<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
ANGEION 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):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock $.01 par value
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(2) Aggregate number of securities to which transaction applies:
4,009,659 shares of Common Stock
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(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):(1)
$3.3404 per share
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(4) Proposed maximum aggregate value of transaction:
$22,393,811
-----------------------------------------------------------------------
(5) Total fee paid:
$4,479
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/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.:
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(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
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(1) Based on consideration equal to $6,000,000, plus 4,009,659 shares of
Angeion Corporation common stock. The average of the high and low sale
prices per share of ANGN common stock on the Nasdaq National Market on
August 18, 1999 was $1.844. Per unit price does not include additional cash
proceeds of $9,000,000 reflected in the maximum aggregate value of
transaction.
<PAGE>
ANGEION CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
December 31, 1999
Notice is hereby given that the Annual Meeting of Shareholders of Angeion
Corporation, a Minnesota corporation (the "Company"), will be held at the
Radison Plaza Hotel, 35 South Seventh Street, Minneapolis, Minnesota 55402,
beginning at 9:00 a.m., Central Standard Time, on Wednesday, December 31, 1999,
for the following purposes:
1. To elect nine persons to serve as directors of the Company until the
next Annual Meeting of Shareholders or until their respective successors
shall be elected and qualified;
2. To vote on the approval of the Asset Purchase Agreement dated as of
August 2, 1999 (the "ELA Agreement"), by and among the Company,
Sanofi-Synthelabo, a societe anonyme organized and existing under the laws
of the Republic of France ("Sanofi-Synthelabo"), and ELA Medical, a societe
anonyme organized and existing under the laws of the Republic of France and
a wholly-owned subsidiary of Sanofi-Synthelabo ("ELA Medical"), pursuant to
which the Company has agreed (A) to sell and transfer, and ELA Medical has
agreed to purchase and assume, certain of the assets and liabilities of the
Company relating to the manufacture and sale of cardiac stimulation and
related devices designed and developed by the Company, and (B) to grant ELA
Medical a one-way, non-exclusive, fully paid-up, royalty-free and perpetual
worldwide license to its patents and patent applications relating to cardiac
stimulation devices;
3. To vote on the approval of the Settlement, License and Asset
Purchase Agreement dated as of September 16, 1999 (the "Medtronic Agreement"
and, together with the ELA Agreement, collectively the "Agreements"), by and
between the Company and Medtronic, Inc., a Delaware corporation
("Medtronic"), pursuant to which the Company has agreed (A) to sell and
Medtronic has agreed to purchase certain unfiled patent disclosures of the
Company relating to its cardiac stimulation devices, and (B) to grant
Medtronic a one-way, non-exclusive, fully paid-up, royalty-free and
perpetual worldwide license to its patents and patent applications relating
to cardiac stimulation devices;
4. To vote on a proposal to increase the number of authorized shares of
Common Stock, par value $.01 per share (the "Common Stock"), of the Company
from 7,500,000 to 10,000,000;
5. To vote on approval of amendments to the Company's 1994 Non-Employee
Director Plan, as amended (the "Director Plan"), to (i) extend the term of
the Director Plan by five years to October 7, 2004, and (ii) increase the
number of shares covered by the Director Plan from 20,000 to 250,000;
6. To ratify the appointment of KPMG LLP as independent auditors of the
Company for the fiscal year ending December 31, 1999; and
7. To transact such other business as may properly come before the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT AN AFFIRMATIVE VOTE BE CAST IN FAVOR
OF ALL NOMINEES AND FOR EACH OF THE PROPOSALS LISTED ON THE PROXY CARD.
Consummation of the transactions contemplated by each of the Agreements is
subject to approval of each of the Agreements by two-thirds of the issued and
outstanding shares of Common Stock entitled to vote thereon, the granting of
consent to proposals to supplement the Indenture dated as of April 14, 1998
between the Company and U.S. Bank National Association, as Trustee thereunder
with respect to the 7 1/2% Senior Convertible Notes due 2003 of the Company (the
"Notes") in connection with consummation of the transactions contemplated by the
Agreements by holders of a majority by aggregate principal amount of the
outstanding Notes and the satisfaction of other customary conditions. A
Minnesota corporation is required under Section 302A.661 of the Minnesota
Business Corporation Act (the "MBCA") to submit a transaction involving a sale
of substantially all of the property and assets of the corporation for approval
by its shareholders. Arguably, the transactions contemplated by the Agreements,
taken together, may constitute the sale of substantially all of the property and
assets of the Company under the MBCA.
<PAGE>
Holders of Common Stock who do not vote their shares in favor of one or both of
the Agreements, and who strictly comply with the provisions of Sections 302A.471
and 302A.473 of the MBCA, may be entitled to certain dissenters' appraisal
rights under Minnesota law. A discussion of these rights is set forth in the
accompanying Proxy Statement/Consent Solicitation under the heading "APPROVAL OF
THE SALE AND TRANSFER OF ASSETS--Additional Information About the
Transactions--Rights of Dissenting Shareholders" and in the relevant statutes
attached as Annex H to the Proxy Statement/Consent Solicitation.
Only holders of record of Common Stock at the close of business on
December 1, 1999, will be entitled to notice of and to vote at the Annual
Meeting or any adjournment or postponement thereof.
IT IS IMPORTANT THAT YOUR SHARES OF COMMON STOCK BE REPRESENTED AT THE
ANNUAL MEETING. YOU ARE URGED TO COMPLETE AND SIGN THE ACCOMPANYING PROXY CARD,
WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY, AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO
EXERCISE. YOUR PROXY WILL NOT BE USED IF YOU ATTEND AND VOTE AT THE MEETING IN
PERSON.
By Order of the Board of Directors
/s/ JAMES B. HICKEY, JR.
James B. Hickey, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
December 2, 1999
Brooklyn Park, Minnesota
IMPORTANT: PLEASE RETURN EACH PROXY CARD SENT TO YOU. THE PROMPT RETURN OF
PROXIES WILL SAVE THE COMPANY THE EXPENSE OF FURTHER REQUESTS FOR PROXIES.
2
<PAGE>
ANGEION CORPORATION
NOTICE OF REQUEST FOR CONSENT
7 1/2% SENIOR CONVERTIBLE NOTES
DUE 2003
Notice is hereby given to the holders of 7 1/2% Senior Convertible Notes due
2003 (the "Notes") issued by Angeion Corporation, a Minnesota corporation (the
"Company"), that the Company hereby submits to holders of Notes a Request For
Consent to supplement the Indenture dated as of April 14, 1998 (the
"Indenture"), by and between the Company and U.S. Bank National Association, as
Trustee thereunder with respect to the Notes, to provide that the consummation
of the transactions contemplated by the Agreements (as defined below) will not:
1. Constitute a sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the property or assets of the
Company for purposes of the Company's obligations to comply with and observe
all covenants contained in the Indenture; and
2. Constitute a conveyance, transfer or lease of all or substantially all of
the Company's assets for purposes of determining whether a change of control
has occurred within the meaning of the Indenture.
The consent for each proposal listed above will not be effective unless both
proposals receive the consent of the Note Holders described below.
The term "Agreements" means (i) the Asset Purchase Agreement dated as of
August 2, 1999 (the "ELA Agreement"), by and among the Company,
Sanofi-Synthelabo, a societe anonyme organized and existing under the laws of
the Republic of France ("Sanofi-Synthelabo"), and ELA Medical, a societe anonyme
organized and existing under the laws of the Republic of France and a
wholly-owned subsidiary of Sanofi-Synthelabo ("ELA Medical"), pursuant to which
the Company has agreed (A) to sell and transfer, and ELA Medical has agreed to
purchase and assume, certain of the assets and liabilities of the Company
relating to the manufacture and sale of cardiac stimulation and related devices
designed and developed by the Company, and (B) to grant ELA Medical a one-way,
non-exclusive, fully paid-up, royalty-free and perpetual worldwide license to
its patents and patent applications relating to cardiac stimulation devices; and
(ii) the Settlement, License and Asset Purchase Agreement dated as of
September 16, 1999 (the "Medtronic Agreement"), by and between the Company and
Medtronic, Inc., a Delaware corporation ("Medtronic"), pursuant to which the
Company has agreed (A) to sell and Medtronic has agreed to purchase certain
unfiled patent disclosures of the Company relating to its cardiac stimulation
devices, and (B) to grant Medtronic a one-way, non-exclusive, fully paid-up,
royalty-free and perpetual worldwide license to its patents and patent
applications relating to cardiac stimulation devices.
A discussion of the foregoing proposals is set forth in the accompanying
Proxy Statement/Consent Solicitation under the heading "APPROVAL OF THE SALE AND
TRANSFER ASSETS". The Board of Directors urges each of you to read the sections
pertaining to the foregoing proposals contained in the accompanying Proxy
Statement/Consent Solicitation carefully.
Consummation of the transactions contemplated by each of the Agreements is
subject to the granting of consent to proposals to supplement the Indenture in
connection with consummation of the transactions contemplated by the Agreements
by the holders of a majority by aggregate principal amount of the outstanding
Notes, approval of the ELA Agreement and the Medtronic Agreement, as
appropriate, by two-thirds of the issued and outstanding shares of Common Stock,
par value $.01 per share, of the Company entitled to vote thereon, and the
satisfaction of other customary conditions.
Only holders of record of Notes at the close of business on December 1,
1999, will be entitled to notice of the Request for Consent and to grant or
withhold such consent.
<PAGE>
IT IS IMPORTANT THAT YOUR NOTES BE REPRESENTED WITH RESPECT TO THE REQUEST
FOR CONSENT. YOU ARE REQUESTED TO COMPLETE AND SIGN THE ACCOMPANYING CONSENT
CARD, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY, AND MAIL IT
PROMPTLY IN THE ENCLOSED ENVELOPE. THE CONSENT MAY BE REVOKED AT ANY TIME PRIOR
TO 9:00 AM, CENTRAL STANDARD TIME, ON DECEMBER 31, 1999.
By Order of the Board of Directors
/s/ JAMES B. HICKEY, JR.
James B. Hickey, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
December 2, 1999
Brooklyn Park, Minnesota
<PAGE>
ANGEION CORPORATION
7601 NORTHLAND DRIVE
BROOKLYN PARK, MINNESOTA 55428
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
AND
CONSENT SOLICITATION
FOR SENIOR NOTE HOLDERS
December 31, 1999
INTRODUCTION
The Annual Meeting of Shareholders of Angeion Corporation (the "Company")
will be held on Wednesday, December 29, 1999, at 9:00 a.m., Central Standard
Time, at the Radisson Plaza Hotel, 35 South Seventh Street, Minneapolis,
Minnesota 55402, or at any adjournments or postponements thereof (the "Annual
Meeting"), for the purposes set forth in the Notice of Annual Meeting of
Shareholders.
Simultaneously with the solicitation of proxies for the Annual Meeting, the
Company is requesting holders of 7 1/2% Senior Convertible Notes due 2003 (the
"Notes" and the holders thereof, the "Note Holders") issued by the Company to
consent to supplement the Indenture dated as of April 14, 1998 (the
"Indenture"), by and between the Company and U.S. Bank National Association, as
Trustee thereunder, for the purposes set forth in the Notice of Request for
Consent.
THE ANNUAL MEETING
At the Annual Meeting, holders of Common Stock, par value $.01 per share
("Common Stock" and the holders thereof, the "Shareholders"), of the Company
will be asked to consider and vote on five proposals:
(1) election of nine member's of the Company's Board of Directors (each a
"Director", collectively the "Board of Directors");
(2) approval of the Asset Purchase Agreement dated as of August 2, 1999 (the
"ELA Agreement"), by and among the Company, Sanofi-Synthelabo, a societe anonyme
organized and existing under the laws of the Republic of France
("Sanofi-Synthelabo"), and ELA Medical, a societe anonyme organized and existing
under the laws of the Republic of France and a wholly-owned subsidiary of
Sanofi-Synthelabo ("ELA Medical"), pursuant to which the Company has agreed
(A) to sell and transfer, and ELA Medical has agreed to purchase and assume,
certain of the assets and liabilities of the Company relating to the manufacture
and sale of cardiac stimulation devices designed and developed by the Company,
and (B) to grant ELA Medical a one-way, non-exclusive, fully paid-up,
royalty-free and perpetual worldwide license to its patents and patent
applications relating to cardiac stimulation devices;
(3) approval of the Settlement, License and Asset Purchase Agreement dated
as of September 16, 1999 (the "Medtronic Agreement", and together with the ELA
Agreement, collectively the "Agreements"), by and between the Company and
Medtronic, Inc., a Delaware corporation ("Medtronic"), pursuant to which the
Company has agreed (A) to sell and Medtronic has agreed to purchase certain
unfiled patent disclosures of the Company relating to its cardiac stimulation
devices, and (B) to grant Medtronic a one-way, non-exclusive, fully paid-up,
royalty-free and perpetual worldwide license to its patents and patent
applications relating to cardiac stimulation devices;
(4) approval of amendments to the Company's Amended and Restated Articles of
Incorporation (the "Articles of Incorporation") increasing the number of
authorized shares of Common Stock of the Company from 7,500,000 to 10,000,000;
<PAGE>
(5) approval of an amendment to the Company's 1994 Non-Employee Director
Plan, as amended (the "Director Plan"), to (i) extend the term of the Director
Plan by five years to October 7, 2004, and (ii) increase the number of shares of
Common Stock available under the Plan from 20,000 to 250,000; and
(6) ratification of the appointment of KPMG LLP as independent auditors of
the Company for the fiscal year ending December 31, 1999.
If any other matters properly come before the Annual Meeting, the persons named
in the proxy will vote on such other matters in accordance with their best
judgment.
Consummation of the transactions contemplated by each of the Agreements is
subject to approval by two-thirds of the issued and outstanding shares of Common
Stock entitled to vote thereon, the granting of consent to proposals to
supplement the Indenture in connection with consummation of the transactions
contemplated by the Agreements by holders of a majority by aggregate principal
amount of the outstanding Notes and satisfaction of other customary conditions.
A Minnesota corporation is required under Section 302A.661 of the Minnesota
Business Corporation Act (the "MBCA") to submit a transaction involving the sale
of substantially all of the property and assets of the corporation for approval
by its shareholders. Arguably, the transactions contemplated by the Agreements,
taken together, may constitute a sale of substantially all of the property and
assets of the Company under the MBCA. Due to regulations promulgated by the
Securities and Exchange Commission, the Company is required to present approval
of each of the Agreements to the Shareholders as separate proposals in lieu of
requesting approval of a single proposal to approve transactions which, taken
together, may constitute the sale of substantially all of the property and
assets of the Company.
The consideration to be received by the Company in connection with the
consummation of the ELA Agreement consists of (i) all of the outstanding shares
of Common Stock (as of November 1, 1999, approximately 18.6% of the total shares
of Common Stock outstanding) and warrants to purchase an additional 1,897,156
shares of Common Stock held by Sanofi-Synthelabo, the Company's largest
shareholder, and (ii) assumption by ELA Medical of certain continuing product
support obligations of the Company with respect to its cardiac stimulation
device business. The consideration to be received by the Company in connection
with the consummation of the Medtronic Agreement consists of $9.0 million in
cash (of which the Company will net approximately $8.5 million after payment of
certain transaction-related expenses).
The proceeds received by the Company in connection with the Agreements are
intended to be used by the Company in connection with the Company's continuing
efforts to grow. On September 22, 1999, the Company entered into an Agreement
(the "Medical Graphics Agreement") with Medical Graphics, Inc., a publicly held
Minnesota corporation ("Medical Graphics"), pursuant to which the Company would
acquire Medical Graphics through the merger of Medical Graphics with a
wholly-owned subsidiary of the Company (the "Merger"). The consideration to be
paid by the Company in connection with the Merger is approximately
$16.3 million cash. Upon consummation of the Merger, it is the Company's
intention to primarily focus its efforts on the markets served by and business
operations of Medical Graphics. Consummation of the Merger is subject to
approval of the shareholders of Medical Graphics and other customary conditions.
Consummation of the Merger is not subject to approval of the Shareholders.
The Company has adequate funds to consummate the Merger (without giving
effect to the transactions contemplated by either of the ELA Agreement or the
Medtronic Agreement) and intends to do so upon receiving approval of the Medical
Graphics' shareholders. Accordingly, the Company plans, and is contractually
obligated under the Medical Graphics Agreement, to consummate the Merger whether
or not the Shareholders approve the Agreements or the Note Holders consent to
supplement the Indenture. In the event the Company is required to repurchase the
Notes prior to consummation of the Merger, the Company would not have sufficient
funds on hand to consummate the Merger without obtaining additional sources of
financing. The Company does not currently have any commitments to provide
sources of financing in the event it is required to repurchase the Notes prior
to consummation of the Merger.
2
<PAGE>
The election of a nominee for Director and the approval of each of the other
proposals described in this Proxy Statement/Consent Solicitation, other than
proposals (2) and (3), require the approval of a majority of the shares of
Common Stock present and entitled to vote in person or by proxy on that matter
(and at least a majority of the minimum number of votes necessary for a quorum
to transact business at the Annual Meeting). The approval of each of the
Agreements (proposals (2) and (3)) requires the approval of two-thirds of the
shares of Common Stock issued and outstanding as of the Shareholder Record Date,
in addition to the consent of the Note Holders to supplement the Indenture.
A proxy card is enclosed for your use. You are solicited on behalf of the
Board of Directors to SIGN AND RETURN THE PROXY CARD IN THE ACCOMPANYING
ENVELOPE. No postage is required if mailed within the United States. The cost of
soliciting proxies, including the preparation, assembly and mailing of proxies
and soliciting material, as well as the cost of forwarding such material to the
beneficial owners of the Common Stock, will be borne by the Company. The Company
has retained the services of Innisfree M&A Incorporated, a professional proxy
solicitor, to solicit Shareholders with respect to approval of the proposals to
approve the Agreements and anticipates paying such solicitor fees of
approximately $15,000 in connection with solicitations of matters described in
this Proxy Statement/ Consent Solicitation. In addition, Directors, officers and
regular employees of the Company may, without compensation other than their
regular compensation, solicit proxies by telephone, telegraph or personal
conversation. The Company may reimburse brokerage firms and others for expenses
in forwarding proxy materials to the beneficial owners of Common Stock.
3
<PAGE>
CONSENT OF THE NOTE HOLDERS
The Note Holders are hereby requested to give their consent to the Company
and U.S. Bank National Association, as Trustee, to supplement the Indenture to
provide that the consummation of the transactions contemplated by the Agreements
will not constitute (i) a sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the property or assets of the Company
for purposes of the Company's obligations to comply with and observe all
covenants contained in the Indenture, or (ii) a conveyance, transfer or lease of
all or substantially all of the Company's assets for purposes of determining
whether a change of control has occurred within the meaning of the Indenture. In
the event that Note Holders owning a majority by aggregate principal amount
outstanding of the Notes do not consent to each of the proposals, the
transactions contemplated by the Agreements will not be consummated.
A consent solicitation card is enclosed for your use. You are requested on
behalf of the Board of Directors to SIGN AND RETURN THE CONSENT SOLICITATION
CARD IN THE ACCOMPANYING ENVELOPE. No postage is required if mailed within the
United States. The cost of requesting consents, including the preparation,
assembly and mailing of consent cards and soliciting material, will be borne by
the Company. In addition, directors, officers and regular employees of the
Company may, without compensation other than their regular compensation, solicit
consents by telephone, telegraph or personal conversation.
The Company has adequate funds to consummate the Merger (without giving
effect to the transactions contemplated by either of the ELA Agreement or
Medtronic Agreement) and intends to do so upon receiving approval of Medical
Graphics' shareholders. Accordingly, the Company plans, and is contractually
obligated under the Medical Graphics Agreement, to consummate the Merger whether
or not the Note Holders consent to the proposals or the Shareholders approve the
proposal to sell and transfer substantially all of the property and assets of
the Company pursuant to the Agreements. In the event the Company is required to
repurchase the Notes prior to consummation of the Merger, the Company would not
have sufficient funds on hand to consummate the Merger without obtaining
additional sources of financing. The Company does not currently have any
commitments to provide sources of financing in the event it is required to
repurchase the Notes prior to consummation of the Merger.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
SUMMARY..................................................... 1
THE COMPANY............................................... 1
SANOFI-SYNTHELABO......................................... 1
MEDTRONIC................................................. 1
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE; NOTE HOLDERS
ENTITLED TO CONSENT; QUORUM............................. 1
THE TRANSACTIONS.......................................... 1
PROCEEDS OF THE TRANSACTIONS.............................. 4
CLOSING CONDITIONS TO THE ELA AGREEMENT................... 5
CLOSING CONDITIONS TO THE MEDTRONIC AGREEMENT............. 5
RECOMMENDATION OF THE BOARD OF DIRECTORS.................. 5
OPINIONS OF RAYMOND JAMES & ASSOCIATES, INC............... 6
SHAREHOLDER APPROVAL...................................... 6
CONSENT OF NOTE HOLDERS................................... 7
RIGHTS OF DISSENTING SHAREHOLDERS......................... 8
FEDERAL INCOME TAX CONSEQUENCES........................... 8
MARKET FOR COMMON STOCK................................... 9
SELECTED HISTORICAL FINANCIAL INFORMATION................. 9
ADDITIONAL INFORMATION.................................... 12
CAUTIONARY STATEMENTS CONCERNING FORWARD LOOKING
STATEMENTS.............................................. 12
PROPOSAL 1 ELECTION OF DIRECTORS............................ 13
NOMINATION................................................ 13
INFORMATION ABOUT NOMINEES................................ 14
OTHER INFORMATION ABOUT NOMINEES.......................... 14
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES............ 15
COMPENSATION OF DIRECTORS................................. 16
PRINCIPAL SHAREHOLDERS AND BENEFICIAL OWNERSHIP OF
MANAGEMENT.............................................. 16
PRINCIPAL NOTE HOLDERS AND BENEFICIAL OWNERSHIP OF
MANAGEMENT.............................................. 18
EXECUTIVE COMPENSATION AND OTHER BENEFITS................. 19
OPTION GRANTS AND EXERCISES............................... 20
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES.................................. 21
CHANGE IN CONTROL AGREEMENTS.............................. 21
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION... 21
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............ 23
STOCK PERFORMANCE GRAPH................................... 24
PROPOSALS 2 AND 3 APPROVAL OF THE SALE AND TRANSFER OF
ASSETS.................................................... 24
GENERAL................................................... 24
PROPOSAL 2 BACKGROUND OF THE ELA TRANSACTIONS............. 25
REASONS FOR THE ELA TRANSACTIONS; RECOMMENDATIONS OF THE
BOARD OF DIRECTORS...................................... 29
OPINION OF RAYMOND JAMES REGARDING THE ELA TRANSACTIONS... 35
DESCRIPTION OF THE ELA AGREEMENT.......................... 39
DESCRIPTION OF THE TERMINATION AGREEMENT.................. 45
DESCRIPTION OF THE ONE-WAY LICENSE AGREEMENT.............. 46
DESCRIPTION OF THE CROSS-LICENSE AGREEMENT................ 48
PROPOSAL 3 BACKGROUND OF THE MEDTRONIC TRANSACTIONS....... 50
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
REASONS FOR THE MEDTRONIC TRANSACTIONS; RECOMMENDATIONS OF
THE BOARD OF DIRECTORS.................................. 52
OPINION OF RAYMOND JAMES REGARDING THE MEDTRONIC
TRANSACTIONS............................................ 54
DESCRIPTION OF THE MEDTRONIC AGREEMENT.................... 57
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS.......... 59
RECOMMENDATION OF THE BOARD OF DIRECTORS.................. 59
REQUIRED VOTE OF THE SHAREHOLDERS; REQUIRED CONSENT OF THE
NOTE HOLDERS............................................ 59
LITIGATION AND RELATED MATTERS............................ 62
PLANS FOR THE COMPANY AFTER THE TRANSACTIONS.............. 63
COMMUNICATIONS WITH NASDAQ REGARDING DELISTING............ 64
RIGHTS OF DISSENTING SHAREHOLDERS......................... 64
ACCOUNTING TREATMENT...................................... 66
FEDERAL INCOME TAX CONSEQUENCES........................... 67
COMPARATIVE UNAUDITED PER SHARE DATA...................... 67
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......... 68
FINANCIAL INFORMATION REGARDING MEDICAL GRAPHICS.......... 74
DESCRIPTION OF COMMON STOCK............................... 91
DESCRIPTION OF NOTES...................................... 91
PROPOSAL 4 AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK........................................... 92
PROPOSAL 5 AMENDMENTS TO COMPANY'S 1994 NON-EMPLOYEE
DIRECTOR PLAN............................................. 94
INTRODUCTION.............................................. 94
AMENDMENTS................................................ 95
REASON FOR THE AMENDMENTS................................. 95
SUMMARY OF THE DIRECTOR PLAN.............................. 95
FEDERAL INCOME TAX CONSEQUENCES........................... 97
AWARDS UNDER THE DIRECTOR PLAN............................ 97
BOARD OF DIRECTORS RECOMMENDATIONS........................ 97
PROPOSAL 6 RATIFICATION OF COMPANY'S AUDITORS............... 97
GENERAL INFORMATION REGARDING THE COMPANY................... 98
SECTION 16(
a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................ 98
OTHER BUSINESS.............................................. 98
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS............ 98
AVAILABLE INFORMATION....................................... 99
ANNEX A -- ELA AGREEMENT
ANNEX B -- TERMINATION AGREEMENT
ANNEX C -- ONE-WAY LICENSE AGREEMENT
ANNEX D -- CROSS-LICENSE AGREEMENT
ANNEX E -- FAIRNESS OPINION OF RAYMOND JAMES REGARDING THE ELA
TRANSACTIONS
ANNEX F -- MEDTRONIC AGREEMENT
ANNEX G -- FAIRNESS OPINION OF RAYMOND JAMES REGARDING THE MEDTRONIC
TRANSACTIONS
ANNEX H -- MINNESOTA BUSINESS CORPORATIONS ACT--SECTIONS 302A.471 AND
302A.473
</TABLE>
ii
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT/CONSENT SOLICITATION. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION CONTAINED IN THIS PROXY
STATEMENT/CONSENT SOLICITATION, IN THE MATERIALS ACCOMPANYING THIS PROXY
STATEMENT/CONSENT SOLICITATION AND IN THE ANNEXES TO THE PROXY STATEMENT/CONSENT
SOLICITATION. SHAREHOLDERS AND NOTE HOLDERS ARE URGED TO REVIEW THE ENTIRE PROXY
STATEMENT/CONSENT SOLICITATION CAREFULLY. ALL SHARE AND PER SHARE AMOUNTS
REGARDING THE COMMON STOCK RECITED HEREIN HAVE BEEN ADJUSTED TO REFLECT THE
ONE-FOR-TEN REVERSE STOCK SPLIT EFFECTED BY THE COMPANY ON MAY 17, 1999.
THE COMPANY
The Company was incorporated in Minnesota in May 1986. Since 1991, the
Company has been a participant in the cardiac stimulation device market,
represented primarily by the sale of implantable cardioverter defibrillators
("ICDs"). The Company's principal executive offices are located at 7601
Northland Drive, Brooklyn Park, Minnesota 55428, and its telephone number is
(612) 315-2000.
SANOFI-SYNTHELABO
Sanofi-Synthelabo was created on May 19, 1999 as a result of the merger of
Sanofi S.A. and Synthelabo, each of which was, prior to the merger, a leading
French pharmaceutical company. References in this Proxy Statement/Consent
Solicitation to Sanofi-Synthelabo with respect to periods prior to May 19, 1999
are to Synthelabo. Sanofi-Synthelabo's principal executive offices are located
at 174 Avenue de France, Paris, France 75013, and its telephone number is
(011)(33)(1) 53 77 42 30. Sanofi-Synthelabo is the Company's largest shareholder
and holds, as of November 1, 1999, approximately 18.6% of the total shares of
Common Stock outstanding and beneficially owns (including outstanding warrants
to purchase Common Stock) 44.7% of total shares outstanding. ELA Medical is a
wholly-owned subsidiary of Sanofi-Synthelabo.
MEDTRONIC
Medtronic is a leading medical technology company, specializing in
implantable and interventional therapies that restore health, extend life and
alleviate pain. Medtronic's principal executive offices are located at 7000
Central Avenue Northeast, Fridley, Minnesota 55432, and its telephone number is
(612) 574-4000.
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE; NOTE HOLDERS ENTITLED TO CONSENT;
QUORUM
Only holders of record of shares of Common Stock of the Company on
December 1, 1999 (the "Shareholder Record Date") are entitled to notice of and
to vote at the Annual Meeting and only Note Holders of record on December 1,
1999 (the "Note Holder Record Date" and, together with the Shareholder Record
Date, collectively the "Record Dates") are entitled to consent to the proposals
to supplement the Indenture. This Proxy Statement/Consent Solicitation and the
accompanying form of proxy or consent, as appropriate, are being sent or given
to Shareholders and Note Holders beginning on or about December 3, 1999. As of
November 1, 1999, there were 4,009,109 shares of Common Stock outstanding, held
of record by approximately 450 Shareholders and $20,198,000 principal amount of
Notes outstanding, held of record by approximately 25 Note Holders. The presence
in person or by proxy at the Annual Meeting of the holders of a majority of the
outstanding shares of Common Stock is necessary to constitute a quorum at the
Annual Meeting. In general, shares of Common Stock represented by a properly
signed and returned proxy card will be counted as shares present and entitled to
vote at the meeting for purposes of determining a quorum, without regard to
whether the card reflects abstentions (or is left blank) or reflects a "broker
non-vote" on a matter (i.e., a card returned by a broker because voting
instructions have not been received and the broker has no discretionary
authority to vote). Holders of shares of Common Stock are not entitled to
cumulative voting rights.
THE TRANSACTIONS
The Agreements described in proposals (2) and (3) of the Notice of Annual
Meeting of Shareholders and referenced in the request by the Company for consent
by the Note Holders to supplement the Indenture consist of two separate
agreements, the ELA Agreement and the Medtronic Agreement. The
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transactions contemplated by the ELA Agreement, including the transactions
contemplated by the Termination Agreement and the One-Way License Agreement
(each as hereinafter defined) are generally referred to herein as the "ELA
Transactions", and the transactions contemplated by the Medtronic Agreement are
generally referred to herein as the "Medtronic Transactions" (the ELA
Transactions and the Medtronic Transactions are generally referred to herein
collectively as the "Transactions"). As a result of the Transactions, the
Company will grant to each of ELA and Medtronic a one-way, non-exclusive, fully
paid-up, royalty-free and perpetual, worldwide license to substantially all of
the patents and patent applications owned or sublicensable by the Company
relating to cardiac stimulation devides, including all patents and patent
applications currently used by the Company in the manufacture of ICDs. The sale
of ICDs by the Company represented approximately 80% of the Company's revenues
during fiscal year 1998. The remaining 20% of the Company's revenues were
generated by the Leads (as hereinafter defined) being sold to ELA pursuant to
the ELA Agreement. Subsequent to the consummation of the Transactions, it is the
Company's intention to focus its efforts primarily on the markets served by and
the business operations of Medical Graphics. While the Company currently retains
the approvals and capabilities necessary to derive revenues from its ICD
business, it has limited its operations pending Shareholder approval and Note
Holder consent of the Transactions and consummation of the Merger to conserve
cash. Although the Company has the ability to resume its manufacturing and
related operations, it is unlikely it will do so if the Transactions and the
Merger are approved. As such, at this time the Company does not anticipate
deriving any future revenue from assets retained by the Company after
consummation of the Transactions and, accordingly, all revenues relating to the
sale of ICDs and Leads have been eliminated from the pro forma financial
statements contained herein. See "APPROVAL OF THE SALE AND TRANSFER OF
ASSETS--Unaudited Pro Forma Combined Financial Statements".
THE ELA AGREEMENT. Pursuant to the terms of the ELA Agreement, the Company
proposes to sell, and ELA Medical proposes to purchase, certain assets and
assume certain liabilities of the Company relating to the manufacture and sale
of cardiac stimulation and related devices designed and developed by the
Company. The assets the Company proposes to sell and ELA Medical proposes to
purchase consist of all technology owned or used by the Company related to the
Company's model Series 4040, 4080 and 4090 leads (the "Leads") and all
technology owned or used by the Company related to the research and development
of a flatpack, photoflash capacitor being developed for use in implantable
medical devices (the "Flat Capacitor"), which include, among other things, those
permits, licenses, franchises, approvals, and authorizations issued by
governmental or regulatory authorities or bodies for the Leads and the Flat
Capacitor, to the extent assignable by the Company. The Leads and the Flat
Capacitor are collectively referred to in this Proxy Statement/Consent
Solicitation as the "ELA Assets". In exchange for the ELA Assets, the Company
will receive all Common Stock and all warrants to purchase Common Stock owned by
Sanofi-Synthelabo (collectively, the "Sanofi-Synthelabo Owned Securities"). A
copy of the ELA Agreement is attached hereto as Annex A. See "APPROVAL OF THE
SALE AND TRANSFER OF ASSETS--Description of the ELA Agreement". The ELA
Agreement provides that the following agreements will be entered into and
delivered at the time of closing of the ELA Agreement.
THE TERMINATION AGREEMENT. In connection with the consummation of the
transactions contemplated by the ELA Agreement, the Company and ELA Medical
will enter into a Termination of Implantable Cardioverter Defibrillator
Product Manufacturing and Supply Agreement (the "Termination Agreement")
pursuant to which ELA Medical will release the Company from its obligations
pursuant to the Implantable Cardioverter Defibrillator Product Manufacturing
and Supply Agreement dated December 9, 1997, as amended (the "OUS Supply
Agreement"), to manufacture and sell cardiac stimulation and related devices
exclusively to ELA Medical for distribution in certain territories outside of
the United States. In consideration for ELA Medical's agreement to terminate
and release the Company from its obligations under the OUS Supply Agreement,
the Company has agreed to pay ELA Medical the sum of $6.0 million (the
"Termination Fee"); provided, however, ELA Medical has agreed to accept a
non-exclusive license to certain technology of the Company in the form of the
One-Way License Agreement in full and complete satisfaction of the
Termination Fee. A copy of
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the Termination Agreement is attached hereto as Annex B. See "APPROVAL OF THE
SALE AND TRANSFER OF ASSETS--Description of the Termination Agreement".
THE ONE-WAY LICENSE AGREEMENT. In connection with the consummation of
the transactions contemplated by the ELA Agreement and in satisfaction of the
Termination Fee, the Company will enter into a license agreement (the
"One-Way License Agreement") with ELA Medical pursuant to which the Company
will grant a one-way, non-exclusive, fully paid-up, royalty-free and
perpetual worldwide license to substantially all of the patents and patent
applications owned or sublicensable by the Company relating to cardiac
stimulation devices. A copy of the One-Way License Agreement is attached
hereto as Annex C. See "APPROVAL OF THE SALE AND TRANSFER OF ASSETS--
Description of the One-Way License Agreement".
The following agreement is required to be entered into by the terms of the
ELA Agreement only in certain circumstances upon which the closing of the
transactions under the ELA Agreement do not occur.
THE CROSS-LICENSE AGREEMENT. Section 5.3 of the Amended and Restated
Investment and Master Strategic Relationship Agreement dated as of
October 9, 1997, as amended (the "Investment Agreement"), by and between the
Company and Sanofi-Synthelabo obligates the Company and Sanofi-Synthelabo to
negotiate in good faith for a patent cross-license in the event of the
termination of the joint venture formed between ELA Medical, Inc., a Delaware
corporation and indirect wholly-owned subsidiary of Sanofi-Synthelabo ("ELA
US"), and the Company. The joint venture was created for purposes of allowing
the Company access to a distribution channel as well as providing a mechanism
to sell and market a broader portfolio of products for the Company and ELA US
in the United States. On May 11, 1999, the Company effectively terminated
such joint venture by withdrawing and limiting certain of its liabilities
with respect thereto in connection with the Withdrawal Agreement (the
"Withdrawal Agreement") of the same date between the Company and ELA US. The
Withdrawal Agreement was entered into because the Board of Directors
determined that (i) the joint venture had not met its financial objectives,
(ii) there was general disagreement between the Company and ELA US as to the
management philosophy of the joint venture, and (iii) additional
contributions of capital by the Company would be required in order for the
joint venture to continue business operations. As a result of entering into
the Withdrawal Agreement, the Company terminated all current and future
obligations to fund the joint venture and avoided any claims as to past
obligations to fund the joint venture, and ELA US agreed to assume certain
continuing product support obligations of the Company in connection with its
cardiac stimulation device business and certain other obligations of the
Company with respect to third party suppliers and developers. The
consideration received by the Company under the Withdrawal Agreement in
exchange for its withdrawal from the joint venture consisted of a release
from its contractual obligations to make past or current capital
contributions, the assumption by ELA US of certain continuing product support
obligations of the Company with respect to third party suppliers and
developers, the assumption by ELA US and ELA of certain warranty obligations,
regulatory reporting obligations and continuing technical service obligations
with respect to certain ICD products of the Company, and the commitment by
ELA US and ELA to purchase additional ICD products from the Company's
existing inventory as well as to-be-manufactured products. While the nature
of this consideration makes it impracticable for the Company to quantify, the
Company believes that the consideration received by it under the Withdrawal
Agreement was both significant and in the best interests of the Shareholders.
Since the inception of the joint venture, the Company has made capital
contributions to the joint venture totaling $6 million, in addition to
expending approximately $1.8 million related to the marketing efforts of the
joint venture in Fiscal 1998. Due to the financial condition of the joint
venture, the Company estimated that additional capital contributions totaling
approximately $4 to $6 million would be necessary to continue to keep the
joint venture operating for fiscal year 1999. Additional capital
contributions would also have been necessary in future years if the joint
venture had not achieved profitable operations. On a going forward basis, the
Company anticipated costs related to (i) continuing product support
obligations with respect to third party suppliers and developers, and
(ii) certain warranty coverage, regulatory reporting obligations and
continuing technical service obligations with respect to certain ICD products
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of the Company, to be in excess of $1.2 million. This estimate includes the
cost of personnel necessary to handle the continuing regulatory and service
obligations as well as an estimate of potential warranty obligations. The
Company will have a remaining obligation related to the joint venture to
provide continuing product liability insurance for a period of five years.
The Company has prepaid the policy premium for this insurance at a cost of
approximately $1.1 million.
To satisfy the requirements of Section 5.3 of the Investment Agreement,
the ELA Agreement provides that in the event that the ELA Agreement is
terminated (i) by ELA Medical or Sanofi-Synthelabo, if either the
Shareholders refuse to approve the ELA Agreement or the Note Holders
representing the requisite aggregate principal amount of Notes fail to grant
their consent to supplement the Indenture in connection with the
consummation of the transactions contemplated by the ELA Agreement, or if
any of the conditions to be satisfied by the Company prior to the closing
under the ELA Agreement shall not have been met or waived prior to such time
as such condition can no longer be satisfied, or (ii) by the Company, if
either the Board of Directors determines in good faith, based upon the
advice of outside counsel, that it is obligated by its fiduciary obligations
under applicable law to terminate the ELA Agreement or if any of the
conditions of the Company required in the ELA Agreement to be satisfied
prior to Closing have not been met or waived prior to such time as such
condition can no longer be satisfied, then the Company is obligated to enter
into a cross-license agreement with ELA Medical, attached as an exhibit to
the ELA Agreement (the "Cross-License Agreement"). In the event that the ELA
Agreement is terminated as described above, then the Cross-License Agreement
would become effective and the Company would provide ELA Medical with a
non-exclusive, fully paid-up, royalty-free and perpetual worldwide license
to the Company's patents and patent applications related to cardiac
stimulation devices in consideration for the granting by ELA Medical to the
Company of a non-exclusive, fully paid-up, royalty-free and perpetual
license to ELA Medical's patents and patent applications related to cardiac
stimulation devices. A copy of the Cross-License Agreement is attached
hereto as Annex D. See "APPROVAL OF THE SALE AND TRANSFER OF
ASSETS--Description of the Cross-License Agreement".
THE MEDTRONIC AGREEMENT. Pursuant to the terms of the Medtronic Agreement,
the Company proposes (i) to sell, and Medtronic has agreed to purchase, certain
unfiled patent disclosures of the Company relating to its cardiac stimulation
devices, and (ii) to grant Medtronic a one-way non-exclusive, fully paid-up,
royalty-free and perpetual worldwide license to its patents and patent
applications relating to cardiac stimulation devices. The unfiled patent
disclosures that the Company proposes to sell and Medtronic proposes to purchase
are all of the unfiled patent disclosures relating to cardiac stimulation
devices owned by the Company and not abandoned, suppressed or concealed. The
one-way, non-exclusive, fully paid-up, royalty-free and perpetual worldwide
license to be granted by the Company to Medtronic under the terms of the
Medtronic Agreement is for substantially all of the patents and patent
applications owned or sublicensable by the Company relating to cardiac
stimulation devices. The Company and Medtronic would further release and
discharge each other from any claims of patent infringement prior to the
effective date of the Medtronic Agreement. The consideration to be received by
the Company from Medtronic consists of a cash payment of $9.0 million (of which
the Company will net approximately $8.5 million after payment of certain
transaction-related expenses), such amount to be paid to the Company within five
days of approval thereof by the Shareholders and consent to supplement the
Indenture in connection therewith by Note Holders. A copy of the Medtronic
Agreement is attached hereto as Annex F. See "APPROVAL OF THE SALE AND TRANSFER
OF ASSETS--Description of the Medtronic Agreement".
PROCEEDS OF THE TRANSACTIONS
Upon consummation of the ELA Transactions, the Company will receive from
Sanofi-Synthelabo, the largest shareholder of the Company, all of the
outstanding shares of Common Stock held, directly or indirectly, by
Sanofi-Synthelabo, and thereby reduce its outstanding shares of Common Stock by
745,996 shares, representing approximately 18.6% of the shares outstanding as of
the Shareholder Record Date. Sanofi-Synthelabo will also relinquish its rights
to exercise warrants to purchase an additional 1,897,156
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shares of Common Stock, at exercise prices ranging from $.10 to $36.70 per
share. In addition, ELA Medical has agreed to assume certain liabilities and
obligations of the Company relating to the ELA Assets. Upon consummation of the
Medtronic Transactions, the Company will receive from Medtronic $9.0 million in
cash (of which the Company will net approximately $8.5 million after payment of
certain transaction-related expenses).
The proceeds received by the Company in connection with the consummation of
the Transactions are intended to be used by the Company in connection with the
Company's continuing efforts to grow. On September 22, 1999, the Company entered
into the Medical Graphics Agreement. The consideration to be paid by the Company
thereunder is approximately $16.3 million. Upon consummation of the Merger, it
is the Company's intention to focus its efforts primarily on the markets served
by and business operations of Medical Graphics. Consummation of the Merger is
subject, in addition to customary conditions, to approval of the shareholders of
Medical Graphics. The Merger, however, does not require approval of the
Shareholders. The Company has adequate funds to consummate the Merger (without
giving effect to the transactions contemplated by either of the ELA Agreement or
the Medtronic Agreement) and intends to do so upon receiving approval of the
Medical Graphics' shareholders. Accordingly, the Company plans, and is
contractually obligated under the Medical Graphics Agreement, to consummate the
Merger whether or not the Shareholders approve the proposal to sell and transfer
substantially all of the property and assets of the Company pursuant to the
Agreements or the Note Holders consent to the proposals to supplement the
Indenture with respect to the Agreements. In the event the Company is required
to repurchase the Notes prior to consummation of the Merger, the Company would
not have sufficient funds on hand to consummate the Merger without obtaining
additional sources of financing. The Company does not currently have any
commitments to provide sources of financing in the event it is required to
repurchase the Notes prior to consummation of the Merger. See "APPROVAL OF THE
SALE AND TRANSFER OF ASSETS--Plans for the Company After the Transactions".
CLOSING CONDITIONS TO THE ELA AGREEMENT
The obligations of the Company, Sanofi-Synthelabo and ELA Medical to
consummate the transactions contemplated under the ELA Agreement are subject to
the satisfaction of certain conditions at or prior to the closing of the sale
and purchase of the ELA Assets (the "ELA Closing"), unless waived by the
respective parties in writing. Such conditions include: (i) the respective
representations and warranties of the parties contained in the ELA Agreement
must be true and correct in all material respects; (ii) the parties must have
performed and complied in all material respects with their respective covenants
and obligations under the ELA Agreement; (iii) the ELA Agreement and the
transactions contemplated thereunder are to have been duly approved by the
Shareholders in accordance with the MBCA and the Company's Articles of
Incorporation and By-laws, and Note Holders representing the requisite aggregate
principal amount of Notes shall have consented to supplement the Indenture,
(iv) all documents required by the ELA Agreement are to have been delivered in
form and substance reasonably satisfactory to the parties and their respective
legal counsel; and (v) no statute, rule or regulation shall have been enacted or
promulgated which would make any of the transactions contemplated by the ELA
Agreement illegal or would otherwise prevent the consummation thereof and no
order, decree, writ or injunction shall have been issued and shall remain in
effect by any court or governmental body or agency thereof which restrains,
enjoins or otherwise prohibits the consummation of the transactions contemplated
by the ELA Agreement, and no action, suit or proceeding before any court or
governmental body or agency thereof shall be pending or, to the knowledge of the
Company or ELA Medical, as the case may be, threatened by any person (or
instituted or threatened by any governmental body or agency thereof), and no
investigation by any governmental body or agency thereof shall be pending or, to
the knowledge of the Company or ELA Medical, as the case may be, threatened with
respect to the transactions contemplated thereby. See "APPROVAL OF THE SALE AND
TRANSFER OF ASSETS--Description of the ELA Agreement--Conditions to the
Obligations of the Parties".
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CLOSING CONDITIONS TO THE MEDTRONIC AGREEMENT
The obligations of the Company and Medtronic to consummate the transactions
contemplated by the Medtronic Agreement are subject to (i) approval of the
Shareholders; and (ii) the consent to supplement the Indenture by Note Holders
representing a majority by aggregate principal amount of Notes at or prior to
the closing of the transactions contemplated thereby. See "APPROVAL OF THE SALE
AND TRANSFER OF ASSETS--Description of the Medtronic Agreement".
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that an affirmative vote be cast by
Shareholders in favor of all nominees and for each of the proposals listed in
the proxy (or the voting instructions) card. By completing and returning the
accompanying proxy, the Shareholder authorizes James B. Hickey, Jr., as
designated on the face of the proxy, to vote all shares for the Shareholder. All
returned proxies that are properly signed and dated will be voted as the
Shareholder directs. If no direction is given, executed proxies will be voted
FOR each of the nominees and the listed proposals. Regardless of the size of
your holdings, you are encouraged to complete and return the proxy or voting
instructions card so that your shares may be voted at the Annual Meeting. Any
Shareholder giving a proxy may revoke it at any time prior to its use at the
Annual Meeting either by giving written notice of such revocation to the
Secretary of the Company, by filing a duly executed proxy bearing a later date
with the Secretary of the Company, or by appearing at the Annual Meeting and
filing written notice of revocation with the Secretary of the Company prior to
use of the proxy. See "APPROVAL OF THE SALE AND TRANSFER OF
ASSETS--Recommendation of the Board of Directors". Notwithstanding the approval
by the Shareholders of each of the Agreements, in the event that Note Holders
owning a majority by aggregate principal amount of the outstanding Notes do not
consent to supplement the Indenture as requested, the transactions contemplated
by the Agreements will not be consummated.
OPINIONS OF RAYMOND JAMES & ASSOCIATES, INC.
In deciding to approve each of the Agreements, the Board of Directors
considered the opinions of Raymond James & Associates, Inc. ("Raymond James") as
to the fairness of each of the ELA Transactions and the Medtronic Transactions,
taken as a whole, to the Company from a financial point of view. At the
July 23, 1999 meeting of the Board of Directors, Raymond James provided the
Board of Directors with its written opinion that, as of such date and based upon
and subject to various qualifications and assumptions described with respect to
its opinion, the consideration to be received by the Company in connection with
the ELA Transactions was fair to the Company from a financial point of view. On
September 14, 1999, Raymond James provided the Board of Directors with its
written opinion that, as of such date and based upon and subject to various
qualifications and assumptions described with respect to its opinion, the
consideration to be received by the Company in connection with the Medtronic
Transactions was fair to the Company from a financial point of view. See
"APPROVAL OF THE SALE AND TRANSFER OF ASSETS--Opinion of Raymond James Regarding
the ELA Transactions", and "--Opinion of Raymond James Regarding the Medtronic
Transactions".
SHAREHOLDER APPROVAL
The election of a nominee for Director and the approval of each of the other
proposals described in this Proxy Statement/Consent Solicitation, other than the
proposals to approve each of the Agreements, requires the approval of a majority
of the shares present and entitled to vote in person or by proxy on that matter
(and at least a majority of the minimum number of votes necessary for a quorum
to transact business at the Annual Meeting). Since the Articles of Incorporation
require the affirmative vote of the holders of two-thirds of the outstanding
shares of Common Stock entitled to vote on a proposal to approve the sale and
transfer of substantially all of the property and assets of the Company, if
Shareholders whose shares are held in street name by brokers fail to provide
specific instructions with respect to their shares of Common Stock to their
broker or such shareholders explicitly abstain from voting on the proposals to
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approve each of the Agreements, the effect will be the same as a vote against
the approval of each of such proposals.
Approval of each of the proposals to approve the Agreements requires the
affirmative vote of the holders of two-thirds of the outstanding shares of
Common Stock as of the Shareholder Record Date, in addition to satisfaction of
the other conditions listed. Each share of Common Stock is entitled to one vote.
It is expected that all 160,065 shares of Common Stock beneficially owned by the
current directors and executive officers of the Company as of the Shareholder
Record Date and all 745,996 shares of Common Stock beneficially owned by
Sanofi-Synthelabo as of the Shareholder Record Date (together with the shares
beneficially owned by the current directors and executive officers of the
Company, an aggregate of 22.6% of the total number of outstanding shares of
Common Stock as of the Shareholder Record Date) will be voted in favor of the
proposal to approve the ELA Agreement and that all 160,065 shares of Common
Stock beneficially owned by the current directors and executive officers of the
Company as of the Shareholder Record Date (an aggregate of 3.9% of the total
number of outstanding shares of Common Stock as of the Shareholder Record Date)
will be voted in favor of the proposal to approve the Medtronic Agreement. See
"APPROVAL OF THE SALE AND TRANSFER OF ASSETS--Required Vote of the Shareholders;
Required Consent of the Note Holders".
CONSENT OF NOTE HOLDERS
Simultaneously with the Company's solicitation of proxies from Shareholders
for the Annual Meeting, the Note Holders are hereby requested to give their
consent to the Company and the Trustee to supplement the Indenture to provide
that the consummation of the transactions contemplated by the Agreements will
not constitute (i) a sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the property or assets of the Company
for purposes of the Company's obligations to comply with and observe all
covenants contained in the Indenture, or (ii) a conveyance, transfer or lease of
all or substantially all of the Company's assets for purposes of determining
whether a change of control has occurred within the meaning of the Indenture.
The granting of consent with respect to each proposal will not be effective
unless both proposals receive the consent of Note Holders owning a majority by
aggregate principal amount outstanding of the Notes. Note Holders are being
asked to give their consent because (i) each of the Agreements requires that
Note Holders provide such consent, (ii) the transactions contemplated by the
Agreements will not be consummated without the Company's receipt of such
consent, and (iii) to avoid the prospect of Note Holder or Trustee initiated
litigation with respect to the potential of the consummation of the Transactions
to trigger either the acceleration of the Company's repayment obligations or an
obligation by the Company to repurchase the Notes at a premium. See "APPROVAL OF
THE SALE AND TRANSFER OF ASSETS--Required Vote of the Shareholders; Required
Consent of the Note Holders".
If a majority of Note Holders, by aggregate principal amount of outstanding
Notes, do not grant consent to supplement the Indenture pursuant to the
proposals, the Indenture will not be supplemented and the transactions
contemplated by the Agreements will not be consummated. If the Transactions are
not consummated, the Note Holders will not receive any additional rights and
remedies that they are not already entitled to. If the Transactions are
consummated without the Indenture being supplemented as provided for in the
proposals, the Note Holders may have the right to (i) require the Company to
repurchase the Notes at a premium of 101% of the principal amount of the Notes
outstanding, together with interest (at November 21, 1999, this repurchase
amount aggregated $20,806,707) or (ii) receive accelerated repayment of all
amounts to become due to them in connection with the Notes. The Company does not
currently intend to consummate the Transactions in the event the Indenture is
not supplemented as provided herein.
The Indenture currently provides that in the event the Company conveys,
transfers or leases all or substantially all of its assets to any person (other
than to one or more wholly-owned subsidiaries) of the Company unless the
shareholders of the Company immediately before such transaction own, directly or
indirectly, immediately following such transaction, more than 50% of the
combined voting power of the outstanding securities of the acquiring entity in
substantially the same proportion as their ownership of the
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then outstanding securities entitled to vote generally in elections of directors
of the Company immediately before such transaction, the Note Holders have the
right to require the Company to repurchase all or any part of the Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and liquidated damages payable pursuant to any registration
rights agreement, if any, relating to the Notes, to the date of payment.
Consummation of the transactions contemplated by the Agreements may, taken
together and without supplementing the Indenture as provided for herein, result
in the transfer of all or substantially all of the Company's assets to a person
not owned 50% or more by the shareholders of the Company. See "APPROVAL OF THE
SALE AND TRANSFER OF ASSETS--Required Consent of the Shareholders; Required
Consent of the Note Holders".
The Indenture also prohibits the Company from selling, assigning,
transferring, leasing, conveying or otherwise disposing of all or substantially
all of its properties or assets unless certain conditions are met, among which
are that the corporation to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made assumes all of the
obligations of the Company under the Indenture, pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee under the Indenture.
In the event the Company fails to comply with this prohibition, the Note Holders
would, following notice to the Company from the Trustee and the passage of time,
have the right to receive accelerated repayment of all amounts to become due to
them in connection with the Notes. Consummation of the transactions contemplated
by the Agreements may, taken together and without supplementing the Indenture as
provided for herein, result in the sale, transfer or other disposition of all or
substantially all of the Company's properties or assets to a person that will
not assume all of the obligations of the Company under the Indenture pursuant to
a supplemental Indenture in a form reasonably satisfactory to the Trustee. See
"APPROVAL OF THE SALE AND TRANSFER OF ASSETS--Required Consent of the
Shareholders; Required Consent of the Note Holders".
Upon receipt of the consent to each of the proposals by Note Holders holding
a majority by aggregate principal amount of Notes, the Company and the Trustee
will supplement the Indenture to provide that the consummation of the
transactions contemplated by the Agreements will not constitute (i) a sale,
assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the property or assets of the Company for purposes of the
Company's obligations to comply with and observe all covenants contained in the
Indenture, or (ii) a conveyance, transfer or lease of all or substantially all
of the Company's assets for purposes of determining whether a change of control
has occurred within the meaning of the Indenture. Consenting to the proposals
will not affect the Company's obligation to make scheduled payments of principal
or interest when due with respect to the Notes or the rights of Note Holders to
receive such payments. See "APPROVAL OF THE SALE AND TRANSFER OF ASSETS--
Required Consent of the Shareholders; Required Consent of the Note Holders".
The Company received notice by complaint dated September 24, 1999, that the
Trustee on behalf of the Note Holders had brought an action against the Company
in Hennepin County District Court, Minnesota. The complaint alleged that, prior
to entering into the ELA Agreement, certain "Designated Events", including the
occurrence of a "Change of Control", had occurred and that the Company had
failed to commence an offer to repurchase the Notes, as required by the
Indenture once a Designated Event has occurred. See "APPROVAL OF THE SALE AND
TRANSFER OF ASSETS--Litigation and Related Matters". In the event the Company
would be required to repurchase the Notes at a premium of 101% of the
outstanding principal balance of the Notes, together with interest due and owing
thereon, the total amount that the Company would be required to pay to Note
Holders in connection with such repurchase would be, as of November 21, 1999,
approximately $20,806,707. The relief requested in the complaint includes a writ
of mandamus or injunction to prevent the Company from, among other things,
completing the Merger with Medical Graphics. The Company denies the claims in
their entirety and intends to defend the action vigorously. See "APPROVAL OF THE
SALE AND TRANSFER OF ASSETS--Required Vote of the Shareholders; Required Consent
of the Note Holders"; "--Description of the ELA Agreement"; and "--Description
of the Medtronic Agreement".
8
<PAGE>
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders who do not vote their shares in favor of one or both of the
proposals to approve the Agreements and who strictly comply with the provisions
of Sections 302A.471 and 302A.473 of the MBCA will be entitled to certain
dissenters' appraisal rights under Minnesota law if the proposal with respect to
which such Shareholder properly dissented is approved. See "APPROVAL OF THE SALE
AND TRANSFER OF ASSETS--Rights of Dissenting Shareholders" and the relevant
statutes attached as Annex H to this Proxy Statement/Consent Solicitation.
FEDERAL INCOME TAX CONSEQUENCES
The Transactions will not result in any federal income tax consequences to
Shareholders or Note Holders other than Sanofi-Synthelabo and Shareholders
exercising dissenters' rights under the MBCA. See "APPROVAL OF THE SALE AND
TRANSFER OF ASSETS--Certain Federal Income Tax Consequences".
MARKET FOR COMMON STOCK
The Company's Common Stock is currently listed on the Nasdaq National Market
System under the symbol "ANGN".
SELECTED HISTORICAL FINANCIAL INFORMATION
The information set forth below was selected or derived from the
consolidated financial statements and notes thereto of the Company and its
subsidiaries. The statement of operations data for the year ended December 31,
1998, the five month transition period ended December 31, 1997, and the years
ended July 31, 1997, 1996 and 1995, and the balance sheet data as of
December 31, 1998 and 1997 and July 31, 1997, 1996 and 1995 are derived from the
audited financial statements of the Company. The statement of operations data
for the nine month interim periods ended September 30, 1999 and 1998, for the
year ended December 31, 1997 and for the five month transition period ended
December 31, 1996, along with the balance sheet data as of September 30, 1999,
are derived from the unaudited financial statements of the Company which, in the
opinion of management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of such data. The statement of
operations data for the nine months ended September 30, 1999, also includes
non-recurring adjustments related to restructuring and asset impairment charges.
The statement of operations data for the nine months ended September 30, 1999,
are not necessarily indicative of results to be expected for the entire year.
Pro forma statement of operations and balance sheet data gives effect to the
Transactions and the Merger with Medical Graphics. See "APPROVAL OF THE SALE AND
TRANSFER OF ASSETS--Unaudited Pro forma Combined Financial Statements". The
information set forth below is qualified entirely by and should be read in
conjunction with the detailed information and consolidated financial statements,
including the notes thereto, attached to this Proxy Statement/Consent
Solicitation.
9
<PAGE>
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------------- -------------------------------------
1999 1998
PRO FORMA(1) 1999 1998 PRO FORMA(1) 1998 1997
------------- --------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 16,128 $ 5,175 $ 3,082 $ 20,449 $ 4,567 $ 3,094
Equity in net loss of joint
venture.................. -- (1,695) (1,597) -- (2,779) --
Other income, net.......... 30,570 30,570 2,050 2,050 2,050 --
Restructuring charges...... -- (4,504) -- -- -- --
Interest, net.............. (1,501) (1,082) (1,087) (1,913) (1,459) 859
Net income (loss) before
taxes.................... 28,768 6,869 (25,520) (2,569) (38,838) (34,115)
Net income (loss) from
continuing operations.... 28,597 6,698 (25,520) (2,569) (38,838) (34,115)
Loss from discontinued
operations............... (22,169) -- -- (38,829) -- --
Net income (loss).......... $ 6,428 $ 6,698 $ (25,520) $ (41,398) $ (38,838) $ (34,115)
Net income (loss) per
common share--basic:
Continuing operations.... $ 8.81 $ 1.68 $ (7.65) $ (0.95) $ (11.23) $ (11.36)
Discontinued
operations............. (6.83) -- -- (14.31) -- --
Net income (loss)........ 1.98 1.68 (7.65) (15.26) (11.23) (11.36)
Net income (loss) per
common share--diluted:
Continuing operations.... 6.50 1.25 (7.65) (0.95) (11.23) (11.36)
Discontinued
operations............. (6.83) -- -- (14.31) -- --
Net income (loss)........ $ 1.65 $ 1.25 $ (7.65) $ (15.26) $ (11.23) $ (11.36)
Weighted average number of
common shares
outstanding--basic....... 3,246,328 3,992,324 3,336,435 2,713,511 3,459,507 3,002,621
Weighted average number of
common shares
outstanding--diluted..... 4,570,093 6,225,106 3,336,435 2,713,511 3,459,507 3,002,621
</TABLE>
(1) Adjusted to give effect to the Transactions and the Merger with Medical
Graphics as of the beginning of the period indicated.
