Committee in determining whether to approve and to recommend that the
the Company stockholders accept the offer and tender their Shares pursuant to
the Offer and adopt the Merger Agreement. Batchelder, however, does not make any
recommendation to any holders of Shares or to any other person or entity as to
whether any stockholder should tender Shares into the Tender Offer pursuant to
the Merger Agreement. Batchelder's opinion did not address the relative merits
of the Merger, any alternatives to the Merger, or the Company's underlying
business decision to proceed with or effect the Merger.
Pursuant to the terms of its engagement, the Company agreed to pay
Batchelder a fee of $250,000 upon presentation of its fairness opinion, which
would have been payable regardless of the conclusions of the opinion. In
addition, the Company has agreed to reimburse Batchelder for its out-of-pocket
expenses and to indemnify Batchelder and related parties against specified
liabilities, including liabilities under the federal securities laws.
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PURPOSE AND STRUCTURE OF THE TRANSACTIONS.
The purpose of the Merger Agreement and the transactions contemplated
thereby is to acquire control of, and the entire equity interest in, the
Company. The Offer is being made pursuant to the Merger Agreement in order to
more promptly transfer ownership of Shares to the Purchaser. As promptly as
practicable following consummation of the Offer and after satisfaction or waiver
of all conditions to the Merger set forth in the Merger Agreement, Purchaser
intends to acquire the remaining equity interest in the Company not acquired in
the Offer by consummating the Merger.
As described above, the Company Board has approved the Merger and the Merger
Agreement in accordance with the DGCL and rendered inapplicable the restrictions
on mergers contained in Section 203 of the DGCL. Except in the case described in
the next sentence, the Company Board will be required to submit the Merger
Agreement to the Company's stockholders for adoption at a stockholders' meeting
convened for that purpose in accordance with the DGCL. However, if the Purchaser
acquires more than 90% of the outstanding Shares, the Purchaser intends to
effect the Merger without a meeting of the Company's stockholders under
Section 253 of the DGCL. If the Purchaser cannot effect the Merger pursuant to
Section 253 of the DGCL and stockholder approval is required, under the DGCL and
the Company's Certificate of Incorporation the Merger Agreement must be adopted
by the affirmative vote of holders of a majority of the outstanding shares of
Common Stock. If required, the Company has agreed to convene a meeting of its
stockholders as soon as practicable following the consummation of the Offer for
the purpose of adopting the Merger Agreement and to include in any proxy or
information statement required for such meeting the unanimous recommendation of
the Company Board that the Company's stockholders vote in favor of the adoption
of the Merger Agreement. If the Minimum Condition is satisfied, the Purchaser
will have the power, which it intends to exercise, to approve the Merger
Agreement without the affirmative vote or written consent of any other
stockholder.
THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY,
CONSENT OR AUTHORIZATION FOR OR WITH RESPECT TO ANY MEETING OF THE COMPANY'S
STOCKHOLDERS OR ANY ACTION IN LIEU THEREOF. ANY SUCH SOLICITATION, IF REQUIRED,
WHICH THE PURCHASER MAY MAKE WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY
MATERIALS IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE
ACT.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE MINIMUM CONDITION
BEING SATISFIED.
Following the consummation or termination of the Offer, Purchaser or one of
its affiliates may seek to acquire additional Shares through open market
purchases, privately negotiated transactions, a tender or exchange offer, or
otherwise, upon such terms and at such prices as it shall determine, which may
be more or less than the price to be paid pursuant to the Offer.
APPRAISAL RIGHTS.
Stockholders do not have appraisal rights as a result of the Offer. However,
if the Merger is consummated, stockholders of the Company at the time of the
Merger who do not vote in favor of the adoption of the Merger Agreement will
have the right under the DGCL to dissent and demand appraisal of, and receive
payment in cash of the fair value of, their Shares outstanding immediately prior
to the effective date of the Merger in accordance with Section 262 of the DGCL.
Under the DGCL, dissenting stockholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of the
fair value of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of such merger or similar business combination)
and to receive payment of such fair value in cash. Any such judicial
determination of the fair value of such Shares could be based upon
considerations other than or in addition to the price paid in the Offer and the
Merger and the market value of the Shares. In WEINBERGER V. UOP, INC., the
Delaware Supreme Court stated, among other things, that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible
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in court" should be considered in an appraisal proceeding. Stockholders should
recognize that the value so determined could be higher or lower than the per
Share price to be paid pursuant to the Offer or the Merger Consideration.
In addition, several decisions by Delaware courts have held that in certain
circumstances a controlling stockholder of a corporation involved in a merger
has a fiduciary duty to other stockholders that requires that the merger be fair
to other stockholders. In determining whether a merger is fair to minority
stockholders, Delaware courts have considered, among other things, the type and
amount of the consideration to be received by the stockholders and whether there
was fair dealing among the parties. The Delaware Supreme Court stated in
WEINBERGER and RABKIN V. PHILIP A. HUNT CHEMICAL CORP. that the remedy
ordinarily available to minority stockholders in a cash-out merger is the right
to appraisal described above. However, a damages remedy or injunctive relief may
be available if a merger is found to be the product of procedural unfairness,
including fraud, misrepresentation or other misconduct.
THE FOREGOING SUMMARY OF THE RIGHTS OF OBJECTING STOCKHOLDERS DOES NOT
PURPORT TO STATE ALL OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING
TO EXERCISE ANY AVAILABLE APPRAISAL RIGHTS. THE PRESERVATION AND EXERCISE OF
APPRAISAL RIGHTS REQUIRES STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF THE
DGCL. A COPY OF SECTION 262 OF THE DGCL IS ATTACHED HERETO AS SCHEDULE IV AND
THE FOREGOING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SCHEDULE IV.
CERTAIN EFFECTS OF THE TRANSACTIONS.
As a result of the Offer, the Purchaser will acquire an interest in the
Company's net book value and net earnings to the extent of the number of Shares
acquired in the Offer. If the Merger is consummated, Holdings' direct and
indirect common equity interest in the Company would increase to 100% and
Holdings would be entitled to all benefits resulting from that interest,
including all income generated by the Company's operations and any future
increase in the Company's value. Following the Merger, none of the unaffiliated
stockholders of the Company will continue to participate in the future earnings
and potential growth of the Company. As a result of the indebtedness to be
incurred in connection with the financing of the Offer and the Merger (the
"Financing"), the consolidated indebtedness (including guaranteed indebtedness)
of the Company may be greater than it was prior to the Financing, the equity of
the Company may be lower than its equity prior to the Financing, the interest
rates on such debt may be higher than the interest rates on the Company's
current consolidated indebtedness, a substantial portion of the Company's assets
will be pledged to secure such indebtedness and the new debt may contain more
restrictions on the Company's operations than the Company's existing
consolidated debt, thereby possibly reducing the Company's financial and
operating flexibility. In addition, substantial cash payments will be necessary
to repay the Financing. See "SPECIAL FACTORS--Financing of the Transactions."
For other effects of the consummation of the Offer and the Merger, See "SPECIAL
FACTORS--The Merger Agreement" and "Effect of the Offer on the Markets for the
Shares; Stock Exchange Listing; Exchange Act Registration."
Following the consummation of the Offer, the Shares may be delisted from the
New York Stock Exchange ("NYSE") and the registration of the Shares under the
Exchange Act may be terminated. If the listing of the Shares is discontinued,
the markets for the Shares could be adversely affected. In addition, if the
Shares were delisted or the registration of the Shares under the Exchange Act
was terminated, the Shares would no longer constitute "margin securities" for
the purposes of the margin regulations of the Board of Governors of the Federal
Reserve System and, therefore, could no longer be used as collateral for loans
made by brokers. See "SPECIAL FACTORS--Effect of the Offer on the Markets for
the Shares; Stock Exchange Listing; Exchange Act Registration."
The benefit of the Offer and the Merger to unaffiliated stockholders of the
Company is that they are being afforded an opportunity to sell all of their
Shares for cash at a price which, in the opinion of Parent, Holdings, Purchaser
and the Company, is fair to the unaffiliated and affiliated stockholders of
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the Company and is at a premium to the trading prices of the Shares prior to the
announcement of the Offer.
FUTURE PLANS IN ADDITION TO THE MERGER.
It is currently expected that initially following the purchase of the Shares
and the consummation of the Offer, the business and operations of the Company
will continue as they currently are conducted without substantial change, except
as results from the continued implementation of the Company's restructuring
plan. Parent and Holdings will continue to evaluate all aspects of the business,
operations and management of the Company during the pendency of the Offer and
after the consummation of the Offer and will take such further actions as it
deems appropriate under the circumstances then existing.
Except as described in this Offer to Purchase, none of Purchaser, Parent,
Holdings, nor, to the best knowledge of Purchaser, Holdings and Parent, any of
the persons listed on Schedule III have any present plans or proposals that
would relate to or result in an extraordinary corporate transaction such as a
merger, reorganization or liquidation involving the Company or any of its
subsidiaries or a sale or other transfer of a material amount of assets of the
Company or any of its subsidiaries, any material change in the capitalization or
dividend policy of the Company or any other material change in the Company's
corporate structure or business or the composition of its Company Board or
management. Purchaser, Parent, Holdings and the Company expect to continue
implementing the Company's current restructuring plan.
The Purchaser presently intends following the purchase of Shares pursuant to
the Offer to exercise its rights under the Merger Agreement to designate a
number of persons to be elected to the Company Board sufficient to give the
Purchaser representation on the Company Board proportional to its percentage
ownership of Shares. The Company has agreed to promptly take all action
necessary to cause Purchaser's nominees to be elected, including either
increasing the size of the Company Board or securing resignations of incumbent
directors or both. The Company also has agreed to use its reasonable efforts to
cause Purchaser to have representation on each committee of the Company Board,
each board of directors of a subsidiary of the Company and each committee
thereof equal to its representation on the Company Board. In connection with the
designation by Purchaser of representatives to the Company Board, the Company
will file with the Commission and mail to its stockholders an Information
Statement pursuant to Section 14(f) of the Exchange Act.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS.
In considering the recommendations of the Special Committee of the Company
Board with respect to the Offer and the Merger, stockholders of the Company
should be aware that the Executives have certain interests in the transactions
contemplated by the Merger Agreement that are different from, or in addition to,
the interests of stockholders of the Company in general. As discussed above, the
one Executive who is a member of the Company Board was not a member of the
Special Committee, and the members of the Company Board were aware of the
interests of the Executives in the proposed transactions when deciding to
approve the transactions, as was the Special Committee when deciding to
recommend such approval. See "Special Factors--Background of the Transactions"
and--Recommendation of the Board of Directors; Fairness of the Transactions" and
"The Tender Offer--Section 11" ("Certain Legal Matters and Regulatory
Approvals").
LETTER AGREEMENTS. The eleven Executives who beneficially own, as of the
date hereof, approximately 0.2% of the outstanding Shares (approximately 6.6%
after giving effect to the exercise of their options to purchase Shares that
have exercise prices below $10.00 per Share, excluding any such options that
they have agreed in the Letter Agreements will be cancelled without
consideration) have agreed with Parent in the Letter Agreements, among other
things, (a) to permit the cancellation of all of their options upon the purchase
of Shares pursuant to the Offer in exchange for a cash payment upon the
consummation of the Merger equal to an amount determined by multiplying the
excess, if
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any, of the $10.00 per Share purchase price over the applicable per Share
exercise price of their vested options, by the number of Shares underlying such
vested options, (b) to use 55% of the proceeds of the portion of such payment
received in connection with certain non-qualified options granted as a special
retention and incentive award to purchase Parent Units (following Purchaser's
purchase of Shares pursuant to the Offer) pursuant to the Management Unit
Subscription Agreements, (c) to enter into the Securityholders Agreement with
Parent, VCP IV, PAE and other members of Parent, (d) to enter into the
Employment Agreements; and (e) that the Company, Holdings, Parent, Vestar
Capital Partners and Park Avenue Equity Management, LLC will enter into the
Management Agreement pursuant to which Vestar Capital Partners and Park Avenue
Equity Management, LLC will provide certain consulting and advisory services
following the consummation of the Merger for annual fees and will collectively
receive at the Effective Time a $5 million fee in connection with the
transactions contemplated by the Merger Agreement.
MANAGEMENT UNIT SUBSCRIPTION AGREEMENT. The following is a summary of the
form of Management Unit Subscription Agreement, which is qualified in its
entirety by reference to the form of Management Unit Subscription Agreement a
copy of which is filed as an exhibit to the Schedule TO.
Pursuant to each Subscription Agreement, the Executive party thereto shall
use 55% of the proceeds of the payment for cancellation of such Executive's
vested non-Qualified Options to subscribe for and purchase, and Parent has
agreed to issue and sell to such Executive on the date of the consummation of
the Merger (the "Closing Date"), Parent's Class A Participating Preferred Units
(the "Class A Units"), Class B Common Units (the "Class B Units"), Class C
Common Units (the "Class C Units") and Class D Common Units (the "Class D
Units"; collectively with the Class A Units, the Class B Units and the Class C
Units, the "Units"), such Units to vest according to schedules that include
various time and performance targets. The Executives have agreed to purchase an
aggregate number of Units that are expected to constitute approximately 9.9% of
the equity interest (excluding the Preferred Units) in Parent outstanding upon
consummation of the Merger (assuming full vesting and no dilution due to
issuances of additional Units or Rights to acquire Units). Parent may be
required to purchase all of an Executive's Class A Units in the event of the
Executive's disability, death or retirement. Parent will have the right to
purchase all or a portion of an Executive's Units upon the termination of such
Executive's active employment with the Company at a price dependent on the
circumstances of such termination of employment and on whether the Executive
engages in certain proscribed competitive activities following employment.
However, Parent shall not be obligated to purchase any Units at any time to the
extent that the purchase of such Units, or a payment to Parent by a Parent
subsidiary in order to fund such purchase, would result in a violation of law or
a financing default, or if a financing default exists which prohibits such
purchase or payment. Notwithstanding any other provision of the Management Unit
Subscription Agreements, Parent shall have no obligation to issue, sell or
deliver any of its Units to any Executive (i) who is not a full-time employee
of, or consultant to, Parent or any of its subsidiaries on the Closing Date,
(ii) whose representations and warranties contained therein are not true as of
the Closing Date in all material respects or (iii) whose has breached his
obligations thereunder.
SECURITYHOLDERS AGREEMENT. The following is a summary of the form of
Securityholders Agreement, which is qualified in its entirety by reference to
the form of Securityholders Agreement a copy of which is filed as an exhibit to
the Schedule TO.
Pursuant to the Securityholders Agreement, the Units (or common stock
following a change in corporate form) of Parent ("Parent Securities")
beneficially owned by the Executives and any other employees of Parent and its
subsidiaries who become beneficial owners of Parent Securities (collectively,
the "Management Investors") are subject to restrictions on transfer, as well as
the other provisions described below.
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The Securityholders Agreement provides that VCP IV, PAE, the Management
Investors and all other parties to such agreement will vote all of their Units
to elect and continue in office management committees or boards of directors of
Parent and each subsidiary of Parent (other than subsidiaries of the Company)
consisting of up to seven members or directors composed of:
(a) up to six designees of VCP IV (one of whom will be a representative of
PAE); and
(b) one member or director who shall be the chief executive officer of the
Company.
In addition, each Management Investor has agreed that until a Sale of the
Company (as defined in the Securityholders Agreement) or unless and to the
extent the managing underwriter of a public offering of Parent Securities
otherwise requires, he will vote all of his Units as directed by VCP IV in
connection with amendments to Parent's organizational documents, mergers or
other business combinations, the disposition of all or substantially all of
Parent's property and assets, reorganizations, recapitalizations or the
liquidation, dissolution or winding up of Parent.
The form of Securityholders Agreement provides (a) the Management Investors
with customary "tag-along" rights with respect to transfers of Parent Securities
beneficially owned by VCP IV, its partners or their transferees, and (b) VCP IV
with "drag-along" rights with respect to Parent Securities owned by the
Management Investors in a sale of Parent. In addition, VCP IV has certain rights
to require Parent to register Parent securities held by it under the Securities
Act of 1933 (the "Securities Act") up to six times, and VCP IV and the
Management Investors have certain rights to participate in publicly registered
offerings of Parent common stock initiated by Parent or other third parties. If
Parent issues or sells any new Parent Securities to VCP IV (subject to certain
exceptions), each Management Investor shall have the right to subscribe for a
sufficient number of new Parent Securities to maintain its ownership percentage
in Parent.
EMPLOYMENT AGREEMENTS. The following is a summary of the forms of
Employment Agreement, which are qualified in their entirety by reference to the
forms of Employment Agreement copies of which are filed as exhibits to the
Schedule TO.
The Company will enter into an Employment Agreement with each of the
Executives. The Employment Agreements shall become effective as of the first
date on which Shares are purchased pursuant to the Offer and will provide for
the termination of all previous agreements and arrangements between the Company
and the Executives covering the same subject matter. Under the Employment
Agreements the Executives will have substantially similar rights to those they
previously enjoyed under the terminated agreements and arrangements, except that
in the event of the termination of certain Executives' employment following the
acquisition of the Company by Purchaser, such Executives may be entitled to
severance benefits which, depending on the circumstances surrounding the
termination, may be significantly greater.
MANAGEMENT AGREEMENT. The following is a summary of the form of Management
Agreement, which is qualified in its entirety by reference to the form of
Management Agreement a copy of which is filed as an exhibit to the Schedule TO.
Pursuant to the Management Agreement, Park Avenue Equity Management, LLC, a
Delaware limited liability company affiliated with PAE ("PAEM"), and Vestar
Capital Partners, a New York general partnership affiliated with VCP IV, will,
commencing upon the Effective Time, render to each of Parent, Holdings and the
Company (and their subsidiaries) certain advisory and consulting services. In
consideration of those services, Parent, Holdings and the Company jointly and
severally will agree to pay to Vestar Capital Partners and PAEM an aggregate per
annum management fee equal to the greater of (i) $750,000 and (ii) an amount per
annum equal to 1.25% of the consolidated earnings before depreciation, interest,
taxes and amortization of Parent and its subsidiaries for such fiscal year, but
before deduction of any such fee, determined as set forth in the Company's
senior bank credit documents, commencing at the Effective Time. Parent, Holdings
and the Company also jointly and
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severally will agree to pay Vestar Capital Partners and PAEM at the Effective
Time an aggregate transaction fee equal to $5 million plus all out-of-pocket
expenses incurred by Vestar Capital Partners and PAEM prior to the Effective
Time for services rendered by Vestar Capital Partners and PAEM in connection
with the consummation of the Offer and the Merger. Parent, Holdings and the
Company also jointly and severally will agree to indemnify Vestar Capital
Partners and PAEM and their respective affiliates from and against all losses,
claims, damages and liabilities arising out of the performance by Vestar Capital
Partners and PAEM of their services pursuant to the Management Agreement. The
Management Agreement shall terminate upon the earlier to occur of (i) the
termination of the Merger Agreement or (ii) such time after the Effective Time
as VCP IV and PAE and their respective partners and the respective affiliates
thereof hold, directly or indirectly in the aggregate, less than 20% of the
voting power of the Company's outstanding voting stock.
EMPLOYEE BENEFITS. The Merger Agreement also requires the Surviving
Corporation to maintain until the first anniversary of the Effective Time
employee benefit plans and arrangements with overall employee benefits which are
substantially comparable in the aggregate to the benefits provided by Company
Benefit Plans (as defined in the Merger Agreement) as of October 16, 2000 (not
taking into account the value of any benefits under any such Company Benefit
Plans which are equity-based). See "Special Factors--The Merger Agreement."
INDEMNIFICATION AND DIRECTOR AND OFFICER LIABILITY INSURANCE. The Merger
Agreement provides that until the sixth anniversary of the Effective Time the
Surviving Corporation will indemnify and hold harmless each present and former
director and officer of the Company (each an "Indemnified Party" and
collectively, the "Indemnified Parties") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any pending,
threatened or completed claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative, arising out of or
pertaining to any action or omission occurring prior to the Effective Time
(including, without limitation, any claim, action, suit, proceeding or
investigation arising out of or pertaining to the transactions contemplated by
the Merger Agreement). In the event of any such claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Time), to the
extent permitted under applicable law, (i) the Company or the Surviving
Corporation shall advance expenses to each such Indemnified Party, including the
payment of the fees and expenses of counsel selected by such Indemnified Party,
which counsel shall be reasonably satisfactory to the Company or the Surviving
Corporation, as the case may be, promptly after statements therefor are
received, and (ii) the Company and the Surviving Corporation will cooperate
fully in the defense of any such matter. Neither the Company nor the Surviving
Corporation shall be liable for any settlement effected without its written
consent (which consent shall not be unreasonably withheld).
The Merger Agreement provides that the Company shall and, from the Effective
Time, the Surviving Corporation shall maintain the right to indemnification and
exculpation of officers and directors provided for in the Certificate of
Incorporation, By-laws and any other organizational documents of the Company as
in effect on the date of the Merger Agreement, with respect to indemnification
and exculpation for acts and omissions occurring prior to the Effective Time,
including, without limitation, the transactions contemplated by the Merger
Agreement.
Until the sixth anniversary of the Effective Time, the Surviving Corporation
must maintain officers' and directors' liability insurance covering the officers
and directors who are covered by the Company's officers' and directors'
liability insurance policies on the date of the Merger Agreement with respect to
actions and omissions occurring prior to the Effective Time, by obtaining tail
coverage of such existing insurance policies on terms which are not less
favorable than the terms of such current insurance in effect for the Company on
the date of the Merger Agreement and providing coverage only with respect to
matters occurring prior to the Effective Time, to the extent that such tail
coverage can be maintained at an annual cost to the Surviving Corporation of not
greater than 225% of the annual
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premium for the Company's insurance policies in effect on the date of the Merger
Agreement and, if such tail coverage cannot be so maintained at such cost,
providing as much of such insurance as can be so maintained at a cost equal to
225% of the annual premium for the Company's insurance policies.
The Merger Agreement also provides that the Surviving Corporation shall
maintain policies of insurance of the Company on the terms and conditions set
forth in any indemnification agreement to which the Company is party for all
periods extending until the expiration of any statute of limitations applicable
with respect to actions and omissions occurring prior to the Effective Time.
SHARE OWNERSHIP. As of the date hereof the Executives own the following
number of Shares: Mr. Anderson-Ray--6,354, Mr. Cooper--2,239, Mr. Fetter--0,
Mr. Hammes--13,300, Mr. Huggenberger--0, Mr. Jaye--18,657, Mr. Logemann--0,
Mr. Radak--2,429, Mr. Riley--0, Mr. Sinasohn--4,848, Ms. Winkel--0.
STOCK OPTIONS. The Merger Agreement provides that, except as otherwise
consented to by an option or unit holder, the Company shall cause each
outstanding option and each outstanding performance bonus unit (other than
certain options to purchase 1,096,667 shares and 5,000 units whose vesting in
based upon the attainment of certain price targets of the Shares (collectively
such options and units are referred to as the "Stock Price Securities")) that
have been granted under the Company's Performance Bonus Unit Program and Stock
Options Plans (as defined in the Merger Agreement), including those granted to
directors and executive officers of the Company, to become vested and
exercisable with respect to all Shares subject thereto or with respect to all
such units. Each such option holder and unit holder will be paid by the Company
for such option or unit (other than the Stock Price Securities), provided the
exercise price with respect to such option or unit is less than $10.00 per
Share, an amount in cash determined by multiplying (i) the excess, if any, of
$10.00 per Share over the applicable exercise price of such option or right by
(ii) the number of Shares subject to such options or the number of such units.
Each such option and unit will thereafter be canceled by the Company. The Stock
Price Securities will not be accelerated and cancelled and will continue in
accordance with the documents governing their issuance, and certain holders
thereof have consented to their cancellation without any payment therefor. Based
on Merger Consideration of $10.00 per Share, the officers and directors of the
Company will receive approximately $12.6 million in the aggregate in respect of
their vested units and options, including the following approximate amounts that
will be payable to the Executives: Mr. Anderson-Ray--$1.1 million, Mr. Cooper--
$0.2 million, Mr. Fetter--$0.3 million, Mr. Hammes--$3.0 million,
Mr. Huggenberger--$1.1 million, Mr. Jaye--$1.1 million, Mr. Logemann--
$0.2 million, Mr. Radak--$0.2 million, Mr. Riley--$0.2 million,
Mr. Sinasohn--$0.2 million, Ms. Winkel--$0.3 million.
OTHER MANAGEMENT INVESTORS. It is expected that, prior to the Effective
Time, other members of the current management of the Company will be offered the
opportunity to acquire Parent Units using a portion of the proceeds of the cash
paid in cancellation of their options.
FINANCING OF THE TRANSACTIONS.
The total amount of funds required by Purchaser to purchase all of the
outstanding Shares pursuant to the Offer, to consummate the proposed Merger and
to pay fees and expenses related to the Offer and the proposed Merger (excluding
the Restructuring/Working Capital Refinancing (as defined below)) is estimated
to be at least $431 million; PROVIDED that an additional amount of up to
$20 million may be required to refinance indebtedness (the
"Restructuring/Working Capital Refinancing") of the Company incurred under its
existing $58 million senior secured credit agreement prior to the consummation
of the Merger so long as the proceeds of such borrowings are used solely in
connection with certain transactions related to the restructuring of the Company
and/or to finance the working capital requirements of the Company. Purchaser
plans to obtain all funds needed for the Offer and the proposed Merger through
capital contributions by Parent and its affiliates and through
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borrowings under two credit facilities with one or more lenders in respect of
which Purchaser has obtained commitment letters from Bankers Trust Company (the
"Bank Commitment Letters") providing for $165 million of term loan facilities
comprised of a tranche A term loan facility having a maturity of six years from
the date of the consummation of the Merger and a tranche B term loan facility
having a maturity of seven years from the date of the consummation of the Merger
(the "Term Loan Facilities"), a $50 million revolving credit facility having a
maturity of six years from the date of the consummation of the Merger (the
"Revolving Credit Facility" and, together with the Term Loan Facilities, the
"Senior Secured Credit Facilities") and a $40 million unsecured subordinated
debt financing having a maturity of eight years from the initial purchase of
Shares pursuant to the Offer (the "Subordinated Credit Facility" and, together
with the Senior Secured Credit Facilities, the "Credit Facilities"). Such
commitment letters indicate the bank's commitment to provide funding on
customary terms and conditions, including without limitation (i) satisfactory
completion of legal and environmental due diligence by Bankers Trust Company
regarding the Company, (ii) the absence of any material adverse change in the
business, property, assets, liabilities, condition (financial or otherwise) or
prospects of the Company and its subsidiaries taken as a whole, and (iii) no
material disruption of or material adverse change in financial, banking, capital
or currency markets, or in the syndication market for credit facilities similar
in nature to the Credit Facilities, that would have a material adverse effect on
the syndication of the Credit Facilities. At the option of the Borrower, loans
made under the Credit Facilities will bear interest by reference to the
eurodollar rate for interest periods of one, two, three or six months (and 9 or
12 months if available to each applicable lender) or the base rate from time to
time in effect, in each case as determined by Bankers Trust Company in
accordance with its customary practices. Based upon the commitment letters and
related term sheets, the interest rate margin applicable to loans bearing
interest by reference to the eurodollar rate will be (x) in the case of
revolving credit loans and tranche A term loans under the Senior Secured Credit
Facilities, 3.5%, (y) in the case of tranche B term loans under the Senior
Secured Credit Facilities, 4% and (z) in the case of loans under the
Subordinated Facility, 1%. Based upon the commitment letters and related term
sheets, the interest rate margin applicable to loans bearing interest by
reference to the base rate will be (x) in the case of revolving credit loans and
tranche A term loans under the Senior Secured Credit Facilities, 2.5%, (y) in
the case of tranche B term loans under the Senior Secured Credit Facilities, 3%
and (z) in the case of loans under the Subordinated Facility, 0%. The interest
rate margins applicable to loans under the Senior Secured Credit Facilities will
be subject after a period to adjustments based on the achievement of certain
leverage-based targets. The Offer and the proposed Merger will be financed in
part pursuant to the Credit Facilities made available to the Borrower. As used
herein "Borrower" refers, prior to the Merger, to the Purchaser and, after the
Merger, to the Company, as the Surviving Corporation in the Merger. In addition,
the Borrower, in lieu of utilizing the Subordinated Credit Facility, may choose
to offer debt securities to lenders on terms not yet determined (the "Alternate
Financing"). Proceeds of the Term Loan Facilities will be drawn on the date of
initial acceptance of Shares pursuant to the Offer (the "Tender Offer Closing
Date") and will be used, in addition to drawings under the Company's revolving
credit facility, to finance the Offer, the proposed Merger and the refinancing
of certain outstanding indebtedness of the Company and to pay related fees and
expenses. Any proceeds which are not used on the Tender Offer Closing Date shall
be deposited into an escrow account at Bankers Trust Company until the date of
consummation of the Merger and, until such date, shall be released from escrow
to the extent required to pay interest on the Credit Facilities.
