<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT /X/ FILED BY A PARTY OTHER THAN THE REGISTRANT / /
--------------------------------------------------------------------------------
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Luxtec Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE> 2
LUXTEC CORPORATION
September 21, 1995
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
LUXTEC CORPORATION, to be held at 11:00 a.m. on October 20, 1995, at the offices
of Bingham, Dana & Gould, 150 Federal Street, Boston, Massachusetts 02110.
The Notice of Meeting and the Joint Proxy Statement/Private Placement
Memorandum that follow describe the business to be considered and acted upon by
the stockholders at the Meeting, after which management will also report on the
affairs of the Company.
The Board of Directors of the Company encourages your participation in the
Company's electoral process and, to that end, solicits your proxy. You may give
your proxy by completing, dating and signing the Proxy Card and returning it
promptly in the enclosed envelope. You are urged to do so even if you plan to
attend the meeting.
A copy of the Company's 1994 Annual Report to Stockholders was sent under
separate cover on July 5, 1995.
Sincerely,
JAMES W. HOBBS
President
326 Clark Street, Worcester, Massachusetts 01606-1214
<PAGE> 3
LUXTEC CORPORATION
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 20, 1995
------------------------
Notice is hereby given that the Annual Meeting (the "Meeting") of
Stockholders of Luxtec Corporation (the "Company") will he held at the offices
of Bingham, Dana & Gould, 150 Federal Street, Boston, Massachusetts 02110, on
Friday, October 20, 1995, at 11:00 a.m., local time, to consider and act upon
the following matters:
1. A proposal to approve an amendment of the Company's Articles of
Organization to increase the number of shares authorized for issuance by
the Company in connection with the Agreement of Merger and Plan of
Reorganization dated as of June 28, 1995 (a copy of which is attached
hereto as Annex A) (the "Merger Agreement"), by and among the Company,
CardioDyne, Inc. ("CardioDyne"), and Luxtec CD Acquisition Co. Inc.
("Acquirer"), a newly formed, wholly-owned subsidiary of the Company.
Pursuant to the Merger Agreement, CardioDyne will be merged with and
into Acquirer, and all of the outstanding shares of CardioDyne will be
converted into one million (1,000,000) shares of common stock of the
Company (with such number subject to reduction to account for statutory
dissenter's rights of appraisal). In addition, the former CardioDyne
Stockholders may be entitled to a payment depending upon the market
price of the Company's common stock and will be entitled to earn-out
payments based upon the future sale of certain products under
development, if such products are developed. Each of the foregoing
payments, if made, shall be payable fifty percent (50%) in cash and
fifty percent (50%) in common stock of the Company.
2. A proposal to approve the issuance of up to one million (1,000,000)
shares of common stock of the Company (with such number subject to
reduction to account for statutory dissenter's rights of appraisal) in
connection with the Merger Agreement.
3. A proposal to elect two (2) Class II directors of the Company, each to
hold a three-year term.
4. A proposal to ratify the amendment of the Company's 1992 Stock Option
Plan to increase the number of shares authorized for issuance under the
Plan and to limit the number of options that may be granted to any one
individual under the Plan in any fiscal year.
5. A proposal to approve the Company's 1995 Stock Option Plan For
Non-Employee Directors.
6. A proposal to approve an amendment of the Company's Articles of
Organization with respect to the limitation of liability of directors
and indemnification of directors and officers of the Company.
7. A proposal to ratify the appointment of Arthur Andersen LLP as
independent public accountants of the Company.
8. To transact such other business as may properly come before the Meeting
or any adjournments thereof.
<PAGE> 4
Stockholders of record at the close of business on September 5, 1995 are
entitled to notice of and to vote at the Meeting and any adjourned sessions
thereof. All stockholders are cordially invited to attend the Meeting.
By Order of the Board of Directors
JAMES W. HOBBS
Director
Worcester, Massachusetts
September 21, 1995
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, COMPLETE, DATE,
SIGN AND MAIL THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS
OF THE COMPANY, AND PROMPTLY RETURN IT IN THE PRE-ADDRESSED ENVELOPE PROVIDED
FOR THAT PURPOSE. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW ANY PROXY GIVEN BY
YOU AND VOTE YOUR SHARES IN PERSON.
<PAGE> 5
[CARDIODYNE LETTERHEAD]
September 21, 1995
Dear Stockholder:
A Special Meeting of Stockholders of CardioDyne, Inc. ("CardioDyne") will
be held on Friday, October 20, 1995 beginning at 4:00 p.m. local time (the
"CardioDyne Meeting") at the offices of Hale and Dorr, 60 State Street, Boston,
Massachusetts 02109.
As the enclosed materials indicate, the purpose of the CardioDyne Meeting
is to consider approval of the proposed merger (the "Merger") of CardioDyne with
and into Luxtec CD Acquisition Co. Inc., a Massachusetts corporation
("Acquirer") and wholly-owned subsidiary of Luxtec Corporation, a Massachusetts
corporation ("Luxtec"), with Acquirer as the surviving corporation, in
accordance with the terms of an Agreement of Merger and Plan of Reorganization
(the "Merger Agreement") dated as of June 28, 1995, by and among CardioDyne,
Luxtec, Acquirer and Paul Epstein and Patrick G. Phillipps as representatives of
the stockholders of CardioDyne (the "Representatives"). Luxtec is a public
company with its common stock traded on the American Stock Exchange under the
symbol "LXU.EC." In connection with the Merger, Acquirer, as the surviving
corporation is expected to change its name to CardioDyne, Inc.
In accordance with the Merger Agreement, the stockholders of CardioDyne
(other than those who exercise dissenters' appraisal rights) would receive
approximately .23283 shares of Luxtec common stock in exchange for each issued
and outstanding share of CardioDyne's common stock. Existing CardioDyne
stockholders would own approximately 41% of the Luxtec common stock outstanding
immediately after the Merger.
CardioDyne's Board of Directors has unanimously approved the proposed
Merger and recommends that stockholders vote to approve the Merger Agreement and
the transactions contemplated thereby. Management and the Board believe that the
proposed Merger would significantly enhance the ability of CardioDyne to bring
its current monitoring products to the medical products market and to continue
research and development of continuous, non-invasive monitoring products.
The enclosed Joint Proxy Statement/Private Placement Memorandum provides a
description of the proposals to be presented at the CardioDyne Meeting and
information concerning CardioDyne and Luxtec. Please give this information your
careful attention.
The officers and directors look forward to seeing you at the CardioDyne
Meeting. If you are unable to attend the meeting, please sign, date and return
the accompanying proxy in the enclosed postage prepaid envelope. If you are able
to attend the meeting, you may, if you wish, vote your shares in person.
Very truly yours,
Paul Epstein
Chairman
<PAGE> 6
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
OF
CARDIODYNE, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"CardioDyne Meeting") of CardioDyne, Inc., a Delaware corporation
("CardioDyne"), will be held at the offices of Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109 at 4:00 p.m. local time on Friday, October 20, 1995,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement of
Merger and Plan of Reorganization (the "Merger Agreement") dated as of June
28, 1995, by and among CardioDyne, Luxtec Corporation, a Massachusetts
corporation ("Luxtec"), Luxtec CD Acquisition Co. Inc., a Massachusetts
corporation and wholly-owned subsidiary of Luxtec ("Acquirer"), and Paul
Epstein and Patrick G. Phillipps as representatives of the stockholders of
CardioDyne (the "Representatives"), providing for the merger (the "Merger")
of CardioDyne with and into Acquirer, with Acquirer as the surviving
corporation. A copy of the Merger Agreement is attached as Annex A to the
enclosed Joint Proxy Statement/Private Placement Memorandum.
2. To transact such further business as may properly come before the CardioDyne
Meeting, or any adjournment or adjournments thereof.
Stockholders who do not vote in favor of the Merger Agreement and follow
the procedures set forth in Section 262 of the Delaware General Corporation Law
will have the right to have the "fair value" of their shares of CardioDyne's
capital stock judicially determined and paid to them in cash if the Merger
Agreement is adopted and the transactions contemplated thereby are consummated.
A copy of Section 262 is attached as Annex F to the Joint Proxy
Statement/Private Placement Memorandum accompanying this Notice.
Stockholders of record as of the close of business on September 5, 1995 are
entitled to notice of and to vote at the CardioDyne Meeting and any adjournments
thereof.
By Order of the Board of Directors
Paul Epstein
Chairman
Brookline, Massachusetts
September 21, 1995
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, COMPLETE, DATE,
SIGN AND MAIL THE ENCLOSED PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS
OF CARDIODYNE, AND PROMPTLY RETURN IT IN THE PRE-ADDRESSED ENVELOPE PROVIDED FOR
THAT PURPOSE. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW ANY PROXY GIVEN BY YOU
AND VOTE YOUR SHARES IN PERSON.
<PAGE> 7
LUXTEC CORPORATION
AND
CARDIODYNE, INC.
JOINT PROXY STATEMENT
------------------------
LUXTEC CORPORATION
PRIVATE PLACEMENT MEMORANDUM
------------------------
This Joint Proxy Statement/Private Placement Memorandum ("Proxy
Statement/PPM") is being furnished to stockholders of Luxtec Corporation, a
Massachusetts corporation ("Luxtec" or the "Company"), and to stockholders of
CardioDyne, Inc., a Delaware corporation ("CardioDyne" or "Target"), in
connection with the solicitation of proxies by the Board of Directors of each of
Luxtec ("Luxtec Board") and CardioDyne ("CardioDyne Board") for use at the
Annual Meeting of Stockholders of Luxtec (the "Luxtec Meeting") and the Special
Meeting of Stockholders of CardioDyne (the "CardioDyne Meeting" and, together
with the Luxtec Meeting, the "Meetings"), in each case including any
adjournments or postponements thereof, scheduled to be held on October 20, 1995.
Insofar as this Proxy Statement/PPM constitutes a proxy statement of CardioDyne,
no class of capital stock of CardioDyne is registered under the Securities
Exchange Act of 1934 (the "Exchange Act"). Accordingly, the proxy rules under
the Exchange Act are not applicable to the solicitation of proxies by
CardioDyne, but other legal remedies, including general common law and
anti-fraud provisions, may apply to such solicitation. Among other things, this
Proxy Statement/PPM relates to the proposed merger (the "Merger") of CardioDyne
with and into Luxtec CD Acquisition Co. Inc., a Massachusetts corporation and
wholly-owned subsidiary of Luxtec ("Acquirer"), pursuant to the Agreement of
Merger and Plan of Reorganization dated as of June 28, 1995 (the "Merger
Agreement"), among Luxtec, CardioDyne, Acquirer and Paul Epstein and Patrick
Phillipps, as representatives of the stockholders of CardioDyne (the
"Representatives"), and certain related agreements. The Merger will become
effective when Articles of Merger and a Certificate of Merger are filed with the
Secretary of State of each of Massachusetts and Delaware, respectively (the
"Effective Time"). At the Effective Time, the separate existence of CardioDyne
will cease and Acquirer will be the surviving corporation (the "Surviving
Corporation") and will immediately change its name to CardioDyne, Inc. With
respect to the stockholders of Luxtec ("Luxtec Stockholders"), this Proxy
Statement/PPM also relates to the election of Class II Directors of Luxtec, the
amendment of Luxtec's 1992 Stock Option Plan, the approval of Luxtec's 1995
Stock Option Plan For Non-Employee Directors, amendment of the Luxtec Articles
of Organization, and the ratification of the appointment of Arthur Andersen LLP
as the independent public accountants of Luxtec, each of which is described
herein. This Proxy Statement/PPM was first mailed to Luxtec Stockholders and the
stockholders of CardioDyne ("CardioDyne Stockholders") on or about September 21,
1995. All solicitation expenses, including costs of preparing, assembling and
mailing proxy material, will be borne by the Company and CardioDyne.
Upon consummation of the Merger, subject to provisions for payment of cash
for fractional shares, each share of common stock, $0.01 par value per share, of
CardioDyne (the "CardioDyne Common Stock") which is issued and outstanding at
the Effective Time shall, at the Effective Time, be converted (subject to
statutory dissenters' rights of appraisal) into such fraction of a share of
common stock, $0.01 par value per share, of Luxtec (the "Luxtec Common Stock")
as equals one million (1,000,000) divided by the total number of shares of
CardioDyne Common Stock issued and outstanding at the Effective Time (without
regard to the exercise by any CardioDyne Stockholder of statutory dissenters'
rights) (the "Exchange Rate"). Irrespective of the number of shares of capital
stock of CardioDyne issued and outstanding at the Effective Time and of the
number of any outstanding options, warrants or other rights to purchase shares
of the capital stock of CardioDyne at the Effective Time and of the number of
any outstanding securities exchangeable for or convertible into shares of the
capital stock of CardioDyne at the Effective Time, Luxtec shall be obligated to
issue no more than an aggregate of one million (1,000,000) shares of Luxtec
Common Stock (such number of shares being subject to reduction to account for
the exercise by any CardioDyne Stockholder of statutory
<PAGE> 8
dissenters' rights of appraisal) (such shares referred to as "Exchanged
Shares"), in connection with the Merger of Acquirer and CardioDyne, except to
the extent required pursuant to the provisions of the Merger Agreement regarding
the Purchase Price Adjustment and the Earn-Out Payments. Assuming the issuance
of one million (1,000,000) shares of Luxtec Common Stock in connection with the
Merger, existing CardioDyne stockholders would own approximately 41% of the
Luxtec Common Stock outstanding immediately after the Merger. See "THE MERGER
AGREEMENT -- Effects of the Merger", "THE MERGER AGREEMENT -- Purchase Price
Adjustment" and "THE MERGER AGREEMENT -- Additional Consideration."
In addition to the shares of Luxtec Common Stock issued at the Effective
Time, each CardioDyne Stockholder will be entitled to receive earn-out payments
from and after the date of Luxtec's first commercial sale of non-invasive
products which continuously or nearly continuously measure a parameter that
correlates to blood pressure (see the Merger Agreement for complete definition
of "CNIMT Products") up to and including the seventeenth (17th) anniversary of
such date. Such annual payments shall be equal to five percent (5%) of Luxtec's
"Realized CNIMT Net Sales" (see the Merger Agreement for a complete definition)
on such CNIMT Products ("Earn-Out Payments"). Such Earn-Out Payments shall be
paid to CardioDyne Stockholders on a pro rata basis in accordance with each
CardioDyne Stockholder's ownership of CardioDyne Common Stock immediately prior
to the Effective Time. Earn-Out Payments shall be paid, without withholding for
taxes or for any other reason or claim, (i) fifty percent (50%) in cash and (ii)
fifty percent (50%) in shares of Luxtec Common Stock. The Merger Agreement also
provides for additional payments or the right to continue receiving payments or
to renegotiate the terms of such payments if Luxtec licenses the right to
develop, manufacture or distribute the CNIMT Products to a non-affiliate third
party or sells, assigns or otherwise transfers, in whole or in part, the
technology underlying the CNIMT Products, respectively. See "THE MERGER
AGREEMENT -- Additional Consideration."
In the event that the average of the closing prices of Luxtec Common Stock
on the American Stock Exchange ("AMEX") during the twenty (20) trading days
ending five (5) trading days before the Closing Date of the Merger Agreement
(the "Closing Price") shall be less than $3.25 per share, then Luxtec shall be
obligated to pay to the CardioDyne Stockholders, pro rata, additional
consideration in an aggregate amount (the "Adjustment Amount") equal to the
actual number of Exchanged Shares issued pursuant to the Merger up to one
million (1,000,000) (such number of shares being subject to reduction to account
for the exercise by any CardioDyne Stockholder of statutory dissenters' rights
of appraisal) multiplied by the excess of (i) $3.25 over (ii) the Closing Price.
The Adjustment Amount shall be paid, pro rata, to the CardioDyne Stockholders,
(i) fifty percent (50%) in cash and (ii) fifty percent (50%) in shares of Luxtec
Common Stock, and shall be made in annual installments in accordance with the
terms of the Merger Agreement. Notwithstanding the foregoing, Luxtec shall have
no obligation to make any payments with respect to the Adjustment Amount as
otherwise required hereby in the event that the unweighted average of the
closing prices of Luxtec Common Stock for any twenty (20) consecutive trading
days during the eighteen (18) month period immediately following the Closing
Date shall equal or exceed $4.00 per share. See "THE MERGER AGREEMENT --
Purchase Price Adjustment".
Pursuant to the Merger Agreement, the CardioDyne Stockholders will be
required to deposit into escrow at the closing of the Merger fifteen percent
(15%) of the shares of Luxtec Common Stock which they are entitled to receive in
the Merger. Luxtec will be able to seek recovery from the escrow for damages
arising from breaches of CardioDyne's representations, warranties and covenants
contained in the Merger Agreement. The approval of the Merger Agreement by the
CardioDyne Stockholders will constitute their consent to the appointment of
Messrs. Paul Epstein and Patrick G. Phillipps as the Representatives with
respect to such escrow and with respect to any matters arising in connection
with the Earn-Out Payments. See "THE MERGER AGREEMENT -- Additional
Consideration," "THE MERGER AGREEMENT -- Indemnification and Escrow" and
"CERTAIN OTHER AGREEMENTS -- Escrow Agreement."
For purposes of voting at the CardioDyne Meeting each share of CardioDyne
Common Stock will have one vote. Under CardioDyne's Certificate of Incorporation
(the "CardioDyne Charter"), its By-Laws (the "CardioDyne By-Laws"), applicable
Delaware law and the Merger Agreement, the Merger must be approved by the
affirmative vote of at least a majority of the outstanding shares of CardioDyne
Common Stock.
2
<PAGE> 9
Any CardioDyne Stockholder who (1) files with CardioDyne before the taking
of the vote on the approval of the Merger a written demand for an appraisal of
his shares of CardioDyne Common Stock and payment thereof, and (2) does not vote
his shares of CardioDyne Common Stock in favor of the Merger Agreement, will
have the right to file in the Delaware Court of Chancery within one-hundred
twenty (120) days after the Effective Time of the Merger, a petition demanding a
determination of the value of the shares of CardioDyne Common Stock of all such
dissenting CardioDyne Stockholders. Notwithstanding the foregoing, at any time
within sixty (60) days after the Effective Time of the Merger, any such
stockholder shall have the right to withdraw his demand for appraisal and to
accept the terms offered pursuant to the Merger. See "DISSENTERS' RIGHTS."
This Proxy Statement/PPM also relates to the private offer and sale of the
up to one million (1,000,000) shares of Luxtec Common Stock, plus any shares
issued in connection with Earn-Out Payments and the Adjustment Amount, which
shall be, or the rights to which shall be, issued in connection with the Merger.
The shares of Luxtec Common Stock are offered pursuant to an exemption provided
by Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933, as
amended (the "Securities Act"), and certain state securities acts, and certain
rules and regulations promulgated pursuant thereto. The Luxtec Common Stock may
not be transferred in the absence of an effective registration statement under
the Securities Act and applicable state securities laws or exemptions therefrom.
Luxtec Common Stock is listed on the AMEX. On September 15, 1995, the closing
price of Luxtec Common Stock was $5.00 per share. See "THE MERGER
AGREEMENT -- Securities Laws Matters", "THE MERGER AGREEMENT -- Registration
Rights" and "CERTAIN OTHER AGREEMENTS -- CardioDyne Stockholder Representation
Certificate."
With respect to the Luxtec Meeting, the close of business on September 5,
1995 has been established as the record date for determining the stockholders
entitled to notice of and to vote at the Luxtec Meeting and at any adjournments
thereof. As of the record date, there were issued and outstanding and entitled
to vote 1,438,661 shares of Luxtec Common Stock. Holders of shares of Luxtec
Common Stock are entitled to one vote for each share owned at the record date on
all matters to come before the Luxtec Meeting and any adjournments thereof. The
presence in person or by proxy of holders of a majority of the shares of Luxtec
Common Stock entitled to vote at the Luxtec Meeting constitutes a quorum for the
transaction of business.
In connection with the Luxtec Meeting, any proxy may be revoked at any time
before it is voted by written notice received by the Clerk of Luxtec or by
attending the Luxtec Meeting and voting in person; but if not so revoked, the
shares represented by such proxy will be voted. Attendance at the Luxtec Meeting
will not by itself constitute revocation of a proxy unless the stockholder so
attending notifies the Clerk of Luxtec in writing at any time prior to the
voting of the proxy. All proxies will be voted in accordance with the
instructions contained therein. If no choice is specified for one or more
proposals in a proxy submitted by or on behalf of a stockholder, the shares
represented by such proxy will be voted in favor of such proposals and in the
discretion of the named proxies with respect to any other proposals which may
properly come before the Luxtec Meeting. Broker non-votes (i.e., shares held by
brokers or nominees as to which (i) instructions have not been received from the
beneficial owners or the persons entitled to vote and (ii) the broker or nominee
does not have discretionary voting power on a particular matter) and proxies
that withhold authority to vote for election as a director or that reflect
abstentions will be deemed present for the purpose of determining the presence
of a quorum for the transaction of business. A broker non-vote will have no
effect on the outcome of voting on such proposal. An abstention with respect to
a proposal will have the effect of a vote against such proposals.
The Luxtec Board does not know of any matters which will be brought before
the Luxtec Meeting other than those matters specifically set forth in the notice
of Luxtec Meeting (the "Luxtec Notice"). However, if any other matter properly
comes before the Luxtec Meeting, it is intended that the persons named in the
enclosed form of Proxy, or their substitute acting thereunder, will vote on such
matter in accordance with their best judgment.
A representative of Arthur Andersen LLP is expected to be present at the
Luxtec Meeting. This representative is expected to be available to respond to
appropriate questions.
3
<PAGE> 10
With respect to the CardioDyne Meeting, the close of business on September
5, 1995 has been established as the record date for determining the stockholders
entitled to notice of and to vote at the CardioDyne Meeting and at any
adjournments thereof. As of the record date, there were issued and outstanding
and entitled to vote 4,220,670 shares of CardioDyne Common Stock. Holders of
shares of CardioDyne Common Stock are entitled to one vote for each share owned
at the record date on all matters to come before the CardioDyne Meeting and any
adjournments thereof. The presence in person or by proxy of holders of a
majority of the shares of CardioDyne Common Stock entitled to vote at the
CardioDyne Meeting constitutes a quorum for the transaction of business.
In connection with the CardioDyne Meeting, any proxy may be revoked at any
time before it is voted by written notice received by the Secretary of
CardioDyne or by attending the CardioDyne Meeting and voting in person; but if
not so revoked, the shares represented by such proxy will be voted. Attendance
at the CardioDyne Meeting will not by itself constitute revocation of a proxy
unless the stockholder so attending notifies the Secretary of CardioDyne in
writing at any time prior to the voting of the proxy. All proxies will be voted
in accordance with the instructions contained therein. If no choice is specified
for one or more proposals in a proxy submitted by or on behalf of a stockholder,
the shares represented by such proxy will be voted in favor of such proposals
and in the discretion of the named proxies with respect to any other proposals
which may properly come before the CardioDyne Meeting.
The CardioDyne Board does not know of any matters which will be brought
before the CardioDyne Meeting other than those matters specifically set forth in
the notice of CardioDyne Meeting (the "CardioDyne Notice"). However, if any
other matter properly comes before the CardioDyne Meeting, it is intended that
the persons named in the enclosed form of Proxy, or their substitute acting
thereunder, will vote on such matter in accordance with their best judgment.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY STATEMENT/PPM. THE
PROPOSED MERGER IS A COMPLEX TRANSACTION. BOTH LUXTEC STOCKHOLDERS AND
CARDIODYNE STOCKHOLDERS ARE STRONGLY URGED TO READ AND CONSIDER
CAREFULLY THIS PROXY STATEMENT/PPM IN ITS ENTIRETY, PARTICULARLY
THE MATTERS REFERRED TO UNDER "RISK FACTORS."
------------------------
THE LUXTEC COMMON STOCK TO BE ISSUED IN THE MERGER IS SPECULATIVE AND
INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS." CARDIODYNE
STOCKHOLDERS MUST BE PREPARED TO BEAR THE RISK OF THEIR
INVESTMENT FOR AN INDEFINITE PERIOD AND BE ABLE TO
WITHSTAND A TOTAL LOSS OF THEIR INVESTMENT.
------------------------
IN MAKING AN INVESTMENT DECISION CARDIODYNE STOCKHOLDERS MUST RELY ON THEIR
OWN EXAMINATION OF LUXTEC AND THE TERMS OF THE MERGER, INCLUDING THE
MERITS AND RISKS INVOLVED. THE SECURITIES TO BE ISSUED IN THE MERGER
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PPM. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Proxy Statement/PPM is September 21, 1995.
4
<PAGE> 11
NO PERSON IS AUTHORIZED BY LUXTEC OR CARDIODYNE TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PPM,
IN CONNECTION WITH THE OFFERING OF LUXTEC COMMON STOCK TO THE CARDIODYNE
STOCKHOLDERS PURSUANT TO THE MERGER AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PPM DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, LUXTEC COMMON STOCK TO ANY CARDIODYNE STOCKHOLDER IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
------------------------
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PPM TO THE CARDIODYNE
STOCKHOLDERS OR THE LUXTEC STOCKHOLDERS NOR ANY DISTRIBUTION OF LUXTEC COMMON
STOCK TO THE CARDIODYNE STOCKHOLDERS PURSUANT TO THE MERGER SHALL IMPLY THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS
OF LUXTEC OR CARDIODYNE SINCE THE DATE HEREOF.
------------------------
IN CONNECTION WITH THE OFFER AND ISSUANCE OF LUXTEC COMMON STOCK TO THE
CARDIODYNE STOCKHOLDERS PURSUANT TO THE MERGER, THE CARDIODYNE STOCKHOLDERS ARE
BEING REQUESTED TO MAKE REPRESENTATIONS WITH RESPECT TO THEIR NET WORTH OR
INCOME AND TO REPRESENT, AMONG OTHER THINGS, THAT THEY ARE FAMILIAR WITH AND
UNDERSTAND THE TERMS OF THE MERGER. SEE "THE MERGER."
------------------------
THIS PROXY STATEMENT/PPM CONSTITUTES AN OFFER OF LUXTEC COMMON STOCK ONLY TO
THOSE CARDIODYNE STOCKHOLDERS TO WHOM THIS PROXY STATEMENT/PPM IS INITIALLY
DISTRIBUTED BY CARDIODYNE.
------------------------
IN MAKING AN INVESTMENT DECISION WITH RESPECT TO THE MERGER, CARDIODYNE
STOCKHOLDERS MUST RELY ON THEIR OWN EXAMINATION OF LUXTEC AND THE TERMS OF THE
MERGER, INCLUDING THE MERITS AND RISKS INVOLVED. CARDIODYNE STOCKHOLDERS SHOULD
NOT CONSTRUE THE CONTENTS OF THIS PROXY STATEMENT/PPM AS INVESTMENT, TAX OR
LEGAL ADVICE. THIS PROXY STATEMENT/PPM AND THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN, AS WELL AS THE NATURE OF AN INVESTMENT IN THE LUXTEC COMMON
STOCK, SHOULD BE REVIEWED BY EACH CARDIODYNE STOCKHOLDER, HIS OR HER INVESTMENT,
TAX OR OTHER ADVISORS, AND HIS OR HER ACCOUNTANTS OR LEGAL COUNSEL.
------------------------
ANY CARDIODYNE OR LUXTEC STOCKHOLDER MAY ASK QUESTIONS AND RECEIVE ANSWERS
CONCERNING THE TERMS AND CONDITIONS OF THE MERGER OR REQUEST ADDITIONAL
INFORMATION TO VERIFY THE LUXTEC INFORMATION CONTAINED HEREIN BY CALLING JAMES
W. HOBBS AT LUXTEC AT (508) 856-9454 DURING NORMAL BUSINESS HOURS OR BY WRITING
TO LUXTEC AT 326 CLARK STREET, WORCESTER, MASSACHUSETTS 01606-1214. TO REQUEST
ADDITIONAL INFORMATION TO VERIFY THE CARDIODYNE INFORMATION CONTAINED HEREIN,
ANY CARDIODYNE OR LUXTEC STOCKHOLDER MAY CALL PAUL EPSTEIN AT CARDIODYNE AT
(617) 566-7753 DURING NORMAL BUSINESS HOURS OR WRITE TO CARDIODYNE AT 95 CLINTON
ROAD, BROOKLINE, MASSACHUSETTS 02146.
------------------------
5
<PAGE> 12
CERTAIN PROVISIONS OF VARIOUS AGREEMENTS WITH RESPECT TO THE MERGER ARE
SUMMARIZED IN THIS JOINT PROXY STATEMENT/PPM, BUT NEITHER CARDIODYNE
STOCKHOLDERS NOR LUXTEC STOCKHOLDERS SHOULD ASSUME THAT THE SUMMARIES ARE
COMPLETE. SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE
TEXTS OF THE ORIGINAL DOCUMENTS, WHICH ARE ATTACHED TO THIS PROXY STATEMENT/PPM.
------------------------
IT IS THE RESPONSIBILITY OF ANY CARDIODYNE STOCKHOLDER WISHING TO RECEIVE THE
LUXTEC COMMON STOCK PURSUANT TO THE MERGER TO SATISFY HIMSELF OR HERSELF AS TO
FULL OBSERVANCE WITH THE LAWS OF ANY RELEVANT TERRITORY OUTSIDE THE U.S. IN
CONNECTION THEREWITH, INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER
CONSENTS OR OBSERVING ANY OTHER APPLICABLE FORMALITIES.
------------------------
AVAILABLE INFORMATION
Luxtec is subject to the reporting requirements of the Exchange Act, and in
accordance therewith files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information concerning Luxtec may be
inspected and copies may be obtained (at prescribed rates) at the Commission's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, as
well as the following regional offices: 7 World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60604.
THIS PROXY STATEMENT/PPM INCORPORATES BY REFERENCE CERTAIN DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. UPON WRITTEN OR ORAL REQUEST,
LUXTEC WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS PROXY
STATEMENT/PPM IS DELIVERED A COPY OF THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE THEREIN). REQUESTS SHOULD BE SUBMITTED IN
WRITING OR BY TELEPHONE AT (508) 856-9454 TO JAMES W. HOBBS, LUXTEC CORPORATION,
326 CLARK STREET, WORCESTER, MASSACHUSETTS 01606-1214. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY SEPTEMBER 29, 1995.
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PPM RELATING TO LUXTEC
HAS BEEN SUPPLIED AND/OR APPROVED BY LUXTEC, AND ALL INFORMATION RELATING TO
CARDIODYNE HAS BEEN SUPPLIED AND/OR APPROVED BY CARDIODYNE.
6
<PAGE> 13
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Proxy Statement/PPM:
1. Luxtec's Annual Report on Form 10-K, as amended, for the year ended
October 31, 1994.
2. Luxtec's Quarterly Reports on Form 10-Q for the periods ended January
31, 1995, April 30, 1995, and July 31, 1995.
3. The description of the Luxtec Common Stock contained in its Registration
Statement on Form 8-A (File No. 1-12960) filed on April 4, 1994.
4. All other reports filed pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act since October 31, 1994.
All documents subsequently filed by Luxtec pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the date of closing of the
Merger shall be deemed to be incorporated by reference into this Proxy
Statement/PPM and to be part of this Proxy Statement/PPM from the date of filing
thereof. Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Proxy
Statement/PPM to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated herein modifies or
replaces such statement. Any statement so modified or superseded shall not be
deemed, in its unmodified form, to constitute a part of this Proxy
Statement/PPM.
This Proxy Statement/PPM is accompanied by copies of Luxtec's Annual Report
on Form 10-K, as amended, for the year ended October 31, 1994, Luxtec's
quarterly reports on Form 10-Q for the periods ended January 31, 1995, April 30,
1995, and July 31, 1995, and with respect to Luxtec Stockholders who became such
after July 4, 1995 and CardioDyne Stockholders, Luxtec's 1994 Annual Report to
Stockholders. Luxtec Stockholders who were such on July 4, 1995, were sent
Luxtec's 1994 Annual Report to Stockholders under separate cover on July 5,
1995.
7
<PAGE> 14
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROPOSAL 1
APPROVAL OF THE AMENDMENT TO THE COMPANY'S ARTICLES OF ORGANIZATION
IN CONNECTION WITH THE AGREEMENT OF MERGER AND PLAN OF REORGANIZATION............... 12
Summary............................................................................. 13
The Companies.................................................................... 13
The Meetings..................................................................... 13
Operations After the Merger...................................................... 13
Recommendation of Boards of Directors/Votes Required............................. 14
Certain Federal Income Tax Consequences of the Merger............................ 14
Terms of the Merger Agreement.................................................... 14
Certain Other Agreements......................................................... 15
Conflicts of Interest............................................................ 16
Comparison of Stockholders' Rights............................................... 16
Dissenters' Rights............................................................... 16
Risk Factors..................................................................... 16
Market Price and Dividend Date...................................................... 17
Selected Historical and Pro Forma Combining Financial Data.......................... 18
Luxtec -- Historical Information................................................. 19
CardioDyne -- Historical Information............................................. 20
Pro Forma Combining Condensed Statement of Operations............................ 21
Pro Forma Combining Condensed Balance Sheet...................................... 23
Unaudited Comparative Per Share Data................................................ 25
Risk Factors........................................................................ 26
Luxtec Corporation.................................................................. 30
The Luxtec Meeting.................................................................. 30
CardioDyne, Inc..................................................................... 31
The CardioDyne Meeting.............................................................. 31
The Merger.......................................................................... 32
Background of the Merger......................................................... 32
Reasons for the Merger........................................................... 35
Operations After the Merger...................................................... 35
Recommendations of the Boards of Directors....................................... 35
Accounting Treatment of the Merger............................................... 35
Certain Federal Income Tax Consequences of the Merger............................ 36
The Merger Agreement................................................................ 40
Effective Time of the Merger..................................................... 40
Effects of the Merger............................................................ 40
Exchange of Stock Certificates................................................... 41
Fractional Shares................................................................ 42
Additional Consideration......................................................... 42
</TABLE>
8
<PAGE> 15
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Purchase Price Adjustment........................................................ 43
Representations and Warranties................................................... 44
Conduct of Business.............................................................. 44
Conditions to the Merger......................................................... 45
Securities Laws Matters.......................................................... 45
Registration Rights.............................................................. 46
Survival and Materiality of Representations...................................... 47
Tax Consequences to the Parties.................................................. 47
Termination...................................................................... 47
Indemnification and Escrow....................................................... 47
Expenses......................................................................... 48
Miscellaneous.................................................................... 49
Certain Other Agreements............................................................ 49
Invention and Non-Disclosure Agreements/Non-Competition Agreements............... 49
Escrow Agreement................................................................. 50
CardioDyne Stockholder Representation Certificate................................ 50
Conflicts of Interest............................................................... 51
CardioDyne Directors and Management.............................................. 51
Business and Financial Information Regarding CardioDyne............................. 51
Results of Operations............................................................ 51
Liquidity and Capital Resources.................................................. 51
Business............................................................................ 52
Overview......................................................................... 52
Background....................................................................... 52
Products......................................................................... 52
Clinical Applications and Markets................................................ 53
Manufacturing.................................................................... 54
Government Regulation............................................................ 54
Patents and Proprietary Information.............................................. 55
Competition...................................................................... 55
Employees........................................................................ 55
Litigation....................................................................... 55
Management....................................................................... 56
Principal Stockholders........................................................... 57
Selected Information Regarding Luxtec............................................... 57
Description of Luxtec Common Stock............................................... 57
Massachusetts Anti-Takeover Law.................................................. 58
Luxtec Transfer Agent and Registrar.............................................. 58
Comparison of Rights of Holders of Luxtec Common Stock and CardioDyne Common
Stock............................................................................ 58
General.......................................................................... 58
Dividends and Repurchases........................................................ 58
</TABLE>
9
<PAGE> 16
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Size and Classifications of the Board of Directors............................... 58
Removal of Directors............................................................. 59
Amendment of Governing Documents................................................. 59
Appraisal Rights................................................................. 60
Power to Call Special Meetings of Stockholders................................... 60
Consents of Stockholders......................................................... 60
Required Vote for Certain Business Combination................................... 60
State Anti-takeover Statutes..................................................... 60
Dissenters' Rights.................................................................. 61
Legal Matters....................................................................... 63
PROPOSAL 2
APPROVAL OF THE ISSUANCE OF LUXTEC COMMON STOCK IN CONNECTION
WITH THE AGREEMENT OF MERGER AND PLAN OF REORGANIZATION............................. 64
PROPOSAL 3
ELECTION OF LUXTEC DIRECTORS
Election of Luxtec Directors........................................................ 65
Board of Directors Meetings and Committees.......................................... 67
Executive Compensation.............................................................. 68
Summary Compensation Table.......................................................... 68
Option Grants in Last Fiscal Year................................................... 68
Aggregated Option Exercises in Last Fiscal Year..................................... 68
Executive Employment Agreements..................................................... 69
Director Compensation............................................................... 69
Reports of Beneficial Ownership....................................................... 69
Certain Transactions.................................................................. 69
PROPOSAL 4
AMENDMENT OF THE COMPANY'S 1992 STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES
AUTHORIZED FOR ISSUANCE UNDER THE PLAN.............................................. 70
PROPOSAL 5
APPROVAL OF THE COMPANY'S 1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS........... 72
PROPOSAL 6
APPROVAL OF THE AMENDMENT TO THE COMPANY'S ARTICLES OF ORGANIZATION................... 74
PROPOSAL 7
RATIFICATION OF APPOINTMENT OF ACCOUNTANTS............................................ 75
STOCKHOLDER PROPOSALS................................................................. 76
GENERAL............................................................................... 76
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>
10
<PAGE> 17
<TABLE>
<CAPTION>
ANNEXES
----------
<S> <C>
Annex A Agreement of Merger and Plan of Reorganization
Annex B-1 Form of Articles of Amendment to Articles of Organization of Luxtec with respect
to increase in authorized capital stock
Annex B-2 Form of Articles of Amendment to Articles of Organization of Luxtec with respect
to limitation of liability and indemnification of officers and directors
Annex C Articles of Organization of Luxtec
Annex D Articles of Organization of Acquirer
Annex E By-Laws of Acquirer
Annex F Excerpt from General Corporation Law of the State of Delaware relating to
Appraisal Rights
Annex G 1995 Stock Option Plan For Non-Employee Directors of Luxtec
Annex H Consent of Arthur Andersen LLP
Annex I Proxies
</TABLE>
11
<PAGE> 18
PROPOSAL 1
APPROVAL OF THE AMENDMENT TO THE COMPANY'S
ARTICLES OF ORGANIZATION IN CONNECTION WITH
THE AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
The Luxtec Board, (i) by resolution adopted at a meeting on December 8,
1994, has recommended the adoption of the Amendment (attached as Annex B-1 to
this Proxy Statement/PPM), amending the Articles of Organization of Luxtec
(attached as Annex C to this Proxy Statement/PPM, as previously amended, the
"Luxtec Charter") in order to increase the authorized capital stock of the
Company, and (ii) by unanimous written consent dated June 28, 1995, has approved
the Merger Agreement (attached as Annex A to this Proxy Statement/PPM).
Article 3 of the Luxtec Charter now provides that the Company has the
authority to issue only one class of stock, consisting of 2,000,000 shares of
Luxtec Common Stock. The Amendment would amend Article 3 of the Luxtec Charter
to increase the authorized number of shares of Luxtec Common Stock from
2,000,000 shares to 10,000,000 shares, with no change in par value and no change
in the voting powers, qualifications, rights and privileges of such Luxtec
Common Stock. All shares of Luxtec Common Stock will continue to be equal to
each other with respect to voting rights, liquidation rights and dividend
rights. No preemptive rights to purchase additional shares attach to shares of
Luxtec Common Stock. Holders of Luxtec Common Stock do not have the right to
cumulate their votes for the elections of Directors. Each share of Luxtec Common
Stock is entitled to one vote on each matter submitted to shareholders.
The additional shares of authorized Luxtec Common Stock will allow the
Company to complete the Merger referred to and described below. The additional
shares of authorized Luxtec Common Stock will also allow for the administration
and granting of options under the 1992 Stock Plan, as amended, and the 1995
Directors' Plan, as adopted, and will allow the Company the flexibility to
respond to future developments, including other potential acquisitions, stock
splits, joint ventures and additional corporate financings. If this proposal is
approved by the shareholders of Luxtec, the Luxtec Board will be able to issue
additional shares of Luxtec Common Stock without first seeking shareholder
approval. The issuance of any such shares may have a dilutive effect on the
holdings of current shareholders. Notwithstanding the foregoing, the AMEX
Listing Standards and Requirements will still generally require shareholder
approval for listing shares reserved for issuances of options granted to Luxtec
officers, directors and key employees and for certain acquisition and sale
transactions. Although no transactions other than the Merger described below are
currently under consideration by the Luxtec Board, the Luxtec Board believes
that the complexity of modern business financing and acquisition transactions
requires that it be able to respond promptly and effectively to changes in
market conditions. The authorization of additional shares of Luxtec Common Stock
will enable the Luxtec Board to do so. Assuming the approval of all of the
proposals contained in this Proxy Statement/PPM, the number of unissued shares
of Luxtec Common Stock not otherwise reserved for issuance will be approximately
7,061,339 shares.
The Luxtec Board recommends that the shareholders vote "FOR" the proposed
amendment of the Luxtec Charter thereby allowing the Company to consummate the
Merger Agreement and the transactions contemplated therein, and the enclosed
proxy will be so voted unless a contrary vote is indicated. The affirmative vote
of the holders of a majority of the shares of Luxtec Common Stock outstanding
and entitled to vote thereon is required for approval of the Amendment to the
Luxtec Charter. Although no stockholder vote is required under Massachusetts
Business Corporation Law with respect to the Merger Agreement, Note A to
Schedule 14A of the Exchange Act of 1934, as amended (which sets out the rules
governing the solicitation of proxies), provides that in these circumstances,
this solicitation with respect to the increase in authorized shares also
constitutes a solicitation with respect to the Merger Agreement. Accordingly,
the information with respect to the Merger Agreement and the transactions
contemplated thereby is being provided for your review in connection with this
proposal.
The CardioDyne Board, by resolution adopted at a meeting on June 22, 1995,
has approved the Merger Agreement (attached as Annex A to this Proxy
Statement/PPM). The CardioDyne Board recommends that the shareholders vote "FOR"
the approval and adoption of the Merger Agreement and the enclosed proxy will be
so voted unless a contrary vote is indicated. The affirmative vote of the
holders of a majority of the shares of CardioDyne Common Stock outstanding and
entitled to vote thereon is required for approval of the Merger Agreement.
12
<PAGE> 19
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/PPM. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information and financial statements, including
the notes thereto, appearing elsewhere in this Proxy Statement/PPM, in its
Annexes, and in the documents referred to herein which contain further
information, some of which is not summarized below. STOCKHOLDERS OF LUXTEC AND
CARDIODYNE ARE URGED TO REVIEW THE ENTIRE PROXY STATEMENT/PPM CAREFULLY,
INCLUDING THE ANNEXES INCLUDED HEREIN, PARTICULARLY THE MATTERS REFERRED TO
UNDER "RISK FACTORS", "THE MERGER" AND "THE MERGER AGREEMENT." Unless the
context otherwise requires, references in this Proxy Statement/PPM to "Luxtec"
mean Luxtec and its wholly-owned subsidiaries.
THE COMPANIES
Luxtec Corporation ("Luxtec" or the "Company") is a Massachusetts-based
manufacturer of surgical vision and related medical products. The Company owns
all of the capital stock of Luxtec CD Acquisition Co. Inc. ("Acquirer"), a
Massachusetts corporation recently organized by the Company for the purpose of
effecting the acquisition of CardioDyne, Inc. The Company's executive offices
are located at 326 Clark Street, Worcester, Massachusetts 01606-1214, and its
telephone number is (508) 856-9454.
CardioDyne, Inc. ("CardioDyne" or "Target") is a Massachusetts-based
company engaged in the development and commercialization of a product line of
proprietary motion tolerant, non-invasive blood pressure monitors for use on
moving and exercising patients. CardioDyne has a principal business address at
95 Clinton Road, Brookline, Massachusetts 02146, and its telephone number is
(617) 566-7753.
THE MEETINGS
LUXTEC MEETING. The Luxtec Meeting is scheduled to be held on October 20,
1995 at 11:00 a.m. at the offices of Bingham, Dana & Gould, 150 Federal Street,
Boston, Massachusetts. Only the Luxtec Stockholders of record at the close of
business on September 5, 1995 (the "Luxtec Record Date") will be entitled to
notice of and to vote at the Luxtec Meeting.
At the Luxtec Meeting, Luxtec Stockholders will consider and vote upon
proposals to (1) approve an amendment of the Luxtec Charter to increase the
number of shares authorized for issuance by the Company, (2) approve the
issuance of up to one million (1,000,000) shares of Luxtec Common Stock in
connection with the Merger Agreement, (3) elect two Class II directors of the
Company each to hold a three-year term, (4) ratify the amendment of the
Company's 1992 Stock Option Plan to increase the number of shares authorized for
issuance under the Plan and to limit the number of options that may be granted
to any one individual under the Plan in any fiscal year, (5) approve the
Company's 1995 Stock Option Plan For Non-Employee Directors, (6) approve an
amendment of the Luxtec Charter with respect to the limitation of liability and
indemnification of directors and officers of the Company, and (7) ratify the
appointment of Arthur Andersen LLP as independent public accountants of the
Company. See "THE LUXTEC MEETING."
CARDIODYNE MEETING. The CardioDyne Meeting is scheduled to be held on
October 20, 1995 at 4:00 p.m. at the offices of Hale and Dorr, 60 State Street,
Boston, Massachusetts. Only the CardioDyne Stockholders of record at the close
of business on September 5, 1995 (the "CardioDyne Record Date") will be entitled
to notice of and to vote at the CardioDyne Meeting.
At the CardioDyne Meeting, CardioDyne Stockholders will consider and vote
upon a proposal to approve and adopt the Merger Agreement. See "THE CARDIODYNE
MEETING."
OPERATIONS AFTER THE MERGER
Upon consummation of the Merger, CardioDyne will be merged into Acquirer,
which, as the Surviving Corporation, will remain a wholly-owned subsidiary of
the Company. Acquirer will change its name to CardioDyne, Inc. and will continue
to operate as a wholly-owned subsidiary of the Company. The Company
13
<PAGE> 20
intends to devote significant resources to the development and marketing of an
intermittent and a continuous non-invasive blood pressure monitor in conjunction
with Patrick Phillipps and Paul Epstein, co-founders of CardioDyne and
co-inventors of its proprietary monitoring technology, who will join the Company
as employees and Directors. See "THE MERGER -- Operations After the Merger."
RECOMMENDATION OF BOARDS OF DIRECTORS/VOTES REQUIRED
LUXTEC BOARD. The Luxtec Board unanimously approved the Amendment to the
Luxtec Charter and believes that it is fair and in the best interests of the
Luxtec Stockholders. The Luxtec Board unanimously recommends that the Luxtec
Stockholders vote "FOR" the proposed Amendment of the Luxtec Charter thereby
allowing the Company to consummate the Merger Agreement and the transactions
contemplated therein and the enclosed proxy will be so voted unless a contrary
vote is indicated. The affirmative vote of the holders of a majority of the
shares of Luxtec Common Stock outstanding and entitled to vote thereon is
required for approval of the Amendment to the Luxtec Charter.
CARDIODYNE BOARD. The CardioDyne Board unanimously approved the Merger
Agreement and believes that the transactions contemplated thereby are fair and
in the best interests of the CardioDyne Stockholders. The CardioDyne Board
unanimously recommends that the CardioDyne Stockholders vote "FOR" the approval
of the Merger Agreement and the enclosed proxy will be so voted unless a
contrary vote is indicated. The affirmative vote of the holders of a majority of
the shares of CardioDyne Common Stock outstanding and entitled to vote thereon
is required for approval of the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Assuming that the Merger and related transactions will take place as
described in the Merger Agreement, Luxtec and CardioDyne intend to treat the
Merger as a tax-free "reorganization" within the meaning of Section 368(a) of
the Code. As a general proposition, subject to the tax treatment of the Earn-Out
Payments and the Adjustment Amount, a holder who exchanges his CardioDyne Common
Stock solely for Luxtec Common Stock in the Merger will not recognize gain or
loss on the exchange. Notwithstanding the foregoing, because there is
uncertainty concerning the Federal income tax consequences associated with the
Merger, each holder of CardioDyne Common Stock should consult his own tax
advisor regarding the tax consequences of the Merger in light of such holder's
own situation, including the application and effect of any state, local or
foreign income and other tax laws. See "THE MERGER AGREEMENT -- Certain Federal
Income Tax Consequences of the Merger."
TERMS OF THE MERGER AGREEMENT
EFFECTIVE TIME. If the Amendment to the Luxtec Charter and the issuance of
the shares of Luxtec Common Stock in connection with the Merger Agreement are
approved by the requisite vote of the Luxtec Stockholders and the Merger
Agreement is approved by the requisite vote of the CardioDyne Stockholders, and
if all of the conditions to the Merger have been satisfied or waived, the Merger
will become effective as of the time the Articles of Merger and Certificate of
Merger are duly filed with the Secretary of State of Massachusetts and Delaware
(the "Effective Time"). It is anticipated that the filing of the Articles of
Merger and Certificate of Merger will occur as soon as practicable after
satisfaction or waiver of all conditions to the Merger. See "THE MERGER
AGREEMENT -- Effective Time of the Merger."
EFFECTS OF THE MERGER. In connection with the Merger, each share of
CardioDyne Common Stock issued and outstanding immediately prior to the
Effective Time (other than shares held directly or indirectly by stockholders of
CardioDyne who duly exercise their appraisal rights, see "Dissenters' Rights")
will automatically be converted into and become such fraction of a share of
Luxtec Common Stock as equals one million (1,000,000) divided by the number of
shares of CardioDyne Common Stock issued and outstanding immediately prior to
the Effective Time (without regard to the exercise of statutory dissenters'
rights of appraisal by any CardioDyne Stockholders) (the "Exchange Rate"),
subject to the issuance of cash in lieu of fractional shares. Irrespective of
the number of shares of capital stock of CardioDyne issued and outstanding
immediately prior to the Effective Time, Luxtec shall be obligated to issue no
more than an
14
<PAGE> 21
aggregate of up to one million (1,000,000) shares of Luxtec Common Stock (such
number of shares being subject to reduction to account for the exercise by any
CardioDyne Stockholder of statutory dissenters' rights of appraisal), in
connection with the Merger of Acquirer and CardioDyne, except to the extent
required pursuant to the Earn-Out Payments and the Purchase Price Adjustment. It
is expected that there will be 4,295,045 shares of CardioDyne Common Stock
issued and outstanding immediately prior to the Effective Time thereby resulting
in an Exchange Rate of approximately .23283 shares of Luxtec Common Stock for
each share of CardioDyne Common Stock. See "THE MERGER AGREEMENT -- Effects of
the Merger."
The First National Bank of Boston, transfer agent for Luxtec, will act as
Paying and Exchange Agent (the "Paying and Exchange Agent") for the exchange of
CardioDyne stock certificates for Luxtec stock certificates. As promptly as is
practicable following the Effective Time, the Paying and Exchange Agent will
mail to each record holder of shares of CardioDyne Common Stock instructions and
transmittal materials ("Transmittal Materials") for exchanging such holder's
CardioDyne stock certificates for new certificates representing the shares of
Luxtec Common Stock into which such holder's shares of CardioDyne Common Stock
have been converted, subject to the Escrow Agreement. See "THE MERGER
AGREEMENT -- Exchange of Stock Certificates" and "Indemnification and Escrow"
and "CERTAIN OTHER AGREEMENTS -- Escrow Agreement."
The respective obligations of Luxtec and CardioDyne to effect the Merger
are subject to various normal and customary conditions for transactions of this
nature. See "THE MERGER AGREEMENT -- Conditions to the Merger."
CERTAIN OTHER AGREEMENTS
INVENTION AND NON-DISCLOSURE AGREEMENTS/NON-COMPETITION AGREEMENTS. In
connection with the Merger Agreement, each of Messrs. Paul Epstein and Patrick
G. Phillipps will become at-will employees of Luxtec and will enter into
Invention and Non-Disclosure Agreements and Non-Competition Agreements. See
"CERTAIN OTHER AGREEMENTS -- Invention and Non-Disclosure
Agreements/Non-Competition Agreements."
ESCROW AGREEMENT. In connection with the Merger Agreement, the Company,
Acquirer and the Representatives will enter into an Escrow Agreement whereby a
certain portion of the shares of Luxtec Common Stock to be issued and delivered
to the CardioDyne Stockholders pursuant to the Merger Agreement shall be instead
delivered to and held by the Escrow Agent. The number of shares to be withheld
from each of the CardioDyne Stockholders shall equal fifteen percent (15%) of
the total number of Exchanged Shares to be received by such CardioDyne
Stockholder for his, her or its shares of CardioDyne Common Stock in the Merger.
Additionally, Messrs. Paul Epstein and Patrick G. Phillipps are appointed as the
Representatives of the CardioDyne Stockholders in connection with the
administration of the Escrow Agreement. See "THE MERGER
AGREEMENT -- Indemnification and Escrow" and "CERTAIN OTHER AGREEMENTS -- Escrow
Agreement."
CARDIODYNE STOCKHOLDER REPRESENTATION CERTIFICATE. In order to ensure that
the Merger will be treated as a "tax-free reorganization" for accounting and
financial reporting purposes, each CardioDyne Stockholder who receives shares of
Luxtec Common Stock pursuant to the Merger Agreement will be required to execute
and deliver a Stockholder Representation Certificate, which among other things,
requires the CardioDyne Stockholders to make representations that (i) the former
CardioDyne Stockholders must indirectly maintain a continuity of interest in the
business of CardioDyne by continuing to hold shares of Luxtec following the
merger, (ii) such stockholder has not sold, exchanged, transferred or disposed
of any shares of CardioDyne Common Stock in contemplation of the Merger and has
no present intent to sell, exchange, transfer or dispose of any of the shares of
Luxtec Common Stock received by such stockholder pursuant to the Merger, and
(iii) such stockholder is acquiring the shares of Luxtec Common Stock for
investment purposes, has sufficient business and financial experience to
evaluate the risks in acquiring the shares of Luxtec Common Stock, and is able
to bear the economic risk of holding such shares for an indefinite period. The
Stockholder Representation Certificate also provides an acknowledgment from the
CardioDyne Stockholders that they are bound by the provisions of the Merger
Agreement applicable to all such stockholders, including, without limitation,
the
15
<PAGE> 22
indemnification and escrow provisions and the appointment of the Representatives
for the purpose set forth in the Merger Agreement. See "CERTAIN OTHER
AGREEMENTS -- CardioDyne Stockholder Representation Certificate."
CONFLICTS OF INTEREST
CARDIODYNE DIRECTORS AND MANAGEMENT. Following the consummation of the
Merger, Messrs. Paul Epstein, Chairman and Vice President of CardioDyne, and
Patrick G. Phillipps, President of CardioDyne, will become at-will employees and
members of the Board of Directors of Luxtec. See, "CERTAIN OTHER
AGREEMENTS -- Invention and Non-Disclosure Agreements/Non-Competition
Agreements," "THE MERGER AGREEMENT -- Effects of the Merger -- CardioDyne Stock
Options/Convertible Notes," and "CONFLICTS OF INTEREST -- CardioDyne Directors
and Management."
COMPARISON OF STOCKHOLDERS' RIGHTS
The rights of stockholders of CardioDyne are currently governed by
applicable Delaware law, the CardioDyne Charter and the CardioDyne By-Laws.
Except for those exercising dissenters' rights, CardioDyne Stockholders as of
the Effective Time will become stockholders of Luxtec, a Massachusetts
corporation, and their rights as Luxtec Stockholders from and after the Merger
will be governed by applicable Massachusetts law, the Luxtec Charter and the
Luxtec By-Laws. Certain material differences exist between the rights of
CardioDyne Stockholders under applicable Delaware law, the CardioDyne Charter
and the CardioDyne By-Laws, and the rights of Luxtec Stockholders under
applicable Massachusetts law, the Luxtec Charter and the Luxtec By-Laws. See
"COMPARISON OF RIGHTS OF HOLDERS OF LUXTEC COMMON STOCK AND CARDIODYNE COMMON
STOCK."
DISSENTERS' RIGHTS
Each CardioDyne Stockholder who does not vote in favor of the Merger
Agreement and follows the procedures set forth in Section 262 of the Delaware
General Corporation Law will have the right to have the "fair value" of his
shares of CardioDyne's capital stock judicially determined and paid to them in
cash if the Merger Agreement is adopted and the transactions contemplated
thereby are consummated. A copy of Section 262 is attached as Annex F to this
Proxy Statement/PPM. See "DISSENTERS' RIGHTS."
RISK FACTORS
Stockholders of Luxtec and CardioDyne should carefully review the matters
set forth under "Risk Factors" before voting on the Merger.
16
<PAGE> 23
MARKET PRICE AND DIVIDEND DATA
Luxtec's Common Stock is traded on the AMEX under the AMEX symbol "LXU.EC."
Luxtec's Common Stock has been listed on the AMEX since April 20, 1994. From
Luxtec's initial public offering during September, 1986 until April, 1994 the
Company's Common Stock was traded in the over-the-counter market on the National
Association of Securities Dealers, Inc. Automated Quotations System (NASDAQ)
under the NASDAQ symbol "LUXT."
There is no established trading market for the CardioDyne Common Stock.
<TABLE>
The following table sets forth (i) the high and low closing bid prices for
the Company's Common Stock as reported by NASDAQ for the periods indicated below
until April 19, 1994, and (ii) the high and low closing sale prices of the
Company's Common Stock on the AMEX during the periods indicated below commencing
on April 20, 1994.
<CAPTION>
COMMON STOCK
--------------
HIGH LOW
------ -----
<S> <C> <C>
FISCAL YEAR ENDED 10/31/93
First Quarter......................................................... $ 2.63 $1.75
Second Quarter........................................................ 2.63 1.38
Third Quarter......................................................... 2.00 1.25
Fourth Quarter........................................................ 1.75 1.31
FISCAL YEAR ENDED 10/31/94
First Quarter......................................................... 2.25 1.50
Second Quarter........................................................ 2.13 1.50
Third Quarter......................................................... 10.13 2.13
Fourth Quarter........................................................ 7.75 3.75
FISCAL YEAR ENDED 10/31/95
First Quarter......................................................... 5.38 3.50
Second Quarter........................................................ 4.00 2.50
Third Quarter......................................................... 7.25 2.88
</TABLE>
Neither Luxtec nor CardioDyne has ever paid cash dividends on its Common
Stock. Both Luxtec and CardioDyne presently intend to retain earnings for the
development of their respective businesses and do not anticipate paying cash
dividends on their common stock in the foreseeable future.
On June 28, 1995, the last business day prior to the public announcement of
the proposed Merger, the last sale price for a share of Luxtec Common Stock as
reported by the AMEX was $3.63. On September 15, 1995, the last sale price for a
share of Luxtec Common Stock as reported by the AMEX was $5.00.
17
<PAGE> 24
SELECTED HISTORICAL AND PROFORMA COMBINING FINANCIAL DATA
The selected consolidated statements of operations data presented below
with respect to Luxtec Corporation for the years ended October 31, 1994, 1993,
1992 and 1991 and the consolidated balance sheet data at October 31, 1994, 1993,
1992 and 1991 are derived from and qualified by reference to the Company's
consolidated financial statements that have been audited by Arthur Andersen LLP,
the Company's independent public accountants. The consolidated operating data
for the year ended October 31, 1990, and the consolidated balance sheet data as
of October 31, 1990, are derived from financial statements audited by KPMG Peat
Marwick, independent public accountants. The information set forth below should
be read in conjunction with the financial statements and notes thereto
incorporated by reference. This data reflects the Company's one-for-ten Common
Stock reverse split effected April 10, 1992 for all periods presented.
The selected statements of operations data presented below with respect to
CardioDyne, Inc. for the years ended December 31, 1994, 1993, and 1992 and the
balance sheet data at December 31, 1994 and 1993, are derived from and qualified
by reference to CardioDyne's financial statements that have been audited by
Arthur Andersen LLP, the Company's independent public accountants. The balance
sheet data as of December 31, 1990, 1991, and 1992 and the statement of
operations data for the years ended December 31, 1990 and 1991 have been derived
from unaudited financial statements that are not included herein. The data set
forth below should be read in conjunction with the financial statements and
related notes.
The unaudited interim financial information of Luxtec as of and for the
nine months ended July 31, 1994 and 1995 and CardioDyne as of and for the six
months ended June 30, 1994 and 1995 includes all adjustments, consisting of only
normal recurring adjustments, which Luxtec and CardioDyne consider necessary for
a fair presentation of their respective financial positions and results of
operations for such periods. Operating results for Luxtec and CardioDyne,
respectively, for the interim periods of fiscal year 1995 are not necessarily
indicative of the results that may be expected for the entire fiscal year 1995.
The unaudited pro forma combining condensed financial information gives
effect to the Merger using the purchase method of accounting and includes the
adjustments described in the notes attached hereto. The aggregate consideration
to be paid to complete the Merger is approximately Five Million Three Hundred
Eighty Thousand Dollars ($5,380,000) in the form of Luxtec Common Stock. Such
amount has been computed by multiplying 1,000,000 shares of Luxtec Common Stock,
which constitutes the total number of shares of Luxtec Common Stock that will be
issued by the Company in connection with the Merger (without giving effect to
any additional shares of Luxtec Common Stock required to be issued as additional
consideration or upon any purchase price adjustment -- see "THE MERGER
AGREEMENT -- Additional Consideration" and "-- Purchase Price Adjustment"),
times $5.38 which is the closing price of Luxtec Common Stock on the American
Stock Exchange as of July 27, 1995. During the period from July 27, 1995 through
the date hereof, the Company's Common Stock has traded on the American Stock
Exchange within a range of $4.00 to $5.50 per share.
The unaudited pro forma combining condensed balance sheet combines the
historical consolidated balance sheet of Luxtec and the balance sheet of
CardioDyne as if the Merger had occurred on July 31, 1995. The unaudited pro
forma combining condensed statements of operations combine the historical
statements of operations as if the Merger occurred on November 1, 1993.
The unaudited pro forma combining condensed financial information does not
purport to represent what Luxtec's results of operations would have been had the
Merger occurred on the dates indicated or for any future period or date. The
unaudited pro forma combining condensed financial information should be read in
conjunction with Luxtec's and CardioDyne's historical financial statements and
the notes thereto.
18
<PAGE> 25
LUXTEC CORPORATION
HISTORICAL INFORMATION
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
OPERATING DATA:
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED OCTOBER 31, JULY 31,
-------------------------------------------------- -------------------
1994 1993 1992 1991 1990 1995 1994
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales.................. $8,139 $6,734 $6,040 $5,474 $4,016 $6,031 $5,854
Net Earnings (Loss).... 164 153 407 368 112 (62) 128
------ ------ ------ ------ ------ ------ ------
Net Earnings (Loss) per
Share.................. .11 .11 .29 .26 .08 (.04) .09
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
BALANCE SHEET DATA:
<CAPTION>
OCTOBER 31, JULY 31,
-------------------------------------------------- -------------------
1994 1993 1992 1991 1990 1995
------ ------ ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital........ $1,410 $1,210 $1,056 $ 743 $ 351 $1,375
Total Assets........... 4,072 3,431 2,763 2,259 2,374 4,726
Long-term debt and
capital lease
obligations, less
current portions....... -- -- 67 28 48 --
Stockholders' equity... 2,163 1,957 1,804 1,397 1,029 2,138
</TABLE>
19
<PAGE> 26
CARDIODYNE, INC.
HISTORICAL INFORMATION
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
OPERATING DATA:
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -----------------
1994 1993 1992 1991 1990 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Sales........................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Net Earnings (Loss)............. (388) (256) (85) (22) (22) (165) (243)
---- ----- ---- ---- ---- ---- ----
Net Earnings (Loss) Per
Share........................... (.10) (.08) (.03) (.01) (.01) (.04) (.06)
==== ===== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
BALANCE SHEET DATA:
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------- ------------------
1994 1993 1992 1991 1990 1995
---- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital (Deficit)..... $(68) $(129) $165 $(92) $(52) $(159)
Total Assets.................. 141 138 260 53 34 137
Long-term debt and
capital lease obligations,
less current portions......... -- -- -- -- -- --
Stockholders' equity
(deficit)................... 48 (18) 238 (41) (21) (38)
</TABLE>
20
<PAGE> 27
<TABLE>
LUXTEC CORPORATION
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FISCAL YEAR 1994
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
LUXTEC CARDIODYNE ADJUSTMENTS COMBINED(H)
------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net Sales.................................... $8,139 $ 0 $ -- $8,139
Cost of Sales................................ 4,432 0 -- 4,432
------ ----- ------- ------
Gross Profit................................. 3,707 0 -- 3,707
Operating Expenses:
Selling.................................... 1,793 107 -- 1,900
Research and Development................... 437 200 (Note D) 637
General and Administrative................. 1,262 82 -- 1,344
------ ----- ------- ------
Total Operating Expenses..................... 3,492 389 -- 3,881
------ ----- ------- ------
Income (Loss) from Operations................ 215 (389) -- (174)
Other Expenses, Net.......................... (35) 1 -- (34)
Income Taxes................................. (16) -- -- (16)
------ ----- ------- ------
Net Earnings (Loss).......................... $ 164 $ (388) $ -- $ (224)
====== ===== ======= ======
Net Earnings (Loss) Per Share of Common Stock
(Note F)................................... $ .11 $ (.10) $ (.09)
====== ===== ======= ======
Weighted Average Number of Common and Common
Equivalent Shares Outstanding.............. 1,488 3,832 2,488
</TABLE>
See accompanying notes to unaudited pro forma combining condensed financial
information.
21
<PAGE> 28
<TABLE>
LUXTEC CORPORATION
PRO FORMA COMBINING CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 1995
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
LUXTEC CARDIODYNE ADJUSTMENTS COMBINED(H)
------ ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales..................................... $6,031 $ 0 -- $6,031
Cost of Sales................................. 3,133 0 -- 3,133
------ ------ --- ------
Gross Profit.................................. 2,898 0 -- 2,898
Operating Expenses:
Selling..................................... 1,377 59 -- 1,436
Research and Development.................... 496 117 -- 613
General and Administrative.................. 1,024 54 -- 1,078
------ ------ --- ------
Total Operating Expenses...................... 2,897 230 -- 3,127
------ ------ --- ------
Income (Loss) from Operations................. 1 (230) -- (229)
Other Expenses, Net........................... (63) (3) -- (66)
Income Taxes.................................. -- -- -- --
------ ------ --- ------
Net Loss...................................... $ (62) $ (233) $ -- $ (295)
====== ====== === ======
Net Loss Per Share of Common Stock (Note F)... $ (.04) $ (.06) $ (.12)
====== ====== === ======
Weighted Average Number of Common and Common
Equivalent Shares Outstanding............... 1,494 4,090 2,494
</TABLE>
See accompanying notes to unaudited pro forma combining condensed financial
information.
22
<PAGE> 29
<TABLE>
LUXTEC CORPORATION
PRO FORMA COMBINING CONDENSED BALANCE SHEET
AS OF JULY 31, 1995
(UNAUDITED AND IN THOUSANDS)
<CAPTION>
HISTORICAL
-------------------------------
LUXTEC CARDIODYNE PRO FORMA
JULY 31, 1995 JUNE 30, 1995 ADJUSTMENTS COMBINED
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................... $ 21 $ 16 $ -- $ 37
Accounts receivable, net............... 1,658 -- -- 1,658
Inventories............................ 1,966 -- -- 1,966
Prepaid expenses....................... 318 -- -- 318
------- ----- ------- -------
TOTAL CURRENT ASSETS..................... 3,963 16 -- 3,979
PLANT AND EQUIPMENT, AT COST............. 1,868 6 -- 1,874
ACCUMULATED DEPRECIATION AND
AMORTIZATION........................... (1,394) (5) -- (1,399)
------- ----- ------- -------
PLANT AND EQUIPMENT -- NET............... 474 1 -- 475
OTHER ASSETS, NET........................ 289 120 -- 409
------- ----- ------- -------
TOTAL ASSETS............................. $ 4,726 $ 137 $ -- $ 4,863
======= ===== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Demand note payable.................... $ 1,185 $ -- $ 400(E) $ 1,585
Convertible notes payable due to
stockholders........................ -- -- -- --
Accounts payable....................... 1,255 1 -- 1,256
Deferred revenue....................... -- 125 125
Accrued expenses....................... 148 49 -- 197
------- ----- ------- -------
TOTAL CURRENT LIABILITIES................ 2,588 175 $ 400 3,163
STOCKHOLDERS' EQUITY:
Common stock -- $.01 par value......... 14 41 (31)(A) 24
Additional paid-in capital............. 3,027 879 4,491(B) 8,397
Accumulated deficit.................... (903) (958) (4,860)(C) (6,721)
------- ----- ------- -------
TOTAL STOCKHOLDERS' EQUITY............. 2,138 (38) (400) 1,700
------- ----- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $ 4,726 $ 137 $ -- $ 4,863
======= ===== ======= =======
<FN>
---------------
(A) Elimination of CardioDyne Common Stock ($41) and issuance of Luxtec Common
Stock (1,000,000 shares @ $.01 per share = $10).
</TABLE>
<TABLE>
<S> <C> <C>
(B) Value of Luxtec Stock issued $5,380
Elimination of CardioDyne Additional
paid in capital (879)
Luxtec Par Value of issued shares (10)
------
Total Adjustment $4,491
</TABLE>
23
<PAGE> 30
(C) Elimination of CardioDyne deficit together with charge to operations for
research and development acquired.
(D) The premium of purchase price over the book value of the net assets
acquired has been allocated to acquired research and development in process
and will be charged to operations upon consummation of the Merger. The
premium, which is dependent on the value of Luxtec's price per share of
common stock, has been calculated at approximately $5.7 million.
(E) Professional costs and fees related to the Merger.
(F) All shares issuable by Luxtec upon consummation of the Merger have been
included as outstanding shares in the calculation of Earnings Per Share,
including all shares to be escrowed as the shares are to be released solely
as a result of the passage of time.
(G) Immediately prior to the Merger, CardioDyne will issue, in a cashless
transaction, an aggregate of 74,375 shares of CardioDyne Common Stock in
exchange for all outstanding CardioDyne stock options. Such issuance will
have no effect on the pro forma balance sheet presented.
(H) The fiscal year 1994 Pro Forma Statement of Operations reflects the
combination of the results of operations of Luxtec for the year ended
October 31, 1994 and of CardioDyne for the year ended December 31, 1994.
The Pro Forma Statement of Operations for the nine months ended July 31,
1995 reflects the combination of the results of operations of Luxtec for
the nine months ended July 31, 1995 and of CardioDyne for the nine months
ended June 30, 1995.
24
<PAGE> 31
<TABLE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Luxtec
and CardioDyne and combined per share data on an unaudited pro forma basis,
after giving effect to the Merger as a purchase, assuming that 1,000,000 shares
of Luxtec Common Stock are issued in the Merger in exchange for all outstanding
shares of CardioDyne Common Stock. The unaudited pro forma combining financial
data are not necessarily indicative of the operating results that would have
been achieved had the Merger been in effect at the beginning of the periods
presented and should not be construed as representative of future operations.
This data should be read in conjunction with the summary and selected financial
data, the pro forma combining condensed financial statements and the separate
historical financial statements of Luxtec and CardioDyne and the notes thereto
incorporated by reference or included elsewhere in this document.
<CAPTION>
FISCAL YEAR FIRST NINE MONTHS
1994 FISCAL YEAR 1995
----------- -----------------
<S> <C> <C>
HISTORICAL -- LUXTEC
Net Income (Loss)................................................ $ .11 $(.04)
Cash Dividends................................................... -- --
Book Value(1).................................................... $ 1.52 $1.49
HISTORICAL -- CARDIODYNE
Net Loss......................................................... $ (.10) $(.06)
Cash Dividends................................................... -- --
Book Value(1).................................................... $ .01 $ .01
PRO FORMA COMBINED
Net Loss(2)...................................................... $ (.09) $(.12)
Cash Dividends................................................... -- --
Book Value(2).................................................... $ .73 $ .73
EQUIVALENT PRO FORMA COMBINED -- PER CARDIODYNE SHARE
Net Loss(3)...................................................... $ (.04) $(.03)
Cash Dividends................................................... -- --
Book Value(3).................................................... $ .17 $ .17
<FN>
---------------
(1) Historical book value per share is computed by dividing total stockholders'
equity (deficit) by the number of shares of Luxtec Common Stock or the
number of shares of CardioDyne Common Stock outstanding at the end of the
period.
(2) Pro forma combined net income (loss) per share is computed by dividing pro
forma net income (loss) by the weighted average number of shares of Luxtec
Common Stock after giving effect to the issuance of 1,000,000 shares of
Luxtec Common Stock in the Merger. Pro forma combined book value per share
is computed by dividing pro forma combined stockholders' equity (deficit)
by the number of shares of Luxtec Common Stock after giving effect to the
issuance of 1,000,000 shares of Luxtec Common Stock in the Merger.
(3) Equivalent pro forma combined net income (loss) and book value per share are
computed by multiplying the pro forma combined net income (loss) per share
and book value per share by an assumed Conversion Ratio equal to .23283.
</TABLE>
25
<PAGE> 32
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION REGARDING LUXTEC, CARDIODYNE AND THE
MERGER CONTAINED IN THIS PROXY STATEMENT/PPM, THE FOLLOWING FACTORS SHOULD BE
CONSIDERED CAREFULLY BY THE HOLDERS OF LUXTEC COMMON STOCK AND CARDIODYNE COMMON
STOCK BEFORE VOTING ON THE MERGER.
UNCERTAINTY OF ANTICIPATED BENEFITS, EFFECTS AND CONDITIONS OF THE
MERGER. There can be no assurance that the combined companies will realize the
anticipated benefits of the Merger. The Luxtec Stockholders and CardioDyne
Stockholders will own a substantially lesser percentage of the combined
companies than they owned of Luxtec and CardioDyne, respectively. Because
CardioDyne's operations will represent only a portion of Luxtec's operations,
the CardioDyne Stockholders' investment will depend in large part upon the
success of Luxtec's operations other than CardioDyne. The Merger is subject to
certain significant conditions, including CardioDyne and Luxtec Stockholder
approval and the absence of any material adverse change in operations of
CardioDyne or Luxtec. Because of the inherent uncertainties associated with
merging two companies, there can be no assurance that the combined companies
will be able to realize the benefits Luxtec currently expects to realize as a
result of the Merger or that such benefits will be realized at the times
currently anticipated. Furthermore, there can be no assurance that any benefits
which are realized will not be offset by increases in expenses or operating
losses, including losses due to integrating the two companies. See "THE
MERGER -- Operations After the Merger" and "THE MERGER AGREEMENT -- Effects of
the Merger."
OPERATING AND BUSINESS RISKS. The combination of CardioDyne and Luxtec has
several potential operating and business risks. Among others, these risks
include (1) possible difficulties that may be encountered in, and the
distribution of management and other resources with respect to, the integration
of CardioDyne and Luxtec management and the potential loss of efficiency or loss
of employees, (2) possible difficulties that may be encountered in the continued
development of the CardioDyne products, including but not limited to the areas
of design and engineering, government approvals and capital investment and
financing, (3) inability to anticipate or control selling, general and
administrative expenses, and (4) the ability to integrate and retain key
CardioDyne personnel. There can be no assurances that Luxtec will be successful
in integrating Luxtec's and CardioDyne's operations and management, or that
enhanced revenues, marketing and research capabilities or other synergies will
be realized.
DIFFERENCES IN THE RIGHTS OF CARDIODYNE STOCKHOLDERS COMPARED TO LUXTEC
STOCKHOLDERS. Following the Merger, CardioDyne Stockholders as of the Effective
Time will become holders of Luxtec Common Stock. Certain differences exist
between the rights of CardioDyne Stockholders under the CardioDyne Charter, the
CardioDyne Bylaws and Delaware law and the rights of stockholders of Luxtec
under the Luxtec Charter, the Luxtec Bylaws and Massachusetts law. See
"COMPARISON OF RIGHTS OF HOLDERS OF LUXTEC COMMON STOCK AND CARDIODYNE COMMON
STOCK."
SIGNIFICANT OPERATING LOSSES AND DEFICITS AND ABSENCE OF REVENUES BY
CARDIODYNE. CardioDyne was incorporated in February 1989 and is still in the
development stage. Since its inception, CardioDyne has experienced significant
operating losses resulting primarily from the research and development expenses
incurred in the design and development of its initial products. To date,
CardioDyne has not recognized any revenues from product sales and does not
expect to recognize substantial product revenues until it commences
manufacturing operations and commercial sales. CardioDyne incurred operating
losses of $85,000, $256,000, $389,000, $243,000 and $165,000, respectively, in
the fiscal years ended December 31, 1992, 1993, 1994 and the quarters ended June
30, 1994 and 1995. As of June 30, 1995, CardioDyne had an accumulated deficit of
$959,000 and a stockholders' deficit of $38,000. See "SELECTED HISTORICAL AND
PROFORMA COMBINING FINANCIAL DATA" and CardioDyne's financial statements
included elsewhere herein.
LOSS HISTORY; NEED FOR ADDITIONAL FUNDS. CardioDyne has not been
profitable since inception and expects to continue to incur operating losses for
at least the next several years. No assurance can be given that CardioDyne can
become profitable or that Luxtec can maintain profitability. Luxtec and
CardioDyne expect to have quarter-to-quarter fluctuations in revenue, expenses
and losses, some or all of which could be significant.
26
<PAGE> 33
The development of any products by Luxtec and CardioDyne requires the
commitment of substantial resources to conduct the costly and time-consuming
research, development and product trials necessary to bring such products to
market and to establish production and marketing capabilities. Luxtec will need
to raise substantial additional funds for these purposes, specifically in
connection with the further research and development of the CardioDyne products.
Luxtec intends to seek such additional funding through public or private
financings, including debt or equity financings, and through collaborative
arrangement. Adequate funds for these purposes, whether through financial
markets or collaborative or other arrangements with corporate partners or from
other sources, may not be available when needed or on terms acceptable to
Luxtec. To the extent that additional capital is raised through the sale of
convertible debt or equity securities, the issuance of such securities could
result in dilution to Luxtec's stockholders. Insufficient funds may require
Luxtec to delay, scale back or eliminate some or all of its research and product
development programs or to license third parties to commercialize products or
technologies that Luxtec would otherwise seek to develop itself. Luxtec
anticipates that its existing capital resources and anticipated revenues from
sales of its current products (not including CardioDyne products), will enable
Luxtec to maintain its current and planned operations. There can be no
assurances that Luxtec can achieve or maintain any such anticipated revenues.
Luxtec's and CardioDyne's future cash requirements will be affected by the
results of research and development, product acquisitions, results of product
testing, relationships with corporate collaborators, changes in the focus and
direction of Luxtec's and CardioDyne's research and development programs,
competitive and technological advances, the United States Food and Drug
Administration ("FDA") regulatory process, product sales and other factors.
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT OR ACQUISITION. There can
be no assurance that Luxtec's or CardioDyne's research will lead to the
development of any new products, nor can there be any assurance that Luxtec or
CardioDyne will be successful in acquiring rights to new products or in
developing or marketing products licensed or acquired from others. Research and
development activities, by their nature, preclude definitive statements as to
the time required and costs involved in reaching certain objectives. Actual
research and development costs, therefore, could exceed budgeted amounts and
estimated time frames may require extension. Cost overruns due to unanticipated
regulatory delays or demands, inefficient or ineffective product designs, or
insufficient product performance will prevent or substantially slow the
development effort and, ultimately, could have a material adverse effect on
Luxtec or CardioDyne. Any products or potential products which may be discovered
or acquired by Luxtec or CardioDyne may require significant research,
development, product testing, regulatory approval and commitments of resources
prior or subsequent to commercialization. There can be no assurance that any
such products or potential products, including products currently licensed or
under development, will be successfully developed, prove to be effective in
product trials, meet applicable regulatory standards, be capable of being
produced in commercial quantities at acceptable costs or be successfully
marketed.
RISKS ASSOCIATED WITH REGULATORY APPROVALS. CardioDyne's products are and
will be subject to regulation for safety, efficacy and quality by numerous
governmental authorities in the United States and other countries. CardioDyne's
current and planned products are Class II devices requiring premarket approval
by the FDA before being sold. CardioDyne will also be required to comply with
FDA "good manufacturing practices" and other regulatory requirements, both in
the U.S. and in the foreign countries in which CardioDyne plans to sell its
products. Although CardioDyne has received FDA approval to market the Kinetorr
and Kinetorr PC monitors, there can be no assurance that CardioDyne will be able
to obtain all necessary regulatory approvals and comply with all applicable
regulatory requirements for the manufacture and sale of its products. Any delay
or inability to obtain all necessary regulatory approvals and to comply with all
applicable regulatory requirements for the manufacture and sale of its products
could have a material adverse effect on CardioDyne and/or Luxtec. See "BUSINESS
AND FINANCIAL INFORMATION REGARDING CARDIODYNE -- Government Regulation."
The operations of Luxtec and CardioDyne are subject to extensive state and
federal regulations. Such regulations are subject to change, and the impact on
Luxtec's and CardioDyne's business of future changes cannot be determined. The
effect of government regulation may be to delay marketing of any new products
for a considerable or indefinite period of time, to impose costly procedures
upon Luxtec's or CardioDyne's
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activities and to diminish any competitive advantage that Luxtec or CardioDyne
may attain. There can be no assurance that FDA or other regulatory approval for
any products developed by Luxtec will be granted on a timely basis, if at all.
Any delay in obtaining or failure to obtain, such approvals would adversely
affect Luxtec's ability to generate product revenue. The impact on Luxtec and
CardioDyne of potentially adverse government regulation which might arise from
future legislation or administrative action cannot be accurately predicted.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY TECHNOLOGY. Luxtec's and
CardioDyne's success will depend, in part, on its ability to obtain patents,
protect trade secrets and other proprietary information and operate without
infringing on the proprietary rights of others. A number of patents having
claims which may be competitive with products or processes being developed by
Luxtec and CardioDyne have been issued to other companies and institutions. In
addition, competitors have filed applications, may have been issued patents or
may obtain additional patents and proprietary rights relating to products or
processes competitive with those being developed by Luxtec or CardioDyne or
which have been licensed by Luxtec or CardioDyne. There can be no assurance that
Luxtec's or CardioDyne's patent applications will be approved, that Luxtec or
CardioDyne will develop products that are patentable, that any issued patents
will provide Luxtec or CardioDyne with adequate protection for its inventions or
will not be challenged by others, or that the patents of others will not impair
the ability of Luxtec or CardioDyne to do business. Furthermore, there can be no
assurance that others will not independently develop similar products, duplicate
any of Luxtec's or CardioDyne's unpatented products or design around any
patented products developed or marketed by Luxtec or CardioDyne.
Luxtec and CardioDyne rely on secrecy to protect technology where patent
protection is not believed to be appropriate or obtainable. Luxtec has entered
into confidentiality agreements with certain key employees and licensors and
certain of their collaborators and consultants. No assurance can be given that
others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to Luxtec's or CardioDyne's
trade secrets and other proprietary information, that such obligations of
confidentiality will be honored or that Luxtec or CardioDyne can effectively
protect its rights to its unpatented trade secrets and other proprietary
information.
Luxtec and CardioDyne may be required to obtain licenses to patents or
other proprietary rights of others. No assurance can be given that any licenses
required under any such patents or proprietary rights would be made available on
terms acceptable to Luxtec or CardioDyne, if at all. If Luxtec or CardioDyne
does not obtain such licenses, it could encounter delays in product market
introductions or could find that the development, manufacture or sale of
products requiring such licenses could be foreclosed. Moreover, Luxtec or
CardioDyne could incur substantial costs and diversion of management time in
defending itself in any suits brought against Luxtec or CardioDyne claiming
infringement of the patent rights of others or in asserting Luxtec's or
CardioDyne's patent rights, including those granted by licensors, in a suit
against another party. If competitors of Luxtec or CardioDyne prepare and file
patent applications in the United States that claim technology also claimed by
Luxtec or CardioDyne, Luxtec or CardioDyne may have to participate in
interference proceedings to determine priority of invention, which could result
in substantial cost to Luxtec or CardioDyne, even if the eventual outcome is
favorable to Luxtec or CardioDyne.
RISKS ASSOCIATED WITH DEPENDENCE ON AND PERFORMANCE BY OTHERS. Luxtec's
and CardioDyne's strategy for the research, development and commercialization of
certain of its products entails entering into various arrangements with
corporate partners, licensors, licensees and others, and is dependent upon the
subsequent success of these outside parties in performing their
responsibilities. The amount and timing of resources to be devoted to these
activities by such outside parties may not be within the control of Luxtec or
CardioDyne. There can be no assurances that such parties will perform their
obligations as expected or that any revenue will be derived from such
arrangements.
DEPENDENCE ON KEY PERSONNEL. The development of Luxtec's and CardioDyne's
business, products and operations will be dependent upon the efforts and talents
of its executive officers and other key employees. In particular, CardioDyne is
dependent upon the services of Messrs. Epstein and Phillipps and Luxtec is
dependent upon the services of Messrs. Hobbs and Stein. Following the Merger,
Luxtec and CardioDyne will
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be dependent upon the services of all of the foregoing. Loss of the services of
one or more of these individuals or the inability to retain or recruit personnel
could adversely affect Luxtec's and/or CardioDyne's operations. Although
management and key employees of Luxtec and CardioDyne believe that their
companies and employees will combine efficiently, there can be no assurance that
this will occur in every case or as applied to every key employee of Luxtec
and/or CardioDyne after the Merger.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT. Sales of CardioDyne's products
will continue to be dependent, in part, on the availability and levels of
reimbursement from third-party payers, such as government and private insurance
plans. There can be no assurance that such reimbursement will be available at
acceptable levels, if at all.
SUBSTANTIAL COMPETITION. Many companies, including large corporate
entities, are engaged in developing medical and diagnostic products. Many of
these companies have substantially greater capital, research and development,
manufacturing and marketing resources and experience than Luxtec and CardioDyne,
and represent significant competition for Luxtec and CardioDyne. Such companies
may succeed in developing technologies and products that are more effective or
less costly than any that may be developed by Luxtec and/or CardioDyne, and may
also prove to be more successful than Luxtec and/or CardioDyne in production and
marketing.
PRODUCT LIABILITY EXPOSURE; LIMITED INSURANCE COVERAGE. Luxtec's and
CardioDyne's businesses expose them to potential product liability risks which
are inherent in the testing, manufacturing, marketing and sale of medical and
diagnostic products. If available, product liability insurance for companies in
the medical products industry is generally expensive. CardioDyne currently has
no liability insurance coverage, which it deems appropriate for its current
stage of development and operations. There can be no assurance, however, that
Luxtec's present insurance coverage is adequate and Luxtec's management believes
that as a result of the Merger, Luxtec will have to modify its present insurance
coverage to a more expensive coverage. Such existing and/or modified coverage
may not be adequate as Luxtec and CardioDyne further develop products, and no
assurance can be given that in the future adequate insurance coverage will be
available in sufficient amounts or at a reasonable cost, or that a product
liability claim would not have a material adverse effect on the business or
financial condition of Luxtec and/or CardioDyne.
VOLATILITY OF STOCK PRICE; STOCK ESCROW. CardioDyne Stockholders should be
aware that the market price for the Luxtec Common Stock may be volatile. Factors
such as announcements of technological innovations or new products by Luxtec or
its competitors, government regulatory action, patent or proprietary rights
developments, including litigation, and market conditions for medical stocks in
general as well as period-to-period fluctuations in operating results, could
have a significant impact on the future price of the Luxtec Common Stock. The
CardioDyne Stockholders bear the risk of any significant downturn in the actual
market performance of Luxtec Common Stock following the closing of the Merger
for a substantial period of time because of the illiquidity of the shares or
rights to shares of Luxtec Common Stock which they will receive upon
consummation of the Merger. See "THE MERGER AGREEMENT -- Registration Rights."