10
<PAGE>
STATEMENT OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (CONTINUED)
<TABLE>
<CAPTION>
FIVE MONTHS ENDED
DECEMBER 31, YEAR ENDED JULY 31,
--------------------- ---------------------------------
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 865 $ 2,276 $ 4,505 $ 2,949 $ --
Equity in net loss of joint venture..... -- -- -- -- --
Other income, net....................... -- -- -- -- --
Restructuring charges................... -- -- -- -- --
Interest, net........................... 198 806 1,466 1,040 21
Net income (loss) before taxes.......... (14,941) (7,735) (26,909) (15,182) (9,643)
Net income (loss) from continuing
operations............................ (14,941) (7,735) (26,909) (15,182) (9,643)
Loss from discontinued operations....... -- -- -- -- --
Net income (loss)....................... $ (14,941) $ (7,735) $ (26,909) $ (15,182) $ (9,643)
Net income (loss) per common share--
basic:
Continuing operations................. $ (4.82) $ (2.70) $ (9.26) $ (6.63) $ (5.83)
Discontinued operations............... -- -- -- -- --
Net income (loss)..................... (4.82) (2.70) (9.26) (6.63) (5.83)
Net income (loss) per common share--
diluted:
Continuing operations................. (4.82) (2.70) (9.26) (6.63) (5.83)
Discontinued operations............... -- -- -- -- --
Net income (loss)..................... $ (4.82) $ (2.70) $ (9.26) $ (6.63) $ (5.83)
Weighted average number of common shares
outstanding--basic.................... 3,099,766 2,867,828 2,906,499 2,289,854 1,655,092
Weighted average number of common shares
outstanding--diluted.................. 3,099,766 2,867,828 2,906,499 2,289,854 1,655,092
</TABLE>
11
<PAGE>
BALANCE SHEET DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------ DECEMBER 31, JULY 31,
1999 ------------------- ------------------------------
PRO FORMA(1) 1999 1998 1997 1997 1996 1995
------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital................................. $21,090 $27,481 $ 3,496 $18,509 $18,490 $44,935 $1,668
Total assets.................................... 49,678 34,259 22,893 28,884 30,896 55,184 5,751
Long-term debt.................................. 20,198 20,198 22,150 -- -- 1,500 1,500
Shareholders' equity (deficit).................. 19,126 12,353 (6,280) 25,751 26,048 49,464 2,980
</TABLE>
- ------------------------------
(1) Adjusted to give effect to the Transactions and the Merger with Medical
Graphics.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report on Form 10-K and Form 10-K/A for the
year ended December 31, 1998 and Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 are attached to this Proxy Statement/Consent
Solicitation. Shareholders and Note Holders should read each of the attached
reports in conjunction with this Proxy Statement/Consent Solicitation.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING INFORMATION
This Proxy Statement/Consent Solicitation contains certain forward-looking
statements which are subject to risks and uncertainties. Forward-looking
statements include statements concerning the future results of operations, the
Company's ability to reduce costs, the plans and objectives of the Company, and
the Company's value and opportunities following consummation of the
Transactions. Forward-looking statements include also those statements preceded
by, followed by or that otherwise include the words "will likely result", "are
expected to", "will continue", "is anticipated", "estimate", "project", and
"believe". These statements and similar expressions constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, as amended. Because such statements are subject to risks and
uncertainties, actual results may differ materially from historical results and
those presently anticipated or projected. Shareholders and Note Holders are
cautioned not to place undue reliance on such statements, which speak only as of
the date hereof. In addition, Shareholders and Note Holders should understand
that the following important factors, in addition to those discussed elsewhere
in this document and in the documents attached hereto, could affect the future
results of the Company after approval or rejection of the Agreements by
Shareholders and consent or failure to consent by Note Holders: the ability of
the Company to identify and pursue strategic alternatives for the Company,
including a potential business combination with another entity or entities
engaged in other lines of business; changes in the market for the Company's
existing or then-current products; the impact of inflation; the challenges
inherent in diverting the Company's management focus away from other strategic
opportunities and from operational matters for an extended period of time; the
Company's dependence on certain licenses for the Company's products; and the
Company's dependence on governmental approvals of Company's products. Additional
information with respect to the risks and uncertainties faced by the Company may
be found in, and the discussion contain herein is qualified in its entirety by,
the "Risk Factors" contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, as filed with the Securities and Exchange
Commission on March 31, 1999. The Company does not undertake any obligation to
release publicly any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. See "APPROVAL OF THE SALE AND TRANSFER OF
ASSETS--Background of the ELA Transactions"; "--Background of the Medtronic
Transactions"; "--Recommendation of the Board of Directors"; "--Required Vote of
the Shareholders; Required Consent of the Note Holders"; "--Opinion of Raymond
James--Regarding the ELA Transactions"; "--Opinion of Raymond James Regarding
the Medtronic Transactions"; "--Description of the ELA Agreement";
"--Description of the Termination Agreement";
12
<PAGE>
"--Description of the One-Way License Agreement"; "--Description of the Cross
License Agreement"; "--Description of the Medtronic Agreement"; "--Plans for the
Company After the Transactions"; "--Communications with NASDAQ Regarding
Delisting"; and "--Unaudited Pro Forma Combined Financial Statements".
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINATION
The Company's Bylaws, as amended, provide that the Board of Directors shall
consist of the number of members last elected by a majority vote of the
Shareholders or by the Board of Directors, which number shall be not less than
two nor more than nine. The Board of Directors has determined that there will be
nine directors elected at the Annual Meeting. Directors elected at the Annual
Meeting will hold office until the next regular meeting of Shareholders or until
their successors are duly elected and qualified.
The Medical Graphics Agreement provides that, as a condition to closing of
the transaction contemplated thereunder, up to three members of the Medical
Graphics board of directors who are acceptable to the Company will agree to
serve on the Board of Directors of the Company after the consummation of such
transaction. Although the timing of completing the transactions contemplated by
the Medical Graphics Agreement is not certain, the Company is assuming that the
Annual Meeting will be held prior to the consummation of the Merger, and the
nine nominees for director set forth herein will be elected. Thereafter,
assuming the transactions contemplated by the Medical Graphics Agreement are
consummated, up to three members of the Medical Graphics board of directors, who
have not yet been determined, may join the Board of Directors and either
(i) three members of the then-current Board of Directors would resign (which
members have not yet been determined), (ii) the Company, by Board of Directors
action, would amend its bylaws to permit more than nine persons to serve on the
Board of Directors, or (iii) some other smaller number as the Board of Directors
shall determine shall constitute the Board of Directors. The Company does not
anticipate finalizing a decision on the Medical Graphics board members who would
join the Board of Directors or who, if anyone, would resign from the Board of
Directors, until the transactions contemplated by the Medical Graphics Agreement
are consummated.
All of the nominees are currently members of the Board of Directors.
The election of each director requires the affirmative vote of a majority of
the shares of Common Stock represented in person or by proxy at the Annual
Meeting, provided that a quorum consisting of a majority of the voting power of
the Company's outstanding shares of Common Stock is represented either in person
or by proxy at the Annual Meeting. The Board recommends a vote FOR the election
of each of the nominees listed in this Proxy Statement/Consent Solicitation.
The Board of Directors intends to vote the proxies solicited on its behalf
for the election of each of the nominees as directors. If prior to the Annual
Meeting the Board of Directors should learn that any of the nominees will be
unable to serve by reason of death, incapacity or other unexpected occurrence,
the proxies will be cast for another nominee to be designated by the Board of
Directors to fill such vacancy, unless the Shareholder indicates to the contrary
on the proxy. Alternatively, at the Board of Directors' discretion, the proxies
may be voted for such fewer nominees as results from such death, incapacity or
other unexpected occurrence. The Board of Directors has no reason to believe
that any of the nominees will be unable to serve.
13
<PAGE>
INFORMATION ABOUT NOMINEES
The following table sets forth certain information as of November 1, 1999,
which has been furnished to the Company by the persons who have been nominated
by the Board of Directors to serve as directors for the ensuing year.
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- --------------------- -------- ------------------------------------ --------------
<S> <C> <C> <C>
Whitney A. McFarlin................. 58 Retired, Chairman of the Board 1992
Arnold A. Angeloni.................. 57 President of Gateway Alliance LLC 1990
Dennis E. Evans..................... 61 President and Chief Executive 1990
Officer of Hanrow Financial
James B. Hickey, Jr.,............... 46 President and Chief Executive 1998
Officer of the Company
Lyle D. Joyce, M.D., Ph.D........... 51 Cardiothoracic Surgeon and President 1988
of Minnesota Thoracic Group, P.A.
Joseph C. Kiser, M.D................ 67 Retired Cardiothoracic Surgeon at 1988
Minnesota Thoracic Group, P.A. and
Co-founder of The Minneapolis
Heart Institute
Donald D. Maurer.................... 62 Consultant with ABI, Inc. 1996
Glen Taylor......................... 58 Chairman and Chief Executive Officer 1992
of Taylor Corporation
Stephen L. Wilson................... 46 Executive Vice President and Chief 1998
Financial Officer of Computer
Motion, Inc.
</TABLE>
OTHER INFORMATION ABOUT NOMINEES
WHITNEY A. MCFARLIN has been Chairman of the Board of Directors of the
Company since September 1993, and is a non-employee member of the Board of
Directors. From September 1993 to July 1998, Mr. McFarlin was also President and
Chief Executive Officer of the Company. Mr. McFarlin also serves on the board of
directors of Possis Medical, Inc.
ARNOLD A. ANGELONI has been President of Gateway Alliance LLC, a consulting
firm for start-up ventures and business consolidations, since January 1996. From
1961 to 1995, Mr. Angeloni was employed by Deluxe Corporation, a provider of
check products and services to the financial payments industry, in various
administrative, marketing, and operations positions, most recently as Senior
Vice President and President of the Business Systems Division.
DENNIS E. EVANS has been President and Chief Executive Officer of Hanrow
Financial Group Ltd., a merchant banking partnership, since February 1989.
Mr. Evans also serves on the board of directors of Minnesota Power & Light Co.
JAMES B. HICKEY, JR., has been President, Chief Executive Officer and a
director of the Company since July 1998. From 1993 to 1997, Mr. Hickey was
President and Chief Executive Officer of Aequitron Medical, Inc., a
publicly-traded medical device company, whose principle products were portable
ventilators, infant apnea monitors and sleep diagnostic equipment. He also
serves on the board of directors of Allied Healthcare, Inc., Pulmonetics
Systems, Inc. and Vital Images, Inc.
LYLE D. JOYCE, M.D., PH.D. has been a cardiothoracic surgeon with The
Minneapolis Heart Institute for more than five years, and is currently the
President of the Minnesota Thoracic Group, P.A.
14
<PAGE>
JOSEPH C. KISER, M.D. is a cardiothoracic surgeon (retired) and a founder of
The Minneapolis Heart Institute and The Minneapolis Heart Institute Foundation.
Dr. Kiser is also a founder of the Minnesota Thoracic Group, P.A. He practiced
cardiothoracic surgery at Abbott Northwestern Hospital as well as other
Minneapolis/St. Paul hospitals for more than 20 years prior to his retirement in
January 1995. Dr. Kiser currently serves as Chairman of the Board for Advanced
Bionics, a medical device company.
DONALD D. MAURER is currently a consultant and member of the board of
directors of ABI, Inc., a medical device company. Mr. Maurer founded
Empi, Inc., a public company that manufactures noninvasive biomedical devices,
in 1977. Mr. Maurer was named President and Chief Executive Officer of Empi in
1979. Mr. Maurer has served on the board of directors of Empi since 1977,
serving as Chairman of the Board from 1977 to 1997. Mr. Maurer is also the past
Chairman of the Board of Medical Alley, a Twin Cities professional organization
representing the interests of the medical industry.
GLEN TAYLOR is Chairman of the Board and Chief Executive Officer of Taylor
Corporation, which he founded in 1975. Taylor Corporation's businesses include
printing, direct mail marketing and electrical manufacturing. Mr. Taylor also is
the owner of the Minnesota Timberwolves, a National Basketball Association
franchise.
STEPHEN L. WILSON has, since May 1997, been Executive Vice President and
Chief Financial Officer of California-based Computer Motion, Inc., a medical
robotics company. From 1990 to 1997, Mr. Wilson was Vice President Finance and
Chief Financial Officer of St. Jude Medical, Inc., a medical device company.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
The business and affairs of the Company are managed by the Board of
Directors, which held nine meetings during the fiscal year ended December 31,
1998 ("Fiscal 1998"). Committees established and maintained by the Board of
Directors include the Audit Committee, the Governance Committee and the
Compensation Committee.
The function of the Audit Committee is to review the Company's financial
statements, oversee the financial reporting and disclosures prepared by
management, make recommendations regarding the Company's financial controls, and
confer with the Company's outside auditors. The Audit Committee held no meetings
during Fiscal 1998 as no such meetings were required due to the change in the
Company's fiscal year. Messrs. Angeloni, Evans, Kiser and Maurer served as
members of the Audit Committee in Fiscal 1998. In August of 1999, the Audit
Committee met to review all required financial information. Messrs. Angeloni,
Joyce and Wilson will serve as members of the Audit Committee in the fiscal year
ended December 31, 1999 ("Fiscal 1999").
The function of the Governance Committee is to recommend a list of potential
director nominees to the Board of Directors, to develop guidelines for corporate
structuring and Board of Directors related issues and to act as an oversight
committee. While the Governance Committee will consider director nominees
recommended by the Shareholders, it has neither actively solicited nominations
nor established any procedures for this purpose. The Governance Committee held
one meeting in Fiscal 1998. Messrs. Evans, McFarlin, Taylor and Joyce served as
members of the Governance Committee in Fiscal 1998. Messrs. Evans and Taylor
will serve as members of the Governance Committee in Fiscal 1999.
The responsibilities of the Compensation Committee include setting the
compensation for those officers who are also directors of the Company and
setting the terms of and grants of awards under the Company's 1993 Stock
Incentive Plan (the "1993 Plan"). The Compensation Committee met one time during
Fiscal 1998. Messrs. Angeloni, Kiser and Taylor served as members of the
Compensation Committee in Fiscal 1998. Messrs. Maurer, Kiser and Wilson will
serve as members of the Compensation Committee in Fiscal 1999.
All of the directors of the Company, except Mr. Taylor, attended 75% or more
of the aggregate meetings of the Board of Directors and all such committees on
which they served during Fiscal 1998. Mr. Taylor attended 45% of the aggregate
meetings of the Board of Directors and all such committees on which he served.
15
<PAGE>
COMPENSATION OF DIRECTORS
DIRECTORS' FEES. Directors of the Company receive no cash compensation
(except as discussed below) for their services as members of the Board of
Directors, although their out-of-pocket expenses incurred on behalf of the
Company are reimbursed.
Pursuant to the Director Plan, non-employee directors of the Company
automatically receive an annual grant of shares of Common Stock equal to
$24,000, as determined by the fair market value of one share of Common Stock on
the date of grant (a "Director Stock Award"), and an annual grant of an option
to purchase 3,000 shares of Common Stock (a "Director Option") on the date of
each Annual Meeting of Shareholders upon their election or re-election, as the
case may be, as a non-employee director of the Company. On October 1, 1999, the
Board of Directors amended the Director Plan, subject to Shareholder approval at
the Annual Meeting, to (i) extend the term of the Director Plan by five years to
October 7, 2004, and (ii) increase the maximum number of shares of Common Stock
available for issuance under the Director Plan from 20,000 shares to 250,000
shares. See "AMENDMENTS TO COMPANY'S 1994 NON-EMPLOYEE DIRECTOR PLAN".
If the amendments to the Director Plan are approved by the Shareholders at
the Annual Meeting, Messrs. Wilson, Angeloni, Evans, Joyce, Kiser, Maurer and
Taylor, assuming each is re-elected as a director of the Company, will each be
granted as of the date of the Annual Meeting a Director Option and each will
receive a Director Stock Award. Mr. McFarlin, assuming he is re-elected as a
director of the Company, will be granted as of the date of the Annual Meeting
options to purchase 2,750 shares of Common Stock and shares of Common Stock
equal to $22,000 (in recognition of 11 months of service in 1999 as a
non-employee director).
Because the Company changed its fiscal year from July 31 to December 31
effective Fiscal 1998, the Director Plan does not provide compensation for the
period August 1, 1998 to December 31, 1998. Accordingly, each non-employee
director who served during the period (other than Mr. Wilson who, upon his
appointment to the Board of Directors in July 1998, received a pro rata Director
Option and Director Stock Award for his services through December 31, 1998)
received cash compensation of $10,000, representing the pro-rata portion of the
$24,000 annual fee due under the Plan, and a pro-rata option to purchase 1,250
shares to be granted on the date of the Annual Meeting at the fair market value
on such date.
PRINCIPAL SHAREHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of November 1, 1999, unless
otherwise noted, (a) by each shareholder who is known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (b) by each director
and nominee for director of the Company, (c) by each executive officer named in
the Summary Compensation Table who is or was an executive officer of the Company
during Fiscal 1999, and (d) by all executive
16
<PAGE>
officers and directors of the Company as a group. Unless otherwise noted, the
address of the listed beneficial owner is that of the Company.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED(1)(2)
----------------------------
AMOUNT PERCENT OF CLASS
--------- ----------------
<S> <C> <C>
Sanofi-Synthelabo ............................... 2,643,152(3) 44.7%
174 Avenue de France
Paris, France 75013
Chancellor LGT Asset Management Inc. ............ 220,920(4) 5.5%
50 California Street, 27th Floor
San Francisco, California 94111
Whitney A. McFarlin.............................. 103,200(5) 2.5%
Arnold A. Angeloni............................... 8,510(6) *
Dennis E. Evans.................................. 43,213(7) 1.1%
James B. Hickey, Jr.............................. 28,177(8) *
Lyle D. Joyce, M.D., Ph.D........................ 31,164(9) *
Joseph C. Kiser, M.D............................. 38,003(10) *
Donald D. Maurer................................. 2,036(11) *
Glen Taylor...................................... 41,529(12) 1.0%
Stephen L. Wilson................................ 710(13) *
William J. Rissmann.............................. -- *
Michael J. Kallok, Ph.D.......................... 6,125(14) *
Gary L. Payment.................................. 13,630(15) *
Terrence W. Bunge................................ 6,023(16) *
All current directors and executive officers as a
group (10 persons)............................. 296,542(17) 7.2%
</TABLE>
- ------------------------
* Less than 1%
(1) Shares not outstanding but deemed beneficially owned by virtue of the right
of a person or member of a group to acquire them within 60 days are treated
as outstanding only when determining the amount and percent owned by such
person or group.
(2) Unless otherwise noted, all of the shares shown are held by individuals or
entities possessing sole voting and investment power with respect to such
shares.
(3) Based on a Schedule 13D/A dated April 16, 1999. Includes 1,897,156 shares
which may be acquired within 60 days upon the exercise of warrants.
(4) Based on a Schedule 13G dated February 6, 1998, filed on behalf of
Chancellor LGT Asset Management, Inc., its wholly owned subsidiary,
Chancellor LGT Trust Company and LGT Asset Management, Inc., the holding
company for Chancellor LGT Asset Management, Inc.
(5) Includes 101,500 shares which may be acquired within 60 days upon the
exercise of stock options.
(6) Includes 3,450 shares which may be acquired within 60 days upon the
exercise of stock options.
(7) Includes 36,333 shares of Common Stock beneficially owned by Hanrow
Financial. Hanrow Financial is the general partner of Hanrow Capital Fund
and Hanrow Capital Fund III, which own 3,000 and 25,000 shares of Common
Stock, respectively. Hanrow Financial is also an affiliate of Hanrow
17
<PAGE>
Business Finance, Inc., which owns 4,167 shares of Common Stock. Also
includes 1,050 shares of Common Stock which may be acquired within 60 days
upon the exercise of stock options owned by Mr. Evans. Mr. Evans, a
director of the Company, is the President and Chief Executive Officer of
Hanrow Financial.
(8) Includes 25,000 shares which may be acquired within 60 days upon the
exercise of stock options.
(9) Includes 9,905 shares held by the MTA Retirement Plan and Trust FBO Lyle D.
Joyce, and 1,050 shares which may be acquired within 60 days upon the
exercise of stock options.
(10) Includes 4,357 shares held by the MTA Retirement Plan and Trust FBO Joseph
C. Kiser and 2,550 shares which may be acquired within 60 days upon the
exercise of stock options.
(11) Includes 677 shares which may be acquired within 60 days upon the exercise
of stock options.
(12) Includes 1,050 shares which may be acquired within 60 days upon the
exercise of stock options.
(13) Includes 150 shares which may be acquired within 60 days upon the exercise
of stock options.
(14) Includes 6,125 shares which may be acquired within 60 days upon the
exercise of stock options.
(15) Includes 1,030 shares held by an individual retirement account for the
benefit of Mr. Payment and 12,200 shares which may be acquired within
60 days upon the exercise of stock options.
(16) Includes 2,500 shares held by an individual retirement account for the
benefit of Mr. Bunge.
(17) Includes 136,477 shares which may be acquired within 60 days upon the
exercise of stock options. Also includes all shares beneficially owned by
affiliates of officers and directors of the Company.
PRINCIPAL NOTE HOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Notes as of November 1, 1999, unless otherwise noted, by each
Note Holder who is known by the Company to own beneficially more than 5% of the
aggregate principal amount of the Notes. No director or nominee for director of
the Company or any executive officer named in the Summary Compensation Table
owns beneficially any Notes.
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
AMOUNT OF NOTES
BENEFICIALLY OWNED
-----------------------------
AMOUNT PERCENT OF TOTAL
---------- ----------------
<S> <C> <C>
Deephaven Market Neutral Trading, Ltd. ..................... $4,498,000 22.3%
1712 Hopkins Crossroads
Minnetonka, Minnesota 55305
Loews Corporation .......................................... 2,500,000 12.4%
655 Madison Avenue
New York, New York 10021
CCF Partners II LLC ........................................ 2,000,000 9.9%
9465 Wilshire Blvd., Suite 900
Beverly Hills, California 90212
Cincinnati Financial Corporation ........................... 1,500,000 7.4%
PO Box 145496
Cincinnati, Ohio 45250
Porter Capital Management Company .......................... 1,050,000 5.2%
100 Shoreline Highway, Suite 211 B
Mill Valley, California 94941
</TABLE>
18
<PAGE>
EXECUTIVE COMPENSATION AND OTHER BENEFITS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table sets
forth the cash and non-cash compensation for the fiscal years ended
December 31, 1998, July 31, 1997 and July 31, 1996 and for the five month
Transition Period ended December 31, 1997 ("TP97") earned by, or awarded to,
each of the persons who served as the Chief Executive Officer of the Company in
the fiscal year ended December 31, 1998 and the four other most highly
compensated executive officers of the Company who were serving as executive
officers on December 31, 1998. All of the options and the restricted stock award
listed below, unless otherwise noted, were granted under the 1993 Plan.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------ RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARD OPTIONS COMPENSATION(1)
- --------------------------- -------- -------- -------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James B. Hickey, Jr.(2) ............ 1998 $105,000 $ -- -- 100,000(3) $ 3,750
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Whitney A. McFarlin(4) ............. 1998 258,000 100,000 -- 50,000 21,495(5)
CHAIRMAN OF THE BOARD, PRESIDENT TP97 109,154 -- -- -- 18,868(5)
AND CHIEF EXECUTIVE OFFICER 1997 255,692 35,000 -- 3,000(6) 1,800(5)
1996 240,300 -- -- -- 1,595(5)
William J. Rissmann(7) ............. 1998 137,052 8,750 -- -- 6,000
VICE PRESIDENT OF PRODUCT TP97 46,162 -- -- -- 2,500
DEVELOPMENT 1997 107,056 -- -- -- --
1996 100,837 -- -- -- --
Michael J. Kallok, Ph.D.(8) ........ 1998 135,462 7,000 -- -- 6,000
VICE PRESIDENT OF RESEARCH AND TP97 48,902 -- -- -- 2,500
CLINICAL OPERATIONS 1997 125,000 -- -- 8,500(9) --
1996 79,327 -- -- 7,500(10) --
Gary L. Payment(11) ................ 1998 125,575 7,000 -- -- 6,000
VICE PRESIDENT OF OPERATIONS TP97 48,902 -- -- -- 2,500
1997 114,000 -- -- 2,200(7) --
1996 105,785 -- -- 1,200(8) --
Terrence W. Bunge(12) .............. 1998 113,327 66,013 -- -- 6,000
VICE PRESIDENT OF INTERVENTIONAL TP97 --(13) -- -- -- 2,500
TECHNOLOGY 1997 --(13) -- 3,333 -- --
</TABLE>
- ------------------------
(1) Except as otherwise noted, the amounts represent an automobile allowance
paid by the Company.
(2) Mr. Hickey joined the Company in July 1998.
(3) The amount listed includes an option to purchase 81,842 shares of Common
Stock granted outside of the 1993 Plan as an inducement essential to
Mr. Hickey's entering into an employment arrangement with the Company.
(4) Mr. McFarlin served as Chairman of the Board, President and Chief Executive
Officer until July 1998, and continues to serve as Chairman of the Board.
(5) The amount listed includes life insurance premiums and certain other
expenses paid by the Company on Mr. McFarlin's behalf.
19
<PAGE>
(6) Mr. McFarlin was granted options to purchase an aggregate of 3,000 shares of
Common Stock during Fiscal 1997. Of this amount, 1,500 shares represented an
option originally granted in September 1996 that was canceled and reissued
in December 1996 during the employee repricing program.
(7) Mr. Rissmann terminated his employment with the Company in June 1999.
(8) Mr. Kallok terminated his employment with the Company in January 1999.
(9) The amount listed includes options that were originally granted during
Fiscal 1996 and were canceled and reissued in Fiscal 1997.
(10) All of the options listed were canceled and reissued in December 1996
during the employee repricing program and are included in the amounts listed
as Fiscal 1997 grants as well.
(11) Mr. Payment terminated his employment with the Company in January 1999.
(12) Mr. Bunge joined the Company in February 1997 and terminated his employment
with the Company in June 1999.
(13) Mr. Bunge received a restricted stock award in 1997 in lieu of receiving
cash compensation.
OPTION GRANTS AND EXERCISES
The following tables summarize option grants and exercises, respectively,
during Fiscal 1998 to or by the executive officers named in the Summary
Compensation Table and the potential realizable value of the options held by
such persons at December 31, 1998.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- ------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James B. Hickey, Jr.............. 100,000(2) 57.8% $22.028 07/14/08 $1,385,000 $3,511,000
Whitney A. McFarlin.............. 50,000(3) 28.9% $22.028 01/31/00 693,000 1,755,000
</TABLE>
- ------------------------
(1) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent upon the future
performance of the Company's Common Stock, overall market conditions and the
executive's continued involvement with the Company. The amounts represented
in this table will not necessarily be achieved.
(2) The amount listed includes an option to purchase 18,158 shares of the
Company's Common Stock granted under the 1993 Plan and an option to purchase
81,842 shares of the Common Stock granted outside of any option plan. The
options become exercisable at the rate of 25% of the number of shares
covered by such option on each of the first four anniversary dates of the
grant of such option, so long as Mr. Hickey remains employed by the Company
or one of its subsidiaries. The 1993 Plan provides that in the event of a
"change in control" of the Company (as defined under the caption "--Change
in Control Agreements" below), the Compensation Committee may, among other
things, accelerate the vesting of all options granted under the 1993 Plan.
(3) The options were granted under the Company's 1993 Plan. The options become
exercisable at the rate of 25% of the number of shares covered by such
option on each of the first four anniversary dates of the grant of such
option, so long as Mr. McFarlin remains employed by the Company or one of
its subsidiaries. In connection with Mr. McFarlin's termination of his
employment with the Company, all of the options granted to Mr. McFarlin will
expire on January 31, 2000. The 1993 Plan provides that in the event of a
"change in control" of the Company (as defined under the caption "--Change
in
20
<PAGE>
Control Agreements" below), the Compensation Committee may, among other
things, accelerate the vesting of all options granted under the 1993 Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James B. Hickey, Jr............................ -- 100,000 -- --
Whitney A. McFarlin............................ -- 50,000 -- --
William J. Rissmann............................ 77,750 1,925 -- --
Michael J. Kallok, Ph.D........................ 6,125 2,375 -- --
Gary L. Payment................................ 11,400 800 -- --
Terrence W. Bunge.............................. 6,250 6,250 -- --
</TABLE>
- ------------------------
(1) Value based on the difference between the fair market value of the Common
Stock on December 31, 1998 ($10.94) and the exercise price of the options.
CHANGE IN CONTROL AGREEMENTS
As of October 5, 1999, the Company had one change in control agreement (the
"Change in Control Agreement") in effect with James B. Hickey, Jr., its
President and Chief Executive Officer. The Change in Control Agreement
terminates Mr. Hickey's previous change in control agreement with the Company
dated July 27, 1998, and provides that Mr. Hickey's employment with the Company
will terminate on the earlier of one week after the closing of the transactions
contemplated by the Medical Graphics Agreement or December 31, 1999, unless a
new date is mutually agreed upon. In connection with this termination of
employment, Mr. Hickey will receive from the Company a lump-sum payment of
$260,000 less applicable tax withholding, continued medical and dental insurance
benefits for one year following termination of employment, and $15,000 for
outplacement services. These benefits will be in lieu of any benefits to which
Mr. Hickey would have otherwise been entitled pursuant to any previous change in
control agreement with the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors establishes the
compensation for executive officers who are also directors of the Company and
acts on such other matters relating to their compensation as it deems
appropriate. Mr. McFarlin, while he served as the Company's President and Chief
Executive Officer, and Mr. Hickey were the only executive officers who were also
directors of the Company during Fiscal 1998. The Compensation Committee consists
of three non-employee directors and meets one to four times per year. The
members of the Compensation Committee during Fiscal 1998 were Messrs. Angeloni,
Kiser and Taylor. The Company's President and Chief Executive Officer, in turn,
establishes the compensation of all executive officers who are not also
directors of the Company. The Compensation Committee also administers, with
respect to all eligible recipients, the Company's stock option plans and
determines the participants in such plans and the amount, timing and other terms
and conditions of awards under such plans.
COMPENSATION PHILOSOPHY AND OBJECTIVES. The Compensation Committee is
committed to the general principle that overall executive compensation should be
commensurate with performance by the Company and the individual executive
officers, and the attainment of predetermined individual and corporate goals.
The primary objectives of the Company's executive compensation program are to:
- Reward the achievement of desired Company and individual performance
goals;
21
<PAGE>
- Provide compensation that enables the Company to attract and retain key
executives; and
- Provide compensation opportunities that are linked to the performance of
the Company and that directly link the interests of executives with the
interests of Shareholders.
The Company's executive compensation program provides a level of
compensation opportunity that is competitive for companies in comparable
industries and of comparable development, complexity and size. In determining
compensation levels, the Compensation Committee considers a number of factors,
including Company performance, both separately and in relation to other
companies competing in the Company's markets; the individual performance of each
executive officer; comparative compensation surveys concerning compensation
levels and stock grants at other companies; historical compensation levels and
stock awards at the Company; and the overall competitive environment for
executives and the level of compensation necessary to attract and retain key
executives. Compensation levels may be greater or less than competitive levels
in comparable companies based upon factors such as annual and long-term Company
performance and individual performance.
EXECUTIVE COMPENSATION PROGRAM COMPONENTS. The Company's executive
compensation program consists of base salary, bonuses and long-term incentive
compensation in the form of stock options. The particular elements of the
compensation program are discussed more fully below.
BASE SALARY. Base pay levels of executives are determined by the
potential impact of the individual on the Company and its performance, the
skills and experience required by the position, the individual performance
and potential of the executive, and the Company's overall performance. Other
than with respect to Mr. McFarlin, the former President and Chief Executive
Officer of the Company, whose base salary was determined pursuant to an
employment agreement with the Company, base salaries for executives are
evaluated and adjusted on the employee's annual review date. Except for
Mr. McFarlin and Mr. Rissmann, base salaries for Fiscal 1998 increased
modestly from Fiscal 1997 levels due to the Company's focus on development
activities requiring the conservation of cash. In connection with the
Compensation Committee's annual evaluations of participants in its executive
compensation program, the Company generally limited base salary increases to
relatively small inflationary adjustments, unless larger increases were
merited by performance or to keep compensation commensurate with other
companies. Mr. McFarlin's base salary level for Fiscal 1998, as disclosed
above, was established by action of the Compensation Committee pursuant to
the terms and conditions of his employment agreement. Mr. Rissmann's salary
increase for Fiscal 1998 reflected prevailing market compensation for that
position and the Company's interest in retaining this key executive. The
base salary for Mr. Hickey, who became President and Chief Executive Officer
of the Company in July 1998, was negotiated between Mr. Hickey and the
Compensation Committee and was primarily based on Mr. Hickey's skills and
experience in leading medical device companies.
BONUSES. The Company also may pay bonuses to executive officers as part
of its executive compensation program. Historically, the bonuses paid by the
Company have been minimal, based in part on the Company's focus on
development activities requiring the conservation of cash. The Compensation
Committee determined that Mr. McFarlin would be paid a $100,000 cash bonus
in Fiscal 1998 in addition to receiving an award of options to purchase
50,000 shares of Common Stock. Aggregate bonuses of $99,300 were paid to
other executive officers in Fiscal 1998 for achieving certain performance
objectives. The cash bonus and stock options awarded to Mr. McFarlin in 1998
were in recognition of Mr. McFarlin's services to the Company since October
1996, along with the achievement of certain performance objectives. These
objectives related to securing additional capital for the Company,
completing domestic and international regulatory filings (FDA PMA
filing/approval, EEC CE Mark approval, etc.), and obtaining and
transitioning a new chief executive officer for the Company. During Fiscal
1998, other corporate officers were paid bonuses based on the successful
achievement of corporate objectives. The corporate objectives that were met
related to the receipt of Sentinel 2010 series PMA by the end of the third
quarter and the submission of a supplemental PMA related to the Lyra 2020
Series of ICD Systems by the end of the fourth quarter. Mr. Bunge received
22
<PAGE>
an additional bonus during 1998 related to the finalization of successful
negotiations on the sale of patent technology to Cordis Webster.
LONG-TERM INCENTIVE COMPENSATION. Stock options are used to enable key
executives to participate in a meaningful way in the success of the Company
and to link their interests directly with those of the Shareholders. The
number of stock options granted to executives is based upon a number of
factors, including base salary level and how such base salary level relates
to those of other companies in the Company's industry, the number of options
previously granted and individual and Company performance during the year.
During Fiscal 1999 to date, options to purchase 75,000 shares of Common
Stock have been granted, all of which will expire before the end of 1999.
During Fiscal 1999, the Company has paid an aggregate of approximately
$505,000 in severance payments to executive officers whose employment was
terminated.
SECTION 162(M). The Omnibus Reconciliation Act of 1993 added
Section 162(m) to the Internal Revenue Code of 1986, as amended (the "Code"),
limiting corporate deductions to $1,000,000 for certain compensation paid to the
chief executive officer and each of the four other most highly compensated
executives of publicly held companies. The Company does not believe it will pay
"compensation" within the meaning of Section 162(m) to such executive officers
in excess of $1,000,000 in the foreseeable future. Therefore, the Company does
not have a policy at this time regarding qualifying compensation paid to its
executive officers for deductibility under Section 162(m), but will formulate a
policy if compensation levels ever approach $1,000,000.
COMPENSATION COMMITTEE
Arnold A. Angeloni
Joseph C. Kiser, M.D.
Glen Taylor
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1999, the Company entered into financing agreements with Norwest
Business Credit, Inc. (the "Bank") in which the Bank made two term loans to the
Company in the amount of $4,000,000 and $2,000,000. The loan in the amount of
$4,000,000 was guaranteed by Glen Taylor, a director of the Company, and the
$2,000,000 loan was guaranteed by a private investor not affiliated with the
Company. These term loans were repaid by the Company in May 1999. As a condition
to receiving the loans, Mr. Taylor and the private investor were required to
deposit $4,000,000 and $2,000,000, respectively, into accounts under the Bank's
control earning interest at approximately 4.95% per annum. Upon deposit, the
individuals guaranteeing these loans received a one-time commitment fee equal to
2% of the respective loan amount and a guarantee fee equal to an annualized rate
of 5.05%. These transactions resulted in total annualized rates of return to Mr.
Taylor and the private investor of approximately 12%. Mr. Taylor received fees
totaling $148,000 from the Company for his agreement to guaranty the $4,000,000
loan.
On March 12, 1999, the Company received an equity investment of $10,000,000
from the Company's strategic partner, Sanofi-Synthelabo, as a result of the
Company receiving premarket approval ("PMA") for its 2020 ICD and lead systems.
This payment was made in accordance with and pursuant to the Investment
Agreement. As a result of the equity investment, Sanofi-Synthelabo received
warrants to purchase 909,017 and 540,541 shares of the Company's Common Stock at
exercise prices of $0.10 and $11.10 per share, respectively. These warrants
expire on March 12, 2009 and March 12, 2002, respectively. The investment by
Sanofi-Synthelabo in March 1999 is unrelated to both the ELA Transactions and
the Withdrawal Agreement. See "APPROVAL OF THE SALE AND TRANSFER OF
ASSETS--Background of the ELA Transactions"; "--Reasons of the Board of
Directors", "--Description of the ELA Agreement," "--Description of the
Termination Agreement", "--Description of the One-Way Licence Agreement", and
"--Description of the Cross License Agreement".
During the nine months ended September 30, 1999 and the year ended
December 31, 1998, approximately 96% and 71%, respectively, of total sales
generated by the Company were with affiliates of Sanofi-Synthelabo.
23
<PAGE>
STOCK PERFORMANCE GRAPH
In accordance with the rules of the Securities and Exchange Commission, the
following performance graph compares the cumulative total shareholder return on
the Company's Common Stock on the Nasdaq National Market (since October 19,
1995) and the Nasdaq SmallCap Market (prior to October 19, 1995) for the last
five fiscal years with the cumulative total return over the same period of the
Nasdaq Stock Market (US Companies) Index and of the Hambrecht & Quist Health
Care Without Biotechnology Subsector Index. The comparison assumes the
investment of $100 in Common Stock, in the Nasdaq Stock Market (US Companies)
Index, and in the Hambrecht & Quist Health Care Without Biotechnology Subsector
Index at the beginning of the period and assumes reinvestment of all dividends.
ANGEION CORPORATION
H & Q HEALTHCARE EXCLUDING BIOTECH
NASDAQ STOCK MARKET--U.S.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ANGEION CORPORATION H&Q HEALTHCARE EXC. BIOTECH NASDAQ STOCK MARKET - U.S.
<S> <C> <C> <C>
Dec-93 100 100 100
Dec-94 131.51 106.25 97.75
Dec-95 372.60 176.91 138.26
Dec-96 153.42 196.41 170.11
Dec-97 120.55 234.07 208.44
Dec-98 47.95 284.41 293.72
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Angeion Corporation......................... 100.00 131.51 372.60 153.42 120.55 47.95
H&Q Healthcare Excluding Biotech............ 100.00 106.25 176.91 196.41 234.07 284.41
Nasdaq Stock Market--U.S.................... 100.00 97.75 138.26 170.11 208.44 293.72
</TABLE>
PROPOSALS 2 AND 3
APPROVAL OF THE SALE AND TRANSFER OF ASSETS
GENERAL
At the Annual Meeting, Shareholders will be asked to vote on proposals to
approve the ELA Agreement and the Medtronic Agreement. Arguably, the
transactions contemplated by the Agreements, taken together, may constitute the
sale of substantially all of the property and assets of the Company under the
MBCA. A copy of the ELA Agreement is attached hereto as Annex A, and a copy of
the Medtronic Agreement is attached hereto as Annex F. The approval of each of
the Agreements is subject to approval
24
<PAGE>
of two-thirds of the Common Stock issued and outstanding as of the Shareholder
Record Date. Sanofi-Synthelabo, which owns 18.6% of the outstanding Common Stock
as of the Shareholder Record Date, will vote all its shares in favor of the ELA
Agreement.
In addition to requiring approval of the Shareholders, the transactions
contemplated by the Agreements will not be consummated without the grant of
consent to supplement the Indenture by Note Holders holding a majority by
aggregate principal amount of the outstanding Notes to provide that the
consummation of the transactions contemplated by the Agreements will not
constitute (i) a sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the property or assets of the Company
for purposes of the Company's obligations to comply with and observe all
covenants contained in the Indenture, or (ii) a conveyance, transfer or lease of
all or substantially all of the Company's assets for purposes of determining
whether a change of control has occurred within the meaning of the Indenture.
The granting of consent with respect to each proposal will not be effective
unless both proposals receive the consent of Note Holders owning a majority by
aggregate principal amount outstanding of the Notes.
PROPOSAL 2 BACKGROUND OF THE ELA TRANSACTIONS
In December of 1998, the Company determined that it needed to reduce
expenses and explore strategic alternatives for the Company. The Company
retained the investment banking firm of Raymond James to explore strategic
alternatives for the Company, to include a sale of all or part of the Company
and the raising of capital through the secondary markets or a private placement
of equity securities. During December, January and February of 1999, Raymond
James contacted third parties on behalf of the Company to solicit interest in
the marketplace and determine the level of interest on the part of a third party
in consummating a business combination with the Company. During February and
March of 1999, potential bidders contacted by Raymond James conducted their
respective due diligence examinations of the Company. In March 1999, Raymond
James informed the Board of Directors that it had received no indications of
interest for the purchase of all of the Company, but it had received indications
of interest for specific assets of the Company. No firm offers were made by any
third parties for specific assets of the Company, with the exception of a
nominal offer of $50,000 for the Company's battery and flat capacitor technology
and related assets, an offer by St. Jude Medical to waive certain claims against
the Company (which the Company vigorously disputes) in exchange for the
Company's rechargeable battery, and an offer by Cordis Webster, Inc. to purchase
the Company's rights and obligations under that certain Agreement dated as of
September 18, 1998 between the Company and Cordis Webster, Inc., pursuant to
which the Company sold and Cordis Webster purchased certain of the Company's
assets related to its catheter ablation business, for a purchase price of
$250,000. The consideration offered in each of the foregoing offers was
considered by the Company to be insufficient and rejected. The Company based its
evaluation of the sufficiency of the offers received on the considerable
industry experience of its management team. Additionally, the Company received
initial expressions of interest with respect to (i) various patents and patent
disclosures, technologies and licenses from the Company, and potentially the
lease held by the Company for its manufacturing facility in Brooklyn Park,
Minnesota, (ii) all of the Company's patents, particularly those involved in the
suit against Guidant, (iii) the Company's 2020 and 2030 platforms, Flat
Capacitor, Leads and related intellectual property portfolio, (iv) the Company's
intellectual property portfolio and 2100 product platform, and (v) the Company's
intellectual property portfolio. Notwithstanding the foregoing, no firm offer
was made by any third party with respect to the specific assets listed.
On March 5, 1999, the Company received PMA from the FDA for its Lyra 2020
ICD series and AngePass (TM) lead series, which allowed the Company to market
these products in the United States. As a result of the PMA, the Company
received the final two $5,000,000 equity investments from its strategic partner,
Sanofi-Synthelabo, pursuant to the Investment Agreement. In exchange for the
$10,000,000 equity investment, the Company issued Sanofi-Synthelabo warrants to
purchase 909,017 and 540,541 shares of the Company's Common Stock at exercise
prices of $0.10 and $11.10 per share, respectively. Prior to receipt of
25
<PAGE>
these two $5,000,000 equity investments, Sanofi-Synthelabo invested $15,000,000
in the Company in 1997 in connection with entering into the Investment Agreement
and $5,000,000 in 1998. Total shares of Common Stock and warrants to purchase
shares of Common Stock issued in 1997 in consideration of Sanofi-Synthelabo's
investment were 225,141 and 135,085, respectively, and in 1998 were 136,240 and
81,744, respectively. The Investment Agreement also included a repricing
provision which automatically repriced the original shares of Common Stock and
warrants as if this investment had been made at a price based on the average
Company stock price for the fifteen day trading period prior to the one year
anniversary of the initial investment. Pursuant to the Investment Agreement, on
October 9, 1998, the initial 225,141 shares of Common Stock and warrants to
purchase 135,085 shares of Common Stock were repriced to reflect the repricing
provision of the Investment Agreement resulting in an additional 384,615 shares
of Common Stock and additional warrants to purchase 230,769 shares of Common
Stock being issued to Sanofi-Synthelabo.
On March 17, 1999, James B. Hickey, Jr., President and Chief Executive
Officer of the Company, contacted the President of ELA Medical by telephone to
indicate that certain of the Company's assets would be considered for purchase.
The issuance of shares of Common Stock and warrants to purchase shares of Common
Stock to Sanofi-Synthelabo pursuant to the Investment Agreement on the same day
that Mr. Hickey contacted the president of ELA Medical was coincidental. On
March 18, 1999, Mr. Hickey followed up on the telephone conversation by
transmitting a facsimile letter listing those assets of the Company that were to
be considered for sale. On March 22, 1999, ELA Medical delivered a letter to the
Company indicating ELA Medical's firm interest in acquiring the assets
comprising the Company's "product lines (including without limitation the 2020
product line), component technologies and intellectual property rights" as well
as certain other assets as further described therein.
During the week of March 22, 1999, Company management delivered a
presentation to representatives of ELA Medical at the Company's headquarters in
Brooklyn Park, Minnesota, regarding the strengths of the Company as well as
certain financial summaries. On March 24 and 25, 1999, Marcus Magnuson, Senior
Legal Counsel of the Company, accompanied by representatives of Raymond James
(by telephone) and the Company's outside counsel, Faegre & Benson LLP
("Faegre & Benson"), met with representatives of Sanofi-Synthelabo, ELA
Medical's parent company, and representatives of Sanofi-Synthelabo's outside
counsel, Coudert Brothers ("Coudert"). At this meeting, the parties held
exploratory discussions regarding a possible business combination involving the
Company and Sanofi-Synthelabo and/or its affiliates. The parties confirmed that
while Sanofi-Synthelabo was not interested in an acquisition or other business
combination with respect to the entire Company, it would be interested in
pursuing the purchase and license of certain assets of the Company pending
further investigation by representatives of Sanofi-Synthelabo.
From March 25, 1999 through April 21, 1999, various telephonic meetings were
held between representatives of the Company and representatives of
Sanofi-Synthelabo for the purpose of identifying the specific assets of the
Company that Sanofi-Synthelabo was interested in acquiring. As a result of these
meetings, Sanofi-Synthelabo confirmed to the Company that it was interested in
acquiring (i) all technology (including two patents) and associated regulatory
approvals owned or used by the Company related to the Company's model
Series 4040, 4080, and 4090 leads, (ii) all of the Company's technology
(including certain patent disclosures) related to the Flat Capacitor, and
(iii) a non-exclusive, one-way license to the remainder of the Company's patents
and patent applications related to cardiac stimulation devices.
On April 6, 1999, at a meeting of the Board of Directors attended by
representatives of Faegre & Benson and Manchester Companies, Inc.
("Manchester"), Mr. Hickey discussed with the Board of Directors the
advisability of pursuing a sale of certain of the Company's assets to
Sanofi-Synthelabo or one or more of its affiliates. Additionally, the Board of
Directors authorized Mr. Hickey and representatives of Manchester to investigate
the possibility of a transaction in which the Company would repurchase all or
part of the outstanding Notes for an amount less than the face value of such
securities. Manchester is a financial advisor to the Company then recently
retained for the purpose of assisting the Company in
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negotiating with vendors and other creditors in connection with the
establishment of appropriate terms on which the Company would comply with its
obligations with respect to such parties.
On April 21, 1999, Mr. Magnuson, accompanied by representatives of Faegre &
Benson, met with representatives of Sanofi-Synthelabo and Coudert. At this
meeting, the parties negotiated, subject to the approval of the Board of
Directors of each of the Company and Sanofi-Synthelabo, possible terms of a
transaction that could form the basis for the sale of certain assets by the
Company to Sanofi-Synthelabo or its affiliates. On April 22, 1999,
Mr. Magnuson, accompanied by representatives of Raymond James and Faegre &
Benson, again met with representatives of Sanofi-Synthelabo and Coudert. During
this meeting, Raymond James discussed the possible purchase by ELA Medical of
all of the outstanding capital stock or assets of the Company. Shortly
thereafter, Sanofi-Synthelabo confirmed to the Company that neither it nor any
of its affiliates would be interested in acquiring all of the outstanding
capital stock or assets of the Company.
The Board of Directors held a telephonic meeting on the morning of May 7,
1999, at which it authorized Mr. Hickey and other employees of the Company to
negotiate the terms of a transaction in which the Company would sell certain
assets of the Company and grant a one-way, non-exclusive license to the
Company's patents and patent applications related to cardiac stimulation devices
to ELA Medical in consideration for the Sanofi-Synthelabo Owned Securities and
the termination by ELA Medical of the OUS Supply Agreement, subject to (a) the
receipt of an opinion from Raymond James as to the fairness, from a financial
point of view, to the Company of the consideration to be paid in the proposed
transaction, (b) the negotiation of definitive documentation, and (c) the
receipt of further approval of the Board of Directors for the final negotiated
terms of such a transaction.
On May 11, 1999, the Company effectively terminated the joint venture with
ELA US (the "Joint Venture") by withdrawing and limiting certain of its
liabilities with respect thereto in connection with entering into the Withdrawal
Agreement. The Withdrawal Agreement was entered into because the Board of
Directors determined that (i) the Joint Venture had not met its financial
objectives, (ii) there was general disagreement between the Company and ELA US
as to the management philosophy of the Joint Venture, and (iii) the Board of
Directors had determined that further contribution of capital to the Joint
Venture, as the Company was contractually obligated to make, was no longer in
the best interests of the Company. As a result, the Company terminated all
current and future obligations to fund the Joint Venture and avoided potential
claims as to past obligations to fund the Joint Venture, and ELA US agreed to
assume certain continuing product support obligations of the Company in
connection with its cardiac stimulation device business and certain other
obligations of the Company with respect to third party suppliers and developers.
Also on May 11, 1999, a representative of Coudert delivered a letter to a
representative of Faegre & Benson setting forth the principal terms and
conditions on which Sanofi-Synthelabo or its affiliates would be willing to
proceed with the acquisition of certain assets of the Company, including the
following terms: (a) the assets owned by the Company to be acquired by
Sanofi-Synthelabo would be all technology related to the model Series 4040, 4080
and 4090 leads and all technology related to the Flat Capacitor; (b) the Company
would grant to Sanofi-Synthelabo and its affiliates a non-exclusive,
royalty-free, fully paid-up, perpetual license to the Company's patents and
patent applications related to cardiac stimulation devices with a priority date
on or prior to the date of entering into the definitive license agreement;
(c) in consideration of the foregoing, (i) Sanofi-Synthelabo would deliver to
the Company all of the Sanofi-Synthelabo Owned Securities, and (ii) ELA Medical
would release the Company from its obligations under the OUS Supply Agreement,
and ELA Medical and the Company would terminate such agreement; (d) the closing
of such transactions would be subject to, among other things, (i) the approval
of the Board of Directors of the Company and the Shareholders, (ii) the approval
of the Board of Directors of Sanofi-Synthelabo, (iii) the negotiation of
definitive agreements mutually acceptable to the Company and Sanofi-Synthelabo,
(iv) the obtaining of all necessary consents from third parties to the
assignments of any contract rights and obligations, and (v) the vote by
Sanofi-Synthelabo of all Sanofi-Synthelabo Owned
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Securities in favor of such transactions; and (e) in the event the transactions
were not approved by the requisite number of Shareholders, notwithstanding the
favorable vote of Sanofi-Synthelabo, then, in consideration for the termination
of the OUS Supply Agreement, the Company would use its best efforts to provide
Sanofi-Synthelabo and its affiliates with a non-exclusive, royalty-free, fully
paid-up and perpetual license to the Company's patents and patent applications
with a priority date on or prior to the date of entering into a definitive
license agreement. See "APPROVAL OF THE SALE AND TRANSFER OF ASSETS--Description
of the ELA Agreement" and " --Description of the Cross-License Agreement".
The Board of Directors held a meeting on June 2, 1999, which was attended by
representatives of Faegre & Benson and Manchester, during which the Board of
Directors discussed the revised structure of the proposed transactions and the
status of the negotiations. Additionally, at this meeting Faegre & Benson and
Manchester provided an update as to the status of discussions with the Note
Holders and indicated that (i) Section 4.07 of the Indenture might require the
Company to offer to repurchase all outstanding Notes at a premium as described
therein in the event of consummation of the ELA Transactions, and (ii) the
consummation of the ELA Transactions might result in a sale of substantially all
of the assets of the Company to an entity that would fail to qualify as a
"successor" pursuant to Section 6.01 of the Indenture and thus result in an
Event of Default (as defined herein), unless a waiver by the Note Holders in
connection therewith was obtained. No formal action was taken at this meeting.
On June 29, 1999, the Company indicated to representatives of
Sanofi-Synthelabo via telephone that the Company would require that the proposed
transaction be subject, in addition to the conditions previously discussed, to
consent by the Note Holders.
From June 30, 1999 through July 23, 1999, various telephonic meetings were
held between representatives of the Company and representatives of
Sanofi-Synthelabo for the purpose of negotiating definitive documentation
relating to the ELA Transactions.
The Board of Directors met on July 23, 1999, together with representatives
of Raymond James and Faegre & Benson, to further consider the proposed
transaction. The Board of Directors reviewed various legal, business and
financial issues. The directors also reviewed contacts received from other
interested parties (none of whom made any formal offers or proposals), potential
alternatives to the proposed transactions (including ceasing operations and
distributing any remaining assets to Shareholders), the adequacy of the proposed
consideration, and the risk that the ELA Transactions would not be consummated.
The Board of Directors discussed the fact that if the ELA Transactions were not
approved by the Shareholders and consented to by the Note Holders, the Company
would continue to maintain certain responsibilities and service certain
obligations in its implantable cardioverter defibrillator business and may need
to make additional expenditures or hire additional employees to manage those
responsibilities and obligations. The Board of Directors also discussed the
potential value of terminating any contractual obligations to Sanofi-Synthelabo
and its affiliates that were yet remaining after the consummation of the
transactions contemplated by the Withdrawal Agreement. In addition, the Board of
Directors discussed that the subsequent cross-license to be entered into with
Sanofi-Synthelabo and its affiliates would satisfy the Company's existing
contractual obligation pursuant to Section 5.3 of the Investment Agreement to
negotiate in good faith such a cross-license with Sanofi-Synthelabo. Raymond
James made a presentation that included a discussion of its valuation
methodologies and analyses used in arriving at its fairness opinion. Raymond
James delivered its written opinion to the Board of Directors to the effect
that, as of such date and based upon and subject to the assumptions, limitations
and qualifications in such opinion, the consummation of the ELA Transactions,
taken as a whole, was fair to the Company from a financial point of view. Such
opinion was confirmed orally at the time the ELA Agreement was executed. For
information on the assumptions made, matters considered and limitations on the
review by Raymond James, see "APPROVAL OF THE SALE AND TRANSFER OF
ASSETS--Opinion of Raymond James Regarding the ELA Transactions". Shareholders
are urged to read in its entirety the opinion of Raymond James, attached as
Annex E to this Proxy Statement/Consent Solicitation. Except for the fairness
opinion
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of Raymond James with respect to the ELA Agreement, no other written material
was provided to the Board of Directors by Raymond James regarding the ELA
Transactions. Although the Board of Directors met and worked closely with
Raymond James in evaluating the ELA Agreement and the transactions contemplated
thereby on at least seven different occasions, and despite the fact that the
Board of Directors felt that additional written support in addition to the
fairness opinion of Raymond James with respect thereto would have been of
limited usefulness because such transactions were highly impracticable to
quantify and contained agreements and provisions for which a comparable
transaction analysis was impossible, there exists the potential for the Board of
Directors to have misinterpreted or misunderstood information relayed or
confirmed orally or information not addresssed in detail in the fairness opinion
of Raymond James with respect to the ELA Transactions. However, given the Board
of Directors' long industry and company knowledge and experience, they felt the
potential for misunderstanding or misinterpretation was unlikely. After
considering the foregoing, the Board of Directors determined that the strategic
benefits and the value of Sanofi-Synthelabo's offer were greater than the
anticipated value of any of the potential alternatives to the proposed
transaction, and the Board of Directors (i) voted that the ELA Agreement and the
transactions contemplated thereby are fair to and in the best interests of the
Shareholders, (ii) approved the ELA Agreement and the related agreements
attached thereto, (iii) recommended that the Shareholders approve the ELA
Agreement, and (iv) recommended that the Note Holders be requested to consent to
supplement the Indenture to provide that consummation of the transactions
contemplated by the ELA Agreement not result in the potential for any
accelerated payments by the Company with respect to the Notes.
Following the meeting of the Board of Directors on July 23, 1999,
representatives of the Company and Sanofi-Synthelabo and its affiliates
finalized the ELA Agreement and the related agreements attached thereto for
execution. The parties executed the ELA Agreement on the evening of August 2,
1999, and immediately thereafter the Company issued a press release publicly
announcing the transaction.
REASONS FOR THE ELA TRANSACTIONS; RECOMMENDATIONS OF THE BOARD OF DIRECTORS
REASONS FOR THE ELA TRANSACTIONS. Subject to consummation of the Merger,
the Company has been a participant in the cardiac stimulation devices market.
Competition in the ICD business is based upon constant product development,
considerable financial resources and significant distribution capabilities.
Change is rapid, and research and development costs are high. Once developed,
products may not be immediately sold; the governmental approval process creates
a significant interval between investment and return. As a result, the ICD
business is dominated by a small number of large, well financed companies. In
its early years, the Company incurred significant losses in the course of
developing a technologically advanced line of ICD products. In 1993, the Company
formed a distribution arrangement with Pacesetter, Inc. ("Pacesetter") in
connection with an investment of $5 million. Late in 1996, however, Pacesetter's
parent corporation, St. Jude, announced the acquisition of another defibrillator
company, Ventritex, Inc. Pacesetter cancelled all outstanding orders and in May
1997 the distribution arrangement with Pacesetter was terminated as part of a
cross-license agreement between the Company and St. Jude. Prior to the
termination of this relationship, sales by the Company derived from its
relationship with Pacesetter represented approximately 50% to 60% of total net
sales of the Company for fiscal years ended July 31, 1997 and 1996. By late
1997, the Company found itself short of cash and without established
distribution and marketing channels. Thus, on October 9, 1997, the Company
entered into the Investment Agreement that established a strategic relationship
with Sanofi-Synthelabo and certain of its affiliates for the purpose of
receiving additional equity investments and providing for distribution, sales
and marketing channels for the Company's ICD products. In connection with and
pursuant to the terms of the Investment Agreement, Sanofi-Synthelabo eventually
purchased an aggregate of 745,996 shares of Common Stock and was granted
warrants to purchase an additional 1,897,156 shares of Common Stock for an
aggregate price of $30 million.
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Despite its strategic relationship with Sanofi-Synthelabo, the Company
continued to incur significant operating losses due to, among other things, the
delay in receiving FDA approval for its first ICD product. The ICD market had
changed, with new products being introduced at three to six month intervals
instead of more than one year, as had been the industry average. The Company had
limited resources. Losses for Fiscal 1998 were $38,838,100, and the Company
entered Fiscal 1999 with low cash reserves and awaiting further FDA approvals.
As the magnitude of its Fiscal 1998 losses became clearer in late 1998, the
Company necessarily focused its efforts upon strategic alternatives.
Accordingly, in December 1998, the Company retained the investment banking firm
of Raymond James to explore strategic alternatives for the Company. During
December 1998, and January and February of 1999, Raymond James contacted third
parties on behalf of the Company to solicit interest in the marketplace and
determine the level of interest on the part of a third party in consummating a
strategic relationship or business combination with the Company. During February
and March of 1999, potential bidders for the purchase of all or a part of the
Company contacted by Raymond James conducted their respective due diligence
examinations of the Company. In March 1999, Raymond James informed the Board of
Directors that it had received no indications of interest for the purchase of
all of the Company, but it had received indications of interest for specific
assets of the Company.
While the Company's focus during the first five months of 1999 was primarily
upon the identification of strategic alternatives, Company management was faced
with the need to keep the Company's business viable; had the Company continued
to spend at the historic rate during this period and had it not been successful
in raising additional cash, it would have been necessary to terminate
operations, ending any realistic opportunity to enhance Shareholder value and
repay the Note Holders as scheduled. The Company's several major accomplishments
during this period both preserved and enhanced the value of its ICD business
during a period when all could have been lost:
- In January 1999, in an effort to reduce its cash burn rate the Company
announced a restructuring plan that reduced 20% of its total employee
base, including 40% of the Company's senior management team. Consistent
with this restructuring, the Company planned to implement an internal
marketing organization to assist the Joint Venture.
- On March 5, 1999, the Company earned the last $10 million from
Sanofi-Synthelabo payable under the Investment Agreement by achieving
governmental approval of its model Series 2020 ICD (Lyra) and model
Series 4040 and 4080 lead systems.