Based upon the commitment letters and related term sheets, the Credit
Facilities will contain restrictive covenants that limit Holdings, the Borrower
and each other subsidiary of Holdings with respect to, among other things,
creating liens upon its assets and disposing of material amounts of assets other
than in the ordinary course of business. The Borrower will be required to prepay
the Credit Facilities from the net cash proceeds of non-ordinary course asset
sales and debt and equity issuances, with certain limited exceptions. In
addition, the Borrower will be required to prepay the Credit Facilities with a
percentage of excess cash flow commencing with the period from January 1,
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2001 through June 30, 2002 and for each fiscal year thereafter. The Borrower
will also be required to meet certain financial tests under the Credit
Facilities. Until the Merger, obligations under the Senior Secured Credit
Facilities will be guaranteed by Holdings and secured by an interest in the
Shares. After the Merger, the Senior Secured Credit Facilities will be
guaranteed by Holdings and all domestic subsidiaries of the Borrower (the
"Guarantors") and secured by substantially all present and future assets of the
Borrower and the Guarantors. The Subordinated Credit Facility, if utilized, will
be guaranteed by VCP IV but will be unsecured. The guaranty fee payable to
VCP IV will have the effect of increasing the cost to the Company of the
Subordinated Credit Facility. Purchaser has obtained a commitment letter from
VCP IV providing for the equity financing required to consummate the
transactions. Subject to certain conditions, PAE has agreed to provide to VCP IV
$20 million of the required equity financing.
THE MERGER AGREEMENT
THE MERGER AGREEMENT. The following is a summary of the Merger Agreement,
which summary is qualified in its entirety by reference to the Merger Agreement,
which is attached hereto as Schedule V. Capitalized terms used and not otherwise
defined below have the meanings set forth in the Merger Agreement.
THE OFFER. The Merger Agreement provides for the commencement of the Offer
and for the acceptance for payment, purchase and payment for Shares validly
tendered on or prior to the expiration of the Offer and not withdrawn, subject
to the satisfaction or waiver of the Offer Conditions. Parent and Purchaser have
the right, in their sole discretion, to make any changes in the terms and
conditions of the Offer, PROVIDED, HOWEVER, without the written consent of the
Company, Parent and Purchaser may not (i) decrease the price per Share payable
in the Offer, (ii) decrease the number of shares of Company Common Stock sought
pursuant to the Offer or change the form of consideration payable in the Offer,
(iii) add, waive, change or amend the terms of or conditions to the Offer in any
manner adverse to the holders of shares of Company Common Stock, or (iv) change
the expiration date of the Offer; PROVIDED, HOWEVER, that if on any scheduled
expiration date of the Offer, which shall initially be 20 Business Days after
the commencement date of the Offer, all conditions to the Offer have not been
satisfied or waived, Purchaser may, from time to time, extend the expiration
date of the Offer for one or more periods of up to ten additional Business Days
each (but in no event shall Purchaser be permitted to extend the expiration date
of the Offer beyond January 10, 2001). The Purchaser must extend the Offer for
up to an aggregate of 20 Business Days at the request of the Company if, among
other things, the Minimum Condition has not been satisfied.
THE MERGER. The Merger Agreement provides that, at the Effective Time and
subject to the conditions set forth therein (including the Offer Conditions
described in "The Tender Offer--Section 10" ("Certain Conditions of the Offer")
and in accordance with the provisions of the DGCL, Purchaser shall merge into
the Company and the separate corporate existence of Purchaser shall cease, and
the Company shall continue as the Surviving Corporation of the Merger.
CERTIFICATE OF INCORPORATION, BY-LAWS, DIRECTORS AND OFFICERS. The Merger
Agreement provides that at the Effective Time, and by virtue of the Merger, the
Certificate of Incorporation of the Company as in effect immediately prior to
the Effective Time shall be amended to read in its entirety, except that the
name of the Surviving Corporation shall be "Sunrise Medical Inc.," as the
Certificate of Incorporation of Purchaser as in effect immediately before the
Effective Time and as provided in Exhibit A to the Merger Agreement, and such
amended certificate shall be the certificate of incorporation of the Surviving
Corporation until thereafter changed or amended. At the Effective Time, the
By-laws of the Company, as in effect immediately prior to the Effective Time,
shall be amended to read in its entirety, except that the name of the Surviving
Corporation shall be "Sunrise Medical Inc.," as the By-laws of the Purchaser as
in effect immediately prior to the Effective Time, until thereafter
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changed or amended as provided by applicable law. The Merger Agreement further
provides that the officers of the Company shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or otherwise
ceasing to be an officer. The directors of Purchaser shall be the directors of
the Surviving Corporation, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
CONVERSION OF SECURITIES. As of the Effective Time, by virtue of the Merger
and without any action on the part of the holder of any shares of Company Common
Stock or any shares of capital stock of Purchaser: (i) each issued and
outstanding share of capital stock of Purchaser shall be converted into and
become 23,000 fully paid and nonassessable shares of common stock, par value
$.01 per share, of the Surviving Corporation, (ii) each share of Company Common
Stock that is owned by the Company and each share of Company Common Stock that
is owned by Parent, Holdings or Purchaser shall automatically be canceled and
retired and shall cease to exist, and no common stock of the Parent, Holdings,
Purchaser or the Surviving Corporation, or any other form of consideration,
shall be delivered in exchange therefor, (iii) each issued and outstanding share
of Company Common Stock issued and outstanding immediately before the Effective
Time (other than shares to be canceled in accordance with (ii) above and any
Dissenting Shares) will, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to receive in cash the
Price Per Share. As of the Effective Time, all such shares of Company Common
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a Certificate which
immediately prior to the Effective Time represented any such shares of Company
Common Stock shall cease to have any rights with respect thereto, except the
right to receive, upon the surrender of such Certificates as provided in the
Merger Agreement, the Price Per Share in cash.
COMPANY OPTIONS. At or prior to the Effective Time, except as otherwise
consented to by an option or unit holder, all options to purchase Shares and
each equity-related unit (other than options and units whose vesting is based
upon the attainment of certain stock price targets) shall become vested. Each
such option and unit holder will receive cash for each such option or unit in
the amount of the product of (a) the excess, if any, of the Merger Consideration
over the exercise price of such option or unit multiplied by (b) the number of
Shares for which such option or unit is exercisable.
DISSENTERS' RIGHTS. The Merger Agreement provides that any Shares issued
and outstanding immediately prior to the Effective Time held by a holder who has
not voted in favor of the Merger or consented thereto in writing and who has
demanded appraisal for such shares in accordance with Section 262 of the DGCL
(and who has neither effectively withdrawn nor lost his right to such appraisal)
("Dissenting Shares"), shall not be converted into a right to receive cash, and
the holder thereof shall be entitled to only such rights as are granted by the
DGCL. If after the Effective Time such holder fails to perfect or withdraws or
otherwise loses his right to appraisal, such shares of Company Common Stock
shall be treated as if they had been converted as of the Effective Time into a
right to receive cash, without interest thereon. If a holder of Shares who
demands appraisal of those Shares under the DGCL shall effectively withdraw or
lose (through failure to perfect or otherwise) the right to appraisal, then, as
of the Effective Time or the occurrence of such event, whichever last occurs,
those Shares shall be converted into and represent only the right to receive the
Merger Consideration without interest, upon the surrender of the certificate or
certificates representing those Shares.
INTERIM OPERATIONS. The Company has agreed that, from October 16, 2000
until the Effective Time (except as expressly contemplated or permitted by the
Merger Agreement or to the extent that Parent shall otherwise consent in
writing), the businesses of the Company and its Subsidiaries will be conducted
in the Ordinary Course (as defined in the Merger Agreement), and, except for the
Restructuring Transactions (as defined in the Merger Agreement) and the Company
Events (as defined in the Merger Agreement), will use all reasonable efforts to
preserve intact the present business
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organizations of the Company and its Subsidiaries and their relationships with
customers, suppliers and others having business dealings with them.
The Company has also agreed that the Company and its Subsidiaries shall
refrain from directly or indirectly taking various actions without Parent's
consent. These prohibitions cover, among other things, limitations on making
changes to their organizational documents, selling their capital stock or their
property or assets, declaring or paying any dividend or other distribution,
incurring debt other than in the ordinary course of business beyond specified
limits, making capital expenditures beyond specified limits, increasing the
compensation payable to its directors, officers and employees (except normal
increases in the ordinary course of business for employees who are not directors
or officers of the Company), granting any severance or termination pay (except
to the extent required under existing policies or agreements), changing
accounting or tax policies and settling any litigation beyond specified limits.
STOCKHOLDERS MEETING. Pursuant to the Merger Agreement the Company will, as
soon as practicable following the acquisition by Purchaser of shares of Company
Common Stock pursuant to the Offer and in accordance with the Merger Agreement,
to the extent necessary to consummate the Merger, duly call, give notice of,
convene and hold a meeting of its stockholders (the "Company Stockholders
Meeting") for the purpose of considering and taking action upon the Merger
Agreement and approving the Merger Agreement, and the Company will, through the
Company Board, recommend to its stockholders that they adopt the Merger
Agreement; PROVIDED, HOWEVER, that the Company Board may withdraw, modify or
change such recommendation in accordance with the terms of Section 5.4 of the
Merger Agreement. Parent, Holdings and Purchaser shall vote or cause to be voted
all the shares of Company Common Stock owned of record or beneficially by the
Parent or any of its Subsidiaries in favor of the Merger Agreement and the
transactions contemplated by the Merger Agreement. After the date of the Merger
Agreement and prior to the expiration of the Offer, the Parent shall not
purchase, offer to purchase, or enter into any contract, agreement or
understanding regarding the purchase of any shares of Company Common Stock,
except pursuant to the terms of the Offer, the Merger and the Merger Agreement.
The Merger Agreement provides that, notwithstanding the preceding paragraph
or any other provision of the Merger Agreement, in the event Purchaser owns 90%
or more of the issued and outstanding shares of Company Common Stock following
the expiration of the Offer, the Company shall not be required to call the
Company Stockholders Meeting or to file or mail the Proxy Statement, and the
Company, Purchaser, Holdings and Parent shall, subject to the provisions of the
Merger Agreement, take all necessary and appropriate action to cause the Merger
to become effective as soon as practicable following such expiration without a
meeting of stockholders of the Company in accordance with Section 253 of the
DGCL.
PROXY STATEMENT. The Merger Agreement provides that, if required by
applicable law, as soon as practicable following the consummation of the Offer,
the Company and Parent shall file with the Commission under the Exchange Act and
the rules and regulations promulgated thereunder, and shall use its reasonable
good faith efforts to have cleared by the Commission and mailed to the Company's
stockholders, the proxy or information statement relating to the Stockholders
Meeting. Parent, Holdings, Purchaser and the Company have agreed to cooperate
with each other in the preparation of the proxy or information statement.
Without limiting the generality of the foregoing, each of Parent, Holdings, and
Purchaser is obliged to furnish to the Company the information relating to it
required by the Exchange Act and the rules and regulations promulgated
thereunder to be set forth in the Proxy Statement. The Company has agreed to use
its best efforts, after consultation with the other parties hereto, to respond
promptly to any comments made by the Commission with respect to the proxy or
information statement and any preliminary version thereof filed by it and cause
such proxy or information statement to be mailed to the Company's stockholders
at the earliest practicable time.
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COMPANY BOARD REPRESENTATION. The Merger Agreement provides that, promptly
upon the acceptance for payment of, and payment by Purchaser in accordance with
the Offer for, not less than a majority of the total issued and outstanding
shares of Company Common Stock on a fully diluted basis (assuming the exercise
of all outstanding Options (other than Options held by the Executives) and any
other rights to acquire shares of Company Common Stock on the date of purchase)
pursuant to the Offer, Purchaser shall be entitled to designate such number of
members of the Company Board, rounded up to the next whole number, equal to that
number of directors which equals the product of the total number of directors on
the Company Board (giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that such number of shares of Company
Common Stock owned in the aggregate by Purchaser or the Parent, upon such
acceptance for payment, bears to the number of shares of Company Common Stock
then outstanding. Upon the written request of Purchaser, the Company shall, on
the date of such request, (i) either increase the size of the Company Board or
secure the resignations of such number of its incumbent directors as is
necessary to enable the Purchaser's designees to be so elected or appointed to
the Company Board and (ii) cause the Purchaser's designees to be so elected or
appointed. At such time, the Company shall, if requested by Purchaser, also take
all action necessary to cause Purchaser's designees to constitute at least the
same percentage (rounded up to the next whole number) as such designees
represent on the Company Board of (i) each committee of the Company Board,
(ii) each board of directors (or similar body) of each Subsidiary of the Company
and (iii) each committee (or similar body) of each such board of directors.
NO SOLICITATIONS. The Merger Agreement provides that neither the Company
nor any of its Subsidiaries will (whether directly or indirectly through
advisors, agents or other intermediaries), nor will the Company or any of its
Subsidiaries authorize or permit any of its or their officers, directors,
agents, representatives or advisors to, (a) solicit, initiate, knowingly
encourage (including by way of furnishing information) or take any action
knowingly to facilitate the submission of any inquiries, proposals or offers
(whether or not in writing) from any person (other than Parent and its
affiliates) relating to, other than the transactions contemplated by the Merger
Agreement, (i) any acquisition or purchase of 10% or more of the consolidated
assets of the Company and its Subsidiaries (other than the Restructuring
Transactions, the Dispositions and the Sale Leasebacks) or of 10% or more of any
class of equity securities of the Company or any of its Subsidiaries, (ii) any
tender offer (including a self tender offer) or exchange offer that if
consummated would result in any person beneficially owning 10% or more of any
class of equity securities of the Company or any of its Subsidiaries, (iii) any
merger, consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its Subsidiaries whose assets, individually or in the
aggregate, constitute 10% or more of the consolidated assets of the Company
(other than the Restructuring Transactions, the Dispositions and the Sale
Leasebacks), or (iv) any other transaction the consummation of which would or
would reasonably be expected to impede, interfere with, prevent or materially
delay the Offer or the Merger or which would or would reasonably be expected to
materially dilute the benefits to Parent, Holdings or Purchaser of the
transactions contemplated by the Merger Agreement (collectively, "Acquisition
Proposals"), or agree to or endorse any Acquisition Proposal, or (b) enter into
or participate in any discussions or negotiations regarding any of the
foregoing, or furnish to any other person any information with respect to its
business, properties or assets in connection with the foregoing, or otherwise
cooperate in any way with, or participate in or knowingly assist, facilitate, or
encourage, any effort or attempt by any other Person (other than any of Parent,
Holdings, Purchaser and their affiliates) to do or seek any of the foregoing;
PROVIDED, HOWEVER, that the foregoing shall not prohibit the Company (A) from
complying with Rule 14e-2 and Rule 14d-9 under the Exchange Act with regard to a
bona fide tender offer or exchange offer; (B) from making such disclosure to the
Company's stockholders or otherwise which the Company Board concludes in good
faith, after consultation with its legal counsel, is necessary under applicable
law or the rules of the NYSE or is reasonably necessary in order to comply with
its fiduciary duties to the Company's stockholders under applicable law;
(C) from participating in negotiations or
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discussions with or furnishing information to any person in connection with an
Acquisition Proposal not solicited after October 16, 2000 which is submitted in
writing by such person to the Company Board after the date of the Merger
Agreement; PROVIDED, HOWEVER, that prior to participating in any such
discussions or negotiations or furnishing any information, the Company receives
from such person an executed confidentiality agreement on terms not less
favorable to the Company than the Confidentiality Agreement; and PROVIDED,
FURTHER, that the Company Board shall have concluded in good faith, after
consultation with its outside legal counsel and financial advisors, that such
Acquisition Proposal is reasonably likely to constitute a Superior Proposal (as
defined below) and, after consultation with its outside legal counsel, that
participating in such negotiations or discussions or furnishing such information
is reasonably necessary in order to comply with its fiduciary duties to the
stockholders of the Company under applicable law; and PROVIDED, FURTHER, that
the Company Board shall not (unless otherwise required by the terms of the
Acquisition Proposal) take any of the foregoing actions prior to two business
days after it provides Parent with prompt (but in no event later than 24 hours
after the occurrence or commencement of such action) written notice thereof. If
the Company Board receives an Acquisition Proposal, then the Company shall
promptly inform Parent of the material terms and conditions of such proposal and
the identity of the person making it.
The Merger Agreement requires the Company to cease and cause its advisors,
agents and other intermediaries to cease any and all activities, discussions or
negotiations with any parties conducted prior to October 16, 2000 with respect
to any of the foregoing and to use its reasonable best efforts to cause any such
parties in possession of confidential information about the Company that was
furnished by or on behalf of the Company to return or destroy all such
information in the possession of any such party or in the possession of any
agent or advisor of any such party. The Company has agreed not to release any
third party from, or waive any confidentiality provisions of, any
confidentiality agreement to which the Company is a party. "Superior Proposal"
is defined as any of the transactions described in clause (i), (ii) or (iii) of
the definition of Acquisition Proposal (with all of the percentages included in
the definition of such term raised to 51% for purposes of the definition) with
respect to which the Company Board shall have concluded in good faith, after
consultation with its outside legal counsel and financial advisors, is
reasonably likely to be completed, taking into account all legal, financial,
regulatory and other aspects of the Acquisition Proposal, including the status
of the financing therefor, and the person making the proposal, and would, if
consummated, result in a transaction more favorable to the Company's
stockholders from a financial point of view than the transactions contemplated
by the Merger Agreement, including the Merger.
EMPLOYEE BENEFITS. The Merger Agreement also requires the Surviving
Corporation to maintain until the first anniversary of the Effective Time
employee benefit plans and arrangements with overall employee benefits which are
substantially comparable in the aggregate to the benefits provided by Company
Benefit Plans (as defined in the Merger Agreement) as of October 16, 2000 (not
taking into account the value of any benefits under any such Company Benefit
Plans which are equity-based). For purposes of determining eligibility to
participate or vesting where length of service is relevant under any employee
benefit plan or arrangement of the Surviving Corporation or any of its
Subsidiaries, employees of the Company and its Subsidiaries as of the Effective
Time shall receive service credit for service with the Company and its
Subsidiaries to the same extent such service credit was granted under the
Company Benefit Plans, subject to offsets for previously accrued benefits and no
duplication of benefits. Except as otherwise consented to by the applicable
employee, the Surviving Corporation and its Subsidiaries shall assume and honor
in accordance with their respective terms (i) all written employment,
indemnification, severance and termination plans and agreements (including
change in control provisions and agreements) applicable to employees of the
Company and its Subsidiaries, and (ii) the severance pay policies to the extent
identified in certain Company disclosure schedules. See "Special Factors--The
Merger Agreement."
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INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIABILITY INSURANCE. The
Merger Agreement provides that until the sixth anniversary of the Effective Time
the Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless each present and former director and
officer of the Company (each an "Indemnified Party" and collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any pending, threatened or completed claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission occurring prior to the Effective Time (including, without limitation,
any claim, action, suit, proceeding or investigation arising out of or
pertaining to the transactions contemplated by the Merger Agreement). In the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), to the extent permitted under
applicable law, (i) the Company or the Surviving Corporation shall advance
expenses to each such Indemnified Party, including the payment of the fees and
expenses of counsel selected by such Indemnified Party, which counsel shall be
reasonably satisfactory to the Company or the Surviving Corporation, as the case
may be, promptly after statements therefor are received, and (ii) the Company
and the Surviving Corporation will cooperate fully in the defense of any such
matter. Neither the Company nor the Surviving Corporation shall be liable for
any settlement effected without its written consent (which consent shall not be
unreasonably withheld).
The Merger Agreement provides that the Company shall and, from the Effective
Time, the Surviving Corporation shall maintain the right to indemnification and
exculpation of officers and directors provided for in the Certificate of
Incorporation, By-laws and any other organizational documents of the Company as
in effect on the date of the Merger Agreement, with respect to indemnification
and exculpation for acts and omissions occurring prior to the Effective Time,
including, without limitation, the transactions contemplated by the Merger
Agreement.
Until the sixth anniversary of the Effective Time, the Surviving Corporation
must maintain officers' and directors' liability insurance covering the officers
and directors who are covered by the Company's officers' and directors'
liability insurance policies on the date of the Merger Agreement with respect to
actions and omissions occurring prior to the Effective Time, by obtaining tail
coverage of such existing insurance policies on terms which are not less
favorable than the terms of such current insurance in effect for the Company on
the date of the Merger Agreement and providing coverage only with respect to
matters occurring prior to the Effective Time, to the extent that such tail
coverage can be maintained at an annual cost to the Surviving Corporation of not
greater than 225% of the annual premium for the Company's insurance policies in
effect on the date of the Merger Agreement and, if such tail coverage cannot be
so maintained at such cost, providing as much of such insurance as can be so
maintained at a cost equal to 225% of the annual premium for the Company's
insurance policies.
The Merger Agreement also provides that the Surviving Corporation shall
maintain policies of insurance of the Company on the terms and conditions set
forth in any indemnification agreement to which the Company is party for all
periods extending until the expiration of any statute of limitations applicable
with respect to actions and omissions occurring prior to the Effective Time.
APPROVALS AND CONSENTS; COOPERATION. The Merger Agreement provides that,
each of the Company, Parent, Holdings and Purchaser shall cooperate with each
other and use (and shall cause their respective Subsidiaries to use) its
reasonable best efforts to take or cause to be taken all actions, and do or
cause to be done all things, necessary, proper or advisable on their part under
the Merger Agreement and applicable laws to consummate and make effective the
Merger and the other transactions contemplated by the Merger Agreement as soon
as practicable, including without limitation (i) preparing and filing as
promptly as practicable all documentation to effect all necessary applications,
notices, petitions, filings, tax ruling requests and other documents and to
obtain as promptly as practicable all consents, waivers, licenses, orders,
registrations, approvals, permits, tax rulings and authorizations necessary or
advisable to be obtained from any third party and/or any Governmental
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Entity in order to consummate the Merger or any of the other transactions
contemplated by the Merger Agreement (collectively, the "Required Approvals")
and (ii) taking all reasonable steps as may be necessary to obtain all such
Required Approvals. Without limiting the generality of the foregoing, each of
the Company and Parent, Holdings and Purchaser agree to make all necessary
filings in connection with the Required Approvals as promptly as practicable
after October 16, 2000, and to use its reasonable best efforts to furnish or
cause to be furnished, as promptly as practicable, all information and documents
requested with respect to such Required Approvals, and shall otherwise cooperate
with any applicable Governmental Entity in order to obtain any Required
Regulatory Approvals in as expeditious a manner as possible. Each of the
Company, Parent, Holdings and Purchaser shall use its reasonable best efforts to
resolve such objections, if any, as any Governmental Entity may assert with
respect to the Merger Agreement and the transactions contemplated thereby in
connection with the Required Approvals. In the event that a suit is instituted
by a person or Governmental Entity challenging the Merger Agreement and the
transactions contemplated hereby as violative of applicable antitrust or
competition laws, each of the Company and Parent shall use its reasonable best
efforts to resist or resolve such suit. The Company and Parent each shall, upon
request by the other, furnish the other with all information concerning itself,
its Subsidiaries, affiliates, directors, officers and stockholders and such
other matters as may reasonably be necessary or advisable in connection with the
Proxy Statement or any other statement, filing, tax ruling request, notice or
application made by or on behalf of the Company, Parent or any of their
respective Subsidiaries to any third party and/or any Governmental Entity in
connection with the Merger or the other transactions contemplated by the Merger
Agreement.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the Company, Parent, Holdings and
Purchaser. Representations and warranties of the Company include, without
limitation, certain matters concerning the Company's capitalization, the
Company's authority to execute, deliver and perform under the Merger Agreement
and the transactions contemplated thereby, absence of any conflicts with charter
documents and contracts, required filings and consents, compliance with law,
Commission filings and financial statements, absence of certain changes or
events, absence of litigation, employee benefit plans, tax matters,
environmental matters, interim conduct of business, properties, financial
statements and brokers. Some of the representations are qualified by a "Material
Adverse Effect" clause. "Material Adverse Effect" means, with respect to any
entity, (a) any adverse change, circumstance or effect that, individually or
aggregated with other changes, circumstances and effects, is or would reasonably
be expected to be materially adverse to the business, operations, assets,
liabilities, financial condition or results of operations of such entity and its
Subsidiaries taken as a whole; PROVIDED, HOWEVER, that the concept of Material
Adverse Effect shall not include any change, circumstance or effect resulting
from (i) general economic conditions or conditions affecting firms in the
Company's industry generally (other than a change in the Medicare/Medicaid
reimbursement policies which materially and adversely affect the Company's
products), (ii) the Merger Agreement or the transactions contemplated hereby,
(iii) the Restructuring Transactions, (iv) the Company Events, or (b) a material
impairment of the ability of such entity and its Subsidiaries taken as a whole
to perform any of their material obligations under the Merger Agreement or to
consummate the Merger.
Representations and warranties of Parent, Holdings and Purchaser include,
without limitation, certain matters relating to their organization and
qualification to do business, their authority to enter into the Merger Agreement
and to consummate the transactions contemplated thereby, their filings with the
Commission in connection with the Offer, consents and approvals required for the
execution and delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby, and brokers. Some of the representations are
qualified by a "Material Adverse Effect" clause.
CONDITIONS OF THE MERGER. Under the Merger Agreement, the respective
obligations of Parent, Holdings and Purchaser, on the one hand, and the Company,
on the other hand, to consummate the
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Merger are subject to the satisfaction at or prior to the Effective Time of the
following conditions: (a) if required by the DGCL, the Merger Agreement shall
have been adopted by the requisite vote of the stockholders of the Company;
(b) no preliminary or permanent injunction or other order issued by a court or
other Governmental Entity of competent jurisdiction which prevents the
consummation of the Merger shall have been issued and remain in effect; (c) any
waiting period applicable to the consummation of the Merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
shall have terminated or expired and any applicable foreign legal requirement
relating to competition shall have been complied with; and (d) Purchaser shall
have purchased Shares pursuant to the Offer. In addition, the obligations of
Parent, Holdings and Purchaser to effect the Merger are subject to the
additional condition that the proceeds of the financing contemplated in the
Bankers Trust Company Commitment Letters in the amounts necessary to consummate
the Merger shall have been received.
TERMINATION. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, before or after the adoption
of the Merger Agreement, by the stockholders of the Company under the following
circumstances:
(a) Termination by either the Company or Parent: (i) by mutual written
consent of Parent and the Company, by action of their respective Boards
of Directors, (ii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger, and such order, decree,
ruling or other action shall have become final and nonappealable,
(iii) if shares of Company Common Stock shall not have been purchased
pursuant to the Offer on or prior to January 10, 2001; and
(b) Termination by Parent at any time prior to the purchase of issued and
outstanding shares of Company Common Stock pursuant to the Offer: (i) if
the Company or the Company Board shall have (A) withdrawn, modified or
amended in any respect adverse to Parent, Holdings or Purchaser any of
its recommendations described in Section 1.3(a)(i) of the Merger
Agreement, (B) failed as promptly as reasonably practicable to mail the
Schedule 14D-9 to its stockholders (provided that the failure of Parent
or Purchaser to fulfill any of their material obligations under the
Merger Agreement shall not have been the cause of, or resulted in, the
failure by the Company to mail the Schedule 14D-9) or failed to include
in such Schedule 14D-9 such recommendations, (C) approved, recommended or
entered into an agreement with respect to, or consummated, any
Acquisition Proposal from a person other than Parent or any of its
affiliates, (D) in response to the commencement of any tender offer or
exchange offer (other than the Offer) for outstanding shares of Company
Common Stock, not recommended rejection of such tender offer or exchange
offer within five Business Days of commencement of such tender offer or
exchange offer, or (E) resolved to do any of the foregoing or publicly
announced its intention to do any of the foregoing; (ii) upon a material
breach of any covenant or agreement on the part of the Company set forth
in the Merger Agreement (other than a breach of any covenant or agreement
by the Company directly related to the cancellation of the Megagrant
Options (other than the Stock Price Megagrant Options) without first
accelerating the vesting and exercisability of the Stock Price Megagrant
Options, provided the Company or the appropriate body or entity has
resolved to cancel (and has not rescinded such resolution or
cancellation) the Megagrant Options (other than the Stock Price Megagrant
Options)), or if (A) any representation or warranty of the Company that
is qualified as to materiality shall have become untrue or (B) any such
representation or warranty of the Company that is not so qualified shall
have become untrue in any material respect (a "Terminating Company
Breach"); PROVIDED, HOWEVER, that, if such Terminating Company Breach is
reasonably capable of being cured by the Company no later than ten
calendar days after the Parent has furnished the Company with written
notice of such Terminating Company Breach, through the exercise of best
efforts, so long as the Company
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continues to exercise such best efforts, Parent may not terminate the
Merger Agreement prior to the expiration of such ten-day period; or
(iii) the Offer expires or is terminated in accordance with its terms
without any shares of Company Common Stock being purchased thereunder;
PROVIDED, HOWEVER, that the breach of any representation or warranty by
Parent, Holdings or Purchaser or failure of Parent, Holdings and
Purchaser to fulfill any obligations under the Merger Agreement has not
been the cause of, or resulted in, the failure to purchase shares
pursuant to the Offer.