In addition, fifteen percent (15%) of the shares of Luxtec Common Stock to
be received by each CardioDyne Stockholder will be placed in escrow in
connection with the obligations of the CardioDyne Stockholders to compensate
Luxtec for damages suffered as the result of breaches of CardioDyne's
representations and warranties in the Merger Agreement and to the extent such
escrowed shares are used to satisfy these obligations, then each CardioDyne
Stockholder may never receive any of these escrowed shares. Further, the
CardioDyne Stockholders will be obligated to pay the Representatives for any
losses, liabilities or expenses he may incur in connection with fulfilling their
duty as the Representatives. See "THE MERGER AGREEMENT -- Indemnification and
Escrow" and "CERTAIN OTHER AGREEMENTS -- Escrow Agreement."
EXPENSES OF TRANSACTIONS. The consummation of the Merger will result in
increased expenses in the short term, both from the transaction itself and from
the actual merging of CardioDyne with and into Acquirer.
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NO DIVIDENDS. Neither Luxtec nor CardioDyne has ever paid cash dividends
on its Common Stock and each of Luxtec and CardioDyne currently intends to
retain all available funds for use in the operation and expansion of its
business. Luxtec and CardioDyne, therefore, do not anticipate that any cash
dividends will be declared or paid in the foreseeable future.
RISKS OF INSUFFICIENT OR UNPROFITABLE MARKET ACCEPTANCE OF CARDIODYNE'S
PRODUCTS. There can be no assurance that potential customers for CardioDyne's
products, hospitals, health-maintenance organizations and medical professionals,
will view CardioDyne's blood pressure monitors as an economically and
functionally acceptable means of meeting their needs for non-invasive,
motion-tolerant monitoring devices, which could result in CardioDyne
experiencing difficulty in marketing its monitors. Moreover, there can be no
assurances that the economic terms under which such customers may be willing to
use CardioDyne's monitors will be profitable for CardioDyne.
LUXTEC CORPORATION
Luxtec is a Massachusetts-based manufacturer of fiber optic and
vision-related surgical and medical instruments and a market leader in this
field. More than 30,000 surgeons across more than 20 medical specialties use
Luxtec products in their operating rooms. The breadth of Luxtec's product line
now includes a full range of halogen and xenon light sources, fiber optic
cables, specialty endoscopes, video systems, headlights, surgical telescopes,
and illuminated instruments. Luxtec was incorporated in Massachusetts in 1981,
became a public company in 1986 and has its principal offices in Worcester,
Massachusetts. Luxtec CD Acquisition Co. Inc. is a wholly-owned subsidiary of
Luxtec formed for the purpose of acquiring CardioDyne in connection with the
Merger Agreement.
THE LUXTEC MEETING
This Proxy Statement/PPM is being provided to the stockholders of Luxtec in
connection with the Luxtec Meeting. The Luxtec Board is soliciting proxies for
use at the Luxtec Meeting. The form of proxy is being provided to the holders of
Luxtec Common Stock.
The Luxtec Meeting is scheduled to be held on October 20, 1995 at 11:00
a.m. at the offices of Bingham, Dana & Gould, 150 Federal Street, Boston,
Massachusetts. At the Luxtec Meeting, Luxtec Stockholders will consider and vote
upon proposals to (1) approve an amendment of the Luxtec Charter to increase the
number of shares authorized for issuance by the Company, (2) approve the
issuance of up to one million (1,000,000) shares of Luxtec Common Stock in
connection with the Merger Agreement, (3) elect two Class II directors of the
Company each to hold a three-year term, (4) ratify the amendment of the
Company's 1992 Stock Option Plan to increase the number of shares authorized for
issuance under the Plan and to limit the number of options that may be granted
to any one individual under the Plan in any fiscal year, (5) approve the
Company's 1995 Stock Option Plan For Non-Employee Directors, (6) approve an
amendment of the Luxtec Charter with respect to the limitation of liability and
indemnification of directors and officers of the Company, and (7) ratify the
appointment of Arthur Andersen LLP as independent public accountants of the
Company. The approval of the amendment of the Luxtec Charter and the issuance of
shares of Luxtec Common Stock in connection with the Merger Agreement by the
requisite votes of the holders of Luxtec Common Stock will allow the Company to
consummate the Merger and each of the transactions contemplated by the Merger
Agreement. See "THE MERGER" and "THE MERGER AGREEMENT."
THE LUXTEC BOARD HAS UNANIMOUSLY APPROVED AND/OR CONSENTED TO THE FOREGOING
PROPOSALS AS BEING FAIR AND IN THE BEST INTERESTS OF LUXTEC AND THE LUXTEC
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE LUXTEC STOCKHOLDERS VOTE "FOR"
EACH OF THE FOREGOING PROPOSALS.
LUXTEC RECORD DATE AND VOTING RIGHTS. Only the Luxtec Stockholders of
record at the close of business on September 5, 1995, the Luxtec Record Date,
will be entitled to notice of and to vote at the Luxtec Meeting. Each share of
Luxtec Common Stock will entitle the holder thereof to one vote.
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LUXTEC STOCKHOLDER VOTE REQUIRED. Under the Luxtec Charter, its By-Laws,
and applicable Massachusetts law and AMEX rules and regulations, the proposal to
amend the Luxtec Charter to increase the number of shares authorized for
issuance by the Company and to approve the issuance of the shares of Luxtec
Common Stock in connection with the Merger Agreement must be approved by the
affirmative vote of the holders of at least a majority of the shares of Luxtec
Common Stock outstanding and entitled to vote thereon. As of the Luxtec Record
Date, there were issued and outstanding 1,438,661 shares of Luxtec Common Stock.
Accordingly, approval of the Amendment requires the affirmative vote of at least
719,331 shares of Luxtec Common Stock.
LUXTEC PROXIES. In connection with the Luxtec Meeting, any proxy may be
revoked at any time before it is voted by written notice received by the Clerk
of Luxtec or by attending the Luxtec Meeting and voting in person, but if not so
revoked, the shares represented by such proxy will be voted. Attendance at the
Luxtec Meeting will not by itself constitute revocation of a proxy unless the
stockholder so attending notifies the Clerk of Luxtec in writing at any time
prior to the voting of the proxy. All proxies will be voted in accordance with
the instructions contained therein. If no choice is specified for one or more
proposals in a proxy submitted by or on behalf of a stockholder, the shares
represented by such proxy will be voted in favor of such proposals and in the
discretion of the named proxies with respect to any other proposals which may
properly come before the Luxtec Meeting. Broker non-votes (i.e., shares held by
brokers or nominees as to which (i) instructions have not been received from the
beneficial owners or the persons entitled to vote and (ii) the broker or nominee
does not have discretionary voting power on a particular matter) and proxies
that withhold authority to vote for election as a director or that reflect
abstentions will be deemed present for the purpose of determining the presence
of a quorum for the transaction of business. A broker non-vote will have no
effect on the outcome of voting on such proposal. An abstention with respect to
a proposal will have the effect of a vote against such proposals. Any filing
should be made to the attention of Justin P. Morreale, Clerk.
A representative of Arthur Andersen LLP is expected to be present at the
Luxtec Meeting. This representative is expected to be available to respond to
appropriate questions.
CARDIODYNE, INC.
CardioDyne is a Massachusetts-based company engaged in the design and
development of proprietary, motion tolerant, non-invasive blood pressure ("BP")
monitors for use on moving and exercising patients. The products are designed
for use in the categories of exercise stress testing, emergency transport,
obstetrics, and other applications where frequent, accurate blood pressure data
is vital, yet where existing blood pressure monitors typically fail to work
because of patient motion. CardioDyne's two existing products, currently named
the Kinetorr and the Kinetorr PC, have been approved for sale in the United
States by the Food and Drug Administration (the "FDA"). CardioDyne is a
development stage company and to date has not generated any revenues from
operations. CardioDyne was incorporated in February 1989 in Delaware and has its
principal offices in Brookline, Massachusetts.
THE CARDIODYNE MEETING
This Proxy Statement/PPM is being provided to the stockholders of
CardioDyne in connection with the CardioDyne Meeting. The CardioDyne Board is
soliciting proxies for use at the CardioDyne Meeting. The form of proxy is being
provided to the holders of CardioDyne Common Stock.
The CardioDyne Meeting is scheduled to be held on October 20, 1995 at 4:00
p.m. at the offices of Hale and Dorr, 60 State Street, Boston, Massachusetts. At
the CardioDyne Meeting, CardioDyne Stockholders will consider and vote upon a
proposal to approve and adopt the Merger Agreement. The approval of the Merger
Agreement by the requisite votes of the holders of CardioDyne Common Stock will
constitute approval of each of the transactions contemplated by the Merger
Agreement. See "THE MERGER" and "THE MERGER AGREEMENT."
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THE CARDIODYNE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AS BEING
FAIR AND IN THE BEST INTERESTS OF CARDIODYNE AND THE CARDIODYNE STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT THE CARDIODYNE STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE MERGER AGREEMENT.
CARDIODYNE RECORD DATE AND VOTING RIGHTS. Only the CardioDyne Stockholders
of record at the close of business on September 5, 1995, the CardioDyne Record
Date, will be entitled to notice of and to vote at the CardioDyne Meeting. Each
share of CardioDyne Common Stock will entitle the holder thereof to one vote.
CARDIODYNE STOCKHOLDER VOTE REQUIRED. Under the CardioDyne Charter, its
By-Laws and applicable Delaware law, the proposal to approve and adopt the
Merger Agreement must be approved by the affirmative vote of the holders of at
least a majority of the shares of CardioDyne Common Stock outstanding and
entitled to vote thereon. As of the CardioDyne Record Date, there were issued
and outstanding 4,220,670 shares of CardioDyne Common Stock. Accordingly,
approval of the Merger Agreement requires the affirmative vote of at least
2,110,336 shares of CardioDyne Common Stock.
CARDIODYNE PROXIES. In connection with the CardioDyne Meeting, any proxy
may be revoked at any time before it is voted by written notice received by the
Secretary of CardioDyne or by attending the CardioDyne Meeting and voting in
person, but if not so revoked, the shares represented by such proxy will be
voted. Attendance at the CardioDyne Meeting will not by itself constitute
revocation of a proxy unless the stockholder so attending notifies the Secretary
of CardioDyne in writing at any time prior to the voting of the proxy. All
proxies will be voted in accordance with the instructions contained therein. If
no choice is specified for one or more proposals in a proxy submitted by or on
behalf of a stockholder, the shares represented by such proxy will be voted in
favor of such proposals and in the discretion of the named proxies with respect
to any other proposals which may properly come before the CardioDyne Meeting.
Any filing should be made to the attention of David A. Westenberg, Secretary.
THE MERGER
BACKGROUND OF THE MERGER
In the past few years, the Company's strategy has been to focus on the
development and expansion of the market for its various products for surgery.
While the Company will continue to seek to develop and expand the markets for
existing products, the Company began to search for ways to increase its line of
products as a means of expanding the Company.
After a selection process that involved interviews with over twenty (20)
firms, The Avatar Group ("Avatar") was retained by the Company in order to
assist the Company with its plans for expansion in June 1994. Avatar has been
providing investment banking and financial advising services since 1984 and is
licensed as a broker-dealer by the Commission and the National Association of
Securities Dealers ("NASD"). Before retaining Avatar in June of 1994, the
Company had no prior dealings with Avatar. In discussion with Avatar, the
Company determined that one method for expanding its product line was to acquire
companies that manufacture related or complementary products in order to expand
the overall scope of the Company. The criteria applied by the Company in
evaluating each potential acquisition required that the acquisition provide the
Company with access to proprietary products or late stage technologies targeted
to a select market niche, that such products or late stage technologies result
in attractive cost savings for the intended customers, and that such products or
late stage technologies have a high revenue growth potential.
The Company, both through its own efforts and those of Avatar, considered
acquisition opportunities with various companies. This process led to serious
discussions with four candidates other than CardioDyne. The Company did not
pursue acquisitions with these candidates because its due diligence
investigation of these candidates revealed problems with their products, markets
or financial stability that made them less attractive candidates than
CardioDyne.
In September 1994, Avatar contacted CardioDyne to inquire about its
interest in a possible acquisition transaction. A consulting physician to the
Company met with CardioDyne management and recommended that management of the
Company meet with CardioDyne. Representatives of the Company and CardioDyne
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discussed various matters at an initial meeting on October 17, 1994. These
discussions were general in nature and did not result in any offers or proposals
being made, at that time. The Company's management perceived that, in addition
to satisfying its general criteria for potential acquisition candidates, an
acquisition of CardioDyne would enable the Company to (i) expand the Company's
core technology base, (ii) expand the Company's participation into additional
niche markets, (iii) acquire new products with high growth potential, (iv)
enhance the Company's management team through the addition of qualified
CardioDyne personnel, (v) acquire additional proprietary technology that
addresses a significant need in the marketplace and (vi) enhance shareholder
value by combining the companies. A Confidentiality Agreement was executed by
the Company and CardioDyne on October 28, 1994. Prior to these discussions,
there had been no relationship between Luxtec and CardioDyne or between their
respective officers and directors.
During November and December discussions about the possibility of a
transaction were held between Luxtec and CardioDyne management at various times
both at the Luxtec location and at the CardioDyne location. These discussions
primarily revolved around the CardioDyne products and markets and the potential
marketing synergies between the companies. James Hobbs, the Chief Executive
Officer of the Company, Samuel Stein, the Chief Financial Officer of the
Company, and David Mutch, Vice President of Sales & Marketing of the Company,
participated in these meetings on behalf of Luxtec, as well as in the meetings
referred to below held in January, February, April, May and June. The members of
CardioDyne's management that participated in such meetings were: Patrick
Phillipps, President and Chief Executive Officer, Paul Epstein, Chairman and
Chief Financial Officer, and Alan Greene, Director of Sales. Michael Wax, the
President of Avatar, and Peter Lewis, the Vice President of Avatar, also
participated in such meetings on behalf of Avatar, acting in its capacity as
financial advisor to the Company.
A due diligence process was initiated by the Company on January 11, 1995.
During the month of January, 1995, in addition to continuing discussions on
products and markets, there were discussions concerning various potential
structures for effecting a possible business combination between the companies,
as well as discussions concerning the relative values of both companies. The
discussions about possible acquisition structures led the companies to conclude
that a stock for stock deal would be the most sensible approach. After careful
consideration, Luxtec submitted to CardioDyne, for discussion and negotiation, a
proposal to acquire all of the outstanding shares of CardioDyne Common Stock in
exchange for 1,000,000 shares of Luxtec Common Stock and a 5% royalty on a
product line yet to be developed by CardioDyne (the continuous non-invasive
blood pressure monitor), subject to the completion of due diligence and a
definitive merger agreement. The most important factor considered by the
Company's management in determining the consideration that would be payable to
the CardioDyne Stockholders was its analysis of projected cash flows for the
combined companies and the proportion of such cash flows that it forecasted
would be generated from sales of existing CardioDyne products. The analysis
suggested that CardioDyne should be valued at approximately 40% of the value of
the combined companies based solely on the cash flow for is existing products
and without taking into account any cash flows from products of CardioDyne that
were currently under development. Based on this analysis and on the number of
outstanding shares of Luxtec Common Stock, the Company's management determined
that the proposal should provide for the issuance of 1,000,000 shares of Luxtec
Common Stock so as to give the CardioDyne Stockholders 40% of the issued and
outstanding capital stock of the Company immediately following the Merger. The
Company's management also determined, after negotiations with CardioDyne's
management, that the development of the continuous non-invasive blood pressure
monitor was sufficiently uncertain that no consideration should be paid merely
for the possibility that such development would be successfully completed, but
that it would be appropriate, given the amount of research and development
invested by CardioDyne, to provide for compensation in the form of a royalty
payment in the event that development was successfully completed.
During late January and early February, 1995, members of CardioDyne
management visited Luxtec to discuss the proposal. During those meetings, the
marketing characteristics and markets to be served were discussed in detail.
Also, clinical evaluations were begun and considerable due diligence
documentation was provided. The proposal was agreed to in concept, subject to
the completion of due diligence and a definitive merger agreement. During those
meetings the representatives of both companies also identified additional
critical terms that needed to be discussed and negotiated before both companies
could be deemed to have
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reached an agreement in principle. Some of these terms included things such as
(i) the number of shares that would be held in escrow, (ii) the registration
rights to which the CardioDyne Stockholders would be entitled, (iii) the
definition of continuous non-invasive blood pressure monitor for purposes of
triggering the requirement that Luxtec pay to the CardioDyne Stockholders a 5%
royalty for the development thereof and (iv) the circumstances under which there
would be an adjustment in the number of shares of Luxtec Common Stock to be
issued in connection with the Merger.
On February 23, 1995, a meeting of the Board of Directors of Luxtec
Corporation was held at the offices of Bingham. Dana & Gould, 150 Federal
Street, Boston, Massachusetts. All of the directors were present (Mr. Maley,
Chairman of the Board, participated by telephone). Mr. Hobbs, President and CEO
of Luxtec, with assistance from the Avatar Group and Dr. Kaldany, the company's
consulting physician, presented the proposed transaction to the Board. Mr.
Phillipps and Mr. Epstein, of CardioDyne, were introduced to the Board and
described CardioDyne in more detail at the meeting. Mr. Hobbs noted that
significant due diligence remained to be completed and that at that point in
time, there was no agreement with CardioDyne, or even a letter of intent. After
discussion, the Board agreed that Mr. Hobbs should continue to pursue the
CardioDyne acquisition subject to further Board approval of the terms and
conditions of any acquisition agreement that would be negotiated.
During February, the companies' due diligence and clinical evaluations
continued on a successful track. Additionally, at the beginning of March,
Bingham, Dana & Gould developed the first draft of a definitive merger
agreement. During March and April, substantial negotiations between Luxtec and
CardioDyne were carried on through the redrafting of the merger agreement.
A meeting of the Board of Directors of Luxtec Corporation was held at the
offices of Bingham, Dana & Gould on Monday, April 17, 1995. All of the Directors
of the Company were present in person throughout the meeting. Mr. Hobbs and Mr.
Wax of the Avatar Group presented an update of the merger discussions with
CardioDyne. After discussion, the Board agreed that Mr. Hobbs should continue to
pursue the CardioDyne acquisition subject to further Board approval of the terms
and conditions of any acquisition agreement that might be negotiated.
During April, May and June, the definitive Merger Agreement was negotiated
and due diligence was completed. The primary merger terms remained that Luxtec
would issue 1,000,000 shares of common stock in exchange for all outstanding
CardioDyne Common Stock. Additionally, a 5% royalty would be paid to the
shareholders of CardioDyne on a product line yet to be developed (the continuous
non-invasive blood pressure monitor).
Additional negotiated terms included a minimum Luxtec share price
requirement of $3.25 (average of the closing prices of Luxtec Common Stock on
the AMEX during the twenty trading days ending five trading days before the
Closing Date), certain registration rights for CardioDyne Stockholders, and an
indemnification and escrow agreement representing 15% of the Exchange Shares.
The definitive Merger Agreement was completed in June 1995, and presented
to the respective Boards of Directors during June. The CardioDyne Board met on
June 22nd at the offices of Hale and Dorr in Boston. The CardioDyne Board
unanimously approved the definitive Merger Agreement. Based on their review of
the CardioDyne-specific criteria enumerated in the fourth paragraph of this
section, the above-mentioned projected cash flows and the terms of the Merger as
contained in the Merger Agreement, the Luxtec Board unanimously approved the
definitive Merger Agreement by consent on June 28, 1995. A press release was
released on June 28th and an SEC Form 8K was filed on June 29th.
The Avatar Group acted as Luxtec's financial advisor throughout the
transaction and assisted Luxtec's management in preparing the above-mentioned
projected cash flows, the pro forma financial statements included in this Proxy
Statement/PPM and in conducting negotiations with CardioDyne. In connection with
their approval of the Merger Agreement, the Luxtec Board determined that a
fairness opinion would not be necessary based on the CardioDyne-specific
criteria enumerated in the fourth paragraph of this section, the projected cash
flows, the pro forma financial statements and the terms of the Merger as
contained in the Merger Agreement. If the Merger occurs, Luxtec will pay Avatar
a variable percentage fee based on the total
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value of the Merger (5% of the first $1 million; 4% of the next $1 million; 3%
of the next $1 million; 2% of the next $1 million; 1% of the balance). Assuming
a transaction value of $5,380,000 (1,000,000 shares of Luxtec Common Stock at
$5.38 per share), Avatar's fee in connection with the Merger would be
approximately $153,800.
REASONS FOR THE MERGER
As a means of expanding and growing the Company, the Company is looking for
ways of expanding its current product line and to expand into complementary and
related product markets. The Company believes that the acquisition of CardioDyne
can accomplish these goals by allowing the Company to enter what it believes to
be the potentially lucrative market of blood pressure monitoring devices. The
Company believes that the monitoring technology to be acquired in the Merger
should allow the Company to develop and market an intermittent non-invasive
monitoring device within the next fiscal year while allowing the Company to
continue research and development with respect to a continuous non-invasive
monitoring device. While there can be no assurance that the current state of
CardioDyne's monitoring technology will ultimately produce monitoring devices
that can be marketed and sold successfully, the Company believes that
CardioDyne's technology and know-how combined with the resources of the Company
will enhance the possibility of developing such a product.
OPERATIONS AFTER THE MERGER
Upon consummation of the Merger, CardioDyne will be merged into Acquirer,
which, as the Surviving Corporation, will remain a wholly-owned subsidiary of
the Company. Acquirer will change its name to CardioDyne, Inc. and will continue
to operate as a wholly-owned subsidiary of the Company. The Company intends to
devote significant resources to the development and marketing of an intermittent
and a continuous non-invasive blood pressure monitor in conjunction with Patrick
Phillipps and Paul Epstein, co-founders of CardioDyne and co-inventors of its
proprietary monitoring technology, who will join the Company as employees and
Directors.
BOARD OF DIRECTORS. Following the Merger and pursuant to the Merger
Agreement, the Board of Directors of the Company will vote to expand the Board
to seven (7) members by adding a Director to each of Class I (with a term to
expire at the 1997 annual meeting of stockholders) and Class II (with a term to
expire at the 1998 annual meeting of stockholders). Messrs. Patrick Phillipps
and Paul Epstein will be appointed by the Luxtec Board to fill such vacancies,
respectively.
COMPANY MANAGEMENT. Following the Merger, Patrick Phillipps will become
Vice President of Engineering of the Company and Paul Epstein will become Vice
President of Business Development of the Company, each at substantially similar
terms as their current employment with CardioDyne. None of the current officers
of the Company will change as a result of the Merger.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
LUXTEC. The Luxtec Board has unanimously determined that the proposed
Amendment to the Luxtec Charter is in the best interests of the Company and its
stockholders and unanimously recommends that the shareholders vote "FOR" the
proposed Amendment to the Luxtec Charter, and the enclosed proxy will be so
voted unless a contrary vote is indicated.
CARDIODYNE. The CardioDyne Board has unanimously determined that the
Merger, and the transactions contemplated thereby are in the best interests of
CardioDyne and its stockholders and unanimously recommends that the shareholders
vote "FOR" the Merger and the transactions contemplated thereby, and the
enclosed proxy will be so voted unless a contrary vote is indicated.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for by Luxtec under the "purchase" method of
accounting in accordance with generally accepted accounting principles.
Therefore, the aggregate consideration paid by Luxtec in
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connection with the Merger will be allocated to CardioDyne's assets based on
their fair values, and the results of operations of CardioDyne will be included
in the results of operations of Luxtec only for periods subsequent to the
Effective Time of the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the principal Federal income tax
consequences associated with the Merger under the Internal Revenue Code of 1986,
as amended (the "Code"), assuming that the Merger is consummated as contemplated
herein. The discussion is based upon currently existing provisions of the Code,
existing and proposed Treasury regulations thereunder, and current
administrative rulings and court decisions. All of the foregoing are subject to
change and any such change could affect the continuing validity of this
discussion.
Because there is uncertainty concerning the Federal income tax consequences
associated with the Merger and because the following discussion does not
describe all of the potentially relevant tax consequences, each holder of
CardioDyne Common Stock should consult his or her own tax advisor regarding the
tax consequences of the Merger in light of such holder's own situation,
including the application and effect of any state, local or foreign income and
other tax laws. In particular, the discussion set forth below may not be
applicable to special classes of taxpayers including, without limitation,
foreign persons, tax-exempt entities and holders who acquired their CardioDyne
Common Stock pursuant to the exercise of employee stock options or otherwise as
compensation or who hold restricted stock.
IN GENERAL. No rulings have been or will be requested from the Internal
Revenue Service (the "IRS") with respect to any of the matters discussed herein
nor will any opinion of counsel be issued in connection therewith. For federal
income tax purposes, under current law, assuming that the Merger and related
transactions will take place as described in the Merger Agreement, Luxtec and
CardioDyne intend to treat the Merger as a forward triangular tax-free
"reorganization" within the meaning of Section 368(a) of the Code, with Luxtec
and CardioDyne each being a party to the reorganization within the meaning of
Section 368(b) of the Code. Such results will be based on certain assumptions as
well as on representations received from Luxtec and CardioDyne and CardioDyne
Stockholders.
TAX CONSEQUENCES IF THE MERGER DOES NOT QUALIFY AS A REORGANIZATION. If
the Merger is not treated as a reorganization for Federal income tax purposes,
Luxtec will not recognize any taxable gain or loss. CardioDyne will be deemed to
have sold its assets for consideration equaling the fair market value of the
Luxtec Common Stock, the Earn-Out Payments, the Adjustment Amount, and the
payment if any, to dissenters paid or exchanged pursuant to the Merger (the
"Merger Consideration"). In such event, CardioDyne will recognize taxable gain
equal to the difference between the value of such Merger Consideration and
CardioDyne's adjusted basis in its assets. Since CardioDyne is being merged with
and into Acquirer, a wholly-owned subsidiary of Luxtec, pursuant to the Merger,
any tax liability will be borne by Acquirer and, on a consolidated basis, by
Luxtec. Additionally, CardioDyne will be deemed to have distributed such
consideration to the CardioDyne Stockholders as a taxable liquidating
distribution. Thus, each exchanging CardioDyne Stockholder will recognize gain
or loss for Federal income tax purposes equal to the difference between such
holder's adjusted basis in the CardioDyne Common Stock exchanged and the fair
market value of the Merger Consideration received by such holder in the Merger.
Any such gain would be reportable when received under the installment method.
Such gain or loss will be capital gain or loss if the shares of CardioDyne
Common Stock were capital assets in the hands of the holders thereof, and will
be long-term gain or loss if such shares had been held for more than one year at
the time of consummation of the exchanges. Finally, the holder's basis in any
Luxtec Common Stock received would be equal to the fair market value of the
Luxtec Common Stock when received, and his or her holding period would commence
at that time.
TAX CONSEQUENCES IF THE MERGER QUALIFIES AS A REORGANIZATION. The
following discussion describes certain Federal income tax consequences if the
Merger constitutes a reorganization under Section 368(a) of the Code. The
discussion assumes that the CardioDyne Common Stock exchanged by each holder in
the Merger is held as a capital asset.
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EXCHANGE OF CARDIODYNE COMMON STOCK FOR LUXTEC COMMON STOCK IN
GENERAL. Subject to the discussion of the Earn-Out Payments below, a holder who
exchanges his CardioDyne Common Stock solely for Luxtec Common Stock in the
Merger will not recognize gain or loss on the exchange.
EARN-OUT PAYMENTS. No loss will be recognized by any holder of
CardioDyne Common Stock who, by reason of his receipt of Earn-Out Payments,
exchanges his CardioDyne Common Stock for cash and Luxtec Common Stock in the
Merger. A portion of any Luxtec Common Stock and any cash Earn-Out Payments
received by a holder of CardioDyne Common Stock in the Merger will be treated as
interest and will represent ordinary income to the holder taxable upon receipt.
The portion of such cash and Luxtec Common Stock treated as interest will equal
the excess of the fair market value of such cash and Luxtec Common Stock over
such fair market value discounted back to the Effective Time. With respect to
the remaining cash and Luxtec Common Stock received, such a holder will realize
gain measured by the excess, if any, of (a) the sum of the amount of such
remaining cash and the fair market value of the remaining Luxtec Common Stock
received in the Merger (including Luxtec Common Stock received other than
pursuant to Earn-Out Payments) over (b) the holder's adjusted tax basis in the
CardioDyne Common Stock. However, any such gain will be recognized (and thus
subject to tax) only to the extent of the cash received. The recognized gain
will constitute either (i) long- or short-term capital gain (depending on
whether the holder held the Common Stock for more than one year) or, (ii) as
discussed below, a dividend.
The federal income tax rate for individuals on long-term capital gains
is significantly lower than the maximum rate imposed on ordinary income
(including interest and dividends) and short-term capital gains. In general,
whether a holder who exchanges CardioDyne Common Stock for cash and Luxtec
Common Stock recognizes capital gain or dividend income depends on the
application of Sections 356(a)(2) and 302 of the Code. Under these rules, each
holder of CardioDyne Common Stock will be treated for tax purposes as if the
holder had received only Luxtec Common Stock in the Merger, and as if
immediately thereafter Luxtec had redeemed appropriate portions of the Luxtec
Common Stock in exchange for the cash actually distributed to the holder in the
Merger. All of the cash representing gain recognized by a holder on the exchange
will be taxed as capital gain if the deemed redemption from the holder is either
(i) a "substantially disproportionate redemption" of stock with respect to the
holder or (ii) "not essentially equivalent to a dividend" (taking into account,
in either case, the holder's total ownership of Luxtec stock immediately after
the Merger, including both actual and deemed ownership by operation of certain
constructive ownership rules, and all other actual and deemed redemptions of
Luxtec Common Stock undertaken as a part of the Merger from that holder and
other holders).
The deemed redemption of a holder's Luxtec Common Stock will be a
"substantially disproportionate redemption" if, as a result of the deemed
redemption, there is a greater than 20% reduction in both (i) the percentage of
all then outstanding shares of Luxtec Common Stock then owned by the holder and
(ii) the percentage of the voting power of all then-outstanding Luxtec stock
represented by the Luxtec stock then owned by the holder.
The deemed redemption of a holder's Luxtec Common Stock will be "not
essentially equivalent to a dividend" if the holder experiences a "meaningful
reduction" in his proportionate equity interest in Luxtec by reason of the
deemed redemption. In general, there are no fixed rules for determining whether
a "meaningful reduction" has occurred. However, based upon published rulings of
the IRS, the receipt of cash in the Merger would not be characterized as a
dividend if the holder's percentage stock ownership in Luxtec and in CardioDyne
prior to the Merger is minimal, the holder exercises no control over the affairs
of Luxtec or CardioDyne, and the holder's percentage equity interest in Luxtec
is reduced in the deemed redemption to any extent.
If neither of the deemed redemption tests described above is satisfied,
a holder will be treated as having received a dividend equal to the amount of
the holder's recognized gain (as described above), assuming that the holder's
ratable share of the accumulated earnings and profits of CardioDyne (or possibly
the total earnings and profits of Luxtec and CardioDyne) equals or exceeds the
amount of that recognized gain. See also the discussion below entitled "Cash
Received in Lieu of Fractional Shares of Luxtec Common Stock".
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TAX BASIS AND HOLDING PERIOD. The tax basis in any Luxtec Common Stock
received as an Earn-Out Payment and treated as interest will equal the fair
market value of that Luxtec Common Stock at the time of its receipt. The
aggregate tax basis of all other Luxtec Common Stock received in exchange for
CardioDyne Common Stock in the Merger will equal the aggregate tax basis of the
CardioDyne Common Stock exchanged therefor increased by the amount of gain or
dividend income recognized, and decreased (a) by the amount of cash received and
(b) by the tax basis allocated to any fractional Luxtec share interests, as
described under "Cash Received in Lieu of Fractional Shares of Luxtec Common
Stock" below. Each CardioDyne Stockholder who receives Luxtec Common Stock in
the Merger should consult such Stockholder's own tax advisor with respect to the
tax basis allocable to each such share of Luxtec Common Stock received in the
Merger other than as interest. The holding period of any Luxtec Common Stock
received as an Earn-Out Payment will generally be split, based on the percentage
of such Luxtec Common Stock treated as interest. The holding period of that
percentage of each such share will be treated as having commenced on the date
such Luxtec Common Stock is received. The holding period of the remainder of
each share will include the period during which the holder held the CardioDyne
Common Stock surrendered in exchange therefor.
CASH RECEIVED IN LIEU OF FRACTIONAL SHARES OF LUXTEC COMMON STOCK. No
fractional shares of Luxtec Common Stock will be issued in the Merger. A holder
who receives cash in lieu of a fractional share of Luxtec Common Stock will be
treated as having received the fractional share of Luxtec Common Stock and
having sold it to Luxtec. The holder generally will recognize capital gain or
loss equal to the difference between the basis for the fractional share of
Luxtec Common Stock and the cash received in the deemed sale to Luxtec of the
fractional share, and the holder's basis in Luxtec Common Stock received will be
decreased by the amount of basis so allocated to the fractional share.
EXCHANGE OF CARDIODYNE COMMON STOCK SOLELY FOR CASH. In the case of a
holder who exchanges all of his CardioDyne Common Stock solely for cash in the
Merger pursuant to the exercise of dissenter's rights, (a) if such holder does
not own (actually or constructively) Luxtec Common Stock immediately after the
Merger, then such holder will recognize capital gain or loss equal to the
difference between the basis of the CardioDyne Common Stock surrendered and the
cash received, and (b) if such holder owns (actually or constructively) Luxtec
Common Stock immediately after the Merger, then it is not clear whether such
holder will automatically recognize capital gain or loss as described in clause
(a), or whether such holder instead may possibly be treated as recognizing a
dividend, taxable at ordinary income rates. If the holder is treated as
receiving a dividend, the entire amount of the cash received (without regard to
any limitation measured by gain) may be treated as a dividend. Each CardioDyne
Stockholder who intends to dissent from the Merger (see "DISSENTERS' RIGHTS")
should consult such Stockholder's own tax advisor with respect to the
application of the constructive ownership rules to the Stockholder's particular
circumstances, as well as with regard to the Federal backup withholding (see
"Backup Withholding" below) which may become applicable to the gross proceeds
realized in respect to CardioDyne Common Stock of a dissenter failing either to
furnish its Federal taxpayer identification number as requested by CardioDyne or
to otherwise establish an exemption from such withholding.
TAX TREATMENT OF LUXTEC AND CARDIODYNE. No gain or loss will be
recognized by Luxtec or CardioDyne as a result of the Merger. The basis of the
CardioDyne assets acquired by Luxtec will be, in each instance, the same as the
basis for those assets in the hands of CardioDyne immediately prior to the
Merger, and the holding period of those assets in the hands of Luxtec will
include, in each instance, the holding period of those assets in the hands of
CardioDyne.
As of December 31, 1994, CardioDyne's net operating losses ("NOLs") for
federal income tax purposes, as shown in the Notes to Consolidated Financial
Statements of CardioDyne, were approximately $709,000, and were due to expire
commencing in the year 2009. As of October 31, 1994, Luxtec's NOLs, as shown in
the Notes to Financial Statements of Luxtec, were approximately $576,000, and
were due to expire in varying amounts through the year 2009. As a result of the
Merger, CardioDyne expects to incur, and Luxtec may but does not expect to
incur, an "ownership change" under federal tax law. As a result, any NOLs
incurred prior to an ownership change will be subject to an annual limit for use
in subsequent years equal to the corporation's value at the time of the
ownership change multiplied by a percentage equal to the federal long-term
tax-exempt interest rate. Unused NOLs continue to be carried forward until they
expire, subject to
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these limitations. Other limitations to NOLs and tax credits of Luxtec and
CardioDyne may apply as a result of the Merger.
For state income tax purposes, use of existing Massachusetts NOLs is
limited by reference to income subject to tax in Massachusetts. As described
above under the caption "Operations After the Merger," it is presently expected
that the Surviving Corporation will be located in Massachusetts. As a result,
its income subject to Massachusetts tax, and consequently its ability to use
Massachusetts NOLs, should not be effected.
BACKUP WITHHOLDING. In order to avoid "backup withholding" of Federal
income tax on payments of cash to a holder who receives cash in lieu of
fractional shares of Luxtec Common Stock in the Merger, or pursuant to earn-out
payments, adjustment amounts or appraisal rights, a holder must, unless an
exception applies under the applicable law and regulations, provide the payor of
such cash with such holder's correct taxpayer identification number ("TIN") on a
Form W-9 and certify under penalties of perjury that such number is correct and
that such holder is not subject to backup withholding. A Form W-9 will be
included as a part of the Transmittal Materials (as defined below under "THE
MERGER AGREEMENT -- Exchange of Stock Certificates"). If the correct TIN and
certifications are not provided, a $50 penalty may be imposed on the holder by
the IRS and any cash payments received by the holder in exchange for shares may
be subject to backup withholding tax at a rate of 31%.
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THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement and their effect. This summary is not intended to be a complete
statement of all material provisions of the Merger Agreement and is qualified in
its entirety by reference to the full text of the Merger Agreement, a copy of
which is attached to this Proxy Statement/PPM as Annex A and incorporated by
reference. Capitalized terms used herein and not otherwise defined, shall have
the meaning assigned such terms in the Merger Agreement. The stockholders of
Luxtec and CardioDyne are urged to review the text of the Merger Agreement in
its entirety.
EFFECTIVE TIME OF THE MERGER
It is presently contemplated that the Merger will be completed as soon as
practicable after approval of the proposed amendment to the Luxtec Charter and
issuance of shares of Luxtec Common Stock in connection with the Merger by the
stockholders of Luxtec and the approval and adoption of the Merger Agreement by
the stockholders of CardioDyne. Subject to the rights of the respective
directors of Luxtec and CardioDyne to terminate the Merger Agreement and abandon
the Merger (see "Termination" below), as soon as practicable after satisfaction
or waiver of all conditions to the Merger (see "Conditions to the Merger"
below), Luxtec and CardioDyne will cause Articles of Merger and a Certificate of
Merger (substantially in the form of Exhibit B to the Merger Agreement) to be
executed and filed and recorded in the appropriate filing and recording offices
of the Commonwealth of Massachusetts and the State of Delaware and will take
such other actions as may be necessary under applicable law to make the Merger
effective. The Merger will be effective as of the time the Articles of Merger
and Certificate of Merger are duly filed with the Secretary of State of
Massachusetts and Delaware (the "Effective Time").
EFFECTS OF THE MERGER
If the Merger is approved and effected, then as of the Effective Time:
MERGER OF CARDIODYNE INTO ACQUIRER; SURVIVING CORPORATION. CardioDyne will
be merged into Acquirer and will cease to exist as a separate entity. Acquirer
will continue to exist as a Massachusetts corporation and will change its name
to CardioDyne, Inc. (the "Surviving Corporation"). The Surviving Corporation's
authorized capital stock will be as set forth in its Articles of Organization,
substantially in the form of Annex D to this Proxy Statement/PPM.
ARTICLES OF ORGANIZATION AND BY-LAWS OF SURVIVING CORPORATION. The
Articles of Organization of Acquirer in effect as of the Effective Time will be
the Articles of Organization of the Surviving Corporation. The by-laws of the
Surviving Corporation will be the by-laws of Acquirer in effect as of the
Effective Time, which will be substantially in the form of Annex E to this Proxy
Statement/PPM.
CONVERSION OF CARDIODYNE COMMON STOCK. Each share of CardioDyne Common
Stock issued and outstanding immediately prior to the Effective Time (other than
shares held directly or indirectly by stockholders of CardioDyne who duly
exercise their appraisal rights, see "Appraisal Rights") will automatically be
converted into and become such fraction of a share of Luxtec Common Stock as
equals one million (1,000,000) divided by the number of shares of CardioDyne
Common Stock issued and outstanding immediately prior to the Effective Time
(without regard to the exercise of statutory dissenters' rights of appraisal by
any CardioDyne Stockholders) (the "Exchange Rate"), subject to the issuance of
cash in lieu of fractional shares as described under the caption "Fractional
Shares" below. Irrespective of the number of shares of capital stock of
CardioDyne issued and outstanding immediately prior to the Effective Time and
the number of any outstanding options, warrants or other rights to purchase
shares of the capital stock of CardioDyne immediately prior to the Effective
Time and of the number of any outstanding securities exchangeable for or
convertible into shares of the capital stock of CardioDyne immediately prior to
the Effective Time, Luxtec shall be obligated to issue no more than an aggregate
of up to one million (1,000,000) shares of Luxtec Common Stock (such number of
shares being subject to reduction to account for the exercise by any CardioDyne
Stockholder of statutory dissenters' rights of appraisal), in connection with
the Merger of Acquirer and CardioDyne, except to the extent required pursuant to
the Earn-Out Payments (See "THE MERGER AGREEMENT -- Additional Consideration")
and the Purchase Price Adjustment
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(See "THE MERGER AGREEMENT -- Purchase Price Adjustment"). It is expected that
there will be 4,295,045 shares of CardioDyne Common Stock issued and outstanding
immediately prior to the Effective Time thereby resulting in an Exchange Rate of
approximately .23283 shares of Luxtec Common Stock for each share of CardioDyne
Common Stock. The aggregate amount of shares of Luxtec Common Stock issued in
exchange for all of the issued and outstanding shares of CardioDyne Common Stock
immediately prior to the Effective Time (subject to appraisal rights) are
referred to as the "Exchanged Shares." Each share of CardioDyne Common Stock
held by a stockholder who duly exercises the appraisal rights referred to above
will be converted into the right to receive the fair value of such share,
determined pursuant to Section 262 of the Delaware General Corporation Law. See
"DISSENTERS' RIGHTS."
CARDIODYNE STOCK OPTIONS/CONVERTIBLE NOTES. As of June 30, 1995, the
principal and accrued interest of CardioDyne's convertible promissory notes in
the aggregate amount of $78,139 was converted into an aggregate of 130,232
shares of CardioDyne Common Stock at a price of $.60 per share, of which 24,121
shares were issued to Laura and Mark Epstein-Norris and 24,121 shares were
issued to Ruth Epstein and Mark Shafir. Laura Epstein-Norris and Ruth Epstein
are the daughters of Paul Epstein. As of June 30, 1995, CardioDyne had
outstanding stock options to purchase an aggregate of 145,000 shares of
CardioDyne Common Stock at exercise prices of $0.425 to $0.50 per share,
including an option to purchase 25,000 shares at an exercise price of $0.425 per
share held by Robert R. MacDonald, a director of CardioDyne. Effective
immediately prior to but conditioned upon the Merger, all outstanding options to
purchase CardioDyne Common Stock, to the extent not already vested, will
accelerate and become fully vested upon the Merger. As a condition to the
Merger, all outstanding stock options to acquire CardioDyne Common Stock must be
exercised and/or surrendered for shares of CardioDyne Common Stock. See "THE
MERGER AGREEMENT -- Conditions to the Merger." Immediately prior to but
conditioned upon the Merger, CardioDyne has agreed to issue, in lieu of exercise
of outstanding stock options and without payment of cash consideration, shares
of CardioDyne Common Stock to the three holders of outstanding stock options,
and such optionholders have indicated their intention to accept the issuance of
such shares in lieu of exercise. Pursuant thereto, CardioDyne will issue an
aggregate of 74,375 shares of CardioDyne Common Stock in exchange for all
outstanding stock options, including 14,375 shares to be issued to Mr.
MacDonald.
EXCHANGE OF STOCK CERTIFICATES
At the Effective Time, stock certificates formerly representing shares of
CardioDyne Common Stock will cease to represent such shares and thereafter will
represent the shares of Luxtec Common Stock into which they have been converted
pursuant to the Merger Agreement and the right to receive earn-out payments and
purchase price adjustments as provided in the Merger Agreement, except in the
case of CardioDyne stockholders who duly exercise the appraisal rights referred
to above, whose stock certificates will represent their rights to receive the
fair value of their shares. See "DISSENTERS' RIGHTS." CardioDyne stock
certificates will be exchangeable for new certificates as follows.
The First National Bank of Boston, transfer agent for Luxtec, will act as
Paying and Exchange Agent (the "Paying and Exchange Agent") for the exchange of
CardioDyne stock certificates for Luxtec stock certificates. As promptly as is
practicable following the Effective Time, the Paying and Exchange Agent will
mail to each record holder of shares of CardioDyne Common Stock instructions and
transmittal materials ("Transmittal Materials") for exchanging such holder's
CardioDyne stock certificates for new certificates representing the shares of
Luxtec Common Stock into which such holder's shares of CardioDyne Common Stock
have been converted. CARDIODYNE STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER
THEIR STOCK CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE SUCH TRANSMITTAL
MATERIALS FROM THE PAYING AND EXCHANGE AGENT. Upon surrender of a CardioDyne
stock certificate to the Paying and Exchange Agent, the Paying and Exchange
Agent will promptly cancel such certificate and deliver in exchange therefor a
new certificate representing that number of whole shares of Luxtec Common Stock
into which the shares of CardioDyne Common Stock formerly represented by such
certificate have been converted pursuant to the Merger less the escrow. Until so
surrendered, each CardioDyne stock certificate (other than those held by former
CardioDyne stockholders who duly exercise their appraisal rights referred to
above) will represent for all purposes the shares of Luxtec
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Common Stock into which the shares of CardioDyne Common Stock formerly
represented by such certificate have been converted pursuant to the Merger.
If any certificate representing shares of Luxtec Common Stock into which
shares of CardioDyne Common Stock is to be issued in a name other than that in
which the surrendered CardioDyne stock certificate is registered, it will be a
condition to such issuance that the person requesting such issuance deliver to
the Paying and Exchange Agent all documents necessary to evidence and effect
such transfer (with signature guarantees) and pay to the Paying and Exchange
Agent any transfer or other taxes required by reason thereof (or establish to
the Paying and Exchange Agent's satisfaction that such taxes have been paid or
are not applicable).
At the Effective Time, the stock transfer books of CardioDyne will be
closed and no transfers of CardioDyne Common Stock shall thereafter be made on
those books. If, after the Effective Time, CardioDyne stock certificates are
presented to CardioDyne for transfer, they will be canceled and exchanged for
Luxtec stock certificates representing the shares of Luxtec Common Stock
deliverable in exchange therefor as described above.
FRACTIONAL SHARES
No scrip or fractional shares of Luxtec Common Stock will be issued upon
conversion of any shares of CardioDyne Common Stock. In lieu thereof, there
shall be paid to each former CardioDyne Stockholder who would otherwise have
been entitled to a fractional share of Luxtec Common Stock, a cash payment
(without interest) in respect of such fractional interest determined by valuing
Luxtec Common Stock at its unweighted average closing price on the AMEX for the
twenty (20) trading days ending five (5) trading days before the Effective Time.
ADDITIONAL CONSIDERATION
In addition to the shares of Luxtec Common Stock (see "Conversion of
CardioDyne Common Stock"), each CardioDyne Stockholder will be entitled to
receive earn-out payments from and after the date of Luxtec's first commercial
sale of non-invasive products which continuously measure blood pressure (see the
Merger Agreement for complete definition of "CNIMT Products") up to and
including the seventeenth (17th) anniversary of such date. Such annual payments
shall be equal to five percent (5%) of Luxtec's Realized Net Sales (see Merger
Agreement for complete definition of "Realized CNIMT Net Sales") on such CNIMT
Products ("Earn-Out Payments"). Such Earn-Out Payments shall be paid to
CardioDyne Stockholders on a pro rata basis in accordance with each CardioDyne's
Stockholder's ownership of CardioDyne Common Stock immediately prior to the
Effective Time. Earn-Out Payments shall be paid, without withholding for taxes
or for any other reason or claim, (i) fifty percent (50%) in cash and (ii) fifty
percent (50%) in shares of Luxtec Common Stock with such shares of Luxtec Common
Stock to be valued at the unweighted average of the closing prices of such
shares on the AMEX, or on such other national securities exchange or automated
quotation system, if any, on which the Luxtec Common Stock is then listed or
traded, during the twenty (20) trading days ending five (5) trading days before
the date of issuance of such shares.
Notwithstanding the foregoing, if Luxtec licenses the right to develop,
manufacture or distribute the CNIMT Products to a non-affiliate third party (the
"Licensee") pursuant to a license agreement (a "CNIMT License Agreement"), then
in addition to the Earn-Out Payments provided above, Luxtec shall pay to the
CardioDyne Stockholders an aggregate amount (the "Royalty Payments") equal to
twenty-five percent (25%) of any and all royalties, licensing fees and/or other
consideration or fees actually received by Luxtec from the Licensee pursuant to
such CNIMT License Agreement (but excluding any amounts paid by any such
Licensee for the purpose of funding research and development costs relating to
the CNIMT Products licensed pursuant to a CNIMT License Agreement). Such
Earn-Out Payments shall be paid to CardioDyne Stockholders on a pro rata basis
in accordance with each CardioDyne's Stockholder's ownership of CardioDyne
Common Stock immediately prior to the Effective Time. Such Royalty Payments
shall be paid, without withholding for taxes or for any other reason or claim,
(i) fifty percent (50%) in cash and (ii) fifty percent (50%) in shares of Luxtec
Common Stock with such shares of Luxtec Common Stock to be valued at
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the unweighted average of the closing prices of such shares on the AMEX, or on
such other national securities exchange or automated quotation system, if any,
on which the Luxtec Common Stock is then listed or traded, during the twenty
(20) trading days ending five (5) trading days before the date of issuance of
such shares. Under no circumstances shall the License Revenue be included in or
considered a part of Realized CNIMT Net Sales.
Notwithstanding the foregoing, if Luxtec sells, assigns or otherwise
transfers, in whole or in part, the technology underlying the CNIMT Products, as
distinct from the sale of and/or grant of licenses with respect to, the CNIMT
Products, to a non-affiliate third party (the "Purchaser") pursuant to a
purchase agreement relating to such technology or pursuant to a sale of all or
substantially all of the assets of Luxtec, a merger whereby Luxtec is not the
surviving entity, or otherwise (a "CNIMT Purchase Agreement"), then the rights
of the Purchaser and the CardioDyne Stockholders with respect to the CNIMT
Products shall either (i) continue as provided above, or (ii) be renegotiated
and be subject to such other terms and provisions as shall be mutually agreed
upon by the Representatives and the Purchaser pursuant to the CNIMT Purchase
Agreement.
The adoption of the Merger Agreement and the approval of the Merger by the
CardioDyne Stockholders shall constitute the appointment of the Representatives
by the CardioDyne Stockholders to represent the CardioDyne Stockholders with
full authority in any and all matters affecting, relating to or otherwise
concerning the CNIMT Products, including, but not limited to, the Earn-Out
Payments and the sale, transfer or assignment of the CNIMT Products. All
decisions and actions by the Representatives in accordance with this appointment
shall be binding upon all CardioDyne Stockholders and no CardioDyne Stockholder
shall have the right to object, dissent, protest or otherwise contest the same.
PURCHASE PRICE ADJUSTMENT
In the event that the average of the closing prices of Luxtec Common Stock
on the AMEX during the twenty (20) trading days ending five (5) trading days
before the Closing Date (the "Closing Price") shall be less than $3.25 per
share, then Luxtec shall be obligated to pay to the CardioDyne Stockholders, pro
rata, additional consideration in an aggregate amount (the "Adjustment Amount")
equal to the actual number of Exchanged Shares issued pursuant to the Merger up
to one million (1,000,000) (such number of shares being subject to reduction to
account for the exercise by any CardioDyne Stockholder of statutory dissenters'
rights of appraisal) multiplied by the excess of (i) $3.25 over (ii) the Closing
Price. The Adjustment Amount shall be paid, pro rata, to the CardioDyne
Stockholders, and shall be made in annual installments commencing at the later
of (a) forty-five (45) days after the end of the fiscal year of Luxtec in which
Luxtec first has positive cash flow, or (b) the date which is eighteen (18)
months after the Closing Date, in annual installments equal to two percent (2%)
of Realized Net Sales (see Merger Agreement for complete definition of "Realized
Net Sales") of all Luxtec products, and shall be paid by Luxtec fifty percent
(50%) in cash and fifty percent (50%) in Luxtec Common Stock, such Luxtec Common
Stock valued at the unweighted average of the closing prices thereof for the
twenty (20) trading days ending five (5) trading days preceding the date of
issuance thereof in respect of an Adjustment Amount installment payment;
provided however, that any and all such payments of the Adjustment Amount shall
be suspended and not paid in any fiscal year in which Luxtec has negative cash
flow, and shall remain suspended until the next fiscal year of Luxtec in which
Luxtec shall have positive cash flow, at which time such payments shall resume.
Notwithstanding the foregoing, Luxtec shall have no obligation to make any
payments with respect to the Adjustment Amount as otherwise required hereby in
the event that the unweighted average of the closing prices of Luxtec Common
Stock for any twenty (20) consecutive trading days during the eighteen (18)
month period immediately following the Closing Date shall equal or exceed $4.00
per share.
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<TABLE>
The following table sets forth various scenarios with respect to the
Adjustment Amount given changes in the Closing Price and Realized Net Sales:
<CAPTION>
ADJUSTMENT REALIZED ANNUAL
CLOSING PRICE EXCHANGED SHARES AMOUNT NET SALES PAYMENT
------------- ---------------- ---------- ----------- --------
<S> <C> <C> <C> <C>
$3.15 1,000,000 $ 100,000 $ 5,000,000 $100,000
$3.00 1,000,000 $ 250,000 $ 6,250,000 $125,000
$2.25 1,000,000 $1,000,000 $10,000,000 $200,000
</TABLE>
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties
relating to, among other things: (1) each of Luxtec's, CardioDyne's and
Acquirer's organization, qualification and similar corporate matters; (2) each
of Luxtec's, CardioDyne's and Acquirer's capital structure; (3) the accuracy and
completeness of the financial statements of Luxtec and CardioDyne and of the
public company reports of Luxtec; (4) the absence of certain material changes or
events relating to each of Luxtec and CardioDyne, since December 31, 1994 in the
case of CardioDyne, and since April 30, 1995 in the case of Luxtec; (5) good
title to Luxtec's and CardioDyne's assets and properties, free and clear of
liens (except certain liens disclosed to CardioDyne and Luxtec, respectively);
(6) the absence of any material undisclosed liabilities of either Luxtec of
CardioDyne; (7) the filing of tax returns and the payment of taxes by Luxtec and
CardioDyne; (8) no material pending or threatened litigation; (9) certain
contracts relating to products, supplies, services, employment, consulting and
benefit matters, indebtedness, shares of stock and other material contracts; (9)
intellectual property of CardioDyne; (10) no consent, approval or authorization
of filing with any governmental entity in connection with the Merger Agreement,
subject to certain exceptions; (11) compliance with law; (12) the accuracy of
information supplied by each of Luxtec and CardioDyne in connection with this
Proxy Statement; and (13) the approval of the Merger by the Board of Directors
of Luxtec so as to render inapplicable thereto certain anti-takeover provisions
of Massachusetts law.
CONDUCT OF BUSINESS
Each of Luxtec and CardioDyne has made certain covenants and agreements
with respect to the conduct of its business from the date of the Merger
Agreement through the Effective Time and certain actions to be taken (or
forborne) by it in connection with the Merger, including the following:
- That it will conduct its business in the ordinary course in substantially
the manner as previously conducted and not engage in any material
acquisition or disposition of assets, incurrence of liabilities, or
investment in other business entities, any extraordinary or novel
transactions or methods of doing business, or any action that might
disqualify the Merger as a tax-free reorganization for federal income tax
purposes.
- That it will use its best efforts to preserve its business organization,
personnel, properties, and business relationships with suppliers and
customers and others with whom it has business relations, for the benefit
of the Surviving Corporation.
- That it will not engage in any issuance or acquisition of shares of its
capital stock (other than issuances of shares of stock upon exercise of
outstanding options or warrants or upon conversion of outstanding
convertible securities) or any dividend or distribution in respect of any
such shares.
- That it will not grant any bonus, any increase in the compensation of its
officers, key employees or agents, or any general or uniform increases in
the compensation of its employees (other than certain salary increases
made in the ordinary course of business). With respect to CardioDyne, that
any and all unpaid but accrued reasonable business expenditures (including
salaries and other compensation expenses but not including legal fees)
incurred by CardioDyne in the ordinary course of its business from March
31, 1995 until and including the Closing Date, up to a maximum of
Thirty-Five Thousand Dollars ($35,000) per calendar month, shall be
assumed by and become the liabilities of Acquirer immediately after the
Closing Date.
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- That it will grant the other party and its representatives full access to
its properties and records.
- That neither it nor any of its officers, directors, employees,
representatives, or agents (including without limitation its investment
bankers, accountants, and counsel) shall directly or indirectly encourage,
solicit, initiate, or participate in any discussions or negotiations with,
or provide any information to, any person (other than the other party and
its representatives) concerning any offer or proposal for any merger,
tender offer, sale, lease as lessor, license as licensor, or other
disposition of substantial assets, sale of shares of capital stock or debt
securities, or similar transaction involving it, and shall not enter into
any discussion of any business transaction with a third party that would
involve any receipt, transmission, or disclosure of its confidential
information, except in the ordinary course of business.
- That it will cooperate with the other party in the preparation and filing
of all necessary documents and the taking of all other actions that may be
required in order to obtain any governmental approvals and consents
necessary to consummate the Merger.
- That it will take all actions necessary to obtain its stockholders'
approval of the Merger.
CONDITIONS TO THE MERGER
Each party's obligation to effect the Merger is subject to various
conditions, unless waived, which include in addition to other customary closing
conditions, the following:
- The continued accuracy in all material respects of the other party's
representations and warranties, and the compliance in all material
respects by the other party with its covenants and agreements, set forth
in the Merger Agreement.
- The approval of the Merger by the stockholders of each party,
respectively, and the approval by the stockholders of Luxtec of the
issuance of shares of Luxtec Common Stock in connection with the Merger
and the amendment of the Luxtec Charter by the filing of the Amendment
substantially in the form of Annex B to this Proxy Statement/PPM.
- The absence of any injunction or other legal restraint on the
consummation of the Merger.
- The absence of any material change in the financial condition, business
or assets of the other party.
- The receipt by each party of an opinion of counsel to the other party
with respect to certain legal matters in connection with the Merger.
The obligation of Luxtec and Acquirer to effect the Merger are also subject
to the following additional conditions (any of which may be waived by Luxtec and
Acquirer):
- The resignation of their respective positions by all of the officers and
directors of CardioDyne.
- The conversion into CardioDyne Common Stock of all outstanding
convertible notes of CardioDyne.
- The exercise of all outstanding stock options of CardioDyne and/or the
exchange of such stock options for shares of CardioDyne Common Stock
pursuant to agreements satisfactory in form and substance to Luxtec.
SECURITIES LAWS MATTERS
Pursuant to the Merger Agreement, CardioDyne agrees to cooperate with
Luxtec in qualifying the issue of Luxtec Common Stock to the CardioDyne
Stockholders under sec. 4(2) of, and/or Regulation D of the Commission under,
the Securities Act and in complying with all state securities laws in respect
thereto. Neither CardioDyne nor any of its agents is or shall be authorized to
act on Luxtec's behalf with respect to any aspect of the transactions
contemplated by the Merger Agreement or make any solicitations of or
representations to any of the CardioDyne Stockholders on Luxtec's behalf.
Neither the Merger Agreement nor any other act by Luxtec except this Proxy
Statement/PPM sent to the CardioDyne Stockholders shall be deemed an offer with
respect to Luxtec Common Stock.
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Pursuant to the Merger Agreement, each certificate of Luxtec Common Stock
issued to CardioDyne Stockholders will bear a standard Securities Act legend as
set forth in sec. 9.2(f) of the Merger Agreement. A stop order will be issued to
Luxtec's transfer agent preventing transfer of all such certificates unless the
transfer of the shares represented thereby is registered or exempt from
registration under the Securities Act. Each CardioDyne Stockholder receiving
Luxtec Common Stock will be required to sign a certificate substantially in the
form of Exhibit F to the Merger Agreement (the "Target Stockholder
Representation Certificate"). Any and all sales of Luxtec Common Stock made in
reliance on Rule 144 of the Commission must conform to the requirements of that
rule. Because the CardioDyne Stockholders must bear the economic risk of their
investment in the Luxtec Common Stock for an indefinite period, they accordingly
should take into account the restrictions on transfer in valuing the Luxtec
Common Stock to be delivered to them pursuant to the Merger Agreement. See
"CERTAIN OTHER AGREEMENTS -- CardioDyne Stockholder Representation Certificate."
REGISTRATION RIGHTS
From and after the date which is two hundred forty (240) days after the
Closing Date, and ending on the sixth anniversary of the Closing Date, Luxtec
has agreed to provide the CardioDyne Stockholders with two (2) demand
registration rights pursuant to a registration statement on Form S-3 (or
comparable or successor form) with respect to their shares of Luxtec Common
Stock received in the Merger, and if elected by such CardioDyne Stockholders,
such registrations may be a "shelf registration" made pursuant to Rule 415
adopted pursuant to the Securities Act; provided however, that if Luxtec becomes
ineligible to file registration statements on Form S-3 solely because Luxtec
fails to timely make its required filings pursuant to the Exchange Act, the
filing of the foregoing registration statement may be on Form S-1 (or comparable
or successor form) under the Securities Act, but in no case whatsoever (subject
to a limited exception), shall the CardioDyne Stockholders be permitted to
elect, nor shall Luxtec be obligated to cause, such Form S-1 registration
statement to be a "shelf registration" pursuant to Rule 415 adopted pursuant to
the Securities Act. Luxtec shall not be required to consummate more than one (1)
such demand offering during the period from the Closing Date up to and including
the third anniversary thereof, and not more than one (1) such demand offering
during the period after the third anniversary of the Closing Date up to and
including the sixth (6th) anniversary thereof.
Beginning after the third anniversary of the Closing Date, and ending on
the fifteenth anniversary of the Closing Date, CardioDyne Stockholders may
notify Luxtec in writing that such CardioDyne Stockholders desire for Luxtec to
cause shares of Luxtec Common Stock received by them in the Merger having an
aggregate offering price of at least Two Hundred and Fifty Thousand Dollars
($250,000) (based on the then current public market price) to be registered for
sale to the public pursuant to a registration statement on Form S-3 (or
comparable or successor form) under the Securities Act. Luxtec shall not be
required to consummate more than an aggregate of three (3) such offerings.
If at any time from and after the date which is two hundred forty (240)
days after the Closing Date, Luxtec proposes to file a registration statement
under the Securities Act covering a proposed sale of Luxtec Common Stock,
whether for its own account or for the account of any other security holder or
both (subject to certain exceptions), Luxtec shall give each CardioDyne
Stockholder written notice of such proposed filing at least 20 Business Days
prior to the anticipated filing date, and such notice shall offer each such
CardioDyne Stockholder the opportunity to register such number of securities as
they may request. Luxtec shall use its best efforts to cause the securities as
to which registration shall have been so requested by the requesting CardioDyne
Stockholders to be included among the shares of Luxtec Common Stock to be
covered by the registration statement proposed to be filed by Luxtec. In the
event that any such registration statement shall be, in whole or in part, an
underwritten public offering, Luxtec shall use its best efforts to cause the
managing underwriter or underwriters to include such securities as to which
registration shall have been so requested by the requesting CardioDyne
Stockholders, all upon the same terms and conditions as the other shares of
Luxtec Common Stock included therein.
If any registration of any Luxtec Common Stock shall be made by Luxtec with
the Commission in connection with an underwritten public offering of such Luxtec
Common Stock, each such CardioDyne
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<PAGE> 53
Stockholder agrees (and shall enter into an agreement which shall so state), if
requested by the managing underwriter or underwriters, not to effect any public
sale or distribution, including any sale pursuant to Rule 144 under the
Securities Act, of any shares of Luxtec Common Stock or any other equity
security of Luxtec or of any security convertible into or exchangeable or
exercisable for Luxtec Common Stock or any such other equity security of Luxtec
(in each case, other than as part of such underwritten public offering) within
ten days before or three hundred sixty-five (365) days after the effective date
of the registration statement filed in connection with such underwritten
offering, provided, however, that all 5% stockholders of Luxtec and the
then-serving officers and directors of Luxtec who are not also CardioDyne
Stockholders shall so agree for a like period.
The foregoing registration rights are further subject to standard
limitations, terms and conditions as are set forth in Section 10 of the Merger
Agreement attached to this Proxy Statement/PPM as Annex A.
SURVIVAL AND MATERIALITY OF REPRESENTATIONS
Each of the representations and warranties made by the parties pursuant to
the Merger Agreement shall survive the Closing Date and Effective Date and
consummation of the transactions contemplated thereby. Notwithstanding the
foregoing, the representations and warranties of the parties thereto shall
expire and have no further force or effect on the first anniversary of the
Effective Date. Any claims made under or with respect to such representations
and warranties on or before the first anniversary of the Effective Date shall
survive until, and only for purposes of, resolution of such claims in accordance
with the Escrow Agreement and the Merger Agreement.
TAX CONSEQUENCES TO THE PARTIES
Each of Luxtec and CardioDyne understand and agree that neither of them are
making any representation or warranty as to the tax consequences of the Merger
Agreement. Nonetheless, all parties thereto agree to report the transactions
contemplated thereby on their respective federal income tax returns as a
tax-free reorganization under sec. 368(a) of the Code.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after approval of the Merger by
the stockholders of either or both of Luxtec and CardioDyne, only as follows:
- By either Luxtec or CardioDyne, by written notice to the other, if the
other party is in breach of its obligations under the Merger Agreement and
shall not have cured such breach within a period of fifteen (15) days
after written notice from the other party, or if all of the conditions
precedent to the consummation of the Merger Agreement have not been
satisfied or waived by October 31, 1995.
- At any time by mutual agreement of the respective Boards of Directors of
Luxtec and CardioDyne.
Any such termination will be without liability on the part of either Luxtec or
CardioDyne.
INDEMNIFICATION AND ESCROW
Pursuant to the Merger Agreement and contingent upon the consummation of
the Merger, an aggregate of fifteen percent (15%) of the Exchanged Shares (i.e.,
a maximum of one hundred fifty thousand (150,000) Exchanged Shares) (the
"Escrowed Shares") shall be withheld from the one million (1,000,000) Exchanged
Shares (each of such numbers of shares being subject to reduction to account for
the exercise by any CardioDyne Stockholder of statutory dissenters' rights of
appraisal) that would otherwise be issued and delivered to the CardioDyne
Stockholders pursuant to the Merger Agreement, and shall be instead delivered to
and held by The First National Bank of Boston (the "Escrow Agent") in accordance
with Section 14 of the Merger Agreement and the Escrow Agreement attached as
Exhibit E to the Merger Agreement. The number of shares to be withheld from each
of the CardioDyne Stockholders shall equal fifteen percent (15%) of the total
number of Exchanged Shares to be received by such CardioDyne Stockholder for
his, her or its shares of
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CardioDyne Common Stock in the Merger. Assuming that any and all claims against
the Escrowed Shares have been settled, the Escrowed Shares shall be released
after the first anniversary of the Effective Date of the Merger and otherwise in
accordance with the Escrow Agreement.
Luxtec and Acquirer shall be entitled to recover from the Escrowed Shares
for any claims, liabilities, losses, damages, costs and expenses, including
without limitation reasonable fees and disbursements of counsel ("Damages"),
related to or arising out of (i) any failure or any breach of any representation
or warranty of CardioDyne or any failure to perform any covenant, obligation,
undertaking or agreement of CardioDyne contained in the Merger Agreement, and
(ii) fraud of CardioDyne.
With respect to claims pursuant to clause (i), this right to recover
Damages only applies to Damages in excess of the first sixty-five thousand
dollars ($65,000) and shall be applicable to claims made on or before the first
anniversary of the Effective Time. Further, each CardioDyne Stockholder's
exposure is limited to his, her or its pro rata share of a claim up to the
number of Escrowed Shares. Damages shall be payable solely from the Escrowed
Shares pursuant to the terms of the Merger Agreement and the Escrow Agreement.
With respect to claims pursuant to clause (ii), claims may be brought
against any and all Escrowed Shares then held pursuant to the Escrow Agreement
and against the party or parties who shall have acted fraudulently, in each case
at any time prior to the expiration of the applicable statute of limitations
with respect to such claims based on fraud and there shall be no limitation
whatsoever with respect to liability for such claims based on fraud as against
the party or parties who shall have acted fraudulently.
The adoption of the Merger Agreement and the approval of the Merger by the
CardioDyne Stockholders shall constitute approval by the CardioDyne Stockholders
of the Escrow Agreement, attached to the Merger Agreement as Exhibit E, and of
all of the arrangements relating thereto, including without limitation (i) the
placement of the Escrowed Shares in escrow, (ii) the appointment of the Messrs.
Paul Epstein and Patrick G. Phillipps as Representatives, and (iii) the
authority of the Representatives to (a) represent the CardioDyne Stockholders in
any and all matters affecting, relating to or otherwise concerning the Escrow
Agreement, and (b) defend and/or settle any claims for which the CardioDyne
Stockholders may be required to indemnify the Indemnified Parties pursuant to
Section 14 of the Merger Agreement and/or the Escrow Agreement. All decisions
and actions by the Representatives shall be binding upon all CardioDyne
Stockholders and no CardioDyne Stockholder shall have the right to object,
dissent, protest or otherwise contest the same.
The methods and procedures for asserting a claim under the Escrow and for
defending, settling and/or paying such a claim are set forth in Section 14 of
the Merger Agreement and in the Escrow Agreement. The stockholders of Luxtec and
CardioDyne are urged to review Section 14 of the Merger Agreement and the Escrow
Agreement in their entirety. See "CERTAIN OTHER AGREEMENTS -- Escrow Agreement."
EXPENSES
Each of Luxtec and CardioDyne will bear all of its own expenses incurred in
connection with the preparation and execution of the Merger Agreement and the
other agreements contemplated thereby and the consummation of the transactions
contemplated thereby.
Notwithstanding the foregoing, if the Merger does not occur solely because
the stockholders of either Luxtec or CardioDyne do not vote in favor thereof
(except where such unfavorable vote of the stockholders of a party is due to the
breach of the Merger Agreement by the other party or if the Board of Directors
of the other party withdraws its recommendation in favor of the Merger because
it has determined in good faith, after consultation with its outside legal
counsel, that it must do so in order to comply with its fiduciary duties under
applicable law), then, assuming the other party has obtained the requisite
stockholder approval and has otherwise performed all of its obligations under
the Merger Agreement, the party failing to obtain such stockholder approval
shall reimburse the other party for all of the fees and expenses incurred by
such other party in connection with the negotiation and preparation of the
Merger Agreement and the transactions contemplated thereby (including but not
limited to reasonable attorneys' fees and disbursements) up to an aggregate of
Seventy-Five Thousand Dollars ($75,000).
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Notwithstanding the foregoing, if Luxtec withdraws this Proxy Statement/PPM
from the Commission (except where such withdrawal of this Proxy Statement/PPM is
due to the breach of this Agreement by CardioDyne or if Luxtec's Board of
Directors has determined in good faith, after consultation with its outside
legal counsel, that this Proxy Statement/PPM must be withdrawn in order to
comply with its fiduciary duties under applicable law), then Luxtec shall
reimburse CardioDyne for all of the fees and expenses incurred by CardioDyne in
connection with the negotiation and preparation of the Merger Agreement and the
transactions contemplated thereby (including but not limited to reasonable
attorneys' fees and disbursements) up to an aggregate of Seventy-Five Thousand
Dollars ($75,000).
MISCELLANEOUS
AMENDMENTS. The Merger Agreement may be amended in any manner and at any
time prior to the submission of the Merger Agreement to the CardioDyne
Stockholders and the Luxtec Stockholders, and, after such submission, may be
amended to extend the Closing Date and termination date referred to therein or
to make other amendments which, in the opinion of the respective counsel for
Luxtec and CardioDyne, do not substantially alter the terms thereof, by written
instrument stating that it is an amendment of the Merger Agreement executed by
the parties thereto and approved by the Boards of Directors of Luxtec and
CardioDyne.
SUBMISSION TO JURISDICTION; WAIVERS. Luxtec and each of the CardioDyne
Stockholders (by approval of the Merger Agreement and the transactions
contemplated thereby), for itself and on behalf of its successors, assigns and
transferees, irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to the Merger Agreement or for recognition and
enforcement of any judgment in respect thereof, to the exclusive general
jurisdiction of the courts of The Commonwealth of Massachusetts, the courts
of the United States of America for the District of Massachusetts, and
appellate courts from any thereof;
(ii) consents that any such action or proceeding may be brought in
such courts, and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(iii) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, at its
address as provided in the Merger Agreement or at such other address as it
shall have notified each of the other parties thereto in the manner
provided in the Merger Agreement;
(iv) agrees that nothing in the Merger Agreement shall affect the
right to effect service of process in any other manner permitted by law;
and
(v) waives trial by jury in any legal action or proceeding relating to
the Merger Agreement and for any counterclaim thereon.
CERTAIN OTHER AGREEMENTS
INVENTION AND NON-DISCLOSURE AGREEMENTS/NON-COMPETITION AGREEMENTS
In connection with the Merger Agreement, each of Messrs. Paul Epstein and
Patrick G. Phillipps will become employees of Luxtec and will enter into
Invention and Non-Disclosure Agreements attached to the Merger Agreement as
Exhibit C (the "Non-Disclosure Agreements"), and Non-Competition Agreements
attached to the Merger Agreement as Exhibit D (the "Non-Compete Agreements"),
with Luxtec. Each of the Non-Disclosure Agreements and the Non-Compete
agreements contains standard provisions relating to the disclosure of
confidential information of Luxtec, the assignment of any inventions or other
intellectual property to Luxtec, and agreements not to compete with Luxtec or
solicit other Luxtec employees for a period of two (2) years after the
termination of employment with Luxtec.
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ESCROW AGREEMENT
In connection with the Merger Agreement, the Company, Acquirer and the
Representatives will enter into the Escrow Agreement attached to the Merger
Agreement as Exhibit E. Pursuant to the Merger Agreement and the Escrow
Agreement, an aggregate of up to 150,000 of up to 1,000,000 Exchanged Shares
(the "Escrowed Shares") shall be withheld from the Exchanged Shares (each of
such numbers of shares being subject to reduction to account for the exercise by
any CardioDyne Stockholder of statutory dissenters' rights of appraisal) that
would otherwise be issued and delivered to the CardioDyne Stockholders pursuant
to the Merger Agreement, and shall be instead delivered to and held by the
Escrow Agent. The number of shares to be withheld from each of the CardioDyne
Stockholders shall equal fifteen percent (15%) of the total number of Exchanged
Shares to be received by such CardioDyne Stockholder for his, her or its shares
of CardioDyne Common Stock in the Merger.
Pursuant to the Merger Agreement, Messrs. Paul Epstein and Patrick G.
Phillipps are appointed as the Representatives of the CardioDyne Stockholders in
connection with the administration of the Escrow Agreement. The adoption of the
Merger Agreement and the approval of the Merger by the CardioDyne Stockholders
shall constitute approval by the CardioDyne Stockholders of the Escrow Agreement
and of all of the arrangements relating thereto, including without limitation
(i) the placement of the Escrowed Shares in escrow, (ii) the appointment of the
Representatives, and (iii) the authority of the Representatives to (a) represent
the CardioDyne Stockholders in any and all matters affecting, relating to or
otherwise concerning the Escrow Agreement, and (b) defend and/or settle any
claims for which the CardioDyne Stockholders may be required to indemnify the
Indemnified Parties pursuant to Section 14 of the Merger Agreement and/or the
Escrow Agreement. All decisions and actions by the Representatives shall be
binding upon all CardioDyne Stockholders and no CardioDyne Stockholder shall
have the right to object, dissent, protest or otherwise contest the same.
The methods and procedures for asserting a claim under the Escrow Agreement
and for defending, settling and/or paying such a claim are set forth in Section
14 of the Merger Agreement and in the Escrow Agreement. The stockholders of
Luxtec and CardioDyne are urged to review this section of the Merger Agreement
and the Escrow Agreement in their entirety (see also "THE MERGER AGREEMENT --
Indemnification and Escrow").
CARDIODYNE STOCKHOLDER REPRESENTATION CERTIFICATE
In order to ensure that the Merger will be treated as a "tax-free
reorganization" for accounting and financial reporting purposes, each CardioDyne
Stockholder who receives shares of Luxtec Common Stock pursuant to the Merger
Agreement will be required to execute and deliver a Stockholder Representation
Certificate, a copy of which is attached to the Merger Agreement as Exhibit F.
Among other things, the Stockholder Representation Certificate requires the
CardioDyne Stockholders to make representations that (i) the former CardioDyne
Stockholders must indirectly maintain a continuity of interest in the business
of CardioDyne by continuing to hold shares of Luxtec following the merger, (ii)
such stockholder has not sold, exchanged, transferred or disposed of any shares
of CardioDyne Common Stock in contemplation of the Merger and has no present
intent to sell, exchange, transfer or dispose of any of the shares of Luxtec
Common Stock received by such stockholder pursuant to the Merger, and (iii) such
stockholder is acquiring the shares of Luxtec Common Stock for investment
purposes, has sufficient business and financial experience to evaluate the risks
in acquiring the shares of Luxtec Common Stock, and is able to bear the economic
risk of holding such shares for an indefinite period. The Stockholder
Representation Certificate also provides an acknowledgment from the CardioDyne
Stockholders that they are bound by the provisions of the Merger Agreement
applicable to all such stockholders, including, without limitation, the
indemnification and escrow provisions and the appointment of the Representatives
for the purpose set forth in the Merger Agreement.
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CONFLICTS OF INTEREST
CARDIODYNE DIRECTORS AND MANAGEMENT
Following the consummation of the Merger, Messrs. Paul Epstein, Chairman
and Vice President of CardioDyne, and Patrick G. Phillipps, President of
CardioDyne, will become at-will employees and members of the Board of Directors
of Luxtec. Each of Messrs. Epstein and Phillipps will be required to execute and
deliver the Non-Disclosure Agreement (attached to the Merger Agreement as
Exhibit C) and the Non-Compete Agreement (attached to the Merger Agreement as
Exhibit D) in connection with becoming at-will employees of Luxtec (See,
"CERTAIN OTHER AGREEMENTS -- Invention and Non-Disclosure
Agreements/Non-Competition Agreements"). Following the Merger, Mr. Epstein will
be appointed as a Class II Director of Luxtec with a term to expire at the 1998
annual meeting of stockholders of Luxtec and Mr. Phillipps will be appointed as
a Class I Director of Luxtec with a term to expire at the 1997 annual meeting of
stockholders of Luxtec. See "THE MERGER AGREEMENT -- Effects of the Merger --
CardioDyne Stock Options/Convertible Notes," and "THE MERGER -- Operations After
the Merger."
BUSINESS AND FINANCIAL INFORMATION REGARDING CARDIODYNE
CARDIODYNE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
CardioDyne was incorporated in February 1989 and is still in the
development stage. Since its inception, CardioDyne has experienced significant
operating losses resulting primarily from the research and development expenses
incurred in the design and development of its initial products, the Kinetorr and
the Kinetorr PC. Research and development expenses are composed primarily of
salaries and the purchase of outside services, supplies and materials. To date,
CardioDyne has not recognized any revenues from product sales and does not
expect to recognize substantial product revenues until it commences
manufacturing operations and commercial sales. CardioDyne received FDA clearance
to market its Kinetorr and Kinetorr PC products in November 1991 and since that
date has utilized its available resources for further product development and
market research. CardioDyne incurred operating losses of $85,000, $256,000,
$389,000, $243,000 and $165,000, respectively, in the fiscal years ended
December 31, 1992, 1993 and 1994 and the quarters ended June 30, 1994 and 1995.
As of June 30, 1995, CardioDyne had an accumulated deficit of $959,000 and a
stockholders' deficit of $38,000. See "SELECTED HISTORICAL AND PRO FORMA
COMBINING FINANCIAL DATA" and CardioDyne's financial statements included
elsewhere herein.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation, CardioDyne has funded its operations through the
private sale of Common Stock with gross proceeds of $921,000 and with the
proceeds of loans from certain affiliates and other investors (all of which
loans have been converted into Common Stock). At June 30, 1995, CardioDyne had
cash and cash-equivalents of $15,000. CardioDyne does not have a line of credit
or other financing arrangements with any bank or any other source of financing.
CardioDyne has granted a non-exclusive license to certain of its technology
to a third party pursuant to which CardioDyne received $125,000 in technology
fees in May 1995 and expects to receive additional technology fees of $375,000
based on the achievement of specified milestones which CardioDyne currently
believes will be satisfied on various dates over the next 12 to 18 months.
CardioDyne will also be entitled to future royalties based on the licensee's
sales of products incorporating the licensed technology. CardioDyne has no other
current source or expectation of funds to finance its business unless and until
it commences manufacturing operations and commercial sales of its Kinetorr and
Kinetorr PC products.
CardioDyne believes that substantial additional financing would be required
to commence manufacturing activities and commercial sales in the event that its
proposed merger with Luxtec is not consummated. CardioDyne has made no
arrangements to obtain additional financing in such event, and there can be no
assurance that adequate additional financing on acceptable terms would be
available to CardioDyne if the proposed merger is not consummated. If sufficient
financing were not available to CardioDyne when needed, CardioDyne would be
required to defer its planned commencement of manufacturing operations and
commercial sales.
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BUSINESS
OVERVIEW
CardioDyne is engaged in the design and development of proprietary, motion
tolerant, non-invasive blood pressure ("BP") monitors for use on moving and
exercising patients. The products are designed for use in the categories of
exercise stress testing, emergency transport, obstetrics, and other applications
where frequent, accurate blood pressure data is vital, yet where existing blood
pressure monitors typically fail to work because of patient motion. CardioDyne's
two existing products, currently named the Kinetorr and the Kinetorr PC, have
been approved for sale in the United States by the Food and Drug Administration
(the "FDA"). CardioDyne is a development stage company and to date has not
generated any revenues from operations. CardioDyne was incorporated in February
1989 in Delaware. CardioDyne's telephone number is (617) 566-7753 and its
executive offices are currently located at 95 Clinton Road, Brookline,
Massachusetts 02146.
BACKGROUND
An important symptom of patients with life threatening conditions such as
shock, internal bleeding or heart failure, is usually a drop in blood pressure.
Thus, blood pressure is measured often on most patients, and is a key vital sign
in medicine.
The most common method of measuring blood pressure is by placing an
inflated cuff around the arm in order to occlude arterial blood flow. Blood
pressure is determined by slowly deflating the cuff and listening with a
stethoscope for Korotkoff sounds (arterial blood flow vibrations) that begin at
systolic BP and cease at diastolic BP. These measurements can be taken manually,
or by using various automated and semi-automated instruments or systems. Small
vibrations in the cuff pressure, called oscillometric pulses, are measured by
most automatic blood pressure monitors and are used to derive systolic and
diastolic blood pressure measurements.
For resting patients whose blood pressure must be sampled periodically,
automatic intermittent non-invasive blood pressure monitors are widely used.
Current measuring techniques are very sensitive to any motion of the patient
during the time that the actual reading is being taken. Most intermittent,
non-invasive BP monitors work poorly or do not work at all on patients who are
moving or being transported when the measurement is being taken. Motion
interferes with the ability to detect critical sounds and, therefore, it is very
difficult to measure the blood pressure of patients who are shivering,
exercising or being transported.
For patients whose blood pressure must be known more frequently, direct
blood pressure measurement is routinely used. In direct measurement, a fluid
filled catheter is introduced into an artery and connected to a pressure
transducer. This form of direct, invasive BP monitoring is expensive, painful to
the patient, requires frequent attention by a nurse or physician, and poses
risks of infection and blood clots. Although several continuous non-invasive
blood pressure monitors have been designed and introduced to the market, none
have received wide clinical use to date. CardioDyne believes this stems from
questions regarding the accuracy, stability, and motion tolerance of such
monitors.
PRODUCTS
CardioDyne has developed a proprietary electronic signal acquisition and
signal processing technology that separates "motion noise" from systolic and
diastolic blood pressure signals. CardioDyne has used this technology to develop
non-invasive blood pressure monitoring products that are motion tolerant.
CardioDyne has designed and built the Kinetorr, an automated monitor that
measures blood pressure on moving and exercising patients. CardioDyne has
developed two models of the Kinetorr, a dedicated function model (the
"Kinetorr") and an expanded function model (the "Kinetorr PC"). The Kinetorr has
a custom front panel with digital displays and front panel push-button controls.
After each measurement, large bright LED's display heart rate, systolic and
diastolic blood pressure, and rate pressure, while a two line LCD displays user
messages, system status, and previous measurement values.
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The Kinetorr PC substitutes a high resolution graphics display for the
digital displays. The patient's ECG is displayed graphically along with blood
pressure and heart rate trend data. The Kinetorr PC also has alarm capability on
heart rate and blood pressure.
Both the Kinetorr and Kinetorr PC can make hard copy records of patients'
data on an optional printer. Both units also have a built-in diskette drive for
electronic storage of results for off-line playback and analysis. New versions
of operating software can also be loaded into the monitors from the diskette
drive. Other features include a built in electronic stethoscope for listening to
Korotkoff sounds on headphones to verify monitor performance.
Both Kinetorr and Kinetorr PC have an RS232 port and can transmit measured
data to a remote computer or central station for display and storage. Certain
ECG stress test systems can also control the Kinetorr remotely and receive BP
values from the monitor. CardioDyne's monitors are built around an 80386 PC
computing "engine." CardioDyne has identified and made preliminary investigation
into several product line extensions of the basic technology. There can,
however, be no assurance that any new products can be developed or, if
developed, can be marketed and sold on a cost-effective and profitable basis.
CLINICAL APPLICATIONS AND MARKETS
CardioDyne believes that the initial target market segments for its
products will be for use in exercise stress testing, emergency transport,
obstetrics and for post-operative patients.
EXERCISE STRESS TESTING
The exercise stress test is a common non-invasive test for evaluating heart
function in known or suspected coronary artery disease. There are an estimated 5
million exercise stress tests done annually at approximately 20,000 exercise
stress test labs in the U.S. Most stress test labs now measure blood pressure on
their patients manually. Blood pressure must be measured accurately and often
(recommended by many experts to be at least once per minute) during the test. A
decline in systolic BP during exercise may reflect the presence of advanced
coronary artery disease, and is a criterion for immediate termination of the
stress test. This important indicator must be detected immediately to reduce
patient risk. Yet measuring blood pressure, either manually or automatically, is
difficult since the patient is moving and the treadmill creates interfering
background noise.
The Kinetorr incorporates a sensor and companion processing software that
significantly reduces the interference from motion and noise in the blood
pressure signal. CardioDyne believes this results in a reliable blood pressure
measurement during an exercise stress test. The Kinetorr has undergone clinical
trials at Beth Israel Hospital, and has been tested by physicians and clinicians
at several other hospitals, including Deaconess Hospital, and the University of
Massachusetts Medical Center.
EMERGENCY TRANSPORT
CardioDyne estimates that the emergency transport (ambulance) market for
the Kinetorr is potentially large. There are approximately 42,000 emergency
transport vehicles in the U.S., of which CardioDyne estimates that 30,000 are
potential candidates for products based on the Kinetorr technology.
CardioDyne estimates that emergency victims of accidents, heart attacks,
strokes, and other medical emergencies account for almost 10 million transports
in the U.S. CardioDyne further estimates that an additional 2 million medical
patients are transferred between hospitals annually in emergency transport
vehicles. These patients are often unstable or at risk of medical hazard, hence
their vital signs (blood pressure, heart rate, respiration, and oxygen
saturation) are measured frequently. Currently, blood pressure is measured
manually on most transport patients and the measurement is difficult to do even
by a skilled EMT because of the noise and vibration in the vehicle.
Preliminary tests indicate that the Kinetorr accurately measures blood
pressure during transports. even with a shivering patient and even in the
presence of vibration and noise.
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OBSTETRICS
Blood pressure is an important parameter to monitor during labor and
delivery due to the possibility of dangerously high blood pressures, hemorrhage
and shock, as well as other potential complications. Frequent, accurate blood
pressure information is important to manage these patients. However, women in
labor frequently shiver, particularly those receiving epidural anesthesia.
CardioDyne believes that shivering causes commonly used oscillometric blood
pressure monitors to become inaccurate or to cease working. To accurately
measure blood pressure on shivering patients, the alternatives are invasive
blood pressure measurement, which is expensive and risky, or frequent manual
monitoring. CardioDyne believes that the Kinetorr potentially provides a better
alternative, as it accurately measures and records blood pressure on moving or
shivering labor patients, without the cost and risk of invasive monitoring or
the constant attention of manual monitoring.
POST-OPERATIVE
Many recovery room patients experience post anesthesia tremors. These
patients are monitored for various vital signs, including blood pressure.