- On April 5, 1999, the Company reached a settlement of its ongoing
litigation with Cardiac Pacemakers, Inc. ("CPI") and its parent company,
Guidant Corporation ("Guidant"). In connection with the settlement, the
Company granted to CPI a non-exclusive license (the "CPI License") under
all of the Company's patents that cover cardiac stimulation devices and
CPI made a one-time payment of $35,000,000 to the Company to settle claims
for past damages and for the CPI License. After payment of legal fees and
other expenses associated with the litigation, the Company retained
approximately $31,000,000 in cash from such settlement. In connection with
the settlement of the CPI/Guidant litigation, Guidant agreed not to sue
the Company for future infringement with respect to the Company's current
model Series 2020 and next generation model Series 2030 ICD product lines,
thus allowing the Company to pay a reasonable royalty and market its most
advanced ICD products free from claims of infringement.
- In April 1999, the Company announced a second restructuring plan to
refocus its business and further reduce operating expenses, pursuant to
which the Company reduced its workforce by approximately 75% of its total
employee base.
- In May 1999, the Company withdrew from the Joint Venture. The Company
elected to withdraw from the Joint Venture because (i) the Joint Venture
had not met its financial objectives (despite
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the formation of an internal marketing organization), (ii) there was
general disagreement between the Company and ELA US as to the management
philosophy of the Joint Venture and (iii) additional infusions of capital
by the Company would be required if the Company were to remain in the
Joint Venture. In connection with its withdrawal from the Joint Venture,
the Company was able to transfer to ELA US certain warranty coverage,
technical service and regulatory compliance services for which the Company
was responsible under applicable law. See "APPROVAL OF THE SALE AND
TRANSFER OF ASSETS--Reasons for the ELA Transactions; Recommendations of
the Board of Directors".
See "APPROVAL OF THE SALE AND TRANSFER OF ASSETS--Reasons for the ELA
Transactions; Recommendations of the Board of Directors" and "--Reasons for the
Medtronic Transactions; Recommendations of the Board of Directors".
The settlement of the CPI/Guidant litigation and the related CPI License
enhanced the Company's ability to compete in the single chamber ICD market by
removing the uncertainty and potential impediment for the Company to market its
products in the single chamber ICD market created by the patent infringement
lawsuit filed by Guidant in September 1998. While the limited royalty-bearing
non-exclusive license that the Company received from Guidant allowed the Company
to freely market its current and next generation single chamber ICD products,
the ability of the Company to obtain a patent license for its future dual
chamber ICD products would have to rely on future intellectual property assets
developed or acquired by the Company. Given that (i) management of the Company
anticipated that the Company's dual chamber ICD product was still several years
away from receiving FDA approval, (ii) the patents asserted by Guidant in its
lawsuit filed September 1998 are set to expire prior to the time of such
approval, and (iii) the Company had challenged the validity of all three patents
in reexamination proceedings (which have subsequently invalidated at least two
of the three patents), no assessment of the research and development and related
intellectual property legal risks that might be faced by such a dual chamber ICD
product had been performed by the Company. In the opinion of management of the
Company, given the financial resources of the Company, the certainty of being
able to market its current and next generation single chamber ICD products free
of any cloud of infringement was more valuable than the anticipated time
required to resolve the various research and development and related
intellectual property legal risks which were future, speculative and unknown. As
a result, the net effect on the Company's ability to compete in the ICD
marketplace as a result of the settlement with CPI/Guidant and the related CPI
License was positive. In addition to obtaining the license needed to market its
current and next generation ICD products, the Company also obtained a cash
settlement that was one of the top twenty patent settlements or awards
publicized in 1999. While the Company did forego the possibility of continuing
to assert its intellectual property rights against a competitor with as large a
market share as CPI/Guidant as a result of this settlement, it was the opinion
of the management of the Company that the likelihood of obtaining an injunction
that would preclude Guidant from competing in the ICD marketplace was far from
certain and, in any event, would only happen after several years and the
expenditure of millions of additional dollars in litigation-related expenses, if
at all.
Despite the fact that the Company had received a PMA from the FDA for its
current model Series 2020 ICD product line in March 1999, and had favorably
settled its outstanding litigation against CPI/ Guidant in April 1999 and even
though the restructurings announced in January and April of 1999 helped to
reduce the Company's cash burn rate, the Board of Directors determined that in
the absence of any new strategic relationship (such as the transaction with
Medical Graphics), the costs associated with internally developing all new ICD
products beyond the 2020 ICD or the next generation model 2030 ICD product line
could render the Company's long-term financial performance objectives
unattainable. That determination, coupled with the availability of cash and the
significantly reduced ongoing obligations for warranty coverage, technical
service and regulatory compliance, resulted in the Board of Directors concluding
that the Company could best build Shareholder value by refocusing and investing
in a profitable business that could benefit from the Company's tax loss
carryforward.
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<PAGE>
As of September 30, 1999, the Company had a net operating loss carryforward
of approximately $111,700,000. The Board of Directors did not foresee an end to
these losses if the Company continued in its current direction and business. In
order for the Company to have an opportunity to realize the tax asset associated
with the net operating loss carryforward before it expired, the Board of
Directors determined that the Company must add to the Company's business
profitable operations that may enable realization of this deferred tax asset.
Such an investment could improve the Company's ability to continue to service
all of its periodic obligations with respect to the Notes as well as its ability
to generate the funds necessary to redeem the Notes in 2003 in accordance with
the terms of the Indenture or potentially drive a stock price attractive enough
for the Note Holders to convert their Notes into Common Stock. See "APPROVAL OF
THE SALE AND TRANSFER OF ASSETS--Plans for the Company After the Transactions"
and "--Description of Notes".
The ELA Transactions, if consummated, will eliminate all of the Company's
significant remaining obligations in connection with the ICD business, while
reducing the outstanding shares of Common Stock by 18.6%. This will permit the
Company to potentially improve Shareholder value by reducing total shares
outstanding and reducing certain liabilities. If the Company is unable to
consummate the ELA Transactions, it will be left with liabilities relating to
the cardiac stimulation device business and the OUS Supply Agreement.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS. The Board of Directors believes
that the consummation of the transactions contemplated by the ELA Agreement
offers an excellent opportunity to build value for the Shareholders. The
Company's strategy is to maximize the value of its business, reduce to the
minimum amount feasible the liabilities and potential liabilities of the Company
resulting from the distribution of ICD products, further reduce costs and pursue
the acquisition of another business with potential to drive value for both
Shareholders and Note Holders. The ELA Transactions fall within this strategy
because:
- The Board of Directors believes that the continued operation of the
Company's current ICD business may no longer be viable due to the large
amount of capital and capital-intensive resources needed in the ICD
business.
- The Company does not believe that it has a sufficient amount of cash to
adequately exploit new internal product development opportunities and
aggressively pursue marketing and distribution strategies required to
drive growth in the ICD marketplace. The Company faces the risk of having
its ICD products rendered obsolete due to the limited amount of research
and development funding available.
- As of September 30, 1999, the Company had accumulated net losses of
approximately $116,000,000 since its inception. The Board of Directors
does not foresee an end to these continued losses if the Company continues
in its current direction and businesses. Therefore, the Board of Directors
has decided that upon consummation of the Merger, the Company would focus
its efforts primarily on the markets served by and business operations of
Medical Graphics.
- The Board of Directors believes that Shareholder value will be maximized
through the sale of the ELA Assets and the consideration received
therefrom and intends to use its remaining assets to pursue the potential
acquisition of other businesses.
- The Board of Directors believes that the ELA Transactions will enhance
Shareholder value by allowing the Company to remove potential liabilities
by terminating the OUS Supply Agreement and by reducing the number of
shares of Common Stock outstanding through the acquisition of the
Sanofi-Synthelabo Owned Securities. In connection with the ELA
Transactions, ELA Medical has agreed to assume certain liabilities of the
Company and Sanofi-Synthelabo has agreed to return the Sanofi-Synthelabo
Owned Securities to the Company. Although there is no way to quantify the
value to the Company of being relieved of these liabilities, there is
value to the Company in such
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relief. The Board of Directors believes that the reduction in the number
of outstanding shares of Common Stock will enhance the value of the
remaining outstanding shares.
- The Board of Directors believes that consummation of the ELA Transactions
with the consent of the Note Holders will reduce a risk of default under
the Indenture by allowing the Company to reduce potential liabilities, and
reduce the number of outstanding shares of Common Stock while pursuing the
potential acquisition of other businesses which may result in a reduction
in the Company's losses and improvement in the Company's financial
condition.
INFORMATION AND FACTORS CONSIDERED BY THE BOARD OF DIRECTORS. The Board of
Directors made its determination after careful consideration of, and based on, a
number of factors, including the material factors described below:
(a) all the reasons described above under "APPROVAL OF THE SALE AND
TRANSFER OF ASSETS--Recommendations of the Board of Directors";
(b) the financial presentation of Raymond James described under
"APPROVAL OF THE SALE AND TRANSFER OF ASSETS--Background of the ELA
Transactions" and "--Opinion of Raymond James Regarding the ELA
Transactions", including the opinion of Raymond James orally delivered and
subsequently confirmed in writing, to the effect that the ELA Transactions,
taken as a whole, would be fair to the Company from a financial point of
view (a copy of the written opinion of Raymond James dated July 23, 1999,
setting forth the assumptions, limitations and qualifications set forth in
such opinion, is attached as Annex E hereto); see "APPROVAL OF THE SALE AND
TRANSFER OF ASSETS--Opinion of Raymond James Regarding the ELA
Transactions";
(c) information concerning the business, assets, capital structure,
financial performance and condition and prospects of the Company;
(d) current and historical market prices and trading information with
respect to the Common Stock; and
(e) information concerning the Notes and the Company's obligations under
the Indenture and related documents.
In view of the wide variety of factors considered in connection with its
evaluation of the ELA Transactions and the complexity of these matters, the
Board of Directors did not find it practicable to and did not attempt to
quantify, rank or otherwise assign relative weights to these factors. Although
there is no way to quantify the value to the Company of being relieved of
certain liabilities by ELA Medical, the Board of Directors concluded there was
value to the Company in such relief. The Board of Directors conducted an overall
analysis of the factors described above, including thorough discussions with and
questioning of the Company's management and advisors, and although the Board of
Directors did not undertake to make any specific determination as to whether any
particular factor (or any aspect of any factor) was more or less favorable to
the Board's ultimate determination as compared to any other factor, the Board of
Directors did determine that (i) information concerning the business, assets,
capital structure, financial performance and condition and prospects of the
Company weighed strongly in favor of supporting a consummation of the ELA
Agreement for reasons set forth in "--Reasons for the ELA Transactions;
Recommendations of the Board of Directors--Reasons for the ELA Transactions",
(ii) current and historical market prices and trading information with respect
to the Common Stock weighed in favor of supporting approval of the ELA Agreement
because recent published prices for shares of Common Stock have been
significantly below what shares of Common Stock traded at historically and would
therefore, in the expectation of the Board of Directors, be favorably effected
by the repurchase of the Sanofi-Synthelabo Owned Securities, and
(iii) information concerning the Notes and the Company's obligations under the
Indenture weighed against support of any transactions that could result in a
characterization as a sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the property or assets of the Company
for purposes of the Indenture because such a characterization could create the
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potential for the Company's repayment obligations with respect to the Notes to
be accelerated, however, the Board of Directors determined that conditioning
consummation of the Transactions upon consent of the Note Holders to supplement
the Indenture mitigated this potentially adverse consequence. Additionally,
among other things, the Board of Directors discussed the fact that Section 5.3
of the Investment Agreement required each of the parties thereto to negotiate in
good faith for a patent cross-license in the event of the termination of the
Joint Venture. As a result of entering into the Withdrawal Agreement, the
Company incurred such obligation. As such, the Company was required to negotiate
with Sanofi-Synthelabo in good faith for a patent cross-license. As a result of
the Company's recent efforts to refocus its business, explore strategic
alternatives, including the potential license or sale of certain of its assets,
and substantially reduce the infrastructure to support its ICD business, the
value to the Company of receiving a license to ELA Medical's intellectual
property portfolio is nominal. The Company's grant of a license with respect to
certain of its intellectual property assets as part of the One-Way License
Agreement, given the Company's pre-existing contractual obligation to negotiate
in good faith for a patent cross-license with Sanofi-Synthelabo due to the
termination of the Joint Venture, would not require the Company to convey any
value that the Company would not have had to otherwise convey. Further, in
considering the factors described above, individual members of the Board of
Directors may have given different weight to different factors. The Board of
Directors considered all these factors as a whole, and believed that the
combination of these factors supported its decision to approve the ELA
Transactions. The Board of Directors determined, after consultation with Company
management, that such information had been considered and reflected in the
consideration recited in the ELA Agreement.
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OPINION OF RAYMOND JAMES REGARDING THE ELA TRANSACTIONS
Pursuant to an engagement letter dated December 1, 1998, the Company
retained Raymond James in connection with its consideration of strategic
alternatives, including the sale or licensing of certain assets, because of
Raymond James' qualifications, expertise and reputation, as well as its prior
investment banking relationship with the Company. In connection with such
engagement, the Company requested Raymond James to render its opinion as to the
fairness to the Company, from a financial point of view, of the consideration to
be received in connection with the ELA Transactions. Raymond James is a
nationally recognized investment banking firm, and as part of its investment
banking business, Raymond James is regularly engaged in the valuation of
businesses and their securities and assets in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes.
THE FULL TEXT OF THE WRITTEN OPINION OF RAYMOND JAMES, DATED JULY 23, 1999,
WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE SCOPE OF
REVIEWS UNDERTAKEN, IS ATTACHED AS ANNEX E TO THIS DOCUMENT. SHAREHOLDERS ARE
URGED TO READ THIS OPINION IN ITS ENTIRETY. RAYMOND JAMES' OPINION, WHICH IS
ADDRESSED TO THE BOARD OF DIRECTORS, IS DIRECTED ONLY TO THE FAIRNESS OF THE
CONSIDERATION RECEIVED BY THE COMPANY FROM A FINANCIAL POINT OF VIEW AND DOES
NOT CONSTITUTE RECOMMENDATIONS TO ANY SHAREHOLDER OR ANY NOTE HOLDER AS TO HOW
SUCH SHAREHOLDER SHOULD VOTE AT THE ANNUAL MEETING OR WHETHER ANY NOTE HOLDER
SHOULD CONSENT AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE ELA AGREEMENT OR ANY
RELATED AGREEMENTS. RAYMOND JAMES HAS CONSENTED TO THE SUMMARIZATION OF ITS
OPINION IN, AND ATTACHMENT OF ITS OPINION TO, THIS DOCUMENT. THE SUMMARY OF THE
OPINION OF RAYMOND JAMES SET FORTH IN THIS DOCUMENT SUMMARIZES THE PURPOSE AND
EFFECT OF ALL MATERIAL TERMS CONTAINED IN THE FULL TEXT OF SUCH OPINION.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Raymond
James believes that its analyses and reviews must be considered as a whole and
that selecting portions of its analyses or reviews, without considering the
analyses and reviews taken as a whole, would create an incomplete view of the
process underlying the analyses and reviews set forth in its opinion. In
addition, Raymond James considered the results of all such analyses and reviews
and did not assign relative weights to any of the analyses and reviews. As such,
the ranges of valuations resulting from any particular analysis or review
described below should not be taken to be Raymond James' view of the actual
value of the assets sold or licensed as part of the ELA Transactions.
Additionally, although the Raymond James' fairness opinion regarding the ELA
Transactions does not explicitly state that Raymond James reviewed the One-Way
License Agreement, Raymond James did in fact review this document and considered
it as part of its analysis. The Company, with the agreement of Raymond James,
believes that the consideration by Raymond James of the One-Way License
Agreement is implicit in its fairness opinion.
In performing its analyses and reviews, Raymond James made numerous
assumptions with respect to industry performance, general business, economic and
regulatory conditions and other matters, many of which are beyond the control of
the Company. The analyses and reviews performed by Raymond James are not
necessarily indicative of actual values, trading values or actual future results
which might be achieved, all of which may be significantly more or less
favorable than suggested by such analyses and reviews. Such analyses and reviews
were prepared solely as part of Raymond James' analysis and review of the
fairness of the consideration received by the Company in connection with the ELA
Transactions from a financial point of view and were provided to the Board of
Directors. The analyses and reviews do not purport to be appraisals or to
reflect the prices or fees at which assets described in the ELA Transactions
might be sold or licensed out. In addition, as described below, the opinion of
Raymond James was one of
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many factors taken into consideration by the Board of Directors in making its
determination to approve the ELA Transactions. Consequently, the analyses and
reviews described below should not be viewed as determinative of the Board of
Directors' opinion with respect to the value of the assets and license described
in the ELA Transactions, or of whether the Board of Directors would have been
willing to agree to a different level of consideration. The Company placed no
limits on the scope of the analysis and review performed, or opinion expressed,
by Raymond James.
In connection with rendering its opinion, Raymond James has, among other
things:
- obtained from the Company relevant cost data for the Leads, Flat Capacitor
and its intellectual property portfolio;
- reviewed a draft of the ELA Agreement and the Termination Agreement, each
of which was in form substantially similar to the definitive agreement;
- reviewed the Company's audited fiscal year-end and quarterly financial
statements for the last two years;
- reviewed the Company's projected financial statements as prepared by the
Company's management;
- reviewed the Company's pro forma balance sheet after consummation of the
ELA Transactions, as prepared by the Company's management, and;
- conducted such other financial analyses, studies, and investigations, and
considered such other information as Raymond James deemed necessary or
appropriate.
In connection with its review, Raymond James has not assumed any
responsibility for independent verification for any of the information reviewed
by Raymond James for the purpose of its opinion with respect to the ELA
Transactions and has relied on the information reviewed being complete and
accurate in all material respects. In addition, Raymond James has not made or
received any independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) related to the ELA Transactions, nor has
Raymond James been furnished with any such evaluation or appraisal. With respect
to the financial forecasts, estimates, projections, pro forma effects, and other
information referred to herein, Raymond James has assumed, at the direction of
the Company, that they have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of the
Company, and Raymond James has relied upon the Company to advise Raymond James
promptly if any such information previously provided to or discussed with
Raymond James became inaccurate or was required to be updated during the period
of the review.
PRESENTATION BY RAYMOND JAMES. The following summarizes the material
financial analyses and reviews which were considered by Raymond James in
rendering its opinion with respect to the ELA Transactions to the Board of
Directors. Raymond James delivered its opinion regarding the ELA Transactions on
July 23, 1999 at a meeting of the Board of Directors. This summary is not a
complete description of the analyses and reviews underlying the opinion of
Raymond James with respect to the ELA Transactions or of information presented
at meetings between Raymond James and representatives of the Company held in
advance of the consideration by the Board of Directors of the ELA Transactions.
Raymond James' analyses and reviews take into account the value of a
non-exclusive license to the Company's intellectual property portfolio. The
nature of virtually any non-exclusive license related to the specific
intellectual property assets of a particular company is such that directly
comparable transactions are not available for the purpose of establishing a
market value using traditional means. These challenges are often compounded by a
limited universe of potential buyers or licensees with various market shares
within their market segments, as is the case for the Company's intellectual
property portfolio. As such, Raymond James has employed, among others, the
analyses and reviews described below for the purpose of rendering its opinion as
to the fairness of the ELA Transactions to the Company from a financial point of
view.
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ELA AGREEMENT. Pursuant to the terms of the ELA Agreement, the Company
proposes to sell, and ELA Medical proposes to purchase, the Leads and Flat
Capacitor, in exchange for the Sanofi-Synthelabo Owned Securities. ELA Medical
has further agreed to assume, pay, perform and satisfy, as of the Closing Date,
the liabilities and obligations of the Company pursuant to certain assumed
contracts as well as all other liabilities, obligations or undertakings relating
to the Leads and Flat Capacitor manufactured by ELA Medical after the Closing
Date.
Raymond James' analysis included estimating the value of the
Sanofi-Synthelabo Owned Securities and comparing it with the value of the Leads
and Flat Capacitor. The estimated value of the Sanofi-Synthelabo Owned
Securities was calculated by using the closing price of the Common Stock on
July 21, 1999 ($2.13 per share) and by using the Black-Scholes option pricing
model for valuing the warrants to purchase Common Stock. The aggregate value of
the Sanofi-Synthelabo Owned Securities arrived at by Raymond James was
$3,407,000.
To assess the value of the Leads and Flat Capacitor, for which there is no
ready market, the Company marketed for sale the Leads and Flat Capacitor to
participants in the ICD industry, as well as to others deemed by the Company to
either potentially have an interest in entering the ICD industry or deemed by
the Company to potentially have an interest in these assets. Only
Sanofi-Synthelabo and ELA Medical expressed a serious interest in the Leads and
Flat Capacitor. Sanofi-Synthelabo and ELA Medical expressed interest in
purchasing these assets by agreeing to deliver to the Company, as consideration
therefore, the Sanofi-Synthelabo Owned Securities, but did not express any
interest in purchasing these assets for cash. Based on this marketing effort and
the resulting outcome, the Sanofi-Synthelabo and ELA Medical offer was the best
and only serious offer received for these assets.
As part of valuing the Leads and Flat Capacitor, for which there is no ready
market, Raymond James considered the costs incurred by the Company in the
development of these assets. The Company's estimate for the development cost for
the Leads was approximately $1.7 million, and the Company's estimate for the
development cost of the Flat Capacitor was approximately $0.5 million. Using
development costs as the basis for calculating the value of these assets,
Raymond James derived an aggregate total value of $2.2 million for the Leads and
Flat Capacitor. Raymond James did not independently verify this cost data. The
PMA granted by the FDA in March 1999 with respect to the Company's current model
Series 2020 ICD product line had no impact on Raymond James valuation of the
Flat Capacitor given that this asset is a component for a product yet to be
implanted and has not yet received FDA approval. The PMA granted by the FDA was
given some consideration in the value for the Leads, but given that ELA Medical
was the only party interested in the Leads and the Flat Capacitor, this had only
a minor impact on the consideration to be received by the Company.
The Leads and Flat Capacitor represent only a fraction of the overall assets
of the Company. Although the Company's cost of developing the Leads and Flat
Capacitor was approximately $2.2 million, the Company reported the Leads and
Flat Capacitor on its financial statements at a much lower value. As such,
Raymond James concluded that an analysis which considered the Company's market
or book value was not appropriate.
Raymond James also considered the value of the Leads and Flat Capacitor to
the Company if the Company were to retain these assets for its own purposes. In
connection with the Company's recent efforts to refocus its business, explore
strategic alternatives, including the potential license or sale of certain of
its assets, and the substantial reduction in the infrastructure to support its
ICD business, the Company would have very limited current or projected use for
these assets other than in connection with any amounts to be realized upon their
disposition for value.
TERMINATION AGREEMENT. In connection with the consummation of the
transactions contemplated by the ELA Agreement, the Company and ELA Medical will
enter into the Termination Agreement pursuant to which ELA Medical will release
the Company from its obligations pursuant to the OUS Supply Agreement. In
consideration for ELA Medical's agreement to terminate and release the Company
from its
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obligations under the OUS Supply Agreement, the Company has agreed to pay ELA
Medical the Termination Fee; provided, however, that ELA Medical has agreed to
accept a non-exclusive license to certain intellectual property of the Company
pursuant to the One-Way License Agreement in full and complete satisfaction of
the Termination Fee.
Raymond James reviewed the terms of the Termination Agreement and concluded
that, due to the restrictive nature of the OUS Supply Agreement and the
constraints placed on the Company as long as the OUS Supply Agreement is in
force, there is value to the Company in being released from the terms of the OUS
Supply Agreement, but the value is not quantifiable.
To determine the value of the one-way license to be granted to ELA Medical
by the Company pursuant to the One-Way License Agreement, Raymond James reviewed
several factors. Raymond James reviewed the terms of the Investment Agreement,
including Section 5.3 thereof, which section requires the Company and
Sanofi-Synthelabo to negotiate in good faith for a patent cross-license in the
event of the termination of the Joint Venture. On May 11, 1999, the Company
effectively terminated the Joint Venture by withdrawing and limiting certain of
its liabilities with respect thereto in connection with the Withdrawal
Agreement. As such, the Company believes that it was required to negotiate with
Sanofi-Synthelabo in good faith for a patent cross-license. As a result of the
Company's recent efforts to refocus its business, explore strategic
alternatives, including the potential license or sale of certain of its assets,
and substantially reduce the infrastructure to support its ICD business, the
value to the Company of receiving a license to ELA Medical's intellectual
property portfolio is nominal. The Company's granting of a license with respect
to certain of its intellectual property assets as part of the One-Way License
Agreement, given the Company's pre-existing contractual obligation to negotiate
in good faith for a patent cross-license with Sanofi-Synthelabo due to the
termination of the Joint Venture, would not require the Company to convey any
value that the Company may not have had to otherwise convey.
Another factor considered by Raymond James was the Company's recent efforts
to refocus its business, explore strategic alternatives, including the potential
license or sale of certain of its assets, and substantially reduce the
infrastructure to support its ICD business. As such, the Company's intellectual
property portfolio has more value to the Company as it relates to the sale or
licensing of such intellectual property to others. Therefore, the value the
Company receives from the license, sale or other disposition of its intellectual
property assets is beneficial to the Company, particularly given that the value
of much of its intellectual property assets diminishes as patents age and
expire.
Other factors considered as part Raymond James' analysis include the review
of (i) the value of a non-exclusive license agreement by using market share and
financial data on a comparable transaction involving Guidant; (ii) the license
granted pursuant to the One-Way License Agreement is non-exclusive; (iii) there
is likely a minimal effect on the value of the Licensed Patents (defined below)
and Sublicensable Patents (defined below) from the non-exclusive license granted
given Sanofi-Synthelabo's and ELA Medical's modest market share within the ICD
industry; (iv) the Company's marketing effort of its intellectual property
portfolio to ICD industry and non-industry companies; and (v) the general
condition and strategic direction of the Company in the current marketplace.
Additionally, in considering the market share standing within the ICD industry
of Sanofi-Synthelabo relative to that of Guidant, Raymond James concluded that
because Guidant's market share at the time of the settlement with CPI/Guidant
was many times greater than that of ELA Medical, it was reasonable to conclude
that the value of the one-way license granted to ELA Medical by the Company
would be much less than the value of a similar license granted to Guidant.
FAIRNESS OPINION REGARDING THE ELA TRANSACTIONS. At the July 23, 1999
meeting of the Board of Directors, Raymond James gave its oral and written
opinion that, as of such date and based upon and subject to various
qualifications and assumptions described with respect to its opinion, the
consideration received by the Company in connection with the ELA Transactions
was fair to the Company from a financial point of view.
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Raymond James is actively involved in the investment banking business and
regularly undertakes the valuation of investment securities and assets in
connection with public offerings, private placements, business combinations and
mergers. In the past, Raymond James has performed investment banking services
for the Company, including a public offering, financial advisory work, and
registered direct offerings, and has received customary fees for such services.
Raymond James has acted as financial advisor to the Board of Directors in
connection with the ELA Transactions and will receive a fee upon the
consummation thereof, which fee is contingent upon the value of the related
consideration. The fee payable to Raymond James in connection with its role as
advisor on the ELA Transactions is currently estimated to be approximately
$141,105. In addition, Raymond James has received a fee of $200,000 for its
delivery to the Board of Directors of the fairness opinion related to the ELA
Transactions. The Company has also agreed to reimburse Raymond James for
reasonable travel and other out-of-pocket expenses incurred by Raymond James in
performing its services, including the fees of its legal counsel and to
indemnify Raymond James and related persons against certain liabilities,
including liabilities arising under the federal securities laws and arising out
of Raymond James' engagement. In the ordinary course of business, Raymond James
may trade in the securities of the Company for its own account and for the
accounts of Raymond James' customers and, accordingly, may at any time hold a
long or short position in such securities.
DESCRIPTION OF THE ELA AGREEMENT
The description of the ELA Agreement set forth below describes the purpose
and effect of all material terms contained in the ELA Agreement, a copy of which
is attached as Annex A to this Proxy Statement/Consent Solicitation and is
incorporated herein by reference.
GENERAL. The Company, Sanofi-Synthelabo, and ELA Medical have entered into
the ELA Agreement pursuant to which ELA Medical will purchase and the Company
will sell all of the Company's right, title and interest in the ELA Assets, in
exchange for the all of the Sanofi-Synthelabo Owned Securities.
ASSETS TO BE SOLD. The Company proposes to sell, and ELA Medical proposes
to purchase, all technology owned or used by the Company related to the Leads
and all the research and development related to the Flat Capacitor. The ELA
Assets include: (a) all technical specifications for the Leads and the Flat
Capacitor; (b) all of the Company's trade secrets, inventions, patent
disclosures consisting of seven of the approximately 84 patent disclosures owned
by the Company, protocols, know-how, formulae, processes, procedures, records of
inventions, test information, drawings, diagrams, designs, operating manuals and
other proprietary information for the Leads and the Flat Capacitor; (c) all of
the Company's patents and patent applications for the Leads and the Flat
Capacitor subject only to existing non-exclusive licenses (the "Assigned
Patents") which consist of two (2) patents out of approximately 250 patents and
patent applications owned by the Company; (d) all documentation and all of the
Company's copyrights in such documentation for the Leads and Flat Capacitor;
(e) all permits, licenses, franchises, approvals and authorizations issued by
governmental or regulatory authorities for the Leads and Flat Capacitor, to the
extent assignable by the Company; (f) all testing and validation results for the
Leads and Flat Capacitor, and all test fixtures that relate specifically to the
Leads and Flat Capacitor that are not generally used with respect to other
assets of the Company in the cardiac stimulation device business; (g) all
samples of the Leads and Flat Capacitor on hand (but not including works in
progress or finished goods); and (h) all of the Company's right, title and
interest in and to the supply and development agreements relating to the ELA
Assets (the "Assumed Contracts").
For the purpose of the ELA Agreement, ELA Medical has expressly acknowledged
that certain manufacturing equipment and fixtures which may be useful in
production of the Leads are owned by Cardiac Control Systems, Inc., and are not
owned by the Company. As a result, such equipment and fixtures are not included
in the definition of the Leads for purposes of the ELA Agreement or the ELA
Transactions.
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PURCHASE PRICE. In exchange for the ELA Assets, the Company will receive
all of the Sanofi-Synthelabo Owned Securities. The purchase price for the ELA
Assets (the "Purchase Price") is equal to the fair market value of all of the
Sanofi-Synthelabo Owned Securities on the Closing Date (as defined below).
ASSUMED LIABILITIES. In addition to payment of the Purchase Price, ELA
Medical will assume certain liabilities of the Company related to the ELA Assets
as of the Closing Date (the "Assumed Liabilities"). The Assumed Liabilities
include: (a) the liabilities and obligations of the Company in respect of the
Assumed Contracts, and (b) all liabilities, obligations or undertakings of any
nature whatsoever, whether accrued, absolute, fixed or contingent, known or
unknown, arising out of or relating to the ELA Assets, including, without
limitation, (i) any action brought or claim made by third parties, which relate
to the periods following the Closing Date, and (ii) any and all claims which
relate to Leads or Flat Capacitors manufactured and sold by ELA Medical after
the Closing Date. ELA Medical does not and will not assume any liability or
obligation of the Company, whether relating to the ELA Assets or otherwise,
other than the Assumed Liabilities (all such liabilities, the "Excluded
Liabilities").
CLOSING. The ELA Closing is expected to take place in Minneapolis,
Minnesota on November 24, 1999 or on such other date or at such other location
as the parties may agree in writing (the "ELA Closing Date").
REPRESENTATIONS AND WARRANTIES. The ELA Agreement contains various
representations and warranties of the Company, Sanofi-Synthelabo and ELA
Medical, relating to, among other things, the following matters (subject to
specified exceptions set forth therein): (a) the due incorporation,
organization, power and standing of, and similar corporate matters with respect
to, each of the Company, Sanofi-Synthelabo and ELA Medical; (b) the
authorization, execution, delivery, performance and enforceability of the ELA
Agreement by each party thereto; (c) the absence of any governmental or
regulatory authorization, consent or approval required to consummate the
transactions contemplated by the ELA Agreement; and (d) the absence of any
conflict with each party's respective charter or bylaws, with applicable law or
with certain contracts and agreements (specifically excluding conflicts with
respect to the Indenture).
The Company has also made certain additional representations to ELA Medical
and Sanofi-Synthelabo, relating to, among other things, the following matters
(subject to specified exceptions set forth in the ELA Agreement): (a) title to
the ELA Assets; (b) the absence of material undisclosed liabilities; (c) the
Company's proprietary rights to the ELA Assets; (d) the absence of undisclosed
contracts and licenses relating to the ELA Assets; (e) the permits, licenses,
franchises, approvals and authorizations issued by governmental or regulatory
authorities for the ELA Assets; and (f) the absence of any brokerage, finder's
or other fees due in connection with the sale of the ELA Assets other than as
due to Raymond James.
CERTAIN COVENANTS OF THE COMPANY. Between the date of the ELA Agreement and
the Closing Date, unless otherwise consented to in writing by ELA Medical, the
Company has covenanted to: (a) use its best efforts to preserve the ELA Assets;
(b) remain in material compliance with all permits, laws, rules and regulations,
consent orders, and all other orders of applicable courts, regulatory agencies
and similar governmental authorities applicable to the ELA Assets and the
Licensed Patents (as defined below under "--Description of the One-Way License
Agreement"); (c) promptly advise ELA Medical in writing of the commencement or,
if known to the Company, threat of any suit, proceeding or investigation which
could have a material adverse effect on the ELA Assets or the Licensed Patents,
whether or not covered by insurance; (d) promptly advise ELA Medical in writing
of the existence or occurrence of (i) any condition or event which could have a
material adverse effect on the ELA Assets or the Licensed Patents and (ii) any
event, condition or state of facts which will or is reasonably likely to result
in the failure to satisfy any of the closing conditions to be satisfied by the
Company; and (e) maintain the policies of insurance on the ELA Assets in effect
as of the date of the ELA Agreement in full force and effect without reduction
in coverage.
The Company has further covenanted that it will not: (a) make any change in
its Articles of Incorporation or By-laws, or other constituent documents;
(b) enter into any contract or commitment, or series of related contracts or
commitments, in respect of the ELA Assets, except with the prior written
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consent of ELA Medical; (c) create or permit to become effective any
encumbrances on the ELA Assets or the Licensed Patents, except as provided by
the ELA Agreement; (d) sell, assign, lease or otherwise transfer or dispose of
any of the ELA Assets or the Licensed Patents, abandon any of the Licensed
Patents or, sell, assign, or otherwise transfer or dispose of, or grant any
exclusive license with respect to, any of the Licensed Patents, except as
provided by the ELA Agreement; (e) commit a material breach of or amend any
agreement, permit, license or other right of the Company in respect of the ELA
Assets; (f) enter into any other transaction in respect of the ELA Assets
outside the ordinary course of business or prohibited thereunder; or (g) enter
into any agreement or commitment to do any of the foregoing, provided, however,
that the Company is not prohibited from (i) entering into an agreement or
agreements for the sale of all or substantially all of the Licensed Patents, so
long as any such purchaser acknowledges that such sale will be subject to the
rights of ELA Medical and its affiliates under the One-Way License Agreement or
the Cross-License Agreement, as the case may be, (ii) entering into a security
agreement in which all or substantially all of the Licensed Patents are used as
collateral, so long as the lender acknowledges that such security interest will
be subject to the rights of ELA Medical and its affiliates under the One-Way
License Agreement or the Cross-License Agreement, as the case may be, or
(iii) entering into a non-exclusive license with respect to any of the Licensed
Patents.
USE OF BEST EFFORTS. Each of the Company, ELA Medical and Sanofi-Synthelabo
has covenanted to use its commercially reasonable best efforts to consummate and
make effective the ELA Transactions, including, but not limited to, taking all
actions required for the consummation of the ELA Transactions; PROVIDED,
HOWEVER, that Sanofi-Synthelabo, ELA Medical and the Company have agreed that
commercially reasonable best efforts do not include making any payment to, or
otherwise satisfying any claims of, the Note Holders in order to obtain their
consent to supplement the Indenture in connection with consummation of the
transactions contemplated by the ELA Agreement.
ANNUAL MEETING AND PROXY STATEMENT/CONSENT SOLICITATION. As part of the ELA
Agreement, the Company has covenanted to call, convene and hold the Annual
Meeting to consider and take action on the ELA Transactions, as soon as
practicable after the date of the ELA Agreement. The Company has further agreed
to prepare and file with the Securities and Exchange Commission a preliminary
Proxy Statement/ Consent Solicitation, no later than August 20, 1999, and to use
its best efforts to cause such Proxy Statement/Consent Solicitation to become
effective and to be mailed to Shareholders as soon as practicable thereafter.
In the ELA Agreement, the Company has covenanted to use its reasonable best
efforts to obtain the approval of the ELA Agreement by the holders of the
requisite number of issued and outstanding shares of Common Stock, and consent
to supplement the Indenture with respect to the Notes to provide that the
consummation of the transactions contemplated by the Agreements will not
constitute, solely for purposes of the Indenture, a sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the
property or assets of the Company by a majority by aggregate principal amount as
of the Note Holder Record Date of the Note Holders.
The Company has covenanted that its Board of Directors will recommend
approval and adoption of the ELA Agreement by the Shareholders and request
consent to supplement the Indenture from the Note Holders in connection with
consummation of the transactions contemplated by the Agreements. The Board of
Directors is not permitted to withdraw, amend or modify in a manner adverse to
ELA Medical such recommendation (or announce publicly its intention to do so),
except that prior to the Annual Meeting, the Board of Directors may withdraw,
amend or modify its recommendation (or announce publicly its intention to do so)
but only if the Board of Directors has determined in its good faith judgment,
based upon the advice of outside counsel, that it is obligated by its fiduciary
obligations under applicable law to withdraw, amend or modify such
recommendation. The Company agreed to make this covenant only after the Board of
Directors had considered and approved the ELA Transactions.
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Nothing contained in the ELA Agreement prohibits the Company from making any
disclosure to the Shareholders or the Note Holders if, in the good faith
judgment of the Board of Directors, upon the advice of counsel, failure to make
such disclosure would be inconsistent with applicable laws.
Under the ELA Agreement, Sanofi-Synthelabo has agreed to vote, or cause to
be voted, all of the shares of Common Stock then-owned by it, directly or
indirectly, or over which it has the power to vote, in favor of approval of ELA
Agreement.
NOTICE AND CURE. The Company has agreed to give ELA Medical notice of any
event that becomes known to the Company which will cause any covenant or
agreement of the Company under the ELA Agreement to be breached or that renders
or will render untrue any representation or warranty of the Company contained in
the ELA Agreement. The Company has agreed to use all commercially reasonable
efforts to cure such breach before the ELA Closing, as soon as practicable after
such event becomes known to the Company.
CONDITIONS TO THE OBLIGATIONS OF THE PARTIES. The obligations of the
Company, Sanofi-Synthelabo and ELA Medical to consummate the transactions
contemplated under the ELA Agreement are subject to the satisfaction of certain
conditions at or prior to the ELA Closing, unless waived by the respective
parties in writing. Such conditions include:
TRUE REPRESENTATIONS AND WARRANTIES. The respective representations and
warranties of the parties contained in the ELA Agreement (including, without
limitation, the Schedules thereto) are to be true and correct in all
material respects on the ELA Closing Date as though such representations and
warranties were made on such date and the parties are to have delivered
certificates to such effect.
PERFORMANCE. The parties are to have performed and complied in all
material respects with all of their respective covenants and obligations
under the ELA Agreement, which are required to be performed or complied with
by the parties, as applicable, on or prior to the ELA Closing Date and the
parties are to have delivered certificates to such effect.
SHAREHOLDER APPROVAL AND NOTE HOLDER CONSENT. The ELA Agreement is to
have been duly approved by the Shareholders in accordance with the MBCA and
the Company's Articles of Incorporation and By-laws and a supplement to the
Indenture consented to by the Note Holders to provide that the consummation
of the transactions contemplated by the Agreements will not (i) constitute a
sale, assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the property or assets of the Company for purposes of
the Company's obligations to comply with and observe all covenants contained
in the Indenture, and (ii) constitute a conveyance, transfer or lease of all
or substantially all of the Company's assets for purposes of determining
whether a change of control has occurred within the meaning of the
Indenture.
DELIVERY OF CLOSING DOCUMENTS. The parties shall have delivered all
documents required by the ELA Agreement, in form and substance reasonably
satisfactory to the other parties and their respective counsel.
ABSENCE OF CERTAIN EVENTS. No statute, rule or regulation shall have
been enacted or promulgated which would make any of the transactions
contemplated by the ELA Agreement illegal or would otherwise prevent the
consummation thereof. No order, decree, writ or injunction shall have been
issued and remain in effect by any court or governmental body or agency
which restrains, enjoins or otherwise prohibits the consummation of the ELA
Transactions, and no action, suit or proceeding before any court or
governmental body or agency shall be pending or, to the knowledge of the
Company or ELA Medical, as the case may be, threatened by any person (or
instituted or threatened by any governmental body or agency), and no
investigation by any governmental body or agency shall be pending or, to the
knowledge of the Company or ELA Medical, as the case may be, threatened
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with respect to the ELA Transactions. See also "APPROVAL OF THE SALE AND
TRANSFER OF ASSETS--Litigation and Related Matters".
TERMINATION. The ELA Agreement may be terminated at any time prior to the
ELA Closing Date: (a) by the mutual written consent of Sanofi-Synthelabo, ELA
Medical and the Company; (b) by any of Sanofi-Synthelabo, ELA Medical or the
Company: (i) if any statute, rule or regulation has been enacted which would
make any of the transactions contemplated by the ELA Agreement illegal or would
otherwise prevent the consummation thereof or if any court or governmental body
or agency thereof shall have issued any writ or injunction, or taken any other
action, restraining, enjoining or otherwise prohibiting the transactions
contemplated thereby and all appeals and means of appeal therefrom have been
exhausted; (ii) if the ELA Closing has not occurred on or prior to December 31,
1999; PROVIDED, HOWEVER, that the right to terminate the ELA Agreement shall not
be available to a party whose breach of any representation or warranty or
failure to perform or comply with any covenant or obligation under the ELA
Agreement has been the cause of, or resulted in, the failure of the ELA Closing
to occur on or before such date; (c) by Sanofi-Synthelabo or ELA Medical, if the
ELA Agreement and the transactions contemplated thereunder shall not have been
duly approved by the Shareholders at the Annual Meeting or a supplement to the
Indenture consented to by the Note Holders at or prior to the time of the Annual
Meeting; (d) by Sanofi-Synthelabo or ELA Medical, if any of the closing
conditions to be satisfied by the Company shall not have been met or waived
prior to such time as such condition can no longer be satisfied; (e) by the
Company, if the Board of Directors of the Company determines in good faith,
based upon the advice of outside counsel, that it is obligated by its fiduciary
obligations under applicable law to terminate the ELA Agreement; or (f) by the
Company, if any of the closing conditions to be satisfied by ELA Medical or
Sanofi-Synthelabo shall not have been met or waived prior to such time as such
condition can no longer be satisfied.
EFFECT OF TERMINATION. In the event of termination of the ELA Agreement by
any party, the ELA Agreement will become null and void and there will be no
liability or obligation on the part of any party thereto. Notwithstanding the
foregoing, in the event that the ELA Agreement is terminated by Sanofi-
Synthelabo or ELA Medical pursuant to the provisions described in clauses
(c) or (d) of the preceding paragraph, or by the Company pursuant to clauses
(e) or (f) of the preceding paragraph, the Company and ELA Medical agree to
immediately enter into the Cross-License Agreement in satisfaction of the
requirements of Section 5.3 of the Investment Agreement. See "APPROVAL OF THE
SALE AND TRANSFER OF ASSETS--Description of the Termination Agreement" and
"--Description of the Cross-License Agreement" below.
POST CLOSING COVENANTS. The ELA Agreement obligates ELA Medical and the
Company to observe various covenants following the Closing. Such covenants
include:
RETENTION OF RECORDS. Each of ELA Medical and the Company agrees to
retain required records relating to the ELA Assets for a period of three
years from the ELA Closing Date, provided that, after such date, each party
is to make reasonable arrangements for the other party's continued access to
such records retained in the ordinary course of business. Prior to any
liquidation, the Company is to take all steps reasonably necessary to
provide ELA Medical with continued access to the records following
liquidation. In addition, from and after the ELA Closing Date, ELA Medical
and the Company agree that, subject to receiving appropriate assurances of
confidentiality and restrictions on use, each will not unreasonably withhold
access by the other party and its representatives, to such personnel and
records relating to the ELA Assets as the other party may reasonably deem
necessary relating to the ELA Assets. The party requesting access or
assistance in accordance with the ELA Agreement agrees to pay the reasonable
costs of the party providing such assistance.
FURTHER ASSURANCES. Upon request from ELA Medical, the Company (at ELA
Medical's expense) agrees to execute, deliver and file all such further
instruments as may be reasonably requested by ELA Medical, in order to
complete the transfer of the ELA Assets and to comply with
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all applicable legal requirements. For a period of three years following the
ELA Closing, upon the request and at the expense of ELA Medical, the Company
agrees to take all necessary steps to assign all licenses and permits or
approvals in respect of the ELA Assets to ELA Medical, where such assignment
is permitted and to reasonably cooperate with ELA Medical in obtaining new
licenses, permits and approvals, where such assignment is not permitted.
SUPPLY AGREEMENTS. In the event that ELA Medical or any of its
affiliates enters into a supply agreement for the Flat Capacitor with the
Company's supplier, Barker Microfarads, Inc., the Company has the right to
purchase Flat Capacitors from ELA Medical for use in the Model 2030 ICD on a
cost plus basis.
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
INDEMNITY OBLIGATIONS OF THE COMPANY. In the ELA Agreement, the Company
agrees to indemnify and hold ELA Medical and each of its stockholders,
officers, directors, affiliates, employees and agents (each, an "ELA
Indemnitee") harmless from, and to reimburse any ELA Indemnitee for, on an
after-tax basis, any ELA Indemnity Claims (as hereinafter defined) arising
under the ELA Agreement. The term "ELA Indemnity Claim" means any loss,
damage, deficiency, diminution in value, claim, liability, obligation, suit,
proceeding, action, demand, fee, cost, fine, levy, penalty, surcharge or
expense of any nature whatsoever including, without limitation, reasonable
out-of-pocket expenses, reasonable investigation costs and reasonable fees
and disbursements of counsel (collectively, "Damages") suffered or incurred
by the ELA Indemnitee arising out of, based upon or resulting from: (i) the
Excluded Liabilities or the Company's failure to pay and discharge in full,
or to cause to be paid and discharged in full, all Excluded Liabilities in a
full and timely manner from and after the ELA Closing Date; (ii) any breach
of any representation and warranty of the Company which is contained in the
ELA Agreement or any schedule thereto; or (iii) any breach or nonfulfillment
of, or any failure to perform, any of the covenants, agreements or
undertakings of the Company contained in or made pursuant to the ELA
Agreement.
The indemnification obligations of the Company under the ELA Agreement
shall apply with respect to, without limitation, Damages arising out of any
and all actions, claims, suits, proceedings, demands, assessments,
judgments, recoveries, damages, costs and expenses or deficiencies incident
to the disposal of any ELA Indemnity Claim under the ELA Agreement, together
with any interest, penalties, costs and expenses of any ELA Indemnitee
(including, without limitation, reasonable out-of-pocket expenses,
reasonable investigation expenses and reasonable fees and disbursements of
accountants and counsel) arising out of or related to any such ELA Indemnity
Claims.
The Company shall be liable to the ELA Indemnitee for any Damages
(i) only if the aggregate amount of all Damages exceeds $100,000 (the
"Basket Amount"), in which case the Company shall be obligated to indemnify
the ELA Indemnitee for the aggregate amount of all such Damages including
the Basket Amount; and (ii) in an amount not to exceed the purchase price
(the "Cap Amount"); provided, however, that the foregoing restriction shall
not apply to any claim based on (a) the untruth or inaccuracy of any
representation or warranty of the Company relating to the Company's
organization and good standing, the authority of the Company to execute and
perform under the ELA Agreement and the status of claims and litigation
affecting the Company, or (b) the untruth or inaccuracy of any other
representation or warranty made therein or in any statement, certificate or
schedule furnished thereunder with an intent to deceive or defraud or with
reckless disregard for the truth or accuracy thereof.
INDEMNITY OBLIGATIONS OF SANOFI-SYNTHELABO AND ELA
MEDICAL. Sanofi-Synthelabo and ELA Medical jointly and severally agree to
indemnify and hold the Company and each of its Shareholders, officers,
directors, affiliates, employees and agents (each, a "Company Indemnitee")
harmless from, and to reimburse any Company Indemnitee for, on an after-tax
basis, any Company Indemnity Claims (as hereinafter defined) arising under
the ELA Agreement. For purposes of the ELA Agreement, the
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term "Company Indemnity Claim" shall mean any Damages suffered or incurred
by the Company arising out of, based upon or resulting from: (i) the Assumed
Liabilities; (ii) any breach of any representation and warranty of ELA
Medical which is contained in the ELA Agreement or any schedule thereto; or
(iii) any breach or nonfulfillment of, or any failure to perform, any of the
covenants, agreements or undertakings of ELA Medical contained in or made
pursuant to the terms and conditions of the ELA Agreement.
The indemnification obligations of ELA Medical shall apply with respect
to, without limitation, Damages arising out of any and all actions, claims,
suits, proceedings, demands, assessments, judgments, recoveries, damages,
costs and expenses or deficiencies incident to the disposal of any such
Company Indemnity Claim under the ELA Agreement, together with any interest,
penalties, costs and expenses of any Company Indemnitee (including, without
limitation, reasonable out-of-pocket expenses, reasonable investigation
expenses and reasonable fees and disbursements of accountants and counsel)
arising out of or related to any such Company Indemnity Claims.
DURATION OF INDEMNITIES. All representations, warranties, covenants,
undertakings and agreements of the parties contained in or made pursuant to
the ELA Agreement, and the rights of the parties to seek indemnification
with respect thereto, survive the ELA Closing and expire eighteen
(18) months after the date of the ELA Agreement, unless timely written
notice of a claim is duly given to the indemnifying party.
CONSULTATION AND ARBITRATION. The ELA Agreement provides that all disputes
among the Company, Sanofi-Synthelabo, and ELA Medical are to be settled, if
possible, through good faith negotiations between the relevant parties and their
officers. In the event that good faith negotiations are unsuccessful, after
30 days written notice to the others, the disputing party may submit any
controversy or claim arising out of, relating to or in connection with the ELA
Agreement to arbitration administered by the American Arbitration Association in
accordance with its then existing International Arbitration rules, except as
modified by the terms of the ELA Agreement, and judgment upon the award rendered
by the arbitrator may be entered in any court having jurisdiction thereof. Any
award rendered in connection with an arbitration is final and binding upon the
parties
DESCRIPTION OF THE TERMINATION AGREEMENT
The description of the Termination Agreement set forth below describes the
purpose and effect of all material terms contained in the Termination Agreement,
a copy of which is attached as Annex B to this Proxy Statement/Consent
Solicitation and is incorporated herein by reference.
IN THE EVENT THAT EITHER SHAREHOLDERS REFUSE TO APPROVE THE ELA AGREEMENT OR
THE NOTE HOLDERS REFUSE TO CONSENT TO SUPPLEMENT THE INDENTURE IN CONNECTION
WITH THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENTS, THE
COMPANY AND ELA MEDICAL WILL NOT EXECUTE THE TERMINATION AGREEMENT DESCRIBED
BELOW. See "APPROVAL OF THE SALE AND TRANSFER OF ASSETS--Description of the ELA
Agreement--TERMINATION" above; "APPROVAL OF THE SALE AND TRANSFER OF
ASSETS--Description of the Cross-License Agreement" below.
GENERAL. In connection with the consummation of the ELA Transactions, the
Company and ELA Medical will enter into the Termination Agreement pursuant to
which ELA Medical will release the Company from its obligations pursuant to the
OUS Supply Agreement, to manufacture and sell cardiac stimulation and related
devices manufactured by the Company exclusively to ELA Medical for distribution
in certain territories outside of the United States.
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TERMINATION OF OUS SUPPLY AGREEMENT. Pursuant to the Termination Agreement,
ELA Medical will release the Company from all of its obligations under the OUS
Supply Agreement and the OUS Supply Agreement will be terminated and of no
further force and effect (except as provided below). The obligations of the
Company under the OUS Supply Agreement include the obligation of the Company to
manufacture and sell at specified prices cardiac stimulation and related devices
currently manufactured by the Company or devices that will be manufactured in
the future exclusively to ELA Medical for distribution in certain territories
outside of the United States as well as the warranty, regulatory service and
technical compliance obligations of the Company attendant to the manufacture of
such devices.
TERMINATION FEE. In consideration of ELA Medical's agreement to terminate
and release the Company from its obligations under the OUS Supply Agreement, the
Company has agreed to pay ELA Medical a sum of $6,000,000; however, ELA Medical
has agreed to accept the license granted pursuant to the One-Way License
Agreement in full and complete satisfaction thereof.
RIGHTS AND OBLIGATIONS UPON TERMINATION. The Termination Agreement provides
for certain continuing rights and obligations of ELA Medical and the Company
with respect to the products subject to the OUS Supply Agreement (the "Company
Products"). ELA Medical's continuing rights with respect to the OUS Supply
Agreement and the Company Products include, but are not limited to: (a) the
right to retain certain promotional materials relating to the Company Products
and to promote, market and sell the Company Products; and (b) certain rights
with respect to the manufacture and receipt of Company Products previously
ordered by ELA Medical. The Company's continued obligations with respect to the
OUS Supply Agreement include, but are not limited to: the obligation to maintain
certain governmental approvals, maintain product warranties, perform any
required recalls and indemnify ELA Medical against certain third party claims.
DESCRIPTION OF THE ONE-WAY LICENSE AGREEMENT
The description of the One-Way License Agreement set forth below describes
the purpose and effect of all material terms contained in the One-Way License
Agreement, a copy of which is attached as Annex C to this Proxy
Statement/Consent Solicitation and is incorporated herein by reference.
IN THE EVENT THAT EITHER SHAREHOLDERS REFUSE TO APPROVE THE ELA AGREEMENT OR
THE NOTE HOLDERS REFUSE TO CONSENT TO SUPPLEMENT THE INDENTURE IN CONNECTION
WITH THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENTS, THE
COMPANY AND ELA MEDICAL WILL NOT EXECUTE THE ONE-WAY LICENSE AGREEMENT DESCRIBED
BELOW. See "APPROVAL OF THE SALE AND TRANSFER OF ASSETS of the ELA
Agreement--TERMINATION" above; "APPROVAL OF THE SALE AND TRANSFER OF
ASSETS--Description of the Cross-License Agreement" below.
GENERAL. In connection with the consummation of the ELA Transactions, the
Company and ELA Medical will execute the One-Way License Agreement pursuant to
which ELA Medical will be granted a license to any and all patents and pending
patent applications relating to cardiac stimulation devices owned by the Company
as of the date thereof (whether by development, acquisition or otherwise) or
subject to a security pledge granted by the Company or any subsidiary or
commonly controlled business of the Company (the "Licensed Patents") and any and
all of the Company's third party patents and patent applications, where there is
a license or assignment or other agreement with such third party that allows the
Company to enter into sublicensing agreements (the "Sublicensable Patents"
described more fully below). Because the One-Way License Agreement will be
consummated as part of the ELA Transactions, including the ELA Agreement by
which ownership of the two patents related to the Flat Capacitors and the Leads
will be transferred to ELA Medical, Licensed Patents, will not include these two
assigned patents, and will instead refer only to the remaining number of the
approximately two hundred fifty (250) patents and patent applications owned by
the Company.
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LICENSED PATENTS. Subject to the terms of the One-Way License Agreement,
the Company will grant to ELA Medical and its affiliates a one-way,
non-exclusive, fully paid-up, royalty-free, and perpetual worldwide license to
the Licensed Patents, to make, have made, use, sell and have sold cardiac
stimulation devices, including components thereof.
SUBLICENSABLE PATENTS. In addition to the Licensed Patents, the Company
will agree to grant to ELA Medical and its affiliates a non-exclusive license or
sublicense, as the case may be, on the most favorable terms and conditions
permissible under all patents or patent applications related to cardiac
stimulation devices which are the subject of licenses or assignments or other
agreements with third parties and, which licenses or agreements (i) convey
rights to the Company or its affiliates, which include the right to grant
sublicenses or licenses to make, use, sell or supply cardiac stimulation devices
or components; and (ii) that, in order to maintain such a license, require some
payment from the Company or its affiliates, licensees, sublicensees or grantees
to maintain the license or agreement in effect (the "Sublicensable Patents").
CONDITIONS, LIMITATIONS AND UNDERSTANDINGS. The licenses granted under the
One-Way License Agreement are subject to certain express conditions and
limitations, including the following: (a) the Company will have the right to
control the maintenance, abandonment, enforcement, extension and licensing of
the Licensed Patents; (b) the Company will have the right to enforce the
Licensed Patents against all persons and organizations, other than ELA Medical
or its affiliates; (c) the licenses granted by the One-Way License Agreement
will not extend to any technical proprietary design, manufacture, marketing,
and/or processing information, designs, drawings, specifications or other
documents pertinent to the use of the Licensed Patents (other than the
description of the preferred embodiment and designs, drawings and specifications
which are set forth in the Licensed Patents); and (d) the license and
sublicenses under the Sublicensable Patents may only be granted to the extent
that the Company has the right to grant such a license or sublicense.
SATISFACTION OF OBLIGATIONS AND RELEASE. The Company and ELA Medical have
agreed that execution of the One-Way License Agreement and granting of the
licenses described therein satisfies the obligation to negotiate in good faith
for a cross-license contained in Section 5.3 of the Investment Agreement.
Furthermore, the Company will agree to release and forever discharge ELA Medical
and its affiliates and customers from any and all claims and obligations of any
nature whatsoever, arising from any claim of infringement relating to the
Licensed Patents.
REPRESENTATIONS AND WARRANTIES. The One-Way License Agreement contains
various representations and warranties of the Company, relating to the following
matters: (a) title to the Licensed Patents; (b) that no Licensed Patent will be
sold or otherwise transferred without written notice to ELA Medical (and making
such sale expressly subject to the One-Way License Agreement); (c) the absence
of any other agreements or commitments with third parties that would impair or
interfere with the One-Way License Agreement; (d) the absence of litigation,
claims or actions with respect to the Licensed Patents or the rights granted
under the One-Way License Agreement; and (e) the power and authority of the
Company to execute and perform the One-Way License Agreement.
LIMITATIONS. The representations, warranties and agreements contained in
the One-Way License Agreement are limited in that nothing in the One-Way
Agreement will constitute: (a) a warranty or representation by the Company as to
the validity or scope of any Licensed Patents or Sublicensable Patents; (b) a
warranty or representation that anything made, used, sold or otherwise disposed
of under any license granted in the One-Way License Agreement is or will be free
from infringement of patents of third parties; (c) an obligation of the Company
to bring or prosecute actions or suits against third parties for patent
infringement; or (d) a representation, warranty or extension of warranties of
any kind, expressed or implied, or an assumption of responsibility by the
Company with respect to the use, sale or other disposition by ELA Medical or its
affiliates or users of cardiac stimulation devices embodying one or more claims
of the Licensed Patents.
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TERM. The One-Way License Agreement will not be executed unless the ELA
Agreement is approved by the Shareholders and the consent to supplement the
Indenture in connection therewith has been granted by the Note Holders. In such
an event, the One-Way License Agreement will take effect as of its date and will
continue indefinitely. The licenses granted in accordance with the One-Way
License Agreement are to continue during the life of each Licensed Patent and
are not revocable. The loss of any rights of the Licensed Patents by the Company
as a result of a declaration of invalidity or otherwise, will not be cause to
terminate the One-Way License Agreement or the licenses granted thereunder with
respect to all other Licensed Patents.
TRANSFER AND ASSIGNMENT. The One-Way License Agreement may be freely
assigned or transferred to third parties by ELA Medical or its affiliates,
except to Guidant, Medtronic, St. Jude or Biotronik GmbH, or any of their
respective affiliates, successors or assigns.
DESCRIPTION OF THE CROSS-LICENSE AGREEMENT
The description of the Cross-License Agreement set forth below describes the
purpose and effect of all material terms contained in the Cross-License
Agreement, a copy of which is attached as Annex D to this Proxy
Statement/Consent Solicitation and is incorporated herein by reference.
IN THE EVENT THAT SHAREHOLDERS APPROVE THE ELA AGREEMENT AND THE NOTE
HOLDERS CONSENT TO SUPPLEMENT THE INDENTURE IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED BY THE AGREEMENTS, THE COMPANY AND ELA MEDICAL WILL NOT EXECUTE THE
CROSS-LICENSE AGREEMENT DESCRIBED BELOW. THE COMPANY AND ELA MEDICAL WILL,
INSTEAD, EXECUTE THE TERMINATION AGREEMENT AND THE ONE-WAY LICENSE AGREEMENT
DESCRIBED ABOVE. See "APPROVAL OF THE SALE AND TRANSFER OF ASSETS--Description
of the ELA Agreement--EFFECT OF TERMINATION" above. See "APPROVAL OF THE SALE
AND TRANSFER OF ASSETS--Description of the One-Way License Agreement" above.
