<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
TYCO INTERNATIONAL LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
BERMUDA 7382 NOT APPLICABLE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
THE GIBBONS BUILDING
10 QUEEN STREET, SUITE 301
HAMILTON HM 11, BERMUDA
(441) 292-8674*
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
MARK H. SWARTZ
C/O TYCO INTERNATIONAL (US) INC.
ONE TYCO PARK
EXETER, NEW HAMPSHIRE 03833
(603) 778-9700
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
--------------------------
* Tyco International Ltd. maintains its registered and principal executive
offices at The Gibbons Building, 10 Queen Street, Suite 301, Hamilton HM 11,
Bermuda. The executive offices of Tyco's principal United States subsidiary,
Tyco International (US) Inc., are located at One Tyco Park, Exeter, New
Hampshire 03833. The telephone number there is (603) 778-9700.
--------------------------
COPIES TO:
<TABLE>
<S> <C>
JOSHUA M. BERMAN, ESQ. STEVEN J. TONSFELDT, ESQ.
ABBE L. DIENSTAG, ESQ. MARK B. WEEKS, ESQ.
KRAMER LEVIN NAFTALIS & FRANKEL LLP VENTURE LAW GROUP, A PROFESSIONAL CORPORATION
919 THIRD AVENUE 2800 SAND HILL ROAD
NEW YORK, NEW YORK 10022 MENLO PARK, CALIFORNIA 94025
</TABLE>
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SECURITY OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Shares, par value $0.20 per share
(1)...................................... 1,429,958(2) $N/A $107,928,117(3) $30,005(4)
</TABLE>
(1) With attached rights to purchase preferred or additional common shares in
certain circumstances.
(2) Represents the estimated maximum number of Tyco common shares issuable upon
consummation of the merger of General Surgical Innovations, Inc. with a
subsidiary of the Registrant, assuming the exercise of all options and other
rights to purchase or acquire shares of GSI common stock that are
exercisable prior to consummation of the merger.
(3) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 promulgated under the securities Act of 1933, as amended, on the
basis of $6.891, the average of the high and low prices of the GSI common
stock on the Nasdaq National Market on September 17, 1999, multiplied by
15,662,185, the maximum number of shares of GSI common stock to be acquired
in the merger.
(4) .000278 of the Proposed Maximum Aggregate Offering Price.
--------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger contemplated by the Agreement and Plan of Merger, dated
as of August 23, 1999, described in the Proxy Statement/Prospectus included in
this Registration Statement, have been satisfied or waived.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED SEPTEMBER 24, 1999
[GENERAL SURGICAL INNOVATIONS, INC. LOGO]
October , 1999
Dear GSI Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
General Surgical Innovations, Inc. which will be held on October , 1999, at
10:00 a.m., Pacific Time, at GSI's principal executive offices located at 10460
Bubb Road, Cupertino, California 95014.
At the meeting, you will be asked to approve and adopt an Agreement and Plan
of Merger that GSI has entered into with subsidiaries of Tyco International Ltd.
The merger agreement provides for the merger of GSI with a Tyco subsidiary, as a
result of which GSI will become an indirect wholly owned Tyco subsidiary and GSI
shareholders will become Tyco shareholders. Tyco has guaranteed the obligations
of its subsidiaries in the merger.
If this merger is approved, you will receive a fraction of a Tyco common
share for each share of GSI common stock valued at $7.50. This fraction is
determined by the average of the daily volume weighted selling prices of Tyco
common shares on the New York Stock Exchange over the five trading days ending
four trading days before the GSI shareholders meeting.
Tyco common shares are listed on the New York Stock Exchange and the Bermuda
Stock Exchange under the symbol "TYC" and on the London Stock Exchange under the
symbol "TYI."
The accompanying Proxy Statement/Prospectus provides a detailed description
of the proposed merger and the merger consideration, as well as the effects of
the merger on you as a shareholder and on GSI. I urge you to read the enclosed
materials carefully.
AFTER CAREFUL CONSIDERATION, GSI'S BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF GSI AND ITS
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the meeting,
please take the time to vote on the proposal submitted to you by completing and
mailing the enclosed proxy card to us.
Sincerely,
Gregory D. Casciaro
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF ISSUES WHICH
SHOULD BE CONSIDERED BY SHAREHOLDERS WITH RESPECT TO THE MERGER.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the Tyco common shares to be issued
in the merger or determined if this Proxy Statement/Prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
Proxy Statement/Prospectus dated October , 1999 and first mailed to
shareholders on or about October , 1999.
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
10460 BUBB ROAD
CUPERTINO, CALIFORNIA 95014
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER , 1999
To the Shareholders of
GENERAL SURGICAL INNOVATIONS, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of General
Surgical Innovations, Inc. will be held on October , 1999, at 10:00 a.m.,
Pacific Time, at GSI's principal executive offices located at 10460 Bubb Road,
Cupertino, California 95014, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of August 23, 1999, among GSI,
General Acquisition Corp., a Nevada corporation and a wholly owned
subsidiary of Tyco International Ltd., a Bermuda company, and General Sub
Acquisition Corp., a California corporation and a wholly owned subsidiary of
General Acquisition Corp., pursuant to which, among other things,
(a) General Sub will merge with and into GSI, and
(b) each outstanding share of common stock, par value $0.001 per
share, of GSI will be converted into the right to receive a
fraction of a common share, nominal value US$0.20 per share, of
Tyco, as provided in the merger agreement.
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
Only holders of GSI common stock of record at the close of business on
October , 1999 are entitled to notice of and to vote at the special meeting or
any adjournment or postponement thereof.
All shareholders are cordially invited to attend the special meeting.
HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE
IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
By Order of the Board of Directors,
Mark B. Weeks
SECRETARY
Cupertino, California
October , 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
WHERE TO FIND MORE INFORMATION
Tyco and GSI file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information filed by Tyco and GSI at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The filings of Tyco and GSI with the SEC are also available to
the public from commercial document retrieval services and at the world wide web
site maintained by the SEC at "http://www.sec.gov."
Tyco filed a registration statement on Form S-4 to register with the SEC the
Tyco common shares to be delivered in connection with the merger. This document
is a part of that registration statement and constitutes a prospectus of Tyco in
addition to being a proxy statement of GSI for the special meeting of GSI
shareholders. As allowed by SEC rules, this document does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement.
The SEC allows Tyco and GSI to "incorporate by reference" information into
this document, which means that they can disclose important information to you
by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this document,
except for any information superseded by information in this document. This
document incorporates by reference the documents set forth below that Tyco and
GSI have previously filed with the SEC. These documents contain important
information about Tyco and GSI and their finances.
<TABLE>
<CAPTION>
TYCO SEC FILINGS (FILE NO. 0-16979) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K and 10-K/A, except for Part
II, Items 6, 7, 7A and 8.............................. Fiscal year ended September 30, 1998
Quarterly Reports on Form 10-Q.......................... Quarterly periods ended December 31, 1998, March 31,
1999 and June 30, 1999
Current Reports on Form 8-K and 8-K/A................... Filed on May 13, 1998, December 10, 1998, December 11,
1998, April 15, 1999, June 3, 1999, July 21, 1999,
August 27, 1999 and September 14, 1999
The description of Tyco common shares and the
termination of Tyco's shareholder rights plan as set
forth in its Registration Statements on Form 8-A/A.... Filed on March 1, 1999 and September 10, 1999
<CAPTION>
GSI SEC FILINGS (FILE NO. 0-28448) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K.............................. Fiscal year ended June 30, 1999
Current Report on Form 8-K.............................. Filed on September 1, 1999
The description of GSI common stock as set forth in its
Registration Statements on Form 8-A and 8-A/A......... Filed on May 13, 1997 and September 2, 1999
</TABLE>
Tyco and GSI are also incorporating by reference additional documents that
they file with the SEC between the date of this document and the date of the
special meeting of GSI shareholders.
Tyco has supplied all information contained or incorporated by reference in
this document relating to Tyco, and GSI has supplied all such information
relating to GSI.
DOCUMENTS INCORPORATED BY REFERENCE ARE AVAILABLE FROM TYCO AND GSI WITHOUT
CHARGE. EXHIBITS TO THE DOCUMENTS WILL NOT BE SENT, HOWEVER, UNLESS THOSE
EXHIBITS HAVE SPECIFICALLY BEEN INCORPORATED BY REFERENCE IN THIS DOCUMENT.
SHAREHOLDERS MAY OBTAIN DOCUMENTS INCORPORATED BY REFERENCE IN THIS
i
<PAGE>
DOCUMENT BY REQUESTING THEM, IN WRITING OR BY TELEPHONE FROM THE APPROPRIATE
COMPANY AT THE FOLLOWING ADDRESS:
<TABLE>
<S> <C>
TYCO INTERNATIONAL LTD. GENERAL SURGICAL INNOVATIONS,
THE GIBBONS BUILDING INC.
10 QUEEN STREET, SUITE 301 10460 BUBB ROAD
HAMILTON HM 11, BERMUDA CUPERTINO, CALIFORNIA 95014
(441) 292-8674 (408) 863-1100
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM TYCO OR GSI, PLEASE DO SO BY
OCTOBER , 1999 TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS DOCUMENT TO VOTE ON THE MERGER. NONE OF TYCO, GENERAL
ACQUISITION CORP., TYCO'S SUBSIDIARY THAT WILL ACQUIRE GSI IN THE MERGER, OR GSI
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS DOCUMENT. THIS DOCUMENT IS DATED OCTOBER , 1999. YOU SHOULD
NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE AS OF ANY
DATE OTHER THAN THIS DATE, AND NEITHER THE MAILING OF THIS DOCUMENT TO
SHAREHOLDERS NOR THE DELIVERY OF TYCO COMMON SHARES IN CONNECTION WITH THE
MERGER WILL CREATE ANY IMPLICATION TO THE CONTRARY.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
WHERE TO FIND MORE INFORMATION......... i
QUESTIONS AND ANSWERS ABOUT THE
TYCO/GSI MERGER...................... 1
SUMMARY................................ 2
The Companies........................ 2
The Special Meeting.................. 3
The Merger........................... 3
RISK FACTORS........................... 5
FORWARD LOOKING INFORMATION............ 6
SELECTED FINANCIAL DATA OF TYCO AND
GSI.................................. 7
Selected Consolidated Historical
Financial Data of Tyco............. 8
Selected Historical Financial Data of
GSI................................ 10
Selected Tyco and GSI Unaudited Pro
Forma Combined Financial
Information........................ 11
Comparative Per Share Information.... 12
Comparative Market Value
Information........................ 13
CURRENT DEVELOPMENTS OF TYCO........... 14
GENERAL SURGICAL INNOVATIONS, INC.
SPECIAL MEETING...................... 15
Date, Time and Place................. 15
Purpose of the GSI Special Meeting... 15
Record Date; Voting Rights; Quorum;
Required Vote...................... 15
Recommendation of the Board of
Directors of GSI................... 15
Proxies; Revocation.................. 15
Solicitation of Proxies.............. 16
THE MERGER............................. 17
Background of the Merger............. 17
Exchange of Financial Forecasts...... 18
Recommendation of the Board of
Directors of GSI; Reasons of GSI
for the Merger..................... 19
Opinion of Financial Advisor to
GSI................................ 21
Reasons of Tyco for the Merger....... 27
Interests of Certain Persons in the
Merger............................. 28
Material U.S. Federal Income Tax and
Bermuda Tax Consequences........... 28
Accounting Treatment................. 32
Certain Legal Matters................ 32
U.S. Federal Securities Law
Consequences....................... 33
Dividends............................ 33
Stock Exchange Listing............... 33
Dissenters' Rights................... 33
CERTAIN PROVISIONS OF THE MERGER
AGREEMENT............................ 36
General.............................. 36
Effective Time....................... 36
Merger Consideration................. 36
Exchange of GSI Common Stock......... 37
Representations and Warranties....... 37
Conduct of Business by GSI........... 38
Conduct of Business by Tyco.......... 39
No Solicitation...................... 39
Certain Other Covenants.............. 40
Conditions to the Merger............. 42
Termination.......................... 44
Amendment and Waiver; Parties in
Interest........................... 47
Guarantee............................ 47
COMPARATIVE PER SHARE PRICES AND
DIVIDENDS............................ 48
Tyco................................. 48
GSI.................................. 49
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION................ 50
CERTAIN INFORMATION CONCERNING GSI..... 56
Business of GSI...................... 56
Selected Financial Data.............. 62
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 62
Voting Securities and Principal
Holders Thereof.................... 75
COMPARISON OF RIGHTS OF SHAREHOLDERS OF
GSI AND SHAREHOLDERS OF TYCO......... 77
OTHER MATTERS.......................... 88
LEGAL MATTERS.......................... 88
EXPERTS................................ 88
FUTURE SHAREHOLDER PROPOSALS........... 88
FINANCIAL STATEMENTS OF GSI............ F-1
ANNEXES
Annex A--Agreement and Plan of Merger
Annex B--Opinion of ING Barings LLC
Annex C--Chapter 13 of the California
General Corporation Law
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE TYCO/GSI MERGER
Q. WHY ARE TYCO AND GSI PROPOSING THE MERGER?
A. GSI's line of balloon dissectors and related devices for minimally
invasive surgery are complementary to related products manufactured and marketed
by Tyco's healthcare products group. With the greater resources available to
Tyco, the merger should provide a means to significantly enhance the development
and distribution of GSI's products. The merger will also give GSI shareholders
the opportunity to participate in a substantially larger and more diversified
public company.
Based on current market prices for Tyco common shares, all GSI shareholders
will receive a significant premium for their shares over the value of the GSI
common stock on August 20, 1999, the last trading day before the merger was
publicly announced.
Q. WHAT WILL I RECEIVE IN THE MERGER?
A. You will receive a fraction of a Tyco common share for each of your
shares of GSI common stock. This fraction is referred to as the "exchange
ratio." The exchange ratio is designed so that GSI shareholders will receive
$7.50 worth of Tyco common shares for each of their shares of GSI common stock
based upon the "average share price" for Tyco common shares. The average share
price will be computed by taking the average of the daily volume weighted
selling prices of Tyco common shares on the New York Stock Exchange over the
five trading days ending four trading days before the special meeting of GSI
shareholders. Cash will be paid instead of the distribution of fractional
shares.
Q. HOW WILL I KNOW WHAT THE EXCHANGE RATIO IS?
A. You can call toll free 1- - - at any time beginning on October
, 1999, after the close of trading, for a voice recording with the exchange
ratio. If the average share price is less than $82.15, you will be informed that
General Acquisition has the right to call off the merger unless GSI agrees to an
exchange ratio of 0.0913 and will be advised to call again on October , 1999
for final information on the exchange ratio. These numbers are not adjusted for
a two-for-one stock split of Tyco common shares payable on October 21, 1999.
Q. WHAT SHOULD I DO NOW?
A. You should cast your vote on the merger by completing, signing and
dating your proxy card. The completed proxy card should be returned in the
enclosed self-addressed postage paid envelope. You can also attend the special
meeting and vote in person.
THE BOARD OF DIRECTORS OF GSI RECOMMENDS YOU VOTE FOR THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
You should not send in your share certificates now. After the merger is
completed, you will be sent written instructions for exchanging your share
certificates.
Q. WHEN SHOULD I SEND IN MY PROXY CARD? CAN I CHANGE MY VOTE?
A. You should send in your proxy card as soon as possible so that your
shares will be voted at the meeting. You can change your vote at any time prior
to the special meeting by submitting a later dated signed proxy card. You can
also change your vote by attending the special meeting and voting in person.
Q. WHEN WILL THE MERGER TAKE EFFECT?
A. The merger is expected to take effect on the date GSI shareholders
approve and adopt the merger agreement at a special meeting of shareholders.
Q. IF MY SHARES OF GSI COMMON STOCK ARE HELD BY A BANK OR BROKER, HOW CAN I
VOTE?
A. If your shares are held by a bank, broker or other fiduciary, you must
contact the fiduciary to vote on your behalf.
Q. WHAT SHOULD I DO IF I HAVE QUESTIONS?
A. You should call at 1- - - (toll free in the United
States) or 1- - - (call collect).
1
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO BETTER UNDERSTAND
THE MERGER AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE MERGER,
YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO WHICH YOU
HAVE BEEN REFERRED. SEE "WHERE TO FIND MORE INFORMATION" ON PAGE I.
THE COMPANIES
TYCO INTERNATIONAL LTD.
The Gibbons Building
10 Queen Street, Suite 301
Hamilton HM 11, Bermuda
(441) 292-8674
Tyco is a diversified manufacturing and service company that, through its
subsidiaries:
- designs, manufactures and distributes electrical and electronic components
and designs, manufactures, installs and services undersea fiber optic
cable communication systems;
- designs, manufactures and distributes disposable medical supplies and
other specialty products, and conducts vehicle auctions and related
services;
- designs, manufactures, installs and services fire detection and
suppression systems and installs, monitors and maintains electronic
security systems; and
- designs, manufactures and distributes flow control products.
Tyco operates in more than 80 countries around the world and has expected
fiscal 1999 revenues of approximately $22 billion.
Tyco's strategy is to be the low-cost, high quality producer and provider in
each of its markets. It promotes its leadership position by investing in
existing businesses, developing new markets and acquiring complementary
businesses and products. Combining the strengths of its existing operations and
its business acquisitions, Tyco seeks to enhance shareholder value through
increased earnings per share and strong cash flows.
Tyco's registered and principal executive offices are located at the above
address in Bermuda. The executive offices of Tyco International (US) Inc.,
Tyco's principal United States subsidiary, are located at One Tyco Park, Exeter,
New Hampshire 03833, and its telephone number is (603) 778-9700.
For additional information regarding the business of Tyco, please see Tyco's
Form 10-K and other filings of Tyco with the SEC incorporated by reference. See
"Where to Find More Information" on page i and "Current Developments of Tyco" on
page .
GENERAL SURGICAL INNOVATIONS, INC.
10460 Bubb Road
Cupertino, California 95014
(408) 863-1100
Since its inception in April 1992, GSI has been engaged in the development,
manufacturing and marketing of balloon dissection systems and related minimally
invasive surgical instruments. GSI began commercial sales of its balloon
dissection systems for hernia repair in September 1993. To date, GSI has
received from the FDA eight 510(k) clearances for use of its technology to
perform dissection of tissue planes anywhere in the body using a broad range of
balloon sizes and shapes. GSI currently sells products in the United States,
Europe, South America and Australia for selected applications, such as hernia
repair, subfascial endoscopic perforator surgery, saphenous vein harvesting,
breast reconstruction and augmentation surgery, and laparoscopic bladder neck
suspension.
Sales of GSI's products in the United States and internationally are
currently made through both distributors and GSI's direct sales force. To date,
the majority of the sales of GSI's products have been for use in hernia repair
procedures. While GSI had developed or is developing surgical balloon dissectors
for stress urinary incontinence and vascular and plastic surgery, sales of
products for hernia repair are expected to provide a majority of GSI's revenues
at least through fiscal year 2000.
2
<PAGE>
For additional information regarding the business of GSI, please see "Where
to Find More Information" on page i and "Certain Information Concerning GSI"
beginning on page .
THE SPECIAL MEETING (PAGE )
The special meeting of GSI shareholders will be held on October , 1999, at
10:00 a.m., Pacific Time, at 10460 Bubb Road, Cupertino, California 95014.
The record date for GSI shareholders entitled to receive notice of and to
vote at the GSI special meeting is the close of business on October , 1999. On
that date, there were shares of GSI common stock outstanding.
THE MERGER (PAGE )
SHAREHOLDER VOTE REQUIRED
The holders of a majority of the outstanding shares of GSI common stock must
vote for the approval and adoption of the merger agreement in order to approve
the merger.
DISSENTERS' RIGHTS
Under California law, any shareholder who does not wish to accept the
consideration provided for in the merger agreement is entitled to exercise
dissenters' rights. Such rights entitle the shareholder to require GSI to
purchase the dissenting shares for cash at their fair market value, excluding
any element of value arising from the accomplishment or expectation of the
merger.
Annex C contains the pertinent provisions of California law addressing
dissenters' rights. Any GSI shareholder intending to exercise statutory
dissenter's rights is urged to review Annex C carefully and to consult with
legal counsel so as to assure strict compliance with its provisions.
A vote in favor of the merger agreement and the merger will constitute a
waiver of your dissenters' right. For further information regarding dissenters'
rights, see "The Merger-- Dissenters' Rights."
TAX TREATMENT
The receipt of Tyco common shares in the merger will generally be tax free
to GSI shareholders for United States federal income tax purposes, except for
tax on cash received in lieu of fractional shares.
To review tax consequences of the merger in greater detail, see "Material
U.S. Federal Income Tax and Bermuda Tax Consequences" beginning on page .
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER
In considering the recommendation of the GSI Board in favor of the merger,
shareholders should be aware that members of the GSI Board and GSI management
will receive benefits as a result of the merger that will be in addition to or
different from benefits received by GSI shareholders generally. For example,
options to purchase shares of GSI common stock that are held by GSI's directors
and members of its management generally will become fully vested and exercisable
prior to the consummation of the merger. In addition, under certain qualifying
circumstances, members of GSI management will be entitled to receive severance
benefits upon actual or constructive termination of their employment following
the merger. Also, certain members of GSI management are eligible to receive
retention bonuses if they do not terminate their employment with GSI prior to
consummation of the merger. See "Interests of Certain Persons in the Merger"
beginning on page .
CONDITIONS OF THE MERGER
The consummation of the merger depends upon satisfaction of a number of
conditions, including:
- approval and adoption of the merger agreement by the GSI shareholders;
- the absence of legal restraints to the consummation of the merger; and
- receipt of opinions regarding the tax-free nature of the merger in respect
of the Tyco common shares received.
3
<PAGE>
TERMINATION OF THE MERGER
Either GSI or General Acquisition may call off the merger if:
- both parties consent in writing;
- the merger is not completed by February 28, 2000 through no fault of the
party seeking to call off the merger;
- there exist legal restraints preventing the merger;
- the GSI shareholders do not approve and adopt the merger agreement; or
- the other party breaches in a material way its representations,
warranties, covenants or agreements and that breach is not or cannot be
remedied.
General Acquisition may terminate the merger if the average share price is
less than $82.15 (pre-split) and GSI does not agree to an exchange ratio equal
to 0.0913 (pre-split).
In addition, General Acquisition may terminate the merger if the Board of
Directors of GSI withdraws or adversely modifies its approval or recommendation
of the merger or recommends an alternative acquisition transaction with a third
party. Subject to certain conditions, GSI may terminate the merger to accept an
acquisition proposal that is more favorable to GSI and its shareholders than the
proposed merger with General Acquisition.
For further details, see "Termination" beginning on page .
NO-SOLICITATION PROVISIONS; TERMINATION FEE AND EXPENSES
GSI has agreed that it will not solicit or encourage the initiation of any
inquiries or proposals regarding any alternative acquisition transactions with
third parties. GSI may respond to unsolicited transaction proposals if required
by the GSI Board's fiduciary duties. GSI must promptly notify Tyco if it
receives proposals for any such alternative acquisition transactions. If the
merger is terminated under specified circumstances, generally involving an
alternative acquisition transaction, GSI may be required to pay a termination
fee of $4.0 million to Tyco and pay reasonable out-of-pocket expenses of up to
$375,000 to Tyco and General Acquisition. General Acquisition may be required to
pay to GSI up to $375,000 of GSI's reasonable out-of-pocket expenses if the
merger is terminated under certain circumstances.
See "Termination--Fees and Expenses" beginning on page for a discussion of
the circumstances in which the fee and expenses are payable.
In addition, GSI may not redeem or amend its rights plan to permit or
facilitate an alternative acquisition transaction unless the merger agreement
has been terminated. See "No Solicitation" beginning on page .
The termination fee and the no-solicitation provisions may have the effect
of discouraging persons who might be interested in entering into an acquisition
transaction with GSI from proposing an alternative acquisition transaction.
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase by Tyco in accordance with
United States generally accepted accounting principles.
OPINION OF GSI'S FINANCIAL ADVISOR
In determining that the merger is fair to and in the best interests of GSI
and its shareholders, the GSI Board considered an opinion from its financial
advisor, ING Barings LLC, that, as of the date of such opinion, the
consideration to be received by the equity holders of GSI pursuant to the merger
agreement is fair from a financial point of view to such holders. See "Opinion
of Financial Advisor to GSI" on page . The full text of the written opinion of
ING Barings is attached as Annex B. YOU SHOULD READ THIS OPINION.
4
<PAGE>
RISK FACTORS
In evaluating the merger and the merger agreement, GSI shareholders should
take into account the following factors:
THE VALUE OF THE MERGER CONSIDERATION THE GSI SHAREHOLDERS WILL RECEIVE WILL
DEPEND ON THE VALUE OF TYCO COMMON SHARES AT THE TIME OF THE MERGER.
Although the merger is designed to provide GSI shareholders with
approximately $7.50 worth of Tyco common shares for each share of GSI common
stock, they could get less in market value. The merger values the Tyco common
shares that GSI shareholders will receive based upon the "average share price."
The average share price is computed by taking the average of the daily volume
weighted selling prices of Tyco common shares on the New York Stock Exchange
over the five trading days ending four trading days before the special meeting
of GSI shareholders. At the time of the merger, which is expected but not
certain to occur promptly following the meeting, the market price of a Tyco
common share could be more or less than the average share price used in
calculating the exchange ratio. If it is less, the value of the Tyco common
shares that a GSI shareholder receives in the merger could be less than $7.50.
The market value of Tyco shares fluctuates based upon general market and
economic conditions, Tyco's business and prospects and other factors.
GSI shareholders should also note that they will receive less than $7.50
worth of Tyco common shares, calculated on the basis of the average share price,
if the average share price is less than $82.15 (pre-split) and GSI agrees to an
exchange ratio of 0.0913 (pre-split) so that General Acquisition will not have
the right to call off the merger.
THE RIGHTS OF SHAREHOLDERS OF TYCO UNDER BERMUDA LAW IN SOME WAYS ARE NOT AS
FAVORABLE AS THE RIGHTS OF SHAREHOLDERS OF GSI UNDER CALIFORNIA LAW.
- Shareholders may not be able to obtain jurisdiction over Tyco outside
Bermuda, so that certain remedies available to shareholders of GSI, such
as class action lawsuits under United States federal and California law,
might not be available to Tyco shareholders.
- The right to bring a derivative action in the name of the company for a
wrong to a company committed by present or former directors of the company
is more limited under Bermuda law than under California law.
- Under Bermuda law and Tyco's bye-laws, only shareholders holding 5% or
more of the outstanding Tyco shares or numbering 100 or more are entitled
to propose a resolution at a Tyco general meeting. The Tyco Board can
waive these requirements, and the staff of the SEC has taken the position
that the United States proxy rules may require Tyco to include in its
proxy materials proposals of shareholders who do not satisfy the
requirements. GSI shareholders do not have to satisfy these requirements
to propose a resolution at a GSI shareholders meeting.
5
<PAGE>
FORWARD LOOKING INFORMATION
Certain statements contained in or incorporated by reference into this
document are "forward looking statements" within the meaning of the United
States Private Securities Litigation Reform Act of 1995. All forward looking
statements involve risks and uncertainties. In particular, any statements
regarding the benefits of the merger, as well as expectations with respect to
future sales, operating efficiencies and product expansion, are subject to known
and unknown risks, uncertainties and contingencies, many of which are beyond the
control of Tyco and GSI, which may cause actual results, performance or
achievements to differ materially from anticipated results, performance or
achievements. Factors that might affect such forward looking statements include,
among other things:
- the ability to integrate GSI into Tyco's operations,
- overall economic and business conditions,
- the demand for Tyco's and GSI's goods and services,
- competitive factors in the industries in which Tyco and GSI compete,
- changes in government regulation,
- changes in tax requirements, including tax rate changes, new tax laws and
revised tax law interpretations,
- interest rate fluctuations, foreign currency rate fluctuations and other
capital market conditions,
- economic and political conditions in international markets, including
governmental changes and restrictions on the ability to transfer capital
across borders,
- the ability to achieve anticipated synergies and other cost savings in
connection with acquisitions,
- the timing, impact and other uncertainties of future acquisitions by Tyco,
and
- the ability of Tyco and GSI, and the ability of their respective customers
and suppliers, to replace, modify or upgrade computer programs in order to
adequately address the Year 2000 issue.
For a description of some of the factors or uncertainties that exist in
GSI's operations and business environment which could cause actual results to
differ, reference is made to the section entitled "Factors Affecting Future
Results" in GSI's Annual Report on Form 10-K for the fiscal year ended June 30,
1999.
6
<PAGE>
SELECTED FINANCIAL DATA OF TYCO AND GSI
The following information is being provided to assist you in analyzing the
financial aspects of the merger. The selected consolidated financial data for
Tyco reflect the combined results of operations and financial position of Tyco,
United States Surgical Corporation, which was acquired by Tyco on October 1,
1998, and AMP Incorporated, which was acquired by Tyco on April 2, 1999,
restated for all periods presented pursuant to the pooling of interests method
of accounting. The data presented for Tyco for the nine months ended June 30,
1999 and 1998 are unaudited and, in the opinion of Tyco's management, include
all adjustments, consisting of normal recurring adjustments, necessary for the
fair presentation of such data. Tyco's results for the nine months ended June
30, 1999 are not necessarily indicative of the results to be expected for the
fiscal year ending September 30, 1999. The information for Tyco for the year
ended September 30, 1998, the nine months ended September 30, 1997, and the year
ended December 31, 1996 was derived from the audited consolidated financial
statements included in Tyco's Current Report on Form 8-K filed on June 3, 1999.
The information for Tyco for the years ended December 31, 1995 and 1994 was
derived from the historical financial statements of Tyco, US Surgical and AMP.
The information for GSI has been derived from GSI's audited financial statements
for the years ended June 30, 1995 through 1999. The information is only a
summary. The information should be read in conjunction with the historical
financial statements and related notes contained in the annual, quarterly and
other reports filed by Tyco and GSI with the SEC. See "Where To Find More
Information" on page i.
The unaudited pro forma information is presented for illustrative purposes
only and is not indicative of the operating results or financial position that
would have occurred if the merger had been consummated at the dates indicated,
nor is it necessarily indicative of future operating results of the combined
company. References in this document to "$" mean United States dollars.
7
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF TYCO
<TABLE>
<CAPTION>
(UNAUDITED) NINE MONTHS
NINE MONTHS ENDED YEAR ENDED
JUNE 30, ENDED SEPTEMBER YEAR ENDED DECEMBER 31,
-------------------- SEPTEMBER 30, 30, -----------------------------------
1999(1) 1998(1) 1998(2) 1997(3)(4) 1996(5)(6) 1995(5)(7) 1994(5)
--------- --------- ------------- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales.................. $16,272.0 $13,949.3 $19,061.7 $ 12,742.5 $14,671.0 $13,152.1 $11,519.2
Operating income........... 951.5 1,902.7 1,948.1 125.8 587.4 1,447.5 1,314.4
Income (loss) from
continuing operations.... 248.3 1,189.2 1,168.6 (348.5) 49.4 755.5 699.4
Income (loss) from
continuing operations per
common share(8):
Basic.................... 0.30 1.51 1.48 (0.48) 0.04 1.10 1.03
Diluted.................. 0.30 1.48 1.45 (0.48) 0.04 1.09 1.01
Cash dividends per common
share share(8)........... See (9) below.
CONSOLIDATED BALANCE SHEET
DATA:
Total assets............... $28,025.8 $ 23,440.7 $ 16,960.8 $ 14,686.2 $ 13,143.8 $12,245.1
Long-term debt............. 8,293.0 5,424.7 2,785.9 2,202.4 2,229.7 2,282.6
Shareholders' equity....... 10,052.8 9,901.8 7,478.7 7,022.6 6,792.1 6,146.5
</TABLE>
- ------------------------
(1) Operating income in the nine months ended June 30, 1999 includes charges of
$1.26 billion for merger, restructuring and other non-recurring charges, of
which $78.9 million is included in cost of sales, and $335.0 million for the
impairment of long-lived assets primarily related to the mergers with US
Surgical and AMP and costs associated with AMP's profit improvement plan.
Operating income in the nine months ended June 30, 1998 includes a credit of
$21.4 million to restructuring charges representing a revision of estimates
related to AMP's 1996 restructuring activities and a charge of $12.0 million
related to US Surgical's cost cutting objectives. See Notes 8 and 9 to the
unaudited Consolidated Financial Statements contained in Tyco's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1999, which is
incorporated by reference in this document.
(2) Operating income in the fiscal year ended September 30, 1998 includes
charges of $80.5 million primarily related to costs to exit certain
businesses in US Surgical's operations and restructuring charges of $12.0
million related to the operations of US Surgical. In addition, Tyco recorded
restructuring charges of $185.8 million in connection with AMP's profit
improvement plan and a credit of $21.4 million to restructuring charges
representing a revision of estimates related to AMP's 1996 restructuring
plans. See Note 16 to the Consolidated Financial Statements contained in
Tyco's Current Report on Form 8-K filed on June 3, 1999, which is
incorporated by reference in this document.
(3) In September 1997, Tyco changed its fiscal year end from December 31 to
September 30. Accordingly, the nine-month transition period ended September
30, 1997 is presented.
(4) On July 2, 1997, Tyco, formerly called ADT Limited, merged with Tyco
International Ltd., a Massachusetts Corporation ("Former Tyco"). On August
27, 1997, August 29, 1997, October 1, 1998 and April 2, 1999, Tyco merged
with INBRAND Corporation, Keystone International, Inc., US Surgical and AMP,
respectively. These five combinations are more fully described in Notes 1
and 2 to the Consolidated Financial Statements contained in Tyco's Current
Report on Form 8-K filed on June 3, 1999. Operating income in the nine
months ended September 30, 1997 includes charges related to merger,
restructuring and other non-recurring costs of $917.8 million and
8
<PAGE>
impairment of long-lived assets of $148.4 million primiarily related to the
mergers and integration of ADT, Former Tyco, Keystone and INBRAND and
charges of $24.3 million for litigation and other related costs and $5.8
million for restructuring charges in US Surgical's operations. See Notes 11
and 16 to the Consolidated Financial Statements contained in Tyco's Current
Report on Form 8-K filed on June 3, 1999. The results for the nine months
ended September 30, 1997 also include a charge of $361.0 million for the
write-off of purchased in-process research and development related to the
acquisition of the submarine systems business of AT&T Corp.
(5) Prior to their respective mergers, ADT, Keystone, US Surgical and AMP had
December 31 fiscal year ends and Former Tyco had a June 30 fiscal year end.
The selected consolidated financial data have been combined using a December
31 fiscal year end for ADT, Keystone, Former Tyco, US Surgical and AMP for
the year ended December 31, 1996. For 1995 and 1994, the results of
operations and financial position reflect the combination of ADT, Keystone,
US Surgical and AMP with a December 31 fiscal year end and Former Tyco with
a June 30 fiscal year end. Net sales and net income for Former Tyco for the
period July 1, 1995 through December 31, 1995, which results are not
included in the historical combined results, were $2.46 billion and $136.4
million, respectively.
(6) Operating income in 1996 includes non-recurring charges of $744.7 million
related to the adoption of Statement of Financial Accounting Standards No.
121, $237.3 million related principally to the restructuring of ADT's
electronic security services business in the United States and United
Kingdom, $98.0 million to exit various product lines and manufacturing
operations associated with AMP's operations and $8.8 million of fees and
expenses related to ADT's acquisition of Automated Security (Holdings) plc,
a United Kingdom company. See Notes 11 and 16 to the Consolidated Financial
Statements contained in Tyco's Current Report on Form 8-K filed on June 3,
1999.
(7) Operating income in 1995 includes a loss of $65.8 million on the disposal of
the European auto auction business and a gain of $31.4 million from the
disposal of the European electronic article surveillance business. Operating
income also includes non-recurring charges of $97.1 million for
restructuring charges at ADT and Keystone and for the fees and expenses
related to the 1994 merger of Kendall International, Inc. and Former Tyco,
as well as a charge of $8.2 million relating to the divestiture of certain
assets by Keystone.
(8) Per share amounts have been retroactively restated to give effect to the
mergers with Former Tyco, Keystone, INBRAND, US Surgical and AMP, a 0.48133
reverse stock split effected on July 2, 1997, and a two-for-one stock split
distributed on October 22, 1997, effected in the form of a stock dividend.
Per share amounts have not been retroactively adjusted to reflect the
two-for-one stock split payable on October 21, 1999 in the form of a stock
dividend.
(9) Tyco has paid a quarterly dividend of $0.025 per common share since July 2,
1997, the date of the Former Tyco/ADT merger. ADT had not paid any dividends
on its common shares since 1992. Prior to the merger with ADT, Former Tyco
paid a quarterly cash dividend of $0.025 per share of common stock since
January 1992. US Surgical paid quarterly dividends of $0.04 per share in the
fiscal year ended September 30, 1998 and the nine months ended September 30,
1997 and aggregate dividends of $0.08 per share in 1996, 1995 and 1994. AMP
paid dividends of $0.27 per share in the quarters ended June 30, 1999 and
March 31, 1999 and in each of the four quarters during calendar 1998, $0.26
per share in each of the four quarters during calendar 1997, and aggregate
dividends of $1.00 per share in 1996, $0.92 per share in 1995 and $0.84 per
share in 1994. The payment of dividends by Tyco in the future will be
determined by Tyco Board and will depend on business conditions, Tyco's
financial condition and earnings and other factors.
9
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF GSI
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenue (2)............................................. $ 6.9 $ 6.8 $ 9.0 $ 6.2 $ 2.4
Operating loss................................................ (17.6) (11.4) (4.4) (5.9) (4.1)
Net loss...................................................... (16.1) (9.1) (1.9) (5.5) (4.1)
Net loss per common share:
Basic....................................................... (1.19) (0.68) (0.14) (0.74) (0.62)
Diluted..................................................... (1.19) (0.68) (0.14) (0.74) (0.62)
Cash dividends per common share............................... See (1) below.
BALANCE SHEET DATA:
Total assets.................................................. $ 28.2 $ 42.8 $ 51.1 $ 52.8 $ 6.2
Long-term debt................................................ -- 0.1 0.2 0.4 0.2
Convertible redeemable preferred stock........................ -- -- -- -- 13.2
Shareholders' equity (deficit)................................ 24.4 40.2 49.0 50.5 (8.3)
</TABLE>
- ------------------------
(1) GSI has never paid dividends on its common stock and has no present plans to
do so. Provisions of GSI's bank line of credit prohibit the payment of
dividends without the bank's permission.
(2) Total revenue includes guaranteed payments of $1.6 million and $4.9 million
for the years ended June 30, 1998 and 1997, respectively.
10
<PAGE>
SELECTED TYCO AND GSI UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED JUNE 30, SEPTEMBER 30,
1999(1) 1998(1)
-------------- ----------------
(IN MILLIONS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales...................................................................... $ 16,276.9 $ 19,068.5
Operating income............................................................... 933.8 1,932.5
Income from continuing operations(2)........................................... 231.6 1,155.3
Income from continuing operations per common share(2)(3)
Basic........................................................................ 0.28 1.46
Diluted...................................................................... 0.28 1.43
Cash dividends per common share................................................ See (4) below.
CONSOLIDATED BALANCE SHEET DATA:
Total assets................................................................... $ 28,138.4
Long-term debt................................................................. 8,293.0
Total shareholders' equity..................................................... 10,156.6
</TABLE>
- ------------------------
(1) Tyco has a September 30 fiscal year end. GSI has a June 30 fiscal year end.
For purposes of the unaudited pro forma combined statements of operations
data, operating results for the nine months ended June 30, 1999 have been
combined using the results of Tyco and GSI for such period, and the
operating results for the fiscal year ended September 30, 1998 have been
combined using the results of Tyco for the fiscal year ended September 30,
1998 and results of GSI for its fiscal year ended June 30, 1998. For
purposes of the unaudited pro forma combined balance sheet data, the
financial position at June 30, 1999 combines the balance sheets of Tyco and
GSI as of such date.
(2) See Notes (1) and (2) to "Selected Consolidated Historical Financial Data of
Tyco" on page 8 for information on certain non-recurring items.
(3) The unaudited pro forma combined per share data are based on GSI
shareholders receiving 0.0734 of a Tyco common share for each share of GSI
common stock held, which assumes an average share price for Tyco common
shares of $102.1875. The actual average share price may be higher or lower
than this value. For purposes of the unaudited pro forma combined financial
information, the number of GSI common shares outstanding on August 20, 1999
of 13,838,181 was used. The per share data have not been retroactively
adjusted to reflect the two-for-one Tyco stock split payable on October 21,
1999.
(4) Tyco has paid a quarterly dividend of $0.025 per common share since July 2,
1997, the date of the Former Tyco/ADT Merger. GSI has paid no dividends
since its inception in April 1992.
11
<PAGE>
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
TYCO AND GSI
TYCO HISTORICAL UNAUDITED PRO FORMA GSI EQUIVALENT
PER GSI HISTORICAL COMBINED UNAUDITED PRO FORMA
SHARE DATA PER SHARE DATA(1) PER SHARE DATA(2) PER SHARE DATA(2)
----------------- ----------------- --------------------- -------------------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
Income (loss) from continuing
operations per common share(3):
Basic........................... $ 0.30 $ (1.00) $ 0.28 $ 0.02
Diluted......................... 0.30 (1.00) 0.28 0.02
Cash dividends per common share... See (4) below.
Book value per common share....... 12.19 1.81 12.30 0.90
YEAR ENDED SEPTEMBER 30, 1998
Income (loss) from continuing
operations per common share(3):
Basic........................... 1.48 (0.68) 1.46 0.11
Diluted......................... 1.45 (0.68) 1.43 0.10
Cash dividends per common share... See (4) below.
Book value per common share....... 12.22 3.00 12.33 0.91
</TABLE>
- ------------------------
(1) See Note (1) to "Selected Tyco and GSI Unaudited Pro Forma Combined
Financial Information" on page 11 for information on GSI's fiscal year end.
(2) The unaudited pro forma combined income and book value per common share are
based on GSI shareholders receiving 0.0734 of a Tyco common share for each
share of GSI common stock held, which assumes an average share price for
Tyco common shares of $102.1875. The actual average share price may be
higher or lower than this value. The GSI equivalent pro forma per share data
are calculated by multiplying the unaudited pro forma combined per share
data by 0.0734. The per share data have not been retroactively adjusted to
reflect the two-for-one Tyco stock split payable on October 21, 1999.
(3) See Notes (1) and (2) to "Selected Consolidated Historical Financial Data of
Tyco" on page 8 for information on certain non-recurring items.
(4) See Note (4) to "Selected Tyco and GSI Unaudited Pro Forma Combined
Financial Information" on page 11 for information on cash dividends per
common share.
12
<PAGE>
COMPARATIVE MARKET VALUE INFORMATION
The following table sets forth:
1. the closing prices per share and aggregate market values of Tyco common
shares on the NYSE and of GSI common stock on the Nasdaq National Market on
August 20, 1999, the last trading day prior to the public announcement of the
proposed merger, and on October , 1999, the most recent date for which prices
were available prior to printing this document; and
2. the equivalent price per share and equivalent market value of GSI common
stock, based on the exchange ratio that would apply if the Tyco closing price on
the NYSE were equal to the average share price.
<TABLE>
<CAPTION>
TYCO GSI GSI
HISTORICAL HISTORICAL EQUIVALENT(1)
----------------- ------------- --------------
<S> <C> <C> <C>
On August 20, 1999
Closing price per common share.............................. $ 102.1875 $ 5.5000 $ 7.5000
Market value of common shares (2)........................... $ 86,293,618,913 $ 76,109,996 $ 103,786,358
On October , 1999
Closing price per common share..............................
Market value of common shares (2)...........................
</TABLE>
- ------------------------
(1) The GSI equivalent data for August 20, 1999 corresponds to an exchange ratio
of 0.0734, and the GSI equivalent data for October , 1999 corresponds to
an exchange ratio of 0. .
(2) Market value based on 844,463,549 Tyco common shares and 13,838,181 shares
of GSI common stock outstanding as of August 20, 1999, and Tyco
common shares and shares of GSI common stock outstanding as of
October , 1999, excluding shares held in treasury.
Market values are likely to differ from values based on the average share
price. See "Risk Factors--THE VALUE OF THE MERGER CONSIDERATION THE GSI
SHAREHOLDERS WILL RECEIVE WILL DEPEND ON THE VALUE OF THE TYCO COMMON SHARES AT
THE TIME OF THE MERGER" on page .
13
<PAGE>
CURRENT DEVELOPMENTS OF TYCO
In July 1999, Tyco announced that its Board of Directors had declared a
two-for-one stock split on its common shares. The split will be in the form of a
100 percent stock distribution payable on October 21, 1999 to shareholders of
record on October 1, 1999. Per share amounts and share data within this document
have not been retroactively adjusted to reflect the stock split.
In August 1999, a subsidiary of Tyco consummated the private sale of $500
million aggregate principal amount of its floating rate notes due 2000, $500
million aggregate principal amount of its floating rate notes due 2001, $1
billion aggregate principal amount of 6 7/8% notes due 2002 and Y10 billion
(approximately $89.7 million) aggregate principal amount of 0.57% notes due
2000. The net proceeds of approximately $2.08 billion were used to repay a
portion of the borrowings under the $3.90 billion commercial paper program of
the issuing subsidiary.
On August 12, 1999, Tyco consummated its acquisition of Raychem Corporation.
In the transaction, a subsidiary of Tyco paid approximately $1.45 billion in
cash and delivered approximately 16.2 million Tyco common shares and assumed
approximately $590 million of Raychem debt. Raychem, with fiscal 1998 revenues
of $1.8 billion, is a leading international designer, manufacturer and
distributor of high-performance electronics products for OEM businesses, and for
a broad range of specialized telecommunications, energy and industrial
applications, and will be integrated within Tyco's Telecommunications and
Electronics group (formerly the Electrical and Electronic Components group).
Tyco has accounted for the acquisition as a purchase.
On August 17, 1999, Tyco announced the completion of the sale of certain
businesses within its flow control products division, including The Mueller
Company and Grinnell Supply Sales and Manufacturing, for approximately $810
million in cash.
On August 31, 1999, Tyco announced that a subsidiary of Tyco entered into a
definitive agreement to acquire AFC Cable Systems, Inc., a manufacturer of
prewired armor cable. AFC Cable shareholders will receive a fraction of a Tyco
share valued at $45.00 per share for each share of AFC Cable. The transaction is
valued at approximately $575 million and is contingent upon customary regulatory
review and approval by AFC Cable shareholders. AFC Cable will be integrated
within Tyco's Telecommunications and Electronics group. Tyco intends to account
for the acquisition as a purchase.
In September 1999, Tyco's Board of Directors amended its shareholder rights
plan to accelerate the plan's expiration date to September 30, 1999. The plan
will terminate on that date.
14
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC. SPECIAL MEETING
DATE, TIME AND PLACE
The special meeting of GSI shareholders will be held on October , 1999, at
10:00 a.m., Pacific Time, at GSI's principal executive offices located at 10460
Bubb Road, Cupertino, California 95014.
PURPOSE OF THE GSI SPECIAL MEETING
At the special meeting, GSI shareholders will consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
August 23, 1999, among GSI, General Acquisition and General Sub. The merger
agreement provides, among other things, that General Sub will be merged with and
into GSI, and each outstanding share of GSI common stock will be converted into
the right to receive a fraction of a Tyco common share. General Acquisition and
General Sub are subsidiaries of Tyco, whose obligations in connection with the
merger are guaranteed by Tyco.
GSI is not proposing any matters other than the approval and adoption of the
merger agreement to come before the GSI special meeting, and GSI has not
received notice of other proposals to be considered at the meeting.
RECORD DATE; VOTING RIGHTS; QUORUM; REQUIRED VOTE
The close of business on October , 1999 is the record date for determining
the holders of GSI common stock who are entitled to receive notice of and to
vote at the special meeting or at any adjournment of the special meeting.
GSI has only one class of capital stock outstanding, which is common stock,
par value $0.001 per share. Each holder of GSI common stock outstanding on the
record date is entitled to one vote for each share held. The holders of a
majority of the outstanding shares of GSI common stock entitled to vote must be
present at the special meeting, in person or by proxy, to constitute a quorum to
transact business.
The holders of a majority of the outstanding shares of GSI common stock must
vote for the approval and adoption of the merger agreement to approve the
merger. On the record date, shares of GSI common stock were
outstanding, excluding shares held in treasury, held by approximately
holders of record.
Votes cast by proxy or in person at the GSI special meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. Abstentions will be treated as
shares present in determining whether GSI has a quorum for the special meeting,
but abstentions will have the same effect as a vote against approval of the
merger. If a broker or other record holder or nominee indicates on a proxy that
it does not have direction or authority to vote certain shares, those shares
will be considered present at the special meeting for purposes of determining a
quorum but will have the same effect as a vote against approval of the merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF GSI
THE BOARD OF DIRECTORS OF GSI HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF GSI AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
See "Recommendation of the Board of Directors of GSI" beginning on page and
"Interests of Certain Persons in the Merger" beginning on page .
PROXIES; REVOCATION
A proxy card is enclosed for use by GSI shareholders. The Board of Directors
of GSI requests that shareholders SIGN AND RETURN THE PROXY CARD IN THE
ACCOMPANYING ENVELOPE. No postage is required if
15
<PAGE>
mailed within the United States. IF YOU HAVE QUESTIONS OR REQUESTS FOR
ASSISTANCE IN COMPLETING AND SUBMITTING PROXY CARDS, PLEASE CONTACT
, A FIRM THAT PROVIDES PROFESSIONAL PROXY SOLICITING SERVICES THAT
GSI HAS RETAINED, AT THE FOLLOWING ADDRESS AND TELEPHONE NUMBER:
Telephone:
All properly executed proxies that are not revoked will be voted at the
special meeting as instructed on those proxies. A shareholder who executes and
returns a proxy may revoke it at any time before it is voted, but only by
executing and returning a proxy bearing a later date, by giving written notice
of revocation to an officer of GSI, or by attending the special meeting and
voting in person. A proxy that has been properly executed, but has otherwise
been left blank, will be voted for the approval and adoption of the merger
agreement, unless the proxy is revoked before the vote is taken.
SOLICITATION OF PROXIES
The solicitation of the enclosed proxies from GSI shareholders is made on
behalf of the Board of Directors of GSI. The expenses of the solicitation of
proxies, including preparing, handling, printing and mailing the proxy
soliciting material, will be borne by GSI. Solicitation will be made by mail, by
electronic telecommunications or in person. GSI has retained the services of
to assist in the solicitation of proxies for a fee estimated at
$ plus out-of-pocket expenses. Management of GSI may also use the
services of its directors, officers and employees in soliciting proxies, who
will not receive any additional compensation therefor, but who will be
reimbursed for their out-of-pocket expenses. GSI will reimburse banks, brokers,
nominees, custodians and fiduciaries for their expenses in forwarding copies of
the proxy soliciting material to the beneficial owners of the stock held by such
persons and in requesting authority for the execution of proxies.
16
<PAGE>
THE MERGER
This section, as well as the next section "The Merger Agreement," describe
the material aspects of the proposed merger. These discussions are qualified in
their entirety by reference to the merger agreement, which is attached as Annex
A to this document, and to the other agreements and documents that are discussed
in this document and that are filed as exhibits to the registration statement of
which this document forms a part. YOU SHOULD READ THE MERGER AGREEMENT IN ITS
ENTIRETY AS IT IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
BACKGROUND OF THE MERGER
On various occasions between January and June 1999, the management of GSI,
including its president, Gregory Casciaro, and personnel from Tyco's United
States Surgical Corporation subsidiary conducted discussions concerning possible
strategic alliances between GSI and US Surgical. In these discussions, conducted
in phone conversations, at professional conferences and in June 1999 at GSI's
offices, the representatives of the parties explored possible distribution
arrangements, whereby US Surgical would be a distributor of GSI products or vice
versa. The representatives also raised the possibility of an acquisition of GSI
by Tyco.
In February 1999, a jury entered a judgment in a patent infringement case
against Origin Medsystems, Inc., a unit of Guidant Corporation which was
acquired by US Surgical in July 1999. In April 1999, the court entered judgment
on the verdict, awarding GSI damages of $12.9 million and imposing a permanent
injunction against sales of Origin's infringing products to take effect
generally on November 15, 1999. Under the terms of US Surgical's purchase of
Origin, Guidant agreed to be responsible for the damage award. Origin's appeal
of the judgment, together with GSI's cross-appeal on certain issues, is pending.
In June 1999, US Surgical began to conduct a valuation of GSI with a view
towards a possible acquisition proposal. On June 21, 1999, GSI retained ING
Barings LLC to assist GSI in evaluating its strategic alternatives.