CardioDyne believes that current commercial models can become inaccurate or fail
to work in this application due to patient tremor and that a motion tolerant
monitor therefore may be well received in this market.
MANUFACTURING
CardioDyne has completed the development phase of the Kinetorr and Kinetorr
PC products but has not yet begun production of these products. Upon completion
of the proposed merger between CardioDyne and Luxtec, production will begin at
the Luxtec facilities in Worcester, Massachusetts. Luxtec expects to be able to
expand its production facilities at its present location with sufficient space
to be able to manufacture the CardioDyne products.
GOVERNMENT REGULATION
The Kinetorr and Kinetorr PC (as well as CardioDyne's planned products) are
medical devices subject to regulation by the FDA. Various states and foreign
countries in which these products may be sold in the future may impose
additional regulatory requirements.
The FDA classifies medical devices in commercial distribution into one of
the three classes, Class I, II or III. This classification is based on the
controls necessary to reasonably assure the safety and effectiveness of the
medical device. The Kinetorr products are Class II medical devices. Class I
devices are those devices whose safety and effectiveness can reasonably be
assured through general controls, such as adequate labeling, premarket
notification and adherence to the FDA's GMP (Good Manufacturing Practices)
regulations and compliance with provisions prohibiting misbranding or
adulteration. Some Class I devices are further exempted from some of the general
controls. Class II devices are those devices whose safety and effectiveness can
reasonably be assured through the use of general controls plus special controls,
such as performance standards, post-market surveillance, patient registries and
FDA guidelines. Class III devices are devices which must receive premarket
approval by the FDA to assure their safety and effectiveness. Generally, Class
III devices are limited to life-sustaining, life-supporting, implantable or
invasive devices.
If the manufacturer or distributor of medical devices can establish that a
proposed device is "substantially equivalent" to a legally marketed Class I or
Class II medical device or to a Class III medical device for which the FDA has
not yet required premarket approval, the manufacturer or distributor may seek
FDA marketing clearance for the device by filing a 510(k) Premarket
Notification. The 510(k) Premarket Notification must contain information showing
substantial equivalence of the device sought to be marketed to a legally
marketed device. The claim of equivalence may have to be supported by data and
materials, including test results. Following submission of the 510(k) Premarket
Notification, the manufacturer or distributor may not place the device into
commercial distribution until an order of substantial equivalence is issued by
the FDA. By regulation, the FDA has no specific time limit by which it must
respond to a 510(k) Premarket Notification. At this time, the FDA typically
responds to the submission of a 510(k) Premarket Notification within 150 to 200
days, but there can be no assurances that the FDA will respond within this time
frame in the future. The
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FDA order may declare that the device is substantially equivalent to another
legally marketed device and allow the proposed device to be marketed in the
United States. The FDA may, however, determine that the proposed device is not
substantially equivalent, or may require further information, such as additional
test data, before the FDA is able to make a determination regarding substantial
equivalence. If a device that has obtained 510(k) Premarket Notification
clearance is changed or modified in design, components, method of manufacture,
or intended use, such that the safety or effectiveness of the device could be
significantly affected, a new 510(k) Premarket Notification clearance must be
obtained before the modified device can be marketed in the United States.
In November 1991, CardioDyne received clearance from the FDA through the
510(k) Premarket Notification process to market the Kinetorr and Kinetorr PC
products. Additional FDA approvals will be required for any future CardioDyne
products. No assurance can be given that all necessary FDA approvals will be
received in a timely manner. The FDA's determination that a future CardioDyne
product is not substantially equivalent to another legally marketed device under
the Section 510(k) Premarket Notification procedure, or the FDA's request for
additional information with respect to future CardioDyne products, could delay
the market introduction of future CardioDyne products and could have a material
adverse effect on CardioDyne.
PATENTS AND PROPRIETARY INFORMATION
The medical device industry traditionally has placed considerable
importance on obtaining and maintaining patents and trade secret protection for
significant new technologies, products and processes. CardioDyne holds two
patents, including one for aspects of the technology underlying the Kinetorr
products.
CardioDyne believes that it must rely upon trade secrets, know-how and
continuing technological innovation to maintain its competitive position.
Employees and consultants of CardioDyne who have access to proprietary
information have signed confidentiality agreements with CardioDyne and
CardioDyne intends to require any new employees to sign similar confidentiality
agreements. There can be no assurance, however, that these agreements will
provide meaningful protection for the CardioDyne's trade secrets in the event of
unauthorized use or disclosure of such information. In addition, there can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to CardioDyne's
trade secrets.
COMPETITION
CardioDyne has identified two companies, Suntek and Colin Medical, that are
currently supplying exercise blood pressure monitors in the U.S. The companies
sell directly under their own name, and Colin produces an OEM version of its
monitor that is sold by Quinton. Critical care blood pressure monitors are sold
by numerous companies, including Critikon, Datascope, Colin, Hewlett Packard,
Spacelabs and others. CardioDyne believes that the Kinetorr's performance,
features and capabilities will allow it to compete effectively against these
products. Nonetheless, CardioDyne expects that many of its current and future
competitors will have financial, technical, marketing, sales, manufacturing,
distribution and other resources substantially greater than those of CardioDyne.
There can be no assurance that CardioDyne will be able to compete successfully
in its intended markets.
EMPLOYEES
CardioDyne currently has three full-time employees, of whom two are engaged
primarily in research and development and management activities and one is
engaged primarily in sales and marketing activities, and one part-time employee
engaged in financial and administrative activities. None of CardioDyne's
employees are governed by any collective bargaining agreement.
LITIGATION
CardioDyne is not a party to any legal proceedings.
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MANAGEMENT
<TABLE>
The names, ages and positions held by each director and executive officer
of CardioDyne are as follows:
<CAPTION>
NAME AGE POSITION
------------------- --- --------------------------------------------------
<S> <C> <C>
Paul Epstein....... 65 Chairman, Vice President and Chief Financial
Officer
Patrick G.
Phillipps........ 50 President and Chief Executive Officer
Mary Epstein....... 62 Vice President and Treasurer
David G. Tweed..... 51 Director
Robert R.
MacDonald........ 50 Director
Irwin J.
Gruverman........ 62 Director
</TABLE>
Mr. Epstein, a co-founder of CardioDyne, has served as Chairman, Vice
President and Chief Financial Officer since CardioDyne's formation in February
1989. Previously Mr. Epstein co-founded Electronic Image Systems Corporation,
Brattle Instrument Corporation and, most recently, Omni-Flow, Inc., which
introduced the first multiple medication, programmable infusion pump and was
acquired by Abbott Laboratories in 1989. Mr. Epstein holds B.S. and M.S. degrees
in Chemical Engineering and a B.S. degree in Business Management from MIT. Mr.
Epstein has been jointly awarded eleven patents in the medical instrumentation
and communications fields.
Mr. Phillipps, a co-founder of CardioDyne, has served as President and
Chief Executive Officer since CardioDyne's formation in February 1989. Mr.
Phillipps previously founded the engineering department of Lifeline Systems,
Inc., where he served as Vice President of Engineering and oversaw the
development and introduction of a new generation of Lifeline's hospital based
emergency call system for home use by the elderly. Mr. Phillipps holds an S.B.
degree in Electrical Engineering from MIT, and has been jointly awarded over a
dozen patents in the medical monitoring and related fields.
Ms. Epstein has served as CardioDyne's Vice President and Treasurer since
its formation in February 1989. Prior to joining CardioDyne, she held a variety
of positions in the areas of finance and accounting. Ms. Epstein received her
business training and graduated from the University of Havana.
Mr. Tweed has served as a director of CardioDyne since March 1991 and
previously served as CardioDyne's Vice President of Engineering from April 1989
to October 1994. Prior to joining CardioDyne, Mr. Tweed was Vice President of
Engineering of General Scanning, Inc., engaged in the research, design and
development of advanced optical systems and oscillographic strip chart
recorders. Mr. Tweed holds an S.B. degree in Electrical Engineering from MIT.
Mr. MacDonald has served as a director of CardioDyne since August 1991. Mr.
MacDonald has been employed by Across Data Systems, Inc. ("ADS"), a software
company, as President and Chief Executive Officer since May 1994 and has served
as a director of ProfitKey International, Inc., a subsidiary of ADS, since
November 1984. Mr. MacDonald has served as Chairman of the Board of Directors of
Land & Sea, Inc., a private manufacturer of marine accessories and computerized
dynamometers, since March 1990, and served as its Chief Executive Officer from
March 1990 to December 1994. Mr. MacDonald received a B.S. degree in Engineering
Physics and an M.E. degree in Electrical Engineering from Cornell University and
an M.B.A. degree from Harvard Business School.
Mr. Gruverman has served as a director of CardioDyne since October 1992.
Mr. Gruverman is the general partner of G&G Diagnostics Fund, L.P. III, a fund
which invests in medical diagnostic opportunities. He is also the founder and
Chairman of Microfluids International Corporation, a supplier of innovative
formulation equipment and methodologies to the health care, food, cosmetics,
home products and process industries. Mr. Gruverman is a licensed professional
engineer and a graduate of The Cooper Union (B.S. degree in Chemical
Engineering) and MIT (M.S. degree in Nuclear Engineering).
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<TABLE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the CardioDyne Common Stock as of July 30, 1995 by (i) each person
who is known by CardioDyne to own beneficially more than 5% of the CardioDyne
Common Stock, (ii) each executive officer of CardioDyne, (iii) each director of
CardioDyne and (iv) all executive officers and directors of CardioDyne as a
group:
<CAPTION>
NAME(1) NO. OF SHARES(2) PERCENTAGE
---------------------------------------------------------- ---------------- ----------
<S> <C> <C>
Paul Epstein.............................................. 363,688 8.6%
Mary Epstein.............................................. 353,132 8.4
Laura Epstein-Norris (3).................................. 367,079 8.7
Ruth Epstein (3).......................................... 367,079 8.7
Patrick G. Phillipps...................................... 507,499 12.0
Janice B. Phillipps....................................... 459,166 10.9
David G. Tweed............................................ 543,037 12.9
Alan Greene (3)........................................... 233,000 5.5
G&G Diagnostics Fund, L.P. III............................ 613,260 14.5
Robert R. MacDonald....................................... 39,375 0.9
Irwin J. Gruverman........................................ 613,260(4) 14.5
All executive officers and directors as a group (6
persons)................................................ 2,419,991 56.3
<FN>
---------------
* Less than 1%
(1) Paul and Mary Epstein are married to each other and Laura Epstein-Norris and
Ruth Epstein are their daughters. Patrick G. Phillipps and Janice B.
Phillipps are married to each other.
(2) Unless otherwise noted, each person identified possesses sole voting and
investment power with respect to such shares, subject to community property
laws where applicable. In certain cases, includes shares of CardioDyne
Common Stock to be issued prior to the Merger in exchange for stock options.
See "THE MERGER AGREEMENT -- Effects of the Merger -- CardioDyne Stock
Options/Convertible Notes."
(3) Includes some shares held jointly with spouse.
(4) Consists of the shares listed as held by G&G Diagnostics Fund, L.P. III, of
which Mr. Gruverman is the General Partner and over which shares Mr.
Gruverman exercises sole voting and investment power.
</TABLE>
SELECTED INFORMATION REGARDING LUXTEC
DESCRIPTION OF LUXTEC COMMON STOCK
The authorized capital stock of Luxtec Corporation consists of 2,000,000
shares of Luxtec Common Stock. As of September 5, 1995, there were 1,438,661
shares of Luxtec Common Stock issued and outstanding. In connection with this
Proxy Statement/PPM and the Merger Agreement, the stockholders of Luxtec are
being asked to approve an increase in the authorized shares of Luxtec Common
Stock from 2,000,000 to 10,000,000.
Holders of Luxtec Common Stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Luxtec Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for elections. Holders of Luxtec Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Luxtec Board
of Directors out of funds legally available therefor. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company available after the
payment of all debts and other liabilities. Holders of Luxtec Common Stock have
no preemptive, subscription, redemption or conversion rights. The outstanding
shares of Luxtec Common Stock are fully paid and nonassessable.
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MASSACHUSETTS ANTI-TAKEOVER LAW
As a Massachusetts corporation, Luxtec is subject to various Massachusetts
statutes regarding certain business combinations (MGL Ch. 110D) and "control
share acquisitions" (MGL Ch. 110F). The Board of Directors of Luxtec has
approved the Merger Agreement and the other transactions contemplated thereby so
as to render inapplicable thereto the provisions of Chapters 110D and 110F of
the Massachusetts General Laws ("MGL"). See "COMPARISON OF RIGHTS OF HOLDERS OF
LUXTEC COMMON STOCK AND CARDIODYNE COMMON STOCK -- State Anti-takeover
Statutes."
LUXTEC TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston is the transfer agent and registrar for
the Luxtec Common Stock.
COMPARISON OF RIGHTS OF HOLDERS OF
LUXTEC COMMON STOCK AND CARDIODYNE COMMON STOCK
GENERAL
Upon consummation of the transactions contemplated by the Merger Agreement,
all stockholders of CardioDyne will become stockholders of Luxtec. The present
stockholders of CardioDyne own common stock in a Delaware corporation. Since
Luxtec is a Massachusetts corporation, CardioDyne stockholders who receive
Luxtec Common Stock will be subject to the privileges and restrictions provided
by the Massachusetts Business Corporation Law (the "MBCL") and those contained
in the Luxtec Charter and Luxtec By-Laws, which differ in certain respects from
the Delaware General Corporation Law (the "DGCL") and the CardioDyne Charter and
CardioDyne By-Laws. The following is a summary of certain significant
differences which may affect the interests of shareholders. This summary is
qualified in its entirety by reference to the Massachusetts General Laws, the
MBCL, the DGCL, the Luxtec Charter and Luxtec By-Laws and the CardioDyne Charter
and CardioDyne By-Laws.
DIVIDENDS AND REPURCHASES
A Massachusetts corporation may pay dividends or repurchase or redeem its
shares of capital stock so long as such distributions can be made without
violating its articles of organization and without rendering the corporation
insolvent. Stockholders to whom a corporation made any such distribution (except
a distribution of stock of the corporation), if the corporation is, or is
thereby rendered, insolvent, are liable to the corporation for the amount of
such distribution made or for the amount of such distribution that exceeds an
amount that could have been made without rendering the corporation insolvent,
but in either event only to the extent of the amount paid or distributed to
them, respectively.
Under Delaware law, a corporation may, unless restricted by its certificate
of incorporation, pay dividends in cash, property or shares of capital stock out
of surplus or, if no surplus exists, out of net profits for the fiscal year in
which declared or out of net profits for the preceding fiscal year (provided
that such payment will not reduce capital below the amount of capital
represented by all classes of stock having a preference upon the distribution of
assets). Under Delaware law, a corporation may repurchase or redeem its shares
only out of surplus and only if such purchase does not impair capital. However,
a corporation may redeem preferred stock out of capital if such shares will be
retired upon redemption and the stated capital of the corporation is thereupon
reduced in accordance with Delaware law.
SIZE AND CLASSIFICATIONS OF THE BOARD OF DIRECTORS
Under the MBCL, a corporation with more than two stockholders must have at
least three directors and the exact number may be determined by a corporation's
articles of organization or by-laws. The Luxtec By-Laws provide that the total
number of director may be composed of not less than three directors and that the
exact number of directors shall be fixed at each annual meeting of stockholders.
The Luxtec By-Laws also provide that the size of the Board of Directors may be
increased by vote of a majority of the directors then in office. Consistent with
the MBCL, Luxtec's Board of Directors is divided into three classes, with
directors of each class elected by the stockholders to serve for staggered
three-year terms.
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The DGCL requires that a corporation have at least one director, with the
precise number to be determined by the corporation's certificate of
incorporation and by-laws. The CardioDyne By-Laws provide that its Board of
Directors shall consist of such number of directors as is determined by of the
stockholders or directors, but in no event less than one.
REMOVAL OF DIRECTORS
Under the MBCL, a director or class of directors of Luxtec may only be
removed for cause and only by the affirmative vote of the holders of a majority
of the outstanding shares of Luxtec entitled to vote on the election of
directors. A director may be removed for cause only after reasonable notice and
an opportunity to be heard before the stockholders. The MBCL defines "cause" in
this context to mean (a) conviction of a felony, (b) declaration of unsound mind
by order of court, (c) gross dereliction of duty, (d) commission of an action
involving moral turpitude, or (e) commission of an action which constitutes
intentional misconduct or a knowing violation of law if such action in either
event results both in an improper substantial personal benefit and a material
injury to the corporation.
Under the DGCL, any one of CardioDyne's directors or its entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at any election of directors. The CardioDyne
Charter incorporates such provisions from the DGCL.
AMENDMENT OF GOVERNING DOCUMENTS
Under the Luxtec By-Laws, as modified by the MBCL, the provisions of the
Luxtec By-Laws generally may be amended, added to or repealed in whole or in
part (a) by vote of the stockholders at a meeting where the substance of the
proposed amendment is stated in the notice of the meeting, or (b) by vote of a
majority of the directors then in office. However, no amendment may be made by
the board of Directors on any matters reserved to the stockholders by law or the
Luxtec Charter or which changes the provisions of the Luxtec By-Laws relating to
removal of Directors or procedures for amendment of the Luxtec By-Laws. The MBCL
provides that a corporation's articles of organization may be amended by a vote
of two-thirds of each class of stock outstanding and entitled to vote thereon
(except for an amendment to change a corporation's name, or to increase or
reduce its capital stock of any class then authorized, or to change the par
value of its authorized capital stock, any of which require a majority vote) or
a lesser proportion if so provided in the articles of organization. The Luxtec
Charter does not provide for amendment of the Luxtec Charter by a greater or
lesser proportion than is provided for by the MBCL. Any amendment to the Luxtec
Charter may only consist of additions or deletions which could have been added
to, or omitted from, the original Luxtec Charter at the time of the amendment.
If any amendment would adversely affect the rights of any class or series of
stock, then the vote of such class or series, voting separately, in the same
proportion as is otherwise required for such amendment of the Luxtec Charter,
also will be necessary to authorize such amendment.
The DGCL provides that a corporation's by-laws may be adopted, amended or
repealed by its stockholders and, if provided in the corporation's certificate
of incorporation, by its board of directors. A corporation's certificate of
incorporation may be amended under the DGCL, if upon such amendment the
certificate would contain only such provisions as it would be lawful and proper
to insert in an original certificate of incorporation filed at the time of
filing the amendment. An amendment to a certificate of incorporation would
require the approval of a majority of the stock entitled to vote thereon, and a
majority of the outstanding stock of each class entitled to vote thereon as a
class. The holders of the outstanding shares of a class or series are entitled
to vote as a class, whether or not entitled to vote under the certificate of
incorporation, if the amendment would increase or decrease the aggregate number
of authorized shares of such class, increase or decrease the par value of the
shares of such class or series, or alter or change its powers, preferences, or
special rights so as to affect them adversely.
The CardioDyne By-Laws provide that the By-Laws my be altered, amended or
repealed or new By-Laws may be adopted either by the Board of Directors or by
the stockholders.
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<PAGE> 66
APPRAISAL RIGHTS
Under Massachusetts law, appraisal rights are available in connection with
statutory mergers or consolidation (unless no vote of stockholders of the
corporation is required to approve the merger or consolidation), amendments of
articles or organization that adversely affect the rights of stockholders and
the sale, lease or exchange of all or substantially all of the corporation's
property and assets.
Under Delaware law, appraisal rights are available only in connection with
certain statutory mergers or consolidations. Such appraisal rights are 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 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 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 (a) and (b), or (d) any combination of the foregoing. Section 262
of the DGCL contains certain other provisions relating to when appraisal rights
are and are not available, and stockholders are encouraged to review such
section carefully.
POWER TO CALL SPECIAL MEETINGS OF STOCKHOLDERS
Under the MBCL and the Luxtec Bylaws, a special meeting of stockholders may
be called by the President, the Board of Directors or holders of at least 10% of
the capital stock entitled to vote at a meeting. Under the DGCL, a special
meeting of stockholders may be called by the board of directors or by any other
person authorized to do so in the certificate of incorporation or the bylaws.
The CardioDyne Bylaws authorize the Board of Directors, the President or the
Chairman of the Board to call a special meeting of stockholders. Although
permitted to do so, the CardioDyne Bylaws do not eliminate the right of
stockholders to call a special meeting of stockholders.
CONSENTS OF STOCKHOLDERS
Massachusetts law and the Luxtec By-Laws provide that any action required
or permitted to be taken at a meeting of stockholders may be taken without a
meeting only if all stockholders entitled to vote on the matter consent to the
action in writing.
Delaware law and the CardioDyne By-Laws provide that stockholder action may
be taken without a meeting upon the written consent of stockholders having not
less than the minimum number of votes that would be necessary to take such
action at a meeting at which all shares entitled to vote were present and voted.
REQUIRED VOTE FOR CERTAIN BUSINESS COMBINATION
The MBCL provides that an agreement of merger or consolidation, or a sale,
lease or exchange of all or substantially all of the property and assets of a
corporation must be approved by the holders of two-thirds of the shares of each
class of stock outstanding and entitled to vote thereon, unless a corporation's
articles of organization designate a lower percentage (but not less than a
majority). The Articles and By-Laws of Luxtec do not contain provisions which
require a specific lower or higher stockholder vote for such transactions.
The DGCL provides that an agreement of merger or consolidation or a sale of
other disposition of all or substantially all of a corporation's assets must be
approved by the holders of the majority of the outstanding stock entitled to
vote thereon.
STATE ANTI-TAKEOVER STATUTES
Massachusetts has a business combinations law which provides that if any
acquirer buys 5% or more of a target company's stock without the prior approval
of the target company's board of directors, such acquirer generally may not (i)
complete the acquisition through a merger, (ii) pledge or sell any assets of the
target company, or (ii) engage in other self-dealing transactions with the
target company for a period of three years.
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<PAGE> 67
The prior board approval requirement does not apply if the acquirer buys at
least 90% of the target company's outstanding stock in the transaction in which
it crosses the 5% threshold, or if the acquirer, after crossing the threshold,
obtains the approval of the target company's board and two-thirds of the target
company's stock held by persons other than the acquirer. This legislation
automatically applies to Massachusetts corporations, including Luxtec, which did
not elect to "opt out" of the statute.
The Massachusetts General Laws also include a statute concerning "control
share acquisitions" which limits the voting rights of shares held by persons who
have acquired a certain percentage of the voting power of the corporation. Under
the Massachusetts statute, shares acquired in a control share acquisition retain
the same voting rights as all other shares of the same class or series only to
the extent authorized by a vote of the majority of all shares entitled to vote
for the election of directors, excluding such acquired shares. This legislation
automatically applies to Massachusetts corporations, including Luxtec, which did
not elect to "opt out" of the statute.
The DGCL provides that a corporation shall not engage in any business
combination with an interested stockholder (generally defined as the holder of
15% or more of the corporation's voting stock) for a period of three years
following the date that such stockholders became an interested stockholder
unless (i) the board of directors approved the business combination or
transaction prior to the interested stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced; and (iii) the stockholders
approved the transaction with an affirmative vote of two-thirds of the
outstanding voting stock, excluding any stock owned by the interested
stockholder. See "Required Vote for Certain Business Combinations" above.
DISSENTERS' RIGHTS
Stockholders of CardioDyne who follow the procedures specified in Section
262 of the Delaware General Corporation Law ("Section 262") will be entitled to
have their shares of Common Stock appraised by the Delaware Court of Chancery
and to receive payment of the "fair value" of such shares, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
as determined by such Court. The procedures set forth in Section 262 should be
strictly complied with. Failure to follow any of such procedures may result in a
termination or waiver of appraisal rights under Section 262.
The following discussion of the provisions of Section 262 is not intended
to be a complete statement of its provisions and is qualified in its entirety by
reference to the full text of that section, a copy of which is attached as Annex
F to this Proxy Statement/PPM.
Under Section 262, a stockholder of CardioDyne electing to exercise
appraisal rights must both:
(1) deliver to CardioDyne, before the taking of the vote on the
proposal relating to the Merger Agreement, a written demand for appraisal
of his shares which reasonably informs CardioDyne of the identity of the
stockholder of record and that such record stockholder intends thereby to
demand the appraisal of his shares of CardioDyne Common Stock. This written
demand is in addition to and separate from any proxy or vote against the
proposal relating to the Merger Agreement. Neither a vote against the
proposal relating to the Merger nor a proxy directing such vote shall
satisfy the requirement that a written demand for appraisal be delivered to
CardioDyne before the vote on the proposal relating to the Merger
Agreement. Such written demand for appraisal should be delivered either in
person to the Chairman of CardioDyne at the CardioDyne Meeting before the
vote on the proposal relating to the Merger Agreement or in person or by
mail (certified mail, return receipt requested, being the recommended form
of transmittal) to Mr. Paul Epstein, Chairman, at CardioDyne, Inc., 95
Clinton Road, Brookline, Massachusetts 02146, prior to the CardioDyne
Meeting, AND
(2) not vote in favor of or consent in writing to the proposal
relating to the Merger Agreement. A failure to vote against the proposal
relating to the Merger Agreement will not constitute a waiver of appraisal
rights. HOWEVER, ANY STOCKHOLDER WHO EXECUTES A PROXY AND WHO DESIRES TO
PERFECT HIS APPRAISAL RIGHTS MUST MARK THE PROXY "AGAINST" THE PROPOSAL
RELATING TO THE MERGER AGREEMENT because if the Proxy is left blank, it
will be voted for the proposal relating to the Merger Agreement.
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<PAGE> 68
The written demand for appraisal must be made by or for the holder of
record of CardioDyne Common Stock registered in his name. Accordingly, such
demand should be executed by or for such stockholder of record, fully and
correctly, as such stockholder's name appears on his stock certificates. If the
stock is owned of record in a fiduciary capacity, such as by a trustee, guardian
or custodian, execution of the demand should be made in such capacity and if the
stock is owned of record by more than one person as in a joint tenancy or
tenancy in common, such demand should be executed by or for all joint owners. An
authorized agent, including one of two or more joint owners, may execute the
demand for appraisal for a stockholder of record. However, the agent must
identify the record owner or owners and expressly disclose the fact that in
executing the demand he is acting as agent for the record owner.
A record owner, such as a broker, who holds CardioDyne Common Stock as
nominee for others may exercise his right of appraisal with respect to the
shares held for all or less than all of the others. In such case the written
demand should set forth the number of shares covered by it. Where no number of
shares is expressly mentioned, the demand will be presumed to cover all shares
standing in the name of such record owner.
Within 10 days after the Effective Time, CardioDyne is required to, and
will, notify each stockholder of CardioDyne who has satisfied the foregoing
conditions of the date on which the Merger became effective. Within 120 days
after such date, CardioDyne or any such stockholder who has satisfied the
foregoing conditions and is otherwise entitled to appraisal rights under Section
262, may file a petition in the Delaware Court of Chancery demanding a
determination of the value of the shares of CardioDyne Common Stock held by all
stockholder entitled to appraisal rights. If no such petition is filed,
appraisal rights will be lost for all stockholders who had previously demanded
appraisal of their shares. Stockholders of CardioDyne seeking to exercise
appraisal rights should not assume that CardioDyne will file a petition with
respect to the appraisal of the value of their shares or that CardioDyne will
initiate any negotiations with respect to the "fair value" of such shares.
ACCORDINGLY, STOCKHOLDERS OF CARDIODYNE WHO WISH TO EXERCISE THEIR APPRAISAL
RIGHTS SHOULD REGARD IT AS THEIR OBLIGATION TO TAKE ALL STEPS NECESSARY TO
PERFECT THEIR APPRAISAL RIGHTS IN THE MANNER PRESCRIBED IN SECTION 262.
Within 120 days after the day of the Effective Time, any stockholder who
has complied with the provisions of Section 262 is entitled, upon written
request, to receive from CardioDyne a statement setting forth the aggregate
number of shares of Common Stock not voted in favor of adoption of the Merger
Agreement and with respect to which demands for appraisal were received by
CardioDyne, and the number of holders of such shares. Such statement must be
mailed within 10 days after the written request therefor has been received by
CardioDyne or within 10 days after expiration of the time for delivery of
demands for appraisal under Section 262, whichever is later.
If a petition for an appraisal is timely filed, after a hearing on such
petition the Delaware Court of Chancery will determine the stockholders of
CardioDyne entitled to appraisal rights and will appraise the value of the
CardioDyne Common Stock owned by such stockholders, determining its "fair value"
exclusive of any element of value arising from the accomplishment or expectation
of the Merger. The Court will direct payment of the fair value of such shares
together with a fair rate of interest, if any, on such fair value to
stockholders entitled thereto upon surrender to CardioDyne of share
certificates. Upon application of a stockholder, the Court may, in its
discretion, order that all or a portion of the expenses incurred by any
stockholder in connection with an appraisal proceeding, including without
limitation, reasonable attorneys' fees and the fees and expenses of experts, be
charged pro rate against the value of all the shares entitled to appraisal.
Although CardioDyne and Luxtec believe that the consideration per share to
be paid in the Merger is fair, neither can make any representation as to the
outcome of the appraisal of fair value as determined by the Delaware Court of
Chancery, and stockholders should recognize that such an appraisal could result
in a determination of a lower, higher or equivalent value. Moreover, Luxtec and
CardioDyne may or may not argue in an appraisal proceeding for a determination
of fair value by the Delaware Court of Chancery which is lower than the
consideration per share in the Merger Agreement. In determining the fair value
of the shares, the Court is required to take into account all relevant factors.
Therefore, such determination could be based upon
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considerations in addition to the price paid in the Merger, the market value of
the shares, asset values and earning capacity. In Weinberger v. UOP, Inc. et al.
(decided February 1, 1983), the Delaware Supreme Court stated with respect to
Section 262, among other things, that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should also be considered in an appraisal
proceeding.
Any stockholder of CardioDyne who has duly demanded an appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote his shares for any purpose nor be entitled to the payment of dividends or
other distributions on his shares (other than those payable to stockholders of
record as of a date prior to the Effective Time).
If no petition for an appraisal is filed within the time provided, or if a
stockholder of CardioDyne delivers to CardioDyne a written withdrawal of his
demand for an appraisal and an acceptance of the Merger, either within 60 days
after the Effective Time or with the written approval of CardioDyne thereafter,
then the right of such stockholder to an appraisal will cease and such
stockholder shall be entitled to receive the consideration, without interest, to
which he would have been entitled had he not demanded appraisal of his shares.
No appraisal proceeding in the Court of Chancery will be dismissed as to any
stockholder without the approval of the Court, which approval may be conditioned
on such terms as the Court deems just.
LEGAL MATTERS
The validity of the shares of Luxtec Common Stock offered hereby and
certain legal matters in connection with the Merger will be passed upon for
Luxtec by Bingham, Dana & Gould, Boston, Massachusetts.
Certain legal matters in connection with the Merger will be passed upon for
CardioDyne by Hale and Dorr, Boston, Massachusetts.
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PROPOSAL 2
APPROVAL OF THE ISSUANCE OF SHARES OF LUXTEC COMMON STOCK
IN CONNECTION WITH
THE AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
The Luxtec Board, by unanimous written consent dated June 28, 1995, has
approved the Merger Agreement (attached as Annex A to this Proxy Statement/PPM)
and the transactions contemplated thereby, including but not limited to the
issuance of up to one million (1,000,000) shares of the Company's Common Stock
in connection with the Merger.
Section 712 of the AMEX Listing Standards and Requirements requires the
approval of shareholders as a prerequisite to its approval of applications to
list additional shares in circumstances where, as here, such shares are to be
issued as consideration for an acquisition of the stock of another company and
where such issuance will result in an increase in the outstanding Luxtec Common
Stock of twenty percent (20%) or more. The issuance of the shares of Luxtec
Common Stock will allow the Company to complete the Merger referred to and
described in Proposal 1 above. As of the Luxtec Record Date, there were issued
and outstanding 1,438,661 shares of Luxtec Common Stock. If all of the 1,000,000
shares of Luxtec Common Stock are issued in connection with the Merger, there
will be 2,438,661 shares of Luxtec Common Stock issued and outstanding,
representing an increase of approximately seventy percent (70%).
The Luxtec Board recommends that the shareholders vote "FOR" the proposed
issuance of shares of Luxtec Common Stock in connection with the consummation of
the Merger Agreement and the transactions contemplated therein, and the enclosed
proxy will be so voted unless a contrary vote is indicated. The affirmative vote
of the holders of a majority of the shares of Luxtec Common Stock outstanding
and entitled to vote thereon is required for approval to issue the shares of
Luxtec Common Stock.
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PROPOSAL 3
ELECTION OF LUXTEC DIRECTORS
Section 50A of Chapter 156B of the Massachusetts General Laws provides for
a Board of Directors of such number as is fixed by the directors, and which is
divided into three classes serving staggered three-year terms. The Luxtec Board
has fixed the number of Directors at five (5). At the Luxtec Meeting, the terms
of the members of Class II, Lynn K. Friedel and James W. Hobbs, expire. Ms.
Friedel and Mr. Hobbs are the only nominees for election as Class II Directors
for a term to expire at the 1998 Annual Meeting of Stockholders.
Unless authority is withheld, it is the intention of the persons voting
under the enclosed proxy to vote such proxy in favor of the election of Ms.
Friedel and Mr. Hobbs to be directors of the Company until the 1998 Annual
Meeting of Stockholders and until their successors are elected and qualified.
The affirmative vote of a majority of the shares of Luxtec Common Stock present
or represented, and voting, at the Luxtec Meeting by proxy is required for the
election of Ms. Friedel and Mr. Hobbs.
The current member of Class I, with a term expiring at the 1997 Annual
Meeting of Stockholders, is Louis C. Wallace. The members of Class III, with a
term expiring at the 1996 Annual Meeting of Stockholders, are Thomas J.
VanderSalm and James Berardo.
<TABLE>
The following table sets forth, with respect to the members of the Luxtec
Board and management of the Company, (1) the name, age and length of service as
a director or executive officer, (ii) the principal occupation and business
experience of such person for at least the past five years, (iii) the names of
other companies of which such person currently serves as a director or executive
officer, and (iv) the amount and percentage of Luxtec Common Stock owned by each
such person as of June 30, 1995. The address for each person listed below is c/o
the Company at 326 Clark Street, Worcester, Massachusetts 01606-1214.
<CAPTION>
POSITION AND OFFICES
WITH THE COMPANY AND PERCENT OF
OTHER BUSINESS AMOUNT OF COMMON
EXPERIENCE DURING COMMON STOCK STOCK
NAME LAST FIVE YEARS OWNED DIRECTLY OUTSTANDING
------------------------------ ------------------------------------- --------------- -----------
<S> <C> <C> <C>
Louis C. Wallace.............. Louis C. Wallace has been a Director 19,250 1.34%
Age 54 of the Company since 1989. Mr.
Wallace is the founder and President
of Specialty Surgical
Instrumentation, Inc. ("SSI"), a
manufacturer and distributor of
surgical instruments. SSI was
established in Nashville, TN in 1976.
Mr. Wallace is a member of the
Compensation and Nominating
Committees of the Board of Directors.
Lynn K. Friedel............... Lynn K. Friedel has been a Director 1,500 *
Age 45 of the Company since 1988. Since
1994, Ms. Friedel has been Vice
President of IQ Systems, Inc., a
semiconductor company based in
Newtown, CT. Ms. Friedel was employed
at Termiflex Corporation of
Merrimack, NH, a manufacturer of hand
held computer terminals, from 1986 to
1993, most recently as Vice
President, Finance, Administration
and Manufacturing. Ms. Friedel is a
member of the Audit and Compensation
Committees of the Board of Directors.
</TABLE>
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<PAGE> 72
<TABLE>
<CAPTION>
POSITION AND OFFICES
WITH THE COMPANY AND PERCENT OF
OTHER BUSINESS AMOUNT OF COMMON
EXPERIENCE DURING COMMON STOCK STOCK
NAME LAST FIVE YEARS OWNED DIRECTLY OUTSTANDING
------------------------------ ------------------------------------- --------------- -----------
<S> <C> <C> <C>
James W. Hobbs................ James W. Hobbs was elected to the 4,100 *
Age 46 positions of President, Chief
Executive Officer and Director in
1993. Mr. Hobbs was Chief Executive
Officer of Graylyn Associates from
1992 to 1993. Graylyn was an
investment firm founded by Mr. Hobbs
to invest in early stage medical
technology. Prior to Graylyn, Mr.
Hobbs served as President and Chief
Executive Officer of Genica
Pharmaceuticals from 1990 to 1992.
Genica Pharmaceuticals is a
corporation engaged in providing new
diagnostic assays and conducting
therapeutic research for neurological
disorders. Mr. Hobbs was with Johnson
and Johnson Professional Diagnostics
as Vice President and General Manager
from 1985 to 1989. Mr. Hobbs is a
member of the Nominating Committee of
the Board of Directors.
Thomas J. VanderSalm.......... Dr. Thomas J. VanderSalm has been a 45,700(1) 3.18%
Age 54 Director of the Company since 1984.
Dr. VanderSalm is Chief of Cardio
Thoracic Surgery and has been a
Professor of Surgery at the
University of Massachusetts Medical
School in Worcester, MA since 1970.
Dr. VanderSalm is a member of the
Audit and Nominating Committees of
the Board of Directors.
James Berardo................. James Berardo has been a Director of 154,520(2) 10.74%
Age 35 the Company since 1995. Mr. Berardo
currently serves as President of
Darlco, Inc., a real estate
development and investment management
company. Mr. Berardo joined Darlco in
1986, serving in various financial
capacities prior to assuming his
current position in March, 1995. Mr.
Berardo is a member of the Audit and
Compensation Committees of the Board
of Directors.
</TABLE>
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<PAGE> 73
<TABLE>
<CAPTION>
POSITION AND OFFICES
WITH THE COMPANY AND PERCENT OF
OTHER BUSINESS AMOUNT OF COMMON
EXPERIENCE DURING COMMON STOCK STOCK
NAME LAST FIVE YEARS OWNED DIRECTLY OUTSTANDING
------------------------------ ------------------------------------- --------------- -----------
<S> <C> <C> <C>
Samuel M. Stein............... Samuel M. Stein is Vice President, 415 *
Age 55 Chief Financial Officer, Treasurer
and Assistant Clerk of the Company.
Mr. Stein joined the Company in
October, 1993 as Vice President of
Finance and Chief Financial Officer.
During 1994, he was elected to the
further offices of Treasurer and
Assistant Clerk. From 1990 to 1993,
Mr. Stein was employed as the
Corporate Controller of Great
American Software, Inc., an
accounting software manufacturer.
<FN>
---------------
* Less than 1%
(1) Includes 32,000 shares of the Company's Common Stock owned of record by the
trustees of the VanderSalm Family Trust. Mr. VanderSalm is neither a
trustee nor beneficiary of this trust and disclaims beneficial ownership of
such shares.
(2) Mr. Berardo beneficially owns, as trustee of various trusts, 154,520 shares
of the Company's Common Stock.
</TABLE>
<TABLE>
The following table sets forth as of June 30, 1995, the name of each person
who, to the knowledge of the Company, owned beneficially more than 5% of the
shares of Common Stock of the Company outstanding at such date, the number of
shares owned by each of such persons and the percentage of the outstanding
shares represented thereby.
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS AMOUNT AND NATURE COMMON
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP STOCK OUTSTANDING
------------------------------------------------------ ----------------------- -------------------
<S> <C> <C>
Denton A. Cooley, M.D................................. 352,378 24.49%
6624 Fannin Suite 2700
Houston, TX 77030
Rita Kloots........................................... 155,100 10.78%
Box 1077
Sturbridge, MA 01566
James Berardo......................................... 154,520(1) 10.74%
6624 Fannin Suite 2700
Houston, TX 77030
<FN>
---------------
(1) Mr. Berardo beneficially owns, as trustee of various trusts, 154,520 shares
of the Company's Common Stock.
</TABLE>
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended October 31, 1994 (the "1994 Fiscal Year"), the
Luxtec Board held five (5) meetings. During the 1994 Fiscal Year, each incumbent
director attended at least 75% of the aggregate of the total number of meetings
of the Luxtec Board and the total number of meetings held by all committees on
which the individual director served.
The Audit Committee presently is composed of three directors: Lynn K.
Friedel, Thomas J. VanderSalm and James Berardo. Responsibilities of this
committee include engagement of independent auditors, review of
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<PAGE> 74
audit fees, supervision of matters relating to audit functions, review and
setting of internal policies and procedures regarding audits, accounting and
other financial controls, and reviewing related party transactions. During the
1994 Fiscal Year, the Audit Committee met two (2) times.
The Compensation Committee presently is composed of three directors: Lynn
K. Friedel, Louis C. Wallace and James Berardo. Responsibilities of this
committee include approval of remuneration arrangements for executive officers
of the Company, review and approval of compensation plans relating to executive
officers and directors, including grants of stock options and other benefits
under the Company's stock option plan, and general review of the Company's
employee compensation policies. None of the members of the Compensation
Committee has been an employee of the Company at any time and none has any
relationship with either the Company or the Company's officers requiring
disclosure under applicable regulations of the Securities and Exchange
Commission. During the 1994 Fiscal Year, the Compensation Committee met two (2)
times.
The Nominating Committee is presently composed of three directors: James
Berardo, Thomas J. VanderSalm and James W. Hobbs. Responsibilities of this
committee include establishing the criteria, and reviewing the qualifications of
individuals, for election as members of the Board of Directors. During the 1994
Fiscal Year, the Nominating Committee met one (1) time.
<TABLE>
EXECUTIVE COMPENSATION
The table below sets forth certain compensation information for the fiscal
years ended 1994, 1993 and 1992 with respect to the Company's Chief Executive
Officer. No other executive officer of the Company receives compensation in
excess of $100,000.
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
NAME AND FISCAL ---------------------- AWARDS ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
---------------------------------------- ----------- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
James W. Hobbs.......................... 1994 $154,903 $23,500 0 --
President, CEO and Director 1993 115,385 16,000 50,000 --
1992 -- -- --
</TABLE>
<TABLE>
The following table discloses, for the Chief Executive Officer, information
regarding stock options granted or exercised during, or held at the end of,
Fiscal Year 1994 pursuant to the Company's stock option plan.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options granted to the Chief Executive Officer of the Company
in the last fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
<CAPTION>
NUMBERS OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
10/31/94(#) 10/31/94($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
-------------------------------- --------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
James W. Hobbs.................. -0- -0- 20,000/30,000 $80,000/120,000
<FN>
---------------
(1) Value is based on the closing sale price of the Common Stock as of October
31, 1994 ($5.25) minus the exercise price of $1.25.
</TABLE>
68
<PAGE> 75
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with James W. Hobbs,
pursuant to which the Company has agreed to employ Mr. Hobbs as President and
Chief Executive Officer. The agreement with Mr. Hobbs was entered into on June
10, 1993 with an initial term of one year with automatic renewals for successive
terms of one year each unless either party gives notice of intention not to
renew. The Compensation Committee of the Luxtec Board set Mr. Hobbs' base salary
for Fiscal Year 1994 at $155,000, and for Fiscal Year 1995 at $162,000. Mr.
Hobbs is entitled to receive an annual bonus in cash and/or equity of the
Company from an annual bonus pool based on 1.5% of the net sales of the Company,
with such bonus to be determined by the Compensation Committee. Factors taken
into account by the Compensation Committee in determining bonuses include return
on investment, net sales, and net income compared to the business plan. Although
there is no maximum percentage bonus, 30% of base salary is the expected
guideline. Mr. Hobbs is entitled to severance pay in an amount equal to six
months of his then current annual salary if his employment is terminated by (i)
the Company without cause or (ii) Mr. Hobbs for Good Reason (as defined in the
agreement).
DIRECTOR COMPENSATION
The Company pays non-employee directors $500 for attendance at each meeting
of the Luxtec Board, $250 per each meeting of a committee thereof ($150 per
meeting of a committee if such meeting is concurrent with a regular meeting of
the Luxtec Board), and $100 per meeting held by telephone conference. The
Company also pays expenses for attendance at meetings of the Luxtec Board and
committees thereof. Additionally, if the 1995 Stock Option Plan For Non-Employee
Directors (described in Proposal 3 below) is adopted, non-employee Directors
will be compensated with options to purchase shares of Common Stock of the
Company.
REPORTS OF BENEFICIAL OWNERSHIP
Based solely on a review of reports furnished to the Company or written
representations from the Company's directors and executive officers, the Company
believes that all reports required to be filed pursuant to Section 16 of the
Exchange Act were satisfied by the Company's directors, executive officers and
ten percent (10%) holders during the 1994 fiscal year, except that Louis C.
Wallace filed one late Form 4 reporting two (2) transactions.
CERTAIN TRANSACTIONS
Mr. Louis C. Wallace is currently, and has been since 1989, a member of the
Board of Directors of the Company. Mr. Wallace is the founder and President of
Specialty Surgical Instrumentation, Inc. ("SSI"), a surgical distributor in ten
(10) southeastern states. SSI is the largest single customer of the Company,
representing approximately fifteen percent (15%) of net sales during fiscal
1994. SSI and the Company operate at arms length with a contract substantially
the same as the other domestic distributors of the Company's products. The
Company expects that SSI will represent approximately the same percentage of net
sales during fiscal 1995 as occurred during fiscal 1994.
69
<PAGE> 76
PROPOSAL 4
AMENDMENT OF THE COMPANY'S 1992 STOCK OPTION PLAN TO INCREASE
THE NUMBER OF SHARES AUTHORIZED FOR ISSUANCE UNDER THE PLAN
The Luxtec Board has authorized, subject to stockholder ratification, an
increase in the number of shares available under the Company's 1992 Stock Option
Plan (the "1992 Stock Plan") from 100,000 to 300,000 shares, and to limit the
number of options that may be granted to any one individual in any calendar year
to 100,000.
Purpose. The purpose of the 1992 Stock Plan is to attract and retain the
best available personnel for positions of substantial responsibility and to
provide additional incentives to employees of the Company. The purpose of the
proposed amendment is (i) to provide the Company with additional capacity to
award stock options to existing personnel and to attract qualified new employees
through grants of stock options, and (ii) to ensure that the 1992 Stock Plan
complies with recent changes to the Internal Revenue Code of 1986, as amended
(the "Code"), relating to executive compensation.
Administration. The 1992 Stock Plan is administered by the Compensation
Committee (the "Committee") which consists of directors of the Company appointed
by its Board of Directors. The Committee is currently composed of Mr. Wallace
Mr. Berardo and Ms. Friedel. Subject to the provisions of the 1992 Stock Plan,
the Committee has discretion to determine when awards are made, which employees
are granted awards, the number of shares subject to each award and all other
relevant terms of the awards. The Committee also has broad discretion to
construe and interpret the 1992 Stock Plan and adopt rules and regulations
thereunder.
Eligibility. Pursuant to the 1992 Stock Plan, Options, Awards and
Purchases (collectively "Stock Rights") may be granted to persons who are
directors, officers, employees and consultants of the Company. Incentive stock
options ("ISOs") may only be granted to employees and officers, non-qualified
stock options (collectively with ISOs, "Options") may be granted to directors,
officers, employees and consultants of the Company. Awards of stock in the
Company ("Awards"), and opportunities to make direct purchases of stock in the
Company ("Purchases"), may be granted to directors, officers, employees and
consultants of the Company.
Shares Subject to the 1992 Stock Plan. The shares issued or to be issued
under the 1992 Stock Plan are shares of Luxtec Common Stock, which may be newly
issued shares or shares held in the treasury or acquired in the open market.
Previously, no more than 100,000 shares could be issued under the 1992 Stock
Plan. The foregoing limit is subject to adjustment for stock dividends, stock
splits or other changes in the Company's capitalization.
Stock Options. The Committee in its discretion may issue stock options
which qualify as ISOs under the Code or non-qualified stock options. The
Committee will determine the time or times when each Option becomes exercisable,
the period within which it remains exercisable and the price per share at which
it is exercisable, provided that no Option shall be exercised (i) more than 10
years after it is granted, and (ii) more than 5 years from the date of grant for
ISOs granted to employees owning stock possessing more than 10% of the total
combined voting power of the stock of the Company, and further provided that the
exercise price of ISOs may not be less than the fair market value of Luxtec
Common Stock on the date of grant. The reported closing price of Luxtec Common
Stock by the AMEX on July 19, 1995 was $5.38 per share.
Stock Rights are not assignable or transferable except upon the death of
the grantee. Stock Rights may be exercised only by the grantee during the
grantee's lifetime, and with respect to ISOs, only while the grantee is employed
by the Company and for three months thereafter or six months after the death of
the grantee by the administrator of the estate of such grantee.
As of October 31, 1994, Stock Rights for the purchase of a total of 95,000
shares of Luxtec Common Stock were outstanding under the 1992 Stock Plan, 35,000
of which were exercisable, and Stock Rights to purchase an additional 5,000
shares remained available for grant under the 1992 Stock Plan. Stock Rights
granted are exercisable at varying dates. In general, options granted vest 20%
at date of grant, and 20% each year thereafter for a period of four years. Other
performance-based options will vest at a rate of 20% each year for a period of
five years, commencing on the sixth year from the date of grant, subject to
acceleration if certain financial milestones are achieved.
70
<PAGE> 77
Federal Income Tax Rules. The grant of an ISO or a non-qualified stock
option will not result in income for the optionee or in an income tax deduction
for the Company.
The exercise of a non-qualified stock option will generally result in
taxable income to the optionee and a deduction for the Company, in each case
measured by the difference between the purchase price and the fair market value
of the shares of Luxtec Common Stock determined generally at the time of
exercise at which time income tax withholding will be required.
The exercise of an ISO will not result in income for the optionee if the
optionee is an employee of the Company or one of its subsidiaries from the date
of grant until three months before the exercise. The excess of the market value
on the exercise date over the purchase price is an item of tax preference,
potentially subject to the alternative minimum tax. Provided the optionee does
not dispose of the shares of Luxtec Common Stock within two years after the date
of grant and one year after exercise, any gain on a disposition of the shares
will be taxed to the optionee as long-term capital gain and the Company will not
be entitled to a deduction. If the optionee disposes of the shares prior to the
expiration of either of the holding periods, the optionee will recognize taxable
income and the Company will be entitled to a deduction equal to the lesser of
(i) the fair market value of the shares on the exercise date minus the purchase
price or (ii) the amount realized on disposition minus the purchase price. Any
gain greater than the taxable income portion will be treated as long term or
short term capital gain.
<TABLE>
The following table sets forth as of October 31, 1994, the number of
options granted under the 1992 Stock Plan to the persons and groups listed.
OPTIONS GRANTS UNDER THE 1992 STOCK PLAN
<CAPTION>
NAME OPTIONS (SHARES)
---------------------------------------------------------------------- ----------------
<S> <C>
James W. Hobbs........................................................ 50,000
All executive officers as a group..................................... 70,000
All directors, excluding executive officers, as a group............... -0-
All employees, excluding executive officers, as a group............... 10,000
</TABLE>
The Luxtec Board recommends that the shareholders vote "FOR" the proposed
amendment of the 1992 Stock Plan and the enclosed proxy will be so voted unless
a contrary vote is indicated. The affirmative vote of the holders of a majority
of the shares of Luxtec Common Stock represented in person or by proxy, and
voting, at the Luxtec Meeting is required for approval of the amendment of the
1992 Stock Plan.
71
<PAGE> 78
PROPOSAL 5
APPROVAL OF THE COMPANY'S 1995 STOCK OPTION
PLAN FOR NON-EMPLOYEE DIRECTORS
The Luxtec Board adopted the 1995 Stock Option Plan For Non-Employee
Directors (the "1995 Directors' Plan") on December 8, 1994, subject to
shareholder approval. A copy of the 1995 Directors' Plan is annexed to this
Proxy Statement/PPM as Annex G.
Purpose. The purpose of the 1995 Directors' Plan is to attract and retain
highly qualified directors of the Company who are not also officers or employees
of the Company and to encourage such directors to own shares of Luxtec Common
Stock, so as to provide additional incentives to promote the success of the
Company.
Administration. The 1995 Directors' Plan will be administered by a
committee consisting of the members of the Luxtec Board who are not eligible to
participate in such plan, currently James W. Hobbs. Grants of stock options
under the 1995 Directors' Plan are automatic as provided therein. All questions
of interpretation of the 1995 Directors' Plan or of any options issued
thereunder are to be determined by the foregoing committee, provided that such
committee has no discretion with respect to the eligibility or selection of
directors to receive options, the timing of grants or the number of shares of
Luxtec Common Stock subject to the 1995 Directors' Plan or any option granted
thereunder.
Eligibility. All directors of the Company who are not employees or
officers of the Company or any subsidiary of the Company are eligible to
participate in the 1995 Directors' Plan.
Shares Subject to the 1995 Directors' Plan. The shares to be issued under
the 1995 Directors' Plan are shares of Luxtec, which may be newly issued shares
or shares held in the treasury. No more than 200,000 shares may be issued under
the 1995 Directors' Plan, provided, that the foregoing limit is subject to
adjustment for stock dividends, stock splits or other changes in the Company's
capitalization.
Stock Options. Under the 1995 Directors' Plan, members of the Luxtec Board
who are not employees of the Company are automatically granted non-qualified
stock options to purchase 12,000 shares of Luxtec Common Stock, on the date each
non-employee director is elected or reelected to the Luxtec Board for a
three-year term or an option to purchase a pro rata amount of shares if such
director is elected or reelected to serve less than a three-year term. In
addition, the 1995 Directors' Plan provides that any non-employee director who
is appointed by the Luxtec Board will receive on the date of the next Annual
Stockholders Meeting of the Company an option to purchase a pro rata number of
shares.
All options granted under the 1995 Directors' Plan are nonstatutory options
not intended to qualify under Section 422 of the Code.
Options granted under the 1995 Directors' Plan are not assignable or
transferable except upon death of an optionee and are exercisable during the
optionee's lifetime only by the optionee.
Initial Option Grants. The 1995 Directors' Plan provides that each person
that was a non-employee director at the time of the adoption of the 1995
Directors' Plan by the Company's Board of Directors on December 8, 1994 shall
receive a fully vested option to purchase 8,000 shares of Luxtec Common Stock,
effective as of December 8, 1994 (the "Initial Options"). If at the Luxtec
Meeting this proposal is approved, each of Messrs. Wallace, VanderSalm, Friedel
and the estate of Gerard Maley, a non-employee director on December 8, 1994,
will each receive an Initial Option. If reelected, Ms. Friedel will also receive
an option to purchase an additional 12,000 shares of Luxtec Common Stock.
Exercise Price. The exercise price for such options will be equal to the
fair market value of Luxtec Common Stock on the date of grant.
Term and Vesting. Each option expires at the earlier of (i) 90 days after
such non-employee director no longer serves as a director of the Company or (ii)
the end of ten years and one day after the date on which the option was granted.
The initial options for 8,000 shares of Luxtec Common Stock granted to all
current non-employee directors are fully exercisable on the date of grant. The
options for 12,000 shares of Luxtec Common
72
<PAGE> 79
Stock granted upon election to a three-year term (or pro rata portion thereof),
shall become exercisable with respect to 4,000 shares on the date of grant and
with respect to 4,000 shares on each of the first and second anniversaries of
such date if the option holder is a non-employee director of the Company at the
opening of business on that date.
Federal Income Tax Rules. The grant of a non-qualified stock option under
the 1995 Directors' Plan will not result in income for the director or in an
income tax deduction for the Company. The exercise of a non-qualified stock
option will generally result in taxable income to the director and a deduction
for the Company, in each case measured by the difference between the purchase
price and the fair market value of the shares of Luxtec Common Stock determined
generally at the time of exercise.
<TABLE>
The following table sets forth as of the date of the Luxtec Meeting, the
number of options that will be granted under the 1995 Directors' Plan to the
current non-employee directors if the 1995 Directors' Plan is approved at the
Luxtec meeting.
<CAPTION>
NAME OPTION (SHARES)
-------------------------------------------------------------- ---------------
<S> <C>
James Berardo................................................. --
Lynn Friedel.................................................. 20,000
Thomas VanderSalm............................................. 8,000
Louis Wallace................................................. 8,000
All current non-employee directors............................ 36,000
</TABLE>
The Luxtec Board recommends that the shareholders vote "FOR" the proposed
adoption of the 1995 Directors' Plan and the enclosed proxy will be so voted
unless a contrary vote is indicated. The affirmative vote of the holders of a
majority of the shares of Luxtec Common Stock represented in person or by proxy,
and voting, at the Luxtec Meeting is required for approval of the 1995
Directors' Plan.
73
<PAGE> 80
PROPOSAL 6
APPROVAL OF THE AMENDMENT TO THE COMPANY'S
ARTICLES OF ORGANIZATION
The Luxtec Board, by unanimous written consent dated July 26, 1995, has
recommended the adoption of Articles of Amendment (attached to this Proxy
Statement/PPM as Annex B-2 the "Amendment"), amending the Luxtec Charter
(attached to this Proxy Statement/PPM as Annex C) in order to limit the personal
liability of directors for breaches of their fiduciary duties in certain
situations and to provide for indemnification of officers and directors of the
Company in certain situations.
Based on information and advise provided to the Company by its legal
counsel, the Company believes that it is current standard practice in most
public companies to provide (i) some type of limited personal liability
protection to directors to the extent permitted by applicable law and (ii) for
the indemnification of officers and directors in certain situations. With
respect to the limitation of personal liability, the Amendment will amend
Article 6 in the Luxtec Charter by providing for this limited protection while
specifically noting that such protection does not apply to (a) breaches of a
director's duty of loyalty to the Company or its stockholders, (b) acts or
omissions not in good faith involving intentional misconduct or knowing
violations of the law, (c) transactions involving unauthorized distributions or
loans to Company insiders, and/or (d) transactions from which the director
derived an improper personal benefit. With respect to the indemnification of
officers and directors, the Amendment will provide for the indemnification of
each person who is made a party to or otherwise involved in any legal proceeding
by reason of such person being or having been an officer or director of the
Company against all expenses, losses or liabilities resulting from such
proceeding unless such person shall have been adjudicated in such proceeding not
to have acted in good faith in the reasonable belief that his or her action was
in the best interests of the Company.
The Amendment is intended to update the language in the Luxtec Charter to
reflect the current state of the law with respect to these areas. Although the
Company has, to date, not had any difficulty in attracting or retaining
directors, the Company believes the Amendment is necessary to continue to
attract and retain the most qualified persons to serve as directors and officers
of the Company. The proposed Amendment is being submitted to the stockholders of
the Company at this time because the Company was previously unaware that the
provisions contained in the Luxtec Charter concerning limitation of liability of
directors and indemnification of officers and directors did not extend to the
full extent permitted by applicable law. It is only after the Company engaged
new legal counsel and such counsel reviewed the Luxtec Charter that the Company
became aware of this.
If approved by the stockholders at the Luxtec Meeting, the principal effect
of the portion of the proposal concerning limitation of liability of directors
is to eliminate certain causes of action that stockholders might otherwise be
able to pursue against directors. Because there could be future situations in
which such limitation of liability would benefit directors of the Company at the
expense of its stockholders, the directors are deemed as having a conflict of
interest in making the proposal. There is currently no pending or threatened
litigation that could result in any liability of the Company's directors of the
kind that would be limited by the provisions set forth in the Amendment if it
were currently in effect.
The Luxtec Board recommends that the shareholders vote "FOR" the proposed
amendment of the Luxtec Charter and the enclosed proxy will be so voted unless a
contrary vote is indicated. The affirmative vote of the holders of two-thirds of
the shares of Luxtec Common Stock outstanding and entitled to vote thereon is
required for approval of the Amendment to the Luxtec Charter.
74
<PAGE> 81
PROPOSAL 7
RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
Arthur Andersen LLP, independent certified public accountants, have been
auditors of the Company since 1991. The Luxtec Board has recommended that the
stockholders ratify the reappointment of Arthur Andersen LLP as the Company's
auditors for the current fiscal year.
A representative of Arthur Andersen LLP is expected to be present at the
Meeting and will be available to answer any appropriate questions.
The Luxtec Board recommends that the shareholders vote "FOR" the proposal
to ratify the appointment of Arthur Andersen LLP, and the enclosed proxy will be
so voted unless a contrary vote is indicated. The affirmative vote of the
holders of a majority of the shares of Luxtec Common Stock represented in person
or by proxy, and voting, at the Luxtec Meeting is required to ratify the
appointment of Arthur Andersen LLP. In the event the appointment of Arthur
Andersen LLP should not be approved by the shareholders, the Luxtec Board will
make another appointment to be effective at the earliest possible time.
75
<PAGE> 82
STOCKHOLDER PROPOSALS
The Luxtec Board will make provision for presentation of proposals by
shareholders at the 1996 Annual Meeting of Stockholders (or special meeting in
lieu thereof) provided such proposals are submitted by eligible shareholders who
have complied with the relevant regulations of the Securities and Exchange
Commission. Such proposals must be received by the Company no later than
December 31, 1995 to be considered for inclusion to the Company's proxy
materials relating to that meeting.
GENERAL
The management of the Company knows of no matter other than the foregoing
to be brought before the Luxtec Meeting. However, the enclosed proxy gives
discretionary authority in the event any additional matters should be presented.
The Company will provide free of charge to any stockholder from whom a
proxy is solicited pursuant to this Proxy Statement/PPM, upon written request
from such stockholder, a copy of the Company's annual report filed with the
Securities and Exchange Commission on Form 10-K for the Company's fiscal year
ended October 31, 1994. Requests for such report should be directed to Luxtec
Corporation, 326 Clark Street, Worcester, Massachusetts 01606-1214, Attention:
Chief Financial Officer.
The Company expects to hold its next stockholder meeting on or about April
18, 1996 and proxy materials in connection with that meeting are expected to be
mailed approximately 30 days prior to the meeting.
JAMES W. HOBBS
President
76
<PAGE> 83
<TABLE>
CARDIODYNE, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of December 31, 1993 and 1994 and June 30, 1995 (Unaudited)......... F-3
Statements of Operations for the Years Ended December 31, 1992, 1993 and 1994, for the
Period from Inception (February 28, 1989) to December 31, 1994, for the Six Months
Ended June 30, 1994 (Unaudited), for the Six Months Ended June 30, 1995 (Unaudited)
and for the Period from Inception (February 28, 1989) to June 30, 1995
(Unaudited)......................................................................... F-4
Statements of Stockholders' Equity (Deficit) for the Period from Inception (February
28, 1989) to June 30, 1995 (Unaudited).............................................. F-5
Statements of Cash Flows for the Years Ended December 31, 1992, 1993 and 1994, for the
Period from Inception (February 28, 1989) to December 31, 1994, for Six Months Ended
June 30, 1994 (Unaudited), for the Six Months Ended June 30, 1995 (Unaudited) and
for the Period from Inception (February 28, 1989) to June 30, 1995 (Unaudited)...... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 84
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CardioDyne, Inc.:
We have audited the accompanying balance sheets of CardioDyne, Inc. (a
Delaware corporation in the development stage) as of December 31, 1993 and 1994,
and the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 1994 and
for the period from inception (February 28, 1989) to December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CardioDyne, Inc. as of
December 31, 1993 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1994 and for the
period from inception (February 28, 1989) to December 31, 1994, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1 and 7 to the
financial statements, the Company has experienced recurring losses from
operations and has a net capital deficiency that raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are described in Notes 1 and 7. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
ARTHUR ANDERSON L.L.P.
Boston, Massachusetts
April 21, 1995
F-2
<PAGE> 85
<TABLE>
CARDIODYNE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30, 1995
1993 1994 -------------
--------- --------- (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................ $ 27,106 $ 24,230 $ 15,472
--------- --------- ---------
PROPERTY AND EQUIPMENT, AT COST
Office equipment..................................... 5,963 5,963 5,963
Less -- Accumulated depreciation..................... 3,993 4,672 4,842
--------- --------- ---------
1,970 1,291 1,121
--------- --------- ---------
OTHER ASSETS........................................... 108,727 115,265 119,914
--------- --------- ---------
$ 137,803 $ 140,786 $ 136,507
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable..................................... $ 33,192 $ -- $ 702
Accrued expenses..................................... 72,437 42,332 49,197
Deferred revenue..................................... -- -- 125,000
Loan payable to stockholder.......................... 50,000 -- --
Convertible notes payable due to stockholders........ -- 50,000 --
--------- --------- ---------
Total current liabilities.................... 155,629 92,332 174,899
--------- --------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value --
Authorized -- 5,000,000 shares
Issued and outstanding -- 3,181,327 shares in 1993
and 4,090,438 shares in 1994 and 4,220,670
shares in 1995.................................. 31,813 40,904 42,207
Additional paid-in capital........................... 355,831 801,296 378,072
Deficit accumulated during the development stage..... (405,470) (793,746) (958,671)
--------- --------- ---------
Total stockholders' equity (deficit)......... (17,826) 48,454 (38,392)
--------- --------- ---------
$ 137,803 $ 140,786 $ 136,507
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 86
<TABLE>
CARDIODYNE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<CAPTION>
INCEPTION
YEARS ENDED DECEMBER 31, INCEPTION TO SIX MONTHS ENDED JUNE 30, TO
-------------------------------- DECEMBER 31, ------------------------- JUNE 30,
1992 1993 1994 1994 1994 1995 1995
-------- --------- --------- ------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
EXPENSES
Research and development..... $ 44,342 $ 183,971 $ 200,243 $ 508,928 $ 56,137 $ 36,075 $ 545,003
General and administrative... 33,086 68,548 82,371 157,228 103,105 102,098 259,326
Selling and marketing........ 6,389 5,257 106,868 129,019 84,562 23,833 152,852
--------- --------- --------- --------- --------- --------- ---------
Loss from operations..... (83,817) (257,776) (389,482) (795,175) (243,804) (162,006) (957,181)
--------- --------- --------- --------- --------- --------- ---------
INTEREST INCOME................ 755 2,061 1,425 4,833 1,027 -- 4,833
--------- --------- --------- --------- --------- --------- ---------
INTEREST EXPENSE............... (2,257) -- (219) (3,404) -- (2,919) (6,323)
--------- --------- --------- --------- --------- --------- ---------
NET LOSS....................... $(85,319) $(255,715) $(388,276) $ (793,746) $(242,777) $(164,925) $(958,671)
========= ========= ========= ========= ========= ========= =========
NET LOSS PER COMMON SHARE...... $ (.03) $ (.08) $ (.10) $ (.06) $ (.04)
========= ========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING.... 2,467,721 3,181,327 3,831,660 3,786,665 4,168,517
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 87
<TABLE>
CARDIODYNE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
------------------- ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER PAR PAID-IN DEVELOPMENT EQUITY
OF SHARES VALUE CAPITAL STAGE (DEFICIT)
--------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
INITIAL STOCKHOLDERS' INVESTMENT
(FEBRUARY 28, 1989).................... 1,800,000 $18,000 $ -- $ -- $ 18,000
Sale of common stock................... 300,000 3,000 -- -- 3,000
Net loss............................... -- -- -- (21,138) (21,138)
--------- ------- ------- -------- --------
BALANCE, DECEMBER 31, 1989............... 2,100,000 21,000 -- (21,138) (138)
Sale of common stock................... 100,000 1,000 -- -- 1,000
Net loss............................... -- -- -- (21,634) (21,634)
--------- ------- ------- -------- --------
BALANCE, DECEMBER 31, 1990............... 2,200,000 22,000 -- (42,772) (20,772)
Sale of common stock................... 125,000 1,250 -- -- 1,250
Net loss............................... -- -- -- (21,664) (21,664)
--------- ------- ------- -------- --------
BALANCE, DECEMBER 31, 1991............... 2,325,000 23,250 -- (64,436) (41,186)
Sale of common stock................... 705,000 7,050 292,950 -- 300,000
Conversion of loans due to
stockholders........................ 151,327 1,513 62,881 -- 64,394
Net loss............................... -- -- -- (85,319) (85,319)
--------- ------- ------- -------- --------
BALANCE, DECEMBER 31, 1992............... 3,181,327 31,813 355,831 (149,755) 237,889
Net loss............................... -- -- -- (255,715) (255,715)
--------- ------- ------- -------- --------
BALANCE, DECEMBER 31, 1993............... 3,181,327 31,813 355,831 (405,470) (17,826)
Sale of common stock................... 600,000 6,000 294,000 -- 300,000
Conversion of loans due to
stockholders........................ 100,000 1,000 49,000 -- 50,000
Issuance of common stock in lieu of
compensation........................ 209,111 2,091 102,465 -- 104,556
Net loss............................... -- -- -- (388,276) (388,276)
--------- ------- ------- -------- --------
BALANCE, DECEMBER 31, 1994............... 4,090,438 40,904 801,296 (793,746) 48,454
Net loss (unaudited)................... -- -- -- (164,925) (164,925)
Conversion of loans due to
stockholders........................ 130,232 1,303 76,776 -- 78,079
--------- ------- ------- -------- --------
BALANCE, JUNE 30, 1995 (UNAUDITED)....... 4,220,670 $42,207 $ 878,072 $ (958,671) $ (38,392)
========= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 88
CARDIODYNE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, INCEPTION TO SIX MONTHS ENDED JUNE 30,
-------------------------------- DECEMBER 31, ------------------------- INCEPTION TO
1992 1993 1994 1994 1994 1995 JUNE 30, 1995
-------- --------- --------- ------------ ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss.......................... $(85,319) $(255,715) $(388,276) $ (793,746) $(242,777) $(164,925) $(958,671)
Adjustments to reconcile net loss
to net cash used in operating
activities --
Depreciation and amortization... 887 965 679 4,672 341 170 4,842
Common stock issued in lieu of
compensation.................. -- -- 104,556 104,556 88,056 -- 104,556
Changes in assets and
liabilities --
Accounts payable.............. (4,592) 33,192 (33,192) -- (33,192) 702 702
Deferred revenue.............. -- -- -- -- 125,000 125,000
Accrued expenses.............. 22,328 50,109 (30,105) 42,332 (43,330) 9,944 49,197
-------- --------- --------- --------- --------- --------- ---------
Net cash used in operating
activities................ (66,696) (171,449) (346,338) (642,186) (230,902) (29,109) (674,374)
-------- --------- --------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment....................... (2,471) (485) -- (5,963) -- -- (5,963)
Increase in other assets.......... (20,662) (38,484) (6,538) (115,265) (986) (4,649) (119,914)
-------- --------- --------- --------- --------- --------- ---------
Net cash used in investing
activities................ (23,133) (38,969) (6,538) (121,228) (986) (4,649) (125,877)
-------- --------- --------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of common
stock........................... 300,000 -- 300,000 623,250 300,000 -- 623,250
Proceeds from convertible notes
and loans payable to
stockholders.................... -- 50,000 50,000 164,394 -- 25,000 192,473
Payments on note payable to a
bank............................ (25,000) -- -- -- -- -- --
-------- --------- --------- --------- --------- --------- ---------
Net cash provided by
financing activities...... 275,000 50,000 350,000 787,644 300,000 25,000 815,723
-------- --------- --------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. 185,171 (160,418) (2,876) 24,230 68,112 (8,758) 15,472
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD......................... 2,353 187,524 27,106 -- 27,106 24,230 --
-------- --------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................ $187,524 $ 27,106 $ 24,230 $ 24,230 $ 95,218 $ 15,472 $ 15,472
======== ========= ========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................ $ 2,257 $ -- $ -- $ 2,257 $ -- $ -- $ 2,257
======== ========= ========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTIONS:
Conversion of loans payable to
stockholders into common
stock........................... $ 64,394 $ -- $ 50,000 $ 114,394 $ 50,000 $ 78,079 $ 192,473
======== ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 89
CARDIODYNE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
CardioDyne, Inc. (the Company) was incorporated on February 28, 1989 and is
engaged in the development of products used for monitoring blood pressure.
The Company is in the development stage and is devoting substantially all
of its efforts toward product research and development, raising capital and
marketing products under development. The Company has not generated revenue
to date and is subject to a number of risks similar to those of other
development stage companies, including dependence on key individuals,
competition from substitute products, the development of commercially
usable products and the need to obtain adequate additional financing
necessary to fund the development of its products. The Company has recently
entered into a merger agreement with Luxtec Corporation as discussed in
Note 7. The merger agreement is preliminary and tentative and is expected
to be consummated in September 1995.
The accompanying financial statements reflect the application of certain
accounting policies as described below and elsewhere in the accompanying
financial statements and notes.
(a) Cash Equivalents
Cash equivalents are carried at cost, which approximates market. Cash
equivalents are short-term, highly liquid investments with original
maturities of less than three months.
(b) Depreciation and Amortization
The Company provides for depreciation using accelerated methods by
charges to operations in amounts that allocate the cost of property and
equipment over their estimated useful lives of four to five years.
Other assets consist principally of patent costs amortized over their
estimated useful lives of 17 years.
The Company evaluates periods of amortization continually to determine
whether events or circumstances warrant revised estimates of useful
lives or a reduction in the unamortized cost of the assets to be charged
to operations.
(c) Research and Development
Research and development expenses are charged to operations as incurred.
(d) Net Loss per Common Share
Net loss per common share is based on the weighted average number of
common shares outstanding. Common stock equivalents have not been
included as their effects would be antidilutive.
(e) Unaudited Interim Financial Statements
The balance sheet as of June 30, 1995, the statements of operations and
cash flows for the six months ended June 30, 1994 and 1995, and the
statement of stockholders' equity (deficit) for the six months ended
March 31, 1995 are unaudited and, in the opinion of the Company's
management, include all adjustments, consisting of normal, recurring
accruals, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows. The results of
operations for the six months ended June 30, 1995 are not necessarily
indicative of the results expected for the year.
F-7
<PAGE> 90
CARDIODYNE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
Under SFAS No. 109, deferred tax assets or liabilities are computed based
on the difference between the financial statement and income tax bases of
assets and liabilities using the enacted marginal tax rate. Currently,
there are no material differences between the financial statement and
income tax bases of the Company's assets and liabilities.
<TABLE>
At December 31, 1994, the Company had available net operating loss (NOL)
carryforwards of approximately $709,000 for income tax purposes, which may
be used to offset future taxable income, if any. The NOL carryforwards
expire through 2009 and are subject to review and possible adjustment by
the Internal Revenue Service. The NOL carryforwards available for use in
any given year may be limited in the event of a significant change in
ownership, as defined by the Internal Revenue Code. At December 31, 1993
and 1994, the Company's net deferred tax asset consists of the following:
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
NOL carryforwards.............................. $103,000 $283,000
Valuation allowance............................ 103,000 283,000
-------- --------
$ -- $ --
======== ========
</TABLE>
The Company placed the above valuation allowance against its otherwise
recognizable deferred tax asset due to the uncertainty surrounding the
timing of realizing the benefits of its NOL carryforwards in future tax
returns. For the years ended December 31, 1992, 1993 and 1994, the increase
in the valuation allowance was $1,000, $102,000 and $180,000, respectively.
(3) CONVERTIBLE NOTES PAYABLE DUE TO STOCKHOLDERS
The Company's debt obligations at December 31, 1993 consisted of $50,000 of
loans payable to stockholders. The notes were noninterest-bearing and were
converted into 100,000 shares of the Company's common stock on January 21,
1994. At December 31, 1994, the Company had outstanding $50,000 of
convertible notes payable to stockholders. During 1995, the Company issued
another note payable to a stockholder with similar terms for $25,000. The
notes bear interest at the rate of 8% and are due in full on June 30, 1995.
The notes and all accrued interest will be converted into shares of the
Company's common stock at a price of $.60 per share when they come due, or
at the option of the stockholders before such time. At June 30, all
outstanding notes payable to stockholders plus accrued interest were
converted into 132,232 shares of common stock at the rate of $.60 per
share.
<TABLE>
(4) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1993 and 1994:
<CAPTION>
1993 1994
------- -------
<S> <C> <C>
Payroll and related costs........................ $68,056 $39,976
Other accrued expenses........................... 4,381 2,356
------- -------
$72,437 $42,332
======= =======
</TABLE>
F-8
<PAGE> 91
CARDIODYNE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(5) STOCK INCENTIVE PLAN
In 1994, the Company adopted the 1994 Stock Incentive Plan (the Plan),
pursuant to which up to 600,000 shares of common stock may be issued over a
10-year period. Under the Plan, the Company may grant incentive or
nonqualified stock options, as well as award or sell shares to employees,
directors or consultants of the Company. All option grants, prices and
vesting periods are determined by the Board of Directors. Incentive stock
options may be granted at a price not less than the fair market value on
the date of grant, as determined by the Board of Directors and not less
than 110% of such price to a greater than 10% shareholder. During 1994,
options to purchase 120,000 shares of common stock were granted under the
Plan at a price of $.50 per share. As of December 31, 1994, 33,333 of these
shares were exercisable. Also, in 1991, 25,000 options not included in the
Plan were granted to a director at an exercise price of $.425 per share. As
of December 31, 1994, all of these shares were exercisable.
(6) DEFERRED REVENUE
Deferred revenue in the accompanying June 30, 1995 balance sheet represents
advance payments received related to a license and services agreement with
a third party.
(7) PROPOSED MERGER WITH LUXTEC CORPORATION
The Company has entered into a merger agreement with Luxtec Corporation, a
company engaged in the development, production and distribution of medical
equipment, the shares of which are publicly traded on the American Stock
Exchange. The terms of the merger agreement dictate that each outstanding
share of the Company would be exchanged for 0.23283 shares of Luxtec
Corporation. The merger agreement is subject to various conditions,
including board of director and shareholder approval, and is expected to be
consummated in September 1995. If the Company fails to consummate the
merger agreement or in the absence of obtaining alternative financing,
there is substantial doubt as to the Company's ability to continue as a
going concern.
F-9
<PAGE> 92
ANNEX A
AGREEMENT OF MERGER AND
PLAN OF REORGANIZATION
<PAGE> 93
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
By and Among
LUXTEC CORPORATION,
Parent
LUXTEC CD ACQUISITION CO. INC.,
Acquirer
CARDIODYNE, INC.,
Target
PAUL EPSTEIN and PATRICK G. PHILLIPPS
Representatives
Dated as of June 28, 1995
<PAGE> 94
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Closing and Effective Date of Merger. . . . . . . . . . . . . . . . . . 1
1.2. Terms and Conditions of Merger. . . . . . . . . . . . . . . . . . . . . 2
2. Conversion of Shares, Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1. Conversion of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Additional Consideration. . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Purchase Price Adjustment. . . . . . . . . . . . . . . . . . . . . . . . 10
3. Representations, Warranties of Target. . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1. Incorporation; Authority. . . . . . . . . . . . . . . . . . . . . . . . 12
3.2. Corporate Power, Binding Effect. . . . . . . . . . . . . . . . . . . . . 12
3.3. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.4. Qualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.5. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.6. Lawful Issuance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.8. Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . . . . 14
3.9. Title to Property, Leases, etc. . . . . . . . . . . . . . . . . . . . . 15
3.10. Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.11. Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . 16
3.12. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.13. Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.14. Safety, Zoning and Environmental Matters. . . . . . . . . . . . . . . . 19
3.15. Labor Relations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.16. Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.17. Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . 23
3.18. Potential Conflicts of Interest. . . . . . . . . . . . . . . . . . . . . 25
3.19. Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.20. Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.21. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.22. Bank Accounts, Signing Authority, Powers of
Attorney. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.23. Governmental Consent, Non-Contravention, etc. . . . . . . . . . . . . . 28
3.24. Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.25. Suppliers and Customers. . . . . . . . . . . . . . . . . . . . . . . . . 28
3.26. Employment of Officers, Employees. . . . . . . . . . . . . . . . . . . . 28
3.27. Minute Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.28. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.29. Compliance with Other Instruments, Laws, etc. . . . . . . . . . . . . . 29
3.30. Projections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.31. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
<PAGE> 95
-ii-
<TABLE>
<S> <C> <C>
3.32. Absence of Registration Obligations. . . . . . . . . . . . . . . . . . . 30
3.33. WARN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.34. Ownership of Parent Common Stock. . . . . . . . . . . . . . . . . . . . 30
3.35. Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4. Representations and Warranties of Parent and Acquirer. . . . . . . . . . . . . . . . . 30
4.1. Organization and Standing of Parent and Acquirer. . . . . . . . . . . . 30
4.2. Corporate Power; Binding Effect. . . . . . . . . . . . . . . . . . . . . 31
4.3. Non-Contravention. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.4. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.5. Reports and Financial Statements. . . . . . . . . . . . . . . . . . . . 32
4.6. Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . . . . 33
4.7. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.8. Litigation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.9. Safety, Zoning and Environmental Matters. . . . . . . . . . . . . . . . 37
4.10. Government Consents, etc. . . . . . . . . . . . . . . . . . . . . . . . 38
4.11. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.12. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.13. Lawful Issuance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.14. Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . 39
4.15. Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . 39
4.16. Compliance with Other Instruments, Laws, etc. . . . . . . . . . . . . . 42
4.17. Certain Massachusetts Statutes. . . . . . . . . . . . . . . . . . . . . 42
4.18. Form S-3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.19. Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.20. Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5. Conduct of Business Prior to Effective Date. . . . . . . . . . . . . . . . . . . . . . 43
A. Target
5.1. Full Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.2. Carry on in Regular Course. . . . . . . . . . . . . . . . . . . . . . . 43
5.3. No Dividends, Issuances, Repurchases, etc. . . . . . . . . . . . . . . . 44
5.4. No General Increases. . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.5. Contracts and Commitments. . . . . . . . . . . . . . . . . . . . . . . . 44
5.6. Sale of Capital Assets. . . . . . . . . . . . . . . . . . . . . . . . . 44
5.7. No Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.8. Preservation of Organization. . . . . . . . . . . . . . . . . . . . . . 45
5.9. No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.10. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.11. Advice of Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.12. Stockholders Meeting; No Shopping, etc. . . . . . . . . . . . . . . . . 46
5.13. Target Proxy Statement. . . . . . . . . . . . . . . . . . . . . . . . . 46
5.14. Consents of Third Parties. . . . . . . . . . . . . . . . . . . . . . . . 46
5.15. Satisfaction of Conditions Precedent. . . . . . . . . . . . . . . . . . 47
5.16. Completion of Due Diligence. . . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
<PAGE> 96
-iii-
<TABLE>
<S> <C> <C>
B. Parent
5.17. Full Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.18. Carry on in Regular Course. . . . . . . . . . . . . . . . . . . . . . . 47
5.19. Preservation of Organization. . . . . . . . . . . . . . . . . . . . . . 47
5.20. No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.21. Contracts and Commitments. . . . . . . . . . . . . . . . . . . . . . . . 48
5.22. Sale of Capital Assets. . . . . . . . . . . . . . . . . . . . . . . . . 48
5.23. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . 48
5.24. Consents of Third Parties. . . . . . . . . . . . . . . . . . . . . . . . 48
5.25. Satisfaction of Conditions Precedent. . . . . . . . . . . . . . . . . . 49
5.26. Stockholder Meeting and Proxy Statement of Parent. . . . . . . . . . . . 49
5.27. Listing of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.28. No Dividends, Issuances, Repurchases, etc. . . . . . . . . . . . . . . . 51
5.29. Advice of Change. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.30. Completion for Due Diligence. . . . . . . . . . . . . . . . . . . . . . 51
5.31. Rule 144 and Form S-3. . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.32. Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6. Conditions Precedent to Parent's and Acquirer's Obligations. . . . . . . . . . . . . . 52
6.1. Accuracy of Representations and Warranties by
Target. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.2. Compliance by Target. . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.3. Approval by Stockholders; Delivery of Agreements of
Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.4. Authorization of Issuance of Parent Common Stock. . . . . . . . . . . . . 53
6.5. No Restraining Order. . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.6. No Material Change. . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.7. Officers' Closing Certificate. . . . . . . . . . . . . . . . . . . . . . 53
6.8. Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
6.9. Resignations of Directors and Officers. . . . . . . . . . . . . . . . . 53
6.10. Opinion of Target's Counsel. . . . . . . . . . . . . . . . . . . . . . . 53
6.11. Exercise and Exchange of Stock Options; Conversion of
Convertible Promissory Notes. . . . . . . . . . . . . . . . . . . . . . 54
6.12. Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6.13. Target Stockholder Certificate. . . . . . . . . . . . . . . . . . . . . 55
6.14. Proceedings and Documents Satisfactory. . . . . . . . . . . . . . . . . 55
7. Conditions Precedent to Target's Obligations. . . . . . . . . . . . . . . . . . . . . 55
7.1. Accuracy of Representations and Warranties by
Parent and Acquirer. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.2. Compliance by Parent and Acquirer. . . . . . . . . . . . . . . . . . . . 55
7.3. Approval by Stockholders; Delivery of Agreement
of Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.4. No Restraining Order. . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.5. Authorization of Issuance of Parent Common Stock. . . . . . . . . . . . . 56
</TABLE>
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7.6. No Material Change. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.7. Officers' Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.8. Other Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.9. Opinion of Parent's Counsel. . . . . . . . . . . . . . . . . . . . . . . 56
7.10. Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.11. Proceedings and Documents Satisfactory. . . . . . . . . . . . . . . . . 58
8. Confidential Information; no Publicity. . . . . . . . . . . . . . . . . . . . . . . . 58
9. Securities Laws Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.1. Compliance with Section 4(2) and/or Regulation D
and State Securities Laws. . . . . . . . . . . . . . . . . . . . . . . . 59
9.2. Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . . . . . 59
9.3. Rule 144 Information. . . . . . . . . . . . . . . . . . . . . . . . . . 60
10. Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
10.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
10.2. Demand Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.3. Piggyback Registration. . . . . . . . . . . . . . . . . . . . . . . . . 65
10.4. Further Obligations of Parent. . . . . . . . . . . . . . . . . . . . . . 67
10.5. Holdback Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.6. Expenses; Limitations on Registration. . . . . . . . . . . . . . . . . . 68
10.7. Indemnification and Contribution. . . . . . . . . . . . . . . . . . . . 69
10.8. Benefits; Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 72
10.9. Termination of Registration Rights. . . . . . . . . . . . . . . . . . . 73
11. Survival and Materiality of Representations. . . . . . . . . . . . . . . . . . . . . . 73
12. Tax Consequences to the Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
13. Termination: Liabilities Consequent Thereon. . . . . . . . . . . . . . . . . . . . . . 73
14. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
14.1. By Target's Stockholders. . . . . . . . . . . . . . . . . . . . . . . . 74
14.2. Method of Asserting Claims. . . . . . . . . . . . . . . . . . . . . . . 75
14.3. Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
14.4. Appointment of Representatives. . . . . . . . . . . . . . . . . . . . . 77
15. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
16. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
17. Miscellaneous Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
17.1. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
17.2. Notices and Representatives. . . . . . . . . . . . . . . . . . . . . . . 81
</TABLE>
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17.3. Assignment and Benefits of Agreement. . . . . . . . . . . . . . . . . . 82
17.4. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
17.5. Submission to Jurisdiction; Waivers. . . . . . . . . . . . . . . . . . . 83
17.6. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
17.7. Section Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
17.8. Public Statements or Releases. . . . . . . . . . . . . . . . . . . . . . 84
SCHEDULES:
Target
3.5 Capitalization
3.7 Financial Statements
3.8 Absence of Certain Changes
3.9 Title to Property, Leases, etc.
3.10 Indebtedness
3.12 Taxes
(a) Elections
(g) Extensions for Filing Tax Returns
(m) Withholding Taxes
(t) Parachute Payments
3.15 Labor Relations
3.16 Contracts
3.18 Potential Conflicts of Interest
3.19 Intellectual Property
(a) List of Intellectual Property
(b) Royalties
(c) Ownership
(d) Potential Breaches; Pending Claims
3.22 Bank Account; Signing Authority; Powers of Attorney
3.23 Governmental Consent, Non-Contravention, etc.
3.25 Suppliers and Customers
3.26 Employment of Officers, Employees
3.29 Compliance with Other Instruments, Laws, etc.
Parent and/or Acquirer
4.4 Capitalization
4.7 Taxes
(a) Elections
(c) Audit History
(g) Extensions for Filing Tax Returns
4.8 Litigation
4.11 Brokers
4.15 Employee Benefit Plans
</TABLE>
<PAGE> 99
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EXHIBITS:
A Target Stockholders
B Agreements of Merger
C Invention and Non Disclosure Agreements
D Non-Competition Agreements
E Escrow Agreement
F Target Stockholder Representation Certificate
G Target Stockholder Transferee Signature Page
H Target Representation Certificate
I Parent Representation Certificate
<PAGE> 100
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
AGREEMENT dated as of June 28, 1995, among LUXTEC CORPORATION, a
Massachusetts corporation ("Parent"), LUXTEC CD ACQUISITION CO. INC., a
Massachusetts corporation ("Acquirer"), CARDIODYNE, INC., a Delaware
corporation ("Target"), and the individuals listed as Representatives on
the signature page hereto, solely in their capacity as Representatives and not
individually ("Representatives").