(c) Termination by the Company at any time prior to the purchase of Shares
pursuant to the Offer: (i) upon a material breach of any covenant or
agreement on the part of Parent, Holdings or Purchaser set forth in the
Merger Agreement, or if (A) any representation or warranty of Parent,
Holdings or Purchaser set forth in the Merger Agreement that is qualified
as to materiality shall have become untrue or (B) any such representation
or warranty of Parent, Holdings or Purchaser that is not so qualified
shall have become untrue in any material respect (a "Terminating Parent
Breach"); PROVIDED, HOWEVER, that, if such Terminating Parent Breach is
reasonably capable of being cured by Parent, Holdings or Purchaser, as
the case may be, no later than ten calendar days after the Company has
furnished Parent with written notice of such Terminating Parent Breach,
through the exercise of best efforts, so long as Parent, Holdings or
Purchaser, as the case may be, continues to exercise such best efforts,
the Company may not terminate the Merger Agreement prior to the
expiration of such ten-day period; (ii) if (A) Purchaser shall have
failed to commence the Offer within the ten-Business Day period specified
in the Merger Agreement, or (B) the Offer expires or is terminated in
accordance with its terms without any shares of Company Common Stock
being purchased thereunder; PROVIDED, HOWEVER, that the breach of any
representation or warranty by the Company or the failure of the Company
to fulfill any obligation under the Merger Agreement has not been the
cause of, or resulted in, the failure to purchase such shares pursuant to
the Offer; or (iii) if the Company Board approves a Superior Proposal;
PROVIDED, HOWEVER, that (A) the Company shall have complied with the
terms of the Merger Agreement; and (B) the Merger Agreement may not be
terminated unless (x) concurrently with such termination, the Company
pays to Parent the Termination Fee (as hereinafter defined) less any
amount previously paid to Parent in respect of Parent Expenses (as
hereinafter defined) and (y) the Company shall have provided Parent with
at least two business days' advance notice of such termination.
TERMINATION FEE AND EXPENSES. (a) The Company shall (provided that neither
Parent, Holdings nor Purchaser is then in material breach of its obligations
under the Merger Agreement) upon the termination of the Merger Agreement if such
termination shall have occurred, in whole or in part, by reason of (i) the
failure of any of the Offer Conditions set forth in paragraphs (a), (b), (d),
(f), (g), and (h) described in "The Tender Offer--Section 10" ("Certain
Conditions of the Offer") or the Minimum Condition or (ii) paragraphs (b)(i),
(b)(ii) or (c)(iii) under "Termination" above, reimburse Parent, Holdings and
Purchaser, in an aggregate amount of up to $4,000,000, for all reasonable
out-of-pocket expenses and fees (including fees payable to all banks, investment
banking firms and other financial institutions, and their respective agents and
counsel, and all fees of counsel, accountants, financial printers, advisors,
experts and consultants to Parent and its affiliates), whether incurred prior
to, concurrently with or after the execution of the Merger Agreement in
connection with the Offer or the Merger or the consummation of any other
transaction contemplated by the Merger Agreement, the financing thereof or
consents related thereto (collectively, the "Expenses"). Such payment, together
with any Termination Fee which may be paid, shall serve as full liquidated
damages in respect of such breach by the Company, and Parent, Holdings and
Purchaser have waived all claims against the Company in respect of breach or
breaches occasioning this payment. It is understood that if Purchaser is paid a
Termination Fee (as defined below), to the extent not previously paid, no
amounts shall be payable as Parent Expenses.
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(b) If the Merger Agreement is terminated by the Company pursuant to
paragraphs (b)(i) or (c)(ii)(B) under "Termination" above (only if the
Merger Agreement was also terminable pursuant to paragraph (b)(i) under
"Termination" above at the time of such termination) or
paragraph (c)(iii) under "Termination" above, the Company shall pay to
Parent by wire transfer of immediately available funds to an account
designated by Parent on the next business day following such termination
(or, in the case of a termination pursuant to paragraph (c)(iii) under
"Termination" above, concurrently with the effectiveness of such
termination) an amount equal to $10,000,000 (the "Termination Fee") less
any amount previously paid to Parent in respect of Parent Expenses.
(c) If all of the following events have occurred:
(i) (A) an Acquisition Proposal is publicly disclosed or publicly
proposed to the Company or its stockholders at any time on or after
the date of the Merger Agreement but prior to any termination of the
Merger Agreement, and (B) the Merger Agreement is terminated
pursuant to paragraphs (a)(iii), (b)(ii), (b)(iii), or
(c)(ii) under "Termination" above; and
(ii) thereafter, within 12 months of the date of such termination, the
Company enters into a definitive agreement with respect to, or
consummates, the Acquisition Proposal referred to in clause (i), or
any Significant Proposal;
then, the Company shall pay to Parent, concurrently with the earlier of the
execution of such definitive agreement or the consummation of such Acquisition
Proposal, an amount equal to the Termination Fee (less any amount previously
paid to Parent in respect of Parent Expenses).
EFFECTS OF THE OFFER ON THE MARKETS FOR THE SHARES; STOCK EXCHANGE LISTING;
EXCHANGE ACT REGISTRATION.
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and reduce the number of holders of
Shares, which could adversely affect the liquidity and market value of the
remaining Shares held by the public. Following the completion of the Offer, a
majority of the outstanding Shares will be owned by Purchaser.
Depending upon the number of Shares purchased pursuant to the Offer, the
Common Stock may no longer meet the requirements of the New York Stock Exchange
(the "NYSE") for continued inclusion on the NYSE and may therefore be delisted
from the NYSE. According to the NYSE's published guidelines, the NYSE would
consider delisting the Shares if, among other things, (i) the number of holders
of Shares (including beneficial holders of Shares held in the names of NYSE
member organizations in addition to holders of record) should fall below 1,200
and the average monthly trading volume of Shares for the most recent 12 months
should be less than 100,000 Shares, (ii) the number of publicly held Shares
(exclusive of the holdings of officers, directors or their immediate families
and other concentrated holdings of 10% or more) should fall below 600,000
(exclusive of the holdings of officers, directors or their immediate families
and other concentrated holdings of 10% or more), (iii) the Shares are no longer
registered under the Exchange Act, as described below, or (iv) the number of
holders of Shares (including beneficial holders of Shares held in the names of
NYSE members organizations in addition to holders of record) should fall below
400.
If the NYSE were to delist the Common Stock, it is possible that the Common
Stock would continue to trade on other securities exchanges or in the
over-the-counter market and that price quotations would be reported by such
exchanges or through the Nasdaq Stock Market, Inc.'s National Market System or
other sources. However, the extent of the public market for the Shares and the
availability of such quotations would depend upon such factors as the number of
stockholders and/or the aggregate market value of the Shares remaining at such
time, the interest in maintaining a market in the Shares on the part of
securities firms, the possible termination of registration under the Exchange
Act (as described below) and other factors. Purchaser cannot predict whether the
reduction
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in the number of Shares that might otherwise trade publicly would have an
adverse or beneficial effect on the market price for or marketability of Shares
or whether it would cause future market prices to be greater or less than the
Offer price.
The Common Stock is currently registered under the Exchange Act. The
purchase of Shares pursuant to the Offer may result in the Common Stock becoming
eligible for deregistration under the Exchange Act. Registration of the Common
Stock may be terminated upon application of the Company to the Commission if the
Common Stock is not listed on a national securities exchange and there are fewer
than 300 holders of record. The termination of the registration of the Common
Stock under the Exchange Act would substantially reduce the information required
to be furnished by the Company to holders of shares of Common Stock and would
make certain provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b), the requirement of furnishing a proxy
statement in connection with stockholders' meetings and the requirements of
Rule 13e-3 under the Exchange Act with respect to "going private" transactions,
no longer applicable to the Common Stock or the holders thereof, as the case may
be. Furthermore, "affiliates" of the Company and persons holding "restricted
securities" of the Company may be deprived of the ability to dispose of the
securities pursuant to Rule 144 under the Securities Act.
The shares of Common Stock are currently "margin securities" under the rules
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), which has the effect, among other things, of allowing brokers to extend
credit on the collateral of the Common Stock for the purpose of buying, carrying
or trading in securities ("purpose loans"). Depending upon factors similar to
those described above with respect to listing and market quotations, it is
possible that, following the Offer, the Common Stock might no longer constitute
"margin securities" for the purpose of the Federal Reserve Board's margin
regulations and therefore could no longer be used as collateral for purpose
loans made by brokers.
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THE TENDER OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE. Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), Purchaser will accept for
payment, purchase and pay for all Shares validly tendered on or prior to the
Expiration Date (as hereinafter defined) and not properly withdrawn as permitted
by Section 4 ("Withdrawal Rights"). The term "Expiration Date" means 12:00
Midnight, New York City time, on November 28, 2000, unless and until Purchaser
(but subject to the terms and conditions of the Merger Agreement) shall have
extended the period during which the Offer is open, in which event the term
"Expiration Date" shall mean the latest time and date at which the Offer, as so
extended by Purchaser, shall expire.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, SATISFACTION OF THE
MINIMUM CONDITION AND THE FINANCING CONDITION. SEE SECTION 10 ("CERTAIN
CONDITIONS OF THE OFFER"), WHICH SETS FORTH IN FULL THE OFFER CONDITIONS.
SUBJECT TO THE PROVISIONS OF THE MERGER AGREEMENT AND THE APPLICABLE RULES AND
REGULATIONS OF THE COMMISSION, PURCHASER RESERVES THE RIGHT, IN ITS SOLE
DISCRETION, TO MAKE ANY CHANGES IN THE TERMS AND CONDITIONS OF THE OFFER,
PROVIDED, HOWEVER, WITHOUT THE WRITTEN CONSENT OF THE COMPANY, PURCHASER MAY
NOT, (I) DECREASE THE PRICE PER SHARE PAYABLE IN THE OFFER, (II) DECREASE THE
NUMBER OF SHARES OF COMPANY COMMON STOCK SOUGHT PURSUANT TO THE OFFER OR CHANGE
THE FORM OF CONSIDERATION PAYABLE IN THE OFFER, (III) ADD, WAIVE, CHANGE OR
AMEND THE TERMS OF OR CONDITIONS TO THE OFFER IN ANY MANNER ADVERSE TO THE
HOLDERS OF SHARES OF COMPANY COMMON STOCK OR (IV) CHANGE THE EXPIRATION DATE OF
THE OFFER; PROVIDED, HOWEVER, THAT IF ON ANY SCHEDULED EXPIRATION DATE OF THE
OFFER, WHICH SHALL INITIALLY BE 20 BUSINESS DAYS AFTER THE COMMENCEMENT DATE OF
THE OFFER, ALL CONDITIONS TO THE OFFER HAVE NOT BEEN SATISFIED OR WAIVED,
PURCHASER MAY, FROM TIME TO TIME, EXTEND THE EXPIRATION DATE OF THE OFFER FOR
ONE OR MORE PERIODS OF UP TO TEN ADDITIONAL BUSINESS DAYS EACH (BUT IN NO EVENT
SHALL PURCHASER BE PERMITTED TO EXTEND THE EXPIRATION DATE OF THE OFFER BEYOND
JANUARY 10, 2001 UNLESS THE PARTIES TO THE MERGER AGREEMENT SO AGREE), PROVIDED,
FURTHER, THAT IF ON ANY SCHEDULED EXPIRATION DATE OF THE OFFER, THE OFFER SHALL
NOT HAVE BEEN CONSUMMATED (A) DUE TO (I) THE FAILURE TO SATISFY THE MINIMUM
CONDITION, (II) THE FAILURE OF ANY REPRESENTATION OR WARRANTY OF THE COMPANY TO
BE TRUE (SO LONG AS THE RELEVANT REPRESENTATION OR WARRANTY IS REASONABLY
CAPABLE OF BEING CURED WITHIN TEN CALENDAR DAYS BY THE EXERCISE OF REASONABLE
BEST EFFORTS AND AN EXECUTIVE OFFICER OF THE COMPANY CERTIFIES IN WRITING THAT
SUCH REPRESENTATION OR WARRANTY IS REASONABLY CAPABLE OF BEING CURED BY THE
COMPANY WITHIN TEN CALENDAR DAYS THROUGH THE EXERCISE OF SUCH REASONABLE BEST
EFFORTS), OR, OTHER THAN BECAUSE OF A BREACH BY THE COMPANY OF ITS COVENANTS AND
AGREEMENTS CONTAINED IN THE MERGER AGREEMENT THERE HAS BEEN AN ACTION OR
PROCEEDING OR A THREAT IN WRITING OF AN ACTION OR PROCEEDING BY A GOVERNMENTAL
ENTITY, A RULE, ORDER OR REGULATION BY A GOVERNMENTAL ENTITY OR A COURT THAT
WOULD RESTRAIN, PROHIBIT OR MATERIALLY DELAY THE OFFER OR THE MERGER, PROHIBIT
OR RESTRICT THE OWNERSHIP OR OPERATION BY THE PURCHASER OF THE COMPANY'S
BUSINESS OR ASSETS, FORCE PURCHASER TO DISPOSE OF OR HOLD SEPARATE ANY PART OF
THE COMPANY'S BUSINESS OR ASSETS, LIMIT HOLDINGS' RIGHTS TO ACQUIRE OR HOLD OR
EXERCISE RIGHTS OVER THE STOCK OF THE COMPANY, OR OBTAIN MATERIAL DAMAGES FROM
PURCHASER, HOLDINGS OR PARENT FOR MAKING THE OFFER OR COMPLETING THE MERGER AT
THE REQUEST OF THE COMPANY, PURCHASER SHALL FROM TIME TO TIME EXTEND THE
EXPIRATION DATE OF THE OFFER FOR ONE OR MORE PERIODS OF UP TO TEN ADDITIONAL
BUSINESS DAYS EACH FOR UP TO AN AGGREGATE OF 20 BUSINESS DAYS (BUT IN NO EVENT
SHALL PURCHASER BE REQUIRED TO EXTEND THE EXPIRATION DATE OF THE OFFER BEYOND
JANUARY 10, 2001); OR (B) DUE TO THE FAILURE TO SATISFY THE CONDITION TO THE
OFFER RELATING TO THE EXPIRATION OR TERMINATION OF THE WAITING PERIOD UNDER THE
HSR ACT OR THE COMPLIANCE WITH ANY APPLICABLE FOREIGN LEGAL REQUIREMENTS
RELATING TO COMPETITION OR THE FINANCING CONDITION, THEN, AT THE REQUEST OF THE
COMPANY, PURCHASER SHALL EXTEND ANY SUCH EXPIRATION DATE OF THE OFFER FOR ONE OR
MORE PERIODS OF UP TO TEN ADDITIONAL BUSINESS DAYS EACH (BUT IN NO EVENT SHALL
PURCHASER BE REQUIRED TO EXTEND THE EXPIRATION DATE OF THE OFFER BEYOND
JANUARY 10, 2001); AND PROVIDED, FURTHER, THAT PURCHASER MAY, (1) WITHOUT THE
CONSENT OF THE COMPANY, EXTEND THE OFFER FOR ANY PERIOD REQUIRED BY ANY RULE,
REGULATION, INTERPRETATION OR POSITION OF THE SEC (AS DEFINED BELOW) APPLICABLE
TO THE OFFER IN THE EVENT OF AN INCREASE IN THE PRICE
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PER SHARE OR AS OTHERWISE REQUIRED BY LAW AND (2) EXTEND THE OFFER IN ACCORDANCE
WITH RULE 14D-11 UNDER THE EXCHANGE ACT IF (X) THE CONDITIONS TO THE OFFER SHALL
HAVE BEEN SATISFIED OR WAIVED AND SHALL NOT APPLY TO ANY EXTENSION, (Y) THE
NUMBER OF SHARES THAT HAVE BEEN VALIDLY TENDERED AND NOT WITHDRAWN REPRESENT
MORE THAN 50% BUT LESS THAN 90% OF THE ISSUED AND OUTSTANDING SHARES AND
(Z) PURCHASER SHALL ACCEPT AND PROMPTLY PAY FOR ALL SHARES VALIDLY TENDERED AND
NOT WITHDRAWN AND AGREE TO CONTINUE TO DO SO THROUGHOUT THE EXTENSION PERIOD;
PROVIDED, HOWEVER, THAT IN NO EVENT SHALL THE EXTENSIONS PERMITTED UNDER THE
FOREGOING CLAUSE (2) EXCEED, IN THE AGGREGATE, TEN BUSINESS DAYS.
The Rights are currently evidenced by the certificates for the Common Stock,
and the tender by a stockholder of such stockholder's Shares also will
constitute a tender of the associated Rights. Pursuant to the Offer, no separate
payment will be made by Purchaser for the Rights.
Any extension, delay, termination, waiver or amendment will be followed as
promptly as practicable by public announcement thereof, and such announcement in
the case of an extension will be made in accordance with Rule 14e-1(d) under the
Exchange Act, no later than 9:00 A.M., New York City time, on the next business
day after the previously scheduled Expiration Date. Without limiting the manner
in which Purchaser may choose to make any public announcement, except as
provided by applicable law (including Rules 14d-4(c) and 14d-6(d) under the
Exchange Act, which require that material changes be promptly disseminated to
holders of Shares), Purchaser shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or if it
waives a material condition of the Offer, Purchaser will disseminate additional
tender offer materials and extend the Offer to the extent required by
Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period
during which an offer must remain open following material changes in the terms
of the Offer, other than a change in price or a change in the percentage of
securities sought, will depend upon the facts and circumstances, including the
materiality, of the changes. With respect to a change in price or, subject to
certain limitations, a change in the percentage of securities sought, a minimum
10 business day period from the day of such change is generally required to
allow for adequate dissemination to stockholders. For purposes of the Offer, a
"business day" means any day other than a Saturday, Sunday, or a federal holiday
and consists of the time period from 12:01 A.M. through 12:00 Midnight, New York
City time.
The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal and
other relevant materials will be mailed by Purchaser to record holders of Shares
and furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. The obligation of
Purchaser to accept for payment Shares tendered shall be subject to the
satisfaction of the Offer Conditions. Purchaser covenants and agrees that,
subject to the terms and conditions of the Merger Agreement, including the Offer
Conditions, it will accept for payment and pay for Shares validly tendered and
not withdrawn pursuant to the Offer as promptly as reasonably practicable. In
addition, subject to the applicable rules of the Commission, Purchaser expressly
reserves the right to delay acceptance for payment of or payment for Shares
pending receipt of any other regulatory approvals specified in Section 11
("Certain Legal Matters and Regulatory Approvals"). Any such delays will be
effected in compliance with Rule 14e-1(c) under the Exchange Act. If following
acceptance for payment of Shares, Purchaser asserts such regulatory approvals as
a condition and does not promptly pay for Shares tendered, Purchaser will
promptly return such Shares.
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For information with respect to approvals required to be obtained prior to
the consummation of the Offer, including the HSR Act, see Section 11 ("Certain
Legal Matters and Regulatory Approvals").
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of
(i) certificates representing such Shares ("Share Certificates") or timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Shares into the Depositary's account at the Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in
Section 3 ("Procedure for Tendering Shares"), (ii) the Letter of Transmittal (or
a facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message (as defined below) in connection
with a book-entry transfer and (iii) any other documents required by the Letter
of Transmittal.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to and received by the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that Purchaser
may enforce such agreement against such participant.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not properly
withdrawn as, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares pursuant to the
Offer. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from Purchaser and
transmitting such payments to stockholders whose Shares have been accepted for
payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR SHARES
BE PAID OR ACCRUED FOR THE BENEFIT OF HOLDERS OF SHARE CERTIFICATES ON THE PRICE
PER SHARE PAYABLE UPON THE SURRENDER OF THE SHARE CERTIFICATES REGARDLESS OF ANY
EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. If for any reason
acceptance for payment of or payment for any Shares tendered pursuant to the
Offer is delayed or Purchaser is unable to accept for payment or pay for Shares
tendered pursuant to the Offer, then without prejudice to Purchaser's rights set
forth herein, the Depositary may nevertheless, on behalf of Purchaser and
subject to Rule 14e-1(c) under the Exchange Act, retain tendered Shares and such
Shares may not be withdrawn except to the extent that the tendering stockholder
is entitled to and duly exercises withdrawal rights as described in Section 4
("Withdrawal Rights").
If any tendered Shares are not accepted for payment for any reason or if
Share Certificates are submitted for more Shares than are tendered, Share
Certificates evidencing unpurchased or untendered Shares will be returned
without expense to the tendering stockholder (or, in the case of Shares tendered
by book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility pursuant to the procedures set forth in Section 3 ("Procedure for
Tendering Shares"), such Shares will be credited to an account maintained at the
Book-Entry Transfer Facility), as promptly as practicable following the
expiration, termination or withdrawal of the Offer.
PURCHASER RESERVES THE RIGHT TO TRANSFER OR ASSIGN, IN WHOLE OR FROM TIME TO
TIME IN PART, TO ONE OR MORE OF ITS AFFILIATES THE RIGHT TO PURCHASE ALL OR ANY
PORTION OF THE SHARES TENDERED PURSUANT TO THE OFFER, BUT ANY SUCH TRANSFER OR
ASSIGNMENT WILL NOT RELIEVE PURCHASER OF ITS OBLIGATIONS UNDER THE OFFER AND
WILL IN NO WAY PREJUDICE THE RIGHTS OF TENDERING STOCKHOLDERS TO RECEIVE PAYMENT
FOR SHARES VALIDLY TENDERED AND ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER.
3. PROCEDURE FOR TENDERING SHARES. VALID TENDERS. Except as set forth
below, in order for Shares to be validly tendered pursuant to the Offer, the
Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, together with any required signature guarantees, or an Agent's Message
in connection with a book-entry delivery of Shares, and any other documents
required by the Letter of
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Transmittal, must be received by the Depositary at its address set forth on the
back cover of this Offer to Purchase on or prior to the Expiration Date and
either (i) Share Certificates evidencing tendered Shares must be received by the
Depositary at such address or such Shares must be tendered pursuant to the
procedure for book-entry transfer described below and a Book-Entry Confirmation
must be received by the Depositary, in each case on or prior to the Expiration
Date, or (ii) the guaranteed delivery procedures described below must be
complied with. If Share Certificates are forwarded separately to the Depositary,
a properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) must accompany each such delivery.
THE METHOD OF DELIVERY OF THE SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY
TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING HOLDER AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY
(INCLUDING, IN THE CASE OF BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
401(K) PLAN. American Express Trust Company ("AMEX"), as the trustee for
the Company's Profit Sharing and Savings Plan (the "401(k) Plan), is the holder
of the Shares held in the Company Stock Fund under the 401(k) Plan. In order for
Shares held in a participant's or beneficiary's account to be tendered, the
participant or beneficiary in the 401(k) Plan must complete and execute the
Direction Form and deliver it to AMEX. AMEX shall tender Shares, which it holds
in the Company Stock Fund under the 401(k) Plan, only as directed by the
participants and beneficiaries in the Plan.
BOOK-ENTRY TRANSFER. The Depositary will make a request to establish
accounts with respect to the Shares at the Book-Entry Transfer Facility for
purposes of the Offer within two business days after the date of this Offer to
Purchase. Any financial institution that is a participant in the system of the
Book-Entry Transfer Facility may make book-entry delivery of Shares by causing
the Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. However, although delivery of
Shares may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, together with any required signature guarantees, or an
Agent's Message in connection with a book-entry transfer, and any other
documents required by the Letter of Transmittal, must in any case be received by
the Depositary at its address set forth on the back cover of this Offer to
Purchase on or prior to the Expiration Date, or the guaranteed delivery
procedures described below must be complied with.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH
THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
SIGNATURE GUARANTEES. Except as otherwise provided below, all signatures on
a Letter of Transmittal must be guaranteed by a financial institution (including
most banks, savings and loan associations and brokerage houses) which is a
member of a recognized Medallion Program approved by The Securities Transfer
Association Inc., including the Securities Transfer Agents Medallion Program
(STAMP), the Stock Exchange Medallion Program (SEMP) and the New York Stock
Exchange, Inc. Medallion Signature Program (MSP) (any such financial institution
an "Eligible Institution"). Signatures on a Letter of Transmittal need not be
guaranteed (a) if the Letter of Transmittal is signed by the registered holder
of the Shares tendered and such holder has not completed the box entitled
"Special Payment Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal or (b) if such Shares are tendered for the account of an Eligible
Institution. See Instructions 1 and 5 of the Letter of Transmittal.
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If the Share Certificates are registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made, or Share
Certificates not accepted for payment or not tendered are to be returned, to a
person other than the registered holder, the Share Certificates must be endorsed
or accompanied by appropriate stock powers, in either case, signed exactly as
the name of the registered holder appears on such certificates, with the
signatures on such certificates or stock powers guaranteed as aforesaid. See
Instructions 1 and 5 of the Letter of Transmittal.
If Share Certificates are forwarded separately to the Depositary, a properly
completed and duly executed Letter of Transmittal (or a facsimile thereof) and
any other documents required by the Letter of Transmittal must accompany each
such delivery.
GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates are not immediately
available, or such stockholder cannot deliver the Share Certificates and all
other required documents to the Depositary on or prior to the Expiration Date,
or such stockholder cannot complete the procedure for delivery by book-entry
transfer on a timely basis, such Shares may nevertheless be tendered, provided
that all of the following conditions are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form made available by Purchaser is received
by the Depositary as provided below on or prior to the Expiration Date; and
(iii) the Share Certificates (or a Book-Entry Confirmation),
representing all tendered Shares in proper form for transfer, together with
the Letter of Transmittal (or a facsimile thereof) properly completed and
duly executed, with any required signature guarantees (or, in the case of a
book-entry transfer, an Agent's Message) and any other documents required by
the Letter of Transmittal are received by the Depositary within three Nasdaq
trading days after the date of execution of such Notice of Guaranteed
Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, telex, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution and a representation that the
stockholder owns the Shares tendered within the meaning of, and that the tender
of the Shares effected thereby complies with, Rule 14e-4 under the Exchange Act,
each in the form set forth in such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of Share Certificates for, or of Book-Entry
Confirmation with respect to, such Shares, a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof), together with any
required signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message), and any other documents required by the Letter of Transmittal.
Accordingly, payment might not be made to all tendering stockholders at the same
time and will depend upon when Share Certificates or Book-Entry Confirmations of
such Shares are received into the Depositary's account at the Book-Entry
Transfer Facility.
APPOINTMENT AS PROXY. By executing the Letter of Transmittal, a tendering
stockholder irrevocably appoints designees of Purchaser and each of them as such
stockholder's attorneys-in-fact and proxies, with full power of substitution, in
the manner set forth in the Letter of Transmittal, to the full extent of such
stockholder's rights with respect to the Shares tendered by such stockholder and
accepted for payment by Purchaser (and with respect to any and all other Shares,
other securities or rights issued or issuable in respect of such Shares on or
after the date hereof). All such powers of attorney and proxies shall be
considered irrevocable and coupled with an interest in the tendered Shares. Such
appointment will be effective when, and only to the extent that, Purchaser
accepts such Shares for payment. Upon such acceptance for payment, all prior
powers of attorney and proxies given by such stockholder with
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respect to such Shares will be revoked without further action, and no subsequent
powers of attorney and proxies may be given nor any subsequent written consents
executed (and, if given or executed, will not be deemed effective). The
designees of Purchaser will, with respect to the Shares for which such
appointment is effective, be empowered to exercise all voting and other rights
of such stockholder as they in their sole discretion may deem proper at any
annual or special meeting of the Company's stockholders or any adjournment or
postponement thereof, by written consent in lieu of any such meeting or
otherwise. Purchaser reserves the right to require that, in order for Shares to
be deemed validly tendered, immediately upon Purchaser's payment for such
Shares, Purchaser must be able to exercise full voting rights with respect to
such Shares and other securities, including voting at any meeting of
stockholders.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by Purchaser in its sole discretion, which
determination shall be final and binding on all parties. Purchaser reserves the
absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. Purchaser also reserves the absolute right to waive any
defect or irregularity in any tender of Shares of any particular stockholder
whether or not similar defects or irregularities are waived in the case of other
stockholders. No tender of Shares will be deemed to have been validly made until
all defects and irregularities have been cured or waived. None of Purchaser, the
Parent, Holdings, any of their affiliates or assigns, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. Purchaser's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the
"backup withholding" provisions of federal income tax law, the Depositary may be
required to withhold 31% of the amount of any payments of cash pursuant to the
Offer. In order to avoid backup withholding, each stockholder surrendering
Shares in the Offer must, unless an exemption applies, provide the payor of such
cash with such stockholder's correct taxpayer identification number ("TIN") on a
substitute Form W-9 and certify, under penalties of perjury, that such TIN is
correct and that such stockholder is not subject to backup withholding. If a
stockholder does not provide its correct TIN or fails to provide the
certifications described above, the Internal Revenue Service ("IRS") may impose
a penalty on such stockholder and payment of cash to such stockholder pursuant
to the Offer may be subject to backup withholding of 31%. All stockholders
surrendering Shares pursuant to the Offer should complete and sign the
substitute Form W-9 included in the Letter of Transmittal to provide the
information and certification necessary to avoid back-up withholding (unless an
applicable exemption exists and is proved in a manner satisfactory to the
Depositary). Certain stockholders (including among others all corporations and
certain foreign individuals and entities) are not subject to back-up
withholding. Noncorporate foreign stockholders should complete and sign a
Form W-8, Certificate of Foreign Status, a copy of which may be obtained from
the Depositary, in order to avoid backup withholding. See Instruction 9 of the
Letter of Transmittal.
OTHER REQUIREMENTS. Purchaser's acceptance for payment of Shares tendered
pursuant to any of the procedures described above will constitute a binding
agreement between the tendering stockholder and Purchaser upon the terms and
subject to the conditions of the Offer, including the tendering stockholder's
representation and warranty that the stockholder is the holder of the Shares
within the meaning of, and that the tender of the Shares complies with,
Rule 14e-4(a) (4) under the Exchange Act.