Beginning in July 1999, representatives of US Surgical and GSI's management
engaged in discussions regarding diligence and valuation issues. On July 28,
1999, US Surgical personnel and officers of Tyco International (US) Inc. met at
the offices of the Venture Law Group, GSI's outside counsel, with Mr. Casciaro
and other members of GSI's management and a representative of ING Barings to
discuss the businesses of GSI and Tyco, the valuation of GSI and diligence
activities in contemplation of a possible acquisition transaction.
On August 2, 1999, a team from US Surgical reviewed diligence materials
assembled at the offices of GSI's outside counsel. Mr. Casciaro, other members
of GSI's management and GSI's outside counsel were also in attendance. On August
3, 1999, officers of Tyco (US) contacted Mr. Casciaro with a verbal offer of
$7.25 per share of GSI common stock payable in Tyco common shares. Mr. Casciaro
agreed to present this offer to the GSI Board, although he expressed
disappointment with the price. Thereafter, the Tyco (US) representatives
contacted ING Barings and raised Tyco's offer to $7.50 per share of GSI common
stock.
GSI held a telephonic board meeting on August 5, 1999. At that meeting, ING
Barings and management of GSI presented the Tyco proposal to the Board. ING
Barings informed the GSI Board that Tyco's verbal offer had increased to $7.50
per GSI share. Following an extended discussion, the GSI Board authorized the
GSI management team and ING Barings to continue their discussions regarding a
transaction with Tyco at the $7.50 per share price.
17
<PAGE>
On August 6, 1999, GSI and Tyco (US) signed a letter of intent in which GSI
granted Tyco a right of exclusive negotiation for a specified time period. At a
meeting of the Tyco Board of Directors on August 9, 1999, the Tyco Board
approved the acquisition of GSI by General Acquisition in a merger transaction
at a price of $7.50 per share of GSI common stock and authorized the issuance of
Tyco common shares required to be delivered to GSI shareholders in the merger.
Between August 6 and August 20, 1999, the parties and their advisors
negotiated the terms of definitive transaction documents and substantially
completed their respective due diligence reviews.
On August 19, 1999, the GSI Board of Directors met with GSI management and
GSI's financial and legal advisors at a special meeting of the Board to review
the status of the negotiations with Tyco and the terms of the negotiated
transaction documents. After management provided its view of the proposed
merger, ING Barings presented its oral opinion, subsequently confirmed in
writing, that the consideration to be received by the shareholders of GSI in the
merger was fair, from a financial point of view, to the GSI shareholders. ING
Barings also provided the GSI Board with the financial analysis serving as a
basis for its opinion and responded to questions raised by the GSI Board
regarding the analysis and the opinion. Following this discussion, GSI's outside
counsel reviewed with the GSI Board the proposed terms of the merger agreement
and related documents. The GSI Board then engaged in a full discussion of the
terms of the proposed merger, including the strategic benefits of the
combination, the terms and conditions of the proposed merger agreement and the
analysis and opinion of ING Barings. The GSI Board concluded that the proposed
merger and merger agreement were fair to and in the best interests of GSI and
its shareholders. The GSI Board then approved the merger and the merger
agreement and the related documents and authorized management to proceed with
the final negotiation and execution of the merger documents.
The boards of directors of General Acquisition and General Sub approved the
merger and the merger agreement by written consent on August 19, 1999.
On August 21 and 22, the parties and their counsel finalized the transaction
documents and completed their due diligence procedures.
On August 23, 1999, the parties executed the definitive merger agreement and
issued a joint press release announcing the transaction.
EXCHANGE OF FINANCIAL FORECASTS
As part of its business planning cycle, management of GSI from time to time
has prepared internal financial forecasts regarding its anticipated future
operations. In the course of the discussions described in "Background of the
Merger," GSI provided certain of these internal forecasts to Tyco and its
financial advisor.
The internal financial forecasts regarding GSI prepared by GSI management
reflected the following forecasted information:
<TABLE>
<CAPTION>
CALENDAR YEAR SALES EBITDA NET INCOME EPS
- -------------------------------- --------------- --------------- --------------- ---------
<S> <C> <C> <C> <C>
1999............................ $ 12.3 million $ (15.0 million) $ (15.1 million) $ (1.12)
2000............................ 31.3 million (4.6 million) (4.9 million) (0.36)
2001............................ 47.9 million 3.9 million 2.2 million 0.17
</TABLE>
GSI's forecasts were prepared for internal budgeting and planning purposes
only and not with a view to public disclosure or compliance with published
guidelines of the SEC or the guidelines established by the American Institute of
Certified Public Accountants regarding projections or forecasts. While presented
with numerical specificity, the forecasts are based upon a variety of
18
<PAGE>
assumptions relating to the business of GSI and are inherently subject to
significant uncertainties and contingencies that are beyond the control of the
management of GSI. These include the impact of general economic and business
conditions, the competitive environment in which GSI operates and other factors.
See "Forward-Looking Information" on page . Accordingly, actual results may
differ materially from those forecasted.
The inclusion of the forecasts herein should not be regarded as a
representation by GSI or any other person that such forecasts are or will prove
to be correct. As a matter of course, GSI does not make public projections or
forecasts of its anticipated financial position or results of operations. Except
to the extent required under applicable securities laws, GSI does not intend to
make publicly available any update or other revisions to any of the forecasts to
reflect circumstances existing after the date of preparation of such forecasts.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF GSI; REASONS OF GSI FOR THE MERGER
The GSI Board, after careful consideration, has unanimously:
1. determined that the merger is fair to and in the best interests of GSI
and its shareholders;
2. approved the merger and the merger agreement; and
3. recommended that holders of shares of GSI common stock vote for the
approval and adoption of the merger agreement.
At a meeting held on August 19, 1999, the GSI Board, with the assistance of
GSI's outside financial and legal advisors, considered the legal, financial and
other terms of the merger.
In determining that the merger is fair to and in the best interests of GSI
and its shareholders, the GSI Board considered a number of factors and potential
benefits, including, without limitation, the following:
- the opportunity for GSI shareholders to receive a significant premium over
the existing market price for shares of GSI common stock prior to the
public announcement of the merger and an even larger premium over the
average market price for shares of GSI common stock over the three month
period that preceded the announcement;
- the ability of GSI shareholders to continue to participate in the growth
of the business conducted by Tyco and GSI after the merger and to benefit
from the potential appreciation in the value of Tyco common shares;
- the qualification of the merger as a reorganization for U.S. federal
income tax purposes, which will permit GSI shareholders to receive Tyco
common shares in a tax-free exchange;
- the financial condition, results of operations and business of GSI and
Tyco, on both an historical and prospective basis, and current industry,
economic and market conditions;
- the historical market prices and recent trading patterns of GSI common
stock and Tyco common shares and market prices, recent trading patterns
and financial data relating to other companies engaged in the same
business as GSI and Tyco;
- the possible strategic growth opportunities that might be available to GSI
absent the merger and the belief, based on review of such opportunities,
that GSI shareholders would benefit most from the potential business
combination with Tyco;
19
<PAGE>
- the larger public float and trading volume of Tyco common shares compared
to the public float and trading volume of shares of GSI common stock,
which would provide GSI shareholders the opportunity to gain greater
liquidity in their investment;
- the review of, and discussions with, GSI senior management, legal and
financial advisors, regarding certain business, financial, legal and
accounting aspects of the merger, the results of legal and financial due
diligence and a review of the terms of and conditions to the merger;
- the analysis and recommendation of GSI management that the merger be
approved, including without limitation, a discussion of the complementary
nature of certain product lines of GSI and Tyco;
- the belief, based on presentations by GSI's legal and financial advisors,
that the terms of the merger agreement, including the limited conditions
to Tyco's obligation to close the merger and the ability of GSI to
consider proposed alternative business combinations under certain
circumstances, are generally customary for transactions such as the
merger; and
- the fairness opinion of ING Barings to the effect that, as of the date of
such opinion and based upon and subject to certain matters stated therein,
the consideration to be received by the holders of shares of GSI common
stock pursuant to the merger agreement was fair from a financial point of
view to such holders.
The GSI Board also considered and balanced against the potential benefits of
the merger a number of potentially negative factors, including, without
limitation, the following:
- the risk that the merger would not be consummated;
- the possibility that the market value of Tyco common shares might decrease
which would result in less aggregate value paid to GSI shareholders;
- the fact that GSI shareholders will not receive the full benefit of any
future growth in the value of their equity that GSI may have achieved as
an independent company, and the potential disadvantage to GSI shareholders
in the event that Tyco does not perform as well in the future as GSI may
have performed as an independent company;
- the substantial management time and effort that will be required to
consummate the merger and integrate the operations of the two companies;
- the possibility that certain provisions of the merger agreement,
including, among others, the no solicitation and termination fee payment
provisions of the merger agreement, might have the effect of discouraging
other persons potentially interested in merging with or acquiring GSI from
pursuing such an opportunity; and
- other matters described under "Risk Factors" on page .
After detailed consideration of these factors, the GSI Board concluded that
the potential benefits of the merger outweighed these considerations and
determined that the merger was fair to and in the best interests of GSI and its
shareholders.
The above discussion of the information and factors considered by the GSI
Board is not exhaustive and does not include all factors considered by the GSI
Board. In view of the variety of factors considered in connection with its
evaluation of the merger, the GSI Board did not find it practicable to, and did
not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
GSI Board may have given different weights
20
<PAGE>
to different factors. Based on the factors outlined above, the GSI Board
determined that the merger is fair to and in the best interests of GSI and its
shareholders.
THE GSI BOARD HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR TO AND IN
THE BEST INTERESTS OF GSI AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
See "Background of the Merger" on page , "Opinion of Financial Advisor to
GSI" on page , "Material U.S. Federal Income Tax and Bermuda Tax Consequences"
on page and "Comparative Stock Prices and Dividends" on page .
OPINION OF FINANCIAL ADVISOR TO GSI
GENERAL
Pursuant to a letter agreement dated as of June 21, 1999, as amended, ING
Barings was engaged to provide GSI with financial advisory services and render
an opinion to the GSI Board as to the fairness to GSI shareholders, from a
financial point of view, of the merger consideration. GSI retained ING Barings
only as an advisor or agent to the GSI Board and not to GSI shareholders or any
other person.
At the meeting of the GSI Board on August 19, 1999, ING Barings rendered its
oral opinion, subsequently confirmed in writing as of August 23, 1999, to the
effect that as of the date of such opinion, and based upon and subject to the
assumptions, limitations and qualifications set forth in such opinion, the
merger consideration was fair to GSI shareholders from a financial point of
view.
The full text of ING Barings' opinion is attached to this document as Annex
B. You are urged to read the opinion in its entirety for assumptions made,
procedures followed, other matters considered and limits of the review
undertaken in arriving at the opinion. ING Barings' opinion was prepared for the
GSI Board and addresses only the fairness of the merger consideration to GSI
shareholders from a financial point of view. It does not address the merits of
the underlying decision by the GSI Board to engage in the merger or other
business strategies considered by the GSI Board. ING Barings' opinion does not
constitute a recommendation to any GSI shareholder as to how such shareholder
should vote at the GSI special meeting.
ING Barings' opinion does not constitute an opinion as to the price at which
GSI common stock will actually trade at any time. The merger consideration was
determined in arms'-length negotiations between GSI and Tyco, in which
negotiations ING Barings advised GSI. GSI imposed no restrictions or limitations
upon ING Barings with respect to the investigations made or the procedures
followed by ING Barings in rendering its opinion.
In arriving at its opinion, ING Barings reviewed and analyzed, among other
things, the following:
- the merger agreement and certain related documents and the financial terms
of the Proposed Transaction set forth therein;
- GSI's Annual Report on Form 10-K for the fiscal year ended June 30, 1998,
GSI's Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1999, and GSI's earnings announcement for the fiscal year ended June
30, 1999;
- Tyco's Annual Report on Form 10-K for the fiscal year ended September 30,
1998 and Tyco's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1999;
- certain other publicly available information concerning GSI and the
trading market for GSI common stock;
21
<PAGE>
- certain other publicly available information concerning Tyco and the
trading market for Tyco common shares;
- certain non-public information and other data relating to GSI, its
business and prospects, including forecasts and projections, provided to
ING Barings by management of GSI;
- certain publicly available information concerning certain other companies
engaged in businesses which ING Barings believed to be generally
comparable to GSI and the trading markets for certain of such other
companies' securities;
- the financial terms of certain recent business combinations which ING
Barings believed to be relevant; and
- certain discussions and negotiations among representatives of GSI and
Tyco.
ING Barings also met with certain officers and employees of GSI concerning
its business and operations, assets, present condition and prospects and
undertook such other studies, analyses and investigations deemed appropriate.
Included in the information provided to ING Barings were certain financial
projections prepared by GSI management. GSI does not publicly disclose internal
management projections of the type provided to ING Barings in connection with
its engagement and, accordingly, such projections were not prepared with a view
toward public disclosure. The projections so provided were based upon numerous
variables and assumptions which are inherently uncertain, including, without
limitation, factors related to general economic and competitive conditions.
Consequently, actual results could vary significantly from those set forth in
such projections. In rendering its opinion, ING Barings relied upon and assumed
the accuracy and completeness of all of the financial and other information used
by it and did not attempt to independently verify such information, nor did it
assume any responsibility to do so. ING Barings also assumed that the financial
projections supplied to it were reasonably prepared on bases reflecting the best
current estimates and judgments of GSI management as to GSI's future financial
condition and results of operations. ING Barings has not made, nor has it
assumed any responsibility for making, any independent evaluation or appraisal
of GSI's properties, facilities or liabilities. ING Barings relied on the advice
of GSI's counsel as to certain legal matters. ING Barings has also taken into
account its assessment of general economic, market and financial conditions and
its experience in similar transactions, as well as its experience in securities
valuation in general. ING Barings' opinion is necessarily based on economic,
market, financial and other conditions as they existed and can be evaluated on,
and on the information made available to ING Barings as of, the date of its
opinion. It should be understood that, although subsequent developments may
affect its opinion, ING Barings does not have any obligation to update, revise
or reaffirm its opinion as a result of changes in such conditions or otherwise,
although it has reserved the right to withdraw, revise or modify its opinion
based on additional information, which may be provided or obtained by it and
which suggest, in its judgment, a material change in the assumptions upon which
its opinion is based.
Included in the textual discussion below are summaries of certain of the
statistical information appearing in such discussion presented in a tabular
format. While these tables are presented for the purpose of clarity and ease of
reference, they are not substitutes for, and must be read along with, all of the
information appearing under the captions immediately preceding them as well as
all of the information in this section.
ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED COMPANIES
To provide comparative market information, ING Barings compared selected
historical common stock prices, earnings and operating and financial ratios for
GSI to the corresponding data and ratios of certain companies that ING Barings
believed to be generally comparable to GSI and whose securities are
publicly-traded. ING Barings used August 5, 1999 (the last date before there was
a
22
<PAGE>
significant increase in the stock price and trading volume in GSI common stock)
stock prices for these comparable companies and projections based upon First
Call Research Network consensus research analyst estimates. The comparable
companies were chosen because they possess general business, operating and
financial characteristics representative of companies in the industry in which
GSI operates. The comparable companies were:
- Datascope Corporation
- EndoSonics Corporation
- Innerdyne, Inc.
- Kensey Nash Corporation
- Maxxim Medical Inc.
- Mentor Corporation
- Orthofix International N.V.
- Vital Signs, Inc.
The data and ratios ING Barings analyzed included total enterprise value as
a multiple of latest twelve-months' revenues, Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA"), and Earnings Before Interest and Taxes
("EBIT"), and price per share as a multiple of projected calendar year 1999
earnings per share (based upon the First Call Research Network consensus
research analyst estimates). Due to current and projected negative results of
GSI, however, ING Barings focused only on the multiple of latest twelve-months,
estimated calendar year 1999 and estimated calendar year 2000 revenues when
inferring value from its public comparable companies analysis.
For purposes of its analysis, total enterprise value was calculated as the
aggregate value of the common stock outstanding at June 30, 1999 (treating on a
treasury stock method basis the net shares issuable upon exercise of options and
warrants and other rights of conversion as outstanding), plus book value of debt
and preferred equity, less cash, cash equivalents and marketable securities. The
multiples of enterprise value to latest twelve months' revenue for the
comparable companies ranged from 1.24x to 3.05x, compared to 13.41x for GSI
based on the Tyco common shares issuable in the merger having an assumed value
of $7.50 per GSI share. The multiples of enterprise value to revenues for the
comparable companies ranged from 1.05x to 2.36x for calendar year 1999 and from
0.95x to 2.07x for calendar year 2000. GSI's enterprise value to revenues
multiple decreased from 7.46x for calendar year 1999 to 2.96x for calendar year
2000.
REVENUE MULTIPLE VALUATION
ING Barings calculated total enterprise value (for purposes of this
analysis) by applying the median multiple stated above to GSI's latest
twelve-months and estimated calendar year 1999 and 2000 revenues, subtracted
total debt outstanding as of June 30, 1999, and added cash, cash equivalents and
marketable securities as of June 30, 1999, to arrive at an implied equity value
for GSI. ING Barings then divided each implied equity value figure by the 14.9
million fully diluted shares outstanding as of June 30, 1999. The implied per
share value for GSI common stock was $2.22 based on the LTM revenues multiple of
2.0x, $2.79 based on calendar year 1999 revenues multiple of 1.8x and $4.48
based on calendar year 2000 revenues multiple of 1.5x.
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<PAGE>
SUMMARY OF REVENUE MULTIPLE ANALYSIS
($ in millions, except per share amounts)
<TABLE>
<CAPTION>
IMPLIED
MEDIAN ENTERPRISE IMPLIED(A) IMPLIED(B)
GSI REVENUES MULTIPLE VALUE EQUITY VALUE PER SHARE VALUE
------------- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
LTM Revenues................................... $ 6.9 2.0x $ 13.9 $ 33.1 $ 2.22
CY 1999 Revenues
(estimated).................................. $ 12.4 1.8x $ 22.4 $ 41.6 $ 2.79
CY 2000 Revenues
(estimated).................................. $ 31.3 1.5x $ 47.5 $ 66.7 $ 4.48
</TABLE>
- ------------------------
(a) Based on $19.2 million of net cash.
(b) Based on 14.9 million of fully diluted shares outstanding using the treasury
stock method.
In arriving at its opinion, ING Barings took into account that the multiples
available to GSI, based on the merger consideration, compared favorably to the
multiples derived from the comparable companies. No other company utilized in
ING Barings' analysis of the comparable publicly traded companies is identical
to GSI. Accordingly, such analysis necessarily involves complex considerations
and judgments concerning differences in GSI's financial and operating
characteristics and other factors that could affect GSI's public trading value
and the public trading value of other companies included in such analysis.
COMPARABLE TRANSACTION ANALYSIS
ING Barings reviewed 12 selected acquisitions that it believed to be
generally comparable. The comparable transactions were:
<TABLE>
<CAPTION>
ACQUIRED COMPANY ACQUIRING COMPANY
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Perclose, Inc. (pending) Abbott Laboratories
AVECOR Cardiovascular, Inc. Medtronic, Inc.
World Medical Manufacturing Arterial Vascular Engineering, Inc.
Corporation
Healthdyne Technologies, Inc. Respironics, Inc.
Storz Instrument Company Bausch & Lomb Incorporated
EndoVascular Technologies, Inc. Guidant Corporation
Biopsys Medical, Inc. Johnson & Johnson
Microsurge, Inc. Urohealth Systems, Inc.
Cardiometrics, Inc. EndoSonics Corporation
Deknatel Snowden Pencer, Inc. Genzyme Corporation
Pryon Corporation Protocol Systems, Inc.
Symbiosis Corporation Boston Scientific Corporation
</TABLE>
For purposes of this analysis, total enterprise value was calculated as the
aggregate purchase price of equity (in the case of stock purchases), or the
aggregate purchase price of assets (in the case of asset purchases), plus book
value of debt and preferred equity, less cash, cash equivalents and marketable
securities. For each of the comparable transactions, ING Barings' calculated a
total enterprise value to latest twelve-months' revenues multiple, total
enterprise value to latest twelve-months' EBITDA, and total enterprise value to
latest twelve-months' EBIT. In addition, ING Barings calculated equity value to
latest twelve-months' net income and book value. Due to current and projected
negative results of GSI, however, ING Barings focused only on the multiple of
latest twelve-months revenue when inferring value from its transaction
comparables analysis. The transaction comparables analysis resulted
24
<PAGE>
in a median total enterprise value to latest twelve-months' revenue multiple of
3.3x, resulting in a total enterprise value for GSI of $22.8 million. After
subtracting total debt outstanding as of June 30, 1999, and then adding cash,
cash equivalents and marketable securities as of June 30, 1999, ING Barings
arrived at an implied equity value of $42.0 million for GSI, based on the merger
consideration. ING Barings then divided GSI's implied equity value figure by the
fully diluted shares outstanding as of June 30, 1999, to reach an implied share
value for GSI common stock of $2.82.
In addition to revenue multiples, ING Barings analyzed the 1 and 30 day
takeover premiums for the comparable transactions. In terms of its relation to
the stock price the day before the merger announcement, the median multiples for
the 1 and 30 trading premiums were 1.214x and 1.475x, respectively. Multiplying
these multiples by the $4.00 pre-announcement stock price and the number of
fully-diluted shares, ING Barings derived implied equity values of $72.4 million
and $87.9 million. ING Barings then divided GSI's implied equity value figure by
the fully diluted shares outstanding as of June 30, 1999, to reach an implied
share value for GSI common stock of $4.86 and $5.90 for the 1 and 30 day trading
premiums, respectively, compared to the merger consideration of $7.50 per share.
SUMMARY OF COMPARABLE TRANSACTION ANALYSIS
($ in millions, except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
GSI REVENUES IMPLIED
OR STOCK ENTERPRISE IMPLIED(A) IMPLIED(B)
PRICE MEDIAN MULTIPLE VALUE EQUITY VALUE PER SHARE VALUE
------------- --------------- ----------- ------------- ---------------
LTM Revenues.................. $ 6.9 3.3x $ 22.8 $ 42.0 $ 2.82
Takeover Premium
-1 Day...................... $ 4.00(c) 1.214x $ 53.2 $ 72.4 $ 4.86
-30 Days.................... $ 4.00(c) 1.475x $ 68.7 $ 87.9 $ 5.90
</TABLE>
- ------------------------
(a) Based on $19.2 million of net cash.
(b) Based on 14.9 million of fully diluted shares outstanding using the treasury
stock method.
(c) Based on August 5, 1999 stock prices (the last date before there was a
significant increase in the stock price and trading volume in GSI common
stock).
In arriving at its opinion, ING Barings took into account that the multiples
available to GSI, based on the merger consideration, compared favorably to the
multiples derived for the selected transactions. No transaction utilized in the
comparable transaction analysis is identical to the merger. Accordingly, such
analysis necessarily involves complex considerations and judgments concerning
differences in GSI's financial and operating characteristics and other factors
that could affect the acquisition value of the companies to which they are being
compared.
DISCOUNTED CASH FLOW ANALYSIS
ING Barings performed a discounted cash flow analysis for the three and a
half year period ending with calendar year 2002 on GSI's stand-alone unlevered
free cash flow, using financial projections provided by GSI management.
Unlevered free cash flows were calculated as: (A) EBIT; (B) less taxes; (C) plus
depreciation and amortization; (D) less capital expenditures; (E) less net
changes in working capital. ING Barings calculated terminal values by applying a
range of estimated EBIT multiples of 14x to 16x to projected EBIT of GSI in the
calendar year 2002. The unlevered free cash flows and terminal values were then
discounted to the present value using a range of discount rates from 13.8% to
15.8%. This range was selected because GSI's weighted average cost of capital
was 14.8%. After deriving total enterprise values from this analysis, ING
Barings derived two separate implied equity values. In both cases, cash, cash
equivalents and marketable securities were added and total debt outstanding was
25
<PAGE>
subtracted from enterprise value. However, in one case 90% of the estimated
lawsuit receivable due to GSI from the court verdict against Origin Medsystems,
Inc. was discounted back one year at GSI's weighted average cost of capital
(14.8%) and was added to derive implied equity value. Based on this analysis
assuming a 14.8% discount rate, an EBIT terminal value multiple range between
14x--16x and using management estimates, ING Barings calculated values per share
of GSI common stock ranging from $7.45 to $8.34 with the lawsuit receivable
included and from $6.40 to $7.29 excluding the lawsuit receivable.
COMMON STOCK TRADING PRICE HISTORY
ING Barings also analyzed the value of the merger consideration as a premium
to the 5, 15, 30, and 90-day average price of GSI common stock as well as to the
52 week high and low. The information in the table below was presented solely to
provide the GSI Board with background information regarding GSI stock price
during the periods indicated relative to the merger consideration.
SUMMARY OF IMPLIED PREMIUM ANALYSIS
<TABLE>
<CAPTION>
IMPLIED PREMIUM
-----------------
<S> <C> <C>
Merger Consideration per GSI Share................................................. $ 7.50
Implied Premium to:
August 5, 1999 Price............................................................. $ 4.00 87.5%
5 Days Average Price(a).......................................................... $ 4.35 72.4%
15 Days Average Price(a)......................................................... $ 4.72 58.8%
30 Days Average Price(a)......................................................... $ 4.58 63.7%
90 Days Average Price(a)......................................................... $ 4.15 80.8%
52 Week High (7/14/99)........................................................... $ 5.63 33.2%
52 Week Low (10/6/98)............................................................ $ 1.00 650.0%
</TABLE>
- ------------------------
(a) Represents average closing price for period ending August 5, 1999 (the last
date before there was a significant increase in the stock price and trading
volume in GSI common stock).
The summary set forth above describes the principal elements of the
presentation made by ING Barings to the GSI Board on August 19, 1999. The
presentation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. Each of the analyses
conducted by ING Barings was carried out in order to provide a different
perspective on the transaction and to add to the total mix of information
available. ING Barings did not form a conclusion as to whether any individual
analysis, considered in isolation, supported or failed to support an opinion as
to fairness from a financial point of view. Rather, in reaching its conclusion,
ING Barings considered the results of the analyses in light of each other and
ultimately reached its opinion based on the results of all analyses taken as a
whole. ING Barings did not place particular reliance or weight on any individual
analysis, but instead concluded that its analyses, taken as a whole, supported
its determination. Accordingly, notwithstanding the separate factors summarized
above, ING Barings believes that its analyses must be considered as a whole and
that selecting portions of its analysis and the factors considered by it,
without considering all analyses and factors, could create an incomplete or
misleading view of the evaluation process underlying its opinion.
In performing its analyses, ING Barings made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters. The analyses performed by ING
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Barings are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
Pursuant to the terms of the engagement letter dated June 21, 1999, and
amendment dated August 9, 1999, GSI agreed to pay ING Barings:
- $75,000 as a retainer fee;
- $250,000 at the time of execution of the merger agreement; and
- 1% of the aggregate consideration received by GSI shareholders upon the
consummation of the merger, against which any fees previously paid to ING
Barings under the foregoing items will be credited.
GSI has also agreed to reimburse ING Barings promptly for all out-of-pocket
expenses, including the reasonable fees and out-of-pocket expenses of counsel,
incurred by ING Barings in connection with its engagement, and to indemnify ING
Barings and related persons against liabilities in connection with its
engagement, including liabilities under the federal securities laws. The terms
of the fee arrangement with ING Barings were negotiated at arms'-length between
GSI and ING Barings.
ING Barings is a full service securities firm that engages in securities
trading and brokerage activities, in addition to providing investment banking
services. In the ordinary course of its business, ING Barings, as a market maker
or otherwise, may trade or otherwise effect transactions in the securities of
GSI and Tyco and, accordingly, may at any time hold a long or short position in
such securities.
REASONS OF TYCO FOR THE MERGER
At a meeting of the Tyco Board held on August 9, 1999, the Tyco Board
determined that the acquisition of GSI was in keeping with its corporate
strategy of complementing its internal growth with acquisitions that are likely
to benefit from cost reductions and synergies when combined with Tyco's existing
operations and that are expected to be accretive to earnings per share.
In reaching its decision to approve the merger, the Tyco Board considered
the following material factors:
- the expectation that GSI's businesses could be readily integrated with
Tyco's healthcare products business, enabling Tyco to broaden the line of
surgical supplies offered to its customers;
- the patent litigation between GSI and a subsidiary of Tyco and the
prospect that if the judgment in this litigation in favor of GSI were
upheld on appeal, Tyco could be forced permanently to discontinue
manufacturing and marketing of certain balloon dissection devices found at
trial to infringe on GSI's patents;
- the expectation that the merger before restructuring and similar charges
and assuming the realization of certain of the cost savings referred to
below and other synergies would be immediately accretive to Tyco's
earnings per share;
- the belief of Tyco's management that there are prospects for reduction of
GSI corporate costs, possible elimination of facilities of the combined
company and potential cost reductions for purchased materials and
services; and
- Tyco's history of growth through acquisitions, including its substantial
experience integrating acquired businesses with existing operations and
thereby achieving synergies and cost savings.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL
Certain GSI executive officers and certain members of the GSI Board will
receive benefits as a result of the merger that will be in addition to or
different from their interests as shareholders of GSI generally. These include,
among other things, provisions in the merger agreement relating to
indemnification and the acceleration and/or payout of benefits under certain
agreements and employee benefit plans. The GSI Board was aware of these
interests and considered them, among other matters, in approving the merger
agreement and the merger.
STOCK OPTIONS HELD BY GSI EXECUTIVE OFFICERS AND NON-EMPLOYEE DIRECTORS
As of October , 1999, GSI's directors and executive officers collectively
beneficially own options to acquire an aggregate of shares of GSI common
stock.
Under the merger agreement, following the merger each option to acquire
stock of GSI will become the right to receive the difference in cash between
$7.50 and the exercise price of the option for each share subject to the option.
This amount will be payable whether or not the option is vested at the time of
the merger. Options whose exercise price equals or exceeds $7.50 will be
cancelled. The cash amounts, before income taxes, that the principal executive
officers of GSI will receive for their options as a result of the merger are:
Gregory D. Casciaro--$1,544,004.79; Roderick A. Young-- $746,196.84; James E.
Jervis--$719,969.77; Stephen J. Bonelli--$836,595.32; and Ferolyn T. Powell--
$548,125.00. The cash amounts, before income taxes, that the non-employee
directors of GSI will receive for their options as a result of the merger are:
David W. Chonette--$207,091.27; Thomas J. Fogarty--$87,811.84; Paul
Goeld--$230,980.42; James R. Sulat--$46,332.00; and Mark A. Wan-- $212,239.27.
The amounts in this paragraph assume that the exchange ratio has not been fixed
at 0.0913 (pre-split), in the circumstances described under "Certain Provisions
of the Merger Agreement--Termination" on page 44. If the exchange ratio were
fixed at 0.0913 (pre-split), these amounts would be lower.
INDEMNIFICATION
The surviving corporation in the merger will provide to the individuals who
have served as officers or directors of GSI, for at least six years after the
merger, indemnification as set forth by the articles of incorporation and
by-laws of GSI prior to the effective time of the merger. General Acquisition
has also agreed to provide, for at least six years after the merger, a directors
and officers insurance and indemnification policy that is no less favorable than
the existing policy provided by GSI with respect to acts occurring prior to or
at the effective time of the merger.
OTHER
Certain officers of GSI have been awarded retention bonuses to incentivize
them to continue their employment with GSI until the merger is consummated.
These bonuses, which are payable following consummation of the merger if the
officers remain employed by GSI through that time, are as follows: Mr.
Casciaro--$153,000; Mr. Bonelli--$60,000; Mr. Jervis--$60,000; and Ms.
Powell--$60,000.
MATERIAL U.S. FEDERAL INCOME TAX AND BERMUDA TAX CONSEQUENCES
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material U.S. federal income
tax consequences of the exchange of GSI common stock for Tyco common shares and
the ownership of Tyco common shares. The discussion which follows is based on
the U.S. Internal Revenue Code, Treasury Regulations
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promulgated thereunder, administrative rulings and pronouncements and judicial
decisions as of the date hereof, all of which are subject to change, possibly
with retroactive effect.
The discussion below is for general information only and, except where
specifically noted, does not address the effects of any state, local or
non-United States tax laws. In addition, the discussion below relates to persons
who hold GSI common stock and will hold Tyco common shares as capital assets.
The tax treatment of a GSI shareholder may vary depending upon such
shareholder's particular situation, and certain shareholders may be subject to
special rules not discussed below. Such shareholders would include, for example,
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, and individuals who received GSI common stock pursuant to the
exercise of employee stock options or otherwise as compensation. In addition,
this discussion does not address the tax consequences to any GSI shareholder who
will own 5% or more of either the total voting power or the total value of the
outstanding Tyco common shares after the merger, determined after there is taken
into account ownership under the applicable attribution rules of the U.S.
Internal Revenue Code, or non-U.S. Holders, defined below, who have held more
than 5% of the GSI common stock at any time within the five-year period ending
at the consummation of the merger.
As used in this section, a "U.S. Holder" means a beneficial owner of GSI
common stock who exchanges GSI common stock for Tyco common shares and who is,
for U.S. federal income tax purposes:
- a citizen or resident of the U.S.;
- a corporation, partnership or other entity, other than a trust, created or
organized in or under the laws of the U.S. or any political subdivision
thereof;
- an estate whose income is subject to U.S. federal income tax regardless of
its source; or
- a trust
(1) if, in general, a court within the U.S. is able to exercise primary
supervision over its administration and one or more U.S. persons have
authority to control all of its substantial decisions or
(2) that has a valid election in effect under applicable U.S. treasury
regulations to be treated as a U.S. person.
As used in this section, a non-U.S. Holder is a holder of GSI common stock
who exchanges GSI common stock for Tyco common shares and who is not a U.S.
Holder.
1. CONSEQUENCES OF THE MERGER
In the opinion of PricewaterhouseCoopers LLP and Venture Law Group, A
Professional Corporation, the material U.S. federal income tax consequences that
will result from the merger are as follows:
a. The merger will constitute a reorganization within the meaning of Section
368 of the U.S. Internal Revenue Code.
b. A GSI shareholder, other than a GSI shareholder that is a "5% transferee
shareholder" within the meaning of U.S. Treasury Regulation 1.367(a)-3, will
not recognize any income, gain or loss as a result of the receipt of Tyco
common shares in exchange for GSI common stock pursuant to the merger,
except for cash received in lieu of a fractional Tyco common share.
c. The tax basis to a GSI shareholder of the Tyco common shares received in
exchange for GSI common stock pursuant to the merger, including any
fractional share interest in Tyco common
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shares for which cash is received, will equal such GSI shareholder's tax
basis in the GSI common stock surrendered in exchange therefor.
d. The holding period of a GSI shareholder for the Tyco common shares received
pursuant to the merger will include the holding period of the GSI common
stock surrendered in exchange therefor.
e. A GSI shareholder who is a U.S. Holder and who receives cash in lieu of a
fractional share interest in Tyco common shares pursuant to the merger will
be treated as having received such cash in exchange for such fractional
share interest and generally will recognize capital gain or loss on such
deemed exchange in an amount equal to the difference between the amount of
cash received and the basis of the GSI stock allocable to such fractional
share. Non-U.S. Holders who receive cash in lieu of a fractional share
interest in Tyco common shares will not be subject to United States income
or withholding tax except as set forth in paragraph 3.b below.
f. No income, gain or loss will be recognized by Tyco, General Acquisition, GSI
or General Sub as a result of the transfer to GSI shareholders of the Tyco
common shares provided by Tyco to General Acquisition pursuant to the
merger.
Consummation of the merger is conditioned upon the receipt of opinions to
this effect as of the consummation of the merger. If delivery of such opinions
is waived notwithstanding a material change in the tax consequences of the
merger, GSI and Tyco will recirculate and resolicit this document. Such opinions
are and will be based on facts existing as of the date hereof and as of the
consummation of the merger and on certain representations as to factual matters
made by Tyco, General Acquisition and GSI. Such representations, if incorrect in
certain material respects, could jeopardize the conclusions reached in the
opinions. Such opinions are not binding on the U.S. Internal Revenue Service or
the courts.
2. TRANSFER TAXES
In the event that any state or local transfer taxes are imposed on GSI
shareholders as a result of the merger, GSI will pay all such transfer taxes, if
any, directly to state and local taxing authorities on behalf of all GSI
shareholders. Any such payments by GSI made on behalf of the GSI shareholders
may result in dividend income to each GSI shareholder on behalf of whom such
payment is made. The amount of such dividend income attributable to each share
of GSI common stock cannot be determined at this time, but is not expected to be
material.
3. OWNERSHIP OF TYCO COMMON SHARES
a. U.S. Holders
DISTRIBUTIONS
Distributions made to U.S. Holders of Tyco common shares will be treated as
dividends and taxable as ordinary income to the extent that such distributions
are made out of Tyco's current or accumulated earnings and profits as determined
for U.S. federal income tax purposes, with any excess being treated as a
tax-free return of capital which reduces such U.S. Holder's tax basis in the
Tyco common shares to the extent thereof, and thereafter as capital gain from
the sale or exchange of property. The U.S. federal income tax treatment
described in the immediately preceding sentence applies whether or not such
distributions are treated as a return of capital for non-tax purposes. Amounts
taxable as dividends generally will be treated as foreign source "passive"
income for foreign tax credit purposes. The amount of any distribution of
property other than cash will be the fair market value of such property on the
date of distribution by Tyco. U.S. Holders of Tyco common shares that
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are corporations generally will not be entitled to claim a dividends received
deduction with respect to distributions by Tyco, because Tyco is a foreign
corporation.
DISPOSITION
Gain or loss recognized by a U.S. Holder of Tyco common shares on the sale,
exchange or other taxable disposition of Tyco common shares will be subject to
U.S. federal income taxation as capital gain or loss in an amount equal to the
difference between the amount realized on such sale, exchange or other
disposition and such U.S. Holder's adjusted tax basis in the Tyco common shares
surrendered. Such gain or loss will be long term capital gain or loss if such
U.S. Holder's holding period for its Tyco common shares is more than one year.
Any gain or loss so recognized generally will be United States source.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain U.S. Holders may be subject to information reporting with respect to
payments of dividends on, and the proceeds of the disposition of, Tyco common
shares. U.S. Holders who are subject to information reporting and who do not
provide appropriate information when requested may be subject to backup
withholding at a 31% rate. U.S. Holders should consult their tax advisors
regarding the imposition of backup withholding and information reporting with
respect to distributions on, and dispositions of, Tyco common shares.
b. Non-U.S. Holders
DISTRIBUTIONS AND DISPOSITION
In general, and subject to the discussion below under "Information Reporting
and Backup Withholding," a non-U.S. Holder will not be subject to U.S. federal
income or withholding tax on income from distributions with respect to, or gain
upon the disposition of, Tyco common shares, unless either (1) the income or
gain is effectively connected with the conduct by the non-U.S. Holder of a trade
or business in the U.S. or (2) in the case of gain realized by an individual
non-U.S. Holder upon a disposition of Tyco common shares, the non-U.S. Holder is
present in the U.S. for 183 days or more in the taxable year of the sale and
certain other conditions are met.
In the event that clause 1 in the preceding paragraph applies, such income
or gain generally will be subject to regular U.S. federal income tax in the same
manner as if such income or gain, as the case may be, were realized by a U.S.
Holder. In addition, if such non-U.S. Holder is a non-U.S. corporation, such
income or gain may be subject to a branch profits tax at a rate of 30%, although
a lower rate may be provided by an applicable income tax treaty. In the event
that clause 2, but not clause 1, in the preceding paragraph applies, the gain
generally will be subject to tax at a rate of 30%, or such lower rate as may be
provided by an applicable income tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
If the Tyco common shares are held by a non-U.S. Holder through a non-U.S.,
and non-U.S. related, broker or financial institution, information reporting and
backup withholding generally would not be required with respect to distributions
on and dispositions of Tyco common shares. Information reporting, and possibly
backup withholding, may apply if the Tyco common shares are held by a non-U.S.
Holder through a U.S., or U.S. related, broker or financial institution and the
non-U.S.Holder fails to provide appropriate information. Non-U.S. Holders should
consult their tax advisors regarding the imposition of backup withholding and
information reporting with respect to distributions on and dispositions of Tyco
common shares.
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BERMUDA TAX CONSEQUENCES
In the opinion of Appleby, Spurling & Kempe, attorneys in Bermuda for Tyco,
there will be no Bermuda income, corporation or profits tax, withholding tax,
capital gains tax, capital transfer tax, estate duty or inheritance tax payable
in respect of the delivery of Tyco common shares to GSI shareholders in exchange
for GSI common stock pursuant to the merger. In addition, as of the date hereof,
there is no Bermuda income, corporation or profits tax, withholding tax, capital
gains tax, capital transfer tax, estate duty or inheritance tax payable in
respect of capital gains realized on a disposition of Tyco common shares or in
respect of distributions by Tyco with respect to Tyco common shares.
Furthermore, Tyco has received from the Minister of Finance of Bermuda under the
Exempted Undertakings Tax Protection Act of 1966 an undertaking that, in the
event of there being enacted in Bermuda any legislation imposing any tax
computed on profits or income, including any dividend or capital gains
withholding tax, or computed on any capital assets, gain or appreciation or any
tax in the nature of an estate or inheritance tax or duty, the imposition of
such tax shall not be applicable to Tyco or any of its operations, nor to its
common shares nor to obligations of Tyco until the year 2016. This undertaking
applies to Tyco common shares. It does not, however, prevent the application of
Bermuda taxes to persons ordinarily resident in Bermuda.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY AND DOES NOT PURPORT
TO BE A COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A
DECISION WHETHER TO VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. GSI SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING
THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES TAX CONSEQUENCES
OF THE MERGER TO THEM.
ACCOUNTING TREATMENT
The merger will be treated as a purchase for accounting and financial
reporting purposes. Under this method of accounting, the assets and liabilities
of GSI will be recorded on Tyco's books at their estimated fair market value
with the remaining purchase price reflected as goodwill. For more information,
see the notes to the Unaudited Pro Forma Combined Condensed Financial
Information beginning on page .
CERTAIN LEGAL MATTERS
General Acquisition and GSI have committed to use their reasonable best
efforts to take whatever actions are required to obtain necessary regulatory
approvals.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits Tyco and
GSI from completing the merger until certain information and materials have been
furnished to the U.S. Federal Trade Commission and the Antitrust Division of the
U.S. Department of Justice and a required waiting period is observed. This
waiting period will expire on , 1999 unless terminated earlier. Even
after the waiting period expires or terminates, the FTC or the Antitrust
Division could take such action under the antitrust laws as it deems necessary
or desirable in the public interest, including seeking divestiture of
substantial assets of Tyco or GSI. Neither Tyco nor GSI believes that
consummation of the merger will result in a violation of any applicable
antitrust laws. However, there is no assurance that a challenge to the merger on
antitrust grounds will not be made or, if such a challenge is made, of the
result.
Tyco and GSI do not believe that any additional material governmental
filings in the United States, other than the agreement of merger in California,
are required with respect to the merger.
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U.S. FEDERAL SECURITIES LAW CONSEQUENCES
Recipients of Tyco common shares issued in connection with the merger can
freely transfer such shares under the U.S. Securities Act of 1933, except that
persons who are deemed to be "affiliates," as such term is defined under the
Securities Act, of GSI prior to the merger may only sell shares they receive in
the merger in transactions permitted by the resale provisions of Rule 145 under
the Securities Act, or as otherwise permitted under the Securities Act.
Individuals or entities that control, are controlled by, or are under common
control with, GSI, including directors and certain officers of GSI, are
typically considered to be affiliates.
In general, under Rule 145, for one year following the consummation of the
merger, GSI affiliates will be subject to the following restrictions on the
public sale of Tyco common shares acquired in the merger:
- a GSI affiliate, together with certain related persons, may sell only
through unsolicited "broker transactions" or in transactions directly with
a "market maker," as such terms are defined in Rule 144 under the
Securities Act,
- the number of shares a GSI affiliate may sell, together with certain
related persons and certain persons acting in concert, within any
three-month period for purposes of Rule 145 may not exceed the greater of
1% of the outstanding Tyco common shares or the average weekly trading
volume of such stock during the four calendar weeks preceding such sale,
and
- a GSI affiliate may sell only if Tyco remains current with its
informational filings with the SEC under the Exchange Act.
After the end of one year from the consummation of the merger, a GSI
affiliate may sell Tyco common shares received in the merger without such manner
of sale or volume limitations provided that Tyco is current with its Exchange
Act informational filings and such GSI affiliate is not then an affiliate of
Tyco. Two years after the consummation of the merger, an affiliate of GSI may
sell such Tyco common shares without any restrictions so long as such affiliate
had not been an affiliate of Tyco for at least three months prior to such sale.
DIVIDENDS
Although the payment of dividends by Tyco in the future will depend on
business conditions, Tyco's financial condition and earnings and other factors,
Tyco expects to declare regularly scheduled dividends consistent with the
practices of Tyco prior to the merger and of Former Tyco prior to Former Tyco's
merger with ADT. The merger agreement restricts each of GSI and Tyco from
declaring, setting aside, making or paying any dividend or other distribution in
respect of its capital stock, other than, in the case of Tyco, its regularly
scheduled dividend consistent with past practices, during the period from the
date of the merger agreement until the earlier of the termination of the merger
agreement or the consummation of the merger.
STOCK EXCHANGE LISTING
It is a condition to the merger that the NYSE authorize for listing the Tyco
common shares to be delivered in connection with the merger. In addition, Tyco
expects to list such shares on the London Stock Exchange and the Bermuda Stock
Exchange in due course after the completion of the merger.
DISSENTERS' RIGHTS
If the merger is approved by the required vote at the special meeting of GSI
shareholders, a holder of record of shares of GSI common stock who does not vote
in favor of the merger and who follows the procedures set forth in Chapter 13 of
the California General Corporation Law may be entitled to exercise dissenters'
rights under California law. Dissenter's rights will, however, only be
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available in connection with the merger if holders of more than five percent
(5%) of GSI's outstanding shares of common stock elect to exercise such rights.
If dissenter's rights are determined to be available in connection with the
merger, such rights entitle the holder to require GSI to purchase the holder's
shares for cash at their fair market value. The fair market value of the GSI
common stock will be determined as of the day before the first announcement of
the terms of the merger, excluding any element of value arising from the
accomplishment or expectation of the merger. The following is a summary
description of the provisions of the applicable California law. This summary is
complete in all material respects but should be read with the full text of the
applicable law, a copy of which is attached hereto as Annex C. Any holder of
shares of GSI common stock intending to exercise statutory dissenters' rights is
urged to review Annex C carefully and to consult with legal counsel so as to
assure strict compliance with its provisions.
A vote in favor of the merger agreement and the merger will constitute a
waiver of dissenters' rights. If a GSI shareholder delivers a proxy that has
been left blank, the proxy will be voted for the approval and adoption of the
merger agreement, unless the proxy is revoked before the special meeting.
Therefore, any GSI shareholder that intends to exercise dissenters' rights and
to vote by proxy should not leave the proxy blank. The shareholder should either
vote against the merger or abstain from voting for or against the approval and
adoption of the merger agreement.
NOTIFICATION OF APPROVAL AND ADOPTION OF MERGER AGREEMENT
Within 10 days after approval and adoption of the merger agreement by the
GSI shareholders, GSI must mail a notice of the approval to holders of shares of
GSI common stock which were not voted in favor of the merger, together with a
statement of the price determined by GSI to represent the fair market value of
the shares for which dissenters' rights remain available, a brief description of
the procedures to be followed in order for the holder to pursue dissenters'
rights, and a copy of Sections 1300 to 1304 of Chapter 13. The statement of
price by GSI constitutes an offer by GSI to purchase all shares for which
dissenters' rights remain available at the stated amount. Only a holder of
record of shares of GSI common stock on the record date (or the holder's duly
appointed representative) is entitled to exercise dissenters' rights.
ELECTING DISSENTERS' RIGHTS
To exercise dissenters' rights, the record holder of GSI common stock must
- not vote to approve and adopt the merger agreement, and
- within 30 days after the date the approval notice is mailed to the holder,
deliver a written demand for purchase demanding that GSI purchase the
holder's shares of common stock and a statement as to what the holder
claims to be the fair market value of such shares.
The statement of the fair market value of the shares of GSI common stock
constitutes an offer by the shareholder to sell the shares of GSI at that price.
The written demand for purchase must be delivered to GSI at 10460 Bubb Road,
Cupertino, California 95014, Attention: Corporate Secretary.
If GSI and the dissenting holder agree upon the purchase price of the
shares, the dissenting holder is entitled to the agreed upon price with interest
thereon at the legal rate on judgments from the date of such agreement. Payment
for the dissenting shares must be made within 30 days after the later date of
such agreement or the date on which all statutory and contractual conditions to
the merger are satisfied, and is subject to surrender to GSI of the certificates
for the dissenting shares.
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APPRAISAL PROCEEDING BY CALIFORNIA COURT
If GSI and the record holder of GSI common stock fail to agree upon the fair
market value of such holder's shares of GSI common stock, then within six months
after the date of the approval notice from GSI, any shareholder who has not
voted in favor of approval and adoption of the merger agreement and who has made
a valid written demand for purchase may file a complaint in superior court
requesting a determination as to whether the shares are dissenting shares or as
to the fair market value of such holder's shares of GSI common stock, or both.
EFFECT OF EXERCISE OF DISSENTERS' RIGHTS ON VOTING AND RIGHT TO DIVIDENDS
Any shareholder who has duly exercised dissenters' rights in compliance with
California law will not, after the effective time of the merger, be entitled to
vote the dissenting shares for any purpose. The dissenting shares will not be
entitled to the payment of dividends or other distributions, other than those
payable or deemed payable to shareholders of record as of the date prior to the
effective time of the merger.
LOSS, WAIVER OR WITHDRAWAL OF DISSENTERS' RIGHTS
If a holder of shares of GSI common stock who demands the purchase of shares
under Chapter 13 fails to perfect, or effectively withdraws or loses the right
to such purchase, such holder will be entitled to receive the consideration
otherwise payable pursuant to the merger.
Dissenting shares lose their status as dissenting shares if:
- the merger is abandoned;
- the shares are transferred prior to their submission for the required
endorsement;
- the dissenting shareholder fails to make a timely written demand for
purchase, along with a statement of fair market value;
- the dissenting shares are voted in favor of the merger;
- the dissenting shareholder and GSI do not agree upon the status of the
shares as dissenting shares or do not agree on the purchase price, but
neither GSI nor the shareholder files a complaint or intervenes in a
pending action within six months after mailing of the approval notice; or
- with GSI's consent, the shareholder delivers to GSI a written withdrawal
of the shareholder's written demand for purchase.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
GENERAL
This section describes the material provisions of the merger agreement and
Tyco's guarantees of the obligations in the merger agreement. This description
is not complete, and shareholders are encouraged to read the full text of the
merger agreement which is annexed to this document. In addition, important
information about the merger agreement and the merger is provided in the
previous section entitled "The Merger" beginning on page .
EFFECTIVE TIME
Promptly after the satisfaction or waiver of the conditions to the merger
set forth in the merger agreement, GSI and General Sub will file an agreement of
merger with the Secretary of State of the State of California, as prescribed by
California law. The effect of this filing is that General Sub will merge with
and into GSI, and GSI will become an indirect wholly-owned subsidiary of Tyco.
MERGER CONSIDERATION
GENERAL
As a result of the merger, all outstanding shares of GSI common stock will
be converted into Tyco common shares in accordance with the terms of the merger
agreement.
THE EXCHANGE RATIO
GSI's shareholders will receive a fraction of a Tyco common share for each
share of GSI common stock, based on an exchange ratio determined by dividing
$7.50 by the average share price computed by taking the average of the daily
volume weighted selling prices of Tyco common shares on the New York Stock
Exchange over the five trading days ending four trading days before the special
meeting of GSI shareholders.
If the average share price is less than $82.15 (pre-split), General
Acquisition may call off the merger prior to the time of the GSI special
meeting, unless on or before the second trading day prior to the date of the GSI
special meeting, GSI agrees to an exchange ratio equal to 0.0913 (pre-split). If
GSI agrees to fix the exchange ratio at 0.0913, then General Acquisition will
not have the right to call off the merger and the exchange ratio will be 0.0913.
A GSI shareholder will not receive a fraction of a Tyco common share in the
merger. Any fractional Tyco common share will be paid in cash equal to the
fraction multiplied by the last reported sale price of a Tyco common share on
the last trading day prior to the time of the merger.
BASIS OF GSI'S DETERMINATION TO FIX THE EXCHANGE RATIO
The average share price will not be known until the close of trading on
October , 1999, the fourth trading day before the GSI special meeting. GSI has
made no decision as to whether, if the average share price were less than $82.15
(pre-split), it would agree to fix the exchange ratio at 0.0913 (pre-split). In
the event such decision is required to be made, the GSI Board would consult with
its management and legal and financial advisors and take into account,
consistent with its fiduciary duties, all relevant facts and circumstances that
exist at such time, including:
- the amount of the decrease in the value of Tyco common shares to be
received in the merger if the exchange ratio is fixed at 0.0913;
- general market, economic and business conditions;
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- management's assessment of the potential benefits expected to be realized
by combining the operations of GSI and Tyco;
- other opportunities available to GSI; and
- whether the proposed merger continues to be in the best interests of GSI
and its shareholders.