GENERAL. Section 8.2 of the ELA Agreement requires the Company to enter
into the Cross-License Agreement with ELA Medical in the event that the ELA
Agreement is terminated by (a) Sanofi-Synthelabo or ELA Medical if the ELA
Agreement and the transactions contemplated thereunder shall not have been duly
approved by the Shareholders or consented to by Note Holders representing the
requisite aggregate principal amount of the Notes at the time of the Annual
Meeting; (b) Sanofi-Synthelabo or ELA Medical if any of the closing conditions
to be satisfied by the Company under the ELA Agreement shall not have been met
or waived prior to such time as such condition can no longer be satisfied;
(c) the Company if the Board of Directors of the Company determines in good
faith, based upon the advice of outside counsel, that it is obligated by its
fiduciary obligations under applicable law to terminate the ELA Agreement; or
(d) the Company if any of the closing conditions to be satisfied by ELA Medical
or Sanofi-Synthelabo under the ELA Agreement shall not have been met or waived
prior to such time as such condition can no longer be satisfied. Section 8.2 of
the ELA Agreement is intended to satisfy the obligations of each of the Company
and Sanofi-Synthelabo under Section 5.3 of the Investment Agreement, which
obligates the Company and Sanofi-Synthelabo to negotiate in good faith for a
patent cross-license in the event of the termination of the Joint Venture. The
Company believes that this obligation to negotiate in good faith for a patent
cross-license was effectively triggered in connection with the withdrawal of the
Company from the Joint Venture on May 11, 1999 pursuant to the Withdrawal
Agreement.
CROSS-LICENSED PATENTS. Subject to the terms of the Cross-License
Agreement, each of ELA Medical and the Company will grant to the other and its
affiliates a non-exclusive, fully paid-up, royalty-free and perpetual, worldwide
license to any and all patents and pending patent applications relating to
cardiac stimulation devices owned by such party (the "Cross-Licensed Patents"),
to make, have made, use, sell and have sold cardiac stimulation devices,
including components thereof. Because the ELA Transactions will
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not have been consummated in the event that the Company enters into the
Cross-License Agreement, the Company will have retained ownership of the two
patents related to the Flat Capacitors and the Leads that were to have been
transferred to ELA Medical pursuant to the One-Way License Agreement.
Consequently, the definition of the Cross-Licensed Patents will include a
license, rather than sale, of these two Assigned Patents, in addition to a
license to the remaining number of the approximately two hundred fifty
(250) patents and patent applications owned by the Company.
CROSS-SUBLICENSABLE PATENTS. In addition to the Cross-Licensed Patents,
each of ELA Medical, the Company and their affiliates will agree to grant to the
others a non-exclusive license or sublicense, as the case may be, on the most
favorable terms and conditions permissible under all cardiac stimulation device
patents or patent applications, which are the subject of licenses or assignments
or other agreements with third parties and, which licenses or agreements
(i) convey rights to ELA Medical, the Company, or their affiliates, the right to
grant sublicenses or licenses to make, use, sell or supply cardiac stimulation
devices or components; and (ii) that, in order to maintain such a license,
require some payment from the Company, ELA Medical or their affiliates,
licensees, sublicensees or grantees to such third parties (the
"Cross-Sublicensable Patents").
CONDITIONS, LIMITATIONS AND UNDERSTANDINGS. The licenses granted under the
Cross-License Agreement are subject to certain express conditions and
limitations, including the following: (a) each party is to have the right to
control the maintenance, abandonment, enforcement, extension and licensing of
its own Cross-Licensed Patents; (b) each party to the Cross-License Agreement
will have the right to enforce its Cross-Licensed Patents against all persons
and organizations, other than the other party or its affiliates; (c) the
licenses granted by the Cross-License Agreement do not extend to any technical
proprietary design, manufacture, marketing, and/or processing information,
designs, drawings, specifications or other documents pertinent to the use of the
Cross-Licensed Patents, or any trademarks or trade names of that party; and
(d) the license and sublicenses under the Cross-Sublicensable Patents may only
be granted to the extent that the granting party has the right to grant such a
license or sublicense.
SATISFACTION OF OBLIGATIONS AND RELEASE. The Company and Sanofi-Synthelabo
agree that execution of the Cross-License Agreement and granting of the licenses
described therein satisfies the cross-license obligation contained in
Section 5.3 of the Investment Agreement. Furthermore, ELA Medical and the
Company will agree to release and forever discharge the other party and its
affiliates and customers from any and all claims and obligations of any nature
whatsoever, arising from any claim of infringement relating to the
Cross-Licensed Patents prior to the date of the Cross-License Agreement.
REPRESENTATIONS AND WARRANTIES. The Cross-License Agreement contains
various representations and warranties of the Company and ELA Medical, relating
to the following matters: (a) title to the Cross-Licensed Patents; (b) that no
Cross-Licensed Patent will be sold or otherwise transferred without written
notice to the parties and making such transfer expressly subject to the license
granted under the Cross-License Agreement; (c) the absence of any other
agreements or commitments with third parties that would impair or interfere with
the Cross-License Agreement; (d) the absence of litigation, claims or actions
with respect to the Cross-Licensed Patents or the rights granted under the
Cross-License Agreement; (e) the power and authority of the parties to execute
and perform the Cross-License Agreement.
LIMITATIONS. The representations, warranties and agreements contained in
the Cross-License Agreement are limited in that nothing in the Cross-License
Agreement will constitute (a) a warranty or representation by ELA Medical or the
Company as to the validity or scope of any Cross-Licensed Patents or
Cross-Sublicensable Patents; (b) a warranty or representation that anything
made, used, sold or otherwise disposed of under any license granted in the
Cross-License Agreement is or will be free from infringement of patents of third
parties; (c) an obligation to bring or prosecute actions or suits against third
parties for patent infringement; or (d) a representation, warranty or extension
of warranties of any kind, express or implied, or an assumption of
responsibility by either party with respect to the use, sale or other
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disposition by the other party, its affiliates or users of cardiac stimulation
devices embodying one or more claims of the Cross-Licensed Patents.
TERM. The Cross-License Agreement is to take effect as of its date and will
continue indefinitely. The licenses granted in accordance with the Cross-License
Agreement are to continue during the life of each Cross-Licensed Patent and are
not revocable. The loss of any rights of the Cross-Licensed Patents by either
party through declaration of invalidity or otherwise, may not be cause to
terminate the Cross-License Agreement or the licenses granted thereunder with
respect to all other Cross-Licensed Patents.
TRANSFER AND ASSIGNMENT. The Cross-License Agreement may be freely assigned
or transferred by either ELA Medical, the Company or their affiliates, except to
Guidant, Medtronic, St. Jude or Biotronik GmbH, or any of their respective
affiliates, successors or assigns.
PROPOSAL 3 BACKGROUND OF THE MEDTRONIC TRANSACTIONS
As part of its efforts to contact third parties during January and February
of 1999, Raymond James contacted Michael Ellwein, Vice President and Chief
Development Officer for Medtronic, to discuss a possible acquisition of the
Company. On February 23, 1999, Company management delivered a confidential
presentation to representatives of Medtronic at the offices of Faegre & Benson
regarding the strengths of the Company. On March 17, 1999, Medtronic advised
Raymond James that it was not interested in acquiring the Company, but that it
would be interested in discussing the potential acquisition of certain assets of
the Company. Discussions between Raymond James and representatives of Medtronic
continued in March with the focus being on a possible license of certain
intellectual property rights from the Company.
On April 6, 1999, at a meeting of the Board of Directors, Mr. Hickey
presented the status of discussions with Medtronic. Although Company management
had been aware of the potential infringement of certain of the Company's patents
by Medtronic's manufacture, use and sale of cardiac stimulation devices, the
Company had refrained from asserting these claims during the pendency of the
CPI/Guidant lawsuit. Consistent with management's strategy of pursuing patent
infringers one-at-a-time, the Board of Directors authorized Company management
to commence negotiations with Medtronic relating to a claim by the Company that
Medtronic's manufacture, use and sale of cardiac stimulation devices infringed
one or more of the Company's patents. In May 1999, the Company retained
Morrison & Foerster LLP ("Morrison & Foerster"), counsel for the Company in
connection with the CPI/Guidant lawsuit, for the purpose of negotiating a
settlement and license agreement with Medtronic.
On May 13, 1999, Morrison & Foerster met with representatives of Medtronic
in Minneapolis to continue the negotiations of the terms under which Medtronic
would receive a license to all of the patents and patent applications of the
Company relating to cardiac stimulation devices. In these negotiations,
Medtronic contended that it already had a license to the Company's key patents
as a result of a 1992 license agreement (the "Medtronic-Siemens Agreement")
between Medtronic and Siemens and a 1993 license agreement between the Company
and Siemens-Pacesetter. Medtronic asserted that its license claim was supported
by the decision of an arbitrator in a binding arbitration that took place in
1996 between Medtronic and St. Jude-Pacesetter in which the arbitrator decided
that "Pacesetter was empowered by Angeion to grant to Medtronic a sublicense of
the Exclusive Angeion Defibrillator Patents without successfully obtaining
either royalty, cross-licenses or other consideration from Medtronic." The
arbitrator further held that Pacesetter was required by the Medtronic-Siemens
Agreement to grant such sublicense to Medtronic on a royalty-free basis. As a
result, the arbitrator determined that Medtronic had a non-exclusive,
irrevocable, fully paid-up and worldwide sublicense to certain of the Company's
patents being offered for license to Medtronic. The Company was not a party to
the arbitration agreement between Medtronic and St. Jude-Pacesetter, and did not
attempt to intervene in or participate as a party to the arbitration. Upon
becoming aware of the arbitrator's decision in November, 1996, the Company
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promptly advised Medtronic that the Company disputed the results of the
arbitrator's decision and did not consider itself bound as a non-party to the
arbitration by that decision.
In response to Medtronic's claim during negotiations in March and April of
1999 that Medtronic had a sublicense to key patents of the Company, the Company
reasserted the position that the Company was not bound by the arbitrator's
decision in the arbitration between Medtronic and St. Jude-Pacesetter, and that,
in any event, the arbitrator's decision was erroneous. In addition, the Company
contended that Medtronic had no sublicense because a previous agreement between
Medtronic and Pacesetter was rescinded in 1996. During these negotiations,
Medtronic also contended that its cardiac stimulation devices did not infringe
the patents of the Company and that the patents of the Company were invalid and
unenforceable. The Company disputed these contentions.
The Company indicated to Medtronic by letter from Morrison & Foerster dated
May 28, 1999 that it would claim damages from losses of royalties in connection
with use of certain of the Company's intellectual property of at least
$200 million. This amount was based on a 12% royalty rate applied to an
estimated present day dollar value of Medtronic's total potential infringing
sales over the life of the Company's patents. Although the Company had a
reasonable basis to assert such a royalty rate as part of an initial offer in
the context of settlement discussion, the Company was aware that royalty rates
in the ICD marketplace were typically less than one-quarter of this royalty
rate. In addition, this amount did not reflect any discount for the likelihood
of success of the Company's claims, the existence of certain counterclaims by
Medtronic that Medtronic already possessed a license to the Company's patents,
or the fact that litigation had not even begun against Medtronic and that
significant costs and delays would be incurred in prosecuting any such
litigation and the fact that any award, if granted, might take years to collect.
As such, any meaningful interpretation of this initial settlement offer must be
evaluated in the context of intellectual property litigation in the medical
device industry in general and the ICD marketplace in particular, and needs to
be weighed against the potential success of the counterclaims by Medtronic for a
license to the Company's patents, as well as the likelihood that the Company
would ultimately be successful in enforcing its patents and upholding the
validity of those patents.
On June 2, 1999, at a meeting of the Board of Directors, Mr. Hickey
discussed the status of the negotiations with Medtronic and the ramifications of
the claims made by both sides on the value of any potential settlement and
license agreement. Telephonic negotiations continued through June and July of
1999 between representatives of the Company, Morrison & Foerster and Medtronic
regarding the specific terms of a settlement and license agreement. On July 22,
1999, Medtronic expressed an interest in acquiring, as part of a proposed
settlement between the Company and Medtronic, substantially all of the
intellectual property rights of the Company relating to cardiac stimulation
devices.
At the meeting of the Board of Directors on July 23, 1999, Mr. Hickey
updated the Board of Directors on the status of the negotiations and on the
request by Medtronic to acquire substantially all of the intellectual property
assets of the Company relating to cardiac stimulation devices for $9 million.
After a discussion of various options, the Board concluded that a sale of such
assets of the Company for $9 million was not in the best interests of the
Company or its Shareholders. Raymond James was present at this meeting and the
Board of Directors, together with the participation of Raymond James, held a
discussion of the fairness and adequacy of the various terms of a settlement
that included a grant of a non-exclusive license to Medtronic, including a
discussion of the various claims made by both sides and the ramifications of
various options given the present situation of the Company. The Board of
Directors discussed the fact that if a settlement was not reached with
Medtronic, the Company would have to incur both the costs and risk of patent
infringement litigation at a time when the focus and the financial resources of
the Company might be better directed in areas other than the cardiac stimulation
device business. The Board of Directors also discussed the differences between a
settlement and non-exclusive license agreement with Medtronic and the terms and
circumstances surrounding the settlement of patent infringement litigation
against CPI/Guidant, including the fact that the CPI/Guidant lawsuit had been
ongoing for nearly three years prior to settlement and that CPI/Guidant had no
similar claim to a license to key patents of the
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Company as described above. After consideration of these matters, the Board of
Directors (i) authorized Mr. Hickey to negotiate the terms of a settlement and
non-exclusive license agreement with Medtronic, (ii) voted that, subject to
receipt of a fairness opinion from Raymond James, such a settlement and non-
exclusive license agreement with Medtronic was fair to and in the best interests
of the Shareholders, and (iii) approved such a settlement and non-exclusive
license agreement with Medtronic.
In August, 1999, representatives of the Company and Medtronic discussed
details of a proposed settlement and non-exclusive license agreement. As part of
the negotiations, the Company offered to sell certain unfiled patent disclosures
of the Company relating to cardiac stimulation devices to Medtronic, and Company
management determined that such a sale would be in the best interests of the
Company. The details of a proposed settlement, license and asset purchase
agreement were negotiated by Morrison & Foerster and Mr. Magnuson for the
Company, and representatives of Medtronic. On August 11, 1999, representatives
of the Company and Medtronic reached a tentative agreement on the terms of such
a settlement, license and asset purchase agreement, subject to finalization of
the documentation for the agreement and approval by certain senior management of
Medtronic. Raymond James reviewed the term sheet and a draft of the tentative
agreement dated August 18, 1999 (which draft was substantially similar to the
Medtronic Agreement), and presented to the Board of Directors by facsimile on
September 14, 1999 its written opinion that the terms of the deal with Medtronic
were fair to the Company. See "APPROVAL OF SALE AND TRANSFER OF ASSETS--Opinion
of Raymond James Regarding the Medtronic Transactions". Except for the fairness
opinion of Raymond James with respect to the Medtronic Agreement, no other
written material was provided to the Board of Directors by Raymond James
regarding the Medtronic Transactions. While the Board of Directors had been
considering potential dispute and litigation positions regarding Medtronic's use
and claimed rights with respect to certain intellectual property rights since
1992 and had, as a result, intimate knowledge regarding the substantive issues
surrounding such potential disputes and claims, and despite that fact that the
Medtronic Agreement represents, in significant part, a resolution of all
disputes and potential litigation regarding such rights, there exists the
potential for the Board of Directors to have misinterpreted or misunderstood
information relayed or confirmed orally or information not addresssed in detail
in the fairness opinion of Raymond James with respect to the Medtronic
Transactions. However, given the Board of Directors' long industry and company
knowledge and experience, they felt the potential for misunderstanding or
misinterpretation was unlikely. Nonetheless, Shareholders are urged to read in
its entirety the opinion of Raymond James attached as Annex G to this Proxy
Statement.
Final documentation for the Medtronic Agreement was completed the week of
September 6, 1999. Medtronic and the Company each executed the Medtronic
Agreement on the evening of September 16, 1999, and the Company issued a press
release publicly announcing the agreement the next day.
REASONS FOR THE MEDTRONIC TRANSACTIONS; RECOMMENDATIONS OF THE BOARD OF
DIRECTORS
REASONS FOR THE MEDTRONIC TRANSACTIONS. Given the decisions of the Company
with respect to the ELA Transactions as described above, and given the interest
of Medtronic in acquiring certain intellectual property assets of the Company, a
settlement of any potential disputes between the Company and Medtronic that
increases the cash available to the Company would enhance the strategy of the
Company to build Shareholder value by refocusing its business and investing in a
profitable business that could benefit from the Company's tax loss carryforward.
Consistent with this strategy, Company management closely evaluated the strength
of its potential patent infringement claims against Medtronic, taking into
consideration, among other things, (i) the fact that Medtronic claimed a license
under prior agreements and pursuant to a determination by an arbitrator in
Medtronic's favor; (ii) Medtronic's other defenses including noninfringement and
invalidity; (iii) the significant cost and the length of time that would be
involved in litigating the Company's claims against Medtronic; and (iv) the
uncertainty of the outcome of such litigation. Although the settlement of the
litigation between the Company and CPI/Guidant served as an industry
acknowledgement of the overall strength of the Company's patents, Medtronic was
in a much different position from CPI/Guidant for all of these reasons, but
particularly because of Medtronic's claim
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to a license to certain key Company patents. Accordingly, Company management
recognized that any settlement with Medtronic would come only at a significant
discount to the value of the total settlement with CPI/Guidant. In order to
assist the Company in optimizing the value of any potential settlement with
Medtronic, the Company retained Morrison & Foerster, the same law firm that had
successfully prosecuted the lawsuit and negotiated the settlement with
CPI/Guidant, to assist the Company in negotiating with Medtronic.
As part of the negotiations, Medtronic expressed a firm interest in
acquiring the unfiled patent disclosures of the Company relating to cardiac
stimulation devices. Company management concluded that further expenditures in
an effort to obtain additional patents from its remaining unfiled patent
disclosures relating to cardiac stimulation devices would not be cost-effective,
that the value of its remaining unfiled patent disclosures would diminish
rapidly with time, and that the best course for obtaining value for these assets
was to include a sale of the unfiled patent disclosures as part of the Medtronic
Agreement.
If the Company is unable to consummate the Medtronic Agreement, it will be
left with the choice of whether to expend significant resources of the Company
to pursue litigation against Medtronic or to forego any potential recovery from
Medtronic for infringement of the Company's patents.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS. The Board of Directors believes
that the consummation of the transactions contemplated by the Medtronic
Agreement offers an excellent opportunity to build value for the Shareholders.
The Company's strategy is to maximize the value of its business, reduce, to the
extent feasible, the liabilities and potential liabilities of the Company
resulting from its ICD business and further reduce costs and pursue the
acquisition of another business with potential to drive value for both
Shareholders and Note Holders. The Medtronic Transactions fall within this
strategy because:
- The Board of Directors believes that the continued operation of the
Company's current ICD business may no longer be viable due to the large
amount of capital and capital-intensive resources needed in the ICD
business.
- The Company does not believe that it has a sufficient amount of cash to
adequately exploit new internal product development opportunities and
aggressively pursue marketing and distribution strategies required to
drive growth in the Company's ICD business. The Company faces the risk of
having its ICD products rendered obsolete due to the limited amount of
research and development funding available.
- As of September 30, 1999, the Company has accumulated net losses of
approximately $116,000,000 since its inception. The Board of Directors
does not foresee an end to these continued losses if the Company continues
in its current direction and businesses. Therefore, the Board of Directors
has decided that upon consummation of the Merger, the Company would focus
its efforts primarily on the markets served by and business operations of
Medical Graphics.
- The Board of Directors believes that consummation of the Medtronic
Transactions will enhance Shareholder value by (i) obtaining for the
Company an immediate cash payment for settlement of the claims of the
Company that Medtronic infringes the Company's patents related to cardiac
stimulation devices and for sale of the unfiled patent disclosures of the
Company related to cardiac stimulation devices without incurring the
uncertainties and expense of litigation, (ii) precluding any infringement
claims by Medtronic, and (iii) retaining ownership of the Company's
patents.
INFORMATION AND FACTORS CONSIDERED BY THE BOARD OF DIRECTORS. The Board of
Directors made its determination after careful consideration of, and based on, a
number of factors, including these material factors described below:
(a) all the reasons described above under "--Recommendations of the
Board of Directors";
(b) the financial presentation of Raymond James described under
"--Background of the Medtronic Transactions" and "--Opinion of Raymond James
Regarding the Medtronic Transactions",
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including the opinion of Raymond James delivered in writing, to the effect
that the Medtronic Transactions, taken as a whole, would be fair to the
Company from a financial point of view (a copy of the written opinion of
Raymond James dated September 14, 1999, setting forth the assumptions,
limitations and qualifications set forth in such opinion, is attached as
Annex G hereto); see "--Opinion of Raymond James Regarding the Medtronic
Transactions";
(c) information concerning the business, assets, capital structure,
financial performance and condition and prospects of the Company;
(d) current and historical market prices and trading information with
respect to Common Stock; and
(e) information concerning the Notes and the Company's obligations under
the Indenture and related documents.
In view of the wide variety of factors considered in connection with its
evaluation of the Medtronic Transactions and the complexity of these matters,
the Board of Directors did not find it practicable to and did not attempt to
quantify, rank or otherwise assign relative weights to these factors. The Board
of Directors conducted an overall analysis of the factors described above,
including thorough discussions with and questioning of the Company's management
and advisors, and although the Board of Directors did not undertake to make any
specific determination as to whether any particular factor (or any aspect of any
factor) was more or less favorable to the Board's ultimate determination as
compared to any other factor, the Board of Directors did determine that (i)
information concerning the business, assets, capital structure, financial
performance and condition and prospects of the Company weighed strongly in favor
of supporting a consummation of the Medtronic Agreement for reasons set forth in
"--Reasons for the Medtronic Transactions; Recommendations of the Board of
Directors--Reasons for the Medtronic Transactions", (ii) current and historical
market prices and trading information with respect to the Common Stock weighed
in favor of supporting approval of the Medtronic Agreement because recent
published prices for shares of Common Stock have been significantly below what
shares of Common Stock traded at historically and would therefore, in the
expectation of the Board of Directors, be favorably effected by the receipt of
an increase in the available cash assets of the Company, and (iii) information
concerning the Notes and the Company's obligations under the Indenture weighed
against support of any transactions that could result in a characterization as a
sale, assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the property or assets of the Company for purposes of the
Indenture because such a characterization could create the potential for the
Company's repayment obligations with respect to the Notes to be accelerated,
however, the Board of Directors determined that conditioning consummation of the
Transactions upon consent of the Note Holders to supplement the Indenture
mitigated this potentially adverse consequence. Further, in considering the
factors described above, individual members of the Board of Directors may have
given different weight to different factors. The Board of Directors considered
all these factors as a whole, and believed that the combination of these factors
supported its decision to approve the Medtronic Transactions. The Board of
Directors determined, after consultation with Company management, that such
information had been considered and reflected in the consideration recited in
the Medtronic Agreement.
OPINION OF RAYMOND JAMES REGARDING THE MEDTRONIC TRANSACTIONS
Pursuant to an engagement letter dated December 1, 1998, the Company
retained Raymond James in connection with its consideration of strategic
alternatives, including the sale or licensing of certain assets, because of
Raymond James' qualifications, expertise and reputation, as well as its prior
investment banking relationship with the Company. In connection with such
engagement, the Company requested Raymond James to render its opinion as to the
fairness to the Company, from a financial point of view, of the consideration to
be received in connection with the Medtronic Transactions. Raymond James is a
nationally recognized investment banking firm, and as part of its investment
banking business, Raymond
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James is regularly engaged in the valuation of businesses and their securities
and assets in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
THE FULL TEXT OF THE WRITTEN OPINION OF RAYMOND JAMES DATED SEPTEMBER 14,
1999, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE
SCOPE OF REVIEWS UNDERTAKEN, IS ATTACHED AS ANNEX G TO THIS DOCUMENT.
SHAREHOLDERS AND NOTE HOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY.
RAYMOND JAMES' OPINION, WHICH IS ADDRESSED TO THE BOARD OF DIRECTORS, IS
DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION RECEIVED BY THE COMPANY FROM
A FINANCIAL POINT OF VIEW AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER OR ANY NOTE HOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE
ANNUAL MEETING OR WHETHER ANY NOTE HOLDER SHOULD CONSENT AND DOES NOT ADDRESS
ANY OTHER ASPECT OF THE PROPOSED AGREEMENTS OR ANY RELATED AGREEMENTS. RAYMOND
JAMES HAS CONSENTED TO THE SUMMARIZATION OF ITS OPINION IN, AND ATTACHMENT OF
ITS OPINION TO, THIS DOCUMENT. THE SUMMARY OF THE OPINION OF RAYMOND JAMES SET
FORTH IN THIS DOCUMENT IS A SUMMARY OF THE PURPOSE AND EFFECT OF ALL MATERIAL
TERMS CONTAINED IN THE FULL TEXT OF SUCH OPINION.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Raymond
James believes that its analyses and reviews must be considered as a whole and
that selecting portions of its analyses or reviews, without considering the
analyses and reviews taken as a whole, would create an incomplete view of the
process underlying the analyses and reviews set forth in its opinion. In
addition, Raymond James considered the results of all such analyses and reviews
and did not assign relative weights to any of the analyses and reviews. As such,
the ranges of valuations resulting from any particular analysis or review
described below should not be taken to be Raymond James' view of the actual
value of the assets sold or licensed as part of the Medtronic Transactions.
In performing its analyses and reviews, Raymond James made numerous
assumptions with respect to industry performance, general business, economic and
regulatory conditions and other matters, many of which are beyond the control of
the Company. The analyses and reviews performed by Raymond James are not
necessarily indicative of actual values, trading values or actual future results
which might be achieved, all of which may be significantly more or less
favorable than suggested by such analyses and reviews. Such analyses and reviews
were prepared solely as part of Raymond James' analysis and review of the
fairness of the consideration received by the Company in connection with the
Medtronic Transactions from a financial point of view and were provided to the
Board of Directors. The analyses and reviews do not purport to be appraisals or
to reflect the prices or fees at which assets described in the Medtronic
Transactions might be sold or licensed. In addition, as described below, the
opinion of Raymond James is one of many factors taken into consideration by the
Board of Directors in making its determination to approve the Medtronic
Transactions. Consequently, the analyses and reviews described below should not
be viewed as determinative of the Board of Directors' opinion with respect to
the value of the assets and licenses described in the Medtronic Transactions, or
of whether the Board of Directors would have been willing to agree to a
different level of consideration. The Company placed no limits on the scope of
the analysis and reviews performed, or opinion expressed, by Raymond James.
In connection with rendering its opinion with respect to the Medtronic
Transactions, Raymond James has, among other things:
- reviewed a draft of the Settlement, License and Asset Purchase Agreement
dated August 18, 1999 (the form of which was substantially similar to the
definitive agreement);
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- reviewed the Company's audited fiscal year-end and quarterly financial
statements for the last two years;
- reviewed the Company's projected financial statements as prepared by the
Company's management;
- reviewed the Company's pro forma balance sheet after consummation of the
Medtronic Transactions as prepared by the Company's management, and;
- conducted such other financial analyses, studies, and investigations, and
considered such other information as Raymond James deemed necessary or
appropriate.
In connection with its review, Raymond James has not assumed any
responsibility for independent verification for any of the information reviewed
by Raymond James for the purpose of its opinion with respect to the Medtronic
Transactions and has relied on the information reviewed being complete and
accurate in all material respects. In addition, Raymond James has not received
any independent evaluation or appraisal of any of the assets or liabilities
(contingent or otherwise) related to the Medtronic Transactions, nor has Raymond
James been furnished with any such evaluation or appraisal. With respect to the
financial forecasts, estimates, projections, pro forma effects, and other
information referred to herein, Raymond James has assumed, at the direction of
the Company, that they have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of the
Company, and Raymond James has relied upon the Company to advise Raymond James
promptly if any such information previously provided to or discussed with
Raymond James became inaccurate or was required to be updated during the period
of the review.
PRESENTATION BY RAYMOND JAMES. The following summarizes the material
financial analyses and reviews which were considered by Raymond James in
rendering its opinion with respect to the Medtronic Transactions to the Board of
Directors. Raymond James delivered its opinion regarding the Medtronic
Transactions via facsimile on September 14, 1999. This summary is not a complete
description of the analyses and reviews underlying the opinion of Raymond James
with respect to the Medtronic Transactions or of information presented at
meetings between Raymond James and representatives of the Company held in
advance of the consideration by the Board of Directors of the Medtronic
Transactions.
Raymond James' analyses and reviews take into account the value of a
non-exclusive license to the Company's intellectual property portfolio. The
nature of virtually any non-exclusive license related to the specific
intellectual property assets of a particular company is such that directly
comparable transactions are not available for the purpose of establishing a
market value using traditional means. These challenges are often compounded by a
limited universe of potential buyers or licensees with various market shares
within their market segments, as is the case for the Company's intellectual
property portfolio. As such, Raymond James has employed, among others, the
analyses and reviews described below for the purpose of rendering its opinion as
to the fairness of the Medtronic Transactions to the Company from a financial
point of view.
MEDTRONIC AGREEMENT. To determine the value of the one-way license to be
granted to Medtronic by the Company in connection with consummation of the
Medtronic Transactions, Raymond James considered that the Company has recently
made efforts to refocus its business, explore strategic alternatives, including
the potential license or sale of certain of its assets, and substantially reduce
the infrastructure to support its ICD business. As such, the Company's
intellectual property portfolio has more value to the Company as it relates to
the sale or licensing of such intellectual property to others. Therefore, the
value the Company receives from the license, sale or other disposition of its
intellectual property is beneficial to the Company, particularly given that the
value of much of its intellectual property diminishes as patents age and expire.
Other factors considered as part of Raymond James' analysis include (i) the
value of a non-exclusive license agreement by using market share and financial
data on comparable transactions involving Guidant and ELA Medical; (ii) the
license to be granted in connection with consummation of the Medtronic
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Transactions is non-exclusive; (iii) the Company's marketing effort of its
intellectual property portfolio to ICD industry and non-industry companies; and
(iv) the general condition and strategic direction of the Company in the current
marketplace. The analysis performed by Raymond James regarding the value of a
non-exclusive license agreement described in clause (i) related to the utility
that Medtronic might extract from application of the non-exclusive license
agreement and considered Medtronic's share of the ICD market relative to the
market share held by Guidant and ELA Medical at the time of those transactions
or negotiations. Raymond James reasoned that a company with greater market share
should, given that it can extract greater value from applying a non-exclusive
license to its higher volume of units sold than can a company with a smaller
market share, be willing to pay more for access to intellectual property assets
than should a company with smaller market share. Raymond James' analysis did not
rely exclusively on market share; other pertinent factors which did not allow
for a direct comparison across all of the transactions mentioned in this proxy
statement/consent solicitation were also considered. For example, Raymond James
reasoned that Guidant should have been willing to pay disproportionately more
for access to substantially the same intellectual property given that trial of a
suit brought by the Company against Guidant was pending and that there was some
imminent chance Guidant would have to pay damages or even face a potential
injunction in the immediate future. Raymond James did not place any specific
value on the unfiled patent disclosures to be sold to Medtronic and considers
them, after discussions with members of management of the Company, to be of
relatively minimal value to the Company or a potential buyer.
FAIRNESS OPINION REGARDING THE MEDTRONIC TRANSACTIONS. On September 14,
1999, Raymond James delivered to the Company its written opinion that, as of
such date and based upon and subject to various qualifications and assumptions
described with respect to its opinion, the consideration received by the Company
in connection with the Medtronic Transactions was fair to the Company from a
financial point of view.
Raymond James is actively involved in the investment banking business and
regularly undertakes the valuation of investment securities and assets in
connection with public offerings, private placements, business combinations and
mergers. In the past, Raymond James has performed investment banking services
for the Company, including a public offering, financial advisory work, and
registered direct offerings, and has received customary fees for such services.
Raymond James has acted as financial advisor to the Board of Directors in
connection with the Medtronic Transactions and will receive a fee upon the
consummation thereof, which fee is contingent upon the value of the related
consideration. The fee payable to Raymond James in connection with its role as
advisor on the Medtronic Transactions is currently estimated to be approximately
$82,500. The Company has also agreed to reimburse Raymond James for reasonable
travel and other out-of-pocket expenses incurred by Raymond James in performing
its services, including the fees of its legal counsel and to indemnify Raymond
James and related persons against certain liabilities, including liabilities
arising under the federal securities laws and arising out of Raymond James'
engagement. In the ordinary course of business, Raymond James may trade in the
securities of the Company for its own account and for the accounts of Raymond
James' customers and, accordingly, may at any time hold a long or short position
in such securities.
DESCRIPTION OF THE MEDTRONIC AGREEMENT
The description of the Medtronic Agreement set forth below describes the
purpose and effect of all principal terms of the Medtronic Agreement, a copy of
which is attached as Annex F to this Proxy Statement/Consent Solicitation and is
incorporated herein by reference.
GENERAL. The Company and Medtronic have entered into the Medtronic
Agreement pursuant to which Medtronic will be granted a license to certain
patents and pending patent applications that represent all of the patents and
patent applications relating to cardiac stimulation devices owned by the Company
(the "Medtronic Licensed Patents"), and a sublicense or option to certain
sublicensable patent applications that represent all of the patents and patent
applications of third parties relating to cardiac stimulation devices which are
controlled by the Company (the "Medtronic Sublicensable Patents"), and will
acquire
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certain unfiled patent disclosures that represent all of the unfiled patent
disclosures related to cardiac stimulation devices owned by the Company and not
suppressed, abandoned or concealed (the "Unfiled Disclosures"), in exchange for
payment of $9.0 million.
EFFECTIVE DATE. The Medtronic Agreement is effective as of September 16,
1999 upon approval of the Shareholders and consent of the Note Holders (the
"Medtronic Effective Date").
MEDTRONIC LICENSED PATENTS. Subject to the terms of the Medtronic
Agreement, the Company will grant Medtronic and its affiliates a nonexclusive,
royalty-free, fully paid-up, transferable, world-wide license to the Medtronic
Licensed Patents to make, have made, use, sell and have sold cardiac stimulation
devices, including components thereof.
MEDTRONIC SUBLICENSABLE PATENTS. In addition to the Medtronic Licensed
Patents, the Company will agree to grant to Medtronic and its affiliates a
non-exclusive sublicense under any Medtronic Sublicensable Patents on such terms
and conditions specified for sublicensees.
CONDITIONS, LIMITATIONS AND UNDERSTANDINGS. The licenses granted under the
Medtronic Agreement are subject to certain express conditions and limitations,
including the following: (a) the Company will have the right to control the
maintenance, abandonment, enforcement, extension and licensing of the Medtronic
Licensed Patents; (b) the Company shall have the right to enforce the Medtronic
Licensed Patents against all persons and organizations, other than Medtronic or
its affiliates; (c) the licenses granted under the Medtronic Agreement will not
extend to any technical property design, manufacture, marketing and/or
processing information, designs, drawings, specifications or other documents
pertinent to the use of the Medtronic Licensed Patents, or to any trademarks or
tradenames of the Company; and (d) any sublicenses under the Medtronic
Sublicensable Patents will only be granted to the extent the Company has the
right to grant such sublicenses, and only on such terms permitted by the
agreement for such Medtronic Sublicensable Patent.
MUTUAL RELEASES. The Company and Medtronic each agree to release and
discharge the other and its officers, employees, agents and attorneys from any
and all actions and damages of any nature whatsoever arising out of or relating
to claims that cardiac stimulation devices made, used or sold infringe patents
of the other prior to the Medtronic Effective Date.
UNFILED DISCLOSURES. Subject to the terms of the Medtronic Agreement, the
Company will sell and assign to Medtronic all of the Company's interest, right
and title to the Unfiled Disclosures. For a period of two years after the
Effective Date, the Company will assist Medtronic to execute documents to
effectuate such assignment and shall reasonably cooperate with Medtronic, at
Medtronic's written request and expense, in reasonable efforts to secure the
signatures and assistance of such employees and consultants of the Company in
perfecting the filing and assignment of any patent applications based upon the
Unfiled Disclosures. Medtronic acknowledges that any patent applications may
require such signatures and the Company makes no warranty that such efforts with
its former employees or consultants shall be successful. Medtronic further
agrees to indemnify and hold the Company harmless from any and all loss or
liability for any claims or actions arising from any injury or alleged injury as
a result of any thing or method that is made, used, sold or otherwise disposed
of by Medtronic and in any way embodies any aspect of the subject matter of the
Unfiled Disclosures.
LIMITATIONS. Medtronic accepts the purchase of the Unfiled Disclosures on
an "as is" basis and the Company makes no warranties or representations as to
the patentability, validity or enforceability of any patents issuing from patent
applications filed from the Unfiled Disclosures, or as to the commercial
viability, medical efficacy, biocompatibility or any other aspect or design or
performance of any thing or method that is made, used, sold or otherwise
disposed of by Medtronic and in any way embodies any aspect of the subject
matter of the Unfiled Disclosures. Nothing in the Medtronic Agreement shall be
construed as: (a) a warranty or representation by the Company as to the validity
or scope of any Medtronic Licensed
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Patent or Medtronic Sublicensable Patent; (b) a warranty or representation that
anything made, used, sold or otherwise disposed of under any license granted
under the Medtronic Agreement is or will be free from infringement of patents of
third parties; (c) a warranty or representation as to the commercial viability,
medical efficacy, biocompatibility or any other aspect or design or performance
of any thing or method that is made, used, sold or otherwise disposed of by
Medtronic under any license granted under the Medtronic Agreement; (d) an
obligation to bring or prosecute actions or suits against third parties for
patent infringement; or (e) a representation, warranty or extension of
warranties of any kind, express or implied, or an assumption of responsibility
of any party with respect to the use, sale or other disposition by Medtronic or
its agents, representatives, distributors or users of products incorporating or
made by use of inventions licensed under the Medtronic Agreement.
TERM. The Medtronic Agreement is only effective on the Medtronic Effective
Date and the licenses granted therein shall continue during the life of each
Medtronic Licensed Patent and are not revocable. The loss of any right of the
Medtronic Licensed Patents by the Company as a result of declaration of
invalidity or otherwise, will not be cause to terminate the Medtronic Agreement
or the licenses granted thereunder with respect to all other Medtronic License
Patents.
TRANSFER AND ASSIGNMENT. The Medtronic Agreement may be freely transferred
by Medtronic to any party not engaged in the cardiac stimulation device business
at the time of such transfer or assignment.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
The Company is not aware of any officers, directors or key employees that
may be deemed to have interests in the Transactions that are different from, or
in addition to, the interests of the Shareholders generally. See "ELECTION OF
DIRECTORS--Change In Control Agreements".
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has determined that the terms and conditions of the
Transactions are fair from a financial point of view to, and in the best
interests of, the Shareholders.
THE BOARD OF DIRECTORS HAS APPROVED EACH OF THE AGREEMENTS AND
(A) RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE PROPOSAL TO APPROVE THE
ELA AGREEMENT, (B) RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF THE PROPOSAL TO
APPROVE THE MEDTRONIC AGREEMENT, AND (C) REQUESTS THAT NOTE HOLDERS CONSENT TO
EACH OF THE PROPOSALS TO SUPPLEMENT THE INDENTURE IN CONNECTION WITH THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENTS.
REQUIRED VOTE OF THE SHAREHOLDERS; REQUIRED CONSENT OF THE NOTE HOLDERS
REQUIRED VOTE OF THE SHAREHOLDERS. A corporation organized and existing
under the laws of the State of Minnesota is required pursuant to
Section 302A.661, Subd. 2 of the MBCA to submit a transaction involving the
"sale, lease, transfer, or other disposition of all or substantially all of the
property and assets of the corporation" for approval at a regular or special
meeting of Shareholders. Arguably, the transactions contemplated by the
Agreements, taken together, may constitute a sale of substantially all of the
assets of the Company under the MBCA and thus must be submitted for approval by
its Shareholders in compliance with the MBCA. Section 3.5 of the Company's
Articles of Incorporation further requires the affirmative vote of the holders
of two-thirds of the voting power of the shares entitled to vote in connection
with a transfer of assets of the Company required to be submitted to the vote of
Shareholders under the MBCA. Due to regulations promulgated by the Securities
and Exchange Commission, the Company is required to present approval of each of
the Agreements to the Shareholders as separate proposals in lieu of requesting
approval of a single proposal to approve transactions which, taken together, may
constitute the sale of substantially all of the property and assets of the
Company. As a result of the foregoing, the
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approval of each of the Agreements requires the affirmative vote of two-thirds
of the holders of the outstanding shares of Common Stock as of the Shareholder
Record Date. It is expected that all 160,065 shares of Common Stock beneficially
owned by the current directors and executive officers of the Company as of the
Shareholder Record Date and all of the 745,996 shares of Common Stock
beneficially owned by Sanofi-Synthelabo (together with the shares beneficially
owned by the current directors and executive officers of the Company, an
aggregate of 22.6% of the total number of outstanding shares of Common Stock as
of the Shareholder Record Date) will be voted in favor of approving the ELA
Agreement and all 160,065 shares of Common Stock beneficially owned by the
current directors and executive officers of the Company as of the Shareholder
Record Date (an aggregate of 3.9% of the total number of outstanding shares of
Common Stock as of the Shareholder Record Date) will be voted in favor of the
proposal to approve the Medtronic Agreement.
The Board of Directors considered requiring an affirmative vote of
two-thirds of unaffiliated Shareholders to approve the proposal to approve the
ELA Agreement, but concluded that such a vote was not required under the MBCA or
the Articles of Incorporation. The Board of Directors also concluded that it
would not seek such a vote of the unaffiliated Shareholders based on a number of
factors, including: (i) that the ELA Transactions had been negotiated at
arms-length by the Company, (ii) that the major shareholder of the Company does
not have representation on the Board of Directors and is not otherwise involved
in the management of the Company, and (iii) that the Company's Articles of
Incorporation already requires a two-thirds vote of the outstanding shares. Even
with the anticipated affirmative vote on proposal 2 by both Sanofi-Synthelabo
and the current officers and directors of the Company (comprising, in the
aggregate, 22.6% of the outstanding shares of Common Stock as of the Shareholder
Record Date), the Company will still need, as a result of the two-thirds vote
requirement, the affirmative vote of in excess of 50% of the remaining shares
held by "unaffiliated" Shareholders in order for proposal 2 to be approved.
Based on these factors, the Board of Directors did not feel it necessary to
structure the ELA Transactions to require approval of two-thirds of unaffiliated
Shareholders.
REQUIRED CONSENT OF THE NOTE HOLDERS. The Board of Directors has determined
that it is not willing to consummate the Transactions if such actions result in
any acceleration of or penalties with respect to the Company's repayment
obligations under the Indenture. As a result, the Board of Directors is seeking
the Note Holders' consent to supplement the Indenture to provide that the
consummation of the transactions contemplated by the Agreements will not
constitute (i) a sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the property or assets of the Company
for purposes of the Company's obligations to comply with and observe all
covenants contained in the Indenture, or (ii) a conveyance, transfer or lease of
all or substantially all of the Company's assets for purposes of determining
whether a change of control has occurred within the meaning of the Indenture.
The granting of consent with respect to each proposal will not be effective
unless both proposals receive the consent of the Note Holders.
Note Holders are being asked to give their consent because (i) each of the
Agreements requires that Note Holders provide such consent, (ii) the
transactions contemplated by the Agreements will not be consummated without the
Company's receipt of such consent, and (iii) to avoid the prospect of Note
Holder or Trustee initiated litigation with respect to the potential of the
consummation of the Transactions to constitute an Event of Default or a
Designated Event. If a majority of Note Holders, by aggregate principal amount
of outstanding Notes, do not grant consent to supplement the Indenture pursuant
to the proposals, the Indenture will not be supplemented and the transactions
consummated by the Agreements will not be consummated. If the Transactions are
not consummated, the Note Holders will not receive any additional rights and
remedies that they are not already entitled to. If the Transactions are
consummated without the Indenture being supplemented as provided for in the
proposals, the Note Holders may have the right to (i) require the Company to
repurchase the Notes at a premium of 101% of the principal amount of the Notes
outstanding, together with interest (at November 21, 1999, this repurchase
amount aggregated $20,806,707) or (ii) receive accelerated repayment of all
amounts to become due to them in
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connection with the Notes. The Company does not currently intend to consummate
the Transactions in the event the Indenture is not supplemented as provided
herein.
Pursuant to Section 4.07 and 3.08(e) of the Indenture, the Company is
required to notify each Note Holder within 30 days following the occurrence of
certain "Designated Events", including the occurrence of a "Change of Control",
that each such Note Holder is entitled to require the Company to repurchase all
or any part of such holder's Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and liquidated
damages payable pursuant to any registration rights agreement, if any, relating
to the Notes, to the date of payment. "Change of Control" is defined in the
Indenture to mean any event where: (i) any "person" or "group" (as such terms
are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act) of shares representing more
than 50% of the combined voting power of the Company ("Voting Stock"), (ii) the
Company consolidates with or merges into any other corporation, or any other
person merges into the Company, and, in the case of any such transaction, the
outstanding Common Stock is reclassified into or exchanges for any other
property or security, unless the stockholders of the Company immediately before
such transaction own, directly or indirectly immediately following such
transaction, more than 50% of the combined voting power of the outstanding
voting securities of the corporation resulting from such transaction in
substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction, (iii) the Company conveys, transfers or
leases all or substantially all of its assets to any person (other than to one
or more wholly-owned Subsidiaries (as that term is defined in the Indenture) of
the Company) unless the stockholders of the Company immediately before such
transaction own, directly or indirectly, immediately following such transaction,
more than 50% of the combined voting power of the outstanding securities of the
acquiring entity in substantially the same proportion as their ownership of the
Voting Stock immediately before such transaction, or (iv) any time the
Continuing Directors do not constitute a majority of the Board of Directors (or,
if applicable, a successor corporation to the Company). "Continuing Directors"
means as of any date of determination, any member of the Board of Directors who
(i) was a member of such Board of Directors on April 14, 1998 or (ii) was
nominated for election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were members of such board at the
time of such nomination or election. While not clear as a matter of law,
consummation of the Transactions might qualify as a Change of Control insofar as
the Transactions may be characterized as a conveyance, transfer or lease within
clause (iii) of the definition of "Change of Control" set forth in the preceding
sentence.
Section 6.01 of the Indenture prohibits the Company from selling, assigning,
transferring, leasing, conveying or otherwise disposing of all or substantially
all of its properties or assets unless certain conditions are met, among which
are that the corporation to which such sale, assignment, transfer, lease,
conveyance or other disposition will have made assumes all of the obligations of
the Company under the Indenture, pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee under the Indenture. While not clear as a
matter of law, consummation of the transactions contemplated by the Agreement
might result in a disposition of substantially all of the properties or assets
of the Company to corporations that will not assume any obligations of the
Company under the Indenture, within the meaning of Section 6.01. A failure of
the Company to comply with Section 6.01 of the Indenture would result, following
notice from the Trustee and the passage of time, in the occurrence of an Event
of Default under Section 7.01 of the Indenture, whereafter the Trustee under the
Indenture would be entitled to accelerate the repayment obligations of the
Company with respect to the Notes and to pursue any available remedy to collect
the payment of principal or interest and liquidated damages, if any, on the
Notes or to enforce the performance of any provision of the Notes or the
Indenture.
Upon receipt of consent to both of the proposals by Note Holders holding a
majority by aggregate principal amount of Notes, the Company and the Trustee
will supplement the Indenture, (i) to provide that the consummation of the
transactions contemplated by the Agreements will not constitute a conveyance,
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transfer or lease of all or substantially all of the Company's assets for
purposes of determining whether a Change of Control has occurred under the
Indenture, and (ii) to provide that the consummation of the transactions
contemplated by the Agreements will not constitute a sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the
property or assets of the Company for purposes of the Company's obligations to
comply with and observe all covenants contained in the Indenture. By consenting
to the proposals, the Note Holders will be agreeing that consummation of the
transactions contemplated by the Agreements will not violate Section 6.01 of the
Indenture and the Note Holders will have no right to require the Company to
accelerate its repayment obligations to the Note Holders as a result of such
consummation. Consenting to the proposals will not affect the Company's
obligation to make scheduled payments of principal or interest when due with
respect to the Notes or the rights of Note Holders to receive such payments. The
affirmative consent of holders of a majority of the Notes outstanding, by
aggregate principal amount, on the Note Holder Record Date, to each of the
proposals, is required to supplement the Indenture. See "APPROVAL OF THE SALE
AND TRANSFER OF ASSETS--Description of the ELA Agreement--Conditions to the
Obligations of the Parties"; "--Description of the Medtronic Agreement"; and
"--Description of Notes".
LITIGATION AND RELATED MATTERS
The Company has received a Notice of Default and notice of an Event of
Default with respect to the Indenture and the Notes from U.S. Bank National
Association, the Trustee under the Indenture. By a letter dated September 3,
1999, the Trustee informed the Company that, based on information obtained by
the Trustee, the Trustee believed that a Designated Event had occurred under the
Indenture prior to the date of the ELA Agreement, thereby obligating the Company
to repurchase all outstanding Notes at a purchase price of 101% of their
outstanding principal amount (as of November 21, 1999, the repurchase amount
would be $20,806,707). Specifically, the Trustee alleges that the transactions
that resulted in a Designated Event are: (i) the agreement entered into by the
Company with Cordis Webster, Inc. in September 1998 pursuant to which the
Company assigned the rights to certain patents, technology, manufacturing and
distribution of its catheter ablation products, (ii) the restructuring announced
by the Company in January 1999, (iii) the settlement of litigation between the
Company and CPI/Guidant, (iv) the restructuring announced by the Company in
April 1999, and (v) the Withdrawal Agreement. See "--Background of the ELA
Transactions". By the same letter, the Trustee provided Note Holders with Notice
of Default and notice of an Event of Default with respect to the Indenture.
On September 24, 1999, the Trustee, on behalf of the Note Holders, filed a
complaint against the Company in District Court for the State of Minnesota,
Fourth Judicial District (the "Complaint"). The Complaint alleges that, among
other things, a Designated Event has occurred with respect to the Indenture and
the Company has failed to commence an offer to repurchase all outstanding Notes,
as required by the Indenture. The Complaint further alleges that the Company has
failed to observe and perform other covenants and agreements of the Indenture.
Accordingly, the Trustee seeks the following relief: a writ of mandamus to the
Company or alternatively a grant of equitable relief to compel the Company to
offer to buy the Notes in accordance with the terms of the Designated Event
procedure, to expedite all applicable dates or timeframes because of the
Company's delay in commencing the Designated Event procedure, and to refrain
from any actions, such as the Merger, which would dissipate cash resources below
a level sufficient to satisfy the Company's obligations to the Note Holders and
Trustee; a declaration that the Company is in default under the Indenture; a
finding that the Company is in breach of the Indenture; creation and imposition
of a constructive and express trust on the Company's assets equal to the amount
of the purchase price of the outstanding Notes, together with unpaid interest,
and $300,000 for reimbursement of the Trustee's anticipated costs and expenses;
damages; costs and expenses; and such other further relief as the court may deem
proper.
The Company disputes that a Default or a Designated Event existed prior to
the date of the ELA Agreement and disputes the occurrence of an Event of Default
under the Indenture. The Company
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intends to vigorously defend against the Complaint. In the event the Company is
unsuccessful and a constructive trust is imposed on the Company's assets equal
to the amount of the purchase price of the outstanding Notes, together with
unpaid interest, the Company would not have sufficient funds on hand to
consummate the Merger without obtaining additional sources of financing. The
Company does not currently have any commitments to provide sources of financing
in the event it is required to repurchase the Notes prior to consummation of the
Merger.
On December 1, 1999, the Company announced that it had received a Memorandum
and Order from Hennepin County District Court denying the Trustee's Motion made
pursuant to the Complaint to obtain a temporary injunction requiring the Company
to set aside approximately $23 million to repurchase all of the outstanding
Notes at a purchase price equal to 101% of the principal amount, plus accrued
and unpaid interest.
The Company does not intend to use the consent of Note Holders requested
hereunder as a defense in the actions brought by the Trustee under the
Complaint.
PLANS FOR THE COMPANY AFTER THE TRANSACTIONS
As a result of consummation of the ELA Transactions, the Company will reduce
its outstanding shares by 745,996 shares of Common Stock, representing 18.6% of
the shares outstanding as of the Shareholder Record Date. In addition,
Sanofi-Synthelabo will relinquish its rights to exercise warrants to purchase an
additional 1,897,156 shares of Common Stock at exercise prices ranging from $.10
to $36.70 per share. The consideration to be received by the Company in
connection with the consummation of the Medtronic Transactions consists of
$9.0 million in cash (of which the Company will net approximately
$8.5 million).
Significant assets of the Company that will be retained upon consummation of
the Transactions currently consist of continued ownership of that portion of its
intellectual property portfolio licensed, but not sold to ELA Medical or
Medtronic, its leased facilities in Brooklyn Park, Minnesota, including a "clean
room" capable of meeting federal standards for manufacture of sterile products,
other manufacturing, design and testing equipment, and appropriate furniture and
other fixtures, along with approximately $33.0 million in cash. Upon
consummation of the Transactions, the Company will retain certain contingent
liabilities with respect to potential product liability claims in excess of
insurance coverage, as well as limited warranty and technical service
obligations with respect to its ICD products, which the Company believes it will
have the resources to effectively address into the indefinite future. Upon
consummation of the Merger, it is the Company's intention to focus its efforts
primarily on the markets served by and business operations of Medical Graphics.
The Company has adequate funds to consummate the Merger (without giving
effect to the transactions contemplated by either of the ELA Agreement or the
Medtronic Agreement) and intends to do so upon receiving approval of the Medical
Graphics' shareholders. Accordingly, the Company plans, and is contractually
obligated under the Medical Graphics Agreement, to consummate the Merger whether
or not the Shareholders approve the Agreements or the Note Holders consent to
supplement the Indenture. In the event the Company is required to repurchase the
Notes prior to consummation of the Merger, the Company would not have sufficient
funds on hand to consummate the Merger without obtaining additional sources of
financing. The Company does not currently have any commitments to provide
sources of financing in the event it is required to repurchase the Notes prior
to consummation of the Merger.
Upon consummation of the Merger, it is the Company's intention to focus its
efforts primarily on the markets served by and business operations of Medical
Graphics. The cash proceeds received by the Company in connection with approval
and consummation of the Agreements are intended to be used by the Company in
connection with such business. While the Company currently retains the approvals
and capabilities necessary to derive revenues from its ICD business, it has
limited its operations pending Shareholder approval of each of the Agreements
and Note Holder consent to supplement the Indenture in connection with the
Transactions and consummation of the Merger to conserve cash. Although the
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Company has the ability to resume its manufacturing and related operations, it
is unlikely it will do so if the Transactions and the Merger are approved. As
such, at this time the Company does not anticipate deriving any future revenue
from the assets retained.
COMMUNICATIONS WITH NASDAQ REGARDING DELISTING
The costs incurred in the research and development of the Company's products
and the initial startup of manufacturing operations caused the Company to incur
net losses from continuing operations in each year since its inception in 1986.
These losses resulted in the Company having net tangible assets with a negative
balance of $6,280,000 at December 31, 1998. This balance was below the net
tangible asset balance required for continued listing on the Nasdaq National
Market. Due to this deficiency and the fact that the recent trading range for
the Common Stock was below the threshold for continued listing on the Nasdaq
National Market, the Nasdaq staff initiated proceedings to remove the Company
from Nasdaq listing. The Company has been able to maintain its listing on the
Nasdaq National Market in part because net tangible assets were increased when
the Company received $35 million in connection with the settlement of litigation
between the Company and CPI/Guidant. On August 20, 1999, the Company received
written notification from NASDAQ that it had formally concluded this proceeding
with the Company remaining listed on the Nasdaq National Market. Continuing net
operating losses without additional capital infusions, however, would continue
to erode net tangible assets and could result in the Company again failing to
meet the net tangible asset balance requirement for continued listing on the
Nasdaq National Market.
RIGHTS OF DISSENTING SHAREHOLDERS
Section 302A.471 of the MBCA entitles any Shareholder to dissent from, and
obtain payment for the fair value of the Shareholder's shares in the event of
certain corporate actions, including but not limited to the sale, lease,
transfer, or other disposition of all or substantially all of the property and
assets of the Company. Section 302A.471 also grants authority to the Board of
Directors to permit Shareholders the right to dissent from, and obtain payment
for the fair value of the Shareholder's shares in connection with any other
corporate action taken pursuant to a shareholder vote. Arguably, the
transactions contemplated by the Agreements, taken together, may constitute a
sale of substantially all of the assets of the Company under the MBCA which
would require that the Agreements be submitted for approval by its Shareholders
in compliance with the MBCA and its Articles of Incorporation. Due to
regulations promulgated by the Securities and Exchange Commission, the Company
is required to present approval of each of the Agreements to the Shareholders as
separate proposals in lieu of requesting approval of a single proposal to
approve transactions which, taken together, may constitute the sale of
substantially all of the property and assets of the Company. Regardless, the
Company has determined to provide Shareholders who object to one or both of the
proposals regarding approval of either of the Agreements and who properly
dissent with respect thereto in compliance with Minnesota law the right to
obtain payment of the "fair value" of his or her shares of Common Stock. Any
Shareholder contemplating the exercise of these dissenters' rights should review
carefully the provisions of Sections 302A.471 and 302A.473 of the MBCA (copies
of which are attached as Annex H to this Proxy Statement/Consent Solicitation),
particularly the specific procedural steps required to perfect such rights. SUCH
RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF SECTION 302A.473 ARE NOT
FULLY AND PRECISELY SATISFIED.
Set forth below (to be read in conjunction with the full text of
Section 302A.473 appearing in Annex H to this Proxy Statement/Consent
Solicitation) is a brief description of the procedures relating to the exercise
of dissenters' rights. The following description does not purport to be a
complete statement of the provisions of Section 302A.473.
Under Section 302A.473, Subd. 3, a Shareholder who wishes to exercise
dissenters' rights (a "dissenter") must file with the Company (at the Company's
address, 7601 Northland Drive, Brooklyn Park, Minnesota 55428, Attention:
Corporate Secretary), before the vote on either of the proposals regarding
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approval of the ELA Agreement or the Medtronic Agreement, as the case may be, a
written notice of intent to demand the "fair value" of the shares of Common
Stock owned by the Shareholder. Under Section 302A.471, Subd. 2, beneficial
owners of shares who desire to exercise statutory dissenters' rights must obtain
and submit the registered owner's written consent at or before the time the
notice of intent to demand fair value is due. IN ADDITION, THE SHAREHOLDER MUST
NOT VOTE HIS OR HER SHARES IN FAVOR OF ONE OR BOTH OF THE PROPOSALS TO APPROVE
THE ELA AGREEMENT OR THE MEDTRONIC AGREEMENT, AS THE CASE MAY BE. A VOTE AGAINST
SUCH PROPOSAL WILL NOT IN ITSELF CONSTITUTE SUCH A WRITTEN NOTICE AND A FAILURE
TO VOTE WILL NOT AFFECT THE VALIDITY OF A TIMELY WRITTEN NOTICE. HOWEVER, THE
SUBMISSION OF A BLANK PROXY WILL CONSTITUTE A VOTE IN FAVOR OF SUCH PROPOSAL AND
A WAIVER OF STATUTORY DISSENTERS' RIGHTS.
If the proposal to approve the ELA Agreement or the Medtronic Agreement, as
the case may be, is approved by the requisite number of Shareholders and both
proposals to supplement the Indenture are consented to by the Note Holders
holding the requisite number of Notes, the Company will send to all dissenters
who properly filed the necessary notice of intent to demand the fair value of
their shares and who did not vote their shares in favor of the proposal to
approve the ELA Agreement or the Medtronic Agreement, as the case may be, a
notice containing certain information required by Section 302A.473, Subd. 4,
including without limitation, the address to which a dissenter must send a
demand for payment and certificates representing shares in order to obtain
payment for such shares and the date by which they must be received. In order to
receive the fair value of the shares under Section 302A.473, a dissenter must
demand payment and deposit certificates representing shares within 30 days after
such notice from the Company is given. Under Minnesota law, notice by mail is
given by the Company when deposited in the United States mail. A SHAREHOLDER WHO
FAILS TO MAKE DEMAND FOR PAYMENT AND TO DEPOSIT CERTIFICATES AS REQUIRED BY
SECTION 302A.473, SUBD. 4, WILL LOSE THE RIGHT TO RECEIVE THE FAIR VALUE OF HIS
OR HER SHARES UNDER SUCH SECTION NOTWITHSTANDING THE TIMELY FILING OF NOTICE OF
INTENT TO DEMAND PAYMENT UNDER SECTION 302A.473, SUBD. 3.