WHEREAS, Target has an authorized capital of 5,000,000 shares of common
stock, par value $0.01 per share ("Target Common Stock"), of which 4,090,438
shares are issued and outstanding and held of record by the stockholders (the
"Target Stockholders") identified in Exhibit A hereto;
WHEREAS, Acquirer has an authorized capital of 200,000 shares of common
stock, par value $0.01 per share ("Acquirer Common Stock"), of which 1,000
shares are issued and outstanding and held by Parent;
WHEREAS, Parent has an authorized capital of 2,000,000 shares of common
stock, par value $.01 per share ("Parent Common Stock"), of which 1,432,565
shares are issued and outstanding and listed on the American Stock Exchange.
WHEREAS, the Boards of Directors of each of Parent, Acquirer, and
Target believe that the merger of Target into Acquirer (the "Merger")
would be advantageous and beneficial to their respective corporations and
stockholders;
WHEREAS, this Agreement is intended to be and is adopted as a plan of
reorganization within the meaning of Section 368 (a) (2) (D) of the Internal
Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto agree that Target shall be merged into
Acquirer upon the terms and subject to the conditions set forth in this
Agreement.
1. THE MERGER.
1.1. CLOSING AND EFFECTIVE DATE OF MERGER. Subject to the
closing conditions in Sections 6 and 7, at a closing to be held at
the offices of Bingham, Dana & Gould, on such date prior to the
termination date referred to in Section 12 as may be agreed to by the
parties (the "Closing Date"), Target, Acquirer, and Parent shall cause
to be definitively executed and delivered to one another the Agreements
of Merger substantially in the forms attached hereto as Exhibit B (the
"Agreements of Merger") and Parent shall cause such documents to be
<PAGE> 101
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filed with the Secretary of State of each of Massachusetts and
Delaware, respectively, in order to cause the merger contemplated by
this Agreement to become effective under the laws of the State of
Delaware and the Commonwealth of Massachusetts. The Merger shall become
effective on the date and at the time of the filing of the Agreements
of Merger with the Secretary of State of each of Massachusetts and
Delaware (the " Effective Date"). References herein to the "Surviving
Corporation" shall mean Acquirer on and after the Effective Date.
1.2. TERMS AND CONDITIONS OF MERGER. Upon the Effective
Date, pursuant to the Agreement of Merger and this Agreement,
(a) Target shall be merged with and into Acquirer and
the separate existence of Target shall cease;
(b) Acquirer shall continue as the Surviving
Corporation organized under the laws of the Commonwealth of
Massachusetts, the authorized capital stock of which shall be
200,000 shares of common stock, par value $0.01 per share;
(c) the Articles of Organization of the Surviving
Corporation shall be the Articles of Organization of Acquirer
in effect immediately prior to the Effective Date, except that
Article 1 thereof shall be changed to state that the name of
the Surviving Corporation shall be: CardioDyne, Inc.;
(d) all of the issued and outstanding shares of the
capital stock of Target shall be deemed cancelled, without
further act by any person, and shall not represent any share of
the capital stock of the Surviving Corporation, all of such
shares of Target Common Stock being automatically converted
(subject to statutory dissenters' rights of appraisal) into
rights to receive shares of Parent Common Stock, as provided in
Section 2.1, and the earn-out payments and purchase price
adjustment as specified in Section 2.2 and Section 2.3,
respectively, with the certificates representing such shares of
Target Common Stock thereupon representing such rights to
receive such shares of Parent Common Stock, earn-out payments,
and purchase price adjustments (subject to statutory
dissenters' rights of appraisal);
(e) each issued and outstanding share of the capital
stock of Acquirer shall remain outstanding as common stock of
the Surviving Corporation, all of which shall be owned by
Parent;
(f) the By-Laws of the Surviving Corporation shall
be the By-Laws of Acquirer in effect immediately prior to the
Effective Date;
<PAGE> 102
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(g) all of the estate, properties, rights, privileges,
powers and franchises of Target and Acquirer and all of their
property, real, personal and mixed, and all debts due on
whatever account to either of Target or Acquirer shall vest in
the Surviving Corporation, without further act or deed;
(h) the Surviving Corporation shall be responsible for
all of the liabilities and obligations of each of Target and
Acquirer and the liabilities of Target and Acquirer shall not
be affected nor shall the rights of creditors thereof or of any
persons dealing with Target or Acquirer be impaired; and
(i) the directors and officers of the Surviving
Corporation shall be those specified in the Agreements of
Merger.
2. CONVERSION OF SHARES, PAYMENTS, ETC.
2.1. CONVERSION OF SHARES. As provided in Section
1.2(d), upon the Effective Date, the issued and outstanding shares of
Target Common Stock shall be automatically converted into rights to
acquire shares of Parent Common Stock in accordance with the following
provisions of this Section 2.1, and the earn-out payments and purchase
price adjustments specified in Section 2.2 and Section 2.3:
(a) Conversion; Exchange Rate. Each share of
Target Common Stock which is issued and outstanding at the
Effective Date shall, at the Effective Date, be converted
(subject to statutory dissenters' rights of appraisal) into
such fraction of a share of Parent Common Stock as equals one
million (1,000,000) divided by the total number of shares of
Target Common Stock issued and outstanding on the Effective
Date (and without regard to the exercise by any Target
Stockholder of statutory dissenters' rights) (the
"Exchange Rate"), it being hereby expressly
acknowledged and agreed that irrespective of the number of
shares of capital stock of Target issued and outstanding at the
Effective Date and the number of any outstanding options,
warrants or other rights to purchase shares of the capital
stock of Target at the Effective Date and of the number of any
outstanding securities exchangeable for or convertible into
shares of the capital stock of Target at the Effective Date,
Parent shall be obligated to issue no more than an aggregate of
one million (1,000,000) shares of Parent Common Stock (such
number of shares being subject to reduction to account for the
exercise by any Target Stockholder of statutory dissenters'
rights of appraisal), in connection with the Merger of
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Acquirer and Target, except to the extent required pursuant to
the provisions of Sections 2.2 and 2.3 hereof.
(b) Procedures. Each of the former Target
Stockholders shall, from and after the Effective Date and upon
surrender to First National Bank of Boston (the "Paying and
Exchange Agent") at its main office located in Boston,
Massachusetts of the certificate or certificates formerly
representing all of the shares of Target Common Stock held by
the former Target Stockholder, receive in exchange therefor a
certificate representing the number of shares of Parent Common
Stock determined by multiplying the number of shares of Target
Common Stock held by the former Target Stockholder on the
Effective Date by the Exchange Rate. The aggregate amount of
such shares of Parent Common Stock exchanged pursuant to this
Section 2.1(b), shall hereinafter be referred to as the
"Exchanged Shares." Parent and the Paying and Exchange Agent
shall enter into an agreement, reasonably satisfactory to
Target, carrying out the provisions of this Section 2.1(b) and
containing such other terms as may be mutually agreed upon. All
certificates representing the Exchanged Shares shall bear the
legend referred to in Section 9.2(f) and shall be delivered by
Parent to the Paying and Exchange Agent at the Effective Date.
(c) Fractional Shares. No fractional shares
of, and no scrip or fractional share certificates for, Parent
Common Stock will be issued or delivered pursuant to this
Agreement, and no right to vote or receive any dividend or
other distribution or any other right of a stockholder shall
attach to any fractional interest in Parent Common Stock to
which any former Target Stockholder would otherwise be
entitled. In lieu thereof, there shall be paid to each former
Target Stockholder who would otherwise have been entitled to a
fractional share of Parent Common Stock pursuant to Section
2.1(b), a cash payment in respect of such fractional interest
determined by valuing Parent Common Stock at its unweighted
average closing price on the AMEX for the 20 trading days
ending five trading days before the Effective Date.
(d) Rights After Effective Date and Until
Surrender, etc. No former Target Stockholder shall be
entitled to exercise any rights with respect to Target after
the Effective Date (except prosecution of statutory dissenters'
rights of appraisal). Each former Target Stockholder entitled
to receive Exchanged Shares hereunder shall be entitled to
receive dividends and other distributions on or in respect of
each Exchanged Share to which he or she is entitled, from and
after the Effective Date, and to vote such shares, but will not
be entitled to
<PAGE> 104
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receive the certificate therefor until the surrender and
exchange provided for in Section 2.1 (b) is completed.
(e) Escrow. Notwithstanding the exchange
procedures contained in Section 2.1(b) hereof, and the rights
of Target Stockholders with respect to the Exchanged Shares set
forth in Section 2.1(d) hereof, an aggregate of fifteen percent
(15%) of the Exchanged Shares (i.e., a maximum of one
hundred fifty thousand (150,000) Exchanged Shares) (the
"Escrowed Shares") shall be withheld from the
one million (1,000,000) Exchanged Shares (each of such numbers
of shares being subject to reduction to account for the
exercise by any Target Stockholder of statutory dissenters'
rights of appraisal) that would otherwise be issued and
delivered to the former Target Stockholders in accordance with
Section 2.1(b) hereof, and shall be instead delivered to and
held by the Escrow Agent in accordance with Section 14 hereof
and the Escrow Agreement. The number of shares to be withheld
from each of the former Target Stockholders shall equal fifteen
percent (15%) of the total number of Exchanged Shares to be
received by such former Target Stockholder for his shares of
Target Common Stock in the Merger.
(f) Exercise or Exchange of Options and Conversion
of Notes. On or before the Effective Date, all outstanding
stock options, warrants and other rights to purchase Target
Common Stock shall be exercised or exchanged as provided in
Section 6.11 hereof, and all outstanding Convertible Promissory
Notes of Target and other securities exchangeable for or
convertible into Target Common Stock shall be exchanged and/or
converted into Target Common Stock. For all purposes of this
Agreement, the shares of Target Common Stock issued upon
exercise or in exchange for such outstanding stock options,
warrants and other rights or upon conversion of such
Convertible Promissory Notes and other securities exchangeable
for or convertible into Target Common Stock shall be deemed to
be shares of Target Common Stock for purposes of this Agreement
and the recipients thereof shall be deemed to be Target
Stockholders and such shares shall be included in the
computation of the Exchange Rate pursuant to Section 2.1(a)
hereof.
2.2. ADDITIONAL CONSIDERATION. In addition to the
consideration provided for in Section 2.1 hereof, the Target
Stockholders shall be entitled to receive the earn-out payments
provided for in this Section 2.2:
(a) Certain Definitions. For purposes of this
Section 2.2:
<PAGE> 105
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(i) The term "Realized CNIMT Net Sales" shall
mean, with respect to any fiscal year of Parent, the
amount actually realized by Parent and/or any of its
affiliates attributable to the sale of CNIMT Products
(as hereinafter defined) (as distinct from the sale,
in whole or in part, of the technology underlying the
CNIMT Products pursuant to Section 2.2(h) hereof)
during such fiscal year, less (a) refunds,
replacements or credits allowed for the return of
CNIMT Products or as reimbursement for damaged CNIMT
Products, (b) freight, postage, insurance and other
shipping charges for CNIMT Products, and (c) sales and
use taxes, customs and other governmental taxes or
charges (other than taxes based on the income of
Parent), imposed on or at the time of production,
importation, use or sale of CNIMT Products, including
VAT taxes. Notwithstanding the foregoing, Realized
CNIMT Net Sales with respect to any particular
transaction or transactions shall not include (i) the
amount paid with respect to the sale of other Parent
products, apparatus or systems which do not themselves
constitute CNIMT Products or which are not CNIMT
Products but have been retrofitted or modified by
Parent so as to constitute CNIMT Products (in such
event, however, the amount paid for such retrofitting
or modification shall be included in the calculation
of Realized CNIMT Net Sales), or (ii) any and all
amounts realized by Parent pursuant to Section 2.2(g)
and/or Section 2.2(h) hereof.
(ii) The term "CNIMT Products" shall mean any
and all products of Parent, from time to time, which
continuously or nearly continuously measure a
parameter which is correlated to blood pressure and
which use this monitored information to update the
blood pressure values frequently; provided, however,
that a product shall not be disqualified from
constituting a CNIMT Product merely because under
certain conditions, such as due to noise or poor
perfusion, a continuously or nearly continuously
measured parameter becomes unreliable and during such
conditions the product utilizes an intermittent method
of blood pressure measurement.
(b) Earn-Out Payments. From and after the date of
Parent's first commercial sale of CNIMT Products (the "Sale
Date"), and for a period up to and including the seventeenth
(17th) anniversary of the Sale Date and no longer, Parent shall
pay to the Target Stockholders annual earn-out payments equal
to five percent (5%) of the Realized CNIMT Net Sales ("Earn-Out
Payments"), subject to the provisions of Section 2.2(g) and
Section 2.2(h) hereof.
<PAGE> 106
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(c) Form and Allocation of Earn-Out Payments. Earn-Out
Payments, if any, shall be paid to the Target Stockholders on a
pro rata basis in accordance with each Target Stockholder's
ownership of Target Common Stock as of the Effective Date.
Earn-Out Payments shall be paid, without withholding for taxes
or for any other reason or claim, (i) fifty percent (50%) in
cash and (ii) fifty percent (50%) in shares of Parent Common
Stock with such shares of Parent Common Stock to be valued at
the unweighted average of the closing prices of such shares on
the American Stock Exchange, or on such other national
securities exchange or automated quotation system, if any, on
which the Parent Common Stock is then listed or traded
("AMEX"), during the twenty (20) trading days ending five (5)
trading days before the date of issuance of such shares.
(d) Timing and Distribution of Earn-Out Payments.
Within 90 days after the end of each fiscal year ending after
the Effective Date, Parent shall cause to be prepared a
statement, audited by its independent public accountants,
showing in reasonable detail the calculation of the Earn-Out
Payments for such fiscal year, including without limitation the
calculation of Realized CNIMT Net Sales for such fiscal year
(the "Audit Report"). On or before the ninetieth (90th) day
after the end of each fiscal year ending after the Effective
Date, Parent shall mail to each Target Stockholder, at his or
her address last provided by or with respect to such Target
Stockholder, (i) a copy of the Audit Report, (ii) a check
payable to such Target Stockholder for the portion of such
Earn-Out Payment being made in cash and (iii) a stock
certificate representing the shares of Parent Common Stock
being issued to such Target Stockholder as part of such
Earn-Out Payment. All such stock certificates representing
Parent Common Stock shall bear the legend set forth in Section
9.2(f) of this Agreement. In addition, Parent shall provide
copies of all CNIMT License Agreements and CNIMT Purchase
Agreements (as hereinafter defined) to the Representatives
promptly after execution.
(e) Books and Records. Parent shall maintain all books
and records necessary for the determination of Earn-Out
Payments and for the completion of the Audit Reports described
above. The Representatives shall have the right, on behalf of
all Target Stockholders, not more often than once annually, to
retain a "Big Six" accounting firm to audit the books and
records of Parent solely for the purpose of determining the
accuracy of Earn-Out Payments. The expense of any such audit
shall be borne by the Target Stockholders, pro rata, except
that such expense shall be borne by Parent if any such audit
discloses an underpayment in excess of five percent (5%) of the
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Earn-Out Payments due for such fiscal year. Any underpayment of
Earn-Out Payments shall be paid promptly by Parent, together
with interest at the "prime" rate in effect from time to time
during the period from the date such Earn-Out Payments were due
until the date on which any such underpayment is paid. All
information learned in the course of any such audit shall be
held in confidence by the Representatives, the Target
Stockholders and their accounting firm, except as necessary to
enforce the provisions of this Agreement.
(f) Certain Covenants. Parent acknowledges that the
provisions of this Section 2.2 constitute a material inducement
for Target and the Target Stockholders to enter into and
approve this Agreement. Parent represents that it intends
eventually to complete the development of CNIMT Products and to
market and sell CNIMT Products, although no representation is
or can be made that Parent will be successful in doing so.
Target acknowledges and agrees that from and after Effective
Date, Parent shall have the right to make all business
decisions affecting its business, operations and products in
accordance with Parent's business judgment. Subject to the
foregoing, and to Parent's ultimate determination, if
applicable, that the CNIMT Products are not susceptible to
development, marketing or selling, Parent covenants and agrees,
for the benefit of the Target Stockholders, to use commercially
reasonable efforts from and after the Effective Date to
complete the development of CNIMT Products and to market and
sell CNIMT Products to the extent consistent with its business
judgment regarding the operation of Parent's overall business.
(g) License of CNIMT Products. Notwithstanding
anything in this Section 2.2 to the contrary, if Parent
licenses the right to develop, manufacture or distribute the
CNIMT Products to a non-affiliate third party (the "Licensee")
pursuant to a license agreement (a "CNIMT License Agreement"),
then in addition to the Earn-Out Payments provided in Section
2.2(b) hereof, Parent shall pay to the Target Stockholders an
aggregate amount (the "Royalty Payments") equal to twenty-five
percent (25%) of all License Revenue. For purposes hereof,
"License Revenue" shall mean any and all royalties, licensing
fees and/or other consideration or fees actually received by
Parent from the Licensee pursuant to such CNIMT License
Agreement (but excluding any amounts paid by any such Licensee
for the purpose of funding research and development costs
relating to the CNIMT Products licensed pursuant to a CNIMT
License Agreement). Such Royalty Payments by Parent to the
Target Stockholders shall be allocated among the Target
Stockholders such that the form, allocation, timing,
distribution, and administration of the Royalty Payments shall
be subject to and in
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accordance with the provisions of Section Section 2.2(c), (d)
and (e) hereof, mutatis mutandis. Under no circumstances shall
the License Revenue be included in or considered a part of
Realized CNIMT Net Sales.
(h) Sale of CNIMT Products. Notwithstanding anything
in this Section 2.2 to the contrary, if Parent sells, assigns
or otherwise transfers, in whole or in part, the technology
underlying the CNIMT Products, as distinct from the sale of
CNIMT Products pursuant to Section 2.2(b) hereof and as
distinct from the grant of licenses pursuant to Section 2.2(g)
hereof, to a non-affiliate third party (the "Purchaser")
pursuant to a purchase agreement relating to such technology or
pursuant to a sale of all or substantially all of the assets of
Parent, a merger whereby Parent is not the surviving entity, or
otherwise (a "CNIMT Purchase Agreement"), then the rights of
the Purchaser and the Target Stockholders with respect to the
CNIMT Products shall either (i) continue as provided pursuant
to this Section 2.2, or (ii) be renegotiated and be subject to
such other terms and provisions as shall be mutually agreed
upon by the Representatives and the Purchaser pursuant to the
CNIMT Purchase Agreement.
(i) Appointment of Representatives. The adoption of
this Agreement and the approval of the Merger by the Target
Stockholders shall constitute the appointment of the
Representatives (as defined herein) by the Target Stockholders
to represent the Target Stockholders with full authority in any
and all matters affecting, relating to or otherwise concerning
the CNIMT Products, including, but not limited to, the Earn-Out
Payments and the sale, transfer or assignment of the CNIMT
Products pursuant to Section 2.2(h) hereof. The foregoing
appointment of the Representatives shall be subject to the
provisions of Section 14.4, mutatis mutandis. All decisions and
actions by the Representatives in accordance with this
appointment shall be binding upon all Target Stockholders and
no Target Stockholder shall have the right to object, dissent,
protest or otherwise contest the same.
2.3. PURCHASE PRICE ADJUSTMENT. In the event that the average
of the closing prices of Parent Common Stock on the AMEX during the
twenty (20) trading days ending five (5) trading days before the
Closing Date (the "Closing Price") shall be less than $3.25 per share,
then Parent shall be obligated to pay to the Target Stockholders, pro
rata, additional consideration in an aggregate amount (the "Adjustment
Amount") equal to the actual number of Exchanged Shares issued pursuant
to Section 2.1(b) hereof up to one million (1,000,000) (such number of
shares being subject to reduction to account for the exercise by any
Target Stockholder of statutory dissenters' rights of appraisal)
multiplied by the excess of (i) $3.25 over (ii) the Closing Price. The
Adjustment Amount shall be paid to the Target Stockholders, pro
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rata, and shall be made in annual installments commencing at the later
of (a) forty-five (45) days after the end of the fiscal year of Parent
in which Parent first has positive cash flow, or (b) the date which is
eighteen (18) months after the Closing Date, in annual installments
equal to two percent (2%) of Realized Net Sales of all Parent products,
and shall be paid by Parent fifty percent (50%) in cash and fifty
percent (50%) in Parent Common Stock, such Parent Common Stock valued
at the unweighted average of the closing prices thereof on the AMEX for
the twenty (20) trading days ending five (5) trading days preceding the
date of issuance thereof in respect of an Adjustment Amount installment
payment; provided however, that any and all such payments of the
Adjustment Amount shall be suspended and not paid in any fiscal year in
which Parent has negative cash flow, and shall remain suspended until
the next fiscal year of Parent in which Parent shall have positive cash
flow, at which time such payments shall resume. Notwithstanding the
foregoing, Parent shall have no obligation to make any payments with
respect to the Adjustment Amount as otherwise required hereby in the
event that the unweighted average of the closing prices of Parent
Common Stock on the AMEX for any twenty (20) consecutive trading days
during the eighteen (18) month period immediately following the Closing
Date shall equal or exceed $4.00 per share. As used herein, the term
"Realized Net Sales" shall mean with respect to any fiscal year of
Parent, the actual amount realized by Parent attributable to the sale
of Parent products during such fiscal year, less refunds, replacements
or credits allowed to purchasers for return of Parent products or as
reimbursement for damaged Parent products, freight, postage, insurance,
and other shipping charges, sales and use taxes, customs, and any other
governmental tax or charge (except for income taxes of Parent) imposed
on or at the time of production, importation, use or sale of Parent
products, including VAT taxes.
3. REPRESENTATIONS AND WARRANTIES OF TARGET. Target hereby represents
and warrants to Parent and Acquirer as follows. For purposes of this Agreement,
the term "Knowledge" in relation to Target means the knowledge or conscious
awareness, after reasonable inquiry, of Paul Epstein or Patrick G. Phillipps.
3.1. INCORPORATION; AUTHORITY. Target is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority
to own or lease and operate its properties and to carry on its business
as now conducted. Target has made available to Parent complete and
correct copies of its Certificate of Incorporation and By-Laws and all
amendments thereto.
3.2. CORPORATE POWER, BINDING EFFECT. Target has all
requisite corporate power and authority to enter into this Agreement
and the Agreements of Merger, and to perform all of its agreements and
obligations
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under this Agreement and the Agreements of Merger in accordance with
their terms. This Agreement has been duly authorized by Target's Board
of Directors, has been duly executed and delivered by Target and
constitutes the legal, valid and binding obligation of Target,
enforceable against Target in accordance with its terms, subject only,
in respect of the consummation of the Merger, to approval by Target
Stockholders holding a majority of the shares of Target Common Stock,
and except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief
may be subject to equitable defenses and to the discretion of the court
before which a proceeding therefor may be brought (collectively, the
"Enforcement Exceptions"). Upon execution and delivery by Target of the
Agreements of Merger on the Closing Date, the Agreements of Merger will
have been duly authorized, executed and delivered by, and constitute
the legal, valid and binding obligations of, Target. Neither the
execution, delivery or performance by Target of this Agreement nor of
the Agreements of Merger in accordance with their respective terms will
result in any violation of or default or creation of any lien under, or
the acceleration or vesting or modification of any right or obligation
under, or in any conflict with, Target's Certificate of Incorporation
or by-laws or of any agreement, instrument, judgment, decree, order,
statute, rule or regulation binding on or applicable to Target, except
where any of the foregoing would not have a material adverse effect on
the business, assets or financial condition of Target.
3.3. SUBSIDIARIES. Target does not have any subsidiaries
and does not own or hold of record and/or beneficially any shares of
any class in the capital of any corporation. Target does not own any
legal and/or beneficial interests in any partnerships, business trusts
or joint ventures or in any other unincorporated business enterprise.
3.4. QUALIFICATION. Target is duly qualified and in good
standing as a foreign corporation in Massachusetts which is the only
jurisdiction in which the character of the properties owned or leased
or the nature of the activities conducted by it makes such
qualification necessary.
3.5. CAPITALIZATION. The authorized capital of Target consists
of 5,000,000 shares of Target Common Stock, 4,090,438 shares of which
are issued and outstanding on the date hereof. All such outstanding
shares of Target Common Stock are owned of record by the Target
Stockholders as set forth on Exhibit A hereto and are validly issued,
fully paid and non-assessable. Except as set forth in Schedule 3.5,
Target is neither a party to nor is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of
any character calling for Target to issue,
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deliver or sell, or cause to be issued, delivered or sold any shares of
Target Common Stock or any other equity security of Target or any
securities convertible into, exchangeable for or representing the right
to subscribe for, purchase or otherwise receive any shares of Target
Common Stock or any other equity security of Target or obligating
Target to grant, extend or enter into any such subscriptions, options,
warrants, calls, commitments or agreements. As of the date hereof there
are no outstanding contractual obligations of the Target to repurchase,
redeem or otherwise acquire any shares of capital stock of the Target.
3.6. LAWFUL ISSUANCE. All of the outstanding shares of Target
Common Stock were issued pursuant to exemptions from registration under
the Securities Act and applicable state securities laws, and all rules
and regulations thereunder. There exists no valid right to rescind any
purchase thereof from or issuance thereof by Target. No class of
securities of Target is required to be registered under any provision
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
3.7. FINANCIAL STATEMENTS. Attached as Schedule 3.7 hereto, are
copies of (i) the audited balance sheets of Target as of December 31 in
each of the years 1992, 1993 and 1994, inclusive (such balance sheet as
of December 31, 1994, being herein referred to as the "Audited Balance
Sheet"), and the related statements of income and stockholders' equity
and changes in financial position of Target for the fiscal years ended
on such dates accompanied by a report and opinion thereon of Arthur
Anderson LLP., and (ii) the unaudited balance sheet of Target for the
quarter ended March 31, 1995, and related statement of operations for
such quarter. Additionally, Target hereby agrees to provide Parent with
unaudited monthly updates of its balance sheet and related statements
of operations after March 31, 1995, and up to and including the date of
execution and delivery of this Agreement and thereafter up to and
including the Closing Date, certified by the chief financial officer of
Target. The Audited Balance Sheet and each other such balance sheet
fairly presents the financial condition of Target as of its date; and
each of such statements of income and stockholders' equity and changes
in financial position and statements of operations fairly presents the
results of operations, stockholders' equity and changes in financial
position of Target for the period covered thereby.
3.8. ABSENCE OF CERTAIN CHANGES. Except as set forth on
Schedule 3.8, since the date of the Audited Balance Sheet, there has
not been: (i) any change in the assets, liabilities, income or business
of Target or in its relationships with suppliers other than changes
which were both in the ordinary course of business and have not had a
material adverse effect on the business, assets or financial condition
of Target; (ii) any acquisition or disposition by Target of any
material amount of assets or properties other
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than in the ordinary course of business; (iii) any damage, destruction
or loss, whether or not covered by insurance, materially and adversely
affecting, either in any case or in the aggregate, the property or
business of Target; (iv) any declaration, setting aside or payment of
any dividend or any other distributions in respect of any class of the
capital stock of Target; (v) any issuance of any shares of any class of
the capital stock of Target or any direct or indirect redemption,
purchase or other acquisition of any shares of any class of the capital
stock of Target; (vi) any increase in the compensation, pension or
other benefits payable or to become payable by Target to any of its
officers or employees, or any bonus payments or arrangements made to or
with any of them; (vii) any forgiveness or cancellation of any debt or
claim by Target or any waiver of any right of material value other than
compromises of accounts receivable in the ordinary course of business;
(viii) any entry by Target into any transaction other than in the
ordinary course of business; (ix) any incurrence by Target of any
material obligations or liabilities, whether absolute, accrued,
contingent or otherwise (including, without limitation, liabilities as
guarantor or otherwise with respect to obligations of others), other
than obligations and liabilities incurred in the ordinary course of
business; (x) any mortgage, pledge, lien, lease, security interest or
other charge or encumbrance on any of the assets, tangible or
intangible, of Target, other than those arising by operation of law
which do not materially impair the operation of Target's business; (xi)
any change in accounting principles, practices or methods used by
Target; or (xii) any discharge or satisfaction by Target of any lien or
encumbrance or payment by Target of any obligation or liability (fixed
or contingent) other than (A) current liabilities included in the
Audited Balance Sheet and (B) current liabilities incurred since the
date of the Audited Balance Sheet in the ordinary course of business.
3.9. TITLE TO PROPERTY, LEASES, ETC. Except as set forth in
Schedule 3.9, Target has good and marketable title to all of its
properties and assets, including, without limitation, all those
reflected in the Audited Balance Sheet (except for properties or assets
sold or otherwise disposed of in the ordinary course of business since
the date of the Audited Balance Sheet), all free and clear of all
liens, pledges, charges, security interests, mortgages, encumbrances or
title retention agreements of any kind or nature, except where the
failure to have such good and marketable title would not have a
material adverse effect on the business, assets or financial condition
of Target. All such properties and assets are in good condition and
repair and are adequate to carry on the business of Target as presently
conducted. Target has no capital assets or real properties having a
book or fair market value in excess of $10,000. Target is not a party
to any leases of real property or any other leases
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3.10. INDEBTEDNESS. Except for Indebtedness (as defined in
Section 16) reflected or reserved against in the Audited Balance Sheet
and Indebtedness incurred in the ordinary course of business after the
date of the Audited Balance Sheet, Target has no material Indebtedness
outstanding at the date hereof. Target is not in default with respect
to any outstanding Indebtedness or any instrument relating thereto and
no such Indebtedness or any instrument or agreement relating thereto
purports to limit the issuance of any securities by Target or the
operation of the business of Target. Complete and correct copies of all
instruments (including all amendments, supplements, waivers and
consents) relating to any Indebtedness of Target have been made
available to Parent.
3.11. ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against in the Audited Balance Sheet or incurred
in the ordinary course of business after the date of the Audited
Balance Sheet or described in any Schedule hereto, Target has no
liabilities or obligations of any nature, whether accrued, absolute,
contingent or otherwise (including, without limitation, liabilities as
guarantor or otherwise with respect to obligations of others) and
whether due or to become due, including, without limitation, any
liabilities for taxes due or to become due, which would have a material
adverse effect on the business, assets, or financial condition of
Target, taken as a whole, or would be required by generally accepted
accounting principles to be reflected on a balance sheet of Target.
3.12. TAXES.
(a) Elections. All material elections with respect
to Taxes (including without limitation any elections under
Sections 108(b)(5), 338(g), 565, 936(a), or 936(e) of the
Code or Treasury Regulation Sections 1.1502-20(g) or
1.1502-32(f)(2)) made by the Target and in effect as of the
date hereof are set forth in Schedule 3.12(a) hereto.
(b) Filing of Tax Returns and Payment of Taxes. The
Target has timely filed all Tax Returns required to be filed by
it, each such Tax Return has been prepared in compliance with
all applicable laws and regulations, and all such Tax Returns
are true and accurate in all respects. All Taxes due and
payable by the Target have been paid, and the Target shall not
be liable for any additional Taxes in respect of any taxable
period ending on or before the Closing Date in any material
amount that exceeds the corresponding reserve therefor, if any,
reflected in the accounting records of the Target as of the
Closing Date. The Target has delivered to Parent correct and
complete copies of all Tax Returns filed by or on behalf of
Target with respect to taxable periods ended on or after
December 31, 1991.
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(c) Audit History. No Tax Returns of Target have
been audited.
(d) Deficiencies. No deficiency or proposed adjustment
in respect of Taxes that has not been settled or otherwise
resolved has been asserted or assessed by any taxing authority
against the Target.
(e) Liens. There are no Liens for Taxes (other
than current Taxes not yet due and payable) on the assets of
Target.
(f) Extensions to Statute of Limitations for
Assessment of Taxes. Target has not consented to extend the
time in which any Tax may be assessed or collected by any
taxing authority.
(g) Extensions of the Time for Filing Tax Returns.
Except as described in Schedule 3.12(g), Target has not
requested or been granted an extension of the time for filing
any Tax Return to a date on or after the Closing Date.
(h) Pending Proceedings. There is no action, suit,
taxing authority proceeding, or audit with respect to any Tax
now in progress, pending, or to the Knowledge of Target,
threatened, against or with respect to Target.
(i) No Failures to File Tax Returns. No claim has ever
been asserted against Target by a taxing authority in a
jurisdiction where Target does not pay Tax or file Tax Returns
that Target is or may be subject to Taxes assessed by such
jurisdiction.
(j) Membership in Affiliated Groups, Etc. Target has
not been a member of any Affiliated Group, or filed or been
included in a combined, consolidated, or unitary Tax Return,
other than one of which Target was the parent.
(k) Adjustments under Section 481. Target will not be
required, as a result of a change in method of accounting for
any period ending on or before the Closing Date, to include any
adjustment under Section 481(c) of the Code (or any similar or
corresponding provision or requirement under any Tax law) in
taxable income for any period ending on or after the Closing
Date.
(l) Tax Sharing, Allocation, or Indemnity Agreements.
Target is not a party to or bound by any Tax sharing or
allocation agreement or has any contractual obligation to
indemnify any other Person with respect to Taxes.
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(m) Withholding Taxes. Except as described in
Schedule 3.12(m), Target has withheld and paid all Taxes
required to have been withheld and paid by it in connection
with amounts paid or owing to any employee, creditor,
independent contractor, or other Person.
(n) Foreign Permanent Establishments and Branches.
Target has no permanent establishment in any foreign country,
as defined in the relevant tax treaty between the United States
of America and such foreign country, or otherwise operates or
conducts business through any branch in any foreign country.
(o) U.S. Real Property Holding Corporation. Target
has not been a United States real property holding corporation
within the meaning of Code Section 897(c)(2), during the
applicable period specified in Code Section 897(c)(1)(A)(ii).
(p) Safe Harbor Lease Property. None of the property
owned or used by Target is subject to a tax benefit transfer
lease executed in accordance with Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended by the Economic
Recovery Tax Act of 1981.
(q) Tax-Exempt Use Property. None of the property
owned by Target is "tax-exempt use property" within the meaning
of Section 168(h) of the Code.
(r) Security for Tax-Exempt Obligations. None of the
assets of Target directly or indirectly secures any
indebtedness, the interest on which is tax-exempt under Section
103(a) of the Code, and Target is not directly or indirectly an
obligor or a guarantor with respect to any such indebtedness.
(s) Section 341(f) Consent. Target has not filed a
consent under Code Section 341(f) concerning collapsible
corporations.
(t) Parachute Payments. Except as described in
Schedule 3.12(t), Target has not made any payments, is not
obligated to make any payments, or is not a party to any
agreement that under certain circumstances could obligate it to
make any payments, that will not be deductible under Code
Section 280G.
3.13. LITIGATION, ETC. No action, suit, proceeding or
investigation (whether conducted by any judicial or regulatory body or
other person) is pending or, to the Knowledge of Target, threatened
against Target (nor is
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there any basis therefor to the Knowledge of Target) which questions
the validity of this Agreement or any action taken or to be taken
pursuant hereto or which might reasonably be expected, either in any
case or in the aggregate, to materially adversely affect the business,
assets, or financial condition of Target or materially impair the right
or the ability of Target to carry on its business substantially as now
conducted.
3.14. SAFETY, ZONING AND ENVIRONMENTAL MATTERS. Neither the
plants, offices or properties in or on which Target carries on its
business nor the activities carried on therein are in violation of any
zoning, health or safety law or regulation, including, without
limitation, the Occupational Safety and Health Act of 1970, as
amended, except where a violation would not have a material adverse
effect on the business, assets or financial condition of the Target.
To Target's Knowledge:
(a) Target is not in violation of any judgment,
decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation, those
arising under the Resource Conservation and Recovery Act
("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 as amended ("CERCLA"),
the Superfund Amendments and Reauthorization Act of 1986
("SARA"), the Federal Clean Water Act, the Federal Clean Air
Act, the Toxic Substances Control Act, or any state or local
statute, regulation, ordinance, order or decree relating to
health, safety or the environment (hereinafter "Environmental
Laws"), which violation would have a material adverse effect on
the business, assets, or financial condition of Target;
(b) Target has not received notice from any third
party including without limitation any federal, state or local
governmental authority, (i) that Target or any predecessor in
interest has been identified by the United States Environmental
Protection Agency ("EPA") as a potentially responsible party
under CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii)
that any hazardous waste as defined by 42 U.S.C. Section
6903(5), any hazardous substances as defined by 42 U.S.C.
Section 9601(14), any pollutant or contaminant as defined by 42
U.S.C. Section 9601(33) and any toxic substance, oil or
hazardous materials or other chemicals or substances regulated
by any Environmental Laws ("Hazardous Substances") which Target
has generated, transported or disposed of has been found at any
site at which a federal, state or local agency or other third
party has conducted or has ordered that Target conduct a
remedial investigation, removal or other response action
pursuant to any Environmental Law; or (iii) that Target is or
shall be a named party to any claim, action, cause of action,
complaint
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(contingent or otherwise) legal or administrative proceeding
arising out of any third party's incurrence of costs, expenses,
losses or damages of any kind whatsoever in connection with the
release of Hazardous Substances;
(c) except where any of the following would not have a
material adverse effect on the business, assets, or financial
condition of Target, (i) no portion of the property of Target
has been used for the handling, manufacturing, processing,
storage or disposal of Hazardous Substances except in
accordance with applicable Environmental Laws; and no
underground tank or other underground storage receptacle for
Hazardous Substances is located on such properties; (ii) in the
course of any activities conducted by Target no Hazardous
Substances have been generated or are being used on such
properties except in accordance with applicable Environmental
Laws; (iii) there have been no releases (i.e.
any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping) or threatened releases of Hazardous
Substances on, upon, into or from the properties of Target,
which releases would have a material adverse effect on the
value of such properties or adjacent properties or the
environment; (iv) there have been no releases on, upon, from or
into any real property in the vicinity of the real properties
of Target which, through soil or groundwater contamination,
have come to be located on, and which would have a material
adverse effect on the value of, the properties of Target; and
(v) in addition, any Hazardous Substances that have been
generated on the properties of Target, have been transported in
accordance with applicable Environmental Laws; and
(d) none of the properties of Target are currently
subject to any applicable environmental cleanup responsibility
law or environmental restrictive transfer law or regulation by
virtue of the transactions set forth herein and contemplated
hereby.
3.15. LABOR RELATIONS. Except as set forth on Schedule 3.15,
Target is, in all material respects, in compliance with all federal and
state laws respecting employment and employment practices, terms and
conditions of employment, wages and hours and nondiscrimination in
employment, is not engaged in any unfair labor practice and, to
Target's Knowledge, there (i) exists no basis for any claims against
Target in respect thereof, and (ii) there is no pending or threatened,
or any basis for any, worker's compensation claim against Target. There
is no charge pending or, to the Knowledge of Target, threatened against
Target alleging unlawful discrimination in employment practices before
any court or agency and there is no charge of or proceeding with regard
to any unfair labor practice against Target pending
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before the National Labor Relations Board. There is no labor strike,
dispute, slow-down or work stoppage pending or to Target's Knowledge
threatened against or involving Target. No representation question
exists respecting any of the employees of Target. No grievance or
arbitration proceeding arising out of or under any collective
bargaining agreement is pending against Target and no claim therefor
has been asserted. None of the employees of Target is covered by any
collective bargaining agreement, and no collective bargaining agreement
is currently being negotiated by Target. Target has not experienced any
work stoppage or other material labor difficulty during the last five
years.
3.16. CONTRACTS. Except for contracts, agreements, or
other arrangements that have been fully performed and with respect to
which Target has no further obligations or liabilities and except as
listed in Schedule 3.16, Target is not a party to or
otherwise bound by any agreement, instrument, or commitment that is
material to its financial condition, operations, business or assets,
and Target is not a party to or otherwise bound by any agreement,
instrument, or commitment that may affect its ability to consummate the
transactions contemplated hereby, including without limitation any:
(a) agreement for the purchase, sale, lease, or
license by or from it of assets, products, or services
requiring total payments by or to it in excess of $1,000 in any
instance, or entered into other than in the ordinary course of
the operation of its business;
(b) agreement requiring it to purchase all or
substantially all of its requirements for a particular product
or service from a particular supplier or suppliers, or
requiring it to supply all of a particular customer's or
customers' requirements for a certain product or service;
(c) agreement or other commitment pursuant to which it
has agreed to indemnify or hold harmless any other Person,
including without limitation for any liabilities, penalties,
losses, damages, or costs, or expenses related thereto, arising
out of or in connection with any presence, use, generation,
treatment, storage, transportation, recycling, disposal, or
release of any Hazardous Substances;
(d) (i) employment agreement, (ii) consulting
agreement, or (iii) agreement providing for severance payments
or other additional rights or benefits (whether or not
optional) in the event of the sale or other change in control
of it;
(e) agreement with any current or former affiliate,
stockholder, officer or director of it or with any Person in
which, to Target's Knowledge, any such affiliate of it has an
interest;
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(f) joint venture or teaming agreement;
(g) agreement with any domestic or foreign government
or agency or executive office thereof or any subcontract
between it and any third party relating to a contract between
such third party and any domestic or foreign government or
agency or executive office thereof; or
(h) agreement imposing non-competition or
exclusive dealing obligations on it.
Target has delivered or made available to Parent correct and
complete copies (or written summaries of the material terms of oral
agreements or understandings) of each agreement, instrument, and
commitment listed in Schedule 3.16 hereto, each as amended to date.
Each such agreement, instrument, and commitment is a valid, binding and
enforceable obligation of Target, and, to the Knowledge of Target, of
the other party or parties thereto, subject as to enforcement to the
Enforcement Exceptions, and is in full force and effect. Neither Target
nor, to its Knowledge, any other party thereto, is in breach of or
noncompliance with any term of any such agreement, instrument, or
commitment (nor to the Knowledge of Target is there any reasonable
basis for any of the foregoing), except where any such breach or
non-compliance would not have a material adverse effect on the
business, assets, or financial condition of the Target. No claim,
change order, request for equitable adjustment, or request for contract
price or schedule adjustment, between or among Target and any supplier,
or between or among Target and any customer, relating to any agreement,
instrument, or commitment listed in Schedule 3.16 hereto, is pending
or, to Target's Knowledge, threatened (nor to Target's Knowledge is
there any reasonable basis for any of the foregoing). No agreement,
instrument, or commitment listed in Schedule 3.16 hereto, includes or
incorporates any provision, the effect of which could reasonably be
expected to enlarge or accelerate any of the obligations of Target or
to give additional rights to any other party thereto, or to terminate,
lapse, or in any other way be affected, by reason of the transactions
contemplated by this Agreement.
3.17. EMPLOYEE BENEFIT PLANS.
(a) Target does not maintain, and has never
maintained, and does not have and has never had any obligation
to make contributions to, any employee benefit plan (an
"ERISA Plan") within the meaning of Section 3(3) of the
United States Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). Except for its 1994 Stock
Incentive Plan ("Stock Plan"), Target has no, and has
never had any, retirement, profit sharing, stock option, stock
bonus or employee
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benefit plan which is not subject to ERISA. Target has
heretofore delivered to Parent a true, correct and complete
copy of its Stock Plan. Target's Stock Plan has been maintained
and operated in all material respects in accordance with all
applicable federal, state and local laws and the terms and
conditions of the Stock Plan. Target's Stock Plan will be
terminated as of the Closing Date.
(b) Target has not engaged in any transaction in
connection with which it could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA, or a tax
imposed by Section 4975 of the Code, or any tax or penalty
under any federal, state or local laws applicable to the Stock
Plan. Neither the Stock Plan nor any trust created in
connection with the Stock Plan has been terminated since
September 2, 1974. No material liability to the United States
Pension Benefit Guaranty Corporation ("PBGC"), or to
any multi-employer pension plan within the meaning of Section
3(35) of ERISA, or to any other governmental authority, pension
or retirement board, or other agency, under any federal, state
or local law, has been or is expected to be incurred by Target
with respect to the Stock Plan.
(c) Full payment has been made of all amounts that
Target is required to pay under the terms of the Stock Plan, or
pursuant to applicable federal, state or local law, to have
paid as contributions to such Stock Plan as of the last day of
the most recent fiscal year of such Stock Plan ended prior to
the date hereof.
(d) (i) no action, suit, proceeding or investigation
is pending or threatened against Target, concerning
the Stock Plan or, to the Knowledge of the Target, any
fiduciary or service provider thereto and, to the
Knowledge of the Target there is no basis for any such
legal action or proceeding;
(ii) no communication, report or
disclosure has been made by Target which, at the time
made, did not accurately reflect the terms and
operations of the Stock Plan;
(iii) the Stock Plan provides no welfare
benefits subsequent to termination of employment to
employees or their beneficiaries (except to the extent
required by applicable state insurance laws and Title
I, Part 6 of ERISA and Section 4980(B) of the Code and
except in accordance with its terms);
(iv) no benefits due under the Stock Plan have
been forfeited subject to the possibility of
reinstatement (which possibility would still exist on
or after the Closing Date);
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(v) no stock or securities of Target have been
acquired by the Stock Plan and the Stock Plan has not
entered into any agreement or is otherwise obligated
to acquire any stock or securities of Target; and
(vi) Target has not undertaken to maintain the
Stock Plan for any period of time and each such Plan
is terminable at the sole discretion of Target,
subject only to such constraints as may imposed by
applicable law and the rights under outstanding option
grants at the time of termination.
3.18. POTENTIAL CONFLICTS OF INTEREST. Except as set forth
in Schedule 3.18, no officer or director of Target (i) to Target's
Knowledge owns, directly or indirectly, any interest in (excepting not
more than 3% stock holdings for investment purposes in securities of
publicly held companies) or is an officer, director or employee of any
Person which is a competitor or supplier of Target; (ii) owns in whole
or in part, any tangible or intangible property which Target uses in
the business of Target and the use of which is material to Target's
operations; or (iii) to Target's Knowledge, has any material cause of
action or other material claim against, or owes any amount to, Target,
except for claims in the ordinary course of business, such as for
accrued vacation pay, accrued benefits under employee benefit plans and
similar matters and agreements.
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3.19. INTELLECTUAL PROPERTY.
(a) Schedule 3.19(a) hereto, sets forth a complete and
accurate list of (i) all patents, trademarks, trade names and
copyrights registered in the name of Target or used by Target,
all applications therefor, and all licenses and other
agreements relating thereto, and (ii) all agreements relating
to Intellectual Property (as defined below) which Target has
licensed or authorized for use by others or which has been
licensed or authorized for use to the Target.
(b) Except as set forth in Schedule 3.19(b) hereto,
(i) no royalties are paid or payable by Target on or with
respect to any of the patents, patent applications, trademarks,
trade names or copyrights listed in Schedule 3.19(a) hereto, or
any of the inventions (whether patentable or non-patentable) or
trade secrets used by Target in the development, manufacture,
testing or production of its products, and (ii) each of the
inventions (whether patentable or non-patentable) or trade
secrets used by Target in the development, manufacture, testing
or production of its products, have, through assignment,
agreement, operation of law or otherwise, become the sole
property of Target. Schedule 3.19(b) hereto, lists all software
programs currently used by Target (other than commercially
available software programs, such as "Word Perfect", purchased
by Target in the ordinary course of business) in the
development, manufacture, testing or production of its
products, and for each such program the name and title of the
Person or Persons responsible for the creation of such program.
No royalties are paid or payable by Target on or with respect
to any of the software programs listed in Schedule 3.19(b)
hereto, and each of the software programs listed in Schedule
3.19(b) hereto, have, through assignment, agreement, operation
of law or otherwise, become the sole property of Target.
Schedule 3.19(b) hereto, lists all contracts relating to the
development of Intellectual Property between Target and any
other Person who was not an employee of Target at the time
Intellectual Property was developed pursuant to such contract
by such Persons for the Target.
(c) Except to the extent set forth in Schedule 3.19(c)
hereto, to Target's Knowledge, Target owns or has the right to
use all Intellectual Property used in its business as presently
conducted, and the consummation of the transactions
contemplated hereby will not alter or impair any such right.
(d) Except as set forth in Schedule 3.19(d) hereto,
neither Target, nor, to Target's Knowledge, the other party or
parties thereto, is in breach of any license, sublicense or
other agreement relating to
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Intellectual Property. To Target's Knowledge, Target has
complied with all of its obligations of confidentiality in
respect of the Intellectual Property of others and knows of no
violation of such obligations of confidentiality as are owed to
Target. To Target's Knowledge, no employee, agent or consultant
of Target is subject to confidentiality restrictions in favor
of any third Person the breach of which would subject Target to
any material liability or which would adversely affect the
Target's access to Intellectual Property used by it. No claims
have been asserted against Target, and to Target's Knowledge no
claims are pending, by any Person regarding the use of any such
Intellectual Property, or challenging or questioning the
validity or effectiveness of any license or agreement relating
to Intellectual Property, and to Target's Knowledge there is no
basis for such claim. To Target's Knowledge, the use by Target
of any of its Intellectual Property, including but not limited
to such Intellectual Property listed in any part of Schedule
3.19 hereto, does not infringe on the rights of any Person.
(e) As used herein, "Intellectual Property" means
patents, inventions (whether patentable or unpatentable), trade
secrets, know-how, trademarks and associated goodwill, service
marks, trade dress, logos, trade names, copyrights, mask works
and registrations and applications for each of the foregoing,
and computer software programs, computer data bases and related
documentation and materials.
3.20. ACCOUNTS RECEIVABLE. Target has no accounts or notes
receivable.
3.21. INSURANCE. Target owns no policies of theft, fire,
liability (including products liability), worker's compensation, life,
property and casualty or other insurance.
3.22. BANK ACCOUNTS, SIGNING AUTHORITY, POWERS OF ATTORNEY.
Except as set forth in Schedule 3.22, Target has no account or safe
deposit box in any bank and no Person has any power, whether singly or
jointly, to sign any checks on behalf of Target or to withdraw any
money or other property from any bank, brokerage or other account of
Target. Target's Board of Directors has not authorized any person to
borrow money or sign notes on behalf of Target, or to act under any
power of attorney granted by Target at any time for any purpose, except
in connection with completed loan transactions, it being understood and
agreed that all such completed loan transactions reflected in Target's
financial statements are represented by Convertible Promissory Notes
which will be converted into Target Common Stock on or prior to the
Closing.
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3.23. GOVERNMENTAL CONSENT, NON-CONTRAVENTION, ETC. Except as
described in Schedule 3.23, Target holds no licenses, permits or other
authorizations issued by any governmental agency to Target related to
its properties or business. No consent, approval or authorization of or
registration, designation, declaration or filing with any governmental
authority, federal or other, on the part of Target, is required in
connection with the Merger or the consummation of any other transaction
contemplated hereby, except for the filing of the Agreements of Merger
with the Secretary of State of each of Delaware and Massachusetts. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not violate (i) any provision of
the charter or by-laws of Target, or (ii) any order, judgment,
injunction, award or decree of any court or state or federal
governmental or regulatory body applicable to Target.
3.24. INVENTORY. Target has no inventory reflected on the
Audited Balance Sheet.
3.25. SUPPLIERS AND CUSTOMERS. Target has no customers as
of the date hereof except under the purchase orders and the License
Agreement between Target and Speidel + Keller GmbH & Co. listed on
Schedule 3.16. Schedule 3.25 hereto sets forth each supplier to Target
from whom Target's purchases exceeded $10,000 in the year ended
December 31, 1994. The relationships of Target with its suppliers are
good commercial working relationships and no supplier of material
importance to Target has cancelled or otherwise terminated, or
threatened in writing to cancel or otherwise to terminate, its
relationship with Target or has during the last 12 months decreased
materially, or threatened to decrease or limit materially, its
services, supplies or materials to Target. Target has no Knowledge that
any such supplier intends to cancel or otherwise substantially modify
its relationship with it or to decrease materially or limit its
services, supplies or materials to it, and the Merger will not, to the
Knowledge of Target, adversely affect the relationship of Target with
any such supplier.
3.26. EMPLOYMENT OF OFFICERS, EMPLOYEES. Schedule 3.26 sets
forth the name and current annual salary and other compensation payable
by Target to each exempt non-hourly employee.
3.27. MINUTE BOOKS. The minute books of Target made
available to Parent for inspection accurately record therein all
actions taken by Target's Board of Directors and stockholders.
3.28. BROKERS. No finder, broker, agent or other
intermediary has been retained or utilized by, or has acted for or on
behalf of, Target in
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connection with the negotiation or consummation of the transactions
contemplated hereby.
3.29. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Target has
complied with, and is in compliance with, (i) all laws, statutes,
governmental regulations and all judicial or administrative tribunal
orders, judgments, writs, injunctions, decrees or similar commands
applicable to its business, (ii) all unwaived terms and provisions of
all contracts, agreements and indentures to which Target is a party, or
by which Target or any of its properties is subject, and (iii) its
charter and by-laws, each as amended to date, except where any such
failure to comply would not have a material adverse effect on the
business, assets or financial condition of Target. Except as described
on Schedule 3.29 , Target does not have or need any licenses, permits
or other authorizations from governmental authorities for the conduct
of its business or in connection with the ownership or use of its
properties, except where the failure to have any such license, permit
or other authorization would not have a material adverse effect on the
business, assets or financial condition of the Target.
3.30. PROJECTIONS. Target has not furnished Parent any
financial projections for Target.
3.31. DISCLOSURE. No representation or warranty by Target in
this Agreement (including any schedules or exhibits hereto), or
information relating to Target furnished by or on behalf of Target in
writing for inclusion in the Proxy Statement (as defined in Section
5.26(b)), contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact required to be
stated herein or therein, or necessary to make the statements contained
herein or therein, in light of the circumstances under which they were
made, not false or misleading.
3.32. ABSENCE OF REGISTRATION OBLIGATIONS. Target has no
obligation, contingent or otherwise, by reason of any agreement to
register any of its securities under the Securities Act.
3.33. WARN. Target has not implemented, nor will it
implement on or prior to the Closing Date, any mass lay-off, plant
closing, or other covered employment loss within the meaning of the
Worker Adjustment and Retraining Notification Act, 229 U.S.C. Section
Section 2101-2109.
3.34. OWNERSHIP OF PARENT COMMON STOCK. As of the date
hereof, neither the Target nor, to Target's Knowledge, any directors or
officers of Target (i) beneficially own, directly or indirectly, or
(ii) are parties to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of, in each case,
shares of Parent Common Stock,
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which in the aggregate represent 5% or more of the outstanding shares
of Parent Common Stock entitled to vote generally in the election of
directors.
3.35. DISCLAIMER. EXCEPT AS SPECIFICALLY SET FORTH IN THIS
AGREEMENT (INCLUDING ANY SCHEDULES HERETO), TARGET DISCLAIMS ALL
REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED, WRITTEN OR
ORAL. IN NO EVENT SHALL TARGET OR ANY TARGET STOCKHOLDER BE LIABLE FOR
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
4. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUIRER. Parent
and Acquirer represent and warrant to Target (for the benefit of Target prior to
the Effective Date and for the benefit of Target Stockholders after the
Effective Date) as follows. For purposes of this Agreement, the term "Knowledge"
in relation to Parent or Acquirer means the knowledge or conscious awareness,
after reasonable inquiry, of James W. Hobbs or Samuel M. Stein.
4.1. ORGANIZATION AND STANDING OF PARENT AND ACQUIRER. Each of
Parent and Acquirer is a corporation duly organized, validly existing
and in corporate good standing under the laws of the Commonwealth of
Massachusetts, and has all requisite corporate power and authority to
own or lease and operate its properties and to carry on its business as
now conducted. Each of Parent and Acquirer has delivered to Target
complete and correct copies of its Articles of Organization and By-Laws
and all amendments thereto. Parent is duly qualified and in good
standing as a foreign corporation in each jurisdiction, if any, in
which the character of the properties owned or leased or the nature of
the activities conducted by it makes such qualification necessary.
4.2. CORPORATE POWER, BINDING EFFECT. Each of Parent and
Acquirer has all requisite corporate power and authority to enter into
this Agreement, the Agreements of Merger, and the Related Agreements
and to perform all of its agreements and obligations under this
Agreement, the Agreements of Merger and the Related Agreements in
accordance with their terms. This Agreement has been duly authorized by
each of Parent's and Acquirer's Board of Directors, has been duly
executed and delivered by Parent and Acquirer and constitutes the
legal, valid and binding obligation of Parent and Acquirer, enforceable
against Parent and Acquirer in accordance with its terms, subject only,
in respect of the consummation of the Merger, to approval by Parent and
Acquirer Stockholders holding a majority of the shares of Parent and
Acquirer Common Stock, respectively, and except that such enforcement
and remedies may be subject to the Enforcement Exceptions. Upon
execution and delivery by each of Parent and Acquirer of the Agreements
of Merger and the Related Agreements, as applicable, on the Closing
Date, the Agreements of Merger and the Related Agreements will
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have been duly authorized, executed and delivered by, and constitute
the legal, valid and binding obligations of, each of Parent and
Acquirer, as applicable. Neither the execution, delivery or performance
by either Parent or Acquirer of this Agreement, the Agreements of
Merger or the Related Agreements in accordance with their respective
terms will result in any violation of or default or creation of any
lien under, or the acceleration or vesting or modification of any right
or obligation under, or in any conflict with, either Parent's or
Acquirer's Articles of Organization or by-laws or of any agreement,
instrument, judgment, decree, order, statute, rule or regulation
binding on or applicable to Parent or Acquirer, except where any of the
foregoing would not have a material adverse effect on the business,
assets or financial condition of Parent or Acquirer.
4.3. NON-CONTRAVENTION. Neither the execution, delivery or
performance by Parent or Acquirer of this Agreement, the Related
Agreements nor of the Agreements of Merger will result in any violation
of or default under or be in conflict with the Articles of Organization
or By-Laws of Parent or Acquirer, or of any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
binding on or applicable to Parent or Acquirer.
4.4. CAPITALIZATION. The authorized capital of Acquirer
consists of 200,000 shares of common stock, par value $0.01 per share,
all of which shares have been issued to and are owned by Parent. The
authorized capital of Parent consists of 2,000,000 shares of Parent
Common Stock, 1,432,565 shares of which are issued and outstanding on
the date hereof. All of such outstanding shares are validly issued and
outstanding, fully paid and nonassessable. All shares of Parent Common
Stock to be issued to Target Stockholders under this Agreement
(including under Section 2.2 and Section 2.3) will be duly authorized,
validly issued, fully paid and nonassessable upon issuance. Parent is
neither a party to nor is bound by any outstanding subscriptions,
options (except for outstanding options under its option plans
described in the Parent Reports), warrants, calls, commitments or
agreements (other than this Agreement) of any character calling for
Parent to issue, deliver or sell, or cause to be issued, delivered or
sold, any shares of Parent Common Stock or any other equity security of
Parent or any securities convertible into, exchangeable for or
representing the right to subscribe for, purchase or otherwise receive
any shares of Parent Common Stock or any other equity security of
Parent or obligating Parent to grant, extend or enter into any such
subscriptions, options, warrants, calls, commitments or agreements. As
of the date hereof there are no outstanding contractual obligations of
Parent to repurchase, redeem or otherwise acquire any shares of capital
stock of Parent.
4.5. REPORTS AND FINANCIAL STATEMENTS. Parent has
previously furnished to Target complete and accurate copies, as amended
or
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supplemented, of its (i) Annual Reports on Form 10-K for the fiscal
years ended October 31, 1993 and 1994, together with all exhibits
thereto, as filed with the Securities and Exchange Commission (the
"Commission"), (ii) proxy statements relating to the Annual Meetings of
Stockholders held on April 22, 1993 and April 21, 1994, (iii) Quarterly
Reports on Form 10-Q, together with all exhibits thereto, as filed with
the Commission since October 31, 1994 and (iv) other reports filed by
Parent with the Commission since October 31, 1994 (such reports and
other filings, together with any amendments or supplements thereto, are
collectively referred to herein as the " Parent Reports"). As of their
respective dates, the Parent Reports did not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The audited financial statements and unaudited interim financial
statements of Parent included in the Parent Reports (i) comply as to
form in all material respects with applicable accounting requirements
and the published rules and regulations of the Commission with respect
thereto, (ii) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the
periods covered thereby (except in the case of quarterly financial
statements, as permitted by Form 10-Q under the Exchange Act), (iii)
fairly present the financial condition, results of operations and cash
flows of Parent as of the respective dates thereof and for the periods
referred to therein, and (iv) are consistent with the books and records
of Parent. Since October 31, 1994, there has been no material adverse
change in the business, assets or financial condition of Parent.
4.6. ABSENCE OF CERTAIN CHANGES. Since April 30, 1995, there
has not been: (i) any change in the assets, liabilities, income or
business of Parent or in its relationships with suppliers, customers or
lessors, other than changes which were both in the ordinary course of
business and have not had a material adverse effect on the business,
assets or financial condition of Parent; (ii) any acquisition or
disposition by Parent of any material amount of assets or properties
other than in the ordinary course of business; (iii) any damage,
destruction or loss, whether or not covered by insurance, materially
and adversely affecting, either in any case or in the aggregate, the
property or business of Parent; (iv) any declaration, setting aside or
payment of any dividend or any other distributions in respect of any
class of the capital stock of Parent; (v) any issuance of any shares of
any class of the capital stock of Parent or any direct or indirect
redemption, purchase or other acquisition of any shares of any class of
the capital stock of Parent, other than issuances upon exercise of
options outstanding at April 30, 1995; (vi) any increase in the
compensation, pension or other benefits payable or to become payable by
Parent to any of its officers or employees, or any bonus payments or
arrangements made to or with any of them; (vii) any forgiveness or
cancellation of any debt or claim by Parent or any waiver of any right
of
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material value other than compromises of accounts receivable in the
ordinary course of business; (viii) any entry by Parent into any
transaction other than in the ordinary course of business; (ix) any
incurrence by Parent of any material obligations or liabilities,
whether absolute, accrued, contingent or otherwise (including, without
limitation, liabilities as guarantor or otherwise with respect to
obligations of others), other than obligations and liabilities incurred
in the ordinary course of business; (x) any mortgage, pledge, lien,
lease, security interest or other charge or encumbrance on any of the
assets, tangible or intangible, of Parent; (xi) any change in
accounting principles, practices or methods used by Parent; or (xii)
any discharge or satisfaction by Parent of any lien or encumbrance or
payment by Parent of any obligation or liability (fixed or contingent)
other than (A) current liabilities included in Parent's balance sheet
at April 30, 1995 included in its Form 10-Q for the quarter ended April
30, 1995 (the "Latest Balance Sheet") and (B)
current liabilities incurred since the date of the Latest Balance Sheet
in the ordinary course of business.
4.7. TAXES.
(a) Elections. All material elections with respect to
Taxes (including without limitation any elections under Section
Section 108(b)(5), 338(g), 565, 936(a), or 936(e) of the Code
or Treasury Regulation Section Section 1.1502-20(g) or
1.1502-32(f)(2)) made by Parent and in effect as of the date
hereof are set forth in Schedule 4.7(a) hereto.
(b) Filing of Tax Returns and Payment of Taxes. Parent
has timely filed all Tax Returns required to be filed by it,
each such Tax Return has been prepared in compliance with all
applicable laws and regulations, and all such Tax Returns are
true and accurate in all respects. All Taxes due and payable by
Parent have been paid, and Parent shall not be liable for any
additional Taxes in respect of any taxable period ending on or
before the Closing Date in any material amount that exceeds the
corresponding reserve therefor, if any, reflected in the
accounting records of Parent as of the Closing Date. Parent has
delivered to the Target correct and complete copies of all Tax
Returns filed by or on behalf of Parent with respect to taxable
periods ended on or after December 31, 1991.
(c) Audit History. No Tax Returns of Parent have
been audited.
(d) Deficiencies. No deficiency or proposed adjustment
in respect of Taxes that has not been settled or otherwise
resolved has been asserted or assessed by any taxing authority
against Parent.
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(e) Liens. There are no Liens for Taxes (other
than current Taxes not yet due and payable) on the assets of
Parent.
(f) Extensions to Statute of Limitations for
Assessment of Taxes. Parent has not consented to extend the
time in which any Tax may be assessed or collected by any
taxing authority.
(g) Extensions of the Time for Filing Tax Returns.
Parent has not requested or been granted an extension of the
time for filing any Tax Return to a date on or after the
Closing Date.
(h) Pending Proceedings. There is no action, suit,
taxing authority proceeding, or audit with respect to any Tax
now in progress, pending, or to the best knowledge of Parent,
threatened, against or with respect to Parent.
(i) No Failures to File Tax Returns. No claim has
ever been asserted against Parent by a taxing authority in a
jurisdiction where Parent does not pay Tax or file Tax Returns
that Parent is or may be subject to Taxes assessed by such
jurisdiction.
(j) Membership in Affiliated Groups, Etc. Parent has
not been a member of any Affiliated Group, or filed or been
included in a combined, consolidated, or unitary Tax Return,
other than one of which Parent was the parent.
(k) Adjustments under Section 481. Parent will not be
required, as a result of a change in method of accounting for
any period ending on or before the Closing Date, to include any
adjustment under Section 481(c) of the Code (or any similar or
corresponding provision or requirement under any Tax law) in
taxable income for any period ending on or after the Closing
Date.
(l) Tax Sharing, Allocation, or Indemnity Agreements.
Parent is not a party to or bound by any Tax sharing or
allocation agreement or has any contractual obligation to
indemnify any other Person with respect to Taxes.
(m) Withholding Taxes. Parent has withheld and paid
all Taxes required to have been withheld and paid by it in
connection with amounts paid or owing to any employee,
creditor, independent contractor, or other Person.
(n) Foreign Permanent Establishments and Branches.
Parent has no permanent establishment in any foreign country,
as
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defined in the relevant tax treaty between the United States of
America and such foreign country, or otherwise operates or
conducts business through any branch in any foreign country.
(o) U.S. Real Property Holding Corporation. Parent
has not been a United States real property holding corporation
within the meaning of Code Section 897(c)(2), during the
applicable period specified in Code Section 897(c)(1)(A)(ii).
(p) Safe Harbor Lease Property. None of the property
owned or used by Parent is subject to a tax benefit transfer
lease executed in accordance with Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended by the Economic
Recovery Tax Act of 1981.
(q) Tax-Exempt Use Property. None of the property
owned by Parent is "tax-exempt use property" within the meaning
of Section 168(h) of the Code.
(r) Security for Tax-Exempt Obligations. None of the
assets of Parent directly or indirectly secures any
indebtedness, the interest on which is tax-exempt under Section
103(a) of the Code, and Parent is not directly or indirectly an
obligor or a guarantor with respect to any such indebtedness.
(s) Section 341(f) Consent. Parent has not filed
a consent under Code Section 341(f) concerning collapsible
corporations.
(t) Parachute Payments. Parent has not made any
payments, is not obligated to make any payments, or is not a
party to any agreement that under certain circumstances could
obligate it to make any payments, that will not be deductible
under Code Section 280G.
4.8. LITIGATION, ETC. No action, suit, proceeding or
investigation (whether conducted by any judicial or regulatory body or
other person) is pending or, to the knowledge of Parent, threatened
against Parent (nor is there any basis therefor known to Parent) which
questions the validity of this Agreement or any action taken or to be
taken pursuant hereto or which might reasonably be expected, either in
any case or in the aggregate, to materially adversely affect the
business, assets or financial condition of Parent or materially impair
the right or the ability of Parent to carry on its business
substantially as now conducted.
4.9. SAFETY, ZONING AND ENVIRONMENTAL MATTERS. Neither the
plants, offices or properties in or on which Parent carries on its
business nor the activities carried on therein are in violation of any
zoning, health or safety
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law or regulation, including, without limitation, the Occupational
Safety and Health Act of 1970, as amended, except where a violation
would not have a material adverse effect on the business, assets or
financial condition of the Target. To Parent's Knowledge:
(a) Parent is not in violation of any judgment,
decree, order, law, license, rule or regulation pertaining to
environmental matters, including without limitation, those
arising under the Environmental Laws, which violation would
have a material adverse effect on the business, assets, or
financial condition of Parent;
(b) Parent has not received notice from any third
party including without limitation any federal, state or local
governmental authority, (i) that Parent or any predecessor in
interest has been identified by the EPA as a potentially
responsible party under CERCLA with respect to a site listed on
the National Priorities List, 40 C.F.R. Part 300 Appendix B
(1986); (ii) that any Hazardous Substances which Parent has
generated, transported or disposed of has been found at any
site at which a federal, state or local agency or other third
party has conducted or has ordered that Parent conduct a
remedial investigation, removal or other response action
pursuant to any Environmental Law; or (iii) that Parent is or
shall be a named party to any claim, action, cause of action,
complaint (contingent or otherwise) legal or administrative
proceeding arising out of any third party's incurrence of
costs, expenses, losses or damages of any kind whatsoever in
connection with the release of Hazardous Substances;
(c) except where any of the following would not have a
material adverse effect on the business, assets, or financial
condition of Parent, (i) no portion of the property of Parent
has been used for the handling, manufacturing, processing,
storage or disposal of Hazardous Substances except in
accordance with applicable Environmental Laws; and no
underground tank or other underground storage receptacle for
Hazardous Substances is located on such properties; (ii) in the
course of any activities conducted by Parent no Hazardous
Substances have been generated or are being used on such
properties except in accordance with applicable Environmental
Laws; (iii) there have been no releases (i.e.
any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping) or threatened releases of Hazardous
Substances on, upon, into or from the properties of Parent,
which releases would have a material adverse effect on the
value of such properties or adjacent properties or the
environment; (iv) there have been no releases on, upon, from or
into any real property in the vicinity of the real properties
of Parent which, through soil or
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groundwater contamination, have come to be located on, and
which would have a material adverse effect on the value of, the
properties of Parent; and (v) in addition, any Hazardous
Substances that have been generated on the properties of
Parent, have been transported in accordance with applicable
Environmental Laws; and
(d) none of the properties of Parent are currently
subject to any applicable environmental cleanup responsibility
law or environmental restrictive transfer law or regulation by
virtue of the transactions set forth herein and contemplated
hereby.
4.10. GOVERNMENT CONSENTS, ETC. No consent, approval or
authorization of or registration, designation, declaration or filing
with any governmental authority, federal or other, on the part of
Parent or Acquirer is required in connection with the Merger or the
consummation of any other transaction contemplated hereby, except for
the filing of the Agreements of Merger with the Secretary of State of
each of Delaware and Massachusetts and the filing with the Securities
and Exchange Commission of Parent's proxy statement to the Parent
stockholders. The execution and delivery of this Agreement and the
Related Agreements and the consummation of the transactions
contemplated hereby and thereby will not violate (i) any provision of
the charter and by-laws of Parent or Acquirer, or (ii) any order,
judgment, injunction, award or decreed of any court or state or federal
governmental or regulatory body applicable to Parent or Acquirer.
4.11. BROKERS. Except as set forth in Schedule 4.11, neither
Parent nor Acquirer has retained, utilized or been represented by any
broker or finder in connection with the negotiation or consummation of
this Agreement or the transactions contemplated hereby.
4.12. SUBSIDIARIES. Except as disclosed in the Parent Reports,
Parent does not have any subsidiaries and does not own or hold of
record and/or beneficially any shares of any class in the capital of
any corporation. Parent does not own any legal and/or beneficial
interests in any partnerships, business trusts or joint ventures or in
any other unincorporated business enterprise.
4.13. LAWFUL ISSUANCE. All of the outstanding shares of Parent
Common Stock were issued in conformity with all applicable provisions
of the Securities Act and applicable state securities laws, and all
rules and regulations thereunder. There exists no valid right to
rescind any purchase thereof from or issuance thereof by Parent.
4.14. ABSENCE OF UNDISCLOSED LIABILITIES. Except as
disclosed in the Parent Reports or described in any Schedule hereto,
Parent has no liabilities
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or obligations of any nature, whether accrued, absolute, contingent or
otherwise (including, without limitation, liabilities as guarantor or
otherwise with respect to obligations of others) and whether due or to
become due, including, without limitation, any liabilities for taxes
due or to become due, which would have a material adverse effect on the
business, assets, prospects or financial condition of Parent, taken as
a whole, or would be required by generally accepted accounting
principles to be reflected on a balance sheet of Parent.
4.15. EMPLOYEE BENEFIT PLANS. Except as disclosed in the
Parent Reports:
(a) Parent does not maintain or have any obligation to
make contributions to, any ERISA Plan or any Non-ERISA Plan.
Parent has heretofore delivered to Target true, correct and
complete copies of each ERISA Plan and each Non-ERISA Plan. All
such ERISA Plans and Non-ERISA Plans have been maintained and
operated in all material respects in accordance with all
federal, state and local laws applicable to such plans, and the
terms and conditions of the respective plan documents.
(b) Parent has not engaged in any transaction in
connection with which it could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA, or a tax
imposed by Section 4975 of the Code, or any tax or penalty
under any federal, state or local laws applicable to any
Non-ERISA Plan. Except as disclosed in the Parent Reports, no
ERISA Plan or Non-ERISA Plan or any trust created under any
ERISA Plan or Non-ERISA Plan has been terminated since
September 2, 1974, and any termination so noted in the Parent
Reports hereto was accomplished in accordance with applicable
federal, state and local law. No material liability to the
PBGC, or to any multi-employer pension plan within the meaning
of Section 3(35) of ERISA, or to any other governmental
authority, pension or retirement board, or other agency, under
any federal, state or local law, has been or is expected to be
incurred by Parent with respect to any ERISA Plan or Non-ERISA
Plan. There has been no "reportable event" within the meaning
of Section 4043(b) of ERISA with respect to any ERISA Plan, and
no event or condition that presents a material risk of
termination of any ERISA Plan by the PBGC.
(c) Full payment has been made of all amounts that
Parent is required under the terms of each ERISA Plan and
Non-ERISA Plan, or pursuant to applicable federal, state or
local law, to have paid as contributions to such ERISA Plan or
Non-ERISA Plan as of the last day of the most recent fiscal
year of such ERISA Plan or Non-ERISA
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Plan ended prior to the date hereof, and no accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412
of the Code), whether or not waived, exists with respect to any
ERISA Plan. The current value of all benefit commitments under
any ERISA Plan did not, as of the last day of the most recent
plan year of each such Plan, exceed the current value of the
assets of such ERISA Plan allocable to such benefit
commitments. The terms "current value" and "accrued benefit"
have the meaning specified in Section Section 3 and 4001 of
ERISA.
(d) Except as set forth in the Parent Reports,
(i) no action, suit, proceeding or
investigation is pending or threatened against Parent,
other than routine claims for benefits, concerning any
ERISA Plan or Non-ERISA Plan of Parent or, to the
knowledge of Parent, any fiduciary or service provider
thereof and, to the knowledge of Parent there is no
basis for any such legal action or proceeding;
(ii) no communication, report or disclosure
has been made which, at the time made, did not
accurately reflect the terms and operations of any
ERISA Plan or Non-ERISA Plan of Parent;
(iii) no ERISA Plan or Non-ERISA Plan of
Parent provides welfare benefits subsequent to
termination of employment to employees or their
beneficiaries (except to the extent required by
applicable state insurance laws and Title I, Part 6 of
ERISA and Section 4980(B) of the Code);
(iv) no benefits due under any ERISA Plan or
Non-ERISA Plan of Parent have been forfeited subject
to the possibility of reinstatement (which possibility
would still exist on or after the Closing Date);
(v) no stock or securities of Parent have been
acquired by any ERISA Plan other than from Parent by
purchase or contribution, and no ERISA Plan has
entered into any agreement or is otherwise obligated
to acquire any stock or securities of Parent; and
(vi) Parent has not undertaken to maintain any
ERISA Plan or Non-ERISA Plan for any period of time
and each such Plan is terminable at the sole
discretion of the sponsor thereof, subject only to
such constraints as may imposed by applicable law.
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(e) Effect of Transactions. The execution of this
Agreement and the consummation of the transactions contemplated
herein will not result in any payment (whether of severance pay
or otherwise) becoming due from any ERISA Plan or Non-ERISA
Plan of Parent to any current or former director, officer,
consultant or employee of Parent or result in the vesting,
acceleration of payment or increases in the amount of any
benefit payable to or in respect of any such current or former
director, officer, consultant or employee.
4.16. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Parent has
complied with, and is in compliance with, (i) all laws, statutes,
governmental regulations and all judicial or administrative tribunal
orders, judgments, writs, injunctions, decrees or similar commands
applicable to its business, (ii) all unwaived terms and provisions of
all contracts, agreements and indentures to which Parent is a party, or
by which Parent or any of its properties is subject, and (iii) its
charter and by-laws, each as amended to date, except where any such
failure to comply would not have a material adverse effect on the
business, assets or financial condition of Parent. Parent has all
licenses, permits and other authorizations from all such governmental
authorities as are necessary for the conduct of its business or in
connection with the ownership or use of its properties, all of which
are in full force and effect, except where the failure to have any such
license, permit or other authorization would not have a material
adverse effect on the business, assets or financial condition of
Parent.
4.17. CERTAIN MASSACHUSETTS STATUTES. The Board of Directors of
Parent has approved the Merger and the other transactions contemplated
hereby in accordance with and subject to the terms and provisions
contained herein (including without limitation the payment of Earn-Out
Payments and related issuances of shares of Parent Common Stock
pursuant to Section 2.2 and the purchase price adjustment and related
issuances of shares of Parent Common Stock pursuant to Section 2.3) so
as to render inapplicable thereto the provisions of Chapters 110D and
110F of the Massachusetts General Laws.
4.18 FORM S-3. Parent is currently eligible to use Form S-3 to
effect the registration (as contemplated in Section 10) for resale of
shares of Parent Common Stock issued hereunder.
4.19. DISCLOSURE. No representation or warranty by Parent in
this Agreement (including any schedules or exhibits hereto), or
information relating to Parent furnished by or on behalf of Parent in
writing for inclusion in the Proxy Statement or Target's proxy
statement, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact required to be
stated herein or therein, or necessary to make the
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statements contained herein or therein, in light of the circumstances
under which they were made, not false or misleading.
4.20. DISCLAIMER. EXCEPT AS SPECIFICALLY SET FORTH IN THIS
AGREEMENT (INCLUDING ANY SCHEDULES HERETO), PARENT AND ACQUIRER
DISCLAIM ALL REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR
IMPLIED, WRITTEN OR ORAL. IN NO EVENT SHALL PARENT AND/OR ACQUIRER OR
ANY STOCKHOLDER OF EITHER OF THEM BE LIABLE FOR SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
5. CONDUCT OF BUSINESS PRIOR TO EFFECTIVE DATE.
A. Target covenants and agrees that, from and after the date of this
Agreement and until the Effective Date, except as otherwise provided
herein or specifically consented to or approved by Parent in writing:
5.1. FULL ACCESS. Target shall afford to Parent and Acquirer
and its authorized representatives full access during normal business
hours and with reasonable advance notice to all properties, books,
records, contracts and documents of Target and a full opportunity to
make such investigations as they shall reasonably desire to make of
Target, and the Target shall furnish or cause to be furnished to
Acquirer and its authorized representatives all such information with
respect to the affairs and businesses of Target as Acquirer may
reasonably request, provided, however, that this Section 5.1 shall not
be deemed to modify or amend Section 5.30 in any respect.
5.2. CARRY ON IN REGULAR COURSE. Target shall maintain its
properties and assets in good operating condition and repair, and shall
carry on its business diligently and substantially in the same manner
as heretofore and not make or institute any unusual or novel methods of
manufacture, purchase, sale, lease, management, accounting or
operation. Target shall use its best efforts to preserve all of its
accounting and business records, corporate records, trade secrets and
proprietary information for the benefit of the Surviving Corporation.
5.3. NO DIVIDENDS, ISSUANCES, REPURCHASES, ETC. Target shall
not declare or pay any dividends (whether in cash, shares of stock or
otherwise) on, or make any other distribution in respect of, any shares
of its capital stock, or issue, purchase, redeem or acquire for value
any shares of its capital stock, or issue any options, warrants or
other rights to acquire shares of its capital stock or securities
exchangeable for or convertible into shares of its capital stock,
except for the issuance of shares of Common Stock of Target upon the
exercise of options outstanding on the date hereof or upon the
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conversion of convertible promissory notes outstanding on the date
hereof as provided in Section 2.1(f) and Section 6.11 of this
Agreement.
5.4. NO GENERAL INCREASES. Target shall not grant any general
or uniform increase in the rates of pay of employees of Target or grant
any general or uniform increase in the benefits under any bonus or
pension plan or other contract or commitment or increase the
compensation payable or to become payable to officers, key salaried
employees or agents, or increase any bonus, insurance, pension or other
benefit plan, payment or arrangement made to, for or with any such
officers, key salaried employees or agents, provided that the foregoing
shall not prohibit the Target from paying, on or before the Closing
Date, all unpaid but accrued salary owed to officers and employees of
the Target. Any and all unpaid but accrued reasonable business
expenditures (including salaries and other compensation expenses)
incurred by Target in the ordinary course of its business from March
31, 1995 until and including the Closing Date, up to a maximum of
Thirty-Five Thousand Dollars ($35,000) per calendar month, shall be
assumed by and become the liabilities of Acquirer immediately after the
Closing Date, provided that legal fees incurred in connection with the
transactions contemplated by this Agreement shall be excluded for
purposes of calculating such $35,000 monthly limitation.
5.5. CONTRACTS AND COMMITMENTS. Target shall not enter into any
contract or commitment or engage in any transaction not in the usual
and ordinary course of business and consistent with its normal business
practices.
5.6. SALE OF CAPITAL ASSETS. Target shall not (i) sell, lease
as lessor, license as licensor, or otherwise dispose of any capital
asset with a market value in excess of $1,000, or of capital assets of
market value aggregating with respect to Target taken as a whole in
excess of $5,000, (ii) sell, lease as lessor, license as licensor, or
otherwise dispose of any asset other than in the ordinary course of
business, (iii) borrow money, except in the ordinary course of business
subject to the limitations in Section 5.4, (iv) incur or pay any
material liability other than in the ordinary course of business, or
(v) guarantee or otherwise incur any material liability with respect to
the obligation of any other Person.
5.7. NO INVESTMENTS. Target will not establish any
subsidiary or make or commit to make any investment in any subsidiary
or other Person.
5.8. PRESERVATION OF ORGANIZATION. Target shall use its best
efforts to preserve Target's business organization intact, to keep
available to Parent the present key officers and employees of Target
and to preserve for Parent the present relationships with suppliers and
others having business relations with Target. Target shall not amend
its Certificate of Incorporation or by-
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laws. Target shall not merge or consolidate with any other corporation,
or acquire any stock of, or, except in the ordinary course of business,
acquire any assets or property of any other business entity whatsoever.
5.9. NO DEFAULT. Target shall not do any act or omit to do any
act, or permit any act or omission to act, which will cause a material
breach of any contract, commitment or obligation of Target, except
where any of the foregoing would not have a material adverse effect on
the business, assets or financial condition of Target and it shall not
be a breach of this Section 5.9 for Target to continue not to make any
deliveries of products under any of the agreements or purchase orders
listed on Schedule 3.16.
5.10. COMPLIANCE WITH LAWS. Target shall duly comply with all
laws, regulations and orders applicable with respect to its business,
except where any of the foregoing would not have a material adverse
effect on the business, assets or financial condition of Target.
5.11. ADVICE OF CHANGE. Target shall promptly advise Parent in
writing of any development or change in circumstance (including any
litigation to which it may become a party or of which it may gain
Knowledge) that does or could reasonably be expected to (i) call into
question the validity of this Agreement or any action taken or to be
taken pursuant hereto, (ii) adversely affect the ability of the parties
to consummate the transactions contemplated hereby, or (iii) have any
material adverse effect on the business, financial condition, or assets
of Target.
5.12. STOCKHOLDERS MEETING; NO SHOPPING, ETC. Target shall call
a special meeting of the Target Stockholders to consider and vote upon
the approval of this Agreement and the Merger and the other
transactions contemplated hereby. Such meeting shall occur on the same
date as Parent's meeting of stockholders, or as soon thereafter as
practicable. Subject to the fiduciary duties of Target's Board of
Directors as described in Section 5.13 below: (i) Target shall
recommend to its stockholders the approval of this Agreement and the
Merger and the other transactions contemplated hereby and shall use its
best efforts to solicit and obtain the requisite vote of approval and
(ii) Target shall not solicit from any person or otherwise encourage or
support any person in making any offers, inquiries or proposals
relating to the acquisition of any securities or assets of Target or
any merger with Target and will not supply to any person any non-public
information concerning Target for any such purpose or with any such
likely effect.
5.13. TARGET PROXY STATEMENT. As soon as practicable after the
Proxy Statement (as hereinafter defined) becomes available for
distribution to Parent stockholders pursuant to Section 5.26, Target
shall distribute the Proxy Statement (with appropriate substitution of
accompanying letter to
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stockholders, notice of meeting and form of proxy and such additional
materials as shall be reasonably acceptable to Parent) to Target's
stockholders, and, pursuant thereto, call the stockholder meeting
(pursuant to Section 5.12) in accordance with Delaware General
Corporation Law and solicit proxies from Target's stockholders to
obtain approval of the this Agreement and the Merger and the other
transactions contemplated hereby. The Proxy Statement shall include the
recommendation of the Board of Directors of Target in favor of this
Agreement and the Merger and the other transactions contemplated
hereby; provided, however, that the Board of Directors of Target may
withdraw or modify such recommendation if it believes in good faith,
after consultation with its outside legal counsel, that the withdrawal
of such recommendation is necessary for it to comply with its fiduciary
duties under applicable law.
5.14. CONSENTS OF THIRD PARTIES. Target shall employ its best
efforts (not including the making of any payments) to secure, before
the Closing Date, the consent, in form and substance satisfactory to
Parent and Parent's counsel, to the consummation of the transactions
contemplated by the Agreement by each party to any contract, commitment
or obligation of Target, in each case under which such consent is
required.
5.15. SATISFACTION OF CONDITIONS PRECEDENT. Target shall use
its best efforts to cause the satisfaction of the conditions precedent
contained in Section Section 6 and 7 hereof.
5.16. COMPLETION OF DUE DILIGENCE. Target acknowledges and
agrees that Parent has given Target and its representatives full access
to Parent's properties, products, books, records, contracts, documents
and personnel and a full opportunity to make such investigation as
Target has desired to make of Parent. Target acknowledges and agrees
that it has completed, to its satisfaction, its investigation of Parent
and its affairs.
B. Parent covenants and agrees that, from and after the date of this
Agreement and until the Effective Date (except that the covenants
contained in Section 5.27 and Section 5.31 shall continue after the
Effective Date indefinitely), except as otherwise provided herein or
specifically consented to or approved by Target in writing:
5.17. FULL ACCESS. shall afford to Target and its authorized
representatives full access during normal business hours and with
reasonable advance notice to all properties, books, records, contracts
and documents of Parent and a full opportunity to make such
investigations as they shall reasonably desire to make of Parent, and
Parent shall furnish or cause to be furnished to Target and its
authorized representatives all such information with respect to the
affairs and businesses of Parent as Target may reasonably
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request, provided, however, that this Section 5.17 shall not be deemed
to modify or amend Section 5.16 in any respect.
5.18. CARRY ON IN REGULAR COURSE. Parent shall maintain its
properties and assets in good operating condition and repair, and shall
carry on its business diligently and substantially in the same manner
as heretofore and not make or institute any unusual or novel methods of
manufacture, purchase, sale, lease, management, accounting or
operation. Parent shall use its best efforts to preserve all of its
accounting and business records, corporate records, trade secrets and
proprietary information.
5.19. PRESERVATION OF ORGANIZATION. Parent shall use its best
efforts to preserve Parent's business organization intact, to keep the
present key officers and employees of Parent and to preserve the
present relationships with suppliers and others having business
relations with Parent. Parent shall not amend its Articles of
Organization or by-laws. Parent shall not merge or consolidate with any
other corporation, or acquire any stock of, or, except in the ordinary
course of business, acquire any assets or property of any other
business entity whatsoever.
5.20. NO DEFAULT. Parent shall not do any act or omit to do any
act, or permit any act or omission to act, which will cause a material
breach of any contract, commitment or obligation of Parent, except
where any of the foregoing would not have a material adverse effect on
the business, assets or financial condition of Parent.
5.21. CONTRACTS AND COMMITMENTS. Parent shall not enter into
any contract or commitment or engage in any transaction not in the
usual and ordinary course of business and consistent with its normal
business practices.