4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are
irrevocable except that they may be
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withdrawn after November 28, 2000 unless theretofore accepted for payment as
provided in this Offer to Purchase.
If Purchaser extends the Offer, is delayed in its acceptance for payment of
Shares or is unable to purchase Shares validly tendered pursuant to the Offer
for any reason, then, without prejudice to Purchaser's rights under the Offer,
the Depositary may, on behalf of Purchaser, retain tendered Shares, and such
Shares may not be withdrawn except as otherwise described in this Section 4. Any
such delay will be an extension of the Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
its address set forth on the back cover of this Offer to Purchase. Any notice of
withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the class and number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If the Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, then prior to the physical release of the
certificates, the name of the registered holder (if different from the tendering
stockholder) and the serial numbers shown on such certificates must be submitted
to the Depositary, together with a signed notice of withdrawal, the signatures
on which must be guaranteed by an Eligible Institution unless such Shares have
been tendered for the account of any Eligible Institution. If Shares have been
tendered pursuant to the procedure for book-entry transfer as set forth in
Section 3 ("Procedures for Tendering Shares"), any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. Purchaser reserves the absolute
right to reject any and all withdrawals determined by it not to be in proper
form. Purchaser also reserves the absolute right to waive any defect or
irregularity in any withdrawal of Shares of any particular stockholder whether
or not similar defects or irregularities are waived in the case of other
stockholders. No withdrawal of Shares will be deemed to have been validly made
until all defects and irregularities have been cured or waived. None of
Purchaser, the Parent, Holdings, any of their affiliates or assigns, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or incur any liability for failure to give any such notification.
Withdrawals of Shares may not be rescinded. Any Shares properly withdrawn
will thereafter be deemed not to have been validly tendered for purposes of the
Offer. However, withdrawn Shares may be re-tendered at any time prior to the
Expiration Date by following one of the procedures described in Section 3
("Procedures for Tendering Shares").
5. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES. The summary of
tax consequences set forth below is for general information only is based on the
law as currently in effect. The tax treatment of each holder will depend in part
upon such holder's particular situation. Special tax consequences not described
herein may be applicable to particular classes of taxpayers, such as financial
institutions, broker-dealers, insurance companies, foreign corporations, foreign
partnerships, foreign trusts, foreign estates, persons who are not citizens or
residents of the United States, tax-exempt entities, Holders who acquired their
Shares through the exercise of an employee stock option or otherwise as
compensation, and persons who received payments in respect of options to acquire
Shares. ALL HOLDERS SHOULD CONSULT WITH THEIR TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE
APPLICABILITY AND EFFECT OF THE ALTERNATIVE MINIMUM TAX AND ANY STATE, LOCAL OR
FOREIGN INCOME OR OTHER TAX LAWS AND CHANGES IN SUCH TAX LAWS.
The receipt of cash pursuant to the Offer or the Merger will be a taxable
transaction for federal income tax purposes under the Internal Revenue Code of
1986, as amended (the "Code"), and may also be a taxable transaction under
applicable state, local, foreign income or other tax laws. Generally,
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for federal income tax purposes, a holder will recognize gain or loss in an
amount equal to the difference between the cash received by the Holder pursuant
to the Offer or the Merger and the holder's adjusted tax basis in the Shares
purchased pursuant to the Offer or converted to cash in the Merger. Gain or loss
will be calculated separately for each block of Shares tendered and purchased
pursuant to the Offer or converted in the Merger, as the case may be. For
federal income tax purposes, such gain or loss will be a capital gain or loss if
the Shares are a capital asset in the hands of the holder, and a long-term
capital gain or loss if the holder's holding period is more than one year as of
the date the Purchaser accepts such Shares for payment pursuant to the Offer or
the effective date of the Merger, as the case may be. In the case of a
noncorporate holder, capital gain is currently eligible for reduced rates of
taxation if the Shares were held for more than one year. There are limitations
on the deductibility of capital losses. All holders should consult their own tax
advisors to determine the U.S., federal, state, local or foreign income or other
tax consequences that may be relevant to them.
6. PRICE RANGE OF SHARES; DIVIDENDS. According to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2000 (the "2000 Annual
Report"), the Shares are listed and traded on the NYSE under the symbol "SMD".
The following table sets forth, for the quarters indicated, the high and low
sales prices per Share on the NYSE with respect to periods occurring in 1998,
1999 and 2000 as reported by the Dow Jones News Service. The Company has never
paid any dividends on Shares.
HIGH LOW
---------- ----------
YEAR ENDED DECEMBER 31, 1998:
First Quarter......................... $16 3/16 $13 9/16
Second Quarter........................ 16 3/16 14 1/8
Third Quarter......................... 14 11/16 6 9/16
Fourth Quarter........................ 13 1/2 8 5/16
YEAR ENDED DECEMBER 31, 1999:
First Quarter......................... $12 3/8 $ 6 1/8
Second Quarter........................ 9 1/4 5 15/16
Third Quarter......................... 7 1/2 6
Fourth Quarter........................ 7 1/16 4 3/4
YEAR 2000 TO DATE:
First Quarter......................... $ 6 1/4 $ 4 3/16
Second Quarter........................ 6 3/16 3 13/16
Third Quarter......................... 6 1/8 4 3/8
Fourth Quarter (through October 27)... 9 3/8 5 7/8
On October 16, 2000, the last full trading day prior to announcement of the
execution of the Merger Agreement, the closing sale price per Share reported on
the NYSE was $6 7/16. On October 27, 2000, the last full trading day before
commencement of the Offer, the closing sale price per Share reported on NYSE was
$9 5/16. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
SHARES.
7. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning
the Company contained in this Offer to Purchase, including without limitation
financial information, information concerning the background of the transactions
contemplated by the Merger Agreement, the recommendation of the Company Board,
the presentations, analyses and opinions of the Financial Advisors and the
interests of certain directors and officers of the Company in the transactions
contemplated by the Merger Agreement, has been furnished by the Company or its
representatives or taken from or based upon publicly available reports on file
with the Commission and other public sources. The summary information set forth
below is qualified in its entirety by reference to such publicly available
information (which may be obtained and inspected as described below) and should
be
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considered in conjunction with the more comprehensive financial and other
information in such reports and other publicly available documents filed by the
Company with the Commission and other publicly available information. Although
Purchaser, Holdings and Parent do not have any knowledge that would indicate
that any statements contained herein based upon such information is untrue,
neither Purchaser, Holdings nor Parent assumes any responsibility for the
accuracy or completeness of such information, or for any failure by the Company
to disclose events that may have occurred and may affect the significance or
accuracy of any such information but which are unknown to Purchaser, Holdings
and Parent.
GENERAL. The Company was incorporated in Delaware on January 18, 1983. The
Company's principal executive offices are located at 2382 Faraday Avenue, Suite
200, Carlsbad, California 92008. The telephone number of the Company at such
offices is (760) 930-1500.
The Company is a worldwide leader in the design, manufacture and marketing
of medical products and assistive technology devices that address the recovery,
rehabilitation and respiratory needs of patients in institutional and homecare
settings. The Company manufactures its products in the United States, Mexico,
the United Kingdom, Germany, France and Spain and distributes them through
company-owned sales organizations in 19 countries and through independent
importer-distributors in about 80 other countries.
Certain information concerning the directors and executive officers of the
Company is set forth in Schedule II hereto.
FINANCIAL INFORMATION. Set forth below are certain selected consolidated
financial data for the Company which was derived from the 2000 Annual Report.
More comprehensive financial information (including management's discussion and
analysis of financial condition and results of operations) is included in the
reports and other documents filed by the Company with the Commission, and the
following financial data is qualified in its entirety by reference to such
reports and other documents, including the financial statements and related
notes contained therein and set forth in Schedule I hereto. Such reports and
other documents may be examined and copies thereof may be obtained from the
offices of the Commission and NYSE in the manner set forth below.
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SUNRISE MEDICAL INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------
JUNE 30, JULY 2, JULY 3,
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Consolidated Statements of Operations Data:
Net sales................................................... $644,488 $660,248 $657,169
Gross profit................................................ 195,774 199,494 205,538
Marketing, selling, administrative, research and
development, and amortization expenses.................... 173,233 176,691 182,357
Re-engineering expenses and merger costs.................... -- -- 29,016
Operating income (loss)..................................... 22,541 22,803 (5,835)
Other income (expense), net................................. (14,069) (14,534) (5,967)
Income (loss) before income taxes........................... 8,472 8,269 (11,802)
Net income (loss)........................................... 4,127 4,498 (12,010)
Basic earnings (loss) per share............................. 0.19 0.20 (0.55)
======== ======== ========
Diluted earnings (loss) per share........................... 0.18 0.20 (0.55)
======== ======== ========
<CAPTION>
FISCAL YEAR ENDED
------------------------------
JUNE 30, JULY 2, JULY 3,
2000 1999 1998
-------- -------- --------
Consolidated Balance Sheet Data:
<S> <C> <C> <C>
Current assets............................................ $229,530 $262,571 $256,739
Total assets.............................................. 543,789 607,190 616,305
Current liabilities....................................... 121,066 142,484 149,160
Total liabilities......................................... 278,771 340,192 343,645
Total stockholder's equity................................ 265,018 266,998 272,660
Book value per share...................................... 11.91 12.02 12.31
</TABLE>
According to the Company, the ratios of earnings to fixed charges for the
years ended June 30, 2000 and July 2, 1999 were 1.37 to 1 and 1.40 to 1,
respectively, and the book value per Share as of June 30, 2000 was $11.91.
CERTAIN PROJECTIONS AND OTHER INFORMATION. The Company does not as a matter
of course make public forecasts as to future sales or earnings. However, in
connection with the proposed sale of the Company, the Company distributed to the
members of Parent projections of the Company's financial performance from and
including fiscal year 2000 through fiscal year 2005. Summaries of these
projections are set forth below. The projections have not been updated to, among
other things, reflect actual fiscal year 2000 results, and do not give effect to
the Offer, the Merger or the Financing. The
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projections also do not reflect the pending disposition of the Parker Bath
business (which generated revenues of approximately $15 million in fiscal year
2000).
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2000 2001 2002 2003 2004 2005
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Revenue.......................... $644,787 $658,976 $685,362 $728,062 $772,871 $821,604
Restructuring Charges.................. -- 26,533 7,893 -- -- --
EBITDA................................. 49,939 38,988 90,177 120,808 133,352 142,776
Net Income............................. 4,604 5 29,311 49,295 59,211 66,897
Earnings Per Share (on a fully diluted
basis)............................... 0.21 0.00 1.19 1.92 2.30 2.59
</TABLE>
The following assumptions, among others, were used by management of the
Company and its subsidiaries in developing the foregoing projections:
1. The Company's total revenue is projected to grow at 2.2% in 2001, 4.0%
in 2002 and approximately 6% in 2003 and thereafter. The primary reasons
for this revenue growth are projected to be new products, improved market
share positions in certain markets, a healthier marketplace for the
Company's long-term care products, and industry growth in the markets in
which the Company competes. The projections assume that pricing and
foreign currency translation rates remain stable during these years.
2. Operating margins, excluding restructuring charges, are projected to
increase from 4% in 2000 to 13.6% in 2004. Improvements in margins are
projected to come from the Company's previously announced restructuring
program. This program consists of three parts. First, a reduction in
operating expenses driven primarily by the reorganization of the Company
into three operating groups (North America Operations, European
Operations and the Global Business Group). Second, the implementation of
a common worldwide management information system platform and common
transaction processing procedures worldwide are projected to yield cost
savings as administrative functions are consolidated. Third, the Company
projects that significant savings will be realized in cost of goods sold,
through coordinated global purchasing efforts, manufacturing
efficiencies, low cost product designs, improved efficiency in
distribution and logistics and other initiatives.
3. The Company's effective tax rate is projected to be 47.1% in 2001,
excluding the impact of restructuring charges, declining to 43.5% in 2002
and declining slightly thereafter as the Company's fixed goodwill charge
becomes smaller relative to pre-tax income.
4. The Company projects that the cost of its restructuring program will be
$34.4 million, incurred over a two-year period beginning in 2001. This
cost projection includes the following types of charges: severance and
completion bonuses for work force reductions, and costs to consolidate
distribution centers. In addition, the Company projects that it will
spend $17.2 million primarily to implement a global management
information system. These costs are projected to be capitalized and
amortized over the useful life of the related assets.
BECAUSE THE ESTIMATES AND ASSUMPTIONS UNDERLYING THE ABOVE PROJECTIONS ARE
INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE UNCERTAINTIES BEYOND
THE COMPANY'S CONTROL, THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS
COULD BE REALIZED, OR THAT ACTUAL RESULTS WOULD NOT BE HIGHER OR LOWER THAN
THOSE PROJECTED. MOREOVER, THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO
COMPLYING WITH PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. UNDER NO
CIRCUMSTANCES SHOULD THE INCLUSION OF THE ABOVE PROJECTIONS BE REGARDED AS A
REPRESENTATION, WARRANTY OR PREDICTION THAT ANY PARTICULAR RESULT WILL BE
ACHIEVED OR THAT THE COMPANY, PURCHASER, HOLDINGS, PARENT OR THE MEMBERS OF
PARENT CONSIDER EITHER OF THE ABOVE PROJECTIONS AN ACCURATE PREDICTION OF FUTURE
EVENTS OR THAT THE PURCHASER, HOLDINGS, PARENT OR THE MEMBERS OF PARENT AGREE
WITH THE ASSUMPTIONS UNDERLYING SUCH PROJECTIONS. THE PROJECTIONS ARE
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<PAGE>
INCLUDED IN THIS OFFER TO PURCHASE ONLY BECAUSE SUCH INFORMATION WAS PROVIDED TO
THE MEMBERS OF PARENT AND OTHER POTENTIAL PURCHASERS OF THE COMPANY.
AVAILABLE INFORMATION. The Common Stock registered under the Exchange Act.
Accordingly, the Company is subject to the informational filing requirements of
the Exchange Act and in accordance therewith is obligated to file periodic
reports, proxy statements and other information with the Commission relating to
its business, financial condition and other matters. The Company is required to
disclose in such proxy statements certain information, as of particular dates,
concerning the Company's directors and officers, their remuneration, options
granted to them, the principal holders of the Company's securities and any
material interest of such persons in transactions with the Company. Such
reports, proxy statements and other information should be available for
inspection at the public reference facilities of the Commission located at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and should also
be available for inspection and copying at prescribed rates at the regional
offices of the Commission located at Seven World Trade Center, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Electronic filings filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR"), including those made by or
in respect of the Company, are publicly available through the Commission's home
page on the Internet at http://www.sec.gov. Copies of this material may also be
obtained by mail, upon payment of the Commission's customary fees, from the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such material should also be available for inspection at the library of NYSE, 20
Broad Street, New York, NY 10005.
8. CERTAIN INFORMATION CONCERNING PURCHASER, HOLDINGS AND
PARENT. Purchaser, a Delaware corporation and a wholly owned subsidiary of
Holdings, was organized for the sole purposes of entering into the Merger
Agreement and consummating the transactions contemplated thereby, including
making the Offer, and has not carried on any activities to date other than those
incident to its formation, entering into the Merger Agreement and certain other
agreements contemplated thereby, and the commencement of the Offer.
Holdings, a Delaware corporation and a wholly owned subsidiary of Parent,
was organized for the sole purposes of entering into the Merger Agreement and
consummating the transactions contemplated thereby, including making the Offer,
and has not carried on any activities to date other than those incident to its
formation, entering into the Merger Agreement and certain other agreements
contemplated thereby, and the commencement of the Offer.
Parent, a Delaware limited liability company and a subsidiary of Vestar
Capital Partners IV, L.P. ("VCP IV"), was organized for the sole purpose of
effectuating the transactions contemplated by the Merger Agreement, and has not
carried on any activities to date other than those incident to its formation,
entering into certain agreements contemplated by the Merger Agreement and the
commencement of the Offer.
VCP IV is a Delaware limited partnership formed in 1999 principally for the
purpose of investing in securities.
The sole general partner of VCP IV is Vestar Associates IV, L.P. ("VA IV"),
a Delaware limited partnership. VA IV is principally engaged in the business of
investing in securities.
The sole general partner of VA IV is Vestar Associates Corporation IV ("VAC
IV"), a Delaware corporation. VAC IV is principally engaged in the business of
investing in securities.
At the Effective Time, it currently is anticipated that the securities of
Parent (other than Preferred Units) will be owned approximately 69.1% by VCP IV,
10.0% by PAE and 20.9% by the Executives and other employees of the Company
(assuming full vesting of the Executives' and other employees' Units and no
dilution due to issuances of additional Units or rights to acquire Units).
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<PAGE>
Each of VCP IV, VAC IV, VA IV, Parent, Holdings and Purchaser have their
principal executive offices at 245 Park Avenue, 41st Floor, New York, New York
10167. The telephone number for each of VCP IV, VAC IV, VA IV, Parent, Holdings
and Purchaser is (212) 351-1600.
Except as set forth in this Offer to Purchase (i) none of VCP IV, VAC IV, VA
IV, Parent, Holdings or Purchaser nor, to the best knowledge of VCP IV, VAC IV,
VA IV, Parent, Holdings and Purchaser, any of the persons listed in
Schedule III or any associate or majority owned subsidiary of any of the
foregoing or any pension, profit sharing or similar plan of VCP IV, VAC IV, VA
IV, Parent, Holdings or Purchaser, beneficially owns or has a right to acquire
any Shares or any other equity securities of the Company, (ii) none of VCP IV,
VAC IV, VA IV, Parent, Holdings or Purchaser nor, to the best knowledge of VCP
IV, VAC IV, VA IV, Parent, Holdings and Purchaser, any of the other persons or
entities referred to in clause (i) above, has effected any transaction in the
Shares or any other equity securities of the Company during the past 60 days,
(iii) none of VCP IV, VAC IV, VA IV, Parent, Holdings or Purchaser nor, to the
best knowledge of VCP IV, VAC IV, VA IV, Parent, Holdings and Purchaser, any of
the other persons or entities listed in clause (i) above, has any contract,
arrangement, understanding or relationship with any person with respect to any
securities of the Company, including but not limited to the transfer or voting
thereof, joint ventures, loan or option agreements, puts or calls, guarantees of
loans, guarantees against loss or the giving or withholding of properties,
consents or authorizations, (iv) there have been no transactions which could
require reporting under the rules and regulations of the Commission between VCP
IV, VAC IV, VA IV, Parent, Holdings or Purchaser or, to the best knowledge of
VCP IV, VAC IV, VA IV, Parent, Holdings and Purchaser, any of the other persons
or entities listed in clause (i) above, on the one hand, and the Company or any
of its executive officers, directors or affiliates, on the other hand, and
(v) there have been no contracts, negotiations or transactions between VCP IV,
VAC IV, VA IV, Parent, Holdings or Purchaser or, to the best knowledge of VCP
IV, VAC IV, VA IV, Parent, Holdings and Purchaser, any of the other persons or
entities listed in clause (i) above, on the one hand, and the Company or any of
its subsidiaries or affiliates, on the other hand, concerning a merger,
consolidation, acquisition, tender offer or other acquisition of securities, an
election of directors or a sale or other transfer of a material amount of assets
of the Company.
For certain other information concerning Purchaser, Holdings, Parent and VAC
IV, see Schedule III.
9. DIVIDENDS AND DISTRIBUTIONS. If the Company should, on or after the date
of the Merger Agreement, split, combine or otherwise change the Shares or its
capitalization, or disclose that it has taken any such action, then without
prejudice to Purchaser's rights under Section 10 ("Certain Conditions of the
Offer"), Purchaser may make such adjustments to the purchase price and other
terms of the Offer as it deems appropriate to reflect such split, combination or
other change.
If on or after October 16, 2000, the Company should declare or pay any cash
or stock dividend or other distribution on, or issue any rights with respect to,
the Shares that is payable or distributable to stockholders of record on a date
prior to the transfer to the name of Purchaser or the nominee or transferee of
Purchaser on the Company's stock transfer records of such Shares that are
purchased pursuant to the Offer, then without prejudice to Purchaser's rights
under Section 10 ("Certain Conditions of the Offer"), (i) the purchase price
payable per Share by Purchaser pursuant to the Offer will be reduced to the
extent any such dividend or distribution is payable in cash and (ii) any
non-cash dividend, distribution (including additional Shares) or right received
and held by a tendering stockholder shall be required to be promptly remitted
and transferred by the tendering stockholder to the Depositary for the account
of Purchaser, accompanied by appropriate documentation of transfer. Pending such
remittance or appropriate assurance thereof, Purchaser will, subject to
applicable law, be entitled to all rights and privileges as the owner of any
such non-cash dividend, distribution or right and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof, as
determined by Purchaser in its sole discretion.
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10. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of
the Offer, Purchaser shall not be required to accept for payment or, subject to
any applicable rules and regulations of the Commission, including Rule 14e-l(c)
under the Exchange Act (relating to Purchaser's obligation to pay for or return
tendered Shares promptly after termination or withdrawal of the Offer), pay for
any Shares tendered pursuant to the Offer, and (subject to any such rules or
regulations) may delay the acceptance for payment or, subject to the restriction
referred to above, payment for any Shares tendered pursuant to the Offer, and
may (except as provided below) amend or terminate the Offer as to any Shares
(whether or not any Shares have theretofore been accepted for payment or paid
for pursuant to the Offer) (A) unless the following conditions shall have been
satisfied, (i) there shall have been validly tendered and not withdrawn prior to
the expiration of the Offer that number of Shares which represents at least a
majority of the number of Shares outstanding on a fully diluted basis (assuming
the exercise of all outstanding options to purchase Shares (other than options
held by the Executives) and any other rights to acquire Shares on the date of
purchase), (ii) any applicable waiting period under the HSR Act shall have
expired or been terminated prior to the expiration of the Offer,
(iii) compliance with any applicable foreign legal requirements relating to
competition, and (iv) Purchaser shall have received the proceeds of the
financing contemplated by the Bankers Trust Company Commitment Letters on terms
and conditions set forth therein or otherwise on terms reasonably satisfactory
to Parent, in amounts sufficient to pay for all Shares validly tendered pursuant
to the Offer and to pay all fees and expenses related to the Offer or (B) if at
any time after the date of the Merger Agreement and before the acceptance for
payment of any Shares, any of the any of the following conditions exists:
(a) there shall have been any action or proceeding brought or threatened in
writing by a Governmental Entity (as defined in the Merger Agreement) of
competent jurisdiction or a statute, rule, regulation, executive order or
other action shall have been promulgated, enacted, taken or threatened by
a Governmental Entity of competent jurisdiction which would have the
effect of (i) restraining, prohibiting or materially delaying the making
or consummation of the Offer or the consummation of the Merger,
(ii) prohibiting or restricting the ownership or operation by Parent (or
any of its affiliates or Subsidiaries (as defined in the Merger
Agreement)) of any portion of the Company's business or assets, or
compelling Parent (or any of its affiliates or Subsidiaries) to dispose
of or hold separate any portion of the Company's business or assets,
(iii) imposing material limitations on the ability of Parent (or any of
its affiliates or Subsidiaries) effectively to acquire or to hold or to
exercise full rights of ownership of the Shares, including, without
limitation, the right to vote such Shares purchased by Parent (or any of
its affiliates or subsidiaries) on all matters properly presented to the
stockholders of the Company, (iv) imposing any material limitations on
the ability of Parent (or any of its affiliates or Subsidiaries)
effectively to control in any material respect the business and
operations of the Company or (v) obtaining material damages from Parent
or any of its affiliates in connection with the making or consummation of
the Offer or the consummation of the Merger; or
(b) there shall be in effect any injunction, order, decree, judgment or
ruling issued by a court of competent jurisdiction having any effect set
forth in (a) above; or
(c) the Merger Agreement shall have been terminated by the Company or Parent
in accordance with its terms or the Offer shall have been terminated with
the consent of the Company; or
(d) (i) the representations and warranties of the Company contained in the
Merger Agreement which are qualified as to materiality shall not be true
and correct in all respects when made, or shall have ceased to be true
and correct in all respects as of the expiration date of the Offer as if
made as of such date or the representations and warranties of the Company
contained in the Merger Agreement which are not so qualified shall not be
true and correct in all material respects when made, or shall have ceased
to be true and correct in all material
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respects as of the expiration date of the Offer as if made as of such
date (except, in each case, to the extent such representations and
warranties of the Company address matters only as of a particular date,
in which case as of such date) or (ii) as of the expiration date of the
Offer the Company shall not in all material respects have performed any
obligation or agreement of the Company under the Merger Agreement or not
have complied in all material respects with its material covenants to be
performed and complied with by it under the Merger Agreement; or
(e) there shall have occurred (i) any suspension or limitation of trading in
securities generally on the NYSE (which suspension or limitation shall
continue for at least three hours) or any setting of minimum prices for
trading on such exchange, (ii) any banking moratorium declared by the
U.S. federal or New York authorities or any suspension of payments in
respect of banks in the United States, (iii) any material limitation
(whether or not mandatory) by any Governmental Entity on the extension of
credit by commercial banks or other commercial lending institutions,
(iv) a commencement of a war or armed hostilities or other national or
international calamity directly or indirectly involving the United
States, (v) a decline of at least 25% in either the Dow Jones Average of
Industrial Stocks or the Standard and Poor's 500 Index from the date of
the Merger Agreement or (vi) in the case of any of the foregoing existing
on the date of the Merger Agreement, a material acceleration or worsening
thereof, or
(f) the Company Board shall have (a) withdrawn its recommendation of the
Offer, the Merger or the Merger Agreement in a manner adverse to Parent,
Holdings or Purchaser, and (b) recommended to the stockholders of the
Company in a Schedule 14D-9 filing that they approve an Acquisition
Proposal other than the transactions contemplated by the Merger
Agreement; or
(g) to the Company's knowledge, the Company or one of its subsidiaries is
determined to have violated the "Stark" laws, anti-kickback laws or the
law relating to Medicare, Medicaid, Champus or any rules or regulations
related thereto; or
(h) there shall have occurred any event or circumstance that has had or
would be reasonably likely to have a Material Adverse Effect (as defined
in the Merger Agreement) on the Company.
Subject to the last sentence of this paragraph, the foregoing conditions are
for the sole benefit of Purchaser, Holdings and Parent and may be asserted by
Parent regardless of the circumstances (including any action or inaction by
Parent) giving rise to any such condition and may be waived by Parent in whole
or in part at any time and from time to time, in each case, in the exercise of
the good faith judgment of Parent and subject to the terms of the Merger
Agreement. The failure by Parent at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right that may be asserted at any time and from time to
time. The foregoing notwithstanding, the conditions set forth in (A)(i),
(A)(ii) and (A)(iii) above are for the mutual benefit of the Company and Parent,
Holdings and Purchaser, and may not be waived by Parent, Holdings and Purchaser
without the prior written consent of the Company.
11. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. GENERAL. Except as set
forth below, based upon its examination of publicly available filings by the
Company with the Commission and other publicly available information concerning
the Company, none of Purchaser, Holdings and Parent is aware of any licenses or
other regulatory permits that appear to be material to the business of the
Company and its subsidiaries, taken as a whole, that might be adversely affected
by Purchaser's acquisition of Shares (and the indirect acquisition of the stock
of the Company's subsidiaries) as contemplated herein, or of any filings,
approvals or other actions by or with any domestic (federal or state), foreign
or supranational governmental authority or administrative or regulatory agency
that would be required prior to the acquisition of Shares (or the indirect
acquisition of the stock of the
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Company's subsidiaries) by Purchaser pursuant to the Offer as contemplated
herein. Should any such approval or other action be required, it is Purchaser's
present intention to seek such approval or action. However, Purchaser does not
presently intend to delay the purchase of Shares tendered pursuant to the Offer
pending the receipt of any such approval or the taking of any such action
(subject to Purchaser's right to delay or decline to purchase Shares if any of
the Offer Conditions in Section 10 shall have occurred). There can be no
assurance that any such approval or other action, if needed, would be obtained
without the imposition of substantial conditions that must be complied with or
that adverse consequences might not result to the business of the Company,
Holdings, Parent or Purchaser as a result of the imposition of such conditions
or in the event that such approval was not obtained or such other action was not
taken, any of which could cause Purchaser to elect to terminate the Offer
without the purchase of the Shares thereunder. Purchaser's obligation under the
Offer to accept for payment and pay for Shares is subject to certain conditions,
including conditions relating to the legal matters discussed in Section 10
("Certain Conditions of the Offer").
STATE TAKEOVER LAWS. Except as described herein with respect to
Section 203 of the DGCL, Purchaser has not attempted to comply with any state
takeover statutes in connection with the Offer. Purchaser reserves the right to
challenge the validity or applicability of any state law allegedly applicable to
the Offer and nothing in this Offer to Purchase nor any action taken in
connection herewith is intended as a waiver of that right. In the event that any
state takeover statute is found applicable to the Offer, Purchaser might be
unable to accept for payment or purchase Shares tendered pursuant to the Offer
or be delayed in continuing or consummating the Offer. In such case, Purchaser
may not be obligated to accept for purchase or pay for, any Shares tendered. See
Section 10 ("Certain Conditions of the Offer").
ANTITRUST. Under the HSR Act and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the FTC and the Antitrust Division of the Department of Justice
(the "Antitrust Division") and certain waiting period requirements have been
satisfied. The acquisition of Shares pursuant to the Offer is subject to such
requirements.
