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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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RESOUND CORPORATION
(Name of Subject Company)
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RESOUND CORPORATION
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
761194109
(CUSIP Number of Class of Securities)
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RUSSELL D. HAYS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
RESOUND CORPORATION
220 SAGINAW DRIVE, SEAPORT CENTRE
REDWOOD CITY, CALIFORNIA 94063
(650) 780-7800
(Name, address and telephone number of person authorized
to receive notice and communications on behalf
of the person(s) filing statement)
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WITH A COPY TO:
JOHN A. BICK, ESQ. ELIAS J. BLAWIE, ESQ.
DAVIS POLK & WARDWELL VENTURE LAW GROUP
450 LEXINGTON AVENUE A PROFESSIONAL CORPORATION
NEW YORK, NEW YORK 10017 2800 SAND HILL ROAD
(212) 450-4000 MENLO PARK, CALIFORNIA 94025
(650) 854-4488
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is ReSound Corporation, a California
corporation ("ReSound" or the "Company"). The address of the principal executive
offices of the Company is 220 Saginaw Drive, Seaport Centre, Redwood City,
California 94063. The title of the class of equity securities to which this
Statement relates is the Company's Common Stock, par value $0.01 per share,
including the associated stock purchase rights ("Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer by GN Acquisition
Corporation (the "Purchaser"), a California corporation and an indirect
wholly-owned subsidiary of GN Great Nordic Ltd., a Danish corporation ("Parent"
or "Great Nordic"), to purchase all of the Shares held by the Company's
shareholders (such shareholders, the "Public Shareholders" and such Shares, the
"Publicly Held Shares") at $8.00 per Share, net to the seller in cash, upon the
terms and subject to the conditions set forth in Purchaser's Offer to Purchase
dated May 14, 1999 and in the related Letter of Transmittal (which together with
the Offer to Purchase constitute the "Offer"), copies of which are filed
respectively as Exhibits 1 and 2 hereto and are incorporated herein by
reference. The Offer is disclosed in a Tender Offer Statement on Schedule 14D-1
dated May 14, 1999 (the "Schedule 14D-1") filed with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules promulgated by the Commission
thereunder. The Offer is being made by the Purchaser pursuant to the Agreement
and Plan of Merger, dated as of May 10, 1999 among the Purchaser, Parent and the
Company (as the same may be amended from time to time, the "Merger Agreement").
According to the Offer to Purchase, the address of the principal
executive offices of the Parent is Kongens Nytorv 26, DK-1016 Copenhagen K,
Denmark, and of the Purchaser is c/o GN Netcom Inc., 77 Northeastern Boulevard,
Nashua, New Hampshire 03062.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing
this Statement, is set forth in Item 1 above. All information contained in this
Statement or incorporated herein by reference concerning the Purchaser or
Parent, or actions or events with respect to either of them, was provided by the
Purchaser or Parent, respectively, and the Company takes no responsibility for
such information. Information contained in this Statement with respect to the
Company and its advisors has been provided by the Company.
(b) Except as described herein, in Schedule I hereto, and in the
exhibits hereto, to the knowledge of the Company, as of the date hereof there
are no material contracts, agreements, arrangements or understandings, or any
potential or actual conflicts of interest between the Company or its affiliates
and (1) the Company, its executive officers, directors or affiliates or (2) the
Purchaser, its executive officers, directors or affiliates.
INTERESTS OF CERTAIN PERSONS IN THE OFFER AND THE MERGER.
In considering the recommendations of the Board of Directors of the
Company (the "Board"), and of the special committee of the Board (the "Special
Committee") comprised of Rodney Perkins (Chair), Michael Downey, Eugene Kleiner
and Philip S. Schlein, set forth in Item 4(a) hereto, the Public Shareholders
should be aware that certain members of the Board and the Special Committee have
interests in the Merger and the Offer which are described in Schedule I hereto
and which may present them with certain conflicts of interest. Each of the
members of the Board and the Special Committee were aware of these potential
conflicts and considered them along with the other factors described in Item
4(b)(2) below.