5.22. SALE OF CAPITAL ASSETS. Parent shall not (i) sell, lease
as lessor, license as licensor, or otherwise dispose of any capital
asset with a market value in excess of $20,000, or of capital assets of
market value aggregating with respect to Target taken as a whole in
excess of $50,000, (ii) sell, lease as lessor, license as licensor, or
otherwise dispose of any asset other than in the ordinary course of
business, (iii) borrow money except in the ordinary course of business,
(iv) incur or pay any material liability other than in the ordinary
course of business, or (v) guarantee or otherwise incur any material
liability with respect to the obligation of any other Person.
5.23. COMPLIANCE WITH LAWS. Parent shall duly comply with all
laws, regulations and orders applicable with respect to its business,
except where any of the foregoing would not have a material adverse
effect on the business, assets or financial condition of Parent.
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5.24. CONSENTS OF THIRD PARTIES. Parent shall employ its best
efforts (not including the making of any payments) to secure, before
the Closing Date, the consent, in form and substance satisfactory to
Target and Target's counsel, to the consummation of the transactions
contemplated by this Agreement by each party to any contract,
commitment or obligation of Parent, under which such consent is
required.
5.25. SATISFACTION OF CONDITIONS PRECEDENT. Parent shall use
its best efforts to cause the satisfaction of the conditions precedent
contained in Section 7 hereof.
5.26. STOCKHOLDER MEETING AND PROXY STATEMENT OF PARENT.
(a) As promptly as practicable after the date hereof,
Parent shall schedule a meeting of Parent's stockholders (the
"Parent Meeting") to seek approval from Parent's stockholders
of (i) an increase in the number of authorized shares of Parent
Common Stock from 2,000,000 shares to 10,000,000 shares, (ii)
this Agreement, the Merger and the transactions contemplated
hereby, (iii) the issuance of shares of Parent Common Stock
pursuant to the Merger and this Agreement, (iv) an amendment to
its Articles of Organization to adopt new provisions reasonably
acceptable to Target relating to indemnification of directors
and officers, and (v) such other matters as Parent customarily
presents to its stockholders at its annual meeting of
stockholders (the "Meeting Purposes").
(b) As promptly as practicable after the date hereof,
Parent shall prepare and file with the Commission under the
Exchange Act, preliminary proxy materials for the purpose of
soliciting proxies for stockholder approval of the Meeting
Purposes at the Parent Meeting. Such proxy materials, together
with any accompanying letter to stockholders, notice of meeting
and form of proxy, shall be referred to herein as the "Proxy
Statement". Parent shall respond to any SEC comments on the
Proxy Statement and shall otherwise use reasonable efforts to
resolve as promptly as practicable all SEC comments on the
Proxy Statement to the satisfaction of the SEC and the
reasonable satisfaction of Parent. If the SEC comments on the
Proxy Statement cannot be resolved to the reasonable
satisfaction of Parent, Parent shall be entitled to withdraw
the Proxy Statement and the provisions of Section 15(c) shall
apply. The Proxy Statement shall be reasonably acceptable in
form and substance to Target.
(c) Target shall supply all information regarding the
Target required to be included with respect to the Target in
the Proxy Statement under the Exchange Act and applicable rules
and regulations
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thereunder and applicable provisions of the Massachusetts
Business Corporation Law (the "Proxy Rules"); provided,
however, that Parent acknowledges and agrees that the Target's
financial statements historically have been unaudited and that
any and all audited financial statements (and financial
information derived therefrom) have been obtained by Parent at
its own expense.
(d) Promptly following the resolution to the
satisfaction of the SEC and the reasonable satisfaction of
Parent of all SEC comments on the Proxy Statement (or the
expiration of the ten-day period under Rule 14a-6(a) under the
Exchange Act, if no SEC comments are received by such date),
Parent shall distribute the Proxy Statement to its stockholders
and, pursuant thereto, call the Parent Meeting in accordance
with Proxy Rules and solicit proxies from Parent's stockholders
to obtain approval of the Meeting Purposes. The Proxy Statement
shall include the recommendation of the Board of Directors of
Parent in favor of the Meeting Purposes; provided, however,
that the Board of Directors of Parent may withdraw or modify
such recommendation if it believes in good faith, after
consultation with its outside legal counsel, that the
withdrawal of such recommendation is necessary for it to comply
with its fiduciary duties under applicable law.
(e) Parent shall comply with all Proxy Rules in the
preparation, filing and distribution of the Proxy Statement,
the solicitation of proxies thereunder and the calling and
holding of the Parent Meeting. Without limiting the foregoing,
Parent shall ensure that the Proxy Statement does not, as of
the date on which it is distributed to Parent's stockholders
and the Target's stockholders and as of the date of the Parent
Meeting and the meeting of the Target's stockholders to be held
to approve the Merger, contain any untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements made, in light of the
circumstances under which they were made, not misleading
(provided that Parent shall not be responsible for the accuracy
or completeness of any information furnished in writing by or
on behalf of Target for inclusion in the Proxy Statement).
(f) Parent shall also take any and all such actions as
may be necessary or advisable for the purpose of complying with
all applicable state securities laws in connection with the
offering and issuance of shares of Parent Common Stock
hereunder; provided, however, that Parent shall not be required
in connection with this paragraph to qualify as a foreign
corporation or execute a general consent to service of process
in any jurisdiction.
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5.27. LISTING OF SHARES. Parent shall take all actions as may
be necessary to cause all shares of Parent Common Stock issued under
this Agreement to be listed on the AMEX or such other exchange or
automated quotation system on which the Parent Common Stock is then
listed or quoted.
5.28. NO DIVIDENDS, ISSUANCES, REPURCHASES, ETC. Parent shall
not declare or pay any dividends (whether in cash, shares of stock or
otherwise) on, or make any other distribution in respect of, any shares
of its capital stock, or issue, purchase, redeem or acquire for value
any shares of its capital stock, except for the issuance of shares of
Common Stock of Parent upon the exercise of options and warrants
outstanding on the date hereof.
5.29. ADVICE OF CHANGE. Parent shall promptly advise Target in
writing of any development or change in circumstance (including any
litigation to which it may become a party or of which it may gain
knowledge) that does or could reasonably be expected to (i) call into
question the validity of this Agreement or any action taken or to be
taken pursuant hereto, (ii) adversely affect the ability of the parties
to consummate the transactions contemplated hereby, or (iii) has any
material adverse effect on the business, financial condition,
operations or assets of Parent.
5.30. COMPLETION OF DUE DILIGENCE. Parent acknowledges and
agrees that Target has given Parent and its representatives full access
to Target's properties, products, books, records, contracts, documents
and personnel and a full opportunity to make such investigation as
Parent has desired to make of Target. Parent acknowledges and agrees
that it has completed, to its satisfaction, its investigation of Target
and its affairs.
5.31. RULE 144 AND FORM S-3. Parent shall file all reports and
otherwise take all actions necessary for (i) Rule 144 under the
Securities Act to be available for resale of shares of Parent Common
Stock issued hereunder and (ii) Parent to continue to be eligible to
use Form S-3, to the same extent that it is eligible to use Form S-3 on
the date hereof, to effect the registration (as contemplated in Section
10) for resale of shares of Parent Common Stock issued hereunder.
5.32. BOARD OF DIRECTORS. Effective at the Closing Date, the
Board of Directors of Parent shall vote to expand the size of the Board
of Directors from five (5) members to seven (7) members by adding a
Director position to each of Class I (with a term to expire at the 1997
annual meeting of stockholders) and Class II (with a term to expire at
the 1998 annual meeting of stockholders). Paul Epstein shall be elected
to Class II and Patrick Phillipps shall be elected to Class I by the
Board of Directors to fill the two (2) vacancies created by the
foregoing expansion in the Board of Directors.
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6. CONDITIONS PRECEDENT TO PARENT'S AND ACQUIRER'S OBLIGATIONS.
Notwithstanding the provisions of Section Section 1 and 2, Parent and Acquirer
shall be obligated to perform the acts contemplated for performance by them
under Section Section 1 and 2 only if each of the following conditions is
satisfied at or prior to the Closing Date, unless any such condition is waived
by Parent and Acquirer:
6.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES BY TARGET. The
representations and warranties of Target set forth in Section 3 of this
Agreement (including any schedules thereto) shall be true and correct
in all material respects as of the Closing Date with the same force and
effect as though made again at and as of the Closing Date, except for
changes permitted or required by this Agreement.
6.2. COMPLIANCE BY TARGET. Target shall have performed and
complied in all material respects with all covenants and agreements
contained in this Agreement required to be performed or complied with
by it on or before the Closing Date.
6.3. APPROVAL BY STOCKHOLDERS; DELIVERY OF AGREEMENT OF MERGER.
The Target Stockholders shall have authorized and approved the
Agreements of Merger and the Merger contemplated hereby and thereby as
required by Section 251 of the Delaware General Corporation Law, and
Target shall have duly executed and delivered the Agreements of Merger.
6.4. AUTHORIZATION OF ISSUANCE OF PARENT COMMON STOCK. The
shareholders of Parent shall have approved the Meeting Purposes set
forth in clauses (i), (ii) and (iii) of Section 5.26(a) herein.
6.5. NO RESTRAINING ORDER. No restraining order or injunction
or other order issued by any court of competent jurisdiction, or other
legal restraint or prohibition shall prevent the consummation of the
Merger or other transactions contemplated by this Agreement, and no
petition or request for any such injunction or other order shall be
pending.
6.6. NO MATERIAL CHANGE. There shall not have been any material
adverse change in the financial condition, business or assets of
Target.
6.7. OFFICERS' CLOSING CERTIFICATE. Target shall have executed
and delivered to Acquirer and Parent at and as of the Closing a
certificate, duly executed by Target's President or any Vice President,
in form and substance satisfactory to Parent and Parent's counsel,
certifying that the conditions specified in each of Section 6.1, 6.2,
6.3, 6.5 and 6.6 have been satisfied.
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6.8. OTHER AGREEMENTS. Paul Epstein and Patrick G. Phillipps
shall have entered into Invention and Non Disclosure Agreements and
Non-Competition Agreements with Parent and Acquirer in the forms
attached hereto as Exhibits C and D, respectively, and such Invention
and Non-Disclosure Agreements and Non-Competition Agreements shall be
in full force and effect on the Closing Date.
6.9. RESIGNATIONS OF DIRECTORS AND OFFICERS. All of the
directors and officers of Target shall have resigned their positions
with Target on or prior to the Closing Date, and prior thereto shall
have executed such appropriate documents with respect to the transfer
or establishment of bank accounts, signing authority, etc., as Parent
shall have requested.
6.10. OPINION OF TARGET'S COUNSEL. Target shall have delivered
to Parent and Acquirer an opinion of Hale and Dorr, counsel to Target,
dated the Closing Date, such opinion to contain customary exceptions,
limitations and assumptions, to be based in part on customary
certificates of public officials and Target officers, and to be in form
and substance reasonably satisfactory to Parent:
(a) to the effect set forth in the first sentence of
Section 3.1, in the first sentence of Section 3.2, in Section
3.4, in the first two sentences of Section 3.5, in Section 3.6
(except the second and third sentences thereof), and in Section
3.23 (except the first sentence thereof);
(b) that the execution, delivery and performance of
the Agreements of Merger have been duly authorized by Target's
Board of Directors and the Target Stockholders and that the
Agreements of Merger have been duly executed and delivered by
Target in accordance with Section 252 of the Delaware General
Corporation Law;
(c) that this Agreement has been duly authorized,
executed and delivered by Target and is the legal, valid and
binding agreement of Target, enforceable against Target in
accordance with its terms, subject to Enforcement Exceptions;
and
(d) that upon filing the Agreements of Merger with the
Secretary of State of each of Delaware and Massachusetts, as
specified in the Delaware General Corporation Law and the
Massachusetts Business Corporation Law, the Merger contemplated
by this Agreement shall become effective in accordance with its
terms.
6.11. EXERCISE AND EXCHANGE OF STOCK OPTIONS; CONVERSION OF
CONVERTIBLE PROMISSORY NOTES. Each outstanding stock option, warrant
and other right to acquire Target Common Stock shall have been
exercised and/or
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Target shall have entered into an agreement, satisfactory in form and
substance to Parent, with each person holding outstanding stock
options, warrants and other rights to purchase shares of Target Common
Stock to the effect that, as of the Effective Date, the options,
warrants and other rights held by each such person shall be surrendered
and exchanged for such number of shares of Target Common Stock as is
specified in each such agreement. All outstanding Convertible
Promissory Notes of Target and other securities exchangeable for or
convertible into Target Common Stock shall have been exchanged and/or
converted into Target Common Stock. Target's Stock Plan shall have been
terminated as of the Closing Date and shall be of no further force or
effect.
6.12. ESCROW AGREEMENT. Parent, the Acquirer, the
Representatives and the Escrow Agent (as defined therein) shall have
entered into the Escrow Agreement substantially in the form attached
hereto as Exhibit E.
6.13 TARGET AND TARGET STOCKHOLDER CERTIFICATES. Each Target
Stockholder shall have executed and delivered to Parent (i) a Target
Stockholder Representation Certificate, as defined in and required
pursuant to Section 9.2(c) hereof in the form attached hereto as
Exhibit F, and (ii) an investor questionnaire, in form and substance
reasonably satisfactory to Parent, Target and their respective
counsels, and Target shall have executed and delivered to Parent a
certificate in the form attached hereto as Exhibit H.
6.14. PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings
in connection with the Merger contemplated by this Agreement and the
other transactions contemplated hereby and all certificates and
documents delivered to Parent or Acquirer pursuant to this Section 6 or
otherwise reasonably requested by Parent or Acquirer shall be
reasonably satisfactory to Parent, Acquirer and their counsel.
7. CONDITIONS PRECEDENT TO TARGET'S OBLIGATIONS. Notwithstanding the
provisions of Section Section 1 and 2, Target and Target Stockholders shall be
obligated to perform the acts contemplated for performance by them under Section
Section 1 and 2 only if each of the following conditions is satisfied at or
prior to the Closing Date, unless any such condition is waived by Target:
7.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES BY PARENT AND
ACQUIRER. The representations and warranties of Parent and Acquirer set
forth in Section 4 of this Agreement shall be true and correct in all
material respects as of the Closing Date with the same force and effect
as though made again at and as of the Closing Date, except for changes
permitted or required by this Agreement.
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7.2. COMPLIANCE BY PARENT AND ACQUIRER. Parent and Acquirer
shall have performed and complied in all material respects with all of
the covenants and agreements required to be performed or complied with
by them by the Closing Date.
7.3. APPROVAL BY STOCKHOLDERS; DELIVERY OF AGREEMENT OF MERGER.
The Target Stockholders shall have authorized and approved the
Agreements of Merger and the Merger contemplated hereby and thereby as
required by applicable laws and Target and Acquirer shall have duly
executed and delivered the Agreements of Merger.
7.4. NO RESTRAINING ORDER. No restraining order or injunction
or other order issued by any court of competent jurisdiction, or other
legal restraint or prohibition shall prevent the Merger or other
transactions contemplated by this Agreement, and no petition or request
for any such injunction or other order shall be pending.
7.5. AUTHORIZATION OF ISSUANCE OF PARENT COMMON STOCK. The
shareholders of Parent shall have approved the Meeting Purposes set
forth in clauses (i), (ii) and (iii) of Section 5.26(a).
7.6. NO MATERIAL CHANGE. There shall not have been any material
adverse change in the financial condition, business or assets of
Parent.
7.7. PARENT CERTIFICATES. Parent shall have delivered to Target
(i) a certificate of its Chief Financial Officer or one of its Vice
Presidents dated the Closing Date, in form and substance satisfactory
to Target and Target's counsel, certifying that the conditions set
forth in each of Section Section 7.1, 7.2, 7.4, 7.5 and 7.6 have been
satisfied, and (ii) a certificate in the form attached hereto as
Exhibit I.
7.8. OTHER DOCUMENTS. Acquirer and Parent shall have duly
executed and delivered the Agreements of Merger and Related Agreements.
7.9. OPINION OF PARENT'S COUNSEL. Parent shall have delivered
to Target an opinion of Bingham, Dana & Gould, counsel for Parent and
Acquirer, dated the Closing Date, such opinion to contain customary
exceptions, limitations and assumptions and to be based in part on
customary certificates of public officials and Parent officers, and to
be in form and substance reasonably satisfactory to Target:
(a) Parent is a corporation validly existing and in
corporate good standing with authorized capital of ten million
(10,000,000) shares of Parent Common Stock, and Acquirer is a
corporation duly organized, validly existing and in corporate
good standing, each under
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the laws of the Commonwealth of Massachusetts, and to the
effect set forth in the third sentence of Section 4.1, in the
first sentence of Section 4.2, in the first and third sentences
of Section 4.4 with respect to Acquirer, and in Section 4.10.
(b) the execution, delivery and performance of the
Agreements of Merger have been duly authorized by the Board of
Directors of Acquirer and by Parent, for itself and as the sole
stockholder of Acquirer, and by Parent's stockholders, and that
the Agreements of Merger have been duly executed and delivered
by Parent and Acquirer in accordance with the provisions of
Section 251 of the Delaware General Corporation Law and Section
79 of the Massachusetts Business Corporation Law;
(c) that this Agreement, the Agreements of Merger and
Related Agreements have been duly authorized, executed and
delivered by Parent and Acquirer and are the legal, valid and
binding agreements of Parent and Acquirer enforceable against
them in accordance with their terms, subject to the Enforcement
Exceptions;
(d) that upon filing of the Agreements of Merger with
the Secretary of State of each of Delaware and Massachusetts as
required by applicable law, the Merger contemplated by this
Agreement shall become effective in accordance with its terms;
(e) that the shares of Parent Common Stock to be
issued pursuant hereto, will, upon execution and delivery of
this Agreement, and approval thereof by the stockholders of
Parent and upon issuance (in the case of the shares issuable
under Section Section 2.2 and 2.3), be duly authorized, validly
issued and fully paid and nonassessable and free of preemptive
rights;
(f) that the Parent Common Stock has been registered
under Section 12(b) or 12(g) of the Exchange Act and the shares
of Parent Common Stock issued in the Merger have been listed on
the AMEX;
(g) that neither the execution and delivery of this
Agreement, the Agreements of Merger or the Related Agreements,
nor the consummation of the transactions contemplated thereby
or hereby, (i) conflicts with or violates any provision of
Parent's Articles of Organization or By-Laws or the Acquirer's
Articles of Organization or ByLaws, (ii) to such counsel's
knowledge, requires on the part of Parent or Acquirer any
filing with, or permit, authorization, consent or approval of,
any federal or state governmental agency, other than the filing
of the Proxy Statement with, and its approval by, the
Commission, (iii) to such counsel's knowledge, conflicts with,
results
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in a breach of, constitutes (with or without due notice or
lapse of time or both) a default under, or requires any
notice, consent or waiver under, any contract, lease,
sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of
indebtedness or other agreement or instrument to which Parent
is a party and which has been filed by Parent as an exhibit to
any of Parent's filings with the Commission under the Exchange
Act, (iv) to such counsel's knowledge, violates any order,
writ, injunction or decree binding on Parent or Acquirer or
any of their properties or assets or (v) to such counsel's
knowledge, violates any statute, rule or regulation;
(h) that the certificates evidencing the shares of
Parent Common Stock to be delivered pursuant to this Agreement
are in due and proper form under applicable law; and
(i) assuming the accuracy of customary investment
representations to be made by the Target Stockholders, that the
issuance of shares of Parent Common Stock in the Merger and
pursuant to this Agreement is exempt from registration under
the Securities Act by reason of Section 4(2) of the Securities
Act and/or Regulation D thereunder.
7.10. ESCROW AGREEMENT. Parent, the Acquirer, the
Representatives and the Escrow Agent (as defined therein) shall have
entered into the Escrow Agreement substantially in the form attached
hereto as Exhibit E.
7.11. PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings
in connection with the Merger contemplated by this Agreement and the
other transactions contemplated hereby and all certificates and
documents delivered to Target pursuant to this Section 7 or otherwise
reasonably requested by Target shall be reasonably satisfactory to
Target and its counsel.
8. CONFIDENTIAL INFORMATION; NO PUBLICITY. Any and all non-public
information disclosed by Parent and Acquirer to Target or by Target to Parent or
Acquirer as a result of the negotiations leading to the execution of this
Agreement, or in furtherance hereof, shall remain confidential and be subject to
the Confidentiality Agreement dated October 28, 1994 between Parent and Target.
If the consummation of the transactions contemplated by this Agreement does not
take place for any reason, each of Parent and Acquirer on the one hand and
Target on the other will return promptly all documents containing non-public
information relating to the other side.
9. SECURITIES LAWS MATTERS.
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9.1. COMPLIANCE WITH Section 4(2) AND/OR REGULATION D AND STATE
SECURITIES LAWS. Target agrees to cooperate with Parent and Acquirer in
qualifying the issue of Parent Common Stock to the Target Stockholders
under Section 4(2) and/or Regulation D of the Commission under the
Securities Act and in complying with all state securities laws in
respect thereto. Neither Target nor any of its agents is or shall be
authorized to act on Parent's or Acquirer's behalf with respect to any
aspect of the transactions contemplated by this Agreement or make any
solicitations of or representations to any of the Target Stockholders
on Parent's or Acquirer's behalf, provided, that Target shall forward
to the Target Stockholders the Proxy Statement as contemplated by
Section 5.13. Neither this Agreement nor any other act by Parent or
Acquirer except the Proxy Statement as contemplated by Section 5.13
sent to the Target Stockholders shall be deemed an offer with respect
to Parent Common Stock.
9.2. RESTRICTIONS ON TRANSFER. Target understands and agrees
that:
(a) each certificate of Parent Common Stock issued to
Target Stockholder will bear a legend to the effect set forth
in Section 9.2(f) hereunder;
(b) a stop order will be issued to Parent's transfer
agent preventing transfer of all such certificates unless the
transfer of the shares represented thereby is registered or
exempt from registration under the Securities Act;
(c) each Target Stockholder receiving Parent Common
Stock will be required to sign a certificate in the form
attached hereto as Exhibit F (the "Target Stockholder
Representation Certificate");
(d) sales of Parent Common Stock made in reliance on
Rule 144 of the Securities and Exchange Commission must conform
to the requirements of that rule;
(e) because the Target Stockholders must bear the
economic risk of their investment in the Parent Common Stock
for an indefinite period, they accordingly should take into
account the restrictions on transfer in valuing the Parent
Common Stock to be delivered for their accounts; and
(f) in conformity herewith, the certificate(s) for all
shares of Parent Common Stock issued hereunder shall bear the
following legend:
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"These securities have not been registered under the
Securities Act of 1933, as amended, and may not be sold or
otherwise disposed of, in whole or in part, other than pursuant
to registration under said Act or in conformity with the
limitations of Rule 144 or other similar rule as then in
effect, without first obtaining (i) a written opinion of
counsel satisfactory to the Company's counsel to the effect
that the contemplated sale or other disposition will not be in
violation of said Act or (ii) a 'no-action' letter from the
Staff of the Securities and Exchange Commission to the effect
that such Staff will take no action in respect of the
contemplated sale or other disposition."
9.3. RULE 144 INFORMATION. Parent agrees that, from and after
the Effective Date, it will use its best efforts to supply the former
Target Stockholders who receive Parent Common Stock with all
information necessary to enable the former Target Stockholders to avail
themselves of Rule 144 of the Securities and Exchange Commission.
10. REGISTRATION RIGHTS.
10.1. DEFINITIONS. For the purposes of this Section 10, the
following terms shall have the respective meanings set forth below or
elsewhere in this Section 10 as referred to below:
"Business Day" shall mean any day that is not a
Saturday, a Sunday or a legal holiday in the Commonwealth of
Massachusetts.
"Indemnitees" shall have the meaning set forth in
Section 10.7(b) hereof.
"NASD" shall mean the National Association of
Securities Dealers, Inc., or any successor corporation thereto.
"Registrable Securities" shall mean, collectively, any
and all shares of Parent Common Stock issued and/or issuable to
the Target Stockholders pursuant to this Agreement; provided
however, that with respect to any such shares of Parent Common
Stock, such shares of Parent Common Stock shall cease to be
Registrable Securities when (a) such shares of Parent Common
Stock have been disposed of by the Target Stockholders thereof
pursuant to a registration statement that has been declared
effective under the Securities Act, (b) such shares of Parent
Common Stock become eligible for resale pursuant to Rule 144(k)
promulgated under the Securities Act, or (c) such shares of
Parent Common Stock have ceased to be outstanding.
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"Required Target Stockholders" shall mean, at the
relevant time of reference thereto, those Target Stockholders
holding, in the aggregate, a majority of the Registrable
Securities then held by all Target Stockholders.
10.2. DEMAND REGISTRATION.
(a) Subject to the limitations set forth in this
Section 10.2(a) and Section Section 10.2(b), (c) and (d) below,
any time beginning from and after the date which is two hundred
forty (240) days after the Closing Date, and ending on the
sixth anniversary of the Closing Date, subject, however, to the
provisions of Section 10.9 herein, the Required Target
Stockholders may notify Parent in writing that such Required
Target Stockholders desire for Parent to cause all or a portion
of such Required Target Stockholders' Registrable Securities to
be registered for sale to the public pursuant to a registration
statement on Form S-3 (or comparable or successor form) under
the Securities Act, which shall, if so elected by the Required
Target Stockholders, be a "shelf registration" made pursuant to
Rule 415 adopted pursuant to the Securities Act; provided
however, that if Parent becomes ineligible to file registration
statements on Form S-3 solely because Parent fails to timely
make its required filings pursuant to the Exchange Act, the
filing of the foregoing registration statement may be on Form
S-1 (or comparable or successor form) under the Securities Act,
but in no case whatsoever, shall the Required Target
Stockholders be permitted to elect, nor shall Parent be
obligated to cause, such Form S-1 registration statement to be
a "shelf registration" pursuant to Rule 415 adopted pursuant to
the Securities Act except under the circumstances described in
Section 10.2(c) below. Notwithstanding the foregoing, the
Required Target Stockholders shall not be entitled to request
that Parent register Registrable Securities for sale to the
public at any time within one hundred twenty (120) days after
the effective date of a registration statement filed by Parent
with respect to which the Target Stockholders were given the
opportunity to include Registrable Securities (whether or not
all Registrable Securities requested to be included were
actually included) pursuant to Section 10.3 herein. Upon
receipt of such written request by the Required Target
Stockholders, Parent shall promptly notify in writing all other
Target Stockholders of such request, and such other Target
Stockholders shall have a period of ten (10) Business Days
following such notice from Parent to notify Parent in writing
whether such other Target Stockholders, or any of them, desire
to have Registrable Securities held by them registered for sale
to the public under the Securities Act. Thereafter, subject to
the conditions, limitations and provisions set forth below in
this Section 10.2(a) and in Section Section 10.2(b), 10.2(c)
and 10.2(d) hereof, Parent shall, promptly
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following the expiration of such ten (10) Business Day period,
prepare and file, and use its best efforts to prosecute to
effectiveness, an appropriate filing with the Commission of a
registration statement covering all of those Registrable
Securities of the Required Target Stockholders and of such
other Target Stockholders with respect to which registration
under the Securities Act has been requested pursuant to this
Section 10.2(a). Notwithstanding anything to the contrary
contained in this Section 10.2(a), Parent shall have no
obligation of any kind whatsoever under this Section 10.2(a)
with respect to any request to register Registrable Securities
under the Securities Act unless the number of Registrable
Securities requested to be registered for sale to the public
under the Securities Act by the selling Target Stockholders
(net of Registrable Securities that have been withdrawn from
registration pursuant to the last two sentences of Section
10.2(c) below) represents at least thirty-three percent (33%)
of the total number of Registrable Securities held by Target
Stockholders.
(b) Notwithstanding anything to the contrary contained
in Section 10.2(a) above, Parent shall not be obligated to
prepare or file any registration statement pursuant to Section
10.2(a) hereof, or to prepare or file any amendment or
supplement thereto, at any time when Parent, in the good faith
judgment of its Board of Directors, reasonably believes that
the filing thereof at the time requested, or the offering of
Registrable Securities pursuant thereto, (a) would materially
adversely affect a pending or proposed public offering of
Parent Common Stock, or an acquisition, merger,
recapitalization, consolidation, reorganization or similar
transaction, or any negotiations, discussions or pending
proposals with respect thereto or (b) would materially
adversely affect the business of Parent in view of the
disclosures that may be required thereby of information about
the business, assets, liabilities or operations of Parent not
theretofore disclosed; provided, however, that the filing of a
registration statement, or any supplement or amendment thereto,
by Parent may be deferred pursuant to this Section 10.2(b) only
for the minimum period of time necessary under the
circumstances and in no event for more than an aggregate of one
hundred twenty (120) calendar days within any period of twelve
(12) consecutive months.
(c) Parent shall be entitled to include in any
registration statement filed or to be filed by Parent pursuant
to Section 10.2(a) above shares of Parent Common Stock to be
sold by Parent for its own account, but if this causes the
registration statement to be required to be on a Form S-1 (or
comparable or successor form) then such Form S-1 may be a
"shelf" registration under Rule 415 notwithstanding anything to
the contrary in Section 10.2(a). If any offering pursuant to
Section 10.2(a) above shall be in the form of an underwritten
offering, and
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the managing underwriter or underwriters of such offering, in
good faith, advise Parent and the selling Target Stockholders
in writing that in its or their opinion the aggregate amount of
shares of Parent Common Stock requested to be included in such
offering (including the Registrable Securities, any shares of
Parent Common Stock to be offered for the account of Parent and
any shares of Parent Common Stock to be offered for the account
of any other security holders of Parent) would materially
adversely affect the success of such offering or the price of
the shares of Parent Common Stock to be offered, then Parent
shall reduce the number of shares of Parent Common Stock to be
included in such offering to the amount of Parent Common Stock
which the managing underwriter or underwriters have advised can
be sold in such offering, said reduction to be effected in the
following order: (x) first, any or all shares of Parent Common
Stock requested to be included in such offering by such other
security holders of Parent, pro rata among such other
stockholders in proportion to the number of shares of Parent
Common Stock sought to be registered by such other security
holders, (y) second, any or all shares of Parent Common Stock
to be sold by Parent pursuant to such offering, and (z) third,
any or all Registrable Securities requested to be included in
such offering by the selling Target Stockholders pro rata among
the selling Target Stockholders in proportion to the respective
number of Registrable Securities sought to be registered by the
selling Target Stockholders. The Target Stockholders proposing
to distribute Registrable Securities through such underwriting
shall enter into an underwriting agreement in customary form
with the managing underwriter selected for such underwriting.
If any selling Required Target Stockholder disapproves of the
terms of the underwriting, such person may elect to withdraw
therefrom by written notice to Parent and the managing
underwriter or underwriters. The Registrable Securities so
withdrawn shall also be withdrawn from registration.
(d) Notwithstanding anything in this Section 10.2 to
the contrary, Parent shall not be required to consummate more
than an aggregate of two (2) offerings of Registrable
Securities pursuant to Section 10.2(a) above as follows: not
more than one (1) such offering during the period from the
Closing Date up to and including the third anniversary thereof,
and not more than one (1) such offering during the period after
the third anniversary of the Closing Date up to and including
the sixth (6th) anniversary thereof.
(e) In addition to the registration rights provided in
Section 10.2(a) above, subject to the limitations set forth in
this Section 10.2(e) and to those in Section Section 10.2(b)
and 10.2(c) above, mutatis mutandis, at any time, subject,
however, to the provisions of Section 10.9 herein, beginning
after
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the third anniversary of the Closing Date, and ending on the
fifteenth anniversary of the Closing Date, Target Stockholders
may notify Parent in writing that such Target Stockholders
desire for Parent to cause Registrable Securities having an
aggregate offering price of at least Two Hundred and Fifty
Thousand Dollars ($250,000) (based on the then current public
market price) to be registered for sale to the public pursuant
to a registration statement on Form S-3 (or comparable or
successor form) under the Securities Act, provided, however,
that Parent shall not be obligated to cause any such
registration statement to be a "shelf registration" made
pursuant to Rule 415 under the Securities Act. Notwithstanding
the foregoing, Target Stockholders shall not be entitled to
request that Parent register Registrable Securities for sale to
the public at any time within one hundred twenty (120) days
after the effective date of a registration statement filed by
Parent with respect to which the Target Stockholders were given
the opportunity to include Registrable Securities (whether or
not all Registrable Securities requested to be included were
actually included) pursuant to Section 10.3 herein. Upon
receipt of such written request by the Required Target
Stockholders, Parent shall promptly notify in writing all other
Target Stockholders of such request, and such other Target
Stockholders shall have a period of ten (10) Business Days
following such notice from Parent to notify Parent in writing
whether such other Target Stockholders, or any of them, desire
to have Registrable Securities held by them registered for sale
to the public under the Securities Act. Thereafter, subject to
the conditions, limitations and provisions set forth below in
this Section 10.2(e), and to those in Section Section 10.2.(b)
and 10.2(c) above, mutatis mutandis, Parent shall, promptly
following the expiration of such ten (10) Business Day period,
prepare and file, and use its best efforts to prosecute to
effectiveness, an appropriate filing with the Commission of a
registration statement covering all of those Registrable
Securities of Target Stockholders with respect to which
registration under the Securities Act has been requested
pursuant to this Section 10.2(e). Notwithstanding anything in
this Section 10.2 to the contrary, Parent shall not be required
to consummate more than an aggregate of three (3) offerings of
Registrable Securities pursuant to this Section 10.2(e).
10.3. PIGGYBACK REGISTRATION. If at any time from and after the
date which is two hundred forty (240) days after the Closing Date,
subject, however, to the provisions of Section 10.9 herein, Parent
proposes to file a registration statement under the Securities Act
covering a proposed sale of its Parent Common Stock, whether for its
own account or for the account of any other security holder or both
(other than a registration statement on Form S-4 or S-8, or any form
substituting therefor for shares of Parent Common Stock to be offered
in a transaction of the type referred to in Rule 145 under the
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Securities Act or to employees of Parent pursuant to any employee
benefit plan, respectively, and other than a registration statement
filed in connection with an offering effected pursuant to Section
10.2(a) hereof), Parent shall give each Target Stockholder written
notice of such proposed filing at least 20 Business Days prior to the
anticipated filing date, and such notice shall offer each such Target
Stockholder the opportunity to register such number of Registrable
Securities as they may request, which request must be delivered to
Parent in writing within ten (10) Business Days after the notice given
by Parent. Parent shall use its best efforts to cause the Registrable
Securities as to which registration shall have been so requested by the
requesting Target Stockholders to be included among the shares of
Parent Common Stock to be covered by the registration statement
proposed to be filed by Parent pursuant to this Section 10.3. In the
event that any such registration statement shall be, in whole or in
part, an underwritten public offering, Parent shall use its best
efforts to cause the managing underwriter or underwriters to include
such Registrable Securities as to which registration shall have been so
requested by the requesting Target Stockholders, all upon the same
terms and conditions as the other shares of Parent Common Stock
included therein. Notwithstanding the foregoing, if the managing
underwriter or underwriters of such offering, in good faith, determine
that the total number of shares of Parent Common Stock which the
requesting Target Stockholders, Parent and any other security holders
of Parent intend to include in such offering would materially adversely
affect the success of such offering or the price of the shares of
Parent Common Stock to be offered, then Parent shall reduce the number
of shares of Parent Common Stock to be included in such offering to the
number of shares of Parent Common Stock which the managing underwriter
or underwriters shall have advised can be sold in such offering, said
reduction to be effected in the following order: (x) first, any or all
shares of Parent Common Stock requested to be included in such offering
by the Target Stockholders and any other security holders of Parent
(other than security holders exercising demand registration rights),
pro rata among the Target Stockholders and such other security holders
in proportion to their respective numbers of shares of Parent Common
Stock sought to be registered pursuant to such offering, (y) second,
any or all shares of Parent Common Stock proposed to be sold by Parent
pursuant to such offering and (z) any or all shares of Parent Common
Stock requested to be included in such offering by security holders of
Parent exercising demand registration rights, pro rata among such
security holders in proportion to the number of shares of Parent Common
Stock sought to be registered by each and in accordance with their
respective priorities. In the event that the contemplated registration
does not involve an underwritten public offering, the determination
that the inclusion of any Registrable Securities requested to be
included in such registration by the requesting Target Stockholders
would have a material adverse effect on the success of such offering or
the price of the shares of Parent Common
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Stock to be offered shall be made in the good faith reasonable
judgment of Parent's Board of Directors.
10.4. FURTHER OBLIGATIONS OF PARENT. Whenever Parent is
required to register Registrable Securities under this Agreement, it
agrees that it shall also do the following:
(a) prepare and file with the Commission a
registration statement on Form S-3 or Form S-1 as the case may
be for registrations pursuant to Section 10.2(a), and on Form
S-3 for registrations pursuant to Section 10.2(e), with respect
to such Registrable Securities and use its best efforts to
cause such registration statement to become and remain
effective for a period of time required for the disposition of
such Registrable Securities by the Target Stockholders thereof,
provided, however, that in the event of a shelf registration
such period shall not be longer than the third anniversary of
the effective date of such registration statement, and provided
further that in the case of other registrations such period
shall not be longer than one hundred eighty (180) days from the
effective date of such registration statement, unless, in
either such case, Parent otherwise agrees in its sole
discretion;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary
to keep such registration statement effective;
(c) furnish to each Target Stockholder offering
Registrable Securities under such registration statement such
number of copies of a summary prospectus or other prospectus,
including a preliminary prospectus complying with the
requirements of the Securities Act, as such Target Stockholder
may reasonably request; and
(d) register or qualify the Registrable Securities
covered by such registration statement under the securities or
blue sky laws of such jurisdictions within the United States
and Puerto Rico as the underwriter or manager shall request or
in the event that the registration does not involve an
underwritten public offering as each such Target Stockholder
shall reasonably request; provided that Parent shall not be
obligated to register or qualify such Registrable Securities in
any jurisdiction in which such registration or qualification
would require Parent to qualify as a foreign corporation or
file any general consent to service of process where it is not
then so qualified or otherwise required to be qualified or has
not theretofore so consented.
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10.5. HOLDBACK AGREEMENT. If any registration of any Parent
Common Stock shall be made by Parent with the Commission in connection
with an underwritten public offering of such Parent Common Stock, each
such Target Stockholder agrees (and shall enter into an agreement which
shall so state), if requested by the managing underwriter or
underwriters, not to effect any public sale or distribution, including
any sale pursuant to Rule 144 under the Securities Act, of any shares
of Parent Common Stock or any other equity security of Parent or of any
security convertible into or exchangeable or exercisable for Parent
Common Stock or any such other equity security of Parent (in each case,
other than as part of such underwritten public offering) within ten
days before or three hundred sixty-five (365) days after the effective
date of the registration statement filed in connection with such
underwritten offering, provided, however, that all 5% stockholders of
Parent and the then-serving officers and directors of Parent who are
not also Target Stockholders shall so agree for a like period.
10.6. EXPENSES; LIMITATIONS ON REGISTRATION.
(a) All expenses incurred in complying with this
Section 10, including, without limitation, all registration and
filing fees (including all expenses incident to filing with the
NASD), printing expenses, fees and disbursements of counsel for
Parent, expenses of any special audits incident to or required
by any such registration and expenses of complying with the
securities or blue sky laws of any jurisdictions pursuant to
Section 10.4(d) hereof, shall be paid by Parent, except that
Parent shall not be liable for any fees, discounts or
commissions to any underwriter or any fees or disbursements of
counsel for any underwriter or any Target Stockholder (other
than up to $10,000 for one firm of attorneys to represent all
selling Target Stockholders in connection with each
registration statement hereunder) in respect of the Registrable
Securities sold by any selling Target Stockholders.
(b) It shall be a condition precedent to the
obligation of Parent to take any action pursuant to this
Agreement in respect of the Registrable Securities which are to
be registered at the request of any Target Stockholder that
such Target Stockholder shall furnish to Parent or the
underwriters such information regarding the Target Stockholder
and the Registrable Securities held by such Target Stockholder
as Parent or the underwriters shall reasonably request and
shall be required in connection with the action taken by
Parent.
10.7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification by Parent. In the event of any
registration of any Registrable Securities under the Securities
Act
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pursuant to this Agreement, Parent shall indemnify and hold
harmless each Target Stockholder of such Registrable
Securities, such Target Stockholder's directors, officers,
employees and agents, each underwriter who participated in the
offering of such Registrable Securities and each other Person,
if any, who controls such Target Stockholder or such
underwriter within the meaning of the Securities Act, against
any losses, claims, damages, liabilities or expenses, joint or
several, to which such Target Stockholder or any such director,
officer, employee or agent or underwriter or controlling Person
may become subject under the Securities Act or any other
statute or at common law, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect
thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration
statement under which such Registrable Securities were
registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein, or any amendment or
supplement thereto, or (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and
shall reimburse such Target Stockholder or such director,
officer, employee or agent or underwriter or controlling Person
for any legal or any other expenses reasonably incurred by such
Target Stockholder or such director, officer, employee or agent
or underwriter or controlling Person in connection with
investigating or defending, settling or satisfying any such
loss, claim, damage, liability, expense or action; provided,
however, that Parent shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon any untrue statement or
alleged untrue statement or any omission or alleged omission
made in such registration statement, preliminary prospectus, or
amendment or supplement in reliance upon and in conformity with
written information furnished to Parent by such Target
Stockholder specifically for use therein. Such indemnity shall
remain in full force and effect regardless of any investigation
made by or on behalf of such Target Stockholder or such
director, officer, employee or agent or underwriter or
controlling Person, and shall survive the transfer of such
Registrable Securities by such Target Stockholder.
(b) Target Stockholders' Indemnification. In
connection with any registration statement in which a Target
Stockholder is participating, each such Target Stockholder will
furnish to Parent in writing such information as shall
reasonably be requested by Parent for use in any such
registration statement or prospectus and shall severally and
not jointly indemnify, to the extent permitted by law, Parent,
its
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directors, officers, employees and agents, each underwriter and
each Person, if any, who controls Parent or such underwriter
within the meaning of the Securities Act (collectively, the
"Indemnitees"), against any losses, claims, damages,
liabilities and expenses (under the Securities Act, at common
law or otherwise) caused by or resulting from any untrue
statement or alleged untrue statement of a material fact
contained in any registration statement filed by Parent under
the Securities Act, or any prospectus or preliminary prospectus
included therein (in each case as amended or supplemented), or
caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, but only to the
extent that such untrue statement of a material fact is
contained in, or such material fact is omitted from,
information furnished in writing by such Target Stockholder for
use therein, and such Target Stockholder shall reimburse the
Indemnitees for any legal and any other expenses reasonably
incurred in connection with investigating or defending,
settling or satisfying any such loss, claim, damage, liability
or expense; provided, however, that the obligations of such
Target Stockholders hereunder shall be limited to an amount
equal to the proceeds to each Target Stockholder of Registrable
Securities sold in connection with such registration.
(c) Contribution. If the indemnification provided for
in this Section 10.7 from the indemnifying party (which term
shall, for purposes of this Section 10.7, include all
indemnifying parties if there be more than one) is unavailable
to an indemnified party hereunder in respect of any losses,
claims, damages, liabilities or expenses referred to herein,
then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as
is appropriate to reflect the relative fault of the
indemnifying party and indemnified parties in connection with
the actions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined
by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties,
and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The amount paid or payable by a party under this Section
10.7(c) as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to
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include any legal or other fees or expenses reasonably incurred
by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 10.7(c) were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligations of
each of the Target Stockholders under this Section 10.7(c) to
contribute shall be several and not joint.
(d) Indemnification Procedures. Promptly after receipt
by an indemnified party hereunder of notice of the commencement
of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party
hereunder, notify the indemnifying party in writing thereof,
but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any
indemnified party. In case any such action shall be brought
against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to
the extent it shall wish, to assume and undertake the defense
thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume
and undertake the defense thereof, the indemnifying party shall
not be liable to such indemnified party under this Section
10.7(d) for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof;
provided, however, that, if the counsel selected by the
Representatives concludes that such counsel has a conflict of
interest due to the existence of conflicting or different
defenses available to the Indemnifying Parties and the
Indemnified Parties with respect to such action, suit or
proceeding, the reasonable fees and expenses of one firm of
separate counsel for all Indemnified Parties shall be paid by
the Indemnifying Parties.
10.8. BENEFITS; ASSIGNMENT. The provisions of this Section 10
shall inure to the benefit of and be binding upon each Target
Stockholder and its, his or her heirs and successors. Whether or not
any express assignment has been made by any Target Stockholder of such
Target Stockholder's rights under this Section 10, the provisions of
this Section 10 that are for the benefit of such Target Stockholder are
also for the benefit of all transferees who acquire
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Registrable Securities from such Target Stockholder, and the applicable
provisions of this Section 10 that bind such Target Stockholder shall
bind all transferees who acquire Registrable Securities from such
Target Stockholder, provided, however, that such transferee acquires at
least fifteen percent (15%) of the amount of Registrable Securities
initially issued to such Target Stockholder pursuant to this Agreement,
and provided further that such transferee executes and delivers to
Parent a counterpart signature page to this Agreement in the form
attached as Exhibit G to this Agreement.
10.9. TERMINATION OF REGISTRATION RIGHTS. Notwithstanding
anything in this Agreement to the contrary, the registration rights
provided to the Target Stockholders (and their qualified transferees
pursuant to Section 10.8 above) pursuant to this Section 10 shall
terminate and be of no further force or effect (i) as to particular
Registrable Securities, when such Registrable Securities may be
publicly sold without restriction under Rule 144 under the Securities
Act, or (ii) as to any particular Target Stockholder and/or a qualified
transferee pursuant to Section 10.8 above, at such time as (and only so
long as) such Target Stockholder, and/or such qualified transferee
pursuant to Section 10.8 above, holds of record less than fifteen
percent (15%) of the aggregate amount of Registrable Securities issued
to such Target Stockholder pursuant to Section 2.1, Section 2.2 and/or
Section 2.3 of this Agreement.
11. SURVIVAL AND MATERIALITY OF REPRESENTATIONS. Each of the
representations and warranties made by the parties hereto shall survive the
Closing Date and Effective Date and consummation of the transactions
contemplated hereby. Notwithstanding the foregoing, the representations and
warranties of the parties hereto shall expire and have no further force or
effect on the first anniversary of the Effective Date. Any claims made under or
with respect to such representations and warranties on or before the first
anniversary of the Effective Date shall survive until, and only for purposes of,
resolution of such claims in accordance with the Escrow Agreement and this
Agreement.
12. TAX CONSEQUENCES TO THE PARTIES. Parent and Acquirer, on the one
hand, and Target, on the other, understand and agree that neither Parent and
Acquirer, on the one hand, nor Target, on the other, are making any
representation or warranty as to the tax consequences of this Agreement and the
events and actions contemplated hereby. Nonetheless, all parties hereto agree to
report the transactions contemplated hereby on their respective federal income
tax returns as a tax-free reorganization under Section 368 (a)(2)(D) of the
Code.
13. TERMINATION: LIABILITIES CONSEQUENT THEREON. This Agreement, the
Related Agreements and (if executed) the Agreements of Merger may be terminated
and the Merger contemplated hereby abandoned at any time prior to the Effective
Date (whether before or after approval of the Merger by the Target Stockholders
or by Parent as sole stockholder of Acquirer or by the stockholders of Parent)
only as follows:
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(a) by Parent or Acquirer, upon notice to Target if
(i) Target shall be in material breach of its obligations
hereunder and shall not have cured such breach within a period
of fifteen (15) days after written notice from Parent or
Acquirer or (ii) if the conditions set forth in Section 6 shall
not have been satisfied, or waived by Parent, on or prior to
October 31, 1995; or
(b) by Target, upon notice to Parent, if (i) Parent or
Acquirer shall be in material breach of its obligations
hereunder and shall not have cured such breach within a period
of fifteen (15) days after written notice from Target or (ii)
if the conditions set forth in Section 7 shall not have been
satisfied, or waived by Target, on or prior to October 31,
1995; or
(c) at any time by mutual agreement of the Boards of
Directors of Parent and Target.
Any termination pursuant to this Section 13 shall be without liability on the
part of any party thereto.
14. INDEMNIFICATION.
14.1. BY TARGET'S STOCKHOLDERS.
(a) If the Closing occurs, the Target Stockholders,
severally and not jointly (the "Indemnifying Parties"), agree
to indemnify and hold Parent and Acquirer and their respective
directors, officers, employees, shareholders and affiliates
(the "Indemnified Parties") harmless from and with respect to
any and all claims, liabilities, losses, damages, costs and
expenses, including without limitation reasonable fees and
disbursements of counsel ("Damages"), related to or arising out
of (i) any failure or any breach of any representation or
warranty of Target or any failure to perform any covenant,
obligation, undertaking or agreement of Target contained in
this Agreement (including any Schedules hereto) and (ii) fraud
of Target.
(b) On the Closing Date, Parent shall deliver to the
Escrow Agent certificates (issued in the respective names of
the Target Stockholders (other than the holders seeking
appraisal rights under Delaware law)) certificates representing
the Escrowed Shares for the purpose of securing the several
indemnification obligations of the Target Stockholders set
forth in this Agreement. The Escrowed Shares shall be held by
the Escrow Agent under the Escrow Agreement pursuant to the
terms hereof and thereof. The Escrowed Shares shall
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be held as a trust fund and shall not be subject to any lien,
attachment, trustee process or any other judicial process of
any creditor of any party, and shall be held and disbursed
solely for the purposes and in accordance with the terms of
this Agreement and the Escrow Agreement.
(c) The adoption of this Agreement and the approval of
the Merger by the Target Stockholders shall constitute approval
by the Target Stockholders of the Escrow Agreement and of all
of the arrangements relating hereto and thereto, including
without limitation (i) the placement of the Escrowed Shares in
escrow, (ii) the appointment of the Representatives (as
hereinafter defined) and (iii) the authority of the
Representatives to defend and/or settle any claims for which
the Target Stockholders may be required to indemnify the
Indemnified Parties pursuant to this Section 14. All decisions
and actions by the Representatives shall be binding upon all
Target Stockholders and no Target Stockholder shall have the
right to object, dissent, protest or otherwise contest the
same.
14.2. METHOD OF ASSERTING CLAIMS.
(a) All claims for indemnification by an Indemnified
Party pursuant to this Section 14 shall be made in accordance
with the provisions of the Escrow Agreement and this Agreement.
(b) The Indemnified Parties shall give prompt written
notification to the Representatives of the commencement or
threatened commencement of any action, suit or proceeding (and
the facts constituting the basis therefor) or any other basis
for which indemnification pursuant to this Section 14 may be
sought. In the event of any such claim for indemnification
hereunder, the notice shall specify, if known, the amount or an
estimate of the amount of the liability arising therefrom.
(c) Within 20 days after delivery of such
notification, the Representatives may, upon written notice
thereof to the Indemnified Parties, assume control of the
defense of any action, suit or proceeding brought by any person
other than the Indemnified Parties with counsel reasonably
satisfactory to the Indemnified Parties. If the Representatives
do not so assume control of such defense, the Indemnified
Parties shall control such defense. The party not controlling
such defense may participate therein at its own expense;
provided that if the Representatives assume control of such
defense and the counsel selected by the Representatives
concludes that such counsel has a conflict of interest due to
the existence of conflicting or
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different defenses available to the Indemnifying Parties and
the Indemnified Parties with respect to such action, suit or
proceeding, the reasonable fees and expenses of one firm of
separate counsel for all Indemnified Parties shall be paid by
the Indemnifying Parties. The party controlling such defense
shall keep the other party advised of the status of such
action, suit or proceeding and the defense thereof and shall
consider in good faith recommendations made by the other party
with respect thereto. The Indemnified Parties shall not agree
to any settlement of such action, suit or proceeding without
the prior written consent of the Representatives, which shall
not be unreasonably withheld. The Representatives shall not
agree to any settlement of such action, suit or proceeding
without the prior written consent of the Indemnified Parties,
which shall not be unreasonably withheld.
14.3. LIMITATIONS.
(a) Except as otherwise provided in Section 14.3(b),
Section 14.3(c) and in Section 10.7, no claim may be brought
hereunder after the first anniversary of the Effective Date and
the maximum liability of each Target Stockholder under this
Section 14 and the Escrow Agreement shall not exceed an amount
equal to the fair market value of the Escrowed Shares issued in
the name of such Target Stockholder. The Target Stockholders
shall not be liable under this Section 14 unless and until, and
only to the extent that, the aggregate amount of Damages
exceeds $65,000.
(b) Except with respect to claims based on fraud
and/or brought pursuant to Section 10.7, the rights of the
Indemnified Parties under this Section 14 shall be the
exclusive remedy of the Indemnified Parties with respect to
claims resulting from or relating to any misrepresentation,
breach of warranty or failure to perform any covenant or
agreement of Target or any Target Stockholders contained in
this Agreement.
(c) Notwithstanding anything in this Agreement to the
contrary, including but not limited to the provisions in
Section 3.35, the Indemnified Parties may bring claims based on
fraud (i) of Target pursuant to the provisions of Section 14.1
hereof, and (ii) of Target or any other party or parties who
shall have acted fraudulently, in each case at any time prior
to the expiration of the applicable statute of limitations with
respect to such claims based on fraud and there shall be no
limitation whatsoever with respect to liability for such claims
based on fraud as against the party or parties who shall have
acted fraudulently. For purposes hereof, the fraud of any
principal officer of Target with respect to Target shall be
deemed to be the fraud of Target (it being acknowledged and
agreed that this sentence in no way diminishes or
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reduces the rights of the Indemnified Parties as set forth in
the immediately preceding sentence with respect to the
liability of an individual Target Stockholder (including Target
Stockholders who are also principal officers of Target) for his
or her own fraud individually).
14.4. APPOINTMENT OF REPRESENTATIVES.
(a) Target and the Target Stockholders appoint Paul
Epstein and Patrick Phillipps (the "Representatives" and each a
"Representative") to represent the Target Stockholders for the
purposes specified in this Agreement.
(b) The Representatives shall not be liable for any
error of judgment, or any action taken, suffered or omitted to
be taken hereunder except in the case of bad faith, nor shall
they be liable for the default or misconduct of any employee,
agent or attorney appointed by them who shall have been
selected with reasonable care. The Representatives may consult
with counsel of their own choice and shall have full and
complete authorization and protection for any action taken or
suffered by them hereunder in good faith or in accordance with
the opinion of such counsel.
(c) The Representatives (or any successor
Representatives hereunder) may at any time resign and be
discharged of the duties imposed hereunder by giving at least
15 days' prior notice to the Target Stockholders, in which
event, or upon the death or legal disability of any
Representative, the Target Stockholders shall appoint a
successor Representative by written consent of the holders of a
majority of the Target Common Stock at the Effective Date ("Pro
Rata Shares").
(d) The Target Stockholders shall reimburse the
Representatives for all out-of-pocket expenses, disbursements
and advances (including reasonable attorneys' fees) incurred by
the Representatives in connection with the performance of their
duties as Representatives, but not for any salary or other
charge for Representatives' services hereunder. All fees,
expenses, disbursements and advances payable hereunder shall be
borne ratably by the Target Stockholders in accordance with
their respective Pro Rata Shares. The Representatives shall
have the right to reimbursement from the Escrowed Shares for
such fees, expenses, disbursements and advances due the
Representatives hereunder if not paid by the Target
Stockholders in cash, but only at such time as the remaining
Escrowed
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Shares, if any, may be distributed to the Target Stockholders
in accordance with the terms of the Escrow Agreement.
(e) The Target Stockholders shall indemnify the
Representatives for, and hold them harmless against, any loss,
liability or expense (including but not limited to, reasonable
attorneys' fees) incurred without bad faith on the part of the
Representatives arising out of or in connection with the
acceptance of, or the performance of their duties and
obligations as Representatives, as well as the reasonable costs
and expenses of defending themselves against any claim or
liability arising out of or relating to the Escrow Agreement.
The Representatives shall have the right to reimbursement from
the Escrowed Shares for the amounts due hereunder if not paid
by the Target Stockholders in cash, but only at such time as
the remaining Escrowed Shares, if any, may be distributed to
the Target Stockholders in accordance with the terms of the
Escrow Agreement.
(f) All actions of the Representatives under this
Section 14 or under Section 2.2 hereof may be taken by either
Representative individually or both Representatives jointly,
except that each Representative agrees not to take any action
singly unless it is impracticable under the circumstances to
first consult with the other Representative.
15. EXPENSES.
(a) All expenses incurred by Target or any Target Stockholder
in connection with the preparation and execution of this Agreement and
the other agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby shall be borne by Target.
All expenses incurred by Parent or Acquirer shall be borne by Parent.
(b) Notwithstanding the foregoing, if the Merger does not occur
solely because the stockholders of either Parent or Target do not vote
in favor thereof (except where such unfavorable vote of the
stockholders of a party is due to the breach of this Agreement by the
other party hereto or if the Board of Directors of such party withdraws
its recommendation in favor of the Merger because it has determined in
good faith, after consultation with its outside legal counsel, that it
must do so in order to comply with its fiduciary duties under
applicable law), then, assuming the other party has obtained the
requisite stockholder approval and has otherwise performed all of its
obligations hereunder, the party failing to obtain such stockholder
approval shall reimburse the other party for all of the fees and
expenses incurred by such other party in connection with the
negotiation and preparation of this Agreement, the Agreements of
Merger, the Related Agreements, and the transactions contemplated
hereby and thereby (including but not limited to
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reasonable attorneys' fees and disbursements) up to an aggregate of
Seventy-Five Thousand Dollars ($75,000).
(c) Notwithstanding the foregoing, if Parent withdraws the
Proxy Statement from the Commission (except where such withdrawal of
the Proxy Statement is due to the breach of this Agreement by Target or
if Parent's Board of Directors has determined in good faith, after
consultation with its outside legal counsel, that the Proxy Statement
must be withdrawn in order to comply with its fiduciary duties under
applicable law), then Parent shall reimburse Target for all of the fees
and expenses incurred by Target in connection with the negotiation and
preparation of this Agreement, the Agreements of Merger, the Related
Agreements, and the transactions contemplated hereby and thereby
(including but not limited to reasonable attorneys' fees and
disbursements) up to an aggregate of Seventy-Five Thousand Dollars
($75,000).
16. CERTAIN DEFINITIONS.
As used herein the following terms not otherwise defined have
the following respective meanings:
"Indebtedness" (a) All indebtedness for borrowed money, whether
current or long-term, or secured or unsecured, (b) all indebtedness of
the deferred purchase price of property or services represented by a
note or security agreement, (c) all indebtedness created or arising
under any conditional sale or other title retention agreement (even
though the rights and remedies of the seller or lender under such
agreement in the event of default may be limited to repossession or
sale of such property), (d) all indebtedness secured by a purchase
money mortgage or other lien to secure all or part to the purchase
price of property subject to such mortgage or lien, (e) all obligations
under leases that have been or must be, in accordance with GAAP,
recorded as capital leases in respect of which it is liable as lessee,
(f) any liability in respect of banker's acceptances or letters of
credit, and (g) all indebtedness of Target, the Target Stockholders or
any other Person that is guaranteed by Target or that Target has agreed
(contingently or otherwise) to purchase or otherwise acquire or in
respect of which Target has otherwise assured a creditor against loss.
"Person": means any natural person, entity, or association,
including without limitation any corporation, partnership, limited
liability company, government (or agency or subdivision thereof),
trust, joint venture, or proprietorship.
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"Related Agreements": means the Escrow Agreement, the Invention
and Non-Disclosure Agreements, the Non-Competition Agreements and the
Target Stockholder Representation Certificates.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder,
all as the same shall be in effect from time to time.
"Tax": Any federal, state, local, or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, registration, value added, excise, natural
resources, severance, stamp, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property,
capital stock, intangibles, social security, unemployment, disability,
payroll, license, employee, or other tax or levy, of any kind
whatsoever, including any interest, penalties, or additions to tax in
respect of the foregoing.
"Tax Return": Any return, declaration, report, claim for
refund, information return, or other document (including any related or
supporting estimates, elections, schedules, statements, or information)
filed or required to be filed in connection with the determination,
assessment, or collection of any Tax or the administration of any laws,
regulations, or administrative requirements relating to any Tax.
17. MISCELLANEOUS PROVISIONS.
17.1. AMENDMENTS. This Agreement may be amended in any manner
and at any time prior to the submission of this Agreement to the Target
Stockholders and the stockholders of Parent, and, after such
submission, may be amended to extend the Closing Date and termination
date referred to in Section 13 or to make other amendments which, in
the opinion of the respective counsel for Parent and Target, do not
substantially alter the terms hereof, by written instrument stating
that it is an amendment of this Agreement executed by Parent, Acquirer
and Target and approved by the Boards of Directors of Acquirer and
Target.
17.2. NOTICES AND REPRESENTATIVES. Any notice expressly
provided for under this Agreement shall be in writing, shall be given
either manually or by written telecommunication, fax or mail, and shall
be deemed sufficiently given when received by the party to be notified
at its address set forth below or if and when mailed by registered
mail, postage prepaid, addressed to such party at such address. Any
party and any representative designated below may, by notice to the
others, change its address for receiving such notices.
Address for notices to Parent and Acquirer:
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James W. Hobbs, President
Samuel M. Stein, CFO
Luxtec Corporation
326 Clark Street
Worcester, MA 01606-1214
with a copy to:
Victor J. Paci, Esq.
Donald P. Richards, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, MA 0110
Address for notices to Target:
c/o Paul Epstein
95 Clinton Road
Brookline, MA 02146
Address for notices to Representatives:
Paul Epstein
95 Clinton Road
Brookline, MA 02146
Patrick G. Phillipps
224 Old County Road
Lincoln, MA 01773
Address for notices to Target Stockholders:
At his, her or its address last provided by or
with respect to such Target Stockholder
in each case with a copy to:
David A. Westenberg, Esq.
Hale and Dorr
60 State Street
Boston, MA 02109
17.3. ASSIGNMENT AND BENEFITS OF AGREEMENT. This Agreement
shall be binding upon and shall inure to the benefit of the parties of
their
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respective successors, but may not be assigned by any of the foregoing
without the written consent of the others. Except as aforesaid, nothing
in this Agreement, express or implied, is intended to confer upon any
person other than the parties hereto and Target Stockholders and their
said successors and assigns, any rights under or by reason of this
Agreement.
17.4. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with, and rights of the parties shall be
governed by, the internal laws of the Commonwealth of Massachusetts
(without reference to principles of conflicts or choice of law that
would cause the application of the internal laws of any other
jurisdiction).
17.5. SUBMISSION TO JURISDICTION; WAIVERS. PARENT AND EACH OF
THE TARGET STOCKHOLDERS (BY APPROVAL OF THIS AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY), FOR ITSELF AND ON BEHALF OF ITS
SUCCESSORS, ASSIGNS AND TRANSFEREES, HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR FOR
RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF,
TO THE EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS, THE COURTS OF THE UNITED STATES
OF AMERICA FOR THE DISTRICT OF MASSACHUSETTS, AND APPELLATE
COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS, AND WAIVES ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING
WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR
CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF
BY REGISTERED OR CERTIFIED NAIL (OR ANY SUBSTANTIALLY SIMILAR
FORM OF MAIL), POSTAGE PREPAID, AT ITS ADDRESS AS PROVIDED IN
Section 17.2 HEREOF OR AT SUCH OTHER ADDRESS AS IT SHALL HAVE
NOTIFIED EACH OF THE OTHER PARTIES HERETO IN THE MANNER
PROVIDED IN Section 17.2 HEREOF;
<PAGE> 173
-74-
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT
TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW; AND
(v) WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY COUNTERCLAIM
THEREIN.
17.6. COUNTERPARTS. This Agreement may be executed by the
parties in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
17.7. SECTION HEADINGS. All enumerated subdivisions of this
Agreement are herein referred to as "Section ." The headings of
sections or subsections are for reference only and shall not limit or
control the meaning thereof.
17.8. PUBLIC STATEMENTS OR RELEASES. The parties hereto each
agree that no party to this Agreement shall make, issue or release any
public announcement, statement or acknowledgment of the existence of,
or reveal the status of, the transactions provided for herein, without
first obtaining the consent of the other parties hereto. Nothing
contained in this Section 17.8 shall prevent any party from making such
public announcements as such party may consider necessary in order to
satisfy such party's legal or contractual obligations.
<PAGE> 174
-75-
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as an instrument under seal as of the date and year first above
written.
PARENT:
LUXTEC CORPORATION
By:
----------------------------------
James W. Hobbs
President & Chief Executive Officer
ACQUIRER:
LUXTEC CD ACQUISITION CO. INC.
By:
----------------------------------
James W. Hobbs
President & Chief Executive Officer
TARGET:
CARDIODYNE, INC.
By:
----------------------------------
Patrick G. Phillipps
President
REPRESENTATIVES:
-------------------------------------
Paul Epstein
-------------------------------------
Patrick G. Phillipps
<PAGE> 175
Disclosure Schedules of CardioDyne, Inc.
Schedule 3.5
1. Incentive Stock Option Agreements with Alan Greene,
Robert R. Macdonald and Dr. Jess Weiss.
2. CardioDyne has entered into an employment letter,
dated December 1, 1993, with Alan Greene, pursuant to which
CardioDyne may pay Mr. Greene's salary and sales commissions
through the issuance of shares of Common Stock.
3. Convertible Promissory Notes as follows:
(a) Convertible Promissory Note dated December 21,
1994 in the amount of $25,000 issued to G&G Diagnostics Fund,
L.P. III by CardioDyne.
(b) Convertible Promissory Note dated January 5,
1995 in the amount of $25,000 issued to Elena R. Jespersen
(formerly known as Marsha R. Jespersen) by CardioDyne.
(c) Convertible Promissory Note dated November 30,
1994 in the amount of $12,500.20 issued to Laura and Mark Epstein-
Norris by CardioDyne.
(d) Convertible Promissory Note dated November 30,
1994 in the amount of $12,500.20 issued to Ruth Epstein and Mark
Shafir by CardioDyne.
CardioDyne is accruing and will pay interest on the foregoing
Convertible Promissory Notes at an annual interest rate of 8%
although the stated interest rate is "the minimum rate necessary
from time to time to avoid imputation of interest under Internal
Revenue Service regulations".
Schedule 3.7
Attached as Schedule 3.7(A) are the following unaudited
financial statements of CardioDyne:
1. Balance sheets as of December 31, 1992, 1993 and
1994.
2. Statements of income and stockholders' equity and
changes in financial position for the fiscal years ended
December 31, 1992, 1993 and 1994.
<PAGE> 176
3. Balance sheet as of March 31, 1995 and statement of
operations for the quarter ended March 31, 1995.
Schedule 3.8
1. CardioDyne has incurred and continues to incur
losses from operations.
2. Elena R. Jespersen (formerly known as Marsha R.
Jespersen) has loaned CardioDyne $25,000 pursuant to a Convertible
Promissory Note. See Schedule 3.5.
3. CardioDyne has incurred and continues to incur
liabilities to Hale and Dorr and Fish & Richardson for legal
services and associated disbursements.
4. CardioDyne has entered into a letter of intent and a
License Agreement with Speidel + Keller GmbH & Co.
5. David G. Tweed resigned as CardioDyne's Vice
President of Engineering in late 1994 but remains a director of
CardioDyne.
Schedule 3.9
See Schedule 3.18.
Schedule 3.10
1. CardioDyne has accrued but not paid salaries as
follows: (i) 2/7 of the salary of each of Paul Epstein, Mary
Epstein, Patrick G. Phillipps and Alan Greene was accrued but not
paid for the months of January and February 1995 and (ii) since
March 1, 1995, CardioDyne has accrued but not paid salaries to any
of its employees. As of April 30, 1995 accrued salaries totalled
$90,332.68.
2. Also see Schedule 3.8.
Schedule 3.12(a)
None.
Schedule 3.12(g)
CardioDyne has requested extensions of the time for filing
its federal and state tax returns for the year ended December 31,
1994.
-2-
<PAGE> 177
Schedule 3.12(m)
CardioDyne has not accrued any FICA or medicare withholding
with respect to accrued salaries.
Schedule 3.12(t)
Upon consummation of the Merger, all outstanding and unvested
stock options will be accelerated, which may constitute "excess
parachute payments" under Section 280G of the Code.
Schedule 3.15
CardioDyne does not now maintain and has never maintained
workers' compensation insurance.
Schedule 3.16
1. Employment letter with Alan Greene dated December 1,
1993.
2. Letter of intent and License Agreement with Speidel
+ Keller GmbH & Co.
3. 1994 Stock Option Plan and option agreements
thereunder.
4. The purchase orders attached as Schedule 3.16(A).
5. Purchase and related agreements with investors in
CardioDyne as follows:
a. Letter agreement between CardioDyne and G&G
Diagnostics Fund, L.P. III, dated October 21, 1992.
b. Letter agreement between CardioDyne and Laura
and Mark Epstein-Norris, dated October 21, 1992.
c. Letter agreement between CardioDyne and Ruth
Epstein and Mark Shafir, dated October 21, 1992.
d. Right of First Refusal and Co-Sale Agreement
between CardioDyne and the persons and entities listed on the
signature pages thereto, dated October 21, 1992.
e. Subscription Agreements dated January 25, 1994
between CardioDyne and the following persons or entities: Laura
and Mark Epstein-Norris, Ruth Epstein and Mark Shafir, Alan
-3-
<PAGE> 178
Greene, G&G Diagnostics Fund, L.P. III, Mary Epstein, Paul
Epstein, Patrick G. Phillipps, David G. Tweed, Elena R. Jespersen
(formerly known as Marsha R. Jespersen) and Rodney Berens.
6. OEM License Agreement with Nellcor Incorporated.
7. Non-Disclosure Agreements with Mutoh Novatek, Inc.,
Quinton Instrument Company, Cortronic Corporation, Nellcor
Incorporated (dated December 14, 1990), Nellcor Incorporated
(dated March 18, 1991), Marquette Electronics, Inc., A&D Medical,
Mr. Neil Dowling, Speidel + Keller GmbH & Co., the KETRON division
of The Bionetics Corporation and Graphic Control Corporation.
8. Invention and Non-Disclosure Agreements with Paul
Epstein, Mary Epstein, Patrick G. Phillipps, David G. Tweed and
Alan Greene.
9. Invention and Non-Disclosure Agreements with Nan
Bulger, Andover Technology, Inc., Sherry Grobstein and Eric
LaWhite.
10. Patent assignments for CardioDyne's two patents.
See Schedule 3.19.
11. Stock Restriction Agreements with David G. Tweed and
Robert R. Macdonald.
Schedule 3.18
1. The Tektronix oscilloscope used in CardioDyne's
business is provided by Patrick G. Phillips and will be retained
by Mr. Phillipps from and after the Merger.
2. The fax machine used in CardioDyne's business is
provided by Paul and Mary Epstein and will be retained by them
from and after the Merger.
3. CardioDyne currently utilizes the residence of Paul
and Mary Epstein without charge. CardioDyne's business and assets
must be removed from such residence promptly following the
Effective Time.
4. Indemnification provisions in CardioDyne's
Certificate of Incorporation.
5. Also see Schedules 3.10 and 3.16.
-4-
<PAGE> 179
Schedule 3.19(a)
1. CardioDyne owns the following patents:
Patent No. Date of Issuance Title
5,003,605 March 26, 1991 Electronically Augmented
Stethoscope with Timing
Sound
5,392,781 February 28, 1995 Blood Pressure Monitoring
in Noisy Environments
2. CardioDyne uses the unregistered trademarks
"CardioDyne" and "Kinetorr".
3. License Agreement with Speidel + Keller GmbH & Co.
Schedule 3.19(b)
1. See Schedule 3.16 for a list of consultants.
2. List of software used in business:
Name Author Description
EASY-CUFF R. McKnight This is the operating
(6-12-94) software for the EasyCuff
monitor. It's written in
assembly language for the
80C31 microprocessor.
B6D2.BAS Phillipps/Tweed This is the current source
code for the Kinetorr. It's
written in "PowerBasic", a
high level, compiled basic.
Earlier versions of this
program include B6C1, 2, 3,
3b, 3c, 3d1.
B6D2.EXE Compiled version of B6D2.BAS
LDC15C.BAS Phillipps/Tweed This is the current source
code for the Kinetorr PC.
It's written in PowerBasic.
Earlier versions of this
program include LDC1, 11, 13.
LDC15C.EXE Compiled version of LDC15.BAS.
-5-
<PAGE> 180
MPM11.BAS Phillipps/Tweed This is the current source
code for the Kinetorr PC Plus.
It's written in PowerBasic.
Earlier version of this
program includes MPM10.
MPM11.EXE Compiled version of MPM11.BAS
TRANSDCR.DWG LaWhite CAD/CAM files for the
TRANSDCR.DXF transducer housing mold.
3. On or about December 1992, CardioDyne executed a
joint (patent) disclosure with William New for a novel blood
pressure monitoring technique. No further work has been done by
CardioDyne or, to CardioDyne's Knowledge, by Dr. New to develop a
blood pressure monitor or related device using the technique
disclosed. No effort has been made to obtain a patent on this
technique or to determine whether it infringes on existing
patented technologies. There is no agreement between CardioDyne
and Dr. New as to who would fund the research, development, sales
and marketing expenses for developing and commercializing the
technique or as to how any rights or proceeds from this technique
would be apportioned if it were successfully pursued commercially.
It is not possible, given that the technique disclosed has not
been evaluated for technical feasibility, market demand, competing
technologies, possible patent infringement or in any other way, to
state whether the technique has any tangible worth and/or whether
it can be implemented. Devices based on this technique would not
constitute CNIMT Products under the Agreement.
Schedule 3.19(c)
None.
Schedule 3.19(d)
None.
Schedule 3.22
Bank: U.S. Trust
Bank Accounts: Business Checking Account #8891303515
Business Money Market #8818014512
Signatories on Accounts: Any one of:
Paul Epstein
Mary Epstein
Patrick G. Phillipps
-6-
<PAGE> 181
Schedule 3.23
CardioDyne holds FDA Section 510(k) approval for the
marketing of its Kinetorr and Kinetorr PC blood pressure monitors.
Schedule 3.25
<TABLE>
<CAPTION>
Name Amount
<S> <C>
Fish & Richardson $36,730
MEMTRON Technology $10,791
</TABLE>
Schedule 3.26
Annual salaries as of April 30, 1995:
<TABLE>
<S> <C>
Paul Epstein $70,000
Patrick G. Phillipps $70,000
Mary Epstein (1/3 of Annual
Salary of $70,000) $23,333
Alan Greene $60,000
</TABLE>
Schedule 3.29
1. Additional FDA approvals will be required for any future
CardioDyne products and all CardioDyne products must be
manufactured in accordance with the FDA's Good Manufacturing
Practices.
2. CardioDyne has not met the delivery dates specified in
any of its purchase orders and does not expect to meet the
delivery dates specified in the License Agreement with Speidel +
Keller GmbH & Co.
-7-
<PAGE> 182
SCHEDULE 3.7(A)
-8-
<PAGE> 183
CARDIODYNE, Inc.
BALANCE SHEET
31 March 1995
(Preliminary & Unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
Cash & Bank Accounts $ 7,949
Patents $ 116,321
Capital Equipment (Net of Depr.) $ 1,121
---------
Total Assets $125,391
========
LIABILITIES:
Withheld & Accr. Taxes $ 1,289
Accrued Payroll $ 71,222
Convertible Notes $ 76,639
---------
Total Liabilities $149,149
STOCKHOLDERS INVESTMENT
Stockholders' Investment* $ 842,200
*This amount does not include unbooked payroll
to founders from inception through Oct. 15/92
(app. 10 person years), which founders
contributed.
Operating Loss (1989-1992) $(149,755)
Operating Loss 1993 $(255,715)
Operating Loss 1994 $(388,276)
Operating Loss 1995 $ (72,213)
---------
Stockholders' Equity $(23,759)
--------
Liabilities & Equity $125,391
--------
</TABLE>
<PAGE> 184
CARDIODYNE, Inc.
Statement of Operations
From Jan. 1 to March 31, 1995
(Preliminary & Unaudited)
<TABLE>
<CAPTION>
Jan. 1 to March 31
-------------------------
<S> <C> <C>
EXPENSES
Payroll $ 55,333
Payroll Taxes $ 3,131
Taxes Other $ 591
Parts & Matrls. $ 637
Marketing Exp. $ 4,262
Supplies & Exp. $ 315
Telephone $ 228
Legal & Accounting $ 5,290
Interest Exp $ 1,419
Travel & Entertainment $ 772
Misc. Exp $ 65
Expenses not using Cash:
Amort. & Depr. Expense $ 170
--------
Total Expenses $ 72,213
--------
Profit (Loss) $(72,213)
--------
</TABLE>
<PAGE> 185
CARDIODYNE, Inc.
BALANCE SHEET
31 December 1994
(Preliminary & Unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
Cash & Bank Accounts $ 24,230
Patents $ 115,265
Capital Equipment (Net of Depr.) $ 1,291
---------
Total Assets $ 140,786
=========
LIABILITIES:
Withheld & Accr. Taxes $ 2,137
Accrued Payroll $ 39,976
Convertible Notes $ 50,219
---------
Total Liabilities $ 92,332
STOCKHOLDERS INVESTMENT
Stockholders' Investment* $ 842,200
* This amount does not include unbooked payroll
to founders from inception through Oct. 15/92
(app. 10 person years), which founders
contributed
Operating Loss (1989-1992) $(149,755)
Operating Loss 1993 $(255,715)
Operating Loss 1994 $(388,276)
---------
Stockholders' Equity $ 48,454
---------
Liabilities & Equity $ 140,786
---------
</TABLE>
Page 1
<PAGE> 186
CARDIODYNE, Inc.
Statement of Operations
From Jan. 1 to Dec. 31, 1994
(Preliminary & Unaudited)
<TABLE>
<CAPTION>
Jan. 1 to Dec. 31
-------------------------
<S> <C> <C>
Interest Income $ 1,425
EXPENSES
Payroll $ 245,095
Payroll Taxes $ 21,090
Taxes Other $ 1,016
Consultants $ 14,661
Parts & Matrls. $ 47,854
Advertising $ 13,000
Marketing Exp. $ 19,741
Supplies & Exp. $ 4,175
Telephone $ 1,766
Legal & Accounting $ 9,959
Travel & Entertainment $ 9,065
Misc. Exp $ 1,008
Expenses not using Cash:
Amort. & Depr. Expense $ 1,271
---------
Total Expenses $ 389,701
---------
Profit (Loss) $(388,276)
=========
</TABLE>
<PAGE> 187
CARDIODYNE, Inc.
BALANCE SHEET
31 December 1993
(Preliminary & Unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
Cash & Bank Accounts $ 27,106
Patents $108,137
Capital Equipment (Net of Depr.) $ 1,969
Org. Exp. (Net of Amort.) $ 591
---------
$ 2,560
--------
Total Assets $137,803
========
LIABILITIES:
Accounts Payable $ 33,192
Withheld & Accrued Taxes $ 4,381
Accrued Payroll $ 68,056
Stockholders' Loan $ 50,000
---------
Total Liabilities $155,629
STOCKHOLDERS INVESTMENT
Stockholders' Investment* $ 387,644
*This amount does not include unbooked payroll
to founders from inception through Oct. 15/92
(app. 10 person years), which founders
contributed.
Operating Loss (1989-1992) $(149,755)
Operating Loss 1993 $(255,715)
---------
Stockholders' Equity $(17,826)
--------
Liabilities & Equity $137,803
--------
</TABLE>
<PAGE> 188
CARDIODYNE, Inc.
Statement of Operations
From Jan. 1 to Dec. 31, 1993
(Preliminary & Unaudited)
<TABLE>
<CAPTION>
Jan. 1 to Dec. 31
-------------------------
<S> <C> <C>
Interest Income $ 2,061
EXPENSES
Payroll:
Gross $ 142,503
Payroll Taxes $ 12,463
---------
$ 154,966
Accrued Payroll $ 55,000
Taxes: Other
MA Inc. Tax $ 456
Delaware Tax $ 152
MA Corp. Tax $ 85
---------
$ 693
Consultants $ 6,494
Parts & Matrls. $ 25,531
R & D Expense $ 3,100
Supplies & Exp. $ 380
Telephone $ 691
Travel & Entertainment $ 2,854
Legal & Accounting $ 1,715
Off. Exp & Supplies $ 1,701
Marketing Expense $ 2,400
Misc. Exp $ 103
Expenses not using Cash:
Amort. Org. Exp. $ 1,181
Depr. Equipment $ 966
---------
$ 2,147
---------
Total Expenses $ 257,776
---------
Profit (Loss) $(255,715)
---------
</TABLE>
<PAGE> 189
CARDIODYNE, Inc.
BALANCE SHEET
31 December 1992
(Preliminary & Unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
Cash & Bank Accounts $187,524
Patents $ 68,643
Computer Equipment $ 5,478
Acc. Depr $ (3,028)
--------
$ 2,450
--------
Org. Exp. $ 5,906
Acc. Amort. $ (4,134)
--------
$ 1,772
--------
Total Assets $260,389
========
LIABILITIES:
Accrued Payroll $ 13,056
Withheld & Accrued Taxes $ 6,262
Accrued Empl. Taxes $ 3,010
--------
Total Liabilities $ 22,328
STOCKHOLDERS INVESTMENT
Stockholders' Investment* $387,644
Operating Loss (1989-1991) $(64,436)
Operating Loss 1992 $(85,319)
--------
Stockholders' Equity $237,889 238061
--------
Liabilities & Equity $260,389
--------
</TABLE>
<PAGE> 190
CARDIODYNE, Inc.
Statement of Operations
From Jan. 1 to Dec. 31, 1992
(Preliminary & Unaudited)
<TABLE>
<CAPTION>
Jan. 1 to Dec. 31
-----------------------
<S> <C> <C>
Interest Income $ 755
EXPENSES
Payroll:
Gross $ 32,639
Payroll Taxes $ 3,542
--------
$ 36,181
Accrued Payroll $ 13,056
Taxes: Other
MA Inc. Tax $ 456
Delaware Tax $ 100
Other $ 150
--------
$ 706
Consultants $ 9,000
Parts & Matrls. $ 3,909
Supplies & Exp. $ 1,403
Telephone $ 371
Travel & Entertainment $ 6,389
Legal & Accounting $ 9,566
Off. Exp & Supplies $ 564
Interest Expense $ 2,257
Misc. Exp:
Auto 251
Bank Charges 96
Publications 157
Dues & Mtgs. 100
--------
$ 604
Expenses not using Cash:
Amort. Org. Exp. $ 1,181
Depr. Equipment $ 887
--------
$ 2,068
--------
Total Expenses $ 86,074
--------
Profit (Loss) $(85,319)
--------
</TABLE>
<PAGE> 191
SCHEDULE 4.4
CAPITALIZATION
A non-qualified option to purchase 25,000 shares of Luxtec Corporation
Common Stock has been granted to Mr. Arthur McKinley in accordance with a
consulting agreement between Luxtec Corporation and Arthur McKinley.
<PAGE> 192
SCHEDULE 4.7(A)
TAX ELECTIONS
FIBER IMAGING TECHNOLOGIES, INC.
04-3226249
Statement Attached to and Made Part of
Form 1120, U.S. Corporation Income Tax Return
for the year Ending October 31, 1994
Pursuant to Internal Revenue Code Section 461(h)(3), the taxpayer hereby elects
the recurring item exception with respect to all types of items incurred in all
trades or businesses in which taxpayer engages.
Pursuant to Internal Revenue Code Section 248(a) and the Regulations thereunder,
the taxpayer hereby elects to amortize organizational costs. The expenses will
be amortized over a period of 60 months. The taxpayer incurred the following
costs:
<TABLE>
<S> <C>
Description: General Organizational Costs
Amount: $
Incurred: various
Start of Business: March 1994
</TABLE>
Pursuant to Internal Revenue Code Section 195, the taxpayer hereby elects to
capitalize and amortize start-up costs. The expenses will be amortized over a
period of 60 months. The taxpayer incurred the following costs:
<TABLE>
<S> <C>
Description: General Start-up Costs
Amount: $
Incurred: various
Start of Business: March 1994
</TABLE>
<PAGE> 193
SCHEDULE 4.7(C)
TAXES - AUDIT HISTORY
The Luxtec Corporation sales tax returns to the State of Massachusetts
have been audited annually by the State of Massachusetts, in accordance with
normal state audit practices. No outstanding deficiencies from these audits
exists.
<PAGE> 194
SCHEDULE 4.7(G)
TAXES - EXTENSION OF THE TIME FOR FILING TAX RETURNS
In accordance with normal corporate practice, a request for extension
of the time for filing the Luxtec Corporation fiscal year 1994 federal income
tax return has been made by the Tax Department of Arthur Andersen LLP.
<PAGE> 195
SCHEDULE 4.8
LITIGATION, ETC.
Lesa Brown, a former employee of Luxtec Corporation who resigned during
December, 1993, has filed a complaint with the Equal Employment Opportunity
Commission. The company responded to the complaint on July 21, 1994. No further
communication has been received since the company's response.
<PAGE> 196
SCHEDULE 4.11
BROKERS
The Avatar Group
Donald Hargreaves
<PAGE> 197
SCHEDULE 4.15(A)
EMPLOYEE BENEFIT PLANS
In accordance with Luxtec Corporation's approved section 401(k)
employee benefit plan, the company is obligated to contribute a proportional
amount to employee contributions to the plan. The company obligation is to match
25% of the amount contributed by each employee up to the first 5% of payroll
contributions made by the employee.
<PAGE> 198
EXHIBIT B
<PAGE> 199
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY FEDERAL IDENTIFICATION
Secretary of State NO. 04-3041327
One Ashburton Place -------------------
Boston, MA 02108-1512 FEDERAL IDENTIFICATION
NO. 04-3279154
-------------------
ARTICLES OF MERGER
Pursuant to General Laws, Chapter 156B, Section 79
The fee for filing this certificate is prescribed by General Laws, Chapter 156B,
Section 114. Make checks payable to the Commonwealth of Massachusetts.
* * * * *
MERGER OF CardioDyne, Inc.
------------------------------------------
Luxtec CD Acquisition Co., Inc.
------------------------------------------
------------------------------------------
the constituent corporations
into Luxtec CD Acquisition Co., Inc.
------------------------------------------
one of the constituent corporations organized under the laws of Massachusetts as
specified in the agreement referred to in Paragraph 1 below.
The undersigned officers of each of the constituent corporations
certify under the penalties of perjury as follows:
1. An agreement of merger has been duly adopted in compliance
with the requirements of subsections (b) and (c) of General Laws, Chapter 156B,
Section 79, and will be kept as provided by subsection (c) thereof. The
surviving corporation will furnish a copy of said agreement to any of its
stockholders, or to any person who was a stockholder of any constituent
corporation, upon written request and without charge.
2. The effective date of the merger determined pursuant to the
agreement referred to in paragraph 1 shall be
3. (For a merger)
The following amendments to the articles of organization of the
SURVIVING corporation have been affected pursuant to the agreement of merger
referred to in paragraph 1:
The name of the corporation has been changed to CardioDyne, Inc.
(For a consolidation)
(a) The purposes of the RESULTING corporation are as follows:
<PAGE> 200
(b) The total number of shares and the par value, if any, of each
class of stock which the resulting corporation is authorized is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
CLASS OF STOCK NUMBER OF
NUMBER OF SHARES SHARES PAR VALUE AMOUNT
<S> <C> <C> <C> <C>
Preferred
Common 200,000 $0.01 $2,000
</TABLE>
(c) If more than one class is authorized, a description of each of
the different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established.
Not applicable
(d) Other lawful provisions, if any, for the conduct and
regulation of the business and affairs of the corporation, for its voluntary
dissolution, for restrictions upon the transfer of shares of stock of any class,
or for limiting, defining, or regulating the powers of the corporation, or of
its directors or stockholders, or of any class of stockholders:
See Exhibit A attached hereto and made a part hereof.
4. (This paragraph 4 may be deleted if the surviving corporation
is organized under the laws of a state other than Massachusetts.)