Any decision of the GSI Board to fix the exchange ratio at 0.0913 will be
made prior to the GSI special meeting. Approval of the merger agreement by the
GSI shareholders will constitute approval of such decision. GSI has not
considered whether it will seek a revised fairness opinion if the average share
price is less than $82.15 and it elects to fix the exchange ratio at 0.0913. GSI
does not currently intend to resolicit proxies if it determines to proceed with
the merger at an exchange ratio of 0.0913.
STOCK OPTIONS
The merger agreement provides that each option to purchase shares of GSI
common stock issued to employees and directors of GSI and outstanding at the
time the merger is completed will receive an amount in cash equal to the
positive difference between (i) the number of shares of GSI common stock for
which the option was exercisable at the time of the merger multiplied by the
product of the exchange ratio and the average share price and (ii) the aggregate
exercise price of the shares of GSI common stock purchasable pursuant to the
option. Any GSI stock option the exercise price of which as of the time of the
consummation of the merger equals or exceeds the product of the exchange ratio
and the average share price will be cancelled and be of no further force and
effect as of the effective time of the merger.
EXCHANGE OF GSI COMMON STOCK
As soon as reasonably practicable after the consummation of the merger,
General Acquisition will instruct ChaseMellon Shareholder Services LLC, as
exchange agent, to mail to each holder of record of GSI common stock a letter of
transmittal and instructions as to how to surrender certificates of GSI common
stock in exchange for Tyco common shares and payment for any fractional shares.
GSI SHAREHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Holders of certificates previously representing GSI common stock will not be
paid dividends or distributions on the Tyco common shares and will not be paid
cash in lieu of a fractional Tyco common share until such certificates are
surrendered to ChaseMellon for exchange. When such certificates are surrendered,
any unpaid dividends declared by Tyco after the consummation of the merger and
any cash in lieu of a fractional Tyco common share will be paid without
interest. For all other corporate purposes, certificates that represented shares
of GSI common stock prior to the consummation of the merger will represent from
and after the consummation of the merger, the number of Tyco common shares and
cash in respect of fractional shares, into which such shares of GSI common stock
are actually converted in the merger.
ChaseMellon will deliver Tyco common shares in exchange for lost, stolen or
destroyed certificates if the owner of such certificates signs an affidavit of
loss, theft or destruction, as appropriate. General Acquisition may also, in its
discretion, require the holder of such lost, stolen or destroyed certificates to
deliver a bond in a reasonable sum as indemnity against any claim that might be
made against Tyco, General Acquisition or ChaseMellon with respect to alleged
lost, stolen or destroyed certificates.
REPRESENTATIONS AND WARRANTIES
GSI and General Acquisition have made various customary mutual
representations and warranties in the merger agreement about themselves and
their subsidiaries, as well as, in the case of General Acquisition, Tyco and its
other subsidiaries. General Acquisition's representations and warranties have
been unconditionally guaranteed by Tyco.
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In addition, GSI represented that the GSI Board of Directors, prior to the
execution of the merger agreement, authorized an amendment to the GSI
shareholder rights agreement to render the GSI shareholder rights agreement
inapplicable to the merger agreement and the transactions contemplated thereby.
GSI appropriately amended the GSI shareholder rights agreement as of August 23,
1999.
CONDUCT OF BUSINESS BY GSI
GSI has agreed that, prior to the consummation of the merger, GSI will
conduct its business, and that of its subsidiaries, only in the ordinary course
of business and in a manner consistent with past practice; and GSI will use
reasonable commercial efforts to preserve substantially intact the business
organization of GSI and its subsidiaries, to keep available the services of the
present officers, employees and consultants of GSI and its subsidiaries and to
preserve the present relationships of GSI and its subsidiaries with customers,
suppliers and other persons with which GSI or any of its subsidiaries has
significant business relations. In particular, unless the merger agreement
provides otherwise or as previously disclosed to General Acquisition by GSI, GSI
has agreed that neither it nor any of its subsidiaries, without the prior
written consent of General Acquisition, will, subject in certain cases to
specified exceptions:
1. amend or otherwise change GSI's Amended and Restated Articles of
Incorporation or Bylaws;
2. issue, sell, pledge, dispose of or encumber, or authorize the issuance,
sale, pledge, disposition or encumbrance of, any shares of capital stock
of any class, or any options, warrants, convertible securities or other
rights of any kind to acquire any ownership interest in GSI or any of its
subsidiaries or affiliates, subject to certain exceptions in the case of
GSI's equity-based incentive plans;
3. sell, pledge, dispose of or encumber any assets of GSI or any of its
subsidiaries, other than in the ordinary course of business and in a
manner consistent with past practice or pursuant to other limited
exceptions;
4. - declare, set aside, make or pay any dividend or other distribution in
respect of any of its capital stock,
- split, combine or reclassify any of its capital stock or issue or
authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock,
- amend the terms or change the period of exercisability of, acquire or
permit any subsidiary to amend the terms or change the period of
exercisability of or to acquire, any of its or its subsidiaries'
securities, or
- settle, pay or discharge any action brought or threatened against GSI
with respect to or arising out of a shareholder equity interest in
GSI;
5. - make any acquisitions,
- incur any indebtedness for borrowed money, other than pursuant to
existing credit facilities, or issue any debt securities or make,
assume or guarantee any loans or advances (including loans and
advances to employees of GSI to fund the exercise price of GSI options
or otherwise to purchase shares of GSI common stock), other than in
the ordinary course of business consistent with past practice,
- authorize capital expenditures or purchases of fixed assets which are,
in the aggregate, in excess of $2,500,000 million over the 12 months
from the date of the merger agreement, or
- enter into or materially amend any contract, agreement, commitment or
arrangement to do any of the above;
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6. - increase the compensation or severance payable or to become payable
to its directors, officers, employees or consultants except in
accordance with past practice,
- grant any severance or termination pay to or enter into any employment
or severance agreement with any current or new employee of GSI, or
- establish, adopt, enter into or amend any collective bargaining,
benefit plan, trust, fund, policy or arrangement for any current or
former directors, officers, employees or consultants or any of their
beneficiaries;
7. change accounting policies or procedures;
8. make any tax election or settle or compromise any United States federal,
state, local or non-United States tax liability;
9. pay, discharge or satisfy any claims, liabilities or obligations out of
the ordinary course of business in excess of $100,000 in the aggregate;
10. enter into, modify or renew any contract, agreement or arrangement,
whether or not in writing, for the distribution of GSI's products; or
11. take, or agree in writing to take, any of the above actions or any
action which would make any of the representations or warranties of GSI
contained in the merger agreement untrue or incorrect or prevent GSI from
performing its covenants under the merger agreement.
CONDUCT OF BUSINESS BY TYCO
Tyco has guaranteed that, prior to the consummation of the merger, unless
the merger agreement provides otherwise, it will conduct its business and that
of its subsidiaries in the ordinary course of business and consistent with past
practice, including actions taken by Tyco or its subsidiaries in contemplation
of the merger, and will not, without the prior written consent of GSI:
1. amend or otherwise change Tyco's Memorandum of Association or Bye-Laws;
2. make or agree to make any acquisition or disposition which would
materially delay or prevent the consummation of the transactions
contemplated by the merger agreement;
3. declare, set aside, make or pay any dividend or other distribution on
any of its capital stock, other than a previously declared two-for-one
stock split in the form of a stock distribution and regular quarterly
cash dividends and other than a dividend to Tyco by a wholly owned
subsidiary of Tyco;
4. change accounting policies or procedures; or
5. take, or agree in writing to take, any action which would make any of
the representations or warranties of General Acquisition contained in the
merger agreement untrue or incorrect or prevent General Acquisition from
performing its covenants under the merger agreement.
NO SOLICITATION
GSI has agreed that it will not solicit or encourage the initiation of any
inquiries or proposals regarding any other merger, sale of assets, sale of
shares of capital stock or similar transaction with a third party in which such
party would acquire more than 30% of the outstanding shares of any class of
GSI's equity securities or more than 30% of the outstanding equity securities of
GSI or the surviving entity in a merger with GSI or would acquire more than 30%
of the fair market value of GSI's assets. Any of the foregoing transactions are
referred to in this document as an "Alternative Transaction" and any proposal
from a third party to effect an Alternative Transaction is referred to as an
"Acquisition Proposal."
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Until the GSI shareholders approve and adopt the merger agreement, if the
GSI Board, following consultation with independent legal counsel, determines
that such action is reasonably likely to be required to discharge properly its
fiduciary duties, the GSI Board, after notice to General Acquisition, is
permitted to:
1. furnish information to a third party which has made, but was not
solicited to make in violation of the merger agreement, a "Superior
Proposal." A "Superior Proposal is defined as a BONA FIDE Acquisition
Proposal to acquire for cash and/or securities, all of the voting equity
securities of GSI or all or substantially all of GSI's assets, on terms
which the GSI Board reasonably believes are more favorable than the
merger:
- from a financial point of view to GSI shareholders, after consultation
with a nationally recognized financial advisor, taking into account at
the time of determination any changes to the financial terms of the
merger proposed by General Acquisition, and
- to GSI, taking into account all pertinent factors deemed relevant by
the GSI Board under the laws of California; and
2. consider and negotiate such Superior Proposal.
Notwithstanding the foregoing points 1 and 2, GSI and the GSI Board, except
to the extent that the GSI Board reasonably determines in good faith and after
consultation with independent legal counsel that it is reasonably likely to be
required to act to the contrary in order to properly discharge its fiduciary
duties, may not in any circumstance withdraw or modify in a manner adverse to
General Acquisition or General Sub the GSI Board's approval of the merger.
In addition, unless the merger agreement has been terminated in accordance
with its terms, the merger agreement must be submitted for approval and adoption
by the GSI shareholders at the GSI special meeting, and the GSI Board may not
recommend that shareholders vote against approval of the merger and adoption of
the merger agreement.
The merger agreement expressly provides that the foregoing covenants shall
not prohibit GSI from taking or disclosing to its shareholders a position
regarding an Alternative Transaction or Acquisition Proposal or from making any
disclosure to its shareholders required by law.
GSI has agreed
1. to cease any discussions or negotiations with any third party that were
ongoing at the time of the execution of the merger agreement;
2. not to release any third party from the confidentiality and standstill
provisions of any agreement to which GSI is a party; and
3. not redeem the rights under, or waive or amend any provisions of, the
GSI shareholder rights agreement that would facilitate the consummation
of any Acquisition Proposal or Alternative Transaction.
GSI will ensure that the officers and directors of GSI and its significant
subsidiaries and any investment banker or other advisor or representative
retained by GSI are aware of the no-solicitation restrictions described in the
merger agreement.
CERTAIN OTHER COVENANTS
CONSENTS; APPROVALS
General Acquisition and GSI will each use its reasonable best efforts to
obtain all consents, waivers, approvals, authorizations or orders, and General
Acquisition and GSI will make or cause to be
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made all filings, required in connection with the authorization, execution and
delivery of the merger agreement and the consummation by each of them of the
transactions contemplated thereby.
INDEMNIFICATION AND INSURANCE
For six years following consummation of the merger, the Articles of
Incorporation and By-laws of the surviving corporation will contain the same
indemnification provisions as currently set forth in the Amended and Restated
Articles of Incorporation and By-laws of GSI and such provisions will not be
modified in any manner adverse to the rights of individuals who were directors,
officers, employees or agents of GSI at the consummation of the merger unless
otherwise required by law.
After consummation of the merger, the surviving corporation will, to the
fullest extent permitted under applicable law or under its Articles of
Incorporation or By-laws, indemnify and hold harmless each present and former
director, officer or employee of GSI or any of its subsidiaries against any
costs or expenses, judgments, fines, losses, claims, damages, liabilities and
amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to the transactions contemplated by
the merger agreement, or otherwise with respect to any acts or omissions
occurring at or prior to the consummation of the merger, to the same extent as
provided in GSI's Amended and Restated Articles of Incorporation or By-laws or
any applicable contract or agreement as in effect on the date of the merger
agreement, in each case for a period of six years following the consummation of
the merger.
Following the merger, the surviving corporation will continue to honor in
all respects GSI's obligations under the indemnification agreements and
employment agreements with GSI's officers and directors existing at or before
consummation of the merger.
General Acquisition will provide, or cause the surviving corporation to
provide, for a period of not less than six years after consummation of the
merger, GSI's current directors and officers with an insurance and
indemnification policy for events occurring at or prior to consummation of the
merger that is no less favorable than GSI's existing policy or, if substantially
equivalent insurance coverage is unavailable, the best available coverage;
PROVIDED, HOWEVER, that General Acquisition and the surviving company will not
be required to pay an annual insurance premium in excess of 200% of the annual
premium currently paid by GSI for such insurance, but in such case will purchase
as much coverage as possible for such amount.
NOTIFICATION OF CERTAIN MATTERS
General Acquisition and GSI will each give each other prompt notice of the
occurrence or nonoccurrence of any event which would be reasonably expected to
cause any representation or warranty contained in the merger agreement to be
materially untrue or inaccurate, or any failure of GSI, General Acqusition or
General Sub materially to comply with or satisfy any covenant, condition or
agreement contained in the merger agreement.
FURTHER ACTION/TAX TREATMENT
The parties to the merger agreement will use all reasonable efforts to take,
or cause to be taken, all actions and to do all other things necessary, proper
or advisable to consummate and make effective as promptly as practicable the
transactions contemplated by the merger agreement, to obtain in a timely manner
all necessary waivers, consents and approvals and to effect all necessary
registrations and filings, and otherwise to satisfy or cause to be satisfied all
conditions precedent to each of their obligations under the merger agreement.
However, Tyco is under no obligation to agree to divest, abandon, license, enter
into, modify, maintain or renew any contract arrangement regarding or take
similar action with respect to any assets of Tyco or GSI or any of their
respective subsidiaries. In addition, General Acquisition, General Sub and GSI
have each agreed to use their reasonable best
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efforts to cause the merger to qualify as a reorganization under the provisions
of Section 368 of the U.S. Internal Revenue Code, as specified in the merger
agreement, and will not, both before and after consummation of the merger, take
any actions which might reasonably be expected to prevent the merger from so
qualifying.
PUBLIC ANNOUNCEMENTS
General Acquisition and GSI will not issue any press release or make any
public written statement with respect to the merger or the merger agreement
without the prior consent of the other party, which consent will not be
unreasonably withheld, except as required by law or the regulations of the NYSE
and The Nasdaq Stock Market.
TYCO COMMON SHARES
Tyco has guaranteed to take all actions necessary to transfer to General
Acquisition the Tyco common shares to be delivered by General Acquisition to the
GSI shareholders in the merger. Tyco also has guaranteed to use its best efforts
to list on the NYSE the Tyco common shares to be delivered in the merger.
RIGHTS AGREEMENT
The GSI Board has agreed to take all necessary action to render the rights
under the GSI shareholder rights agreement inapplicable to the merger agreement
and the merger.
CONDITIONS TO THE MERGER
CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER
Each of General Acquisition's, General Sub's and GSI's respective
obligations to complete the merger are subject to the satisfaction at or prior
to the consummation of the merger of the following conditions:
1. EFFECTIVENESS OF REGISTRATION STATEMENT. The SEC has not issued any stop
order suspending the effectiveness of the registration statement of which
this document is a part, nor has it started or threatened any proceedings
for that purpose or in respect of this document;
2. SHAREHOLDER APPROVAL. The GSI shareholders have approved and adopted the
merger agreement;
3. ANTITRUST. All waiting periods applicable to the consummation of the
merger under the HSR Act have expired or terminated, and all necessary
clearances and approvals for the merger under any non-U.S. antitrust laws
have been obtained, other than for clearances and approvals under any
non-U.S. antitrust laws which, if not obtained, would not be reasonably
expected to have a material adverse effect on GSI, Tyco or Tyco's
healthcare product business;
4. GOVERNMENTAL ACTIONS. No action or proceeding has been instituted,
pending or threatened by any governmental authority or administrative
agency before any governmental authority, administrative agency or court
of competent jurisdiction, domestic or foreign, that is reasonably likely
to result in an order, nor is any judgment, decree or order of any
governmental authority, administrative agency or court of competent
jurisdiction or other legal restraint in effect, which, in either case,
prevents or seeks to prevent the consummation of the merger, prevents or
seeks to prevent or limits or seeks to limit General Acquisition from
exercising all material rights and privileges pertaining to its ownership
of the surviving corporation following the merger or the ownership or
operation by Tyco or any of its subsidiaries of all or a material portion
of the business or assets of the surviving corporation
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or any of its subsidiaries following the merger, or compels or seeks to
compel Tyco or any of its subsidiaries to dispose of or hold separate all
or any material portion of the business or assets of Tyco or any of its
subsidiaries, as a result of the merger or the transactions contemplated
by the merger agreement;
5. ILLEGALITY. No statute, rule, regulation or order is enacted, entered,
enforced or deemed applicable to the merger which makes the consummation
of the merger illegal; and
6. TAX OPINIONS. GSI has received a written opinion of Venture Law Group,
counsel to GSI, and General Acquisition has received the written opinion
of PricewaterhouseCoopers LLP, tax advisors to Tyco, in form and
substance reasonably satisfactory to them, with respect to the tax-free
nature of the merger as specified in the merger agreement.
ADDITIONAL CONDITIONS TO OBLIGATIONS OF GENERAL ACQUISITION AND GENERAL SUB
The obligations of General Acquisition and General Sub to complete the
merger are also subject to the following conditions:
1. REPRESENTATIONS AND WARRANTIES. Except as set forth in the merger
agreement and except as would not reasonably be expected to have a
material adverse effect on GSI, the representations and warranties of GSI
in the merger agreement are true and correct in all respects, without
giving effect to qualifications of materiality contained in those
representations and warranties, on and as of the date of the consummation
of the merger, with the same force and effect as if made on and as of the
date of the consummation of the merger, and General Acquisition and
General Sub have received a certificate to such effect signed by the
Chief Executive Officer or Chief Financial Officer of GSI;
2. AGREEMENTS AND COVENANTS. GSI has performed or complied in all material
respects with all agreements and covenants required by the merger
agreement, and General Acquisition and General Sub have received a
certificate to such effect signed by the Chief Executive Officer or Chief
Financial Officer of GSI;
3. CONSENTS OBTAINED. GSI has obtained all material consents, waivers,
approvals, authorizations or orders required to be obtained, and has made
all filings required by GSI for the authorization, execution and delivery
of the merger agreement and the consummation by it of the merger, except
as would not reasonably be expected to have a material adverse effect on
GSI, General Acquisition or Tyco;
4. AFFILIATE AGREEMENTS. General Acquisition has received an affiliate
agreement from each person who is identified as an "affiliate" of GSI;
and
5. RIGHTS AGREEMENT. A "distribution date," as defined in the GSI
shareholder rights agreement, has not occurred.
ADDITIONAL CONDITIONS TO OBLIGATION OF GSI
The obligation of GSI to complete the merger is also subject to the
following conditions:
1. REPRESENTATIONS AND WARRANTIES. Except as set forth in the merger
agreement and except as would not reasonably be expected to have a
material adverse effect on General Acquisition and General Sub, the
representations and warranties of General Acquisition and General Sub
contained in the merger agreement are true and correct in all respects,
without giving effect to qualifications of materiality contained in those
representations and warranties, on and as of the consummation of the
merger, with the same force and effect as if made on and as of the date
of the consummation of the merger, and GSI has received a certificate to
such effect signed by the President or Chief Financial Officer of General
Acquisition;
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2. AGREEMENTS AND COVENANTS. General Acquisition and General Sub have
performed or complied in all material respects with all agreements and
covenants required by the merger agreement, and GSI has received a
certificate to such effect signed by the President or Chief Financial
Officer of General Acquisition;
3. CONSENTS OBTAINED. General Acquisition and General Sub have obtained all
material consents, waivers, approvals, authorizations or orders required
to be obtained, and have made all filings required for the authorization,
execution and delivery of the merger agreement and the consummation by
them of the transactions contemplated except as would not reasonably be
expected to have a material adverse effect on GSI, General Acquisition or
Tyco; and
4. LISTING. The NYSE has authorized for listing the Tyco common shares
issuable in connection with the merger.
TERMINATION
CONDITIONS TO TERMINATION
The merger agreement may be terminated at any time prior to the consummation
of the merger, notwithstanding the approval of the merger and adoption by the
GSI shareholders of the merger agreement:
1. by mutual written consent duly authorized by the Boards of Directors of
both GSI and General Acquisition;
2. by either of General Acquisition or GSI, if the merger has not been
consummated by February 28, 2000, other than for reasons set forth in 4
below; PROVIDED, HOWEVER, that this right to terminate is not available
to the party whose failure to fulfill any of its obligations under the
merger agreement caused the merger not to be consummated before February
28, 2000;
3. by either of General Acquisition or GSI, if a court of competent
jurisdiction or governmental, regulatory or administrative agency or
commission issues a nonappealable final order, decree or ruling or takes
any other nonappealable final action which permanently prohibits the
merger;
4. by either of General Acquisition or GSI, if GSI shareholders do not
approve and adopt the merger agreement at the GSI special meeting;
provided, however, that this right to terminate is not available to GSI
if GSI fails to call the GSI shareholder meeting;
5. by General Acquisition, if, whether or not permitted to do so by the
merger agreement, GSI or the GSI Board:
- withdraws, modifies or changes its approval or recommendation of the
merger agreement or the merger in a manner adverse to General
Acquisition,
- approves or recommends to GSI shareholders an Acquisition Proposal or
Alternative Transaction,
- approves or recommends that GSI shareholders tender their shares in
any tender offer or exchange offer that is an Alternative Transaction,
or
- takes any position or makes any disclosures to GSI shareholders
required by law, rule or regulation that has the effect of any of the
foregoing;
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6. by either of General Acquisition or GSI:
- if any representation or warranty of GSI, General Acquisition or
General Sub set forth in the merger agreement was untrue when made or
has become untrue, or
- upon a breach of any covenant or agreement set forth in the merger
agreement by the other party,
such that in either case, the conditions to the terminating party's
obligation to complete the merger described above under "Conditions to
the Merger" would not be satisfied; PROVIDED THAT, if such
misrepresentation or breach is curable prior to February 28, 2000 and the
party in breach exercises its reasonable best efforts to cure the same,
the merger agreement may not be terminated under this clause while such
party continues to exercise such efforts;
7. by GSI, if:
- the GSI Board has authorized GSI to enter into a definitive agreement
with respect to a Superior Proposal,
- GSI has notified General Acquisition in writing that it intends to
enter into a definitive agreement with respect to a Superior Proposal,
- within two full business days of receipt of GSI's notification,
General Acquisition has not made an offer that the GSI Board
determines, in good faith after consultation with its financial
advisors, is at least as favorable, from a financial point of view, to
the GSI shareholders as the Superior Proposal,
- GSI has paid General Acquisition the fees and expenses required to be
paid pursuant to the merger agreement,
- the merger agreement has not already been approved and adopted by the
GSI shareholders at the GSI special meeting, and
- GSI has complied in all material respects with its no solicitation
obligations as described on page .
8. by General Acquisition, prior to the GSI special meeting, if the average
share price is less than $82.15 (pre-split), unless on or before the
second trading day prior to the GSI special meeting, GSI agrees to an
exchange ratio equal to 0.0913 (pre-split).
FEES AND EXPENSES
Except as set forth below, each of General Acquisition, General Sub and GSI
will pay its own fees and expenses incurred in connection with the merger
agreement and the merger, whether or not the merger is completed, provided that
General Acquisition and GSI will share equally all filing fees and printing
expenses incurred in connection with the printing and filing of this document
and the related registration statement.
GSI will pay Tyco a fee of $4.0 million, and will pay the actual, documented
and reasonable out-of-pocket expenses of Tyco and General Acquisition relating
to the merger of up to $375,000, upon the first to occur of any of the following
events:
1. the termination of the merger agreement by General Acquisition or GSI
due to the failure of the shareholders of GSI to approve and adopt the
merger agreement at the GSI special meeting, if
45
<PAGE>
- prior to or at the time of the GSI special meeting, a BONA FIDE
Acquisition Proposal is made directly to the GSI shareholders or
otherwise becomes publicly known or a credible third party has
announced a BONA FIDE intention to make an Acquisition Proposal, or
- within 12 months following the date of termination of the merger
agreement, an Alternative Transaction is publicly announced by GSI or
any third party and such transaction is at any time thereafter
consummated on substantially the terms previously announced;
2. the termination of the merger agreement by General Acquisition due to
the GSI Board's approval or recommendation of an Acquisition Proposal or
Alternative Transaction or its approval or recommendation to GSI
shareholders to tender their shares in an Alternative Transaction; or
3. the termination of the merger agreement by GSI due to the GSI Board
accepting a Superior Proposal as permitted by the merger agreement and
described in paragraph 9 under "Conditions to Termination" above.
GSI is required to pay the expenses of Tyco and General Acquisition relating
to the merger of up to $375,000 upon a termination of the merger agreement by
General Acquisition due to GSI's willful breach of a covenant or agreement set
forth in the merger agreement, and, in addition, GSI is required to pay Tyco the
fee of $4.0 million, if
- prior to the termination, a BONA FIDE Acquisition Proposal is made
directly to the GSI shareholders or otherwise becomes publicly known
or a credible third party has announced a BONA FIDE intention to make
an Acquisition Proposal, or
- within 12 months following the date of termination of the merger
agreement, an Alternative Transaction is publicly announced by GSI or
any third party and such transaction is at any time thereafter
consummated on substantially the terms previously announced.
GSI is required to pay to Tyco and General Acquisition their respective
expenses relating to the merger of up to $375,000 upon a termination of the
merger agreement by General Acquisition as a result of a representation or
warranty of GSI being untrue when made, as described in paragraph 6 under
"Conditions to Termination" above.
General Acquisition is required to pay to GSI the expenses of GSI relating
to the merger of up to $375,000 upon termination of the merger agreement by GSI
as a result of a representation or warranty by General Acquisition or General
Sub being untrue when made, as described in paragraph 6 under "Conditions to
Termination" above.
The fee and/or expenses are payable within one business day after a demand
for payment following the occurrence of the event requiring such payment;
PROVIDED that, in no event will a party be required to pay such fee and/or
expenses to the other if, immediately prior to the termination of the merger
agreement, the party to receive the fee and/or expenses was in material breach
of its obligations under the merger agreement.
The fee payable under certain circumstances by GSI to Tyco is intended,
among other things, to compensate Tyco and General Acquisition for their
respective costs, including lost opportunity costs, if certain actions or
inactions by GSI or its shareholders lead to the abandonment of the merger. This
may have the effect of increasing the likelihood of consummation of the merger
in accordance with the terms of the merger agreement. The fee may also have the
effect of discouraging persons from making an offer to acquire all of or a
significant interest in GSI by increasing the cost of any such acquisition.
46
<PAGE>
AMENDMENT AND WAIVER; PARTIES IN INTEREST
The parties to the merger agreement may amend the merger agreement in
writing by action taken by or on behalf of their respective Boards of Directors
at any time prior to consummation of the merger. However, after approval of the
merger and the merger agreement by the shareholders of GSI, the merger agreement
cannot be amended without shareholder approval if shareholder approval of such
amendment is required by law.
At any time prior to consummation of the merger, any party to the merger
agreement may extend the time for the performance of any of the obligations or
other acts by the other, waive any inaccuracies in the representations and
warranties contained in the merger agreement or in any document delivered
pursuant to the merger agreement, or waive compliance with any of the agreements
or conditions contained in the merger agreement. Any such extension or waiver
will be valid if set forth in writing by the party or parties granting such
extension or waiver.
The merger agreement is binding upon and inures solely to the benefit of the
parties thereto, and nothing in the merger agreement confers upon any other
person any right, benefit or remedy of any nature whatsoever, other than certain
indemnification, employment and insurance obligations of General Acquisition and
GSI following consummation of the merger which are intended for the benefit of
certain specified officers, directors and employees of GSI and may be enforced
by such individuals and other than certain obligations of the parties to pay
certain fees and expenses.
GUARANTEE
Tyco has fully and unconditionally guaranteed the representations,
warranties, covenants, agreements and other obligations of General Acquisition
and General Sub under the merger agreement.
47
<PAGE>
COMPARATIVE PER SHARE PRICES AND DIVIDENDS
TYCO
Tyco common shares are listed and traded on the NYSE, the London Stock
Exchange and the Bermuda Stock Exchange. The following table sets forth the high
and low sales prices per Tyco common share, as reported in the NYSE Composite
Transaction Tape, and the dividends paid on such shares, for the quarterly
periods presented below. The prices per Tyco common share listed in the table
for periods prior to July 2, 1997, the date of Former Tyco's merger with ADT,
are for common shares of ADT. The price and dividends for the Tyco common shares
have been restated to reflect the 0.48133 reverse stock split related to the ADT
merger and a two-for-one stock split effected in the form of a stock dividend
which was distributed October 22, 1997. The prices and dividends do not reflect
a two-for-one stock split to be effected in the form of a stock distribution
payable on October 21, 1999 to Tyco shareholders of record on October 1, 1999.
Although Tyco's fiscal year end is September 30, the information is presented on
a calendar year basis.
<TABLE>
<CAPTION>
TYCO COMMON SHARES
---------------------- DIVIDENDS
HIGH LOW PER SHARE(1)
---------- ---------- -------------
<S> <C> <C> <C>
1997:
First quarter........................................................... $ 28.6965 $ 22.0743 --
Second quarter.......................................................... 35.4487 25.4503 --
Third quarter........................................................... 43.0000 34.4099 $ 0.025
Fourth quarter.......................................................... 45.5000 34.0000 0.025
1998:
First quarter........................................................... $ 57.4375 $ 42.3750 $ 0.025
Second quarter.......................................................... 63.0625 51.4375 0.025
Third quarter........................................................... 69.0000 50.0000 0.025
Fourth quarter.......................................................... 79.1875 40.3125 0.025
1999:
First Quarter........................................................... $ 79.9375 $ 67.5000 $ 0.025
Second Quarter.......................................................... 94.8125 70.3750 0.025
Third Quarter........................................................... 0.025
Fourth Quarter (through October , 1999)...............................
</TABLE>
- ------------------------
(1) Tyco has paid a quarterly cash dividend of $0.025 per common share since
July 2, 1997, the date of the Former Tyco/ADT merger. ADT had not paid any
dividends on its common shares since 1992. Prior to the merger with ADT,
Former Tyco paid a quarterly cash dividend of $0.025 per share of common
stock since January 1992.
See "Comparative Market Value Information" on page for recent Tyco common
share price information. Shareholders are urged to obtain current market
quotations. See also "Risk Factors--THE VALUE OF THE MERGER CONSIDERATION THE
GSI SHAREHOLDERS WILL RECEIVE WILL DEPEND ON THE VALUE OF TYCO COMMON SHARES AT
THE TIME OF THE MERGER" on page .
Under the terms of the merger agreement, other than its previously declared
two-for-one stock split in the form of a stock distribution and its regularly
scheduled quarterly dividend of $0.025 per Tyco common share, Tyco is not
permitted to declare, set aside, make or pay any dividend or distribution in
respect of its capital stock from the date of the merger agreement until the
earlier of the termination of the merger agreement and the consummation of the
merger. The payment of dividends by Tyco in the future will be determined by the
Tyco Board and will depend on business conditions, Tyco's financial condition
and earnings and other factors.
48
<PAGE>
GSI
GSI common stock is listed and traded on The Nasdaq Stock Market's National
Market System. The following table sets forth the high and low sales prices per
share of GSI common stock as reported on the Nasdaq National Market for the
quarterly calendar periods presented below. Although GSI's fiscal year end is
June 30, the information presented here is on a calendar year basis.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997:
First quarter.............................................................................. $ 10.00 $ 6.50
Second quarter............................................................................. 7.25 3.38
Third quarter.............................................................................. 5.81 3.31
Fourth quarter............................................................................. 6.00 3.37
1998:
First quarter.............................................................................. $ 6.00 $ 3.87
Second quarter............................................................................. 4.62 3.50
Third quarter.............................................................................. 4.56 1.88
Fourth quarter............................................................................. 3.75 1.44
1999:
First Quarter.............................................................................. $ 5.00 $ 3.50
Second Quarter............................................................................. 4.31 2.84
Third Quarter..............................................................................
Fourth Quarter (through October , 1999)..................................................
</TABLE>
See "Comparative Market Value Information" on page for recent GSI common
stock price information. Shareholders are urged to obtain current market
quotations.
GSI has never paid dividends on its common stock and has no present plans to
do so. Under the terms of the merger agreement, GSI is not permitted to declare,
set aside, make or pay any dividend or distribution in respect of its capital
stock from the date of the merger agreement until the earlier of the termination
of the merger agreement and the consummation of the merger.
49
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The merger is to be accounted for in accordance with the purchase method of
accounting pursuant to APB Opinion No. 16. Accordingly, the accompanying
unaudited pro forma combined condensed financial information gives effect to the
transaction in accordance with the purchase method of accounting. Pursuant to
Rule 11-02 of Regulation S-X, the unaudited pro forma combined condensed
financial information excludes the results of extraordinary items.
The unaudited pro forma combined condensed financial information should be
read in conjunction with:
1. Tyco's audited September 30, 1998 consolidated financial statements,
including the accounting policies and notes thereto, which are included in
Tyco's Current Report on Form 8-K filed on June 3, 1999,
2. Tyco's unaudited consolidated financial statements and notes thereto
included in its Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999, and
3. GSI's audited financial statements, including the notes thereto,
included in its Annual Report on Form 10-K for the fiscal year ended June
30, 1999.
The following unaudited pro forma combined condensed financial information
sets forth the results of operations for the fiscal year ended September 30,
1998 and the nine months ended June 30, 1999, as if the merger had occurred at
the beginning of fiscal 1998 and the financial position as of June 30, 1999 as
if the merger had occurred as of that date. GSI has a June 30 fiscal year end,
which differs from Tyco's September 30 fiscal year end. The unaudited pro forma
combined condensed statements of continuing operations for the fiscal year ended
September 30, 1998 and the nine months ended June 30, 1999 include the
historical results of operations for GSI for the fiscal year ended June 30, 1998
and the nine months ended June 30, 1999, respectively. The unaudited pro forma
combined balance sheet includes the financial position of GSI at June 30, 1999.
The unaudited pro forma combined condensed financial information has been
prepared in accordance with generally accepted accounting principles in the
United States. These principles require management to make extensive use of
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The unaudited pro forma combined condensed results of operations are
not necessarily indicative of future operating results.
50
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF CONTINUING OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1999(1)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TYCO GSI ADJUSTMENTS COMBINED
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Net sales............................... $16,272.0 $ 4.9 $ -- $16,276.9
Cost of sales........................... (10,562.1) (4.1) (3.0)(3) (10,569.2)
Research and development................ -- (3.0) 3.0(3) --
Selling, general and administrative
expenses.............................. (3,240.6) (12.3) (3.2)(8) (3,256.1)
Merger, restructuring and other
non-recurring charges(6).............. (1,182.8) -- -- (1,182.8)
Charges for the impairment of long-lived
assets(6)............................. (335.0) -- -- (335.0)
--------- ------ ----- ---------
Operating income (loss)................. 951.5 (14.5) (3.2) 933.8
Interest income......................... 42.4 1.0 -- 43.4
Interest expense........................ (388.9) -- -- (388.9)
--------- ------ ----- ---------
Income (loss) from continuing operations
before income taxes................... 605.0 (13.5) (3.2) 588.3
Income taxes............................ (356.7) -- -- (356.7)
--------- ------ ----- ---------
Income (loss) from continuing
operations............................ $ 248.3 $(13.5) $(3.2) $ 231.6
--------- ------ ----- ---------
--------- ------ ----- ---------
Income (loss) from continuing operations
per common share (2):
Basic................................. $ 0.30 $(1.00) $ 0.28
--------- ------ ---------
--------- ------ ---------
Diluted(4)............................ $ 0.30 $(1.00) $ 0.28
--------- ------ ---------
--------- ------ ---------
Weighted average number of common
shares(2):
Basic................................. 815.5 13.5 816.5
--------- ------ ---------
--------- ------ ---------
Diluted(4)............................ 832.8 13.5 833.8
--------- ------ ---------
--------- ------ ---------
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
51
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS
OF CONTINUING OPERATIONS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998(1)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TYCO GSI ADJUSTMENTS COMBINED
---------- ------ ----------- ----------
<S> <C> <C> <C> <C>
Net sales............................... $ 19,061.7 $ 6.8 $ -- $ 19,068.5
Cost of sales........................... (12,694.8) (3.6) (2.8)(3) (12,701.2)
Research and development................ -- (2.8) 2.8(3) --
Selling, general and administrative
expenses.............................. (4,161.9) (11.8) (4.2)(8) (4,177.9)
Merger, restructuring and other
non-recurring charges(7).............. (256.9) -- -- (256.9)
---------- ------ ----- ----------
Operating income (loss)................. 1,948.1 (11.4) (4.2) 1,932.5
Interest income......................... 62.6 2.3 -- 64.9
Interest expense........................ (307.9) -- -- (307.9)
---------- ------ ----- ----------
Income (loss) from continuing operations
before income taxes................... 1,702.8 (9.1) (4.2) 1,689.5
Income taxes............................ (534.2) -- -- (534.2)
---------- ------ ----- ----------
Income (loss) from continuing
operations............................ $ 1,168.6 $ (9.1) $(4.2) $ 1,155.3
---------- ------ ----- ----------
---------- ------ ----- ----------
Income (loss) from continuing operations
per common share(2):
Basic................................. $ 1.48 $(0.68) $ 1.46
---------- ------ ----------
---------- ------ ----------
Diluted(4)............................ $ 1.45 $(0.68) $ 1.43
---------- ------ ----------
---------- ------ ----------
Weighted average number of common
shares(2):
Basic................................. 791.7 13.4 792.7
---------- ------ ----------
---------- ------ ----------
Diluted(4)............................ 812.4 13.4 813.4
---------- ------ ----------
---------- ------ ----------
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information
52
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS AT JUNE 30, 1999(1)
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TYCO GSI ADJUSTMENTS COMBINED
--------- ----- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 1,625.2 $ 9.6 $ -- $ 1,634.8
Securities available for sale........... -- 8.7 -- 8.7
Accounts receivable, net................ 4,046.9 2.6 -- 4,049.5
Contracts in process.................... 556.7 -- -- 556.7
Inventories............................. 2,793.3 2.5 -- 2,795.8
Deferred income taxes................... 897.7 -- -- 897.7
Prepaid expenses and other current
assets................................ 601.7 0.5 -- 602.2
--------- ----- ----- ---------
Total current assets.................. 10,521.5 23.9 -- 10,545.4
--------- ----- ----- ---------
Property, plant and equipment, net...... 6,613.1 3.0 -- 6,616.1
Goodwill and other intangibles, net..... 9,397.9 -- 84.4(9) 9,482.3
Long-term investments................... 229.5 1.0 -- 230.5
Deferred income taxes................... 508.9 -- -- 508.9
Other assets............................ 754.9 0.3 -- 755.2
--------- ----- ----- ---------
Total assets.......................... $28,025.8 $28.2 $84.4 $28,138.4
--------- ----- ----- ---------
--------- ----- ----- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable and current portion of
long-term debt........................ $ 658.9 $ 0.1 $ -- $ 659.0
Accounts payable........................ 2,196.0 2.2 -- 2,198.2
Accrued expenses and other current
liabilities........................... 3,354.7 1.4 5.0(10) 3,361.1
Contracts in process-billings in excess
of cost............................... 821.6 -- -- 821.6
Deferred revenue........................ 263.8 -- -- 263.8
Income taxes payable.................... 1,084.1 -- -- 1,084.1
Deferred income taxes................... 42.1 -- -- 42.1
--------- ----- ----- ---------
Total current liabilities............. 8,421.2 3.7 5.0 8,429.9
--------- ----- ----- ---------
Long-term debt.......................... 8,293.0 -- -- 8,293.0
Other long-term liabilities............. 1,091.9 0.1 -- 1,092.0
Deferred income taxes................... 166.9 -- -- 166.9
--------- ----- ----- ---------
Total liabilities..................... 17,973.0 3.8 5.0 17,981.8
--------- ----- ----- ---------
Retained earnings (deficit)............. 3,194.4 (40.9) 40.9(12) 3,194.4
Other shareholders' equity.............. 6,858.4 65.3 103.8(11) 6,962.2
(65.3)(12)
--------- ----- ----- ---------
Total shareholders' equity............ 10,052.8 24.4 79.4 10,156.6
--------- ----- ----- ---------
Total liabilities and shareholders'
equity.............................. $28,025.8 $28.2 $84.4 $28,138.4
--------- ----- ----- ---------
--------- ----- ----- ---------
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
53
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
(1) GSI has a June 30 fiscal year end, which differs from Tyco's September 30
fiscal year end. The unaudited pro forma results of operations for the
fiscal year ended September 30, 1998 and the nine months ended June 30, 1999
include the historical results of GSI for the fiscal year ended June 30,
1998 and the nine months ended June 30, 1999, respectively. The unaudited
pro forma balance sheet includes the financial position of GSI at June 30,
1999.
(2) The unaudited pro forma combined per share amounts are based on the pro
forma combined weighted average number of common shares which equals Tyco's
weighted average number of common shares outstanding for the period plus the
total number of Tyco common shares that will be delivered to GSI
shareholders in the merger. The number of shares to be delivered in the
merger is based on GSI shareholders receiving 0.0734 of a Tyco common share
for each share of GSI common stock held, which assumes an average share
price for Tyco common shares of $102.1875. The actual average share price
may be higher or lower than this value. For purposes of the unaudited pro
forma combined condensed financial information, 13,838,181 GSI common shares
outstanding as of August 20, 1999 was assumed. The per share data have not
been retroactively adjusted to reflect the two-for-one Tyco stock split
payable on October 21, 1999.
(3) Certain reclassifications, none of which affects income from continuing
operations, have been made to the GSI statements of operations in the
unaudited pro forma combined condensed statements of continuing operations
to classify research and development expenses on a consistent basis.
(4) Diluted income per common share from continuing operations for Tyco, after
adding Liquid Yield Option Notes ("LYONs") discount amortization, was based
on adjusted income from continuing operations available to common
shareholders of $251.7 million for the nine months ended June 30, 1999 and
$1,175.8 million for the fiscal year ended September 30, 1998.
(5) There were no material transactions between Tyco and GSI during any of the
periods presented.
(6) During the nine months ended June 30, 1999 Tyco recorded charges of $1.26
billion for merger, restructuring and other non-recurring charges, of which
$78.9 million is included in cost of sales, and $335.0 million for the
impairment of long-lived assets primarily related to the mergers with US
Surgical and AMP and costs associated with AMP's profit improvement plan.
(7) During the fiscal year ended September 30, 1998, Tyco recorded charges of
$80.5 million primarily related to costs to exit certain businesses in US
Surgical's operations and restructuring charges of $12.0 million related to
the operations of US Surgical. In addition, Tyco recorded restructuring
charges of $185.8 million in connection with AMP's profit improvement plan
and a credit of $21.4 million to restructuring charges representing a
revision of estimates related to AMP's 1996 restructuring plans.
(8) The allocation of the purchase price to the fair value of assets and
liabilities of GSI has not yet been determined. Therefore, for purposes of
the unaudited pro forma combined condensed financial information, the excess
of the purchase price over the book value of net assets acquired of GSI is
being recorded as goodwill and amortized over an estimated composite 20 year
life to selling, general and administrative expenses.
(9) Excess of the purchase price over the net assets acquired of GSI. See (8)
above for further discussion.
(10) Increase in accrued expenses for direct transaction costs incurred related
to the merger.
54
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
(11) Increase in shareholders' equity for shares to be issued in the merger
based on 13,838,181 GSI common shares outstanding on August 20, 1999
multiplied by 0.0734 multiplied by $102.1875, the closing price of Tyco
common shares on August 20, 1999.
(12) Elimination of GSI's equity accounts.
(13) Accrued purchase liabilities, inventory valuation adjustments and property,
plant and equipment write-downs are expected to be recorded in connection
with the merger with GSI, but such amounts are not determinable at this
time.
55
<PAGE>
CERTAIN INFORMATION CONCERNING GSI
BUSINESS OF GSI
GENERAL
Since its inception in April 1992, GSI has been engaged in the development,
manufacturing and marketing of balloon dissection systems and related minimally
invasive surgical instruments. GSI began commercial sales of its balloon
dissection systems for hernia repair in September 1993. To date, GSI has
received from the FDA eight 510(k) clearances for use of its technology to
perform dissection of tissue planes anywhere in the body using a broad range of
balloon sizes and shapes. GSI currently sells products in the United States,
Europe, South America and Australia for selected applications, such as hernia
repair, subfascial endoscopic perforator surgery, saphenous vein harvesting and
breast reconstruction and augmentation surgery, and laparoscopic bladder neck
suspension.
Sales of GSI's products in the United States and internationally are
currently made through both distributors and GSI's direct sales force. To date,
the majority of the sales of GSI's products have been for use in hernia repair
procedures. While GSI has developed or is developing surgical balloon dissectors
for stress urinary incontinence, vascular and plastic surgery, sales of products
for hernia repair are expected to provide a majority of GSI's revenues at least
through fiscal year 2000.
BALLOON DISSECTION SYSTEMS
GSI's SPACEMAKER-Registered Trademark- tissue dissection systems, based on
the company's patented balloon technology, rapidly and gently create surgical
working spaces in the body by separating natural tissue planes without resorting
to blunt dissection used in conventional open surgery or minimally invasive
surgery conducted outside of a natural body cavity. In procedures using
SPACEMAKER-Registered Trademark- dissectors, a surgeon creates a small incision
through which the balloon is inserted and placed between naturally occurring
tissue layers such as muscle, fat, and skin. Subsequently, the balloon is filled
to a specific volume with air or saline, causing the desired dissection of the
tissue planes. The system is then deflated and removed and the dissected space
can be insufflated with gas to create a surgical operating space.
GSI's surgical balloon dissectors incorporate several proprietary
technologies to increase the reliability, effectiveness and ease of use in
creating working spaces during minimally invasive surgery (MIS). Each balloon is
composed of strong and reliable nonelastomeric polyurethane material and is
welded using a proprietary technique that allows the balloon to be inflated to a
predetermined size and predictable shape with minimal risk of rupture. Each of
GSI's balloons is designed to be deployed in a predictable manner that maximizes
effectiveness and accuracy in creating the surgical working space and is
designed to minimize unnecessary tissue trauma because of the specific and
predictable manner in which the balloon unfurls. GSI has designed its dissection
balloons in a variety of shapes and sizes that are tailored for specific
procedures. For example, GSI's kidney shaped balloon is designed for use in
hernia repair to maximize working space and visibility of the surgical site
while minimizing the disruption of other anatomy at the surgical site.
GSI currently offers its surgical balloon dissectors in five distinct access
and deployment platforms, the SPACEMAKER-Registered Trademark- I platform with
integral cannula, the SPACEMAKER-Registered Trademark- II platform with optimal
visualization, the SPACEMAKER-Registered Trademark- Plastics platform,
SAPHtrak-Registered Trademark- platform, and the ENDOSAPH-Registered Trademark-
platform, along with several different balloon shapes and sizes, designed for
various surgical techniques, procedures types and market segments. Each balloon
dissection system, except ENDOSAPH-Registered Trademark- system, contains three
primary components: a guide rod and blunt tip to access the surgical site; a
single use, disposable balloon dissector (which includes a tubing and valve
apparatus to fill the balloon) to create a working space at the surgical site;
and a balloon cover to protect the balloon dissector and maintain the balloon in
its furled state prior to inflation. ENDOSAPH-Registered Trademark- dissectors
contain the first two components.
56
<PAGE>
The end-user price for GSI's single surgical balloon dissector is approximately
$250 per unit, and procedural kits range from approximately $350 to $850 per
kit, depending upon the type of balloon dissector platform purchased and the
ancillary instruments chosen by the customer to complete the procedural kit.
The key attributes of GSI's five major product platforms are described
below:
SPACEMAKER-REGISTERED TRADEMARK- I (WITH INTEGRAL CANNULA) PLATFORM. The
SPACEMAKER-Registered Trademark- I platform is composed of a stainless steel rod
with a blunt tip which is used both as the guide rod for the balloon and as the
insertion rod for a pre-loaded integral cannula. This enables the surgeon to
insert the cannula quickly and accurately into the dissected space once the
balloon is removed. In addition, the balloon cover used with the
SPACEMAKER-Registered Trademark- I platform is a strong sheath that maximizes
its tunneling capability.
SPACEMAKER-REGISTERED TRADEMARK- II PLATFORM. The
SPACEMAKER-Registered Trademark- II platform is a blunt-tipped, polymeric guide
rod for insertion of the balloon. This platform is designed to allow endoscopic
visualization of the dissected space. Visualization enables the surgeon to
identify anatomical features and access the dissected surgical site. The
SPACEMAKER-Registered Trademark- II platform includes an integral balloon cover,
which releases automatically upon inflation of the balloon, thus simplifying the
procedure for the surgeon.
SPACEMAKER-REGISTERED TRADEMARK- PLASTICS PLATFORM. The
SPACEMAKER-Registered Trademark- Plastics platform consists of a combined
blunt-tipped guide rod and handle, used for insertion, and a balloon. An
integral cover over the balloon provides protection to the balloon during
insertion. This platform is used primarily for plastic and reconstructive breast
surgery.
SPACEMAKER-REGISTERED TRADEMARK- SAPHTRAK-REGISTERED TRADEMARK-
PLATFORM. The SPACEMAKER-Registered Trademark- SAPHtrak-Registered Trademark-
platform consists of a malleable steel rod with a blunt tip, an eight inch
balloon and a handle. The malleable feature of the guide rod allows the surgeon
to adjust the curvature of the device to maneuver around challenging patient
anatomy. The 150cc capacity balloon is not removable from the guide so that it
is redeployable at multiple sites along the course of the vein. This platform is
used primarily for saphenous vein harvesting.
ENDOSAPH-REGISTERED TRADEMARK- PLATFORM. The
SPACEMAKER-Registered Trademark- ENDOSAPH-Registered Trademark- platform
consists of two disposable devices: the SAPHfinder-TM- balloon dissector and the
SPACEKEEPER-TM- retractor. The SAPHfinder-TM- balloon dissector consists of an
open-ended tip on a hollow guide rod, an eight inch balloon, and a handle. The
device is designed to accommodate a standard-length 5mm endoscope for viewing
from the tip. The 150cc capacity balloon is not removable from the guide rod so
that it is re-deployable at multiple sites along the course of the vein. The
SPACEKEEPER-TM- retractor is a single-piece, polycarbonate construction
consisting of a distal retractor, 5mm endoscope channel and handle. The
retractor is used to hold the operating space open after removal of the balloon
and is also designed to accommodate a standard-length 5mm endoscope. This
platform is used primarily for saphenous vein harvesting.
APPLICATIONS OF BALLOON DISSECTION TECHNOLOGIES
GSI's initial market focus has been the application of its
SPACEMAKER-Registered Trademark- balloon dissection technology for hernia
repair. More recently, GSI has begun to increase its emphasis on
cardiac/vascular applications. GSI has completed marketing-related clinical
studies of, and has introduced products for, saphenous vein harvesting,
subfascial endoscopic perforator surgery, breast augmentation and reconstruction
procedures, stress urinary incontinence applications. GSI believes that its
current FDA clearances provide coverage for many surgical applications that it
may pursue. GSI has commenced commercial sales of its products in the United
States, Europe, Asia and South America for selected applications including
hernia repair, saphenous vein harvesting, SEPS and breast augmentation and
reconstruction surgery.
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HERNIA REPAIR
A hernia, a condition that commonly occurs in the groin, is a protrusion of
normal abdominal contents through a muscle defect, usually in the tissue layers
overlying the abdomen. The peritoneum and/or bowel often project into this
defect, causing pain and potential major complications. In 1997 over 650,000
people in the United States and approximately 1.3 million people worldwide
underwent surgery for hernia repair.
The open surgical procedure for hernia repair is a herniorrhaphy, which
involves making a 10 to 15 cm open incision in the groin over the muscle defect
to be repaired. As in most invasive surgical procedures, recovery periods tend
to be long, typically extending between three and six weeks.
Over the last few years, in an effort to reduce post-operative pain and
recovery times, several laparoscopic techniques have been developed to repair
hernias. Despite these advances, there is not yet a consensus on the optimal
method for MIS hernia repair. For example, in certain MIS hernia repair
procedures, a surgeon first makes an incision in the abdominal wall to gain
access to the abdominal cavity. She then makes an additional incision in the
peritoneum in order to reach the surgical site and create the working space
required to conduct the surgical repair. GSI believes that its balloon
dissection technology can significantly improve the outcome of this laparoscopic
hernia repair procedure by eliminating the need for an incision in the abdominal
wall.