VCP IV filed on October 18, 2000 with the FTC and the Antitrust Division a
Premerger Notification and Report Form in connection with the purchase of Shares
pursuant to the Offer. Under the provisions of the HSR Act applicable to the
Offer, the purchase of Shares pursuant to the Offer may not be consummated until
the expiration of a 15-calendar day waiting period following such filing, unless
such waiting period is extended by a request from the FTC or the Antitrust
Division for additional information or documentary material prior to the
expiration of the waiting period. If either the FTC or the Antitrust Division
were to request additional information or documentary material from VCP IV, the
waiting period would expire at 11:59 p.m., New York City time, on the tenth
calendar day after the date of substantial compliance by VCP IV with such
request. Thereafter, the waiting period could be extended only by court order or
by an agreement involving the Parent and the Company. If the acquisition of
Shares is delayed pursuant to a request by the FTC or the Antitrust Division for
additional information or documentary material pursuant to the HSR Act, the
Offer may, but need not, be extended and in any event the purchase of and
payment for Shares will be deferred until ten days after the request is
substantially complied with, unless the waiting period is sooner terminated by
the FTC and the Antitrust Division. See Section 2 ("Acceptance for Payment and
Payment for Shares"). Only one extension of such waiting period pursuant to a
request for additional information is authorized by the HSR Act and the rules
promulgated thereunder, except by court order. Any such extension of the waiting
period will not give rise to any withdrawal rights not otherwise provided for by
applicable law. See Section 4 ("Withdrawal Rights").
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after the purchase by
Purchaser of Shares pursuant to the Offer, either of the FTC or the
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Antitrust Division could take such action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
purchase of Shares pursuant to the Offer or seeking the divestiture of Shares
purchased by Purchaser or the divestiture of substantial assets of the Parent,
its subsidiaries or the Company. Private parties and state attorneys general may
also bring legal action under federal or state antitrust laws under certain
circumstances.
Although Purchaser believes that the acquisition of Shares pursuant to the
Offer would not violate the antitrust laws, there can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if such
challenge is made, what the outcome will be. See Section 10 for the Offer
Conditions, including conditions with respect to litigation and certain
government actions.
MARGIN CREDIT REGULATIONS. Federal Reserve Board Regulations T, U and X
(the "Margin Credit Regulations") restrict the extension or maintenance of
credit for the purpose of buying or carrying margin stock, including the Common
Stock, if the credit is secured directly or indirectly thereby. Such secured
credit may not be extended or maintained in an amount that exceeds the maximum
loan value of the margin stock. Under the Margin Credit Regulations, the Common
Stock is presently margin stock and the maximum loan value thereof is generally
50% of its current market value. The definition of "indirectly secured"
contained in the Margin Credit Regulations provides that the term does not
include an arrangement with a customer if the lender in good faith has not
relied upon margin stock as collateral in extending or maintaining the
particular credit.
PENDING LITIGATION. On October 17, 18 and 20, 2000, purported class action
lawsuits entitled KRIM V. SUNRISE MEDICAL INC., ET AL., ROGERS V. SUNRISE
MEDICAL INC., ET AL. and HARBOR FINANCE PARTNERS V. SUNRISE MEDICAL INC., ET AL.
were filed in Delaware Chancery Court, California Superior Court and Delaware
Chancery Court, respectively, by holders of Shares. All three complaints name as
defendants the Company and the directors of the Company, and ROGERS also refers
to unknown defendants that allegedly contributed to the conduct alleged. Among
other things, the plaintiffs allege that:
(1) the purchase price of the Shares is inadequate relative to the true
value of the Company;
(2) the terms of the transactions contemplated by the Merger Agreement are
the product of a conflict of interest and self-dealing on the part of
defendants; and
(3) the defendants violated their fiduciary duties owed to the public
stockholders of the Company by agreeing to the terms of the transactions
contemplated by the Merger Agreement.
The lawsuits seek unspecified damages and costs and to enjoin or rescind the
transactions contemplated by the Merger Agreement, among other things. The
Company, Purchaser, Holdings and Parent believe that these lawsuits are wholly
without merit and intend to defend them vigorously.
12. FEES AND EXPENSES. Purchaser has retained MacKenzie Partners, Inc. to
act as the Information Agent and The Bank of New York to act as the Depositary
in connection with the Offer. The Information Agent may contact holders of
Shares by mail, telephone, telex, telegraph and personal interview and may
request brokers, dealers and other nominee stockholders to forward the Offer
materials to beneficial owners. The Information Agent and the Depositary will
receive reasonable and customary compensation for services relating to the Offer
and will be reimbursed for certain out-of-pocket expenses. Purchaser also has
agreed to indemnify the Information Agent and the Depositary against certain
liabilities and expenses in connection with the Offer, including certain
liabilities under the federal securities laws.
Purchaser will not pay any fees or commissions to any broker or dealer or
any other person for soliciting tenders of Shares pursuant to the Offer (other
than to the Information Agent and the Depositary). Brokers, dealers, commercial
banks and trust companies will, upon request, be reimbursed by Purchaser for
reasonable and customary mailing and handling expenses incurred by them in
forwarding offering materials to their customers.
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It is estimated that the expenses incurred by the Company, Holdings, Parent
and the Purchaser in connection with the Offer, the Merger and the other
transactions contemplated by the Merger Agreement and the Securityholder
Documents will be approximately as set forth below:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Filing Fees................................................. $ 0.1
Financial Advisory and Financing Fees and Expenses.......... 15.5
Accounting Fees and Expense................................. 0.8
Legal Fees and Expenses..................................... 2.1
Printing and Mailing Costs.................................. 0.3
Miscellaneous............................................... 1.2
-----
Total:................................................ $20.0
=====
</TABLE>
The Surviving Corporation will be responsible for all of the foregoing fees
and expenses if the Effective Time occurs. Under certain circumstances, the
Company is obligated to reimburse the Purchaser for its Expenses and/or to pay a
Termination Fee. See "SPECIAL FACTORS--The Merger Agreement."
13. MISCELLANEOUS. The Offer is being made solely by this Offer to Purchase
and the related Letter of Transmittal and is being made to all holders of
Shares. Purchaser is not aware of any state where the making of the Offer is
prohibited by administrative or judicial action pursuant to any valid state
statute. If Purchaser becomes aware of any valid state statute prohibiting the
making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will
make a good faith effort to comply with any such state statute. If after such
good faith effort, Purchaser cannot comply with such state statute, the Offer
win not be made to nor will tenders be accepted from or on behalf of the holders
of Shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of Purchaser by one or more
registered brokers or dealers that are licensed under the laws of such
jurisdiction.
Purchaser, Holdings and Parent have filed with the Commission the Schedule
TO, together with exhibits pursuant to Section 14(d)(1) of the Exchange Act and
Rules 13e-3 and 14d-3 promulgated thereunder, furnishing certain additional
information with respect to the Offer, and may file amendments thereto. The
Schedule TO and any amendments thereto, including exhibits, may be inspected at,
and copies may be obtained from, the same places and in the manner set forth in
Section 7 ("Certain Information Concerning the Company") of this Offer to
Purchase (except that they will not be available at the regional offices of the
Commission).
No person has been authorized to give any information or to make any
representation on behalf of Purchaser, Parent or Holdings not contained herein
or in the Letter of Transmittal and, if given or made, such information or
representation must not be relied upon as having been authorized.
V.S.M. INVESTORS, LLC
V.S.M. HOLDINGS, INC.
V.S.M. ACQUISITION CORP.
October 30, 2000
63
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ANNEX A
[LETTERHEAD OF DEUTSCHE BANK SECURITIES INC.]
October 16, 2000
Special Committee of the Board of Directors
Sunrise Medical Inc.
2382 Faraday Avenue, Suite 200
Carlsbad, California 92008
Members of the Special Committee:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to the Special Committee of the Board of Directors (the "Special
Committee") of Sunrise Medical Inc. ("Sunrise") in connection with the proposed
transaction involving Vestar Capital Partners IV, L.P. ("Vestar"), Park Avenue
Equity Partners, L.P. ("Park Avenue" and, together with Vestar and the
respective affiliates of Park Avenue and Vestar, the "Buyer Group") and Sunrise
pursuant to an Agreement and Plan of Merger, dated as of October 16, 2000 (the
"Agreement"), by and among V.S.M. Investors, LLC, a company wholly owned by the
Buyer Group ("VSM"), V.S.M. Holdings, Inc., a wholly owned subsidiary of VSM
("VSM Holdings"), V.S.M. Acquisition Corp., a wholly owned subsidiary of VSM
Holdings ("Sub"), and Sunrise. As set forth more fully in the Agreement,
(i) Sub will commence a tender offer to purchase all outstanding shares of the
common stock, par value $1.00 per share, of Sunrise ("Sunrise Common Stock") at
a purchase price of $10.00 per share, net to the seller in cash (the "Cash
Consideration" and, such tender offer, the "Tender Offer"), and (ii) subsequent
to the Tender Offer, Sub will be merged with and into Sunrise (the "Merger" and,
together with the Tender Offer, the "Transaction") pursuant to which each
outstanding share of Sunrise Common Stock not acquired in the Tender Offer will
be converted into the right to receive the Cash Consideration. We have been
advised by representatives of Sunrise that certain members of the management of
Sunrise (the "Management Group") will, in connection with the Transaction, have
the right to acquire membership interests in VSM.
You have requested Deutsche Bank's opinion as to the fairness, from a
financial point of view, of the Cash Consideration to the holders of Sunrise
Common Stock (other than VSM, the Management Group and their respective
affiliates).
In arriving at its opinion, Deutsche Bank has reviewed certain publicly
available financial and other information concerning Sunrise and certain
internal analyses and other information furnished to or discussed with it by
Sunrise and its advisors. Deutsche Bank also has held discussions with members
of the senior management of Sunrise regarding the business and prospects of
Sunrise. In addition, Deutsche Bank has (i) reviewed the reported prices and
trading activity for Sunrise Common Stock, (ii) compared certain financial and
stock market information for Sunrise 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 Sunrise, including, without limitation,
any financial information, forecasts or projections considered in connection
with the rendering of its opinion. Accordingly, for purposes of its opinion,
Deutsche Bank has assumed and
A-1
<PAGE>
Special Committee of the Board of Directors
Sunrise Medical Inc.
October 16, 2000
Page 2
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 (contingent or otherwise), of Sunrise. With respect
to the financial forecasts and projections made available to Deutsche Bank and
used in its analyses, Deutsche Bank has assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of Sunrise as to the matters covered thereby. In rendering its
opinion, Deutsche Bank expresses no view as to the reasonableness of such
forecasts and projections or the assumptions on which they are based. In
connection with its engagement, Deutsche Bank was authorized to approach, and
held discussions with, certain third parties to solicit indications of interest
with respect to the acquisition of Sunrise. 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
Sunrise, VSM, VSM Holdings and Sub contained in the Agreement are true and
correct, Sunrise, VSM, VSM Holdings and Sub 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 Sunrise, VSM, VSM Holdings and Sub to
consummate the Transaction will be satisfied without any waiver thereof.
Deutsche Bank also has assumed that all material governmental, regulatory or
other approvals and consents required in connection with the consummation of the
Transaction 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
Sunrise, VSM, VSM Holdings or Sub 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 the
Transaction.
This opinion is addressed to, and is for the use and benefit of, the Special
Committee and is not a recommendation to any stockholder as to whether such
stockholder should tender shares in the Tender Offer or 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 Cash
Consideration to the holders of Sunrise Common Stock (other than VSM, the
Management Group and their respective affiliates), and Deutsche Bank expresses
no opinion as to the merits of the underlying decision by Sunrise to engage in
the Transaction.
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. Deutsche Bank has acted as
financial advisor to the Special Committee in connection with the Transaction
and will receive a fee for its services, a significant portion of which is
contingent upon the consummation of the Transaction and a portion of which is
payable upon delivery of this opinion. Deutsche Bank and its affiliates in the
past have provided financial services to Sunrise and Vestar and its affiliates
unrelated to the proposed Transaction, for which services Deutsche Bank and its
affiliates have received compensation. Deutsche Bank and its affiliates also
have an outstanding bank credit facility with Sunrise and investments in certain
affiliates of Vestar. In addition, Deutsche Bank and its affiliates will
participate in the financing for the Transaction, for which services Deutsche
Bank and its affiliates will receive compensation. Deutsche Bank maintains a
market in the securities of, and regularly publishes research reports regarding,
publicly traded companies in the healthcare industry. In the ordinary course of
business, Deutsche Bank and its affiliates may actively trade or hold the
securities and other instruments and obligations of Sunrise and affiliates of
the Buyer
A-2
<PAGE>
Special Committee of the Board of Directors
Sunrise Medical Inc.
October 16, 2000
Page 3
Group 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 Cash Consideration is fair, from a financial
point of view, to the holders of Sunrise Common Stock (other than VSM, the
Management Group and their respective affiliates).
Very truly yours,
/s/ Deutsche Bank Securities Inc.
DEUTSCHE BANK SECURITIES INC.
A-3
<PAGE>
ANNEX B
BATCHELDER & PARTNERS, INC.
11975 EL CAMINO REAL, SUITE 300
SAN DIEGO, CALIFORNIA 92130
TELEPHONE: (858) 704-3300
TELECOPIER: (858) 704-3340
October 16, 2000
Special Committee of the Board of Directors
Sunrise Medical Inc.
2382 Faraday Avenue
Suite 200
Carlsbad, CA 92008
Gentlemen:
You have asked us to advise you with respect to the fairness from a
financial point of view of the Consideration (as herein defined) to be paid by
V.S.M. Investors, LLC, V.S.M. Holdings, Inc. and V.S.M. Acquisition Corp.
(individually and collectively, the "Acquiror") to the common shareholders
(other than the Parent, the Management Group, any other members of management
who have agreed to invest in the Parent and their affiliates) of Sunrise
Medical Inc., (the "Company"), pursuant to the terms of the Agreement and Plan
of Merger dated as of October 16, 2000 (the "Merger Agreement") as of the date
hereof. The Merger Agreement provides for, among other things, the acquisition
by the Acquiror of all of the outstanding shares of common stock, $1.00 par
value per share (the "Shares") of Sunrise Medical Inc. in exchange for $10.00
per Share in cash (the "Consideration"), subject to certain terms and conditions
more fully described in the Merger Agreement (the "Merger"). We are acting as
non-exclusive financial advisor to the Company's Special Committee in connection
with the Merger (although in so acting, we are not entering into an agency or
other fiduciary relationship with the Special Committee, the Company, its Board
or stockholders or any other person) and will receive a fee from the Company for
our services. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement. Except as otherwise defined herein,
capitalized terms have the meanings ascribed to such terms in the Merger
Agreement.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available and internal financial and other data with respect to
the Company, including the financial statements for recent years (the last
audited Company financial statements provided to Batchelder & Partners, Inc.
were as of June 30, 2000) and certain other relevant financial and operating
data relating to the Company made available to us from published sources and
from the internal records of the Company; (ii) reviewed the financial terms and
conditions of the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for the Common
Stock; (iv) reviewed and discussed with Deutsche Banc Alex. Brown, the Company's
financial advisor, the background, history and terms of the transaction;
(v) compared the Company from a financial point of view with certain other
companies that we deemed to be relevant; (vi) considered the financial terms, as
they relate to the Company and to the extent publicly available, of selected
recent business combinations of companies that we deemed to be comparable, in
whole or in part, to the Merger; (vii) discussed with the Company's management
the prospects for, and business challenges facing, the Company absent the
Merger; (viii) reviewed and discussed with representatives of the Company's
management certain information of a
B-1
<PAGE>
business and financial nature regarding the Company, furnished to us by them,
including management's financial forecasts and related assumptions of the
Company and the benefits expected to result from the Merger; (ix) made inquires
regarding, and discussed, the Merger and the Merger Agreement and other matters
related thereto with Company's counsel; and (x) performed such other analyses
and examinations as we deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its
accuracy and completeness in all material respects. With respect to the
financial forecasts provided to us by representatives of the Company's
management, (i) management has advised us that the forecasts provided to us
accurately reflect the judgment of management; (ii) upon their advice and with
your consent we have assumed for purposes of our opinion that the forecasts,
including projections of restructuring charges, have been reasonably prepared on
bases reflecting the best available estimates and judgments of the Company's
management at the time and through the date hereof as to the future financial
performance of the Company; and (iii) that such projections provide a reasonable
basis upon which we can form our opinion. In rendering our opinion, we express
no view as to the reasonableness of the forecasts provided to us by the
Company's management or the assumptions on which such forecasts are based. You
have advised us and we have assumed, that there have been no material changes in
the Company's assets, financial condition, results of operations, business or
prospects since the respective dates of their last financial statements made
available to us. The management of the Company has advised us and we have
assumed that they are not aware of any facts or circumstances that would make
the information reviewed by us inaccurate or misleading. We have relied on
advice of your counsel and the independent accountants to the Company as to all
legal and financial reporting matters with respect to the Company, the Merger
and the Merger Agreement. We have assumed that the Merger will be consummated in
a manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934 and all other applicable federal and state statutes, rules
and regulations including any applicable foreign laws. In addition, we have not
assumed responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of the Company, nor have we been furnished with any such appraisals.
We were not retained or requested to consider any strategic alternatives to the
Merger or to seek indications of interest from potential buyers in connection
with rendering an opinion nor have we done so. We have assumed that the final
form of the Merger Agreement will be substantially similar to the last draft
reviewed by us. Finally, our opinion is based on economic, monetary, currency
exchange, financial markets and other conditions as in effect on, and the
information made available to us as of, the date hereof. Accordingly, although
subsequent developments may affect this opinion, and except as specifically
provided below, we do not assume any obligation to update, revise or reaffirm
this opinion.
We have further assumed with your consent that the representations and
warranties of each party in the Merger Agreement are true and correct, that each
party to the Merger Agreement will perform all of the covenants and agreements
required to be performed by such party under the Merger Agreement, and that the
Merger will be consummated in accordance with the terms described in the Merger
Agreement, without any further amendments thereto, and without waiver by the
Company of any of the conditions to its obligations thereunder. We have also
assumed that in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the Merger, no
restrictions, amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Consideration to be received by the holders of Shares (other
than the Parent, the Management Group, any other members of management who have
agreed to invest in the Parent and their affiliates) pursuant to the Merger
Agreement is fair to such holders from a financial point of view.
B-2
<PAGE>
This opinion is directed to the Special Committee for use only in connection
with its consideration of the Merger and is not a recommendation to any
stockholder as to how such stockholder should vote with respect to the Merger or
otherwise. This opinion is not a recommendation to any stockholder as to whether
any stockholder should tender Shares into the Tender Offer pursuant to the
Merger Agreement. Further, this opinion addresses only the financial fairness of
the Consideration to be received by the stockholders of the Company (other than
the Parent, the Management Group, any other members of management who have
agreed to invest in the Parent and their affiliates) as of the date hereof, and
it does not address any other aspect of the Merger including, without
limitation, the relative merits of the Merger, any alternatives to the Merger or
the Company's underlying business decision to proceed with or effect the Merger
including the benefits to be obtained from ongoing independent operations. This
opinion may not be used or referred to by the Company, or quoted or disclosed to
any person in any manner, without our prior written consent except that, if
required by law, this opinion may be quoted in its entirety without deletion or
modification in any materials to be presented to the shareholders of the Company
in connection with the Merger. In furnishing this opinion, we do not admit that
we are experts within the meaning of the term "experts" as used in the
Securities Act and the rules and regulations promulgated thereunder, nor do we
admit that this opinion constitutes a report or valuation within the meaning of
Section 11 of the Securities Act.
Respectfully,
/s/ BATCHELDER & PARTNERS, INC.
BATCHELDER & PARTNERS, INC.
B-3
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sunrise Medical Inc. designs, manufactures and markets medical products used
by the disabled and the elderly. Products include custom, manual and power
wheelchairs and related seating systems, home respiratory devices, personal care
products, nursing home beds and furnishings, specialized bathing systems and
speech devices.
BASIS OF CONSOLIDATION. The consolidated financial statements include
domestic and foreign subsidiaries. All significant intercompany balances and
transactions have been eliminated. The applicable local currency of each of our
foreign subsidiaries is the functional currency. The translation from the
foreign currencies is performed using year-end exchange rates for assets and
liabilities, and for revenue and expense accounts using a weighted average
exchange rate during the year. Gains and losses resulting from translating
assets and liabilities from the functional currency to U.S. dollars are included
in "Accumulated other comprehensive income," which is part of stockholders'
equity. As described more fully in Note 4, on April 13, 1998 we merged with
Sentient Systems, Inc., now named DynaVox Systems (DynaVox). The merger was
accounted for as a pooling of interests. Accordingly, our consolidated financial
statements have been restated for all periods prior to the business combination
to include the results of DynaVox. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Actual results could differ from management's
estimates.
FISCAL YEAR END. Our fiscal year ends on the Friday closest to June 30,
resulting in years of either 52 or 53 weeks. The years ended June 30, 2000 and
July 2, 1999 were 52 weeks, and the year ended July 3, 1998 was 53 weeks.
INVENTORIES. Certain inventories are stated at the lower of last-in,
first-out (LIFO) cost or market value. All other inventories are stated at the
lower of first-in, first-out (FIFO) cost or market value.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and
depreciated over estimated useful lives by the straight-line or declining
balance methods. Assets recorded under capital leases and leasehold improvements
are amortized over the shorter of their useful lives or the related lease terms
by the straight-line method. The estimated useful lives are three to 40 years
for buildings and improvements and two to 12 years for machinery and equipment.
GOODWILL. The excess of purchase price over the fair value of net assets of
acquired businesses (goodwill) is amortized on a straight-line basis over
periods of 20 to 40 years, depending on the nature and type of business
acquired.
LONG-LIVED ASSETS. We evaluate long-lived assets for impairment and record
impairment losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets carrying amount. This loss is measured
by the difference between carrying amounts and estimated fair values.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK. In the ordinary course
of business, we utilize derivative financial instruments to reduce our exposure
to market risks from changes in interest rates and foreign exchange rates. We
enter into these transactions with major international financial
I-6
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
institutions utilizing over-the-counter as opposed to exchange traded
instruments. These transactions are entered into only for purposes of market
risk management.
We attempt to minimize interest expense while also managing exposure to
variable interest rates by periodically employing interest rate exchange
agreements, or swaps, to convert bank borrowings from floating rate into the
equivalent of fixed rate debt. We have used foreign-denominated borrowings from
our multi-currency credit facility to hedge against foreign currency balance
sheet exposures that would otherwise result from changes in currency values.
We enter into foreign exchange forward and option contracts with financial
institutions primarily to protect against currency exchange risks associated
with existing assets and liabilities, and certain firmly committed transactions,
as well as probable but not firmly committed transactions. In addition, we have
entered into foreign exchange forward contracts to hedge certain intercompany
loan transactions between our European divisions. Our foreign exchange risk
management policy calls for the company to hedge substantially all material
foreign exchange transaction exposures. However, we may not hedge certain
foreign exchange transaction exposures that are immaterial either in terms of
their minimal U.S. dollar value or in terms of their historically high
correlation with the U.S. dollar.
Probable but not firmly committed transactions comprise sales of our
products in currencies other than the U.S. dollar. A majority of these non-U.S.
dollar-based sales are made through our European subsidiaries. The duration of
foreign exchange hedging instruments, whether for firmly committed transactions
or for probable but not firmly committed transactions, currently does not exceed
one year.
Interest rate and foreign exchange instruments generally qualify as
accounting hedges if their maturity dates are the same as the hedged
transactions and if the hedged transactions meet certain requirements. Sold
interest rate and foreign exchange instruments do not qualify as accounting
hedges. Gains and losses on accounting hedges of existing assets or liabilities
are generally recorded currently in income or stockholders' equity against the
losses and gains on the hedged transactions. Gains and losses related to
qualifying accounting hedges of firmly committed or probable but not firmly
committed transactions are deferred and recognized in income in the same period
as the hedged transactions. Gains and losses on interest rate and foreign
exchange contracts that do not qualify as accounting hedges are recorded
currently in income. Gains and losses on accounting hedges realized before the
settlement date of the related hedged transaction are also generally deferred
and recognized in income in the same period as the hedged transactions.
We monitor interest rate and foreign exchange positions based on applicable
and commonly used pricing models. The correlation between the changes in the
fair value of hedging instruments and the changes in the underlying hedged items
is assessed periodically over the life of the hedged instrument. In the event
that it is determined that a hedge is ineffective, including if and when the
hedged transactions no longer exists, we would recognize in income the change in
market value of the instrument beginning on the date it was no longer an
effective hedge.
Further information regarding our accounting treatment of financial
instruments may be found in Note 8--"Derivatives."
REVENUE RECOGNITION. We recognize revenue from product sales upon shipment
and provide an appropriate allowance for estimated returns and adjustments.
I-7
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
WARRANTY COSTS. Certain products are covered by warranties against defects
in material and workmanship for periods of up to five years. Components of
certain products carry a lifetime warranty. The estimated warranty cost is
recorded at the time of sale and is adjusted periodically to reflect actual
experience.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs relate to
both present and future products and are expensed in the year incurred.
STOCK-BASED COMPENSATION. Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," encourages but
does not require companies to record compensation cost for stock-based employee
compensation plans at fair value. We have chosen to present the required
disclosures and to continue to account for stock-based employee compensation
using the method prescribed in Accounting Principles Board Opinion No. 25 (APB
25), "Accounting for Stock Issued to Employees," and as interpreted by the
Financial Accounting Standards Board Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation." Accordingly, compensation
cost for stock options is measured as the excess, if any, of the quoted market
price of our stock at the date of grant over the amount an employee must pay to
acquire the stock.
NET INCOME (LOSS) PER SHARE. Basic EPS is calculated by dividing net income
(loss) by the weighted-average common shares outstanding during the period.
Diluted EPS reflects the potential dilution to basic EPS that could occur upon
conversion or exercise of securities, options, or other such items, to common
shares using the treasury stock method based upon the weighted-average fair
value of our common shares during the period.
COMPREHENSIVE INCOME (LOSS). Components of comprehensive income (loss)
include net income (loss) and foreign currency translation adjustments.
CASH FLOW INFORMATION. Cash payments for interest were $15,323 in 2000,
$17,356 in 1999, and $14,380 in 1998. Cash payments for income taxes were $2,824
in 2000, $6,012 in 1999, and $5,696 in 1998. We received income tax refunds of
$1,152 in 2000, $4,400 in 1999, and $6,131 in 1998.
2. FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include all cash
balances and highly liquid investments with original maturities of three months
or less. The carrying amount of cash and cash equivalents approximates their
fair value.
I-8
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. FINANCIAL INSTRUMENTS (CONTINUED)
INSTALLMENT RECEIVABLES. Installment receivables consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 2000 JULY 2, 1999
------------- ------------
<S> <C> <C>
Current portion...................................... $ 6,913 $27,832
Less:
Unearned interest.................................... (653) (3,055)
Allowance for doubtful accounts...................... (1,415) (1,709)
------- -------
Net current portion.................................. 4,845 23,068
Due after one year (included in other assets)........ -- 8,509
------- -------
Total installment receivables, net................... $ 4,845 $31,577
======= =======
</TABLE>
The carrying amount of installment receivables approximates their fair
value. The related interest rates and terms have not varied significantly over
the past two years. In December 1999, the company sold approximately
$23 million of its installment receivable portfolio to an independent third
party. The company received $21 million in cash and recorded a loss of $528 on
the sale, which is included in other income and (expense), net.
TRADE RECEIVABLES, INCOME TAX REFUNDS RECEIVABLE, TRADE ACCOUNTS PAYABLE AND
ACCRUED EXPENSES. The carrying amounts of these instruments approximate their
fair values due to their short term nature.
LONG-TERM DEBT. Based on borrowing rates currently available to us for bank
loans with similar terms and average maturities, the carrying amount of
long-term debt at June 30, 2000 and July 2, 1999 approximated its fair value.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS. We transact business in
various foreign currencies, primarily European currencies. We use currency
forward contracts and currency options to protect against reductions in value
and volatility of future cash flows caused by changes in foreign exchange rates.
The maturities of these instruments are generally less than one year. Deferred
gains or losses attributable to foreign currency instruments are not material.
3. BALANCE SHEET ITEMS
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 2000 JULY 2, 1999
------------- ------------
<S> <C> <C>
Raw material......................................... $26,735 $37,477
Work-in-progress..................................... 9,454 12,758
Finished goods....................................... 31,224 37,706
------- -------
Total inventories.................................... $67,413 $87,941
======= =======
</TABLE>
If all inventories had been valued at FIFO cost, inventories would have been
approximately $69,166 at June 30, 2000 and $89,474 at July 2, 1999.
I-9
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. BALANCE SHEET ITEMS (CONTINUED)
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000 JULY 2, 1999
------------- ------------
<S> <C> <C>
Land................................................. $ 2,277 $ 4,439
Buildings, machinery and equipment................... 154,724 164,410
Leasehold improvements............................... 6,014 5,222
-------- --------
163,015 174,071
Less accumulated depreciation and amortization....... (95,756) (90,511)
-------- --------
Property and equipment, net.......................... $ 67,259 $ 83,560
======== ========
</TABLE>
In February 2000, the company entered into a $21 million sale-leaseback
transaction whereby the company sold and leased back its manufacturing
facilities in Fresno, California and Stevens Point, Wisconsin. The company
received net proceeds of $14 million in cash plus $4 million in notes
receivable. The company recorded deferred gains of $4.6 million, which are
included in other liabilities. The gains are being amortized over the lease
terms, which are 20 and 15 years. The related leases are being accounted for as
operating leases.