In 1997, the Board of Directors authorized the entering into by the
Company of Change of Control Agreements with its executive officers (the "Change
of Control Agreements"). The Change of Control Agreements, as amended in 1998,
provide that if, within two years of a Change of Control of the Company (as
defined below), an executive officer is terminated other than for cause or
resigns as a result of certain actions by the Company (such as
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a demotion or reduction in pay), then the executive officer shall receive: (1) a
certain percent of the Target Incentive Award (as such term is defined below)
based on the date of the termination, (2) a lump sum equal to two times the sum
of the executive officer's base annual salary plus the Target Incentive Award,
(3) continuation of health, dental and life insurance benefits for two years,
(4) full acceleration of vesting of options or shares of restricted stock held
by the executive officer and (5) certain outplacement and career counseling
services. For purposes of the Change of Control Agreements, a Change of Control
of the Company means (1) a transaction or series of transactions that results in
any person acquiring more than 25% of the Company's voting stock, (2) the
departure of two or more incumbent directors where such directors' replacements
are not unanimously approved by the Company's Board of Directors, (3) certain
shareholder-approved mergers and consolidations and (4) the liquidation or
dissolution of the Company. For purposes of the Change of Control Agreements,
the Target Incentive Award equals the base salary of the executive officer in
question multiplied by the maximum potential bonus percentage for such officer
under the Company's incentive compensation plan.
Dr. Rodney Perkins is currently the Chairman of the Board of Directors
of the Company and also served as the Company's President and Chief Executive
Officer from 1984 to July 1988. In 1998 and for the first three months of 1999,
the Company paid Dr. Perkins $48,000 and $12,000, respectively, related to
consulting services beyond his current responsibilities as Chairman of the Board
of Directors. On January 28, 1998, the Stock and Option Committee of the
Company's Board of Directors granted Dr. Perkins an option to purchase 25,000
shares of the Company's Common Stock pursuant to the Company's 1988 Stock Option
Plan, as amended. This option is subject to vesting over a four-year period
beginning on January 1, 1998, with 1/8th of the shares subject to the option
vesting at the end of six months from that date and 1/48th of the total number
of shares vesting at the end of each month thereafter. On October 23, 1998, the
Human Resources Committee of the Company's Board of Directors granted Dr.
Perkins an option to purchase 25,000 shares of the Company's Common Stock
pursuant to the Company's 1997 Stock Plan. This option is subject to vesting
over a four-year period beginning on January 1, 1999, with 1/8th of the shares
subject to the option vesting at the end of six months from that date and 1/48th
of the total number of shares vesting at the end of each month thereafter. Dr.
Perkins is also President of the California Ear Institute at Stanford ("CEI"), a
medical clinic specializing in the diagnosis and treatment of hearing disorders
that served as a site for clinical trials of the Company's products. In 1998,
the Company had net sales of approximately $149,000 to CEI, representing an
immaterial percentage of the Company's total net sales in 1998. At March 31,
1999, accounts receivable from CEI were approximately $30,200, representing an
immaterial percentage of the Company's accounts receivable balance at March 31,
1999. In addition, Dr. Perkins is President and Chief Executive Officer of
SoundPort Corporation ("SoundPort"), a company specializing in the development
and sale of implantable hearing enhancement devices ("IHEDs"). Pursuant to a
License Agreement entered into as of February 21, 1997, the Company granted to
SoundPort exclusive, royalty-free, worldwide licenses to use certain Company
technology for the development and sale of IHEDs. In consideration of these
licenses, SoundPort has issued to the Company 975,000 shares of Series A
Preferred Stock and a warrant which permits the Company to maintain its equity
interest in SoundPort at certain specified levels. Dr. Perkins is a member of
the Human Resources Committee of the Board of Directors of Laserscope, a
surgical systems company. The Company and Laserscope have not conducted any
business with each other in the past, and the Company does not presently
anticipate doing so in the future.
In 1998 and in the first three months of 1999, the Company paid Dr.
Richard L. Goode $12,000 and $3,000, respectively, pursuant to a consulting
arrangement under which Dr. Goode provides marketing, product development and
financial consulting services to the Company.
In October 1995, the Company borrowed $1.7 million under a guaranteed
loan from Silicon Valley Bank. This loan was repaid in full in October 1996.
Such loan was guaranteed by six of the Company's directors at the time it was
entered into: Drs. Goode and Perkins, James J. Gallogly, Eugene Kleiner, Peter
Riepenhausen and Robert C. Wilson. In connection with their agreement to execute
and deliver personal guarantees to Silicon Valley Bank with respect to this
loan, the Company issued warrants to purchase an aggregate of 105,492 shares of
Common Stock to the six directors who executed such guarantees at an initial
exercise price of $8.13 per share, exercisable immediately, expiring December 1,
2000.