Utilizing GSI's SPACEMAKER-Registered Trademark- products, the surgeon
tunnels the device through a small incision at the umbilicus and then inflates
the balloon to create a large and relatively bloodless space at the site of the
hernia, but outside the abdominal wall. As a result, the surgeon is able to
access the target surgical site and complete the hernia repair. In addition,
because the surgeon never enters the peritoneum, this procedure reduces the risk
of organ damage, adhesion formation and morbidity, and eliminates the
requirement for general anesthesia. In a study published in March 1997 by the
NEW ENGLAND JOURNAL OF MEDICINE, MIS hernia repair procedures utilizing balloon
dissection systems resulted in fewer recurrences and faster recovery times as
compared to traditional open surgical hernia repair procedures.
GSI believes that its SPACEMAKER-Registered Trademark- products provide a
platform for increasing the conversion of open hernia repair procedures to
laparoscopic procedures. According to Medical Data International, Inc.,
laparoscopic hernia repair procedures represented approximately 104,000 or 16
percent of total hernia repair procedures in the United States in 1997.
GSI commenced commercial sales of its hernia repair balloon dissection
products in the United States in late 1993 and in Europe in 1994 and currently
sells two versions: the SPACEMAKER-Registered Trademark- I platform, which was
introduced in September 1993 and the SPACEMAKER-Registered Trademark- II
platform, which was introduced in October 1995. GSI sells these products both in
the United States and certain foreign markets, including Europe, Australia and
South America, through its direct sales force and distributors.
SUBFASCIAL ENDOSCOPIC PERFORATOR SURGERY
Chronic venous insufficiency, which results in insufficient blood flow from
the extremities, is a common and debilitating disease. A frequent manifestation
of venous insufficiency is venous stasis ulceration (chronic skin ulcers), which
currently affects approximately 1.25 million people in the United States.
GSI believes that current treatment options for venous stasis ulceration and
venous insufficiency are suboptimal. Compression stockings (elastic stockings
that put pressure on the leg to force blood flow), the most common treatment,
often temporarily heal the ulcers but do not treat the underlying venous
incompetence. Compression stockings as treatments are also ineffective because
patients often do not wear the stockings, the associated healing process is slow
and the recurrence rate for the ulcers is high. Treating the incompetent vein
through an open surgical procedure allows treatment of the underlying condition,
but requires an incision through the ulcer wound, which is composed of diseased
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tissue and is often incapable of healing. Alternatively, a minimally invasive
ligation procedure known as subfascial endoscopic perforator surgery (SEPS)
allows the surgeon to access the incompetent vein from an incision remote from
the ulcer wound using traditional dissection instruments. However, because this
access to the surgical site causes bleeding and significant tissue trauma, the
procedure is difficult and time consuming for the surgeon to perform because of
poor visualization
GSI's SPACEMAKER-Registered Trademark- surgical balloon dissectors allow the
surgeon to perform SEPS to ligate incompetent veins endoscopically in a
relatively atraumatic, bloodless manner. By utilizing GSI's
SPACEMAKER-Registered Trademark- technology, the surgeon is able to deploy an
elongated balloon down the length of the patient's leg to create an operating
space for access to one or more incompetent veins. Because the incisions needed
for this procedure are very small (approximately one cm) and are remote from the
area of ulcerated skin, GSI believes that wounds will heal more rapidly and that
there will be fewer complications compared to open surgery at or near the ulcer
site. In addition, the relatively bloodless working space created by GSI's
balloon provides the surgeon with improved visualization of the veins requiring
ligation, making the procedure easier and faster for the surgeon.
GSI launched its initial product to treat venous stasis ulceration and
venous insufficiency in January 1996. Additional outcome studies have been
completed, including the study reported in the June 1997 JOURNAL OF VASCULAR
SURGERY that supported GSI's belief that balloon assisted SEPS tends to produce
faster healing rates, fewer complications and lower recurrence rates as compared
to compression stockings or open surgical ligation. By the end of 1998, GSI's
SPACEMAKER-Registered Trademark- I balloon dissection products had been used to
treat over 1,100 patients suffering from venous stasis ulcers or venous
insufficiency in over 250 centers across the United States, with results
indicating generally successful outcomes.
SAPHENOUS VEIN HARVESTING
In recent years, advanced coronary artery disease has been increasingly
treated by coronary artery bypass graft (CABG) procedures, which usually involve
grafting a portion of a patient's vein, taken from a different part of the body,
around an arterial blockage. An estimated 665,000 CABG procedures were performed
worldwide in 1998. About 80 percent of these procedures in the United States
utilize the patient's saphenous vein for bypass grafting.
Traditional saphenous vein harvesting procedures require a continuous
incision above the vein segment to be harvested, often from the ankle to the
upper thigh of the patient's leg. The saphenous vein is then dissected and
removed, and the wound is sutured closed. A study published in the Annals of
Thoracic Surgery in 1998 involving over 112 patients indicates that the open
surgical procedure for saphenous vein harvesting results in wound healing
impairment in approximately 19 percent of patients. The length and invasiveness
of the leg incision also causes significant postoperative patient pain and
discomfort. Surgeons indicate that after the CABG procedure patients more
frequently complain about the pain caused by leg incisions than other aspects of
the procedure.
GSI launched its ENDOSAPH-Registered Trademark- vein harvest system,
utilizing balloon dissection technology and ancillary instruments in January
1998. By utilizing GSI's ENDOSAPH-Registered Trademark- balloon dissection
system and hook and fork dissection tools in the saphenous vein harvest
procedure, the surgeon can reduce the leg incisions to a total length of three
or four centimeters, and can minimize damage to the muscles and nerve endings
surrounding the saphenous vein. Results from clinical usage of the
ENDOSAPH-Registered Trademark- vein harvest system indicate generally successful
outcomes from the procedure including less postoperative pain, faster healing
and less scarring than with traditional open procedures.
STRESS URINARY INCONTINENCE SURGERY
Stress urinary incontinence (SUI) is the uncontrollable loss of urine due to
a displacement of the bladder neck. THE JOURNAL OF UROLOGY in September 1997
reported the findings of The American Urological Association Female Stress
Urinary Incontinence Clinical Guidelines Panel which concluded
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from long-term outcomes that "surgical treatment of stress urinary incontinence
effective, offering a long-term cure in a significant percentage of women."
Depending on the severity of incontinence, there are a number of treatment
options for SUI, including collagen injections, drugs, biofeedback exercises and
absorbent pads. The standard treatment for severe SUI is a highly invasive, open
surgical procedure involving suture suspension of the bladder neck. This method
can create significant complications for the patient, including enterocele (a
hernia within the vaginal wall) and genital prolapse (a descending of the uterus
due to a weakness of the pelvic floor). Furthermore, after surgery patients may
require up to six weeks or more to resume their preoperative lifestyle. Because
of the risk, expense and complexity of open suture suspension, this surgical
procedure is often performed only in conjunction with other open abdominal
procedures such as hysterectomy.
Several MIS alternatives to open surgical procedures for the treatment of
SUI have recently been developed to suspend the bladder neck. These less
invasive procedures have been increasingly accepted as stand-alone procedures
and are typically less expensive and less likely to cause adverse side effects.
Outcome studies are now becoming available which indicate satisfactory outcomes
for MIS procedures when compared to open bladder neck suspension procedures in
successfully treating incontinence. As in hernia repair, some MIS techniques
involve accessing the surgical site by entering, traversing and then exiting the
abdominal cavity. While these procedures offer improvements over open surgery
and afford the benefits of MIS, they still involve the morbidity risks and
difficulties associated with violating the peritoneum.
Utilizing GSI's surgical balloon dissector, the surgeon can suspend the
bladder neck laparoscopically without entering the peritoneum, and can do so
under visualization. As in the hernia repair procedure, GSI's
SPACEMAKER-Registered Trademark- dissection products can be deployed near the
umbilicus to provide direct access to the bladder and bladder neck. The surgeon
can then use conventional laparoscopic instruments to complete the procedure. A
study published in THE JOURNAL OF THE AMERICAN ASSOCIATION OF GYNECOLOGIC
LAPAROSCOPISTS in November 1996 shows that the SUI repair procedure utilizing
balloon dissection can usually be performed in less than one hour on an
outpatient basis.
GSI offers a SPACEMAKER-Registered Trademark- II dissector and
SPACEMAKER-Registered Trademark- Total Solution-TM- Laparoscopic Bladder Neck
Suspension kit to specifically to address the extraperitoneal treatment of SUI,
which GSI believes optimizes the working space for the procedure.
BREAST AUGMENTATION AND RECONSTRUCTIVE SURGERY
In 1997, approximately 150,000 women in the United States had breast
reconstruction and augmentation surgery. Traditional surgical methods for such
procedures require making a three to five cm incision in the skin, finding the
required tissue plane, and then using a combination of blunt and sharp
dissection tools to create a pocket for the implant. The procedure can cause
substantial bleeding, can sever both sensory nerves and perforating vessels and
can leave the patient with substantial, noticeable scars.
In contrast to traditional breast augmentation and reconstruction
procedures, GSI's SPACEMAKER-Registered Trademark- products require only small
incisions, create a relatively bloodless pocket, minimize disruption of sensory
nerves and perforating vessels and minimize scarring and loss of mobility or
sensation. In addition, because the SPACEMAKER-Registered Trademark- product
allows the surgeon to introduce the balloon dissector from a crease in the
axilla (armpit), from the inframammary fold (below the breast), or in the
periareolar (nipple) area, the surgeon can minimize the appearance of any marks
or scars. GSI believes that its SPACEMAKER-Registered Trademark- dissection
products for breast augmentation and reconstruction procedures enable the
surgeon to create uniform, symmetrical pockets in less time and with much less
bleeding than is possible with traditional blunt or sharp dissection tools.
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GSI's balloon dissection products for breast augmentation and reconstruction
were first introduced commercially in the United States in January 1995. The
SPACEMAKER-Registered Trademark- Plastic platform is used for these procedures.
OTHER COSMETIC AND RECONSTRUCTIVE SURGERY
In addition to the market opportunities for breast augmentation and
reconstruction, GSI has designed and developed balloon dissection technology for
combined tissue dissection and expansion for general cosmetic and reconstructive
surgery procedures. Gsi believes that its balloon dissection technology is
well-suited for such procedures, including limb reconstruction, correction of
congenital deformities and scar revision.
SPINE SURGERY
GSI believes that its products can be used to provide exposure in several
orthopedic spinal procedures to both reduce the costs of the procedure and
enhance patient benefits. Foremost among these procedures is spinal fusion,
which was performed approximately 200,000 times in the United States in 1994.
Spinal fusion is usually performed to remove a ruptured vertebral disc that is
causing significant patient discomfort, and subsequently to promote fusion
between the then exposed and adjacent vertebrae. This fusion procedure can be
performed by using any of several prosthetic systems, by traditional bone
prostheses, or by a combination of the two.
Most traditional open spinal fusion procedures have approached the spine
from the back. Several newer procedures, some currently under clinical
investigation, approach the spine through the abdomen, which appears to yield
better results. The open abdominal approach is highly invasive, however, and has
led researchers to try to develop a minimally invasive, transperitoneal
laparoscopic approach. This approach still subjects the patient to the same
risks associated with the open abdominal approach. GSI's surgical balloon
dissectors have been used in several cadaver studies in which an extraperitoneal
laparoscopic approach to the spine has been successfully performed. In this
procedure, the balloon is deployed in the retroperitoneal area under the rib
cage and is inflated in order to dissect the peritoneum away from muscle layers
in the back and side of the patient. By doing so, the surgeon can create a large
working space to access the spine without entering the peritoneum. GSI believes
the spinal fusion procedure is a natural extension of the aortic reconstruction
application for balloon dissection technology because the required dissected
space is essentially the same. GSI intends to conduct additional
marketing-related clinical evaluations to evaluate physician preference and
utility of its SPACEMAKER-Registered Trademark- surgical balloon dissectors for
the orthopedic spine surgery market.
ADDITIONAL PRODUCTS UNDER DEVELOPMENT
As part of its competitive strategy, GSI continually seeks to leverage its
core technology to develop surgical balloon dissectors for new surgical
procedures, as well as to develop new surgical instruments for MIS. GSI has made
a significant investment in developing its proprietary balloon dissection
technology and believes its research and development commitment in this area is
critical to its competitive position. Research and development expenses for
fiscal 1999, 1998 and 1997 were approximately $3.7 million, $2.8 million and
$2.2 million, respectively. As of June 30, 1999, GSI employed 14 persons engaged
in research and development activities.
GSI is continuing to exploit its expertise in MIS to develop a range of
instruments to maximize the surgeon's ability to perform MIS once an operative
working space is created by its surgical balloon dissectors. Product research
and development will require substantial expenditures, and there can be no
assurance that GSI will be successful in identifying products for which demand
exists, in developing products that have the characteristics necessary to treat
target indications, or that any new product introduced will receive regulatory
approval or be commercially successful.
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SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.................................................... $ 6,876 $ 5,193 $ 4,090 $ 6,165 $ 2,437
Guaranteed payments...................................... -- 1,635 4,896 -- --
--------- --------- --------- --------- ---------
Total revenue............................................ 6,876 6,828 8,986 6,165 2,437
Cost of sales............................................ 5,212 3,565 2,385 2,772 1,262
--------- --------- --------- --------- ---------
Gross profit....................................... 1,664 3,263 6,601 3,393 1,175
--------- --------- --------- --------- ---------
Operating expenses:
Research and development............................... 3,695 2,825 2,231 1,306 975
Selling, general and administrative.................... 15,581 11,843 8,784 5,204 4,258
Write-off of acquired in-process research and
development.......................................... -- -- -- 2,791 --
--------- --------- --------- --------- ---------
Total operating expenses............................. 19,276 14,668 11,015 9,301 5,233
--------- --------- --------- --------- ---------
Operating loss..................................... (17,612) (11,405) (4,414) (5,908) (4,058)
Interest and other income, net........................... 1,541 2,263 2,538 443 7
--------- --------- --------- --------- ---------
Net loss........................................... $ (16,071) $ (9,142) $ (1,876) $ (5,465) $ (4,051)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per common share and per common share-assuming
dilution............................................... $ (1.19) $ (0.68) $ (0.14) $ (0.74) $ (0.62)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing net loss per common share and
per common share-assuming dilution..................... 13,461 13,375 13,197 7,411 6,496
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Cash, cash equivalents and available-for-sale securities
(including non-current portion)........................ $ 19,298 $ 37,469 $ 43,731 $ 49,790 $ 4,541
Working capital.......................................... 20,105 29,414 46,835 50,068 4,457
Total assets............................................. 28,237 42,824 51,062 52,767 6,245
Convertible redeemable preferred stock................... -- -- -- -- 13,225
Accumulated deficit...................................... (40,906) (24,835) (15,693) (13,817) (8,352)
Shareholders' equity (deficit)........................... $ 24,435 $ 40,238 $ 48,987 $ 50,474 $ (8,316)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain data from GSI's statements of
operations, expressed as a percentage of total revenue:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Sales................................... 100.0% 76.1% 45.5%
Guaranteed payments..................... -- 23.9 54.5
-------- -------- -------
Total revenue........................... 100.0% 100.0% 100.0%
Cost of sales........................... 75.8 52.2 26.5
-------- -------- -------
Gross profit...................... 24.2 47.8 73.5
-------- -------- -------
Operating expenses:
Research and development.............. 53.7 41.4 24.8
Selling, general and administrative... 226.6 173.4 97.8
-------- -------- -------
Total operating expenses............ 280.3 214.8 122.6
-------- -------- -------
Operating loss.................... (256.1) (167.0) (49.1)
Interest and other income, net.......... 22.4 33.1 28.2
-------- -------- -------
Net loss.......................... (233.7)% (133.9)% (20.9)%
-------- -------- -------
-------- -------- -------
</TABLE>
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YEARS ENDED JUNE 30, 1999 AND 1998
REVENUE. Revenue totaled $6.9 million in fiscal 1999, an increase of $0.1
million or one percent over revenue of $6.8 million in fiscal 1998. During
fiscal 1999, no guaranteed payments were received from Ethicon Endo-Surgery
(EES), a distributor of GSI's products in the United States, versus $1.6 million
during fiscal 1998. Product sales accounted for all of the fiscal 1999 revenue,
which represents a 32 percent increase over fiscal 1998 product sales. The
increase in product sales is due to an increase in product demand, primarily for
SPACEMAKER-Registered Trademark- Total Solution-TM- hernia kits, as well as
expanded product distribution in the fourth quarter.
COST OF SALES. Cost of sales at $5.2 million in 1999 increased 46% as
compared to $3.6 million in 1998 due to increased product sales and production
capacity ramp-up. Direct product costs were 76 percent of total product sales in
fiscal 1999, an increase of seven percent from fiscal 1998, as a result of
increasing costs related to ramping up production capacity in anticipation of
the court injunction against Origin Medsystems, Inc. In addition, GSI's product
costs have increased relative to sales dollars as additional OEM products are
offered as part of the SPACEMAKER-Registered Trademark- Total Solution-TM-
hernia and laparoscopic bladder neck suspension kits. GSI expects cost of sales
as a percentage of product sales to decrease as GSI's sales volume increases.
RESEARCH AND DEVELOPMENT EXPENSES. Research and Development (R&D) expenses
for fiscal 1999 increased 31 percent to $3.7 million versus $2.8 million for the
year ended June 30, 1998. Increases over the prior year are mainly due to
increased expenditures on new general surgery product design work in conjunction
with expanding SPACEMAKER-Registered Trademark- Total Solution-TM- hernia and
laparoscopic bladder neck suspension kit offerings, as well as an increase in
the number of employees in R&D. GSI expects to continue to increase R&D expenses
as it pursues additional market opportunities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, General and
Administrative (SG&A) expenses were $15.6 million in fiscal year 1999, an
increase of 32 percent as compared to $11.8 million in fiscal 1998. This
increase is primarily related to litigation expenses related to the Origin
matters and are expected to decrease in the future. In addition, sales and
marketing expenses increased as GSI devoted more resources to physician training
programs as well as increased exposure at relevant industry trade shows. GSI
expects increases in SG&A expenses as GSI's level of sales increases and GSI
continues to administratively support growth, and expects SG&A to be impacted by
its ongoing litigation matters.
INTEREST AND OTHER INCOME AND EXPENSE (NET). Interest and other income and
expense (net) totaled $1.5 million in fiscal 1999 compared to $2.3 million in
fiscal 1998, and consisted mainly of interest income, primarily from interest
earned on available-for-sale securities. Interest income decreased 32% from $2.3
million in 1998 to $1.6 million in 1999, due to overall lower cash balances in
connection with funding ongoing operating activities.
NET LOSS. GSI had a net loss of approximately $16.1 million in fiscal 1999
compared to a $9.1 million net loss in fiscal 1998, primarily due to the
increased operating expenses as GSI prepared for anticipated sales growth and
aggressively defended its patent positions.
YEARS ENDED JUNE 30, 1998 AND 1997
SALES AND GUARANTEED PAYMENTS. Sales and guaranteed payments totaled $6.8
million in fiscal 1998, a decrease of $2.2 million or 24 percent from sales and
guaranteed payments of $9.0 million in fiscal 1997. This decrease in revenue is
in connection with the conversion of EES to a non-exclusive distributor, which
eliminated future guaranteed payments. During fiscal 1998, $1.6 million in
guaranteed payments was received from EES versus $4.9 million during fiscal
1997. Product sales accounted for $5.2 million of total revenue in fiscal 1998,
which represents a 27 percent increase over fiscal 1997. This increase was a
result of rapid growth in sales of GSI's vascular surgery products and plastic
surgery products.
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COST OF SALES. Direct product costs were 69 percent of total product sales
in fiscal 1998, an increase of 11 percent from fiscal 1997, as a result of
underutilized manufacturing capacity in fiscal 1998.
RESEARCH AND DEVELOPMENT EXPENSES. R&D expenses for fiscal 1998 increased
27 percent to $2.8 million versus $2.2 million for the year ended June 30, 1997,
as GSI continued to develop products for its vascular and hernia markets. GSI
expects to continue to increase R&D expenses as it pursues additional market
opportunities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses were $11.8
million in fiscal year 1998, an increase of 35 percent as compared to $8.8
million in fiscal 1997. This increase is primarily related to increased
litigation expenses related to the Origin infringement case.
INTEREST AND OTHER INCOME AND EXPENSE (NET). Interest and other income and
expense (net) totaled $2.3 million in fiscal 1998 compared to $2.5 million in
fiscal 1997, and consisted mainly of interest income, primarily from interest
earned on available-for-sale securities. Interest income decreased 10% from $2.6
million in 1997 to $2.3 million in 1998, due to overall lower cash balances in
connection with funding ongoing operating activities.
NET LOSS. GSI had a net loss of approximately $9.1 million in fiscal 1998
compared to a $1.9 million net loss in fiscal 1997, primarily due to the
decrease in guaranteed payments from EES and increased operating expenses as GSI
prepared for anticipated sales growth and aggressively defended its patent
position.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, GSI's cash expenditures have significantly exceeded its
sales, resulting in an accumulated deficit of $40.9 million at June 30, 1999.
GSI has funded its operations primarily through the sale of equity securities.
From its inception through June 30, 1999, GSI raised approximately $15.5 million
through the private placement of equity securities, and approximately $46.9
million (net of underwriting discounts and commissions) in an initial public
offering.
Net cash used in operating activities in 1999 was approximately $16.1
million which consisted mainly of GSI's net loss for the year of $16.1 million
offset slightly by increases in gross accounts receivable and inventory of $3.3
million. Net cash provided by investing activities totaled approximately $8.0
million. Proceeds from sales and maturities of available-for-sale securities of
$13.5 million was somewhat offset by purchases of available-for-sale securities
of $3.8 million and acquisition of property and equipment of $1.7 million. Net
cash used in financing activities was approximately $258,000, which consisted of
$157,000 in proceeds from the issuance of common stock, offset by a $300,000
outflow for a related party loan, as well as $117,000 in payments on capital
lease obligations and bank borrowings.
As of June 30, 1999, GSI's principal source of liquidity consists of cash,
cash equivalents and investments of $19.3 million. GSI has an equipment loan
outstanding with a balance of approximately $82,000. GSI expects to spend
approximately $2.1 million on capital equipment purchases in fiscal year 2000.
GSI expects to incur additional costs over the next fiscal year, including
costs related to increased sales and marketing activities, increased research
and development, additional marketing-related clinical studies, and litigation
costs. GSI believes that its current cash balances and short-term investments
along with cash generated from the future sales of products will be sufficient
to meet GSI's operating and capital requirements through calendar year 2000. GSI
may seek additional equity or debt financing to address its working capital
needs or to provide funding for capital expenditures. There can be no assurance
that additional financing, if sought, will be available on satisfactory terms or
at all.
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MANAGEMENT INFORMATION SYSTEMS
The Year 2000 ("Y2K") issue arises from computer programs using two digits
rather than four to define the applicable year. Such software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations leading to disruptions or delays in GSI's
activities and operations. If GSI, its key customers or suppliers fail to make
necessary modifications to their information technology or non-information
technology systems on a timely basis, the year Y2K issue could have a material
adverse effect on GSI's operations. However, the impact cannot be quantified at
this time.
In January 1998 GSI began to evaluate and assess its information technology
and non-information technology systems for compliance with the Y2K issue. GSI
intends to fix or replace noncompliant software and systems by November 30,
1999, but there can be no assurance that such fixes or replacements will occur
by such date. GSI is currently conducting testing and remediation activities on
its systems, and intends to survey major customers and suppliers to assess their
systems' compliance as well as their systems' compatibility with GSI's existing
or projected compliant systems. There can be no assurance that there will not be
an adverse material effect on GSI's business, financial condition or results of
operations if GSI or its suppliers or customers do not convert or replace their
systems in a timely manner to comply with the Y2K issue.
GSI's costs related to the Y2K issue are funded through operating cash
flows. Through fiscal 1999, GSI expended approximately $20,000 in evaluating and
planning and fixing and replacing noncompliant systems, including the cost of
new software and modifying the applicable code of existing software. GSI
estimates total costs to be approximately $25,000 to achieve Y2K compliance. GSI
currently believes that the total cost of achieving Y2K compliant systems will
not be material to its business, financial condition or results of operations.
In the event that GSI will be unable to achieve Y2K compliance in a timely
manner with existing personnel, as a contingency GSI expects to hire outside Y2K
solution providers to assist in achieving such compliance. GSI has not yet
developed a complete contingency plan for dealing with the most likely
worst-case scenario, as this scenario has not yet been clearly identified. GSI
currently plans to complete such contingency planning by November 30, 1999.
There can be no assurance that such contingency plan will adequately address
GSI's Y2K compliance issues.
Time and cost estimates are based on currently available information.
Factors that could affect these estimates include, but are not limited to, the
availability and cost of trained personnel to evaluate and implement the
changes, the ability to locate and correct all noncompliant systems, and the
ability of GSI's customers and suppliers to successfully implement Y2K compliant
systems or fixes.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. To
date, GSI has not engaged in derivative and hedging activities. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact GSI's financial
position, operating results or cash flows due to changes in financial and
commodity market prices and rates. GSI's exposure to market risk for changes in
United States interest rates relates primarily to its investment portfolio and
bank borrowings. GSI does not use derivative financial instruments in its
investment portfolio, and its investment portfolio only includes highly liquid
instruments with original maturity dates ranging
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between September 24, 1999 and October 30, 2000. GSI has primarily entered into
debt obligations for capital expenditures.
GSI is subject to fluctuating interest rates that may impact, adversely or
otherwise, its results of operations or cash flows for our variable rate bank
borrowings, available-for-sale securities and cash and cash equivalents.
The table below presents principal amounts and related weighted average
interest rates by period of maturity for our investment portfolio and debt
obligations:
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS
ENDING ENDING
JUNE 30, 2000 JUNE 30, 2001 TOTAL
--------------- --------------- ---------
<S> <C> <C> <C>
Assets
Cash and cash equivalents.............................................. $ 9,600 -- $ 9,600
Average interest rate.................................................. 4.86% -- 4.86%
Available-for-sale securities.......................................... $ 8,699 $ 999 $ 9,698
Average interest rate.................................................. 6.05% 5.46% 5.99%
Liabilities
Bank borrowings........................................................ $ 82 -- $ 82
Average interest rate.................................................. 9.00% -- 9.00%
Capital leases......................................................... $ 12 -- $ 12
Average interest rate.................................................. 8.00% -- 8.00%
</TABLE>
FACTORS AFFECTING FUTURE RESULTS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included herein.
GSI desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Specifically GSI wishes to alert
readers that, except for the historical information contained in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the matters discussed herein are forward-looking statements that are
subject to certain risks and uncertainties that could cause the actual results
to differ materially from those projected. Factors that could cause actual
results to differ materially include, but are not limited to, outcomes in
litigation proceedings, market demand for GSI's products, the timing of orders
and shipments, the timely development and market acceptance of new products and
surgical procedures, the impact of performance of GSI's distributors and direct
sales force, GSI's ability to further expand into international markets, public
policy relating to health care reform in the United States and other countries,
approval of its products by government agencies such as the United States Food
and Drug Administration, and other risks detailed below and included from time
to time in GSI's other SEC reports and press releases, copies of which are
available from GSI upon request. GSI assumes no obligation to update any
forward-looking statements contained herein. The factors listed under "Factors
Affecting Future Results," as well as other factors, have in the past affected,
and could in the future affect, GSI's actual results and could cause GSI's
results for future periods to differ materially from those expressed in any
forward-looking statements contained in the following discussion.
HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES. GSI has experienced
significant operating losses since inception. As of June 30, 1999, GSI had an
accumulated deficit of $40.9 million. GSI's net operating losses for the fiscal
years ending June 30, 1999, 1998 and 1997 were $16.1 million, $9.1 million and
$1.9 million, respectively. GSI expects to continue to incur operating losses on
a quarterly and annual basis through at least fiscal 2000. There can be no
assurance that GSI will ever generate substantial revenue or achieve
profitability. Failure by GSI to generate substantial revenues
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would have material adverse effect on the Company's business, financial
conditions and results of operations.
DEPENDENCE UPON BALLOON DISSECTION PRODUCTS; RISK OF TECHNOLOGICAL
OBSOLESCENCE. Nearly all of GSI's sales since inception have been derived from
sales of its balloon dissection products, with a substantial portion derived
from sales for hernia repair procedures. The success of GSI's products depends
on the market acceptance of and demand for GSI's products and related
procedures, the nature of the technological advances inherent in the product
designs, reduction in patient trauma or other benefits provided by such
products, continued adoption of minimally invasive surgery (MIS) procedures by
surgeons, reimbursement for GSI's products by health care payors and GSI's
receipt of regulatory approvals. There can be no assurance that GSI's products
will have the required technical characteristics, that GSI's products will
provide adequate patient benefits, that clinical studies results will be
favorable, that surgeons will continue to adopt MIS procedures, that
recently-introduced products or future products of GSI or procedures using GSI's
products will gain market acceptance, or that required regulatory approvals will
be obtained. The failure to achieve any of the foregoing could have a material
adverse effect on GSI's business, financial condition and results of operations.
To the extent demand for GSI's surgical balloon dissectors for hernia repair
declines and GSI's newly-introduced products are not commercially accepted or
its existing products are not developed for new procedures, there could be a
material adverse effect on GSI's business, financial condition and results of
operations. See "Business of GSI--Applications of Balloon Dissection Technology"
and "--Additional Products Under Development."
DEPENDENCE ON KEY DISTRIBUTORS. In February 1998, GSI entered into a
non-exclusive distribution agreement with EES. Unlike the prior EES OEM
agreement, this new agreement does not provide for any minimum payments from EES
to GSI. In December 1997, GSI entered into a distribution agreement with
Genzyme. Under the agreement, Genzyme has exclusive rights to market and
distribute GSI's surgical balloon dissectors worldwide for use in plastic
surgery (reconstructive and aesthetic) procedures. In September 1998, GSI signed
a non-exclusive, three-year agreement with USSC, a wholly-owned subsidiary of
Tyco. Under the terms of the agreement, USSC has obtained non-exclusive rights
to market and distribute GSI's SPACEMAKER-Registered Trademark- surgical balloon
dissectors worldwide for use in hernia repair and incontinence procedures.
In May 1999, GSI signed a distribution agreement with Dexterity Surgical,
Inc. The terms of the agreement give Dexterity rights to market and distribute
GSI's SPACEMAKER-Registered Trademark- balloon dissector products for hernia
repair and laparoscopic bladder neck suspension repair procedures in all or
parts of 28 states.
In June 1997, GSI entered into an exclusive agreement with Japan Lifeline to
market and distribute in Japan GSI's surgical balloon dissectors for use in
vascular procedures. Distribution of the GSI surgical balloon dissectors is
expected to begin following final receipt of the Japanese Ministry of Health and
Welfare approval, which GSI expects to occur in fiscal year 2000.
Although GSI intends to continue to establish additional distributorships in
the United States and internationally, there can be no assurance that its
distributors will be successful, or that efforts to establish additional
distributors will be successful. Failure of current distributors to succeed, or
failure to add additional distributors to its distribution network, could have a
material adverse effect on GSI's business, financial condition and results of
operations.
LIMITED MARKETING AND DIRECT SALES EXPERIENCE. GSI has only limited
experience marketing and selling its products through its direct sales force.
GSI intends to establish relationships with additional distribution partners,
and there can be no assurance that GSI will be successful in establishing such
relationships on commercially reasonable terms, if at all. The failure to
establish and maintain an effective distribution channel for GSI's products, or
to hire and retain qualified and effective direct
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sales personnel to support commercial sales of GSI's products, could have a
material adverse effect on GSI's business, financial condition and results of
operations.
UNCERTAINTY OF MARKET ACCEPTANCE; NO ASSURANCE OF CLINICAL ADVANTAGE. GSI's
success is substantially dependent upon the success of its
SPACEMAKER-Registered Trademark- balloon dissection products. GSI believes that
market acceptance of GSI's products will depend on the adoption of laparoscopic
techniques generally and the conversion of non-balloon dissection techniques to
balloon dissection techniques specifically. To date, GSI has limited long-term
outcomes data regarding successful balloon dissection procedures. If GSI is not
able to demonstrate consistent clinical benefits resulting from the use of its
products (including reduced procedure time, reduced patient trauma and lower
costs) or to the extent that laparoscopic techniques are adopted slowly, that
surgical balloon dissectors are not incorporated into laparoscopic techniques or
that surgeons are unwilling or unable to develop the skills necessary to utilize
surgical balloon dissectors, GSI's business, financial condition and results of
operations could be materially adversely affected.
GSI further believes that the ability of health care providers to obtain
adequate reimbursement for procedures using GSI's
SPACEMAKER-Registered Trademark- balloon dissection products and related
instruments will be critical to market acceptance of GSI's products. Although
GSI believes that procedures using its balloon dissection products currently may
be reimbursed in the United States under certain existing procedure codes, there
can be no assurance that such procedure codes will remain available or that
reimbursement under these codes will be adequate. The failure to obtain
reimbursement for some or all of its products could have a material adverse
effect on GSI's business, financial condition and results of operations.
FLUCTUATIONS IN QUARTERLY RESULTS. Results of GSI's operations may
fluctuate significantly from quarter to quarter and will depend on numerous
factors, including (i) fluctuations in purchases of GSI's products by its
distributors and direct sales force, (ii) the ability of GSI's distributors to
effectively promote and sell GSI's products, (iii) the rate of adoption by
surgeons of balloon dissection technology in markets targeted by GSI , (iv) the
mix of sales among distributors and GSI's direct sales force, (v) new product
introductions by GSI and its competitors, (vi) fluctuations in revenues among
different product lines and markets, (vii) timing of patent and regulatory
approvals, if any, (viii) litigation, (ix) timing and growth of operating
expenses and (x) general market conditions.
In addition, announcements or expected announcements by GSI, its competitors
or its distributors of new products, new technologies or pricing changes could
cause existing or potential customers of GSI to defer purchases of GSI's
existing products and could alter the mix of products purchased from GSI, which
could have a material adverse effect on GSI's business, financial condition and
results of operations. There can be no assurance that future products or product
enhancements will be successfully introduced or that such introductions will not
adversely affect the demand for existing products. As a result of these and
other factors, GSI's quarterly operating results have fluctuated in the past,
and GSI expects that such results may fluctuate in the future. Due to such
quarterly fluctuations in operating results, quarter-to-quarter comparisons of
GSI's operating results are not necessarily meaningful and should not be relied
upon as indicators of likely future performance or annual operating results.
GSI's limited operating history makes accurate prediction of future operating
results difficult or impossible to make. There can be no assurance that in the
future GSI will achieve sales growth or become profitable on a quarterly or
annual basis, if at all, or that its growth, if any, will be consistent with
predictions by securities analysts and investors. In such event, the price of
GSI's common stock would likely be materially and adversely affected.
RELIANCE ON PATENTS AND PROPRIETARY TECHNOLOGY. GSI's success will depend
on its ability to obtain patent protection for its products and processes, to
preserve its trade secrets and proprietary technology and to operate without
infringing upon the patents or proprietary rights of third parties.
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In May 1996, Origin Medsystems, Inc., a unit of Guidant Corporation filed
suit against GSI for infringement of U.S. Patent No. 5,520,609 in the United
States District Court for the Northern District of California (C96-20424JW). In
April 1998, GSI had obtained a summary judgment that the patent in suit, Moll et
al Patent No. 5,520,609, was unenforceable because it had been obtained by
misleading the Patent & Trademark Office, and an award of attorney's fees of
$990,000. The appellate court subsequently vacated this decision because, in its
view, there are factual issues which must be resolved in a trial on whether
Origin misled the PTO. In July 1999, the case was returned to the district court
for further proceedings.
In June 1996, GSI filed an action against Origin in the U.S. District Court
for the Northern District of California alleging that the use of Origin's
products infringes GSI's U.S. Patent No. 5,514,153 (C96-20447JW). The case was
decided in favor of GSI partly by summary judgment and partly by jury verdict,
both during fiscal 1999. Patent 5,514,153 ("the '153 patent") was found to be
valid, and Origin's infringement was found to be willful. Lost profits of
approximately $12.9 million were awarded to GSI by the jury. Origin is appealing
the infringement and willfulness findings (but not patent validity nor the
amount of infringement damages), and GSI is appealing for enhanced damages,
attorneys' fees and the failure to find infringement of additional claims.
Resolution is expected in calendar year 2000. Following these findings, the
Court has entered an injunction prohibiting sale in the United States of all of
Origin's balloon dissection products, to become fully effective on November 15,
1999, and an immediate injunction against sales of all of Origin's balloon
dissection products to any new customers in the United States.
In September 1997, GSI filed an action against Origin alleging that the use
of Origin's products infringes GSI's U.S. Patent No. 5,667,520 (C97-20944JW).
Discovery is nearly complete in this case and the complaint has now been amended
to add a claim of infringement of GSI's patent number 5,860,997. This case is
now stayed pending the outcome of appeals in the '153 case.
GSI is also involved in an interference proceeding in the U.S. Patent Office
against Origin to determine whether certain subject matter was first invented by
GSI and whether the disputed matter is patentable. In November 1998, binding
arbitration determined that GSI was first to invent the disputed subject matter
and therefore is the only party entitled to any patent. Additionally, the Patent
Office Appeals Board found the subject matter to be patentable. This latter
finding is being appealed by Origin to the Court of Appeals for the Federal
Circuit. Resolution is expected in calendar year 2000.
On April 9, 1999, a suit was filed against GSI in the United States District
Court for the Southern District of Illinois. This suit, brought by Dr. Peter M.
Bonutti and by Bonutti Research, Inc., seeks a 50 percent share of the $12.9
million damages judgment GSI obtained in its suit against Origin and seeks
rescission of the 1995 agreement by which GSI obtained assignment of certain
Bonutti technology. From this assigned technology, GSI prosecuted patent
applications which became the '153 and other patents, which credit Dr. Bonutti
as sole inventor. This case is in the discovery phase.
Patent interference or infringement proceedings involve complex legal and
factual issues and are highly uncertain, and there can be no assurance that any
conclusion reached by GSI regarding patent interference or infringement will be
consistent with the resolution of such issue by a court. In the event the
Company's products are found to infringe patents held by competitors, there can
be no assurance that GSI will be able to modify successfully its products to
avoid infringement, or that any modified products will be commercially
successful. Failure in such event to either develop a commercially successful
alternative or obtain a license to such patent on commercially reasonable terms
would have a material adverse effect on GSI's business, financial condition and
results of operations. As discussed above, GSI is defending itself, and may in
the future have to defend itself, in court against allegations of infringement
of third-party patents. Patent litigation is expensive, requires extensive
management time, and could subject GSI to significant liabilities, require
disputed rights to be licensed from third parties or require GSI to cease
selling its products.
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While GSI believes it will be successful in these proceedings, there can be
no assurance of such success. Failure of GSI to prevail in such proceedings
would have a material adverse effect on GSI's business, financial condition and
results of operations.
The validity and breadth of claims in medical technology patents involve
complex legal and factual questions and, therefore, may be highly uncertain. No
assurance can be given that any patents based on pending patent applications or
any future patent applications will be issued, that the scope of any patent
protection will exclude competitors or provide competitive advantages to GSI,
that any of GSI's patents or patents to which it has licensed rights will be
held valid under current challenges or if subsequently challenged or that
persons or entities in addition to Origin will not claim rights in or ownership
of the patents and other proprietary rights held or licensed by GSI or that
GSI's existing patents will cover GSI's future products. Furthermore, there can
be no assurance that others have not developed or will not develop similar
products, duplicate any of GSI's products or design around any patents issued to
or licensed by GSI or that may be issued in the future to GSI. Since patent
applications in the United States are maintained in secrecy until patents issue,
GSI also cannot be certain that others did not first file applications for
inventions covered by GSI's pending patent applications, nor can GSI be certain
that it will not infringe any patents that may issue to others on such
applications.
The patent laws of European and certain other foreign countries generally do
not allow for the issuance of patents for methods of surgery on the human body.
Accordingly, the ability of GSI to gain patent protection for its methods of
tissue dissection will be significantly limited. As a result, there can be no
assurance that GSI will be able to develop a patent portfolio in Europe or that
the scope of any patent protection will provide competitive advantages to GSI.
ROYALTY PAYMENT OBLIGATIONS. GSI has acquired rights to patents from third
parties, including rights that apply to GSI's current surgical balloon
dissectors. GSI has historically paid and is obligated to pay in the future to
such third parties royalties equal to between one and four percent of sales of
such products, which payments are expected to exceed minimum royalty payments
due under agreements with such parties. The payment of such royalty amounts will
have an adverse impact on GSI's gross profit and other results of operations.
There can be no assurance that GSI will be able to continue to satisfy such
royalty payment obligations in the future, and a failure to do so could have a
material adverse effect on GSI's business, financial condition and results of
operations.
COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE. Competition in the market
for medical devices and tissue dissection products is intense and is expected to
increase. GSI competes primarily with other producers of MIS tissue dissection
products. Origin, which was a subsidiary of Guidant Corporation and has recently
been purchased by Tyco, was previously, and will continue through November 15,
1999 (pending the outcome of current litigation), to be GSI's primary direct
competition in the field of balloon dissection products. Other companies
currently compete against GSI in the development, production and marketing of
MIS tissue dissection instruments and technology, such as blunt dissectors,
insufflation dissection and aqua irrigation with blunt dissection. To the extent
that surgeons elect to use open surgical procedures rather than MIS, GSI also
competes with producers of tissue dissection products used in open surgical
procedures, such as blunt dissectors or graspers. A number of companies
currently compete against GSI in the development, production and marketing of
tissue dissection products and technology for open surgical procedures. In
addition, GSI competes indirectly with producers of therapeutic drugs, when such
drugs are used as an alternative to surgery. Many of GSI's competitors and
potential competitors have substantially greater name recognition and capital
resources than GSI and also have greater resources and expertise in the areas of
research and development, the obtaining of regulatory approvals, and in
manufacturing and marketing.
GSI believes that the primary competitive factors in the market for tissue
dissection products include safety, efficacy, ease of use, quality, reliability
and cost effectiveness. In addition, the length of
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time required for products to be developed and to receive regulatory approval is
an important competitive factor. GSI believes that it competes favorably with
respect to these factors, although there can be no assurance that it will
continue to do so.
The market for tissue dissection products is characterized by rapid
technical innovation. Product development involves a high degree of risk, and
there can be no assurance that GSI's competitors and potential competitors will
not succeed in developing and marketing technologies and products that are more
effective than those developed and marketed by GSI or that would render GSI's
technology and products obsolete or noncompetitive. The medical applications for
which GSI's MIS tissue dissection products are used can also be addressed by
other medical devices in either MIS or open surgical procedures, many of which
are widely accepted in the medical community. There can be no assurance that a
procedure using MIS balloon dissection technology will be able to replace such
established products and procedures. Additionally, new surgical products or
procedures could be developed that replace or reduce the importance of current
procedures that use GSI's products.
UNCERTAIN AVAILABILITY OF THIRD-PARTY REIMBURSEMENT. GSI's success will
depend upon the ability of surgeons to obtain satisfactory reimbursement from
healthcare payors for GSI's products. In the United States, hospitals,
physicians and other healthcare providers that purchase medical devices
generally rely on third-party payors, such as private health insurance plans, to
reimburse all or part of the costs associated with the treatment of patients.
Reimbursement in the United States for GSI's balloon dissection products is
currently available from most third-party payors, including most major private
health care insurance plans and Medicaid, under existing surgical procedure
codes. GSI does not expect that third-party reimbursement in the United States
will be available for use of some of its other products unless and until
clearance or approval is received from the federal Food and Drug Administration.
However, given the efforts to control and decrease health care costs in recent
years, there can be no assurance that any reimbursement will be sufficient to
permit GSI to increase revenues or achieve or maintain profitability. The
unavailability of third-party or other adequate reimbursement in the United
States could have a material adverse effect on GSI's business, financial
condition and results of operations.
Reimbursement systems in international markets vary significantly by
country, and by region within some countries, and reimbursement approvals must
be obtained on a country-by-country basis. Many international markets have
government-managed health care systems that govern reimbursement for new devices
and procedures. In most markets, there are private insurance systems as well as
government-managed systems. Large-scale market acceptance of GSI's surgical
balloon dissectors and other products will depend on the availability and level
of reimbursement in international markets targeted by GSI. Failure to obtain
such approvals for reimbursement in international markets could have a material
adverse effect on GSI's business, financial condition and results of operations.
Regardless of the type of reimbursement system, GSI believes that surgeon
advocacy of its products will be required to obtain reimbursement. There can be
no assurance that surgeons will support and advocate reimbursement for use of
GSI's systems for all applications intended by GSI. Failure by surgeons,
hospitals and other users of GSI's products to obtain sufficient reimbursement
from health care payors or adverse changes in government and private third-party
payors' policies toward reimbursement for procedures employing GSI's products
could have a material adverse effect on GSI's business, financial condition and
results of operations.
GOVERNMENT REGULATION. GSI's products are subject to extensive and rigorous
regulation by the FDA and, to varying degrees, by state and foreign regulatory
agencies. Under the federal Food, Drug, and Cosmetic Act, the FDA regulates the
clinical testing, manufacture, labeling, packaging, marketing, distribution and
record keeping for medical devices, in order to ensure that medical devices
distributed in the United States are safe and effective for their intended use.
Prior to commercialization, a medical device generally must receive FDA and
foreign regulatory clearance or approval, which can be an
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expensive, lengthy and uncertain process. GSI is also subject to routine
inspection by the FDA and state agencies, such as the California Department of
Health Services ("CDHS"), for compliance with Good Manufacturing Practice
requirements, Medical Device Reporting requirements and other applicable
regulations. Noncompliance with applicable requirements can result in warning
letters, import detentions, fines, civil penalties, injunctions, suspensions or
losses of regulatory approvals, recall or seizure of products, operating
restrictions, refusal of the government to approve product export applications
or allow GSI to enter into supply contracts, and criminal prosecution. Delays in
receipt of, or failure to obtain, regulatory clearances and approvals, if
obtained, or any failure to comply with regulatory requirements could have a
material adverse effect on GSI's business, financial condition and results of
operations.
Labeling and promotional activities are subject to scrutiny by the FDA and,
in certain circumstances, by the Federal Trade Commission. Current FDA
enforcement policy prohibits the marketing of approved medical devices for
unapproved uses. The SPACEMAKER-Registered Trademark- I platform,
SPACEMAKER-Registered Trademark- II platform, SPACEMAKER-Registered Trademark-
Plastics platform and SPACEMAKER-Registered Trademark-
SAPHtrak-Registered Trademark- platform each have received 510(k) clearance for
use during general, endoscopic, laparoscopic and plastic and reconstructive
surgery (including aesthetic), and certain vascular surgery (including saphenous
vein procedures) when tissue dissection is required. Additionally, GSI has
received clearance to market these products for thoracoscopic procedures
involving exposure and dissection of structures external to the parietal pleura
and procedures in the extraperitoneal space. GSI has also received clearance to
market combined tissue dissection/expansion products. GSI has promoted these
products for surgical applications (E.G., hernia repair, SEPS, breast
augmentation and reconstruction, treatment of SUI and saphenous vein
harvesting), and may in the future promote these products for the dissection
required for additional selected applications (E.G., tissue dissection/expansion
and a variety of procedures which require exposure to the anterior spine or for
long-bone plating). For any medical device cleared through the 510(k) process,
modifications or enhancements that could significantly affect the safety or
effectiveness of the device or that constitute a major change to the intended
use of the device will require a new 510(k) submission. GSI has made
modifications to its products which GSI believes do not affect the safety or
effectiveness of the device or constitute a major change to the intended use and
therefore do not require the submission of new 510(k) notices. There can be no
assurance, however, that the FDA will agree with any of GSI's determinations not
to submit a new 510(k) notice for any of these changes or will not require GSI
to submit a new 510(k) notice for any of the changes made to the product. If
such additional 510(k) clearances are required, there can be no assurance that
GSI will obtain them on a timely basis, if at all, and delays in receipt of or
failure to receive such approvals could have a material adverse effect on GSI's
business, financial condition and results of operations. If the FDA requires GSI
to submit a new 510(k) notice for any product modification, GSI may be
prohibited from marketing the modified product until the 510(k) notice is
cleared by the FDA.
Sales of medical devices outside of the United States are subject to foreign
regulatory requirements that vary widely from country to country. GSI currently
relies on its international distributors for the receipt of premarket approvals
and compliance with clinical trial requirements in those countries that require
them, and it expects to continue to rely on distributors in those countries
where GSI continues to use distributors. In the event that GSI's international
distributors fail to obtain or maintain premarket approvals or compliance in
foreign countries where such approvals or compliance are required, GSI may be
required to cause the applicable distributor to file revised governmental
notifications, cease commercial sales of its products in the applicable
countries or otherwise act so as to stop any ongoing noncompliance in such
countries. Any enforcement action by regulatory authorities with respect to past
or any future regulatory noncompliance could have a material adverse effect on
GSI's business, financial condition and results of operations.
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LIMITED MANUFACTURING EXPERIENCE. GSI has only limited experience in
manufacturing its products in commercial quantities. Manufacturers often
encounter difficulties in scaling up production of new products, including
problems involving production yields, quality control and assurance, component
supply and shortages of qualified personnel. Difficulties experienced by GSI in
manufacturing scale-up and manufacturing difficulties could have a material
adverse effect on its business, financial condition and results of operations.
There can be no assurance that GSI will be successful in scaling up or that it
will not experience manufacturing difficulties or product recalls in the future.
DEPENDENCE ON SINGLE SOURCE SUPPLIERS; LACK OF CONTRACTUAL
ARRANGEMENTS. GSI currently relies upon single source suppliers for several
components of its balloon dissection products, and in most cases there are no
formal contracts with such suppliers. There can be no assurance that the
component materials obtained from single source suppliers will continue to be
available in adequate quantities or, if required, that GSI will be able to
locate alternative sources of such component materials on a timely basis to
market its products, if at all. In addition, there can be no assurance that the
single source suppliers will meet GSI's future requirements for timely delivery
of products of sufficient quality and quantity. The failure to obtain sufficient
quantities and qualities of such component materials, or the loss of any of
GSI's single source suppliers, could cause a delay in GSI's ability to fulfill
orders while it attempts to identify and certify a replacement supplier and
could have a material adverse effect on GSI's business, financial condition and
results of operations.
PRODUCT LIABILITY RISK AND PRODUCT RECALL; LIMITED INSURANCE
COVERAGE. GSI's business exposes it to potential product liability risks or
product recalls that are inherent in the design, development, manufacture and
marketing of medical devices, in the event the use of GSI's products cause or
are alleged to have caused adverse effects on a patient or such products are
believed to be defective. GSI's products are designed to be used in certain
procedures where there is a high risk of serious injury or death. Such risks
will exist even with respect to those products that have received, or may in the
future receive, regulatory clearance for commercial sale. As a result, there can
be no assurance that GSI's product liability insurance is adequate or that such
insurance coverage will continue to be available on commercially reasonable
terms or at all. Particularly given the lack of data regarding the long-term
results of the use of balloon dissection products, there can be no assurance GSI
will avoid significant product liability claims. Consequently, a product
liability claim or other claim with respect to uninsured or underinsured
liabilities could have a material adverse effect on GSI's business, financial
condition and results of operations.
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL. GSI is dependent upon a
limited number of key management and technical personnel. The loss of the
services of one or more of such key employees could have a material adverse
effect on GSI's business, financial condition, and results of operations. In
addition, GSI's success will be dependent upon its ability to attract and retain
additional highly qualified sales, management, manufacturing and research and
development personnel. GSI faces intense competition in its recruiting
activities and there can be no assurance that GSI will be able to attract and/or
retain qualified personnel.
POTENTIAL VOLATILITY OF STOCK PRICE. The market prices of GSI common stock
and the stock of many other publicly held medical device companies have in the
past been, and can in the future be expected to be, especially volatile.
Announcements regarding competitive developments, product sales, clinical
marketing trial results, release of reports by securities analysts, developments
or disputes concerning patents or proprietary rights, regulatory developments,
changes in regulatory or medical reimbursement policies, economic and other
external factors, as well as period-to-period fluctuations in GSI's financial
results, may have a significant impact on the market price of the common stock.
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies.
73
<PAGE>
YEAR 2000 COMPLIANCE. The Year 2000 ("Y2K") issue arises from computer
programs using two digits rather than four to define the applicable year. Such
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations leading to
disruptions or delays in GSI's activities and operations. If GSI, its key
customers or suppliers fail to make necessary modifications to their information
technology or non-information technology systems on a timely basis, the Y2K
issue could have a material adverse effect on GSI's operations. However, the
impact cannot be quantified at this time.