The following information shall not for any purpose be treated as a permanent
part of the articles of organization of the surviving corporation:
(a) The post office address of the initial principal office of the
surviving corporation in Massachusetts is:
326 Clark Street, Worcester, Massachusetts 01606-1214
(b) The name, residence and post office address of each of the
initial directors and President, Treasurer and Clerk of the surviving
corporation is as follows:
<TABLE>
<CAPTION>
POST OFFICE
NAME RESIDENCE ADDRESS
<S> <C> <C> <C>
President: James W. Hobbs 19 Ridge Road same
Hopkinton, MA 01748
Treasurer: Samuel M. Stein 11 Cadogan Way same
Nashua, NH 03062
Clerk: Justin P. Morreale 416 Lewis Wharf same
Boston, MA 02110
Directors: James W. Hobbs 9 Ridge Road same
Hopkinton, MA 01748
</TABLE>
(c) The date initially adopted on which the fiscal year of the
surviving corporation ends is: October 31
(d) The date initially fixed in the by-laws for the Annual Meeting
of stockholders of surviving corporation is: April
<PAGE> 201
5. (This paragraph 5 may be deleted if the surviving corporation
is organized under the laws of Massachusetts.)
Not applicable
FOR MASSACHUSETTS CORPORATIONS
The undersigned President and Clerk of Luxtec CD Acquisition Co., Inc.,
a corporation organized under the laws of Massachusetts further state under the
penalties of perjury that the agreement of merger referred to in paragraph 1 has
been duly executed on behalf of such corporation and duly approved in the manner
required by General Laws, Chapter 156B, Section 79.
President
-----------------------
James W. Hobbs
Clerk
-----------------------
Justin P. Morreale
FOR CORPORATIONS ORGANIZED OTHER THAN IN MASSACHUSETTS
The undersigned P.G. Phillipps and Martin S. Kaplan of CardioDyne,
Inc., a corporation organized under the laws of Massachusetts further state
under the penalties of perjury that the agreement of merger referred to in
paragraph 1, has been duly adopted by such corporation in the manner required by
the laws of Massachusetts.
--------------------------------
P.G. Phillipps
--------------------------------
Martin S. Kaplan
<PAGE> 202
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF CONSOLIDATION/MERGER
(General Laws, Chapter 156B, Section 79)
I hereby approve the within articles of consolidation/merger and, the
filing fee in the amount of $_______ having been paid, said articles are deemed
to have been filed with me this _______ day of ________, 19__.
Effective Date
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF ARTICLES OF MERGER TO BE SENT
TO: Donald P. Richards, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
Tel: (617) 951-8000
<PAGE> 203
CERTIFICATE OF MERGER
OF
CARDIODYNE, INC.
INTO
LUXTEC CD ACQUISITION CO., INC.
The undersigned corporation
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
Name State of Incorporation
Cardiodyne, Inc. Delaware
Luxtec CD Acquisition Co., Inc. Massachusetts
SECOND: That an agreement of merger between the parties to the merger
has been approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of subsection (c)
of section 252 of the General Corporation Law of the State of Delaware.
THIRD: The name of the surviving corporation of the merger is Luxtec CD
Acquisition Co., Inc., a Massachusetts corporation.(1)
FOURTH: That the Certificate of Incorporation of Luxtec CD Acquisition
Co. Inc., a Massachusetts corporation, shall be the certificate of incorporation
of the surviving corporation.
FIFTH: That the executed agreement of merger is on file at the
principal place of business of the surviving corporation. The address of said
principal place of business is 326 Clark Street, Worcester, Massachusetts
01606-1214.
SIXTH: That a copy of the agreement of merger will be furnished on
request and without cost to any stockholder of any constituent corporation.
----------------------
(1) Pursuant to the Amendment to the Articles of Incorporation dated
, Luxtec CD Acquisition Co. Inc.'s name was changed to Cardiodyne, Inc.
<PAGE> 204
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SEVENTH: The authorized capital stock of each foreign corporation which
is a party to a merger is as follows:
<TABLE>
<CAPTION>
PAR VALUE PER SHARE OR
NUMBER OF STATEMENT THAT SHARES ARE
CORPORATION CLASS SHARES WITHOUT PAR VALUE
<S> <C> <C> <C>
Luxtec CD Common 200,000 $0.01 per share
Acquisition Co. Inc.
</TABLE>
EIGHTH: The surviving corporation may be served with process in the
State of Delaware in any proceeding for enforcement of any obligation of
Delaware, as well as for enforcement of any obligation of the surviving
corporation arising from the merger, including any suit or other proceeding to
enforce the right of any stockholder as determined in appraisal proceedings
pursuant to the provisions of Section 262 of the General Corporation Law of the
State of Delaware, and it does hereby irrevocably appoint the Secretary of State
of the State of Delaware as its agent to accept service of process in any such
suit or other proceeding. The address to which a copy of such process shall be
mailed by the Secretary of State of Delaware is 326 Clark Street, Worcester,
Massachusetts 01606-1214 until the surviving corporation shall have hereafter
designated in writing to the said Secretary of State a different addressed for
such purpose.
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by , this day of A.D. 199 .
----------------------
Authorized Officer
<PAGE> 205
EXHIBIT C
<PAGE> 206
Exhibit C
INVENTION AND NON-DISCLOSURE AGREEMENT
This Agreement is made between Luxtec Corporation, a
Massachusetts corporation (the "Company"), and ___________________
(the "Employee").
In consideration of the employment or the continued
employment of the Employee by the Company, the Company and the
Employee agree as follows:
1. Proprietary Information.
(a) The Employee agrees that all information, whether or not
in writing, of a private, secret or confidential nature concerning
the Company's business, business relationships or financial
affairs (collectively, "Proprietary Information") is and shall be
the exclusive property of the Company. By way of illustration,
but not limitation, Proprietary Information may include
inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research
data, clinical data, financial data, personnel data, computer
programs, customer and supplier lists, and contacts at or
knowledge of customers or prospective customers of the Company.
The Employee will not disclose any Proprietary Information to any
person or entity other than employees of the Company or use the
same for any purposes (other than in the performance of
his/her duties as an employee of the Company) without written
approval by an officer of the Company, either during or after his/
her employment with the Company, unless and until such Proprietary
Information has become public knowledge without fault by the
Employee.
(b) The Employee agrees that all files, letters, memoranda,
reports, records, data, sketches, drawings, laboratory notebooks,
program listings, or other written, photographic, or other
tangible material containing Proprietary Information, whether
created by the Employee or others, which shall come into his/her
custody or possession, shall be and are the exclusive property of
the Company to be used by the Employee only in the performance of
his/her duties for the Company. All such materials or copies
thereof and all tangible property of the Company in the custody or
possession of the Employee shall be delivered to the Company, upon
the earlier of (i) a request by the Company or (ii) termination of
his/her employment. After such delivery, the Employee shall not
retain any such materials or copies thereof or any such tangible
property.
(c) The Employee agrees that his/her obligation not to
disclose or to use information and materials of the types set
forth in paragraphs (a) and (b) above, and his/her obligation to
return materials and tangible property, set forth in paragraph (b)
above, also extends to such types of information, materials and
<PAGE> 207
tangible property of customers of the Company or suppliers to the
Company or other third parties who may have disclosed or entrusted
the same to the Company or to the Employee.
2. Developments.
(a) The Employee will make full and prompt disclosure to the
Company of all inventions, improvements, discoveries, methods,
developments, software, and works of authorship, whether
patentable or not, which are created, made, conceived or reduced
to practice by him/her or under his/her direction or jointly with
others during his/her employment by the Company, whether or not
during normal working hours or on the premises of the Company (all
of which are collectively referred to in this Agreement as
"Developments").
(b) The Employee agrees to assign and does hereby assign to
the Company (or any person or entity designated by the Company)
all his/her right, title and interest in and to all Developments
and all related patents, patent applications, copyrights and
copyright applications. However, this paragraph 2(b) shall not
apply to Developments which do not relate to the present or
planned business or research and development of the Company and
which are made and conceived by the Employee not during normal
working hours, not on the Company's premises and not using the
Company's tools, devices, equipment or Proprietary Information.
The Employee understands that, to the extent this Agreement shall
be construed in accordance with the laws of any state which
precludes a requirement in an employee agreement to assign certain
classes of inventions made by an employee, this paragraph 2(b)
shall be interpreted not to apply to any invention which a court
rules and/or the Company agrees falls within such classes. The
Employee also hereby waives all claims to moral rights in any
Developments.
(c) The Employee agrees to cooperate fully with the Company,
both during and after his/her employment with the Company, with
respect to the procurement, maintenance and enforcement of
copyrights, patents and other intellectual property rights (both
in the United States and foreign countries) relating to
Developments. The Employee shall sign all papers, including,
without limitation, copyright applications, patent applications,
declarations, oaths, formal assignments, assignments of priority
rights, and powers of attorney, which the Company may deem
necessary or desirable in order to protect its rights and
interests in any Development. The Employee further agrees that if
the Company is unable, after reasonable effort, to secure the
signature of the Employee on any such papers, any executive
officer of the Company shall be entitled to execute any such
papers as the agent and the attorney-in-fact of the Employee, and
the Employee hereby irrevocably designates and appoints each
executive officer of the Company as his/her agent and attorney-in-
fact to execute any such papers on his/her behalf, and to take any
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<PAGE> 208
and all actions as the Company may deem necessary or desirable in
order to protect its rights and interests in any Development,
under the conditions described in this sentence.
3. Other Agreements.
The Employee hereby represents that, except as the Employee
has disclosed in writing to the Company, the Employee is not bound
by the terms of any agreement with any previous employer or other
party to refrain from using or disclosing any trade secret or
confidential or proprietary information in the course of his/her
employment with the Company or to refrain from competing, directly
or indirectly, with the business of such previous employer or any
other party. The Employee further represents that his/her
performance of all the terms of this Agreement and as an employee
of the Company does not and will not breach any agreement to keep
in confidence proprietary information, knowledge or data acquired
by the Employee in confidence or in trust prior to his/her
employment with the Company, and the Employee will not disclose to
the Company or induce the Company to use any confidential or
proprietary information or material belonging to any previous
employer or others.
4. No Employment Contract.
The Employee understand that this Agreement does not
constitute a contract of employment and does not imply that his/
her employment will continue for any period of time.
5. Miscellaneous.
(a) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(b) This Agreement supersedes all prior agreements, written
or oral, between the Employee and the Company relating to the
subject matter of this Agreement. This Agreement may not be
modified, changed or discharged in whole or in part, except by an
agreement in writing signed by the Employee and the Company. The
Employee agrees that any change or changes in his/her duties,
salary or compensation after the signing of this Agreement shall
not affect the validity or scope of this Agreement.
(c) This Agreement will be binding upon the Employee's
heirs, executors and administrators and will inure to the benefit
of the Company and its successors and assigns.
(d) No delay or omission by the Company in exercising any
right under this Agreement will operate as a waiver of that or any
other right. A waiver or consent given by the Company on any one
occasion is effective only in that instance and will not be
construed as a bar to or waiver of any right on any other
occasion.
-3-
<PAGE> 209
(e) The Employee expressly consents to be bound by the
provisions of this Agreement for the benefit of the Company or any
subsidiary or affiliate thereof to whose employ the Employee may
be transferred without the necessity that this Agreement be re-
signed at the time of such transfer.
(f) The restrictions contained in this Agreement are
necessary for the protection of the business and goodwill of the
Company and are considered by the Employee to be reasonable for
such purpose. The Employee agrees that any breach of this
Agreement is likely to cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach,
the Employee agrees that the Company, in addition to such other
remedies which may be available, shall be entitled to specific
performance and other injunctive relief.
(g) This Agreement is governed by and will be construed as a
sealed instrument under and in accordance with the laws of the
Commonwealth of Massachusetts. Any action, suit, or other legal
proceeding which is commenced to resolve any matter arising under
or relating to any provision of this Agreement shall be commenced
only in a court of the Commonwealth of Massachusetts (or, if
appropriate, a federal court located within Massachusetts), and
the Company and the Employee each consents to the jurisdiction of
such a court.
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS
AGREEMENT AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN
THIS AGREEMENT.
WITNESS: LUXTEC CORPORATION
Date:_______________________ By:_______________________
Title:____________________
EMPLOYEE
Date:_______________________ __________________________
(signature)
-4-
<PAGE> 210
EXHIBIT D<PAGE> 211
Exhibit D
NON-COMPETITION AGREEMENT
This Agreement is made between Luxtec Corporation, a
Massachusetts corporation (hereinafter referred to collectively
with its subsidiaries as the "Company"), and ____________________
(the "Employee").
In consideration of the employment of the Employee by the
Company, the Employee and the Company agree as follows:
1. Non-competition. While the Employee is employed by the
Company and for a period of two (2) years after the termination or
cessation of such employment for any reason, the Employee will
not:
(a) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor,
consultant or in any other capacity whatsoever (other than as
the holder of not more than five percent (5%) of the combined
voting power of the outstanding stock of a publicly-held
company), design, develop, produce, market, distribute,
license or sell any Competing Products (as defined in
Schedule A attached hereto); provided, however, that the
foregoing shall not prohibit the Employee from being employed
by or providing consulting services to a division, subsidiary
or part of an entity which is engaged in the design,
development, production, marketing, distribution, licensing
or sale of Competing Products so long as (i) such division,
subsidiary or part itself does not engage in the design,
development, production, marketing, distribution, licensing
or sale of Competing Products and (ii) the Employee does not
engage in the design, development, production, marketing,
distribution, licensing or sale of Competing Products;
provided further that on or before each anniversary of this
Agreement while this Agreement is in effect, the Company and
the Employee shall, in good faith, mutually discuss and agree
to a new definition of "Competing Products" to reflect the
business then being conducted by the Company; or
(b) solicit, divert or take away the business or
patronage of any of the clients, customers or accounts, or
prospective clients, customers or accounts, of the Company
which were contacted, solicited or served by the Employee
while employed by the Company.
2. Non-solicitation. While the Employee is employed by the
Company and for a period of two (2) years after the termination or
cessation of such employment for any reason, the Employee will not
recruit, solicit or hire any employee of the Company, or induce or
<PAGE> 212
attempt to induce any employee of the Company to terminate his/her
employment with, or otherwise cease his/her relationship with, the
Company.
3. Miscellaneous.
(a) No Conflict. The Employee represents that the
execution and performance by him of this Agreement does not and
will not conflict with or breach the terms of any other agreement
by which the Employee is bound.
(b) Not Employment Contract. The Employee acknowledges
that this Agreement does not constitute a contract of employment
and does not imply that the Company will continue his employment
for any period of time.
(c) Interpretation. If any restriction set forth in
Sections 1 or 2 is found by any court of competent jurisdiction to
be unenforceable because it extends for too long a period of time
or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic area as
to which it may be enforceable.
(d) Severability. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity
or enforceability of any other provision of this Agreement.
(e) Waiver of Rights. No delay or omission by the
Company in exercising any right under this Agreement will operate
as a waiver of that or any other right. A waiver or consent given
by the Company on any one occasion is effective only in that
instance and will not be construed as a bar to or waiver of any
right on any other occasion.
(f) Equitable Remedies. The restrictions contained in
this Agreement are necessary for the protection of the business
and goodwill of the Company and are considered by the Employee to
be reasonable for such purpose. The Employee agrees that any
breach of this Agreement is likely to cause the Company
substantial and irrevocable damage and therefore, in the event of
any such breach, the Employee agrees that the Company, in addition
to such other remedies which may be available, shall be entitled
to specific performance and other injunctive relief.
(g) Assignability. The Company may assign this
Agreement to any other corporation or entity which acquires
(whether by purchase, merger, consolidation or otherwise) all or
substantially all of the business and/or assets of the Company.
-2-
<PAGE> 213
(h) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of
Massachusetts. Any action, suit, or other legal proceeding which
is commenced to resolve any matter arising under or relating to
any provision of this Agreement shall be commenced only in a court
of the Commonwealth of Massachusetts (or, if appropriate, a
federal court located within Massachusetts), and the Company and
the Employee each consents to the jurisdiction of such a court.
THE EMPLOYEE ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS
AGREEMENT AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN
THIS AGREEMENT.
LUXTEC CORPORATION
Date: ______________________ By:____________________________
Title:_________________________
EMPLOYEE
Date:_______________________ _______________________________
(Signature)
-3-
<PAGE> 214
Schedule A
"Competing Products" shall mean: (i) fiber-optic
illumination products or systems, (ii) loupes or telescopes for
medical applications, (iii) motion-tolerant blood pressure
monitors or (iv) continuous or nearly continuous non-invasive
blood pressure monitors.
-4-
<PAGE> 215
EXHIBIT E<PAGE> 216
EXHIBIT E
ESCROW AGREEMENT
This Escrow Agreement is made and entered into this ____ day of
______________, 1995, among Luxtec Corporation, a Massachusetts corporation
("Parent"), Luxtec CD Acquisition Co. Inc., a Massachusetts corporation that is
a wholly owned subsidiary of Luxtec (the "Acquirer"), Paul Epstein and Patrick
G. Phillipps, as representatives (the "Representatives") of the former
stockholders ("Target Stockholders") of CardioDyne, Inc., a Delaware corporation
("Target"), and The First National Bank of Boston, as escrow agent (the "Escrow
Agent"), with reference to the following facts:
R E C I T A L S
A. Parent and the Acquirer have entered into that certain Agreement of
Merger and Plan of Reorganization, dated as of June __, 1995 (the "Merger
Agreement") with Target and the Representatives, whereunder Target will merge
with and into the Acquirer (the "Merger"). Except as otherwise defined herein,
the capitalized terms used in this Agreement shall have the meanings ascribed to
them in the Merger Agreement.
B. Under Section 14 of the Merger Agreement, each of the Target
Stockholders, severally and not jointly, is obligated to indemnify and reimburse
the Indemnified Parties (as defined in the Merger Agreement) to the extent
provided in the Merger Agreement.
C. Pursuant to Section 2.1(e) of the Merger Agreement, (i) Parent has
withheld from the Target Stockholders and deposited with the Escrow Agent the
Escrowed Shares, and (ii) the Target Stockholders have executed and deposited
with the Escrow Agent stock powers executed in blank with respect to such
Escrowed Shares.
D. Pursuant to Section 14.4 of the Merger Agreement, Target and the
Target Stockholders have appointed the Representatives to represent the Target
Stockholders in connection with the escrow of the Escrowed Consideration (as
hereinafter defined).
E. The Indemnified Parties, the Representatives and the Target
Stockholders wish to employ the services of Escrow Agent to act as the escrow
holder of the Escrowed Consideration, and the Escrow Agent has agreed to accept
such employment on the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. Escrow. On the Closing Date, (a) Parent shall deliver to the Escrow
Agent stock certificates, registered in the respective names of the Target
<PAGE> 217
-2-
Stockholders in the amounts set forth opposite each Target Stockholder's name on
Schedule 1 hereto, and representing, in the aggregate, the Escrowed Shares, and
(b) each Target Stockholder shall deliver to the Escrow Agent a stock power with
respect to the Escrowed Shares beneficially owned by such Target Stockholder,
executed in blank form (collectively, the "Stock Powers"). The Escrowed Shares,
the Stock Powers, and any dividends, distributions, interest or other earnings
on any thereof, are referred to herein as the "Escrowed Consideration". The
Escrow Agent hereby agrees to hold the Escrowed Consideration, and all
certificates representing the Escrowed Shares (collectively, the "Certificates"
and each individually a "Certificate"), in escrow as provided herein.
2. Voting; Dividends. From and after the Closing Date, the Target
Stockholders shall be entitled to exercise voting rights in respect of all of
the Escrowed Shares (except such Escrowed Shares as are released by the Escrow
Agent to Parent on behalf of the Indemnified Parties as payment for a Claim),
and Parent shall deliver to the Escrow Agent all dividends payable in respect of
each of such unreleased Escrowed Shares, said dividends to be held in escrow and
to be released pursuant to the terms hereof together with the release of each of
the Escrowed Shares to which such dividends relate.
3. Claims; Payment of Claims.
(a) The Escrowed Consideration is to be held by the Escrow Agent
pursuant to this Agreement in order to indemnify and/or reimburse the
Indemnified Parties pursuant to ss.14 of the Merger Agreement as described in
Paragraph B of the Recitals hereto. Each claim made by an Indemnified Party
under Section 14 of the Merger Agreement shall be submitted in writing to the
Escrow Agent and the Representatives. Each such claim (hereinafter referred to
as a "Claim") shall specifically describe (i) the claim, liability, loss,
damage, cost and/or expense suffered by such Indemnified Party, (ii) the
monetary value of such Claim or, if such amount is not then known, stating the
reasons why such amount is not then known and giving such Indemnified Party's
reasonable estimate made in good faith (based upon the information then
available) of the maximum monetary value thereof and an estimate of when the
exact amount is expected to be known (an "Estimated Claim"), (iii) the aggregate
number of Escrowed Shares which such Indemnified Party seeks to recover in
respect of such Claim and a statement showing how such number of Escrowed Shares
has been calculated, based upon the fair market value of the Escrowed Shares as
of the date of the Claim, and (iv) a calculation of the pro rata number of
Escrowed Shares payable by each Target Stockholder in respect of such Claim,
determined by multiplying (x) the number of Escrowed Shares such Indemnified
Party is claiming in respect of such Claim by (y) a fraction of which the
numerator is the number of Escrowed Shares owned by such Target Stockholder and
held in escrow pursuant hereto and the denominator of which is the aggregate
number of Escrowed Shares being held as Escrowed Consideration hereunder.
<PAGE> 218
-3-
(b) The Escrow Agent shall pay the amount of a Claim submitted by
any Indemnified Party as follows:
(i) if the monetary value of such Claim is stated in such
Claim, within twenty (20) days after receipt of such Claim, unless the
Escrow Agent, within fifteen (15) days after receipt of such Claim,
receives written notice from either Representative disputing such
Claim, which notice shall state with reasonable specificity the reasons
for such dispute (a "Notice of Dispute"); or
(ii) if there has been a Notice of Dispute with respect to a
Claim, within five (5) days after the earlier to occur of (x) receipt
of a notice executed by the Indemnified Parties and either
Representative stating that such dispute has been resolved, and stating
the amount to be paid in respect of such Claim and the person to whom
payment is to be made and (y) the issuance by a court of competent
jurisdiction of a final order or judgment with respect to such Claim,
which order or judgment is no longer subject to appeal; or
(iii) if the monetary value of such Claim is not known at the
time such Claim is made, within twenty (20) days after receipt of a
statement by the claimant setting forth a determination of the monetary
value of such Claim, unless the Escrow Agent, within fifteen (15) days
after receipt of such statement, receives a Notice of Dispute from
either Representative disputing the determination of the monetary value
of such Claim, in which event the Escrow Agent shall pay such Claim
pursuant to the foregoing Section 3(b)(ii).
(c) Payment of a Claim shall be made from the Escrowed Shares. Whenever
any Claim is paid out of the Escrowed Shares, the Escrowed Shares shall be
valued at the unweighted average of the closing prices of the Parent Common
Stock on the AMEX, or such other national securities exchange or automated
quotation system, if any, on which the Parent Common Stock is then listed or
traded, for the twenty (20) trading days ending five (5) trading days before the
Claim was made. Any dividends (whether of stock or cash), other distributions or
interest on any thereon which are held as part of the Escrowed Consideration
shall follow the Escrowed Shares to which they relate. In the event that a Claim
requires delivery of some but less than all of the Escrowed Shares, the Escrow
Agent shall effect payment in the following manner: upon delivery by Parent of
replacement Certificates in the respective names of the Target Stockholders and
for the respective numbers of Escrowed Shares belonging to such Target
Stockholders after satisfaction of said Claim, the Escrow Agent shall deliver to
Parent for cancellation the Certificates previously held by it hereunder, and in
addition shall deliver to Parent any dividends, other distributions or interest
that relate to such Escrowed Shares. The Escrow Agent shall then continue to
hold such replacement Certificates as Escrowed Consideration hereunder, and such
replacement Certificates shall from and after such date be deemed to be the
"Certificates" for all purposes hereof. The
<PAGE> 219
-4-
Escrow Agent shall have no further responsibility to any Indemnified Party as to
payment for such Claim, which shall be the responsibility of Parent and such
Indemnified Party (if other than Parent).
4. Termination of Escrow.
(a) The Escrow Agent shall pay out to the Target Stockholders (by
delivery to the Representatives), as provided below in this section, such
Escrowed Consideration as remains in escrow on the day after the first
anniversary of the Effective Date (the "Escrow Termination Date"), and which is
then not subject to an outstanding Claim submitted to and received by the Escrow
Agent and the Representatives on or before such Escrow Termination Date. In the
event any Estimated Claims are then pending, that number of Escrowed Shares set
forth in such Claim as are equal to the monetary value of such Claim (estimated
as provided herein) shall be deemed subject to such Claim and shall not be
released pursuant to the foregoing sentence.
(b) Upon the Escrow Termination Date, if there are no pending Claims,
the Escrow Agent shall release from escrow and deliver to the Representatives
the Certificates, or the replacement Certificates then held in escrow, together
with all accrued dividends thereon and any interest in respect thereof. If there
are pending Claims on the Escrow Termination Date, the Escrow Agent shall effect
disbursement in the following manner: upon delivery by Parent to the Escrow
Agent of (i) Certificates in the respective names of the Target Stockholders and
for the respective numbers of Escrowed Shares belonging to such Target
Stockholders which are subject to a pending Claim, and (ii) Certificates in the
respective names of the Target Stockholders and for the respective numbers of
Escrowed Shares belonging to such Target Stockholders which are not subject to a
pending Claim, the Escrow Agent shall deliver to the Representatives the
Certificates described in clause (ii) above, and shall continue to hold as
Escrowed Consideration hereunder the Certificates described in clause (i) above,
until such time as any disputes with respect to such pending Claims have been
resolved pursuant to Section 3(b)(ii) above.
(c) This Escrow Agreement and the escrow provided for herein shall
terminate when all of the Escrowed Consideration has been disbursed as provided
herein, which may be a later date than the Escrow Termination Date. At such time
as the escrow provided for herein shall have terminated as to all of the
Escrowed Consideration, the Escrow Agent shall complete the Stock Powers to
indicate the number of Escrowed Shares that were disbursed to Parent on behalf
of the Indemnified Parties and shall deliver the same to Parent.
5. Investment. During the term of the escrow provided for hereunder,
the Escrow Agent shall invest any cash portions of the Escrowed Consideration in
accordance with Parent's instructions, provided, however, that such investments
shall be in (a) interest bearing deposit accounts with or instruments of any
state or national
<PAGE> 220
-5-
bank, or state or federal savings and loan association, with total assets of at
least $200,000,000, (b) repurchase agreements secured by United States
government securities, (c) U.S. Treasury Certificates or other securities
guaranteed by the United States government or (d) any of the "1784 Funds" money
market portfolios mutual funds registered under the Investment Company Act of
1940, as amended, for which the Escrow Agent is advisor; and provided further,
that such securities shall have a maturity of not more than 90 days.
6. Fees of Escrow Agent. The fees of Escrow Agent in connection with
this escrow shall be paid jointly and severally by the Target Stockholders and
Parent as follows: fifty percent (50%) by the Target Stockholders on a pro rata
basis, and fifty percent (50%) by Parent. The Representatives shall be
responsible for collecting any and all such fees from the Target Stockholders
and paying such amount collected over to the Escrow Agent. The Escrow Agent
shall have a lien or a right of setoff on all Escrowed Consideration held
hereunder to secure payment of the fees due the Escrow Agent hereunder. A copy
of the Escrow Agent's current fee schedule is attached as Schedule 2, as such
schedule may be modified from time to time upon notice by the Escrow Agent.
7. Notices. All notices which may or are required to be given or
made by any party hereto to any other party shall be in writing. Such
notices shall be either personally delivered, sent by facsimile
transmission or sent by registered or certified mail, postage prepaid, as
follows:
(a) If to any Indemnified Party:
c/o Luxtec Corporation
326 Clark Street
Worcester, MA 01606-1214
Attention: James W. Hobbs, President & CEO
FAX No.: (508) 856-9462
With a copy to:
Victor J. Paci, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
FAX No.: (617) 951-8736
(b) if to the Representatives:
Paul Epstein
95 Clinton Road
Brookline, Massachusetts 02146
FAX No. (617) 739-1155
<PAGE> 221
-6-
Patrick G. Phillipps
222 Old County Road
Lincoln, Massachusetts 01773
in either case with a copy to:
David A. Westenberg, Esq.
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
FAX No. (617) 526-5000
(c) If to the Escrow Agent:
Brian Fitzgerald
The First National Bank of Boston
Corporate Trust Administration, 45-02-15
150 Royall Street
Canton, Massachusetts 02021
FAX No. (617) 575-3049
or to such other addresses and such other places as any party hereto may from
time to time designate by written notice to another given in accordance
herewith.
8. Duties of Escrow Agent; Indemnification, Etc.
(a) The Escrow Agent's duties hereunder shall be limited to the
safekeeping and delivery of the Escrowed Consideration in accordance with this
Agreement, and no other duties or obligations shall be implied. Furthermore, the
Escrow Agent shall be under no obligation to refer to, and is not charged with
knowledge of, any other document between or among the parties hereto or related
in any way to this Agreement. The Escrow Agent shall not be liable for any acts
or omissions taken in good faith, or for any claims, demands, or losses incurred
by any party, unless caused by the Escrow Agent's willful misconduct or gross
negligence. The Escrow Agent shall be entitled to assume in good faith and rely
upon (and shall not be subject to any liability in acting in reliance thereon)
the authenticity, validity and effectiveness of any writing delivered to the
Escrow Agent, and the Escrow Agent shall not be obligated to make any
investigation or determination as to the truth and accuracy of any information
contained therein. The Escrow Agent may rely on any affidavit of any party
hereto as to the existence of any facts stated therein to be known by the
affiant or may consult with counsel of its choice and, in either
<PAGE> 222
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case, shall be fully protected in any action taken or omitted in connection with
such affidavits or opinion.
(b) In the event of any disagreement among the parties
resulting in adverse claims and demands being made in connection with or against
the Escrowed Consideration, the Escrow Agent shall be entitled, at the Escrow
Agent's option, to refuse to comply with the claims or demands of any party
until such disagreement is finally resolved (i) by a court of competent
jurisdiction (in proceedings which the Escrow Agent or any other party may
initiate, it being understood and agreed by the parties that the Escrow Agent
has the authority, but no obligation, to initiate such proceedings), or (ii) by
written settlement among the disputing parties.
(c) Parent and the Target Stockholders jointly and severally
agree to defend, indemnify and hold the Escrow Agent (and its employees and
agents) harmless from any losses, damages, claims, or liabilities arising out of
or in connection with the Escrow Agent's acts or failure to act hereunder
(including, without limitation, claims or actions brought by any party hereto,
except to the extent resulting from the Escrow Agent's willful misconduct or
gross negligence). The Escrow Agent shall be entitled to reimbursement by Parent
and the Target Stockholders, jointly and severally, for all reasonable costs and
expenses incurred in the performance of its duties hereunder, including, without
limitation, all out-of-pocket expenses and reasonable attorneys' fees and
expenses (which shall include, all costs for administrative, paralegal and other
support staff) of counsel retained by the Escrow Agent. Parent and the Target
Stockholders agree to reimburse one another for any and all amounts paid
pursuant to Paragraph 6 and this Paragraph 8 hereof, to the extent necessary and
sufficient so that the aggregate of any and all such amounts are paid fifty
percent (50%) by the Target Stockholders on a pro rata basis, and fifty percent
(50%) by Parent.
(d) If at any time Escrow Agent shall be unsure of its duties
under this Escrow Agreement, the parties hereto expressly agree that the Escrow
Agent shall have the absolute right at its election to do either or both of the
following:
(i) Withhold and stop all further proceedings under,
and performance of, this Escrow Agreement; or
(ii) File a suit in interpleader and obtain an order
from the court requiring the parties to interplead and litigate in such
court their several claims and rights among themselves. In the event
such interpleader suit is brought, the Escrow Agent shall ipso facto be
fully released and discharged from all obligations to further perform
any and all duties or obligations imposed upon it by this Escrow
Agreement.
<PAGE> 223
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(e) Except as provided in paragraph 5 hereof solely with
respect to the Escrow Agent, no party shall have the right to withdraw the
instruments or monies deposited by it with the Escrow Agent.
(f) The Escrow Agent may resign for any reason, upon 30 days
written notice to the parties to this Escrow Agreement. Upon expiration of such
30 days notice period, the, Escrow Agent may deliver all cash or property in its
possession under this Escrow Agreement to any successor Escrow Agent appointed
by the other parties hereto, or if no successor Escrow Agent has been appointed,
to any court of competent jurisdiction in Suffolk County, Massachusetts. Upon
either such delivery, Escrow Agent shall be released from any and all liability
under this Escrow Agreement. A termination under this paragraph shall in no way
change the terms of this Escrow Agreement affecting reimbursement of expenses,
indemnity and fees.
9. Counterparts. This Escrow Agreement may be executed in one or more
counterparts, all of which together shall be deemed an original.
10. Governing Law. This Escrow Agreement shall be construed and
enforced in accordance with, and rights of the parties shall be governed by, the
internal laws of the Commonwealth of Massachusetts (without reference to
principles of conflicts or choice of law that would cause the application of the
internal laws of any other jurisdiction).
11. Submission to Jurisdiction; Waivers. Parent, the Acquirer, the
Escrow Agent and each of the Representatives, for itself and on behalf of its
successors, assigns and transferees, hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Escrow Agreement or for recognition and enforcement
of any judgment in respect thereof, to the exclusive general jurisdiction of the
courts of The Commonwealth of Massachusetts, the courts of the United States of
America for the District of Massachusetts, and appellate courts from any
thereof;
(ii) consents that any such action or proceeding may be
brought in such courts, and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
nail (or any substantially similar form of mail), postage prepaid, at its
address as provided in Paragraph 7 hereof or at such other address as it shall
have notified each of the other parties hereto in the manner provided in
Paragraph 7 hereof;
<PAGE> 224
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(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law; and
(v) waives trial by jury in any legal action or proceeding
relating to this agreement and for any counterclaim therein.
[Rest of Page Intentionally Left Blank]
<PAGE> 225
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IN WITNESS WHEREOF, the parties hereto, each intending to be legally
bound by this writing, have caused this Escrow Agreement to be executed on the
day and year first above written.
PARENT:
LUXTEC CORPORATION
By
--------------------------------------
James W. Hobbs
President and Chief Executive Officer
ACQUIRER:
LUXTEC CD ACQUISITION CO. INC.
By
--------------------------------------
James W. Hobbs
President and Chief Executive Officer
REPRESENTATIVES:
----------------------------------------
Paul Epstein
----------------------------------------
Patrick G. Phillipps
ACCEPTED AND AGREED TO:
ESCROW AGENT:
THE FIRST NATIONAL BANK OF BOSTON
By:
------------------------------------
Name:
Title:
<PAGE> 226
EXHIBIT E
Schedule 1
Name of Stockholder Number of Escrowed Shares
<PAGE> 227
BANK OF BOSTON VIA FACSIMILE (617)951-8736
June 23, 1995
Mr. Donald P. Richards, Esquire
Bingham, Dana & Gould
150 Federal Street
Boston, MA 02110-1726
RE: LUXTEC CD ACQUISITION CO., INC. AND CARDIODYNE, INC.
Dear Don:
Thank you for again providing Bank of Boston the opportunity to offer our Escrow
Services in connection with Luxtec's acquisition of CardioDyne, Inc. As you are
aware, we act as Escrow Agent on over 300 different accounts including
Depository Escrows, Subscription Escrows, Exchange Agent Escrows and Source Code
Escrows. It is our understanding that Bank of Boston, as Escrow Agent, would be
asked to hold certificates for approximately 30 shareholders for 1 year. The
release of the escrow assets would occur only under the conditions set forth in
the Exchange Agent Agreement. The fees for Bank of Boston to provide the
services listed in the Agreement are outlined below.
<TABLE>
<S> <C>
Acceptance fee $1,250
(one-time charge)
Administration Fee $1,750
Per Liquidation of Equity $ 50
Legal Fees Included
Out-of-Pocket Expenses Billed as Incurred
</TABLE>
As a matter of policy, the administration fee is due and payable upon closing of
the transaction, with out-of-pocket expenses billed shortly thereafter.
Subsequent fees, as applicable, will be payable on each anniversary of the
closing date. The fees set forth in the above schedule are subject to change
should circumstances warrant, and our ability to act is contingent upon final
review and acceptance of pertinent documentation.
Thank you for turning to Bank of Boston. We are excited about this opportunity
and will be ready to close at your convenience. Brian Fitzgerald will administer
the Escrow Account. Should you have any questions, he can be reached at
(617)575-2575. Don, we look forward to working with you on this transaction as
well as in the future.
Sincerely,
Morton L. Fearey II
cc: Chris Childs
Brian Fitzgerald
<PAGE> 228
EXHIBIT F
<PAGE> 229
TARGET STOCKHOLDER REPRESENTATION CERTIFICATE
Pursuant to the Agreement of Merger and Plan of
Reorganization dated as of June __, 1995 (the "Merger Agreement"),
CardioDyne, Inc., a Delaware corporation ("CardioDyne"), will be
merged with and into a wholly-owned subsidiary of Luxtec
Corporation, a Massachusetts corporation ("Luxtec"). The
undersigned, as a stockholder of CardioDyne, will receive shares
of Common Stock of Luxtec ("Luxtec Common Stock") in the merger
contemplated by the Merger Agreement (the "Merger") in exchange
for the undersigned's shares of Common Stock of CardioDyne
("CardioDyne Common Stock"), including the possible issuance of
Luxtec Common Stock in partial payment of Luxtec's earn-out
obligations contained in Section 2.2 of the Merger Agreement
and/or as an adjustment to the purchase price pursuant to Section
2.3 of the Merger Agreement.
For purposes of this Target Stockholder Representation
Certificate, the term "Shares" shall include all Luxtec Common
Stock issued to the undersigned under the Merger Agreement,
including the shares, if any, issued under Sections 2.2 or 2.3 of
the Merger Agreement.
A. Tax Representations
The undersigned hereby acknowledges and represents for the
benefit of Luxtec and the other CardioDyne stockholders who
provide a Target Stockholder Representation Certificate that the
following statements are true and correct, recognizing that Luxtec
and the other stockholders who provide Target Stockholder
Representation Certificates are relying on the accuracy of the
following representations:
1. I understand that the Merger will not qualify as a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), unless, as
one of the requirements which must be satisfied for reorganization
classification, the former CardioDyne stockholders indirectly
maintain a continuity of interest in the business of CardioDyne by
continuing to hold shares of Luxtec following the Merger. I
understand that the continuity of interest requirement is applied
to the stockholders of CardioDyne as a group and, therefore, that
the disposition by any other CardioDyne stockholder of CardioDyne
Common Stock prior to the Merger or Shares after the Merger
(including a disposition of Shares by dissenters, surrender of
fractional shares for cash and perhaps the deposit of Shares in
escrow) may require that I retain a greater number of Shares than
would be necessary if the continuity of interest requirement were
applied to each stockholder individually.
<PAGE> 230
2. I have not sold, exchanged, transferred or disposed of
any shares of CardioDyne Common Stock in contemplation of the
Merger, and I have no present intent to sell, exchange, transfer
or dispose of CardioDyne Common Stock in contemplation of the
Merger. I have not entered into any discussions or negotiations
with regard to the possible sale, exchange, transfer or other
disposition of CardioDyne Common Stock except in the Merger.
3. I am not subject to any obligation to sell, exchange,
transfer or otherwise dispose of all or any of the Shares to be
received by me in the Merger. I have not entered into any
discussions or negotiations with regard to the possible sale,
exchange, transfer or other disposition of all or any of such
Shares. I have no present intent or plan to sell, exchange,
transfer or otherwise dispose of all or any of such Shares. I
have no plan or intent to engage in any transaction or arrangement
which would reduce my risk of ownership in any way, including
without limitation a short sale, hedging transaction or otherwise,
with respect to all or any of such Shares.
B. Investment Representations
In order to induce Luxtec to issue the Shares to me, I
represent, warrant and covenant as follows:
1. I am acquiring the Shares for my own account for
investment only, and not with a view to, or for sale in connection
with, any distribution of the Shares in violation of the
Securities Act of 1933 (the "Securities Act"), or any rule or
regulation under the Securities Act.
2. I have had such opportunity as I have deemed adequate to
obtain from representatives of Luxtec such information as is
necessary to permit me to evaluate the merits and risks of my
investment in Luxtec.
3. I have sufficient experience in business, financial and
investment matters to be able to evaluate the risks involved in my
acquisition of the Shares and to make an informed investment
decision with respect to such acquisition.
4. I can afford a complete loss of the value of the Shares
and am able to bear the economic risk of holding such Shares for
an indefinite period.
5. I understand that (i) the Shares have not been
registered under the Securities Act and are "restricted
securities" within the meaning of Rule 144 under the Securities
Act; (ii) the Shares cannot be sold, transferred or otherwise
disposed of unless they are subsequently registered under the
Securities Act or an exemption from registration is then
available; (iii) in any event, the exemption from registration
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<PAGE> 231
under Rule 144 or otherwise may not be available for at least two
years and even then will not be available unless a public market
then exists for the Common Stock, adequate information concerning
Luxtec is then available to the public, and other terms and
conditions of Rule 144 are complied with; and (iv) there is now no
registration statement on file with the Securities and Exchange
Commission with respect to any stock of Luxtec and Luxtec has no
obligation or current intention to register the Shares under the
Securities Act except pursuant to Section 10 of the Merger
Agreement.
6. A legend substantially in the form set forth in
Section 9.2(f) of the Merger Agreement will be placed on all
certificates representing the Shares.
C. Escrow Acknowledgment
The undersigned hereby acknowledges and agrees that 15% of
the Shares issued to the undersigned at the closing of the Merger
will be held in escrow on the terms described in the Merger
Agreement and that the undersigned is bound by provisions of the
Merger Agreement applicable to all former stockholders of
CardioDyne, including without limitation the indemnification and
escrow provisions and the appointment of Paul Epstein and Patrick
G. Phillipps as Representatives of the former stockholders of
CardioDyne.
Date: ____________, 1995 _____________________________
Signature
_____________________________
Printed Name
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<PAGE> 232
EXHIBIT G
<PAGE> 233
EXHIBIT G
SIGNATURE PAGE
TO
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
Reference is hereby made to that certain Agreement of Merger and Plan
of Reorganization, dated as of June ___, 1995, among Luxtec Corporation, a
Massachusetts corporation ("Parent"), Luxtec CD Acquisition Co. Inc., a
Massachusetts corporation, CardioDyne, Inc., a Delaware corporation ("Target"),
and Paul Epstein and Patrick G. Phillips as representatives (the
"Representatives") of the former stockholders of Target (the "Target
Stockholders"), as amended and in effect from time to time (the "Merger
Agreement") Capitalized terms used herein without definition shall have the
meanings assigned to such terms in the Merger Agreement.
The undersigned hereby agrees that, from and after the date that Parent
countersigns this Signature Page in the space provided therefor below, the
undersigned shall become a Target Stockholder for purposes of Sections 9, 10
and 17 of the Merger Agreement, and shall be subject to the terms and
conditions of, and shall undertake the obligations of a Target Stockholder
pursuant to such sections of the Merger Agreement, as if the undersigned had
been an original Target Stockholder who approved and thus became subject to
the Merger Agreement. This Signature Page shall take effect and shall become a
part of the Merger Agreement immediately upon execution by the undersigned and
Parent.
Executed under seal as of the date set forth below under the laws of
The Commonwealth of Massachusetts.
Signature:
---------------------------
Name of Entity:
----------------------
Accepted:
LUXTEC CORPORATION
By:
--------------------
Date:
------------------
<PAGE> 234
EXHIBIT H
<PAGE> 235
CERTIFICATE OF CARDIODYNE, INC.
This certification is furnished in connection with the merger
(the "Merger") pursuant to the Agreement of Merger and Plan of
Reorganization dated as of June __, 1995 (the "Merger Agreement")
among Luxtec Corporation, a Massachusetts corporation ("Luxtec"),
Luxtec CD Acquisition Co. Inc., a Massachusetts corporation and
wholly-owned subsidiary of Luxtec ("Sub"), and CardioDyne, Inc., a
Delaware corporation ("CardioDyne"). Unless otherwise indicated,
capitalized terms not defined herein shall have the meanings set
forth in the Merger Agreement.
After consulting with its counsel and auditors regarding the
meaning of and factual support for the following representations,
the undersigned hereby certifies and represents to the best of its
knowledge and belief that the following statements are true:
1. Pursuant to the Merger, CardioDyne will merge with and
into Sub, and Sub will acquire substantially all of the assets and
liabilities of CardioDyne. Specifically, Sub will acquire at
least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value
of the gross assets held by CardioDyne immediately prior to the
Merger. In addition, at least ninety percent (90%) of the fair
market value of the net assets and at least seventy percent (70%)
of the fair market value of the gross assets held by Sub
immediately prior to the Merger will continue to be held by Sub
immediately after the Merger. For purposes of this
representation, the following assets will be treated as assets
held by CardioDyne or Sub, as the case may be, immediately prior
but not subsequent to the Merger: (i) assets disposed of by
CardioDyne or Sub (other than assets transferred from CardioDyne
to Sub in the Merger) prior to or subsequent to the Merger and in
contemplation thereof (including without limitation any asset
disposed of by CardioDyne, other than in the ordinary course of
business, pursuant to a plan or intent existing during the period
ending at the Effective Date and beginning with the commencement
of negotiations (whether formal or informal) with Luxtec regarding
the Merger (the "Pre-Merger Period")); (ii) assets used by
CardioDyne or Sub to pay Target Stockholders perfecting
dissenters' rights or Target Stockholders receiving cash,
including cash in lieu of fractional shares of Parent Common
Stock, or to pay other expenses or liabilities incurred in
connection with the Merger; and (iii) assets used to make
distributions, redemptions or other payments in respect of Target
<PAGE> 236
Common Stock or rights to acquire Target Common Stock (including
payments treated as such for tax purposes) that are made in
contemplation of the Merger or related thereto.
2. Other than in the ordinary course of business or
pursuant to its obligations under the Merger Agreement, CardioDyne
has made no transfer of any of its assets (including any
distribution of assets with respect to, or in redemption of,
Target Common Stock) in contemplation of the Merger (or any other
corporate acquisition) or during the Pre-Merger Period.
3. The Merger will be undertaken by CardioDyne for valid
business purposes and not for the purpose of tax avoidance.
4. The total fair market value of all consideration other
than Parent Common Stock received by Target Stockholders in the
Merger (including, without limitation, cash paid to Target
Stockholders perfecting dissenters' rights or in lieu of
fractional shares of Parent Common Stock) will be less than fifty
percent (50%) of the aggregate fair market value of Target Common
Stock outstanding immediately prior to the Merger.
5. CardioDyne has no knowledge of any plan or intention of
Luxtec to reacquire any Parent Common Stock issued pursuant to the
Merger.
6. During the past five (5) years, and at present, none of
the outstanding shares of Target Common Stock, including the right
to acquire or vote any such shares, have, directly or indirectly,
been owned by Luxtec or Luxtec affiliates.
7. The liabilities of CardioDyne assumed by Sub in the
Merger and the liabilities to which the transferred assets of
CardioDyne are subject were incurred by CardioDyne in the ordinary
course of its business.
8. On the Effective Date, the fair market value of the
assets of CardioDyne transferred to Sub will exceed the sum of the
liabilities assumed by Sub, plus the amount of liabilities, if
any, to which the transferred assets are subject.
9. CardioDyne is not and will not be at the Effective Date
an investment company within the meaning of Section
368(a)(2)(F)(iii) and (iv) of the Code.
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<PAGE> 237
10. CardioDyne is not and will not be at the Effective Date
under the jurisdiction of a court in a Title 11 or similar case
within the meaning of Section 368(a)(3)(A) of the Code.
11. No Target Stockholder is acting as agent for Luxtec in
connection with the Merger or approval thereof and Luxtec will not
reimburse any Target Stockholder for Target Common Stock such
Target Stockholder may have purchased or for other obligations
such Target Stockholder may have incurred.
12. To the knowledge of CardioDyne, there is no plan or
intention (a "Plan") on the part of the Target Stockholders to
engage in a sale, exchange, transfer, distribution (including,
without limitation, a distribution by a partnership to its
partners or by a corporation to its stockholders), pledge,
disposition or any other transaction, including a transaction or
arrangement that reduces the risk of loss by short sale, hedging
or otherwise, which results in a reduction of ownership or a
direct or indirect disposition (a "Sale") of shares of Parent
Common Stock received in the Merger that would reduce the Target
Stockholders' ownership of Parent Common Stock to a number of
shares having a value as of the Effective Date of less than fifty
percent (50%) of the aggregate fair market value, immediately
prior to the Merger, of all outstanding shares of Target Common
Stock. For purposes of this representation, shares of Target
Common Stock (i) with respect to which a Target Stockholder
receives consideration in the Merger other than Parent Common
Stock (including, without limitation, cash or other property
received pursuant to the exercise of dissenters' rights or in lieu
of fractional shares of Parent Common Stock) and/or (ii) with
respect to which a Sale occurs prior to or subsequent to and in
contemplation of the Merger, shall be considered shares of
outstanding Target Common Stock exchanged for Parent Common Stock
in the Merger and then disposed of pursuant to a Plan.
13. No consideration will be paid or received (directly or
indirectly, actually or constructively) for Target Common Stock
other than Parent Common Stock, except for the cash payements
contemplated by the Merger Agreement and payments of cash to
Target Stockholders perfecting dissenters' rights.
14. The fair market value of the Parent Common Stock and
other consideration received by each Target Stockholder will be
approximately equal to the fair market value of the Target Common
Stock surrendered in exchange therefor, and the aggregate
consideration received by Target Stockholders in exchange for
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<PAGE> 238
their Target Common Stock will be approximately equal to the fair
market value of all of the outstanding shares of Target Common
Stock immediately prior to the Merger.
15. Under Section 2.1(c) of the Merger Agreement, in lieu of
any fractional shares of Parent Common Stock that would otherwise
be issued, each Target Stockholder shall receive cash. The
payment of cash in lieu of fractional shares of Parent Common
Stock will be made solely for the purpose of avoiding the expense
and inconvenience to Luxtec of issuing fractional shares and will
not represent separately bargained-for consideration. The total
cash consideration that will be paid in the Merger to the Target
Stockholders in lieu of issuing fractional shares of Parent Common
Stock will not exceed 1% of the total consideration that will be
issued in the Merger to the Target Stockholders in exchange for
their shares of Target Common Stock. The fractional share
interests of each holder of Target Common Stock will be
aggregated, and no holder of Target Common Stock will receive cash
in an amount equal to or greater than the value of one full share
of Parent Common Stock.
16. No shares of Sub have been or will be used as
consideration or issued to Target Stockholders pursuant to the
Merger.
17. Luxtec, Sub and CardioDyne will each pay separately its
own expenses relating to the Merger.
18. There is no intercorporate indebtedness existing between
Luxtec and CardioDyne or between Sub and CardioDyne that was
issued, acquired or will be settled at a discount.
19. Luxtec will assume no liabilities of CardioDyne or any
Target Stockholder in connection with the Merger.
20. Any indebtedness owed by CardioDyne to any Target
Stockholder represents true debt, not equity, for income tax
purposes.
21. The terms of the Merger Agreement are the product of
arms'-length negotiations.
22. None of the compensation received by any stockholder-
employees of CardioDyne will be separate consideration for, or
allocable to, any of their shares of Target Common Stock; none of
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<PAGE> 239
the shares of Parent Common Stock received by any stockholder-
employees of CardioDyne will be separate consideration for, or
allocable to, any employment agreement or any covenants not to
compete; and the compensation paid to any stockholder-employees of
CardioDyne will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arms'-length for similar services.
23. No shares of Target Common Stock have been purchased by
a stockholder of Luxtec during the Pre-Merger Period.
Notwithstanding anything herein to the contrary, the
undersigned makes no representations regarding any actions or
conduct of CardioDyne pursuant to Luxtec's exercise of control
over CardioDyne after the Merger.
CARDIODYNE, INC.
By:_____________________________
Title:__________________________
Date:___________________________
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<PAGE> 240
EXHIBIT I
<PAGE> 241
CERTIFICATE OF LUXTEC CORPORATION
This certification is furnished in connection with the merger
(the "Merger") pursuant to the Agreement of Merger and Plan of
Reorganization dated as of June __, 1995 (the "Merger Agreement")
among Luxtec Corporation, a Massachusetts corporation ("Luxtec"),
Luxtec CD Acquisition Co. Inc., a Massachusetts corporation and
wholly-owned subsidiary of Luxtec ("Sub"), and CardioDyne, Inc., a
Delaware corporation ("CardioDyne"). Unless otherwise indicated,
capitalized terms not defined herein shall have the meanings set
forth in the Merger Agreement.
After consulting with its counsel and auditors regarding the
meaning of and factual support for the following representations,
the undersigned hereby certifies and represents to the best of its
knowledge and belief that the following statements are true:
1. Pursuant to the Merger, CardioDyne will merge with and
into Sub, and Sub will acquire substantially all of the assets and
liabilities of CardioDyne. Specifically, Sub will acquire at
least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair market value
of the gross assets held by CardioDyne immediately prior to the
Merger. For purposes of this representation, the following assets
will be treated as assets held by CardioDyne immediately prior but
not subsequent to the Merger: (i) assets disposed of by
CardioDyne (other than assets transferred from CardioDyne to Sub
in the Merger) prior to the Merger and in contemplation thereof
(including without limitation any asset disposed of by CardioDyne,
other than in the ordinary course of business, pursuant to a plan
or intent existing during the period ending at the Effective Date
and beginning with the commencement of negotiations (whether
formal or informal) with Luxtec regarding the Merger (the "Pre-
Merger Period")), (ii) assets used by CardioDyne or Sub to pay
stockholders perfecting dissenters' rights or amounts paid by
CardioDyne to stockholders receiving cash, including cash in lieu
of fractional shares of Parent Common Stock, or to pay other
expenses or liabilities of CardioDyne or such stockholders
incurred in connection with the Merger and (iii) assets used to
make distributions, redemptions or other payments in respect of
Target Common Stock or rights to acquire Target Common Stock
(including payments treated as such for tax purposes) that are
made in contemplation of the Merger or related thereto.
2. The Merger will be undertaken by Luxtec and Sub for
valid business purposes and not for the purpose of tax avoidance.
3. Prior to the Merger, Luxtec will be in "Control" of Sub.
As used herein, "Control" shall consist of direct ownership of
stock possessing at least eighty percent (80%) of the total
combined voting power of all classes of stock entitled to vote and
<PAGE> 242
at least eighty percent (80%) of the total number of shares of
each and all other classes of stock of Sub. For purposes of
determining Control, a person shall not be considered to own
voting stock if rights to vote such stock (or to restrict or
otherwise control the voting of such stock) are held by a third
party (including a voting trust) other than an agent of such
person.
4. Luxtec has no plan or intention to cause Sub to issue
additional shares of its stock, or to take any other action, that
would result in Luxtec losing Control of Sub.
5. Luxtec has no plan or intention to reacquire any Parent
Common Stock issued pursuant to the Merger.
6. Luxtec has no plan or intention to liquidate Sub; to
merge Sub with or into another corporation, including Luxtec or
its affiliates; to sell, distribute or otherwise dispose of the
stock of Sub, except for transfers of stock to corporations
controlled by Luxtec, as described in both Section 368(a)(2)(C) of
the Internal Revenue Code of 1986, as amended (the "Code"); or to
cause Sub to sell or otherwise dispose of any of its assets or of
any of the assets acquired from CardioDyne in the Merger, except
for dispositions made in the ordinary course of business, or
transfers of assets to a corporation controlled by Sub, as
described in both Section 368(a)(2)(C) of the Code and Treasury
Regulation Section 1.368-2(j)(4).
7. Following the Merger, Sub will continue the historic
business of CardioDyne or use a significant portion of
CardioDyne's historic business assets in a business.
8. During the past five (5) years, and at present, none of
the outstanding shares of Target Common Stock, including the right
to acquire or vote any such shares, have, directly or indirectly,
been owned by Luxtec or Luxtec affiliates.
9. Neither Luxtec nor Sub is or will be at the Effective
Date an investment company within the meaning of
Section 368(a)(2)(F)(iii) and (iv) of the Code.
10. No Target Stockholder is acting as agent for Luxtec in
connection with the Merger or approval thereof and Luxtec will not
reimburse any Target Stockholder for Target Common Stock such
Target Stockholder may have purchased or for other obligations
such stockholder may have incurred.
11. No consideration will be paid or received (directly or
indirectly, actually or constructively) for Target Common Stock
other than Parent Common Stock, except for the cash payments
contemplated by the Merger Agreement and payments of cash to
Target Stockholders perfecting dissenters' rights.
-2-
<PAGE> 243
12. The total fair market value of all consideration other
than Parent Common Stock received by Target Stockholders in
connection with the Merger (including, without limitation, cash
paid to Target Stockholders perfecting dissenters' rights or in
lieu of fractional shares of Parent Common Stock) will be less
than fifty percent (50%) of the aggregate fair market value of
Target Common Stock outstanding immediately prior to the Merger.
13. The fair market value of the Parent Common Stock and
other consideration received by each Target Stockholder will be
approximately equal to the fair market value of the Target Common
Stock surrendered in exchange therefor, and the aggregate
consideration received by Target Stockholders in exchange for
their Target Common Stock will be approximately equal to the fair
market value of all of the outstanding shares of Target Common
Stock immediately prior to the Merger.
14. Under Section 2.1(c) of the Merger Agreement, in lieu of
any fractional shares of Parent Common Stock that would otherwise
be issued, each Target Stockholder shall receive cash. The
payment of cash in lieu of fractional shares of Parent Common
Stock will be made solely for the purpose of avoiding the expense
and inconvenience to Luxtec of issuing fractional shares and will
not represent separately bargained-for consideration. The total
cash consideration that will be paid in the Merger to Target
Stockholders in lieu of issuing fractional shares of Parent Common
Stock will not exceed 1% of the total consideration that will be
issued in the Merger to Target Stockholders in exchange for their
shares of Target Common Stock. The fractional share interests of
each holder of Target Common Stock will be aggregated, and no
holder of Target Common Stock will receive cash in an amount equal
to or greater than the value of one full share of Parent Common
Stock.
15. No shares of Sub have been or will be used as
consideration or issued to Target Stockholders pursuant to the
Merger.
16. There is no intercorporate indebtedness existing between
Luxtec and CardioDyne or between Sub and CardioDyne that was
issued, acquired or will be settled at a discount.
17. Luxtec will assume no liabilities of CardioDyne or any
Target Stockholder in connection with the Merger.
18. Luxtec, Sub and CardioDyne will each pay separately its
own expenses relating to the Merger.
19. The terms of the Merger Agreement are the product of
arms'-length negotiations.
-3-
<PAGE> 244
20. None of the compensation received by any stockholder-
employees of CardioDyne after the Merger will be separate
consideration for, or allocable to, any of their shares of Target
Common Stock; none of the shares of Parent Common Stock received
by any stockholder-employees of CardioDyne will be separate
consideration for, or allocable to, any employment agreement or
any covenants not to compete; and the compensation paid to any
stockholder-employees of CardioDyne after the Merger will be for
services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arms'-length for similar
services.
LUXTEC CORPORATION
By:_____________________________
Title:__________________________
Date:___________________________
LUXTEC CD ACQUISITION CO. INC.
By:_____________________________
Title:__________________________
Date:___________________________
-4-
<PAGE> 245
ANNEX B
ARTICLES OF AMENDMENT
TO
ARTICLES OF ORGANIZATION
OF
LUXTEC CORPORATION
<PAGE> 246
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
One Ashburton Place, Boston, Massachusetts 02108
<TABLE>
<S> <C>
ARTICLES OF AMENDMENT FEDERAL IDENTIFICATION
GENERAL LAWS, CHAPTER 156B, SECTION 72 NO. 04-2741310
</TABLE>
We James W. Hobbs, President and
Justin P. Morreale, Clerk
LUXTEC CORPORATION
(EXACT Name of Corporation)
located at 326 CLARK STREET, WORCESTER, MASSACHUSETTS 01606
(MASSACHUSETTS Address of Corporation
do hereby certify that these ARTICLES OF AMENDMENT effecting Articles NUMBERED:3
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
of the Articles of Organization were duly adopted at a meeting held on April 3,
1992, by vote of:
<TABLE>
<S> <C>
shares of Common Stock out of shares outstanding,
----------------- ---------------------- ----------------------------------
type, class & series (if any)
shares of out of shares outstanding, and
----------------- ------------------------ ----------------------------------
type, class & series (if any)
shares of out of shares outstanding,
----------------- ------------------------ ----------------------------------
type, class & series (if any)
</TABLE>
being at least a majority of each type, class or series outstanding and
entitled to vote thereon:
VOTED: To amend the Articles of Organization of the Corporation to
increase the authorized number of shares of Common Stock of
the Corporation from 2,000,000 to 10,000,000.
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left-hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring each such addition is clearly indicated.
<PAGE> 247
-2-
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
To total presently authorized is:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCK
---------------------------- ---------------------------------------------
<S> <C> <C> <C> <C>
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
COMMON: COMMON: 2,000,000 $.01
PREFERRED: PREFERRED:
</TABLE>
CHANGE the total authorized to:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCK
---------------------------- ---------------------------------------------
<S> <C> <C> <C> <C>
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
COMMON: COMMON: 10,000,000 $.01
PREFERRED: PREFERRED:
</TABLE>
<PAGE> 248
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date. LATER EFFECTIVE DATE:
______________________
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this ______ day of September, in the year 1995.
________________________________________________________________President
________________________________________________________________Clerk
<PAGE> 249
-2-
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
================================================================================
I hereby approve the within articles of amendment and, the filing fee
in the amount of $ having been paid, said articles are deemed to have
been filed with me this day of , 19 .
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO:
Victor J. Paci, Esq.
Bingham, Dana & Gould
150 Federal Street, Boston, MA 02110
Telephone: (617) 951-8000
<PAGE> 250
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
One Ashburton Place, Boston, Massachusetts 02108
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
We James W. Hobbs,
President and
Justin P. Morreale,
Clerk
Luxtec Corporation
--------------------------------------------------------------------------------
(EXACT Name of Corporation)
located at 326 Clark Street, Worcester, Massachusetts 01606
----------------------------------------------------------------------
(MASSACHUSETTS Address of Corporation)
do hereby certify that these ARTICLES OF AMENDMENT effecting Articles NUMBERED:
6
--------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
of the Articles of Organization were duly adopted at a meeting held on April 3,
1992, by vote of:
shares of Common Stock out of shares outstanding,
----------- ---------------------- --------
type, class & series (if any)
shares of out of shares outstanding, and
----------- ------------------- -------
type, class & series (if any)
shares of out of shares outstanding,
----------- ---------------------- ---------
type, class & series (if any)
being at least two-thirds of each type, class or series outstanding and
entitled to vote thereon and of each type, class or series of stock
whose rights are adversely affected thereby:
VOTED: To amend the Articles of Organization of the Corporation to limit
the personal liability and provide for the indemnification of
officers and directors of the Corporation in certain situations.
SEE CONTINUATION SHEET VI (attached hereto as Exhibit A)
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left-hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring each such addition is clearly indicated.
<PAGE> 251
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
To total presently authorized is:
WITHOUT PAR VALUE STOCKS
<TABLE>
<CAPTION>
TYPE NUMBER OF SHARES
--------------------------------------
<S> <C>
COMMON:
--------------------------------------
PREFERRED:
--------------------------------------
</TABLE>
WITH PAR VALUE STOCK
<TABLE>
<CAPTION>
TYPE NUMBER OF SHARES PAR VALUE
---------------------------------------------------------
<S> <C> <C>
COMMON:
---------------------------------------------------------
PREFERRED:
---------------------------------------------------------
</TABLE>
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS
<TABLE>
<CAPTION>
TYPE NUMBER OF SHARES
--------------------------------------
<S> <C>
COMMON:
--------------------------------------
PREFERRED:
--------------------------------------
</TABLE>
WITH PAR VALUE STOCK
<TABLE>
<CAPTION>
TYPE NUMBER OF SHARES PAR VALUE
---------------------------------------------------------
<S> <C> <C>
COMMON:
---------------------------------------------------------
PREFERRED:
---------------------------------------------------------
</TABLE>
<PAGE> 252
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date. LATER EFFECTIVE DATE:
----------------------
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this day of September, in the year 1995.
President
----------------------------------------------------
Clerk
----------------------------------------------------
<PAGE> 253
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
================================================================================
I hereby approve the within articles of amendment and, the filing fee
in the amount of $ having been paid, said articles are deemed to have
been filed with me this day of , 19 .
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO:
Victor J. Paci, Esq.
Bingham, Dana & Gould
150 Federal Street, Boston, MA 02110
Telephone: (617) 951-8000
<PAGE> 254
EXHIBIT A
ARTICLES OF AMENDMENT
TO
ARTICLES OF ORGANIZATION
OF
LUXTEC CORPORATION
CONTINUATION SHEET VI
ARTICLE VI
Other lawful provisions, if any, for the conduct and regulation of
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders: (If there are no
provisions state "None".)
1. No director shall be personally liable to the corporation or to any
of its stockholders for monetary damages for any breach of fiduciary duty by
such director as a director notwithstanding any provision of law imposing such
liability; provided, however, that, to the extent required from time to time by
applicable law, this provision shall not eliminate the liability of a director,
to the extent such liability is provided by applicable law, (a) for any breach
of the director's duty of loyalty to the corporation or its stockholders, (b)
for acts or omissions not in good faith which involve intentional misconduct or
a knowing violation of law, (c) under Section 61 or Section 62 of the Business
Corporation Law of The Commonwealth of Massachusetts, or (d) for any transaction
from which the director derived an improper personal benefit. No amendment to or
repeal of this Article VI-A shall apply to or have any effect on the liability
or alleged liability of any director for or with respect to any acts or
omissions of such director occurring prior to the effective date of such
amendment or repeal.
2. Indemnification.
2.1. Right to Indemnification. The corporation shall indemnify
and hold harmless each person who was or is a party or is threatened to
be made a party to or is otherwise involved in any threatened, pending
or completed action, suit, proceeding or investigation, whether civil,
criminal or administrative (a
<PAGE> 255
CONTINUATION SHEET VI-PAGE 2 OF 7
"Proceeding"), by reason of being, having or been having agreed to
become, a director or officer of the corporation, or serving, having
served or having agreed to serve, at the request of the corporation,
as a director or officer of, or in a similar capacity with, another
organization or in any capacity with respect to any employee benefit
plan (any such person being referred to hereafter as an "Indemnitee"),
or by reason of any action alleged to have been taken or omitted in
such capacity, against all expense, liability and loss (including
without limitation reasonable attorneys' fees, judgments, fines,
"ERISA" excise taxes or penalties) incurred or suffered by the
Indemnitee or on behalf of the Indemnitee in connection with such
Proceeding and any appeal therefrom, unless the Indemnitee shall have
been adjudicated in such Proceeding not to have acted in good faith in
the reasonable belief that his or her action was in the best interest
of the corporation or, to the extent such matter relates to service
with respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan.
Notwithstanding anything to the contrary in this Article, except
as set forth in Section 2.6 below, the corporation shall not indemnify
or advance expenses to an Indemnitee seeking indemnification in
connection with a Proceeding (or part thereof) initiated by the
Indemnitee, unless the initiation thereof was approved by the Board of
Directors of the corporation.
2.2. Settlements. Subject to compliance by the Indemnitee with
the applicable provisions of Section 2.5 below, the right to
indemnification conferred in this Article shall include the right to be
paid by the corporation for amounts paid in settlement of any such
Proceeding and any appeal therefrom, and all expenses (including
attorneys' fees) incurred in connection with such settlement, pursuant
to a consent decree or otherwise, unless it is held or determined
pursuant to Section 2.5 below that the Indemnitee did not act in good
faith in the reasonable belief that his or her action was in the best
interest of the corporation or, to the extent such matter relates to
service with respect to an employee benefit plan, in the best interests
of the participants or beneficiaries of such employee benefit plan.
2.3. Notification and Defense of Proceedings. The Indemnitee
shall notify the corporation in writing as soon as reasonably
practicable of any Proceeding involving the Indemnitee for which
indemnity or advancement of expenses is intended to be sought. Any
omission so to notify the corporation shall not relieve it from any
liability that it may have to the Indemnitee under this Article unless,
and only to the extent that, such omission results in
<PAGE> 256
CONTINUATION SHEET VI-PAGE 3 OF 7
the forfeiture of substantive rights or defenses by the corporation.
With respect to any Proceeding of which the corporation is so
notified, the corporation shall be entitled, but not obligated, to
participate therein at its own expense and/or to assume the
defense thereof at its own expense, with legal counsel reasonably
acceptable to the Indemnitee, except as provided in the last sentence
of this Section 2.3. After notice from the corporation to the
Indemnitee of its election so to assume such defense (subject to the
limitations in the last sentence of this Section 2.3), the corporation
shall not be liable to the Indemnitee for any fees and expenses of
counsel subsequently incurred by the Indemnitee in connection with
such Proceeding, other than as provided below in this Section 2.3. The
Indemnitee shall have the right to employ his or her own counsel in
connection with such Proceeding, but the fees and expenses of such
counsel incurred after notice from the corporation of its assumption
of the defense thereof at its expense with counsel reasonably
acceptable to Indemnitee shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee at the
corporation's expense has been authorized by the corporation, (ii)
counsel to the Indemnitee shall have reasonably concluded that there
may be a conflict of interest or position on any significant issue
between the corporation and the Indemnitee in the conduct of the
defense of such action or (iii) the corporation shall not in fact have
employed counsel reasonably acceptable to the Indemnitee to assume the
defense of such Proceeding within a reasonable time after receiving
notice thereof, in each of which cases the fees and expenses of
counsel for the Indemnitee shall be at the expense of the corporation,
except as otherwise expressly provided by this Article. The
corporation shall not be entitled, without the consent of the
Indemnitee, to assume the defense of any Proceeding brought by or in
the right of the corporation or as to which counsel for the Indemnitee
shall have reasonably made the conclusion provided for in clause (ii)
above.
2.4. Advancement of Expenses. Except as provided in Section
2.3 of this Article, as part of the right to indemnification granted by
this Article, any expenses (including attorneys' fees) incurred by an
Indemnitee in defending any Proceeding within the scope of Section 2.1
of this Article or any appeal therefrom shall be paid by the
corporation in advance of the final disposition of such matter,
provided, however, that the payment of such expenses incurred by an
Indemnitee in advance of the final disposition of such matter shall be
made only upon receipt of a written undertaking by or on behalf of the
Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that
<PAGE> 257
CONTINUATION SHEET VI-PAGE 4 OF 7
the Indemnitee is not entitled to be indemnified by the corporation
as authorized by Section 2.1 or Section 2.2 of this Article. Such
undertaking need not be secured and shall be accepted without
reference to the financial ability of the Indemnitee to make such
repayment. Such advancement of expenses shall be made by the
corporation promptly following its receipt of written requests
therefor by the Indemnitee, accompanied by reasonably detailed
documentation, and of the foregoing undertaking.
2.5. Certain Presumptions and Determinations. If, in a
Proceeding brought by or in the right of the corporation, a director or
officer of the corporation is held not liable for monetary damages,
whether because that director or officer is relieved of personal
liability under the provisions of Section 1 of this Article or
otherwise, that director or officer shall be deemed to have met the
standard of conduct set forth in Section 2.1 and thus to be entitled to
be indemnified by the corporation thereunder. In any adjudicated
Proceeding against an Indemnitee brought by reason of the Indemnitee's
serving, having served or agreed to serve, at the request of the
corporation, an organization other than the corporation in one or
more of the capacities indicated in Section 2.1, if the Indemnitee
shall not have been adjudicated not to have acted in good faith in the
reasonable belief that the Indemnitee's action was in the best
interest of such other organization, the Indemnitee shall be
deemed to have met the standard of conduct set forth in Section 2.1
and thus be entitled to be indemnified thereunder. An adjudication in
such a Proceeding that the Indemnitee did not act in good faith in the
reasonable belief that the Indemnitee's action was in the best
interest of such other organization shall not create a presumption
that the Indemnitee has not met the standard of conduct set forth in
Section 2.1. In order to obtain indemnification of amounts paid in
settlement pursuant to Section 2.2 of this Article, the Indemnitee
shall submit to the corporation a written request, including in such
request such documentation and information as is reasonably available
to the Indemnitee and is reasonably necessary to determine whether and
to what extent the Indemnitee is entitled to such indemnification. Any
such indemnification under Section 2.2 shall be made promptly, and in
any event within 60 days after receipt by the corporation of the
written request of the Indemnitee, unless a court of competent
jurisdiction holds within such 60-day period that the Indemnitee did
not meet the standard of conduct set forth in Section 2.2 or the
corporation determines, by clear and convincing evidence, within such
60-day period that the Indemnitee did not meet such standard. Such
determination shall be made by the Board of Directors of the
<PAGE> 258
CONTINUATION SHEET VI-PAGE 5 OF 7
corporation, based on advice of independent legal counsel (who may,
with the consent of the Indemnitee, be regular legal counsel to the
corporation). The corporation and the directors shall be under no
obligation to undertake any such determination or to seek any ruling
from any court.
2.6. Remedies. The right to indemnification or advances as
granted by this Article shall be enforceable by the Indemnitee in any
court of competent jurisdiction if the corporation denies such a
request, in whole or in part, or, with respect to indemnification
pursuant to Section 2.2, if no disposition thereof is made within the
60-day period referred to above in Section 2.5. Unless otherwise
provided by law, the burden of proving that the Indemnitee is not
entitled to indemnification or advancement of expenses under this
Article shall be on the corporation. Neither absence of any
determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee
has met any applicable standard of conduct, nor an actual determination
by the corporation pursuant to Section 2.5 that the Indemnitee has not
met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the Indemnitee has not met the
applicable standard of conduct. The Indemnitee's expenses (including
reasonable attorneys' fees) incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part,
in any such Proceeding shall also be paid by the corporation.
2.7. Contract Right; Subsequent Amendment. The right to
indemnification and advancement of expenses conferred in this Article
shall be a contract right. No amendment, termination or repeal of this
Article or of the relevant provisions of Chapter 156B of the
Massachusetts General Laws or any other applicable laws shall affect or
diminish in any way the rights of any Indemnitee to indemnification or
advancement of expenses under the provisions hereof with respect to any
Proceeding arising out of or relating to any action, omission,
transaction or facts occurring prior to the final adoption of such
amendment, termination or repeal, except with the consent of the
Indemnitee.
2.8. Other Rights. The indemnification and advancement of
expenses provided by this Article shall not be deemed exclusive of any
other rights to which an Indemnitee seeking indemnification or
advancement of expenses may be entitled under any law (common or
statutory), agreement or vote of stockholders or directors or
otherwise, both as to action in his or her official capacity and as to
<PAGE> 259
CONTINUATION SHEET VI-PAGE 6 OF 7
action in any other capacity while holding office for the corporation,
and shall continue as to an Indemnitee who has ceased to be a director
or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in
this Article shall be deemed to prohibit, and the corporation is
specifically authorized to enter into, agreements with any Indemnitee
providing indemnification rights and procedures different from those
set forth in the Article.
2.9. Partial Indemnification. If an Indemnitee is entitled
under any provision of this Article to indemnification by the
corporation for some or a portion of the expenses (including attorneys'
fees), judgments, fines or amounts paid in settlement actually and
reasonably incurred by the Indemnitee or on his or her behalf in
connection with any Proceeding and any appeal therefrom but not,
however, for the total amount thereof, the corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in
settlement to which the Indemnitee is entitled.
2.10. Insurance. The corporation may purchase and maintain
insurance, at its expense, to protect itself and any director, officer,
employee or agent of the corporation or another organization or
employee benefit plan against any expense, liability or loss incurred
by such person in any such capacity, or arising out of such person's
status as such, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under
Chapter 156B of the Massachusetts General Laws.
2.11. Merger or Consolidation. If the corporation is merged
into or consolidated with another corporation and the corporation is
not the surviving corporation, the surviving corporation shall assume
the obligations of the corporation under this Article with respect to
any Proceeding arising out of or relating to any action, omission,
transaction or facts occurring on or prior to the date of such merger
or consolidation.
2.12. Savings Clause. If this Article or any portion hereof
shall be invalidated on any ground by any court of competent
jurisdiction, then the corporation shall nevertheless indemnify and
advance expenses to each Indemnitee as to any expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any Proceeding, including an action by or in the right
of the corporation, to the fullest extent permitted by any
<PAGE> 260
CONTINUATION SHEET VI-PAGE 7 OF 7
applicable portion of this Article that shall not have been
invalidated and to the fullest extent permitted by applicable law.
2.13. Subsequent Legislation. If the Massachusetts General
Laws are amended after adoption of this Article to expand further the
indemnification permitted to Indemnitees, then the corporation shall
indemnify such persons to the fullest extent permitted by the
Massachusetts General Laws as so amended.
2.14. Indemnification of Others. The corporation may, to the
extent authorized from time to time by its Board of Directors, grant
indemnification rights to employees or agents of the corporation or
other persons serving the corporation who are not Indemnitees, and such
rights may be equivalent to, or greater or less than, those set forth
in this Article.
3. Meeting of the stockholders of the corporation may be held anywhere
in the United States.
4. The directors may make, amend, or repeal the By-Laws in whole or in
part except with respect to any provision thereof which by law or the By-Laws
requires action by the stockholders.
5. The corporation may be a partner in any business enterprise which
the corporation would have power to conduct by itself.
6. The corporation may at any time enter into agreements to redeem
an/or redeem its outstanding stock from any stockholder or stockholders without
having to extend the same offer to its other stockholders.
<PAGE> 261
ANNEX C
ARTICLES OF ORGANIZATION
OF
LUXTEC CORPORATION
<PAGE> 262
THE COMMONWEALTH OF MASSACHUSETTS
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF ORGANIZATION
(UNDER G.L. CH. 156B)
INCORPORATORS
NAME POST OFFICE ADDRESS
Include given name in full in case of natural persons: in case of a
corporation, give state of incorporation.
Jack Kloots Wells Park
Road Sturbridge, MA 01566
The above-named incorporator(s) do hereby associate (themselves) with
the intention of forming a corporation under the provisions of General Laws,
Chapter 156B and hereby state(s):
1. The name by which the corporation shall be known is:
LUXTEC CORPORATION
2. The purpose for which the corporation is formed is as follows: To
engage in the research, development, manufacturing, sale and distribution, at
wholesale or retail, of all products dealing with optics or fiber optics,
including without limitation, the manufacture of glass and lenses, and to do
any act which a corporation may lawfully do in this Commonwealth.
In general, to carry on any or all of the business of the corporation
as principal, agent or contractor, and to carry on any other business
incidental to and in connection with the foregoing and to have and exercise all
the powers conferred by the laws of Massachusetts upon corporations formed
under the General Laws of Massachusetts, and to do any or all of the things
hereinbefore set forth to the same extent its natural persons might or could
do.
To do everything necessary and proper for the accomplishment of any of
the purposes, or the attainment of any of the objects, or the furtherance of
any of the powers hereinbefore set forth, either alone or in association with
other corporations, firms or individuals, and to do every other act or acts,
thing or things, incidental to or growing out of or connected with the
aforesaid business or powers, or any part or parts whereof; provided, the same
is not inconsistent with the laws under which this Corporation is organized.
To act as designers and manufacturers of
electro-mechanical-fiber-optical and special equipment and devices for the
hospital, medical, microsurgical, veterinary, industrial, scientific and other
related fields.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding.
Additions to more than one article may be continued on a single sheet so long
as each article requiring each addition is clearly indicated.
<PAGE> 263
3. The total number of shares and the par value, if any, of each class of
stock within the corporation is authorized as below:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
CLASS OF STOCK NUMBER OF
NUMBER OF SHARES SHARES PAR VALUE AMOUNT
$
<S> <C>
Preferred
Common 12,500
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting powers,
qualifications, special or relative rights or privileges as to each class
thereof and any series now established:
Not applicable
*5. The restrictions, if any, imposed by the Articles of Organization upon
the transfer of shares of stock of any class are as follows: Any stockholder,
including the heirs, assigns, executors or administrators of a deceased
stockholder desiring to sell or transfer such stock owned by him or them, shall
first offer it to the corporation through the Board of Directors, in the manner
following:
He shall notify the directors of his desire to sell or transfer by
notice in writing, which notice shall contain the price at which he is willing
to sell or transfer and the name of one arbitrator. The directors shall within
thirty (30) days thereafter either accept the offer, or by notice to him in
writing name a second arbitrator and these two shall name a third. It shall
then be the duty of the arbitrators to ascertain the value of the stock, and if
any arbitrator shall neglect or refuse to appear at any meeting appointed by
the arbitrators, a majority may act in the absence of such arbitrator.
After the acceptance of the offer, or the report of the arbitrators as
to the value of the stock, the directors shall have thirty (30) days with which
to purchase the same at such valuation, but if at the expiration of thirty (30)
days, the corporation shall not have exercised the right so to purchase, the
owner of the stock shall be at liberty to dispose of the same in any manner he
may see fit.
No shares of stock shall be sold or transferred on the books of the
corporation until these provisions have been complied with but the Board of
Directors may at or in any particular instance waive the requirement.
*6. Other lawful provisions, if any, for the conduct and regulation of
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders.
None
* If there are no provisions state "None".
<PAGE> 264
7. By-laws of the corporation have been duly adopted and the initial
directors, president, treasurer and clerk, whose names are set out below, have
been duly elected.
8. The effective date of organization of the corporation shall be the
date of filing with the Secretary of the Commonwealth or if later date is
desired, specify date (not more than 30 days after the date of filing).
Effective Date Nov. 1, 1981
9. The following information shall not for any purpose be treated as a
permanent part of the Articles of Organization of the corporation.
a. The post office address of the initial principal office of the
corporation of Massachusetts is: Technology Park, P.O. Box 225,
Sturbridge, MA 01566
b. The name, residence, and post office address of each of the initial
directors and following officers of the corporation are as follows:
<TABLE>
<CAPTION>
POST OFFICE
NAME RESIDENCE ADDRESS
<S> <C> <C> <C>
President: Jack Kloots Wells Park Road Sturbridge, MA 01566
Treasurer: Jack Kloots Wells Park Road Sturbridge, MA 01566
Clerk: Charlene Gravel Cottage Road Holland, MA 01550
Directors: Jack Kloots Wells Park Road Sturbridge, MA 01566
Rita Kloots Wells Park Road Sturbridge, MA 01566
Charlene Gravel Cottage Road Holland, MA 01550
</TABLE>
c. The date initially adopted on which the corporation's fiscal year ends
is: October 31
d. The date initially fixed in the by-laws for the annual meeting of
stockholders of the corporation is:
Second Tuesday of December
e. The name and business address of the resident agent, if any, of the
corporation is:
None
IN WITNESS WHEREOF and under the penalties of perjury the
INCORPORATOR(S) sign(s) these Articles of Organization this _____ day of
October, 1981.
___________________________________________________
Jack Kloots
The signature or each incorporator which is not a natural person must be an
individual who shall show the capacity in which he acts and by signing shall
represent under penalty of perjury that he is duly authorized on its behalf to
sign these Articles of Organization.
<PAGE> 265
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
GENERAL LAWS, CHAPTER 156B, SECTION 12
================================================================================
I hereby certify that, upon examination of the within-written
articles of organization, duly submitted to me, it appears
that the provisions of the General Laws relative to the
organization of corporations have been complied with, and I
hereby approve said articles; and the filing fee in the amount
of $150.00 having been paid, said articles are deemed to have
been filed with me this 23rd day of October 1981.
Effective date: 11-1-81
MICHAEL JOSEPH CONNOLLY
Secretary of State
PHOTO COPY OF ARTICLES OF ORGANIZATION TO BE
SENT TO BE FILLED IN BY CORPORATION
TO:
Robert E. George, Esq.
511 Main Street, P.O. Box F
Fiskdale, Massachusetts 01518
Tel: (508) 347-7114
FILING FEE: 1/20 of 1% of the total amount of the authorized
capital stock with par value, and one cent a share for all
authorized shares without par value, but not less than $125.
General Laws, Chapter 156B. Shares of stock with a par value
less than one dollar shall be deemed to have par value of one
dollar per share.
<PAGE> 266
THE COMMONWEALTH OF MASSACHUSETTS
``
MICHAEL JOSEPH CONNOLLY
Secretary of State
One Ashburton Place Federal Identification
Boston, MA 02108-1512 No. 04-2741310
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
amendment. The fee for filing this certificate is prescribed by General Laws,
Chapter 156B, Section 114. Make check payable to the Commonwealth of
Massachusetts.
__________
We, Jack Kloots, President and
Charlene Gravel, Clerk of
LUXTEC CORPORATION
(Name of Corporation)
located at Technology Park, P.O. Box 225, Sturbridge, MA 01566 do hereby
certify that the following amendment to the articles of organization of the
corporation was duly adopted at a meeting held on March 12, 1982, by a vote of
the incorporator prior to the initial issue of stock by the corporation, per Ch.
156B, Sec. 44
<TABLE>
<S> <C>
n/a shares of our od shares outstanding,
----------------- ----------------------- ------------------
(Class of Stock)
n/a shares of out of shares outstanding, and
----------------- ----------------------- ------------------
(Class of Stock)
n/a shares of out of shares outstanding,
----------------- ----------------------- ------------------
(Class of Stock)
</TABLE>
See Appendix A hereto
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one article may be continued on a single sheet so long as each
article requiring each addition is clearly indicated.
<PAGE> 267
FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING:
The total amount of capital stock already authorized is:
<TABLE>
<S> <C>
____________ shares preferred
WITH PAR VALUE (1)
12,500 shares common
------------
____________ shares preferred
WITHOUT PAR VALUE
____________ shares common
</TABLE>
(1) par value added by these Articles of Amendment
The amount of additional capital stock authorized is:
<TABLE>
<S> <C> <C>
___________ shares preferred
WITH PAR VALUE
987,500
-----------
shares common
___________ shares preferred
WITHOUT PAR VALUE
___________ shares common
</TABLE>
<PAGE> 268
APPENDIX A
VOTED: To amend the Articles of Organization to delete the restrictions on
transfer of stock set forth in part 5 thereof.
VOTED: To amend the Articles of Organization to provide, in part 6, thereof,
the following provisions:
To the extent permitted by the By-Laws, meetings of
the stockholders of this corporation may be held
anywhere in the United States.
To the extent permitted by law and by the By-Laws,
the directors (as well as the stockholders) of this
corporation shall have the power to make, amend or
repeal, in whole or in part, the By-Laws.
The corporation may at any time enter into agreements
to redeem and/or redeem its outstanding stock from
any stockholder or stockholders without having to
extend the same offer to its other stockholders.
VOTED: To amend the Articles of Organization to (i) change the par value of
the presently authorized 12,500 shares from no par value to $.10 par
value and (ii) increase authorized capital by 987,500 shares of Common
Stock, $.10 par value, so that the authorized capital of the
Corporation will be 1,000,000 shares of common Stock, $.10 par value.
<PAGE> 269
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this twenty-second day of March, in the year 1982.
Jack Kloots President
-------------------------------------
Charlene Gravel Clerk
-------------------------------------
<PAGE> 270
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
I HEREBY APPROVE THE WITHIN ARTICLES OF AMENDMENT
AND, THE FILING FEE IN THE AMOUNT OF $718.75 HAVING BEEN PAID,
SAID ARTICLES ARE DEEMED TO HAVE BEEN FILED WITH ME THIS 30TH
DAY OF MARCH, 1982.
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
Photo copy of amendment to be sent
To:
John R. Blake, Esq.
Bowditch & Dewey
311 Main Street, Worcester, MA 01608
Telephone: (617) 791-3511
<PAGE> 271
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
One Ashburton Place, Boston, Mass. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the
Commonwealth within sixty days after the date of the vote of stockholders
adopting the amendment. The fee for filing this certificate is prescribed by
General Laws, Chapter 156B, Section 114. Make check payable to the
Commonwealth of Massachusetts.
We Jack Kloots, President and
John R. Blake, Clerk of
LUXTEC CORPORATION
-------------------------------------------------------------------------------
(Name of Corporation)
located at Technology Park, P.O. Box 225, Sturbridge, MA 01566
-------------------------------------------------------------------
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on June 29, 1984,
by a vote of
1,000,000 shares of Common out of 1,000,000 shares outstanding
----------- ------ ----------
shares of out of shares outstanding, and
----------- ------ ----------
shares of out of shares outstanding,
----------- ------ ----------
being at least a majority of each class outstanding and entitled to
vote thereon:
VOTED: To amend the Articles of Organization by increasing authorized
capital by 1,000,000 shares of Common Stock, $.10 par value.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one article may be continued on a single sheet so long as each
article requiring each addition is clearly indicated.