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The Company has entered into indemnification agreements with each of
its directors and executive officers which may require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers, to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' liability insurance if
available on reasonable terms.
SUMMARY OF EXISTING AGREEMENTS BETWEEN THE COMPANY AND PURCHASER.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger
Agreement, a copy of which is attached as an Exhibit to this Schedule 14D-9 and
is incorporated herein by reference. Such summary is qualified in its entirety
by reference to the Merger Agreement.
THE OFFER. The Merger Agreement provides for the making of the Offer by
Purchaser. The obligation of Purchaser to accept for payment and pay for Shares
tendered pursuant to the Offer is subject to the satisfaction of the Minimum
Condition and certain other conditions that are described in Section 15.
Purchaser has agreed that, without the prior written consent of the Company, no
change in the Offer may be made which waives the Minimum Condition, changes the
form of consideration to be paid, decreases the price per Share or the number of
Shares sought in the Offer, imposes conditions to the Offer in addition to those
described in Section 15, or is otherwise adverse to the holders of the Shares.
The Merger Agreement provides that, notwithstanding the foregoing,
without the consent of the Company, Purchaser will have the right to extend the
Offer (i) from time to time if, at the scheduled or extended Expiration Date of
the Offer, any of the conditions to the Offer shall not have been satisfied or
waived, until such conditions are satisfied or waived or (ii) for any period
required by any rule, regulation, interpretation or position of the Commission
or the staff thereof applicable to the Offer or any period required by
applicable law. If all of the conditions to the Offer are not satisfied or
waived on any scheduled Expiration Date of the Offer, Purchaser will either (i)
extend the Offer from time to time until such conditions are satisfied or
waived, PROVIDED that Purchaser will not be required to extend the Offer beyond
July 31, 1999 or, if certain regulatory approvals have not been obtained, beyond
September 30, 1999) or (ii) exercise the rights set forth in the next paragraph.
In the event the Minimum Condition is not satisfied on any scheduled
Expiration Date of the Offer, Purchaser may, without the consent of the Company
(i) extend the Offer pursuant to the above paragraph; (ii) amend the Offer to
waive the Minimum Condition in contemplation of the exercise of the Top-Up Stock
Option (to the extent the Top-Up Stock Option is exercisable at such time); or
(iii) amend the Offer to provide that, in the event (A) the Minimum Condition is
not satisfied at the next scheduled Expiration Date (without giving effect to
the exercise of the Top-Up Stock Option) and (B) the number of Shares tendered
pursuant to the Offer and not withdrawn as of such next scheduled Expiration
Date is more than 50% of the then outstanding Shares, Purchaser will (x) reduce
the number of Shares subject to the Offer to a number of Shares that, when added
to the Shares then beneficially owned by Parent, will equal the Revised Minimum
Number, (y) reduce the Minimum Condition to the Revised Minimum Number and, (z)
if a number of Shares greater than the Revised Minimum Number is tendered into
the Offer and not withdrawn, purchase, on a pro rata basis, the Revised Minimum
Number of Shares. In the event that all conditions to the Offer other than the
Minimum Condition shall have been satisfied and Shares have not been accepted
for payment by Purchaser prior to July 15, 1999 (or, if certain regulatory
approvals have not been obtained, September 15, 1999), the Merger Agreement
requires that, on such date, Purchaser take either the action contemplated by
clause (ii) above or the action contemplated by clause (iii) above. If Purchaser
purchases a number of Shares equal to the Revised Minimum Number, then without
the prior written consent of Purchaser, at any time prior to the termination of
the Merger Agreement, the Company may not take any action whatsoever (including,
without limitation, the redemption of any Shares) which would have the effect of
increasing the percentage of Shares owned by Purchaser in excess of the Revised
Minimum Number.