4. ACQUISITIONS AND MERGERS
On April 13, 1998, we issued 2.7 million shares of our common stock for all
outstanding common stock of DynaVox, a manufacturer of speech augmentation
devices. This merger has been accounted for as a pooling of interests and,
accordingly, the consolidated financial statements for periods prior to the
combination have been restated to include the accounts and results of operations
of DynaVox.
5. RE-ENGINEERING EXPENSES AND MERGER COSTS
In 1997 we announced the consolidation of our four U.S. rehabilitation
divisions into the Home Healthcare Group based in Longmont, Colorado, and a
series of consolidations in our European operations. These actions were designed
to reduce operating costs and improve manufacturing and marketing efficiencies.
Approximately $27 million in non-recurring costs were incurred during 1998
to complete these activities, principally to complete our factory consolidations
and to implement related information system conversions. In addition, we
completed our merger with DynaVox in April 1998. Merger related expenses
incurred were approximately $2 million. Of the total charges of $29 million
incurred in 1998, approximately $23 million required cash payments and
$6 million represented non-cash charges.
6. LEASES
We lease office and operating facilities, machinery and equipment and
automobiles under operating leases that expire over the next 20 years. Rent
expense for operating leases was $14,076 in 2000, $12,521 in 1999, and $11,900
in 1998.
I-10
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. LEASES (CONTINUED)
Minimum lease payments under operating leases expiring subsequent to
June 30, 2000 are:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
---------- --------
<S> <C>
2001........................................................ $12,955
2002........................................................ 10,846
2003........................................................ 8,387
2004........................................................ 6,216
2004........................................................ 5,769
Thereafter.................................................. 33,789
-------
Total minimum lease payments................................ $77,962
=======
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
JUNE 30, 2000 JULY 2, 1999
------------- ------------
<S> <C> <C>
Borrowing under multi-currency credit agreement............. $ 40,000 $ 94,000
Senior notes................................................ 100,000 100,000
Unsecured subordinated notes maturing from 2000 to 2004,
payable in installments with interest rates from 6.5% to
8.0%...................................................... 632 2,425
Secured European Coal and Steel Community job creation loan
due 2002, interest at Libor +1% payable semiannually (8.5%
at June 30, 2000), secured by property.................... 3,793 3,941
Mortgages payable in monthly installments with interest at
various rates from 5.5% to 6.0%, maturing from 2001
through 2009, secured by property......................... 4,114 4,651
Obligations under capital leases with lease periods expiring
at various dates through 2005, interest at various rates
from 6.5% to 18.7%........................................ 582 821
-------- --------
Total long-term debt........................................ 149,121 205,838
Less current installments................................... (859) (14,890)
-------- --------
Long-term debt, net of current installments................. $148,262 $190,948
======== ========
</TABLE>
As of June 30, 2000, aggregate debt maturities were as follows: 2001-$859;
2002-$4,286; 2003-$393; 2004-$40,315; 2005-$50,315; and thereafter-$52,953.
On October 28, 1997, we completed a private placement of $100 million of
unsecured senior notes, $50 million maturing after seven years, bearing interest
at 7.09% and the remaining $50 million maturing after ten years at an interest
rate of 7.25%. The proceeds of this debt issuance were used to reduce the
outstanding debt on our multi-currency credit facility.
Our multi-currency bank credit facility provides for maximum borrowings of
$77 million divided into a $37 million unsecured revolving credit facility and
$40 million secured term loan. The agreement was amended in April 1999 and
September 1999 relating to pricing and certain collateral matters. The agreement
was again amended in June 2000 relating to financial covenants that were
adjusted to reflect certain asset disposals made in fiscal 2000. The term loan
provides us the option of using the London
I-11
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. LONG-TERM DEBT (CONTINUED)
Interbank Offered Rate ("LIBOR") plus 4.50% or the prime rate plus 3.25% for
interest. The term loan is secured by all domestic accounts receivable. The term
loan is due and payable in a single installment in January 2001. The revolving
credit agreement permits Sunrise to elect one of two variable rate interest
options at the time an advance is made. The first option is a rate equal to the
prime rate plus 4.00%. The second option is a rate based on LIBOR plus 5.25%.
Interest during the year was at LIBOR plus the applicable margin (10.7% at
June 30, 2000). We have the option of using interbank offered rates as a basis
for interest and can fix the interest rate on the outstanding portion for up to
six months. A commitment fee of 1.00% per year is payable on the unused portion
of the line. At June 30, 2000, the amount of funds available from the credit
facility was approximately $37 million. The credit facility required us to
comply with certain covenants such as maintenance of leverage ratio, tangible
net worth, interest coverage minimum EBITDA, and places certain restrictions on
acquisitions and payment of dividends. The company was in compliance with all
covenants at June 30, 2000. Maximum borrowings available under the $37 million
revolving credit facility were reduced to $25 million in July 2000, in
accordance with the September 1999 amendment.
Subsequent to year end, this debt was refinanced (See footnote 17). As a
result of the refinancing, this debt has met the criteria of Statement of
Financial Accounting Standard No. 6, "Classification of Short-Term Obligations
Expected to be Refinanced" and, accordingly, has been reclassified as long-term.
8. DERIVATIVES
We manufacture our products in the United States and Europe, but generated
approximately 43% of 2000 revenues from sales made outside the U.S. Sales
generated by our distribution subsidiaries generally utilize the subsidiary's
local currency, thereby exposing us to the risk of foreign currency fluctuations
when the subsidiary imports Sunrise manufactured products. Also, as a net
borrower, we are exposed to the risk of fluctuating interest rates. We utilize
derivative instruments in an effort to mitigate these risks. Our policy is not
to speculate in derivative instruments to profit on the foreign currency
exchange or interest rate price fluctuation, nor to enter trades for which there
are no underlying exposures, nor enter into trades to intentionally increase the
underlying exposure. Instruments used as hedges must be effective at reducing
the risk associated with the exposure being hedged and are designated as a hedge
at the inception of the contract. Accordingly, changes in market values of hedge
instruments are highly correlated with changes in market values of underlying
hedged items both at the inception of the hedge and over the life of the hedge
contract.
Various foreign currency contracts are used to hedge anticipated
transactions denominated in foreign currencies and to mitigate the impact of
changes in foreign currency exchange rates on our operations. We use forward
contracts to hedge transactions between our foreign subsidiaries. The hedge
instruments mature at various dates with resulting gains or losses recognized at
the maturity date, which approximates the transaction date. However, we had no
forward contracts outstanding at June 30, 2000 or July 2, 1999.
When we use foreign currency contracts and the hedged currency strengthens
against foreign currencies, the decline in the value of future foreign currency
cash flows is partially offset by the recognition of gains in the value of the
foreign currency contracts designated as hedges of the
I-12
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. DERIVATIVES (CONTINUED)
transactions. Conversely, when the hedged currency weakens, the increase in the
value of future foreign currency cash flows is reduced by the recognition of any
loss in the value of the forward contracts designated as hedges. Gains and
losses on these contracts are recognized in income in the same period that the
underlying transactions are settled and generally offset the losses and gains on
the underlying transactions.
9. BUSINESS AND CREDIT CONCENTRATIONS
A significant portion of our receivables are due from home healthcare and
medical equipment dealers located throughout the United States, Canada and
Europe. Many of these product sales to dealers are ultimately funded through
government reimbursement programs such as Medicare and Medicaid. Any changes in
these programs could affect dealer liquidity and profitability. This, in turn,
could put pressure on prices charged and credit terms offered for our products
sold through this channel of distribution. We estimate an allowance for doubtful
accounts based on the creditworthiness of our customers as well as general
economic conditions.
10. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
JUNE 30, 2000 JULY 2, 1999 JULY 3, 1998
------------- ------------ ------------
<S> <C> <C> <C>
Current
Federal................................. $ (998) $ 971 $(1,470)
State................................... 155 276 118
Foreign................................. 3,573 2,581 3,097
------ ------ -------
2,730 3,828 1,745
Deferred
Federal................................. (4) (587) 2,589
State................................... (156) (186) (74)
Foreign................................. 1,775 716 (4,052)
------ ------ -------
1,615 (57) (1,537)
------ ------ -------
Total................................... $4,345 $3,771 $ 208
====== ====== =======
</TABLE>
Foreign income taxes (benefits) are based upon $13,434, $8,640 and $(8,308)
of foreign earnings (losses) before income taxes during 2000, 1999, and 1998,
respectively. No U.S. income taxes have been provided for cumulative
unrepatriated foreign earnings of approximately $70 million as the company has
no plans or intentions to repatriate foreign earnings or liquidate the related
foreign assets.
I-13
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. INCOME TAXES (CONTINUED)
A reconciliation between the federal statutory tax rate and the effective
income tax rate follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
JUNE 30, 2000 JULY 2, 1999 JULY 3, 1998
------------- ------------ ------------
<S> <C> <C> <C>
Statutory federal income tax rate......... 35.0% 35.0% (35.0)%
Amortization of non-deductible goodwill... 15.7 16.3 15.0
State income taxes, net of federal
taxes................................... 0.0 0.6 2.1
Taxation of foreign operations............ 11.3 1.6 18.7
Tax credits............................... (8.1) (3.2) (0.7)
Valuation allowance change................ 5.7 4.9 --
Adjustment to estimated income tax
accruals................................ (11.7) (6.9) --
Other, net................................ 3.4 (2.7) 1.7
----- ----- -----
Effective income tax rate............... 51.3% 45.6% 1.8%
===== ===== =====
</TABLE>
Significant components of deferred income tax assets and liabilities are
shown below:
<TABLE>
<CAPTION>
JUNE 30, 2000 JULY 2, 1999
------------- ------------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts.................... $ (730) $ (908)
Inventories........................................ 3,329 4,496
Accrued expenses................................... 5,845 11,539
Net operating losses and credit carryovers......... 6,462 4,684
State and local taxes.............................. 54 374
------ ------
Total deferred income tax assets................... 14,960 20,185
Less: Valuation allowance.......................... (882) (402)
------ ------
Net deferred income tax assets..................... 14,078 19,783
Deferred income tax liabilities:
Depreciation and amortization and other............ 6,172 11,108
------ ------
Net deferred income taxes.......................... $7,906 $8,675
====== ======
</TABLE>
The valuation allowance of $882 in 2000 and $402 in 1999 relates to net
operating loss carry-forwards and foreign tax credits that may expire before
being realized. Management believes it is more likely than not that the tax
benefit of the net deferred tax assets will be realized. At June 30, 2000, the
company had foreign tax loss carry-forwards of approximately $13,197, consisting
of $1,209 which expire in 2002 through 2003, $3,211 which expire in 2004 through
2005, and $8,777 which do not expire.
11. PROFIT SHARING/SAVINGS PLAN
We have a 401(k) profit sharing/savings plan covering most U.S. employees
(Associates). Under the profit sharing portion of the plan, we will contribute
to Associates' accounts a percentage of their salary for the fiscal year ranging
from 4 to 6 percent. The percentage amount is based upon attainment of certain
earnings targets by the company as a whole in the case of corporate office
Associates, or by
I-14
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. PROFIT SHARING/SAVINGS PLAN (CONTINUED)
the subsidiary where the Associate works. The plan is discretionary with the
amounts determined by the Board of Directors. During 2000, 1999 and 1998,
$2,395, $2,839, and $2,534, respectively, were accrued for this plan. Under the
savings feature of the plan, individual Associates may make contributions to the
plan, which are matched by the company in an amount determined by the Board of
Directors. During 2000, 1999, and 1998, $643, $622, and $655, respectively, of
Associate contributions were matched.
12. STOCKHOLDERS' EQUITY
COMMON STOCK PURCHASE RIGHTS. In April 1990, our Board of Directors
declared a dividend of one common share purchase right ("Right") for each
outstanding share of common stock. Pursuant to the stockholder Rights Agreement
as amended in May 1997, an exercisable Right will, under certain conditions,
entitle the holder to purchase from the company one-half of one share of common
stock at the exercise price of $60.00 per whole share, subject to adjustment,
until May 16, 2007. The Rights will become exercisable ten days after a person
(an "Acquiring Person") acquires 15% or more of the common stock or ten days
after a person announces a tender offer which would result in such person
acquiring 15% or more of the common stock. The Rights may be redeemed by the
Board of Directors for $.01 per Right at any time until ten days following the
public announcement that a person has become an Acquiring Person. Under certain
circumstances after a person becomes an Acquiring Person, or after a merger or
other business combination, an exercisable Right will entitle its holder (other
than the Acquiring Person) to purchase shares of common stock (or shares of an
acquiring company) having a market value of two times the exercise price of one
Right.
STOCK OPTION PLANS. The 1983 Stock Option Plan as amended ("the 83 Plan")
provided for the grant of options to purchase up to 1,800,000 shares of common
stock to officers, key Associates and outside directors in the form of incentive
stock options or non-qualified stock options. The 83 Plan expired in
August 1995.
In August 1993, we adopted the 1993 Stock Option Plan ("the 93 Plan")
providing for the grant of options to purchase up to 4,000,000 shares of common
stock to officers, outside directors and key Associates in the form of incentive
stock options or non-qualified stock options. At the time of adoption, 300,000
unissued shares of common stock were reserved for future grants under the 93
Plan. The number of unissued shares of common stock reserved for future grants
under the 93 Plan increases annually by a number equal to 1.5% of the number of
shares of common stock issued and outstanding as of the last day of each fiscal
year. The 93 Plan expires in August 2003. Options become exercisable in four
equal annual amounts, beginning one year after the grant date. This Plan was
modified with respect to vesting of outside director's options, which vest 50%
on the date of grant and 50% after one year. In addition, vesting of outside
director's and officer's options is accelerated upon retirement, termination,
resignation, disability and/or death, and allows for outside directors to
exercise options at the earlier of the full term of the option or for five years
following retirement. Any outside director's options outstanding were vested
100% at the modification date. Unexercised options expire up to ten years and
one day after the date of grant.
As a result of the DynaVox merger in April 1998, Sunrise acquired another
stock option plan. DynaVox originally adopted this stock option plan on
March 12, 1993. The plan originally covered
I-15
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. STOCKHOLDERS' EQUITY (CONTINUED)
100,000 shares. On April 28, 1998, the plan was amended and restated by the
Board of Directors. As a result, the number of options that were outstanding
under the plan and the number of options that could be granted in the future
will now be exercised for shares of Sunrise stock in the merger ratio of 2.27 to
1. Options become exercisable in four equal annual amounts, beginning one year
after the grant date. Unexercised options expire up to ten years and one day
after the date of grant.
In March 2000, we adopted the 2000 Stock Option Plan (the 2000 Plan)
providing for the grant of options to purchase up to 3,000,000 shares of common
stock to officers and key Associates in the form of incentive stock options or
non-qualified stock options. Under the 2000 Plan, one-third of the options
become exercisable in four equal annual amounts, and the remaining two-thirds
become exercisable based on certain performance targets being met or after seven
years. The options expire up to ten years and one day after the date of grant.
In March 2000, we adopted an Associate Stock Purchase Plan (ASPP) providing
for the grant of options to purchase up to 1,000,000 shares of common stock to
all eligible Associates. The Associate exercise price of an option is 85% of the
lesser of the fair market value of a share of common stock on the grant date and
the fair market value on the exercise date. The ASPP periods run from March 1
through August 31 and September 1 through February 28 or 29. The ASPP will
terminate when all of the shares of our common stock authorized for sale under
the ASPP have been sold, or on February 28, 2010 (whichever is earlier), unless
terminated earlier by Sunrise's Board of Directors.
Under all plans, the option price (exercise price) is equal to the closing
market price on the day prior to the grant date. As of June 30, 2000 there were
1,753,935 unissued common stock options reserved for future grants under all
plans.
Shares subject to option under both plans are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30, 2000 JULY 2, 1999 JULY 3, 1998
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... 2,018,221 $13.91 1,697,196 $15.60 1,665,545 $15.48
Granted.................................. 3,475,000 4.31 668,550 9.81 504,860 13.94
Exercised................................ (43,920) 3.54 (52,800) 4.35 (166,373) 4.25
Canceled................................. (457,976) 13.14 (294,725) 15.99 (306,836) 18.38
--------- ------ --------- ------ --------- ------
Outstanding at end of year............... 4,991,325 7.39 2,018,221 $13.91 1,697,196 $15.60
========= ====== ========= ====== ========= ======
Exercisable at end of year............... 1,046,035 15.27 968,452 $16.35 917,305 $16.13
========= ====== ========= ====== ========= ======
Weighted average fair value of options
granted during the year................ $ 2.72 $ 3.98 $ 6.14
</TABLE>
I-16
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
at June 30, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
0.$70 to $4.19..... 1,936,050 9.65 $ 4.18 61,350 $ 3.72
4.$44 to $6.25..... 1,256,600 9.64 $ 5.43 1,175 $ 6.25
6.$31 to $10.13.... 848,650 8.04 $ 8.62 215,843 $ 9.31
11$.38 to $15.25... 514,050 6.09 $14.13 361,303 $14.05
15$.63 to $34.50... 435,975 4.15 $20.91 406,364 $21.28
--------- ---- ------ --------- ------
.................. 4,991,325 8.60 $ 7.50 1,046,035 $15.27
========= ==== ====== ========= ======
</TABLE>
We apply APB 25 and related interpretations in accounting for grants to
employees under our stock option plans. Because the exercise price of the
options equals the market price of the underlying stock on the date of grant, no
compensation cost has been recognized in our financial statements. Pro forma
disclosures assuming compensation cost had been determined based on the fair
value of stock options at the grant dates consistent with the method of
SFAS 123 are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss)...... As reported $4,127 $ 4,498 $(12,010)
Pro forma $3,062 $ 3,459 $(13,594)
Diluted earnings (loss) As reported
per share............ $ 0.18 $ 0.20 $ (0.55)
Pro forma $ 0.14 $ 0.16 $ (0.62)
</TABLE>
The fair value of options granted has been estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions for grants:
expected volatility of 61% for 2000, 50% for 1999 and 43% for 1998 (based on
daily closing stock prices for the preceding four years); risk-free interest
rates of 6.5% for 2000, 5.8% for 1999, and 5.5% for 1998; expected lives of
4.8 years and no dividend yield for 2000, 1999, and 1998. For purposes of the
pro forma disclosures, the estimated fair value of the options has been
amortized to expense over the vesting period of the options.
I-17
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. NET INCOME (LOSS) PER SHARE
The following is a reconciliation of the denominators of the basic and
diluted EPS computations:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
JUNE 30, 2000 JUNE 3, 1998 JULY 2, 1999
------------- ------------ ------------
<S> <C> <C> <C>
Weighted average number of shares
outstanding........................... 22,239 22,195 22,001
Effect of dilutive stock options(1)..... 200 58 --
------ ------ ------
Weighted average number of shares
assuming dilution..................... 22,439 22,253 22,001
====== ====== ======
</TABLE>
------------------------
(1) 2,521,000, 1,861,000, and 1,033,000 potential common shares were not used to
compute diluted earnings per share in 2000, 1999, and 1998, respectively, as
their effect was antidilutive.
14. SEGMENT INFORMATION
Operating segments are determined based on the way management measures
performance and makes decisions about allocating resources.
Our reportable segments are strategic business units that are structured by
distribution channels. We have three reportable segments: North American
Rehabilitation Products, European Rehabilitation Products and Institutional
Products. The North American rehabilitation product segment consists of four
manufacturing divisions which produce and sell wheelchairs and seating systems,
ambulatory and bath safety aids, home respiratory devices and speech devices
focused on the needs of the disabled and elderly in the United States. The
European rehabilitation products segment consists of three manufacturing
divisions which produce wheelchairs and seating systems, scooters, home
stairlifts and daily living aids and six distribution divisions that distribute
these products as well as respiratory products in Europe, the Middle East,
Africa and Central Asia. The institutional product segment consists of three
manufacturing divisions and globally produces and sells healthcare beds and
furniture, therapeutic mattresses and other patient support surfaces and
institutional bathing systems for patients and long term residents in nursing
homes, sub-acute facilities and assisted living centers.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. We evaluate performance based on
operating income.
We account for intersegment sales and transfers as if the sales or transfers
were to third parties, that is, at current market prices.
I-18
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. SEGMENT INFORMATION (CONTINUED)
Summarized financial information concerning our reportable segments is shown
in the following table. The "Other" column includes corporate related items and,
as it relates to operating income (loss), income and expense items not allocated
to reportable segments.
<TABLE>
<CAPTION>
NORTH AMERICAN EUROPE
REHABILITATION REHABILITATION INSTITUTIONAL
PRODUCTS PRODUCTS PRODUCTS OTHER TOTAL
-------------- -------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
2000
Revenues............................ $365,321 $212,741 $66,426 -- $644,488
Operating income (loss)............. 19,154 14,660 (8,464) $(2,809) 22,541
Total assets........................ 281,622 166,889 73,806 21,472 543,789
Capital expenditures, net........... 7,739 5,822 2,720 14 16,295
Depreciation and amortization....... $ 12,229 $ 9,516 $ 3,646 $ 237 $ 25,628
1999
Revenues............................ $363,577 $219,063 $77,608 $ -- $660,248
Operating income (loss)............. 15,015 13,384 (4,314) (1,282) 22,803
Total assets........................ 334,648 179,979 89,418 3,145 607,190
Capital expenditures, net........... 6,545 5,776 1,789 1,670 15,780
Depreciation and amortization....... $ 12,029 $ 8,820 $ 3,958 $ (57) $ 24,750
1998(a)
Revenues............................ $359,830 $217,790 $79,549 $ -- $657,169
Operating income (loss)............. 17,584 5,196 670 (269) 23,181
Total assets........................ 320,482 193,596 96,550 5,677 616,305
Capital expenditures, net........... 5,926 5,877 4,949 (203) 16,549
Depreciation and amortization....... $ 11,184 $ 8,037 $ 4,549 $ 180 $ 23,950
</TABLE>
<TABLE>
<CAPTION>
1998 Reconciliation of operating loss: (a)
------------------------------------------
<S> <C>
Operating income for reportable segments $23,181
Unallocated re-engineering expenses (29,016)
-------
Consolidated operating loss $(5,835)
=======
</TABLE>
The following is a summary of our revenues by principal product line:
<TABLE>
<CAPTION>
% OF REVENUES
------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C> <C>
Wheelchairs................................................ 43% 43% 42%
Home respiratory products.................................. 19% 18% 19%
Personal care products..................................... 23% 21% 21%
Beds and bathing systems................................... 12% 15% 16%
Speech devices............................................. 3% 3% 2%
</TABLE>
I-19
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. SEGMENT INFORMATION (CONTINUED)
Financial information relating to our operations by geographic area is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
JUNE 30, 2000 JULY 2, 1999 JULY 3, 1998
------------- ------------ ------------
<S> <C> <C> <C>
Revenues:(a)
United States............................. $367,695 $376,638 $375,942
United Kingdom............................ 78,149 80,545 78,963
Other foreign countries................... 198,644 203,065 202,264
-------- -------- --------
Total..................................... $644,488 $660,248 $657,169
======== ======== ========
Long-lived assets:(b)
United States............................. $159,183 $170,078 $177,022
United Kingdom............................ 76,695 80,855 85,256
France.................................... 29,241 39,445 43,664
Other foreign countries................... 39,473 43,832 46,677
-------- -------- --------
Total..................................... $304,592 $334,210 $352,619
======== ======== ========
</TABLE>
(a) Revenues are attributed to geographic areas based on the location of the
customer.
(b) With the exception of goodwill, long-lived assets are attributed to
geographic areas based on the location of the asset. Goodwill is attributed
to the location of the business to which it relates.
MAJOR CUSTOMERS
No single customer accounted for more than 10% of our consolidated revenues.
15. RELATED PARTY NOTES
The company has four notes receivable from officers/employees totaling $700,
with principal to be repaid in three years, plus interest at rates ranging from
6.00% to 6.97%. The loans are secured by property.
I-20
<PAGE>
SUNRISE MEDICAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER FISCAL YEAR
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
2000
Net sales....................... $155,542 $160,956 $165,678 $162,312 $644,488
Gross profit.................... 48,969 47,983 49,596 49,226 195,774
Net income...................... 1,536 1,078 269 1,244(1) 4,127
Basic earnings per share........ $ .07 $ .05 $ .01 $ .06 $ .19
Diluted earnings per share...... $ .07 $ .05 $ .01 $ .05 $ .18
1999
Net sales....................... $164,795 $163,460 $169,715 $162,278 $660,248
Gross profit.................... 51,577 50,904 49,748 47,265 199,494
Net income (loss)............... 3,557 1,816 1,779 (2,654) 4,498
Basic earnings (loss) per
share......................... $ 0.16 $ 0.08 $ 0.08 $ (0.12) $ 0.20
Diluted earnings (loss) per
share......................... $ 0.16 $ 0.08 $ 0.08 $ (0.12) $ 0.20
</TABLE>
(1) The fourth quarter effective income tax rate was lower than the actual
year-to-date rate because actual research and development credits were
greater than the amount estimated through the third quarter and forecasted
earnings were different than actual earnings for the year.
17. SUBSEQUENT EVENTS
In September 2000, we refinanced our bank credit facility. The new
$58 million credit facility is secured by domestic accounts receivable and
inventory. A portion of the proceeds from the credit facility were used to
refinance short-term debt. The remainder will be used for working capital
purposes. The agreement permits us to elect one of two variable rate interest
options, based on the leverage ratio. The first option is a rate based on LIBOR
plus 2.5%. The second option is a rate equal to prime plus 1.5%. A commitment
fee of 0.5% is payable on the unused portion. The credit facility expires
April 2004. The agreement requires us to comply with certain covenants such as
minimum EBITDA, and places restrictions on capital expenditures, asset sales and
debt incurrence.
I-21
<PAGE>
SCHEDULE II
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
1. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The following table sets
forth the name. the business address, position with the Company, present
principal occupation or employment and five-year employment history of the
directors and executive officers of the Company. Each individual listed below is
a citizen of the United States except for Mr. Huggenberger, who is a German
citizen.
DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------------------------------------------------ ---------------------------------------------------
<S> <C>
Michael N. Hammes .............................. On January 17, 2000, Michael H. Hammes was elected
c/o Sunrise Medical Inc. president and chief executive officer of Sunrise
2382 Faraday Avenue Medical Inc. Mr. Hammes joined Sunrise from Guide
Suite 200 Corporation, a privately held company that is the
Carlsbad, CA 92008 largest producer of automotive lighting in North
America and was formerly the automotive lighting
division of General Motors, where he served as
chairman of the board and chief executive officer
from 1997 to 1999. Mr. Hammes' prior executive
positions include chairman and CEO of The Coleman
Company, a global manufacturer of outdoor
recreational equipment, from 1993 to 1997;
corporate vice chairman and president of Worldwide
Consumer Product Operations of the Black & Decker
Corporation from 1990 to 1993 and president of
International Operations for Chrysler Corporation
from 1986 to 1990. Mr. Hammes has been a member of
the Sunrise Medical board since 1998, where he
served as the Audit Committee chairman.
Murray H. Hutchison ............................ Mr. Hutchison has served as Chairman of the Board
c/o Sunrise Medical Inc. of the Company since January 2000. He served as
2382 Faraday Avenue Interim Chairman of the Board of Directors from
Suite 200 October 1999 to January 2000 and Interim Chief
Carlsbad, CA 92008 Executive Officer and President from October 1999
to January 2000, following Richard H. Chandler's
resignation from those positions. From 1976 through
1996, Mr. Hutchison was Chairman of the Board and
from 1976 through 1994 also served as Chief
Executive Officer of International Technology
Corporation, a NYSE listed environmental management
company. Mr. Hutchison serves on the board of
directors of Epic Solutions, Olson Company, Senior
Resource Group, and Huntington Hotel Corporation,
all privately held companies, and Cadiz, Inc. and
Jack in the Box Inc., both publicly traded
companies.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------------------------------------------------ ---------------------------------------------------
<S> <C>
Lee A. Ault III ................................ Mr. Ault has served as Chairman of the Board of
c/o Sunrise Medical Inc. IN-Q-Tel, Inc., an information technology company
2382 Faraday Avenue since August 1999. He was Chief Executive Officer
Suite 200 from 1968 through January 1992 of Telecredit, Inc.,
Carlsbad, CA 92008 a payment services company. In 1990
Telecredit, Inc. merged with Equifax, Inc., a New
York Stock Exchange ("NYSE") listed information
services company. He serves on the board of
directors of Equifax, Inc., Office Depot, Inc. (a
NYSE listed office supplies retailer), American
Variable Insurance Series, and Pacific Crest
Outward Bound School.
William L. Pierpoint ........................... Mr. Pierpoint was President and Chief Executive
c/o Sunrise Medical Inc. Officer of Summit Health Ltd., a publicly traded,
2382 Faraday Avenue integrated health care company from 1977 to 1988.
Suite 200 Mr. Pierpoint is a certified public accountant and
Carlsbad, CA 92008 since 1988 has been a private investor. In 1995 he
became Vice Chairman of Strategic Partners Inc.
(d/b/a Cherokee Uniforms), a privately held
company.