In January 1998 GSI began to evaluate and assess its information technology
and non-information technology systems for compliance with the Y2K issue. GSI
intends to fix or replace noncompliant software and systems by November 30,
1999, but there can be no assurance that such fixes or replacements will occur
by such date. GSI is currently conducting testing and remediation activities on
its systems, and intends to survey major customers and suppliers to assess their
systems' compliance as well as their systems' compatibility with GSI's existing
or projected compliant systems. There can be no assurance that there will not be
an adverse material effect on GSI's business, financial condition or results of
operations if GSI or its suppliers or customers do not convert or replace their
systems in a timely manner to comply with the Y2K issue. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Management Information Systems".
74
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth the beneficial ownership of GSI common stock
as of August 31, 1999 as to (i) each person who is known to GSI to beneficially
own more than five percent of GSI common stock, (ii) each of GSI's directors,
(iii) each of the "named executive officers," and (iv) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
---------------------------------
5% SHAREHOLDERS, DIRECTORS, NAMED EXECUTIVE OFFICERS, PERCENT OF COMMON
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER STOCK OUTSTANDING
- --------------------------------------------------------------------------------- ---------- ---------------------
<S> <C> <C>
Thomas J. Fogarty, M.D.(2) ...................................................... 1,827,983 13.2%
3270 Alpine Road
Portola Valley, CA 94028
Brentwood Associates V, L.P. .................................................... 1,428,359 10.3%
1920 Main Street, Suite 820
Irvine, CA 92714
Norwest Equity Partners, IV ..................................................... 921,505 6.7%
3000 Sand Hill Road
Building 3, Suite 245
Menlo Park, CA 94025
Hancock Venture Partners, IV .................................................... 799,640 5.8%
One Financial Center, 44th Floor
Boston, MA 02111
Mark A. Wan(3)(4) ............................................................... 626,903 4.5%
10460 Bubb Road
Cupertino, CA 95014
Roderick A. Young(5) ............................................................ 276,665 2.0%
10460 Bubb Road
Cupertino, CA 95014
James E. Jervis(6) .............................................................. 142,128 *
10460 Bubb Road
Cupertino, CA 95014
Paul Goeld(7) ................................................................... 42,023 *
10460 Bubb Road
Cupertino, CA 95014
David W. Chonette(8) ............................................................ 1,455,813 10.5%
10460 Bubb Road
Cupertino, CA 95014
James R. Sulat(9) ............................................................... 16,727 *
10460 Bubb Road
Cupertino, CA 95014
Gregory Casciaro(10) ............................................................ 271,096 2.0%
10460 Bubb Road
Cupertino, CA 95014
Stephen Bonelli(11) ............................................................. 138,645 1.0%
10460 Bubb Road
Cupertino, CA 95014
Ferolyn Powell(12) .............................................................. 87,439 *
10460 Bubb Road
Cupertino, CA 95014
All directors and executive officers as a group (10 persons)
(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)(13)......................................... 4,885,422 35.3%
</TABLE>
75
<PAGE>
- ------------------------
* Less than 1%. As of August 31, 1999, 13,847,025 shares of GSI common stock
were issued and outstanding.
(1) Except as otherwise indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of GSI common stock.
(2) Includes 462,586 shares held by the Thomas J. Fogarty Separate Property
Trust, 988,045 shares held by the Fogarty Family Revocable Trust, and
285,982 shares held by Lincoln Trust Company FBO Thomas J. Fogarty IRA. Also
includes 91,370 shares held by Fogarty Engineering, a California corporation
of which Dr. Fogarty is a director. Because of his position with such
entity, Dr. Fogarty may be deemed to be a beneficial owner of such shares
but disclaims beneficial ownership of such shares, except to the extent of
his interest in such entity. Does not include 47,086 shares held by Three
Arch Associates, L.P. and 209,184 shares held by Three Arch Partners, L.P.
Dr. Fogarty is a general partner of Three Arch Management, the general
partner of both Three Arch Partners, L.P. and Three Arch Associates, L.P. As
such, Dr. Fogarty may be deemed to be a beneficial owner of such shares, but
disclaims beneficial ownership of such shares, except to the extent of his
interest in such entities.
(3) Includes 47,086 shares held by Three Arch Associates, L.P. and 209,184
shares held by Three Arch Partners, L.P. Mark A. Wan is a general partner of
Three Arch Management, the general partner of both Three Arch Partners, L.P.
and Three Arch Associates, L.P., and may thereby be deemed to be a
beneficial owner of such shares. Mr. Wan disclaims beneficial ownership of
such shares, except to the extent of his interest in such entities. Includes
27,454 shares issuable upon exercise of options exercisable within 60 days
after August 31, 1999.
(4) Excludes shares held by Brentwood Associates V, L.P. in which Mr. Wan has a
carried interest. Mr. Wan is a Special Limited Partner of entities
affiliated with Brentwood Associates and disclaims beneficial ownership of
all shares held by such entities, except to the extent of his carried
interest therein.
(5) Includes 124,007 shares issuable upon exercise of options exercisable within
60 days after August 31, 1999.
(6) Includes 67,921 shares issuable upon exercise of options exercisable within
60 days after August 31, 1999.
(7) Includes 27,023 shares issuable upon exercise of options exercisable within
60 days after August 31, 1999.
(8) Includes 1,428,359 shares held by Brentwood Associates V, L.P. Mr. Chonette
is a general partner of Brentwood Associates V, L.P. and may thereby be
deemed to be a beneficial owner of such shares. Mr. Chonette expressly
disclaims beneficial ownership of such shares, except to the extent of his
interest in such entity. Also includes 27,454 shares issuable upon exercise
of options exercisable within 60 days after August 31, 1999.
(9) Includes 13,727 shares issuable upon exercise of options exercisable within
60 days after August 31, 1999.
(10) Includes 78,220 shares issuable upon exercise of options exercisable within
60 days after August 31, 1999.
(11) Includes 84,800 shares issuable upon exercise of options exercisable within
60 days after August 31, 1999.
(12) Includes 41,184 shares issuable upon exercise of options exercisable within
60 days after August 31, 1999.
(13) Includes 491,790 shares issuable upon exercise of options exercisable
within 60 days after August 31, 1999.
76
<PAGE>
COMPARISON OF RIGHTS OF SHAREHOLDERS
OF GSI AND SHAREHOLDERS OF TYCO
GSI is a California corporation, and the rights of GSI's shareholders are
governed by GSI's Amended and Restated Articles of Incorporation and Bylaws and
by California law. Upon the consummation of the merger, shareholders of GSI will
become shareholders of Tyco and their rights will be governed by Tyco's
Memorandum of Association and Bye-laws and by Bermuda law.
The following is a summary comparison of the material differences between
the rights of a GSI shareholder and a Tyco shareholder arising from the
differences between the corporate laws of California and of Bermuda and the
governing instruments of the two companies. The summary is not a complete
description of those laws or governing instruments.
Copies of Tyco's Memorandum of Association and Bye-laws and GSI's Amended
and Restated Articles of Incorporation and Bylaws have been filed with the SEC
and will be sent to holders of GSI common stock upon request. See "Where You Can
Find More Information" on page .
77
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA LAW AND CURRENT BERMUDA LAW AND CURRENT
GOVERNING DOCUMENTS OF GSI GOVERNING DOCUMENTS OF TYCO
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
<CAPTION>
SPECIAL MEETINGS OF SHAREHOLDERS
<S> <C>
- - Under both California law and GSI's bylaws, a special - Tyco shareholders holding at least 10% of the paid-up
meeting of the shareholders may be called by the board capital of Tyco may require Tyco to call a special
of directors, the chairman of the board, the meeting.
president, the holders of shares entitled to cast not
less than 10% of the votes at such meeting, and such
other persons as are authorized to do so in the
articles of incorporation or bylaws.
QUORUM
- - Under both California law and GSI's bylaws, the - The presence of any two Tyco shareholders at a
presence in person or by proxy of a majority of the shareholders meeting will generally constitute a
shares entitled to vote constitutes a quorum; quorum.
provided, however, that in no event shall a quorum
consist of less than one-third of the shares entitled
to vote at the meeting.
VOTING RIGHTS
- - GSI's bylaws provide that any proposal at a meeting - Any proposal at a general meeting may be decided by a
may be decided by a vote made by voice or ballot. show of hands of the shareholders present in person or
Shareholders are entitled to one vote for each share, by proxy, unless a poll is demanded. Where a poll has
regardless of class, held by the shareholder been demanded, shareholders are entitled to one vote
for each common share held by the shareholder.
- The Tyco Bye-laws provide that a Tyco shareholder will
lose voting rights:
(1) for the period the shareholder fails to comply with
a notice from Tyco requesting specified information
regarding such person's interest in Tyco shares,
plus an additional ninety days;
(2) if such shareholder fails after notice by Tyco to
make a takeover offer in accordance with the City
Code on Takeovers and Mergers of the United Kingdom
as applied by or in accordance with the Tyco
Bye-laws;
(3) upon notice by the directors, for a period of 180
days if such shareholder acquires three percent or
more of the issued share capital of any class of
Tyco shares and fails to
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA LAW AND CURRENT BERMUDA LAW AND CURRENT
GOVERNING DOCUMENTS OF GSI GOVERNING DOCUMENTS OF TYCO
- -------------------------------------------------------- --------------------------------------------------------
notify Tyco of such acquisition within two days; or
<S> <C>
(4) upon notice by the directors, for a period of 180
days if such shareholder holds three percent or
more of the issued share capital of any class of
Tyco shares and fails to notify Tyco of a change in
the shareholder's interests amounting to one
percent or more of the share capital of any class.
SHAREHOLDER NOMINATIONS AND PROPOSALS
- - GSI's bylaws provide that any shareholder who was a - Any Tyco shareholder may nominate a director for
shareholder at the time of giving of notice for the election. Under Bermuda law, only Tyco shareholders
meeting may nominate a director or submit a holding not less than 1/20th of the total voting
shareholder proposal, but only if they deliver notice rights or 100 or more in number may require a proposal
to the principal executive officer no less than 20 to be submitted to an annual general meeting. The Tyco
days and no more than 90 days prior to the first Board can waive these requirements, and the staff of
anniversary of the preceding year's annual meeting of the SEC has taken the position that the United States
shareholders. If the date of the annual meeting is proxy rules may require Tyco to include in its proxy
more than 30 days prior to or more than 60 days after materials proposals of shareholders who do not satisfy
the anniversary date of the preceding year's meeting, the requirements.
notice of the shareholder's proposal must be delivered
not earlier than the 90th day prior to such annual
meeting and not later than the close of business on
the later of the 20th day prior to such annual meeting
or the 10th day following the day on which notice of
the date of the meeting was publicly announced.
DERIVATIVE ACTIONS
- - Generally, under California law, a shareholder may - Tyco shareholders may not generally initiate an action
initiate an action for wrongdoing against the for a wrongdoing to the company. In certain limited
corporation if: circumstances, however, Tyco shareholders may proceed
1. The shareholder was a shareholder of record at the in a derivative action.
time of the transaction or any part thereof; - The Bermuda courts would ordinarily follow English
2. The shareholder has attempted to secure such precedent, which permits a shareholder to commence a
action by the board or there is a good reason that derivative action only if:
such an attempt would have been futile; and (1) the act complained of is alleged to be beyond the
3. In certain circumstances, the shareholder has corporate power of the company or illegal;
posted a bond. (2) the act complained of is alleged to constitute a
fraud against the minority
</TABLE>
79
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA LAW AND CURRENT BERMUDA LAW AND CURRENT
GOVERNING DOCUMENTS OF GSI GOVERNING DOCUMENTS OF TYCO
- -------------------------------------------------------- --------------------------------------------------------
shareholders by the majority shareholders who have
used their controlling position to prevent the
company from taking action against the wrongdoers;
<S> <C>
(3) an act requires approval by a greater percentage of
the company's shareholders than actually approved
it; or
(4) there is an absolute necessity to waive the general
rule that a shareholder may not bring a derivative
action so that the company's memorandum of
association or bye-laws are not violated.
- Under Bermuda law, a shareholder who complains that
the affairs of a company are being or have been
conducted in a manner oppressive or prejudicial to
some of the shareholders may petition the court for
relief, and the court has a wide discretion to grant
relief if it is satisfied that the complaint is so
justified and that:
(1) to wind up the company would not unfairly prejudice
those shareholders, but
(2) the facts otherwise justify a winding up order on
just and equitable grounds.
Traditionally, such relief has been granted in
relatively limited circumstances.
BOARD OF DIRECTORS
- - California law permits a classified board of directors - The Tyco Bye-laws provide that the number of directors
for corporations with outstanding shares listed on a will be determined by the shareholders at a general
national stock exchange, including Nasdaq. meeting, provided that there are at least two
- - GSI has two classes of directors. directors. The Tyco Bye-laws require a director to be
a shareholder.
- - GSI's bylaws provide for a classified board of
directors elected on a rotating basis every two years.
This method of electing directors makes a change in
the composition of the board of directors, and a
potential change in control of GSI a potentially
lengthier and more difficult process.
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA LAW AND CURRENT BERMUDA LAW AND CURRENT
GOVERNING DOCUMENTS OF GSI GOVERNING DOCUMENTS OF TYCO
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
REMOVAL OF DIRECTORS
- - California law permits removal of a director for cause - A director of Tyco may be removed with or without
by resolution of the other directors. California law cause by the shareholders or by written resolution
also permits removal of a director upon approval of signed by all the other directors.
the outstanding shares without cause, subject to
certain limitations. California law also permits
removal of a director by suit of the shareholders
holding at least 10% of the number of outstanding
shares of any class for fraudulent or dishonest acts
or gross abuse of authority or discretion.
AMENDMENTS TO CHARTER DOCUMENTS AND BY-LAWS
- - California law provides that, unless otherwise - Bermuda law provides that a company may alter its
specified in a corporation's articles of incorporation memorandum of association by resolution passed at a
and except for certain amendments such as stock general meeting of shareholders of which due notice
splits, an amendment to the articles of incorporation has been given and, where required, with the consent
requires the approval of the board of directors and of the Minister of Finance.
the affirmative vote of a majority of the outstanding
shares entitled to vote.
- - GSI's articles of incorporation do not require a - Holders of at least 20% of any class of the company's
greater level of approval for an amendment to such share capital may apply to the Bermuda Supreme Court
articles than required under California law. to annul any alteration. Upon such application, the
alteration will not have effect until it is confirmed
by the Court.
- - Under California law and subject to certain - The Tyco Bye-laws provide that, if Tyco has two or
limitations, a corporation's bylaws may be adopted, more classes of shares, the rights attached to any
amended or repealed either by the board of directors class of shares, unless otherwise provided by the
of the shareholders of the corporation. terms of such class, may be varied either by the
consent in writing of the holders of three-fourths of
the shares of the class, or by a resolution passed at
a separate meeting of the holders of such class of
shares by holders of three-fourths of the shares of
such class voting at such separate meeting. Certain
procedural rules of such a separate meeting differ
from the rules of a Tyco general meeting.
- - GSI's bylaws may be adopted, amended or repealed - Pursuant to Bermuda law, holders of at least 10% of a
either by the votes of the holders of a majority of class of shares in a company in which the share
the outstanding shares entitled to vote or by the capital is divided into different classes may apply to
board of directors; provided, however, that the board the Bermuda Supreme Court to annul any variation in
of directors may not the rights attached to the
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA LAW AND CURRENT BERMUDA LAW AND CURRENT
GOVERNING DOCUMENTS OF GSI GOVERNING DOCUMENTS OF TYCO
- -------------------------------------------------------- --------------------------------------------------------
amend the bylaws in order to change the authorized class of shares. Upon such application, the variation
number of directors. will not have effect until it is confirmed by the
Court.
<S> <C>
- The Tyco Bye-laws may only be amended by the Tyco
Board and such amendment will become effective only
after confirmation by the Tyco shareholders.
SHARE PURCHASES
- - Generally, California law does not permit a - Generally, Tyco may repurchase its shares for
corporation to repurchase its shares unless: cancellation.
1. The amount of the retained earnings of the - A subsidiary of Tyco may also purchase Tyco shares.
corporation immediately prior to the repurchase equals Tyco shares owned by a subsidiary of Tyco may be voted
or exceeds the amount of the proposed repurchase; or on all matters on which shareholders are entitled to
2. If, following the repurchase, (i) the sum of the vote and counted for quorum purposes.
assets of the corporation would be at least equal
to one and one quarter times its earnings and (ii)
the current assets of the corporation would be at
least equal to its current liabilities or, if the
average of the earnings of the corporation before
taxes and income and before interest expense for
the two preceding fiscal years was less than the
average of the interest expense of the corporation
for those fiscal years, at least equal to one and
one quarter times its current liabilities.
SALE, LEASE OR EXCHANGE OF ASSETS AND MERGERS
- - California law does not require the approval of the - Under Bermuda law, a company's shareholders are not
shareholders of the corporation for the corporation to generally required to approve a sale, lease or
sell, lease or transfer all of the corporation's exchange of all or substantially all of a company's
assets unless such sale, lease or transfer of all of property and assets or the acquisition of another
the corporation's assets is not in the ordinary course company or its assets in a merger or similar
of the corporation's business. transaction. However, Bermuda law requires
shareholders to approve certain forms of mergers and
reconstructions.
- - California law requires that the principal terms of a - A compromise or arrangement in connection with a
merger be approved by the affirmative vote of a scheme for the reconstruction of the company on terms
majority of the outstanding shares of stock entitled which include the transfer of all or part of the
to vote on the merger, except that no shareholder vote undertaking or the property of the company to another
is required of a corporation that is to be the company requires the approval of a majority in number
surviving corporation in the representing
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA LAW AND CURRENT BERMUDA LAW AND CURRENT
GOVERNING DOCUMENTS OF GSI GOVERNING DOCUMENTS OF TYCO
- -------------------------------------------------------- --------------------------------------------------------
merger, as long as the shareholders of such three-fourths in value of the shareholders or class of
corporation own, immediately after the merger, more shareholders, as the case may be, present and voting
than five-sixths of the voting power of the surviving either in person or by proxy at the meeting, and the
corporation. sanction of the Bermuda Supreme Court.
<S> <C>
- - California law further requires the affirmative vote - Pursuant to Bermuda law, the amalgamation of Tyco and
of a majority of the outstanding shares entitled to one or more companies requires the vote of
vote in the merger if: three-fourths of the shareholders of each such company
1. The surviving corporation's articles of present and voting in person or by proxy at a meeting
incorporation will be amended and would otherwise called for the purpose. For purposes of approval
require shareholder approval; or of an amalgamation, all shares, whether or not
2. Shareholders of the surviving corporation will otherwise entitled to vote, carry the right to
receive shares of a non-California corporation or vote. A separate vote of a class of shares is
shares of the surviving corporation having required if the rights of such class would be
different rights, preferences, privileges or altered by virtue of the amalgamation.
restrictions than the shares surrendered.
- - GSI's articles of incorporation do not require a
greater percentage vote than required under California
law.
- - Shareholder approval is not required under California
law for mergers or consolidations in which a parent
corporation merges or consolidates with a subsidiary
of which it owns at least 90% of the outstanding stock
of each class of shares.
SHARE ACQUISITIONS, BUSINESS COMBINATIONS AND RELATED PROVISIONS
- - Under California law, if an interested party proposes - The Tyco Bye-laws permit the Tyco Board to make
a tender offer, merger or reorganization, an applicable to Tyco certain rules of the City Code on
affirmative opinion as to the fairness of the Takeovers and Mergers issued by the Panel on Takeovers
consideration in the transaction must be delivered to: and Mergers in the United Kingdom.
1. The Board of Directors, if consent of the - The City Code on Takeovers and Mergers requires any
shareholders is not required in connection with the person or group acting in concert which acquires
transaction; or shares, which together with shares previously owned by
2. The shareholders, if consent of the shareholders it, have 30% or more of the voting power of a company,
is required in connection with the transaction. to make an offer to purchase all equity shares of
the company and any of the company's voting
non-equity capital shares of the type held by such
person or group. The offer price must not be less
than the highest price paid in the preceding 12
months for shares of the same
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA LAW AND CURRENT BERMUDA LAW AND CURRENT
GOVERNING DOCUMENTS OF GSI GOVERNING DOCUMENTS OF TYCO
- -------------------------------------------------------- --------------------------------------------------------
class by such person or anyone in such group and must
be made in cash or include a cash alternative.
<S> <C>
- If a person or group owns 30% or more of the Tyco
shares, and the Tyco board determines that an offer
under the City Code is not expedient or the person or
group is required to make such an offer but fails to
do so, the Tyco Board may by notice require such a
person or group to make an offer which:
(1) includes all shares of every class of share capital
of Tyco, and the Tyco Board may also require that
the offer include all securities of Tyco
convertible into Tyco shares;
(2) is in cash or includes a cash alternative;
(3) is made within 30 days of the Tyco Board's notice;
(4) remains open for at least 14 days after the offer
becomes unconditional;
(5) requires payment to be made within 21 days after
the offer becomes unconditional; and
(6) is at a price not less than that highest price paid
in the preceding 12 months for shares of the same
class by the person or any member of the group, or
if the price is unavailable or inappropriate, then
at a price fixed by the Tyco Board. The purchase
price for convertible securities must be on terms
the Tyco Board considers fair and reasonable.
- The Rules Governing Substantial Acquisitions of Shares
issued by the Takeover Panel provide, subject to
certain exceptions, that a person or group acting in
concert may not acquire in a period of seven days
shares representing 10% or more of the voting shares
of a company if those shares, when aggregated with
shares of the company already held by the person or
group, would carry more than 15%, but less than 30%,
of the total voting rights of the company. The Tyco
Board may require
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA LAW AND CURRENT BERMUDA LAW AND CURRENT
GOVERNING DOCUMENTS OF GSI GOVERNING DOCUMENTS OF TYCO
- -------------------------------------------------------- --------------------------------------------------------
compliance with these rules and may require any person
or group to dispose of any Tyco shares acquired in
violation of these rules.
<S> <C>
- Under the Tyco Bye-laws, any person who acquires an
interest in three percent or more of the issued share
capital of any class of Tyco is required to notify
Tyco of that interest and of any change in that
person's interest amounting to one percent or more of
the issued capital of any class. Any such notification
must be made within two business days after the
relevant event. In determining the percentage interest
of any person for these and similar purposes,
interests of persons acting in concert may be
aggregated.
REQUIRED PURCHASE AND SALE OF SHARES
- - No similar provision. - Pursuant to Bermuda law, where the transfer of shares
or any class of shares in a company to another
company, has, within four months after the making of
the offer in this regard by the transferee company,
been approved by the holders of not less than 90% in
value of the shares or class of shares for which the
offer was made, within two months after the expiration
of the four month period, the transferee company may
give notice to any dissenting shareholder that it
desires to acquire his or her shares. Such transferee
company will then be entitled and bound to acquire
such shares on the terms on which shareholders that
approved such scheme or contract transferred their
shares, unless the Bermuda Supreme Court orders
otherwise upon application by the dissenting
shareholder.
- Within one month of the transfer of 90% in value of
the transferor company's shares or class of shares to
the transferee company, or to its nominee, the
transferee company is required to notify the holders
of the remaining shares of such transfer. Within three
months of the giving of notice, any such remaining
holder of shares may require the transferee company to
acquire his or her shares on the same terms as
provided for in the scheme or contract, or upon such
terms as may be agreed, or upon such terms as the
Bermuda Supreme Court may determine
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA LAW AND CURRENT BERMUDA LAW AND CURRENT
GOVERNING DOCUMENTS OF GSI GOVERNING DOCUMENTS OF TYCO
- -------------------------------------------------------- --------------------------------------------------------
upon application of the transferee company or the
shareholder.
<S> <C>
- Under Bermuda law, a holder or holders of not less
than 95% of the shares or any class of shares in a
Bermuda company may give notice to the remaining
shareholders or class of shareholders of the intention
to acquire their shares, on the terms set out in the
notice. Bermuda law provides that when such notice is
given the acquiring holder or holders shall be
entitled and bound to acquire the shares of the
remaining shareholders on the terms set out in the
notice, unless the remaining shareholders exercise
statutory appraisal rights.
DISSENTER'S RIGHTS
- - Under California law, if shareholder approval is - Under Bermuda law, a properly dissenting shareholder
required for a merger or reorganization, each who did not vote in favor of an amalgamation and who
shareholder who was entitled to vote in favor of the is not satisfied that he or she has been offered fair
reorganization may require the corporation to purchase value for his or her shares may apply to the court to
for cash at their fair market value the shares owned appraise the fair value of his or her shares. If the
by such shareholder. court appraised value is greater than the value
received or to be received in the amalgamation, the
company must pay the court appraised value to the
dissenting shareholder within one month of the
appraisal.
- - Appraisal rights are not available for shares listed - Bermuda law additionally provides a right of appraisal
on any national securities exchange certified by the in respect of the situation discussed under "Required
Commissioner of Corporations or listed on the list of Purchase and Sale of Shares" above.
OTC margin stocks issued by the Board of Governors of
the Federal Reserve Systems, unless:
1. There exists with respect to such shares any
restrictions on transfer imposed by the
corporation or by any law or regulation; or
2. Demands for payment are made with respect to 5% or
more of the outstanding shares of that class.
- - Because GSI is listed on a national securities
exchange, GSI shareholders will not have dissenters'
rights, unless the provisions described in the
immediately preceding
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA LAW AND CURRENT BERMUDA LAW AND CURRENT
GOVERNING DOCUMENTS OF GSI GOVERNING DOCUMENTS OF TYCO
- -------------------------------------------------------- --------------------------------------------------------
paragraph exist at the time of a merger or
reorganization to which GSI is a party.
<S> <C>
SHAREHOLDER RIGHTS PLAN
- - GSI has adopted a shareholder rights plan which was - Prior to the merger of Former Tyco and ADT on July 2,
amended on August 23, 1999 to render the shareholder 1997, ADT (now Tyco) adopted a Shareholder Rights
rights plan inapplicable to the merger agreement and Plan. The plan was terminated by Tyco effective
the transactions contemplated thereby. September 30, 1999.
</TABLE>
87
<PAGE>
OTHER MATTERS
It is not expected that any matters other than those described in this
document will be brought before the GSI special meeting. If any other matters
are presented, however, it is the intention of the persons named in the proxy to
vote the proxy in accordance with their discretion.
LEGAL MATTERS
The validity of the Tyco common shares to be issued to GSI shareholders in
connection with the merger will be passed upon by Appleby, Spurling & Kempe,
Hamilton, Bermuda, special counsel to Tyco. Certain other legal matters in
connection with the merger will be passed upon for Tyco by Kramer Levin Naftalis
& Frankel LLP, New York, New York, and by Appleby, Spurling & Kempe. Michael L.
Jones, secretary of Tyco, is a partner in Appleby, Spurling & Kempe. Joshua M.
Berman, a director and vice president of Tyco, is counsel to Kramer Levin
Naftalis & Frankel LLP and beneficially owns 74,090 Tyco common shares. Certain
legal matters in connection with the merger will be passed upon for GSI by
Venture Law Group, A Professional Corporation, Menlo Park, California. Mark B.
Weeks, secretary of GSI, is a director of Venture Law Group.
EXPERTS
The consolidated financial statements and financial statement schedule of
Tyco as of September 30, 1998 and 1997 and for the fiscal year ended September
30, 1998, the nine months ended September 30, 1997 and the year ended December
31, 1996 included in Tyco's Current Report on Form 8-K filed on June 3, 1999 and
incorporated by reference in this document, give retroactive effect to the
mergers with US Surgical and AMP, and have been audited by
PricewaterhouseCoopers, independent accountants, as set forth in their report
included therein. In its report, that firm states that with respect to certain
subsidiaries its opinion is based upon the reports of other independent
accountants, namely Arthur Andersen LLP (Houston), Deloitte & Touche LLP and
Arthur Andersen LLP (Philadelphia). The consolidated financial statements and
financial statement schedule referred to above have been incorporated herein in
reliance on said reports given on the authority of such firms as experts in
auditing and accounting.
The combined financial statements of The Sherwood-Davis & Geck Group as of
and for the year ended December 31, 1997 included in Tyco's Current Report on
Form 8-K/A filed on May 13, 1998 and incorporated by reference in this document
have been audited by Arthur Andersen LLP (Roseland), independent public
accountants, as set forth in their report included therein, and have been so
incorporated in reliance on the report of said firm given on the authority of
said firm as experts in auditing and accounting.
The financial statements included and incorporated in this document by
reference from the GSI Annual Report on Form 10-K for the fiscal year ended June
30, 1999 have been so included and incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
FUTURE SHAREHOLDER PROPOSALS
GSI does not currently expect to hold a 1999 Annual Meeting of Shareholders
because upon consummation of the merger GSI will become an indirect wholly owned
subsidiary of Tyco. In the event the merger is not consummated, proposals of GSI
shareholders to be included in the proxy statement to be mailed to all GSI
shareholders entitled to vote at the 1999 Annual Meeting of GSI shareholders
must be received at GSI's principal executive offices not later than
, 1999.
88
<PAGE>
FINANCIAL STATEMENTS OF GSI
<TABLE>
<S> <C>
FINANCIAL STATEMENTS:
Report of Independent Accountants................................................... F-2
Balance Sheets...................................................................... F-3
Statements of Operations and Comprehensive Loss..................................... F-4
Statements of Shareholders' Equity.................................................. F-5
Statements of Cash Flows............................................................ F-6
Notes to Financial Statements....................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
General Surgical Innovations, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations and comprehensive loss, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of General
Surgical Innovations, Inc. at June 30, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1999, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Jose, California
July 23, 1999
F-2
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................ $ 9,600 $ 17,954
Available-for-sale securities............................................................ 8,699 10,743
Accounts receivable, net of allowances of $350 in 1999 and $72 in 1998................... 2,550 1,043
Inventories.............................................................................. 2,532 1,284
Prepaid expenses and other current assets................................................ 489 733
--------- ---------
Total current assets................................................................... 23,870 31,757
Available-for-sale securities, non-current............................................... 999 8,772
Property and equipment, net.............................................................. 3,052 2,101
Intangible and other assets, net......................................................... 316 194
--------- ---------
Total assets........................................................................... $ 28,237 $ 42,824
--------- ---------
--------- ---------
LIABILITIES
Current liabilities:
Accounts payable......................................................................... $ 2,231 $ 910
Accrued liabilities...................................................................... 1,440 1,316
Capital leases........................................................................... 12 14
Bank borrowings.......................................................................... 82 103
--------- ---------
Total current liabilities.............................................................. 3,765 2,343
Other long-term liabilities................................................................ 37 149
Capital leases, less current portion....................................................... -- 12
Bank borrowings, less current portion...................................................... -- 82
--------- ---------
Total liabilities.................................................................... 3,802 2,586
--------- ---------
Commitments and Contingencies (Note 5)
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value:
Authorized: 2,000 shares; issued and outstanding: none................................... -- --
Common stock, $.001 par value:
Authorized: 50,000 shares; issued and outstanding: 13,504 on June 30, 1999, and 13,435 on
June 30, 1998.......................................................................... 14 13
Additional paid-in capital................................................................. 65,446 65,290
Notes receivable from shareholders......................................................... (85) (87)
Deferred compensation, net................................................................. (22) (159)
Accumulated other comprehensive income (loss).............................................. (12) 16
Accumulated deficit........................................................................ (40,906) (24,835)
--------- ---------
Total shareholders' equity............................................................. 24,435 40,238
--------- ---------
Total liabilities and shareholders' equity........................................... $ 28,237 $ 42,824
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------
1999 1998 1997
----------- --------- ---------
<S> <C> <C> <C>
Sales......................................................................... $ 6,876 $ 5,193 $ 4,090
Guaranteed payments........................................................... -- 1,635 4,896
----------- --------- ---------
Total revenue................................................................. 6,876 6,828 8,986
Cost of sales................................................................. 5,212 3,565 2,385
----------- --------- ---------
Gross profit............................................................ 1,664 3,263 6,601
----------- --------- ---------
Operating expenses:
Research and development.................................................... 3,695 2,825 2,231
Sales and marketing......................................................... 6,523 4,911 4,906
General and administrative.................................................. 9,058 6,932 3,878
----------- --------- ---------
Total operating expenses.................................................. 19,276 14,668 11,015
----------- --------- ---------
Operating loss.......................................................... (17,612) (11,405) (4,414)
----------- --------- ---------
Interest income............................................................... 1,574 2,308 2,572
Interest expense.............................................................. (19) (38) (47)
Other income (expense), net................................................... (14) (7) 13
----------- --------- ---------
Net loss.................................................................. (16,071) (9,142) (1,876)
Other comprehensive income (loss):
Change in unrealized gain or loss on available-for-sale securities.......... (28) 54 (39)
----------- --------- ---------
Comprehensive loss........................................................ $ (16,099) $ (9,088) $ (1,915)
----------- --------- ---------
----------- --------- ---------
Net loss per common share and per common
share-assuming dilution..................................................... $ (1.19) $ (0.68) $ (0.14)
----------- --------- ---------
----------- --------- ---------
Shares used in computing net loss per common share and per common
share-assuming dilution..................................................... 13,461 13,373 13,197
----------- --------- ---------
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
NOTES OTHER
COMMON STOCK ADDITIONAL RECEIVABLE COMPREHENSIVE
------------------------ PAID-IN FROM DEFERRED INCOME ACCUMULATED
SHARES AMOUNT CAPITAL SHAREHOLDERS COMPENSATION (LOSS) DEFICIT
----------- ----------- ----------- ------------- --------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1996... 13,133 $ 13 $ 64,885 $ (112) $ (496) $ 1 $ (13,817)
Exercise of stock
options............... 148 -- 67 -- -- -- --
Exercise of stock
options with notes
receivable............ 23 -- 11 (11) -- -- --
Issuance of common stock
in connection with
employee stock
purchase plan......... 18 -- 135 -- -- -- --
Repurchase of common
stock................. (31) -- (9) 9 -- -- --
Amortization of deferred
compensation.......... -- -- -- -- 199 -- --
Change in unrealized
loss on
available-for-sale
securities............ -- -- -- -- -- (39) --
Payment of shareholders'
notes receivable...... -- -- -- 27 -- -- --
Net loss................ -- -- -- -- -- -- (1,876)
----------- ----- ----------- ------ ------ --- ------------
Balances, June 30, 1997... 13,291 13 65,089 (87) (297) (38) (15,693)
Exercise of stock
options............... 128 -- 129 -- -- -- --
Issuance of common stock
in connection with
employee stock
purchase plan......... 16 -- 72 -- -- -- --
Amortization of deferred
compensation.......... -- -- -- -- 138 -- --
Change in unrealized
gain on
available-for-sale
securities............ -- -- -- -- -- 54 --
Net loss................ -- -- -- -- -- -- (9,142)
----------- ----- ----------- ------ ------ --- ------------
Balances, June 30, 1998... 13,435 13 65,290 (87) (159) 16 (24,835)
Exercise of stock
options............... 33 -- 42 -- -- -- --
Issuance of common stock
in connection with
employee stock
purchase plan......... 36 1 114 -- -- -- --
Amortization of deferred
compensation.......... -- -- -- -- 137 -- --
Payment on shareholder
notes receivable...... -- -- -- 2 -- -- --
Change in unrealized
gain on
available-for-sale
securities............ -- -- -- -- -- (28) --
Net loss................ -- -- -- -- -- -- (16,071)
----------- ----- ----------- ------ ------ --- ------------
Balances, June 30, 1999... 13,504 $ 14 $ 65,446 $ (85) $ (22) $ (12) $ (40,906)
----------- ----- ----------- ------ ------ --- ------------
----------- ----- ----------- ------ ------ --- ------------
<CAPTION>
TOTAL
---------
<S> <C>
Balances, June 30, 1996... $ 50,474
Exercise of stock
options............... 67
Exercise of stock
options with notes
receivable............ --
Issuance of common stock
in connection with
employee stock
purchase plan......... 135
Repurchase of common
stock................. --
Amortization of deferred
compensation.......... 199
Change in unrealized
loss on
available-for-sale
securities............ (39)
Payment of shareholders'
notes receivable...... 27
Net loss................ (1,876)
---------
Balances, June 30, 1997... 48,987
Exercise of stock
options............... 129
Issuance of common stock
in connection with
employee stock
purchase plan......... 72
Amortization of deferred
compensation.......... 138
Change in unrealized
gain on
available-for-sale
securities............ 54
Net loss................ (9,142)
---------
Balances, June 30, 1998... 40,238
Exercise of stock
options............... 42
Issuance of common stock
in connection with
employee stock
purchase plan......... 115
Amortization of deferred
compensation.......... 137
Payment on shareholder
notes receivable...... 2
Change in unrealized
gain on
available-for-sale
securities............ (28)
Net loss................ (16,071)
---------
Balances, June 30, 1999... $ 24,435
---------
---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................... $ (16,071) $ (9,142) $ (1,876)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred compensation.................................. 137 138 199
Depreciation and amortization.......................................... 880 1,049 889
Provision for uncollectable accounts and sales returns................. 659 25 (31)
Loss on write-off of fixed assets...................................... 20 7 38
Provision for excess and obsolete inventory............................ 417 43 57
Forgiveness of related party note receivable........................... 107 -- --
Changes in operating assets and liabilities:
Accounts receivable.................................................. (2,166) 1,064 (1,227)
Inventory............................................................ (1,665) 390 (1,074)
Prepaid expenses and other current assets............................ 244 238 (533)
Intangible and other assets.......................................... (-1) (5) (69)
Accounts payable..................................................... 1,321 406 (110)
Accrued and other liabilities........................................ 12 246 127
Deferred revenue..................................................... -- -- (100)
----------- ----------- -----------
Net cash used in operating activities.............................. (16,106) (5,541) (3,710)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities................................. (3,811) (22,766) (54,335)
Proceeds from sales and maturities of available-for-sale securities........ 13,500 38,792 39,467
Acquisition of property and equipment...................................... (1,679) (450) (2,018)
Disposal of fixed assets................................................... -- -- 63
----------- ----------- -----------
Net cash provided by (used in) investing activities................ 8,010 15,576 (16,823)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of issuance costs.............. 157 201 202
Proceeds from payment on shareholders' notes receivable.................... 2 -- 27
Payments on capital lease obligations...................................... (14) (15) --
Principal payments on bank borrowings...................................... (103) (167) (135)
Related party note receivable.............................................. (300) -- --
----------- ----------- -----------
Net cash provided by (used in) financing activities................ (258) 19 94
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents....................... (8,354) 10,054 (20,439)
Cash and cash equivalents, beginning of year............................... 17,954 7,900 28,339
----------- ----------- -----------
Cash and cash equivalents, end of year..................................... $ 9,600 $ 17,954 $ 7,900
----------- ----------- -----------
----------- ----------- -----------
Cash paid during the period for:
Interest............................................................... $ 19 $ 38 $ 51
Taxes.................................................................. $ -- $ -- $ 1
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for notes receivable.............................. $ -- $ -- $ 11
Repurchase of common stock for notes receivable............................ $ -- $ -- $ 9
Change in unrealized gain or loss in available-for-sale securities......... $ (28) $ 54 $ 39
Property acquired under capital leases..................................... $ -- $ 40 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF GSI:
General Surgical Innovations, Inc. ("GSI") was incorporated on April 13,
1992, to engage in the development, manufacturing and marketing of medical
device surgical balloon dissectors which create new working spaces between
natural tissue planes in the human body. GSI sells products in the United
States, Europe, Australia and South America, through its direct sales force and
key distributors. While GSI has developed or is developing surgical balloon
dissectors for stress urinary incontinence, vascular and plastic surgery, sales
of products for hernia repair are expected to provide a majority of GSI's
revenues at least through fiscal 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
GSI considers investments with an original maturity of 90 days or less as of
the date of purchase to be cash equivalents.
AVAILABLE-FOR SALE SECURITIES:
GSI has classified its investments as "available-for-sale." Such investments
are recorded at fair value, and unrealized holding gains and losses are recorded
net of related taxes as a separate component of shareholders' equity. Interest
income is recorded using an effective interest rate, with associated premium or
discount amortized to "investment income." Realized gains and losses on sales of
all such securities are reported in earnings and computed using the specific
identification cost method. All investments with maturity dates greater than 365
days are classified as non-current.
INVENTORIES:
Inventories are stated at the lower of cost or market. Cost is based on
actual costs computed on a first-in, first-out basis.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Furniture, fixtures, equipment and tooling are depreciated on
a straight-line basis over their estimated useful lives of three to five years.
Leasehold improvements are amortized over the lesser of their estimated useful
lives or the term of the lease.
INTANGIBLE ASSETS:
Intangible assets include patents which are being amortized on a
straight-line basis over five years. GSI periodically assesses the
recoverability of intangible assets by determining whether amortization of the
asset balance over the remaining life can be recovered through undiscounted
future operating cash
F-7
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
flows of the acquired operation. The amount of impairment, if any, is measured
based on projected discounted future operating cash flows and is recognized as a
write down of the asset to net realizable value.
EMPLOYEE STOCK PLANS:
GSI accounts for its stock option plans and its employee stock purchase plan
in accordance with the provisions of the Accounting Principles Board's Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees." In 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS
123 establishes a fair value based method of accounting for stock-based plans
and is effective for fiscal years beginning after December 15, 1995. GSI is
continuing to account for its employee stock plans in accordance with the
provisions of APB 25, and has provided pro forma disclosure in Note 6 as if the
measurement provisions of SFAS 123 had been adopted.
REVENUE RECOGNITION:
GSI recognizes revenue from product sales upon shipment of product and when
title passes to its customer. Allowances are provided for estimated returns.
Revenue from guaranteed payments is recognized in the period received according
to the terms and conditions of a distributor agreement.
RESEARCH AND DEVELOPMENT:
Research and development expenses are charged to operations as incurred.
BUSINESS RISKS AND CREDIT CONCENTRATION:
A substantial portion of GSI's sales have been derived from sales of its
surgical balloon dissectors for hernia repair procedures. Failure of GSI to
successfully develop and commercialize surgical balloon dissector products for
applications other than hernia repair could have a material adverse effect on
GSI's business, financial condition and results of operations.
In March 1994, GSI entered into a distribution agreement with United States
Surgical Corporation ("USSC") providing USSC with limited exclusive rights to
distribute GSI's surgical balloon dissectors in the hernia repair market in both
the United States and certain other countries. In fiscal 1997 and 1996, sales to
USSC, which include sales to Autosuture, Inc., a subsidiary of USSC, represented
approximately 27 percent and 92 percent, respectively, of GSI's sales. In
November 1996, GSI terminated its distribution agreement with USSC; there were
no sales to USSC in fiscal 1998. In September 1998, GSI signed two
non-exclusive, three-year agreements with USSC. Under the terms of the first
agreement, USSC has obtained non-exclusive rights to market and distribute GSI's
SPACEMAKER(R) surgical balloon dissectors worldwide for use in hernia repair and
stress urinary incontinence ("SUI") procedures. Under the terms of the second
agreement, GSI has non-exclusive rights to market and distribute several
products, including USSC's 5 mm mesh fixation device, the ProTack(TM), which is
offered with GSI's balloon dissectors in the SPACEMAKER(R)Total Solution(TM)
hernia repair kit. Sales to USSC in fiscal 1999 represented approximately three
percent of GSI's total sales.
F-8
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
In December 1996, GSI entered into a five year OEM supply agreement (the
"EES Agreement") with Ethicon Endo-Surgery ("EES"), pursuant to which GSI
granted EES exclusive worldwide sales and marketing rights to sell the
SPACEMAKER(R) surgical balloon dissectors in the laparoscopic hernia repair and
stress urinary incontinence ("SUI") markets. EES made guaranteed payments
pursuant to the EES Agreement of $4.9 million in fiscal year 1997, and
additional payments in lieu of product purchases pursuant to a mutual agreement
in the amount of $1.6 million in fiscal year 1998. In February 1998, GSI and EES
replaced the exclusive EES Agreement with a non-exclusive distribution agreement
for the laparoscopic hernia repair and SUI markets. In fiscal year 1999, EES
made no guaranteed payments or payments in lieu of product purchases. Sales and
guaranteed payments from EES represented approximately 21 percent, 74 percent
and 65 percent of GSI's 1999, 1998 and 1997 revenues, respectively.
In May 1999, GSI signed a distribution agreement with Dexterity Surgical,
Inc. ("Dexterity"). The terms of the agreement gave Dexterity rights to market
and distribute GSI's SPACEMAKER(R) balloon dissector products for hernia repair
and laparoscopic bladder neck suspension repair procedures in all or parts of 28
states. In fiscal year 1999, sales to Dexterity represented approximately 23
percent of total company sales.
GSI maintains its cash balances in demand accounts primarily with one
financial institution. For its accounts receivable, management of GSI performs
ongoing credit evaluations of its customers and maintains allowances for
doubtful accounts. Historically GSI has not experienced significant losses
related to individual customers or groups of customers in any particular
geographic area. At June 30, 1998 and 1997, one distributor accounted for
approximately 46 percent and 93 percent, respectively, of accounts receivable.
At June 30, 1999, another distributor accounted for approximately 46 percent of
accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Carrying amounts of GSI's financial instruments including cash and cash
equivalents, accounts receivable and accounts payable approximate fair values
due to their short maturities. Based on the borrowing rates currently available
to GSI for loans with similar terms, the carrying values of the equipment loan
and line of credit approximate fair values. Estimated fair values for
available-for-sale securities, which are separately disclosed elsewhere, are
based on quoted market prices for the same or similar instruments.
INCOME TAXES:
GSI accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. GSI is required to adjust deferred
tax liabilities in the period when tax rates or the provisions of the income tax
laws change. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized.
COMPREHENSIVE INCOME:
GSI has adopted the provisions of Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Comprehensive Income." SFAS 130 establishes
standards for reporting and display of
F-9
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
comprehensive income and its components for general-purpose financial
statements. Comprehensive income is defined as net income plus all revenues,
expenses, gains and losses from non-owner sources that are excluded from net
income in accordance with generally accepted accounting principles.
COMPUTATION OF NET LOSS PER COMMON SHARE AND PER COMMON SHARE-ASSUMING
DILUTION:
Net loss per common share and per common share-assuming dilution are
computed using the weighted average number of shares of common stock
outstanding. Common equivalent shares from stock options are excluded from the
computation of net loss per common share-assuming dilution as their effect is
antidilutive.
Stock options to purchase 2,245,655, 1,816,906 and 1,363,447 shares of
common stock at prices ranging from $0.09 to $9.75 per share were outstanding at
June 30, 1999, 1998 and 1997, respectively, but were not included in the
computation of net loss per common share-assuming dilution because they were
antidilutive. The aforementioned stock options could potentially dilute earnings
per share in the future.
RECENT PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. To
date, GSI has not engaged in derivative and hedging activities. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000.
3. BALANCE SHEET DETAIL:
AVAILABLE-FOR-SALE SECURITIES:
As of June 30, 1999, available-for-sale securities consisted of the
following (IN THOUSANDS):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED ESTIMATED MATURITY
COST GAINS (LOSSES) FAIR VALUE DATES
----------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Obligations of federal government agencies, short-term........ $ 8,698 $ 1 $ 8,699 7/99-6/00
Corporate obligations, principally commercial paper and
corporate notes, long-term.................................. 1,012 (13) 999 7/00-4/01
----------- ------ -----------
$ 9,710 $ (12) $ 9,698
----------- ------ -----------
----------- ------ -----------
</TABLE>
F-10
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. BALANCE SHEET DETAIL: (CONTINUED)
As of June 30, 1998, available-for-sale securities consisted of the
following (IN THOUSANDS):
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED ESTIMATED
COST GAINS FAIR VALUE
----------- ----------- -----------
<S> <C> <C> <C>
Corporate obligations, principally commercial paper and corporate notes,
short-term.................................................................. $ 10,729 $ 14 $ 10,743
Corporate obligations, principally commercial paper and corporate notes,
long-term................................................................... 8,770 2 8,772
----------- ----------- -----------
$ 19,499 $ 16 $ 19,515
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
During 1999 and 1998, there were no realized gains or losses on the disposal
of available-for-sale securities.
PROPERTY AND EQUIPMENT:
PROPERTY AND EQUIPMENT COMPRISE (IN THOUSANDS):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Equipment.................................................................................. $ 1,612 $ 1,238
Furniture and fixtures..................................................................... 380 437
Tooling.................................................................................... 1,546 457
Leasehold improvements..................................................................... 1,233 1,192
--------- ---------
4,771 3,324
Less accumulated depreciation and amortization............................................. (1,719) (1,223)
--------- ---------
$ 3,052 $ 2,101
--------- ---------
--------- ---------
</TABLE>
INVENTORIES:
INVENTORIES COMPRISE (IN THOUSANDS):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Raw materials.................................................................................. $ 1,358 $ 910
Work in progress............................................................................... 78 --
Finished goods................................................................................. 1,096 374
--------- ---------
$ 2,532 $ 1,284
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. BALANCE SHEET DETAIL: (CONTINUED)
INTANGIBLE AND OTHER ASSETS:
INTANGIBLE AND OTHER ASSETS COMPRISE (IN THOUSANDS):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Patents........................................................................................ $ 360 $ 360
Related party note receivable.................................................................. 193 --
Other.......................................................................................... 81 80
--------- ---------
634 440
Less accumulated amortization.................................................................. (318) (246)
--------- ---------
$ 316 $ 194
--------- ---------
--------- ---------
</TABLE>
ACCRUED LIABILITIES:
ACCRUED LIABILITIES COMPRISE (IN THOUSANDS):
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Accrued payroll and related expenses........................................................... $ 463 $ 391
Accrued legal expenses......................................................................... 536 660
Accrued other.................................................................................. 441 265
--------- ---------
$ 1,440 $ 1,316
--------- ---------
--------- ---------
</TABLE>
4. BANK BORROWINGS:
On March 25, 1996, GSI entered into a loan agreement with a financial
institution which provides for an equipment loan of $700,000 with interest at
the bank's prime rate plus 1.25 percent (9.00 percent at June 30, 1999). The
note matures on June 30, 2000. Future minimum payments under the loan are
$82,000 in the fiscal year ending June 30, 2000.
The bank borrowings are collateralized by substantially all of GSI's assets.
In addition, GSI is required to maintain certain restrictive financial covenants
including minimum tangible net worth and a minimum quick ratio.
5. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASE AGREEMENTS:
The Company leases its facilities under a non-cancelable operating lease
that expires on April 1, 2004. The lease contains two options to extend the
lease term, with each extended term to be for a
F-12
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
period of five years. The Company is responsible for certain taxes, maintenance
costs and insurance under the lease. Future minimum rental payments under the
lease are as follows (IN THOUSANDS):
<TABLE>
<S> <C>
YEAR ENDING JUNE 30,
2000............................................................................... 740
2001............................................................................... 997
2002............................................................................... 1,024
2003............................................................................... 1,052
2004............................................................................... 805
---------
$ 4,618
---------
---------
</TABLE>
Rent expense for the years ended June 30, 1999, 1998 and 1997 was $635,244,
$625,488, and $600,645, respectively.
CAPITAL LEASE AGREEMENTS:
The Company has two capital lease agreements for office equipment. Amounts
financed under these leases total approximately $41,000, with associated
accumulated depreciation of $29,000. Future minimum lease payments under these
capital leases are $12,000 in the fiscal year ending June 30, 2000.
OTHER COMMITMENTS:
The Company has entered into certain royalty agreements to obtain technology
which provide for royalties ranging from one to four percent of the sales price
for products which utilize this technology. Amounts charged to operations for
the years ended June 30, 1999, 1998 and 1997 were $187,497, $289,255 and
$356,831, respectively.
Also, in 1994 in conjunction with obtaining technology, GSI entered into a
royalty agreement that provides for royalties of four percent of net sales for
products which utilize this technology through 2001. Minimum royalties under the
agreement are $75,000, $87,500 and $50,000 for the years ending June 30, 2000,
2001 and 2002, respectively.
CONTINGENCIES:
In May 1996, Origin Medsystems, Inc. ("Origin") a unit of Guidant
Corporation filed suit against GSI for infringement of U.S. Patent No. 5,520,609
in the United States District Court for the Northern District of California
(C96-20424JW). In April 1998, GSI obtained a summary judgment that the patent in
suit, Moll et al Patent No. 5,520,609, was unenforceable because it had been
obtained by misleading the Patent & Trademark Office, and an award of attorney's
fees of $990,000. The appellate court subsequently vacated this decision
because, in its view, there are factual issues which must be resolved in a trial
on whether Origin misled the PTO. In July 1999, the case was returned to the
district court for further proceedings.