COMPANY ACTION. The Merger Agreement states that the Board of Directors
has (i) unanimously determined that the Merger Agreement, the Stock Option
Agreement and the transactions contemplated thereby,
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including the Offer and the Merger, are fair to and in the best interests of the
Company's shareholders, (ii) unanimously approved and adopted the Merger
Agreement, the Stock Option Agreement and the transactions contemplated thereby,
including the Offer and the Merger, in accordance with the requirements of the
CGCL and (iii) unanimously resolved to recommend acceptance of the Offer and
approval and adoption of the Merger Agreement and the Merger by the Company's
shareholders. This recommendation of the Board of Directors may be withdrawn,
modified or amended only to the extent the Board shall have determined in good
faith, on the basis of advice of its outside counsel, that, consistent with its
fiduciary duties under applicable law, it must take such action.
DIRECTORS. The Merger Agreement provides that effective upon purchase
pursuant to the Offer of a number of Shares that satisfies the Minimum Condition
or the Revised Minimum Number, Parent may designate the number of directors,
rounded up to the next whole number, on the Company's Board of Directors that
equals the product of (i) the total number of directors on the Board of
Directors (giving effect to the election of any additional directors pursuant to
this paragraph) and (ii) the percentage that the number of Shares beneficially
owned by Purchaser bears to the total number of Shares outstanding (PROVIDED
that if Purchaser has acquired the Revised Minimum Number of Shares in the
Offer, such number of directors shall be rounded up to the next whole number
plus one to give Parent at least a majority of the members of the Board of
Directors), and the Company shall take all action necessary to cause Parent's
designees to be elected or appointed to the Board of Directors, including,
without limitation, increasing the number of directors, and seeking and
accepting resignations of its incumbent directors. At such time, the Company
will also use its best efforts to cause individual directors designated by
Parent to constitute the number of members, rounded up to the next whole number,
on (x) each committee of the Board other than any committee of the Board
established to take action under the Merger Agreement or the Stock Option
Agreement, and (y) each board of directors of each subsidiary of the Company
(and each committee thereof) that represents the same percentage as such
individuals represent on the Board of Directors of the Company. Notwithstanding
the foregoing, the Company has agreed to use its reasonable best efforts to
ensure that at least one member of the Board of Directors as of the date of the
Merger Agreement who is not an employee of the Company (the "Continuing
Director") shall remain a member of the Board of Directors until the Effective
Time.
THE MERGER. The Merger Agreement provides that, following the purchase
of Shares pursuant to the Offer, the approval of the Merger Agreement by the
shareholders of the Company (if required by the CGCL) and the satisfaction or
waiver of the other conditions to the Merger, Purchaser will be merged with and
into the Company, in accordance with the CGCL, whereupon the separate existence
of Purchaser shall cease and the Company shall be the surviving corporation (the
"Surviving Corporation"). At the election of Parent, the Merger may be
structured so that the Company shall be merged with and into Purchaser with the
result that Purchaser shall be the Surviving Corporation. The Merger shall
become effective at such time as an Agreement of Merger among the Company,
Purchaser and Parent (together with the required officers' certificates, the
"California Merger Agreement") is filed with the California Secretary of State,
or at such later time as is specified in the California Merger Agreement (the
"Effective Time"). As a result of the Merger, all of the rights, privileges,
powers and franchises of the Company and Purchaser shall vest in the Surviving
Corporation, and all restrictions, disabilities, liabilities and obligations of
the Company and Purchaser shall become the restrictions, disabilities,
liabilities and obligations of the Surviving Corporation, all as provided under
the CGCL.
CONVERSION OF SHARES. The Merger Agreement provides that at the
Effective Time, (i) each Share outstanding immediately prior to the Effective
Time shall, except as otherwise provided in clause (ii) below and except for
Shares held by any holder who has not voted in favor of the Merger or consented
thereto in writing and who has demanded appraisal for such Shares in accordance
with Chapter 13 of the CGCL ("Dissenting Shares"), be converted into the right
to receive $8.00 in cash or any higher price per Share that may be paid pursuant
to the Offer, without interest (the "Merger Consideration"); (ii) each issued
and outstanding Share held by Parent or any of its subsidiaries shall be
canceled, and no payment shall be made with respect thereto; and (iii) each
share of common stock of Purchaser then outstanding shall be converted into and
become one share of common stock of the Surviving Corporation with the same
rights, powers and privileges as the Shares so converted and shall constitute
the only outstanding shares of capital stock of the Surviving Corporation.