Joseph Stemler ................................. Mr. Stemler served as Chief Executive Officer and
c/o Sunrise Medical Inc. Chairman of the Board of Directors of the Maret
2382 Faraday Avenue Corporation, a privately held company from 1997 to
Suite 200 1999. He is a Director of the Scholle Corporation,
Carlsbad, CA 92008 a privately held company and served as its CEO and
Chairman in 1996. From 1989 through 1996,
Mr. Stemler served as Chairman of the Board of La
Jolla Pharmaceutical Company, a publicly held
biotechnology company and as its President and CEO
from 1989 through 1995. Mr. Stemler became
President and Chief Executive Officer of Quidel
Corporation in 1985, Chairman and Chief Executive
Officer in 1988, Chairman in 1990 and Vice Chairman
in 1991. Mr. Stemler was President and Chief
Executive Officer of Bentley Laboratories, Inc.
from 1978 to 1985.
John R. Woodhull ............................... Mr. Woodhull was Chairman, President and CEO, from
c/o Sunrise Medical Inc. 1969 through 1998, of Logicon, Inc., then a NYSE
2382 Faraday Avenue listed company, which provided electronic systems
Suite 200 and high-technology services to industry and
Carlsbad, CA 92008 government. Mr. Woodhull is currently a private
investor. He also serves on the board of directors
of FirstFed Financial Corp., a NYSE listed company,
First Federal Bank of California, a subsidiary of
FirstFed Financial Corp., the Chief Executives
Organization, and the YMCA of Metropolitan Los
Angeles.
</TABLE>
II-2
<PAGE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------------------------------------------------ ---------------------------------------------------
<S> <C>
Michael N. Hammes .............................. On January 17, 2000, Michael H. Hammes was elected
c/o Sunrise Medical Inc. president and chief executive officer of Sunrise
2382 Faraday Avenue Medical Inc. Mr. Hammes joined Sunrise from Guide
Suite 200 Corporation, a privately held company that is the
Carlsbad, CA 92008 largest producer of automotive lighting in North
America and was formerly the automotive lighting
division of General Motors, where he served as
chairman of the board and chief executive officer
from 1997 to 1999. Mr. Hammes' prior executive
positions include chairman and CEO of The Coleman
Company, a global manufacturer of outdoor
recreational equipment, from 1993 to 1997;
corporate vice chairman and president of Worldwide
Consumer Product Operations of the Black & Decker
Corporation from 1990 to 1993 and president of
International Operations for Chrysler Corporation
from 1986 to 1990. Mr. Hammes has been a member of
the Sunrise Medical board since 1998, where he
served as the Audit Committee chairman.
Ben Anderson-Ray ............................... Mr. Anderson-Ray was elected senior vice president
c/o Sunrise Medical Inc. of Sunrise and President of the Global Business
2382 Faraday Avenue Group in March 2000. From 1998 to this election he
Suite 200 served as group president of the Continuing Care
Carlsbad, CA 92008 Group, which manufactures JOERNS and CORONA beds
and furniture and PARKER BATH bathing equipment for
nursing homes and other healthcare institutions.
The Parker unit has since been sold by the Company.
From November 1996 to 1998, Mr. Anderson-Ray was
president of the Mobility Products Division of
Sunrise Medical HHG, Inc. From 1994 to 1996 he
served as vice president of marketing and business
development for the Rubbermaid Home Products
Division. Prior to this, he was general manager of
cooking, cleaning and beverage products for Black &
Decker Corporation.
Raymond Huggenberger ........................... Mr. Huggenberger was elected president of European
c/o Sunrise Medical Inc. Operations and senior vice president of Sunrise in
2382 Faraday Avenue March 2000. From 1998 to this election,
Suite 200 Mr. Huggenberger was President of Sunrise Germany.
Carlsbad, CA 92008 From 1996 to 1998, Mr. Huggenberger was managing
director of Triumph Adler's healthcare group, which
included two home medical equipment divisions well
known in Europe. From 1994 to 1996,
Mr. Huggenberger was Sunrise Germany's vice
president of marketing.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------------------------------------------------ ---------------------------------------------------
<S> <C>
Steven A. Jaye ................................. Mr. Jaye was elected chief administrative officer
c/o Sunrise Medical Inc. in March 2000 and has served as senior vice
2382 Faraday Avenue president, general counsel and secretary since
Suite 200 August 1996, after joining Sunrise as vice
Carlsbad, CA 92008 president and general counsel in August 1995. From
1991 through 1995, Mr. Jaye served as the vice
president--legal affairs for Magma Power Company, a
publicly traded international power producer.
Thomas H. O'Donnell ............................ Mr. O'Donnell was elected president, North America
c/o Sunrise Medical Inc. and senior vice president of Sunrise in
2382 Faraday Avenue August 2000. He was formerly the president of the
Suite 200 Home Healthcare Group from July 1997 until March
Carlsbad, CA 92008 2000. Mr. O'Donnell resigned from employment with
the Company in March 2000 and was subsequently
rehired after the June 30, 2000 fiscal year end.
He served as executive vice president--operations
of Sunrise from January 1987 until August 1988,
when he was elected president of Quickie
Designs Inc. (then a Sunrise subsidiary). In
January 1996 he was named senior vice president,
North America. Prior to joining Sunrise in 1986,
Mr. O'Donnell was president and chief operating
officer of General Computer Company, a manufacturer
and distributor of personal computer peripherals.
John M. Radak .................................. Mr. Radak was elected vice president of finance for
c/o Sunrise Medical Inc. the Global Business Group in March 2000 and has
2382 Faraday Avenue served as vice president and controller since
Suite 200 January 1995. From 1992 to 1995, Mr. Radak was vice
Carlsbad, CA 92008 president, finance for the respiratory care
subsidiary of Bird Medical Technologies Inc., a
medical device manufacturer. Prior to joining Bird,
he held various financial management positions with
Calcomp Inc., a Lockheed/Martin subsidiary that
manufactures printers and plotters for computer
graphics applications. Mr. Radak is a certified
public accountant.
Ted N. Tarbet .................................. Mr. Tarbet was elected senior vice president and
c/o Sunrise Medical Inc. chief financial officer in August 1993.
2382 Faraday Avenue
Suite 200
Carlsbad, CA 92008
Richard H. Chandler ............................ Former Chairman of the Board, Chief Executive
c/o Sunrise Medical Inc. Officer and President (resigned effective
2382 Faraday Avenue October 4, 1999)
Suite 200
Carlsbad, CA 92008
</TABLE>
II-4
<PAGE>
SCHEDULE III
DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The following table sets
forth the name, the business address, position with Purchaser, present principal
occupation or employment and five-year employment history of the directors and
executive officers of Purchaser. Each individual listed below is a citizen of
the United States.
DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------------------------------------------------ ---------------------------------------------------
<S> <C>
James L. Elrod, Jr. ............................ Managing Director of VAC IV. Mr. Elrod joined an
c/o Vestar Associates affiliate of VAC IV in 1998. From 1994 through
Corporation IV 1997, he served as the Chief Financial Officer and
245 Park Avenue Chief Operating Officer of Physicians Health
41st Floor Services, One Far Mill Crossing, Shelton, CT 06484.
New York, New York 10167
Jack M. Feder................................... Managing Director and General Counsel of VAC IV
c/o Vestar Associates since February, 2000. From July 1991 to January
Corporation IV 2000, he was a Partner of the law firm of
245 Park Avenue Kirkland & Ellis, 655 Fifteenth Street, N.W.,
41st Floor Washington, D.C. 20005.
New York, New York 10167
William E. Mayer................................ Since August 1999, Managing Member of Park Avenue
c/o Park Avenue Equity Equity Management, LLC, a Delaware limited
Management, LLC liability company that is an affiliate of PAE. From
500 Park Avenue 1996 to July 1999, he was a Managing Director of
Suite 510 Development Capital LLC. From 1992 to 1996, he was
New York, New York 10022 Dean of the College of Business and Management at
the University of Maryland.
Steven M. Silver................................ Vice President of VAC IV. Mr. Silver joined an
c/o Vestar Associates affiliate of VAC IV in 1995.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<S> <C>
James L. Elrod, Jr.............................. President
Jack M. Feder................................... Vice President, Treasurer and Assistant Secretary
William E. Mayer................................ Vice President
Steven M. Silver................................ Vice President, Secretary and Assistant Treasurer
</TABLE>
III-1
<PAGE>
DIRECTORS AND EXECUTIVE
OFFICERS OF HOLDINGS
1. DIRECTORS AND EXECUTIVE OFFICERS OF HOLDINGS. The following table sets
forth the name, the business address, position with Holdings, present principal
occupation or employment and five-year employment history of the directors and
executive officers of Holdings. Each individual listed below is a citizen of the
United States.
DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------------------------------------------------ ---------------------------------------------------
<S> <C>
James L. Elrod, Jr. ............................ Managing Director of VAC IV. Mr. Elrod joined an
c/o Vestar Associates affiliate of VAC IV in 1998. From 1994 through
Corporation IV 1997, he served as the Chief Financial Officer and
245 Park Avenue Chief Operating Officer of Physicians Health
41st Floor Services, One Far Mill Crossing, Shelton, CT 06484.
New York, New York 10167
Jack M. Feder................................... Managing Director and General Counsel of VAC IV
c/o Vestar Associates since February, 2000. From July 1991 to January
Corporation IV 2000, he was a Partner of the law firm of
245 Park Avenue Kirkland & Ellis, 655 Fifteenth Street, N.W.,
41st Floor Washington, D.C. 20005.
New York, New York 10167
William E. Mayer................................ Since August 1999, Managing Member of Park Avenue
c/o Park Avenue Equity Equity Management, LLC, a Delaware limited
Management, LLC liability company that is an affiliate of PAE. From
500 Park Avenue 1996 to July 1999, he was a Managing Director of
Suite 510 Development Capital LLC. From 1992 to 1996, he was
New York, New York 10022 Dean of the College of Business and Management at
the University of Maryland.
Steven M. Silver................................ Vice President of VAC IV. Mr. Silver joined an
c/o Vestar Associates affiliate of VAC IV in 1995.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<S> <C>
James L. Elrod, Jr.............................. President
Jack M. Feder................................... Vice President, Treasurer and Assistant Secretary
William E. Mayer................................ Vice President
Steven M. Silver................................ Vice President, Secretary and Assistant Treasurer
</TABLE>
III-2
<PAGE>
AUTHORIZED SIGNATORIES OF PARENT
1. AUTHORIZED SIGNATORIES OF PARENT. The following table sets forth the
name, the business address, position with Parent, present principal occupation
or employment and five-year employment history of the Authorized Signatories of
Parent. Each individual listed below is a citizen of the United States.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- ---------------------------------------------------
<S> <C>
James L. Elrod, Jr. ............................ Managing Director of VAC IV. Mr. Elrod joined an
c/o Vestar Associates affiliate of VAC IV in 1998. From 1994 through
Corporation IV 1997, he served as the Chief Financial Officer and
245 Park Avenue Chief Operating Officer of Physicians Health
41st Floor Services, One Far Mill Crossing, Shelton, CT 06484.
New York, New York 10167
Jack M. Feder................................... Managing Director and General Counsel of VAC IV
c/o Vestar Associates since February, 2000. From July 1991 to January
Corporation IV 2000, he was a Partner of the law firm of
245 Park Avenue Kirkland & Ellis, 655 Fifteenth Street, N.W.,
41st Floor Washington, D.C. 20005.
New York, New York 10167
William E. Mayer................................ Since August 1999, Managing Member of Park Avenue
c/o Park Avenue Equity Equity Management, LLC, a Delaware limited
Management, LLC liability company that is an affiliate of PAE. From
500 Park Avenue 1996 to July 1999, he was a Managing Director of
Suite 510 Development Capital LLC. From 1992 to 1996, he was
New York, New York 10022 Dean of the College of Business and Management at
the University of Maryland.
Steven M. Silver................................ Vice President of VAC IV. Mr. Silver joined an
c/o Vestar Associates affiliate of VAC IV in 1995.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
</TABLE>
III-3
<PAGE>
DIRECTOR AND EXECUTIVE OFFICERS
OF VESTAR ASSOCIATES CORPORATION IV
1. DIRECTOR AND EXECUTIVE OFFICERS OF VESTAR ASSOCIATES CORPORATION IV. The
following table sets forth the name, the business address, position with VAC IV,
present principal occupation or employment and five-year employment history of
the director and executive officers of VAC IV. Each individual listed below is a
citizen of the United States, except Prakash A. Melwani, who is a British
National Overseas Citizen.
DIRECTOR
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------------------------------------------------ ---------------------------------------------------
<S> <C>
Daniel S. O'Connell............................. President and Chief Executive Officer of VAC IV.
c/o Vestar Associates Mr. O'Connell founded an affiliate of VAC IV in
Corporation IV 1988.
245 Park Avenue
41st Floor
New York, New York 10167
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<S> <C>
Daniel S. O'Connell ............................ President and Chief Executive Officer of VAC IV.
c/o Vestar Associates Mr. O'Connell founded an affiliate of VAC IV in
Corporation IV 1988.
245 Park Avenue
41st Floor
New York, New York 10167
Prakash A. Melwani.............................. Managing Director and Secretary of VAC IV. Mr.
c/o Vestar Associates Melwani founded an affiliate of VAC IV in 1988.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
James P. Kelley................................. Managing Director of VAC IV. Mr. Kelley founded an
c/o Vestar Associates affiliate of VAC IV in 1988.
Corporation IV
1225 17th Street
Suite 1660
Denver, Colorado 80202
Norman W. Alpert................................ Managing Director of VAC IV. Mr. Alpert founded an
c/o Vestar Associates affiliate of VAC IV in 1988.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
</TABLE>
III-4
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------------------------------------------------ ---------------------------------------------------
<S> <C>
Arthur J. Nagle................................. Managing Director of VAC IV. Mr. Nagle founded an
c/o Vestar Associates affiliate of VAC IV in 1988.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
Robert L. Rosner................................ Managing Director of VAC IV. Mr. Rosner founded an
c/o Vestar Associates affiliate of VAC IV in 1988.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
Sander M. Levy.................................. Managing Director of VAC IV. Mr. Levy founded an
c/o Vestar Associates affiliate of VAC IV in 1988.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
John R. Woodard................................. Managing Director of VAC IV. Mr. Woodard joined an
c/o Vestar Associates affiliate of VAC IV in February 1998. From March
Corporation IV 1996 to February 1998, he served as a Managing
1225 17th Street Director of The Blackstone Group, 360 N. Michigan
Suite 1660 Avenue, Chicago, IL 60601. From 1990 to March 1996,
Denver, Colorado 80202 Mr. Woodard was a Vice President of an affiliate of
VAC IV.
Nicholas A. Dovidio............................. Managing Director of VAC IV. Mr. Dovidio joined an
c/o Vestar Associates affiliate of VAC IV in 1990.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
Brian P. Schwartz............................... Vice President and Chief Financial Officer of
c/o Vestar Associates VAC IV. Mr. Schwartz joined an affiliate of VAC IV
Corporation IV in 1993.
245 Park Avenue
41st Floor
New York, New York 10167
James L. Elrod, Jr.............................. Managing Director of VAC IV. Mr. Elrod joined an
c/o Vestar Associates affiliate of VAC IV in 1998. From 1994 through
Corporation IV 1997, he served as the Chief Financial Officer and
245 Park Avenue Chief Operating Officer of Physicians Health
41st Floor Services, One Far Mill Crossing, Shelton, CT 06484.
New York, New York 10167
</TABLE>
III-5
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
------------------------------------------------ ---------------------------------------------------
<S> <C>
Frederico F. Pena............................... Managing Director of VAC IV. Mr. Pena joined an
c/o Vestar Associates affiliate of VCP IV in 1998. From 1992 to 1998, he
Corporation IV served as the U.S. Secretary of Energy and the U.S.
1225 17th Street Secretary of Transportation in the Clinton
Suite 1660 Administration.
Denver, Colorado 80202
Todd N. Khoury.................................. Managing Director of VAC IV. Mr. Khoury joined an
c/o Vestar Associates affiliate of VAC IV in 1993.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
Jack M. Feder................................... Managing Director and General Counsel of VAC IV
c/o Vestar Associates since February, 2000. From July 1991 to January
Corporation IV 2000, he was a Partner of the law firm of
245 Park Avenue Kirkland & Ellis, 655 Fifteenth Street, N.W.,
41st Floor Washington, D.C. 20005.
New York, New York 10167
David M. Hooper................................. Vice President of VAC IV. Mr. Hooper joined an
c/o Vestar Associates affiliate of VAC IV in 1994.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
J. Christopher Henderson........................ Vice President of VAC IV. Mr. Henderson joined an
c/o Vestar Associates affiliate of VAC IV in 1993.
Corporation IV
1225 17th Street
Suite 1660
Denver, Colorado 80202
Steven M. Silver................................ Vice President of VAC IV. Mr. Silver joined an
c/o Vestar Associates affiliate of VAC IV in 1995.
Corporation IV
245 Park Avenue
41st Floor
New York, New York 10167
</TABLE>
III-6
<PAGE>
SCHEDULE IV
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
The following is the text of Section 262 of the Delaware General Corporation
Law.
262 APPRAISAL RIGHTS--(a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger of consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section251 (other than a merger effected pursuant to
Section251(g) of this title), Section252, Section254, Section257, Section258,
Section263 or Section264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange
or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or (ii) held of record by more than 2,000 holders; and further provided
that no appraisal rights shall be available for any shares of stock of
the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (I) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof-,
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national
securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph;
or
IV-1
<PAGE>
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party
to a merger effected under Section253 of this title is not owned by the
Parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or
(c) hereof that appraisal rights are available for any or all of the
shares of the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder electing to demand
the appraisal of 'SUCH STOCKHOLDER's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand
the appraisal of 'SUCH STOCKHOLDER's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subscription and has not voted
in favor of or consented to the merger or consolidation of the date
that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228 or
Section253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series
of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and
that appraisal rights are available for any or all shares of such
class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of
stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such
demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the
merger or consolidation, either (i) each such constituent corporation
shall send a second
IV-2
<PAGE>
notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving
or resulting corporation shall send such a second notice to a such
holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need
only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance
with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall,
in the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in
advance, a record date that shall not be more than 10 days prior to
the date the notice is given, provided, that if the notice is given
on or after the effective date of the merger or consolidation, the
record shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date
shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw SUCH
STOCKHOLDER's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement win be mailed to the stockholder within 10 days after
(1)SUCH STOCKHOLDER's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of a stockholders who have demanded payment for their shares and with
whom agreements as to the value of their shares have not been reached by the
surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the
IV-3
<PAGE>
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
(1)SUCH STOCKHOLDER's certificates of stock to the Register in Chancery, if such
is required, may participate fully in all proceedings until it is finally
determined that SUCH STOCKHOLDER is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded' appraisal(1) rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of 'SUCH
STOCKHOLDER's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 339, L.
"98, eff. 7-1-98.)
------------------------
(1)Ch. 339, L. '98.eff. 7-1-98, added matter in italic and deleted 1 "his" and
2 "her".
IV-4
<PAGE>
SCHEDULE V
AGREEMENT AND PLAN OF MERGER, DATED AS OF OCTOBER 16, 2000, AMONG PARENT,
HOLDINGS, THE PURCHASER AND THE COMPANY
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 16, 2000
BY AND AMONG
V.S.M. INVESTORS, LLC,
V.S.M. HOLDINGS, INC.,
V.S.M. ACQUISITION CORP.
AND
SUNRISE MEDICAL INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<C> <S> <C>
ARTICLE I THE TENDER OFFER........................................ V-1
1.1 The Offer................................................... V-1
1.2 SEC Filings................................................. V-3
1.3 Company Action.............................................. V-4
1.4 Composition of the Company Board............................ V-5
ARTICLE II THE MERGER............................................. V-6
2.1 The Merger.................................................. V-6
2.2 Closing..................................................... V-6
2.3 Effective Time.............................................. V-7
2.4 Effects of the Merger....................................... V-7
2.5 Certificate of Incorporation................................ V-7
2.6 Bylaws...................................................... V-7
2.7 Officers and Directors of Surviving Corporation............. V-7
2.8 Effect on Capital Stock..................................... V-7
2.9 Surrender and Payment....................................... V-8
2.10 Unclaimed Merger Consideration.............................. V-8
2.11 Dissenting Shares........................................... V-9
ARTICLE III REPRESENTATIONS AND WARRANTIES........................ V-9
3.1 Representations and Warranties of the Company............... V-9
3.2 Representations and Warranties of the Parent................ V-19
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS.............. V-22
4.1 Covenants of the Company.................................... V-22
4.2 Advice of Changes; Government Filings....................... V-23
4.3 Financing Related Coorporation.............................. V-24
ARTICLE V ADDITIONAL AGREEMENTS................................... V-24
5.1 Preparation of the Proxy Statement; the Company Stockholders
Meeting..................................................... V-24
5.2 Access to Information....................................... V-25
5.3 Approvals and Consents; Cooperation......................... V-26
5.4 Acquisition Proposals....................................... V-26
5.5 Employee Benefits........................................... V-28
5.6 Fees and Expenses........................................... V-29
5.7 Indemnification; Directors' and Officers' Insurance......... V-29
5.8 Public Announcements........................................ V-30
5.9 Rights Agreement............................................ V-30
5.10 Employee Stock Options and Equity Incentives................ V-30
5.11 Further Assurances.......................................... V-31
ARTICLE VI CONDITIONS PRECEDENT................................... V-31
6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... V-31
6.2 Additional Condition to the Obligations of the Parent,
Holdings and Merger Sub to Effect the Merger................ V-31
</TABLE>
V-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<C> <S> <C>
ARTICLE VII TERMINATION AND AMENDMENT............................. V-31
7.1 Termination by Either the Company or the Parent............. V-31
7.2 Termination by the Parent................................... V-32
7.3 Termination by the Company.................................. V-33
7.4 Effect of Termination....................................... V-33
7.5 Amendment................................................... V-34
7.6 Extension; Waiver........................................... V-34
ARTICLE VIII GENERAL PROVISIONS................................... V-35
8.1 Non-Survival of Representations, Warranties and Agreements;
No Other Representations and Warranties..................... V-35
8.2 Notices..................................................... V-35
8.3 Interpretation.............................................. V-36
8.4 Counterparts................................................ V-36
8.5 Entire Agreement; No Third Party Beneficiaries.............. V-36
8.6 Governing Law............................................... V-36
8.7 Severability................................................ V-37
8.8 Assignment.................................................. V-37
8.9 Enforcement................................................. V-37
8.10 Definitions................................................. V-37
ANNEX A Conditions to the Offer..................................... V-41
</TABLE>
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This AGREEMENT AND PLAN OF MERGER, dated as of October 16, 2000 (this
"AGREEMENT"), by and among V.S.M. Investors, LLC, a Delaware limited liability
company (the "PARENT"), V.S.M. Holdings, Inc., a Delaware corporation and a
wholly owned subsidiary of the Parent ("HOLDINGS"), V.S.M. Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Holdings ("MERGER SUB"),
and Sunrise Medical Inc., a Delaware corporation (the "COMPANY").
W I T N E S S E T H :
WHEREAS, the Parent and the Company have each determined that it is in their
respective best interests for the Parent to acquire the Company, upon the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, the respective Boards of Directors of the Parent, Holdings, Merger
Sub and the Company each have approved this Agreement and the Merger (as defined
below) of the Merger Sub with and into the Company and, in order to effectuate
the Merger, Merger Sub proposes to make a cash tender offer (as such offer may
be amended or extended from time to time as provided herein, the "OFFER"), upon
the terms and subject to the conditions of this Agreement, to purchase all of
the issued and outstanding shares of common stock, par value $1.00 per share, of
the Company, together with the associated Rights (as defined below) attached
thereto (collectively, the "COMPANY COMMON STOCK"), at a price per share equal
to the Price Per Share (as defined below), subject to the terms and conditions
set forth herein and in Annex A hereto;
WHEREAS, upon consummation of the Offer, and as soon as may be permitted
thereafter, Merger Sub shall be merged with and into the Company (the "MERGER")
in accordance with this Agreement and the relevant provisions of the DGCL (as
defined below), and the surviving corporation of the Merger shall be the
Company; and
WHEREAS, the Company Board (as defined below), subsequent to the unanimous
recommendation of a special committee of the Company Board (the "SPECIAL
COMMITTEE"), has determined that this Agreement and the transactions
contemplated hereby, including the Offer and the Merger, are fair to and in the
best interests of the stockholders of the Company, has approved the Merger, the
Offer, this Agreement and the other transactions contemplated by this Agreement,
has declared the Merger and this Agreement to be advisable, and has recommended
acceptance of the Offer, approval of the Merger and adoption of this Agreement
by the stockholders of the Company.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE TENDER OFFER
1.1 THE OFFER.
(a) Provided that this Agreement shall not have been terminated in
accordance with Article VII, then (i) not later than the first Business Day
(as defined below) after execution of this Agreement, the Parent and the
Company shall issue a public announcement of the execution of this Agreement
and (ii) Merger Sub shall, as soon as practicable, but in no event later
than ten Business Days after the date of such announcement, commence (within
the meaning of Rule 14d-2(a) under the Exchange Act (as defined below)) the
Offer to purchase all of the outstanding shares of the Company Common Stock
at the price of $10 per share, net to the seller of such shares in cash
(such price, or such higher price per share of the Company Common Stock as
may be paid in the Offer, the "PRICE PER SHARE"). The obligation of Merger
Sub to accept for payment, purchase and pay for shares of the Company Common
Stock tendered pursuant to the Offer shall be subject only to (A) at least
that number of shares of the Company Common Stock
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equivalent to a majority of the total issued and outstanding shares of the
Company Common Stock on a fully diluted basis (assuming the exercise of all
outstanding Options (as defined in Section 3.1(b)(i) (other than Options
held by the Management Group (as defined below)) and any other rights to
acquire shares of the Company Common Stock) on the date such shares are
purchased pursuant to the Offer being validly tendered and not withdrawn
prior to the expiration of the Offer (the "MINIMUM CONDITION"), and (B) the
satisfaction of the other conditions set forth in ANNEX A hereto, which is
incorporated herein by reference, any of which conditions may be waived by
the Parent in its sole discretion; PROVIDED, HOWEVER, that the Parent shall
not waive the Minimum Condition or the Antitrust Condition (as defined
below) without the prior written consent of the Company. The Company agrees
that no shares of the Company Common Stock held by the Company or any of its
Subsidiaries (as defined below) will be tendered to Merger Sub pursuant to
the Offer.
(b) The Parent and Merger Sub expressly reserve the right, in their sole
discretion, to make any changes in the terms and conditions of the Offer,
provided that without the prior written consent of the Company, neither the
Parent nor Merger Sub will (i) decrease the Price Per Share payable in the
Offer, (ii) decrease the number of shares of the Company Common Stock sought
pursuant to the Offer or change the form of consideration payable in the
Offer, (iii) add, waive, change or amend the terms of or conditions to the
Offer (including the conditions set forth in ANNEX A hereto) in any manner
adverse to the holders of shares of the Company Common Stock or (iv) change
the expiration date of the Offer; PROVIDED, HOWEVER, that if on any
scheduled expiration date of the Offer, which shall initially be 20 Business
Days after the commencement date of the Offer, all conditions to the Offer
have not been satisfied or waived, Merger Sub may, from time to time, extend
the expiration date of the Offer for one or more periods of up to ten
additional Business Days each (but in no event shall Merger Sub be permitted
to extend the expiration date of the Offer beyond the Outside Date (as
defined below)); PROVIDED, FURTHER, that if on any scheduled expiration date
of the Offer, the Offer shall not have been consummated (A) due to the
failure to satisfy the Minimum Condition or any of the conditions set forth
in paragraphs (a), (b), (d)(i) (so long as with respect to paragraph (d)(i),
the relevant representation or warranty is reasonably capable of being cured
within ten calendar days by the exercise of reasonable best efforts and an
executive officer of the Company certifies in writing that such
representation or warranty is reasonably capable of being cured by the
Company within ten calendar days through the exercise of such reasonable
best efforts) and (e) of Annex A (except with respect to paragraph (d)(i),
other than as a result of a breach by the Company), at the request of the
Company, Merger Sub shall from time to time extend the expiration date of
the Offer for one or more periods of up to ten additional Business Days each
for up to an aggregate of 20 Business Days (but in no event shall Merger Sub
be required to extend the expiration date of the Offer beyond the Outside
Date); or (B) due to the failure to satisfy the condition to the Offer
relating to the expiration or termination of the waiting period under the
HSR Act (as defined below) or the compliance with any applicable foreign
legal requirements relating to competition (collectively, the "Antitrust
Condition") or the Financing Condition (as defined in Annex A), then, at the
request of the Company, Merger Sub shall extend any such expiration date of
the Offer for one or more periods of up to ten additional Business Days each
(but in no event shall Merger Sub be required to extend the expiration date
of the Offer beyond the Outside Date); and PROVIDED, FURTHER, that Merger
Sub may, (1) without the consent of the Company, extend the Offer for any
period required by any rule, regulation, interpretation or position of the
SEC (as defined below) applicable to the Offer in the event of an increase
in the Price Per Share or as otherwise required by law and (2) extend the
Offer in accordance with Rule 14d-11 under the Exchange Act if (x) the
conditions to the Offer shall have been satisfied or waived and shall not
apply to any extension, (y) the number of shares of the Company Common Stock
that have been validly tendered and not withdrawn represent more than 50%
but less than 90% of the issued and
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outstanding shares of the Company Common Stock and (z) Merger Sub shall
accept and promptly pay for all shares of Company Common Stock validly
tendered and not withdrawn; PROVIDED, HOWEVER, that in no event shall the
extensions permitted under the foregoing clause (2) exceed, in the
aggregate, ten Business Days. The Parent, Holdings and Merger Sub will,
subject to the terms and conditions of this Agreement, use their reasonable
best efforts to consummate the Offer. Assuming the prior satisfaction or
waiver of all the conditions to the Offer set forth in Annex A, and subject
to the terms and conditions of this Agreement, (i) Merger Sub shall, and the
Parent shall cause Merger Sub to, accept for payment, purchase and pay for,
in accordance with the terms of the Offer, all shares of the Company Common
Stock validly tendered and not withdrawn pursuant to the Offer as soon as
practicable, recognizing that the parties wish to close as expeditiously as
possible following satisfaction of the Antitrust Condition, and (ii) the
Parent shall provide, or cause to be provided, to Merger Sub, on a timely
basis, the funds necessary to purchase any shares of the Company Common
Stock that Merger Sub becomes obligated to purchase pursuant to the Offer.