In June 1996, GSI filed an action against Origin in the U.S. District Court
for the Northern District of California alleging that the use of Origin's
products infringes GSI's U.S. Patent No. 5,514,153 (C96-20447JW). The case was
decided in favor of GSI partly by summary judgment and partly by jury verdict,
both during fiscal 1999. Patent 5,514,153 ("the '153 patent") was found to be
valid, and Origin's infringement was found to be willful. Lost profits of
approximately $12.9 million were awarded to GSI by the jury. Origin is appealing
the infringement and willfulness findings (but not patent validity nor the
amount of infringement damages), and GSI is appealing for enhanced damages,
F-13
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
attorneys' fees and the failure to find infringement of additional claims. The
Company has not recorded a receivable for this gain contingency. Resolution is
expected in calendar year 2000. Following these findings, the Court has entered
an injunction prohibiting sale in the United States of all of Origin's balloon
dissection products, to become fully effective on November 15, 1999, and an
immediate injunction against sales to any new customers.
In September 1997, GSI filed an action against Origin alleging that the use
of Origin's products infringes GSI's U.S. Patent No. 5,667,520 (C97-20944JW).
Discovery is nearly complete in this case and the complaint has now been amended
to add a claim of infringement of GSI's patent number 5,860,997. This case is
now stayed pending the outcome of appeals in the '153 case.
GSI is also involved in an interference proceeding in the U.S. Patent Office
against Origin to determine whether certain subject matter was first invented by
GSI and whether the disputed matter is patentable. In November 1998, binding
arbitration determined that GSI was first to invent the disputed subject matter
and therefore is the only party entitled to any patent. Additionally, the Patent
Office Appeals Board found the subject matter to be patentable. This latter
finding is being appealed by Origin to the Court of Appeals for the Federal
Circuit. Resolution is expected in calendar year 2000.
On April 9, 1999, a suit was filed against GSI in the United States District
Court for the Southern District of Illinois. This suit, brought by Dr. Peter M.
Bonutti and by Bonutti Research, Inc., seeks a 50 percent share of the $12.9
million damages judgment GSI obtained in its suit against Origin and seeks
rescission of the 1995 agreement by which GSI obtained assignment of certain
Bonutti technology. From this assigned technology, GSI prosecuted patent
applications which became the '153 and other patents, which credit Dr. Bonutti
as sole inventor. This case is in the discovery phase.
While GSI believes it will be successful in these proceedings, there can be
no assurance of such success. Failure of the Company to prevail in such
proceedings would have a material adverse effect on GSI's business, financial
condition and results of operations.
6. SHAREHOLDERS' EQUITY:
PREFERRED STOCK:
Under GSI's Articles of Incorporation, GSI's preferred stock is issuable in
series and GSI's Board of Directors is authorized to determine the rights,
preferences and terms of each series.
During 1996, GSI amended its Articles of Incorporation to authorize
2,000,000 shares of undesignated preferred stock. Preferred stock may be issued
from time to time in one or more series. As of June 30, 1999, the Company had no
shares issued and outstanding.
COMMON STOCK:
The Company has issued through June 30, 1999, shares of its common stock to
the founders and key employees of GSI under stock purchase agreements. Certain
stock purchase agreements (the "Agreements") contain provisions for the
repurchase of common stock by GSI in the event of termination of employment
during the vesting period following the date of employment. Generally, 25
percent of the shares of common stock purchased under the Agreements are
released from GSI's repurchase option at the end of twelve months from a
participant's hiring date with the remaining shares being released from
repurchase ratably over the next 36 months. At June 30, 1999, 14,897 shares are
subject to repurchase under the Agreements. Each share of common stock has the
right to one vote. The holders of common stock are also entitled to receive
dividends whenever funds are legally available and when declared by the Board of
Directors, subject to the prior rights of holders of any class of outstanding
stock having priority rights as to dividends.
F-14
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY: (CONTINUED)
STOCK OPTION PLANS:
1992 STOCK OPTION PLAN
GSI has an Incentive Stock Option Plan (the "Plan") under which 1,715,895
shares of common stock were originally reserved for issuance. An additional
500,000 and 400,000 shares were reserved in November 1997 and November 1996,
respectively, bringing the aggregate number of shares of common stock reserved
for issuance to 2,615,895 as of June 30, 1998. In November 1998, the Plan was
amended to: (i) increase the number of shares of common stock reserved for
issuance thereunder on the date of each annual meeting of the shareholders
during the period beginning on and including November 19, 1998 and ending
September 14, 2002 (the date the 1992 Plan terminates) by an amount equal to the
lesser of (x) four percent (four percent) of the total number of shares of GSI's
common stock issued and outstanding as of the last business day immediately
preceding the date of such annual meeting, or (y) 600,000 shares, and (ii)
increase the total maximum number of shares subject to options that may be
issued to any one employee during a fiscal year to 1,000,000 (effective as of
July 1, 1998). The maximum aggregate number of shares of common stock that may
be issued under the 1992 Plan is 5,015,895. At this time, an additional 438,773
shares were reserved, bringing the aggregate number of shares of common stock
reserved for issuance to 3,054,668 as of June 30, 1999.
Under the Plan, incentive options may be granted at prices not lower than
fair market value at the date of grant or 110 percent of the fair market value
if the optionee, immediately prior to the grant, owns stock representing 10
percent or more of the voting power or value of all securities. Nonstatutory
options may be granted at prices not lower than 85 percent of fair market value
at the date of grant as determined by the Board of Directors. Options granted
under the Plan are exercisable and vest at such times and under such conditions
as determined by the Board. The options generally expire from five years to ten
years from date of grant.
1995 DIRECTORS' STOCK OPTION PLAN
In November 1995, GSI adopted the Directors' Stock Option Plan ("the
Directors' Plan"), under which 164,726 shares of common stock have been reserved
for issuance. The Directors' Plan provides for the grant of nonstatutory stock
options to non-employee directors of GSI. The Directors' Plan provides an
initial option to purchase 27,454 shares of common stock, which vests annually
over four years, and beginning with the 1997 annual meeting, provides an
additional annual option to purchase 6,864 shares of common stock.
The exercise price of all stock options granted under the Directors' Plan
shall be equal to the fair market value of GSI's common stock on the date of
grant of the option. Options granted under the Directors' Plan have a term of
ten years.
An additional 25,000 shares have been granted outside of the above stock
options plans.
F-15
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY: (CONTINUED)
Stock option activity is set forth below (IN THOUSANDS, EXCEPT PER SHARE
DATA):
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------------------
WEIGHTED
SHARES AVERAGE AGGREGATE
AVAILABLE NUMBER OF PRICE PER PRICE IN
FOR GRANT SHARES SHARE DOLLARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances, June 30, 1996............................................. 696 1,096 $ 1.21 $ 1,322
Increase in shares reserved..................................... 400 -- -- --
Options granted................................................. (497) 497 8.65 4,299
Options exercised............................................... -- (172) .45 (78)
Options terminated.............................................. 58 (58) 2.21 (128)
----------- ----------- -----------
Balances, June 30, 1997............................................. 657 1,363 3.97 5,415
Increase in shares reserved..................................... 525 -- -- --
Options granted................................................. (1,153) 1,153 4.47 5,159
Options exercised............................................... -- (128) 1.00 (129)
Options terminated.............................................. 571 (571) 6.40 (3,655)
----------- ----------- -----------
Balances, June 30, 1998............................................. 600 1,817 3.74 6,790
Increase in shares reserved..................................... 439 -- -- --
Options granted................................................. (1,757) 1,757 2.29 4,031
Options exercised............................................... -- (33) 1.26 (42)
Options terminated.............................................. 1,295 (1,295) 4.69 (6,077)
----------- ----------- ----- -----------
Balances, June 30, 1999............................................. 577 2,246 $ 2.09 $ 4,702
----------- ----------- ----- -----------
----------- ----------- ----- -----------
</TABLE>
At June 30, 1999, stock options outstanding are as follows (IN THOUSANDS,
EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OF SHARES CONTRACTUAL LIFE EXERCISE PRICE OF SHARES EXERCISE PRICE
- ------------------------------------------- ----------- ----------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$0.0874 - $1.5600.......................... 584 5.8 $ 0.94 550 $ 0.92
$1.5601 - $4.0000.......................... 1,552 8.7 $ 2.25 73 $ 2.39
$4.0001 - $9.7500.......................... 110 8.6 $ 5.96 22 $ 8.02
----- -----
2,246 7.9 $ 2.09 645 $ 1.33
----- -----
----- -----
</TABLE>
At June 30, 1998 and 1997, options to purchase 679,327 and 434,609 shares
were exercisable at a weighted average exercise price of $2.49 and $1.60 per
share, respectively.
Compensation of approximately $600,000 has been attributed to stock options
granted after May 1995 and prior to the sale of GSI's common stock in an initial
public offering. The deferred compensation is being recognized as a charge to
income over the period for which the related stock options become exercisable,
which is generally four years. Amortization of the deferred compensation was
approximately $137,000, $138,000 and $199,000 during the years ended June 30,
1999, 1998 and 1997, respectively.
F-16
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY: (CONTINUED)
On August 5, 1997, GSI repriced 357,034 options, ranging in price from $5.63
to $22.25 per share, to the fair market value on that date of $4.38 per share.
GSI implemented a stock option exchange program effective October 6, 1998,
pursuant to which all holders of options issued under the 1992 Plan may
surrender for cancellation all options granted after May 10, 1996 (the date of
GSI's initial public offering) with a price above $1.5601, the fair market value
on the effective date. GSI cancelled 1,127,876 options, ranging in price from
$2.00 to $9.75, and reissued the same number of new options for an exercise
price of $1.5601. The new options were subject to a nine month restriction on
exercise (until July 6, 1999), subject to certain exceptions. All executive
officers of GSI were eligible to participate in the option exchange program.
PRO FORMA INFORMATION:
Had compensation costs for options awarded in fiscal 1999, 1998 and 1997
been determined based on the fair value at the grant date consistent with the
provisions of SFAS 123, GSI's net loss and net loss per share would have
resulted in the pro forma amounts indicated in the following (IN THOUSANDS,
EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Actual net loss.............................................................. $ (16,071) $ (9,142) $ (1,876)
Pro forma net loss........................................................... $ (18,819) $ (10,511) $ (2,661)
Actual net loss per share.................................................... $ (1.19) $ (.68) $ (.14)
Pro forma net loss per share................................................. $ (1.40) $ (.79) $ (.20)
</TABLE>
The above pro forma disclosures are not necessarily representative of the
effects on reported net income (loss) in future years.
In fiscal 1999, 1998 and 1997, the weighted-average fair value of options
granted during the year was $1.74, $2.61 and $5.12, 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 used for
grants:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Dividend yield................................................................... 0.00% 0.00% 0.00%
Expected volatility.............................................................. 97.00% 62.00% 62.00%
Risk-free interest rate.......................................................... 5.58% 5.93% 6.69%
Expected term.................................................................... 5 Years 5 Years 5 Years
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN:
In March 1996, the Board of Directors adopted the 1996 Employee Stock
Purchase Plan (the "ESPP") and reserved 274,543 shares of common stock for
issuance. The purpose of the ESPP is to provide eligible employees of GSI with a
means of acquiring common stock of GSI through payroll deductions. The purchase
price of such stock under the ESPP cannot be less than 85 percent of the
F-17
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. SHAREHOLDERS' EQUITY: (CONTINUED)
lower of the fair market value on the specified purchase date or at the
beginning of the offering period. At June 30, 1999, 69,670 shares had been
issued under the ESPP.
COMMON STOCK PURCHASE RIGHTS:
In May 1997, GSI distributed a dividend to shareholders comprised of a right
to purchase one share of common stock (a "Right") for each outstanding share of
common stock of GSI they hold. These Rights do not become exercisable or
transferable apart from the common stock until the Distribution Date which is
the tenth day after a person or group either (a) acquires beneficial ownership
of 15 percent or more of GSI's common stock or (b) announces a tender or
exchange offer, the consummation of which would result in ownership by a person
or group of 15 percent or more of GSI's common stock. After the Distribution
Date, each Right will entitle the holder to purchase from GSI one share of
common stock at a price of $35 per share.
If GSI is acquired in a merger or other business combination transaction, or
if 50 percent or more of its assets or earnings power is sold, each Right will
entitle the holder to purchase at the exercise price that number of shares of
the acquiring company having a then current market value of two times the
exercise price of the Right. In the event that GSI is the surviving corporation
in a merger and GSI's common stock remains outstanding, or in the event that an
acquiring party engages in certain self-dealing transactions, each Right not
owned by the acquiring party will entitle the holder to purchase at the exercise
price that number of shares of GSI's common stock having a then current market
value of two times the exercise price of the Right.
The Rights are redeemable at GSI's option for $.01 per Right prior to
becoming exercisable, may be amended at GSI's option on or prior to the
Distribution Date and expire on May 8, 2007.
7. EMPLOYEE BENEFIT PLAN:
GSI has a qualified 401(k) plan available to substantially all employees
over the age of 21. Participants may contribute up to 20 percent of their annual
compensation to the plan, limited to a maximum amount set by the Internal
Revenue Service. GSI may make contributions to the 401(k) plan at the discretion
of the Board of Directors. No Company contributions have been made to the plan
since inception.
8. INCOME TAXES:
At June 30, 1999, GSI had federal and state net operating loss carryforwards
of $37.3 million and $11.5 million, respectively, which expire in the years 1999
- -2019.
As a result of a change in ownership, as defined, federal and state net
operating loss carryforwards are subject to an annual limitation of $400,000.
F-18
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES: (CONTINUED)
Temporary differences and carryforwards that gave rise to significant
portions of deferred tax assets and liabilities are as follows (IN THOUSANDS):
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1999 1998
----------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................................................... $ 13,364 $ 7,657
Capitalized research expenses......................................................... 433 370
Research and development credit carryforward.......................................... 665 421
Accrued liabilities and other......................................................... 335 240
Valuation allowance................................................................... (14,797) (8,688)
----------- ---------
$ -- $ --
----------- ---------
----------- ---------
</TABLE>
In accordance with generally accepted accounting principles, a valuation
allowance must be established for a deferred tax asset if it is more likely than
not that a tax benefit will not be realized from the asset in the future. GSI
has established a valuation allowance to the extent of its deferred tax assets
since it is more likely than not that a benefit will not be realized in the
future due to GSI's recurring operating losses.
GSI's effective tax rate differs from the statutory federal income tax rate
as shown in the following schedule:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income tax benefit at statutory rate........................................................... (34)% (34)% (34)%
Net operating loss not benefited............................................................... 34 34 34
Total.......................................................................................... -- -- --
---- ---- ----
---- ---- ----
Effective tax rate............................................................................. 0% 0% 0%
---- ---- ----
---- ---- ----
</TABLE>
9. RELATED PARTY TRANSACTIONS:
GSI entered into certain product development arrangements and royalty
agreements with a sole proprietorship which is owned by a director of GSI. Under
these agreements, GSI pays royalties of one to four percent of the sales price
for products which utilize the technology obtained. GSI has paid this sole
proprietorship $88,030, $111,536 and $190,485 in fiscal years 1999, 1998 and
1997, respectively.
GSI has a note receivable for $300,000 from an officer of GSI. The note
accrues interest at 5.42% per annum. The principal and accrued interest will be
forgiven monthly in the form of bonus payments of $68,750 on September 3, 1998
and monthly over a 53 month period thereafter provided the officer is an
employee of GSI. In the event of termination of the officer's employment with
GSI without cause, the aggregate amount of all bonus payments that would have
been otherwise received will be paid by GSI in one bonus payment. At June 30,
1999, the note receivable from related party was $193,405.
F-19
<PAGE>
GENERAL SURGICAL INNOVATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. SEGMENT INFORMATION:
GSI, which operates in a single industry segment, designs, manufactures and
markets balloon dissection systems and related minimally invasive surgical
instruments and sells its products globally. The following is a summary of GSI's
geographic operations (IN THOUSANDS):
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Domestic............................................................................. $ 6,328 $ 6,618 $ 8,944
International........................................................................ 548 210 42
--------- --------- ---------
Total revenue $ 6,876 $ 6,828 $ 8,986
--------- --------- ---------
--------- --------- ---------
</TABLE>
GSI's assets are located in the United States. GSI does not segregate
information related to operating income generated by its export sales.
11. SUBSEQUENT EVENTS (UNAUDITED):
TYCO MERGER:
In August 1999, GSI and Tyco International Ltd. ("Tyco") entered into a
definitive agreement pursuant to which TYCO will acquire GSI. GSI shareholders
will receive a fraction of a TYCO common share valued at $7.50 per common share
for each common share of GSI. The transaction is valued at approximately $100
million. The closing of this deal is contingent upon shareholder approval of
GSI.
F-20
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GENERAL ACQUISITION CORP.,
GENERAL SUB ACQUISITION CORP.
AND
GENERAL SURGICAL INNOVATIONS, INC.
INCLUDING
GUARANTEE
OF
TYCO INTERNATIONAL LTD.
DATED AS OF AUGUST 23, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ARTICLE I
THE MERGER................................................................................................ A-1
SECTION 1.01. The Merger................................................................................ A-1
SECTION 1.02. Effective Time............................................................................ A-2
SECTION 1.03. Effect of the Merger...................................................................... A-2
SECTION 1.04. Articles of Incorporation; By-laws........................................................ A-2
SECTION 1.05. Directors and Officers.................................................................... A-2
SECTION 1.06. Effect on Securities, Etc................................................................. A-3
SECTION 1.07. Exchange of Certificates.................................................................. A-4
SECTION 1.08. Dissenting Shares......................................................................... A-5
SECTION 1.09. Stock Transfer Books...................................................................... A-5
SECTION 1.10. No Further Ownership Rights in Company Common Stock....................................... A-5
SECTION 1.11. Lost, Stolen or Destroyed Certificates.................................................... A-6
SECTION 1.12. Tax Consequences.......................................................................... A-6
SECTION 1.13. Taking of Necessary Action; Further Action................................................ A-6
SECTION 1.14. Material Adverse Effect................................................................... A-6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................. A-6
SECTION 2.01. Organization and Qualification; Subsidiaries.............................................. A-6
SECTION 2.02. Articles of Incorporation and By-laws..................................................... A-7
SECTION 2.03. Capitalization............................................................................ A-7
SECTION 2.04. Authority Relative to this Agreement...................................................... A-8
SECTION 2.05. No Conflict; Required Filings and Consents................................................ A-8
SECTION 2.06. Compliance; Permits....................................................................... A-9
SECTION 2.07. SEC Filings; Financial Statements......................................................... A-10
SECTION 2.08. Absence of Certain Changes or Events...................................................... A-10
SECTION 2.09. No Undisclosed Liabilities................................................................ A-10
SECTION 2.10. Absence of Litigation..................................................................... A-10
SECTION 2.11. Employee Benefit Plans; Employment Agreements............................................. A-11
SECTION 2.12. Employment and Labor Matters.............................................................. A-13
SECTION 2.13. Registration Statement; Proxy Statement/Prospectus........................................ A-15
SECTION 2.14. Restrictions on Business Activities....................................................... A-15
SECTION 2.15. Title to Property......................................................................... A-15
SECTION 2.16. Taxes..................................................................................... A-16
SECTION 2.17. Environmental Matters..................................................................... A-16
SECTION 2.18. Brokers................................................................................... A-18
SECTION 2.19. Intellectual Property..................................................................... A-18
SECTION 2.20. Interested Party Transactions............................................................. A-19
SECTION 2.21. Insurance................................................................................. A-19
SECTION 2.22. Product Liability and Recalls............................................................. A-19
SECTION 2.23. Opinion of Financial Advisor.............................................................. A-19
SECTION 2.24. Rights Agreement.......................................................................... A-20
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB................................................... A-20
SECTION 3.01. Organization and Qualification; Subsidiaries.............................................. A-20
SECTION 3.02. Capitalization............................................................................ A-20
SECTION 3.03. Authority Relative to this Agreement...................................................... A-21
SECTION 3.04. No Conflicts; Required Filings and Consents............................................... A-21
</TABLE>
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SECTION 3.05. Compliance................................................................................ A-22
SECTION 3.06. SEC Filings; Financial Statements......................................................... A-22
SECTION 3.07. Absence of Certain Changes or Events...................................................... A-22
SECTION 3.08. No Undisclosed Liabilities................................................................ A-23
SECTION 3.09. Absence of Litigation..................................................................... A-23
SECTION 3.10. Registration Statement; Proxy Statement/Prospectus........................................ A-23
SECTION 3.11. Brokers................................................................................... A-24
SECTION 3.12. Ownership of Merger Sub; No Prior Activities.............................................. A-24
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER.................................................................... A-24
SECTION 4.01. Conduct of Business by the Company Pending the Merger..................................... A-24
SECTION 4.02. No Solicitation........................................................................... A-26
SECTION 4.03. Conduct of Business by Guarantor Pending the Merger....................................... A-27
ARTICLE V
ADDITIONAL AGREEMENTS..................................................................................... A-28
SECTION 5.01. Proxy Statement/Prospectus; Registration Statement........................................ A-28
SECTION 5.02. Company Shareholders Meeting.............................................................. A-28
SECTION 5.03. Access to Information; Confidentiality.................................................... A-29
SECTION 5.04. Consents; Approvals....................................................................... A-29
SECTION 5.05. Agreements with Respect to Affiliates..................................................... A-29
SECTION 5.06. Indemnification and Insurance............................................................. A-29
SECTION 5.07. Notification of Certain Matters........................................................... A-30
SECTION 5.08. Further Action/Tax Treatment.............................................................. A-31
SECTION 5.09. Public Announcements...................................................................... A-31
SECTION 5.10. Guarantor Common Shares................................................................... A-31
SECTION 5.11. Conveyance Taxes.......................................................................... A-31
SECTION 5.12. Option Plans and Benefits, etc............................................................ A-32
SECTION 5.13. Rights Agreement.......................................................................... A-32
SECTION 5.14. Accountant's Letters...................................................................... A-32
SECTION 5.15. Compliance with State Property Transfer Statutes.......................................... A-32
ARTICLE VI
CONDITIONS TO THE MERGER.................................................................................. A-32
SECTION 6.01. Conditions to Obligation of Each Party to Effect the Merger............................... A-32
SECTION 6.02. Additional Conditions to Obligations of Parent and Merger Sub............................. A-33
SECTION 6.03. Additional Conditions to Obligation of the Company........................................ A-34
ARTICLE VII
TERMINATION............................................................................................... A-34
SECTION 7.01. Termination............................................................................... A-34
SECTION 7.02. Effect of Termination..................................................................... A-36
SECTION 7.03. Fees and Expenses......................................................................... A-36
ARTICLE VIII
GENERAL PROVISIONS........................................................................................ A-38
SECTION 8.01. Effectiveness of Representations, Warranties and Agreements............................... A-38
SECTION 8.02. Notices................................................................................... A-38
SECTION 8.03. Certain Definitions....................................................................... A-39
SECTION 8.04. Amendment................................................................................. A-39
SECTION 8.05. Waiver.................................................................................... A-39
SECTION 8.06. Headings.................................................................................. A-40
SECTION 8.07. Severability.............................................................................. A-40
</TABLE>
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SECTION 8.08. Entire Agreement.......................................................................... A-40
SECTION 8.09. Assignment................................................................................ A-40
SECTION 8.10. Parties in Interest....................................................................... A-40
SECTION 8.11. Failure or Indulgence Not Waiver; Remedies Cumulative..................................... A-40
SECTION 8.12. Governing Law; Jurisdiction............................................................... A-40
SECTION 8.13. Counterparts.............................................................................. A-41
SECTION 8.14. WAIVER OF JURY TRIAL...................................................................... A-41
GUARANTEE
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 23, 1999 (this
"AGREEMENT"), among General Acquisition Corp. ("PARENT"), a Nevada corporation
and a direct, wholly-owned subsidiary of Tyco International Ltd. ("GUARANTOR"),
General Sub Acquisition Corp., a California corporation and a direct,
wholly-owned subsidiary of Parent ("MERGER SUB"), and General Surgical
Innovations, Inc., a California corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent, Merger Sub and the Company have
each determined that it is advisable and in the best interests of their
respective shareholders, and consistent with and in furtherance of their
respective business strategies and goals, for Parent to acquire all of the
outstanding shares of the Company through the merger of Merger Sub with and into
the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
Parent, Merger Sub and the Company have each approved the merger (the "MERGER")
of Merger Sub with and into the Company in accordance with the applicable
provisions of the California General Corporation Law (the "CGCL"), and upon the
terms and subject to the conditions set forth herein;
WHEREAS, Parent, Merger Sub and the Company intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder and that the
transactions contemplated by this Agreement be undertaken pursuant to such plan;
WHEREAS, pursuant to the Merger, each outstanding share (together with the
common stock purchase right associated therewith, a "SHARE") of the Company's
common stock, par value $0.001 per share (the "COMPANY COMMON STOCK"), shall be
converted into the right to receive the Merger Consideration (as defined in
Section 1.07(b)), upon the terms and subject to the conditions set forth herein;
WHEREAS, concurrently with the execution and delivery of this Agreement, and
as a condition to the Company's willingness to enter into this Agreement,
Guarantor has agreed fully and unconditionally to guarantee the representations,
warranties, covenants, agreements and other obligations of Parent and Merger Sub
in this Agreement (the "GUARANTEE"); and
WHEREAS, as a condition and inducement to Parent entering into this
Agreement and incurring the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, Parent is entering into a Voting
Agreement with each of certain shareholders of the Company (each, a "SELLING
SHAREHOLDER"), in the form of EXHIBIT A hereto (the "VOTING AGREEMENT") pursuant
to which, among other things, such Selling Shareholder has agreed to vote the
shares of Company Common Stock owned by such Selling Shareholder in favor of
this Agreement and the Merger provided for herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. (a) At the Effective Time (as defined in Section
1.02), and subject to and upon the terms and conditions of this Agreement and
the CGCL, Merger Sub shall be merged
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with and into the Company, the separate corporate existence of Merger Sub shall
cease, and the Company shall continue as the surviving corporation (hereinafter
sometimes referred to as the "SURVIVING CORPORATION").
SECTION 1.02. EFFECTIVE TIME. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 7.01, as promptly as practicable (and in any event within
two business days) after the satisfaction or waiver of the conditions set forth
in Article VI, the parties hereto shall cause the Merger to be consummated by
filing a properly executed agreement or certificate of merger as contemplated by
the CGCL (the "CERTIFICATE OF MERGER"), together with any required related
certificates, with the Secretary of State of the State of California, in such
form as required by, and executed in accordance with the relevant provisions of,
the CGCL. The Merger shall become effective at the time of such filing or at
such later time, which will be as soon as reasonably practicable, specified in
the Certificate of Merger (the "EFFECTIVE TIME"). Prior to such filing, a
closing shall be held at the offices of Kramer Levin Naftalis & Frankel LLP, 919
Third Avenue, New York, NY, unless another time or place is agreed to in writing
by the parties hereto, for the purpose of confirming the satisfaction or waiver,
as the case may be, of the conditions set forth in Article VI.
SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the CGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
SECTION 1.04. ARTICLES OF INCORPORATION; BY-LAWS. (a) ARTICLES OF
INCORPORATION. Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Amended and Restated Articles of Incorporation
of the Company, as in effect immediately prior to the Effective Time, shall be
the Articles of Incorporation of the Surviving Corporation until thereafter
amended as provided by the CGCL and such Articles of Incorporation; PROVIDED,
HOWEVER, that Article III of the Surviving Corporation's Articles of
Incorporation shall be amended and restated in the Merger to read in its
entirety as follows: "ARTICLE III. The aggregate number of shares authorized is
1,000 shares of common stock, par value $0.01 per share."
(b) BY-LAWS. The Amended and Restated By-laws of the Company, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter amended as provided by the CGCL, the Articles of
Incorporation of the Surviving Corporation and such By-laws; PROVIDED, HOWEVER,
that Section 3.2 of the Surviving Corporation's By-laws shall be amended and
restated in the Merger to read in its entirety as follows: "The number of
directors of the corporation shall be three (3). The number of directors may be
changed by an amendment to this Section 3.2 duly adopted by the board of
directors."; PROVIDED, FURTHER, that Section 3.3 of the Surviving Corporation's
By-laws shall be amended and restated in the Merger to read in its entirety as
follows: "Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which such director was elected and until a successor has been elected and
qualified."
SECTION 1.05. DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
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SECTION 1.06. EFFECT ON SECURITIES, ETC. At the Effective Time, by virtue
of the Merger and without any action on the part of Parent, Merger Sub, the
Company or the holders of any securities of the Company:
(a) CONVERSION OF SECURITIES. Each Share issued and outstanding
immediately prior to the Effective Time (excluding any Shares to be canceled
pursuant to Section 1.06(b) and any Dissenting Shares) shall be converted,
subject to Sections 1.06(e), 1.06(f) and 7.01(j), into the right to receive from
Parent a fraction of a validly issued, fully paid and nonassessable common
share, par value $0.20 per share, of Guarantor (a "GUARANTOR COMMON SHARE") such
fraction to be in the ratio (the "EXCHANGE RATIO") of $7.50 divided by the
Average Share Price.
"AVERAGE SHARE PRICE" means the average of the Daily Per Share Prices (as
hereinafter defined) for the five consecutive trading days ending on the fourth
trading day prior to date of the Company Shareholders Meeting (as defined in
Section 2.13). The "DAILY PER SHARE PRICE" for any trading day means the
volume-weighted average of the per share selling prices on the New York Stock
Exchange, Inc. (the "NYSE") of Guarantor Common Shares (as reported in the NYSE
Composite Transaction Tape) for that day.
(b) CANCELLATION. Each Share held in the treasury of the Company and each
Share owned by Parent, Merger Sub or any direct or indirect, wholly-owned
subsidiary of the Company or Guarantor immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be canceled and retired without payment of any
consideration therefor and cease to exist.
(c) STOCK OPTIONS. At the Effective Time, by virtue of the Merger and
without any further action on the part of the holders thereof, each outstanding
option to purchase shares of Company Common Stock (collectively, the "COMPANY
STOCK OPTIONS"), whether or not then vested or exercisable, shall constitute the
right to receive an amount in cash equal to the positive difference, if any,
between (i) the product of the Exchange Ratio and the Average Share Price,
multiplied by the number of shares of Company Common Stock for which the Company
Stock Option was exercisable immediately prior to the Effective Time and (ii)
the aggregate exercise price of the Company Common Stock purchasable pursuant to
such Company Stock Option. Any Company Stock Option the exercise price of which
as of the Effective Time equals or exceeds the amount equal to the product of
the Exchange Ratio and the Average Share Price shall be cancelled and be of no
further force and effect as of the Effective Time.
(d) CAPITAL STOCK OF MERGER SUB. Each share of common stock, $0.01 par
value per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, $0.01 par value, of the
Surviving Corporation.
(e) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
appropriately adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Guarantor Common Shares or Company Common Stock), distribution,
exercise or exchange of Rights (as defined in Section 4.02(d)) or such Rights
becoming exercisable, reorganization, recapitalization, split up, combination or
exchange of shares or other like event with respect to Guarantor Common Shares
or Company Common Stock occurring after the date hereof and prior to the
Effective Time.
(f) FRACTIONAL SHARES. No certificates or scrip representing less than one
Guarantor Common Share shall be issued upon the surrender for exchange of a
certificate or certificates or other evidence for shares issued pursuant to the
Company's direct registration system which immediately prior to the Effective
Time represented outstanding Shares (the "CERTIFICATES"). In lieu of any such
fractional share, each holder of Shares who would otherwise have been entitled
to a fraction of a Guarantor Common Share upon surrender of Certificates for
exchange shall be paid upon such surrender cash (without
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interest) in an amount equal to such fraction multiplied by the last reported
sale price per Guarantor Common Share on the NYSE Composite Transaction Tape on
the last trading day prior to the date of the Effective Time.
SECTION 1.07. EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. Parent shall
cause to be supplied to or for such bank or trust company as shall be designated
by Parent and shall be reasonably acceptable to the Company (the "EXCHANGE
AGENT"), in trust for the benefit of the holders of Company Common Stock, as
needed for exchange in accordance with this Section 1.07 through the Exchange
Agent, certificates evidencing the Guarantor Common Shares issuable pursuant to
Section 1.06(a) and the cash to be paid in lieu of fractional shares in exchange
for outstanding Shares.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, Parent will cause the Exchange Agent to mail to each holder of
record of Certificates (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Parent may reasonably
specify), and (ii) instructions to effect the surrender of the Certificates in
exchange for the certificates evidencing Guarantor Common Shares. Upon surrender
of a Certificate for cancellation to the Exchange Agent together with such
letter of transmittal, duly executed, and such other customary documents as may
be required pursuant to such instructions, the holder of such Certificate shall
be entitled to receive in exchange therefor solely (A) certificates evidencing
that number of whole Guarantor Common Shares which such holder has the right to
receive in accordance with the Exchange Ratio in respect of the Shares formerly
evidenced by such Certificate and (B) cash in respect of fractional shares as
provided in Section 1.06(f) (the Guarantor Common Shares and cash in respect of
fractional shares being, collectively, the "MERGER CONSIDERATION"). The holder
of such Certificate, upon its exchange for Guarantor Common Shares, shall also
receive any dividends or other distributions to which such holder is entitled
pursuant to Section 1.07(c). Certificates surrendered pursuant to this Section
1.07(b) shall forthwith be canceled. In the event of a transfer of ownership of
Shares which is not registered in the transfer records of the Company as of the
Effective Time, Merger Consideration, dividends or distributions may be issued
and paid in accordance with this Article I to a transferee if the Certificate
evidencing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer pursuant to this Section
1.07(b) and by evidence that any applicable stock transfer taxes have been paid.
Until so surrendered, each outstanding Certificate that, prior to the Effective
Time, represented Shares of Company Common Stock will be deemed from and after
the Effective Time, for all corporate purposes, other than the payment of
dividends or other distributions, to evidence the ownership of the number of
full Guarantor Common Shares, and cash in respect of fractional shares, into
which such Shares of Company Common Stock shall have been so converted.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Guarantor Common Shares with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
Guarantor Common Shares he is entitled to receive until the holder of such
Certificate shall surrender such Certificate in accordance with the provisions
of Section 1.07(b). Subject to applicable law, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole Guarantor Common Shares issued in exchange therefor, without
interest, at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole Guarantor Common Shares.
(d) TRANSFERS OF OWNERSHIP. If any certificate for Guarantor Common Shares
is to be issued in a name other than that in which the Certificate surrendered
in exchange therefor is registered, it will be a condition of the issuance
thereof that the Certificate so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a
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certificate for Guarantor Common Shares in any name other than that of the
registered holder of the certificate surrendered, or establish to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(e) ESCHEAT. Neither Parent, Merger Sub nor the Company nor any of their
respective affiliates shall be liable to any holder of Company Common Stock for
any Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(f) WITHHOLDING RIGHTS. The Exchange Agent shall be entitled to deduct and
withhold from the Merger Consideration otherwise payable pursuant to this
Agreement to any holder of Company Common Stock and from any cash dividends or
other distributions that the holder is entitled to receive under Section
1.07(c), such amounts as the Exchange Agent is required to deduct and withhold
with respect to the making of such payment under the Code, or any provision of
state, local or non-United States tax law. To the extent that amounts are so
withheld by the Exchange Agent, such portion of the Merger Consideration and
other such amounts payable under Section 1.07(c) that are withheld shall be
treated for all purposes of this Agreement as having been received by the holder
of the Shares in respect of which such deduction and withholding was made by the
Exchange Agent.
(g) UNDISTRIBUTED CERTIFICATES. Any portion of the certificates evidencing
the Guarantor Common Shares and the cash to be paid in lieu of fractional shares
supplied to the Exchange Agent which remains undistributed to the holders of the
Certificates for one year after the Effective Time shall be delivered to Parent,
upon demand, and any holders of the Certificates who have not theretofore
complied with this Section 1.07 shall thereafter look only to Parent for payment
of their claim for Merger Consideration and any dividends or distributions with
respect to Guarantor Common Shares.
SECTION 1.08. DISSENTING SHARES. Notwithstanding anything to the contrary
contained in this Agreement, any Shares outstanding immediately prior to the
Effective Time that were not voted in favor of the Merger and are held by
shareholders who have complied with the applicable provisions of Chapter 13 of
the CGCL (the "DISSENTING SHARES") shall not be converted into or represent the
right to receive Guarantor Common Shares in accordance with Section 1.06(a) (or
cash in lieu of fractional shares in accordance with Section 1.06(f)), and each
holder of Dissenting Shares shall be entitled only to such rights as may be
granted to such holder under Chapter 13 of the CGCL. From and after the
Effective Time, a holder of Dissenting Shares shall not have and shall not be
entitled to exercise any of the voting rights or other rights of a shareholder
of Guarantor. If any holder of Dissenting Shares shall fail to assert or
perfect, or shall waive, rescind, withdraw or otherwise lose, such holder's
right to dissent and obtain payment under Chapter 13 of the CGCL, then such
shares shall automatically be converted into and shall represent only the right
to receive (upon the surrender of the Certificate(s) previously representing
such Shares) Guarantor Common Shares in accordance with Section 1.06(f) (and
cash in lieu of any fractional share in accordance with Section 1.06(f)). In no
event shall Guarantor, Parent or any of their respective affiliates (other than
a subsidiary of the Company) reimburse the Company for any payment with respect
to the Dissenting Shares.
SECTION 1.09. STOCK TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
registration of transfers of the Company Common Stock thereafter on the records
of the Company.
SECTION 1.10. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The
Merger Consideration delivered upon the surrender for exchange of Shares in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
Shares which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
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SECTION 1.11. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such Guarantor Common
Shares as may be required pursuant to Section 1.06(a); PROVIDED, HOWEVER, that
Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Guarantor, Parent or the Exchange Agent with
respect to the Certificates alleged to have been lost, stolen or destroyed.
SECTION 1.12. TAX CONSEQUENCES. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section 368
of the Code and the regulations promulgated thereunder. The parties hereto
hereby adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
SECTION 1.13. TAKING OF NECESSARY ACTION; FURTHER ACTION. Each of Parent,
Merger Sub and the Company will take all such reasonable and lawful actions as
may be necessary or appropriate in order to effectuate the Merger and the other
transactions contemplated by this Agreement in accordance with this Agreement as
promptly as possible. If, at any time after the Effective Time, any such further
action is necessary or desirable to carry out the purposes of this Agreement and
to vest the Surviving Corporation with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of the Company and
Merger Sub, the officers and directors of the Company and Merger Sub immediately
prior to the Effective Time are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
SECTION 1.14. MATERIAL ADVERSE EFFECT. When used in connection with the
Company or any of its subsidiaries or Guarantor or any of its subsidiaries, as
the case may be, the term "MATERIAL ADVERSE EFFECT" means any change, effect or
circumstance that is or would reasonably be expected to be materially adverse to
the business, assets (including intangible assets), financial condition or
results of operations of the Company and its subsidiaries or Guarantor and its
subsidiaries, as the case may be, in each case taken as a whole; PROVIDED,
HOWEVER, that effects of changes that are applicable to (A) the United States
economy generally, (B) the United States securities markets generally, (C) the
healthcare or medical device industries generally, or (D) with respect to the
Company, changes or developments in any of the Company's pending litigation
matters set forth in Section 1.14 of the written disclosure schedule previously
delivered by the Company to Parent (the "COMPANY DISCLOSURE SCHEDULE") shall be
excluded from the definition of "Material Adverse Effect" and from any
determination as to whether a Material Adverse Effect has occurred or may occur.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub as
follows:
SECTION 2.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of the
Company and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has the requisite corporate power and authority necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power or authority
would not reasonably be expected to have a Material Adverse Effect. Each of the
Company and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would not
reasonably be expected to have a Material Adverse Effect. A true and complete
list of all of the
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Company's "significant" subsidiaries, as defined in Regulation S-X, is included
as an exhibit to the Company's 1998 Annual Report on Form 10-K (the "COMPANY
SIGNIFICANT SUBSIDIARIES"). The Company has furnished or will furnish to Parent
a list of all subsidiaries of the Company together with the jurisdiction of
incorporation of each such subsidiary and the percentage of each such
subsidiary's outstanding capital stock owned by the Company or another
subsidiary of the Company in Section 2.01 of the Company Disclosure Schedule.
Except as set forth in Section 2.01 of the Company Disclosure Schedule or the
Company SEC Documents (as defined in Section 2.07 below), the Company does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity (other than its wholly-owned subsidiaries), with respect
to which interest the Company has invested (and currently owns) or is required
to invest $100,000 or more, excluding securities in any publicly-traded company
held for investment by the Company and comprising less than five percent of the
outstanding stock of such company.
SECTION 2.02. ARTICLES OF INCORPORATION AND BY-LAWS. The Company has
heretofore made available to Parent a complete and correct copy of its Amended
and Restated Articles of Incorporation and By-laws as amended to date (the
"COMPANY CHARTER DOCUMENTS"), and will make available to Parent, as promptly as
practicable, the Articles of Incorporation and By-laws (or equivalent
organizational documents) of each of its subsidiaries reasonably requested by
Parent (the "SUBSIDIARY DOCUMENTS"). Such Company Charter Documents and
Subsidiary Documents are in full force and effect. Neither the Company nor any
of its subsidiaries is in violation of any of the provisions of its Articles of
Incorporation or By-laws or equivalent organizational documents, except for
violations of the documents which do not and are not reasonably likely to
materially interfere with the operations of such entity.
SECTION 2.03. CAPITALIZATION. The authorized capital stock of the Company
consists of 50,000,000 shares of Company Common Stock and 2,000,000 shares of
preferred stock, par value $0.001 per share (the "COMPANY PREFERRED STOCK"). As
of July 31, 1999, (i) 13,546,347 shares of Company Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable
(excluding shares which are issued but not outstanding all of which are not
entitled to vote), (ii) no shares of Company Common Stock were held by
subsidiaries of the Company, (iii) 2,115,838 shares of Company Common Stock were
reserved for existing grants and 780,531 shares were reserved for future grants
pursuant to (A) the Company's 1992 Stock Option Plan, as amended, (B) the
Company's 1995 Directors' Stock Option Plan, as amended, or (C) any other stock
option plan or agreement of the Company (collectively, the "COMPANY STOCK OPTION
PLANS"), and (iv) 204,873 shares of Company Common Stock were reserved and
available for future issuance pursuant to the Company's 1996 Employee Stock
Purchase Plan (the "COMPANY STOCK PURCHASE PLAN"). There are no outstanding
shares of Company Preferred Stock. Except as set forth in Section 2.03 of the
Company Disclosure Schedule, no change in such capitalization has occurred since
July 31, 1999, except for changes resulting from the exercise of Company Stock
Options. Except as set forth in Section 2.01, this Section 2.03 or Section 2.11
or in Section 2.03 or Section 2.11 of the Company Disclosure Schedule or the
Company SEC Documents, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character binding on the Company
or any of its subsidiaries relating to the issued or unissued capital stock of
the Company or any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any of its subsidiaries. All shares of Company
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully-paid and nonassessable. Except
as disclosed in Section 2.03 of the Company Disclosure Schedule or the Company
SEC Documents, there are no obligations, contingent or otherwise, of the Company
or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares
of Company Common Stock or the capital stock of any subsidiary. Except as
disclosed in Section 2.03 of the Company Disclosure Schedule or the
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Company SEC Documents, there are no obligations, contingent or otherwise, of the
Company or any of its subsidiaries to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any such
subsidiary or any other entity other than guarantees of bank obligations of
subsidiaries entered into in the ordinary course of business and other than
obligations in amounts less than $50,000 individually and $250,000 in the
aggregate. Except as set forth in Sections 2.01 and 2.03 of the Company
Disclosure Schedule, all of the outstanding shares of capital stock (other than
directors' qualifying shares) of each of the Company's subsidiaries are duly
authorized, validly issued, fully-paid and nonassessable, and all such shares
(other than directors' qualifying shares and a DE MINIMIS number of shares owned
by employees of such subsidiaries) are owned by the Company or another
subsidiary free and clear of all security interests, liens, claims, pledges,
agreements, limitations in the Company's voting rights, charges or other
encumbrances of any nature whatsoever.
SECTION 2.04. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than the
approval of the Merger and this Agreement by the Company's shareholders in
accordance with the CGCL and the Company's Charter Documents). As of the date
hereof, the Board of Directors of the Company has (a) unanimously determined
that it is advisable and in the best interest of the Company's shareholders for
the Company to enter into this Agreement and to consummate the Merger upon the
terms and subject to the conditions of this Agreement, (b) unanimously approved
this Agreement and the Merger in accordance with the applicable provisions of
the CGCL, and (c) unanimously recommended the adoption and approval of this
Agreement and the Merger by holders of the Company Common Stock and directed
that this Agreement and the Merger be submitted for consideration by the
Company's shareholders at the Company Shareholders Meeting. This Agreement has
been duly and validly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by Guarantor, Parent and Merger Sub of
such agreement and/or the Guarantee thereof, as applicable, constitutes a legal,
valid and binding obligation of the Company.
SECTION 2.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) Section
2.05(a) of the Company Disclosure Schedule includes, as of the date hereof, a
list of (i) other than intercompany, all loan agreements, indentures, mortgages,
pledges, conditional sale or title retention agreements, security agreements,
equipment obligations, guaranties, standby letters of credit, equipment leases
or lease purchase agreements, each in an amount equal to or exceeding $150,000
to which the Company or any of its subsidiaries is a party or by which any of
them is bound; (ii) all contracts, agreements, commitments or other
understandings or arrangements to which the Company or any of its subsidiaries
is a party or by which any of them or any of their respective properties or
assets are bound or affected, but excluding contracts, agreements, commitments
or other understandings or arrangements entered into in the ordinary course of
business and involving, in the case of any such contact, agreement, commitment,
or other understanding or arrangement, individual payments or receipts by the
Company or any of its subsidiaries of less than $150,000 over the term of such
contract, commitment, agreement, or other understanding or arrangement; and
(iii) all agreements which are required to be filed as "material contracts" with
the SEC pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, and the SEC's rules and regulations thereunder (the "EXCHANGE ACT") but
have not been so filed with the SEC.
(b) Except as set forth in Section 2.05(b) of the Company Disclosure
Schedule, the execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, (i) conflict with
or violate the Amended and Restated Articles of Incorporation or
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By-laws of the Company, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to the Company or any of its subsidiaries
or by which its or any of their respective properties is bound or affected, or
(iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default), or impair the Company's
or any of its subsidiaries' rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on (including a right to purchase) any of the properties or assets
of the Company or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective properties is bound or affected, except, in the case of clauses (ii)
or (iii), for any such conflicts, violations, breaches, defaults or other
occurrences that would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(c) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign (each, a
"GOVERNMENTAL AUTHORITY"), except (i) for applicable requirements, if any, of
the Securities Act of 1933, as amended, and the rules and regulations of the
Securities and Exchange Commission ("SEC") thereunder (the "SECURITIES ACT"),
the Exchange Act, state securities laws ("BLUE SKY LAWS"), the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder (the "HSR ACT"),
filings and consents under any applicable foreign laws intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade ("FOREIGN MONOPOLY LAWS"), filings and consents as may be
required under any environmental, health or safety law or regulation pertaining
to any notification, disclosure or required approval triggered by the Merger or
the transactions contemplated by this Agreement, and the filing and recordation
of appropriate merger or other documents as required by the CGCL, (ii) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or materially delay
consummation of the Merger, or otherwise prevent or materially delay the Company
from performing its material obligations under this Agreement, or would not
otherwise reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect, or (iii) as to which any necessary consents, approvals,
authorizations, permits, filings or notifications have heretofore been obtained
or filed, as the case may be, by the Company.
SECTION 2.06. COMPLIANCE; PERMITS. (a) Except as disclosed in Section
2.06(a) of the Company Disclosure Schedule or the Company SEC Documents, neither
the Company nor any of its subsidiaries is in conflict with, or in default or
violation of, (i) any law, rule, regulation, order, judgment or decree
applicable to the Company or any of its subsidiaries or by which its or any of
their respective properties is bound or affected or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties is bound or affected, except for any such conflicts,
defaults or violations which would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
(b) Except as disclosed in Section 2.06(b) of the Company Disclosure
Schedule or the Company SEC Documents, the Company and its subsidiaries hold all
permits, licenses, easements, variances, exemptions, consents, certificates,
orders and approvals from governmental authorities which are material to the
operation of the business of the Company and its subsidiaries taken as a whole
as it is now being conducted (collectively, the "COMPANY PERMITS"), except where
the failure to hold such Company Permits would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. The Company
and its subsidiaries are in compliance with the terms of the
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Company Permits, except as described in the Company SEC Documents or where the
failure to so comply would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
SECTION 2.07. SEC FILINGS; FINANCIAL STATEMENTS. (a) The Company has filed
all reports, schedules, forms, statements and other documents required to be
filed with the SEC since June 30, 1996 (collectively, the "COMPANY SEC
DOCUMENTS"). Except as disclosed in Section 2.07 of the Company Disclosure
Schedule, the Company SEC Documents (i) were prepared in all material respects
in accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of the Company's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Documents was prepared
in accordance with United States generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto or in the Company SEC Documents), and
each fairly presents in all material respects the consolidated financial
position of the Company and its subsidiaries as at the respective dates thereof
and the consolidated results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount.
SECTION 2.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 2.08 of the Company Disclosure Schedule or the Company SEC Documents,
since June 30, 1998, the Company has conducted its business in the ordinary
course and there has not occurred: (i) any changes, effects or circumstances
constituting, individually or in the aggregate, a Material Adverse Effect; (ii)
any amendments or changes in the Amended and Restated Articles of Incorporation
or By-laws of the Company; (iii) any damage to, destruction or loss of any asset
of the Company (whether or not covered by insurance) that would reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect;
(iv) any material change by the Company in its accounting methods, principles or
practices; or (v) other than in the ordinary course of business, any sale of a
material amount of assets of the Company.
SECTION 2.09. NO UNDISCLOSED LIABILITIES. Except as set forth in Section
2.09 of the Company Disclosure Schedule or the Company SEC Documents, neither
the Company nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise), except liabilities (a) in the aggregate adequately
provided for in the Company's unaudited balance sheet (including any related
notes thereto) as of March 31, 1999 included in the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999 (the "1999 BALANCE SHEET"),
(b) incurred in the ordinary course of business and not required under GAAP to
be reflected on the 1999 Balance Sheet, (c) incurred since March 31, 1999 in the
ordinary course of business, (d) incurred in connection with this Agreement or
the Merger or the other transactions contemplated hereby, or (e) which would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
SECTION 2.10. ABSENCE OF LITIGATION. Except as set forth in Section 2.10
and Section 2.19(c) of the Company Disclosure Schedule or the Company SEC
Documents, there are no claims, actions, suits, proceedings or investigations
pending or, to the knowledge of the Company, overtly threatened against the
Company or any of its subsidiaries, or any properties or rights of the Company
or any of its subsidiaries, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, that would
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
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SECTION 2.11. EMPLOYEE BENEFIT PLANS; EMPLOYMENT AGREEMENTS.(a) Section
2.11(a) of the Company Disclosure Schedule lists all "employee pension benefit
plans" ("Pension Plans") (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), all "employee welfare
benefit plans" (as defined in Section 3(1) of ERISA), and all other bonus, stock
option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar fringe or employee benefit plans,
programs or arrangements (including those which contain change of control
provisions or pending change of control provisions), and any employment,
executive compensation or severance agreements (including those which contain
change of control provisions or pending change of control provisions), written
or otherwise, as amended, modified or supplemented, for the benefit of, or
relating to, any former or current employee, officer, director or consultant (or
any of their beneficiaries) of the Company or any other entity (whether or not
incorporated) which is a member of a controlled group including the Company or
which is under common control with the Company within the meaning of Sections
414(b), (c), (m) or (o) of the Code or Section 4001(a) (14) or (b) of ERISA (a
"COMPANY ERISA AFFILIATE"), or any subsidiary of the Company, as well as each
plan with respect to which the Company or a Company ERISA Affiliate could incur
liability under Title IV of ERISA or Section 412 of the Code (together for the
purposes of this Section 2.11, the "COMPANY EMPLOYEE PLANS"). The Company has
made available to Parent prior to the date of this Agreement, or with respect to
each Company Employee Plan covering non-U.S. employees (a "Non-U.S. Company
Plan) that is not a Pension Plan, not later than 30 days after the date of this
Agreement, copies of (i) each such written Company Employee Plan (or a written
description of any Company Employee Plan which is not written) and all related
trust agreements, insurance and other contracts (including policies), summary
plan descriptions, summaries of material modifications and communications
distributed to plan participants (including but not limited to any
communications that have not expressly reserved the right of the Company to
amend, terminate or otherwise modify any Company Employee Plan), (ii) the three
most recent annual reports on Form 5500 series, with accompanying schedules and
attachments, filed with respect to each Company Employee Plan required to make
such a filing, (iii) the most recent actuarial valuation for each Company
Employee Plan subject to Title IV of ERISA, (iv) the latest reports which have
been filed with the Department of Labor with respect to each Company Employee
Plan required to make such filing and (v) the most recent favorable
determination letters issued for each Company Employee Plan and related trust
which is intended to be qualified under Section 401(a) of the Code (and, if an
application for such determination is pending, a copy of the application for
such determination).