STOCK OPTIONS. The Merger Agreement provides that at or immediately
prior to the Effective Time, each outstanding stock option issued by the Company
to purchase Shares, whether or not vested or exercisable, will be
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canceled, and the Company will pay each holder of any such option at or promptly
after the Effective Time for each such option surrendered an amount in cash
determined by multiplying (i) the excess, if any, of $8.00 per Share over the
applicable exercise price of such option by (ii) the number of Shares such
holder could have purchased (assuming full vesting of all options) had such
holder exercised such option in full immediately prior to the Effective Time.
Immediately prior to the Effective Time, each outstanding employee stock option
to purchase Shares that is intended to qualify as an incentive stock option
under Section 422 of the Code and that is not then vested and exercisable shall
become vested and exercisable, and the holder thereof shall be given the
opportunity to exercise such option prior to the cancellation thereof pursuant
to the preceding sentence.
Prior to the Effective Time, the Company will take all actions
(including, if appropriate, amending the terms of any option plan or arrangement
or obtaining optionee consents) that are necessary to give effect to the
transactions contemplated by the immediately preceding paragraph.
EMPLOYEE STOCK PURCHASE PLAN. The Merger Agreement provides that after
the date of thereof, no new offering period shall commence under the Company's
1992 Employee Stock Purchase Plan (the "ESPP"). As of the Effective Time, the
ESPP shall be terminated. The Company will pay each participant in any current
offering period under such Plan in cash at the Effective Time, in cancellation
of all rights under such Plan, an amount determined by multiplying (i) the
Merger Consideration per Share by (ii) the number of Shares such participant
could have purchased under the ESPP based on his or her account balance under
such Plan immediately prior to the Effective Time (treating, for such purpose,
the option price per Share as equal to 85% of the fair market value of a Share
on the offering date with respect to such offering period) (such payment to be
net of applicable withholding taxes); PROVIDED that with respect to any
fractional shares, the foregoing shall not apply and the balance of each account
attributable to such fractional shares shall be returned to the participant in
cash.
Prior to the Effective Time, the Company will take all actions
(including, if appropriate, amending the terms of the ESPP or obtaining
participant consents) that are necessary to give effect to the transactions
contemplated by the immediately preceding paragraph.
SURVIVING CORPORATION. The Merger Agreement provides that the articles
of incorporation and bylaws of Purchaser at the Effective Time will be the
articles of incorporation and bylaws, respectively, of the Surviving Corporation
until amended in accordance with applicable law, except that the name of the
Surviving Corporation shall be GN ReSound Corporation. The Merger Agreement also
provides that the directors of Purchaser at the Effective Time will be the
directors of the Surviving Corporation and the officers of the Company at the
Effective Time will be the officers of the Surviving Corporation. In addition,
from and after the Effective Time, Russell D. Hays will be a director of the
Surviving Corporation for so long as he serves as Chief Executive Officer of the
Surviving Corporation.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties, including
representations by the Company with respect to its corporate existence and
power, corporate authorizations, governmental authorizations, non-contravention,
capitalization, subsidiaries, Commission filings, absence of certain changes, no
undisclosed material liabilities, litigation, material contracts, taxes,
employee benefits, compliance with laws and court orders, finders' fees,
environmental matters and anti-takeover statutes. Certain representations and
warranties in the Merger Agreement contain exceptions for matters that would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the party making such representations and warranties. The
Merger Agreement provides that "Material Adverse Effect" means, with respect to
any person, a material adverse effect on the condition (financial or otherwise),
business, assets or results of operations of such person and its subsidiaries,
taken as a whole; PROVIDED, HOWEVER, that in determining whether there has been
a Material Adverse Effect with respect to any person, any adverse effect
attributable to or resulting from the following shall be disregarded: (i)
changes in general economic conditions or changes affecting the industry
generally in which such person operates, (ii) the direct effect of the public
announcement or pendency of the transactions contemplated by the Merger
Agreement on current or prospective customers of the person, and (iii)
shareholder class action litigation arising out of the Merger Agreement or the
transactions contemplated thereby. Without limiting the generality of the
foregoing, for purposes of the Merger Agreement, a claim against the Company or
liability of the Company (singly or in the aggregate with other claims
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or liabilities) for $10,000,000 or more, which claim or liability has a
reasonable likelihood of success on the merits or reasonable probability of
fruition, will be deemed to be materially adverse to the Company.
Additionally, the Company has represented that it has taken all action
necessary to render the Rights issued pursuant to the terms of the Rights
Agreement inapplicable to the Merger Agreement, the Stock Option Agreement, the
Offer, the Merger and any other transaction contemplated thereby.