<PAGE> 272
TO CHANGE the number of shares and the par value, if any, of each class of stock
within the corporation fill in the following:
The total presently authorized is:
<TABLE>
<CAPTION>
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
------------- ---------------- ---------------- -----
<S> <C> <C> <C>
COMMON 1,000,000 $.10
PREFERRED
</TABLE>
CHANGE the total to:
<TABLE>
<CAPTION>
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
------------- ---------------- ---------------- -----
<S> <C> <C> <C>
COMMON 2,000,000 $.10
PREFERRED
</TABLE>
<PAGE> 273
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed
our names this 31st day of July, 1984.
Jack Kloots President
------------------------
John R. Blake Clerk
------------------------
<PAGE> 274
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
I HEREBY APPROVE THE WITHIN ARTICLES OF AMENDMENT AND, THE FILING FEE
IN THE AMOUNT OF $500.00 HAVING BEEN PAID, SAID ARTICLES ARE DEEMED TO HAVE BEEN
FILED WITH ME THIS 9TH DAY OF AUGUST, 1984.
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
Photo copy of amendment to be sent
To:
John R. Blake, Esq.
Bowditch & Dewey
311 Main Street, Worcester, MA 01608
Telephone: (617) 791-3511
<PAGE> 275
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
One Ashburton Place, Boston, Mass. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the
Commonwealth within sixty days after the date of the vote of stockholders
adopting the amendment. The fee for filing this certificate is prescribed by
General Laws, Chapter 156B, Section 114. Make check payable to the
Commonwealth of Massachusetts.
We Jack Kloots, President and
John D. Ronnquist, Clerk of
Luxtec Corporation
--------------------------------------------------------------------------------
(Name of Corporation)
located at Technology Park, P.O. Box 225, Sturbridge, MA 01566
---------------------------------------------------------------------
do hereby certify that the following amendment to the articles of organization
of the corporation was duly adopted at a meeting held on May 2, 1986, by a vote
of
1,064,965 shares of Common out of 1,155,710 shares outstanding,
------------- ---------- -----------
shares of out of shares outstanding, and
------------- ---------- -----------
shares of out of shares outstanding,
------------- ---------- -----------
being at least a majority of each class outstanding and entitled to
vote thereon:
VOTED: To change the par value of authorized capital stock from $.10 to
$.001 and to increase authorized capital by 18,000,000 shares of
Common Stock.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one article may be continued on a single sheet so long as each
article requiring each addition is clearly indicated.
<PAGE> 276
TO CHANGE the number of shares and the par value, if any, of each class of
stock within the corporation fill in the following:
The total presently authorized is:
<TABLE>
<CAPTION>
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON 2,000,000 $.10
PREFERRED
</TABLE>
CHANGE the total to:
<TABLE>
<CAPTION>
NO PAR VALUE WITH PAR VALUE PAR
KIND OF STOCK NUMBER OF SHARES NUMBER OF SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON 20,000,000 $.001
PREFERRED
</TABLE>
<PAGE> 277
The foregoing amendment will become effective when these articles of
amendment are filed in accordance with Chapter 156B, Section 6 of The General
Laws unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 2nd day of May, in the year 1986.
Jack Kloots President
--------------------------------------
John D. Ronnquist Clerk
--------------------------------------
<PAGE> 278
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
I HEREBY APPROVE THE WITHIN ARTICLES OF AMENDMENT AND, THE FILING FEE
IN THE AMOUNT OF $9,000.00 HAVING BEEN PAID, SAID ARTICLES ARE DEEMED TO HAVE
BEEN FILED WITH ME THIS 5TH DAY OF MAY, 1986.
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
Photo copy of amendment to be sent
To:
John R. Blake, Esq.
Bowditch & Dewey
311 Main Street, Worcester, MA 01608
Telephone: (617) 791-3511
<PAGE> 279
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
One Ashburton Place, Boston, Massachusetts 02108
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
We Bernard A. Clark, President and
Joseph D. Campbell, Clerk
Luxtec Corporation
--------------------------------------------------------------------------------
(EXACT Name of Corporation)
located at 326 Clark Street, Worcester, Massachusetts 01606
---------------------------------------------------------------------
(MASSACHUSETTS Address of Corporation
do hereby certify that these ARTICLES OF AMENDMENT effecting Articles NUMBERED:
3
--------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended hereby)
of the Articles of Organization were duly adopted at a meeting held on April 3,
1992, by vote of:
10,074,640 shares of Common Stock out of 14,011,986 shares outstanding,
---------- ------------ ----------
shares of out of shares outstanding, and
---------- ------------ ----------
shares of out of shares outstanding,
---------- ------------ ----------
being at least a majority of each type, class or series outstanding and
entitled to vote thereon:
SEE EXHIBIT A
Note: If the space provided under any Amendment or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left-hand margin of at least 1 inch for binding. Additions to
more than one Amendment may be continued on a single sheet so long as each
Amendment requiring each such addition is clearly indicated.
<PAGE> 280
To CHANGE the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
To total presently authorized is:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE STOCKS
<S> <C>
TYPE NUMBER OF SHARES
-------------------------------------
COMMON:
PREFERRED:
</TABLE>
WITH PAR VALUE STOCK
<TABLE>
<CAPTION>
TYPE NUMBER OF SHARES PAR VALUE
--------------------------------------------------------
<S> <C> <C>
COMMON: 20,000,000 $.001
PREFERRED:
</TABLE>
CHANGE the total authorized to:
WITHOUT PAR VALUE STOCKS
<TABLE>
<CAPTION>
TYPE NUMBER OF SHARES
-------------------------------------
<S> <C>
COMMON:
PREFERRED:
</TABLE>
WITH PAR VALUE STOCK
<TABLE>
<CAPTION>
TYPE NUMBER OF SHARES PAR VALUE
--------------------------------------------------------
<S> <C> <C>
COMMON: 2,000,000 $.01
PREFERRED:
</TABLE>
<PAGE> 281
EXHIBIT A
VOTED: That, upon approval of the proposed one-for-ten reverse stock
split of the Corporation's Common Stock, par value $.001 per
shares, Article 3 of the Corporation's Articles of Organization
as amended to date, shall be amended as follows:
Article 3 shall be amended so that the Corporation shall be
authorized to issue one class of stock to be designed "Common
Stock". The total number of shares of Common Stock which the
Corporation shall have authority to issue is Two Million
(2,000,000) with a par value of one cent ($.01) per share.
At the effective time of this amendment each share of Common
Stock, par value $0.001 per share, authorized immediately prior
to this amendment shall be reclassified into one-tenth of one
fully paid and non-assessable share of Common Stock, par value
$0.01 per share, so that every ten shares of Common Stock par
value $0.001 per share, authorized immediately prior to this
amendment shall be combined together to form one full share of
Common Stock par value $0.01 per share. Certificates for
fractional shares of Common Stock will not be issued by reason of
this amendment and instead a whole share will be issued to any
stockholder entitled to a fraction of a share.
<PAGE> 282
The foregoing amendment will become effective when these articles of amendment
are filed in accordance with Chapter 156B, Section 6 of The General Laws unless
these articles specify, in accordance with the vote adopting the amendment, a
later effective date not more than thirty days after such filing, in which event
the amendment will become effective on such later date. EFFECTIVE DATE April 10,
1992
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereunto signed
our names this 9th day of April, in the year 1992.
Bernard Clark President
----------------------------------
Joseph Campbell Clerk
----------------------------------
<PAGE> 283
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
GENERAL LAWS, CHAPTER 156B, SECTION 72
================================================================================
I hereby approve the within articles of amendment and, the filing fee
in the amount of $100 having been paid, said articles are deemed to have been
filed with me this 10th day of April, 1992.
MICHAEL J. CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF ARTICLES OF AMENDMENT TO BE SENT
TO:
Mitchell S. Bloom, Esquire
Testa, Hurwitz & Thibeault
Exchange Place, Suite 1700
Boston, MA 02109
Telephone: (617) 248-7425
<PAGE> 284
ANNEX D
ARTICLES OF ORGANIZATION
OF
LUXTEC CD ACQUISITION CO. INC.
<PAGE> 285
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B)
ARTICLE I
The name of the corporation is:
Luxtec CD Acquisition Co., Inc.
ARTICLE II
The purpose of the corporation is to engage in the following business
activities:
To enter into an Agreement of Merger and Plan of Reorganization with CardioDyne,
Inc., a Delaware corporation, and as the surviving corporation pursuant thereto,
to continue the operation of CardioDyne's business, including the development,
manufacture and distribution of medical monitoring devices.
To carry on any business which may be lawfully carried on by a corporation
organized under M.G.L. Chapter 156B, whether or not related to the foregoing
purpose.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper with a left margin of at least 1 inch. Additions to more than
one article may be made on a single sheet so long as each article requiring each
addition is clearly indicated.
<PAGE> 286
ARTICLE III
The types and classes of stock and the total number of shares and par value, if
any, of each type and class of stock which the corporation is authorized to
issue is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
NUMBER OF NUMBER OF
TYPE SHARES TYPE SHARES PAR VALUE
<S> <C> <C> <C> <C>
Common: -0- Common: 200,000 $0.01
-0- -0- --
Preferred: -0- Preferred: -0- --
-0- -0- --
</TABLE>
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other class of which
shares are outstanding and of each series then established within any class.
Not applicable
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
None
ARTICLE VI
*Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
See Exhibit A attached hereto and made a part hereof.
* If there are no provisions state "None".
Note: The preceding six (6) articles are considered to be permanent and may ONLY
be changed by filing appropriate Articles of Amendment.
<PAGE> 287
ARTICLE VII
The effective date of organization of the corporation shall be the date approved
and filed by the Secretary of the Commonwealth. If a later EFFECTIVE DATE is
desired, specify such date which shall not be more than thirty days after the
date of filing.
The information contained in ARTICLE VIII is not a permanent part of the
Articles of Organization and may be changed only by filing the appropriate form
provided therefor.
ARTICLE VIII
a. The street address of the principal office of the corporation in
Massachusetts is: (post office boxes are not acceptable)
326 Clark Street, Worcester, Massachusetts 01606-1214
b. The name, residence and post office address (if different) of the directors
and officers of the corporation are:
<TABLE>
<CAPTION>
POST OFFICE
NAME RESIDENCE ADDRESS
<S> <C> <C> <C>
President: James W. Hobbs 9 Ridge Road same
Hopkinton, MA 01748
Treasurer: Samuel M. Stein 11 Cadagan Way same
Nashua, NH 03062
Clerk: Justin P. Morreale 416 Lewis Wharf same
Boston, MA 02110
Directors: James W. Hobbs 9 Ridge Road same
Hopkinton, MA 01748
</TABLE>
c. The fiscal year (i.e., tax year) of the corporation shall end on the last
day of the month of: October 31
d. The name and business address of the resident agent of the corporation, if
any, is: not applicable
ARTICLE IX
By-laws of the corporation have been duly adopted and the president, treasurer,
clerk and directors whose names are set forth above, have been duly elected.
IN WITNESS WHEREOF AND UNDER THE PAINS AND PENALTIES OF PERJURY, I, whose
signature(s) appear below as incorporator(s) and whose name(s) and business or
residential address(es) are clearly typed or printed beneath each signature do
hereby associate with the intention of forming this corporation under the
provisions of General Laws, Chapter 156B and do hereby sign these Articles of
Organization as incorporator(s) this 26th day of June, in the year 1995.
Donald P. Richards, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
Note: If an existing corporation is acting as incorporator, type in the exact
name of the corporation, the state or other jurisdiction where it was
incorporated, the name of the person signing on behalf of said corporation and
the title he/she holds or other authority by which such action is taken.
<PAGE> 288
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B)
================================================================================
I hereby certify that, upon examination of these Articles of Organization, duly
submitted to me, it appears that the provisions of the General Laws relative to
the organization of corporations have been complied with, and I hereby approve
said articles; and the filing fee in the amount of $200.00 having been paid,
said articles are deemed to have been filed with me this 26th day of June 1995.
Effective date:_____________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
FILING FEE: One tenth of one percent of the total authorized capital stock,
but not less than $200.00. For the purpose of filing, shares of stock with a
par value less than one dollar, or no par stock, shall be deemed to have a par
value of one dollar per share.
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENTS TO BE SENT TO:
Donald P. Richards, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
Telephone: (617) 951-8000
<PAGE> 289
EXHIBIT A
ARTICLES OF ORGANIZATION
OF
LUXTEC CD ACQUISITION CO., INC.
Article VI-A: No director shall be personally liable to the corporation
or to any of its stockholders for monetary damages for any breach of fiduciary
duty by such director as a director notwithstanding any provision of law
imposing such liability; provided, however, that, to the extent required from
time to time by applicable law, this provision shall not eliminate the liability
of a director, to the extent such liability is provided by applicable law, (a)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (b) for acts or omissions not in good faith which involve
intentional misconduct or a knowing violation of law, (c) under Section 61 or
Section 62 of the Business Corporation Law of The Commonwealth of Massachusetts,
or (d) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this Article VI-A shall apply to or have
any effect on the liability or alleged liability of any director for or with
respect to any acts or omissions of such director occurring prior to the
effective date of such amendment or repeal.
Article VI-B: Meetings of the stockholders of the corporation may be
held anywhere in the United States.
Article VI-C: The directors may make, amend, or repeal the By-laws of
the Corporation in whole or in part except with respect to any provision thereof
which by law or the By-laws requires action by the stockholders.
Article VI-D: The Corporation may be a partner in any business
enterprise which the Corporation would have power to conduct by itself.
<PAGE> 290
ANNEX E
BY-LAWS
OF
LUXTEC CD ACQUISITION CO. INC.
<PAGE> 291
LUXTEC CD ACQUISITION CO., INC.
MASS. BY-LAWS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I. - General. ................................................. 1
1.1. Offices. ................................................. 1
1.2. Seal. .................................................... 1
1.3. Fiscal Year. ............................................. 1
Article II. - Stockholders. ........................................... 1
2.1. Place of Meeting. ........................................ 1
2.2. Annual Meetings. ......................................... 1
2.3. Special Meetings. ........................................ 1
2.4. Notice of Meetings. ...................................... 2
2.5. Quorum. .................................................. 2
2.6. Voting. .................................................. 2
2.7. Inspectors of Election. .................................. 3
2.8. Action Without Meeting. .................................. 3
Article III. - Directors. ............................................. 3
3.1. Powers. .................................................. 3
3.2. Number, Election and Term of Office. ..................... 4
3.3. Place of Meetings. ....................................... 4
3.4. Annual Meetings. ......................................... 4
3.5. Regular Meetings. ........................................ 4
3.6. Special Meetings. ........................................ 4
3.7. Notice of Meetings. ...................................... 4
3.8. Quorum. .................................................. 5
3.9. Voting. .................................................. 5
3.10. Action Without Meeting. ................................. 5
3.11. Meetings by Telephone Conference Calls. ................. 5
3.12. Resignations. ........................................... 5
3.13. Removal. ................................................ 5
3.14. Vacancies. .............................................. 6
3.15. Compensation of Directors. .............................. 6
3.16. Committees. ............................................. 6
3.17. Issuance of Stock. ...................................... 6
Article IV. - Officers. ............................................... 6
4.1. Officers. ................................................ 6
4.2. Election and Term of Office. ............................. 7
4.3. President. ............................................... 7
4.4. Vice Presidents. ......................................... 7
4.5. Treasurer and Assistant Treasurer. ....................... 7
4.6. Clerk and Assistant Clerk. ............................... 7
4.7. Secretary and Assistant Secretary. ....................... 8
4.8. Resignation. ............................................. 8
</TABLE>
<PAGE> 292
-ii-
<TABLE>
<S> <C>
4.9. Removal. ................................................. 8
4.10. Vacancies. .............................................. 8
4.11. Subordinate Officers. ................................... 8
4.12. Compensation. ........................................... 8
Article V. - Stock. ................................................... 9
5.1. Stock Certificates. ...................................... 9
5.2. Transfer of Stock. ....................................... 9
5.3. Fixing Date for Determination of Stockholders' Rights. ... 10
5.4. Lost, Mutilated or Destroyed Certificates. ............... 10
Article VI. - Miscellaneous Management Provisions. .................... 11
6.1. Execution of Instruments. ................................ 11
6.2. Corporate Records. ....................................... 11
6.3. Voting of Securities owned by this Corporation. .......... 11
6.4. Interested Transactions. ................................. 12
Article VII. - Indemnification. ....................................... 12
7.1. Right to Indemnification. ................................ 12
7.2. Settlements. ............................................. 13
7.3. Notification and Defense of Proceedings. ................. 13
7.4. Advancement of Expenses. ................................. 14
7.5. Certain Presumptions and Determinations. ................. 14
7.6. Remedies. ................................................ 15
7.7. Contract Right; Subsequent Amendment. .................... 15
7.8. Other Rights. ............................................ 16
7.9. Partial Indemnification. ................................. 16
7.10. Insurance. .............................................. 16
7.11. Merger or Consolidation. ................................ 16
7.12. Savings Clause. ......................................... 17
7.13. Subsequent Legislation. ................................. 17
7.14. Indemnification of Others. .............................. 17
Article VIII. - Amendments. ........................................... 17
8.1. General. ................................................. 17
</TABLE>
<PAGE> 293
LUXTEC CD ACQUISITION CO., INC.
B Y - L A W S
ARTICLE I. - GENERAL.
1.1. OFFICES. The principal office of the corporation shall be in
Worcester, Massachusetts. The corporation may also have offices at such other
place or places within or without Massachusetts as the Board of Directors may
from time to time determine or the business of the corporation may require.
1.2. SEAL. The seal of the corporation shall be in the form of a
circle inscribed with the name of the corporation, the year of its incorporation
and the word "Massachusetts". When authorized by the Board of Directors and to
the extent not prohibited by law, a facsimile of the corporate seal may be
affixed or reproduced.
1.3. FISCAL YEAR. The fiscal year of the corporation shall be the
twelve months ending October 31 of each year.
ARTICLE II. - STOCKHOLDERS.
2.1. PLACE OF MEETING. Meetings of stockholders shall be held at the
principal office of the corporation or, to the extent permitted by the Articles
of Organization, at such other place within the United States as the Board of
Directors may from time to time designate.
2.2. ANNUAL MEETINGS. The annual meeting of stockholders shall be held
within six months after the end of the fiscal year of the corporation, on such
date and at such time as the Board of Directors may determine, for the purpose
of electing a Board of Directors and transacting such other business as may
properly be brought before such meeting. At the annual meeting any business may
be transacted whether or not the notice of such meeting shall have contained a
reference thereto, except where such a reference is required by law, the
Articles of Organization or these By-laws. If the annual meeting is not held on
the date determined in accordance with this Section, a special meeting in lieu
of the annual meeting may be held with all the force and effect of an annual
meeting.
2.3. SPECIAL MEETINGS. Special meetings of stockholders may be called
by the President or by the Board of Directors, and shall be called by the Clerk
or, in case of death, absence, incapacity or refusal of the Clerk, by any other
officer, upon written application of one or more stockholders who hold at least
one-tenth part in interest of the capital stock entitled to vote at the meeting.
At any special meeting only business to which a reference shall have been
contained in the notice of such meeting may be transacted.
2.4. NOTICE OF MEETINGS. Written or printed notice of each meeting of
stockholders, stating the place, date and hour and the purposes of the meeting
shall
<PAGE> 294
-2-
be given by the Clerk or other officer calling the meeting at least seven days,
but not more than sixty days, before the meeting to each stockholder entitled to
vote at the meeting or entitled to such notice by leaving such notice with him
at his residence or usual place of business or by mailing it, postage prepaid,
and addressed to the stockholder at his address as it appears in the records of
the corporation. No notice need be given to any stockholder if he, or his
authorized attorney, waives such notice by a writing executed before or after
the meeting and filed with the records of the meeting or by his presence, in
person or by proxy, at the meeting. Any person authorized to give notice of any
such meeting may make affidavit of such notice, which, as to the facts therein
stated, shall be conclusive. It shall be the duty of every stockholder to
furnish to the Clerk of the corporation or to the transfer agent, if any, of the
class of stock owned by him, his current post office address.
2.5. QUORUM. At all meetings of stockholders the holders of a majority
in interest of all capital stock entitled to vote at such meeting or, if two or
more classes of stock are issued, outstanding and entitled to vote as separate
classes, a majority in interest of each class, present in person or represented
by proxy, shall constitute a quorum. The announcement of a quorum by the officer
presiding at the meeting shall constitute a conclusive determination that a
quorum is present. The absence of such an announcement shall have no
significance. Shares of its own stock held by the corporation or held for its
use and benefit shall not be counted in determining the total number of shares
outstanding at any particular time. If a quorum is not present or represented,
the stockholders present or represented and entitled to vote at such meeting, by
a majority vote, may adjourn the meeting from time to time, without notice other
than announcement at the meeting until a quorum is present or represented. At
any adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted if the meeting had
been held as originally called. The stockholders present at a duly organized
meeting may continue to transact business until adjournment notwithstanding the
withdrawal of one or more stockholders so as to leave less than a quorum.
2.6. VOTING. Except as otherwise provided by law or the Articles of
Organization, at all meetings of stockholders each stockholder shall have one
vote for each share of stock entitled to vote and registered in his name and a
proportionate vote for a fractional share. Any stockholder may vote in person or
by proxy dated not more than six months prior to the meeting and filed with the
Clerk of the meeting. Every proxy shall be in writing, subscribed by a
stockholder or his authorized attorney-in-fact, and dated. A proxy with respect
to stock held in the name of two or more persons shall be valid if executed by
any one of them unless at or prior to exercise of the proxy the corporation
receives a specific written notice to the contrary from any one of them. No
proxy shall be valid after the final adjournment of the meeting. Voting on all
matters, including the election of directors, shall be by voice vote unless
voting by ballot is requested by any stockholder. At all meetings of
stockholders, any matter put to a vote of
<PAGE> 295
-3-
stockholders shall be determined by a vote of a majority of the shares voting on
such matter, or, if two or more classes of stock are entitled to vote as
separate classes on such matter, a vote of a majority of the shares voting of
each class, present in person or represented by proxy, except (i) where a larger
vote is required by law, the Articles of Organization or these By-Laws, or (ii)
in the case of elections of directors by stockholders, which shall be decided by
a vote of a plurality of shares so voting. The corporation shall not, directly
or indirectly, vote shares of its own stock.
2.7. INSPECTORS OF ELECTION. One or more inspectors may be appointed
by the Board of Directors before or at each meeting of stockholders, or, if no
such appointment shall have been made, the presiding officer may make such
appointment at the meeting. At the meeting for which they are appointed, such
inspectors shall open and close the polls, receive and take charge of the
proxies and ballots, and decide all questions touching on the qualifications of
voters, the validity of proxies and the acceptance and rejection of votes. If
any inspector previously appointed shall fail to attend or refuse or be unable
to serve, the presiding officer shall appoint an inspector in his place.
2.8. ACTION WITHOUT MEETING. Any action which may be taken by
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consents shall be
treated for all purposes as a vote at a meeting.
ARTICLE III. - DIRECTORS.
3.1. POWERS. Except as otherwise provided by law, the Articles of
Organization or these By-laws, the business of the corporation shall be managed
by a Board of Directors who may exercise all the powers of the corporation.
3.2. NUMBER, ELECTION AND TERM OF OFFICE. The Board of Directors shall
consist of not less than one nor more than thirteen directors. Within the limits
specified, the number of directors shall be determined (i) by a vote of the
stockholders at the annual meeting, or (ii) by a vote of the stockholders at a
special meeting called for the purpose by the Board of Directors, or (iii) by
vote of the Board of Directors. Except for the initial directors and except as
provided in section 3.14, the directors shall be elected at the annual meeting
of the stockholders or at a special meeting. All directors shall hold office
until the following annual meeting or special meeting in lieu of the annual
meeting and until their successors are chosen and qualified.
3.3. PLACE OF MEETINGS. Meetings of the Board of Directors may be held
at any place within or without the Commonwealth of Massachusetts.
3.4. ANNUAL MEETINGS. A meeting of the Board of Directors for the
election of officers and the transaction of general business shall be held each
year beginning
<PAGE> 296
-4-
in 1996, at the place of and immediately after the final adjournment of the
annual meeting of stockholders or the special meeting in lieu of the annual
meeting. No notice of such annual meeting need be given.
3.5. REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held, without notice, at such time and place as the Board of Directors may
determine. Any director not present at the time of the determination shall be
advised, in writing, of any such determination.
3.6. SPECIAL MEETINGS. Special meetings of the Board of Directors,
including meetings in lieu of the annual or regular meetings, may be held upon
notice at any time upon the call of the President and shall be called by the
President or the Clerk or, in case of the death, absence, incapacity or refusal
of the Clerk, by any other officer, upon written application, signed by any two
directors, stating the purpose of the meeting.
3.7. NOTICE OF MEETINGS. Wherever notice of any meetings of the Board
of Directors is required by these By-laws or by vote of the Board of Directors,
such notice shall state the place, date and hour of the meeting and shall be
given to each director by the President, Clerk or other officer calling the
meeting at least two days prior to such meeting if given in person by telephone
or by telecopier or at least four days prior to such meeting if given by mail.
Notice shall be deemed to have been duly given, if by mail, by depositing the
notice in the post office as a first class letter, postage prepaid, or, if by
telecopier, by completing the telecopier transmission and receiving an
answer-back, the letter or telecopy being addressed to the director at his last
known mailing address or telecopy number as it appears on the books of the
corporation. No notice need be given to any director who waives such notice by a
writing executed before or after the meeting and filed with the records of the
meeting or by his attendance at the meeting without protesting at or before the
commencement of the meeting the lack of notice to him. No notice of adjourned
meetings of the Board of Directors need be given.
3.8. QUORUM. At all meetings of the Board of Directors, a majority of
the directors then in office shall constitute a quorum. If a quorum is not
present, those present may adjourn the meeting from time to time until a quorum
is obtained. At any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted if the meeting had
been held as originally called.
3.9. VOTING. At any meeting of the Board of Directors, the vote of a
majority of those present shall decide any matter except as otherwise provided
by law, the Articles of Organization or these By-laws.
3.10. ACTION WITHOUT MEETING. Any action which may be taken at any
meeting of the Board of Directors may be taken without a meeting if all the
directors consent to the action in writing and the written consents are filed
with the records of
<PAGE> 297
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the meetings of the Board of Directors. Such consents shall be treated for all
purposes as a vote at a meeting.
3.11. MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or members of
any committee designated by the Board of Directors may participate in a meeting
of the Board of Directors or such committee by means of a conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other at the same time and participation by such
means shall constitute presence in person at a meeting.
3.12. RESIGNATIONS. Any director may resign by giving written notice
to the President or Clerk. Such resignation shall take effect at the time or
upon the event specified therein, or, if none is specified, upon receipt. Unless
otherwise specified in the resignation, its acceptance shall not be necessary to
make it effective.
3.13. REMOVAL. A director may be removed from office with or without
cause by vote of the holders of a majority in interest of the stock entitled to
vote in the election of such director and may be removed from office with cause
by vote of a majority of the directors then in office. A director may be removed
for cause only after reasonable notice and opportunity to be heard before the
body proposing to remove him.
3.14. VACANCIES. In the event of a vacancy in the Board of Directors,
by reason of an enlargement of the Board of Directors or otherwise, the
remaining directors, by majority vote, may elect a director to fill such vacancy
and may exercise the powers of the full Board of Directors until the vacancy is
filled.
3.15. COMPENSATION OF DIRECTORS. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
3.16. COMMITTEES. The Board of Directors may, by vote of a majority of
the directors then in office, appoint from their number one or more committees
and delegate to such committees some or all of their powers to the extent
permitted by law, the Articles of Organization or these By-laws. Except as the
Board of Directors may otherwise determine, any such committee shall be governed
in the conduct of its business by the rules governing the conduct of the
business of the Board of Directors contained in these By-laws and may, by
majority vote of the entire committee, make other rules for the conduct of its
business. The Board of Directors shall have power at any time to fill vacancies
in any such committees, to change its membership or to discharge the committee.
3.17. ISSUANCE OF STOCK. The Board of Directors shall have power to
issue and sell or otherwise dispose of such shares of the corporation's
authorized but
<PAGE> 298
-6-
unissued capital stock to such persons and at such times and for such lawful
consideration, including cash, property, services, a debt, note or expenses
(except that, in the case of such stock having a par value, lawful consideration
other than a debt or note of the purchaser must be received to the extent of
such par value), and upon such terms as it shall determine from time to time.
ARTICLE IV. - OFFICERS.
4.1. OFFICERS. The officers of the corporation shall consist of a
President, a Treasurer, a Clerk, and such other officers with such other titles
as the Board of Directors may determine, including but not limited to a Chairman
of the Board of Directors, a Secretary, one or more Vice Presidents, Assistant
Treasurers and Assistant Clerks, and Assistant Secretaries. Any officer may be
required to give a bond for the faithful performance of his duties in such form
and with such sureties as the Board of Directors may determine. Any number of
offices may be held by the same person.
4.2. ELECTION AND TERM OF OFFICE. Except for the initial officers and
except as provided in section 4.10, the President, Treasurer and Clerk shall be
elected by the Board of Directors at its annual meeting or at the special
meeting held in lieu of the annual meeting and shall hold office until the
following annual meeting of the Board of Directors or the special meeting in
lieu of said annual meeting and until their successors are chosen and qualified.
Other officers may be chosen by the Board of Directors at the annual meeting or
any other meeting and shall hold office for such period as the Board of
Directors may prescribe.
4.3. PRESIDENT. Unless the Board of Directors otherwise determines,
the President shall be the chief executive officer of the corporation. He shall
have the general control and management of the corporation's business and
affairs. He need not be a director. Unless there is a Chairman of the Board, the
President shall preside at all meetings of the Board of Directors and of the
stockholders.
4.4. VICE PRESIDENTS. The Vice President, or if there be more than
one, the Vice Presidents, shall perform such of the duties of the President on
behalf of the corporation as may be respectively assigned to him or them from
time to time by the Board of Directors or the President. The Board of Directors
may designate a Vice President as the Executive Vice President, and in the
absence or inability of the President to act, such Executive Vice President
shall have and possess all of the powers and discharge all of the duties of the
President, subject to the control of the Board of Directors.
4.5. TREASURER AND ASSISTANT TREASURER. The Treasurer shall be the
principal financial officer of the corporation. He shall have custody and
control over all funds and securities of the corporation, maintain full and
adequate accounts of all moneys received and paid by him on account of the
corporation and, subject to the control of the Board of Directors, discharge all
duties incident to the office of
<PAGE> 299
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Treasurer. Any Assistant Treasurer shall perform such of the duties of the
Treasurer and such other duties as the Board of Directors, the President or the
Treasurer may designate. The Treasurer shall have authority, in connection with
the normal business of the corporation, to sign contracts, bids, bonds, powers
of attorney and other documents when required.
4.6. CLERK AND ASSISTANT CLERK. The Clerk shall be the principal
recording officer of the corporation. He shall record all proceedings of the
stockholders and discharge all duties incident to the office of Clerk. Unless a
Secretary is appointed by the Board of Directors to perform such duties, the
Clerk shall record all proceedings of the Board of Directors and of any
committees appointed by the Board of Directors. Any Assistant Clerk shall
perform such of the duties of the Clerk and such other duties as the Board of
Directors, the President or the Clerk may designate. In the absence of the Clerk
or any Assistant Clerk from any meeting of stockholders, the Board of Directors
or any committee appointed by the Board of Directors, a Temporary Clerk
designated by the person presiding at the meeting shall perform the duties of
the Clerk. The Clerk shall be a resident of the Commonwealth of Massachusetts
unless a resident agent has been appointed by the corporation pursuant to law to
accept service of process.
4.7. SECRETARY AND ASSISTANT SECRETARY. If appointed by the Board of
Directors, the Secretary shall record all proceedings of the Board of Directors
and discharge all duties incident to the office of Secretary. Any Assistant
Secretary shall perform such of the duties of the Secretary and such other
duties as the Board of Directors, President or Secretary may designate. The
Board of Directors and any committee appointed by the Board of Directors may
appoint a Secretary and one or more Assistant Secretaries to perform the
functions of the Secretary and Assistant Secretary for such committee.
4.8. RESIGNATION. Any officer may resign by giving written notice to
the President or Clerk. Such resignation shall take effect at the time or upon
the event specified therein, or, if none is specified, upon receipt. Unless
otherwise specified in the resignation, its acceptance shall not be necessary to
make it effective.
4.9. REMOVAL. An officer may be removed from office with cause, after
reasonable notice and opportunity to be heard, or without cause, in either case,
by vote of a majority of the directors then in office.
4.10. VACANCIES. The Board of Directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Clerk.
4.11. SUBORDINATE OFFICERS. The Board of Directors may, from time to
time, authorize any officer to appoint and remove subordinate officers and to
prescribe their powers and duties. The term "subordinate officers" shall in no
event include the President, Treasurer and Clerk.
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4.12. COMPENSATION. The Board of Directors may fix the compensation of
all officers of the corporation and may authorize any officer upon whom the
power of appointing subordinate officers may have been conferred to fix the
compensation of such subordinate officers.
ARTICLE V. - STOCK.
5.1. STOCK CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates of stock of the corporation in such form as the
Board of Directors may from time to time prescribe. Each certificate shall be
duly numbered and entered in the books of the corporation as it is issued, shall
state the holder's name and the number and the class and the designation of the
series, if any, of his shares, shall be signed by the President or a Vice
President and by the Treasurer or an Assistant Treasurer and may, but need not,
be sealed with the seal of the corporation. If any stock certificate is signed
by a transfer agent, or by a registrar, other than a director, officer or
employee of the corporation, the signatures thereon of the officers may be
facsimiles. In case any officer who has signed or whose facsimile signature has
been placed on any certificate shall have ceased to be such officer before such
certificate is issued, it may nevertheless be issued by the corporation and
delivered with the same effect as if he were such officer at the time of its
issue. Every certificate of stock which is subject to any restriction on
transfer pursuant to the Articles of Organization, the By-laws or any agreement
to which the corporation is a party, shall have the restrictions noted
conspicuously on the certificate and shall also set forth on the face or back of
the certificate either (i) the full text of the restriction, or (ii) a statement
of the existence of such restriction and a statement that the corporation will
furnish a copy thereof to the holder of such certificate upon written request
and without charge. Every certificate issued at a time when the corporation is
authorized to issue more than one class or series of stock shall set forth upon
the face or back of the certificate either (i) the full text of the preferences,
voting powers, qualifications and special and relative rights of the shares of
each class and series, if any, authorized to be issued, as set forth in the
Articles of Organization or (ii) a statement of the existence of such
preferences, powers, qualifications and rights, and a statement that the
corporation will furnish a copy thereof to the holder of such certificate upon
written request and without charge.
5.2. TRANSFER OF STOCK. Subject to any transfer restrictions then in
force, the shares of stock of the corporation shall be transferable only upon
its books by the holders thereof in person or by their duly authorized attorneys
or legal representatives. Such transfer shall be effected by delivery of the old
certificate, together with a duly executed assignment and power to transfer
endorsed thereon or attached thereto and with such proof of the authenticity of
the signature and such proof of authority to make the transfer as the
corporation or its agents may reasonably require, to the person in charge of the
stock and transfer books and ledgers or to such other person as the Board of
Directors may designate, who shall thereupon cancel the old certificate and
issue a new certificate. The corporation may
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treat the holder of record of any share or shares of stock as the owner of such
stock, and shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person, whether or not it shall
have notice thereof, express or otherwise.
5.3. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS' RIGHTS. The Board
of Directors may fix in advance a time, not exceeding sixty days preceding the
date of any meeting of stockholders, or the date for the payment of any dividend
or the making of any distribution to stockholders, or the date for the allotment
of rights, or the date when any change or conversion or exchange of capital
stock shall go into effect, or the last date on which the consent or dissent of
stockholders may be effectively expressed for any purpose, as the record date
for determining the stockholders entitled to notice of, and to vote at, such
meeting and any adjournment thereof, to receive such dividend or distribution,
to receive such allotment of rights, or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, or to express such consent
or dissent. In such case only stockholders of record on the date so fixed shall
have such right, notwithstanding any transfer of stock on the books of the
corporation after the record date. In lieu of fixing such record date, the Board
of Directors may close the stock transfer books for all or any part of such
period. In any case in which the Board of Directors does not fix a record date
or provide for the closing of the transfer books, the record date shall be the
thirtieth day next preceding the date of such meeting, the dividend payment or
distribution date, the date for allotment of rights, the date for exercising of
rights in respect of any such change, conversion or exchange of capital stock,
or the date for expressing such consent or dissent, as the case may be.
5.4. LOST, MUTILATED OR DESTROYED CERTIFICATES. No certificates for
shares of stock of the corporation shall be issued in place of any certificate
alleged to have been lost, mutilated or destroyed, except upon production of
such evidence of the loss, mutilation or destruction and upon indemnification of
the corporation and its agents to such extent and in such manner as the Board of
Directors may prescribe and as required by law.
ARTICLE VI. - MISCELLANEOUS MANAGEMENT PROVISIONS.
6.1. EXECUTION OF INSTRUMENTS. Except as otherwise provided in these
By-laws or as the Board of Directors may generally or in particular cases
authorize the execution thereof in some other manner, all instruments,
documents, deeds, leases, transfers, contracts, bonds, notes, checks, drafts and
other obligations made, accepted or endorsed by the corporation shall be signed
by the President or a Vice President, or by the Treasurer or an Assistant
Treasurer, or by the Clerk. Facsimile signatures may be used in the manner and
to the extent authorized generally or in particular cases by the Board of
Directors.
6.2. CORPORATE RECORDS. The original, or attested copies, of the
Articles of Organization, By-laws, and records of all meetings of
incorporators and
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stockholders, and the stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept in the Commonwealth of Massachusetts at the principal office of
the corporation, or at an office of its Clerk, its resident agent or its
transfer agent. The copies and records need not all be kept in the same office.
They shall be available at all reasonable times for inspection by any
stockholder for any proper purpose. They shall not be available for inspection
to secure a list of stockholders or other information for the purpose of selling
such list or information or copies thereof or of using the same for a purpose
other than in the interest of the applicant, as a stockholder, relative to the
affairs of the corporation.
6.3. VOTING OF SECURITIES OWNED BY THIS CORPORATION. Subject always to
the specific directions of the Board of Directors, (i) any shares or other
securities issued by any other corporation and owned or controlled by this
corporation may be voted in person at any meeting of security holders of such
other corporation by the President of this corporation if he is present at such
meeting, or in his absence by the Treasurer of this corporation if he is present
at such meeting, and (ii) whenever, in the judgment of the President, it is
desirable for this corporation to execute a proxy or written consent in respect
to any shares or other securities issued by any other corporation and owned by
this corporation, such proxy or consent shall be executed in the name of this
corporation by the President, without the necessity of any authorization by the
Board of Directors, affixation of corporate seal or countersignature or
attestation by another officer, provided that if the President is unable to
execute such proxy or consent by reason of sickness, absence from the United
States or other similar cause, the Treasurer may execute such proxy or consent.
Any person or persons designated in the manner above stated as the proxy or
proxies of this corporation shall have full right, power and authority to vote
the shares or other securities issued by such other corporation and owned by
this corporation the same as such shares or other securities might be voted by
this corporation.
6.4. INTERESTED TRANSACTIONS. No contract or other transaction of this
corporation with any other person, corporation, association, or partnership
shall be affected or invalidated by the fact that (i) this corporation is a
stockholder or partner in such other corporation, association, or partnership,
or (ii) any one or more of the officers or directors of this corporation is an
officer, director or partner of such other corporation, association or
partnership, or (iii) any officer or director of this corporation, individually
or jointly with others, is a party to or is interested in such contract or
transaction. Any director of this corporation may be counted in determining the
existence of a quorum at any meeting of the board of directors for the purpose
of authorizing or ratifying any such contract or transaction, and may vote
thereon, with like force and effect as if he or she were not so interested or
were not an officer, director, or partner of such other corporation,
association, or partnership.
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ARTICLE VII. - INDEMNIFICATION.
7.1. RIGHT TO INDEMNIFICATION. The corporation shall indemnify and
hold harmless each person who was or is a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit, proceeding or investigation, whether civil, criminal or
administrative (a "Proceeding"), by reason of being, having been or having
agreed to become, a director or officer of the corporation, or serving, having
served or having agreed to serve, at the request of the corporation, as a
director or officer of, or in a similar capacity with, another organization or
in any capacity with respect to any employee benefit plan (any such person being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expense, liability and
loss (including without limitation reasonable attorneys' fees, judgments, fines,
"ERISA" excise taxes or penalties) incurred or suffered by the Indemnitee or on
behalf of the Indemnitee in connection with such Proceeding and any appeal
therefrom, unless the Indemnitee shall have been adjudicated in such Proceeding
not to have acted in good faith in the reasonable belief that his or her action
was in the best interest of the corporation or, to the extent such matter
relates to service with respect to an employee benefit plan, in the best
interests of the participants or beneficiaries of such employee benefit plan.
Notwithstanding anything to the contrary in this Article, except as set forth in
section 7.6 below, the corporation shall not indemnify or advance expenses to an
Indemnitee seeking indemnification in connection with a Proceeding (or part
thereof) initiated by the Indemnitee, unless the initiation thereof was approved
by the Board of Directors of the corporation.
7.2. SETTLEMENTS. Subject to compliance by the Indemnitee with the
applicable provisions of section 7.5 below, the right to indemnification
conferred in this Article shall include the right to be paid by the corporation
for amounts paid in settlement of any such Proceeding and any appeal therefrom,
and all expenses (including attorneys' fees) incurred in connection with such
settlement, pursuant to a consent decree or otherwise, unless it is held or
determined pursuant to section 7.5 below that the Indemnitee did not act in good
faith in the reasonable belief that his or her action was in the best interest
of the corporation or, to the extent such matter relates to service with
respect to an employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan.
7.3. NOTIFICATION AND DEFENSE OF PROCEEDINGS. The Indemnitee shall
notify the corporation in writing as soon as reasonably practicable of any
Proceeding involving the Indemnitee for which indemnity or advancement of
expenses is intended to be sought. Any omission so to notify the corporation
shall not relieve it from any liability that it may have to the Indemnitee under
this Article unless, and only to the extent that, such omission results in the
forfeiture of substantive rights or defenses by the corporation. With respect to
any Proceeding of which the corporation is so notified, the corporation shall be
entitled, but not obligated, to
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participate therein at its own expense and/or to assume the defense thereof at
its own expense, with legal counsel reasonably acceptable to the Indemnitee,
except as provided in the last sentence of this section 7.3. After notice from
the corporation to the Indemnitee of its election so to assume such defense
(subject to the limitations in the last sentence of this section 7.3), the
corporation shall not be liable to the Indemnitee for any fees and expenses of
counsel subsequently incurred by the Indemnitee in connection with such
Proceeding, other than as provided below in this section 7.3. The Indemnitee
shall have the right to employ his or her own counsel in connection with such
Proceeding, but the fees and expenses of such counsel incurred after notice
from the corporation of its assumption of the defense thereof at its expense
with counsel reasonably acceptable to Indemnitee shall be at the expense of the
Indemnitee unless (i) the employment of counsel by the Indemnitee at the
corporation's expense has been authorized by the corporation, (ii) counsel to
the Indemnitee shall have reasonably concluded that there may be a conflict of
interest or position on any significant issue between the corporation and the
Indemnitee in the conduct of the defense of such action or (iii) the
corporation shall not in fact have employed counsel reasonably acceptable to
the Indemnitee to assume the defense of such Proceeding within a reasonable
time after receiving notice thereof, in each of which cases the fees and
expenses of counsel for the Indemnitee shall be at the expense of the
corporation, except as otherwise expressly provided by this Article. The
corporation shall not be entitled, without the consent of the Indemnitee, to
assume the defense of any Proceeding brought by or in the right of the
corporation or as to which counsel for the Indemnitee shall have
reasonably made the conclusion provided for in clause (ii) above.
7.4. ADVANCEMENT OF EXPENSES. Except as provided in section 7.3 of this
Article, as part of the right to indemnification granted by this Article, any
expenses (including attorneys' fees) incurred by an Indemnitee in defending any
Proceeding within the scope of section 7.1 of this Article or any appeal
therefrom shall be paid by the corporation in advance of the final disposition
of such matter, provided, however, that the payment of such expenses incurred
by an Indemnitee in advance of the final disposition of such matter shall be
made only upon receipt of a written undertaking by or on behalf of the
Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the corporation as authorized by section 7.1 or 7.2 of this Article. Such
undertaking need not be secured and shall be accepted without reference to the
financial ability of the Indemnitee to make such repayment. Such advancement of
expenses shall be made by the corporation promptly following its receipt of
written requests therefor by the Indemnitee, accompanied by reasonably detailed
documentation, and of the foregoing undertaking.
7.5. CERTAIN PRESUMPTIONS AND DETERMINATIONS. If, in a Proceeding
brought by or in the right of the corporation, a director or officer of the
corporation is held not liable for monetary damages, whether because that
director or officer is relieved of personal liability under the provisions of
Article 6A of the Articles of
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Organization of the corporation or otherwise, that director or officer shall be
deemed to have met the standard of conduct set forth in section 7.1 and thus to
be entitled to be indemnified by the corporation thereunder. In any adjudicated
Proceeding against an Indemnitee brought by reason of the Indemnitee's serving,
having served or agreed to serve, at the request of the corporation, an
organization other than the corporation in one or more of the capacities
indicated in section 7.1, if the Indemnitee shall not have been adjudicated not
to have acted in good faith in the reasonable belief that the Indemnitee's
action was in the best interest of such other organization, the Indemnitee
shall be deemed to have met the standard of conduct set forth in section 7.1
and thus be entitled to be indemnified thereunder. An adjudication in such a
Proceeding that the Indemnitee did not act in good faith in the reasonable
belief that the Indemnitee's action was in the best interest of such other
organization shall not create a presumption that the Indemnitee has not met the
standard of conduct set forth in section 7.1. In order to obtain
indemnification of amounts paid in settlement pursuant to section 7.2 of this
Article, the Indemnitee shall submit to the corporation a written request,
including in such request such documentation and information as is reasonably
available to the Indemnitee and is reasonably necessary to determine whether
and to what extent the Indemnitee is entitled to such indemnification. Any such
indemnification under section 7.2 shall be made promptly, and in any event
within 60 days after receipt by the corporation of the written request of the
Indemnitee, unless a court of competent jurisdiction holds within such 60-day
period that the Indemnitee did not meet the standard of conduct set forth in
section 7.2 or the corporation determines, by clear and convincing evidence,
within such 60-day period that the Indemnitee did not meet such standard. Such
determination shall be made by the Board of Directors of the corporation, based
on advice of independent legal counsel (who may, with the consent of the
Indemnitee, be regular legal counsel to the corporation). The corporation and
the directors shall be under no obligation to undertake any such determination
or to seek any ruling from any court.
7.6. REMEDIES. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the corporation denies such a request, in whole or in part, or,
with respect to indemnification pursuant to section 7.2, if no disposition
thereof is made within the 60-day period referred to above in section 7.5.
Unless otherwise provided by law, the burden of proving that the Indemnitee is
not entitled to indemnification or advancement of expenses under this Article
shall be on the corporation. Neither absence of any determination prior to the
commencement of such action that indemnification is proper in the circumstances
because the Indemnitee has met any applicable standard of conduct, nor an
actual determination by the corporation pursuant to section 7.5 that the
Indemnitee has not met such applicable standard of conduct, shall be a defense
to the action or create a presumption that the Indemnitee has not met the
applicable standard of conduct. The Indemnitee's expenses (including reasonable
attorneys' fees) incurred in connection with successfully establishing his or
her right to indemnification, in whole or in part, in any such Proceeding shall
also be paid by the corporation.
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7.7. CONTRACT RIGHT; SUBSEQUENT AMENDMENT. The right to
indemnification and advancement of expenses conferred in this Article shall be a
contract right. No amendment, termination or repeal of this Article or of the
relevant provisions of Chapter 156B of the Massachusetts General Laws or any
other applicable laws shall affect or diminish in any way the rights of any
Indemnitee to indemnification or advancement of expenses under the provisions
hereof with respect to any Proceeding arising out of or relating to any action,
omission, transaction or facts occurring prior to the final adoption of such
amendment, termination or repeal, except with the consent of the Indemnitee.
7.8. OTHER RIGHTS. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or directors or otherwise, both as to action in his or her official capacity and
as to action in any other capacity while holding office for the corporation, and
shall continue as to an Indemnitee who has ceased to be a director or officer,
and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the corporation is specifically authorized to enter
into, agreements with any Indemnitee providing indemnification rights and
procedures different from those set forth in the Article.
7.9. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any
provision of this Article to indemnification by the corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by the Indemnitee or on his
or her behalf in connection with any Proceeding and any appeal therefrom but
not, however, for the total amount thereof, the corporation shall nevertheless
indemnify the Indemnitee for the portion of such expenses (including attorneys'
fees), judgments, fines or amounts paid in settlement to which the Indemnitee is
entitled.
7.10. INSURANCE. The corporation may purchase and maintain insurance,
at its expense, to protect itself and any director, officer, employee or agent
of the corporation or another organization or employee benefit plan against any
expense, liability or loss incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under Chapter 156B of the Massachusetts General Laws.
7.11. MERGER OR CONSOLIDATION. If the corporation is merged into or
consolidated with another corporation and the corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
corporation under this Article with respect to any Proceeding arising out of or
relating to any action, omission, transaction or facts occurring on or prior to
the date of such merger or consolidation.
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7.12. SAVINGS CLAUSE. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify and advance expenses to each Indemnitee
as to any expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement in connection with any Proceeding, including an action by or
in the right of the corporation, to the fullest extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the fullest extent permitted by applicable law.
7.13. SUBSEQUENT LEGISLATION. If the Massachusetts General Laws are
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the corporation shall indemnify such persons to
the fullest extent permitted by the Massachusetts General Laws as so amended.
7.14. INDEMNIFICATION OF OTHERS. The corporation may, to the extent
authorized from time to time by its Board of Directors, grant indemnification
rights to employees or agents of the corporation or other persons serving the
corporation who are not Indemnitees, and such rights may be equivalent to, or
greater or less than, those set forth in this Article.
ARTICLE VIII. - AMENDMENTS.
8.1. GENERAL. These By-laws may be amended, added to or repealed, in
whole or in part, (i) by vote of the stockholders at a meeting, where the
substance of the proposed amendment is stated in the notice of the meeting, or
(ii) by vote of a majority of the directors then in office, except that no
amendment may be made by the Board of Directors on matters reserved to the
stockholders by law or the Articles of Organization or which changes the
provisions of these By-laws relating to the removal of directors or to the
requirements for amendment of these By-laws. Notice of any amendment, addition
or repeal of any By-law by the Board of Directors stating the substance of such
action shall be given to all stockholders not later than the time when notice is
given of the meeting of stockholders next following such action by the Board of
Directors. Any By-law adopted by the Board of Directors may be amended or
repealed by the stockholders.
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ANNEX F
EXCERPT FROM GENERAL CORPORATION LAW
OF THE
STATE OF DELAWARE
RELATING TO APPRAISAL RIGHTS
<PAGE> 309
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 or 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 his 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 Section 251, 252, 254, 257, 258, 263 or 264 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 holders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) 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 Sections 251, 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 at the effective
date of the merger or consolidation will be either listed on a national
securities
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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
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 Section 253 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 of 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 his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his 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 his 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 subsection 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
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(2) If the merger or consolidation was approved pursuant to Section 228
or 253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his 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 his shares.
(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 his 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 shall be mailed to the stockholder within 10 days after
his 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 all 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
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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 pendency of the appraisal proceedings; and if any stockholders
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 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 his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he 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
<PAGE> 313
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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 his appraisal 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 his 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.
262, L.'94, eff. 7-1/94.)
<PAGE> 314
ANNEX G
1995 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
OF
LUXTEC CORPORATION
<PAGE> 315
ANNEX G
LUXTEC CORPORATION
1995 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE
The purpose of this 1995 Stock Option Plan for Non-Employee Directors
(the "Plan") of Luxtec Corporation (the "Company") is to attract and retain
highly qualified directors of the Company who are not also officers or employees
of the Company and to encourage such directors to own shares of the Company's
Common Stock, $0.01 par value ("Common Stock"), so as to provide additional
incentives to promote the success of the Company.
2. ADMINISTRATION
Grants of stock options under the Plan shall be automatic as provided
in Section 6. All questions of interpretation of the Plan or of any options
issued hereunder shall be determined by the Board of Directors of the Company
(the "Board"), provided that the Board shall have no discretion with respect to
the eligibility or selection of directors to receive options, the timing of
grants or the number of shares of Common Stock subject to this Plan or any
option granted hereunder. All such determinations by the Board shall be final
and binding upon all persons having an interest in the Plan.
3. PARTICIPATION
All directors of the Company who are not employees or officers of the
Company or any subsidiary of the Company shall be eligible to participate in the
Plan (each a "Non-Employee Director").
4. COMMON STOCK AVAILABLE FOR OPTIONS
(a) Subject to adjustment under subsections (b) - (f), options may be
granted under the Plan in respect of a maximum of 200,000 shares of Common
Stock. Shares subject to an option that expires or terminates unexercised shall
again be available for options hereunder to the extent of such expiration or
termination. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) If the shares of Common Stock shall be subdivided or combined into
a greater or smaller number of shares or if the Company shall issue any shares
of Common Stock as a stock dividend on its outstanding Common Stock, the number
of shares of Common Stock deliverable upon the exercise of Options shall be
appropriately increased
<PAGE> 316
-2-
or decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
(c) If the Company is to be consolidated with or acquired by another
entity in a merger, sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the board of directors of any entity assuming the
obligations of the Company hereunder (the "Successor Board"), shall, as to
outstanding Options, either (i) make appropriate provision for the continuation
of such Options by substituting on an equitable basis for the shares then
subject to such Options the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition; or (ii)
upon written notice to optionees, provide that all Options must be exercised, to
the extent then exercisable, within a specified number of days of the date of
such notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of the
fair market value of the shares subject to such Options (to the extent then
exercisable) over the exercise price thereof.
(d) In the event of a recapitalization or reorganization of the Company
(other than a transaction described in subsection (c) above) purusant to which
securities of the Company or of another corporation are issued with respect to
the outstanding shares of Common Stock, an optionee upon exercising an Option
shall be entitled to receive for the purchase price paid upon such exercise the
securities he would have received if he had exercised his Option prior to such
recapitalization or reorganization.
(e) In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Board.
(f) No fraction of a share shall be purchasable or deliverable upon
exercise, but in the event any adjustment pursuant to subsections (b) - (e)
hereunder of the number of shares covered by an option shall cause such number
to include a fraction of a share, the optionee shall receive from the Company
cash in lieu of such fraction of a share.
<PAGE> 317
-3-
5. NONSTATUTORY STOCK OPTIONS
All options granted under the Plan shall be nonstatutory options not
intended to qualify under Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code").
6. TERMS AND CONDITIONS OF OPTIONS
Each option granted under the Plan shall be evidenced by a written
instrument in substantially the form of the attached Exhibit 1 hereto or in such
other form as the Board may approve and shall be subject to the following terms
and conditions:
(a) Grant of Options.
(i) General Formula. Commencing as provided below, at each
annual meeting of stockholders of the Company, and at each special
meeting in lieu thereof (each an "Annual Meeting"), each Non-Employee
Director elected at such Annual Meeting shall receive options to
purchase shares of Common Stock of the Company at a rate of 4,000
shares for each year of the term of office to which such Non-Employee
Director is elected (in the normal case, 12,000 shares for election to
a three year term of office) as a director of the Company. Upon the
election of a Non-Employee Director other than at an Annual Meeting
(whether by the Board of Directors or the stockholders and whether to
fill a vacancy or otherwise) or any change in such Non-Employee
Director's status which makes him or her so eligible (e.g., termination
of his or her employment with the Company while he or she remains a
director, thus becoming a Non-Employee Director), such Non-Employee
Director shall automatically be granted options to purchase shares of
Common Stock at the annual rate of 4,000 shares for each year or
portion thereof (rounded to the nearest month) of the term of office to
which such Non-Employee Director is elected or which remains unexpired
in his or her term, as the case may be.
(ii) Initial Option Grants. Each Non-Employee Director who is reelected to a
three-year term at the Annual Meeting to be held in 1995 (the "1995 Annual
Meeting"), shall be granted an option to purchase 12,000 shares of Common Stock.
In addition, all current Non-Employee Directors shall be granted fully vested
options to purchase 8,000 shares of Common Stock of the Company (the "Initial
Options").
(b) Date of Grant. The "Date of Grant" for options granted under this
Plan shall be the date of the approval of this Plan by the Company's Board of
Directors for the Initial Options and the date of election or re-election of a
Non-Employee Director, as the case may be, for all other options. No options
shall be granted hereunder after ten years from the date on which this Plan was
initially approved and adopted by the stockholders of the Company.
<PAGE> 318
-4-
(c) Purchase Price. The purchase price for Common Stock subject to an
option granted hereunder shall be 100% of the fair market value of the Common
Stock on the date the option is granted, which shall be the last sale price for
the Common Stock as reported by the American Stock Exchange Emerging Company
Marketplace ("AMEX-ECM") for the business day immediately preceding such date
or, if the Company's Common Stock is not traded on the AMEX-ECM, the last sale
price for the Common Stock as reported by the exchange or other inter-dealer
system on which the Common Stock is traded.
(d) Period of Exercise.
(i) General Formula for Exercisability. Except as expressly
provided herein, options granted under this Plan shall become
exercisable with respect to 4,000 shares on the Date of Grant and with
respect to 4,000 shares on each of the first and second anniversaries
of the Date of Grant if and only if the option holder is a Non-Employee
Director of the Company at the opening of business on that date (i.e.
options to purchase 12,000 shares of Common Stock granted at the 1995
Annual Meeting will become exercisable with respect to 4,000 shares at
each of the 1995 Annual Meeting date and the 1996 and 1997
anniversaries thereof).
(ii) Option Period. Options granted pursuant to the Plan shall
be exercisable for a period of ten years from the Date of Grant.
(e) Term and Termination. Non-Employee Directors holding exercisable
options under this Plan who cease to serve as members of the Board of Directors
of the Company may, during their lifetime, exercise the rights they had under
such options at the time they ceased being a Non-Employee Director for the full
unexpired term of such option. Upon the death of a Non-Employee Director, those
entitled to do so under the Non-Employee Director's will or the laws of descent
and distribution shall have the right, at any time within twelve months after
the date of death, to exercise in whole or in part any rights which were
available to the Non-Employee Director at the time of his or her death. Options
granted under the Plan shall terminate, and no rights thereunder may be
exercised, after the expiration of the exercise period set forth in Section
6(d)(ii) hereof.
(f) Exercise; Payment; and Withholding. Options may be exercised only
by written notice to the Treasurer of the Company at its principal executive
office accompanied by payment in the form of a check payable to the order of the
Company of the full purchase price for the shares as to which they are
exercised. Upon receipt of such notice and payment, the Company shall promptly
issue and deliver to the option holder (or other person entitled to exercise the
option) a certificate or certificates for the number of shares as to which the
exercise is made. Such shares shall be fully paid and nonassessable. Whenever
shares are to be issued upon exercise of an Option, the Company shall have the
right to require the Optionee to remit to the Company an
<PAGE> 319
-5-
amount sufficient to satisfy Federal, state, local or other withholding tax
requirements (whether so required to secure for the Company an otherwise
available tax deduction or otherwise) if and to the extent required by law prior
to the delivery of any certificate or certificates for such shares.
7. OPTIONS NOT TRANSFERABLE
Options granted under the Plan shall not be transferable by the holder
other than by will or the laws of descent and distribution and shall be
exercisable during the holder's lifetime only by the holder.
8. LIMITATION OF RIGHTS
Neither the Plan nor the granting of any option hereunder shall
constitute an agreement or understanding that the Company will retain a
Non-Employee Director for any period of time or at any particular rate of
compensation. The holder of an option shall have no rights as a shareholder with
respect to shares as to which the option has not been exercised and payment made
hereunder.
9. STOCKHOLDER APPROVAL
This Plan is subject to approval by the stockholders of the Company by
the affirmative vote of the holders of a majority of the shares of Common Stock
of the Company present or represented, and voting, at a meeting duly held in
accordance with the laws of the Commonwealth of Massachusetts within 12 months
from the date of its approval by the Board. In the event such approval is not
obtained, all options granted under this Plan shall be void and without effect.
<PAGE> 320
-6-
10. AMENDMENT OR TERMINATION OF THE PLAN
The Board may amend, suspend or terminate the Plan or any portion
thereof at any time, provided that no amendment to change the eligibility or
selection of directors to receive options, the timing or pricing of grants, or
the number of shares of Common Stock subject to the Plan or any option granted
thereunder, may be made more than once every six months, other than to comport
with changes in the Code or the rules thereunder.
11. GOVERNING LAW
The Plan shall be governed by and interpreted in accordance with the
internal laws of the Commonwealth of Massachusetts, without regard to its
conflicts of laws provisions.
<PAGE> 321
EXHIBIT 1
LUXTEC CORPORATION
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
Luxtec Corporation (the "Company") hereby grants to (the "Optionee") a
stock option under and subject to the 1995 Stock Option Plan for Non-Employee
Directors (the "Plan") and upon the terms and conditions set forth below.
Capitalized terms used and not otherwise defined in this Option have the
meanings given to them in the Plan.
1. Stock Option. The Company grants to the Optionee the right and
option to purchase from the Company shares of Common Stock at a price of $
per share. This Option is granted subject to any and all of the terms and
conditions of the Plan governing such options. This Option shall become
exercisable in whole or in part (whole number of shares only) with respect
to __________ shares on the Date of Option (as set forth below), and with
respect to __________ shares on each of the first and second anniversaries
of the Date of Option if and only if the option holder is a Non-Employee
Director of the Company at the opening of business on that date. In no event
may this Option be exercised as to any shares after the expiration of ten
years from the date hereof.
This Option shall not be treated as an incentive stock option under
Section 422(a) of the Internal Revenue Code of 1986, as amended (the "Code").
2. Exercise; Payment; and Withholding. This Option shall be exercised
by delivery by the Optionee of written notice to the Treasurer of the Company
specifying the date of this Option, the number of shares as to which this Option
is being exercised, accompanied by full payment for such shares in the form of a
check payable to the order of the Company. The Company will promptly issue and
deliver to the Optionee one or more certificates for the number of shares as to
which exercise is made. Whenever shares are to be issued upon exercise of this
Option, the Company shall have the right to require the Optionee to remit to the
Company an amount sufficient to satisfy Federal, state, local or other
withholding tax requirements (whether so required to secure for the Company an
otherwise available tax deduction or otherwise) if and to the extent required by
law prior to the delivery of any certificate or certificates for such shares.
3. Termination of Option. If the Optionee ceases to serve as a member
of the Board of Directors of the Company for any reason, the Optionee may
exercise the rights which the Optionee had hereunder at the time the Optionee
ceased being a Non-Employee Director for the full unexpired term of the Option.
Upon the death of the Optionee, those entitled to do so by the Optionee's will
or the laws of descent and distribution shall have the right, at any time within
twelve months after the date of
<PAGE> 322
-2-
death, to exercise in whole or in part any rights which were available to the
Optionee at the time of the Optionee's death. This Option shall terminate after
the expiration of the applicable exercise period. Notwithstanding the foregoing
provisions of this Section 3, no rights under this Option may be exercised after
the expiration of ten years from the date hereof.
4. Adjustment of Terms. The terms and conditions of this Option are
subject to adjustment as provided in Section 4 of the Plan.
5. No Transfer. This Option shall not be transferable by the Optionee
other than by will or the laws of descent and distribution and shall be
exercisable during the holder's lifetime only by the holder.
6. Securities Laws. The purchase of any shares by the Optionee upon
exercise of this Option shall be subject to the conditions that (i) the Company
may in its discretion require that a registration statement under the Securities
Act of 1933 with respect to the sale of such shares to the Optionee shall be in
effect, and such shares shall be duly listed, subject to notice of issuance, on
any securities exchange on which the Common Stock may then be listed, (ii) all
such other action as the Company considers necessary to comply with any law,
rule or regulation applicable to the sale of such shares to the Optionee shall
have been taken and (iii) the Optionee shall have made such representations and
agreements as the Company may require to comply with applicable law.
7. Limitation of Rights. The Optionee shall have no rights as a
shareholder with respect to any shares subject to this Option until such shares
are issued and delivered against payment therefor. The Optionee shall have no
right to be retained as a director of the Company by virtue of this Option.
8. Governing Law. This Option shall be governed by and interpreted in
accordance with the internal laws of the Commonwealth of Massachusetts, without
regard to its conflicts of laws provisions.
LUXTEC CORPORATION
By:
-------------------------------
Title:
Date of Option:
<PAGE> 323
ANNEX H
CONSENT LETTER
OF
ARTHUR ANDERSEN LLP
<PAGE> 324
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports,
and to all references to our firm, included in or made a part of this proxy
statement.
Arthur Andersen LLP
Boston, Massachusetts
September 12, 1995
<PAGE> 325
ANNEX I
PROXIES
<PAGE> 326
LUXTEC CORPORATION
326 Clark Street
Worcester, Massachusetts 01606-1214
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints James W. Hobbs and Samuel M. Stein or either of
them as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote as designated below, all the shares of
common stock of Luxtec Corporation (the "Company") held of record by the
undersigned on September 5, 1995, at the 1995 Annual Meetings of Stockholders
(the "Meeting") to be held on October 17, 1995 or any adjournment thereof.
1. To approve an amendment to the Company's Articles of Organization to
increase the number of shares authorized for issuance from 2,000,000 to
10,000,000.
____ FOR ____ AGAINST ____ ABSTAIN
2. To approve the issuance of shares of the Company's Common Stock in
connection with the Merger Agreement.
____ FOR ____ AGAINST ____ ABSTAIN
3. To elect directors
____FOR all nominees (except as marked to the contrary below)
____WITHHOLD AUTHORITY for all nominees listed below
Lynn K. Friedel
James W. Hobbs
(Instruction: To withhold authority to vote for any individual, write the
nominee's name on the space provided below.)
<PAGE> 327
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4. To ratify the amendment of the Company's 1992 Stock Option Plan to
increase the number of shares authorized for issuance under the Plan and
to limit the number of options that may be granted to any one individual
under the Plan in any fiscal year.
____ FOR ____ AGAINST ____ ABSTAIN
5. To approve the Company's 1995 Stock Option Plan For Non-Employee
Directors.
____ FOR ____ AGAINST ____ ABSTAIN
6. To approve an amendment of the Company's Articles of Organization with
respect to the limitation of liability of directors and indemnification
of directors and officers of the Company.
____ FOR ____ AGAINST ____ ABSTAIN
7. To ratify the appointment of Arthur Andersen LLP as independent public
accountants of the Company.
____ FOR ____ AGAINST ____ ABSTAIN
Account No. No. of Shares Proxy No.
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
all nominees for director and FOR the action described in each of the Items
above. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting or any adjournment thereof.
Please sign exactly as the name appears below. When shares are held by joint
tenants, both should sign.
<PAGE> 328
-3-
Dated ____________________________________________
Signature _________________________________________
Signature _________________________________________
(if held jointly)
______________________________
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PAPER PROMPTLY USING THE ENCLOSED
ENVELOPE.
______________________________
<PAGE> 329
CARDIODYNE, INC.
95 Clinton Road
Brookline, Massachusetts 02146
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Paul Epstein and Patrick G. Phillipps or either
of them as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote as designated below, all the shares of
common stock of CardioDyne, Inc. (the "Company") held of record by the
undersigned on September 5, 1995, at the Special Meeting of Stockholders (the
"Meeting") to be held on October 17, 1995 or any adjournment thereof.
1. To approve and adopt the Merger Agreement.
____ FOR ____ AGAINST ____ ABSTAIN
Account No. No. of Shares Proxy No.
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
the action described in Item No. 1 above. In their discretion, the Proxies are
authorized to vote upon such other business as may properly come before the
Meeting or any adjournment thereof.
Please sign exactly as the name appears below. When shares are held by joint
tenants, both should sign.
Dated ____________________________________________
Signature _________________________________________
Signature _________________________________________
(if held jointly)
______________________________
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PAPER PROMPTLY USING THE ENCLOSED
ENVELOPE.
______________________________
<PAGE> 330
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended October 31, 1994 [Fee
Required]
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _____________ to _____________
Commission File Number: 0-14961
LUXTEC CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2741310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
326 CLARK STREET, WORCESTER, MASSACHUSETTS 01606
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(508) 856-9454
Securities registered pursuant to Section 12(b) of the Act:
AMERICAN STOCK EXCHANGE - EMERGING COMPANY MARKETPLACE
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting Common Stock held by
non-affiliates of the registrant was approximately $3,008,606 based on the
closing bid price of such stock on December 30, 1994, as reported by the
American Stock Exchange Emerging Company Marketplace ($3.63 per share).
As of January 5, 1995, 1,432,565 shares of Common stock, $.01 par value,
were issued and outstanding.
<TABLE>
<CAPTION>
Documents Incorporated by Reference Form 10-K Reference
----------------------------------- -------------------
<S> <C>
Proxy Statement for the next Annual Meeting Part III
or special meeting in lieu thereof.
</TABLE>
Page 1
<PAGE> 331
PART I
ITEM 1. BUSINESS
The Corporation
Luxtec Corporation, a Massachusetts Corporation (the "Corporation" or
"Luxtec"), was organized in November 1981, and is engaged in the design,
manufacture, marketing and distribution of fiber optic headlight and video
camera systems, light sources, cables, retractors, surgical telescopes and other
custom made surgical equipment for the medical and dental industries. Through
its subsidiary, Fiber Imaging Technologies, Inc., the Corporation also
manufactures small diameter specialty endoscopes for industrial and medical
markets.
The Corporation has developed a proprietary, totally programmable, fiber
optic drawing system designed to manufacture optical glass to a predetermined
diameter as well as to control the actual size of the fiber bundles. The fibers
are utilized in fiber optic cables which are incorporated with the Corporation's
Surgical Headlight Systems and the Video Camera Systems as well as in an array
of fiber optic transilluminators utilized with the Corporation's surgical
instruments. The Corporation also markets replacement fiber optic cables and
light sources for use with other manufacturers' products, including various
endoscopic systems used in minimally invasive surgical procedures.
The Corporation maintains its principal executive offices and facilities at
326 Clark Street, Worcester, Massachusetts 01606, and its telephone number is
(508) 856-9454.
Background and Technology
Fiber optics allow for the transmission, element by element, of a light or
image from one place to another through a flexible conduit. Fiber optic
technology permits the drawing of high quality optical glass rods and tubes into
flexible fibers, each coated with a "jacket" (a film of an organic silicon),
that protects the fibers from abrasion. This provides for an improved ability to
bend and transmit light and images to and from inaccessible places.
The technology used by Luxtec to provide illumination directly to the
surgical site is facilitated by fiber optic cables piping light into an
adjustable headlight composed of a series of lenses and mirrors mounted on a
headband. These lenses then focus the light directly on the surgical site when
worn by the surgeon. This provides a lightweight, low temperature illumination
source to enhance visualization for microsurgical and deep cavity illumination.
State of the art microsurgery often involves working on anatomical structures
smaller than 1 millimeter in diameter. To work on such small structures, the
surgeon often needs high quality, portable, magnification devices. The new
Luxtec telescopes are designed to offer both high quality magnification with
coincident illumination.
Page 2
<PAGE> 332
Products of the Corporation
Headlight Systems The Corporation has designed and manufactured a line of
fiber optic headlight systems that assist surgeons by illuminating the area of
the surgical procedure. Designed to provide maximum performance and comfort, the
Corporation's headlight system is lightweight and provides the surgeon with near
coaxial view. The Corporation's patented headlight systems provide a virtually
unobstructed view of the area of surgical procedure.
Light Sources A fiber optic light source with solid state electronics
permits the precise regulation of electric current in order to control
illumination levels of Xenon and Halogen lamps and, thereby, eliminates
fluctuations or "flickering" in the light provided. The lamps illuminate the end
surface of the fiber optic cable through which the light is transmitted in a
rigid or flexible mode without heat. The Corporation manufactures a product line
of high quality, solid state Xenon and Halogen fiber optic light sources. The
light intensities offered by the Corporation's light sources cover a wide range
in order to serve the varying requirements in illuminating surgical and
diagnostic procedures. The Corporation's light sources are designed and
manufactured to comply with U.L. 544 medical safety standards and are listed
domestically with ETL Laboratories. Internationally, the Corporation works to
achieve compliance with as many international standards as necessary to compete
effectively on a worldwide basis.
The Corporation's model numbers 9175 and 9300 Xenon light sources produce
high intensity light that is the equivalent of daylight in color. The white
light produced by these light sources is used in instances where more intense
illumination is required, e.g., for arthroscopic television surgery or for use
with the Corporation's Videolux television camera products.
Fiber Optic Cables The Corporation designs and manufactures a complete
range of fiber optic cables and holds patents on certain fiber optic cable
assemblies. See "Patents and Proprietary Information." The Corporation has a
range of fiber bundle diameters from 1.0 mm to 6.5 mm and also allows a surgeon
to choose from various angulations (180 degree, 90 degree and 45 degree) in
order to optimize the use of surgical instruments. The Corporation employs a
proprietary technology that enables the fiber optic interface to withstand
significantly higher temperatures and that permits the use of higher output
light sources.
All of the Corporation's fiber optic cables are adaptable to competitors'
light sources. The Corporation's Component Cable System allows the end-user to
adapt the end fitting of each cable to their own needs. The Component Cable
System is designed to provide the flexibility of universal cables by
incorporating a patented process to permanently attach select end fittings to
the cable and, thereby, customize the cable according to the user's needs,
either at the point of manufacturing or at the customer's site. This allows the
customer to reduce the inventory of replacement cables and facilitates a rapid
turnaround when a cable needs to be replaced in the operating room, clinic, or
surgi - center.
Page 3
<PAGE> 333
Fiber Optic Headlight and Video Camera Systems The Corporation manufactures
and markets a series of video products that are currently being used in the
United States and approximately 26 countries around the world. The Corporation's
Videolux Headlight Camera Systems are designed to televise most surgical
procedures. The system is a very small, lightweight, solid state television
camera mounted at the front of a headband, manufactured by the Corporation, and
integrated with fiber optic illumination.
The Corporation's Videolux System can transmit the surgeon's eye view of
the procedure live to a television monitor for teaching purposes or to be
recorded for later use. The Videolux Cameras are available in the NTSC (National
Television System Committee) and PAL (Phase Alternation by Line) formats as well
as in all voltages required worldwide.
Surgical Telescopes The Corporation manufactures and markets a proprietary
line of surgical telescopes. The custom fit telescopes provide the surgeon with
increased magnification ranging from 2.5X to 6X. During the fourth quarter of
Fiscal Year 93, the Corporation introduced illumination to the surgical
telescope, utilizing fiber optic delivery of light into the line of sight and
thus providing the first surgical telescope with coaxial illumination. These
products are part of the current product offering of the Corporation.
Patents and Proprietary Information
The Corporation maintains a policy of seeking patent protection in
connection with certain elements of its technology when it believes that such
protection will benefit the Corporation. The Corporation owns the following U.S.
Patents (date of issuance shown in parentheses):
* Patent No. 4516190 for Surgical Headlight (May 7, 1985)
* Patent No. 4534617 for Fiber Optic Cable (August 13, 1985)
* Patent No. 4616257 for Headlight Camera System (October 7, 1986)
* Patent No. 4653848 for 45 degree and 90 degree Fiber Optic Cables
(March 31, 1987)
* Patent No. 4797736 for Videolux Television Fiber Optic Headlight
Camera System (January 10, 1989)
* Patent No. 5042930 for Optical System allowing coincident viewing,
illuminating and photography (August 27, 1991)
* Patent No. 5078469 for Optical System allowing coincident viewing,
illuminating and photography (January 7, 1992)
* Patent No. 5220453 for telescopic spectacles with coaxial illumination
(June 15, 1993)
* Patent No. 5295052 for a light source assembly (March 15 1994)
* Patent No. D345368 for surgical telescopes (March 22, 1994)
* Patent No. 5307432 for crimped light source termination (April 26,
1994)
* Patent No. 5331357 for an illumination assembly (July 19, 1994)
* Patent No. D349123 for spectacles having integral illumination (July
26, 1994)
* Patent No. D350760 for an eyeglass frame temple (September 20, 1994)
In addition, the Corporation has entered into an exclusive license
agreement with InterMED Corporation for the rights to Patent No. 5,222,949
("In-Vivo Hardenable Catheter") for developing a line of catheters incorporating
fiber optics to facilitate several potential specialized applications.
Page 4
<PAGE> 334
The Corporation is the owner of three federal trademark registrations: (i)
LUXTEC, registration number 1,453,098, registered August 18, 1987; (ii) LUXTEC
(and design), registration number 1,476,726, registered February 16, 1988; and
(iii) LUXTEC (stylized), registration number 1,758,176, registered March 16,
1993.
In general, the Corporation relies on its development and manufacturing
efforts and skills of its personnel rather than patent protection to establish
and maintain its industry position. The Corporation treats its design and
technical data as confidential and relies on nondisclosure agreements, trade
secrets laws and non-competition agreements to protect its proprietary position.
There can be no assurance that these measures will adequately protect the
Corporation's proprietary technologies.
Marketing and Sales
The Corporation's customers are acute care hospitals, clinics, surgi -
centers, and surgeons. An estimated 33,000 surgeons use the Corporation's
products, on a worldwide basis. The Corporation's products provide illumination
and magnification used during the surgical procedure.
The Corporation distributes its products through regional specialty
surgical distributors, supported by Luxtec field specialists as well as a
customer support team located in the Worcester facility. Internationally, Luxtec
distributes through a network of local distributors. The Corporation currently
has distributors in 27 countries.
The Corporation competes on the basis of price, product quality and
reliability. The Corporation believes that its large base of satisfied users is
also a key marketing advantage and that the combination of satisfied customers
and quality products positions the corporation as one of the premium vendors in
the marketplace. The Corporation believes that it provides a higher standard of
post sales support when compared to the competition and that the combination of
service and a three year warranty stands as a significant market
differentiation.
The Corporation's marketing strategy is to provide training and support for
the distributor channel, to enhance end user awareness and demand by
participating as an exhibitor at major medical meetings, and to insure that the
Corporation provides high quality and performance of its products.
Competition
The Corporation competes with national and international companies engaged
in the manufacture of headlight systems, including B.F. Wehmer and Designs for
Vision, and in fiber optic medical instruments with Pilling Weck Company, the
Stryker Company and Richard Wolf & Company as well as other smaller diversified
companies. In the replacement cable market, the Corporation competes with both
original equipment manufacturers as well as others engaged in activities similar
to that of the Corporation. The Corporation is not aware of any specific
seasonal variation factors that directly effect net sales levels.
The Corporation's management believes that direct competition in the light
source market comes from several established companies having considerably
larger and greater financial and human resources, including Designs for Vision,
Olympus, B.F. Wehmer, Karl Storz Company, and Richard Wolf & Company.
Page 5
<PAGE> 335
Government Regulation
The Corporation's products are subject to government regulation in the
United States and other countries. In order to test clinically, produce and
market products for human diagnostic or therapeutic use, the Corporation must
comply with mandatory procedures and safety standards established by the United
States Food and Drug Administration ("FDA") and comparable state and foreign
regulatory agencies. Typically, products must meet regulatory standards as safe
and effective for their intended use prior to being marketed for human
applications. The clearance process is expensive and time consuming, and no
assurance can be given that any agency will grant clearance for the sale of the
Corporation's products or that the length of time the process will require will
not be extensive. The Corporation's facility is in compliance with the Federal
Food and Drug Administration requirements for Good Manufacturing Practice.
Major Customers
For the year ended October 31, 1994, one customer, Specialty Surgical
Instruments, accounted for 15% of the Corporation's sales.
Research and Development
The Corporation spent approximately $437,000 for product development in
fiscal year 1994, $270,000 in fiscal 1993, and $276,000 in fiscal 1992. The
Corporation expects that the increased level of investment in product
development will result in a series of product introductions during fiscal 1995.
Manufacturing and Suppliers
The Corporation purchases components and materials from more than 300
vendors. The Corporation believes it can purchase substantially all of its
product requirements from other competing vendors under similar terms. The
Corporation has no long-term contract with any supplier.
Backlog
At October 31, 1994, the Corporation's backlog was $181,154, compared to
$475,117 at October 31, 1993. The Corporation generally ships products within
three weeks of the receipt of an order from a customer. The Corporation does not
believe that its backlog accurately predicts the amount of quarterly or annual
revenues.
Employees
As of October 31, 1994, the Corporation had 52 full time employees, of whom
three are executives, two are engaged in supervisory capacities, 25 are in
manufacturing and the remainder are involved in engineering, research and
development, marketing and administration. None of the Corporation's employees
are covered by a collective bargaining agreement. The Corporation believes its
employee relations are good.
Executive Officers
For information with respect to the Executive Officers of the Corporation,
see the section entitled "Election of Directors" appearing in the Corporation's
Proxy Statement in connection with its next Annual Meeting of Shareholders or
special meeting in lieu thereof, which section is incorporated herein by
reference.
Page 6
<PAGE> 336
ITEM 2. PROPERTIES
The Corporation occupies approximately 22,000 square feet at 326 Clark
Street, Worcester, Massachusetts under a lease that expires in September 1996.
The Corporation believes that this space is adequate to meet its current
requirements and that alternative space would be available at comparable prices
should the lease not be extended after its expiration.
ITEM 3. LEGAL PROCEEDINGS
The Corporation is not a party to, nor is any of its property the subject
of, any material pending legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, whether through
solicitation of proxies or otherwise, during the fourth quarter of the
Corporation's fiscal year ended October 31, 1994.
Page 7
<PAGE> 337
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Corporation's Common Stock is traded on the American Stock Exchange
Emerging Company Marketplace (AMEX) under the AMEX symbol "LXU.ECM." The
Corporation's Common Stock has been listed on the American Stock Exchange since
April 20, 1994. From September, 1986 until April, 1994 the Corporation's Common
Stock was traded in the over-the-counter market on the National Association of
Securities Dealers, Inc. Automated Quotations System (NASDAQ) under the NASDAQ
symbol "LUXT." The following table sets forth (i) the high and low closing bid
prices for the Corporation's Common Stock as reported by NASDAQ for the periods
indicated below until April 19, 1994, and (ii) the high and low closing sale
prices of the Corporation's Common Stock on the AMEX during the periods
indicated below commencing on April 20, 1994.
<TABLE>
<CAPTION>
Common Stock
----------------------
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended 10/31/93
First Quarter $ 2.63 $ 1.75
Second Quarter 2.63 1.38
Third Quarter 2.00 1.25
Fourth Quarter 1.75 1.31
Fiscal Year Ended 10/31/94
First Quarter 2.25 1.50`
Second Quarter 2.13 1.50
Third Quarter 10.13 2.13
Fourth Quarter 7.75 3.75
</TABLE>
On December 30, 1994, the closing sale price of the Corporation's Common
Stock on the American Stock Exchange Emerging Company Marketplace was $3.63.
As of December 30, 1994, there were approximately 823 holders of record of
the Corporation's Common Stock. The Corporation estimates that there are
approximately 1,600 beneficial holders of the Corporation's Common Stock.
The Corporation has not paid any cash dividends since its inception and the
Board of Directors does not contemplate doing so in the near future. The Board
of Directors currently intends to retain any future earnings for use in the
Corporation's business.
Page 8
<PAGE> 338
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated statements of operations data presented below for
the years ended October 31, 1994, 1993, 1992 and 1991 and the consolidated
balance sheet data at October 31, 1994, 1993, 1992 and 1991 are derived from and
qualified by reference to the Corporation's consolidated financial statements
that have been audited by Arthur Andersen LLP, the Corporation's independent
public accountants. The consolidated operating data for the year ended October
31, 1990, and the consolidated balance sheet data as of October 31, 1990, are
derived from financial statements audited by KPMG Peat Marwick, independent
public accountants. The information set forth below should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
herein. This data reflects the Corporation's one-for-ten Common Stock reverse
split effected April 10, 1992 for all periods presented.
<TABLE>
<CAPTION>
Operating Data: (In thousands, except for per share data)
Years Ended October 31,
-----------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales ....................................... $8,139 $6,734 $6,040 $5,474 $4,016
Net Earnings ................................ 164 153 407 368 112
------ ------ ------ ------ ------
Net Earnings per Share ...................... .11 .11 .29 .26 .08
====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
(In thousands)
--------------
Balance Sheet Data: Years Ended October 31,
------------------- -----------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital ............................. $1,410 $1,210 $1,056 $ 743 $ 351
Total Assets ................................ 4,072 3,431 2,763 2,259 2,374
Long-term debt and capital lease obligations,
less current portions ....................... -- -- 67 28 48
Stockholders' equity ........................ 2,163 1,957 1,804 1,397 1,029
</TABLE>
Page 9
<PAGE> 339
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This analysis of the Corporation's financial condition, capital resources
and results of operations should be read in conjunction with the accompanying
financial statements, including notes thereto.
Results of Operations
The following table sets forth certain consolidated financial data as a
percentage of revenue for the fiscal years ended October 31, 1994, 1993 and
1992.
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Sales 100% 100% 100%
Cost of Goods Sold 55 57 57
Selling 22 20 14
Research and development 5 4 5
General and administrative 15 16 16
Other income/(expense) - - -
Earnings before taxes 3 3 8
Provision for income taxes 1 - 1
Net earnings 2 3 7
</TABLE>
Fiscal 1994 Compared with Fiscal 1993
Sales: Sales increased to $8,138,903 in fiscal 1994 compared to $6,734,477
in fiscal 1993, an increase of 21%. The reasons for the increase in sales
included: (1) the startup of a new subsidiary - Fiber Imaging Technologies
during the second quarter of fiscal 1994, (2) a new product introduction at the
end of fiscal 1993 - Illuminated Surgical Telescopes, (3) continuing increases
of unit sales of the Xenon Headlight Systems, primarily resulting from increased
marketing and selling expenditures, and (4) the expansion of geographic
distributor coverage of Luxtec's products.
The Corporation expects sales to continue to increase, although possibly at
a lower rate, due to the following factors: (1) Fiber Imaging Technologies will
contribute for the full year fiscal 1995 compared to the partial year
contribution during fiscal 1994, (2) the Corporation expects to upgrade existing
products and to introduce new products in fiscal 1995, (3) the Corporation
expects to expand distribution channels to include South America, where the
Luxtec products have not previously been available, and (4) the uncertainties of
a possible national health plan have been reduced.
Cost of Goods Sold: Cost of goods sold was $4,432,219 or 55% of net sales
for fiscal 1994 compared with $3,832,848 or 57% of net sales for fiscal 1993.
The Luxtec cost reduction program was successful in lowering costs during fiscal
1994, primarily through the negotiation of better vendor terms, and, to a lesser
extent, the design of lower cost products. This cost reduction program will
continue in place during fiscal 1995. However, the emphasis will shift so that a
greater percentage of the cost reduction will be the result of new designs. The
goals for this effort will include a combination of cost reduction, improved
product performance, and better parts commonality to reduce the variety of raw
materials required for production.
Page 10
<PAGE> 340
Gross Profit: Gross Profit was $3,706,684 or 45% of net sales for fiscal
1994 compared with $2,901,629 or 43% of net sales for fiscal 1993. During the
year Luxtec experienced price competition in most of its markets, resulting in
lower average selling prices per product than in fiscal 1993. However, a
combination of product cost reduction and favorable product mix resulted in
improved margins as a percentage of net sales. The Corporation expects this
trend to continue due to the introduction of products with higher gross margins
during fiscal 1995 and the designing of lower cost versions of the current
product line. The growth expected of Fiber Imaging Technologies sales will
favorably impact the margin percentage. Improvements in gross margins will
continue to be offset by expected price competition from some competitors, as
well as a shift toward a greater proportion of revenues from OEM business.