Except as provided below, if demand for payment and deposit of stock
certificates is duly made by a dissenter with the Company as required by the
notice, then after the Closing Date or the receipt of the demand, whichever is
later (the "Effective Time"), the Company will pay the dissenter an amount which
the Company estimates to be the fair value of the dissenter's shares of Common
Stock, with interest, if any. For the purpose of a dissenter's appraisal rights
under Sections 302A.471 and 302A.473, "fair value" means the value of the shares
of Common Stock immediately before the Effective Time and "interest" means
interest commencing five days after the Effective Time until the date of
payment, calculated at the rate provided in Minnesota Statutes Section 549.09
(presently 4%). If the dissenter believes the payment received from the Company
is less than the fair value of the shares of Common Stock, with interest, if
any, such dissenter must give written notice to the Company of his or her own
estimate of the fair value of the shares of Common Stock, with interest, if any,
within 30 days after the date of the Company's remittance, and must demand
payment of the difference between his or her estimate and the Company's
remittance. If the dissenter fails to give written notice of such estimate to
the Company within the 30-day time period, such dissenter will be entitled only
to the amount remitted by the Company.
The Company may withhold such remittance with respect to shares of Common
Stock for which the dissenter demanding payment (or persons on whose behalf such
Dissenter acts) was not the beneficial owner as of the first public announcement
date of the ELA Agreement or the Medtronic Agreement, as the case may be, (with
respect to such dissenter, the earliest date being hereinafter referred to as
the "Public Announcement Date"). As to each such dissenter who has validly
demanded payment, following the Closing Date or the receipt of demand, whichever
is later, the Company will mail its estimate of the fair value of such
dissenter's shares of Common Stock and offer to pay this amount with interest,
if any, to the Dissenter upon receipt of such dissenter's agreement to accept
this amount in full satisfaction. If such
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<PAGE>
dissenter believes that the Company's offer is for less than the fair value of
the shares of Common Stock, with interest, if any, such dissenter must give
written notice to the Company of his or her own estimate of the fair value of
the shares of Common Stock, with interest, if any, and demand payment of this
amount. This demand must be mailed to the Company within 30 days after the
mailing of the Company's offer. If the dissenter fails to make this demand
within the 30-day time period, such dissenter shall be entitled only to the
amount offered by the Company.
If the Company and the dissenter (including both a dissenter who purchased
shares of Common Stock on or prior to the respective Public Announcement Date
and a dissenter who purchased shares of Common Stock after the respective Public
Announcement Date who have complied with their respective demand requirements)
cannot settle the dissenter's demand within 60 days after the Company receives
the dissenter's estimate of the fair value of his or her shares of Common Stock,
then the Company will file a petition in a court of competent jurisdiction in
Hennepin County, Minnesota, requesting that the court determine the statutory
fair value of Common Stock with interest, if any. All dissenters whose demands
are not settled within the applicable 60-day settlement period will be made
parties to this proceeding.
The court will then determine whether each dissenter in question has fully
complied with the provisions of Section 302A.473, and for all dissenters who
have fully complied and not forfeited statutory dissenters' rights, will
determine the fair value of the shares, taking into account any and all factors
the court finds relevant (including, without limitation, the recommendation of
any appraisers which may have been appointed by the court), computed by any
method that the court, in its discretion, sees fit to use, whether or not used
by the Company or a dissenter. The fair value of the shares as determined by the
court is binding on all Shareholders and may be less than, equal to or greater
than the equivalent per share consideration if both of the Transactions are
completed. However, under the statute, dissenters are not liable to the Company
for the amount, if any, by which payments remitted to the dissenters exceed the
fair value of such shares determined by the court, with interest. The costs and
expenses of this court proceeding will be assessed against the Company, except
that the court may assess part or all of those costs and expenses against a
dissenter whose action in demanding payment is found to be arbitrary, vexatious
or not in good faith.
Under Section 302A.471, Subd. 2, a Shareholder may not assert dissenters'
rights with respect to less than all of the shares of Common Stock registered in
the Shareholder's name, unless the Shareholder dissents with respect to all
shares beneficially owned by another person and discloses the name and address
of such other person.
Under Section 302A.471, Subd. 4, a Shareholder has no right at law or equity
to set aside the adoption of either or both of the Agreements or the
consummation of the Transactions, except if such adoption or consummation is
fraudulent with respect to such Shareholder or the Company.
ACCOUNTING TREATMENT
The Company entered into a number of transactions with Sanofi-Synthelabo and
its affiliates which, if consummated, will exchange non-monetary assets of the
Company for shares of Common Stock and warrants to purchase shares of Common
Stock held by Sanofi-Synthelabo with the intended purpose of dissolving the
business relationship. Accordingly, the collective transactions will be
accounted for as a non-monetary exchange, with fair value of the ELA
Transactions being measured by the market value of the Sanofi-Synthelabo Owned
Securities.
With regard to the Medtronic Transactions, fair value of the exchange, if
consummated, will be measured based on net cash received.
In connection with obtaining Shareholder approval of each of the proposals
to approve the Agreements and upon successful consummation of the Merger, the
Company expects to incur an additional nonmaterial charge related to severance
and other employee benefit costs for certain remaining personnel at the Company.
66
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The Transactions will not result in any federal income tax consequences to
Shareholders or Note Holders other than Sanofi-Synthelabo and Medtronic and
Shareholders exercising dissenters' rights under the MBCA. For tax purposes,
dissenting Shareholders will tender their shares for cash. Such transactions
will be accounted for as the sale or exchange of securities. Sale or exchange
tax treatment results in the dissenting Shareholders realizing a capital gain or
loss computed as the difference between cash proceeds and the Shareholder's tax
basis in the underlying stock.
The ELA Transactions require the Company to transfer certain intangible
technology assets to Sanofi-Synthelabo, a Shareholder, in exchange for the
Sanofi-Synthelabo Owned Securities. The ELA Transactions, combined with the
Medtronic Transactions, will, if consummated, result in a gain of approximately
$10,500,000 for federal income tax purposes. This gain will result in federal
alternative minimum tax of approximately $200,000 after offset by a portion of
the Company's net operating loss carryforward. As of September 30, 1999, the
Company's available net operating loss carryforward was approximately
$111,700,000. Assuming the Transactions are consummated, the Company's remaining
net operating loss carryforward will be approximately $101,200,000.
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth the dates and periods indicated, book value
per share, cash dividends per share, and income (loss) per share, and presents
comparative unaudited per share data for the Company on a historical and pro
forma basis giving effect to the proposed Transactions and the Merger with
Medical Graphics. The information presented below is derived from the
consolidated historical financial statements of the Company and its
subsidiaries, including the notes thereto, attached to this Proxy
Statement/Consent Solicitation. This information should be read in conjunction
with such historical financial statements and the related notes thereto. The pro
forma information is not necessarily indicative of the results of future
operations or the actual results that would have been achieved had the
Transactions been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, 1999 DECEMBER 31, 1998
------------------- ------------------
<S> <C> <C>
HISTORICAL:
Book value.................................. $ 3.08 $ (1.62)
Net income (loss)--basic:
Continuing operations..................... 1.68 (11.23)
Discontinued operations................... -- --
Net income (loss)......................... 1.68 (11.23)
Net income (loss)--diluted:
Continuing operations..................... 1.25 (11.23)
Discontinued operations................... -- --
Net income (loss)......................... 1.25 (11.23)
PRO FORMA:
Book value.................................. 5.86 N/A
Net income (loss)--basic:
Continuing operations..................... 8.81 (0.95)
Discontinued operations................... (6.83) (14.31)
Net income (loss)......................... 1.98 (15.26)
Net income (loss)--diluted:
Continuing operations..................... 6.50 (0.95)
Discontinued operations................... (6.83) (14.31)
Net income (loss)......................... 1.65 (15.26)
</TABLE>
To date, no dividends have been declared or paid on the Common Stock. The
Board of Directors anticipates that there will be no changes to the Company's
dividend policies before the consummation of the Transactions.
67
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the Transactions, as described under the heading "APPROVAL OF THE SALE AND
TRANSFER OF ASSETS", for all periods presented, and the Merger with Medical
Graphics, as described under the heading "APPROVAL OF THE SALE AND TRANSFER OF
ASSETS--Plans for the Company After the Transactions" as of September 30, 1999
and for the nine months and year ended September 30, 1999 and December 31, 1998,
respectively. The unaudited pro forma financial statements have been prepared on
the basis of assumptions described in the notes thereto. The unaudited pro forma
financial information is presented for informational purposes only and does not
purport to represent what the financial position or results of operations for
the Company would actually have been had the Transactions occurred on the dates
specified or to project the financial position or results of operations for the
Company at any future date or for any future periods. The unaudited pro forma
financial statements should be read in conjunction with the respective financial
statements of the Company and the related notes thereto attached to this Proxy
Statement/Consent Solicitation.
68
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA MEDICAL
ADJUSTMENTS REFLECTING ACTUAL GRAPHICS PRO FORMA
ACTUAL RELATED TO THE THE MEDICAL PRO FORMA COMBINED
ANGEION TRANSACTIONS TRANSACTIONS GRAPHICS ADJUSTMENTS BALANCE SHEET
-------- -------------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents....... $ 27,072 $ 8,500 (2) $ 35,572 $ 117 $(16,600)(4) $ 19,089
Accounts receivable, net........ 666 666 4,569 5,235
Inventories..................... 226 226 5,549 5,775
Other current assets............ 1,225 1,225 120 1,345
-------- ------- --------- -------- -------- ---------
Total current assets.......... 29,189 8,500 37,689 10,355 (16,600) 31,444
Property and equipment, net....... 1,885 1,885 267 2,152
Goodwill.......................... -- -- -- 8,000 (4) 8,000
Purchased technology.............. -- -- -- 5,837 (4) 5,837
Investment in joint venture....... 1,527 (1,527)(1) -- -- --
Other assets...................... 1,658 1,658 587 2,245
-------- ------- --------- -------- -------- ---------
Total assets...................... $ 34,259 $ 6,973 $ 41,232 $11,209 $ (2,763) $ 49,678
======== ======= ========= ======== ======== =========
Current liabilities:
Accounts payable................ $ 301 $ 200 (3) $ 501 $ 2,466 $ 2,967
Line of credit.................. -- -- 3,595 3,595
Other accrued expenses.......... 1,407 1,407 2,385 3,792
-------- ------- --------- -------- -------- ---------
Total current liabilities..... 1,708 200 1,908 8,446 10,354
Long-term debt.................... 20,198 20,198 -- 20,198
Shareholders equity:
Common stock, $.01 par value.
Authorized 7,500,000 shares;
issued and outstanding
4,009,109 shares at
September 30, 1999, and
3,263,663 shares as adjusted
at September 30, 1999......... 40 (7)(1) 33 305 $ (305)(4) 33
Additional paid in capital...... 128,679 (3,510)(1) 125,169 15,775 (15,775)(4) 125,169
Cumulative translation
adjustment.................... (8) (8) (8)
Accumulated deficit............. (116,358) 8,500 (2) (106,068) (13,317) 13,317 (4) (106,068)
1,990 (1)
(200)(3)
-------- ------- --------- -------- -------- ---------
Total shareholder's equity.... 12,353 6,773 19,126 2,763 (2,763) 19,126
-------- ------- --------- -------- -------- ---------
Total liabilities and
shareholder's equity............ $ 34,259 $ 6,973 $ 41,232 $11,209 $ (2,763) $ 49,678
======== ======= ========= ======== ======== =========
</TABLE>
- ------------------------------
Pro forma footnotes:
ELA TRANSACTIONS
(1) Recognition of the exchange of certain assets and technology for Common
Stock and in the money warrants held by Sanofi-Synthelabo. Valuation of the
transaction is based on an assumed Company stock price of $2.125 per share
and the conversion of in the money warrants for 909,017 shares of Common
Stock.
MEDTRONIC TRANSACTIONS
(2) To record the gain on the grant to Medtronic of a non-exclusive license to
the Company's patent portfolio, for $9 million cash, less direct
transaction expenses estimated to be $500,000.
THE TRANSACTIONS
(3) Federal alternative minimum tax associated with the gain recognition on the
Transactions.
MEDICAL GRAPHICS TRANSACTION
(4) To record the Merger with Medical Graphics. Amounts allocated to goodwill
and purchased technology are preliminary estimates.
69
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA MEDICAL PRO FORMA
ADJUSTMENTS REFLECTING ACTUAL GRAPHICS COMBINED
ACTUAL RELATED TO THE THE MEDICAL PRO FORMA STATEMENT OF
ANGEION TRANSACTIONS(1) TRANSACTIONS GRAPHICS ADJUSTMENTS OPERATIONS
---------- --------------- ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 5,175 $ (5,175)(2) $ -- $16,128 $ 16,128
Cost of goods sold.............. 10,988 (10,988)(2) -- 8,674 8,674
---------- ----------- ---------- ------- ----- ----------
Gross margin.................... (5,813) 5,813 -- 7,454 7,454
---------- ----------- ---------- ------- ----- ----------
Operating expenses:
Selling, general, and
administrative.............. 4,235 (3,785)(2) 450 5,431 $ 738(3) 6,619
Research and development...... 6,372 (6,372)(2) -- 1,136 1,136
Restructuring................. 4,504 (4,504)(2) -- -- --
---------- ----------- ---------- ------- ----- ----------
Total operating expenses........ 15,111 (14,661) 450 6,567 738 7,755
---------- ----------- ---------- ------- ----- ----------
Operating income (loss)......... (20,924) 20,474 (450) 887 (738) (301)
---------- ----------- ---------- ------- ----- ----------
Other income (expense)
Equity in loss of joint
venture..................... (1,695) 1,695(2) -- -- --
Other income.................. 30,570 30,570 -- 30,570
Interest, net................. (1,082) (1,082) (419) (1,501)
---------- ----------- ---------- ------- ----- ----------
Other income (expense).......... 27,793 1,695 29,488 (419) 29,069
---------- ----------- ---------- ------- ----- ----------
Income before income taxes...... 6,869 22,169 29,038 468 (738) 28,768
Provision for income taxes...... (171) (171) -- (171)
---------- ----------- ---------- ------- ----- ----------
Net income from continuing
operations.................... 6,698 22,169 28,867 468 (738) 28,597
Loss from discontinued
operations.................... -- (22,169) (22,169) -- (22,169)
---------- ----------- ---------- ------- ----- ----------
Net income...................... $ 6,698 $ -- $ 6,698 $ 468 $(738) $ 6,428
========== =========== ========== ======= ===== ==========
Net income (loss) per common
share--basic:
Continuing operations......... $ 1.68 $ 8.89 $ 8.81
Discontinued operations....... -- (6.83) (6.83)
Net income.................... 1.68 2.06 1.98
Net income (loss) per common
share--diluted:
Continuing operations......... 1.25 6.56 6.50
Discontinued operations....... -- (6.83) (6.83)
Net income.................... $ 1.25 $ 1.71 $ 1.65
Weighted average common shares
outstanding:
Basic......................... 3,992,324 (745,996)(4) 3,246,328 3,246,328
Diluted....................... 6,225,106 (1,655,013)(5) 4,570,093 4,570,093
</TABLE>
- ------------------------------
Pro forma footnotes:
(1) The pro forma adjustments do not reflect the estimated gain on the ELA
Transactions of $1,990,000 assuming a Company stock price of $2.125 per
share and the conversion of in the money warrants for 909,017 shares of
Common Stock. The pro forma adjustments also do not reflect gain recognition
on the Company's grant to Medtronic of a non-exclusive license to the
Company's patent portfolio, for $9 million cash. Such adjustments have been
excluded because they are non-recurring.
(2) To reflect the discontinuance of the ICD business, which includes the
withdrawal from the joint venture and entering into the ELA Agreement.
(3) To record amortization of goodwill and purchased technology on the Merger
with Medical Graphics. Amounts allocated to goodwill and purchased
technology are preliminary. Accordingly, amortization amounts and timing of
recognition are subject to change. For pro forma purposes, goodwill and
purchased technology are being amortized over 20 years and 10 years,
respectively.
(4) To reflect the exchange of Company shares owned by Sanofi-Synthelabo at
September 30, 1999, in exchange for certain assets and technology.
(5) To reflect the exchange of Company shares and in-the-money warrants owned by
Sanofi-Synthelabo at September 30, 1999 (assuming the conversion of warrants
for 909,017 shares of Common Stock) for certain assets and technology.
70
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA MEDICAL PRO FORMA
ADJUSTMENTS REFLECTING ACTUAL GRAPHICS COMBINED
ACTUAL RELATED TO THE THE MEDICAL PRO FORMA STATEMENT OF
ANGEION TRANSACTIONS(1) TRANSACTIONS GRAPHICS ADJUSTMENTS OPERATIONS
---------- --------------- ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $ 4,567 $ (4,567)(2) $ -- $20,449 $ 20,449
Cost of goods sold.......... 12,394 (12,394)(2) -- 12,441 12,441
---------- ----------- ---------- ------- ------- ----------
Gross margin................ (7,827) 7,827 -- 8,008 -- 8,008
---------- ----------- ---------- ------- ------- ----------
Operating expenses:
Selling, general, and
administrative.......... 7,186 (6,586)(2) 600 7,580 $ 984(3) 9,164
Research and development.. 21,637 (21,637)(2) -- 1,550 1,550
---------- ----------- ---------- ------- ------- ----------
Total operating expenses.... 28,823 (28,223) 600 9,130 984 10,714
---------- ----------- ---------- ------- ------- ----------
Operating loss.............. (36,650) 36,050 (600) (1,122) (984) (2,706)
---------- ----------- ---------- ------- ------- ----------
Other income (expense)
Equity in loss of joint
venture................. (2,779) 2,779(2) -- -- --
Other income.............. 2,050 2,050 -- 2,050
Interest, net............. (1,459) (1,459) (454) (1,913)
---------- ----------- ---------- ------- ------- ----------
Other income (expense)...... (2,188) 2,779 591 (454) -- 137
---------- ----------- ---------- ------- ------- ----------
Net loss from continuing
operations................ (38,838) 38,829 (9) (1,576) (984) (2,569)
Loss from discontinued
operations................ -- (38,829)(2) (38,829) -- (38,829)
---------- ----------- ---------- ------- ------- ----------
Net loss.................... $ (38,838) $ -- $ (38,838) $(1,576) $ (984) $ (41,398)
========== =========== ========== ======= ======= ==========
Net loss per common share:
(4)
Continuing operations..... $ (11.23) $ (0.00) $ (0.95)
Discontinued operations... -- (14.31) (14.31)
Net loss.................. $ (11.23) $ (14.31) $ (15.26)
Weighted average common
shares outstanding........ 3,459,507 (745,996)(5) 2,713,511 2,713,511
</TABLE>
- --------------------------
Pro forma footnotes:
(1) The pro forma adjustments do not reflect the estimated gain on the ELA
Transactions of $1,990,000 assuming a Company stock price of $2.125 per
share and the conversion of in the money warrants for 909,017 shares of
Common Stock. The pro forma adjustments also do not reflect gain recognition
on the Company's grant to Medtronic of a non-exclusive license to the
Company's patent portfolio, for $9 million cash. Such adjustments have been
excluded because they are non-recurring.
(2) To reflect the discontinuance of the ICD business, which includes the
withdrawal from the Joint Venture and entering into the ELA Agreement.
(3) To record amortization of goodwill and purchased technology on the Merger
with Medical Graphics. Amounts allocated to goodwill and purchased
technology are preliminary. Accordingly, amortization amounts and timing of
recognition are subject to change. For pro forma purposes, goodwill and
purchased technology are being amortized over 20 years and 10 years,
respectively.
(4) Basic and diluted net loss per common share are identical, as the effect of
potential common shares is antidilutive.
(5) To reflect the exchange of Company shares owned by Sanofi-Synthelabo for
certain assets and technology.
71
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
ACTUAL RELATED TO THE STATEMENT OF
ANGEION TRANSACTIONS(1) OPERATIONS
---------- --------------- ------------
<S> <C> <C> <C>
Net sales............................................. $ 3,094 $ (3,094)(2) $ --
Cost of goods sold.................................... 10,812 (10,812)(2) --
---------- --------- ----------
Gross margin.......................................... (7,718) 7,718 --
---------- --------- ----------
Operating expenses:
Selling, general, and administrative................ 7,466 (6,866)(2) 600
Research and development............................ 19,790 (19,790)(2) --
---------- --------- ----------
Total operating expenses.............................. 27,256 (26,656) 600
---------- --------- ----------
Operating loss........................................ (34,974) 34,374 (600)
Interest, net......................................... 859 859
---------- --------- ----------
Net income (loss) from continuing operations.......... (34,115) 34,374 259
Loss from discontinued operations..................... -- (34,374)(2) (34,374)
---------- --------- ----------
Net loss.............................................. $ (34,115) $ -- $ (34,115)
========== ========= ==========
Net income (loss) per common share:
Continuing operations............................... $ (11.36) $ 0.11
Discontinued operations............................. -- (15.23)
Net loss............................................ $ (11.36) $ (15.12)
Weighted average common shares outstanding............ 3,002,621 (745,996)(3) 2,256,625
</TABLE>
- ------------------------
Pro forma footnotes:
(1) The pro forma adjustments do not reflect the estimated gain on the ELA
Transactions of $1,990,000 assuming a Company stock price of $2.125 per
share and the conversion of in the money warrants for 909,017 shares of
Common Stock. The pro forma adjustments also do not reflect gain recognition
on the Company's grant to Medtronic of a non-exclusive license to the
Company's patent portfolio, for $9 million cash. Such adjustments have been
excluded because they are non-recurring.
(2) To reflect the discontinuance of the ICD business, which includes the
withdrawal from the joint venture and entering into the ELA Agreement.
(3) To reflect the exchange Company shares owned by Sanofi-Synthelabo for
certain assets and technology.
72
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
ACTUAL RELATED TO THE STATEMENT OF
ANGEION TRANSACTIONS(1) OPERATIONS
--------- --------------- ------------
<S> <C> <C> <C>
Net sales.............................................. $ 4,804 $ (4,804)(2) $ --
Cost of goods sold..................................... 6,058 (6,058)(2) --
--------- --------- ----------
Gross margin........................................... (1,254) 1,254 --
--------- --------- ----------
Operating expenses:
Selling, general, and administrative................. 11,832 (11,232)(2) 600
Research and development............................. 6,329 (6,329)(2) --
--------- --------- ----------
Total operating expenses............................... 18,161 (17,561) 600
--------- --------- ----------
Operating loss......................................... (19,415) 18,815 (600)
Other income, net...................................... 1,355 1,355
--------- --------- ----------
Net income (loss) from continuing operations........... (18,060) 18,815 755
Loss from discontinued operations...................... -- (18,815)(2) (18,815)
--------- --------- ----------
Net loss............................................... $ (18,060) $ -- $ (18,060)
========= ========= ==========
Net income (loss) per common share:
Continuing operations................................ $ (7.28) $ 0.44
Discontinued operations.............................. -- (10.85)
Net loss............................................. $ (7.28) $ (10.41)
Weighted average common shares outstanding............. 2,480,881 (745,996)(3) 1,734,885
</TABLE>
- ------------------------
Pro forma footnotes:
(1) The pro forma adjustments do not reflect the estimated gain on the ELA
Transactions of $1,990,000 assuming a Company stock price of $2.125 per
share and the conversion of in the money warrants for 909,017 shares of
Common Stock. The pro forma adjustments also do not reflect gain recognition
on the Company's grant to Medtronic of a non-exclusive license to the
Company's patent portfolio, for $9 million cash. Such adjustments have been
excluded because they are non-recurring.
(2) To reflect the discontinuance of the ICD business, which includes the
withdrawal from the Joint Venture and entering into the ELA Agreement.
(3) To reflect the exchange of Company shares owned by Sanofi-Synthelabo for
certain assets and technology.
73
<PAGE>
FINANCIAL STATEMENTS REGARDING MEDICAL GRAPHICS
Following are the audited financial statements of Medical Graphics for each
of the three years in the period ended December 31, 1998 and the unaudited
financial statements for the nine month periods ended September 30, 1999 and
1998. The unaudited financial statements for the nine months ended September 30,
1999 and 1998 have been prepared on the basis of assumptions described in Note
1.
74
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders and Board of Directors
Medical Graphics Corporation
We have audited the accompanying consolidated balance sheets of Medical
Graphics Corporation and Subsidiary (the Company) as of December 31, 1998 and
1997 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 present fairly, in all
material respects, the financial position of Medical Graphics Corporation and
Subsidiary at December 31, 1998 and 1997 and the results of their operations and
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
April 14, 1999
Minneapolis, Minnesota
75
<PAGE>
MEDICAL GRAPHICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
SEPTEMBER 30, -------------------
1999 1998 1997
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 117 $ 387
Accounts receivable, less allowance for doubtful accounts
of $136, $118, and $164, respectively................... 4,569 $ 5,263 3,890
Inventories (Notes 1 and 2)............................... 5,549 4,917 4,800
Prepaid expenses and other current assets................. 120 155 272
-------- -------- --------
Total current assets.................................... 10,355 10,335 9,349
Equipment and Fixtures (Notes 1 and 3)...................... 4,111 4,092 4,072
Less accumulated depreciation............................. 3,844 3,574 3,110
-------- -------- --------
Equipment and fixtures, net............................. 267 518 962
Software Production Costs, less accumulated amortization of
$1,473, $1,212, and $855, respectively (Note 1)........... 586 566 602
Other Assets................................................ 1 7 13
-------- -------- --------
$ 11,209 $ 11,426 $ 10,926
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 2,058 $ 2,975 $ 2,261
Accounts payable financed with vendors--current (Note
1)...................................................... 408 769 1,145
Note payable (Note 8)..................................... 3,595 3,291 2,254
Employee compensation..................................... 739 517 786
Deferred service contract revenue......................... 900 870 896
Warranty reserve.......................................... 339 374 414
Other liabilities and accrued expenses.................... 407 327 675
-------- -------- --------
Total current liabilities............................... 8,446 9,123 8,431
Long-Term Accounts Payable Financed with Vendors (Note
1)...................................................... 48 807
Commitments and Contingencies (Notes 7 and 12)
Shareholders' Equity (Notes 1, 9, and 10):
Class A convertible common stock, par value $.05 per
share; 500,000 shares authorized, liquidation preference
of $3.38 per share, 444,000 issued and outstanding,
convertible into 1,500,000 shares of common stock 22 22 22
Common stock, par value $.05 per share; authorized
24,500,000 shares; issued and outstanding 5,651,000,
5,608,000, and 4,453,000, respectively.................. 283 280 223
Additional paid-in capital................................ 15,775 15,738 13,652
Retained deficit.......................................... (13,317) (13,785) (12,209)
-------- -------- --------
Total shareholders' equity.............................. 2,763 2,255 1,688
-------- -------- --------
$ 11,209 $ 11,426 $ 10,926
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
76
<PAGE>
MEDICAL GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- ------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues (Note 4):
Equipment and supplies sales................. $14,684 $13,257 $18,503 $17,485 $18,278
Service revenue.............................. 1,444 1,423 1,946 1,688 2,011
------- ------- ------- ------- -------
Total revenues............................. 16,128 14,680 20,449 19,173 20,289
Cost of Goods Sold............................. 8,674 9,015 12,441 11,969 14,330
------- ------- ------- ------- -------
Gross Margin................................... 7,454 5,665 8,008 7,204 5,959
Operating Expenses:
Selling and marketing........................ 3,761 4,275 5,653 6,282 8,186
General and administrative................... 1,670 1,470 1,927 2,228 4,469
Research and development..................... 1,136 1,207 1,550 1,867 2,762
Infrequent charges (Note 5).................. -- -- -- 1,738 200
------- ------- ------- ------- -------
Total operating expenses................... 6,567 6,952 9,130 12,115 15,617
------- ------- ------- ------- -------
Income (Loss) From Operations.................. 887 (1,287) (1,122) (4,911) (9,658)
Other (Expense) Income:
Interest expense............................. (419) (312) (454) (329) (189)
SensorMedics settlement, net of settlement
costs (Note 1)............................. 1,438
Gain on sale of assets (Note 1).............. 128
------- ------- ------- ------- -------
Income (Loss) Before Income Taxes.............. 468 (1,599) (1,576) (5,112) (8,409)
Income Tax Benefit (Note 6).................... 48
------- ------- ------- ------- -------
Net Income (Loss).............................. $ 468 $(1,599) $(1,576) $(5,112) $(8,361)
======= ======= ======= ======= =======
Net Income (Loss) per Share of Common Stock
(Note 1):
Basic........................................ $ .07 $ (.28) $ (0.26) $ (1.15) $ (2.19)
======= ======= ======= ======= =======
Diluted...................................... $ .06 $ (.28) $ (0.26) $ (1.15) $ (2.19)
======= ======= ======= ======= =======
Weighted Average Common Shares Outstanding:
Basic........................................ 7,128 5,646 6,015 4,449 3,818
======= ======= ======= ======= =======
Diluted...................................... 7,246 5,646 6,015 4,449 3,818
======= ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
77
<PAGE>
MEDICAL GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- -------- -------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............. 3,745 $ 188 $ 9,858 $ 1,264 $11,310
Net loss............................... (8,361) (8,361)
Common stock issued upon exercise of
stock options........................ 67 3 228 231
Common stock issued under Employee
Stock Purchase Plan.................. 27 1 74 75
------ ------ ------ ------ ------- -------- -------
Balance at December 31, 1996............. 3,839 192 10,160 (7,097) 3,255
Net loss............................... (5,112) (5,112)
------ ------ ------ ------ ------- -------- -------
Class A stock issued in a private sale,
net of issuance costs................ 444 $ 22 1,434 1,456
Common stock issued to Chairman of
Board of Directors................... 45 2 100 102
Common stock issued in a private sale,
net of issuance costs................ 545 28 1,384 1,412
Common stock issued under Employee
Stock Purchase Plan.................. 24 1 66 67
Warrants issued in conjunction with
development and implementation of
cost reduction plan (Note 5)......... 508 508
------ ------ ------ ------ ------- -------- -------
Balance at December 31, 1997............. 444 22 4,453 223 13,652 (12,209) 1,688
Net loss............................... (1,576) (1,576)
Common stock issued under Employee
Stock Purchase Plan.................. 20 1 44 45
Common stock issued in private sales,
net of issuance costs (Note 9)....... 1,096 54 1,916 1,970
Common stock issued to a former
employee............................. 15 1 44 45
Common stock issued upon exercise of
stock options........................ 3 8 8
Common stock issued to directors....... 21 1 74 75
------ ------ ------ ------ ------- -------- -------
Balance at December 31, 1998............. 444 22 5,608 280 15,738 (13,785) 2,255
Net income (unaudited)................. 468 468
Common stock issued under Employee
Stock Purchase Plan (unaudited)...... 24 2 17 19
Common stock issued to directors
(unaudited).......................... 19 1 20 21
------ ------ ------ ------ ------- -------- -------
Balance at September 30, 1999
(unaudited)............................ 444 $ 22 5,651 $ 283 $15,775 $(13,317) $ 2,763
====== ====== ====== ====== ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
78
<PAGE>
MEDICAL GRAPHICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- ------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)......................... $ 468 $ (1,599) $ (1,576) $ (5,112) $(8,361)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation.............................. 270 450 511 579 765
Amortization.............................. 261 264 357 287 276
Common stock issued to directors and
former officers in lieu of
compensation............................ 120
Common stock and warrants issued in
conjunction with the development and
implementation of a cost reduction plan
(Note 5).................................. 610
Changes in operating assets and
liabilities:
Accounts receivable..................... 694 (267) (1,373) 924 4,368
Inventory............................... (632) (463) (117) 2,393 (1,033)
Prepaid expenses and other assets....... 41 83 123 (72) 431
Accounts payable and accrued expenses... (1,024) (956) (788) (683) 3,111
Warranty reserve........................ (35) (40) (40) (149) 323
Deferred service contract revenue....... 30 (8) (26) (92) (168)
-------- -------- -------- -------- -------
Net cash provided by (used in)
operating activities................ 73 (2,536) (2,809) (1,315) (288)
Cash Flows from Investing Activities:
Capital expenditures.................... (19) (23) (67) (215) (884)
Software production costs............... (281) (256) (321) (417) (345)
-------- -------- -------- -------- -------
Net cash used in investing
activities.......................... (300) (279) (388) (632) (1,229)
Cash Flows from Financing Activities:
Borrowings under line of credit
agreement............................... 17,343 17,303 22,483 18,682 1,725
Repayments under line of credit
agreement............................... (17,039) (17,044) (21,446) (19,828)
Net proceeds from issuance of common
stock................................... 40 2,169 1,773 2,935 306
-------- -------- -------- -------- -------
Net cash provided by financing
activities............................ 344 2,428 2,810 1,789 2,031
-------- -------- -------- -------- -------
Increase (Decrease) in Cash................. 117 (387) (387) (158) 514
Cash at Beginning of Year................... 387 387 545 31
-------- -------- -------- -------- -------
Cash at End of Year......................... $ 117 $ -- $ -- $ 387 $ 545
======== ======== ======== ======== =======
</TABLE>
See notes to consolidated financial statements.
79
<PAGE>
MEDICAL GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
1. DESCRIPTION OF BUSINESS, LIQUIDITY, AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS--Medical Graphics designs and produces innovative noninvasive
diagnostic systems for the prevention, early detection, and cost-effective
treatment of heart and lung disease. In addition, Medical Graphics purchases
noninvasive sleep diagnostic systems from a third party.
LIQUIDITY--Medical Graphics' working capital requirements for 1998 were met
principally through amounts borrowed on Medical Graphics' line of credit (see
Note 8), the issuance of common stock under private sales to investors (see
Note 9), and credit arrangements made with Medical Graphics' vendors during the
first quarter 1997. This vendor credit consisted of Medical Graphics entering
into financing arrangements with certain vendors that provided for payment of
outstanding balances in equal monthly installments for up to 36 months. The
remaining amounts due under these vendor agreements are payable in the amount of
$769,000 and $48,000 in 1999 and 2000, respectively. The balances outstanding at
December 31, 1998 that will be paid after December 31, 1999 have been classified
as long-term accounts payable financed with vendors.
In addition, Medical Graphics incurred net losses of $1,576,000, $5,112,000,
and $8,361,000 for the years ended December 31, 1998, 1997, and 1996,
respectively. Management plans to generate profitable operations by increasing
revenues, improving gross margins, and controlling expenses. There can be no
assurance Medical Graphics will be able to generate profitable operations in the
future.
CONSOLIDATION--The financial statements include the accounts of Medical
Graphics and its wholly owned subsidiary, Medical Graphics Corporation, GmbH
(MGCG). All intercompany transactions have been eliminated. The operations of
MGCG were terminated early in 1997 in accordance with an exit plan adopted in
the fourth quarter of 1996 (see Note 5).
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--The consolidated financial
statements as of September 30, 1999 and for the nine months ended September 30,
1999 and 1998 are unaudited. In the opinion of management, such unaudited
consolidated financial statements include all adjustments, consisting of only
normal, recurring accruals, necessary for a fair presentation thereof. The
results of operations for any interim period are not necessarily indicative of
the results of operations for the year.
INVENTORIES--Inventories are valued at the lower of cost or market
determined by the first-in, first-out method.
EQUIPMENT AND FIXTURES--Equipment and fixtures are stated at cost. Medical
Graphics provides for depreciation using straight-line and accelerated methods
at rates designed to amortize the cost of equipment and fixtures over their
estimated useful lives.
SOFTWARE PRODUCTION COSTS--Software production costs are capitalized once
technological feasibility has been established and all research and development
activities for other components of the product are completed. Capitalized
software production costs are amortized over three years using the straight-line
method.
REVENUE RECOGNITION--Sales are recorded by Medical Graphics when products
are shipped or services are provided to the customer. An accrual is recorded for
estimated warranty costs.
DEFERRED SERVICE CONTRACTS--Amounts billed to customers under service
contracts are deferred and recognized as income over the term of the agreement,
and costs are recognized as incurred.
80
<PAGE>
MEDICAL GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
1. DESCRIPTION OF BUSINESS, LIQUIDITY, AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INCOME TAXES--Income taxes are recorded under the liability method. Deferred
income taxes are recorded to reflect the tax consequences in future years of
differences between the basis of assets and liabilities for income tax and for
financial reporting purposes using enacted tax rates in effect during the year
in which the differences are expected to reverse. Deferred tax asset valuation
allowances are recorded to reduce deferred tax assets to the amount expected to
be realized.
OTHER INCOME (EXPENSE)--In 1997, Medical Graphics sold certain assets of its
asthma line of business for approximately $144,000, which resulted in a gain of
$128,000.
During 1995, Medical Graphics was awarded a judgment of $4.35 million,
related to a patent infringement suit against a competitor. The judgment was to
be paid over an eight-year period. Medical Graphics received $975,000 after
related legal costs during 1995. Medical Graphics recorded the gain as cash was
received due to uncertainty regarding the ultimate collectibility of the
judgment. During 1996, the competitor was acquired by a third party and pursuant
to the terms of the settlement agreement, Medical Graphics received the net
present value of the remaining payments, $1,438,000 after paying related legal
costs.
FAIR VALUE OF FINANCIAL INSTRUMENTS--Cash, accounts receivables, accounts
payable, note payable, and accrued expenses are carried at amounts which
reasonably approximate their fair value due to the short-term nature of these
amounts or due to variable rates of interest which are consistent with current
market rates.
BASIC AND DILUTED NET LOSS PER SHARE--In 1997, Medical Graphics adopted
Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE.
Basic net loss per share of common stock is computed by dividing net loss by the
weighted average number of common shares outstanding during each year. For
purposes of this calculation, the convertible Class A common shares are assumed
to have been converted. Common equivalent shares from stock options and warrants
to purchase 1,697,000, 1,342,000, and 915,000 shares of common stock at a range
of $1.00 to $8.67, $1.92 to $10.00, and $3.00 to $10.00 were outstanding during
1998, 1997, and 1996, respectively, but are excluded from the computation of
dilutive net loss per share as their effect is antidilutive. Therefore, basic
and dilutive net loss per share amounts are equal for each of the periods
presented.
SALES AND SEGMENT INFORMATION--Medical Graphics manufactures and sells its
products to customers in the medical field and operates in only one business
segment. Medical Graphics grants its customers credit in connection with sales
of its products. It performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Medical Graphics
requires irrevocable letters of credit on sales to certain foreign customers.
Receivables generally are due within 30 days for domestic customers. Credit
losses relating to customers have consistently been within management's
expectations. Export sales to foreign countries, primarily in Europe and the
Pacific Rim, accounted for 13%, 18%, and 27% of total sales in 1998, 1997, and
1996, respectively.
USE OF ESTIMATES--The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that
81
<PAGE>
MEDICAL GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
1. DESCRIPTION OF BUSINESS, LIQUIDITY, AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from the estimates.
IMPAIRMENT OF LONG-LIVED ASSETS--Medical Graphics records losses on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amount. To the extent long-lived assets are considered
impaired, such assets are adjusted to their estimated fair values with fair
value determined by the present value of discounted future cash flows or, to the
extent such long-lived assets are held for sale, the estimated sales proceeds
less costs of disposal.
ACCOUNTING PRONOUNCEMENT--In June 1997, the Financial Accounting Standards
Board issued SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION, which changes the way public companies report information
about operating segments. SFAS No. 131, which is based on the management
approach to segment reporting, establishes requirements to report selected
segment information and to report entitywide disclosures about products and
services, major customers, and material countries in which the entity holds
assets and reports revenue. Medical Graphics adopted SFAS No. 131 in 1998.
Medical Graphics operates within a single operating segment.
COMPREHENSIVE EARNINGS (LOSS)--Comprehensive earnings (loss) is a measure of
all nonowner changes in shareholders' equity and includes such items as net
earnings, certain foreign currency translation items, minimum pension liability
adjustments, and changes in the value of available-for-sale securities. In 1998,
1997, and 1996, comprehensive earnings (loss) for Medical Graphics was the same
as net earnings (loss) as reported.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1997
financial statements to conform to the classifications used in 1998. These
reclassifications had no effect on previously reported net loss or shareholders'
equity.
2. INVENTORIES
Medical Graphics inventories consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
SEPTEMBER 30, -------------------
1999 1998 1997
------------- -------- --------
<S> <C> <C> <C>
Purchased components and work-in-process........ $3,303 $2,941 $3,164
Finished goods.................................. 2,246 1,976 1,636
------ ------ ------
$5,549 $4,917 $4,800
====== ====== ======
</TABLE>
82
<PAGE>
MEDICAL GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
3. EQUIPMENT AND FIXTURES
At December 31, Medical Graphics' equipment and fixtures consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Building improvements....................................... $ 742 $ 733
Computer equipment.......................................... 1,548 1,491
Manufacturing equipment..................................... 933 933
Furniture and fixtures...................................... 869 915
------ ------
Total equipment and fixtures, at cost....................... 4,092 4,072
Less accumulated depreciation............................... 3,574 3,110
------ ------
$ 518 $ 962
====== ======
</TABLE>
4. GEOGRAPHIC INFORMATION
Medical Graphics manages its business on the basis of one reportable
segment. See Note 1 for a brief description of Medical Graphics' business. As of
December 31, 1998, Medical Graphics had operations established in various
countries throughout the world. Medical Graphics is exposed to the risk of
changes in social, political, and economic conditions inherent in foreign
operations, and Medical Graphics' results of operations are affected by
fluctuations in foreign currency exchange rates. In no single country outside
the United States did operations account for more than 10% of Medical Graphics'
net sales for 1998, 1997, and 1996. Net sales by geographic area are presented
by attributing revenues from external customers on the basis of where the
products are sold. Medical Graphics does not maintain significant assets in
foreign countries.
Net sales by geographic area (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States.................................... $17,770 $15,637 $14,863
International.................................... 2,679 3,536 5,426
------- ------- -------
$20,449 $19,173 $20,289
======= ======= =======
</TABLE>
83
<PAGE>
MEDICAL GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
5. INFREQUENT CHARGES
GERMANY:
During December 1996, the Board of Directors approved closing Medical
Graphics' sales and marketing subsidiary in Germany and authorized
implementation of a restructuring plan. Medical Graphics recorded a $550,000
charge to operations in the fourth quarter of 1996 related to expected exit
costs of the German office. Of this total, $250,000 was recorded as cost of
goods sold, $100,000 was recorded in general and administrative expenses, and
the remainder as an infrequent charge, primarily related to future lease
payments. During 1997, Medical Graphics recorded an additional $150,000
infrequent charge for severance to seven employees in its subsidiary in Germany.
The change in estimated liabilities in 1998 was due to several employees leaving
earlier than anticipated and a revision in the expected ultimate lease payments.
The following table shows the activity related to severance and exit costs
of the German office (in thousands):
<TABLE>
<S> <C>
Balance--January 1, 1996.................................... $ --
Provision................................................. 150
-----
Balance--December 31, 1996.................................. 150
Provision................................................. 150
Payments.................................................. (200)
-----
Balance--December 31, 1997.................................. 100
Provision................................................. --
Payments.................................................. (40)
Change in estimate........................................ (60)
-----
Balance--December 31, 1998.................................. $ --
=====
</TABLE>
DOMESTIC:
During 1997, Medical Graphics implemented certain domestic cost-cutting
strategies that resulted in $1,588,000 of infrequent charges, substantially all
of which were paid in 1997. Approximately $1,012,000 of these charges were for
professional services incurred in connection with the development and
implementation of the cost-cutting strategies. Included in these costs was
approximately $530,000 relating to the issuance of the stock and warrants.
Medical Graphics granted the former chairperson of Medical Graphics a warrant to
purchase 195,000 shares of common stock at a price of $2.67 per share in
exchange for certain consulting services to the Company. The warrant expires on
March 31, 2000. Medical Graphics also issued 45,000 shares of common stock and
granted a warrant to purchase 225,000 shares of common stock at a price of $2.25
per share to an individual for services provided in connection with the
development and implementation of the cost reduction plan. This warrant expires
on March 31, 2002. In addition, Medical Graphics paid approximately $243,000 to
the company where this individual is president in connection with certain
investment banking and consulting services. This individual also was elected the
chairman of the Board of Directors. The value for the warrants was estimated
using the Black-Scholes option-pricing model, and the value for the common stock
was calculated using the closing price of the stock on the day it was granted.
84
<PAGE>
MEDICAL GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
5. INFREQUENT CHARGES (CONTINUED)
The remaining $575,000 was severance costs related to the termination of
various employees. The following table shows the activity related to the
domestic severance charges (in thousands):
<TABLE>
<S> <C>
Balance--January 1, 1997.................................... $ --
Provision................................................. 576
Payments.................................................. (511)
----
Balance--December 31, 1997.................................. 65
Payments.................................................. (65)
----
Balance--December 31, 1998.................................. $ --
====
</TABLE>
These costs included payments of cash and stock to 26 employees and cash and
warrants paid to the former president and chairperson of the Board of Directors.
6. INCOME TAXES
Significant components of the income tax benefit are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal................................................. $ -- $ -- $(28)
State................................................... -- -- (20)
Deferred.................................................. -- -- --
--------- --------- ----
Income tax benefit........................................ $ -- $ -- $(48)
========= ========= ====
</TABLE>
85
<PAGE>
MEDICAL GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
6. INCOME TAXES (CONTINUED)
Significant components of Medical Graphics' deferred tax assets and
liabilities at December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Allowance for bad debts................................... $ 42 $ 58
Inventory reserve......................................... 69 69
Warranty reserve.......................................... 133 147
Other reserve............................................. 63
Vacation accrual.......................................... 36 48
Deferred service contract revenue......................... 58 60
Valuation allowance....................................... (338) (445)
------- -------
Total current......................................... -- --
Inventory capitalization.................................. 15 3
Capitalized software and patents.......................... (201) (214)
Net operating loss and tax credit carryforwards........... 4,635 3,806
Valuation allowance....................................... (4,449) (3,595)
------- -------
Total noncurrent...................................... -- --
------- -------
Net deferred tax assets................................... $ -- $ --
======= =======
</TABLE>
Reconciliations of Medical Graphics' expected income tax benefits computed
at the U.S. federal statutory tax rate to the income tax benefits recorded are
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income tax benefit at statutory rate............... $(552) $(1,789) $(2,926)
Increase in deferred tax asset valuation
allowance........................................ 747 1,139 2,615
Utilization of net operating loss carryforward
related to IRS audit adjustments for 1994 and
1993............................................. 613
Foreign tax loss................................... 172
Other.............................................. (195) 37 91
----- ------- -------
$ -- $ -- $ (48)
===== ======= =======
</TABLE>
As of December 31, 1998, Medical Graphics had federal net operating loss
carryforwards of $12,290,000 that expire from 2002 through 2012. The Internal
Revenue Service has examined Medical Graphics' income tax returns through
December 31, 1995. Total income taxes paid were $6,000, $24,000, and $26,000 in
1998, 1997, and 1996, respectively.
7. LEASES
Medical Graphics leases office and manufacturing facilities, automobiles,
and various office accessories. The building lease expires in 2002, at which
time Medical Graphics has an option to renew the lease for an additional four
years. Medical Graphics has the option to purchase the building at the end of
each lease expiration period at the building's fair market value.
86
<PAGE>
MEDICAL GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
7. LEASES (CONTINUED)
Future minimum lease payments under noncancelable operating leases with
remaining terms of one year or more consisted of the following at December 31,
1998 (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1999........................................................ $ 397
2000........................................................ 367
2001........................................................ 357
2002........................................................ 172
------
$1,293
======
</TABLE>
Rent expense for the years ended December 31, 1998, 1997, and 1996 was
$420,000, $490,000, and $494,000, respectively.
8. NOTE PAYABLE TO BANK
In March 1997, Medical Graphics obtained a new credit agreement with Norwest
Business Credit, Inc. (Norwest) that provides for total borrowings, based on
available collateral as defined, of up to $4,100,000, at the discretion of
Norwest, and expires March 31, 2000. The credit line allows Medical Graphics to
borrow up to 80% of eligible domestic accounts receivable, 40% of eligible
domestic inventory (not to exceed $1,500,000), and 90% of eligible foreign
accounts receivable. Medical Graphics' accounts receivable and inventories
secure total borrowings outstanding under the credit agreement. The credit
agreement contains certain restrictive covenants, including maintenance of
minimum net worth (as defined), earnings requirements, and debt service
requirements as well as limitations on capital expenditures and payment of
dividends.
Borrowings under the line of credit bear interest at the Norwest "base" rate
plus 4.0% (11.75% at December 31, 1998). The "base" rate is equal to the
interest rate publicly announced by Norwest Bank Minnesota, National Association
from time to time as its "base" rate. The line of credit contains a minimum
monthly interest charge of $15,000. In addition, Medical Graphics granted to
Norwest a three-year warrant to purchase 93,750 shares of the Company's common
stock at an exercise price of $2.25 per share. The value of this warrant
($73,000) is being amortized to interest expense over the term of the line of
credit. The warrant contained antidilution provisions and, as a result of
Medical Graphics' September 1998 issuance of common stock, the warrant exercise
price decreased to $1.00 per share and the shares issuable under the warrant
increased to 210,937 shares.
Medical Graphics had outstanding borrowings of $3,291,000 and $2,254,000 at
December 31, 1998 and 1997, respectively, and at December 31, 1998 had
additional borrowing availability of $744,000. Total cash paid for interest was
$454,000, $329,000, and $167,000 for the years ended December 31, 1998, 1997,
and 1996, respectively. Medical Graphics amended its line of credit agreement in
June and November 1997 as well as March, August, and September 1998. As of
December 31, 1998, Medical Graphics was in technical default of its minimum net
income and minimum debt service coverage ratio covenants. These technical
defaults were waived through an amendment to the line of credit agreement on
March 29, 1999.
87
<PAGE>
MEDICAL GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
9. CAPITAL STOCK
In June 1998, Medical Graphics distributed a three-for-two stock split
effected in the form of a stock dividend. All share and per share data have been
adjusted to reflect this stock split.
In March 1997, Medical Graphics' Board of Directors authorized 500,000
shares of a new class of convertible stock (Class A stock). The Class A stock
has voting rights. Each share was originally convertible into 1.5 shares of
common stock. Medical Graphics issued 444,000 shares of the new class of stock
receiving net proceeds of $1,456,000. These shares have a liquidation preference
of $3.38 per share, aggregating $1,500,000 at December 31, 1998.
In October 1997, Medical Graphics' Board of Directors authorized the
issuance of additional common stock in a private sale to investors. On
November 10, 1997 Medical Graphics agreed to sell up to 1,096,000 shares of
Medical Graphics' common stock at a price of $2.75 per share. The investors
purchased 545,000 shares for $1,500,000 (less costs of issuance of $88,000) on
November 10, 1997 and 545,000 shares for $1,500,000 (less costs of issuance of
$31,000) in January and February of 1998.
In September 1998, Medical Graphics' Board of Directors authorized the
issuance of additional common stock in a private sale to investors. On
September 30, 1998 the investors purchased 550,000 shares for $550,000 (less
costs of issuance of $49,000).
Medical Graphics' Class A stock contained antidilution provisions. As a
result of the September 1998 offering, 444,000 shares of class A stock are now
convertible into 1,500,000 shares of common stock.
10. STOCK OPTION PLANS, EMPLOYEE STOCK PURCHASE PLAN, AND 401(K) PLAN
Medical Graphics has an Employee Incentive Stock Option Plan under which a
total of 1,350,000 shares have been reserved for issuance, with 276,000 shares
remaining reserved and unissued at December 31, 1998. Options are generally
issued at prices not less than the fair market value at the date of grant and
become exercisable over a one- to five-year period. Also, under the option plan,
nonqualified options have been issued to an officer and certain nonemployees.
These options become exercisable over a one- to ten-year period following the
date of grant.
Medical Graphics also has a Nonemployee Director Compensation Plan, which
provides for the granting of nonqualified options for up to 675,000 shares of
common stock to nonemployee members of the Board of Directors as well as the
Chairman of the Board. Under the plan, an option to purchase 15,000 shares of
common stock will be granted automatically when an eligible director is first
elected to the Board of Directors of Medical Graphics. An option to purchase
2,250 shares (4,500 shares for the Chairman of the Board) will be granted
automatically following each board meeting personally attended by each director,
not to exceed 13,500 shares (27,000 shares for the Chairman of the Board) per
director annually. An option to purchase 750 shares will be granted
automatically following each board committee meeting personally attended by each
director, not to exceed 2,250 shares per director annually. The option exercise
price per share will not be less than the fair market value of the common stock
on the date of grant. All options granted under the plan become exercisable one
year after the date of grant.
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MEDICAL GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
10. STOCK OPTION PLANS, EMPLOYEE STOCK PURCHASE PLAN, AND 401(K) PLAN
(CONTINUED)
A summary of option activity is as follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
EMPLOYEE WEIGHTED WEIGHTED
INCENTIVE AVERAGE NONQUALIFIED AVERAGE
STOCK OPTIONS EXERCISE STOCK OPTIONS EXERCISE
OUTSTANDING PRICE OUTSTANDING PRICE
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1995...... 332 $4.41 347 $5.03
Granted......................... 143 3.91 247 3.68
Exercised....................... (67) 3.00
Canceled or expired............. (84) 5.67 (3) 2.00
---- ----
Balance at December 31, 1996...... 324 4.09 591 4.48
Granted......................... 400 2.46 312 2.43
Canceled or expired............. (246) 4.19 (554) 4.45
---- ----
Balance at December 31, 1997...... 478 2.68 349 2.69
Granted......................... 263 1.20 294 2.34
Exercised....................... (3) 2.87
Canceled or expired............. (238) 2.38 (14) 4.84
---- ----- ---- -----
Balance at December 31, 1998...... 500 $1.96 629 $2.43
==== ===== ==== =====
Exercisable at December 31,
1997............................ 124 $3.17 214 $2.71
==== ===== ==== =====
Exercisable at December 31,
1998............................ 200 $2.53 333 $2.51
==== ===== ==== =====
</TABLE>
Medical Graphics' Employee Stock Purchase Plan (the ESP Plan), a qualified
plan pursuant to Internal Revenue Code Section 423, became effective in
May 1993. The ESP Plan gives eligible employees an opportunity to purchase
Medical Graphics' common stock, through payroll deductions not exceeding 15% of
eligible compensation, at a per share price of 85% of the lesser of the fair
value on the first day or the last day of each six-month purchase period. The
six-month purchase periods begin on July 1 and January 1 of each year.
Participating employees may purchase a maximum of 5,000 shares during each
purchase period and no more than $25,000 of fair value of stock in each calendar
year. A total of 300,000 shares has been authorized for issuance under the ESP
Plan. Shares issued under the ESP Plan in 1998, 1997, and 1996 were 20,000,
24,000, and 27,000 shares, respectively. The ESP Plan will terminate on
January 1, 2003, unless extended by the Board of Directors.
In 1996, Medical Graphics adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. The Company has elected to continue following the accounting
guidance of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, for measurement and recognition of stock-based transactions
with employees. No compensation cost has been recognized for options issued
under the stock option plans, because the exercise price of all options granted
was at least equal to the fair value of the common stock on the date of the
grant. Had compensation costs for the stock options issued to certain directors
and employees and common stock issued under the ESP Plan been determined at the
grant date, based on the fair value provisions of SFAS No. 123, Medical
Graphics' 1998, 1997, and 1996 pro forma net
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MEDICAL GRAPHICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
10. STOCK OPTION PLANS, EMPLOYEE STOCK PURCHASE PLAN, AND 401(K) PLAN
(CONTINUED)
loss would have been ($2,058,000), ($5,535,000), and ($8,593,000), respectively,
and basic and dilutive net loss per share would have been ($.34), ($1.24), and
($2.25), respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: dividend yield of 0%; a risk-free interest rate of 4.7%, 6.5%, and
6.1% in 1998, 1997, and 1996, respectively; an expected life of 5, 7, and
10 years in 1998, 1997, and 1996, respectively; and expected volatility of 47%,
54%, and 44% in 1998, 1997, and 1996, respectively. The weighted average fair
value of options issued in 1998, 1997, and 1996 was $0.80, $1.66, and $2.21,
respectively.
Substantially all employees of Medical Graphics may participate in a defined
contribution plan established under the provisions of Section 401(k) of the
Internal Revenue Code. The plan generally provides for a contribution by the
employee of up to 15% of their gross earnings with a 25% matching contribution
by the Company on the first 6% of gross earnings. Medical Graphics did not
contribute to the plan in 1998 and expensed contributions to the plan of
approximately $12,000 and $62,000 in 1997 and 1996, respectively.
11. RELATED-PARTY TRANSACTIONS
A former officer and director of Medical Graphics is the president of
ErgometRx Corporation. ErgometRx Corporation possesses certain proprietary
information and prototype hardware relating to an exercise bike used for stress
testing and physical exercise. The Company has obtained an exclusive license to
manufacture and sell products utilizing this proprietary information in certain
markets under a five-year royalty agreement. Under this agreement, Medical
Graphics paid no royalties for 1998 or 1997, and $40,000 in 1996.
An officer/Chairperson of the Board of Directors of Medical Graphics who
resigned in March 1997 is also the president of e-med.OnCall, Inc. During 1996,
the Chairperson began a transition from Medical Graphics to e-med.OnCall, Inc.
As part of this transition, Medical Graphics transferred equipment with a net
book value of approximately $75,000 to a new office for the Chairperson and paid
certain administrative expenses in the amount of approximately $60,000 with
respect to that office. This office also serves as the office for
e-med.OnCall, Inc. All such amounts were recorded as administrative expense
during 1996.
The current Chairman of the Board of Directors is the president of
Manchester. As part of the cost reduction plan in 1997, the Board of Directors
engaged Manchester to provide investment banking and management consulting
services to Medical Graphics. Fees aggregating $120,000 and $265,000 for 1998
and 1997, respectively, were paid to Manchester for those services. In addition,
Medical Graphics was paid $10,000 for administrative services that were provided
to Manchester.
12. LITIGATION
Medical Graphics is a defendant in various claims and litigation which are
incidental to its business. Management is of the opinion that certain of these
matters are covered by insurance and that ultimate settlement of these matters
will not have a material impact on its consolidated financial statements.
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DESCRIPTION OF COMMON STOCK
THE SUMMARY OF THE TERMS OF THE COMMON STOCK OF THE COMPANY SET FORTH BELOW
DESCRIBES THE PURPOSE AND EFFECT OF MATERIAL TERMS CONTAINED IN THE COMPANY'S
ARTICLES OF INCORPORATION AND BY-LAWS.
AUTHORIZED COMMON STOCK. Under the Articles of Incorporation, the Company's
authorized capital stock consists of 7,500,000 shares of Common Stock, and
3,000,000 shares of preferred stock, which may be issued in one or more series
as determined from time to time by the Board of Directors.
As of November 1, 1999, 4,009,109 shares of Common Stock were issued and
outstanding. An additional 196,228 shares are reserved for future issuance under
the Company's stock incentive, stock compensation and employee stock purchase
plans.
The Shareholders are entitled to receive ratably, from funds legally
available for the payment thereof, dividends when and as declared by resolution
of the Board of Directors, subject to any preferential dividend rights which may
be granted to holders of any preferred stock authorized and issued by the Board
of Directors. In the event of liquidation, each share of Common Stock is
entitled to share pro rata in any distribution of the Company's assets after
payment or providing for the payment of liabilities and any liquidation
preference of any preferred stock authorized and issued by the Board of
Directors. Each holder of shares of Common Stock is entitled to one vote for
each share of Common Stock held of record on the applicable Shareholder Record
Date on all matters submitted to a vote of Shareholders, including the election
of directors.
Holders of Common Stock have no voting rights or preemptive rights to
purchase or subscribe for any stock or other securities, and there are no
conversion rights or redemption rights or sinking fund provisions with respect
to the Common Stock. The outstanding shares of Common Stock are duly authorized,
validly issued, fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR. Norwest Bank Minnesota, National Association,
is the transfer agent and registrar for the Company's Common Stock.
STOCK EXCHANGE LISTING. The Company's Common Stock is currently listed on
the Nasdaq National Market under the symbol "ANGN".
REQUIRED MAJORITIES. The election of a nominee for Director and the
approval of each of the other proposals described in this Proxy
Statement/Consent Solicitation, other than the proposals, to approve each of the
Agreements, requires the approval of a majority of the shares present and
entitled to vote in person or by proxy on that matter (and at least a majority
of the minimum number of votes necessary for a quorum to transact business at
the Annual Meeting). Since the Articles of Incorporation require the affirmative
vote of the holders of two-thirds of the outstanding shares of Common Stock
entitled to vote on a proposal to approve the sale and transfer of substantially
all of the property and assets of the Company, if Shareholders whose shares are
held in street name by brokers fail to provide specific instructions with
respect to their shares of Common Stock to their broker or such Shareholders
explicitly abstain from voting on the proposal to approve either of the
Agreements, the effect will be the same as a vote against the approval of such
proposal.
DESCRIPTION OF NOTES
THE SUMMARY OF THE TERMS OF THE NOTES SET FORTH BELOW DESCRIBES THE PURPOSE
AND EFFECT OF MATERIAL TERMS CONTAINED IN THE INDENTURE AND THE COMPANY'S
ARTICLES OF INCORPORATION AND BY-LAWS.
NOTES. Under the terms of the Indenture, the Company issued the Notes. The
Notes were issued in registered form, without coupons, and in denominations of
$25,000 and integral multiples of $1,000 in excess thereof. The Notes were
issued in an original principal amount equal to $22,150,000, with $20,198,000
aggregate principal amount outstanding as of November 1, 1999.