INTERIM AGREEMENTS OF PARENT, PURCHASER AND THE COMPANY. Pursuant to
the Merger Agreement, the Company has agreed that, during the period from the
date of the Merger Agreement to the Effective Time, the Company and its
subsidiaries will conduct their business in the ordinary course consistent with
past practice and will use their reasonable best efforts to preserve intact
their business organizations and relationships with third parties and to keep
available the services of their present officers and employees. Pursuant to the
Merger Agreement, without limiting the generality of the foregoing, prior to the
Effective Time, neither the Company nor any of its subsidiaries will: (a) adopt
or propose any change in the Company's articles of incorporation or bylaws; (b)
merge or consolidate with any other person or acquire a material amount of stock
or assets of any other person; (c) except for the Viennatone sale (as defined
below), sell, lease, license or otherwise dispose of any material subsidiary or
material amount of assets, securities or property except (i) pursuant to
existing contracts or commitments and (ii) in the ordinary course consistent
with past practice; (d) (i) take any action that would make any representation
and warranty of the Company under the Merger Agreement inaccurate in any
material respect at, or as of any time prior to, the Effective Time or (ii) omit
to take any action necessary to prevent any such representation or warranty from
being inaccurate in any material respect at any such time; (e) (i) adopt or
amend any bonus, profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation, employment or employee
benefit plan, agreement, trust, plan, fund or other arrangement for the benefit
and welfare of any director, officer or employee (except that the Company shall
be permitted to include, in the proxy statement for its 1999 annual shareholder
meeting, a proposal to amend the Company's 1997 Stock Plan to increase the
number of Shares authorized for issuance thereunder), (ii) increase in any
manner the compensation or fringe benefits of any director, officer or employee
(except for (x) increases in accordance with the Company's normal officers and
employees focal review previously disclosed to Parent or (y) other normal
increases in the ordinary course of business that are consistent with past
practice and that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company), or (iii) pay any benefit not
required by any currently existing plan or arrangement (including, without
limitation, grant stock options or stock appreciation rights or remove existing
restrictions in any benefit plans or agreements); and (f) agree or commit to do
any of the foregoing.
OTHER AGREEMENTS OF PARENT, PURCHASER AND THE COMPANY. In the Merger
Agreement, the Company has agreed that the Company, its subsidiaries and their
respective officers, directors, employees, investment bankers, attorneys,
accountants, consultants or other agents or advisors shall not directly or
indirectly, (i) take any action to solicit, initiate, facilitate or encourage
the submission of any Acquisition Proposal (as defined below); (ii) engage in
discussions or negotiations with, or disclose any nonpublic information relating
to the Company or any subsidiary or afford access to the properties, books or
records of the Company or any subsidiary to, any Person who the Company has
reason to believe may be considering making, or has made, an Acquisition
Proposal; or (iii) grant any waiver or release under any standstill or similar
agreement with respect to any class of equity securities of the Company. The
Company will notify Parent promptly (but in no event later than 24 hours) after
receipt by the Company (or any of its advisors) of any Acquisition Proposal, any
indication that any Person is considering making an Acquisition Proposal or any
request for nonpublic information relating to the Company or any subsidiary or
for access to the properties, books or records of the Company or any subsidiary
by any person who the Company has reason to believe may be considering making,
or has made, an Acquisition Proposal and will keep Parent fully informed of any
material changes in the status and details of any such Acquisition Proposal,
indication or request. For purposes of the Merger Agreement, "Acquisition
Proposal" means an inquiry, offer or proposal regarding any of the following
involving the Company or any of its subsidiaries: (w) any merger, consolidation,
share exchange, recapitalization, business combination or other similar
transaction, (x) any sale, lease, exchange, transfer or other disposition of all
or substantially all the assets of the Company and its subsidiaries, taken as a
whole, in a single transaction or series of related transactions, (y) any tender
offer or exchange offer for 25 percent or more of the outstanding Shares or the
filing of a registration statement under the 1933 Act in connection therewith,
or (z) any
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public announcement of a proposal, plan or intention to do any of the foregoing
or any agreement to engage in any of the foregoing; PROVIDED that an
"Acquisition Proposal" shall not be deemed to include the continuing process to
sell the Company's Viennatone manufacturing and export business (the "Viennatone
Sale").