Selling Expenses: Selling expenses of $1,793,137 for fiscal 1994 compared
to $1,370,479 for fiscal 1993 increased by $422,688 or 31%. During fiscal 1994,
Luxtec added two new regional managers, including one in the Midwest and one in
Europe, to develop distribution in their respective areas. The Corporation
continued to attend trade shows and improve sales and marketing programs.
Management expects to continue to invest in sales and marketing programs at
about the fiscal 1994 percentage level.
Research and Development: Research and development expenses were $437,064
in fiscal 1994 compared to $270,445 in fiscal 1993, an increasing of $166,619 or
62%. Luxtec's research and development staff has hired new personnel in a number
of important technical areas. The increase in research and development
expenditures will continue during fiscal 1995 as Luxtec focuses on preparing its
product lines for the future.
General and Administrative: General and administrative expenses were
$1,261,356 in fiscal 1994 compared to $1,064,634 in fiscal 1993, representing an
increase of $196,722 or 18%. During fiscal 1994, Luxtec initiated a series of
new investor relations programs, as well as contracting an investment banking
firm to assist the corporation in transactions relating to the acquisition of
new technologies.
Interest: Interest expense was $31,868 for fiscal 1994 compared with
$30,727 in fiscal 1993. Higher credit line balances and increased interest
rates accounted for the increase.
Page 11
<PAGE> 341
Fiscal 1993 Compared with Fiscal 1992
Sales: Sales increased to $6,734,477 in fiscal 1993 compared to $6,040,448
in fiscal 1992, an increase of 11%. The increase in sales is attributable to
increased unit sales of the Corporation's Xenon headlight systems.
Cost of Goods Sold: Cost of goods sold was $3,832,848, or 57% for fiscal
1993 compared with $3,425,503 or 57% for fiscal 1992. Original Equipment sales
increased during 1993, with a corresponding higher average cost of sales
percentage. Product cost reductions were attained that offset the negative
effect of the change in product sales mix.
Selling Expenses: Selling expenses of $1,370,479 for fiscal 1993 compared
to $873,223 for fiscal 1992 increased by approximately $497,000 or 57%. The
increased spending resulted from management's decision to devote a greater
portion of the Corporation's resources to growth in sales. Additional sales
personnel and greater attendance at trade shows made up the largest percentage
of the increased spending.
Research and Development: Research and development expenses were $270,445
in fiscal 1993 compared to $276,407 in fiscal 1992 and decreased by
approximately $6,000. The decrease is attributed to the completion of
development of the three new products that were released for production in
October 1992.
General and Administrative: General and administrative expenses were
$1,064,634 in fiscal 1993 compared to $992,606 in fiscal 1992 and represent an
increase of approximately $72,000. The increased spending is primarily
attributable to increased payroll expenses, including non-recurring costs
related to the resignation of the former President of the Corporation and a
reserve related to certain arbitration proceedings in which the Corporation is
involved.
Interest: Interest expense was $30,727 for fiscal 1993 compared with
$20,155 in fiscal 1992. Higher credit line balances accounted for the increase.
Inflation
Inflation has not had, nor is it anticipated to have, a significant impact
on revenues or costs and expenses of the Corporation, except to the extent of
normal cost of living adjustments related to labor costs.
Environmental Liability
The Corporation has no known environmental violations or assessments.
Page 12
<PAGE> 342
Liquidity and Capital Resources
At October 31, 1994, the Corporation had working capital of approximately
$1,410,000 compared to $1,210,000 at October 31, 1993. Accounts receivable
increased by 36% and inventories grew by 11%. Accounts receivable growth was
somewhat higher than sales growth of 21%, but the Corporation considers the
number of days sales outstanding in accounts receivable to be acceptable. The
inventory growth was primarily the result of increased finished products used by
customers during evaluation periods in competitive sales situations. The
revolving credit line increased to approximately $607,000 at the end of fiscal
1994, compared to approximately $206,000 at the end of fiscal 1993. Cash used by
operating activities was approximately $203,000 in 1994, including a $100,000
payment to a former employee in partial settlement of an arbitration case. A
further $90,000 will be paid during fiscal 1995 as final payment in the case.
The principal source of short-term borrowings during the year was an
unsecured $1,000,000 revolving credit agreement, expiring on March 31, 1995. At
October 31, 1994, the credit line borrowings balance was approximately $607,000.
Borrowings ranged from a high of $769,252 to a zero balance during the year. The
average borrowing during the year was $262,358 and the weighted average interest
rate was 6.91%. The interest rate at the end of the fiscal year was 7.75%.
The Corporation anticipates that its current cash requirements will be
satisfied by cash flow from existing operations and the continuation of a
revolving credit arrangement with a bank.
Page 13
<PAGE> 343
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Public Accountants 15
Consolidated Balance Sheets as of
October 31, 1994 and October 31, 1993 16
Consolidated Statements of Earnings
for the years ended October 31, 1994,
October 31, 1993 and October 31, 1992 17
Consolidated Statements of Stockholders'
Equity for the years ended October 31, 1994,
October 31, 1993 and October 31, 1992 18
Consolidated Statements of Cash Flows
for the years ended October 31, 1994,
October 31, 1993 and October 31, 1992 19
Notes to Consolidated Financial Statements 20 - 25
</TABLE>
Page 14
<PAGE> 344
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Luxtec Corporation:
We have audited the accompanying consolidated balance sheets of Luxtec
Corporation and subsidiaries as of October 31, 1994 and 1993 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended October 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Luxtec Corporation
and subsidiaries as of October 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1994, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
-----------------------------
Arthur Andersen LLP
Boston, Massachusetts
December 2, 1994
Page 15
<PAGE> 345
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31,
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 10,329 $ 13,667
Accounts receivable, less allowance for
doubtful accounts of $53,158 in 1994
and $50,000 in 1993 1,668,009 1,230,103
Inventories 1,519,648 1,374,944
Prepaid expenses 120,571 65,362
-----------------------------
TOTAL CURRENT ASSETS 3,318,557 2,684,076
PLANT AND EQUIPMENT, AT COST 1,784,928 1,684,473
ACCUMULATED DEPRECIATION AND
AMORTIZATION (1,280,105) (1,113,692)
-----------------------------
PLANT AND EQUIPMENT - NET 504,823 570,781
OTHER ASSETS, net of accumulated amortization of
$33,530 and $26,659 at October 31, 1994 and 1993,
respectively 248,463 175,866
=============================
TOTAL ASSETS $ 4,071,843 $ 3,430,723
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Demand note payable $ 607,158 $ 205,871
Current portion of long-term debt -- 52,500
Current portion of capital leases -- 11,213
Accounts payable 929,651 926,451
Accrued expenses 371,610 278,086
-----------------------------
TOTAL CURRENT LIABILITIES 1,908,419 1,474,121
COMMITMENTS (note 7)
STOCKHOLDERS' EQUITY
Common stock - $.01 par value
Authorized: 2,000,000 shares; issued and outstanding 1,421,200
shares in 1994 and 1,401,200 shares in 1993 14,212 14,012
Additional paid-in capital 2,990,316 2,948,016
Accumulated deficit (841,104) (1,005,426)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 2,163,424 1,956,602
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 4,071,843 $ 3,430,723
=============================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 16
<PAGE> 346
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended October 31,
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 8,138,903 $ 6,734,477 $ 6,040,448
COST OF GOODS SOLD 4,432,219 3,832,848 3,425,503
-----------------------------------------------
GROSS PROFIT 3,706,684 2,901,629 2,614,945
OPERATING EXPENSES:
Selling 1,793,137 1,370,479 873,223
Research and development 437,064 270,445 276,407
General and administrative 1,261,356 1,064,634 992,606
-----------------------------------------------
TOTAL OPERATING EXPENSES 3,491,557 2,705,558 2,142,236
-----------------------------------------------
INCOME FROM OPERATIONS 215,127 196,071 472,709
OTHER INCOME (EXPENSE):
Interest expense (31,868) (30,727) (20,155)
Interest income 8 5 861
Other income (expense) (2,679) 2004 2,345
-----------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (34,539) (28,718) (16,949)
-----------------------------------------------
EARNINGS BEFORE INCOME TAXES 180,588 167,353 455,760
INCOME TAXES:
State - current (16,266) (14,555) (48,634)
===============================================
NET EARNINGS $ 164,322 $ 152,798 $ 407,126
===============================================
NET EARNINGS PER SHARE OF COMMON
STOCK $ 0.11 $ 0.11 $ 0.29
===============================================
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 1,487,823 1,401,532 1,404,375
===============================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 17
<PAGE> 347
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended October 31, 1994 , 1993 and 1992
<TABLE>
<CAPTION>
Common Stock Additional
$.01 par value paid-in Accumulated
Shares Amount capital deficit Total
------ -------------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1991 1,401,200 $ 14,012 $2,948,016 (1,565,350) $1,396,378
Net earnings -- -- -- 407,126 407,126
------------------------------------------------------------------------
Balance, October 31, 1992 1,401,200 14,012 2,948,016 (1,158,224) 1,803,804
Net earnings -- -- -- 152,798 152,798
------------------------------------------------------------------------
Balance, October 31, 1993 1,401,200 14,012 2,948,016 (1,005,426) 1,956,602
Net earnings -- -- -- 164,322 164,322
Issuance of common stock for
patent rights 20,000 200 42,300 -- 42,500
------------------------------------------------------------------------
Balance, October 31, 1994 1,421,200 $ 14,212 $2,990,316 (841,104) $2,163,424
========================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 18
<PAGE> 348
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended October 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
NET EARNINGS $ 164,322 $ 152,798 $ 407,126
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET
CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
Depreciation and amortization 173,284 205,173 201,399
Provision for uncollectible accounts receivable 27,500 10,230 5,000
Changes in currents assets and liabilities:
Increase in accounts receivable (465,406) (284,297) (146,646)
Increase in inventory (144,704) (605,297) (58,329)
Increase in prepaid expenses (55,209) (1,877) (41,583)
Increase in accounts payable 3,200 361,742 151,654
Increase in accrued expenses 93,524 73,388 19,426
-----------------------------------------
TOTAL ADJUSTMENTS (367,811) (240,938) 130,921
-----------------------------------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (203,489) (88,140) 538,047
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment (100,455) (95,164) (180,033)
(Increase) in other assets (36,968) (41,378) (32,129)
-----------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES (137,423) (136,542) (212,162)
-----------------------------------------
CASH FLOWS FORM FINANCING ACTIVITIES:
Net borrowings (payments) on revolving credit arrangement 401,287 168,554 (152,683)
Payments on long-term debt (52,500) (70,000) --
Payments under capital lease obligations (11,213) (19,228) (43,709)
-----------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 337,574 79,326 (196,392)
-----------------------------------------
NET INCREASE (DECREASE) IN CASH (3,338) (145,356) 129,493
CASH , BEGINNING OF PERIOD 13,667 159,023 29,530
-----------------------------------------
CASH , END OF PERIOD $ 10,329 $ 13,667 $ 159,023
=========================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 19
<PAGE> 349
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1994
(1) Nature of Business
Luxtec Corporation (the Corporation) designs, manufactures and markets
fiber-optic headlights and headlight television camera systems (for audio/video
recordings of surgical procedures), light sources, cables, retractors, loupes,
surgical telescopes, and other custom-made surgical specialty instruments
utilizing fiber-optic technology for the medical and dental industries.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Foreign Currency Remeasurement
The accompanying consolidated financial statements include the accounts of
the Corporation and its majority owned subsidiaries: Luxtec Fiber Optics B.V.,
Fiber Imaging Technologies, Inc., and Cathtec, Inc. All intercompany accounts
and transactions have been eliminated in consolidation.
The accounts and transactions of Luxtec Fiber Optics B.V. are remeasured
into U.S. dollars using the applicable historical, current and weighted-average
exchange rates. All exchange gains and losses from remeasurement of assets and
liabilities are currently recognized in income. The gains and losses recognized
due to foreign currency exchange were insignificant in 1994, 1993 and 1992.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method and includes materials, labor and
manufacturing overhead.
(c) Plant and Equipment
Plant and equipment are stated at cost. Depreciation and amortization are
calculated using the straight-line method over the estimated useful lives of the
assets.
Leasehold improvements and equipment under capital lease are amortized
using the straight-line method over the shorter of the lease term or estimated
useful life of the asset.
(d) Other Assets
Other assets consist principally of patent costs that are amortized using
the straight-line method over 17 years. During the year ended October 31, 1994,
the Corporation issued 20,000 shares of common stock to an individual in
exchange for patent rights, valued at $42,000.
Page 20
<PAGE> 350
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1994
(2) Summary of Significant Accounting Policies (continued)
(e) Revenue Recognition
Revenue is recognized when goods are shipped, at which time all conditions
of sale have been met.
(f) Research and Development Costs
Research and development costs are charged to operations as incurred.
(g) Earnings Per Share
Earnings per share of common stock are based on the weighted average number
of common shares outstanding and common equivalent shares from dilutive stock
options.
(h) Stock Split
Effective April 10, 1992, the Corporation effected a one-for-ten common
stock reverse split. All share and per share amounts in the accompanying
financial statements have been retroactively restated to reflect this stock
split.
(3) Inventories
Inventories consist of the following at October 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Raw material $ 877,410 $1,003,761
Work in process 96,097 73,133
Finished goods 546,141 298,050
---------------------------------
$1,519,648 $1,374,944
=================================
</TABLE>
Page 21
<PAGE> 351
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1994
(4) Plant and Equipment
Plant and equipment and their respective useful lives are as follows at
October 31, 1994, and 1993:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1994 1993
------------ ---- ----
<S> <C> <C> <C>
Machinery and equipment 5-10 years $1,155,078 $1,133,344
Molds and tooling 5 years 144,293 126,975
Furniture and fixtures 10 years 300,316 265,245
Leasehold improvements life of lease 185,241 158,909
===========================
$1,784,928 $1,684,473
===========================
</TABLE>
(5) Accrued Expenses
Accrued expenses consist of the following at October 31, 1994, and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Accrued professional fees $ 44,454 $ 39,367
Accrued payroll and bonuses 101,100 101,024
Accrued marketing expenses 13,403 11,537
Other accrued expenses 212,653 126,158
==============================
$ 371,610 $ 278,086
==============================
</TABLE>
(6) Revolving Credit Line
The Corporation entered into a revolving credit line arrangement with the
bank with a maximum borrowing limit of $1,000,000 expiring on March 31, 1995.
Borrowings bear interest at the bank's prime rate (7.75% at October 31, 1994)
and are unsecured. The Corporation had an outstanding balance of $607,158 as of
October 31,1994. The revolving credit line arrangement contains covenants
including the maintenance of certain financial ratios, as defined. At October
31, 1994, the Corporation was in compliance with all covenants as amended on
December 3, 1993.
Page 22
<PAGE> 352
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1994
(7) Commitments
The Corporation has noncancellable operating lease commitments that
consist principally of rentals of facilities, machinery and an automobile. Its
manufacturing and office facilities are leased under a two-year operating lease
expiring on September 30, 1996.
The future minimum lease payments under operating leases over their
remaining terms are as follows:
<TABLE>
<CAPTION>
Fiscal Operating
Year Leases
------ ---------
<S> <C>
1995 $178,410
1996 162,235
1997 28,867
1998 16,485
1999 2,694
--------
Total minimum lease payments $388,691
========
</TABLE>
Rent expense for operating leases was $138,000 in 1994, $132,000 in 1993
and $132,000 in 1992.
The Corporation also has a bonus plan covering its three executive
officers. During fiscal 1994, approximately $42,000 was earned and charged to
operations under this bonus plan.
(8) Stock Plans
The Corporation maintains a stock option plan (The 1992 Stock Plan) for
which 100,000 shares of the authorized and unissued common stock of the
Corporation is reserved. The Board of Directors voted to grant stock options in
accordance with this plan to certain employees to purchase an aggregate of
89,000 shares of the Corporation's common stock at exercise prices ranging from
$1.25 to $2.00 per share, vesting over 5 years and expiring 10 years from the
date of grant. As of October 31, 1994, options to purchase 35,000 shares were
exercisable.
The Employee Stock Purchase Plan was approved by the Stockholders at the
annual meeting of Stockholders which was held on April 21, 1994. All employees
of the Corporation who meet minimum service requirements are eligible to
purchase shares of Common Stock through payroll deductions. As of April 30,
1994, approximately 25,000 shares of Common Stock were available for use under
this plan. There were no purchases made as of October 31, 1994.
Page 23
<PAGE> 353
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1994
(9) Income Taxes
As of October 31, 1994 the Corporation had available net operating loss
carryforward of approximately $576,000, research and development credit
carryforwards of approximately $91,000, and general business credit
carryforwards of approximately $25,000 to reduce future federal income taxes, if
any. These carryforwards expire through 2009 and are subject to review and
possible adjustment by the Internal Revenue Service. The Tax Reform Act of 1986
limits a Corporation's ability to utilize certain net operating loss
carryforwards in the event of a cumulative change in ownership in excess of 50%,
as defined.
In February 1992, The Financial Accounting Standards Board issued SFAS No.
109, "Accounting for Income Taxes." The Corporation has adopted the provisions
of SFAS No. 109 by retroactively restating all periods presented in the
accompanying consolidated financial statements. There was no effect on net loss
or financial position of adopting the provisions of SFAS No. 109 for any period
presented.
The components of the net deferred tax amount recognized in the
accompanying consolidated balance sheets are set forth below:
<TABLE>
<CAPTION>
October 31,
-----------
1994 1993
---- ----
<S> <C> <C>
Deferred tax assets $ 346,000 $ 440,000
Deferred tax liabilities (62,000) (44,000)
Valuation allowance (284,000) (396,000)
</TABLE>
The appropriate tax effect of each type of temporary difference and
carryforward before allocation of valuation allowance is summarized as follows:
<TABLE>
<CAPTION>
October 31,
-----------
1994 1993
---- ----
<S> <C> <C>
Net operating losses $ 230,000 $ 324,000
Other temporary differences (62,000) (44,000)
Research and development credits 91,000 91,000
General business credits 25,000 25,000
--------- ---------
$ 284,000 $ 396,000
</TABLE>
Due to the uncertainty surrounding the timing of realizing the benefits
of its favorable tax attributes in future income tax returns, the Corporation
has placed a valuation allowance against its otherwise recognizable deferred tax
assets.
Page 24
<PAGE> 354
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1994
(10) Business Segment and Export Sales
The Corporation operates in one business segment -- the manufacture, sale
and distribution of a wide range of medical products using fiber-optics.
The Corporation operates from one location in the United States. Sales for
this operation totaled the following:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Unaffiliated U.S. Customers
Total sales $6,854,381 $5,715,481 $4,933,556
---------- ---------- ----------
Percent of total net sales 84% 85% 82%
---------- ---------- ----------
Export sales
Europe $ 877,533 $ 704,499 $ 744,380
Far East 406,989 314,497 362,512
---------- ---------- ----------
Total export sales $1,284,522 $1,018,996 $1,106,892
---------- ---------- ----------
Percent of total net sales 16% 15% 18%
---------- ---------- ----------
</TABLE>
(11) Major Customers
One customer, whose president is a member of the Corporation's Board of
Directors, accounted for 15% of total net sales in the fiscal years of 1994,
1993 and 1992.
Page 25
<PAGE> 355
LUXTEC CORPORATION
October 31, 1994
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the Directors and Executive Officers of the
Corporation, see the section entitled "Election of Directors" appearing in the
Corporation's Proxy Statement in connection with its next Annual Meeting of
Shareholders or special meeting in lieu thereof, which section is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
See the section entitled "Executive Compensation" appearing in the
Corporation's Proxy Statement in connection with its next Annual Meeting of
Shareholders or special meeting in lieu thereof, which section is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the section entitled "Election of Directors" appearing in the
Corporation's Proxy Statement in connection with its next Annual Meeting of
Shareholders or special meeting in lieu thereof, which section is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Louis C. Wallace is currently, and has been since 1989, a member of the
Board of Directors of the Corporation. Mr. Wallace is the founder and President
of Specialty Surgical Instrumentation, Inc. (SSI), a surgical distributor in ten
(10) southeastern states. SSI is the largest single customer of the Corporation,
representing approximately 15% of net sales during fiscal 1994. SSI and Luxtec
operate at arms length with a contract substantially the same as the other
domestic distributors of the Corporation's products. The Corporation expects
that SSI will represent approximately the same percentage of net sales during
fiscal 1995 as occurred during fiscal 1994.
Page 26
<PAGE> 356
LUXTEC CORPORATION
October 31, 1994
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of October 31, 1994 and October 31,
1993.
Consolidated Statements of Earnings for the years ended October 31,
1994, October 31, 1993 and October 31, 1992.
Consolidated Statements of Stockholders' Equity for the years ended
October 31, 1994, October 31, 1993 and October 31, 1992.
Consolidated Statements of Cash Flows for the years ended October 31,
1994, October 31, 1993 and October 31, 1992.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
No schedules are submitted because they are not applicable, not required or
because the information is included elsewhere herein.
Page 27
<PAGE> 357
LUXTEC CORPORATION
October 31, 1994
<TABLE>
<CAPTION>
3. Exhibits
-----------
Exhibit Description Designation
------- ----------- -----------
<S> <C> <C>
3A Articles of Organization 3A*
3B Amendment dated March 30, 1982
to Articles of Organization 3B*
3C Amendment dated August 9, 1984
to Articles of Organization 3C*
3D Amendment dated April 10, 1992
to Articles of Organization 3D**
3E By-Laws 3E*
4 Specimen of Stock Certificate 4 *
10L Lease for the premises in
Worcester, MA 10L
10N Employment Agreement with
James Hobbs 10N**
10O Luxtec Corporation 1992 Stock Plan 10O**
10P Mechanics Bank Revolving Credit
Agreement 10P**
10Q Supply Agreement with Zibra Corporation 10Q***
21 Luxtec Subsidiaries 21
23 Consent of Auditors 23
</TABLE>
*Previously filed as exhibits to the Corporation's
Registration Statement on Form S-18 SEC File No. 33-5514B
declared effective on July 7, 1986.
**Previously filed as exhibit to the Corporation's Report on Form 10-K for
fiscal year ended October 31, 1993.
***Previously filed as exhibits to the Corporation's Report on Form 10-Q
for quarter ended July 31, 1994.
Page 28
<PAGE> 358
LUXTEC CORPORATION
October 31, 1994
3. Exhibits (Continued)
(b) Reports on Form 8-K:
None
(c) Exhibits.
The Corporation hereby files as exhibits to this Form 10-K those
exhibits listed in Item 14 (a)(3), above, as being filed herewith.
(d) Financial Statement Schedules.
None.
Page 29
<PAGE> 359
LUXTEC CORPORATION
October 31, 1994
SIGNATURES
Pursuant to the requirements of Section 13 or 15(D) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Worcester, Commonwealth of Massachusetts, on the 17th day of January 1995.
LUXTEC CORPORATION
by /s/ JAMES W. HOBBS
----------------------
James W. Hobbs, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
S/James W. Hobbs President, Chief Jan 17, 1995
----------------------- Executive Officer
James W. Hobbs
S/Samuel M. Stein Chief Financial Jan 17, 1995
----------------------- Officer, Treasurer,
Samuel M. Stein Assistant Clerk
S/Gerald A. Maley Chairman of the Jan 19, 1995
----------------------- Board
Gerald A. Maley
S/Thomas J. Vander Salm Director Jan 18, 1995
-----------------------
Thomas J. Vander Salm
S/Lynn K. Friedel Director Jan 18, 1995
----------------------
Lynn K. Friedel
S/Louis C. Wallace Director Jan 18, 1995
----------------------
Louis C. Wallace
</TABLE>
Page 30
<PAGE> 360
Exhibits furnished pursuant to requirements
of FORM 10K
<TABLE>
<CAPTION>
Exhibit Description Designation
------- ----------- -----------
<S> <C> <C>
3A Articles of Organization 3A*
3B Amendment dated March 30, 1982
to Articles of Organization 3B*
3C Amendment dated August 9, 1984
to Articles of Organization 3C*
3D Amendment dated April 10, 1992
to Articles of Organization 3D**
3E By-Laws 3E*
4 Specimen of Stock Certificate 4 *
10L Lease for the premises in
Worcester, MA 10L
10N Employment Agreement with
James Hobbs 10N**
10O Luxtec Corporation 1992 Stock Plan 10O**
10P Mechanics Bank Revolving Credit
Agreement 10P**
10Q Supply Agreement with Zibra Corporation 10Q***
21 Luxtec Subsidiaries 21
23 Consent of Auditors 23
</TABLE>
*Previously filed as exhibits to the Corporation's
Registration Statement on Form S-18 SEC File No. 33-5514B
declared effective on July 7, 1986.
**Previously filed as exhibit to the Corporation's Report on Form 10-K for
fiscal year ended October 31, 1993.
***Previously filed as exhibits to the Corporation's Report on Form 10-Q
for quarter ended July 31, 1994.
Page 31
<PAGE> 361
EXHIBIT 21
Luxtec Corporation Subsidiaries
1. Luxtec Fiber Optics B.V., a company organized under the laws of the
Netherlands.
2. Cathtec, Inc., a Massachusetts Corporation.
3. Fiber Imaging Technologies, Inc., a Massachusetts Corporation.
Page 32
<PAGE> 362
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement on Form S-8 (File No. 33-83510).
/s/ Arthur Andersen LLP
------------------------
Arthur Anderson LLP
Boston, Massachusetts
January 24, 1995
Page 33
<PAGE> 363
EXHIBIT 10L
EXTENSION OF LEASE
THIS EXTENSION OF LEASE is made and entered into this 20th day of September,
1994 by and between UNITRODE CORPORATION, a Maryland corporation acting through
its Micro Networks Division (hereinafter "Landlord"), and LUXTEC CORPORATION, a
Massachusetts corporation (hereinafter "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into a lease agreement dated July 18, 1991
(the "Lease") for Premises (as defined in the Lease) located at 326 Clark
Street, Worcester, Massachusetts; and
WHEREAS, the Lease contains an option to extend the term of the Lease at a
rental as described in the Lease; and
WHEREAS, Tenant has exercised the said option,
NOW, THEREFORE, in consideration of the rental and of the covenants and
agreements herein contained, Landlord and Tenant hereby extend the Lease,
subject to and upon the terms and conditions, covenants and agreements
hereinafter set forth.
1. Term. The term of the Lease shall be extended for twenty-four (24) months,
commencing on October 1, 1994, and ending on September 30, 1996 unless
sooner terminated pursuant to the Lease.
2. Rent. Tenant shall pay to Landlord during the extended term as base rent
for the Premises, without deduction, offset, prior notice or demand, a
total rental of Two Hundred Seventy-seven Thousand Two Hundred Dollars
($277,200) payable in equal monthly installments of $11,550 in advance on
the first day of each month of the extended term hereof.
3. Option to Extend.
(a) If Tenant is not then in default under the terms of the Lease, Tenant
shall have the option to extend the current term of the Lease for an
additional two (2) years upon all the terms and conditions contained in the
Lease; provided, however, that the base rent for such additional extension
shall be adjusted pursuant to Section 3(b) hereof. Tenants option to extend
shall be exercised by Tenant providing Landlord with written notice of
Tenant's extension option exercise at least six (6) months prior to the
expiration of this extended term of the Lease.
(b) In the event Tenant so exercises its option to extend the Lease for an
additional term, base rent for the additional term shall be adjusted to the
<PAGE> 364
amount determined by multiplying the base monthly rent for the first
extended term by the percentage increase or decrease in the Consumer Price
Index, during the first extended term. The Consumer Price Index is the CPI
for Urban Wage Earners and Clerical Workers, All-Items, Boston,
Massachusetts (1982-84 = 100), as maintained by the U.S. Department of
Labor; provided, however, that in no event shall the base monthly rent
during the second extended term be increased by more than five (5%) percent
over the base monthly rent during the first extended term. If said index is
not maintained at the time the option to extend is exercised, a similar
index shall be used.
4. No Other Changes. Except as set forth herein, the Lease shall remain
unchanged and is hereby ratified and confirmed.
IN WITNESS WHEREOF, the Landlord and Tenant have executed this EXTENSION OF
LEASE as of the date and year first above written.
Landlord: Tenant:
UNITRODE CORPORATION LUXTEC CORPORATION
By: /s/ Allen R. Craig By: /s/ Samuel M. Stein
------------------------------ -------------------------------
Allen R. Craig Samuel M. Stein
Title: Sr. Vice President Title: Chief Financial Officer
Address: Address:
8 Suburban Park Drive 326 Clark Street
Billerica, MA 01821 Worcester, MA 01606
<PAGE> 365
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended October 31, 1994 [Fee
Required]
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _____________ to _____________
Commission File Number: 0-14961
LUXTEC CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2741310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
326 CLARK STREET, WORCESTER, MASSACHUSETTS 01606
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(508) 856-9454
Securities registered pursuant to Section 12(b)of the Act:
AMERICAN STOCK EXCHANGE - EMERGING COMPANY MARKETPLACE
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of class)
Securities registered pursuant to Section 12(g)of the Act:
NONE
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting Common Stock held by non-affiliates of
the registrant was approximately $3,008,606 based on the closing bid price of
such stock on December 30, 1994, as reported by the American Stock Exchange
Emerging Company Marketplace ($3.63 per share).
As of January 5, 1995, 1,432,565 shares of Common stock, $.01 par value, were
issued and outstanding.
Documents Incorporated by Reference Form 10-K Reference
None
Page 1
<PAGE> 366
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF LUXTEC CORPORATION
The following table sets forth, with respect to the members of the
Board of Directors and management of the Company, (i) the name, age and length
of service as a director or executive officer, (ii) the principal occupation and
business experience of such person for at least the past five years, (iii) the
names of other companies of which such person currently serves as a director or
executive officer, and (iv) the amount and percentage of Common Stock owned by
each such person as of February 20, 1995. The address for each person listed
below is c/o the Company at 326 Clark Street, Worcester, Massachusetts
01606-1214.
<TABLE>
<CAPTION>
Percent of
Amount of Common Common
Position and Offices with the Company and Other Business Stock Owned Stock
Name Experience During Last Five Years Directly Outstanding
---- --------------------------------- -------- -----------
<S> <C> <C> <C>
Louis C. Wallace Louis C. Wallace has been a Director of the Company since 1989. 19,250 1.34%
Age 54 Mr. Wallace is the founder and President of Specialty Surgical
Instrumentation, Inc. ("SSI"), a manufacturer and distributor of
surgical instruments. SSI was established in Nashville, TN in
1976. Mr. Wallace is a member of the Compensation Committee of
the Board of Directors.
James W. Hobbs James W. Hobbs was elected to the positions of President, Chief 4,100 *
Age 46 Executive Officer and Director in 1993. Mr. Hobbs was Chief
Executive Officer of Graylyn Associates from 1992 to 1993.
Graylyn was an investment firm founded by Mr. Hobbs to invest in
early stage medical technology. Prior to Graylyn, Mr. Hobbs
served as President and Chief Executive Officer of Genica
Pharmaceuticals from 1990 to 1992. Genica Pharmaceuticals is a
corporation engaged in providing new diagnostic assays and
conducting therapeutic research for neurological disorders. Mr.
Hobbs was with Johnson and Johnson Professional Diagnostics as
Vice President and General Manager from 1985 to 1989.
Lynn K. Friedel Lynn K. Friedel has been a Director of the Company since 1988. 1,500 *
Age 45 Ms. Friedel was employed at Termiflex Corporation of Merrimack,
NH, a manufacturer of hand held computer terminals, from 1986 to
1993, most recently as Vice President, Finance, Administration
and Manufacturing. Ms. Friedel is a member of the Audit and
Compensation Committees of the Board of Directors.
Thomas J. VanderSalm Dr. Thomas J. VanderSalm has been a Director of the Company since 45,700 (1) 3.19%
Age 54 1984. Dr. VanderSalm is Chief of Cardio Thoracic Surgery and has
been a Professor of Surgery at the University of Massachusetts
Medical School in Worcester, MA since 1970. Dr. VanderSalm is a
member of the Audit and Nominating Committees of the Board of
Directors.
</TABLE>
Page 2
<PAGE> 367
<TABLE>
<S> <C> <C> <C>
Gerald A. Maley Gerald A. Maley has been a Director of the Company since 1983 and 173,220 (2) 12.09%
Age 64 was elected Chairman of the Board in 1990. Since 1981, Mr. Maley
has been President of Darlco, Inc., a real estate development and
investment management firm. Since 1969, Mr. Maley has served as
administrator of the professional practice and coordinator of the
personal investment activities of Denton A. Cooley, M. D.,
Surgeon in Chief at the Texas Heart Institute. Mr. Maley is a
member of the Audit and Nominating Committees of the Board of
Directors.
Samuel M. Stein Samuel M. Stein is Vice President, Chief Financial Officer, * *
Age 55 Treasurer and Assistant Clerk of the Company. Mr. Stein joined
the Company in October, 1993 as Vice President of Finance and
Chief Financial Officer. During 1994, he was elected to the
further offices of Treasurer and Assistant Clerk. From 1990 to
1993, Mr. Stein was employed as the Corporate Controller of Great
American Software, Inc., an accounting software manufacturer.
Executive Officers 243,770 17.02%
and Directors as a
Group (6 Persons)
===============================================================================================================
</TABLE>
* Less than 1%
(1) Includes 32,000 shares of the Company's Common Stock owned of record by the
trustees of the VanderSalm Family Trust, of which he may be deemed a
beneficial owner.
(2) Mr. Maley owns of record and beneficially 18,700 shares of Common Stock of
the Company. Mr. Maley beneficially owns, as trustee of various trusts,
154,520 shares of the Company's Common Stock.
ITEM 11. EXECUTIVE COMPENSATION.
The table below sets forth certain information for the fiscal years
ended 1994, 1993 and 1992 with respect to the Company's Chief Executive Officer
and the other executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Name and Fiscal Annual Compensation Awards All Other
Principal Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
------------------ ---- ---------- --------- ----------- ----------------
<S> <C> <C> <C> <C>
James W. Hobbs 1994 $154,903 $23,500 0 -
President, CEO 1993 $115,385 $16,000 50,000 -
and Director 1992 - - - -
</TABLE>
Page 3
<PAGE> 368
The following two tables disclose, for the Chief Executive Officer and
the other named executives, information regarding stock options granted or
exercised during, or held at the end of, Fiscal Year 1994 pursuant to the
Company's stock option plan.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
--------------------------------------------------------------------
Number of % of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of Stock
Underlying Granted to Price Appreciation for Option
Options Employees in Exercise Expiration Term
Name Granted (#)(1) Fiscal Year Price ($/sh) Date 5% ($) 10% ($)
---- -------------- ----------- ------------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
James W. Hobbs 0 0% NA NA NA NA
</TABLE>
========================================
(1) Grants under the Company's 1992 Stock Option Plan. Exercises of the options
to purchase shares are permitted as determined by the Compensation
Committee upon initial grant. Such options are not transferable, other than
by will or the laws of descent and distribution.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Numbers of Securities
Underlying Unexercised Value of Unexercised In-the-Money
Shares Acquired on Value Realized Options at 10/31/94 (#) Options at 10/31/94 ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable (1)
---- ------------ --- ------------------------- -----------------------------
<S> <C> <C> <C> <C>
James W. Hobbs 0 - 20,000/30,000 $80,000/$120,000
</TABLE>
========================================
(1) Value is based on the closing sale price of the Common Stock as of October
31, 1994 ($5.25) minus the exercise price of $1.25.
Page 4
<PAGE> 369
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with James W.
Hobbs, pursuant to which the Company has agreed to employ Mr. Hobbs as President
and Chief Executive Officer. The agreement with Mr. Hobbs was entered into on
June 10, 1993 with an initial term of one year with automatic renewals for
successive terms of one year each unless either party gives notice of intention
not to renew. The Compensation Committee of the Board of Directors set Mr.
Hobbs' base salary for Fiscal Year 1994 at $155,000 and for Fiscal Year 1995 at
$162,000. Mr. Hobbs is entitled to receive an annual bonus in cash and/or equity
of the Company from an annual bonus pool based on 1.5% of the net sales of the
Company, with such bonus to be determined by the Compensation Committee. Factors
taken into account by the Compensation Committee in determining bonuses include
return on investment, net sales, and net income compared to the business plan.
Although there is no maximum percentage bonus, 30% of base salary is the
expected guideline. (Mr. Hobbs is entitled to severance pay in an amount equal
to six months of his then current annual salary if his employment is terminated
by reason of death or disability, or is terminated by the Company for any reason
other than cause.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table sets forth as of February 20, 1995, the names of
each person who, to the knowledge of the Company, owned beneficially more than
5% of the shares of Common Stock of the Company outstanding at such date, the
number of shares owned by each of such persons and the percentage of the
outstanding shares represented thereby.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE OF
OWNER OWNERSHIP COMMON STOCK OUTSTANDING
----- --------- ------------------------
<S> <C> <C>
Denton A. Cooley, M.D. 355,978 24.85%
6624 Fannin Suite 2700
Houston, TX 77030
Gerald A. Maley 173,220 (1) 12.09%
6624 Fannin Suite 2700
Houston, TX 77030
Rita Kloots 160,000 11.17%
Box 1077
Sturbridge, MA 01566
</TABLE>
====================================
(1) Mr. Maley owns of record and beneficially 18,700 shares of Common Stock of
the Company. Mr. Maley beneficially owns, as trustee of various trusts,
154,520 shares of the Company's Common Stock.
Page 5
<PAGE> 370
LUXTEC CORPORATION
October 31, 1994
SIGNATURES
Pursuant to the requirements of Section 13 or 15(D) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Worcester, Commonwealth of Massachusetts, on the 27th day of February, 1995.
LUXTEC CORPORATION
by /s/James W. Hobbs
-------------------------
James W. Hobbs, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
--------- ----- ----
/s/James W. Hobbs President, Chief
------------------- Executive Officer
James W. Hobbs 2/27/95
/s/Samuel M. Stein Chief Financial
------------------- Officer, Treasurer,
Samuel M. Stein Assistant Clerk
2/27/95
Page 6
<PAGE> 371
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended October 31, 1994 [Fee
Required]
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _____________ to _____________
Commission File Number: 0-14961
LUXTEC CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2741310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
326 CLARK STREET, WORCESTER, MASSACHUSETTS 01606
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(508) 856-9454
Securities registered pursuant to Section 12(b) of the Act:
AMERICAN STOCK EXCHANGE - EMERGING COMPANY MARKETPLACE
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting Common Stock held by non-affiliates of
the registrant was approximately $3,008,606 based on the closing bid price of
such stock on December 30, 1994, as reported by the American Stock Exchange
Emerging Company Marketplace ($3.63 per share).
As of January 5, 1995, 1,432,565 shares of Common stock, $.01 par value, were
issued and outstanding.
Documents Incorporated by Reference Form 10-K Reference
----------------------------------- -------------------
None
Page 1
<PAGE> 372
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1994
(9) Income Taxes
As of October 31, 1994 the Corporation had available net operating loss
carryforward of approximately $576,000, research and development credit
carryforwards of approximately $91,000, and general business credit
carryforwards of approximately $25,000 to reduce future federal income taxes, if
any. These carryforwards expire through 2009 and are subject to review and
possible adjustment by the Internal Revenue Service. The Tax Reform Act of 1986
limits a Corporation's ability to utilize certain net operating loss
carryforwards in the event of a cumulative change in ownership in excess of 50%,
as defined.
In February 1992, The Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes." The Corporation has adopted the provisions of
SFAS No. 109 by retroactively restating all periods presented in the
accompanying consolidated financial statements. There was no effect on net loss
or financial position of adopting the provisions of SFAS No. 109 for any period
presented.
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes
due to the following:
<TABLE>
<CAPTION>
For The Years Ended October 31,
1994 1993 1992
<S> <C> <C> <C>
Computed at statutory rate 34.0% 34.0% 34.0%
State income tax (net of federal 6.0 6.0 6.0
benefit)
Tax benefit from net operating loss (31.0) (30.5) (28.0)
carryforwards
-----------------------------------------------
Provision for income taxes 9.0% 9.5% 12.0%
===============================================
</TABLE>
The components of the net deferred tax amount recognized in the accompanying
consolidated balance sheets are set forth below:
<TABLE>
<CAPTION>
October 31,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets $346,000 $440,000 $498,000
Deferred tax liabilities (62,000) (44,000) (49,000)
Valuation allowance (284,000) (396,000) (449,000)
</TABLE>
The appropriate tax effect of each type of temporary difference and carryforward
before allocation of valuation allowance is summarized as follows:
<TABLE>
<CAPTION>
October 31,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net operating losses $230,000 $324,000 $382,000
Other temporary differences (62,000) (44,000) (49,000)
Research and development credits 91,000 91,000 91,000
General business credits 25,000 25,000 25,000
-------- -------- --------
$284,000 $396,000 $449,000
</TABLE>
Page 2
<PAGE> 373
Due to the uncertainty surrounding the timing of realizing the benefits of
its favorable tax attributes in future income tax returns, the Corporation has
placed a valuation allowance against its otherwise recognizable deferred tax
assets.
For the years ended October 31, 1994, 1993 and 1992, the decrease in the
valuation allowance was $112,000, $53,000 and $178,000, respectively.
Page 3
<PAGE> 374
LUXTEC CORPORATION
October 31, 1994
SIGNATURES
Pursuant to the requirements of Section 13 or 15(D) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Worcester, Commonwealth of Massachusetts, on the 1st day of September, 1995.
LUXTEC CORPORATION
by /s/ James W. Hobbs
------------------------
James W. Hobbs, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
--------- ----- ----
/s/ James W. Hobbs President, Chief
---------------------- Executive Officer
James W. Hobbs
/s/ Samuel M. Stein Chief Financial
---------------------- Officer, Treasurer,
Samuel M. Stein Assistant Clerk
Page 4
<PAGE> 375
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 3
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended October 31, 1994 [Fee
Required]
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _____________ to _____________
Commission File Number: 0-14961
LUXTEC CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2741310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
326 CLARK STREET, WORCESTER, MASSACHUSETTS 01606
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:
(508) 856-9454
Securities registered pursuant to Section 12(b) of the Act:
AMERICAN STOCK EXCHANGE - EMERGING COMPANY MARKETPLACE
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the voting Common Stock held by non-affiliates of
the registrant was approximately $3,008,606 based on the closing bid price of
such stock on December 30, 1994, as reported by the American Stock Exchange
Emerging Company Marketplace ($3.63 per share).
As of January 5, 1995, 1,432,565 shares of Common stock, $.01 par value, were
issued and outstanding.
Documents Incorporated by Reference Form 10-K Reference
----------------------------------- -------------------
None
Page 1
<PAGE> 376
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Public Accountants 3
Consolidated Balance Sheets as of
October 31, 1994 and October 31, 1993 4
Consolidated Statements of Earnings
for the years ended October 31, 1994,
October 31, 1993 and October 31, 1992 5
Consolidated Statements of Stockholders'
Equity for the years ended October 31, 1994,
October 31, 1993 and October 31, 1992 6
Consolidated Statements of Cash Flows
for the years ended October 31, 1994,
October 31, 1993 and October 31, 1992 7
Notes to Consolidated Financial Statements 8 - 13
</TABLE>
Page 2
<PAGE> 377
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Luxtec Corporation:
We have audited the accompanying consolidated balance sheets of Luxtec
Corporation and subsidiaries as of October 31, 1994 and 1993 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended October 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Luxtec Corporation
and subsidiaries as of October 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 1994, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
-----------------------
Arthur Anderson LLP
Boston, Massachusetts
December 2, 1994
Page 3
<PAGE> 378
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31,
<TABLE>
<CAPTION>
1994 1993
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 10,329 $ 13,667
Accounts receivable, less allowance for
doubtful accounts of $53,158 in 1994
and $50,000 in 1993 1,668,009 1,230,103
Inventories 1,519,648 1,374,944
Prepaid expenses 120,571 65,362
-----------------------------------
TOTAL CURRENT ASSETS 3,318,557 2,684,076
PLANT AND EQUIPMENT, AT COST 1,784,928 1,684,473
ACCUMULATED DEPRECIATION AND AMORTIZATION (1,280,105) (1,113,692)
-----------------------------------
PLANT AND EQUIPMENT - NET 504,823 570,781
OTHER ASSETS, net of accumulated amortization of
$33,530 and $26,659 at October 31, 1994 and 1993,
respectively 248,463 175,866
-----------------------------------
TOTAL ASSETS $ 4,071,843 $ 3,430,723
===================================
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Demand note payable $ 607,158 $ 205,871
Current portion of long-term debt -- 52,500
Current portion of capital leases -- 11,213
Accounts payable 929,651 926,451
Accrued expenses 371,610 278,086
-----------------------------------
TOTAL CURRENT LIABILITIES 1,908,419 1,474,121
COMMITMENTS (note 7)
STOCKHOLDERS EQUITY
Common stock - $.01 par value
Authorized: 2,000,000 shares; issued and outstanding
1,421,200 shares in 1994 and 1,401,200 shares in 1993 14,212 14,012
Additional paid-in capital 2,990,316 2,948,016
Accumulated deficit (841,104) (1,005,426)
-----------------------------------
TOTAL STOCKHOLDERS EQUITY 2,163,424 1,956,602
-----------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 4,071,843 $ 3,430,723
===================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4
<PAGE> 379
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended October 31,
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 8,138,903 $ 6,734,477 $ 6,040,448
COST OF GOODS SOLD 4,432,219 3,832,848 3,425,503
------------------------------------------------------
GROSS PROFIT 3,706,684 2,901,629 2,614,945
OPERATING EXPENSES:
Selling 1,793,137 1,370,479 873,223
Research and development 437,064 270,445 276,407
General and administrative 1,261,356 1,064,634 992,606
------------------------------------------------------
TOTAL OPERATING EXPENSES 3,491,557 2,705,558 2,142,236
------------------------------------------------------
INCOME FROM OPERATIONS 215,127 196,071 472,709
OTHER INCOME (EXPENSE):
Interest expense (31,868) (30,727) (20,155)
Interest income 8 5 861
Other income (expense) (2,679) 2004 2,345
------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (34,539) (28,718) (16,949)
------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 180,588 167,353 455,760
INCOME TAXES:
State - current (16,266) (14,555) (48,634)
------------------------------------------------------
NET EARNINGS $ 164,322 $ 152,798 $ 407,126
======================================================
NET EARNINGS PER SHARE OF COMMON STOCK $ 0.11 $ 0.11 $ 0.29
======================================================
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 1,487,823 1,401,532 1,404,375
======================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5
<PAGE> 380
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended October 31, 1994 , 1993 and 1992
<TABLE>
<CAPTION>
Common Stock Additional
$.01 par value paid-in Accumulated
Shares Amount capital deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1991 1,401,200 $14,012 $2,948,016 (1,565,350) $1,396,378
Net earnings - - 407,126 407,126
-
-------------------------------------------------------------------------------------
Balance, October 31, 1992 1,401,200 14,012 2,948,016 (1,158,224) 1,803,804
Net earnings - - 152,798 152,798
-
-------------------------------------------------------------------------------------
Balance, October 31, 1993 1,401,200 14,012 2,948,016 (1,005,426) 1,956,602
Net earnings - 164,322 164,322
- -
Issuance of common stock for
patent rights 20,000 200 42,300 - 42,500
-------------------------------------------------------------------------------------
Balance, October 31, 1994 1,421,200 $14,212 $2,990,316 (841,104) $2,163,424
=====================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 6
<PAGE> 381
LUXTEC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended October 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
NET EARNINGS $ 164,322 $ 152,798 $ 407,126
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Depreciation and amortization 173,284 205,173 201,399
Provision for uncollectible accounts receivable 27,500 10,230 5,000
Changes in currents assets and liabilities:
Increase in accounts receivable (465,406) (284,297) (146,646)
Increase in inventory (144,704) (605,297) (58,329)
Increase in prepaid expenses (55,209) (1,877) (41,583)
Increase in accounts payable 3,200 361,742 151,654
Increase in accrued expenses 93,524 73,388 19,426
---------------------------------------------------
TOTAL ADJUSTMENTS (367,811) (240,938) 130,921
---------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
(203,489) (88,140) 538,047
---------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment (100,455) (95,164) (180,033)
(Increase) in other assets (36,968) (41,378) (32,129)
---------------------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES (137,423) (136,542) (212,162)
---------------------------------------------------
CASH FLOWS FORM FINANCING ACTIVITIES:
Net borrowings (payments) on revolving credit arrangement 401,287 168,554 (152,683)
Payments on long-term debt (52,500) (70,000) --
Payments under capital lease obligations (11,213) (19,228) (43,709)
---------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 337,574 79,326 (196,392)
---------------------------------------------------
NET INCREASE (DECREASE) IN CASH (3,338) (145,356) 129,493
CASH , BEGINNING OF PERIOD 13,667 159,023 29,530
---------------------------------------------------
CASH , END OF PERIOD $ 10,329 $ 13,667 $ 159,023
===================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 7
<PAGE> 382
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1994
(1) Nature of Business
Luxtec Corporation (the Corporation) designs, manufactures and markets
fiber-optic headlights and headlight television camera systems (for audio/video
recordings of surgical procedures), light sources, cables, retractors, loupes,
surgical telescopes, and other custom-made surgical specialty instruments
utilizing fiber-optic technology for the medical and dental industries.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Foreign Currency Remeasurement
The accompanying consolidated financial statements include the accounts of the
Corporation and its majority owned subsidiaries: Luxtec Fiber Optics B.V., Fiber
Imaging Technologies, Inc., and Cathtec, Inc. All intercompany accounts and
transactions have been eliminated in consolidation.
The accounts and transactions of Luxtec Fiber Optics B.V. are remeasured into
U.S. dollars using the applicable historical, current and weighted-average
exchange rates. All exchange gains and losses from remeasurement of assets and
liabilities are currently recognized in income. The gains and losses recognized
due to foreign currency exchange were insignificant in 1994, 1993 and 1992.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method and includes materials, labor and
manufacturing overhead.
(c) Plant and Equipment
Plant and equipment are stated at cost. Depreciation and amortization are
calculated using the straight-line method over the estimated useful lives of the
assets.
Leasehold improvements and equipment under capital lease are amortized using the
straight-line method over the shorter of the lease term or estimated useful life
of the asset.
(d) Other Assets
Other assets consist principally of patent costs that are amortized using the
straight-line method over 17 years. During the year ended October 31, 1994, the
Corporation issued 20,000 shares of common stock to an individual in exchange
for patent rights, valued at $42,000.
Page 8
<PAGE> 383
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1994
(2) Summary of Significant Accounting Policies (continued)
(e) Revenue Recognition
Revenue is recognized when goods are shipped, at which time all conditions of
sale have been met.
(f) Research and Development Costs
Research and development costs are charged to operations as incurred.
(g) Earnings Per Share
Earnings per share of common stock are based on the weighted average number of
common shares outstanding and common equivalent shares from dilutive stock
options.
(h) Stock Split
Effective April 10, 1992, the Corporation effected a one-for-ten common stock
reverse split. All share and per share amounts in the accompanying financial
statements have been retroactively restated to reflect this stock split.
(3) Inventories
Inventories consist of the following at October 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Raw material $ 877,410 $1,003,761
Work in process 96,097 73,133
Finished goods 546,141 298,050
--------------------------------
$1,519,648 $1,374,944
================================
</TABLE>
Page 9
<PAGE> 384
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1994
(4) Plant and Equipment
Plant and equipment and their respective useful lives are as follows at October
31, 1994, and 1993:
<TABLE>
<CAPTION>
Estimated
Useful Lives 1994 1993
------------ ---- ----
<S> <C> <C> <C>
Machinery and equipment 5-10 years $1,155,078 $1,133,344
Molds and tooling 5 years 144,293 126,975
Furniture and fixtures 10 years 300,316 265,245
Leasehold improvements life of lease 185,241 158,909
----------------------------------
$1,784,928 $1,684,473
==================================
</TABLE>
(5) Accrued Expenses
Accrued expenses consist of the following at October 31, 1994, and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Accrued professional fees $ 44,454 $ 39,367
Accrued payroll and bonuses 101,100 101,024
Accrued marketing expenses 13,403 11,537
Other accrued expenses 212,653 126,158
----------------------------------
$371,610 $ 278,086
==================================
</TABLE>
(6) Revolving Credit Line
The Corporation entered into a revolving credit line arrangement with the bank
with a maximum borrowing limit of $1,000,000 expiring on March 31, 1995.
Borrowings bear interest at the bank's prime rate (7.75% at October 31, 1994)
and are unsecured. The Corporation had an outstanding balance of $607,158 as of
October 31,1994. The revolving credit line arrangement contains covenants
including the maintenance of certain financial ratios, as defined. At October
31, 1994, the Corporation was in compliance with all covenants as amended on
December 3, 1993.
Page 10
<PAGE> 385
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1994
(7) Commitments
The Corporation has noncancellable operating lease commitments that consist
principally of rentals of facilities, machinery and an automobile. Its
manufacturing and office facilities are leased under a two-year operating lease
expiring on September 30, 1996.
The future minimum lease payments under operating leases over their remaining
terms are as follows:
<TABLE>
<CAPTION>
Fiscal Operating
Year Leases
---- ------
<S> <C>
1995 $178,410
1996 162,235
1997 28,867
1998 16,485
1999 2,694
------------------
Total minimum lease payments $388,691
==================
</TABLE>
Rent expense for operating leases was $138,000 in 1994, $132,000 in 1993 and
$132,000 in 1992.
The Corporation also has a bonus plan covering its three executive officers.
During fiscal 1994, approximately $42,000 was earned and charged to operations
under this bonus plan.
(8) Stock Plans
The Corporation maintains a stock option plan (The 1992 Stock Plan) for which
100,000 shares of the authorized and unissued common stock of the Corporation is
reserved. The Board of Directors voted to grant stock options in accordance with
this plan to certain employees to purchase an aggregate of 89,000 shares of the
Corporation's common stock at exercise prices ranging from $1.25 to $2.00 per
share, vesting over 5 years and expiring 10 years from the date of grant. As of
October 31, 1994, options to purchase 35,000 shares were exercisable.
The Employee Stock Purchase Plan was approved by the Stockholders at the annual
meeting of Stockholders which was held on April 21, 1994. All employees of the
Corporation who meet minimum service requirements are eligible to purchase
shares of Common Stock through payroll deductions. As of April 30, 1994,
approximately 25,000 shares of Common Stock were available for use under this
plan. There were no purchases made as of October 31, 1994.
Page 11
<PAGE> 386
LUXTEC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
October 31, 1994
(9) Income Taxes
As of October 31, 1994 the Corporation had available net operating loss
carryforward of approximately $576,000, research and development credit
carryforwards of approximately $91,000, and general business credit
carryforwards of approximately $25,000 to reduce future federal income taxes, if
any. These carryforwards expire through 2009 and are subject to review and
possible adjustment by the Internal Revenue Service. The Tax Reform Act of 1986
limits a Corporation's ability to utilize certain net operating loss
carryforwards in the event of a cumulative change in ownership in excess of 50%,
as defined.
In February 1992, The Financial Accounting Standards Board issued SFAS No. 109,
"Accounting for Income Taxes." The Corporation has adopted the provisions of
SFAS No. 109 by retroactively restating all periods presented in the
accompanying consolidated financial statements. There was no effect on net loss
or financial position of adopting the provisions of SFAS No. 109 for any period
presented.
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes
due to the following:
<TABLE>
<CAPTION>
For The Years Ended October 31,
1994 1993 1992
<S> <C> <C> <C>
Computed at statutory rate 34.0% 34.0% 34.0%
State income tax (net of federal 6.0 6.0 6.0
benefit)
Tax benefit from net operating loss (31.0) (30.5) (28.0)
carryforwards
--------------------------------------------------
Provision for income taxes 9.0% 9.5% 12.0%
==================================================
</TABLE>
The components of the net deferred tax amount recognized in the accompanying
consolidated balance sheets are set forth below:
<TABLE>
<CAPTION>
October 31,
-----------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets $ 346,000 $ 440,000 $ 498,000
Deferred tax liabilities (62,000) (44,000) (49,000)
Valuation allowance (284,000) (396,000) (449,000)
</TABLE>
The appropriate tax effect of each type of temporary difference and carryforward
before allocation of valuation allowance is summarized as follows:
<TABLE>
<CAPTION>
October 31,
-----------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net operating losses $ 230,000 $ 324,000 $ 382,000
Other temporary differences (62,000) (44,000) (49,000)
Research and development credits 91,000 91,000 91,000
General business credits 25,000 25,000 25,000
--------- --------- ---------
$ 284,000 $ 396,000 $ 449,000
</TABLE>
Page 12
<PAGE> 387
Due to the uncertainty surrounding the timing of realizing the benefits of
its favorable tax attributes in future income tax returns, the Corporation has
placed a valuation allowance against its otherwise recognizable deferred tax
assets.
For the years ended October 31, 1994, 1993 and 1992, the decrease in the
valuation allowance was $112,000, $53,000 and $178,000, respectively.
Page 13
<PAGE> 388
LUXTEC CORPORATION
October 31, 1994
SIGNATURES
Pursuant to the requirements of Section 13 or 15(D) of the Securities
Exchange Act of 1934, the Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the Town of
Worcester, Commonwealth of Massachusetts, on the 12th day of September, 1995.
LUXTEC CORPORATION
by /s/James W. Hobbs
-------------------------
James W. Hobbs, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
--------- ----- ----
/s/James W. Hobbs President, Chief 9/12/95
--------------------
James W. Hobbs Executive Officer
/s/Samuel M. Stein Chief Financial 9/12/95
--------------------
Samuel M. Stein Officer, Treasurer,
Assistant Clerk
Page 14
<PAGE> 389
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previously filed
Registration Statement on Form S-8 (File No. 33-83510).
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Boston, Massachusetts
September 12, 1995
15
<PAGE> 390
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission File Number: 0-14961B
LUXTEC CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 04-2741310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
326 CLARK STREET, WORCESTER, MASSACHUSETTS 01606
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code) (508) 856-9454
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------
Indicate the number of shares outstanding for each of the issuer's classes of
Common Stock, as of the latest practicable date.
The number of shares outstanding of registrant's common stock, par value $.01
per share, at February 28, 1995 was 1,432,565.
<PAGE> 391
LUXTEC CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
January 31, 1995 and October 31, 1994 3
Consolidated Condensed Statements of Operations-
Three months ended January 31, 1995
and January 31, 1994 4
Consolidated Condensed Statements of Cash Flows -
Three months ended January 31, 1995
and January 31, 1994 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
</TABLE>
2
<PAGE> 392
LUXTEC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, October 31,
1995 1994
-------------------------------------------------------------------------------------------------------------
(unaudited) (audited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 33,366 $ 10,329
Accounts receivable 1,112,945 1,668,009
Inventories 1,948,666 1,519,648
Prepaid expenses 166,416 120,571
-------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,261,393 3,318,557
-------------------------------------------------------------------------------------------------------------
PLANT & EQUIPMENT AT COST 1,794,268 1,784,928
ACCUMULATED DEPRECIATION (1,319,118) (1,280,105)
-------------------------------------------------------------------------------------------------------------
PLANT & EQUIPMENT - NET 475,150 504,823
-------------------------------------------------------------------------------------------------------------
OTHER ASSETS 262,340 248,463
-------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 3,998,883 $ 4,071,843
=============================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Demand note payable $ 895,602 $ 607,158
Accounts payable 959,897 929,651
Accrued expenses 85,684 371,610
-------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES $ 1,941,183 $ 1,908,419
-------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value
Authorized 2,000,000 shares; issued
1,432,565 shares in 1995 and
1,421,200 shares in 1994 14,212 14,212
Additional paid-in capital 3,009,985 2,990,316
Accumulated deficit (966,497) (841,104)
-------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,057,700 2,163,424
-------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,998,883 $ 4,071,843
=============================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE> 393
LUXTEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
January 31, January 31,
1995 1994
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 1,630,316 $ 1,786,928
COST OF SALES 869,332 1,021,178
---------------------------------------------------------------------------------------------------------
GROSS PROFIT 760,984 765,750
---------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling 378,656 341,833
Research & development 185,287 53,407
General & administrative 307,241 314,170
---------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 871,184 709,410
---------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS (110,200) 56,340
OTHER EXPENSES, NET (15,193) (5,356)
---------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (125,393) 50,984
PROVISION FOR INCOME TAXES 0 5,000
---------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (125,393) $ 45,984
=========================================================================================================
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ (0.08) $ 0.03
=========================================================================================================
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 1,485,130 1,402,796
=========================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 394
LUXTEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
January 31, January 31,
1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME (LOSS) $ (125,393) $ 45,984
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Depreciation and amortization 39,013 49,050
Provision for uncollectible accounts receivable 2,500 7,500
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable 552,564 208,605
(Increase) decrease in inventory (429,018) (67,822)
(Increase) decrease in prepaid expenses (45,845) (55,054)
Increase (decrease) in accounts payable 30,246 (225,068)
Increase (decrease) in accrued expenses (285,926) 24,104
------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (136,466) (58,685)
------------------------------------------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (261,859) (12,701)
------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (9,340) (2,189)
Increase in other assets (13,877) (21,851)
------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (23,217) (24,040)
------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving
credit arrangement 288,444 51,294
Payments on long-term debt 0 (17,500)
Payments under capital lease obligations 0 (3,086)
Employee stock purchase 19,669 0
------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 308,113 30,708
------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 23,037 (6,033)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,329 13,667
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 33,366 $ 7,634
==================================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
5
<PAGE> 395
LUXTEC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1) Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated condensed financial statements have been
prepared in conformity with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments necessary for fair presentation have been made which comprise only
normal recurring adjustments. Operating results for the three months ended
January 31, 1995, are not necessarily indicative of the results that may be
expected for the entire year.
2) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first in, first out (FIFO) method and includes materials,
labor and manufacturing overhead. Inventories are as follows:
<TABLE>
<CAPTION>
January 31, 1995 October 31, 1994
-------------------------------------------------------------------------------------
<S> <C> <C>
Raw material $1,312,611 $ 877,410
Work in process 83,293 96,097
Finished goods 552,762 546,141
------------------------------------------------------------------------------------
TOTAL $1,948,666 $1,519,648
------------------------------------------------------------------------------------
</TABLE>
3) Revolving Credit Line
On January 11, 1995, the Corporation entered into an agreement with a
bank for a $1,500,000 revolving line of credit at the bank's prime rate (8.5%
at January 31, 1995) expiring on March 31, 1996.
4) Employee Stock Purchase Plan
All the employees of the Corporation who meet certain minimum service
requirements are eligible to participate in the Employee Stock Purchase Plan.
Participants are granted options to purchase shares of Common Stock on the last
business day of each semiannual Payment Period for 85% of the fair market value
of the Common Stock on either the first business day or the last business day
of such Payment Period, whichever is less. On the last day of each Payment
Period, a participant may not purchase more than 500 shares.
On November 1, 1994, approximately 9,200 shares of Common Stock were
purchased by the employees under the Employee Stock Purchase Plan.
6
<PAGE> 396
LUXTEC CORPORATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended January 31, 1995, were $1,630,316 compared
to $1,786,928 for the same period in fiscal 1994, or a decrease of 8.8%. The
sales decrease was primarily the result of the Corporation not being able to
ship all of its demand as a critical component supplier failed to meet promised
delivery schedules. The Corporation is correcting this situation and has
identified new sources that will be able to provide the critical components on
a more timely basis. Additionally, expected sales revenue did not occur due to
the cancellation of a significant order from Mexico after its financial crisis.
Cost of sales for the three months ended January 31, 1995 was $869,332 or 53.3%
of net sales compared with $1,021,178 or 57.1% for the same period in fiscal
1994. The Corporation's cost reduction program was successful in lowering costs
during fiscal 1994, primarily through the negotiation of better vendor terms,
and, to a lesser extent, the design of lower cost products. This cost reduction
program will continue in place during fiscal 1995. However, the emphasis will
shift so that a greater percentage of the cost reduction will be the result of
new designs. The goals for this effort will include a combination of cost
reduction, improved product performance, and better parts commonality to reduce
the variety of raw materials required for production.
Gross profit was $760,984 or 46.7% of net sales for the first quarter of fiscal
1995 compared with $765,750 or 42.9% of net sales for the same period in fiscal
1994. A combination of product cost reduction and favorable product mix
resulted in improved margins as a percentage of net sales. The Corporation
expects this trend to continue due to the introduction of products with higher
gross margins during fiscal 1995 and the designing of lower cost versions of
the current product line. The Corporation believes that the expected growth of
sales from its Fiber Imaging Technologies, Inc. subsidiary will have a
favorable impact on the margin percentage. Expected improvements in gross
margins will continue to be offset by expected price competition from some
competitors, as well as shift toward a greater proportion of revenues from OEM
business.
Selling expenses were $378,656 for the three months ended January 31, 1995,
compared to $341,833 for the same period in fiscal 1994. The Corporation added
two new regional managers during the first quarter of fiscal 1994 that are
reflected in the 1995 level of expenses. The two positions included one in the
Midwest and one in Europe, to develop distribution networks in their respective
areas. The Corporation continued to attend trade shows and improve sales and
marketing programs. Management expects to continue to invest in sales and
marketing programs.
Research and development expenditures were $185,287 for the three months ended
January 31, 1995, compared to $53,407 for the same period in fiscal 1994, an
increase of $131,880 or 246.9%. The increase is attributed to a major
acceleration in development of new products as well as updating the existing
products.
General and administrative expenses were $307,241 for the three months ended
January 31, 1995, compared to $314,170 for the same period in fiscal 1994,
representing a decrease of $6,929 or 2.2%. The decrease is primarily due to
lower payroll costs.
7
<PAGE> 397
LUXTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1995, the Corporation had working capital of approximately
$1,320,000 compared to $1,281,000 at October 31, 1994. Accrued expenses
decreased by 76.9%, as a result of payments made for a sales promotion and the
final payment made in settlement of an arbitration case. Prepaid expenses
increased by 38%, primarily due to prepayments of insurance policies for the
year as well as deposits for upcoming trade shows. Inventories increased by
28.2%, accounts payable increased by 3.2% and accounts receivable decreased by
33.3% compared to October 31, 1994 balances.
Cash used by operating activities was funded by borrowings ($895,602) from a
short-term note. The Corporation's principal source of short term borrowing is
a $1,500,000 credit line. At January 31, 1995, the amount of unused and
available credit was $604,398.
The Corporation anticipates that its current cash requirements will be
satisfied by cash flow from existing operations and the continuation of its
revolving credit arrangement with a bank.
8
<PAGE> 398
LUXTEC CORPORATION
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings
There have been no material developments in legal proceedings
previously reported. For information on legal proceedings, reference is made in
the Corporation's 10K for the fiscal year ended October 31, 1994.
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits
No Exhibits were required to be filed.
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed during the
quarter ended January 31, 1995.
9
<PAGE> 399
LUXTEC CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUXTEC CORPORATION
(Registrant)
/s/ Samuel M. Stein
____________________ _______________________________________
Date Samuel M. Stein
Chief Financial Officer
(Principal Accounting Officer and Duly
Authorized Executive Officer)
10
<PAGE> 400
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 0-14961B
LUXTEC CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2741310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
326 CLARK STREET, WORCESTER, MASSACHUSETTS 01606
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code) (508) 856-9454
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding for each of the issuer's classes of
Common Stock, as of the latest practicable date.
The number of shares outstanding of registrant's common stock, par value $.01
per share, at June 8, 1995 was 1,438,661.
<PAGE> 401
LUXTEC CORPORATION
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
April 30, 1995 and October 31, 1994 3
Consolidated Condensed Statements of Operations -
Three months and six months ended
April 30, 1995 and April 30, 1994. 4
Consolidated Condensed Statements of Cash Flows -
Six months ended April 30, 1995
and April 30, 1994. 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
2
<PAGE> 402
LUXTEC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
April 30, October 31,
1995 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,257 $ 10,329
Accounts receivable 1,550,963 1,668,009
Inventories 1,933,817 1,519,648
Prepaid expenses 151,654 120,571
--------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,649,691 3,318,557
--------------------------------------------------------------------------------------------------
PLANT & EQUIPMENT AT COST 1,842,031 1,784,928
ACCUMULATED DEPRECIATION (1,355,131) (1,280,105)
--------------------------------------------------------------------------------------------------
PLANT & EQUIPMENT - NET 486,900 504,823
--------------------------------------------------------------------------------------------------
OTHER ASSETS 252,371 248,463
--------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,388,962 $ 4,071,843
==================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Demand note payable $ 1,167,062 $ 607,158
Accounts payable 1,020,901 929,651
Accrued expenses 115,574 371,610
--------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES $ 2,303,537 $ 1,908,419
--------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value
Authorized 2,000,000 shares; issued
1,432,565 shares in 1995 and
1,421,200 shares in 1994 14,326 14,212
Additional paid-in capital 3,009,871 2,990,316
Accumulated deficit (938,772) (841,104)
--------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,085,425 2,163,424
--------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,388,962 $ 4,071,843
==================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE> 403
LUXTEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE SIX
MONTHS ENDED MONTHS ENDED
April 30, April 30, April 30, April 30,
1995 1994 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $2,143,106 $1,804,102 $3,773,422 $3,591,030
COST OF SALES 1,081,385 989,582 1,950,717 2,010,759
---------------------------------------------------------------------------------------------------
GROSS PROFIT 1,061,721 814,520 1,822,705 1,580,271
---------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling 491,182 350,442 869,838 692,275
Research and development 165,097 95,311 350,384 148,718
General and administrative 357,594 321,762 664,835 635,933
---------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 1,013,873 767,515 1,885,057 1,476,926
---------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 47,848 47,005 (62,352) 103,345
OTHER EXPENSES, NET (20,123) (9,515) (35,316) (14,871)
---------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 27,725 37,490 (97,668) 88,474
PROVISION FOR INCOME TAXES 0 5,000 0 10,000
---------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 27,725 $ 32,490 $ (97,668) $ 78,474
===================================================================================================
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ 0.02 $ 0.02 $ (0.07) $ 0.06
===================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 1,481,043 1,404,970 1,490,095 1,404,970
===================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 404
LUXTEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
April 30, April 30,
1995 1994
-----------------------------------------------------------------------------
<S> <C> <C>
NET INCOME (LOSS) $ (97,668) $ 78,474
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided (Used) by Operating
Activities:
Depreciation and amortization 79,260 98,245
Provision for uncollectible accounts receivable 5,000 12,500
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable 112,046 (61,565)
Increase in inventories (414,169) (51,572)
Increase in prepaid expenses (31,083) (44,553)
Increase (decrease) in accounts payable 91,250 (250,163)
Increase (decrease) in accrued expenses (256,036) 40,461
-----------------------------------------------------------------------------
TOTAL ADJUSTMENTS (413,732) (256,647)
-----------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (511,400) (178,173)
-----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (57,103) (34,575)
Increase in other assets (8,142) (16,215)
-----------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (65,245) (50,790)
-----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving credit
arrangement 559,904 264,149
Payments on long-term debt 0 (35,000)
Payments under capital lease obligations 0 (5,271)
Employee stock purchase 19,669 0
-----------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 579,573 223,878
-----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,928 (5,085)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,329 13,667
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,257 $ 8,582
=============================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
5
<PAGE> 405
LUXTEC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1) Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated condensed financial statements have been
prepared in conformity with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for fair presentation have been made which comprise only normal recurring
adjustments. Operating results for the three months and six months ended April
30, 1995, are not necessarily indicative of the results that may be expected for
the entire year.
2) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first in, first out (FIFO) method and includes materials, labor and
manufacturing overhead. Inventories are as follows:
<TABLE>
<CAPTION>
April 30, 1995 October 31, 1994
-----------------------------------------------------------------------------------
<S> <C> <C>
Raw material $1,228,010 $ 877,410
Work in process 108,704 96,097
Finished goods 597,103 546,141
--------------------------------------------------------------------------------
TOTAL $1,933,817 $1,519,648
--------------------------------------------------------------------------------
</TABLE>
3) Revolving Credit Line
On January 11, 1995, the Corporation entered into an agreement with a bank
for a $1,500,000, revolving credit line at the bank's prime rate (9.0% at April
30, 1995) expiring on March 31, 1996.
6
<PAGE> 406
LUXTEC CORPORATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the three months ended April 30, 1995, were $2,143,106 compared to
$1,804,102 for the same period in fiscal 1994, an increase of 18.8%. For the six
months ended April 30,1995, net sales increased 5.1% to $3,773,422 from
$3,591,030 reported for the same period last year. The Corporation increased
sales revenues in international markets and added new OEM accounts to account
for the majority of the sales increase during the second quarter.
Cost of sales for the three months ended April 30, 1995 was $1,081,385 or 50.5%
of net sales compared with $989,582 or 54.9% for the same period in fiscal 1994.
For the six month period ended April 30, 1995, cost of sales was $1,950,717 or
51.7% of net sales compared to $2,010759 or 56.0% of net sales for the same
period in fiscal 1994. The decrease in cost of sales as a percentage of net
sales for the quarter was mainly due to increased volume and lowered
manufacturing expenses reflecting the continuing effort to reduce production
costs and increase productivity as part of the Corporation's overall cost
reduction program.
Gross profit was $1,061,721 or 49.5% of net sales for the three months ended
April 30, 1995, compared to $814,520 or 45.1% of net sales for the same period
is fiscal 1994. For the six month period ended April 30, 1995 gross profit was
$1,822,705 or 48.3% of net sales compared to $1,580,271 or 44.0% of net sales
for the same period in fiscal 1994. A combination of product cost reduction and
favorable product mix resulted in improved margins as a percentage of net sales.
The Corporation expects this trend to continue due to the introduction of
products with anticipated higher gross margins during fiscal 1995 and the
designing of lower cost versions of the current product line.
Selling expenses were $491,182 for the three months ended April 30, 1995,
compared to $350,442 for the same period in fiscal 1994, an increase of 40.2%.
For the six month period ended April 30,1995, selling expenses were $869,838
compared to $692,275 for the same period in fiscal 1994, an increase of 25.6%.
The company has invested in additional personnel and related expenses to develop
the European and South American markets. The Fiber Imaging Technologies
subsidiary was not started until late in the second quarter of FY94, so that the
FY95 sales and marketing expenses attributable to the subsidiary account for a
portion of the overall increases in selling expenses from the comparable periods
in FY94. Additional investment in sales marketing promotion programs also
contributed to the increase in sales and marketing expenses.
Research and development expenditures were $165,097 for the three months ended
April 30, 1995, compared to $95,311 for the same period in fiscal 1994, an
increase of 73.2%. For the six month period expenses increased 135.6% from
$148,718 on April 30, 1994 to $350,384 on April 30,1994. The increase is
attributed to a major acceleration in the development of new products as well as
upgrading of existing products. Although some new products were introduced
during the first and second quarters of FY95, the Corporation believes that the
majority of the introductions, and the potential revenues to be derived from
them, should occur in the fourth quarter of FY95 and the first quarter of FY96.
7
<PAGE> 407
LUXTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General and administrative expenses were $357,594 for the three months ended
April 30, 1995, compared to $321,762 for the same period in fiscal 1994,
representing an increase of 11.1%. Expenses for the six month period ended April
30, 1995 were $664,835, an increase of 4.5% from expenses totaling $635,933 for
the six month period ended April 30, 1994. The increase is the result of the
costs attributable to the Fiber Imaging Technologies subsidiary that did not
exist during most of the second quarter of FY94.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1995, the Corporation had working capital of approximately
$1,346,000 compared to $1,410,000 at October 31, 1994. Accrued expenses
decreased by 68.9%, as a result of payments made for a sales promotion and the
final payment made in settlement of an arbitration case. Prepaid expenses
increased 25.8% primarily due to prepayments of insurance policies for the year
as well as deposits for upcoming trade shows. Inventories increased by 27.2%,
accounts payable decreased by 9.8% and accounts receivable decreased by 7.0%
compared to October 31, 1994 balances.
Cash used by operating activities was funded by borrowings of $1,167,062 from a
$1,500,000 revolving credit line. At April 30, 1995, the amount of unused and
available credit was $332,938.
The Corporation anticipates that its current cash requirements will be satisfied
by cash flow from existing operations and the continuation of its revolving
credit arrangement with a bank.
8
<PAGE> 408
LUXTEC CORPORATION
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings
The Corporation is not a party to, nor is any of its property the
subject of, any material pending legal proceedings.
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits
No Exhibits were required to be filed.
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed during the
quarter ended April 30, 1995.
9
<PAGE> 409
LUXTEC CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUXTEC CORPORATION
(Registrant)
6/12/95 /s/ Samuel M. Stein
----------------- --------------------------------------
Date Samuel M. Stein
Chief Financial Officer
(Principal Accounting Officer and Duly
Authorized Executive Officer)
10
<PAGE> 410
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number: 0-14961B
LUXTEC CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2741310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
326 CLARK STREET, WORCESTER, MASSACHUSETTS 01606
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area code)
(508 856-9454)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding for each of the issuer's classes of
Common Stock, as of the latest practicable date.
The number of shares outstanding of registrant's common stock, par value $.01
per share, at August 31, 1995 was 1,438,661.
<PAGE> 411
LUXTEC CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
July 31, 1995 and October 31, 1994 3
Consolidated Condensed Statements of Income-
Three months and nine months ended
July 31, 1995 and July 31, 1994. 4
Consolidated Condensed Statements of Cash Flows -
Three months and nine months ended
July 31, 1995 and July 31, 1994. 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
</TABLE>
2
<PAGE> 412
LUXTEC CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
July 31, October 31,
1995 1994
--------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,566 $ 10,329
Accounts receivable 1,658,523 1,668,009
Inventories 1,965,653 1,519,648
Prepaid expenses 318,625 120,571
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,963,367 3,318,557
--------------------------------------------------------------------------------
PLANT & EQUIPMENT AT COST 1,868,341 1,784,928
ACCUMULATED DEPRECIATION (1,394,161) (1,280,105)
--------------------------------------------------------------------------------
PLANT & EQUIPMENT - NET 474,180 504,823
--------------------------------------------------------------------------------
OTHER ASSETS 288,950 248,463
--------------------------------------------------------------------------------
TOTAL ASSETS $ 4,726,497 $ 4,071,843
--------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Demand note payable $ 1,185,256 $ 607,158
Accounts payable 1,254,963 929,651
Accrued expenses 148,080 371,610
--------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES $ 2,588,299 $ 1,908,419
--------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value
Authorized: 2,000,000 shares; issued:
1,438,661 shares in 1995 and
1,421,200 shares in 1994 14,387 14,212
Additional paid-in capital 3,026,615 2,990,316
Accumulated deficit (902,804) (841,104)
--------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,138,198 2,163,424
--------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,726,497 $ 4,071,843
================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE> 413
LUXTEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE NINE
MONTHS ENDED MONTHS ENDED
July 31, July 31, July 31, July 31,
1995 1994 1995 1994
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 2,257,972 $ 2,263,340 $ 6,031,394 $ 5,854,370
COST OF SALES 1,182,500 1,205,613 3,133,217 3,216,372
----------------------------------------------------------------------------------------------------------------
GROSS PROFIT 1,075,472 1,057,727 2,898,177 2,637,998
----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling 506,655 577,169 1,376,493 1,269,444
Research & development 145,341 106,626 495,725 255,344
General & administrative 359,419 318,232 1,024,254 954,165
----------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 1,011,415 1,002,027 2,896,472 2,478,953
----------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 64,057 55,700 1,705 159,045
OTHER EXPENSES, NET (28,089) (11,133) (63,405) (26,004)
----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 35,968 44,567 (61,700) 133,041
PROVISION (BENEFIT) FOR INCOME TAXES 0 (5,000) 0 5,000
----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 35,968 $ 49,567 $ (61,700) $ 128,041
================================================================================================================
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ 0.02 $ 0.03 $ (0.04) $ 0.09
================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 1,502,242 1,508,313 1,494,377 1,474,413
================================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 414
LUXTEC CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
JULY 31, JULY 31,
1995 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME (LOSS) $ (61,700) $ 128,041
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES:
Depreciation and amortization 120,407 147,514
Provision for uncollectible accounts receivable 7,500 20,000
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable 1,986 (231,421)
(Increase) decrease in inventory (446,005) 31,428
(Increase) in prepaid expenses (198,054) (42,685)
Increase in accounts payable 325,312 78,669
Increase (decrease) in accrued expenses (223,530) 149,208
--------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (412,384) 152,713
--------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (474,084) 280,754
--------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment (83,413) (69,345)
Increase in other assets (46,838) (29,359)
--------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (130,251) (98,704)
--------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on revolving
credit arrangement 578,098 175,497
Payments on long-term debt 0 (52,500)
Payments under capital lease obligations 0 (8,810)
Employee stock purchases 36,474 0
--------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 614,572 114,187
--------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 10,237 296,237
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,329 13,667
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,566 $ 309,904
==================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 67,544 $ 21,969
==================================================================================================
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
5
<PAGE> 415
LUXTEC CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1) Basis of Presentation of Consolidated Financial Statements
The accompanying consolidated condensed financial statements have been
prepared in conformity with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments necessary
for fair presentation have been made which comprise only normal recurring
adjustments. Operating results for the three months and nine months ended July
31, 1995, are not necessarily indicative of the results that may be expected for
the entire year.
2) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first in, first out (FIFO) method and includes materials, labor and
manufacturing overhead. Inventories are as follows:
<TABLE>
<CAPTION>
July 31, 1995 October 31, 1994
----------------------------------------------------
<S> <C> <C>
Raw material $1,427,148 $ 877,410
Work in process 96,909 96,097
Finished goods 441,596 546,141
-------------------------------------------------
TOTAL $1,965,653 $1,519,648
-------------------------------------------------
</TABLE>
3) Revolving Credit Line
On January 11, 1995, the Corporation entered into an agreement with a bank
for a $1,500,000, unsecured revolving credit line at the bank's prime rate
(8.75% at July 31, 1995) expiring on March 31, 1996.
4) CardioDyne Acquisition
On June 28, 1995 Luxtec filed an 8-K announcing that the Corporation had
entered into a definitive Agreement of Merger and Plan of Reorganization with
CardioDyne, Inc., after unanimous approval by the Boards of Directors of each
of Luxtec and CardioDyne. The stockholders of Luxtec and CardioDyne are
expected to vote on the Merger Agreement at their respective annual or special
meetings that are expected to be held in October 1995. The Corporation
anticipates closing the Merger Agreement and the transactions contemplated
thereby either in the fourth quarter of 1995 or the first quarter of 1996.
CardioDyne is a development stage company and to date has not generated any
revenues from operations. As a result, the Corporation anticipates that it will
report a loss upon closure of the Merger Agreement due to acquisition costs
incurred by both Luxtec and CardioDyne.
6
<PAGE> 416
LUXTEC CORPORATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net sales for the three months ended July 31, 1995 were $2,257,972 compared to
$2,263,340 for the same period in fiscal 1994. For the nine months ended July
31, 1995, net sales increased 3.0% to $6,031,394 from $5,854,370 reported for
the same period last year. The decrease for the quarter is attributable to
delays in the introduction of two significant product line improvements.
Cost of sales for the three months ended July 31, 1995 was $1,182,500 or 52.4%
of net sales compared with $1,205,613 or 53.3% for the same period in fiscal
1994. For the nine month period ended July 31, 1995, cost of sales was
$3,133,217 or 51.9% of net sales compared to $3,216,372 or 54.9% of net sales of
the same period in fiscal 1994. The decrease in cost of sales as a percentage of
net sales was primarily the result in lowered manufacturing expenses as the
Corporation's overall cost reduction program continued to take hold.
Gross profit was $1,075,472 or 47.6% of net sales for the three month period
ending July 31, 1995 compared to $1,057,727 or 46.7% of net sales for the same
period in fiscal 1994. For the nine month period ended July 31, 1995 gross
profit was $2,898,177 or 48.1% of net sales compared to $2,637,998 or 45.1% of
net sales for the same period in fiscal 1994. A combination of product cost
reduction and favorable product mix resulted in improved margins as a percentage
of net sales. The Corporation expects this trend to continue due to the
introduction of products with anticipated higher margins in the final quarter of
1995.
Selling expenses were $506,655 for the three months ended July 31, 1995,
compared to $577,169 for the same period in fiscal 1994, a decrease of 12.2%.
For the nine month period ended July 31, 1995, selling expenses were $1,376,493
compared to $1,269,444 for the same period in fiscal 1994, and increase of 8.4%.
Decreased expenses for the quarter was a result of marketing's effort to trim
costs associated with attending trade shows . This was achieved by more
efficiently scheduling and adopting lower cost alternatives for the program.
Research and development expenditures were $145,341 for the three months ended
July 31, 1995, compared to $106,626 for the same period in fiscal 1994, a
increase of 36.3%. For the nine month period ended July 31, 1995 expenses
increased 94.1% from $255,344 on July 31, 1994 to $495,725 on July 31, 1995. The
increase is attributed to a major acceleration in the development of new
products as well as the upgrading of existing products. Although there was a
delay in the introduction of product line improvements in the third quarter the
Corporation anticipates these introductions, and the potential revenues to be
derived from them to occur in the fourth quater of 1995 and the first quarter of
1996.
7
<PAGE> 417
LUXTEC CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
General and administrative expenses were $359,419 for the three months ended
July 31, 1995, compared to $318,232 for the same period in fiscal 1994,
representing an increase of 12.9%. Expenses for the nine month period ended July
31, 1995 were $1,024,254, an increase of 7.3% from expenses totaling $954,165.
The increase is attributable to an enhanced investor relations program as well
as costs associated with the Fiber Imaging Technologies subsidiary.
During the third quarter of 1995, the Corporation announced completion of a
definitive merger agreement with CardioDyne, Inc. The Corporation expects that
the merger will be completed in the fourth quarter of fiscal year 1995, subject
to shareholder approval. The Corporation anticipates reporting a loss for both
the fourth quarter and full year of 1995 as a result of acquisition costs
associated with the merger.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1995, the Corporation had working capital of approximately
$1,375,000 compared to $1,410,000 at October 31, 1994. Prepaid expenses
increased by 164.3%, primarily due to acquisition costs associated with the
CardioDyne merger. Accrued expenses decreased 60.2%, primarily as a result of
payments made for a sales promotion and the final payment made in settlement of
an arbitration case. Accounts payable increased 35.0% and inventories increased
by 29.3%, both increases primarily due to start-up difficulties with new
products. Other assets increased 16.3% compared to October 31, 1994 balances.
Cash provided by financing activities was primarily funded by borrowings of
$1,185,256 from a $1,500,000 revolving credit line. At July 31, 1995, the
amount of unused and available credit was $314,744. Cash used by investing
activities was primarily used to purchase equipment.
The Corporation anticipates that its current cash requirements will be satisfied
by cash flow from existing operations and the continuation of its revolving
credit arrangement with a bank.
8
<PAGE> 418
LUXTEC CORPORATION
PART II. OTHER INFORMATION
ITEM 1. Legal proceedings
The Corporation is not a party to, nor is any of its property the
subject of, any material pending proceedings.
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits
No Exhibits were required to be filed.
(b) Reports on Form 8-K
On June 28, 1995 Luxtec filed an 8-K announcing that the
Corporation had entered into a definitive Agreement of Merger and Plan of
Reorganization with CardioDyne, Inc., after unanimous approval by the Boards of
Directors of each of Luxtec and CardioDyne. The stockholders of Luxtec and
CardioDyne are expected to vote on the Merger Agreement at their respective
annual or special meetings that are expected to be held in October 1995. The
Corporation anticipates closing the Merger Agreement and the transactions
contemplated thereby either in the fourth quarter of 1995 or the first quarter
of 1996. CardioDyne is a development stage company and to date has not
generated any revenues from operations. As a result, the Corporation
anticipates that it will report a loss upon closure of the Merger Agreement due
to acquisition costs incurred by both Luxtec and CardioDyne.
9
<PAGE> 419
LUXTEC CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUXTEC CORPORATION
(Registrant)
9/7/95 /s/Samuel M. Stein
----------------- --------------------------------------
Date Samuel M. Stein
Chief Financial Officer
(Principal Accounting Officer and Duly
Authorized Executive Officer)
10
<PAGE> 420
Dear Stockholder:
The Annual Meeting date which is listed on your proxy card is incorrect. THE
CORRECT DATE FOR THE 1995 ANNUAL MEETING OF STOCKHOLDERS WILL BE FRIDAY,
OCTOBER 20, 1995. We apologize for any inconvenience this may have caused you.
Sincerely,
Luxtec Corporation