(b) Except as set forth in Section 2.11(b) of the Company Disclosure
Schedule, (i) none of the Company Employee Plans promises or provides medical or
other welfare benefits to any director, officer, employee or consultant (or any
of their beneficiaries) after their service with the Company terminates, other
than as required by Section 4980B of the Code or Part 6 of Subtitle B of Title I
of ERISA (hereinafter "COBRA"), or any similar state laws (ii) none of the
Company Employee Plans is a "multiemployer plan" as such term is defined in
Section 3(37) of ERISA; (iii) no party in interest or disqualified person (as
defined in Section 3(14) of ERISA and Section 4975 of the Code) has at any time
engaged in a transaction with respect to any Company Employee Plan which could
subject the Company or any Company ERISA Affiliate, directly or indirectly, to a
material tax, penalty or other material liability for prohibited transactions
under ERISA or Section 4975 of the Code; (iv) no fiduciary of any Company
Employee Plan has breached any of the responsibilities or obligations imposed
upon fiduciaries under Title I of ERISA, which breach would reasonably be
expected to result in any material liability to the Company, any Company ERISA
Affiliate or any subsidiary thereof; (v) all Company Employee Plans have been
established and maintained substantially in accordance with their terms and have
operated in compliance in all material respects with the requirements of
applicable law (including but not limited to the applicable notification and
other requirements of COBRA, the Health Insurance Portability and Accountability
Act of 1996, the Newborns' and Mothers' Health Protection Act of 1996, the
Mental Health Parity Act of 1996, and the Women's Health and
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Cancer Rights Act of 1998), and may by their terms be amended and/or terminated
at any time subject to applicable law and the terms of each Company Employee
Plan, and the Company and each of its subsidiaries have performed all material
obligations required to be performed by them under, are not in any material
respect in default under or violation of, and have no knowledge of any default
or violation by any other party to, any of the Company Employee Plans; (vi) each
Company Employee Plan which is intended to be qualified under Section 401(a) of
the Code is the subject of a favorable determination letter from the Internal
Revenue Service (the "IRS"), and, to the Company's knowledge, nothing has
occurred which may reasonably be expected to impair such determination; (vii)
all contributions required to be made with respect to any Company Employee Plan
(whether pursuant to the terms of such plan, Section 412 of the Code, any
collective bargaining agreement, or otherwise) have been made on or before their
due dates (including any extensions thereof); (viii) with respect to each
Company Employee Plan, no "reportable event" within the meaning of Section 4043
of ERISA (excluding any such event for which the 30 day notice requirement has
been waived under the regulations to Section 4043 of ERISA) has occurred for
which there is any material outstanding liability to the Company or any Company
ERISA Affiliate nor would the consummation of the transactions contemplated
hereby (including the execution of this Agreement) constitute a reportable event
for which the 30-day requirement has not been waived; (ix) none among the
Company, any Company ERISA Affiliate or any subsidiary thereof has incurred or
reasonably expects to incur any material liability under Title IV of ERISA
including, without limitation, with respect to an event described in Section
4062, 4063 or 4041 of ERISA (other than liability for premium payments to the
Pension Benefit Guaranty Corporation (the "PBGC") arising in the ordinary
course); (x) other than routine claims for benefits made in the ordinary course
of the operation of the Company Employee Plans, there are no pending, nor to the
Company's knowledge any threatened, claims, investigations or causes of action
with respect to any Company Employee Plan, whether made by a participant or
beneficiary of such a plan, a governmental agency or otherwise, against the
Company, any Company director, officer or employee, any Company Employee Plan,
or any fiduciary of a Company Employee Plan.
(c) Section 2.11(c) of the Company Disclosure Schedule sets forth a true and
complete list of each current or former employee, officer or director of the
Company or any of its subsidiaries who holds (i) any option to purchase Company
Common Stock as of the date hereof, together with the number of shares of
Company Common Stock subject to such option, the option price of such option (to
the extent determined as of the date hereof), whether such option is intended to
qualify as an incentive stock option within the meaning of Section 422(b) of the
Code (an "ISO"), and the expiration date of such option; (ii) any shares of
Company Common Stock that are restricted; and (iii) any other right, directly or
indirectly, to receive Company Common Stock, together with the number of shares
of Company Common Stock subject to such right.
(d) To the extent not already included and so labelled in Section 2.11(a) of
the Company Disclosure Schedule, Section 2.11(d) of the Company Disclosure
Schedule sets forth a true and complete list of (i) all employment agreements
with officers or employees of the Company or any of its subsidiaries; (ii) all
agreements with consultants; (iii) all agreements with respect to the services
of independent contractors or leased employees whether or not they participate
in any of the Company Employee Plans; (iv) all officers or other employees of
the Company or any of its subsidiaries who have executed a non-competition
agreement with the Company or any of its subsidiaries; (v) all severance
agreements, programs and policies of the Company or any of its subsidiaries with
or relating to its employees; and (vi) all plans, programs, agreements and other
arrangements of the Company which contain change of control provisions.
(e) Except as set forth in Section 2.11(e) of the Company Disclosure
Schedule: (i) the PBGC has not instituted proceedings to terminate any Company
Employee Plan that is subject to Title IV of ERISA (each, a "COMPANY DEFINED
BENEFIT PLAN"); (ii) no Company Defined Benefit Plan has an accumulated or
waived funding deficiency within the meaning of Section 412 of the Code nor have
any
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extensions of any amortization period within the meaning of Section 412 of the
Code or Section 302 of ERISA been applied for with respect thereto; (iii) the
present value of the benefit liabilities (within the meaning of Section 4041 of
ERISA) of each Company Defined Benefit Plan, determined on an ongoing basis
using the actuarial assumptions used for funding purposes in the most recent
actuarial report prepared by each such plan's actuary with respect to that
plan's most recently completed fiscal year, does not exceed the value of that
Company Defined Benefit Plan's assets and to the knowledge of the Company,
nothing has occurred since the end of the most recently completed fiscal year
that would adversely affect the funding status of such plans; (iv) all
applicable premiums required to be paid to the PBGC with respect to the Company
Defined Benefit Plans have been paid; (v) no facts or circumstances exist with
respect to any Company Defined Benefit Plan which would give rise to a lien on
the assets of the Company under Section 4068 of ERISA or otherwise; and (vi) as
of the date hereof, substantially all of the assets of the Company Defined
Benefit Plans are readily marketable securities or insurance contracts.
(f) Except as set forth in Section 2.11(f) of the Company Disclosure
Schedule, (i) the Company has never maintained an employee stock ownership plan
(within the meaning of Section 4975(e)(7) of the Code) or any other Company
Employee Plan that invests in, provides for investment in or provides benefits
in or by reference to the value of Company stock; and (ii) since June 30, 1999,
the Company has not announced, proposed nor agreed to any increase in benefits
under any Company Employee Plan (or to the creation of new benefits or new
plans) or change in employee coverage which would materially increase the
expense of maintaining any Company Employee Plan.
(g) The consummation of the transactions contemplated by this Agreement,
either alone or in combination with another event, will not result in (i) any
payment (including, without limitation, severance, unemployment compensation,
golden parachute or bonus payments or otherwise) becoming due to any current or
former director, officer, employee or consultant of the Company, (ii) any
increase in the amount of compensation or benefits payable in respect of any
director, officer, employee or consultant of the Company, (iii) accelerate the
vesting or timing of payment of any benefits or compensation payable in respect
of any director, officer, employee or consultant of the Company, or (iv) result
in any "parachute payment" under Section 280G of the Code, whether or not such
amount may be considered reasonable compensation for personal services rendered.
(h) Each Non-U.S. Company Plan has been maintained in substantial compliance
with its terms and with the requirements prescribed by any and all applicable
laws (including any special provisions relating to registered or qualified plans
where such Non-U.S. Company Plan was intended to so qualify) and has been
maintained in good standing with applicable regulatory authorities. Except as
set forth on Section 2.11(h) of the Company Disclosure Schedule, the fair market
value of the assets of each funded Non-U.S. Company Plan, if any, (or the
liability of each funded Non-U.S. Company Plan funded through insurance) is
sufficient to procure or provide for the benefits accrued thereunder through the
Effective Time according to the actuarial assumptions and valuations most
recently used to determine employer contributions to the Non-U.S. Company Plan.
(i) The Company has fiduciary liability insurance of at least $1,000,000 in
effect covering the fiduciaries of the Company Employee Plans (including the
Company) with respect to whom the Company may have liability.
SECTION 2.12. EMPLOYMENT AND LABOR MATTERS. (a) The Company has, as of the
date hereof, a total of 83 full-time employees, one part-time employee and one
consultant and has good relationships with such employees.
(b) The Company is in all material respects in compliance with all
applicable laws (including any legal obligation to engage in affirmative
action), agreements and contracts relating to employment practices, terms and
conditions of employment, and the employment of former, current, and prospective
employees, independent contractors and "leased employees" (within the meaning of
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Section 414(n) of the Code) of the Company including all such laws, agreements
and contracts relating to wages, hours, collective bargaining, employment
discrimination, immigration, disability, civil rights, fair labor standards,
occupational safety and health, workers' compensation, pay equity, wrongful
discharge and violation of the potential rights of such former, current, and
prospective employees, independent contractors and leased employees, and has
timely prepared and filed all appropriate forms (including Immigration and
Naturalization Service Form I-9) required by any relevant governmental
authority. The Company is not engaged in any unfair labor practice.
(c) No collective bargaining agreement with respect to the business of the
Company is currently in effect or being negotiated. The Company has no
obligation to negotiate any such collective bargaining agreement, and, to the
best knowledge of the Company, there is no indication that the employees of the
Company desire to be covered by a collective bargaining agreement.
(d) No strike, slowdown or work stoppage has occurred or, to the best
knowledge of the Company, been threatened with respect to the employees of the
Company, nor has any such strike, slowdown or work stoppage occurred or, to the
best knowledge of the Company, been threatened within five years prior to the
date hereof.
(e) There is no representation claim or petition pending before the United
States National Labor Relations Board or any similar foreign, state or local
labor agency of which the Company has been notified and, to the best knowledge
of the Company, no question concerning representation has been raised or
threatened respecting the employees of the Company.
(f) No notice has been received by the Company of any complaint filed
against the Company claiming that the Company has violated any applicable
employment standards, human rights or other labor legislation or any complaints
or proceedings of any kind involving the Company or, to the best knowledge of
the Company, against any of the employees of the Company or threatened to be
filed against the Company before any federal, state, local or foreign agency or
labor relations board, including without limitation the National Labor Relations
Board and the Equal Employment Opportunity Commission. No notice has been
received by the Company of the intent of any federal, state, local or foreign
agency responsible for the enforcement of labor or employment laws to conduct an
investigation of the Company, and, to the best knowledge of the Company, no such
investigation is in progress.
(g) There are no outstanding orders or charges against the Company under any
occupational health or safety legislation and to the best knowledge of the
Company none have been threatened. All material levies, assessments and
penalties made against the Company pursuant to all applicable workers
compensation legislation as of the date of the Balance Sheet have been paid or
have been reserved for or properly accrued on the books of the Company and the
Company has not, as of the Closing Date, been reassessed under any such
legislation. Except as set forth in Section 2.12 of the Company Disclosure
Schedule, there are no outstanding material levies, assessments or penalties
against the Company.
(h) A salary review schedule listing, as of August 10, 1999, the annual base
salary or annualized wages and any guaranteed bonus amounts of each employee of
the Company, has been delivered to Parent. Section 2.11(d) of the Company
Disclosure Schedule accurately sets forth a complete and correct list of all
employment, management, consulting or other agreements with any person employed
or retained by the Company (including independent consultants and commission
agents), complete and correct copies of which have been delivered to Parent.
(i) Section 2.12(i) of the Company Disclosure Schedule accurately sets forth
all unpaid severance or continuing payments of any kind (other than pursuant to
a plan or program described in Section 2.11 hereof) which, as of the date of
this Agreement, is due or claimed in writing to be due from the Company to any
person whose employment with the Company was terminated.
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(j) Section 2.12(j) of the Company Disclosure Schedule accurately sets forth
all accrued, but unused, vacation of all employees of the Company and the
Company policy with respect thereto.
(k) The Company has made no statements or representations or distributed any
written material to any Company employees regarding continued employment of the
Company's employees subsequent to the date hereof or the Effective Time.
(l) To the best knowledge of the Company, no contractor, manufacturer or
upplier used by or under contract with the Company is in material violation of
any law relating to labor or employment matters.
SECTION 2.13. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. Subject to
the accuracy of the representations of Parent in Section 3.10, the information
supplied by the Company in writing specifically for inclusion in the
Registration Statement (as defined in Section 3.10) shall not at the time the
Registration Statement is declared effective by the SEC 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 the
light of the circumstances under which they were made, not misleading. The
information supplied by the Company for inclusion in the proxy
statement/prospectus to be sent to the shareholders of the Company in connection
with the meeting of the shareholders of the Company to consider the Merger (the
"COMPANY SHAREHOLDERS MEETING") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "PROXY STATEMENT/PROSPECTUS") will
not, on the date the Proxy Statement/Prospectus (or any amendment thereof or
supplement thereto) is first mailed to shareholders or at the time of the
Company Shareholders Meeting contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements made therein not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Shareholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to the Company or any of its respective
affiliates, officers or directors should be discovered by the Company which
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement/Prospectus, the Company shall promptly inform
Parent and Merger Sub. The Proxy Statement/Prospectus shall comply in all
material respects with the requirements of the Securities Act and the Exchange
Act. Notwithstanding the foregoing, the Company makes no representation or
warranty with respect to any information supplied by Guarantor, Parent or Merger
Sub which is contained or incorporated by reference in, or furnished in
connection with the preparation of, the Proxy Statement/Prospectus.
SECTION 2.14. RESTRICTIONS ON BUSINESS ACTIVITIES. Except for this Agreement
or as set forth in Section 2.14 of the Company Disclosure Schedule or the
Company SEC Documents, to the best of the Company's knowledge, there is no
agreement, judgment, injunction, order or decree binding upon the Company or any
of its subsidiaries which has or would reasonably be expected to have the effect
of prohibiting or impairing the conduct of business by the Company or any of its
subsidiaries as currently conducted by the Company or such subsidiary, except
for any prohibition or impairment as would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
SECTION 2.15. TITLE TO PROPERTY. Except as set forth in Sections 2.15 and
2.19(b) of the Company Disclosure Schedule, the Company and each of its
subsidiaries have good title to all of their real properties and other assets,
free and clear of all liens, charges and encumbrances, except liens for taxes
not yet due and payable and such liens or other imperfections of title, if any,
as do not materially interfere with the present use of the property affected
thereby or which would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect, and except for liens which secure
indebtedness reflected in the 1999 Balance Sheet; and, to the knowledge of the
Company, all leases pursuant to which the Company or any of its subsidiaries
lease from others material amounts of
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real or personal property, are in good standing, valid and effective in
accordance with their respective terms, and there is not, to the knowledge of
the Company, under any of such leases, any existing material default or event of
default (or event which with notice or lapse of time, or both, would constitute
a material default), except where the lack of such good standing, validity and
effectiveness or the existence of such default or event of default would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
SECTION 2.16. TAXES. Except as would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect:
(a) The Company and each of its subsidiaries has timely and accurately
filed, or caused to be timely and accurately filed, all material Tax Returns (as
hereinafter defined) required to be filed by it, and has paid, collected or
withheld, or caused to be paid, collected or withheld, all material amounts of
Taxes (as hereinafter defined) required to be paid, collected or withheld, other
than such Taxes for which adequate reserves in the 1999 Balance Sheet have been
established or which are being contested in good faith. Except as set forth in
Section 2.16(a) of the Company Disclosure Schedule, there are no material claims
or assessments pending against the Company or any of its subsidiaries for any
alleged deficiency in any Tax, there are no pending or threatened audits or
investigations for or relating to any liability in respect of any Taxes, and the
Company has not been notified in writing of any proposed Tax claims or
assessments against the Company or any of its subsidiaries (other than in each
case, claims or assessments for which adequate reserves in the 1999 Balance
Sheet have been established or which are being contested in good faith). Neither
the Company nor any of its subsidiaries has executed any waivers or extensions
of any applicable statute of limitations to assess any material amount of Taxes.
There are no outstanding requests by the Company or any of its subsidiaries for
any extension of time within which to file any material Tax Return or within
which to pay any material amounts of Taxes shown to be due on any Tax Return. To
the best knowledge of the Company, there are no liens for material amounts of
Taxes on the assets of the Company or any of its subsidiaries except for
statutory liens for current Taxes not yet due and payable. Other than with
respect to the Company and its subsidiaries, neither the Company nor any of its
subsidiaries is liable for Taxes of any other Person, or is currently under any
contractual obligation to indemnify any person with respect to Taxes (except for
customary agreements to indemnify lenders or security holders in respect of
taxes other than income taxes), or is a party to any tax sharing agreement or
any other agreement providing for payments by the Company or any of its
subsidiaries with respect to Taxes. Except as set forth in Section 2.16 of the
Company Disclosure Schedule, there are no outstanding powers of attorney
enabling any party to represent the Company or any subsidiary with respect to
Taxes.
(b) For purposes of this Agreement, the term "Tax" shall mean any United
States federal, state, local, non-United States or provincial income, gross
receipts, property, sales, use, license, excise, franchise, employment, payroll,
alternative or add-on minimum, ad valorem, transfer or excise tax, or any other
tax, custom, duty, governmental fee or other like assessment or charge imposed
by any Governmental Authority, together with any interest or penalty imposed
thereon. The term "Tax Return" shall mean a report, return or other information
(including any attached schedules or any amendments to such report, return or
other information) required to be supplied to or filed with a Governmental
Authority with respect to any Tax, including an information return, claim for
refund, amended return or declaration or estimated Tax.
SECTION 2.17. ENVIRONMENTAL MATTERS. (a) Except as set forth in Section
2.17(a) to the Company Disclosure Schedule or in the Company SEC Documents or as
would not reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect, the operations and properties of the Company and its
subsidiaries are in compliance with the Environmental Laws (as hereinafter
defined), which compliance includes the possession by the Company and its
subsidiaries of all permits and governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof.
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(b) Except as set forth in Section 2.17(b) of the Company Disclosure
Schedule or the Company SEC Documents or as would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, there are
no Environmental Claims (as hereinafter defined), including claims based on
"arranger liability," pending or, to the best knowledge of the Company,
threatened against the Company or any of its subsidiaries or against any person
or entity whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed.
(c) Except as set forth on Section 2.17(c) of the Company Disclosure
Schedule or in the Company SEC Documents, there are no past or present actions,
circumstances, conditions, events or incidents, including the release, emission,
discharge, presence or disposal of any Materials of Environmental Concern (as
hereinafter defined), that are reasonably likely to form the basis of any
Environmental Claim against the Company or any of its subsidiaries or against
any person or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries have retained or assumed, except for such Environmental
Claims that would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect.
(d) Except as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect or as set forth in Section 2.17(d)
of the Company Disclosure Schedule or the Company SEC Documents, (i) there are
no off-site locations where the Company or any of its subsidiaries has stored,
disposed or arranged for the disposal of Materials of Environmental Concern
which have been listed on the National Priority List, CERCLIS, or state
Superfund site list, and the Company and its subsidiaries have not been notified
that any of them is a potentially responsible party at any such location; (ii)
there are no underground storage tanks located on property owned or leased by
the Company or any of its subsidiaries; (iii) there is no friable asbestos
containing material contained in or forming part of any building, building
component, structure or office space owned, leased or operated by the Company or
any of its subsidiaries; and (iv) there are no polychlorinated biphenyls (PCBs)
or PCB-containing items contained in or forming part of any building, building
component, structure or office space owned, leased or operated by the Company or
any of its subsidiaries.
(e) For purposes of this Agreement:
(i) "Environmental Claim" means any claim, action, cause of action,
investigation or written notice by any person or entity alleging potential
liability (including potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or
resulting from the presence, or release into the environment, of any
Material of Environmental Concern at any location, whether or not owned or
operated by the Company or any of its subsidiaries.
(ii) "Environmental Laws" means all United States federal, state, local
and non-United States laws, regulations, codes and ordinances, relating to
pollution or protection of human health and the environment (including
ambient air, surface water, ground water, land surface or sub-surface
strata), including laws and regulations relating to emissions, discharges,
releases or threatened releases of Materials of Environmental Concern, or
otherwise relating to the use, treatment, storage, disposal, transport or
handling of Materials of Environmental Concern, including, but not limited
to Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. 9601 et seq., Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. 6901 et seq., Toxic Substances Control Act ("TSCA"), 15
U.S.C. 2601 et seq., Occupational Safety and Health Act ("OSHA"), 29 U.S.C.
651 et seq., the Clean Air Act, 33 U.S.C. 7401 et seq., the Clean Water Act,
33 U.S.C. 1251 et seq., each as amended or supplemented, and any applicable
transfer statutes or laws.
(iii) "Materials of Environmental Concern" means chemicals, pollutants,
contaminants, hazardous materials, hazardous substances and hazardous
wastes, medical waste, toxic substances,
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petroleum and petroleum products, asbestos-containing materials,
polychlorinated biphenyls, and any other chemicals, pollutants or substances
regulated under any Environmental Law.
SECTION 2.18. BROKERS. No broker, finder or investment banker (other than
ING Barings LLC (the "COMPANY FINANCIAL ADVISOR"), the fees and expenses of whom
will be paid by the Company) is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. The Company has
heretofore furnished to Parent a complete and correct copy of all agreements
between the Company and the Company Financial Advisor pursuant to which such
firm would be entitled to any payment relating to the transactions contemplated
hereunder.
SECTION 2.19. INTELLECTUAL PROPERTY. (a) As used herein, the term
"INTELLECTUAL PROPERTY ASSETS" shall mean all worldwide intellectual property
rights, including, without limitation, patents, trademarks, service marks and
copyrights, and registrations and applications therefor, trade names, know-how,
trade secrets, computer software programs and proprietary information. As used
herein, "COMPANY INTELLECTUAL PROPERTY ASSETS" shall mean the Intellectual
Property Assets used or owned by the Company or any of its subsidiaries.
(b) Except as set forth in Section 2.19(b) of the Company Disclosure
Schedule, the Company and/or each of its subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use all Intellectual Property
Assets that are used in and otherwise material to the business of the Company
and its subsidiaries as currently conducted, without conflict with the rights of
others.
(c) Except as disclosed in Section 2.19(c) of the Company Disclosure
Schedule or as would not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect, no claims (i) are currently
pending or, to the knowledge of the Company, are threatened by any person with
respect to the Company Intellectual Property Assets, or (ii) are, to the
knowledge of the Company, currently pending or threatened by any person with
respect to the Intellectual Property Assets of a third party (the "THIRD PARTY
INTELLECTUAL PROPERTY ASSETS") to the extent arising out of any use,
reproduction or distribution of such Third Party Intellectual Property Assets by
or through the Company or any of its subsidiaries.
(d) Except as disclosed in Section 2.19(d) of the Company Disclosure
Schedule or as would not reasonably be expected to have a Material Adverse
Effect, neither the Company nor any of its subsidiaries knows of any valid
grounds for any bona fide claim to the effect that the manufacture, sale,
licensing or use of any product, system or method now used, sold or licensed or
proposed for use, sale, license by the Company or any of its subsidiaries
infringes on any Third Party Intellectual Property Assets.
(e) Section 2.19(e) of the Company Disclosure Schedule sets forth or will
set forth a list of (i) all patents and patent applications owned by the Company
and/or each of its subsidiaries worldwide; (ii) all trademark and service mark
registrations and all trademark and service mark applications, material common
law trademarks, material trade dress and material slogans, and all trade names
owned by the Company and/or each of its subsidiaries worldwide; (iii) all
copyright registrations and copyright applications owned by the Company and/or
each of its subsidiaries worldwide; and (iv) all licenses owned by the Company
and/or each of its subsidiaries in which the Company and/or each of its
subsidiaries is (A) a licensor with respect to any of the patents, trademarks,
service marks, trade names or copyrights listed in Section 2.19(e) of the
Company Disclosure Schedule; or (B) a licensee of any other person's patents,
trade names, trademarks, service marks or copyrights material to the Company
except for any licenses of software programs that are commercially available
"off the shelf." Except as disclosed in Section 2.19(e)(v) of the Company
Disclosure Schedule, the Company and/or each of its subsidiaries has made all
necessary filings and recordations to protect and maintain its interest in the
patents, patent applications, trademark and service mark registrations,
trademark and service mark applications, copyright registrations and copyright
applications and licenses set forth in Section 2.19(e)
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of the Company Disclosure Schedule, except where the failure to so protect or
maintain would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect.
(f) To the knowledge of the Company, except as set forth in Section
2.19(e)(v) or 2.19(f) of the Company Disclosure Schedule or the Company SEC
Documents: (i) each patent, patent application, trademark or service mark
registration, and trademark or service mark application and copyright
registration or copyright application of the Company and/or each of its
subsidiaries is valid and subsisting and (ii) each material license of Company
Intellectual Property Assets listed on Section 2.19(e) of the Company Disclosure
Schedule is valid, subsisting and enforceable.
(g) Except as set forth in Section 2.19(g) of the Company Disclosure
Schedule, to the Company's knowledge, there is no material unauthorized use,
infringement or misappropriation of any of the Company's Intellectual Property
Assets by any third party, including any employee, former employee, independent
contractor or consultant of the Company or any of its subsidiaries which would
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect.
(h) Except as set forth in Section 2.19(h) of the Company Disclosure
Schedule, the disclosure under the heading "YEAR 2000 COMPLIANCE" contained in
the Company's Quarterly Report on Form 10-Q for the period ended March 31, 1999
is accurate and in compliance with applicable law in all material respects.
SECTION 2.20. INTERESTED PARTY TRANSACTIONS. Except as set forth in Section
2.20 of the Company Disclosure Schedule or the Company SEC Documents or for
events as to which the amounts involved do not, in the aggregate, exceed
$100,000, since the Company's proxy statement dated October 19, 1998, no event
has occurred that would be required to be reported as a Certain Relationship or
Related Transaction pursuant to Item 404 of Regulation S-K promulgated by the
SEC.
SECTION 2.21. INSURANCE. Except as disclosed in Section 2.21 of the Company
Disclosure Schedule or the Company SEC Documents, all material fire and
casualty, general liability, business interruption, product liability and
sprinkler and water damage insurance policies maintained by the Company or any
of its subsidiaries are with reputable insurance carriers, provide full and
adequate coverage for all normal risks incident to the business of the Company
and its subsidiaries and their respective properties and assets and are in
character and amount appropriate for the businesses conducted by the Company,
except as would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect.
SECTION 2.22. PRODUCT LIABILITY AND RECALLS. (a) Except as disclosed in
Section 2.22(a) of the Company Disclosure Schedule or the Company SEC Documents,
the Company is not aware of any claim, pending or threatened, against the
Company or any of its subsidiaries for injury to person or property of employees
or any third parties suffered as a result of the sale of any product or
performance of any service by the Company or any of its subsidiaries, including
claims arising out of the defective or unsafe nature of its products or
services, which would reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect.
(b) Except as disclosed in Section 2.22(b) of the Company Disclosure
Schedule or the Company SEC Documents, there is no pending or, to the knowledge
of the Company, overtly threatened recall or investigation of any product sold
by the Company, which recall or investigation would reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
SECTION 2.23. OPINION OF FINANCIAL ADVISOR. The Board of Directors of the
Company has been advised by the Company Financial Advisor to the effect that in
its opinion, as of the date of this Agreement, the consideration to be received
by the equity holders of the Company is fair, from a financial point of view, to
such equity holders.
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SECTION 2.24. RIGHTS AGREEMENT. The Board of the Directors of the Company
has authorized and approved an amendment to the Rights Agreement (as defined in
Section 4.02(d)) to the effect that (i) none of Parent, Merger Sub and their
affiliates, either individually or as a group, shall become an "Acquiring
Person" (as defined in the Rights Agreement) by virtue of the approval,
execution or delivery of this Agreement, the consummation of the transactions
contemplated hereby or any announcement of the same, (ii) no Distribution Date,
Section 13 Event, Shares Acquisition Date or Triggering Event (as each such term
is defined in the Rights Agreement) (each a "RIGHTS EVENT") shall occur by
virtue of the approval, execution or delivery of this Agreement, the
consummation of the transactions contemplated hereby or any announcement of the
same, and (iii) the approval, execution or delivery of this Agreement, the
consummation of the transactions contemplated hereby or any announcement of the
same shall be deemed a Permitted Offer (as defined in the Rights Agreement). The
Company and the Rights Agent (as defined in the Rights Agreement) shall execute
such amendment to the Rights Agreement no later than the second business day
following the date hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby, jointly and severally, represent and warrant
to the Company as follows:
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. (a) Each of
Guarantor, Parent and Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all corporate power and all government licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those licenses, authorizations, permits,
consents and approvals the absence of which would not have, individually or in
the aggregate, a Material Adverse Effect on Guarantor. Parent has heretofore
made available to the Company true and complete copies of Guarantor's Memorandum
of Association and Bye-Laws, as amended to date (the "GUARANTOR CHARTER
DOCUMENTS").
(b) Each subsidiary of Guarantor is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has all corporate powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those licenses, authorizations, permits,
consents and approvals the absence of which would not have, individually or in
the aggregate, a Material Adverse Effect on Guarantor. Each subsidiary of
Guarantor is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where such qualification is necessary, except
for those jurisdictions where failure to be so qualified would not have,
individually or in the aggregate, a Material Adverse Effect on Guarantor. Except
as set forth in Section 3.01(b) of the written disclosure schedule previously
delivered by Parent to the Company (the "PARENT DISCLOSURE SCHEDULE"), all of
Guarantor's "significant" subsidiaries, as defined in Regulation S-X, and their
respective jurisdictions of incorporation are identified in the Guarantor 1998
Form 10-K or in any of Guarantor's quarterly reports on Form 10-Q filed with
respect to any quarter of the 1999 fiscal year.
SECTION 3.02. CAPITALIZATION. (a) The authorized capital stock of Guarantor
consists of 2,500,000,000 Guarantor Common Shares and 125,000,000 Preference
Shares, par value $1.00 per share ("GUARANTOR PREFERRED SHARES"). As of August
12, 1999, (i) 843,921,601 Guarantor Common Shares were issued and outstanding,
all of which are validly issued, fully paid and non-assessable, (ii) no
Guarantor Preferred Shares were outstanding and (iii) no more than 10,000,000
Guarantor Common Shares and no Guarantor Preferred Shares were held by
subsidiaries of Guarantor. As of August 12, 1999, 63,629,641 Guarantor Common
Shares were reserved for issuance upon exercise of stock options issued under
Guarantor's stock option plans.
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(b) Except as set forth in this Section 3.02(b), except for changes since
August 12, 1999 resulting from the exercise of stock options or the grant of
stock based compensation to directors or employees or from the issuance of stock
in connection with a merger or other acquisition or business combination
determined by Guarantor's Board of Directors to be in the best interests of
Guarantor and its shareholders, including, without limitation, the acquisition
of Raychem Corporation, and except for the previously declared two-for-one stock
split to be effected in the form of a stock dividend, there are no outstanding
(i) shares of capital stock or voting securities of Guarantor, (ii) securities
of Guarantor convertible into or exchangeable for shares of capital stock or
voting securities of Guarantor or (iii) options or other rights to acquire from
Guarantor or other obligation of Guarantor to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of Guarantor. There are no outstanding obligations of
Guarantor or any of its subsidiaries to repurchase, redeem or otherwise acquire
any of the securities referred to in clauses (i), (ii) or (iii) above.
(c) The Guarantor Common Shares to be issued as part of the Merger
Consideration have been duly authorized and, when issued and delivered in
accordance with the terms of this Agreement, will have been validly issued and
will be fully paid and nonassessable and the issuance thereof is not subject to
any preemptive or other similar right.
SECTION 3.03. AUTHORITY RELATIVE TO THIS AGREEMENT. (a) The execution,
delivery and performance by Parent and Merger Sub of this Agreement, the
execution, delivery and performance by Guarantor of the Guarantee and the
consummation by Guarantor, Parent and Merger Sub of the transactions
contemplated hereby and thereby, as applicable, are within the respective
corporate powers of Guarantor, Parent and Merger Sub and have been duly
authorized by all necessary corporate action. This Agreement constitutes a valid
and binding agreement of each of Parent and Merger Sub, and the Guarantee
constitutes a valid and binding agreement of Guarantor.
(b) At a meeting duly called and held, or by written consent in lieu of
meeting, Parent's Board of Directors has (i) unanimously determined that this
Agreement and the transactions contemplated hereby are fair to and in the best
interests of the sole shareholder of Parent and (ii) unanimously approved and
adopted this Agreement and the transactions contemplated hereby. At a meeting
duly called and held, Guarantor's Board of Directors has (i) determined that the
Guarantee and the transactions contemplated thereby are fair to and in the best
interests of Guarantor's shareholders and (ii) approved and adopted the
Guarantee and the transactions contemplated thereby.
SECTION 3.04. NO CONFLICTS; REQUIRED FILINGS AND CONSENTS. (a) The
execution, delivery and performance by Parent and Merger Sub of this Agreement,
the execution, delivery and performance by Guarantor of the Guarantee and the
consummation by Guarantor, Parent and Merger Sub of the transactions
contemplated hereby and thereby, as applicable, require no action by or in
respect of, or filing with, any Governmental Authority, other than (i) the
filing of a Certificate of Merger with respect to the Merger with the Secretary
of State of the State of California, (ii) compliance with any applicable
requirements of the HSR Act, (iii) compliance with any applicable requirements
of the Securities Act, the Exchange Act and any applicable state securities
laws, (iv) compliance with the Environmental Law of any state relating to the
transfer of ownership or control of property located in that state and (v) any
actions or filings the absence of which would not be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect on Guarantor
or Parent or materially impair the ability of Parent and Merger Sub to
consummate the transactions contemplated by this Agreement or the ability of
Guarantor to fulfill its obligations under the Guarantee.
(b) The execution, delivery and performance by Parent and Merger Sub of this
Agreement, the execution, delivery and performance by Guarantor of the Guarantee
and the consummation by Guarantor, Parent and Merger Sub of the transactions
contemplated hereby and thereby, as applicable, do not and will not (i)
contravene, conflict with, or result in any violation or breach of any provision
of
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the Guarantor Charter Documents or the certificate of incorporation or by-laws
of Parent or Merger Sub (or equivalent organizational documents), (ii) assuming
compliance with the matters referred to in Section 3.04(a), contravene, conflict
with or result in a violation or breach of any provision of any law, rule,
regulation, judgment, injunction, order or decree applicable to Guarantor or any
of its subsidiaries, (iii) require any consent or other action by any Person
under, constitute a default under, or cause or permit the termination,
cancellation, acceleration or other change of any right or obligation or the
loss of any benefit to which Guarantor or any of its subsidiaries is entitled
under any provision of any Material Agreement or instrument binding upon
Guarantor or any of its subsidiaries or any material license, franchise, permit,
certificate, approval or other similar authorization affecting, or relating in
any way to, the assets or business of the Parent and its subsidiaries, PROVIDED
that, for purposes of this subsection 3.04(b)(iii), "MATERIAL AGREEMENT" shall
mean any agreement identified in Guarantor's Annual Report on Form 10-K for the
year ended September 30, 1998 (the "GUARANTOR 1998 FORM 10-K") or in any of
Guarantor's quarterly reports on Form 10-Q filed with respect to any quarter of
the 1999 fiscal year or any agreement entered into since the date of Guarantor's
latest quarterly report on Form 10-Q that would be required to be so identified
in Guarantor's Annual Report on Form 10-K for the year ended September 30, 1999
or (iv) result in the creation or imposition of any encumbrance on any material
asset of Guarantor or any of its subsidiaries.
SECTION 3.05. COMPLIANCE. Except as disclosed in Section 3.05 of the Parent
Disclosure Schedule or the Guarantor SEC Documents (as defined below), neither
Guarantor nor any of its subsidiaries is in conflict with, or in default or
violation of, (i) any law, rule, regulation, order, judgment or decree
applicable to Guarantor or any of its subsidiaries or by which its or any of
their respective properties is bound or affected or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Guarantor or any of its subsidiaries is
a party or by which Guarantor or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for any such conflicts,
defaults or violations which would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect on Guarantor.
SECTION 3.06. SEC FILINGS; FINANCIAL STATEMENTS. (a) Guarantor has filed
with the SEC all reports, schedules, forms, statements and other documents
required to be filed with the SEC since December 31, 1996 (collectively, the
"GUARANTOR SEC DOCUMENTS"). Except as disclosed in Section 3.06 of the Parent
Disclosure Schedule, (i) each Guarantor SEC Document complied as to form in all
material respects with the applicable requirements of the Securities Act and
Exchange Act, as the case may be; and (ii) each Guarantor SEC Document filed
pursuant to the Securities Act did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(b) The audited consolidated financial statements and unaudited consolidated
interim financial statements of Guarantor included in the Guarantor SEC
Documents fairly present, in conformity with GAAP applied on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of Guarantor and its consolidated subsidiaries as of the dates thereof
and their consolidated results of operations and cash flows for the periods then
ended (subject to normal year-end adjustments in the case of any unaudited
interim financial statements).
SECTION 3.07. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Schedule 3.07 of the Parent Disclosure Schedule, since June 30, 1999, the
business of Guarantor and its subsidiaries has been conducted in the ordinary
course consistent with past practice and there has not been:
(i) any event, occurrence, development or state of circumstances or
facts that has had or could reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Guarantor; or
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(ii) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Guarantor other
than Guarantor's regular quarterly cash dividends, or any repurchase,
redemption or other acquisition by Guarantor or any of its subsidiaries of
any outstanding shares of capital stock or other securities of, or other
ownership interests in, Guarantor or any of its subsidiaries (other than
direct or indirect wholly-owned subsidiaries of Guarantor).
SECTION 3.08. NO UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of Guarantor or any of its subsidiaries of any kind, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(i) liabilities or obligations disclosed and provided for in Guarantor's
unaudited balance sheet (including any related notes thereto) as of June 30,
1999 included in Guarantor's Quarterly Report on Form 10-Q for the fiscal
period ended June 30, 1999 or in the Guarantor SEC Documents filed prior to
the date hereof;
(ii) liabilities or obligations that would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on
Guarantor; and
(iii) liabilities or obligations incurred in connection with this
Agreement.
SECTION 3.09. ABSENCE OF LITIGATION. Except as set forth in the Guarantor
SEC Documents filed prior to the date hereof, there is no action, suit,
investigation or proceeding pending against, or, to the knowledge of Parent,
threatened against or affecting, Guarantor, any of its subsidiaries, any present
or former officer, director or employee of Guarantor or any of its subsidiaries
or any other Person for whom Guarantor or any subsidiary may be liable or any of
their respective properties before any court or arbitrator or any governmental
body, agency or official, United States or non-United States, that could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on Guarantor or that in any manner challenges or seeks to
prevent, enjoin, alter or materially delay the Merger or any of the other
transactions contemplated hereby.
SECTION 3.10. REGISTRATION STATEMENT; PROXY STATEMENT/PROSPECTUS. (a) The
information to be supplied by Guarantor or Parent for inclusion or incorporation
by reference in the registration statement on Form S-4 (or on such other form as
shall be appropriate) (as it may be amended, the "REGISTRATION STATEMENT")
pursuant to which the Guarantor Common Shares to be issued in connection with
the Merger will be registered with the SEC will not, at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
included therein, in light of the circumstances under which they were made, not
misleading. The Registration Statement (including any amendments or supplements
thereto), when filed, will comply as to form in all material respects with the
requirements of the Securities Act.
(b) The information to be supplied by Guarantor or Parent for inclusion or
incorporation in the Proxy Statement/Prospectus will not, on the date the Proxy
Statement/Prospectus is first mailed to shareholders, at the time of the Company
Shareholders Meeting and at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or will omit to state any
material fact necessary in order to make the statements therein not false or
misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Shareholders Meeting which has become false or
misleading.
(c) Notwithstanding the foregoing, Parent and Merger Sub make no
representation or warranty with respect to any information supplied by the
Company which is contained in, or furnished in connection with the preparation
of, the Registration Statement or the Proxy Statement/Prospectus.
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SECTION 3.11. BROKERS. There is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on behalf
of Parent or Guarantor who might be entitled to any fee or commission from
Parent, Guarantor or any of their respective affiliates in connection with the
transactions contemplated by this Agreement.
SECTION 3.12. OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES. (a) Merger Sub
was formed solely for the purpose of engaging in the transactions contemplated
by this Agreement.
(b) Except for obligations or liabilities incurred by Merger Sub in
connection with its incorporation or organization and the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Merger Sub has not
incurred, directly or indirectly, through any subsidiary or affiliate, any
obligations or liabilities or engaged in any business activities of any type or
kind whatsoever or entered into any agreements or arrangements with any person.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.01. CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. The
Company covenants and agrees that, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, unless Parent shall otherwise agree in writing, and
except as set forth in Section 4.01 of the Company Disclosure Schedule, the
Company shall conduct its business and shall cause the businesses of its
subsidiaries to be conducted only in, and the Company and its subsidiaries shall
not take any action except in, the ordinary course of business and in a manner
consistent with past practice; and the Company shall use reasonable commercial
efforts to preserve substantially intact the business organization of the
Company and its subsidiaries, to keep available the services of the present
officers, employees and consultants of the Company and its subsidiaries and to
preserve the present relationships of the Company and its subsidiaries with
customers, suppliers and other persons with which the Company or any of its
subsidiaries has significant business relations. By way of amplification and not
limitation, except as contemplated by this Agreement, neither the Company nor
any of its subsidiaries shall, during the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Effective Time, and except as set forth in Section 4.01 of the Company
Disclosure Schedule, directly or indirectly do, or propose to do, any of the
following without the prior written consent of Parent, which, in the case
clauses (c), (d)(iv), (e), (f), (h), (i) or (j),will not be unreasonably
withheld or delayed:
(a) amend or otherwise change the Company's Amended and Restated
Articles of Incorporation or By-Laws;
(b) issue, sell, pledge, dispose of or encumber, or authorize the
issuance, sale, pledge, disposition or encumbrance of, any shares of capital
stock of any class, or any options, warrants, convertible securities or
other rights of any kind to acquire any shares of capital stock, or any
other ownership interest (including, without limitation, any phantom
interest) in the Company, any of its subsidiaries or affiliates (except for
the issuance of shares of Company Common Stock issuable pursuant to Company
Stock Options under the Company Stock Option Plans, which options are
outstanding on the date hereof, or pursuant to the Company Stock Purchase
Plan as in effect on the date hereof);
(c) sell, pledge, dispose of or encumber any assets of the Company or
any of its subsidiaries (except for (i) sales of assets in the ordinary
course of business and in a manner consistent with past practice, (ii)
dispositions of obsolete or worthless assets, and (iii) sales of immaterial
assets not in excess of $200,000 in the aggregate);
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(d) (i) declare, set aside, make or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of any of its capital stock, except that a wholly-owned
subsidiary of the Company may declare and pay a dividend to its parent,
except in no case may the Company or any subsidiary declare or pay any
intercompany cross-border dividends), (ii) split, combine or reclassify any
of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its capital stock, (iii) except as required by the terms of any security as
in effect on the date hereof and set forth in Section 4.01(d) of the Company
Disclosure Schedule, amend the terms or change the period of exercisability
of, purchase, repurchase, redeem or otherwise acquire, or permit any
subsidiary to amend the terms or change the period of exercisability of,
purchase, repurchase, redeem or otherwise acquire, any of its securities or
any securities of its subsidiaries, including, without limitation, shares of
Company Common Stock, or any option, warrant or right, directly or
indirectly, to acquire any such securities, or propose to do any of the
foregoing, or (iv) settle, pay or discharge any claim, suit or other action
brought or threatened against the Company with respect to or arising out of
a shareholder equity interest in the Company;
(e) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof other than those listed on Section 4.01(e) of the Company
Disclosure Schedule; (ii) incur any indebtedness for borrowed money, except
for borrowings and reborrowing under the Company's existing credit
facilities or issue any debt securities or assume, guarantee (other than
guarantees of the Company's subsidiaries entered into in the ordinary course
of business) or endorse or otherwise as an accommodation become responsible
for, the obligations of any person, or make any loans or advances, except
(other than in the case of loans or advances to employees of the Company to
fund the exercise price of Company Stock Options or otherwise to purchase
shares of the Company Common Stock) in the ordinary course of business
consistent with past practice; or (iii) authorize any capital expenditures
or purchases of fixed assets which are, in the aggregate, in excess of
$2,500,000 over the next 12 month period; or (iv) enter into or materially
amend any contract, agreement, commitment or arrangement to effect any of
the matters prohibited by this Section 4.01(e);
(f) except as set forth in Section 4.01(f) of the Company Disclosure
Schedule, increase the compensation or severance payable or to become
payable to its directors, officers, employees or consultants, except for
increases in salary or wages of employees of the Company or its subsidiaries
in accordance with past practices, or grant any severance or termination pay
(except to make payments required to be made under obligations existing on
the date hereof in accordance with the terms of such obligations) to, or
enter into any employment or severance agreement, with any current or
prospective employee of the Company or any of its subsidiaries, or
establish, adopt, enter into or amend any collective bargaining agreement,
Company Employee Plan (within the meaning of Section 2.11 of this
Agreement), trust, fund, policy or arrangement for the benefit of any
current or former directors, officers, employees or consultants or any of
their beneficiaries, except, in each case, as may be required by law or as
would not result in a material increase in the cost of maintaining such
collective bargaining agreement, Company Employee Plan, trust, fund, policy
or arrangement.
(g) take any action to change accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable) except as required by a change in GAAP occurring after the date
hereof;
(h) make any tax election or settle or compromise any United States
federal, state, local or non-United States tax liability;
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(i) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise) in
excess of $100,000 in the aggregate, other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice of liabilities reflected or reserved against in the financial
statements contained in the Company SEC Documents filed prior to the date of
this Agreement or incurred in the ordinary course of business and consistent
with past practice;
(j) enter into, modify or renew any contract, agreement or arrangement,
whether or not in writing, for the distribution of the Company's products;
or
(k) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.01(a) through (i) above, or any action which would
make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect or prevent the Company from performing or
cause the Company not to perform its covenants hereunder.
SECTION 4.02. NO SOLICITATION. (a) The Company shall not, directly or
indirectly, through any officer, director, employee, representative or agent of
the Company or any of its subsidiaries, solicit or encourage the initiation of
(including by way of furnishing information) any inquiries or proposals
regarding any merger, sale of assets, sale of shares of capital stock (including
without limitation by way of a tender offer) or similar transactions involving
the Company or any subsidiaries of the Company that if consummated would
constitute an Alternative Transaction (as defined in Section 7.01) (any of the
foregoing inquiries or proposals being referred to herein as an "ACQUISITION
PROPOSAL"). Nothing contained in this Agreement shall prevent the Board of
Directors of the Company from (i) furnishing information to a third party which
has made a BONA FIDE Acquisition Proposal that is a Superior Proposal (as
defined below) not solicited in violation of this Agreement, PROVIDED that such
third party has executed an agreement with confidentiality provisions
substantially similar to those then in effect between the Company and a
subsidiary of Guarantor or (ii) subject to compliance with the other terms of
this Section 4.02, including Sections 4.02(c) and (d), considering and
negotiating a bona fide Acquisition Proposal that is a Superior Proposal not
solicited in violation of this Agreement; PROVIDED, HOWEVER, that, as to each of
clauses (i) and (ii), (x) such actions occur at a time prior to approval of the
Merger and this Agreement at the Company Shareholders Meeting and (y) the Board
of Directors of the Company reasonably determines in good faith (after due
consultation with independent counsel, which may be Venture Law Group), that it
is or is reasonably likely to be required to do so in order to discharge
properly its fiduciary duties. For purposes of this Agreement, a "SUPERIOR
PROPOSAL" means any proposal made by a third party to acquire, directly or
indirectly, for consideration consisting of cash and/or securities, all of the
equity securities of the Company entitled to vote generally in the election of
directors or all or substantially all the assets of the Company, on terms which
the Board of Directors of the Company reasonably believes (i) (after
consultation with a financial advisor of nationally recognized reputation) to be
more favorable from a financial point of view to its shareholders than the
Merger and the transactions contemplated by this Agreement taking into account
at the time of determination any changes to the financial terms of this
Agreement proposed by Parent and (ii) to be more favorable to the Company than
the Merger and the transactions contemplated by this Agreement after taking into
account all pertinent factors deemed relevant by the Board of Directors of the
Company under the laws of the State of California; PROVIDED, HOWEVER, that a
Superior Proposal may be subject to a due diligence review of confidential
information and to other customary conditions.
(b) The Company shall notify Parent promptly (but in no event later than 24
hours) after receipt of any Acquisition Proposal, or any modification of or
amendment to any Acquisition Proposal, or any request for nonpublic information
relating to the Company or any of its subsidiaries in connection with an
Acquisition Proposal or for access to the properties, books or records of the
Company or any subsidiary by any person or entity that informs the Board of
Directors of the Company or such subsidiary that it is considering making, or
has made, an Acquisition Proposal. Such notice to Parent shall be made orally
and in writing, and shall indicate the identity of the person making the
Acquisition
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Proposal or intending to make an Acquisition Proposal or requesting non-public
information or access to the books and records of the Company, the terms of any
such Acquisition Proposal or modification or amendment to an Acquisition
Proposal, and whether the Company is providing or intends to provide the person
making the Acquisition Proposal with access to information concerning the
Company as provided in Section 4.02(a). The Company shall keep Parent fully
informed, on a current basis, of any material changes in the status and any
material changes or modifications in the material terms of any such Acquisition
Proposal, indication or request. The Company shall also immediately notify
Parent, orally and in writing, if it enters into negotiations concerning any
Acquisition Proposal.
(c) Except to the extent the Board of Directors of the Company reasonably
determines in good faith (after due consultation with independent counsel, which
may be Venture Law Group) that it is or is reasonably likely to be required to
act to the contrary in order to discharge properly its fiduciary duties (and,
with respect to the approval, recommendation or entering into any, Acquisition
Proposal, it may take such contrary action only after the second business day
following Parent's and Merger Sub's receipt of written notice of the Board of
Directors' intention to do so), neither the Company nor the Board of Directors
of the Company shall withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Parent or Merger Sub, the approval by such Board of Directors
of this Agreement or the Merger; PROVIDED, HOWEVER, that in all events, unless
this Agreement has been terminated in accordance with its terms, the Merger and
this Agreement shall be submitted for approval and adoption by the Company's
shareholders at the Company Shareholders Meeting and the Board of Directors
shall not recommend that shareholders vote against approval of the Merger and
adoption of this Agreement.
(d) The Company and the Board of Directors of the Company shall not (i)
redeem the rights (the "RIGHTS") issued under the Preferred Shares Rights
Agreement, dated as of May 9, 1997, as amended, between the Company and The U.S.
Stock Transfer Corporation, as Rights Agent (the "RIGHTS AGREEMENT"), or waive
or amend any provision of the Rights Agreement, in any such case to permit or
facilitate the consummation of any Acquisition Proposal or Alternative
Transaction, or (ii) enter into any agreement with respect to, or otherwise
approve or recommend, or propose to approve or recommend, any Acquisition
Proposal or Alternative Transaction, unless this Agreement has been terminated
in accordance with its terms. It is understood and agreed that a deferral of the
distribution of Rights following the commencement of a tender offer or exchange
offer shall not be prohibited hereunder.
(e) Nothing contained in this Section 4.02 shall prohibit the Company from
taking and disclosing to its shareholders a position required by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to its
shareholders required by applicable law, rule or regulation.
(f) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent and
Merger Sub) conducted heretofore with respect to any of the foregoing. The
Company agrees not to release any third party from the confidentiality and
standstill provisions of any agreement to which the Company is a party.
(g) The Company shall ensure that the officers and directors of the Company
and the Company Significant Subsidiaries and any investment banker or other
advisor or representative retained by the Company are aware of the restrictions
described in this Section 4.02.