Notwithstanding the foregoing, the Company may negotiate or otherwise
engage in substantive discussions with, and furnish nonpublic information to,
any person who delivers an Acquisition Proposal if (i) the Company has complied
with the preceding paragraph, including, without limitation, the requirement
that it notify Parent promptly after its receipt of any Acquisition Proposal,
(ii) the Board of Directors of the Company determines in good faith by a
majority vote, on the basis of advice from its outside legal counsel, that,
consistent with its fiduciary duties under applicable law, it must take such
action, (iii) such person executes a confidentiality agreement with terms no
less favorable to the Company than those contained in the Non-Disclosure
Agreement described below, and (iv) the Company shall have delivered to Parent
two business days' prior written notice advising Parent that it intends to take
such action.
Between the date of the Merger Agreement and the Effective Time and
subject to applicable law and the Non-Disclosure Agreement described below, the
Company will (i) give Parent, its counsel, financial advisors, auditors and
other authorized representatives full access to the offices, properties, books
and records of the Company and its subsidiaries; (ii) furnish to Parent, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information as such persons may
reasonably request; and (iii) instruct the employees, counsel, financial
advisors, auditors and other authorized representatives of the Company and its
subsidiaries to cooperate with Parent in its investigation of the Company and
its subsidiaries.
Pursuant to the Merger Agreement, the Company has agreed to cause a
meeting of its shareholders (the "Company Shareholder Meeting") to be duly
called and held as soon as reasonably practicable after consummation of the
Offer for the purpose of voting on the approval and adoption of the Merger
Agreement and the Merger, unless the CGCL does not require a vote of
shareholders of the Company for consummation of the Merger. The Merger Agreement
provides that the Company will (i) promptly prepare and file with the
Commission, will use its best efforts to have cleared by the Commission and will
thereafter mail to its shareholders as promptly as practicable the proxy or
information statement of the Company in connection with the Merger and all other
proxy materials for such meeting, (ii) use its best efforts to obtain the
necessary approvals by its shareholders of the Merger Agreement and the
transactions contemplated thereby and (iii) otherwise comply with all legal
requirements applicable to such meeting. The Company has agreed, subject to the
fiduciary duties of its Board of Directors, as advised by outside counsel, to
recommend approval and adoption of the Merger Agreement and the transactions
contemplated thereby by the Company's shareholders.
For six years after the Effective Time, the Surviving Corporation will
indemnify and hold harmless the present and former officers and directors of the
Company in respect of acts or omissions occurring at or prior to the Effective
Time to the fullest extent permitted by the CGCL or any other applicable laws or
provided under the Company's articles of incorporation and bylaws in effect on
the date of the Merger Agreement; PROVIDED that such indemnification shall be
subject to any limitation imposed from time to time under applicable law. For
six years after the Effective Time, the Surviving Corporation will provide
officers' and directors' liability insurance in respect of acts or omissions
occurring prior to the Effective Time covering each such person currently
covered by the Company's officers' and directors' liability insurance policy on
terms with respect to coverage and amount no less favorable than those of such
policy in effect on the date of the Merger Agreement.
The Merger Agreement provides that the Company and Parent will use
their reasonable best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
the Merger Agreement.
CONDITIONS TO THE MERGER. The obligations of each of Parent, Purchaser
and the Company to consummate the Merger are subject to the satisfaction of
certain conditions, including: (a) if required by the CGCL, the Merger Agreement
shall have been approved and adopted by the shareholders of the Company; (b) any
applicable waiting period under the HSR Act relating to the Merger shall have
expired or been terminated; (c) no provision of any applicable law or regulation
of the United States (or any U.S. state) or the European Union (or any member
country
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of the E.U.) and no judgment, injunction, order or decree shall prohibit the
consummation of the Merger; and (d) Purchaser shall have purchased Shares
pursuant to the Offer.