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The Notes are senior unsecured obligations of the Company ranking PARI PASSU
in right of payment to all existing and future indebtedness of the Company,
other than indebtedness that is expressly subordinated to the Notes. The Notes
are also effectively subordinated to any secured indebtedness of the Company to
the extent of the value of assets securing such indebtedness and to any
liabilities of the Company's subsidiaries.
The Notes bear interest from April 15, 1998, at 7 1/2% per annum, and mature
on April 15, 2003. Interest on the Notes is payable semi-annually on April 15
and October 15 of each year.
The Notes are not subject to redemption prior to April 14, 2001 and will be
redeemable on such date and thereafter at the option of the Company, in whole or
in part at a redemption price equal to 100% of the principal amount thereof
together with accrued and unpaid interest, if any, up to the redemption date
(subject to the right of holders of record on the relevant record date to
receive interest due on an interest payment date). On and after the redemption
date, interest will cease to accrue on the Notes, or portion thereof, called for
redemption.
Upon the occurrence of a Designated Event (defined below), each Note Holder
has the right to require the Company to repurchase all or any part of such
holder's Notes at a repurchase price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, including any liquidated
damages payable pursuant to any registration rights agreement, if any, thereon.
A "Designated Event" will be deemed to have occurred upon a "Change of Control"
or a "Termination of Trading".
A "Termination of Trading" will be deemed to have occurred if the Common
Stock (or other securities into which the Notes are then convertible) is neither
listed for trading on a United States national securities exchange nor approved
for trading on an established automated over-the-counter trading market in the
United States.
Each Note Holder has the right, exercisable at any time after 90 days
following the date of original issuance thereof and prior to the maturity, to
convert the principal amount of the Note into Common Stock at a conversion price
of $15.258 per share of Common Stock, except if a Note is called for redemption.
TRUSTEE, TRANSFER AGENT AND REGISTRAR. U.S. Bank National Association is
the trustee, transfer agent and registrar for the Notes.
PROPOSAL 4
AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved an amendment to Article 3.1 of the
Company's Articles of Incorporation that would increase the number of authorized
shares of Common Stock from 7,500,000 shares to 10,000,000 shares. The Board of
Directors believes the adoption of this amendment is in the best interests of
Shareholders and recommends that Shareholders vote in favor of this proposal. In
the event that the proposal to increase the number of authorized shares of
Common Stock as described herein is not approved, there will be an insufficient
number of shares of Common Stock available for issuance under the Director Plan,
as such plan is proposed to be amended as described in this Proxy
Statement/Consent Solicitation. See "AMENDMENTS TO COMPANY'S 1994 NON-EMPLOYEE
DIRECTOR PLAN".
As of November 1, 1999, there were 4,009,109 shares of Common Stock
outstanding. An additional 196,228 shares are reserved for future issuance under
the Company's stock incentive, stock compensation and employee stock purchase
plans. Options to purchase an additional 111,842 shares have been issued outside
of such plans. The Company has also reserved 2,006,199 shares for issuance under
warrants issued by the Company and 1,323,765 shares for issuance upon conversion
of the Notes. As of November 1, 1999, 3,638,034 shares of Common Stock were
reserved for issuance under all contractual or other commitments of the Company.
Prior to issuing warrants to purchase shares of Common Stock to
Sanofi-Synthelabo in
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March 1999, which issuance resulted in the commitments of the Company to issue
shares of its Common Stock being in excess of the number of authorized but
unissued shares of Common Stock, the Board of Directors took formal action to
authorize the repurchase of such additional number of shares of Common Stock in
the open market as would be necessary to satisfy the obligations of the Company
to issue shares of its Common Stock in the event that the authorized but
unissued shares available to the Company were insufficient to satisfy such
commitments. If the proposal to approve the ELA Agreement is approved by
Shareholders and Note Holders holding the requisite number of Notes by aggregate
principal amount consent to the proposals to supplement the Indenture in
connection with the consummation of the transactions contemplated by the
Agreements, the Company will receive all the Sanofi-Synthelabo Owned Securities
as of the Closing Date. See "APPROVAL OF THE SALE AND TRANSFER OF ASSETS". This
would leave 2,496,009 shares available for general corporate purposes. If the
proposal to approve the ELA Agreement is not approved by the Shareholders or
Note Holders holding the requisite amount of Notes by aggregate principal amount
do not consent to the proposals to supplement the Indenture in connection with
the consummation of the transactions contemplated by the Agreements, there would
not be any shares available for general corporate purposes. The last time the
Shareholders authorized an increase in the number of shares of Common Stock was
during a special meeting of the Company held on March 20, 1998. Since such time,
shares issued under the various plans of the Company in addition to the
significant number of shares of Common Stock and warrants to purchase shares of
Common Stock issued to Sanofi-Synthelabo have reduced the number of shares of
Common Stock available for issuance by the Company to a level insufficient to
meet the Company's current needs. The Board of Directors believes the Company
needs additional authorized shares in order to provide the Company with the
flexibility to use Common Stock, or securities convertible into Common Stock
(such as its preferred stock), for any future public offerings, private
placements, acquisitions or stock dividends. Such activities might require more
shares of Common Stock than currently would be available to the Company. At this
time, however, the Company has no plan or proposal to use additional shares for
any purpose other than to insure that sufficient shares are authorized and
reserved for the Company's existing obligations.
The newly authorized Common Stock would be identical to the existing
authorized Common Stock in all respects. The holders of shares of Common Stock
are entitled to receive ratably such dividends as may be declared by the Board
of Directors out of funds legally available therefor. On any liquidation of the
Company, after payment of all indebtedness, the assets of the Company will be
distributed pro rata to the holders of the Common Stock, subject to such rights
as may have been granted to any holders of preferred stock. Other than Hanrow
Financial and Sanofi-Synthelabo, the Company's Shareholders do not have
preemptive rights with respect to the Common Stock. Therefore, should the Board
of Directors elect to issue additional shares of Common Stock, existing
Shareholders, other than Hanrow Financial and Sanofi-Synthelabo, would not have
any preferential rights to purchase such shares, and any such issuances could,
therefore, have a dilutive effect on the shareholdings of current Shareholders.
Holders of the Common Stock are entitled to one vote for each share held on each
matter submitted to a vote of Shareholders. Cumulative voting for the election
of directors is not permitted. Accordingly, the owners of the majority of the
shares outstanding may elect all of the directors, if they choose to do so, and
the owners of the balance of such shares would not be able to elect any
directors.
Although the Board of Directors has no present plans to do so, authorized
and unissued Common Stock and preferred stock could be issued in one or more
transactions with terms, provisions and rights which would make more difficult,
and less likely, a takeover of the Company. Any such issuance of additional
shares could have the effect of diluting the earnings per share and book value
per share of existing shares of Common Stock, and such additional shares could
be used to dilute the share ownership of persons seeking to obtain control of
the Company. Potentially, the Company's newly authorized Common Stock could be
used to create voting impediments or to frustrate persons seeking to effect a
merger or otherwise gain control of the Company. Also, the Common Stock could be
privately placed with purchasers who might side with the management of the
Company in opposing a hostile tender offer or other attempt to obtain control.
In addition, the Board of Directors could, although it has no present
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intention of doing so, authorize the issuance of Common Stock or preferred stock
to a holder who might thereby obtain sufficient voting power to ensure that any
proposal to remove directors would not receive the requisite Shareholder vote
required to remove the directors. Issuance of Common Stock or preferred stock as
an anti-takeover device might preclude Shareholders from taking advantage of a
situation which they may consider to be favorable to their interests.
The Company also has certain other mechanisms in place that may have an
anti-takeover effect. The Company's Articles of Incorporation (i) authorize the
Board of Directors, without any action by the Shareholders, to establish the
rights and preferences of up to 3,000,000 shares of undesignated preferred stock
(of which 1,225,000 shares remain undesignated as of the date of this Proxy
Statement/Consent Solicitation) and (ii) provide that the affirmative vote of at
least two-thirds of the voting power of the shares entitled to vote is necessary
in connection with a merger, consolidation or transfer of substantially all of
the Company's assets. Moreover, in April 1996 the Board of Directors adopted a
Shareholder Rights Plan (the "Rights Plan") designed to protect the Company and
its Shareholders from unsolicited attempts or inequitable offers to acquire the
Company. Pursuant to the Rights Plan, each share of Common Stock now outstanding
has, and each share of Common Stock to be issued in the future prior to the
occurrence of certain events will have, attached to it one right to purchase a
fraction of a share of a new series of preferred stock. The Company has also
entered into a change in control agreement with one of its executive officers
that provides for the payment of certain benefits to such executive officer upon
the earlier of one week after the closing of the transaction contemplated by the
Medical Graphics Agreement or December 31, 1999, unless a new date is mutually
agreed upon. See "ELECTION OF DIRECTORS--Change in Control Agreements".
The affirmative vote of the holders of a majority of the Common Stock
represented at the meeting and entitled to vote is necessary to approve the
proposed amendment to the Articles of Incorporation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE FOLLOWING
PROPOSED RESOLUTION:
RESOLVED, that Article 3.1 of the Company's Articles of Incorporation be
amended to read as follows:
3.1 The Corporation shall have the authority to issue an aggregate of
ten million (10,000,000) shares of Common Stock, each with $0.01 par value.
Such shares shall be designated as this corporation's "Common Stock".
FURTHER RESOLVED, that the officers be, and they hereby are, authorized and
directed to execute such documents and certificates and take such other
actions as may be necessary or appropriate to give effect to the foregoing
resolution.
PROPOSAL 5
AMENDMENTS TO COMPANY'S 1994 NON-EMPLOYEE DIRECTOR PLAN
INTRODUCTION
The Director Plan provides for: (i) an annual grant of shares of Common
Stock equal to $24,000, as determined by the fair market value of one share of
Common Stock on the date of grant, and (ii) an automatic annual grant of an
option to purchase 3,000 shares of Common Stock to members of the Board of
Directors who are not also employees of the Company, upon the election or
re-election to the Board of Directors, as the case may be, of each non-employee
director of the Company. The Director Plan, as currently in effect, allows for
the issuance of a maximum of 20,000 shares of Common Stock. The Board of
Directors believes that the Director Plan advances the interests of the Company
and its Shareholders by (i) increasing the proprietary interests of non-employee
directors in the Company's long-term success and more closely aligning the
interests of such directors with the interests of the Shareholders, and
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(ii) providing an additional means by which the Company can attract and retain
experienced and knowledgeable people to serve as directors.
AMENDMENTS
The Board of Directors amended the Director Plan on October 1, 1999 to
(i) extend the term of the Director Plan by five years to October 7, 2004, and
(ii) increase the number of shares of Common Stock issuable under the Director
Plan from 20,000 shares to 250,000 shares. The amendments to the Director Plan
are subject to approval by the Shareholders at the Annual Meeting.
REASON FOR THE AMENDMENTS
Prior to the amendments, the Director Plan would have terminated on
October 7, 1999. The Board of Directors believes the Director Plan has been
effective in (i) increasing the proprietary interests of non-employee directors
in the Company's long-term success and more closely aligning the interests of
such directors with the interests of the Shareholders, and (ii) providing an
additional means by which the Company can attract and retain experienced and
knowledgeable people to serve as directors. Accordingly, the Board of Directors
amended the Director Plan to extend its term by five years to October 7, 2004.
Of the maximum number of 20,000 shares of Common Stock that were available
for issuance under the Director Plan prior to its amendments, approximately
18,500 shares have been issued as Director Stock Awards or reserved for issuance
upon the exercise of Director Options. The increase in the number of shares
issuable under the Director Plan, as provided by the amendments, is required to
provide shares for the full issuance of the Director Stock Awards and Director
Option grants to be made as of the date of the Annual Meeting.
Director Stock Awards and Director Options are made automatically to each
non-employee director on the date the director is elected or re-elected to the
Board of Directors by the Shareholders as compensation for the upcoming year in
which the director will serve. The Director Stock Awards and Director Options
received by non-employee directors at the annual meeting held on December 10,
1997, provided compensation for the fiscal year from August 1, 1997 through
July 31, 1998. The Director Stock Awards and Director Options to be received by
non-employee directors, assuming approval of the amendments to the Director Plan
at the Annual Meeting to be held on December 31, 1999 will provide them with
compensation for their services for the fiscal year from January 1, 1999 through
December 31, 1999.
In order to compensate the non-employee directors for their services during
the transition period from August 1, 1998 through December 31, 1998 resulting
from the change in the Company's fiscal year, the Director Plan has also been
amended to provide that each non-employee director who had served during such
period (other than Mr. Wilson who, upon his appointment to the Board of
Directors in July 1998, received a pro rata Director Option and Director Stock
Award for his services through December 31, 1998) will receive a pro rata grant,
as of the date of the Annual Meeting, of options to purchase 1,250 shares of
Common Stock. In addition, in lieu of a Director Stock Award for the transition
period from August 1, 1998 through December 31, 1998, each eligible non-employee
director also received a cash payment of $10,000.
SUMMARY OF THE DIRECTOR PLAN
The following summary of the principal features of the Director Plan, as
amended, describes the purpose and effect of material terms contained in the
Director Plan, a copy of which may be obtained from the Company.
SHARES AVAILABLE UNDER THE DIRECTOR PLAN. The shares of Common Stock
issuable under the Director Plan will be authorized but unissued shares. If
there is any change in the corporate structure or shares of
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the Common Stock of the Company such as in connection with a merger,
recapitalization, stock split, stock dividend, or other extraordinary dividend
(including a spin-off), the aggregate number and kind of securities subject to
Director Options under the Director Plan, the number of shares issuable upon the
exercise of Director Options and the exercise price of Director Options will be
appropriately adjusted to prevent dilution or enlargement of rights of
participants. If any Director Option terminates, expires or is canceled without
having been exercised in full, then such unexercised shares subject to the
Director Option will automatically again become available for issuance under the
Director Plan.
ELIGIBILITY. All directors of the Company who are not employees of the
Company or its subsidiaries are eligible to participate in the Director Plan.
DIRECTOR OPTION GRANTS. Annual grants of Director Options to purchase 3,000
shares of Common Stock are made automatically to each non-employee director on
the date the director is elected or re-elected to the Board of Directors by the
Shareholders. Non-employee directors who are elected or appointed to fill
vacancies or newly created directorships following the date of an annual meeting
but prior to the beginning of the next fiscal year receive pro-rata grants of
Director Options for their services between the date of their election or
appointment and the date of the next annual meeting. The exercise price per
share of each Director Option granted under the Director Plan is 100% of the
fair market value of the underlying Common Stock on the date the Director Option
is granted. Payment for stock purchased upon the exercise of a Director Option
must be made in full in cash at the time of exercise. A Director Option granted
under the Director Plan becomes exercisable in full six months after its date of
grant, and expires 10 years from its date of grant. If an eligible director's
service as a director is terminated due to death or disability, all outstanding
Director Options then held by the director become exercisable in full and remain
exercisable for a period of one year after such death or disability (but in no
event after the expiration date of the Director Option). If a director's service
is terminated for any other reason, all outstanding Director Options then held
by the director remain exercisable for a period of three months after
termination of service as a director to the extent such Director Options were
exercisable as of such termination.
DIRECTOR STOCK AWARDS. Annual grants of such number of shares of Common
Stock equal to $24,000, as determined by the fair market value of one share of
Common Stock on the date of grant, are made automatically to each non-employee
director on the date the director is elected or re-elected to the Board of
Directors by Shareholders. Non-employee directors who are elected or appointed
to fill vacancies, or newly created directorships following the date of an
annual meeting but prior to the beginning of the next fiscal year receive
pro-rata grants of Director Stock Awards for their services between the date of
their election or appointment and the date of the next annual meeting.
ADMINISTRATION OF THE DIRECTOR PLAN. The Director Plan is administered by
the Compensation Committee. The Compensation Committee, however, has no
authority or discretion to determine eligibility for participation in the
Director Plan, the number of shares of Common Stock to be subject to Director
Options or Director Stock Awards granted under the Director Plan, or the timing,
pricing or other terms and conditions of such Director Options or Director Stock
Awards.
AMENDMENT AND TERMINATION OF THE DIRECTOR PLAN. The Board of Directors may
amend the Director Plan in any respect as it deems advisable. No such amendment,
however, will be effective without the approval of the Shareholders if
Shareholder approval of the amendment is required by federal securities laws or
the rules of the Nasdaq National Market System. Prior to the amendments, the
Director Plan would have terminated on October 7, 1999. After the amendments,
the Director Plan will terminate on October 7, 2004, but may be terminated prior
to such date by action of the Board of Directors.
NON-TRANSFERABILITY OF DIRECTOR OPTIONS. No Director Option granted under
the Director Plan may be transferred by a participant for any reason or by any
means, except by will or by the laws of descent and distribution.
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FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based on
current statutes, regulations and interpretations. The description does not
include state or local income tax consequences. In addition, the description is
not intended to address specific tax consequences applicable to an individual
participant who receives a Director Option or Director Stock Award.
DIRECTOR OPTIONS. Director Options granted under the Director Plan do not
qualify as incentive stock options within the meaning of Section 422 of the
Code. Generally, neither the non-employee director nor the Company incurs any
federal income tax consequences as a result of the grant of a Director Option.
Upon exercise of a Director Option, the non-employee director will recognize
ordinary compensation income in an amount equal to the difference between
(i) the fair market value of the shares purchased, determined on the day of
exercise, and (ii) the consideration paid for the shares. At the time of a
subsequent sale or disposition of any shares of Common Stock obtained upon
exercise of a Director Option, any gain or loss will be a capital gain or loss.
Whether the gain (or loss) constitutes long-term or short-term capital gain (or
loss) will depend upon the length of time the non-employee director held the
stock prior to its disposition. Non-employee directors should consult their tax
advisors to determine whether any specific gain (or loss) constitutes long-term
or short-term capital gain (or loss).
In general, the Company will be entitled to a compensation expense deduction
in connection with the exercise of a Director Option for any amounts includable
in the taxable income of a non-employee director as ordinary compensation
income, provided the Company complies with any applicable withholding
requirements. The Company will be entitled to a deduction in the Company's tax
year in which the non-employee director is taxed.
DIRECTOR STOCK AWARDS. A non-employee director will recognize as ordinary
income in the year of grant of a Director Stock Award an amount equal to the
fair market value of a Director Stock Award on the date of grant ($24,000). In
such circumstances, the Company will receive a corresponding tax deduction for
any amounts includable in the taxable income of a non-employee director as
ordinary income.
AWARDS UNDER THE DIRECTOR PLAN
If the amendments to the Director Plan are approved by the Shareholders at
the Annual Meeting, Messrs. Wilson, Angeloni, Evans, Joyce, Kiser, Maurer and
Taylor, assuming each is re-elected as a director of the Company, will each be
granted as of the date of the Annual Meeting a Director Option and each will
receive a Director Stock Award. Mr. McFarlin, assuming he is re-elected as a
director of the Company, will be granted as of the date of the Annual Meeting
options to purchase 2,750 shares of Common Stock and shares of Common Stock
equal to $22,000 (in recognition of 11 months of service in 1999 as a
non-employee director).
BOARD OF DIRECTORS RECOMMENDATIONS
The Board of Directors recommends that the Shareholders vote FOR approval
and ratification of the foregoing amendments to the Director Plan as of
October 1, 1999. The affirmative vote of the holders of a majority of shares of
the Common Stock present in person or by proxy at the Annual Meeting, assuming a
quorum is present, is necessary for approval. Unless otherwise specified,
proxies solicited by the Board of Directors will be voted FOR approval of the
foregoing amendments to the Director Plan.
PROPOSAL 6
RATIFICATION OF COMPANY'S AUDITORS
The Board of Directors has appointed KPMG LLP as independent auditors of the
Company for the fiscal year ending December 31, 1999, and has further directed
that management submit the selection of independent auditors for ratification by
the Shareholders at the Annual Meeting. KPMG LLP, or its
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predecessors, has acted as independent auditors of the Company since the fiscal
year ended July 31, 1988. Representatives of KPMG LLP will be present at the
Annual Meeting, will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
GENERAL INFORMATION REGARDING THE COMPANY
The Company was incorporated in Minnesota in May 1986 for the purpose of
developing, manufacturing and selling medical products. The Company initially
used its engineering and manufacturing technologies to custom design and
manufacture products to customers' specifications while it devoted its research
and development capabilities to designing proprietary products.
Since 1991, the Company has been a participant in the cardiac stimulation
device market, represented primarily by the sale of ICDs. The Company has
developed several ICDs. ICDs are designed to treat abnormally rapid heartbeats
in the ventricular (or lower) chambers of the heart, a condition known as
ventricular tachycardia ("VT"), and a severe form of VT known as ventricular
fibrillation ("VF"), which if not terminated will lead to sudden cardiac death.
ICDs are electronic devices that are implanted within the body and are connected
to the heart with defibrillator leads. These devices monitor the patient's
heartbeat and, in the event of VT or VF, deliver an electrical shock to return
the heartbeat to normal rhythm.
The Company's principal executive offices are located at 7601 Northland
Drive, Brooklyn Park, Minnesota 55428-1088, and its telephone number is
(612) 315-2000.
SECTION 16(
a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with, except that
Dr. Kiser failed to timely file one report with respect to the exercise of an
option to purchase 24,000 shares of Common Stock.
OTHER BUSINESS
The Board of Directors does not intend to present to the Annual Meeting any
matter not referred to above and does not presently know of any matters that may
be presented to the meeting by others. However, if other matters properly come
before the meeting, it is the intention of the person named in the enclosed form
of proxy to vote the proxy in accordance with their best judgment.
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Any Shareholder proposal intended to be presented at the year 2000 annual
meeting of shareholders to be included in the Company's proxy statement for that
meeting must be received by the Company at its principal executive office no
later than January 1, 2000 in order to be included in such proxy statement.
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AVAILABLE INFORMATION
A copy of the Company's Annual Report on Form 10-K and 10-K/A for the year
ended December 31, 1998 and Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 are attached to this Proxy Statement/Consent Solicitation.
Shareholders and Note Holders should read this Proxy Statement/ Consent
Solicitation in conjunction with the attached reports. Additionally, the Company
is subject to the informational requirements of the Exchange Act , and in
accordance therewith files reports and other information with the Securities and
Exchange Commission.
The following documents, filed by Company with the Securities and Exchange
Commission pursuant to the Exchange Act, are hereby incorporated by reference:
1. Form 10-Q Quarterly Report for the quarterly period ended September 30,
1999.
2. Form 10-Q/A Quarterly Report for the quarterly period ended June 30,
1999.
3. Form 8-K Current Report dated September 22, 1999.
4. Form 10-Q Quarterly Report for the quarterly period ended June 30, 1999.
5. Form 10-Q Quarterly Report for the quarterly period ended March 31,
1999.
6. Form 10-K/A Annual Report for the fiscal year ended December 31, 1998.
7. Form 10-K Annual Report for the fiscal year ended December 31, 1998.
The reports, proxy statements and other information filed by the Company may
be inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following Regional Offices of the Securities
and Exchange Commission: the New York Regional Office, 7 World Trade Center,
13th Floor, New York, New York 10048; and the Chicago Regional Office, Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material may also be obtained at prescribed rates from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Securities and Exchange Commission maintains a Web
site (http://www.sec.gov) that contains reports, proxy statements and other
information filed electronically by the Company. The Common Stock is currently
listed on the Nasdaq National Market System under the symbol "ANGN". Reports and
other information concerning the Company may be inspected and copied at the
office of the Nasdaq National Market System at the following locations:
Washington D.C.--The Nasdaq Stock Market, 1735 K Street, NW, Washington, DC
20006, (202) 728-8000. New York--The Nasdaq Stock Market, 33 Whitehall Street,
New York, NY 10004, (212) 858-4000. California--The Nasdaq Stock Market, 2500
Sand Hill Road, Suite 220, Menlo Park, CA 94025 (650) 233-2000. Additionally,
the Company will provide, without charge, to each person to whom this Proxy
Statement/Consent Solicitation is delivered, upon written or oral request of
such person and by first class mail or other equally prompt means within one
business day of receipt of such request, a copy of any and all of the
information that has been incorporated by reference in the proxy statement (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that the proxy statement incorporates). Requests should be directed to Angeion
Corporation, 7601 Northland Drive, Minneapolis, Minnesota 55428-1088, Attention:
Todd Polzin, Corporate Controller; telephone number (612) 315-2000.
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ANNEX A
ELA AGREEMENT
<PAGE>
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BY AND AMONG
ANGEION CORPORATION
SANOFI-SYNTHELABO
AND
ELA MEDICAL
DATED
AUGUST 2, 1999
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF ASSETS.............................................. 1
1.1 PURCHASE AND SALE OF ASSETS................................. 1
1.2 ASSUMED LIABILITIES......................................... 2
ARTICLE II PURCHASE PRICE; CLOSING................................................. 2
2.1 PURCHASE PRICE.............................................. 2
2.2 TIME AND PLACE.............................................. 2
2.3 DELIVERIES.................................................. 3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER............................... 4
3.1 ORGANIZATION AND GOOD STANDING.............................. 4
3.2 AUTHORITY; BINDING EFFECT; PERFORMANCE...................... 4
3.3 CONSENTS AND APPROVALS; NO VIOLATIONS....................... 5
3.4 ABSENCE OF UNDISCLOSED LIABILITIES.......................... 5
3.5 NO CLAIMS OR LITIGATION..................................... 5
3.6 TITLE TO ASSETS AND RELATED MATTERS......................... 5
3.7 INTELLECTUAL PROPERTY....................................... 5
3.8 CONTRACTS................................................... 6
3.9 PERMITS..................................................... 6
3.10 COMPLIANCE WITH APPLICABLE LAW.............................. 7
3.11 BROKERS AND FINDERS......................................... 7
3.12 ABSENCE OF OTHER AGREEMENT FOR SALE OF ASSETS............... 7
3.13 PROXY STATEMENT............................................. 7
3.14 DISCLOSURE.................................................. 7
3.15 RELIANCE.................................................... 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER.................. 8
4.1 ORGANIZATION AND GOOD STANDING.............................. 8
4.2 AUTHORITY; BINDING EFFECT; PERFORMANCE...................... 8
4.3 CONSENTS AND APPROVALS; NO VIOLATIONS....................... 8
4.4 BROKERS AND FINDERS......................................... 8
ARTICLE V COVENANTS................................................................ 8
5.1 CONDUCT PENDING CLOSING..................................... 8
5.2 PROXY STATEMENT............................................. 9
5.3 ACCESS TO INFORMATION....................................... 10
5.4 NOTICE AND CURE............................................. 10
5.5 BEST EFFORTS................................................ 11
</TABLE>
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<S> <C> <C>
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF PARENT AND PURCHASER................... 11
6.1 REPRESENTATIONS AND WARRANTIES TRUE......................... 11
6.2 PERFORMANCE................................................. 11
6.3 APPROVALS, PERMITS, CONSENTS................................ 11
6.4 SHAREHOLDER AND SENIOR NOTE HOLDER APPROVAL................. 11
6.5 DELIVERY OF CLOSING DOCUMENTS............................... 12
6.6 ABSENCE OF CERTAIN EVENTS................................... 12
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF SELLER................................ 12
7.1 REPRESENTATIONS AND WARRANTIES TRUE......................... 12
7.2 PERFORMANCE................................................. 12
7.3 APPROVALS, PERMITS, CONSENTS................................ 12
7.4 SHAREHOLDER AND SENIOR NOTE HOLDER APPROVAL................. 12
7.5 DELIVERY OF CLOSING DOCUMENTS............................... 12
7.6 ABSENCE OF CERTAIN EVENTS................................... 12
ARTICLE VIII TERMINATION........................................................... 13
8.1 TERMINATION................................................. 13
8.2 EFFECT OF TERMINATION....................................... 13
ARTICLE IX POST-CLOSING COVENANTS.................................................. 13
9.1 ACCESS AFTER CLOSING........................................ 13
9.2 FURTHER ASSURANCES.......................................... 14
9.3 SUPPLY AGREEMENTS........................................... 14
ARTICLE X INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES.............. 14
10.1 INDEMNITY OBLIGATIONS OF SELLER............................. 14
10.2 INDEMNITY OBLIGATIONS OF PARENT AND PURCHASER............... 15
10.3 INDEMNIFICATION PROCEDURES.................................. 15
10.4 DURATION.................................................... 16
ARTICLE XI MISCELLANEOUS PROVISIONS................................................ 16
11.1 EXPORT CONTROLS............................................. 16
11.2 FEES AND EXPENSES........................................... 16
11.3 SEVERABILITY................................................ 17
11.4 ENTIRE AGREEMENT; AMENDMENTS................................ 17
11.5 NOTICES..................................................... 17
11.6 SUCCESSORS AND ASSIGNMENT................................... 18
11.7 NO THIRD PARTY BENEFICIARIES................................ 18
11.8 NO WAIVER................................................... 18
11.9 PUBLICITY................................................... 18
11.10 COUNTERPARTS................................................ 18
</TABLE>
ii
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<TABLE>
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<S> <C> <C>
11.11 HEADINGS.................................................... 18
11.12 ENGLISH LANGUAGE CONTROLS; ENTIRE AGREEMENT................. 19
11.13 GOVERNING LAW............................................... 19
11.14 RELATIONSHIP OF THE PARTIES................................. 19
11.15 SOVEREIGN IMMUNITY; EXCLUSIONS.............................. 19
11.16 CONSULTATION AND ARBITRATION................................ 19
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Warranty Bill of Sale and Assignment
Exhibit B Patent Assignment
Exhibit C Termination Agreement
Exhibit D License Agreement
Exhibit E FIRTPA Certificate
Exhibit F Settlement Agreement and Mutual Release
Exhibit G Assumption Agreement
Exhibit H Cross-License Agreement
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of this 2nd day of August, 1999, is
entered into by and among Angeion Corporation, a corporation organized and
existing under the laws of the State of Minnesota ("SELLER"), Sanofi-Synthelabo,
a societe anonyme organized and existing under the laws of the Republic of
France ("PARENT"), and ELA Medical, a societe anonyme organized and existing
under the laws of the Republic of France and a subsidiary of Parent
("PURCHASER").
WITNESSETH:
WHEREAS, Seller has expertise in, and is engaged in the business of, the
design, development, manufacture, distribution and sale of certain cardiac
stimulation devices (the "CARDIAC STIMULATION DEVICE BUSINESS");
WHEREAS, Seller is currently considering certain strategic alternatives,
including, but not limited to, refocusing its operations so that it would no
longer be engaged in the Cardiac Stimulation Device Business; and
WHEREAS, Purchaser desires to purchase from Seller, and Seller desires to
sell to Purchaser, on the terms and conditions set forth herein, subject to the
approval of the shareholders of Seller and the approval of the Senior Note
Holders (as hereinafter defined), all of Seller's right, title and interest in
and to certain defibrillator leads used in implantable cardioverter
defibrillators and all of Seller's right, title and interest in and to the
research and development of a flatpack, photoflash capacitor being developed for
use in an implantable medical device, as more fully described below.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and intending to be legally bound hereby, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 PURCHASE AND SALE OF ASSETS. Upon the terms and subject to the
conditions herein set forth, Seller hereby agrees to sell, convey, transfer,
assign, grant and deliver to Purchaser at the Closing (as hereinafter defined),
and Purchaser hereby agrees to purchase from Seller at the Closing, all of
Seller's right, title and interest in and to all technology, intellectual
property, patents, patent applications, including continuations, and know-how,
including licenses, development agreements and supply agreements from third
parties, to the extent assignable, owned or used by Seller with respect to
Seller's Model Series 4040, 4080 and 4090 Leads (the "Leads") and the research
and development of a flatpack, photoflash capacitor being developed for use in
an implantable medical device (the "Flat Capacitor") (collectively, the
"Assets"), free and clear of all Encumbrances (as hereinafter defined), other
than those Encumbrances arising under the Assumed Contracts (as hereinafter
defined), including, without limitation,
(i) all technical specifications for the Leads and Flat Capacitor;
(ii) all trade secrets, inventions, patent disclosures, protocols, know-how,
formulae, processes, procedures, records of inventions, test information,
drawings, diagrams, designs, operating manuals and other proprietary information
for the Leads and Flat Capacitor;
(iii) all patents and patent applications for the Leads and Flat Capacitor,
including Patent No. 5649974 and Patent No. 5454839, subject only to existing
non-exclusive licenses in favor of St. Jude Medical Inc., Guidant CPI and
Medtronic, Inc. (to the extent that Medtronic's license is held to be valid)
(collectively, the "ASSIGNED PATENTS");
(iv) all documentation and all copyrights in such documentation for the
Leads and Flat Capacitor;
(v) all permits, licenses, franchises, approvals and authorizations issued
by governmental or regulatory authorities or bodies for the Leads and Flat
Capacitor, to the extent assignable by Seller;
<PAGE>
(vi) all testing and validation results for the Leads and Flat Capacitor,
and all test fixtures that relate specifically to the Leads and Flat Capacitor
and are not generally used with respect to other assets of Seller used in the
Cardiac Stimulation Device Business. Purchaser acknowledges that Cardiac Control
Systems, Inc. presently owns certain manufacturing equipment and fixtures which
may be useful in production of the Leads, and that any such equipment and
fixtures owned by Cardiac Control Systems, Inc. are not included in the
definition of Leads for purposes of this Agreement;
(vii) all samples on hand of the Leads and Flat Capacitor; and
(vii) all of Seller's right, title and interest in and to the supply and
development agreements listed in SCHEDULE 1.1 hereto (the "ASSUMED CONTRACTS").
For the avoidance of doubt, the parties acknowledge and agree that the
Assets do not include (i) non-proprietary software, (ii) any rights to any work
of Seller in respect of middle cardiac vein leads (Model Series 4300), single
pass dual chamber leads (Model Series 4060), single pass RV/SVC leads (Model
Series 4050) or atrial defibrillation leads (Model Series 4200), (iii) finished
inventory or work-in-progress or (iv) the physical tools and other assets listed
in the Disclosure Schedule.
1.2 ASSUMED LIABILITIES. Purchaser shall assume, pay, perform in
accordance with their terms, or otherwise satisfy, as of the Closing Date (as
hereinafter defined):
(i) the liabilities and obligations of Seller in respect of the Assumed
Contracts, and
(ii) all liabilities, obligations or undertakings of any nature whatsoever,
whether accrued, absolute, fixed or contingent, known or unknown, arising
out of or relating to the Assets, including, without limitation, (a) any
action brought or claim made by third parties, which relate to the
periods following the Closing Date, and (b) any and all claims which
relate to Leads or Flat Capacitors manufactured and sold by Purchaser
after the Closing Date.
The liabilities assumed by Purchaser pursuant to this Section 1.2 are
sometimes referred to as the "ASSUMED LIABILITIES". Except as expressly provided
in this Section 1.2, Purchaser shall not assume any liabilities or obligations
of (or claimed through) Seller, whether relating to the Assets or otherwise, it
being expressly acknowledged and agreed by the parties that all such liabilities
and obligations, and any claims or disputes relating thereto, whether existing
as of the Closing Date or arising thereafter, fixed or contingent, known or
unknown, asserted or unasserted, are and shall remain the liabilities and
obligations of Seller for all purposes (the "EXCLUDED LIABILITIES").
ARTICLE II
PURCHASE PRICE; CLOSING
2.1 PURCHASE PRICE. (a) Subject to the terms and conditions of this
Agreement, the purchase price payable for the purchase of the Assets (the
"Purchase Price") shall be an amount equal to the fair market value of the
Securities (as hereinafter defined). The Purchase Price shall be payable as
follows: on the Closing Date, as consideration for the purchase of the Assets,
Parent shall deliver to Seller, and Seller shall accept from Parent, all of the
shares of common stock, par value $.01 per share, of Seller ("Seller Common
Stock") owned by Parent, directly or indirectly, and all of the warrants to
purchase shares of Seller Common Stock owned by Parent, directly or indirectly,
in each case as of the Closing Date and as set forth on Schedule 2.1(a) hereto
(collectively, the "Securities").
(b) The parties shall mutually determine the allocation of the value of the
Purchase Price among the Assets.
2.2 TIME AND PLACE. The closing for the sale and purchase of the Assets
(the "Closing") shall take place at 10:00 a.m. at the offices of Faegre & Benson
LLP, 2200 Norwest Center, Minneapolis, Minnesota
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<PAGE>
55402 on such date, or at such other location, as the parties shall mutually
agree in writing (the "Closing Date").
2.3 DELIVERIES.
(a) DELIVERIES BY SELLER. Seller shall deliver to Purchaser at the Closing
the following:
(i) a Warranty Bill of Sale and Assignment in form attached hereto as
EXHIBIT A, together with such other bills of sale, assignments and other
instruments of transfer, in form reasonably satisfactory to Purchaser
and its counsel, as Purchaser and its counsel shall deem reasonably
necessary or appropriate to vest and confirm in Purchaser good and
manufactureable title to the Assets;
(ii) a Patent Assignment in the form attached hereto as EXHIBIT B;
(iii) an executed counterpart of a Termination of Implantable Cardioverter
Defibrillator Product Manufacturing and Supply Agreement (the
"TERMINATION AGREEMENT"), pursuant to which Seller and Purchaser agree
to terminate certain supply arrangements between such parties with
respect to the Cardiac Stimulation Device Business, in the form
attached hereto as EXHIBIT C;
(iv) an executed counterpart of a License Agreement (the "LICENSE
AGREEMENT") with respect to the Licensed Patents (as that term is
defined in the License Agreement) in the form attached hereto as
EXHIBIT D;
(v) a copy, certified as of the Closing Date by the Secretary of Seller, of
(A) the resolutions of the Board of Directors of Seller authorizing the
execution, delivery and performance of this Agreement by Seller and
(B) the resolutions or other actions of the shareholders of Seller
approving the sale by Seller of the Assets to Purchaser and the other
actions contemplated hereunder, as required under the Minnesota Business
Corporation Act ("MBCA") and Seller's Articles of Incorporation and
By-Laws, as amended;
(vi) a certificate of Seller ("FIRPTA CERTIFICATE") in the form attached
hereto as EXHIBIT E certifying that Seller is not a "foreign person"
within the meaning of Section 1445 of the Internal Revenue Code of
1986, as amended;
(vii) all third party consents to the sale of the Assets hereunder as set
forth in SCHEDULE 2.3(
a)(
vii) hereto;
(viii) transfer of all items of tangible personal property included among the
Assets and all documents, computer files and other mediums which
contain or evidence the Intellectual Property Rights (as hereinafter
defined);
(ix) a certificate, dated the Closing Date and executed by a proper officer
of Seller, to the effect that (A) each of the representations and
warranties of Seller made herein is true and correct in all material
respects on the Closing Date as though such representations and
warranties were made on such date and (B) Seller has performed and
complied in all material respects with all covenants, conditions and
obligations under this Agreement which are required to be performed or
complied with by Seller on or prior to the Closing Date;
(x) evidence satisfactory to Purchaser and its counsel as to the release of
all Encumbrances created with respect to the Assets;
(xi) a written opinion of counsel for Seller, dated the Closing Date and
addressed to Parent and Purchaser, in a form to be mutually agreed to
by the parties;
(xii) an executed counterpart of a Settlement Agreement and Mutual Release in
the form attached hereto as EXHIBIT F (the "SETTLEMENT AGREEMENT AND
MUTUAL RELEASE");
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<PAGE>
(xiii) an executed counterpart of an Assumption Agreement (the "Assumption
Agreement") in the form attached hereto as Exhibit G; and
(xiii) an acknowledgment of receipt of the items to be delivered by Parent and
Purchaser at the Closing.
(b) DELIVERIES BY PARENT AND PURCHASER. Parent or Purchaser, as applicable,
shall deliver to Seller at the Closing the following:
(i) an executed counterpart of the Assumption Agreement;
(ii) an executed counterpart of the Termination Agreement;
(iii) an executed counterpart of the License Agreement;
(iv) the Securities, duly endorsed in blank or with stock powers duly
endorsed in blank attached thereto;
(v) a certificate, dated as of the Closing Date and executed by a proper
officer of Purchaser, to the effect that (A) each of the representations
and warranties of Purchaser made herein is true and correct in all
material respects on the Closing Date as though such representations and
warranties were made on such date and (B) Purchaser has performed and
complied in all material respects with all covenants and obligations
under this Agreement which are to be performed or complied with by
Purchaser on or prior to the Closing Date;
(vi) a written opinion of counsel for Parent and Purchaser, dated the
Closing Date and addressed to Seller, in a form to be mutually agreed
to by the parties;
(vii) an executed counterpart of the Settlement Agreement and Mutual Release;
and
(viii) an acknowledgment of receipt of the items to be delivered by Seller at
the Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby makes the representations and warranties set forth in this
Article III, each of which is true and correct as of the date hereof and will be
true and correct as of the Closing Date, except as set forth in the Disclosure
Schedule to be delivered by Seller to Purchaser on the date hereof (the
"DISCLOSURE SCHEDULE") (which Disclosure Schedule sets forth the exceptions to
the representations and warranties contained in this Article III):
3.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota and has all requisite corporate power and authority to own, lease and
operate the properties and assets it now owns, leases or operates and to carry
on its business as presently conducted. Seller is qualified to do business and
is in good standing in each jurisdiction where the ownership, leasing or
operations of the Assets or the conduct of its business requires such
qualification, except where such failure to be so qualified and in good standing
would not have a material adverse effect on the business or financial condition
of Seller as presently conducted.
3.2 AUTHORITY; BINDING EFFECT; PERFORMANCE. Seller has all requisite
corporate power and authority to execute and deliver and, subject to the
approval of its shareholders and the approval of the Senior Note Holders, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by Seller, and the consummation of the transactions contemplated hereby, have
been duly authorized by the Board of Directors of Seller. With the exception of
shareholder approval and the approval of the Senior Note Holders, which
approvals shall be obtained by the Closing Date, no other corporate action on
the part of Seller is necessary to authorize the execution, delivery or
performance of this Agreement by Seller or the consummation of the transactions
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contemplated hereby. This Agreement has been duly executed and delivered on
behalf of Seller and constitutes the legal, valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, except that the
enforceability of this Agreement is subject to bankruptcy, insolvency,
reorganization and similar laws of general applicability relating to or
affecting creditors' rights and limitations on the availability of the remedy of
specific performance and other equitable relief.
3.3 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution, delivery and
performance of this Agreement by Seller, and the consummation of the
transactions contemplated hereby, will not (i) violate or conflict with any
provision of the Articles of Incorporation or By-Laws of Seller; (ii) except
with respect to the Indenture dated as of April 14, 1998 (the "Indenture")
between Seller and U.S. Bank, national association, with respect to the 7 1/2%
Senior Convertible Notes due 2003 of Seller, violate or conflict with, result in
the breach of, constitute an event of default (or an event which, with the lapse
of time or the giving of notice or both, would constitute an event of default)
under, or result in the creation in any party of any right to accelerate,
modify, cancel or terminate, any contract or other instrument to which Seller is
a party, or by which Seller or any of the Assets is bound, or result in the
creation of any Encumbrance or other right of any third party upon any of the
Assets; (iii) violate or conflict with any law, rule, regulation, ordinance,
code, judgment, order, writ, injunction or decree of any court or any
governmental body or agency thereof of any jurisdiction to which Seller or any
of the Assets may be subject; or (iv) require any registration, declaration or
filing with, or permit, license, exemption, order, franchise, approval, consent
or other authorization of, or the giving of notice to, any governmental or
regulatory body, agency or authority.
3.4 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in the
Disclosure Schedule, there are no material liabilities or obligations relating
to the Assets, whether known or unknown, fixed or contingent.
3.5 NO CLAIMS OR LITIGATION. There are no suits, actions, claims,
proceedings (including, without limitation, arbitral and administrative
proceedings) or investigations pending or, to the knowledge of Seller,
threatened against Seller (or any of its directors, officers, employees,
stockholders or agents) relating to or affecting, directly or indirectly, the
Assets. There are no such suits, actions, claims, proceedings or investigations
pending or, to the knowledge of Seller, threatened against Seller or challenging
the validity or propriety of this Agreement or the transactions contemplated
hereby. There is no judgment, order, injunction, decree or award issued by any
court, arbitrator, governmental body or agency thereof of competent jurisdiction
to which Seller is a party or by which any of the Assets, including the
Intellectual Property Rights, are bound, which is unsatisfied or which requires
continuing compliance therewith by Seller, other than an arbitration concerning
a potential non-exclusive license to the Assigned Patents by Medtronic to which
Seller was not a party and disputes the outcome thereof or being bound thereby.
3.6 TITLE TO ASSETS AND RELATED MATTERS. (a) Seller has good and
manufactureable title to the Assets, free and clear of any and all mortgages,
pledges, security interests, liens, charges, equities, claims, conditional sales
contracts, licenses, restrictions, reservations, options, rights and other
encumbrances of any nature whatsoever (collectively, "Encumbrances"), other than
those Encumbrances arising under the Assumed Contracts. On the Closing Date,
Seller shall convey to Purchaser, and Purchaser shall acquire from Seller, good
and manufactureable title to the Assets, free and clear of any Encumbrances,
other than those Encumbrances arising under the Assumed Contracts. There is no
agreement, arrangement or understanding with any person to which Seller is a
party, or any judgment, order, writ, injunction or decree of any court or
governmental body or agency thereof of any jurisdiction that is binding on
Seller, that would prevent the use by Purchaser of the Assets from and after the
Closing Date.
(b) The Assets include all of the Intellectual Property Rights (as
hereinafter defined). Seller has not assigned or conveyed any Intellectual
Property to any third party, other than as set forth in the Disclosure Schedule.
3.7 INTELLECTUAL PROPERTY. The Disclosure Schedule sets forth a complete
and correct list of all worldwide patents, patent applications, copyrights,
whether or not registered, trademarks and service
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marks, trademark and service mark registrations (and applications therefor),
trade names, business names, brand names and logos, devices, insignias, formats,
titles and subtitles and all registrations issued and all applications pending
with respect to the foregoing, all technical specifications, know-how, trade
secrets, inventions, patent disclosures, protocols, formulae, processes,
procedures, records of inventions, test information, testing and validation
results, test fixtures (other than generic test fixtures), drawings, diagrams,
designs, operating manuals and other proprietary information currently owned or
used by Seller in connection with the Leads and the Flat Capacitor, excluding
non-proprietary software (collectively, the "Intellectual Property Rights"), all
of which are valid and subsisting and are included in the Assets. Except as set
forth on the Disclosure Schedule, Seller is the sole, rightful and exclusive
owner of, and has good and manufactureable title to, all of the Intellectual
Property Rights and the goodwill associated therewith, free and clear of all
Encumbrances. All patents, applications and registrations described in the
Disclosure Schedule are valid and in full force and effect, and no filings or
other action is required for at least 10 days after the Closing Date to maintain
the patents, registrations or applications described in the Disclosure Schedule
in full force and effect. Except as set forth on the Disclosure Schedule, there
are no licenses, agreements or commitments outstanding or effective granting any
other person any right to make, use, sell, import, operate under, license or
sublicense, or otherwise concerning, the Intellectual Property Rights. The
Intellectual Property Rights do not infringe, or otherwise conflict with, any
proprietary or other rights of any other person. Seller has no knowledge that
any of the Intellectual Property Rights infringe upon or conflict with the
rights of any other person and has not received any notice or claim of such
infringement or conflict, including from the U.S. Patent and Trademark Office.
To the knowledge of Seller, there is no infringement or violation by any other
person of Seller's rights in any of the Intellectual Property Rights. The
consummation of the transactions contemplated hereby will not result in any
modification of or create any right of termination, cancellation or abandonment
with respect to the Intellectual Property Rights. Seller has paid in full (or
otherwise to the satisfaction of the invoicing party) all invoiced fees and
expenses of domestic and foreign counsel for work done and disbursements
incurred on behalf of Seller relating to the Intellectual Property Rights
through and including the Closing Date.
3.8 CONTRACTS. Except for the Assumed Contracts, there are no written or
oral contracts, arrangements and understandings relating to the Assets, except
those license agreements currently in effect which grant to any person any
rights with respect to any of the Intellectual Property Rights as set forth in
the Disclosure Schedule and standard employment, patent assignment, work for
hire, confidentiality agreements and consulting agreements between Seller and
employees or consultants of Seller, pursuant to which such employees and
consultants have assigned to Seller any rights that they have with respect to
the Intellectual Property Rights. Seller has previously delivered or made
available to Purchaser complete and correct copies (or, in the case of oral
contracts, a complete and correct description) of each Assumed Contract. Except
as set forth in the Disclosure Schedule, (i) each Assumed Contract is in full
force and effect; (ii) neither Seller nor (to the knowledge of Seller) any other
party is in default under any such contract, and no event has occurred which
constitutes, or with the lapse of time or the giving of notice or both would
constitute, a default by Seller or (to the knowledge of Seller) a default by any
other party under such contract; (iii) to the knowledge of Seller, there are no
disputes or disagreements between Seller and any other party with respect to any
such contract; (iv) Seller is not currently renegotiating any of such contracts,
nor is Seller paying liquidated damages in lieu of performing any of such
contracts; and (v) there are no amounts due and payable by Seller under any of
the Assumed Contracts and no amounts will be owing under any of the Assumed
Contracts in the future except with respect to products delivered or services
rendered after the Closing Date or as otherwise disclosed on the Disclosure
Schedule.
3.9 PERMITS. The Disclosure Schedule sets forth a complete and correct
list of all permits, licenses, franchises, approvals and authorizations issued
by governmental or regulatory authorities for the Leads and Flat Capacitor.
Except with respect to the 4090 Series leads, Seller is in compliance with all
such permits, licenses, franchises, approvals and authorizations, except where
the failure to be so in compliance would not have a material adverse effect on
the Assets or the use thereto, and has not received notification
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by any governmental or regulatory authority of any violation by Seller of any
such permits, licenses, franchises, approvals and authorizations.
3.10 COMPLIANCE WITH APPLICABLE LAW. Seller is not in violation of any
applicable foreign or domestic laws, rules, regulations, ordinances, codes,
judgments, orders, injunctions, writs or decrees of any Federal, state, local or
foreign court or governmental body or agency thereof to which it may be subject
which are applicable to or which could materially adversely affect any of the
Assets. No claims have been filed against Seller, and Seller has not received
any notice alleging, any such violation, nor, to the knowledge of Seller, is
there any inquiry, investigation or proceedings relating thereto.
3.11 BROKERS AND FINDERS. Except for Raymond James & Associates, no
broker, finder or investment banker has been retained by Seller or is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement. Seller agrees to pay Raymond James
& Associates, and indemnify and hold each of Parent and Purchaser harmless in
respect of, all fees, commissions or other amounts payable to Raymond James &
Associates.
3.12 ABSENCE OF OTHER AGREEMENT FOR SALE OF ASSETS. There are no
agreements, arrangements or understandings to which Seller is a party or by
which any of the Assets are bound providing for or involving the purchase, sale
or other disposition of the Assets, whether through a sale of assets or
otherwise, other than this Agreement.
3.13 PROXY STATEMENT. The Proxy Statement (as hereinafter defined) will
comply in all material respects with the applicable requirements of the
Securities Exchange Act of 1934, as amended, except that no representation or
warranty is being made by Seller with respect to any information supplied to
Seller by Purchaser or any of its affiliates specifically for inclusion in the
Proxy Statement. The Proxy Statement will not, at the time the Proxy Statement
is filed with the Securities and Exchange Commission (the "SEC") or first sent
to shareholders of Seller or at the time of the Special Meeting (as hereinafter
defined) contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the meeting of
Seller's shareholders held for approval of the transactions contemplated by this
Agreement which has become false or misleading.
3.14 DISCLOSURE. No representation and warranty of Seller contained in
this Agreement (including, without limitation, the Disclosure Schedule hereto),
nor any other statement, schedule, certificate or other document delivered or to
be delivered by Seller to Purchaser pursuant hereto or in connection with the
transactions contemplated by this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances in which they were made, not misleading. All information
required to be disclosed by Seller under this Agreement and all other material
information concerning the Assets have been disclosed by Seller in this
Agreement, the Disclosure Schedule hereto or any other statement, schedule,
certificate or other document delivered to Purchaser by Seller under this
Agreement.
3.15 RELIANCE. The foregoing representations and warranties are made by
Seller with the knowledge and expectation that Purchaser is placing complete
reliance thereon in entering into, and performing its obligations under, this
Agreement, and the same shall not be affected in any respect whatsoever by any
investigation heretofore conducted by or on behalf of either of them whether in
contemplation of this Agreement or otherwise.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser, jointly and severally, make the representations and
warranties set forth in this Article IV, each of which is true and correct as of
the date hereof and will be true and correct as of the Closing Date:
4.1 ORGANIZATION AND GOOD STANDING. Each of Parent and Purchaser is a
societe anonyme duly organized, validly existing and in good standing under the
laws of the Republic of France and has all requisite corporate power and
authority to own, lease and operate the properties and assets it now owns,
leases or operates and to carry on its business as presently conducted.
4.2 AUTHORITY; BINDING EFFECT; PERFORMANCE. Each of Parent and Purchaser
has all requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement. The execution, delivery and performance of
this Agreement by Parent and Purchaser has been duly authorized by all necessary
corporate action on the part of Parent and Purchaser. This Agreement has been
duly executed and delivered on behalf of Parent and Purchaser and constitutes
the legal, valid and binding obligation of each of them, enforceable against
each of them in accordance with its terms, except that the enforceability of
this Agreement is subject to bankruptcy, insolvency, reorganization and similar
laws of general applicability relating to or affecting creditors' rights and
limitations on the availability of the remedy of specific performance and other
equitable relief.
4.3 CONSENTS AND APPROVALS; NO VIOLATIONS. The execution and delivery of
this Agreement by Parent and Purchaser, and the consummation of the transactions
contemplated hereby, will not (i) violate or conflict with any provision of the
organizational documents of either Parent or Purchaser; (ii) violate or conflict
with, result in the breach of or constitute a default (or an event which, with
the lapse of time or the giving of notice or both, will constitute a default)
under, any contract or other instrument to which either Parent or Purchaser is a
party or by which either Parent or Purchaser or any of their assets are bound,
except for any such violation, conflict, breach, event of default, acceleration,
modification, cancellation or termination which, individually or in the
aggregate, would not have a material adverse effect on the business, financial
condition or results of operations of either Parent or Purchaser; (iii) violate
or conflict with any law, rule, regulation, judgment, order, writ, injunction or
decree of any court or any governmental body or agency thereof of any
jurisdiction to which either Parent or Purchaser is subject; or (iv) require any
filing with, or license, permit, order, franchise, approval, consent or other
authorization of, any governmental body or agency thereof.
4.4 BROKERS AND FINDERS. No broker, finder or investment banker has been
retained by Purchaser or is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS
5.1 CONDUCT PENDING CLOSING. Seller hereby makes the following covenants
and agreements with Purchaser:
(a) AFFIRMATIVE COVENANTS. Between the date hereof and the Closing Date,
unless otherwise consented to in writing by Purchaser, Seller shall:
(i) use its best efforts to preserve the Assets;
(ii) remain in material compliance with all permits, laws, rules and
regulations, consent orders, and all other orders of applicable courts,
regulatory agencies and similar governmental authorities applicable to the
Assets and the Licensed Patents;
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(iii) promptly advise Purchaser in writing of the commencement or, if known to
Seller, threat of any suit, proceeding or investigation which could have a
material adverse effect on the Assets and the Licensed Patents, whether or
not covered by insurance;
(iv) promptly advise Purchaser in writing of the existence or occurrence of
(i) any condition or event which could have a material adverse effect on
the Assets and the Licensed Patents and (ii) any event, condition or state
of facts which will or is reasonably likely to result in the failure to
satisfy any of the conditions specified in Article VI hereof; and
(v) maintain the policies of insurance on the Assets in effect as of the date
hereof in full force and effect without reduction in coverage.
(b) NEGATIVE COVENANTS. Between the date hereof and the Closing Date,
unless otherwise consented to in writing by Purchaser, Seller shall not:
(i) make any change in the Articles of Incorporation or By-Laws, or other
constituent documents, of Seller;
(ii) enter into any contract or commitment, or series of related contracts or
commitments, in respect of the Assets, except with the prior written
consent of Purchaser;
(iii) subject to Section 5.1(b)(vii) hereof, create or permit to become
effective any Encumbrances on the Assets and the Licensed Patents;
(iv) sell, assign, lease or otherwise transfer or dispose of any of the Assets,
abandon any of the Licensed Patents, grant any exclusive license with
respect to or, subject to Section 5.1(b)(vii) hereof, sell, assign, or
otherwise transfer or dispose of any of the Licensed Patents;
(v) commit a material breach of or amend any agreement, permit, license or
other right of Seller in respect of the Assets;
(vi) enter into any other transaction in respect of the Assets outside the
ordinary course of business or prohibited hereunder; or
(vii) enter into any agreement or commitment to do any of the foregoing,
provided, however, that Seller shall not be prohibited from (1) entering
into an agreement or agreements for the sale of all or substantially all
of the Licensed Patents, so long as the purchaser acknowledges that such
sale will be subject to the rights of Purchaser and its affiliates under
the License Agreement or the Cross-License Agreement referred to in
Section 8.2 hereof, as the case may be, (2) entering into a security
agreement in which all or substantially all of the Licensed Patents are
used as collateral, so long as the lender acknowledges that such security
interest will be subject to the rights of Purchaser and its affiliates
under the License Agreement or the Cross-License Agreement referred to in
Section 8.2 hereof, as the case may be or (3) entering into a
non-exclusive license with respect to any of the Licensed Patents.
5.2 PROXY STATEMENT.
(a) Subject to Section 5.2(b) hereof, Seller, acting through its Board of
Directors, shall:
(i) duly call, give notice of, convene and hold a special meeting of its
shareholders (the "SPECIAL MEETING") as soon as practicable following the
date hereof for the purpose of considering and taking action upon this
Agreement;
(ii) prepare and file with the SEC a preliminary proxy relating to this
Agreement no later than August 20, 1999 and obtain and furnish the
information required to be included by the SEC in the Proxy Statement and,
after consultation with Purchaser, use its best efforts to respond
promptly to any comments made by the SEC with respect to the preliminary
proxy and cause a definitive proxy (as amended or supplemented, the "PROXY
STATEMENT") to be mailed to its shareholders;
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(iii) include in the Proxy Statement the written opinion of Seller's financial
advisor that the consideration to be received by Seller hereby is fair
from a financial point of view; and
(iv) use its reasonable best efforts to obtain the approval of this Agreement
and the transactions contemplated hereby by (A) the holders of the
requisite number of issued and outstanding shares of capital stock of
Seller, and (B) the holders (the "SENIOR NOTE HOLDERS") of a majority of
the issued and outstanding 7 1/2% Senior Convertible Notes of Seller due
April 14, 2004 (the "SENIOR NOTES").
(b) The Board of Directors of Seller shall recommend approval and adoption
of this Agreement and the transactions contemplated hereby by Seller's
shareholders and the Senior Note Holders. The Board of Directors of Seller shall
not be permitted to withdraw, amend or modify in a manner adverse to Purchaser
such recommendation (or announce publicly its intention to do so), except that
prior to the Special Meeting, the Board of Directors of Seller shall be
permitted to withdraw, amend or modify its recommendation (or announce publicly
its intention to do so) but only if the Board of Directors of Seller shall have
determined in its good faith judgment, based upon the advice of outside counsel,
that it is obligated by its fiduciary obligations under applicable law to
withdraw, amend or modify such recommendation. If the Special Meeting is being
held, the recommendation of the Board of Directors of Seller shall be included
in the Proxy Statement. Nothing contained in this Section 5.2(b) shall prohibit
Seller from making any disclosure to Seller's shareholders or the Senior Note
Holders if, in the good faith judgment of the Board of Directors of Seller, upon
the advice of counsel, failure to make such disclosure would be inconsistent
with applicable laws.
(c) Each of Parent and Purchaser agrees that it will provide Seller with the
information concerning it required to be included in the Proxy Statement and
will vote, or cause to be voted, all of the shares of Seller Common Stock then
owned by it, directly or indirectly, or over which it has the power to vote, in
favor of approval of this Agreement and the transactions contemplated hereby.
Parent and Purchaser shall have the right to review in advance all
characterizations and information related to them, this Agreement and the
transactions contemplated hereby which appear in the Proxy Statement.
(d) Each of Parent, Purchaser and Seller agrees promptly to correct any
information provided by it for use in the Proxy Statement as and to the extent
it shall have become false or misleading in any material respect and to
supplement the information provided by it specifically for use in the Proxy
Statement to include any information that shall have become necessary, in order
to make statements contained therein, in light of the circumstances in which
they were made, not misleading, and Seller further agrees to take all steps
necessary to cause the Proxy Statement, as so corrected or supplemented, to be
filed with the SEC and to be disseminated to its shareholders and the Senior
Note Holders, in each case as and to the extent required by applicable federal
securities laws.