Merger Sub may, at any time, transfer or assign to one or more corporations
directly or indirectly wholly-owned by the Parent the right to purchase all
or any portion of the shares tendered pursuant to the Offer, provided that
any such transfer or assignment shall not prejudice the rights of tendering
stockholders to receive payment for shares of Company Common Stock properly
tendered and accepted for payment.
1.2 SEC FILINGS.
The Offer shall be made pursuant to an offer to purchase (the "OFFER TO
PURCHASE") and related letter of transmittal in forms containing the terms and
conditions set forth in this Agreement. As soon as practicable on the date the
Offer is commenced, the Parent shall file with the Securities and Exchange
Commission (the "SEC") a Transaction Statement on Schedule 13E-3 with respect to
the Offer which shall be filed as part of a Tender Offer Statement on Schedule
TO (together with all amendments and supplements thereto, the "SCHEDULE TO")
with respect to the Offer that will comply in all material respects with the
provisions of, and satisfy in all material respects the requirements of, such
Schedule TO and all applicable federal securities laws, and will contain
(including as an exhibit) or incorporate by reference the Offer to Purchase and
forms of the related letter of transmittal and summary advertisement (which
documents, together with any supplements or amendments thereto, and any other
SEC schedule or form that is filed in connection with the Offer and related
transactions, are referred to collectively herein as the "OFFER DOCUMENTS"). The
Company and its counsel shall be given an opportunity to review and comment upon
the Offer Documents and any amendment or supplement thereto prior to the filing
thereof with the SEC, and the Parent and Merger Sub shall consider such comments
in good faith. The Parent and Merger Sub agree to provide to the Company and its
counsel any comments which the Parent, Merger Sub or their counsel may receive
from the staff of the SEC with respect to the Offer Documents promptly after
receipt thereof. The Company shall promptly supply to the Parent and Merger Sub
in writing, for inclusion in the Offer Documents, all information concerning the
Company or any of its affiliates required by law, rule or regulation to be
included in the Offer Documents. The Parent, Merger Sub and the Company agree to
correct promptly any information provided by any of them for use in the Schedule
TO or the Offer Documents which shall have become false or misleading in any
material respect, and the Parent and Merger Sub further agree to take all steps
necessary to cause the Schedule TO as so corrected to be filed with the SEC and
the Offer Documents, as so corrected, to be disseminated to the Company's
stockholders, in each case as and to the extent required by the applicable
provisions of the federal securities laws.
(b) The Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (as amended or supplemented from time to time,
the "SCHEDULE 14D-9") containing the recommendation of the Company Board
described in Section 1.3(a) (subject to the right of the Company Board to
withdraw, amend or modify such recommendation in accordance with the terms
of this Agreement) which will comply as to form and content in all material
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respects with the applicable provisions of the federal securities laws. The
Company will cause the Schedule 14D-9 to be filed on the same date that the
Schedule TO is filed. The Parent and Merger Sub will cooperate with the
Company in mailing or otherwise disseminating the Schedule 14D-9 with the
appropriate Offer Documents to the stockholders of the Company. The Parent
and its counsel shall be given an opportunity to review and comment upon the
Schedule 14D-9 and any amendment or supplement thereto prior to the filing
thereof with the SEC, and the Company shall consider any such comments in
good faith. The Company agrees to provide to the Parent and Merger Sub and
their counsel any comments which the Company or its counsel may receive from
the staff of the SEC with respect to the Schedule 14D-9 promptly after
receipt thereof. The Parent and Merger Sub will promptly supply to the
Company in writing, for inclusion in the Schedule 14D-9, all information
concerning the Parent and Merger Sub or any of their affiliates required by
law, rule or regulation to be included in the Schedule 14D-9. The Company,
the Parent and Merger Sub agree to correct promptly any information provided
by any of them for use in the Schedule 14D-9 which shall have become false
or misleading in any material respect, and the Company further agrees to
take all steps necessary to cause such Schedule 14D-9 as so corrected to be
filed with the SEC and disseminated to the Company's stockholders, in each
case as and to the extent required by the applicable provisions of the
federal securities laws. The Parent, Merger Sub and the Company each hereby
agree to provide promptly such information necessary to the preparation of
the exhibits and schedules to the Schedule TO, the Schedule 14D-9 and the
Offer Documents which the respective party responsible therefor shall
reasonably request.
(c) Each party hereto shall file all written communications, including
the first public announcement issued pursuant to Section 1.1(a)(i) above in
connection with the execution of this Agreement, that are made public or
otherwise supplied to Persons (as defined below) not parties to the
transactions contemplated hereby, with the SEC on or prior to the date the
communication is first used. All such communications shall comply as to form
and content, including bearing the appropriate legends, in all material
respects with the applicable provisions of the federal securities laws. Each
party agrees that, prior to any such filing or use of written
communications, such party will provide the other party and their counsel
the opportunity to review and comment on such communications and filings.
1.3 COMPANY ACTION.
(a) The Company hereby approves of and consents to the Offer and
represents and warrants that (i) the Company Board, based on the unanimous
recommendation of the Special Committee, at a meeting duly called and held
on October 16, 2000, unanimously and duly (A) approved and adopted this
Agreement and the transactions contemplated hereby, including the Offer and
the Merger (such approval being sufficient to render Section 203 of the DGCL
inapplicable to this Agreement and the transactions contemplated hereby),
(B) recommended that the stockholders of the Company accept the Offer,
tender their shares of the Company Common Stock pursuant to the Offer and
adopt this Agreement, (C) determined that this Agreement and the
transactions contemplated hereby, including the Offer and the Merger, are
fair to and in the best interests of the stockholders of the Company,
(D) declared the Merger and this Agreement to be advisable, and
(E) rendered the Rights Agreement (as defined below) inapplicable to the
transactions contemplated hereby as contemplated by Section 3.1(p) hereof,
and (ii) Deutsche Bank Securities Inc. (also operating as Deutsche Banc
Alex. Brown) ("Deutsche Banc Alex. Brown") and Batchelder & Partners, Inc.,
the Special Committee's financial advisors, respectively, have each rendered
to the Special Committee its oral opinion which shall be confirmed in
writing no later than two days from the date of this Agreement, each dated
the date of this Agreement, to the effect that, as of such date, the Price
Per Share to be received by the holders of shares of the Company Common
Stock (other than the Parent, the Management Group, any other members of
management who have agreed to invest in the Parent and their affiliates)
pursuant to the Offer
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and the Merger is fair, from a financial point of view, to such holders. The
full text of such opinions by each of Deutsche Banc Alex. Brown and
Batchelder & Partners, Inc. shall be included without deletion or
modification in the Offer to Purchase, the Schedule 14D-9 and the Proxy
Statement, if applicable. The Company hereby consents to the inclusion in
the Offer Documents of the recommendations of the Company Board set forth
above. The Company Board shall not withdraw, amend or modify in a manner
adverse to the Parent or Merger Sub such recommendations (or announce
publicly its intention to do so) except as expressly permitted in
Section 5.4 of this Agreement.
(b) Promptly upon execution of this Agreement and in connection with the
Offer, the Company shall furnish Merger Sub with such information (including
a list of the stockholders of the Company, mailing labels, non-objecting
beneficial owners lists and a list of securities positions, each as of a
recent date), and shall thereafter render such assistance, as the Parent or
Merger Sub may reasonably request in communicating the Offer to the
Company's stockholders. Subject to the requirements of applicable law and
except for such steps as are necessary to disseminate the Offer Documents
and any other documents necessary to consummate the Merger, the Parent and
Merger Sub and each of their respective affiliates and associates shall
(a) hold in confidence the information contained in any of such labels and
lists, (b) use such information only in connection with the Offer and the
Merger and (c) if this Agreement is terminated, promptly deliver to the
Company all copies of such information then in their possession.
1.4 COMPOSITION OF THE COMPANY BOARD.
(a) Subject to Section 1.4(b) hereof, promptly upon the acceptance for
payment of, and payment by Merger Sub in accordance with the Offer for, not
less than a majority of the total issued and outstanding shares of the
Company Common Stock on a fully diluted basis (assuming the exercise of all
outstanding Options (other than Options held by the Management Group) and
any other rights to acquire shares of the Company Common Stock on the date
of purchase) pursuant to the Offer, Merger Sub shall be entitled to
designate such number of members of the Company Board, rounded up to the
next whole number, equal to that number of directors which equals the
product of the total number of directors on the Company Board (giving effect
to the directors elected pursuant to this sentence) multiplied by the
percentage that such number of shares of the Company Common Stock owned in
the aggregate by Merger Sub or the Parent, upon such acceptance for payment,
bears to the number of shares of the Company Common Stock then outstanding;
PROVIDED, HOWEVER, that until the Effective Time (as defined below) the
parties hereto shall use their respective reasonable best efforts to ensure
that there shall be at least two Continuing Directors (as defined below),
such Continuing Directors initially to be selected by a majority of the
Continuing Directors as of the date hereof. Upon the written request of
Merger Sub, the Company shall, on the date of such request, (i) either
increase the size of the Company Board or secure the resignations of such
number of its incumbent directors as is necessary to enable the Merger Sub's
designees to be so elected or appointed to the Company Board and (ii) cause
the Merger Sub's designees to be so elected or appointed, in each case as
may be necessary to comply with the foregoing provisions of this Section
1.4(a). At such time, the Company shall, if requested by Merger Sub, also
take all action necessary to cause Merger Sub's designees to constitute at
least the same percentage (rounded up to the next whole number) as such
designees represent on the Company Board of (i) each committee of the
Company Board, (ii) each board of directors (or similar body) of each
Subsidiary of the Company and (iii) each committee (or similar body) of each
such board of directors.
(b) The Company's obligation under Section 1.4(a) to cause designees of
Merger Sub to be elected or appointed to the Company Board and committees
thereof shall be subject to Section 14(f) of the Exchange Act and
Rule l4f-1 promulgated thereunder. The Company shall promptly take all
actions required pursuant to such Section 14(f) and Rule l4f-1 in order to
fulfill
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its obligations under this Section 1.4, and shall include in the Schedule
14D-9 such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1. The Parent,
Holdings and Merger Sub will supply to the Company any information with
respect to any of them and Merger Sub's nominees, and the officers,
directors and affiliates of the Parent, Holdings and Merger Sub required by
such Section 14(f) and Rule l4f-1 and applicable rules and regulations.
(c) After the time that Merger Sub's designees constitute at least a
majority of the Company Board and until the Effective Time, and
notwithstanding anything in this Agreement to the contrary, any
(i) amendment or termination of this Agreement by or on behalf of the
Company, (ii) exercise or waiver of any of the Company's rights or remedies
hereunder, extension of time for the performance or waiver of any of the
obligations or other acts of the Parent, Holdings or Merger Sub hereunder,
(iii) consent of the Company contemplated hereby or waiver of any of the
Company's rights hereunder, (iv) amendment to the Company's Organizational
Documents (as defined below) or the Rights Agreement, or (v) other action by
the Company in connection with this Agreement required to be taken by the
Company Board (collectively, "Board Actions"), shall require the approval of
a majority of then-serving directors, if any, who are directors as of the
date hereof (the "CONTINUING DIRECTORS"), except to the extent that
applicable law requires that such action be acted upon by the full Company
Board, in which case such action will require the concurrence of both a
majority of the Company Board and a majority of the Continuing Directors. If
a vacancy among the Continuing Directors exists, the remaining Continuing
Director or Directors shall be entitled to designate persons to fill such
vacancies, who shall be deemed Continuing Directors for purposes of this
Agreement. In the event there is only one remaining Continuing Director and
he or she resigns or is removed, or if all Continuing Directors resign or
are removed, he, she or they, as applicable, shall be entitled to designate
his, her or their successors, as the case may be, each of whom shall be
deemed a Continuing Director for purposes of this Agreement. The Company
Board shall not delegate any matter set forth in this Section 1.4 to any
committee of the Company Board.
(d) In addition, prior to acceptance for payment and payment by Merger
Sub for shares of Company Common Stock in accordance with the Offer, any and
all Board Actions (which are material to the Company's stockholders who are
unaffiliated with the Parent, Holdings or Merger Sub) shall require the
approval of the Special Committee, except to the extent that applicable law
requires that any such action be taken by the full Company Board, in which
case such actions will require the concurrence of both a majority of the
full Company Board and a majority of the Special Committee.
ARTICLE II
THE MERGER
2.1 THE MERGER. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, Merger Sub shall be merged with
and into the Company at the Effective Time. Following the Merger, the separate
corporate existence of Merger Sub shall cease and the Company, as a wholly owned
subsidiary of Holdings, shall continue as the surviving corporation (the
"SURVIVING CORPORATION") in accordance with the DGCL. In the event Merger Sub
acquires at least 90% of the outstanding the Company Common Stock through the
Offer or otherwise, Merger Sub, Holdings and the Parent shall effect the Merger
pursuant to the "short-form" merger provisions of Section 253 the DGCL in
accordance with Section 5.1(c) of this Agreement.
2.2 CLOSING. The closing of the Merger (the "CLOSING") will take place as
soon as practicable after satisfaction or waiver (as permitted by this Agreement
and applicable law) of the conditions (excluding conditions that, by their
terms, cannot be satisfied until the Closing Date) set forth in Article VI (the
"CLOSING DATE"), unless another time or date is agreed to in writing by the
parties
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hereto. The Closing shall be held at the offices of Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, New York 10017, unless another place is agreed
to in writing by the parties hereto.
2.3 EFFECTIVE TIME. Upon the Closing, the parties shall file with the
Secretary of State of the State of Delaware a certificate of merger or other
appropriate documents (in any such case, the "CERTIFICATE OF MERGER") executed
in accordance with the relevant provisions of the DGCL and shall make all other
filings, recordings or publications required under the DGCL in connection with
the Merger. The Merger shall become effective at such time as the Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware, or at
such other time as the parties may agree and specify in the Certificate of
Merger (the time the Merger becomes effective being the "EFFECTIVE TIME").
2.4 EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
will have the effects set forth in Section 259, 260 and 261 of the DGCL.
2.5 CERTIFICATE OF INCORPORATION. At the Effective Time, and by virtue of
the Merger, the certificate of incorporation of the Company as in effect
immediately prior to the Effective Time shall be amended to read in its
entirety, except that the name of the Surviving Corporation shall be "Sunrise
Medical Inc.," as the Certificate of Incorporation of Merger Sub as in effect
immediately before the Effective Time and as provided in EXHIBIT A hereto, and
such amended certificate shall be the certificate of incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
2.6 BYLAWS. At the Effective Time, the bylaws of the Company, as in effect
immediately prior to the Effective Time, shall be amended to read in its
entirety, except that the name of the Surviving Corporation shall be "Sunrise
Medical Inc.," as the bylaws of the Merger Sub as in effect immediately prior to
the Effective Time, until thereafter changed or amended as provided therein or
by applicable law.
2.7 OFFICERS AND DIRECTORS OF SURVIVING CORPORATION. The officers of the
Company shall be the officers of the Surviving Corporation, until the earlier of
their resignation or removal or otherwise ceasing to be an officer. The
directors of Merger Sub shall be the directors of the Surviving Corporation,
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
2.8 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of the
Company Common Stock or any shares of capital stock of Merger Sub:
(a) CAPITAL STOCK OF MERGER SUB. Each issued and outstanding share of
capital stock of Merger Sub shall be converted into and become 23,000 fully
paid and nonassessable shares of common stock, par value $.01 per share, of
the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND THE PARENT-OWNED STOCK. Each
share of the Company Common Stock that is owned by the Company and each
share of the Company Common Stock that is owned by the Parent, Holdings or
Merger Sub shall automatically be canceled and retired and shall cease to
exist, and no common stock of the Parent, Holdings, Merger Sub or the
Surviving Corporation, or any other form of consideration, shall be
delivered in exchange therefor.
(c) COMPANY COMMON STOCK. Each issued and outstanding share of the
Company Common Stock issued and outstanding immediately before the Effective
Time (other than shares to be canceled in accordance with Section
2.8(b) and any Dissenting Shares (as defined below)) will, by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into the right to receive in cash the Price Per Share. As of the
Effective Time, all such shares of the Company Common Stock shall no longer
be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a Certificate (as defined below) which
immediately prior to the Effective Time represented any such shares of the
Company Common
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Stock shall cease to have any rights with respect thereto, except the right
to receive, upon the surrender of such Certificates as provided in Section
2.9, the Price Per Share in cash.
2.9 SURRENDER AND PAYMENT.
(a) PAYING AGENT. Before the Effective Time, the Parent shall
designate a bank or trust company reasonably acceptable to the Company to
act as agent for the record holders of shares of the Company Common Stock in
connection with the Merger (the "PAYING AGENT"). At or before the Effective
Time, the Parent will deposit, or cause Holdings or Merger Sub to deposit,
as applicable, in trust for the benefit of the holders of Certificates with
the Paying Agent immediately available funds (the "FUNDS") in an amount
necessary to make the payments for the shares of the Company Common Stock
contemplated by this Agreement on a timely basis.
(b) SURRENDER OF CERTIFICATES. Promptly after the Effective Time, the
Parent, Holdings and the Surviving Corporation will cause the Paying Agent
to mail and/or make available to each record holder of shares of the Company
Common Stock, a notice and letter of transmittal and instructions in
standard form for use in effecting the surrender of all Certificates held by
such record holder.
(c) PAYMENT PROCEDURES. Upon surrender to the Paying Agent of a
Certificate, together with such letter of transmittal duly executed and
completed, the holder of such Certificate will receive the aggregate Price
Per Share attributable to the number of shares of the Company Common Stock
represented by such Certificate, and such Certificate will be cancelled.
Until surrendered in accordance with the provisions of this Section 2.9,
each Certificate (other than Certificates representing Dissenting Shares and
Certificates representing shares covered by Section 2.8(b)) will represent
for all purposes only the right to receive the aggregate Price Per Share
relating thereto. No interest shall accrue or be paid in respect of cash
payable upon the surrender of Certificates. If any payment of cash in
respect of canceled shares of the Company Common Stock is to be paid to a
Person other than the registered holder of the shares represented by the
Certificate or Certificates surrendered in exchange therefor, it shall be a
condition to such payment that the Certificate or Certificates so
surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the Person requesting such payment shall pay to the Paying
Agent any transfer or other Taxes required as a result of such payment to a
Person other than the registered holder of such shares or establish to the
satisfaction of the Paying Agent that such Tax has been paid or is not
payable. Any consideration otherwise payable pursuant to this Agreement
shall be subject to all applicable federal, state and local tax withholding
requirements.
(d) NO TRANSFER. After the Effective Time, there will be no transfers
of shares of the Company Common Stock recorded on the stock transfer books
of the Surviving Corporation. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they will be cancelled and exchanged
for the Price Per Share as provided in Section 2.10(a) below.
2.10 UNCLAIMED MERGER CONSIDERATION.
(a) TRANSFER TO SURVIVING CORPORATION. Any portion of the Funds made
available to the Paying Agent pursuant to Section 2.9(a) that remain
unclaimed by the stockholders of the Company 180 days after the Effective
Time will be transferred to the Surviving Corporation upon demand. Any
holder of Certificates who has not theretofore complied with this
Article II will thereafter look only to the Surviving Corporation for
payment of the Price Per Share in accordance with this Agreement upon
surrender of such Certificates. The Paying Agent will be authorized, at the
request of the Parent, to invest any Funds held by it in (i) investment
grade money market instruments, (ii) direct obligations of the United States
of America, (iii) obligations for which the full faith and credit of the
United States of America is pledged to provide for the payment of principal
and interest, (iv) commercial paper rated the highest quality by either
Moody's Investors Services, Inc. or Standard & Poor's Corporation or
(v) certificates of deposit,
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bank repurchase agreements or bankers' acceptances of commercial banks with
capital exceeding $1 billion, in each case having maturities not to exceed
30 days and as designated by the Parent, with any interest earned thereon
being paid to the Parent at the earlier of (A) payment in full of the
aggregate Price Per Share to all record holders of Company Common Stock
immediately prior to the Effective Time of the Merger and (B) 180 days after
the Effective Time.
(b) NO ESCHEAT OF REMAINING FUNDS. None of the Parent, Holdings,
Merger Sub, the Company or the Paying Agent will be liable to any Person in
respect of any cash delivered from the Funds to a public official pursuant
to any applicable abandoned property, escheat or similar law. If any
Certificates have not been surrendered before seven years after the
Effective Time (or immediately before such earlier date on which any payment
pursuant to this Section 2.10 would otherwise escheat to or become the
property of any Governmental Entity (as defined below)), the aggregate Price
Per Share payable in respect to such Certificates will, unless otherwise
provided by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any Person
previously entitled thereto.
(c) MERGER CONSIDERATION. Any portion of the Funds made available to
the Paying Agent pursuant to Section 2.9(a) to pay the Price Per Share in
cash for shares of the Company Common Stock issued and outstanding
immediately prior to the Effective Time for which appraisal rights have been
perfected shall be returned to the Parent, upon demand.
2.11 DISSENTING SHARES. Notwithstanding Section 2.8 hereof, shares of
the Company Common Stock issued and outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger
or consented thereto in writing and who has demanded appraisal for such
shares in accordance with Section 262 of the DGCL (and who has neither
effectively withdrawn nor lost his right to such appraisal) ("DISSENTING
SHARES"), shall not be converted into a right to receive cash pursuant to
Section 2.8, and the holder thereof shall be entitled to only such rights as
are granted by the DGCL. If after the Effective Time such holder fails to
perfect or withdraws or otherwise loses his right to appraisal, such shares
of Company Common Stock shall be treated as if they had been converted as of
the Effective Time into a right to receive cash as provided in Section 2.8,
without interest thereon. The Company shall give the Parent prompt notice of
any demands received by the Company for appraisal of shares of the Company
Common Stock, and the Parent shall have the right to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of the Parent, make any payment
with respect to, or settle or offer to settle, any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in
the Company Disclosure Schedule delivered by the Company to the Parent at or
prior to the execution and delivery of this Agreement (the "COMPANY DISCLOSURE
SCHEDULE") or the Company SEC Reports (as defined below), the Company represents
and warrants to the Parent, Holdings and Merger Sub as of the date of this
Agreement and as of the Closing Date:
(a) ORGANIZATION, STANDING AND POWER. Except as otherwise set forth in
Section 3(a) of the Company Disclosure Schedule, each of the Company and
each of its Subsidiaries (i) has been duly incorporated and is validly
existing and in good standing under the laws of its jurisdiction of
incorporation, (ii) is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, (iii) has all
requisite power and authority to own or lease and operate its properties and
assets, and to carry on its business as now conducted and as currently
proposed to be conducted, and (iv) except as otherwise also set forth in
Section 3.1(f) of the Company
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Disclosure Schedule, has obtained all licenses, permits, franchises and
other governmental authorizations necessary to the ownership or operation of
its properties or the conduct of its business, except, in the cases of
clauses (i) (with respect to Subsidiaries only), (ii), (iii) and (iv), as
would not reasonably be expected to have a Material Adverse Effect on the
Company. True and complete copies of the Organizational Documents (as
defined below), as amended and currently in force, and all corporate minute
books and records of the Company and each of its Subsidiaries have been
furnished by the Company to the Parent for inspection to the extent
requested by the Parent.
(b) CAPITAL STRUCTURE.
(i) The authorized capital stock of the Company consists solely of
(A) 40,000,000 shares of the Company Common Stock, of which 22,359,218
shares are outstanding as of October 16, 2000, and (B) 5,000,000 shares
of preferred stock, par value $1.00 per share, of which no shares are
outstanding. All issued and outstanding shares of the Company Common
Stock are duly authorized, validly issued, fully paid and nonassessable,
and no class of the capital stock of the Company is entitled to
preemptive rights. No Subsidiary of the Company owns any capital stock of
the Company. There are no outstanding options, warrants or other rights
to acquire capital stock of the Company other than (1) Rights issued
pursuant to the Rights Agreement and (2) options ("Options") representing
in the aggregate the right to purchase 5,593,775 shares (of which
4,180,000 have a per share exercise price that is less than the Price Per
Share, and 1,413,775 of which have a per share exercise price that equals
or exceeds the Price Per Share) of the Company Common Stock under the
Stock Options Plans (as defined below), which include those Megagrant
Options (1/3 of the total Megagrant Options), the vesting of which is
based upon the Company's attainment of certain stock price targets of the
Company Common Stock ("Stock Price Megagrant Options"). The Company also
has 38,700 performance based units ("Units") outstanding pursuant to its
Performance Bonus Unit Plan, which include 5,000 Units the vesting of
which is based upon the Company's attainment of certain stock price
targets of the Company Common Stock (collectively with the Stock Price
Megagrant Options, the "Stock Price Megagrant Options and Units").
Section 3.1(b)(i) of the Company Disclosure Schedule identifies, as of
the date hereof, the holder of each outstanding Option or performance
bonus unit, the number of shares of Company Common Stock issuable upon
exercise of each Option and the exercise price and expiration date
thereof, and the amount payable in respect of each such Unit.
(ii) All of the issued and outstanding shares of capital stock of the
Company's Subsidiaries are duly authorized, validly issued, fully paid
and nonassessable and are owned directly or indirectly by the Company
free and clear of any Liens (as defined below). Except for the capital
stock of its Subsidiaries, the Company does not own, directly or
indirectly, any capital stock or other ownership interest in any Person.
(iii) No bonds, debentures, notes or other indebtedness of the Company
having, or convertible into other securities having, the right to vote on
any matters on which stockholders may vote ("COMPANY VOTING DEBT") are
issued or outstanding.
(iv) Except as otherwise set forth in this Section 3.1(b) or in
Section 3.1(b)(i), 3.1(b)(ii) or 3.1(b)(iv) of the Company Disclosure
Schedule, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to
which the Company or any of its Subsidiaries is a party or by which any
of them is bound obligating the Company or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of the
Company or any of its Subsidiaries or obligating the Company or any of
its Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are no outstanding obligations of the Company
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or any of its Subsidiaries to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company or its Subsidiaries. There is no
voting trust or other agreement or understanding to which the Company or
any of its Subsidiaries is a party or is bound with respect to the voting
of the capital stock or other voting securities of the Company of any of
its Subsidiaries. Except as it may be limited with respect to any foreign
Subsidiary of the Company by the laws of such foreign jurisdiction, the
Company has the ability to effect any action requiring the approval of
the stockholders of any of its Subsidiaries and to designate all of the
members of the board of directors of each of its Subsidiaries.
(c) AUTHORITY; NO CONFLICTS.
(i) The Company has all requisite corporate power and corporate
authority to enter into this Agreement and, subject to the adoption of
this Agreement by the requisite vote of the holders of the Company Common
Stock (if required under applicable law), to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company,
subject in the case of the consummation of the Merger to any required
adoption of this Agreement by the holders of the Company Common Stock.
Subject to the adoption of this Agreement by the requisite vote of the
holders of the Company Common Stock (if required by applicable law), this
Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding agreement of the Company, enforceable
against it in accordance with its terms, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditors generally and by general
equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement does not or will
not, as the case may be, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation
of, or constitute a default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, amendment,
cancellation or acceleration of any obligation or the loss of a material
benefit under, or the creation of a Lien, on any assets (any such
conflict, violation, default, right of termination, amendment,
cancellation or acceleration, loss or creation, a "VIOLATION") pursuant
to: (A) any provision of the Organizational Documents of the Company or
any of its Subsidiaries or (B) except for such Violations as would not
reasonably be expected to have a Material Adverse Effect on the Company
and except as set forth in Section 3.1(c)(ii) of the Company Disclosure
Schedule and subject to obtaining or making the consents, approvals,
orders, authorizations, registrations, declarations and filings referred
to in paragraph (iii) below, any loan or credit agreement, note,
mortgage, bond, indenture, lease, benefit plan or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
the Company, its Subsidiaries or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is
required by or with respect to the Company or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by the
Company or the consummation by the Company of the transactions
contemplated hereby, except for those required under or in relation to
(A) the HSR Act, (B) state securities or "blue sky" laws, (C) the
Securities Act (as defined below), (D) the Exchange Act, (E) the DGCL
with respect to the filing and recordation of appropriate certificate of
merger or other documents, (F) rules and regulations of the NYSE (as
defined below), and (G) any applicable foreign legal requirements
relating to competition.
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