SECTION 4.03. CONDUCT OF BUSINESS BY GUARANTOR PENDING THE MERGER. During
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, Parent covenants and
agrees that, except as set forth in Section 4.03 of the Parent Disclosure
Schedule or unless the Company shall otherwise agree in writing, Parent shall
take all action necessary so that (i) Guarantor shall conduct its business, and
cause the businesses of its subsidiaries to be conducted, in the ordinary course
of business and consistent with past practice, including actions taken by
Guarantor or its subsidiaries in contemplation of the Merger, and (ii) Guarantor
shall not directly or indirectly do, or propose to do, any of the following
without the prior written consent of the Company:
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(a) amend or otherwise change Guarantor's Charter Documents;
(b) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or
agree to acquire any assets of any other person, or dispose of any assets,
which, in any such case, would materially delay or prevent the consummation
of the Merger and the other transactions contemplated by this Agreement;
(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock, except that a wholly owned subsidiary of
Guarantor may declare and pay a dividend to its parent, and except that
Guarantor may effect a previously declared two-for-one stock split in the
form of a stock dividend and may declare and pay quarterly cash dividends on
the Guarantor Common Shares of $0.025 per share (on a pre-split basis)
consistent with past practice;
(d) take any action to change its accounting policies or procedures
(including, without limitation, procedures with respect to revenue
recognition, payments of accounts payable and collection of accounts
receivable) except as required by a change in GAAP occurring after the date
hereof; or
(e) take or agree in writing or otherwise to take any action that would
make any of the representations or warranties of Parent contained in this
Agreement untrue or incorrect or prevent Parent from performing or cause
Parent not to perform its covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As
promptly as practicable after the execution of this Agreement, the Company
shall, and Parent shall cause Guarantor to, prepare and file with the SEC
preliminary proxy materials which shall constitute the Proxy
Statement/Prospectus and, if the parties so agree at the time, the Registration
Statement. As promptly as practicable after comments are received from the SEC
thereon and after the furnishing by the Company and Guarantor of all information
required to be contained therein, the Company shall, and Parent shall cause
Guarantor to, file with the SEC the definitive Proxy Statement/Prospectus and
the Registration Statement (or, if the Registration Statement has been
previously filed, an amendment thereto) relating to the adoption of this
Agreement and approval of the transactions contemplated hereby by the
shareholders of the Company, and the payment of the Merger Consideration in the
form of Guarantor Common Shares, pursuant to this Agreement, and shall use all
reasonable efforts to cause the Registration Statement to become effective, and
the Company shall mail the Proxy Statement/ Prospectus to its shareholders, as
soon thereafter as practicable.
SECTION 5.02. COMPANY SHAREHOLDERS MEETING. The Company shall call the
Company Shareholders Meeting as promptly as practicable for the purpose of
voting upon the approval of the Merger, and the Company shall use its reasonable
best efforts to hold the Company Shareholders Meeting as soon as practicable
after the date on which the Registration Statement becomes effective. The Proxy
Statement/Prospectus shall include the recommendation of the Board of Directors
of the Company in favor of this Agreement and the Merger. The Company shall
solicit from its shareholders proxies in favor of approval of this Agreement and
the Merger and shall take all other reasonable action necessary or advisable to
secure the vote or consent of shareholders in favor of such approval.
Notwithstanding anything to the contrary herein, the Company shall not be
obligated to take any of the actions set forth in the two preceding sentences of
this Section 5.02 (but not the first sentence of this Section 5.02) to the
extent that the Board of Directors of the Company reasonably determines (after
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due consultation with independent counsel, which may be Venture Law Group) that
it is or is reasonably likely that any such action is inconsistent with the
proper discharge of its fiduciary duties; PROVIDED, HOWEVER, that in no event
shall the Board of Directors recommend that the Company's shareholders vote
against approval of the Merger and adoption of this Agreement at the Company
Shareholders Meeting.
SECTION 5.03. ACCESS TO INFORMATION; CONFIDENTIALITY. Upon reasonable notice
and subject to restrictions contained in confidentiality agreements to which
such party is subject (from which such party shall use reasonable efforts to be
released), the Company shall (and shall cause its subsidiaries to) and Parent
shall take all action necessary such that Guarantor shall (i) afford to the
officers, employees, accountants, counsel and other representatives of the
other, reasonable access, during the period after the execution and delivery of
this Agreement and prior to the Effective Time, to its properties, books,
contracts, commitments and records and, (ii) during such period, furnish
promptly to the other all information concerning its business, properties and
personnel as such other party may reasonably request, and each shall make
available to the other the appropriate individuals (including attorneys,
accountants and other professionals) for discussion of the other's business,
properties and personnel as either Parent or the Company may reasonably request.
Each party shall keep such information confidential in accordance with the terms
of the confidentiality agreement, dated July 13, 1999 (the "CONFIDENTIALITY
AGREEMENT"), between a subsidiary of the Guarantor and the Company.
SECTION 5.04. CONSENTS; APPROVALS. The Company and Parent shall each use its
reasonable best efforts to obtain and to cooperate with each other in order to
obtain all consents, waivers, approvals, authorizations or orders (including,
without limitation, all United States and non-United States governmental and
regulatory rulings and approvals), and the Company and Parent shall make (or
Parent shall take all action necessary such that Guarantor will make) all
filings (including, without limitation, all filings with United States and
non-United States governmental or regulatory agencies) required in connection
with the authorization, execution and delivery of this Agreement by the Company
and Parent and the consummation by them of the transactions contemplated hereby.
The Company and Parent shall furnish all information required to be included in
the Proxy Statement/ Prospectus and the Registration Statement, or for any
application or other filing to be made pursuant to the rules and regulations of
any United States or non-United States governmental body in connection with the
transactions contemplated by this Agreement.
SECTION 5.05. AGREEMENTS WITH RESPECT TO AFFILIATES. The Company shall
deliver to Parent, prior to the date the Registration Statement becomes
effective under the Securities Act, a letter (the "COMPANY AFFILIATE LETTER")
identifying all persons who are anticipated to be "affiliates" of the Company at
the time of the Company Shareholders Meeting for purposes of Rule 145 under the
Securities Act ("RULE 145"). The Company shall use its reasonable best efforts
to cause each person who is identified as an "affiliate" in the Affiliate Letter
to deliver to Parent, prior to the date of the Company Shareholders Meeting, a
written agreement (an "AFFILIATE AGREEMENT") restricting the sales of securities
by such affiliates in accordance with the restrictions on affiliates under Rule
145, in a form mutually agreeable to the Company and Parent.
SECTION 5.06. INDEMNIFICATION AND INSURANCE. (a) The Articles of
Incorporation and By-laws of the Surviving Corporation shall contain the
provisions with respect to indemnification set forth in the Amended and Restated
Articles of Incorporation and the By-laws of the Company, which provisions shall
not be amended, modified or otherwise repealed for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder as of the Effective Time of individuals who at the Effective Time
were directors, officers, employees or agents of the Company, unless such
modification is required after the Effective Time by law and then only to the
minimum extent required by such law.
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(b) The Surviving Corporation shall, to the fullest extent permitted under
applicable law or under the Surviving Corporation's Articles of Incorporation or
By-laws, indemnify and hold harmless, each present and former director, officer
or employee of the Company or any of its subsidiaries (collectively, the
"INDEMNIFIED PARTIES") against any costs or expenses (including attorneys'
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, (x)
arising out of or pertaining to the transactions contemplated by this Agreement
or (y) otherwise with respect to any acts or omissions occurring at or prior to
the Effective Time, to the same extent as provided in the Company's Amended and
Restated Articles of Incorporation or By-laws or any applicable contract or
agreement as in effect on the date hereof, in each case for a period of six
years after the Effective Time. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective Time)
and subject to the specific terms of any indemnification contract, (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time shall be reasonably satisfactory to the Surviving Corporation, (ii) after
the Effective Time, the Surviving Corporation shall pay the reasonable fees and
expenses of such counsel, promptly after statements therefor are received and
(iii) the Surviving Corporation will cooperate in the defense of any such
matter; PROVIDED, HOWEVER, that the Surviving Corporation shall not be liable
for any settlement effected without its written consent (which consent shall not
be unreasonably withheld); and PROVIDED, FURTHER, that, in the event that any
claim or claims for indemnification are asserted or made within such six-year
period, all rights to indemnification in respect of any such claim or claims
shall continue until the disposition of any and all such claims. The Indemnified
Parties as a group may retain only one law firm to represent them in each
applicable jurisdiction with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties, in which
case each Indemnified Person with respect to whom such a conflict exists (or
group of such Indemnified Persons who among them have no such conflict) may
retain one separate law firm in each applicable jurisdiction.
(c) The Surviving Corporation shall honor and fulfill in all respects the
obligations of the Company pursuant to indemnification agreements and employment
agreements (the employee parties under such agreements being referred to as the
"OFFICER EMPLOYEES") with the Company's directors and officers existing at or
before the Effective Time.
(d) In addition, Parent will provide, or cause the Surviving Corporation to
provide, for a period of not less than six years after the Effective Time, the
Company's current directors and officers with an insurance and indemnification
policy that provides coverage for events occurring at or prior to the Effective
Time (the "D&O INSURANCE") that is no less favorable than the existing policy
or, if substantially equivalent insurance coverage is unavailable, the best
available coverage; PROVIDED, HOWEVER, that Parent and the Surviving Corporation
shall not be required to pay an annual premium for the D&O Insurance in excess
of 200% of the annual premium currently paid by the Company for such insurance,
but in such case shall purchase as much such coverage as possible for such
amount.
(e) From and after the Effective Time, Parent shall unconditionally
guarantee the timely payment of all funds owing by, and the timely performance
of all other obligations of, the Surviving Corporation under this Section 5.07.
(f) This Section shall survive the consummation of the Merger at the
Effective Time, is intended to benefit the Company, the Surviving Corporation
and the Indemnified Parties, shall be binding on all successors and assigns of
the Surviving Corporation and shall be enforceable by the Indemnified Parties.
SECTION 5.07. NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would reasonably be expected to cause any
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representation or warranty contained in this Agreement to be materially untrue
or inaccurate, or (ii) any failure of the Company, Parent or Merger Sub, as the
case may be, materially to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; PROVIDED, HOWEVER,
that the delivery of any notice pursuant to this Section shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice; and PROVIDED FURTHER that failure to give such notice shall not be
treated as a breach of covenant for the purposes of Sections 6.02(b) or 6.03(b)
unless the failure to give such notice results in material prejudice to the
other party.
SECTION 5.08. FURTHER ACTION/TAX TREATMENT. Upon the terms and subject to
the conditions hereof, each of the parties hereto shall use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement, to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and otherwise
to satisfy or cause to be satisfied all conditions precedent to its obligations
under this Agreement. The foregoing covenant shall not include any obligation by
Guarantor to agree to divest, abandon, license, enter into, modify, maintain or
renew any contract arrangement regarding or take similar action with respect to
any assets (tangible or intangible) of Guarantor or the Company or any of their
subsidiaries. Each of Parent, Merger Sub and the Company shall, and Parent shall
use its reasonable best efforts to cause Guarantor to, use its reasonable best
efforts to cause the Merger to qualify, and will not (either before or after
consummation of the Merger) take any actions, or fail to take any action, that
might reasonably be expected to prevent the Merger from qualifying as a
reorganization under the provisions of Section 368 of the Code that is not
subject to Section 367(a)(1) of the Code pursuant to Treasury Regulation Section
1.367(a)-(3)(c) (other than with respect to Company shareholders who are or will
be "5% transferee shareholders" within the meaning of Treasury Regulation
Section 1.367(a)-3(c)(5)(ii)). Parent shall, and shall use its reasonable best
efforts to cause the Surviving Corporation and Guarantor, to report, to the
extent required by the Code or the regulations thereunder, the Merger for United
States federal income tax purposes as a reorganization within the meaning of
Section 368 of the Code.
SECTION 5.09. PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult
with each other before issuing any press release or making any written public
statement with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement without the prior consent
of the other party, which shall not be unreasonably withheld; PROVIDED, HOWEVER,
that either party may, without the prior consent of the other, issue such press
release or make such public statement as may upon the advice of counsel be
required by law or the rules and regulations of the NYSE or The Nasdaq Stock
Market if it has used all reasonable efforts to consult with the other party.
SECTION 5.10. GUARANTOR COMMON SHARES. (a) Prior to the Effective Time,
Parent shall take all action necessary so that Guarantor shall transfer to
Parent the Guarantor Common Shares to be delivered by Parent to the holders of
Company Common Stock in the Merger.
(b) Parent will take all action necessary so that Guarantor will use its
best efforts to cause the Guarantor Common Shares to be delivered by Parent to
the holders of Company Common Stock in the Merger to be listed, upon official
notice of issuance, on the NYSE prior to the Effective Time.
SECTION 5.11. CONVEYANCE TAXES. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable in connection with the transactions contemplated hereby that are
required or permitted to be filed on or before the Effective Time, and the
Company shall be responsible for the payment of all such taxes and fees. In no
event shall Parent or any affiliate thereof (other than a subsidiary of the
Company) reimburse the Company for the payment of such taxes and fees.
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SECTION 5.12. OPTION PLANS AND BENEFITS, ETC. (a) Prior to the Effective
Time, the parties to this Agreement shall take all such actions as shall be
necessary to effectuate the provisions of Section 1.06(c).
(b) The Company shall take such action as is necessary to cause the ending
date of the then current offering period under the Company Stock Purchase Plan
to be prior to the Effective Time and to terminate such plan as of the Effective
Time.
SECTION 5.13. RIGHTS AGREEMENT. The Board of Directors of the Company shall
take all further action (in addition to that referred to in Section 2.24), if
any, necessary in order to render the Rights inapplicable to the Merger and the
other transactions contemplated by this Agreement.
SECTION 5.14. ACCOUNTANT'S LETTERS. Upon reasonable notice from the other,
the Company shall use its best efforts to cause PricewaterhouseCoopers LLP to
deliver to Parent, and Parent shall use its best efforts to cause
PricewaterhouseCoopers LLP to deliver to the Company, a letter covering such
matters as are reasonably requested by Parent or the Company, as the case may
be, and as are customarily addressed in accountants' "comfort letters."
SECTION 5.15. COMPLIANCE WITH STATE PROPERTY TRANSFER STATUTES. The Company
agrees that it shall use its reasonable commercial efforts to comply promptly
with all requirements of applicable state property transfer laws as may be
required by the relevant state agency and shall take all action necessary to
cause the transactions contemplated hereby to be effected in compliance with
applicable state property transfer laws. The Company, after consultation with
Parent, shall determine which actions must be taken prior to or after the
Effective Time to comply with applicable state property transfer laws. The
Company agrees to provide Parent with any documents required to be submitted to
the relevant state agency prior to submission, and the Company shall not take
any action to comply with applicable state property transfer laws without
Parent's prior consent, which consent shall not be unreasonably withheld or
delayed. Parent shall provide, and shall take all action necessary such that
Guarantor shall provide, to the Company any assistance reasonably requested by
the Company with respect to such compliance.
ARTICLE VI
CONDITIONS TO THE MERGER
SECTION 6.01. CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The Registration
Statement shall have been declared effective by the SEC under the Securities
Act. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC and no proceedings for that
purpose and no similar proceeding in respect of the Proxy
Statement/Prospectus shall have been initiated or threatened by the SEC;
(b) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have been
approved by the requisite vote of the shareholders of the Company;
(c) ANTITRUST. All waiting periods applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated, and all
clearances and approvals required to be obtained in respect of the Merger
prior to the Effective Time under any Foreign Monopoly Laws shall have been
obtained, except where the failure to have obtained any such clearances or
approvals with respect to any Foreign Monopoly Laws would not reasonably be
expected to have a Material Adverse Effect on the Company, Guarantor or
Guarantor's healthcare product business;
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(d) GOVERNMENTAL ACTIONS. There shall not have been instituted, pending
or threatened any action or proceeding (or any investigation or other
inquiry that is reasonably likely to result in such an action or proceeding)
by any governmental authority or administrative agency before any
governmental authority, administrative agency or court of competent
jurisdiction, United States or non-United States, that is reasonably likely
to result in an order, nor shall there be in effect any judgment, decree or
order of any governmental authority, administrative agency or court of
competent jurisdiction, or any other legal restraint (i) preventing or
seeking to prevent consummation of the Merger, (ii) prohibiting or seeking
to prohibit or limiting or seeking to limit, Parent from exercising all
material rights and privileges pertaining to its ownership of the Surviving
Corporation or the ownership or operation by Guarantor or any of its
subsidiaries of all or a material portion of the business or assets of the
Surviving Corporation and its subsidiaries, or (iii) compelling or seeking
to compel Guarantor or any of its subsidiaries to dispose of or hold
separate all or any material portion of the business or assets of Guarantor
or any of its subsidiaries (including the Surviving Corporation and its
subsidiaries), as a result of the Merger or the transactions contemplated by
this Agreement;
(e) ILLEGALITY. No statute, rule, regulation or order shall be enacted,
entered, enforced or deemed applicable to the Merger which makes the
consummation of the Merger illegal;
(f) TAX OPINIONS. The Company shall have received a written opinion of
Venture Law Group, and Parent shall have received a written opinion of
PricewaterhouseCoopers LLP, in form and substance reasonably satisfactory to
each of them and delivered as of the date of the Effective Time, to the
effect that (i) the Merger will constitute a reorganization within the
meaning of Section 368 of the Code and (ii) the transfer of Company Common
Stock by Company shareholders pursuant to the Merger, other than Company
shareholders who are or will be "5% transferee shareholders" within the
meaning of Treasury Regulation Section 1.367(a)-3(c)(5)(ii), will qualify
for an exception under Treasury Regulation Section 1.367(a)-3 and,
accordingly, Guarantor will be treated as a corporation for United States
federal income tax purposes. Each party agrees to make all reasonable
representations and covenants in connection with the rendering of such
opinions.
SECTION 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to effect the Merger are also subject
to the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in this Agreement shall be true and correct in all
respects (without for this purpose giving effect to qualifications of
materiality contained in such representations and warranties) on and as of
the Effective Time, with the same force and effect as if made on and as of
the Effective Time, except for (i) changes contemplated by this Agreement,
(ii) those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date,
subject to clause (iii)), or (iii) where the failure to be true and correct
would not reasonably be expected, individually or in the aggregate with all
other such failures, to have a Material Adverse Effect, and Parent and
Merger Sub shall have received a certificate of the Company to such effect
signed by the Chief Executive Officer or Chief Financial Officer of the
Company;
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or
complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Effective Time, and Parent and Merger Sub shall have received a certificate
to such effect signed by the Chief Executive Officer or Chief Financial
Officer of the Company;
(c) CONSENTS OBTAINED. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by the Company for the authorization,
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execution and delivery of this Agreement and the consummation by it of the
transactions contemplated hereby shall have been obtained and made by the
Company, except where the failure to receive such consents, waivers,
approvals, authorizations or orders would not reasonably be expected,
individually or in the aggregate with all other such failures, to have a
Material Adverse Effect on the Company, Parent or Guarantor;
(d) AFFILIATE AGREEMENTS. Guarantor shall have received from each person
who is identified in the Affiliate Letter as an "affiliate" of the Company
an Affiliate Agreement, and such Affiliate Agreement shall be in full force
and effect; and
(e) RIGHTS AGREEMENT. A Distribution Date shall not have occurred under
the Rights Agreement.
SECTION 6.03. ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY. The
obligation of the Company to effect the Merger is also subject to the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and
correct in all respects (without for this purpose giving effect to
qualifications of materiality contained in such representations and
warranties) on and as of the Effective Time, with the same force and effect
as if made on and as of the Effective Time, except for (i) changes
contemplated by this Agreement, (ii) those representations and warranties
which address matters only as of a particular date (which shall have been
true and correct as of such date, subject to clause (iii)), or (iii) where
the failure to be true and correct could not reasonably be expected,
individually or in the aggregate with all other such failures, to have a
Material Adverse Effect, and the Company shall have received a certificate
to such effect signed by the President or Chief Financial Officer of Parent;
(b) AGREEMENTS AND COVENANTS. Parent and Merger Sub shall have performed
or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Effective Time, and the Company shall have received a
certificate of Parent to such effect signed by the President or Chief
Financial Officer of Parent;
(c) CONSENTS OBTAINED. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by Parent or Merger Sub for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent or Merger
Sub, except where the failure to receive such consents, waivers, approvals,
authorizations or orders would not reasonably be expected, individually or
in the aggregate with all other such failures, to have a Material Adverse
Effect on the Company, Parent or Guarantor; and
(d) LISTING. The Guarantor Common Shares issuable in connection with the
Merger shall have been authorized for listing on the NYSE upon official
notice of issuance.
ARTICLE VII
TERMINATION
SECTION 7.01. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, notwithstanding approval thereof by the
shareholders of the Company:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and the Company; or
(b) by either Parent or the Company if the Merger shall not have been
consummated by February 28, 2000 (other than for the reasons set forth in
clause (d) below); PROVIDED, HOWEVER, that
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the right to terminate this Agreement under this Section 7.01(b) shall not
be available to any party whose failure to fulfill any obligation under this
agreement has been the cause of, or resulted in, the failure of the Merger
to be consummated on or prior to such date; or
(c) by either Parent or the Company if a court of competent jurisdiction
or governmental, regulatory or administrative agency or commission shall
have issued a nonappealable final order, decree or ruling or taken any other
nonappealable final action having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger; or
(d) by either Parent or the Company if the shareholders of the Company
shall not have approved the Merger and this Agreement at the Company
Shareholders Meeting; PROVIDED, HOWEVER, that the Company may not terminate
pursuant to this clause if the Company has not complied with its obligations
under Section 5.02; or
(e) by Parent, if, whether or not permitted to do so by this Agreement,
the Board of Directors of the Company or the Company shall (x) (i) withdraw,
modify or change its approval or recommendation of this Agreement or the
Merger in a manner adverse to Parent, (ii) approve or recommend to the
shareholders of the Company an Acquisition Proposal or Alternative
Transaction; or (iii) approve or recommend that the shareholders of the
Company tender their shares in any tender or exchange offer that is an
Alternative Transaction or (y) take any position or make any disclosures to
the Company's shareholders permitted pursuant to Section 4.02(e) which has
the effect of any of the foregoing; or
(f) by Parent or the Company, if any representation or warranty of the
Company, or Parent and Merger Sub, respectively, set forth in this Agreement
shall be untrue when made, such that the conditions set forth in Sections
6.02(a) or 6.03(a), as the case may be, would not be satisfied (a
"TERMINATING MISREPRESENTATION"); PROVIDED that if such Terminating
Misrepresentation is curable prior to February 28, 2000 by the Company or
Parent, as the case may be, through the exercise of its reasonable best
efforts and for so long as the Company or Parent, as the case may be,
continues to exercise such reasonable best efforts, neither Parent nor the
Company, respectively, may terminate this Agreement under this Section
7.01(f); or
(g) by Parent, if any representation or warranty of the Company shall
have become untrue such that the condition set forth in Section 6.02(a)
would not be satisfied, or by the Company, if any representation or warranty
of Parent and Merger Sub shall have become untrue such that the condition
set forth in Section 6.03(a) would not be satisfied (in either case, a
"TERMINATING CHANGE"), in either case other than by reason of a Terminating
Breach (as hereinafter defined); PROVIDED that if any such Terminating
Change is curable prior to February 28, 2000 by the Company or Parent, as
the case may be, through the exercise of its reasonable best efforts, and
for so long as the Company or Parent, as the case may be, continues to
exercise such reasonable best efforts, neither Parent nor the Company,
respectively, may terminate this Agreement under this Section 7.01(g); or
(h) by Parent or the Company, upon a breach of any covenant or agreement
on the part of the Company or Parent, respectively, set forth in this
Agreement such that the conditions set forth in Sections 6.02(b) or 6.03(b),
as the case may be, would not be satisfied (a "TERMINATING BREACH");
PROVIDED that, except for any breach of the Company's obligations under
Section 4.02, if such Terminating Breach is curable prior to February 28,
2000 by the Company or Parent, as the case may be, through the exercise of
its reasonable best efforts and for so long as the Company or Parent, as the
case may be, continues to exercise such reasonable best efforts, neither
Parent nor the Company, respectively, may terminate this Agreement under
this Section 7.01(h); or
(i) by the Company, if (w) the Board of Directors of the Company shall
have authorized the Company, subject to complying with the terms of this
Agreement, including Section 4.02, to enter
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into a definitive agreement with respect to a Superior Proposal and the
Company shall have notified Parent in writing that it intends to enter into
such an agreement, attaching a summary of the material terms thereof, (x)
Parent shall not have made, within two full business days (disregarding any
partial business days) of receipt of the Company's written notification of
its intention to enter into a definitive agreement with respect to a
Superior Proposal, an offer that the Board of Directors of the Company
determines, in good faith after consultation with its financial advisors, is
at least as favorable, from a financial point of view, to the shareholders
of the Company as the Superior Proposal, (y) the Company prior to such
termination pursuant to this clause (i) shall have paid to Parent in
immediately available funds the Fee and the Expenses required to be paid
pursuant to Section 7.03(b), and (z) this Agreement shall not theretofore
have been approved at the Company Shareholders Meeting; or
(j) by Parent prior to the time of the Company Shareholders Meeting, if
(x) the Average Share Price is less than $82.15 and (y) on or before the
second trading day prior to the date of the Company Shareholders Meeting,
the Company has not agreed by notice to Parent in writing to an Exchange
Ratio equal to 0.0913; PROVIDED that, in the event of such notice, the
Exchange Ratio shall thereafter, for all purposes of this Agreement, be
deemed to be such ratio.
As used herein, "Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than Parent or its
affiliates (a "THIRD PARTY") acquires or would acquire more than 30% of the
outstanding shares of any class of equity securities of the Company, whether
from the Company or pursuant to a tender offer or exchange offer or otherwise,
(ii) a merger or other business combination involving the Company pursuant to
which any Third Party acquires more than 30% of the outstanding equity
securities of the Company or the entity surviving such merger or business
combination (iii) any transaction pursuant to which any Third Party acquires or
would acquire control of assets (including for this purpose the outstanding
equity securities of subsidiaries of the Company and securities of the entity
surviving any merger or business combination including any of the Company's
subsidiaries) of the Company, or any of its subsidiaries having a fair market
value (as determined by the Board of Directors of the Company in good faith)
equal to more than 30% of the fair market value of all the assets of the Company
and its subsidiaries, taken as a whole, immediately prior to such transaction,
or (iv) any other consolidation, business combination, recapitalization or
similar transaction involving the Company or any of the Company Significant
Subsidiaries, other than the transactions contemplated by this Agreement;
PROVIDED, HOWEVER, that the term Alternative Transaction shall not include any
acquisition of securities by a broker dealer in connection with a bona fide
public offering of such securities.
SECTION 7.02. EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 7.01, this Agreement shall forthwith become void
and there shall be no liability on the part of any party hereto or any of its
affiliates, directors, officers or shareholders (i) except that the Company or
Parent or Merger Sub may have liability as set forth in Section 7.03 and Section
8.01 hereof, and (ii) nothing herein shall relieve the Company, Parent or Merger
Sub from liability for any willful material breach hereof (it being understood
that the mere existence of a Material Adverse Effect, by itself, shall not
constitute such a willful material breach).
SECTION 7.03. FEES AND EXPENSES. (a) Except as set forth in this Section
7.03, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated; PROVIDED, HOWEVER, that
Parent and the Company shall share equally all SEC filing fees and printing
expenses incurred in connection with the printing and filing of the Proxy
Statement/Prospectus (including any preliminary materials related thereto) and
the Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto.
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(b) The Company shall pay Guarantor a fee of $4,000,000 (the "FEE"), and
shall pay Parent's and Guarantor's respective actual, documented and reasonable
out-of-pocket expenses, relating to the transactions contemplated by this
Agreement (including, but not limited to, fees and expenses of counsel and
accountants and out-of-pocket expenses (but not fees) of financial advisors)
("EXPENSES," as applicable to Parent, Guarantor or the Company), such payment of
Expenses not to exceed $375,000, upon the first to occur of any of the following
events:
(i) the termination of this Agreement by Parent or the Company pursuant
to Section 7.01(d) as a result of the failure of the shareholders of the
Company to approve the Merger and this Agreement at the Company Shareholders
Meeting, PROVIDED that, (A) prior to or at the time of the Company
Shareholders Meeting, there shall be outstanding a BONA FIDE Acquisition
Proposal which has been made directly to the shareholders of the Company or
has otherwise become publicly known or there shall be outstanding an
announcement by any credible third party of a BONA FIDE intention to make an
Acquisition Proposal (in each case whether or not conditional and whether or
not such proposal shall have been rejected by the Board of Directors of the
Company) or (B) an Alternative Transaction shall be publicly announced by
the Company or any third party within 12 months following the date of
termination of this Agreement and such transaction shall at any time
thereafter be consummated on substantially the terms theretofore announced;
or
(ii) the termination of this Agreement by Parent pursuant to Section
7.01(e); or
(iii) the termination of this Agreement by the Company pursuant to
Section 7.01(i).
(c) Upon a termination of this Agreement by Parent pursuant to Section
7.01(h), the Company shall pay to Guarantor and Parent their respective Expenses
relating to the transactions contemplated by this Agreement, but in no event
more than $375,000, and the Company shall pay Guarantor the Fee if (A) prior to
such termination, there shall be outstanding a BONA FIDE Acquisition Proposal
which has been made directly to the shareholders of the Company or has otherwise
become publicly known or there shall be outstanding an announcement by any
credible third party of a BONA FIDE intention to make an Acquisition Proposal
(in each case whether or not conditional and whether or not such proposal shall
have been rejected by the Board of Directors of the Company) or (B) an
Alternative Transaction shall be publicly announced by the Company or any third
party within 12 months following the date of termination of this Agreement and
such transaction shall at any time thereafter be consummated on substantially
the terms theretofore announced. The remedies available pursuant to this Section
7.03(c) shall be in addition to, but without duplication in any way of, the
remedies referred to in clause (ii) of Section 7.02.
(d) Upon a termination of this Agreement by Parent pursuant to Section
7.01(f), the Company shall pay to Guarantor and Parent their respective Expenses
relating to the transactions contemplated by this Agreement, but in no event
more than $375,000. Upon a termination of this Agreement by the Company pursuant
to Section 7.01(f), Parent shall pay to the Company its Expenses relating to the
transactions contemplated by this Agreement, but in no event more than $375,000.
(e) The Fee and/or Expenses payable pursuant to Section 7.03(b), 7.03(c) or
7.03(d) shall be paid within one business day after a demand for payment
following the first to occur of any of the events described in Section 7.03(b),
7.03(c) or 7.03(d), as applicable, except to the extent otherwise provided in
Section 7.01(i); PROVIDED that in no event shall the Company or Parent, as the
case may be, be required to pay such Fee and/or Expenses to the entities
entitled thereto if, immediately prior to the termination of this Agreement, the
other entity entitled to receive such Fee and/or Expenses was in material breach
of its obligations under this Agreement.
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ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) Except as otherwise provided in this Section 8.01, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.01, as the case may be, except that the agreements set
forth in Article I and Sections 5.06 and 5.08 and any other agreement in this
Agreement which contemplates performance after the Effective Time shall survive
the Effective Time indefinitely and those set forth in Section 7.03 shall
survive termination indefinitely. The Confidentiality Agreement shall survive
termination of this Agreement.
(b) Any disclosure made with reference to one or more Sections of the
Company Disclosure Schedule or the Parent Disclosure Schedule shall be deemed
disclosed with respect to each other section therein as to which such disclosure
is relevant provided that such relevance is reasonably apparent. Disclosure of
any matter in the Company Disclosure Schedule or the Parent Disclosure Schedule
shall not be deemed an admission that such matter is material.
SECTION 8.02. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier to the parties
at the following addresses or sent by electronic transmission, with confirmation
received, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
(a) If to Parent or Merger Sub:
General Acquisition Corp./General Sub Acquisition Corp.
One Tyco Park
Exeter, NH 03833
Attn: President and Chief Executive Officer
Telecopy: (603) 778-7700
With a copy (which shall not constitute notice) to:
Tyco International (US) Inc.
One Tyco Park
Exeter, NH 03833
Attn: Mark A. Belnick, Esq.
Telecopy: (603) 778-7700
and
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Attn: Joshua M. Berman, Esq.
Abbe L. Dienstag, Esq.
Telecopy: (212) 715-8000
A-38
<PAGE>
(b) If to the Company:
General Surgical Innovations, Inc.
10460 Bubb Road
Cupertino, CA 95014
Attn: President and Chief Executive Officer
Telecopy: (408) 863-1100
With a copy (which shall not constitute notice) to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attn: Mark B. Weeks, Esq.
Steven J. Tonsfeldt, Esq.
Telecopy: (650) 233-8386
SECTION 8.03. CERTAIN DEFINITIONS. For purposes of this Agreement, the term:
(a) "affiliates" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "business day" means any day other than a day on which banks in New
York are required or authorized to be closed;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "dollars" or "$" means United States dollars;
(e) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in
Section 13(d)(3) of the Exchange Act); and
(f) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent, Guarantor or any other person means any corporation,
partnership, joint venture or other legal entity of which the Company, the
Surviving Corporation, Parent or such other person, as the case may be
(either alone or through or together with any other subsidiary), owns,
directly or indirectly, more than 50% of the stock or other equity interests
the holders of which are generally entitled to vote for the election of the
board of directors or other governing body of such corporation or other
legal entity.
SECTION 8.04. AMENDMENT. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; PROVIDED, HOWEVER, that, after approval of the
Merger and this Agreement by the shareholders of the Company, no amendment may
be made which by law requires further approval by such shareholders without such
further approval. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 8.05. WAIVER. At any time prior to the Effective Time, any party
hereto may with respect to any other party hereto (a) extend the time for the
performance of any of the obligations or other acts, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
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<PAGE>
SECTION 8.06. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.07. SEVERABILITY. (a) If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon a determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent possible.
(b) The Company and Parent agree that each of the Fee provided in Section
7.03(b) is fair and reasonable in the circumstances. If a court of competent
jurisdiction shall nonetheless, by a final, non-appealable judgment, determine
that the amount of the Fee exceeds the maximum amount permitted by law, then the
amount of the Fee shall be reduced to the maximum amount permitted by law in the
circumstances, as determined by such court of competent jurisdiction.
SECTION 8.08. ENTIRE AGREEMENT. This Agreement, the Guarantor's guarantees
thereof and the Voting Agreement constitute the entire agreement and supersede
all prior agreements and undertakings (other than the Confidentiality Agreement,
except to the extent specifically superseded hereby), both written and oral,
among the parties, or any of them, with respect to the subject matters hereof
and thereof, except as otherwise expressly provided herein or therein.
SECTION 8.09. ASSIGNMENT. This Agreement shall not be assigned by operation
of law or otherwise, except that all or any of the rights of Parent and/or
Merger Sub hereunder may be assigned to Guarantor or any direct or indirect
wholly-owned subsidiary of Guarantor provided that no such assignment shall
relieve the assigning party of its obligations hereunder.
SECTION 8.10. PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation, other than
Section 5.06 (which is intended to be for the benefit of the Indemnified Parties
and Officer Employees and may be enforced by such Indemnified Parties and
Officer Employees) and Section 7.03 (which contains provisions intended to be
for the benefit of Guarantor and may be enforced by Guarantor).
SECTION 8.11. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 8.12. GOVERNING LAW; JURISDICTION. (a) This Agreement shall be
governed by, and construed in accordance with, the internal laws of the State of
New York applicable to contracts executed and fully performed within the State
of New York, except to the extent that the CGCL applies and, to that extent, by
the internal laws of the State of California.
(b) Each of the parties hereto submits to the non-exclusive jurisdiction of
the state and federal courts of the United States located in the City of New
York, Borough of Manhattan with respect to any claim or cause of action arising
out of this Agreement or the transactions contemplated hereby.
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<PAGE>
SECTION 8.13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 8.14. WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND THE
COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
A-41
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
<TABLE>
<S> <C> <C>
GENERAL ACQUISITION CORP.
By: /s/ MARK H. SWARTZ
-----------------------------------------
Name: Mark H. Swartz
Title: Vice President
GENERAL SUB ACQUISITION CORP.
By: /s/ MARK H. SWARTZ
-----------------------------------------
Name: Mark H. Swartz
Title: Vice President
GENERAL SURGICAL INNOVATIONS, INC.
By: /s/ GREGORY D. CASCIARO
-----------------------------------------
Name: Gregory D. Casciaro
Title: President
</TABLE>
<PAGE>
GUARANTEE
Tyco International Ltd. ("GUARANTOR") guarantees each and every
representation, warranty, covenant, agreement and other obligation of Parent and
Merger Sub, and/or any of their respective permitted assigns (and where any such
representation or warranty is made to the knowledge of Parent or Merger Sub,
such guarantee shall be deemed made to the knowledge of Guarantor), and the full
and timely performance of their respective obligations under the provisions of
the foregoing Agreement. This is a guarantee of payment and performance, and not
of collection, and Guarantor acknowledges and agrees that this guarantee is
unconditional, and no release or extinguishment of Parent's and Merger Sub's
obligations or liabilities (other than in accordance with the terms of the
Agreement), whether by decree in any bankruptcy proceeding or otherwise, shall
affect the continuing validity and enforceability of this guarantee, as well as
any provision requiring or contemplating performance by Guarantor.
Without limiting in any way the foregoing guarantee, Guarantor covenants and
agrees to take all actions to enable Parent to adhere to the provisions of
Sections 1.06, 5.01 and 5.10 of the Agreement.
The provisions of ARTICLE VIII of the Agreement are incorporated herein,
MUTATIS MUTANDIS, except that notices and other communications hereunder to
Guarantor shall be delivered to Tyco International Ltd., The Gibbons Building,
10 Queen Street, Suite 301, Hamilton HM 11 Bermuda, Attn: Secretary, Telecopy
No. (441) 295-9647, Confirm No. (441) 292-8674 (with a copy as provided therefor
in Section 8.02(a)).
We understand that the Company is relying on this guarantee in entering into
the Agreement and may enforce this guarantee as if Guarantor were a party
thereto.
<TABLE>
<S> <C> <C>
TYCO INTERNATIONAL LTD.
By: /s/ MARK H. SWARTZ
-----------------------------------------
Name: Mark H. Swartz
Title: Executive Vice President
</TABLE>
<PAGE>
ANNEX B
[ING BARINGS LLC LOGO]
August 23, 1999
Board of Directors
General Surgical Innovations, Inc.
10460 Bubb Road
Cupertino, CA 95014
Gentlemen:
We understand that General Surgical Innovations, Inc. ("GSI" or the
"Company"), General Acquisition Corp. ("Parent"), a direct wholly-owned
subsidiary of Tyco International Ltd. ("Guarantor" or "Tyco"), and General Sub
Acquisition Corp., a direct wholly-owned subsidiary of Parent ("Merger Sub"),
have entered into an Agreement and Plan of Merger (the "Agreement") dated as of
August 23, 1999, pursuant to which, and subject to certain conditions precedent,
the Merger Sub shall be merged with and into the Company, and each share of
issued and outstanding capital stock of GSI will be converted into the right to
receive from Parent a fraction of a Tyco share equal to $7.50 divided by the
price of Tyco's shares over a certain period of time (the "Average Share Price")
prior to the Company's Shareholders Meeting, subject to certain potential
adjustments (the "Proposed Transaction"). The terms and conditions of the
Proposed Transaction are set forth in more detail in the Agreement.
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, to the shareholders of GSI of the consideration
to be received in the Proposed Transaction.
We have acted as financial advisor to the Board of Directors of the Company
in connection with the Proposed Transaction and will receive a fee for our
services. As you are aware, ING Barings LLC ("ING Barings") is a full service
securities firm that engages in securities trading and brokerage activities, in
addition to providing investment banking services. In the ordinary course of its
business, ING Barings, as a market maker or otherwise, may trade or otherwise
effect transactions in the securities of the Company and, accordingly, may at
any time hold a long or short position in such securities.
In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed and analyzed, among other things, the following:
(i) the Agreement and certain related documents and the financial terms of
the Proposed Transaction set forth therein;
(ii) the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1998, the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999, and the Company's earnings announcement for the year ended June
30, 1999;
<TABLE>
<S> <C>
ING Barings LLC Toll Free: 1 (877) 446-4930
55 East 52nd Street Facsimile: 1 (212) 409-1020
New York, New York 10055 Telex: 177792 ingb a nyk
Tel: 1 (212) 409-1000 Member New York Stock Exchange/Member SIPC
</TABLE>
B-1
<PAGE>
(iii) Tyco's Annual Repot on Form 10-K for the fiscal year ended September
30, 1998 and Tyco's Quarterly Report on Form 10-Q for the quarter ended June 30,
1999;
(iv) certain other publicly available information concerning GSI and the
trading market for GSI's Common Stock;
(v) certain other publicly available information concerning Tyco and the
trading market for Tyco's Common Stock;
(vi) certain non-public information and other data related to the Company,
its business and prospects, including forecasts and projections, provided to us
by management of the Company;
(vii) certain publicly available information concerning certain other
companies engaged in businesses which we believe to be generally comparable to
the Company and the trading markets for certain of such other companies'
securities;
(viii) the financial terms of certain recent business combinations which we
believe to be relevant; and
(ix) certain discussions and negotiations among representatives of the
Company and Tyco.
We have also met with certain officers and employees of the Company
concerning its business and operations, assets, present condition and prospects
and undertook such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us and have not
attempted independently to verify such information, nor do we assume any
responsibility to do so. We have assumed that the Company's forecasts and
projections provided to or reviewed by us have been reasonable prepared based on
the best current estimates and judgment of the Company's management as to the
future financial condition and results of operations of the Company. We have
visited but have not conducted a physical inspection of the properties and
facilities of the Company, nor have we made or obtained any independent
evaluation or appraisal of such properties and facilities. We have also taken
into account our assessment of general economic, market and financial conditions
and our experience in similar transactions, as well as our experience in
securities valuation in general. Our opinion necessarily is based upon economic,
market, financial and other conditions as they exist and can be evaluated on the
date hereof and we assume no responsibility to update or revise our opinion
based upon events or circumstances occurring after the date hereof. We reserve,
however, the right to withdraw, revise or modify our opinion based upon
additional information which may be provided to or obtained by us, which
suggests, in our judgment, a material change in the assumptions upon which our
opinion is based.
This letter and the opinion expressed herein are for the use of the Board of
Directors of the Company. This opinion does not address the Company's underlying
business decision to approve the Proposed Transaction or constitute a
recommendation to the shareholders of the Company as to how such shareholders
should vote or as to any other action such shareholders should take regarding
the Proposed Transaction. This opinion may not be reproduced, summarized,
excerpted from or otherwise publicly referred to or disclosed in any manner
without our prior written consent, except the Company may include this opinion
in its entirety in any proxy statement or information statement relating to the
transaction sent to the Company's shareholders.
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<PAGE>
Based upon and subject to the foregoing, it is our opinion as investment
bankers that the consideration to be received by the shareholders of the Company
in the Proposed Transaction is fair, from a financial point of view, to such
shareholders.
Very truly yours,
/s/ ING BARINGS LLC
B-3
<PAGE>
ANNEX C
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13--DISSENTERS' RIGHTS
Section 1300. (a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and Sections
1301, 1302, 1303 and 1304; provided, however, that this provision does not apply
to any shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided, further,
that this provision does not apply to any class of shares described in
subparagraph (A) or (B) if demands for payment are filed with respect to 5
percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
Section 1301. (a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price
C-1
<PAGE>
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. Within 30 days after the date on which notice of the approval by
the outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder demands
that the corporation purchase. Upon subsequent transfers of the dissenting
shares on the books of the corporation, the new certificates, initial
transaction statement, and other written statements issued therefor shall bear a
like statement, together with the name of the original dissenting holder of the
shares.
Section 1303. (a) If the corporation and the shareholder agree that the shares
are dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
Section 1304. (a) If the corporation denies that the shares are dissenting
shares, or the corporation and the shareholder fail to agree upon the fair
market value of the shares, then the shareholder demanding purchase of such
shares as dissenting shares or any interested corporation, within six months
after the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed
to the shareholder, but not thereafter, may file a complaint in the superior
court of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
C-2
<PAGE>
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
Section 1305. (a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
Section 1306. To the extent that the provisions of Chapter 5 prevent the payment
to any holders of dissenting shares of their fair market value, they shall
become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt to
be payable when permissible under the provisions of Chapter 5.
Section 1307. Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by the
outstanding shares (Section 152) and prior to payment for the shares by the
corporation shall be credited against the total amount to be paid by the
corporation therefor.
Section 1308. Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
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<PAGE>
Section 1309. Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. If litigation is instituted to test the sufficiency or regularity
of the votes of the shareholders in authorizing a reorganization, any
proceedings under Sections 1304 and 1305 shall be suspended until final
determination of such litigation.
Section 1311. This chapter, except Section 1312, does not apply to classes of
shares whose terms and provisions specifically set forth the amount to be paid
in respect to such shares in the event of a reorganization or merger.
Section 1312. (a) No shareholder of a corporation who has a right under this
chapter to demand payment of cash for the shares held by the shareholder shall
have any right at law or in equity to attack the validity of the reorganization
or short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
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<PAGE>
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
C-5
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Bye-Law 102 of the Tyco Bye-Laws provides, in part, that Tyco shall
indemnify its directors and other officers for all costs, losses and expenses
which they may incur in the performance of their duties as director or officer,
provided that such indemnification is not otherwise prohibited under the
Companies Act 1981 of Bermuda. Section 98 of the Companies Act 1981 prohibits
such indemnification against any liability arising out of the fraud or
dishonesty of the director or officer. However, such section permits Tyco to
indemnify a director or officer against any liability incurred by him in
defending any proceedings, whether civil or criminal, in which judgment is given
in his favor or in which he is acquitted or when other similar relief is granted
to him.
The Registrant maintains $100,000,000 of insurance to reimburse the
directors and officers of Tyco and its subsidiaries for charges and expenses
incurred by them for wrongful acts claimed against them by reason of their being
or having been directors or officers of the Registrant or any subsidiary
thereof. Such insurance specifically excludes reimbursement of any director or
officer for any charge or expense incurred in connection with various designated
matters, including libel or slander, illegally obtained personal profits,
profits recovered by the Registrant pursuant to Section 16(b) of the Exchange
Act and deliberate dishonesty.
ITEM 21. EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 23, 1999, by and among General
Acquisition Corp., General Sub Acquisition Corp. and General Surgical Innovations,
Inc. (included as Annex A to the Proxy Statement/Prospectus which forms a part of this
Registration Statement)
5 Opinion of Appleby, Spurling & Kempe regarding the validity of the Tyco common shares
registered hereunder*
8.1 Tax Opinion of PricewaterhouseCoopers LLP*
8.2 Tax Opinion of Venture Law Group, A Professional Corporation*
8.3 Tax Opinion of Appleby, Spurling & Kempe*
13 Annual Report on Form 10-K of General Surgical Innovations, Inc. for the fiscal year
ended June 30, 1999 (incorporated by reference)
23.1 Consent of PricewaterhouseCoopers
23.2 Consent of Arthur Andersen LLP (Houston)
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Arthur Andersen LLP (Roseland)
23.5 Consent of Arthur Andersen LLP (Philadelphia)
23.6 Consent of PricewaterhouseCoopers LLP (San Jose)
23.7 Consent of Appleby, Spurling & Kempe (contained in Exhibit 5 and Exhibit 8.3)*
23.8 Consent of PricewaterhouseCoopers LLP (contained in Exhibit 8.1)*
23.9 Consent of Venture Law Group (contained in Exhibit 8.2)*
24.1 Power of Attorney (contained in signature page)
99.1 Consent of ING Barings LLC
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
99.2 Form of Proxy Card of General Surgical Innovations, Inc.*
</TABLE>
- ------------------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the maximum aggregate offering price may be reflected in
the form of prospectus filed with the SEC pursuant to Rule 424(b) under
the Securities Act, if in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
(2) That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The Registrant undertakes that, for purposes of determining any liability
under the Securities Act, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act) that is incorporated by reference in the Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
The Registrant undertakes that prior to any public reoffering of the
securities registered hereunder through use of a prospectus which is a part of
this Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such
II-2
<PAGE>
post-effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this Registration Statement as of the time it was
declared effective; and (2) for the purpose of determining any liability under
the Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Exeter, State of New Hampshire, on the 24th day of
September, 1999.
<TABLE>
<S> <C> <C>
TYCO INTERNATIONAL LTD.
By: /s/ MARK H. SWARTZ
------------------------------------------
Mark H. Swartz
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
</TABLE>
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and
appoints L. DENNIS KOZLOWSKI AND MARK H. SWARTZ, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement (including all pre-effective and
post-effective amendments which incorporate this Registration Statement by
reference), and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto such attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on September 24,
1999 in the capacities indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ------------------------------------------------------------------
<C> <S>
/s/ L. DENNIS KOZLOWSKI Chairman of the Board, President, Chief Executive Officer and
------------------------------------ Director (Principal Executive Officer)
L. Dennis Kozlowski
/s/ MICHAEL A. ASHCROFT Director
------------------------------------
Michael A. Ashcroft
/s/ JOSHUA M. BERMAN Director and Vice President
------------------------------------
Joshua M. Berman
/s/ RICHARD S. BODMAN Director
------------------------------------
Richard S. Bodman
/s/ JOHN F. FORT Director
------------------------------------
John F. Fort
/s/ STEPHEN W. FOSS Director
------------------------------------
Stephen W. Foss
/s/ PHILIP M. HAMPTON Director
------------------------------------
Philip M. Hampton
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ------------------------------------------------------------------
<C> <S>
/s/ JAMES S. PASMAN, JR. Director
------------------------------------
James S. Pasman, Jr.
/s/ W. PETER SLUSSER Director
------------------------------------
W. Peter Slusser
/s/ MARK H. SWARTZ Executive Vice President and Chief Financial Officer (Principal
------------------------------------ Financial and Accounting Officer)
Mark H. Swartz
/s/ FRANK E. WALSH, JR. Director
------------------------------------
Frank E. Walsh, Jr.
</TABLE>
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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of Tyco International Ltd. of our report dated May 28, 1999, on our
audits of the consolidated financial statements and the consolidated financial
statement schedule of Tyco International Ltd., as of September 30, 1998 and
1997, and for the year ended September 30, 1998, the nine months ended September
30, 1997 and the year ended December 31, 1996, which report is included in
Tyco's Current Report on Form 8-K filed June 3, 1999. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS
Hamilton, Bermuda
September 20, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-4 of Tyco International Ltd.
of our report dated January 31, 1997 on our audit of the consolidated statements
of income, changes in shareholders' investment and cash flows of Keystone
International, Inc. and subsidiaries for the year ended December 31, 1996,
included in the Tyco International Ltd.'s Current Reports on Form 8-K filed June
3, 1999, and to all references to our Firm included in this Registration
Statement.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
September 20, 1999
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of Tyco International Ltd. of our report dated September 30, 1998
(relating to the consolidated balance sheet of United States Surgical
Corporation and its subsidiaries as of September 30, 1997, and the consolidated
statements of operations, changes in stockholders' equity and cash flows for the
nine month period ended September 30, 1997, the twelve month period ended
December 31, 1996 and the related financial statement schedule for the nine
month period ended September 30, 1997 and the twelve month period ended December
31, 1996), which report is included in Tyco International Ltd.'s Current Report
on Form 8-K filed June 3, 1999. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Stamford, Connecticut
September 20, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of Tyco International Ltd. on Form S-4
of our report dated May 11, 1998 covering the combined financial statements of
The Sherwood-Davis & Geck Group as of and for the year ended December 31, 1997,
and to all references to our Firm included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
September 20, 1999
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement on Form S-4 of Tyco International Ltd.
of our report dated February 12, 1999 (except with respect to the matter
disclosed in Note 18--Merger with Tyco International Ltd., as to which the date
is April 2, 1999) on our audit of the consolidated balance sheets of AMP
Incorporated and subsidiaries as of September 30, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity and cash flows for the
year ended September 30, 1998, the nine months ended September 30, 1997, and the
year ended December 31, 1996, included in the Tyco International Ltd. Current
Report on Form 8-K filed June 3, 1999, and to all references to our Firm
included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
September 20, 1999
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference and use in this
Prospectus constituting part of this Registration Statement on Form S-4 of Tyco
International Ltd. of our reports dated July 23, 1999 included in such
Prospectus and appearing in General Surgical Innovations, Inc.'s Annual Report
on Form 10-K for the fiscal year ended June 30, 1999. We also consent to the
incorporation by reference in this Prospectus of our report dated July 23, 1999
relating to the financial statement schedule which appears in the General
Surgical Innovations, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 30, 1999. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
September 23, 1999
<PAGE>
EXHIBIT 99.1
We hereby consent to the use in the Registration Statement of Tyco
International Ltd. on Form S-4 and in the Proxy Statement/Prospectus of Tyco
International Ltd. and General Surgical Innovations, Inc. which is part of the
Registration Statement, of our opinion dated August 23, 1999 appearing as Annex
B to such Proxy Statement/Prospectus and to the description therein of such
opinion and to the references therein to our name. In giving the foregoing
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Securities Act"), or the rules and regulations promulgated thereunder, nor
do we admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
or the rules and regulations promulgated thereunder.
/s/ ING BARINGS LLC
September 23, 1999