5.3 ACCESS TO INFORMATION. From the date hereof until the Closing Date,
Seller and its representatives shall cooperate fully in all reasonable respects
with Purchaser in its investigation of the Assets. Without limiting the
foregoing, such persons shall allow the employees, attorneys, accountants and
other representatives of Purchaser to meet with the management of Seller and its
representatives at reasonable times, to have free and full access at reasonable
times to the premises, properties, books and records (including the right to
make extracts therefrom or copies thereof) of Seller in respect of the Assets,
and shall furnish to Purchaser or its authorized representatives such additional
information pertaining to the Assets as, in the reasonable discretion of
Purchaser, are required for Purchaser to conduct such investigation.
5.4 NOTICE AND CURE. Seller will notify Purchaser of, and will use all
commercially reasonable efforts to cure before the Closing, any event,
transaction or circumstance, as soon as practicable after it becomes known to
Seller, that causes or will cause any covenant or agreement of Seller under this
Agreement to be breached or that renders or will render untrue any
representation or warranty of Seller contained in this Agreement. Seller shall
also notify Purchaser in writing of, and will use all commercially reasonable
efforts to cure, before the Closing, any violation or breach, as soon as
practicable after it becomes known to Seller,
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of any representation, warranty, covenant or agreement made by Seller in this
Agreement. No notice given pursuant to this Section 5.4 shall have any effect on
the representations, warranties, covenants or agreements contained in this
Agreement for purposes of determining satisfaction of any condition contained
herein.
5.5 BEST EFFORTS. Subject to the terms and conditions of this Agreement,
each of the parties agrees that it shall use its commercially reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including, but not limited to, (i) obtaining all consents from
governmental authorities and other third parties required for the consummation
of the transactions contemplated hereby, (ii) timely making all necessary
filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), if any, and (iii) having vacated, dismissed or
withdrawn any order, stay, decree, judgment or injunction of any governmental
authority which temporarily, preliminarily or permanently prohibits or prevents
the transactions contemplated by this Agreement; provided, however, that Parent,
Purchaser and Seller hereby agree that commercially reasonable best efforts
shall not include making any payment to, or otherwise satisfying any claims of,
the Senior Note Holders in order to obtain their approval of the consummation of
the transactions contemplated by this Agreement. Upon the terms and subject to
the conditions hereof, each of the parties agrees to use its commercially
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary to satisfy the other conditions of the
Closing set forth herein.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF PARENT AND PURCHASER
The obligations of Parent and Purchaser to consummate the transactions
contemplated hereunder shall be subject to the satisfaction of each of the
following conditions at or prior to the Closing, unless waived by Parent and
Purchaser in writing:
6.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the representations and
warranties of Seller contained in this Agreement (including, without limitation,
the Schedules hereto) shall be true and correct in all material respects on the
Closing Date as though such representations and warranties were made on such
date and Seller shall have delivered the certificate to that effect which is
described in Section 2.3(a)(ix) above.
6.2 PERFORMANCE. Seller shall have performed and complied in all material
respects with all covenants and obligations under this Agreement which are
required to be performed or complied with by Seller on or prior to the Closing
Date and Seller shall have delivered the certificate to that effect which is
described in Section 2.3(a)(ix) above.
6.3 APPROVALS, PERMITS, CONSENTS. All material consents, authorizations,
approvals, exemptions, licenses or permits of, or material registrations,
qualifications, declarations or filings with, any governmental body or agency
thereof that are required in connection with the sale and transfer of the Assets
to Purchaser pursuant to this Agreement and the consummation of the transactions
contemplated hereby shall have been duly obtained or made in form and substance
reasonably satisfactory to Purchaser and its counsel and shall be effective at
and as of the Closing Date and, if applicable, the specified waiting periods
under the HSR Act shall have expired without the receipt of any objections from
the appropriate governmental agency. Seller shall have delivered to Purchaser
duly executed written consents of third parties to the sale of Assets to
Purchaser required pursuant to any agreement to which Seller is a party or by
which it is bound.
6.4 SHAREHOLDER AND SENIOR NOTE HOLDER APPROVAL. This Agreement and the
transactions contemplated hereby shall have been duly approved by the
shareholders of Seller in accordance with the MBCA
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and the Articles of Incorporation and By-Laws of Seller and by the Senior Note
Holders in accordance with the Indenture.
6.5 DELIVERY OF CLOSING DOCUMENTS. Seller shall have delivered to
Purchaser the documents referred to in Section 2.3(a) hereof, in form and
substance reasonably satisfactory to Purchaser and its counsel.
6.6 ABSENCE OF CERTAIN EVENTS. No statute, rule or regulation shall have
been enacted or promulgated which would make any of the transactions
contemplated by this Agreement illegal or would otherwise prevent the
consummation thereof. No order, decree, writ or injunction shall have been
issued and shall remain in effect by any court or governmental body or agency
thereof which restrains, enjoins or otherwise prohibits the consummation of the
transactions contemplated hereby, and no action, suit or proceeding before any
court or governmental body or agency thereof shall be pending or, to the
knowledge of Seller, threatened by any person (or instituted or threatened by
any governmental body or agency thereof), and no investigation by any
governmental body or agency thereof shall be pending or, to the knowledge of
Seller, threatened with respect to the transactions contemplated hereby.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated
hereunder shall be subject to the satisfaction of each of the following
conditions on or prior to the Closing, unless waived by Seller in writing:
7.1 REPRESENTATIONS AND WARRANTIES TRUE. All of the representations and
warranties of Parent and Purchaser contained in this Agreement (including,
without limitation, the Schedules hereto) shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties were made on such date and Purchaser shall have delivered the
certificates to that effect which are described in Section 2.3(b)(v) above.
7.2 PERFORMANCE. Parent and Purchaser shall have performed and complied in
all material respects with all covenants and obligations under this Agreement
which are required to be performed or complied with by them on or prior to the
Closing Date and Purchaser shall have delivered the certificates to that effect
which are described in Section 2.3(b)(v) above.
7.3 APPROVALS, PERMITS, CONSENTS. All material consents, authorizations,
approvals, exemptions, licenses or permits of, or material registrations,
qualifications, declarations or filings with, any governmental body or agency
thereof that are required in connection with the sale and transfer of the Assets
to Purchaser pursuant to this Agreement and the consummation of the transactions
contemplated hereby shall have been duly obtained or made in form and substance
reasonably satisfactory to Seller and its counsel and shall be effective at and
as of the Closing Date and, if applicable, the specified waiting periods under
the HSR Act shall have expired without the receipt of any objections from the
appropriate governmental agency.
7.4 SHAREHOLDER AND SENIOR NOTE HOLDER APPROVAL. This Agreement and the
transactions contemplated hereby shall have been duly approved by the
shareholders of Seller in accordance with the MBCA and the Articles of
Incorporation and By-Laws of Seller and by the Senior Note Holders in accordance
with the Indenture.
7.5 DELIVERY OF CLOSING DOCUMENTS. Seller shall have received the
documents referred to in Section 2.3(b) hereof in form and substance reasonably
satisfactory to Seller and its counsel.
7.6 ABSENCE OF CERTAIN EVENTS. No statute, rule or regulation shall have
been enacted or promulgated which would make any of the transactions
contemplated by this Agreement illegal or would otherwise prevent the
consummation thereof. No order, decree, writ or injunction shall have been
issued and shall remain in effect, by any court or governmental body or agency
thereof which restrains, enjoins or
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otherwise prohibits the consummation of the transactions contemplated hereby,
and no action, suit or proceeding before any court or governmental body or
agency thereof shall be pending or, to the knowledge of Seller, threatened by
any person (or instituted or threatened by any governmental body or agency
thereof), and no investigation by any governmental body or agency thereof shall
be pending or, to the knowledge of Seller, threatened with respect to the
transactions contemplated hereby.
ARTICLE VIII
TERMINATION
8.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing Date:
(a) by the mutual written consent of Parent, Purchaser and Seller;
(b) by any of Parent, Purchaser or Seller:
(i) if any statute, rule or regulation has been enacted which would make any of
the transactions contemplated by this Agreement illegal or would otherwise
prevent the consummation thereof or if any court or governmental body or
agency thereof shall have issued any writ or injunction, or taken any other
action, restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby and all appeals and means of appeal therefrom have been
exhausted;
(ii) if the Closing shall not have occurred on or prior to December 31, 1999;
PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to
this Section 8.1(b)(ii) shall not be available to any party whose breach
of any representation or warranty or failure to perform or comply with any
covenant or obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or before such date;
(c) by Parent or Purchaser, if this Agreement and the transactions
contemplated hereunder shall not have been duly approved by the shareholders of
Seller at the Special Meeting or by the Senior Note Holders at the time of the
Special Meeting;
(d) by Parent or Purchaser, if any of the conditions specified in
Article VI shall not have been met or waived prior to such time as such
condition can no longer be satisfied;
(e) by Seller, if the Board of Directors of Seller determines in good faith,
based upon the advice of outside counsel, that it is obligated by its fiduciary
obligations under applicable law to terminate this Agreement; or
(f) by Seller, if any of the conditions specified in Article VII shall not
have been met or waived prior to such time as such condition can no longer be
satisfied.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
by any party as provided in Section 8.1 hereof, this Agreement shall forthwith
become null and void and there shall be no liability or obligation on the part
of any party hereto or their respective officers or directors, except for the
provisions of Article XI, which shall remain in full force and effect, and
except that nothing herein shall relieve any party hereto from liability for a
breach of this Agreement prior to the termination hereof. Notwithstanding the
foregoing, in the event that this Agreement is terminated by Parent or Purchaser
pursuant to Section 8.1(c) or (d) or by Seller pursuant to Section 8.1 (e) or
(f), Seller and Purchaser hereby agree to forthwith enter into a Cross-License
Agreement in the form attached hereto as Exhibit H.
ARTICLE IX
POST-CLOSING COVENANTS
9.1 ACCESS AFTER CLOSING. (a) Each of Purchaser and Seller agree to retain
all accounting, business, financial and tax records in its possession relating
to the Assets for a period of three years from the Closing
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Date, provided that, after such date, each party shall make reasonable
arrangements for the other party's continued access to any such records which it
does not otherwise destroy under its normal document retention policies. Prior
to any liquidation, Seller shall take all steps reasonably necessary to provide
Purchaser with continued access to such records following such liquidation. In
addition, from and after the Closing Date, Purchaser and Seller agree that,
subject to receiving appropriate assurances of confidentiality and restrictions
on use, each will not unreasonably withhold access by the other party and its
attorneys, accountants and other representatives (after reasonable notice and at
times to be mutually agreed, provided that such access does not disrupt the
normal operations of the other party), to such personnel, books, records and
documents relating to the Assets as the other party may reasonably deem
necessary to properly prepare for, file, prove, answer, prosecute and/or defend
any financial statements, tax return, filing, audit, judicial or administrative
proceeding, protest, claim, suit, inquiry or other proceeding relating to the
Assets.
(b) The party requesting assistance hereunder shall pay to the party whose
assistance is requested the reasonable costs of the party providing such
assistance.
9.2 FURTHER ASSURANCES. Seller shall, at any time and from time to time
after the Closing, upon the request and at the expense of Purchaser but without
further consideration, do, execute, acknowledge, deliver and file, or shall
cause to be done, executed, acknowledged, delivered and filed, all such further
acts, deeds, transfers, conveyances, assignments or assurances as may be
reasonably requested by Purchaser to transfer, convey and assign the Assets to
Purchaser's possession and use and to comply with all applicable legal
requirements, including, without limitation, making any required governmental
filings, in connection with the purchase of the Assets by Purchaser. Without
limiting the foregoing, upon the request and at the expense of Purchaser, at any
time during the period commencing on the Closing Date and ending on the third
anniversary of the Closing Date, Seller shall take all steps necessary to assign
all licenses, permits, exemptions, consents, authorizations or approvals in
respect of the Assets to Purchaser in cases where such assignment is permitted
and to reasonably cooperate with and assist Purchaser in connection with the
issuance of new licenses, permits, exemptions, consents, authorizations and
approvals in cases where such assignment is not permitted.
9.3 SUPPLY AGREEMENTS. In the event that Purchaser or any of its
affiliates enters into a supply agreement for the Flat Capacitor with Barker
Microfarads, Inc., Seller shall have the right to purchase Flat Capacitors from
Purchaser for use in the Model 2030 ICD on a cost plus basis.
ARTICLE X
INDEMNIFICATION; SURVIVAL OF REPRESENTATIONS AND WARRANTIES
10.1 INDEMNITY OBLIGATIONS OF SELLER. (a) Seller hereby agrees to
indemnify and hold Purchaser and each of its stockholders, officers, directors,
affiliates, employees and agents (each, a "Purchaser Indemnitee") harmless from,
and to reimburse any Purchaser Indemnitee for, on an after-tax basis, any
Purchaser Indemnity Claims (as hereinafter defined) arising under this
Agreement. For purposes of this Agreement, the term "Purchaser Indemnity Claim"
shall mean any loss, damage, deficiency, diminution in value, claim, liability,
obligation, suit, proceeding, action, demand, fee, cost, fine, levy, penalty,
surcharge or expense of any nature whatsoever including, without limitation,
reasonable out-of-pocket expenses, reasonable investigation costs and reasonable
fees and disbursements of counsel (collectively, "Damages") suffered or incurred
by a Purchaser Indemnitee (subject to Section 10.4) arising out of, based upon
or resulting from (i) the Excluded Liabilities or Seller's failure to pay and
discharge in full, or to cause to be paid and discharged in full, all Excluded
Liabilities in a full and timely manner from and after the Closing Date; (ii)
any breach of any representation and warranty of Seller which is contained in
this Agreement or any Schedule hereto or (iii) any breach or nonfulfillment of,
or any failure to perform, any of the covenants, agreements or undertakings of
Seller contained in or made pursuant to this Agreement.
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(b) The indemnification obligations of Seller under this Article X shall
apply with respect to, without limitation, Damages arising out of any and all
actions, claims, suits, proceedings, demands, assessments, judgments,
recoveries, damages, costs and expenses or deficiencies incident to the disposal
of any Purchaser Indemnity Claim under this Section 10.1, together with any
interest, penalties, costs and expenses of any Purchaser Indemnitee (including,
without limitation, reasonable out-of-pocket expenses, reasonable investigation
expenses and reasonable fees and disbursements of accountants and counsel)
arising out of or related to any such Purchaser Indemnity Claims.
(c) Seller shall be liable to a Purchaser Indemnitee for any Damages
(i) only if the aggregate amount of all Damages exceeds $100,000 (the "BASKET
AMOUNT"), in which case Seller shall be obligated to indemnify the Purchaser
Indemnitee for the aggregate amount of all such Damages including the Basket
Amount, and (ii) in an amount not to exceed the Purchase Price (the "CAP
AMOUNT"); provided, however, that the foregoing restriction shall not apply to
any claim based on (a) the untruth or inaccuracy of any representation or
warranty of Seller contained in Sections 3.1, 3.2 and 3.5 hereof, or (b) the
untruth or inaccuracy of any other representation or warranty made herein or in
any statement, certificate or schedule furnished hereunder with an intent to
deceive or defraud or with reckless disregard for the truth or accuracy thereof.
10.2 INDEMNITY OBLIGATIONS OF PARENT AND PURCHASER. (a) Parent and
Purchaser jointly and severally agree to indemnify and hold Seller and each of
its stockholders, officers, directors, affiliates, employees and agents (each, a
"Seller Indemnitee") harmless from, and to reimburse any Seller Indemnitee for,
on an after-tax basis, any Seller Indemnity Claims (as hereinafter defined)
arising under this Agreement. For purposes of this Agreement, the term "Seller
Indemnity Claim" shall mean any Damages suffered or incurred by Seller (subject
to Section 10.4) arising out of, based upon or resulting from (i) the Assumed
Liabilities; (ii) any breach of any representation and warranty of Purchaser
which is contained in this Agreement or any Schedule hereto; or (iii) any breach
or nonfulfillment of, or any failure to perform, any of the covenants,
agreements or undertakings of Purchaser contained in or made pursuant to the
terms and conditions of this Agreement.
(b) The indemnification obligations of Purchaser shall apply with respect
to, without limitation, Damages arising out of any and all actions, claims,
suits, proceedings, demands, assessments, judgments, recoveries, damages, costs
and expenses or deficiencies incident to the disposal of any such Seller
Indemnity Claim under this Section 10.2, together with any interest, penalties,
costs and expenses of any Seller Indemnitee (including, without limitation,
reasonable out-of-pocket expenses, reasonable investigation expenses and
reasonable fees and disbursements of accountants and counsel) arising out of or
related to any such Seller Indemnity Claims.
10.3 INDEMNIFICATION PROCEDURES. If a party seeks indemnification
hereunder for a matter that involves a claim by a third party, the party seeking
indemnification (an "Indemnitee") shall promptly notify the indemnifying party
(the "Indemnitor") of and shall provide reasonable information and details
concerning the nature of such claim. Indemnitor shall, to the extent applicable,
have the right to assume the defense at its expense of all third party claims
and shall pay all costs and damages finally awarded against the Indemnitor and
the Indemnitee in conjunction with such third party claims, provided that
(i) the Indemnitee provides prompt written notice to the Indemnitor of its
receipt of service of any such claim; (ii) the Indemnitor controls the defense
of the third party claim on behalf of all Parties; (iii) the Indemnitee consents
to representation in such claims by counsel selected by and representing the
Indemnitor; provided, however, that if outside counsel to the Indemnitee
reasonably advises the Indemnitee and the Indemnitor in a written opinion that
such joint representation raises a potential conflict of interest as between the
Indemnitee and the Indemnitor (other than a conflict concerning the right to
indemnification under this Agreement), then the Indemnitee shall have the right
to retain separate counsel to represent its interests in such third party claim
and the reasonable costs, fees and expenses thereof shall be borne equally by
the Indemnitee and the Indemnitor; and (iv) upon request of the Indemnitor, the
Indemnitee uses its best efforts to cooperate with the Indemnitor in defending
such third party claim by
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providing the Indemnitor with all necessary business information and relevant
documents under its control related to the third party claim and cooperating
with such other reasonable requests of the Indemnitor at the Indemnitor's
expense in accordance with Applicable Law. The Parties' indemnity obligations
under this Article X shall not apply to amounts paid in settlement of any loss,
claim, liability or action if such settlement is effected without the consent of
the Indemnitor, which consent shall not be unreasonably withheld. The
Indemnitee's failure to deliver notice to the Indemnitor within a reasonable
time after the commencement of any such action, if materially prejudicial to the
Indemnitor's ability to defend such action, shall relieve the Indemnitor of any
liability to the Indemnitee under this Article X, but not any liability that it
may have to the Indemnitee otherwise than under this Article X.
10.4 DURATION. (a) Notwithstanding anything to the contrary in this
Agreement, all representations, warranties, covenants, undertakings and
agreements of the parties contained in or made pursuant to this Agreement, and
the rights of the parties to seek indemnification with respect thereto, shall
survive the Closing; provided, however, that, except in respect of any claims
for indemnification as to which written notice shall have been duly given to the
Indemnifying Party prior to the Indemnity Termination Date in accordance with
the terms of this Agreement, and subject to the remaining provisions of this
Section 10.4, such representations, warranties, covenants, undertakings and
agreements, and the rights of the parties to seek indemnification with respect
thereto, shall expire on the date which is eighteen (18) months after the date
hereof (the "Indemnity Termination Date").
(b) Any claim for indemnification under this Article X which is made in good
faith and in writing prior to the expiration of such claim on the Indemnity
Termination Date shall survive such expiration until mutually resolved or
otherwise determined hereunder, as applicable, and the Indemnity Termination
Date for all purposes hereunder shall automatically be extended with respect to
such claim until such claim is so mutually resolved or otherwise determined
hereunder. Any such claim not so made in writing prior to the expiration of such
claim on the Indemnity Termination Date shall be deemed to have been waived.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 EXPORT CONTROLS. (a) It is understood and acknowledged that each
party is subject to regulation by governmental authorities, including the U.S.
Department of Commerce, which prohibit export or diversion of certain products
and technology to certain countries. Any and all obligations of the parties
under this Agreement shall be subject in all respects to such laws and
regulations as shall from time to time govern the export of technology and
products abroad by persons subject to the jurisdiction of such governmental
authorities, including the U.S. Export Administration Act of 1979, as amended,
any successor legislation, and the U.S. Export Administration Regulations
("EAR") issued by the U.S. Department of Commerce, International Trade
Administration, Bureau of Export Administration ("BXA"). Each party warrants
that it will comply in all material respects with all export and re-export
restrictions applicable to the Assets shipped to Purchaser hereunder.
(b) Without limiting the foregoing, Purchaser agrees that it shall not
knowingly export, re-export or transship, directly or indirectly, to countries
identified in Part 746 of the EAR which are subject to comprehensive BXA
controls (currently consisting of: Cuba, Iraq, Iran, Libya and North Korea) any
of the Assets provided to Purchaser hereunder.
11.2 FEES AND EXPENSES. Except as expressly set forth herein, each party
shall be solely responsible for the payment of the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of this Agreement.
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11.3 SEVERABILITY. If any provision of this Agreement is held by a court
of competent jurisdiction or panel of arbitrators (including pursuant to
enforcement of an arbitration award under this Agreement) to be invalid,
unlawful or unenforceable, it shall be modified, if possible, to the minimum
extent necessary to make it valid, lawful and enforceable or, if such
modification is not possible, it shall be stricken from this Agreement, and the
remaining provisions of this Agreement shall continue in full force and effect;
provided, however, that if a provision is so stricken and is of a nature so as
to fundamentally alter the economic arrangements of this Agreement, the party
adversely affected may terminate this Agreement by giving to the other parties
hereto sixty (60) days written notice of termination.
11.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, and the Exhibits and
Schedules hereto, contain the entire understanding of the parties with respect
to the matters referred to hereby and, except as specifically set forth herein,
neither Purchaser nor Seller makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
amended or supplemented other than by a written instrument signed by the party
against whom enforcement of any such amendment or supplement is sought.
11.5 NOTICES. Any notice or other communication required or permitted to
be given herein shall be in writing and shall be effective (i) upon hand
delivery or delivery by telecopy or facsimile at the address or number
designated below (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (ii) on the third business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
(a) if to Seller at:
Angeion Corporation
7601 Northland Drive
Brooklyn Park, MN 55428-1088
Attention: Chief Executive Officer
Facsimile: (612) 315-2059
With copies to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
Attention: Steven C. Kennedy, Esq.
Facsimile: (612) 336-3026
(b) if to Purchaser to:
ELA Medical
Centre d'Affaires la Boursidiere
92357 Le Plessis Robinson
Cedex, France
Attention: President
Facsimile: 33-1-46-01-33-15
Sanofi-Synthelabo
22 avenue Galilee
B.P. 82
92355 Le Plessis Robinson
Cedex, France
Attention: General Counsel
Facsimile: 33-1-45-37-58-04
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with copies to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036
Facsimile: (212) 626-4120
Attention: David A. Boillot, Esq.
Any party hereto may from time to time change its address for notices under
this Section 11.5 by giving at least ten (10) days' written notice of such
changed address to the other parties hereto. All such notices and communications
hereunder shall be deemed given when received, as evidenced by the signed
acknowledgment of receipt of the person to whom such notice or communication
shall have been personally delivered, confirmed answer back or other evidence of
transmission or the acknowledgment of receipt returned to the sender by the
applicable postal authorities. Receipt of notices sent by facsimile shall be
confirmed by telephone.
11.6 SUCCESSORS AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
this Agreement nor any interest hereunder shall be assigned or transferred,
whether directly or indirectly, including by operation of law ("Assign" or
"Assignment"), by any party without the prior express written consent of the
other parties (which consent may be withheld for any reason in the sole
discretion of the party from whom consent is sought), and any such attempt at
Assignment shall be null and void. The assignment by a party of this Agreement
or any rights hereunder shall not affect the obligations of such party under
this Agreement. Notwithstanding the foregoing, any party may Assign this
Agreement to an affiliate of such party so long as any assignment is made to an
affiliate that is directly or indirectly 100% owned by, or under 100% common
control with, that party. Any permitted Assignment made pursuant to this Section
shall be valid only if (i) the assigning party remains liable under this
Agreement, and (ii) the relevant affiliate or other entity assumes in writing
all of the assigning party's obligations under this Agreement.
11.7 NO THIRD PARTY BENEFICIARIES. Neither this Agreement or any provision
hereof nor any Schedule, certificate or other instrument delivered pursuant
hereto, nor any agreement to be entered into pursuant hereto or any provision
hereof, is intended to create any right, claim or remedy in favor of any person
or entity, other than the parties hereto and their respective successors and
permitted assigns.
11.8 NO WAIVER. No waiver by either party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future of this Agreement, or a waiver of any other
provision, condition or request of this Agreement, nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
11.9 PUBLICITY. Each party agrees, and shall cause its affiliates, not to
issue any press release disclosing the terms of, or relating to, this Agreement,
without the prior written consent of the other parties; provided, however, that
neither party or its affiliates shall be prevented from complying with any duty
of disclosure it may have pursuant to applicable law. Such disclosing party
shall use its best efforts to consult with the other parties regarding the
issuance of any such press release, or with regard to any public statement
disclosing the terms of this Agreement and shall use its best efforts to obtain
confidential treatment for any confidential information where such press release
or other public statement is required to be made by applicable law.
11.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
11.11 HEADINGS. The article and section headings contained in this
Agreement are solely for convenience of reference, are not part of the agreement
of the parties and shall not be used in construing this Agreement or in any way
affect the meaning or interpretation of this Agreement.
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11.12 ENGLISH LANGUAGE CONTROLS; ENTIRE AGREEMENT. The original and
controlling version of this Agreement shall be the version using the English
language. All translations of this Agreement into other languages shall be for
the convenience of the parties only, and shall not control the meaning or
application of this Agreement. All notices and other communications required or
permitted by this Agreement must be in English, and the interpretation and
application of such notices and other communications shall be based solely upon
the English language version thereof. This Agreement, and the Schedules,
certificates and other instruments and documents delivered pursuant hereto,
together with the other agreements referred to herein and to be entered into
pursuant hereto, embody the entire agreement of the parties hereto in respect
of, and there are no other agreements or understandings, written or oral, among
the parties relating to, the subject matter hereof. This Agreement supersedes
all prior agreements and understandings, written or oral, between the parties
with respect to the subject matter hereof. The invalidity, illegality or
unenforceability for any reason of any one or more provisions of this Agreement
shall not affect the validity, legality or enforceability of the remainder of
this Agreement.
11.13 GOVERNING LAW. This Agreement, and the respective rights, duties and
obligations of the parties hereunder, shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to principles of conflicts of law thereunder.
11.14 RELATIONSHIP OF THE PARTIES. For all purposes of this Agreement,
Purchaser and Seller shall be deemed to be independent entities and, anything in
this Agreement to the contrary notwithstanding, nothing herein shall be deemed
to constitute Purchaser and Seller as partners, joint venturers, co-owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other for any purposes whatsoever. Neither party hereto is
authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.
11.15 SOVEREIGN IMMUNITY; EXCLUSIONS. (a) Each party hereto agrees that,
to the extent that it or any of its property is or becomes entitled at any time
to any immunity on the grounds of sovereignty or otherwise from any legal
action, suit or proceeding, from set off or counterclaim, from the jurisdiction
of any set off or counterclaim, from the jurisdiction of any competent court,
from service of process, from attachment prior to judgment, from attachment in
aid of execution, from execution prior to judgment or from any other legal
process in any jurisdiction, it, for itself and its property, expressly,
irrevocably and unconditionally waives, and agrees not to plead or claim any
such immunity with respect to its obligations, liabilities or any other matter
under or arising out of or in connection with this Agreement or the subject
matter of this Agreement (including without limitation any obligation for the
payment of money). Each party hereto is not subject to withdrawal in any
jurisdiction or under any statute, including, without limitation, the Foreign
Sovereign Immunities Act, 28 U.S.C. Sections 1602 et seq. The foregoing waiver
shall constitute a present waiver of immunity at any time any action is
initiated against any party hereto with respect to this Agreement.
(b) The parties hereby agree to exclude application of the following
instruments and documents: United Nations Convention on the International Sale
of Goods, UNCITRAL Arbitration Rules and 1990 International Chamber of Commerce
Incoterms.
11.16 CONSULTATION AND ARBITRATION.
(a) Dispute Resolution: General Dispute Principles.
(i) All disputes among Parent, Purchaser and Seller and/or any of their
affiliates under this Agreement shall be settled, if possible, through good
faith negotiations between the relevant parties. For purposes of this
Section 11.16, Purchaser, Parent and Seller shall be referred to
individually as a "PARTY" and together as the "PARTIES".
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(ii) Prior to resolving any dispute by means of arbitration or by means of any
suit, action or legal proceeding permitted under Section 11.16(b), the
relevant parties involved in such dispute shall refer such dispute to
their respective chief executive officer or equivalent, who shall meet in
person to negotiate in good faith the possible resolution thereof on at
least two occasions within 30 days before any such party commences
arbitration or such litigation (provided that if any such party fails or
refuses to have a representative attend such meetings within such 30 day
period, the procedures of Section 11.16(b) shall be applicable after the
conclusion of such 30 day period); and further provided, that (I) any
legal proceedings seeking interim equitable relief (including a temporary
restraining order or preliminary injunction) until such time as such
interim equitable relief can be addressed through arbitration;
(ii) proceedings for provisional relief contemplated by Section
11.16(b)(ix) below; and (iii) third party legal proceedings under Section
11.16(a)(iii) below may be commenced immediately.
(iii) If a Party or any of its affiliates is subject to a claim, demand, action
or proceeding by a third party and is permitted by law or arbitral
rules to join another party to such proceeding, this Section 11.16 shall
not prevent such joinder. This Section 11.16 shall also not prevent either
Party or any such affiliate from pursuing any legal action against a third
party.
(b) Arbitration of Other Disputes.
(i) In the event such good faith negotiations are unsuccessful, either Party
may, after 30 days written notice to the other, submit any controversy or
claim arising out of, relating to or in connection with this Agreement, or
the breach thereof, to arbitration administered by the American Arbitration
Association ("AAA") in accordance with its then existing International
Arbitration rules, except that Sections 29 and 31 of the Commercial
Arbitration Rules in effect on the date hereof, a copy of which is attached
hereto as Schedule 11.16(b), shall govern in the event of any conflict
therewith (collectively, the "AAA RULES") and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.
(ii) To the extent this Section 11.16 is deemed a separate agreement,
independent from this Agreement, the remaining provisions of Article XI
shall be incorporated herein by reference. Either party (the "INITIATING
PARTY") may commence an arbitration by submitting a demand for arbitration
("DEMAND FOR ARBITRATION") under the AAA Rules and by notice to the other
Party (the "RESPONDENT") in accordance with Section 11.16. Such notice
shall set forth in reasonable detail the basic operative facts upon which
the Initiating Party seeks relief and specific reference to the clauses of
this Agreement, the amount claimed, if any, and any nonmonetary relief
sought against the Respondent. After the Demand for Arbitration, response
and counterclaim, if any, and reply to counterclaim, if any, have been
submitted, either Party may propose additional issues for resolution in
the pending proceedings only if expressly so ordered by the arbitrators.
(iii) The place of arbitration shall be New York, New York, and the award shall
be deemed a U.S. award for purposes of the Convention on the Recognition
and Enforcement of Foreign Arbitral Awards of 1958 (the "NEW YORK
CONVENTION").
(iv) The parties shall attempt, by agreement, to nominate a sole arbitrator for
confirmation by the AAA. If the Parties fail so to nominate a sole
arbitrator within 30 days from the date when the Initiating Party's Demand
for Arbitration has been communicated to the Respondent, a board of three
arbitrators shall be appointed by the Parties jointly or, if the Parties
cannot agree as to three arbitrators within 30 days after the commencement
of the arbitration proceeding, then one arbitrator shall be appointed by
each of the Initiating Party and the Respondent within 60 days after the
commencement of the arbitration proceeding and the third arbitrator shall
be appointed by mutual agreement of such two arbitrators. If such two
arbitrators shall fail to agree within 75 days after commencement of the
arbitration proceeding upon the appointment of the third arbitrator, the
third arbitrator shall be appointed by the AAA in accordance with the AAA
Rules. Notwithstanding the foregoing, if either Party shall fail to
appoint an arbitrator within the specified time period, such arbitrator
and the third arbitrator shall be
A-20
<PAGE>
appointed by the AAA in accordance with its then existing rules. For
purposes of this Section, the "commencement of the arbitration proceeding"
shall be deemed to be the date upon which the Demand for Arbitration has
been delivered to the Parties in accordance with Section 11.16. Any award
shall be rendered by a majority of the arbitrators. A hearing on the
matter in dispute shall commence within 90 days following selection of the
arbitrators, and the decision of the arbitrators shall be rendered no
later than 90 days after commencement of such hearing.
(v) An award rendered in connection with an arbitration pursuant to this
Section shall be final and binding upon the Parties, and the Parties agree
and consent that the arbitral award shall be conclusive proof of the
validity of the determinations of the arbitrators set forth in the award
and any judgment upon such an award may be entered and enforced in any
court of competent jurisdiction.
(vi) The Parties agree that the award of the arbitral tribunal will be the sole
and exclusive remedy between them regarding any and all claims and
counterclaims between them with respect to the subject matter of the
arbitrated dispute. The Parties hereby waive all IN PERSONAM
jurisdictional defenses in connection with any arbitration hereunder or
the enforcement of an order or award rendered pursuant thereto (assuming
that the terms and conditions of this arbitration clause have been
complied with).
(vii) The Parties hereby agree that for purposes of the New York Convention, the
relationship between the Parties is commercial in nature, and that any
disputes between the Parties related to this Agreement shall be deemed
commercial.
(viii) The arbitrators shall issue a written explanation of the reasons for the
award and a full statement of the facts as found and the rules of law
applied in reaching their decision to both Parties. The arbitrators shall
apportion to each Party all costs (including attorneys' and witness fees,
if any) incurred in conducting the arbitration in accordance with what
the arbitrators deem just and equitable under the circumstances. Any
provisional remedy which would be available to a court of law shall be
available from the arbitrators pending arbitration of the dispute. Either
Party may make an application to the arbitrators seeking injunctive or
other interim relief, and the arbitrators may take whatever interim
measures they deem necessary in respect of the subject matter of the
dispute, including measures to maintain the status quo until such time as
the arbitration award is rendered or the controversy is otherwise
resolved. The arbitrator shall have the authority to award any remedy or
relief (except as ex parte relief) that a court of the State of New York
could order or grant, including, without limitation, specific performance
of any obligation created under this Agreement, the issuance of an
injunction, or the imposition of sanctions for abuse or frustration of
the arbitration process, but specifically excluding punitive damages.
(ix) The Parties may file an application in any proper court for a provisional
remedy in connection with an arbitrable controversy, but only upon the
ground that the award to which the application may be entitled may be
rendered ineffectual without provisional relief. The Parties may also
commence legal action in lieu of any arbitration under this Section
11.16(b) in connection with any third party litigation proceedings or for
any matter involving disputes related to Intellectual Property Rights.
(x) After the appointment of the arbitrators, the parties to the arbitration
shall have the right to take depositions, ask interrogatories, obtain
documentation and to obtain other discovery regarding the subject matter of
the arbitration, and, to that end to use and exercise all the same rights,
remedies and procedures, and be subject to all of the same duties,
liabilities and obligations in the arbitration with respect to the subject
matter thereof, as if the subject matter of the arbitration were pending in
a civil action before a United States District Court for the Southern
District of New York and such persons, documents or other requested
material were located in State of New York. The parties shall reach
agreement with the arbitrator on a streamlined and expedited discovery
program in order to save costs and avoid unnecessary delay in completing
any arbitration and may present to the arbitrator for a ruling any reasons
for limiting such discovery in order to save costs and avoid delay.
A-21
<PAGE>
(xi) For purposes of any suit, action or legal proceeding permitted under this
Section 11.16, each Party (a) hereby irrevocably submits itself to and
consents to the non-exclusive jurisdiction of the United States District
Court for the Southern District of New York for the purposes of any suit,
action or legal proceeding in connection with this Agreement including to
enforce an arbitral resolution, settlement, order or award made pursuant
to this Agreement (including pursuant to the New York Convention, the U.S.
Arbitration Act, or otherwise), and (b) to the extent permitted by
applicable law, hereby waives, and agrees not to assert, by way of motion,
as a defense, or otherwise, in any such suit, action or legal proceeding
pending in such event, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or legal proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
legal proceeding is improper. Each Party hereby agrees to the entry of an
order to enforce any resolution, settlement, order or award made pursuant
to this Section by the United States District Court for the Southern
District of New York and in connection therewith hereby waives, and agrees
not to assert by way of motion, as a defense, or otherwise, any claim that
such resolution, settlement, order or award is inconsistent with or
violative of the laws or public policy of the laws of the State of New
York or any other jurisdiction.
(xii) All claims arising under this Agreement brought by the Parties and/or
their affiliates at substantially the same time shall be referred to a
single arbitration to the extent arbitrable under this Section 11.16.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
ANGEION CORPORATION
By: /s/ JAMES B. HICKEY, JR.
--------------------------------------
Name: James B. Hickey, Jr.
Title: President and CEO
ELA MEDICAL
By: /s/ MICHAEL MOUNIER
--------------------------------------
Name: Michael Mounier
Title: President and CEO
Medical Devices Division
SANOFI-SYNTHELABO
By: /s/ JEAN-PIERRE CHARLET
--------------------------------------
Name: Jean-Pierre Charlet
Title: V.P. Deputy Director
Legal Affairs
A-22
<PAGE>
ANNEX B
TERMINATION AGREEMENT
<PAGE>
TERMINATION OF IMPLANTABLE CARDIOVERTER
DEFIBRILLATOR PRODUCT
MANUFACTURING AND SUPPLY AGREEMENT
This Termination Agreement is entered into as of the day of ,
1999 by and between Angeion Corporation, a Minnesota corporation ("ANGEION"),
and ELA Medical, a societe anonyme organized and existing under the laws of the
Republic of France ("ELA").
RECITALS
WHEREAS, Angeion and ELA Medical, Inc., a Delaware corporation and an
affiliate of ELA ("ELA US"), entered into a joint venture (the "JOINT VENTURE")
to manufacture and sell cardiac stimulation and related devices manufactured by
ELA and Angeion in the United States (the "CARDIAC STIMULATION DEVICE
BUSINESS");
WHEREAS, in connection with the formation of the Joint Venture, Angeion and
ELA entered into an Implantable Cardioverter Defibrillator Product Manufacturing
and Supply Agreement dated December 9, 1997, as amended (the "SUPPLY
AGREEMENT"), to manufacture and sell cardiac stimulation and related devices
manufactured by Angeion in Europe and Japan;
WHEREAS, Angeion is currently considering certain strategic alternatives,
including, but not limited to, refocusing its operations so that it would no
longer be engaged in the Cardiac Stimulation Device Business;
WHEREAS, pursuant to a Withdrawal Agreement dated May 11, 1999 (the
"WITHDRAWAL AGREEMENT"), Angeion has withdrawn from the Joint Venture;
WHEREAS, Angeion, ELA and Sanofi-Synthelabo, a societe anonyme organized and
existing under the laws of the Republic of France and an affiliate of ELA
("SANOFI-SYNTHELABO"), have entered into an Asset Purchase Agreement dated as of
August 2, 1999 (the "ASSET PURCHASE AGREEMENT") pursuant to which Angeion has
agreed to sell, and ELA has agreed to purchase, certain assets related to the
Cardiac Stimulation Device Business; and
WHEREAS, Angeion wishes to be released from its obligations under the Supply
Agreement, and ELA is willing to release Angeion from such obligations, subject
to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual premises set forth herein and
other good and valuable consideration, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Supply Agreement.
ARTICLE II
TERMINATION OF SUPPLY AGREEMENT
The parties agree and acknowledge that, from and after the date hereof and
notwithstanding any provisions of the Supply Agreement to the contrary, Angeion
shall be released by ELA from all its obligations under the Supply Agreement and
the Supply Agreement shall be terminated, null and void and of no further force,
except as provided in Article IV of this Agreement.
<PAGE>
ARTICLE III
TERMINATION FEE
In consideration of ELA's agreement to release Angeion from all of its
obligations under the Supply Agreement and to terminate the Supply Agreement,
Angeion has agreed to pay to ELA the sum of Six Million Dollars ($6,000,000)
(the "TERMINATION FEE"), and, in full and complete satisfaction of its
obligation to pay the Termination Fee, Angeion will execute and deliver to ELA,
and ELA will accept in full and complete satisfaction of Angeion's payment of
the Termination Fee, a patent license in the form attached as Exhibit D to the
Asset Purchase Agreement (the "LICENSE AGREEMENT"). Notwithstanding the
foregoing, the parties agree that, in the event of any dispute, including any
dispute hereunder or under the License Agreement, the amount of the Termination
Fee shall not be deemed to be a measure of damages.
ARTICLE IV
RIGHTS AND OBLIGATIONS UPON TERMINATION
Notwithstanding any provisions of the Supply Agreement to the contrary,
Angeion and ELA agree and acknowledge that, from and after the date hereof
(i) neither party shall have any further obligations under Section 4.3 of the
Supply Agreement with respect to newly developed Technical Materials or
Promotional Materials; provided, however, that each party shall remain
obligated under Section 4.3(a) and 4.3(b) of the Supply Agreement for
existing Technical Materials and Promotional Materials;
(ii) ELA shall retain any expired Inventory of Angeion's Products;
(iii) the rights of inspection under Section 8.1 of the Supply Agreement are
terminated as of the date of the final shipment of the final Order for
Angeion's Current Products (as hereinafter defined) from Angeion;
(iv) the provisions of Section 10.4(b) of the Supply Agreement shall not apply
to ELA with respect to Products other than the Model series of Products
supplied to ELA by Angeion under the Supply Agreement, including the Model
Series 2010 ICD, the Model Series 2020 ICD, the Model Series 4020 lead,
the Model Series 4040 lead, the Model Series 4080 lead, the Model
Series 4090 lead and the Model Series 3000 programmer (collectively
"ANGEION'S CURRENT PRODUCTS");
(v) the provisions of Sections 10.4(c), (d), (f) and (h) of the Supply
Agreement shall no longer be applicable and, notwithstanding the provisions
of Section 14.7 of the Supply Agreement, shall not survive the termination
of the Supply Agreement;
(vi) notwithstanding the provisions of Section 10.4(g) of the Supply Agreement,
ELA agrees not to cancel its Order for any Units (each such Unit
consisting of a Model Series 2020 ICD together with a Model Series 4040
lead) which constitute part of its Order for 185 such Units at an agreed
upon Transfer Price of $8,900 per Unit, but which remain unshipped as of
the date hereof, and Angeion agrees to manufacture, control, test and ship
as soon as possible all such 185 Units;
(vii) notwithstanding the provisions of Section 10.4(i) of the Supply Agreement,
Angeion and ELA agree and acknowledge that their respective duties and
obligations to one another shall be governed by the terms of this
Agreement and Section 14.7 of the Supply Agreement, as amended hereby;
(viii) neither party shall have any further obligations under Sections 11.2 and
11.3 of the Supply Agreement; and
(ix) Section 14.7 of the Supply Agreement shall be amended to provide that only
the provisions of Sections 5.2(f), 5.2(i), 6.3, 8.1, 9.1, 9.2, 9.3, 9.4,
9.5, 9.9, 11.1, 12.1, 12.2, Article 13 and Article 14 of the Supply
Agreement shall survive the termination of the Supply Agreement.
B-2
<PAGE>
ARTICLE V
MISCELLANEOUS
5.1 AMENDMENT. This Agreement may not be amended except by a written
instrument signed by each of the parties hereto.
5.2 WAIVER OF COMPLIANCE. Except as otherwise provided in this Agreement,
any failure of any of the parties to comply with any obligation, covenant or
agreement contained herein may be waived only by a written notice from the party
entitled to the benefits thereof. No failure by any party hereto to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right hereunder
preclude any other or future exercise of that right by that party.
5.3 NOTICES. All notices and other communications hereunder shall be
deemed given if given in writing and delivered personally, by courier or by
facsimile transmission, telexed or mailed by registered or certified mail
(return receipt requested), fax, telex or postage fees prepaid, to the party to
receive the same at its respective address set forth below (or at such other
address as may from time to time be designated by such party to the others in
accordance with this Section 5.3):
(i) if to Angeion at:
Angeion Corporation
3650 Annapolis Lane, Suite 170
Plymouth, Minnesota 55447-5434
Attention: Chief Executive Officer
Facsimile: (612) 519-9521
Angeion Corporation
7601 Northland Drive
Brooklyn Park, Minnesota 55428-1088
Attention: Chief Executive Officer
Facsimile: (612) 315-2059
with copies to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-3901
Attention: Peter J. Ekberg, Esq.
Facsimile: (612) 336-3380
Facsimile: (612) 336-3026
(ii) if to ELA to:
ELA Medical
Centre d'Affaires la Boursdiere
92357 Le Plessis Robinson
Cedex, France
Attention:
Facsimile:
Attention: President
Facsimile: 33-1-46-01-33-15
B-3
<PAGE>
with copies to:
Sanofi-Synthelabo
174, Avenue de France
75635 Paris
Cedex, France
Attention:
Facsimile:
Sanofi-Synthelabo
22 avenue Galilee
B.P. 82
92355 Le Plessis Robinson
Cedex, France
Attention: General Counsel
Facsimile: 33-1-45-37-58-04
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036-7703
Attention: David A. Boillot, Esq.
Facsimile: (212) 626-4120
All such notices and communications hereunder shall be deemed given when
received, as evidenced by the signed acknowledgment of receipt of the person to
whom such notice or communication shall have been personally delivered,
confirmed answer back or other evidence of transmission or the acknowledgment of
receipt returned to the sender by the applicable postal authorities. Receipt of
notices sent by facsimile shall be confirmed by telephone.
5.4 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Neither this Agreement nor any rights, duties
or obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other and any attempted assignment or transfer without
such prior written consent shall be null and void.
5.5 NO THIRD PARTY BENEFICIARIES. Neither this Agreement or any provision
hereof nor any schedule, certificate or other instrument delivered pursuant
hereto, nor any agreement to be entered into pursuant hereto or any provision
hereof, is intended to create any right, claim or remedy in favor of any person
or entity, other than the parties hereto and their respective successors and
permitted assigns.
5.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
5.7 HEADINGS. The article and section headings contained in this Agreement
are solely for convenience of reference, are not part of the agreement of the
parties and shall not be used in construing this Agreement or in any way affect
the meaning or interpretation of this Agreement.
5.8 ENTIRE AGREEMENT; SEVERABILITY. This Agreement, the Asset Purchase
Agreement and the schedules, certificates and other instruments and documents
delivered pursuant hereto and thereto, together with the other agreements
referred to herein and therein and to be entered into pursuant hereto and
thereto, embody the entire agreement of the parties hereto in respect of, and
there are no other agreements or understandings, written or oral, among the
parties relating to, the subject matter hereof. This Agreement supersedes all
prior agreements and understandings, written or oral, between the parties with
respect to the subject matter hereof. The invalidity, illegality or
unenforceability for any reason of any one or more provisions of this Agreement
shall not affect the validity, legality or enforceability of the remainder of
this Agreement.
B-4
<PAGE>
5.9 GOVERNING LAW. This Agreement, and the respective rights, duties and
obligations of the parties hereunder, shall be governed by and construed and
enforced in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
ANGEION CORPORATION
By:
--------------------------------------
Name:
Title:
ELA MEDICAL
By:
--------------------------------------
Name:
Title:
B-5
<PAGE>
ANNEX C
ONE-WAY LICENSE AGREEMENT
<PAGE>
LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made as of the day of 1999, by and
between ELA Medical, a societe anonyme organized under the laws of France having
its principal place of business at Centre d'Affaires la Boursidiere, 92357 Le
Plessis Robinson, Cedex, France ("ELA"), and Angeion Corporation, a Minnesota
corporation having its principal place of business at 7601 Northland Drive,
Brooklyn Park, Minnesota 55428-1088 ("Angeion").
RECITALS
WHEREAS, ELA and Angeion are engaged in, INTER ALIA, the design and
development of Cardiac Stimulation Devices (as hereinafter defined);
WHEREAS, Angeion owns or holds certain worldwide patents and patent
applications relating to Cardiac Stimulation Devices;
WHEREAS, Angeion and Sanofi-Synthelabo S.A. (an Affiliate, as hereinafter
defined, of ELA and hereinafter referred to as "Sanofi-Synthelabo") are parties
to an Amended and Restated Investment and Master Strategic Relationship
Agreement dated as of October 9, 1997, as amended (the "Investment Agreement");
and
WHEREAS, Angeion and ELA are parties to Termination of Implantable
Cardioverter Defibrillator Product Manufacturing and Supply Agreement dated of
even date herewith (the "Termination Agreement").
NOW THEREFORE, in consideration of the mutual premises set forth herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledge, the parties agree as follows:
ARTICLE I
DEFINITIONS OF TERMS
For the purposes of this Agreement, the following terms shall have the
meaning specified below.
Section 1.01. AFFILIATE. "Affiliate" shall mean any corporation,
association or other entity which directly or indirectly controls, is controlled
by or is under common control with the party in question, but only for so long
as such relationship exists. As used herein, the term "control" shall mean the
ability to direct the business of a company and shall be presumed in the case of
ownership, directly or indirectly, of shares of stock having more than fifty
percent (50%) of the voting power entitled to vote for the election of directors
in the case of a corporation, and more than fifty percent (50%) of the voting
power and interest in profits in the case of a business entity other than a
corporation.
Section 1.02. CARDIAC STIMULATION DEVICES. "Cardiac Stimulation Devices"
shall mean devices for electrically stimulating or shocking the heart which are
suitable for use by or with human patients. The term "Cardiac Stimulation
Devices" includes, without limitation, cardiac pacemakers, antitachycardia
pacemakers, cardioverters and defibrillators, including combinations thereof
("such devices"), pulse generators and other waveform generators for such
devices; electronic and mechanical components, including, without limitation,
batteries and capacitors to the extent these components are used for or with
such devices; mechanisms for coupling such devices in a stimulating, shocking or
sensing relationship to the heart including, without limitation, leads,
electrodes and sensors; and data dispensing, processing and gathering systems
for such devices, including, without limitation, programmers, pacing system
analyzers, defibrillation system analyzers, testers, encoders, decoders,
transmitters, receivers and computer software-controlled systems, including the
software; and internal, but not external, holter monitors used for recording
heart rhythms (even though such holter monitors do not electrically stimulate
the heart). The term "Cardiac Stimulation Devices" excludes, by way of example
and not limitation, muscle stimulators, nerve stimulators, bone growth
stimulators, cardiomyoplasty stimulators and associated devices, drug release
pumps, cardiac assist systems and pumps, artificial hearts, arrhythmia mapping
devices, imaging technology, angioplasty devices, catheter ablation systems, and
temporary external pacemakers and
<PAGE>
defibrillators and EKG monitors (other than pacing programmers) which are
stand-alone, non-ambulatory and not intended for transtelephonic monitoring. A
list of the patents and patent applications owned by Angeion as of the date
hereof and excluded from the term Cardiac Stimulation Device is set forth on
Exhibit 1 attached hereto to this Agreement.
Section 1.03. LICENSED PATENTS. "Licensed Patents" shall mean any and all
patents and pending patent applications relating to Cardiac Stimulation Devices
owned by Angeion as of the date hereof (whether by development, acquisition or
otherwise) or subject to a security pledge granted by Angeion or any subsidiary
or commonly controlled business entity of Angeion, including:
a. patents issued in any country on or before the date hereof;
b. patent applications pending in any country on or before the date hereof;
c. patents issued in any country after the date hereof, but which patent is
a counterpart of a patent described in clause (a) hereof, regardless of whether
such patent matures from a provisional, continuation, continuing prosecution,
continuation-in-part, or divisional application, reissue, or reexamination of
such patent described in clause (a) hereof, and regardless of whether such
patent matures from a convention or non-convention case, or any other
substitution, renewal or extension; or
d. patents issued in any country after the date hereof from a patent
application described in clause (b) hereof.
Without limitation of the foregoing, the term "Licensed Patents" includes,
without limitation, all patents and patent applications listed on Exhibit 2
attached hereto to this Agreement. Exhibit 2 is the best of Angeion's knowledge,
information and belief, an accurate and complete listing of all Licensed
Patents, and patent applications (including provisional applications) owned by
Angeion that are related to Cardiac Stimulation Devices as of the date hereof.
Section 1.05. SUBLICENSABLE PATENTS. "Sublicensable Patents" shall mean
all patents or patent applications in any country, which relate to Cardiac
Stimulation Devices and which are the subject of licenses or assignments or
other agreements with third parties in existence as of the date hereof and which
licenses or agreements (i) convey rights to Angeion or its Affiliates as of the
date hereof, as licensee or grantee, to make, use, sell or supply Cardiac
Stimulation Devices or components thereof that include the right to grant
sublicenses or licenses; and (ii) require some payment, other than any initial
payments incurred upon the granting of such license, from Angeion or its
Affiliates, licensees, sublicensees or grantees to maintain the license or
agreement in effect. Exhibit 3 is, to the best of Angeion's knowledge,
information and belief, an accurate and complete listing of Sublicensable
Patents as of the date hereof, and patent applications (including provisional
applications) subject to licenses or agreements with third parties as of the
date hereof.
ARTICLE II
LICENSE
Section 2.01. LICENSE. Subject to the terms, conditions and limitations
set forth herein, as consideration for the execution and delivery of the
Termination Agreement, Angeion hereby grants to ELA and its Affiliates, a
non-exclusive, royalty-free, fully paid-up, transferable (subject to
Article VI), worldwide license to the Licensed Patents to make, have made, use,
sell and have sold Cardiac Stimulation Devices; to supply or cause to be
supplied components of Cardiac Stimulation Devices; and to import into any
jurisdiction where Licensed Patents are effective, Cardiac Stimulation Devices
or components of Cardiac Stimulation Devices which are the subject matter of one
or more claims of the Licensed Patents.
Section 2.02. SATISFACTION OF OBLIGATION. The parties agree that the
granting of the licenses hereunder by Angeion to ELA and its Affiliates
satisfies and extinguishes any and all obligations, if any, between the parties
with respect to Section 5.3 of the Investment Agreement.
C-2
<PAGE>
Section 2.03. CONDITIONS, LIMITATIONS AND UNDERSTANDINGS. The licenses
granted hereunder by Angeion to ELA and its Affiliates are expressly made
subject to the following conditions, limitations and understandings:
a. Angeion shall have the right, in its sole discretion to control the
maintenance, abandonment, enforcement, extension and licensing of the Licensed
Patents;
b. Angeion shall have the right to enforce its Licensed Patents in its sole
discretion against all persons and organizations, other than ELA and its
Affiliates, that without authority from Angeion, make, have made, use, sell, or
have sold Cardiac Stimulation Devices that embody one or more claims of the
Licensed Patents;
c. The license contained in Article II shall not extend to any technical
proprietary design, manufacture, manufactureing, and/or processing information,
designs, drawings, specifications or other documents pertinent to the use of the
Licensed Patents (other than the description of the preferred embodiment and
designs, drawings and specifications which are set forth in the Licensed
Patents), and the parties acknowledge that there is no obligation upon any party
to provide any other such information, designs, drawings, specifications or
other documents under the terms of this Agreement; and
d. The license and sublicenses under the Sublicensable Patents will only be
granted to the extent grantor, licensor or Angeion or its Affiliates has the
right to grant such licenses and sublicenses.
Section 2.04. SUBLICENSABLE PATENTS. Angeion or its Affiliates hereby
grants or will grant to ELA and its Affiliates the right and option to obtain a
non-exclusive license or sublicense, as the case may be, on the most favorable
terms and conditions permissible to licensees or sublicensees under any
Sublicensable Patent, if any, consistent with the terms and conditions of the
license granted under Section 2.01.
(a) It is the intention of the parties under this Section 2.04 that if a
sublicense under Sublicensable Patents is acquired by ELA and its Affiliates,
ELA and its Affiliates shall be required to make only current payments based on
current usage and that no previously paid "front end" payments be recovered by
Angeion and its Affiliates under such sublicensing arrangement.
ARTICLE III
RELEASE
Section 3.01. RELEASE. Angeion hereby fully releases and forever
discharges ELA and Affiliates, subsidiaries, and customers from any and all
claims, demands, causes of action, costs, expenses, attorneys' fees,
liabilities, damages, indemnities, and obligations of any nature whatsoever,
past and future, arising from any claim of infringement of any one or more
Licensed Patents.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND LIMITATIONS
Section 4.01. REPRESENTATIONS AND WARRANTIES. Angeion represents and
warrants to ELA and its Affiliates the representations and warranties set forth
below and acknowledges that each of these representations and warranties has
been relied upon by ELA and its Affiliates and is material to their decision to
enter into the Agreement:
a. Angeion represents that it is the sole holder and owner of the full,
undivided right, title and interest in and to each of the Licensed Patents
listed in Exhibit 2.
b. No Licensed Patent will be sold, assigned or transferred by Angeion
without (1) written notice to ELA and (2) making such transfer expressly subject
to the license granted herein by Angeion to ELA and its Affiliates; provided,
however, that this covenant shall not limit or otherwise impair the ability of
C-3
<PAGE>
Angeion at any time prior to or after the date hereof to license the Licensed
Patents to third parties on a non-exclusive basis or to pledge the Licensed
Patents as security, provided that any such pledge is subject to the
non-exclusive license granted herein by Angeion to ELA and its Affiliates.
c. Angeion has not entered into any agreement or commitment with any third
party, which would impair, interfere with or infringe upon the rights granted
hereunder.
d. To the best of Angeion's knowledge as of the date hereof, (1) no
notification has been received that the practice of any of the claims of the
Licensed Patents by Angeion or any of its Affiliates infringes any third party's
valid patents, trade secrets or know-how other than notifications received in
connection with the patent infringement lawsuit between Angeion and Guidant
Corporation which was settled on April 5, 1999; and (2) there are no claims or
actions pending or threatened by third parties that would invalidate or
otherwise impair the Licensed Patents or rights granted hereunder.
e. Angeion has the requisite power and authority, corporate and otherwise,
to execute and perform this Agreement.
Section 4.02. DISCLAIMERS. Nothing contained in the Agreement shall be
construed as:
a. A warranty or representation by Angeion as to the validity or scope of
any Licensed Patents or Sublicensable Patents; or
b. A representation, warranty or extension of warranties of any kind,
expressed or implied, or an assumption of responsibility by Angeion with respect
to the use, sale or other disposition by ELA, its Affiliates, or its agents,
representatives, distributors or users of Cardiac Stimulation Devices embodying
one or more claims of the Licensed Patents, except for the representations and
warranties provided in Section 4.01 of this Agreement; or
c. A warranty or representation by any party hereto that anything made,
used, sold or otherwise disposed of under any license granted in the Agreement
is or will be free from infringement of patents of third parties, except that
nothing in this exclusion shall affect the representations and warranties made
in Section 4.01(d) of this Agreement; or
d. A mandatory obligation to bring or prosecute actions or suits against
third parties for patent infringement.
ARTICLE V
TERM
Section 5.01. TERM. This Agreement shall take effect as of the date hereof
and shall continue indefinitely. The licenses granted herein with respect to
each of the Licensed Patents shall continue during the life of each patent
described therein and are not revocable. The loss of any rights of the Licensed
Patents by Angeion through declaration of invalidity or otherwise, shall not be
cause to terminate the Agreement or the licenses granted hereunder with respect
to all other Licensed Patents and such loss or declaration of invalidity shall
not be deemed a failure of consideration.
ARTICLE VI
TRANSFER AND ASSIGNMENT
Section 6.01. ASSIGNMENT AND TRANSFER. The Agreement shall be binding upon
and inure to the benefit of the parties hereto and their successors and assigns.
This Agreement can be freely assigned or transferred (whether by stock sale,
merger or other operation of law, purchase and sale or in any other
C-4
<PAGE>
manner) by ELA or by its Affiliates, after transfer by ELA, except to Medtronic,
Inc., St. Jude Medical, Inc., Guidant Corp. or Biotronik GmbH, or any of their
respective Affiliates, successors or assigns, thereof and any such attempted
assignment to such excepted entities shall be null and void.
ARTICLE VII
GENERAL PROVISIONS
Section 7.01. GOVERNING LAW. All matters affecting the interpretation,
form, validity and performance of this Agreement shall be decided under the laws
of the State of New York.
Section 7.02. CAPTIONS. The captions in this Agreement are intended solely
as a matter of convenience and for reference and shall be given no effect in the
construction or interpretation of the Agreement.
Section 7.03. SEVERABILITY OF PROVISIONS. Should any part or provision of
this Agreement be held unenforceable or in conflict with the law of any
jurisdiction, the validity of the remaining parts or provisions shall not be
affected by such holding.
Section 7.04. NO AGENCY. At no time shall the parties hold themselves out
to be the agent, employee, lessee, sublessee, partner, or joint venture partner
of the other parties. Nothing in this Agreement shall be construed to create any
relationship between the parties other than as expressly set forth herein. The
parties shall not have any express or implied right or authority to assume or
create any obligations on behalf of or in the name of the other parties or to
bind the other parties with regard to any other contract, agreement, or
undertaking with a third party.
Section 7.05. CONSTRUCTION AGAINST WAIVER. No waiver of any term,
provision or condition of this Agreement, whether by conduct or otherwise, in
any one or more instances shall be deemed to be construed as a further or
continuing waiver of any such term, provision or condition of this Agreement;
nor shall any failure to enforce any provision hereof operate as a waiver of
such provision or of any other provision.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and duly attested by their corporate officers duly authorized for this
purpose.
ELA MEDICAL
By:
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Title
--------------------------------------
Date:
--------------------------------------
ATTEST:
By:
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ANGEION CORPORATION
By:
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Title
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Date:
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ATTEST:
By:
- -------------------------------------
C-5
<PAGE>
ANNEX D
CROSS-LICENSE AGREEMENT
<PAGE>
CROSS-LICENSE AGREEMENT
THIS CROSS-LICENSE AGREEMENT is made as of the day of , 1999,
by and between ELA Medical, a societe anonyme organized under the laws of France
having its principal place of business at Centre d'Affaires la Boursideire,
92357 Le Plessis Robinson, Cedex, France (hereinafter defined as "ELA"), and
Angeion Corporation, a Minnesota corporation having its principal place of
business at 7601 Northland Drive, Brooklyn Park, Minnesota 55428-1088
(hereinafter defined as "Angeion").
RECITALS
WHEREAS, ELA and Angeion are engaged in, INTER ALIA, the design and
development of Cardiac Stimulation Devices;
WHEREAS, ELA and Angeion each own or hold certain worldwide patents and
patent applications relating to Cardiac Stimulation Devices;
WHEREAS, Angeion and Sanofi-Synthelabo S.A., an Affiliate of ELA
("Sanofi-Synthelabo"), are parties to an Amended and Restated Investment and
Master Strategic Relationship Agreement dated as of October 9, 1997 (the
"Investment Agreement");
WHEREAS, Angeion and ELA Medical, Inc. (an Affiliate of ELA) are parties to
a Withdrawal Agreement dated as of May 11, 1999 (the "Withdrawal Agreement");
WHEREAS, pursuant to Section 5.3 of the Investment Agreement, the entry into
the Withdrawal Agreement has triggered a preexisting contractual obligation
between ELA and Angeion to enter into a patent cross-licensing agreement;
WHEREAS, Angeion, Sanofi-Synthelabo and ELA are parties to an Asset Purchase
Agreement dated as of August 2, 1999 (the "Asset Purchase Agreement") that
provides for, inter alia, a One-Way License Agreement from Angeion to ELA and
its Affiliates in satisfaction of such preexisting contractual obligation
between ELA and Angeion;
WHEREAS, the Asset Purchase Agreement is contingent upon certain approvals
being obtained by Angeion; and
WHEREAS, certain approvals were not obtained by Angeion, and the Asset
Purchase Agreement has been terminated and Angeion and ELA desire for this
Agreement to take effect.
NOW, THEREFORE, in consideration of the mutual premises set forth herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS OF TERMS
For the purposes of the Agreement, the following terms shall have the
meaning specified below.
Section 1.01. AFFILIATE. "Affiliate" shall mean any corporation,
association or other entity which directly or indirectly controls, is controlled
by or is under common control with the party in question, but only for so long
as such relationship exists. As used herein, the term "control" shall mean the
ability to direct the business of a company and shall be presumed in the case of
ownership, directly or indirectly, of shares of stock having more than fifty
percent (50%) of the voting power entitled to vote for the election of directors
in the case of a corporation, and more than fifty percent (50%) of the voting
power and interests in profits in the case of a business entity other than a
corporation.
Section 1.02. CARDIAC STIMULATION DEVICES. "Cardiac Stimulation Devices"
means devices for electrically stimulating or shocking the heart which are
suitable for use by or with human patients. The term "Cardiac Stimulation
Devices" includes, without limitation, cardiac pacemakers, antitachycardia
pacemakers, cardioverters and defibrillators, including combinations thereof
("such devices"); pulse
<PAGE>
generators and other waveform generators for such devices; electronic and
mechanical components, including, without limitation, batteries and capacitors
to the extent these components are used for or with such devices; mechanisms for
coupling such devices in a stimulating, shocking or sensing relationship to the
heart including, without limitation, leads, electrodes and sensors; and data
dispensing, processing and gathering systems for such devices including, without
limitation, programmers, pacing system analyzers, defibrillation system
analyzers, testers, encoders, decoders, transmitters, receivers, and computer
software-controlled systems, including the software; and internal, but not
external, holter monitors used for recording heart rhythms (even though such
holter monitors do not electrically stimulate the heart). The term "Cardiac
Stimulation Devices" excludes, by way of example and not limitation, skeletal
muscle stimulators, nerve stimulators, bone growth stimulators, cardiomyoplasty
stimulators and associated devices, drug release pumps, cardiac assist systems
and pumps, artificial hearts, arrhythmia mapping devices, imaging technology,
angioplasty devices, catheter ablation systems, and temporary external
pacemakers and defibrillators and EKG monitors (other than pacing programmers)
which are stand-alone, non-ambulatory and not intended for transtelephonic
monitoring. A list of the patents and patent applications owned by Angeion as of
the date hereof and excluded from the term Cardiac Stimulation Devices shall be
set forth on Exhibit 1-A attached hereto. A list of the patents and patent
applications owned by ELA as of the date hereof and excluded from the term
Cardiac Stimulation Devices shall be set forth on Exhibit 1-B attached hereto.
Section 1.03. LICENSED PATENTS. "Licensed Patents" shall mean any and all
patents and pending patent applications relating to Cardiac Stimulation Devices
owned by Angeion or by ELA as of the date hereof (whether by development,
acquisition or otherwise), including: (i) patents issued in any country on or
before the date hereof; (ii) patent applications pending in any country on or
before the date hereof; (iii) patents issued in any country after the date
hereof, and which patent is a counterpart of a patent described in clause (i)
hereof, regardless of whether such patent matures from a provisional,
continuation, continuing prosecution, continuation-in-part, or divisional
application, reissue, or reexamination of such patent, described in clause (i)
hereof, and regardless of whether such patent matures from a convention or
non-convention case, or any other substitution, renewal or extension; and (iv)
patents issued in any country after the date hereof from a patent application
described in this clause (ii) hereof.
Without limitation of the foregoing, the term "Licensed Patents"
specifically includes all patents and patent applications listed on Exhibits 2-A
and 2-B of this Agreement. Exhibit 2-A shall be, to the best of Angeion's
knowledge, information and belief, an accurate and complete listing of all
Licensed Patents, and patent applications (including provisional applications)
owned by Angeion that are related to Cardiac Stimulation Devices as of the date
hereof. Exhibit 2-B shall be, to the best of ELA's knowledge, information and
belief, an accurate and complete listing of all Licensed Patents, and patent
applications (including provisional applications) owned by ELA that are related
to Cardiac Stimulation Devices as of the date hereof.
Section 1.04. SUBLICENSABLE PATENTS. "Sublicensable Patents" shall mean
all patents or patent applications in any country, which relate to Cardiac
Stimulation Devices and which are the subject of licenses or assignments or
other agreements with third parties in existence as of the date hereof and which
licenses or agreements (i) convey rights to Angeion or its Affiliates or to ELA
or its Affiliates as of the date hereof, as licensee or grantee, to make, use,
sell or supply Cardiac Stimulation Devices or components thereof that include
the right to grant sublicenses or licenses; and (ii) require some payment, other
than initial payments incurred upon the granting of such license from Angeion
and its Affiliates or from ELA and its Affiliates, licenses, sublicenses or
grantees to maintain the license or agreement in effect. Exhibit 3-A shall be,
to the best of Angeion's knowledge, information and belief, an accurate and
complete listing of all Sublicensable Patents of Angeion as of the date hereof,
and patent applications (including provisional applications) subject to licenses
or agreements with third parties as of the date hereof. Exhibit 3-B shall be, to
the best of ELA's knowledge, information and belief, an accurate and complete
listing of all Sublicensable Patents of ELA as of the date hereof, and patent
applications (including provisional applications) subject to licenses or
agreements with third parties as of the date hereof.
D-2
<PAGE>
ARTICLE II
LICENSE
Section 2.01. LICENSE. Subject to the terms, conditions and limitations
set forth herein, each party hereby grants to the other party and its
Affiliates, a non-exclusive, royalty-free, fully paid-up, transferable (subject
to Article VI), worldwide license to the Licensed Patents to make, have made,
use, sell and have sold Cardiac Stimulation Devices; to supply or cause to be
supplied components of Cardiac Stimulation Devices; and to import into any
jurisdiction where Licensed Patents are effective, Cardiac Stimulation Devices
or components of Cardiac Stimulation Devices which are the subject matter of one
or more claims of the Licensed Patents.
Section 2.02. SATISFACTION OF OBLIGATION. The parties agree that the
granting of the licenses hereunder satisfies and extinguishes any and all
obligations, if any, between the parties with respect to Section 5.3 of the
Investment Agreement.
Section 2.03. CONDITIONS, LIMITATIONS AND UNDERSTANDINGS. The licenses
granted hereunder are expressly made subject to the following conditions,
limitations and understandings:
a. Each party shall have the right, in its sole discretion, to control the
maintenance, abandonment, enforcement, extension and licensing of its own
Licensed Patents;
b. Each party shall have the right to enforce its Licensed Patents in its
sole discretion against all persons and organizations, other than the other
party or its Affiliates, that without authority from that party, make, have
made, use, sell, or have sold Cardiac Stimulation Devices that embody one or
more claims of the Licensed Patents;
c. The licenses contained in Article II shall not extend to any technical
proprietary design, manufacture, manufactureing, and/or processing information,
designs, drawings, specifications or other documents pertinent to the use of the
Licensed Patents, or any trademarks or trade names of that party, and the
parties acknowledge that there is no obligation upon any party to provide any
such information, designs, drawings, specifications or other documents under the
terms of this Agreement; and
d. The license and sublicenses under the Sublicensable Patents will only be
granted to the extent the party that is the grantor, licensor or its Affiliates
has the right to grant such licenses or sublicenses.
Section 2.04. SUBLICENSABLE PATENTS. Each party or its Affiliates hereby
grants or will grant to the other party and its Affiliates the right and option
to obtain a non-exclusive license or sublicense, as the case may be, on the most
favorable terms and conditions permissable to licensees or sublicensees under
any Sublicensable Patent, if any, consistent with the terms and conditions of
the license granted under Section 2.01.
It is the intention of the parties under this Section 2.04 that if a
sublicense under Sublicensable Patents is acquired by a party and its
Affiliates, that party and its Affiliates shall be required to make only current
payments based on current usage and that no previously paid "front end" payments
be recovered by the licensing party and its Affiliates under such sublicensing
arrangement.
ARTICLE III
RELEASE
Section 3.01. RELEASE. Each party hereby releases and forever discharges
the other party and its Affiliates and customers as of the date hereof from any
and all claims, causes of actions, costs, expenses, attorney's fees,
liabilities, damages, indemnities, and obligations of any nature whatsoever,
past and future, arising from any claim of infringement of any one or more
Licensed Patents prior to the date hereof.
D-3
<PAGE>
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND LIMITATIONS
Section 4.01. REPRESENTATIONS AND WARRANTIES. Each party represents and
warrants to the other party and its Affiliates the representations and
warranties set forth below and acknowledges that each of these representations
and warranties has been relied upon by the other party and its Affiliates and is
material to their decision to enter into the Agreement:
a. Each party represents that it is the sole holder and owner of the full,
undivided right, title and interest in and to each of the Licensed Patents
listed respectively in Exhibits 2-A and 2-B.
b. No Licensed Patent will be sold, assigned or transferred by a party
without (1) written notice to the other party; and (2) making such transfer
expressly subject to the license granted herein; provided, however, that this
covenant shall not apply to, limit or otherwise impair the ability of a party at
any time prior to or after the date hereof to license the Licensed Patents to
third parties on a non-exclusive basis or to pledge the Licensed Patents as
security, provided that any such pledge is subject to the non-exclusive license
granted herein.
c. Neither party has not entered into any agreement or commitment with any
third party, which would impair, interfere with or infringe upon the rights
granted hereunder.
d. To the best of each party's knowledge, as of the date hereof there are
no claims or actions pending or threatened by third parties that would
invalidate or otherwise impair the Licensed Patents or rights granted hereunder.
e. Each party has the requisite power and authority, corporate and
otherwise, to execute and perform this Agreement.
Section 4.02. DISCLAIMERS. Nothing contained in the Agreement shall be
construed as:
a. A warranty or representation by either party as to the validity or scope
of any Licensed Patents or Sublicensable Patents; or
b. A warranty or representation by either party that anything made, used,
sold or otherwise disposed of under any license granted in the Agreement is or
will be free from infringement of patents of third parties; or
c. An obligation to bring or prosecute actions or suits against third
parties for patent infringement; or
d. A representation, warranty or extension of warranties of any kind,
expressed or implied, or an assumption of responsibility by either party with
respect to the use, sale or other disposition by the other party, its Affiliates
or its agents, representatives, distributors or users of Cardiac Stimulation
Devices embodying one or more claims of the Licensed Patents.
ARTICLE V
TERM
Section 5.01. TERM. This Cross-License Agreement shall take effect as of
the date hereof and shall continue indefinitely. From and after the date hereof,
the licenses granted herein with respect to each of the Licensed Patents shall
continue during the life of each patent described therein and are not revocable.
The loss of any rights of the Licensed Patents by either party through
declaration of invalidity or otherwise, shall not be cause to terminate the
Agreement or the licenses granted hereunder with respect to all other Licensed
Patents and such loss or declaration of invalidity shall not be deemed a failure
of consideration.
D-4
<PAGE>
ARTICLE VI
TRANSFER AND ASSIGNMENT
Section 6.01. ASSIGNMENT AND TRANSFER. The Agreement shall be binding upon
and inure to the benefit of the parties hereto and their successors and assigns.
This Cross-License Agreement can be freely assigned or transferred (whether by
stock sale, merger or other operation of law, purchase and sale or in any other
manner) by either party or by its Affiliates after transfer by a party to its
Affiliates, except to Guidant Corporation, Medtronic, Inc., St. Jude
Medical, Inc. or Biotronik GmbH, or any of their respective Affiliates,
successors or assigns, thereof and any such attempted assignment to such
excepted entities shall be null and void.
ARTICLE VII
GENERAL PROVISIONS
Section 7.01. GOVERNING LAW. All matters affecting the interpretation,
form, validity and performance of this Agreement shall be decided under the laws
of the State of New York.
Section 7.02. CAPTIONS. The captions in this Agreement are intended solely
as a matter of convenience and for reference and shall be given no effect in the
construction or interpretation of the Agreement.
Section 7.03. SEVERABILITY OF PROVISIONS. Should any part or provision of
this Agreement be held unenforceable or in conflict with the law of any
jurisdiction, the validity of the remaining parts or provisions shall not be
affected by such holding.
Section 7.04. NO AGENCY. At no time shall the parties hold themselves out
to be the agent, employee, lessee, sublessee, partner, or joint venture partner
of the other parties. Nothing in this Agreement shall be construed to create any
relationship between the parties other than as expressly set forth herein. The
parties shall not have any express or implied right or authority to assume or
create any obligations on behalf of or in the name of the other parties or to
bind the other parties with regard to any other contract, agreement, or
undertaking with a third party.
Section 7.05. CONSTRUCTION AGAINST WAIVER. No waiver of any term,
provision or condition of this Agreement, whether by conduct or otherwise, in
any one or more instances shall be deemed to be construed as a further or
continuing waiver of any such term, provision or condition of this Agreement;
nor shall any failure to enforce any provision hereof operate as a waiver of
such provision or of any other provision.
D-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Cross-License
Agreement to be executed and duly attested by their corporate officers duly
authorized for this purpose.
ELA MEDICAL
By:
--------------------------------------
Title
--------------------------------------
Date:
--------------------------------------
ATTEST:
By:
- -------------------------------------
ANGEION CORPORATION
By:
--------------------------------------
Title
--------------------------------------
Date:
--------------------------------------
ATTEST:
By:
- -------------------------------------
D-6
<PAGE>
ANNEX E
FAIRNESS OPINION OF
RAYMOND JAMES
REGARDING THE
ELA TRANSACTIONS
<PAGE>
July 23, 1999
Board of Directors
Angeion Corporation
7601 Northland Drive
Minneapolis, MN 55428
Members of the Board:
We understand that Angeion Corporation ("Angeion" or the "Company") is
contemplating a transaction whereby Angeion has agreed to sell to ELA Medical, a
societe anonyme organized and existing under the laws of the Republic of France
("ELA Medical"), and a wholly-owned subsidiary of Sanofi-Synthelabo, a societe
anonyme organized and existing under the laws of the Republic of France
("Sanofi"), certain assets related to the Company's model Series 4040, 4080 and
4090 Leads (the "Leads") and the research and development of a flatpack,
photoflash capacitor being developed for use in an implantable medical device
(the "Flat Capacitor") in exchange for all of the shares of common stock, par
value $0.01 per share (the "Common Stock"), of Angeion and all of the warrants
to purchase shares of common stock of Angeion, owned by Sanofi, pursuant to the
terms of the Asset Purchase Agreement (the "Asset Purchase Agreement"). We also
understand that in connection with the consummation of the transactions
contemplated by the Asset Purchase Agreement, the Company and ELA Medical will
enter into the Termination Agreement pursuant to which ELA Medical will release
the Company from its obligations pursuant to the OUS Supply Agreement. In
consideration for ELA Medical's agreement to terminate and release the Company
from its obligations under the OUS Supply Agreement, the Company has agreed to
pay ELA Medical a termination fee; provided, however, that ELA Medical has
agreed to accept a non-exclusive license to certain technology of the Company
pursuant to the One-Way License Agreement in full and complete satisfaction of
the Termination Fee. We have reviewed, in connection with our opinion herein, a
draft of the Asset Purchase Agreement dated July 23, 1999. The Asset Purchase
Agreement and the transactions contemplated thereby are subject to both approval
by the shareholders of Angeion as well as consent of the holders of the
Company's 7 1/2% Senior Convertible Notes due 2003.
You have requested our opinion as to whether, when viewed together, the
Asset Purchase Agreement and the transactions contemplated thereby
(collectively, the "Transaction") are fair to Angeion from a financial point of
view. In arriving at an estimate for the market value for the Transaction, we
have relied upon and assumed the accuracy and completeness of all of the
financial and other information that was available to us from public sources,
that was provided to us by the Company or its respective representatives, or
that was otherwise reviewed by us.
In connection with our review of the proposed Transaction and the
preparation of our opinion herein, we have, among other things:
1. attempted to establish a fair market value for technology owned or used
by Angeion and related to the Leads and the Flat Capacitor by marketing
these assets to outside buyers;
2. valued the shares of Common Stock owned by Sanofi at their current
market value and used the Black-Scholes option pricing model to value the
warrants to purchase shares of Common Stock, which warrants are owned by
Sanofi;
3. attempted to value the non-exclusive license to be granted by Angeion to
ELA Medical by using (i) a recently consummated transaction involving
Angeion's granting of a non-exclusive license to substantially the same
intellectual property to Guidant Corp., and (ii) a transaction under
negotiation involving the granting of a non-exclusive license to
substantially the same intellectual property to Medtronic, Inc.;
4. attempted to quantify the value to Angeion of the transactions
contemplated by the Termination Agreement (the "Termination Agreement")
between Angeion and ELA Medical;
5. obtained from Angeion relevant cost data for Angeion's Leads, Flat
Capacitor and intellectual property being licensed to ELA Medical;
<PAGE>
6. reviewed a draft of the Termination Agreement and the Asset Purchase
Agreement;
7. reviewed Angeion's audited fiscal year-end and quarterly financial
statements for the last two years;
8. reviewed Angeion's projected financial statements as prepared by
Angeion's management;
9. reviewed Angeion's pro forma balance sheet after the Transaction, as
prepared by Angeion's management, and;
10. conducted such other financial analyses, studies, and investigations,
and considered such other information as we deemed necessary or
appropriate.
In connection with our review, we have not assumed any responsibility for
independent verification for any of the information reviewed by us for the
purpose of this opinion and have relied on its being complete and accurate in
all material respects. In addition, we have not made or received any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of Angeion, nor have we been furnished with any such evaluation or
appraisal. With respect to the data and other information referred to above, we
have assumed, at your direction, that they have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
management of Angeion, and we have relied upon Angeion to advise us promptly if
any such information previously provided to or discussed with us became
inaccurate or was required to be updated during the period of our review. This
opinion is based substantially on such projections and estimates. In addition,
we have assumed the Transaction will be consummated substantially in accordance
with the terms set forth in the drafts of the Asset Purchase Agreement. We have
made no independent investigation of any legal matters involving Angeion, and we
have assumed the accuracy of all legal advice given to you by Angeion's counsel.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including the review of (i) the value of the technology owned or used by Angeion
and related to the Leads and Flat Capacitor based on the cost to develop these
technologies and the outcome of marketing these technologies to other companies;
(ii) the market value of the shares of Common Stock at their current market
value and the market value of the warrants to purchase Common Stock using the
Black Scholes option pricing model, which Common Stock and Warrants are owned by
Sanofi; (iii) the value of a non-exclusive license agreement by using financial
data on comparable transactions involving Guidant Corp. and Medtronic, Inc.; and
(iv) the general condition of Angeion in the current marketplace and its
expected financial performance.
Raymond James & Associates, Inc. ("Raymond James") is actively engaged in
the investment banking business and regularly undertakes the valuation of
investment securities in connection with public offerings, private placements,
business combinations and similar transactions. Raymond James has been engaged
to render financial advisory services to the Company in connection with the
proposed Transaction and will receive a fee for such services, which fee is
contingent upon consummation of the Transaction. Raymond James is also providing
financial advisory services to the Company in connection with the purchase of
another company or companies and will receive a fee for such services if a
transaction is consummated. Raymond James will also receive a fee upon the
delivery of this opinion. In addition, the Company has agreed to indemnify us
against certain liabilities arising out of our engagement.
We express no opinion as to the underlying business decision of the Company
to effect the Transaction, the structure or tax consequences of the Asset
Purchase Agreement or the transactions or agreements contemplated thereby, or
the availability or the advisability of any alternatives to the Transaction.
Raymond James did not structure the Transaction or negotiate the terms of the
Transaction. Further, we express no opinion as to the value of the Common Stock
upon consummation of the Transaction or the price at which the Common Stock will
trade at any time. Our opinion is limited to the fairness from a financial point
of view of the Transaction to the Company. We express no opinion with respect to
any other
E-2
<PAGE>
reasons, legal, business or otherwise, that may support the decision of the
Board of Directors to approve or consummate the Transaction.
It is understood that our advisory services and opinion expressed herein
were prepared for the use of the Board of Directors of Angeion in evaluating the
proposed Transaction and do not constitute a recommendation to any shareholder
of Angeion regarding how such shareholder should vote on the proposed
Transaction, nor is this letter intended to confer rights or remedies upon
Angeion or the shareholders of Angeion. Furthermore, this letter should not be
construed as creating any fiduciary duty on the part of Raymond James to any
such party. This opinion is not to be quoted or referred to, in whole or in
part, without the prior written consent of Raymond James, which consent will not
be unreasonably withheld. We have consented to the inclusion of this letter in
its entirety in the proxy statement to be filed by Angeion with the Securities
and Exchange Commission in connection with the Transaction.
In arriving at this opinion, Raymond James did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Raymond James believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying this
opinion.
Based upon and subject to the foregoing, it is our opinion that, as of
July 23, 1999, the Termination Agreement and the Asset Purchase Agreement are
fair to Angeion from a financial point of view.
Respectfully submitted,
/s/ RAYMOND JAMES &
ASSOCIATES, INC.
RAYMOND JAMES & ASSOCIATES, INC.
E-3
<PAGE>
ANNEX F
MEDTRONIC AGREEMENT
<PAGE>
SETTLEMENT, LICENSE AND ASSET PURCHASE AGREEMENT
This Settlement, License and Asset Purchase Agreement (the "Agreement") is
made this 16th day of September, 1999, by and between Medtronic, Inc., a
Minnesota corporation having its principal place of business at 7000 Central
Avenue N.E., Minneapolis, Minnesota 55432, and its predecessors, successors,
affiliates, assigns, parents, subsidiaries and related corporations and entities
(hereinafter collectively defined as "Medtronic"); and Angeion Corporation, a
Minnesota corporation having its principal place of business at 7601 Northland
Drive, Brooklyn Park, Minnesota 55428-1088, and its predecessors, successors,
affiliates, assigns, parents, subsidiaries and related corporations and entities
(hereinafter collectively defined as "Angeion").
RECITALS
A. Angeion contends that various models of Cardiac Stimulation Devices that
Medtronic has made, used, or sold since 1995, and continues to make, use or
sell, infringe one or more of Angeion's patents relating to Cardiac Stimulation
Devices.
B. Medtronic contends that, as a result of a 1992 license agreement between
Medtronic and Siemens and a 1993 license agreement between Angeion and
Siemens-Pacesetter, Medtronic has a license to certain Angeion patents.
Medtronic further contends that its Cardiac Stimulation Devices do not infringe
Angeion's patents and that such patents are invalid and unenforceable. Angeion
disputes these contentions.
C. The parties desire to settle their disputes upon the terms and
conditions set forth herein, subject to the approval of Angeion's shareholders
and Senior Note Holders.
D. As part of the settlement, Medtronic desires to purchase certain Unfiled
Disclosures related to Cardiac Stimulation Devices from Angeion, and Angeion is
willing to sell such Unfiled Disclosures to Medtronic, subject to the approval
of Angeion's shareholders and Senior Note Holders.
The parties agree as follows:
SECTION 1. DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meaning specified below.
SECTION 1.01. CARDIAC STIMULATION DEVICES. "Cardiac Stimulation
Devices" means devices for electrically monitoring, stimulating or shocking the
heart.
SECTION 1.02. EFFECTIVE DATE. "Effective Date" means September 16,
1999. This Agreement shall be effective as of the Effective Date only upon
receipt of the one-time payment provided for in Section 3 below and only upon
approval of this Agreement by Angeion's shareholders and Senior Note Holders.
SECTION 1.03. LICENSED PATENTS. "Licensed Patents" means the patents
and patents issuing from patent applications relating to Cardiac Stimulation
Devices that are owned by Angeion and listed on Exhibit 1 hereto and any patents
which may be:
a. issued in any country after the Effective Date, and which patent is
a counterpart of a patent or patent application listed on Exhibit 1,
regardless of whether such patent matures from a provisional, continuation,
continuation-in-part, and divisional application, reissue, or reexamination
of such patent or patent application listed on Exhibit 1, and regardless of
whether such patent matures from a convention or non-convention case, or any
other substitution, renewal, extension, addition, utility model, or other
patent, foreign or U.S.; or
b. issued in any country after the Effective Date from, or claiming the
benefit of (in whole or in part), patent applications listed on Exhibit 1,
including all patents maturing from provisionals, continuations,
continuations-in-part, and divisional applications or reissues or
reexaminations of such patents or patent applications listed on Exhibit 1,
and further including all patents which are counterparts of the patents
described in this subparagraph (b), regardless of whether such patent
matures from a convention or non-convention case, or any other substitution,
renewal, extension,
<PAGE>
addition, utility model, or other patent, foreign or U.S. Licensed Patents
shall not include the patents and patents issuing from patent applications
that are owned by Angeion and listed on Exhibit 4 hereto. Collectively,
Exhibit 1 and Exhibit 4 are to the best of Angeion's knowledge, information
and belief an accurate and complete listing of all patents and patent
applications owned by Angeion and not abandoned or expired as of the
Effective Date.
SECTION 1.04. UNFILED DISCLOSURES. "Unfiled Disclosures" means the unfiled
patent disclosures relating to Cardiac Stimulation Devices owned by Angeion that
are listed on Exhibit 2 hereto. Unfiled Disclosures shall not include the
unfiled patent disclosures relating to Cardiac Stimulation Devices owned by
Angeion that are listed on Exhibit 5 hereto. Collectively, Exhibit 2 and Exhibit
5 are to the best of Angeion's knowledge, information and belief an accurate and
complete listing of all unfiled patent disclosures relating to Cardiac
Stimulation Devices owned by Angeion as of the Effective Date that are not
abandoned, suppressed or concealed as of the Effective Date.
SECTION 1.05. SENIOR NOTE HOLDERS. "Senior Note Holders" means the holders
of the issued and outstanding 7 1/2% Senior Convertible Notes of Angeion due in
2003.
SECTION 1.06. SUBLICENSABLE PATENTS. "Sublicensable Patents" shall mean
all patents or patents issuing from patent applications in any country, which
relate to Cardiac Stimulation Devices and which are the subject of licenses,
assignments, options to obtain licenses, or other agreements with third parties
in existence as of the Effective Date and which licenses, assignment, options or
agreements convey rights to Angeion, as licensee or grantee, to make, use, sell
or supply Cardiac Stimulation Devices or components thereof and that include the
right to grant sublicenses to third parties. Exhibit 3 is to the best of
Angeion's knowledge, information and belief an accurate and complete listing of
all Sublicensable Patents subject to licenses, assignments, options to obtain
licenses, or other agreements with third parties as of the Effective Date.
SECTION 2. MUTUAL RELEASES.
a. SETTLEMENT AND RELEASE OF MEDTRONIC. Angeion hereby forever and
completely releases and discharges Medtronic and its respective officers,
employees, agents and attorneys from all actions, causes of action, suits,
debts, accounts, contracts, agreements, promises, demands, claims, damages, and
judgments whatsoever, in law or in equity, whether present or future, known or
unknown, asserted or unasserted, suspected or unsuspected, arising out of or in
any manner relating to claims that Cardiac Stimulation Devices made, used or
sold by or for Medtronic prior to the Effective Date infringe any of the
Licensed Patents.
b. SETTLEMENT AND RELEASE OF ANGEION. Medtronic hereby forever and
completely releases and discharges Angeion and its respective officers,
employees, agents and attorneys from all actions, causes of action, suits,
debts, accounts, contracts, agreements, promises, demands, claims, damages, and
judgments whatsoever, in law or in equity, whether present or future, known or
unknown, asserted or unasserted, suspected or unsuspected, arising out of or in
any manner relating to claims that Cardiac Stimulation Devices made, used or
sold by or for Angeion prior to the Effective Date infringe any patents owned by
or exclusively licensed to Medtronic and related to Cardiac Stimulation Devices.
SECTION 3. ONE-TIME MONETARY PAYMENT. Within five (5) days of approval of
this agreement by Angeion's shareholders and Senior Note Holders, Medtronic
shall transfer to Angeion by wire transfer a one-time payment in the amount of
Nine Million Dollars ($9,000,000) in accordance with wire transfer instructions
to be provided by Angeion.
SECTION 4. NON-EXCLUSIVE, ROYALTY-FREE, PAID-UP LICENSE
SECTION 4.01. LICENSE. Subject to the terms, conditions and
limitations set forth herein, and subject to the approval of this Agreement by
Angeion's shareholders and Senior Note Holders, Angeion hereby grants to
Medtronic, a non-exclusive, royalty-free, fully paid-up worldwide license
without the right to sublicense under the Licensed Patents to make, have made,
use, have used, sell and have sold Cardiac
F-2
<PAGE>
Stimulation Devices; to supply or cause to be supplied components of Cardiac
Stimulation Devices; and to import into any jurisdiction where Licensed Patents
of Angeion are effective, Cardiac Stimulation Devices or components of Cardiac
Stimulation Devices which are manufactured in accord with any Licensed Patents.
SECTION 4.02. SUBLICENSABLE PATENTS. Angeion hereby grants or will
grant to Medtronic the right and option to obtain a non-exclusive sublicense
under any Sublicensable Patent on such terms and conditions specified for
sublicensees under the license, assignment or other agreement for that
Sublicensable Patent. It is the intention of the parties under this Section 4.02
that if a sublicense under Sublicensable Patents is acquired by Medtronic,
Medtronic shall be required to make only current payments based on current usage
and that no previously paid "front end" payments be recovered by Angeion under
such sublicensing arrangement.
SECTION 4.03. CONDITIONS, LIMITATIONS AND UNDERSTANDINGS. The license
granted hereunder is expressly made subject to the following conditions,
limitations and understandings:
a. Angeion shall have the right, in its sole discretion, to control the
maintenance, abandonment, enforcement, extension and licensing of the
Licensed Patents;
b. Angeion shall have the right to enforce the Licensed Patents in its
sole discretion against all persons and organizations, other than Medtronic,
that make, have made, use, have used, sell, or have sold Cardiac Stimulation
Devices;
c. The license of Section 4 shall not extend to any technical
proprietary design, manufacture, marketing, and/or processing information,
designs, drawings, specifications or other documents pertinent to the use of
the Licensed Patents, or any trademarks or trade names of Angeion, and the
parties acknowledge that there is no obligation upon any party to provide
such information, designs, drawings, specifications or other documents;
d. Any sublicenses under the Sublicensable Patents will only be granted
to the extent Angeion has the right to grant such sublicenses, and only on
such terms permitted by the license, assignment or other agreement for such
Sublicensable Patent.
SECTION 4.04. DISCLAIMERS. Nothing contained in the Agreement shall be
construed as:
a. A warranty or representation by any party hereto as to the validity
or scope of any Licensed Patents or Sublicensable Patents; or
b. A warranty or representation by any party hereto that anything made,
used, sold or otherwise disposed of under any license granted in the
Agreement is or will be free from infringement of patents of third parties;
or
c. A warranty or representation by any party hereto with regard to the
commercial utility or viability, medical efficacy, biocompatibility or any
other aspect of the design or performance of any thing, method or product by
process that is made, used, sold or otherwise disposed of by Medtronic under
any license granted in the Agreement; or
d. An obligation to bring or prosecute actions or suits against third
parties for patent infringement; or
e. A representation, warranty or extension of warranties of any kind,
expressed or implied, or an assumption of responsibility by any party with
respect to the use, sale or other disposition by Medtronic or its agents,
representatives, distributors or users of products incorporating or made by
use of inventions licensed under the Agreement.
SECTION 4.05. TERM. The licenses granted herein with respect to each
of the Licensed Patents shall continue during the full life of each patent
described therein and are not revocable. The loss of any patent or application
embraced by the term "Licensed Patents" by Angeion through declaration of
F-3
<PAGE>
invalidity or otherwise, shall not be cause to terminate the Agreement or the
licenses granted hereunder with respect to all other Licensed Patents and such
loss or declaration of invalidity shall not be deemed a failure of
consideration.
SECTION 5. PURCHASE AND SALE OF UNFILED DISCLOSURES.
SECTION 5.01. PURCHASE AND SALE OF UNFILED DISCLOSURES. Upon the terms
and conditions herein set forth, Angeion hereby agrees to sell and assign to
Medtronic, all of Angeion's right, title, and interest in the Unfiled
Disclosures.
SECTION 5.02. FURTHER ASSISTANCE. Angeion further agrees upon written
request made within two (2) years of the Effective Date of this Agreement, to
execute assignments or other documents reasonably necessary to effectuate such
assignment of Angeion's rights in and to the Unfiled Disclosures to Medtronic.
SECTION 5.03. NO REPRESENTATIONS AND WARRANTIES. Medtronic accepts the
purchase of the Unfiled Disclosures on an "as is" basis and Angeion makes no
representations or warranties as to the patentability, validity or
enforceability of any patents issuing from patent applications filed from or
related to such Unfiled Disclosures or with regard to the commercial utility or
viability, medical efficacy, biocompatibility or any other aspect of the design
or performance of any thing, method or product by process that is made, used,
sold or otherwise disposed of by Medtronic that in any way embodies any aspect
of the subject matter of the Unfiled Disclosures.
SECTION 5.04. ASSISTANCE OF EMPLOYEES AND CONSULTANTS. Medtronic
further acknowledges that any patent applications filed from or related to such
Unfiled Disclosures may require the signatures of one or more former Angeion
employees or consultants in connection with the filing and assignment of any
patent applications based upon the Unfiled Disclosures. Within a period not to
exceed two (2) years of the Effective Date, Angeion shall reasonably cooperate
with Medtronic, at Medtronic's written request and expense, in reasonable
efforts to secure the signatures and assistance of such employees and
consultants in perfecting the filing and assignment of any patent applications
based upon the Unfiled Disclosures; however, Angeion makes no warranty that such
efforts with its former employees or consultants shall be successful.
SECTION 5.05. INDEMNIFICATION. With regard to any thing, method or
product by process that is made, used, sold or otherwise disposed of by
Medtronic and in any way embodies any aspect of the subject matter of the
Unfiled Disclosures, Medtronic shall indemnify and hold Angeion harmless from
any and all loss or liability for any and all claims, causes of action, suits,
proceedings, damages, demands, fees, expenses, fines, penalties and costs
(including without limitation reasonable attorneys' fees, costs and
disbursements) arising from any injury or alleged injury to any person or
business for property damage, infringement, personal injury or incidental,
special or consequential damages.
SECTION 6. REPRESENTATIONS AND WARRANTIES. Each of the parties represents
and warrants to the other party as follows:
a. Angeion represents that it is the sole holder and owner of the full,
undivided right, title and interest in and to each of the Licensed
Patents.
b. Each party hereto has the requisite power and authority, corporate and
otherwise, to execute and perform this Agreement; provided, however, that
this Agreement is subject to the approval of Angeion's shareholders and
Senior Note Holders.
SECTION 7. DISCLOSURE OF THIS AGREEMENT/APPROVAL BY ANGEION'S SHAREHOLDERS
AND SENIOR NOTE HOLDERS. This Agreement is a material event for Angeion which
must be publicly disclosed under applicable securities laws and the rules of the
NASDAQ Stock Exchange. Angeion shall issue a press release concerning this
Agreement in the form attached hereto as Exhibit 6. The parties agree that this
Agreement is subject to the approval of Angeion's shareholders and Senior Note
Holders, and that if such approval is
F-4
<PAGE>
not obtained, this Agreement will be of no force or effect. The parties further
agree that in the event this Agreement does not become effective, evidence of
this Agreement or its terms, any and all public or private summaries of or
references to the subject matter of this Agreement, and communications relating
to the negotiation of the Agreement, shall not be used for any purpose, shall
not be discoverable, and shall be inadmissible for any purpose under Rule 408 of
the Federal Rules of Evidence or other similar rule of evidence in any dispute
or lawsuit between Medtronic and Angeion relating to claims of patent
infringement.
SECTION 8. GENERAL PROVISIONS.
SECTION 8.01. ENTIRE AGREEMENT. This Agreement, and the Exhibits
attached hereto, constitutes the entire agreement of the parties, the
consideration for which is the mutual representations, warranties, and
agreements herein contained, along with the one-time monetary payment set forth
in Section 3 above. This Agreement, and the Exhibits attached hereto, supercedes
any and all prior negotiations, correspondence, understandings and agreements,
whether written or oral, between the parties respecting the subject matter
hereof. No change, modification, addition or amendment shall be valid unless in
writing, indicating an intent to modify the Agreement or the Exhibits attached
hereto, and duly executed by the parties.
SECTION 8.02. NOTICES. In the case of any need to communicate with
regard to this Agreement, such communication shall be in writing and shall be
directed to the following designated employees:
For Medtronic--General Counsel for Medtronic, Inc. or his or her
designee.
For Angeion--Legal Counsel for Angeion Corporation or his or her
designee.
SECTION 8.03. ASSIGNMENT AND TRANSFER. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their successors and
permitted assigns. This Agreement may be freely transferred by Medtronic to any
party not engaged in the Cardiac Stimulation Device business at the time of such
transfer or assignment.
SECTION 8.04. GOVERNING LAW. All matters affecting the interpretation,
form, validity and performance of this Agreement shall be decided under the laws
of the State of Minnesota.
SECTION 8.05. CAPTIONS. The captions in the Agreement are intended
solely as a matter of convenience and for reference and shall be given no effect
in the construction or interpretation of the Agreement.
SECTION 8.06. SEVERABILITY OF PROVISIONS. Should any part or provision
of the Agreement be held unenforceable or in conflict with the law of any
jurisdiction, the validity of the remaining parts or provisions shall not be
affected by such holding.
SECTION 8.07. NO AGENCY. At no time shall the parties hold themselves
out to be the agent, employee, lessee, sublessee, partner, or joint venture
partner of the other parties. Nothing in the Agreement shall be construed to
create any relationship between the parties other than as expressly set forth in
this Agreement. The parties shall not have any express or implied right or
authority to assume or create any obligations on behalf of or in the name of the
other parties or to bind the other parties with regard to any other contract,
agreement, or undertaking with a third party.
SECTION 8.08. CONSTRUCTION AGAINST WAIVER. No waiver of any term,
provision or condition of the Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be construed as a further or continuing
waiver of any such term, provision or condition of the Agreement; nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision.
F-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed and duly attested by their corporate officers duly authorized for this
purpose.
ANGEION CORPORATION
By: /s/ James B. Hickey Jr.
--------------------------------------
Title: President and CEO
--------------------------------------
Date: September 16, 1999
--------------------------------------
ATTEST:
By: /s/ Marcus Magnuson
- -------------------------------------
MEDTRONIC, INC.
By: /s/ Michael D. Ellwein
--------------------------------------
Title: V.P. CDO
--------------------------------------
Date: September 16, 1999
--------------------------------------
ATTEST:
By: /s/ Reed A. Duthler
- -------------------------------------
F-6
<PAGE>
ANNEX G
FAIRNESS OPINION OF
RAYMOND JAMES
REGARDING THE MEDTRONIC TRANSACTIONS
<PAGE>
September 14, 1999
Board of Directors
Angeion Corporation
7601 Northland Drive
Minneapolis, MN 55428
Members of the Board:
We understand that Angeion Corporation ("Angeion" or the "Company") is
contemplating a transaction with Medtronic, Inc. ("Medtronic") whereby Angeion
will grant to Medtronic, among other things, a non-exclusive license to certain
intellectual property and technology of Angeion, and Medtronic will purchase and
Angeion will sell certain of Angeion's Unfiled Disclosures related to Cardiac
Stimulation Devices, subject to the approval of Angeion's shareholders and
Senior Note Holders (collectively, the "Medtronic Transaction"). As
consideration in the Medtronic Transaction, Medtronic will make to Angeion a one
time cash payment of $9 million as set forth in the Settlement, License and
Asset Purchase Agreement between Medtronic and Angeion.
You have requested our opinion as to whether the Medtronic Transaction is
fair to Angeion from a financial point of view. In arriving at an estimate for
the market value of the Medtronic Transaction, we have relied upon and assumed
the accuracy and completeness of all of the financial and other information that
was available to us from public sources, that was provided to us by the Company
or its respective representatives, or that was otherwise reviewed by us.
In connection with our review of the proposed Medtronic Transaction and the
preparation of our opinion herein, we have, among other things:
1. attempted to value the non-exclusive license to be granted by Angeion to
Medtronic by using (i) a recently consummated transaction involving
Angeion's granting of a non-exclusive license to substantially the same
intellectual property to Guidant Corporation, and (ii) a transaction
under contract involving the granting of a non-exclusive license to
substantially the same intellectual property to ELA Medical;
2. reviewed a draft of the Settlement, License and Asset Purchase Agreement
dated August 18, 1999;
3. reviewed Angeion's audited fiscal year-end and quarterly financial
statements for the last two years;
4. reviewed Angeion's projected financial statements as prepared by
Angeion's management;
5. reviewed Angeion's pro forma balance sheet after the Medtronic
Transaction, as prepared by Angeion's management, and;
6. conducted such other financial analyses, studies, and investigations,
and considered such other information as we deemed necessary or
appropriate.
In connection with our review, we have not assumed any responsibility for
independent verification for any of the information reviewed by us for the
purpose of this opinion and have relied on its being complete and accurate in
all material respects. In addition, we have not received any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of Angeion, nor have we been furnished with any such evaluation or
appraisal. With respect to the data and other information referred to above, we
have assumed, at your direction, that they have been reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
management of Angeion, and we have relied upon Angeion to advise us promptly if
any such information previously provided to or discussed with us became
inaccurate or was required to be updated during the period of our review. This
opinion is based substantially on such projections and estimates. In addition,
we have assumed the Medtronic Transaction will be consummated substantially in
accordance with the terms set forth in the draft of the Settlement,
<PAGE>
License and Asset Purchase Agreement dated August 18, 1999. We have made no
independent investigation of any legal matters involving Angeion, and we have
assumed the accuracy of all legal advice given to you by Angeion's counsel.
In conducting our investigations and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including the review of (i) the value of a non-exclusive license agreement by
using financial and market data on comparable transactions involving Guidant
Corporation and ELA Medical; and (ii) the general condition of Angeion in the
current marketplace and its expected financial performance.
Raymond James & Associates, Inc. ("Raymond James") is actively engaged in
the investment banking business and regularly undertakes the valuation of
investment securities and assets in connection with public offerings, private
placements, business combinations and similar transactions. Raymond James has
been engaged to render financial advisory services to the Company in connection
with the proposed Medtronic Transaction and will receive a fee for such
services, which fee is contingent upon consummation of the Medtronic
Transaction. In addition, the Company has agreed to indemnify Raymond James
against certain liabilities arising out of our engagement.
We express no opinion as to the underlying business decision of the Company
to effect the Medtronic Transaction, the structure or tax consequences of the
Settlement, License and Asset Purchase Agreement, or the availability or the
advisability of any alternatives to the Medtronic Transaction. Raymond James did
not structure the Medtronic Transaction or negotiate the terms of the Medtronic
Transaction. Further, we express no opinion as to the value of the Angeion
common stock upon consummation of the Medtronic Transaction or the price at
which the common stock will trade at any time. Our opinion is limited to the
fairness from a financial point of view of the Medtronic Transaction to the
Company. We express no opinion with respect to any other reasons, legal,
business or otherwise, that may support the decision of the Board of Directors
to approve or consummate the Medtronic Transaction.
It is understood that our advisory services and opinion expressed herein
were prepared for the use of the Board of Directors of Angeion in evaluating the
proposed Medtronic Transaction and do not constitute a recommendation to any
shareholder or bond holder of Angeion regarding how such shareholder or bond
holder should vote on the proposed Medtronic Transaction, nor is this letter
intended to confer rights or remedies upon Angeion, or the shareholders or bond
holders of Angeion. Furthermore, this letter should not be construed as creating
any fiduciary duty on the part of Raymond James to any such party. This opinion
is not to be quoted or referred to, in whole or in part, without the prior
written consent of Raymond James, which consent will not be unreasonably
withheld. We have consented to the inclusion of this letter in its entirety in
the proxy statement to be filed by Angeion with the Securities and Exchange
Commission in connection with the Medtronic Transaction.
In arriving at this opinion, Raymond James did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Raymond James believes that its analyses must be considered as a
whole and that selecting portions of its analyses, without considering all
analyses, would create an incomplete view of the process underlying this
opinion.
Based upon and subject to the foregoing, it is our opinion that, as of
September 14, 1999, the Settlement, License and Asset Purchase Agreement between
Angeion and Medtronic is fair to Angeion from a financial point of view.
Respectfully submitted,
/s/ Raymond James & Associates, Inc.
RAYMOND JAMES & ASSOCIATES, INC.
G-2
<PAGE>
ANNEX H
MINNESOTA BUSINESS CORPORATIONS ACT--SECTIONS 302A.471 AND 302A.473
<PAGE>
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS
SUBDIVISION 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation may
dissent from, and obtain payment for the fair manufacture value of the
shareholders' shares in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption
of the shares, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holders of the shares
to acquire shares, securities other than shares, or rights to purchase
shares, securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter,
or to cumulate votes, except as the right may be excluded or limited through
the authorization or issuance of securities or new class or series with
similar or different voting rights; except that an amendment to the articles
of an issuing public corporation that provides that section 302A.671 does
not apply to a control share acquisition does not give rise to the right to
obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially
all of the property and assets of the corporation, but not including a
transaction permitted without ,shareholder approval in section 302A.661,
subdivision 1, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B, to
which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
SUBDIVISION 2. BENEFICIAL OWNERS. (a) A shareholder shall not assert
Dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the Dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) The beneficial owner of shares who is not the shareholder may assert
Dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
SUBDIVISION 3. RIGHTS NOT TO APPLY. (a) Unless the articles, the bylaws,
or a resolution approved by the board otherwise provide, the right to obtain
payment under this section does not apply to a shareholder of the surviving
corporation in a merger, if the shares of the shareholder are not entitled to be
voted on the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1, for the
determination of shareholders entitled to receive notice of and to vote on an
action described in subdivision 1, only shareholders as of
<PAGE>
the date fixed, and beneficial owners as of the date fixed who hold through
shareholders, as provided in subdivision 2, may exercise Dissenters' rights.
SUBDIVISION 4. OTHER RIGHTS. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.
SUBD. 1. DEFINITIONS.
(a) For purposes of this section, the terms defined in this subdivision have
the meanings given them.
(b) "Corporation" means the issuer of the shares held by a Dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1, up to
and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
SUBD. 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
SUBD. 3. NOTICE OF DISSENT. If the proposed action must be approved by the
shareholders, a shareholder who is entitled to dissent under section 302A.471
and who wishes to exercise Dissenters' rights must file with the corporation
before the vote on the proposed action a written notice of intent to demand the
fair value of the shares owned by the shareholder and must not vote the shares
in favor of the proposed action.
SUBD. 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES.
(a) After the proposed action has been approved by the board and, if
necessary, the shareholders, the corporation shall send to all shareholders who
have complied with subdivision 3 and to all shareholders entitled to dissent if
no shareholder vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or
the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description
of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30
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<PAGE>
days after the notice required by paragraph (a) was given, but the Dissenter
retains all other rights of a shareholder until the proposed action takes
effect.
SUBD. 5. PAYMENT; RETURN OF SHARES.
(a) After the corporate action takes effect, or after the corporation
receives a valid demand for payment, whichever is later, the corporation shall
remit to each dissenting shareholder who has complied with subdivisions 3 and 4
the amount the corporation estimates to be the fair value of the shares, plus
interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income for
a fiscal year ending not more than 16 months before the effective date of
the corporate action, together with the latest available interim financial
statements;
(2) an estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) a copy of section 302A.471 and this section, and a brief description
of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the Dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the Dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the Dissenter the amount listed in the
materials if the Dissenter agrees to accept that amount in full satisfaction.
The Dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the Dissenter only to the amount offered. If the
Dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision 4
and require deposit or restrict transfer at a later time.
SUBD. 6. SUPPLEMENTAL PAYMENT; DEMAND. If a Dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the Dissenter may give written notice to the corporation of the
Dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a Dissenter is entitled only to the
amount remitted by the corporation.
SUBD. 7. PETITION; DETERMINATION. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the Dissenter the amount demanded or agreed to by the Dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
Dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve all parties with a summons and copy of the petition under the
rules of civil procedure. Nonresidents of this state may be served by registered
or certified mail or by publication as provided by law. Except as otherwise
provided, the rules of civil procedure apply to this proceeding. The
jurisdiction of the court is plenary and exclusive. The court may appoint
appraisers, with powers and authorities the court deems proper, to receive
evidence on and recommend the amount of the fair value of the shares. The court
shall determine whether the
H-3
<PAGE>
shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the shares,
taking into account any and all factors the court finds relevant, computed by
any method or combination of methods that the court, in its discretion, sees fit
to use, whether or not used by the corporation or by a Dissenter. The fair value
of the shares as determined by the court is binding on all shareholders,
wherever located. A Dissenter is entitled to judgment in cash for the amount by
which the fair value of the shares as determined by the court, plus interest,
exceeds the amount, if any, remitted under subdivision 5, but shall not be
liable to the corporation for the amount, if any, by which the amount, if any,
remitted to the Dissenter under subdivision 5 exceeds the fair value of the
shares as determined by the court, plus interest.
SUBD. 8. COSTS; FEES; EXPENSES.
(a) The court shall determine the costs and expenses of a proceeding under
subdivision 7, including the reasonable expenses and compensation of any
appraisers appointed by the court, and shall assess those costs and expenses
against the corporation, except that the court may assess part or all of those
costs and expenses against a Dissenter whose action in demanding payment under
subdivision 6 is found to be arbitrary, vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney
for the Dissenters out of the amount awarded to the Dissenters, if any.
H-4
<PAGE>
COMPANY #
CONTROL #
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid
envelope we've provided or return it to Angeion Corporation, c/o Shareowner
Services,-SM- P.O. Box 64873, St. Paul, MN 55164-0873.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, 4, 5 AND 6.
1. ELECTION OF DIRECTORS. Nominees to the Board of Directors are: Whitney
A. McFarlin, Arnold A. Angeloni, Dennis E. Evans, James B. Hickey, Jr., Lyle
D. Joyce, M.D., Ph.D., Joseph C. Kiser, M.D., Donald D. Maurer, Glen Taylor,
and Stephen L. Wilson for a term until the next regular meeting of
Shareholders or until their successors are duly elected and qualified.
/ / FOR ALL NOMINEES LISTED ABOVE / / WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all
nominees listed above
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THE NOMINEE'S NAME IN THE BOX PROVIDED TO THE RIGHT.)
PLEASE FOLD HERE
In the event a nominee listed above becomes unable to serve by reason of
death, incapacity or other unexpected occurrence.
/ / FOR ANOTHER NOMINEE / / WITHHOLD AUTHORITY
(to be designated by the Board) to vote for any other nominee
2. Proposal to approve the Asset Purchase Agreement dated as of August 2,
1999, by and among the Company, Sanofi-Synthelabo, a societe anonyme
organized and existing under the laws of the Republic of France, and ELA
Medical, a societe anonyme organized and existing under the laws of the
Republic of France and a wholly-owned subsidiary of Sanofi-Synthelabo ("ELA
Medical"), pursuant to which the Company has agreed (A) to sell and transfer,
and ELA Medical has agreed to purchase and assume, certain of the assets and
liabilities of the Company relating to the manufacture and sale of cardiac
stimulation and related devices designed and developed by the Company, and
(B) to grant ELA Medical a one-way, non-exclusive, fully paid-up,
royalty-free and perpetual worldwide license to its patents and patent
applications relating to cardiac stimulation devices.
/ / For / / Against / / Abstain
3. Proposal to approve the Settlement, License and Asset Purchase Agreement
dated as of September 16, 1999, by and between the Company and Medtronic,
Inc. a Delaware corporation ("Medtronic"), pursuant to which the Company has
agreed (A) to sell and Medtronic has agreed to purchase certain unfiled
patent disclosures of the Company relating to its cardiac stimulation
devices, and (B) to grant Medtronic a one-way, non-exclusive, fully paid-up,
royalty-free and perpetual worldwide license to its patents and patent
applications relating to cardiac stimulation devices.
/ / For / / Against / / Abstain
4. Proposal to approve an amendment to the
Articles of Incorporation of the Company
to increase the number of authorized shares
of Common Stock from 7,500,000 to
10,000,000. / / For / / Against / / Abstain
5. Proposal to approve amendments to the
1994 Non-Employee Director Plan (the
"Director Plan") to (i) extend the Director
Plan by five years to October 7, 2004,
and (ii) increase the number of shares
covered by the Director Plan from
20,000 to 250,000. / / For / / Against / / Abstain
6. Proposal to ratify the Board of
Directors' appointment of KPMG LLP to act
as independent auditors of the Company
for the fiscal year ended December 31,
1999. / / For / / Against / / Abstain
THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED TO THE COMPANY, WILL BE VOTED
IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5 AND 6 BY SIGNING
AND RETURNING THIS PROXY CARD. THE PROXY IS AUTHORIZED TO VOTE IN HIS
DISCRETION WITH RESPECT TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE
MEETING.
Address Change? Mark Box / /
Indicate changes below:
Dated: _________________________, 1999
Signature(s) in Box
(If there are co-owners both must sign)
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
<PAGE>
ANGEION CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 31, 1999
9:00 A.M.
RADISSON PLAZA HOTEL
35 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
ANGEION CORPORATION
7601 NORTHLAND DRIVE, BROOKLYN PARK, MINNESOTA, 55428 PROXY
- -------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL
MEETING ON DECEMBER 31, 1999.
The shares of Common Stock you hold in your account or in a dividend
reinvestment account will be voted as you specify below.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2, 3, 4, 5
AND 6.
By signing the proxy, you revoke all prior proxies and appoint James B.
Hickey, Jr. with full power of substitution, to vote your shares on the
matters shown on the reverse side and any other matters which may come before
the Annual Meeting and all adjournments.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James B. Hickey, Jr., as a Proxy, with the
power to appoint his substitute, and hereby authorizes such Proxy to
represent and to vote, as designated below, all the shares of Common Stock of
Angeion Corporation (the "Company") held of record by the undersigned on
December 1, 1999, at the Annual Meeting of Shareholders to be held on
December 31, 1999, or any adjournment thereof.
SEE REVERSE FOR VOTING INSTRUCTIONS
<PAGE>
COMPANY #
CONTROL #
RESPOND BY MAIL
Mark, sign and date your consent card and return it in the postage-paid
envelope we've provided or return it to Angeion Corporation, c/o Shareowner
Services,-SM- P.O. Box 64873, St. Paul, MN 55164-0873.
PLEASE DETACH HERE
CONSENT
Proposal to supplement the Indenture dated as of April 14, 1998 (the
"Indenture"), by and between the Company and U.S. Bank National Association,
as Trustee thereunder, with respect to the Notes to provide that the
consummation of the transactions contemplated by the Agreements will not:
1. Constitute a sale, assignment, transfer, lease, conveyance or other
disposition of all or substantially all of the property or assets of the
Company for purposes of the Company's obligations to comply with and observe
all covenants contained in the Indenture; and
/ / For consent / / Against consent
2. Constitute a conveyance, transfer or lease of all or substantially all of
the Company's assets for purposes of determining whether a change of control
has occurred within the meaning of the Indenture. The consent for each
proposal listed above will not be effective unless both proposals receive
the consent of the Note Holders.
/ / For consent / / Against consent
The term "Agreements" means (i) the Asset Purchase Agreement dated as of
August 2, 1999 by and among the Company, Sanofi-Synthelabo, a societe anonyme
organized and existing under the laws of the Republic of France, and ELA
Medical, a societe anonyme organized and existing under the laws of the
Republic of France and a wholly-owned subsidiary of Sanofi-Synthelabo ("ELA
Medical"), pursuant to which the Company has agreed (A) to sell and transfer,
and ELA Medical has agreed to purchase and assume, certain of the assets and
liabilities of the Company relating to the manufacture and sale of cardiac
stimulation and related devices designed and developed by the Company, and
(B) to grant ELA Medical a one-way, non-exclusive, fully paid-up,
royalty-free and perpetual worldwide license to its patents and patent
applications relating to cardiac stimulation devices, and (ii) the
Settlement, License and Asset Purchase Agreement dated as of September 16,
1999 by and between the Company and Medtronic, Inc. a Delaware corporation
("Medtronic"), pursuant to which the Company has agreed (A) to sell and
Medtronic has agreed to purchase certain unfiled patent disclosures of the
Company relating to its cardiac stimulation devices, and (B) to grant
Medtronic a one-way, non-exclusive, fully paid-up, royalty-free and perpetual
worldwide license to its patents and patent applications relating to cardiac
stimulation devices. If each of the proposals is consented to and the
Indenture is supplemented as set forth in such proposals, the Note Holders
will no longer have the right under the Indenture (i) to require the Company
to repurchase their Notes, at a premium or otherwise, in connection with the
consummation of the transactions contemplated by the Agreements, or (ii) to
require the Company to accelerate its repayment obligations to the Note
Holders as a result of the consummation of the transactions contemplated by
the Agreements. Consenting to the proposals will have no effect on the
Company's obligation to pay principal and interest when due with respect to
the Notes or on the rights of Note Holders regarding such obligation.
THIS CONSENT CARD, WHEN PROPERLY EXECUTED AND RETURNED TO THE COMPANY, WILL
AUTHORIZE OR WITHHOLD CONSENT AS DIRECTED HEREIN BY THE UNDERSIGNED NOTE
HOLDER. IF NO DIRECTION IS MADE, THIS CONSENT WILL BE DEEMED A RESPONSE FOR
CONSENT TO THE PROPOSAL.
Address Change? Mark Box / /
Indicate changes below:
Dated: _________________________, 1999
Signature(s) in Box
(If there are co-owners both must sign)
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW. WHEN NOTES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
<PAGE>
ANGEION CORPORATION
REQUEST FOR CONSENT
ANGEION CORPORATION
7601 NORTHLAND DRIVE, BROOKLYN PARK, MINNESOTA 55428 REQUEST FOR CONSENT
- -------------------------------------------------------------------------------
THIS REQUEST FOR CONSENT IS SOLICITED BY THE BOARD OF DIRECTORS WITH RESPECT
TO THE 7 1/2% SENIOR CONVERTIBLE NOTES DUE 2003 (THE "NOTES") ISSUED BY
ANGEION CORPORATION (THE "COMPANY").
You are authorizing or withholding consent for your Notes as you specify below.
By signing the Consent Card, you revoke all prior Consent Cards and authorize
or withhold consent for your Notes on the matters shown on the reverse side.
The undersigned hereby authorizes or withholds consent, as designated below,
for all of the Notes held of record by the undersigned on December 1, 1999.
SEE REVERSE FOR INSTRUCTIONS