TERMINATION. The Merger Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time, (notwithstanding any
approval of the Merger Agreement by the shareholders of the Company):
(a) by mutual written agreement of the Company and Parent;
(b) by either the Company or Parent, if (i) the Offer has not been
consummated on or before July 31, 1999; PROVIDED that the right to terminate the
Merger Agreement pursuant to this clause shall not be available to any party
whose breach of any provision of the Merger Agreement results in the failure of
the Offer to be consummated by such time. If a request for additional
information is received from a governmental entity pursuant to the HSR Act, or
applicable non-United States laws regulating competition, antitrust, investment
or exchange controls, such date will be extended to the 90th day following
acknowledgment by such governmental entity that Parent and the Company have
complied with such request, but in no event will such date be extended to a date
later than September 30, 1999; or (ii) there shall be any law or regulation that
makes acceptance for payment of, and payment for, the Shares pursuant to the
Offer or consummation of the Merger illegal or otherwise prohibited or any
judgment, injunction, order or decree of any court or governmental body having
competent jurisdiction enjoining Purchaser from accepting for payment of, and
paying for, the Shares pursuant to the Offer or Company or Parent from
consummating the Merger and such judgment, injunction, order or decree shall
have become final and nonappealable;
(c) by Parent, if, prior to the acceptance for payment of the Shares
under the Offer, (i) any Person or "group" (as defined in Section 13(d)(3) of
the Exchange Act), other than Parent or any of its affiliates, shall have
acquired beneficial ownership of more than 25% of the Shares, through the
acquisition of stock, the formation of a group or otherwise, or shall have been
granted any option, right or warrant, conditional or otherwise, to acquire
beneficial ownership of such Shares; (ii) any person or group shall have entered
into a definitive agreement or an agreement in principle with the Company,
regarding an Acquisition Proposal; or (iii) (A) the Board of Directors of the
Company shall have withdrawn, or modified in a manner adverse to Parent, its
approval or recommendation of the Merger Agreement, the Offer or the Merger, or
shall have recommended, or publicly announced its intention to enter into, an
agreement or an agreement in principle with respect to an Acquisition Proposal
(or shall have resolved to do any of the foregoing), or (B) the Company shall
have materially breached certain of its obligations under the Merger Agreement;
or
(d) by the Company, if prior to the purchase of any Shares pursuant to
the Offer, and subject to compliance with certain provisions of the Merger
Agreement, the Board of Directors of the Company shall have withdrawn or
modified in a manner adverse to Parent its approval or recommendation of the
Merger Agreement or the Merger and shall have recommended a Superior Proposal.
For purposes of the Merger Agreement, "Superior Proposal" means any bona fide,
unsolicited written Acquisition Proposal for all outstanding Shares on terms
that the Board of Directors of the Company determines in good faith by a
majority vote is materially more favorable and provides materially greater value
to all the Company's shareholders than as provided under the Merger Agreement,
and such decision is made on the basis of the written advice of a financial
advisor of nationally recognized reputation and takes into account all the terms
and conditions of the Acquisition Proposal, including any break-up fees, expense
reimbursement provisions and conditions to closing.
TERMINATION FEE. Pursuant to the Merger Agreement, the Company will pay
to Parent a fee of $7,000,000, plus the actual, documented and reasonable
out-of-pocket expenses of Parent (not to exceed $500,000) incurred in connection
with the negotiation of the Merger Agreement and the consummation of the
transactions contemplated thereby, including the arrangement and obtaining of
the financing for such transactions, if the Merger Agreement is terminated (x)
pursuant to clause (c) or (d) of the preceding paragraph, or (y) pursuant to
clause (b)(i) of the preceding paragraph and prior to the time of such
termination an Acquisition Proposal shall have been publicly announced and not
withdrawn and, within nine months of the date of termination, the Company enters
into an
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agreement or letter of intent concerning a transaction that would constitute an
Acquisition Proposal and such transaction is subsequently consummated.
The fee payable (i) pursuant to clause (x) of the preceding paragraph
shall be paid by the Company immediately upon the termination of the Merger
Agreement, and (ii) pursuant to clause (y) of the preceding paragraph shall be
paid by the Company on the date on which the transaction referred to in such
clause shall be consummated.
The Merger Agreement provides that the Company will promptly pay to
Parent, but in no event later than two business days after termination of the
Merger Agreement, in immediately available funds an amount equal to Parent's
reasonable expenses (not to exceed $500,000) incurred in connection with the
Merger Agreement and the transactions contemplated thereby, including the
arrangement and obtaining of the financing for such transactions, if (x) the
Merger Agreement shall have been terminated pursuant to clause (b)(i) of the
first paragraph above, (y) any representation or warranty made by the Company in
the Merger Agreement shall not have been true and correct in any material
respect as of the date thereof, and (z) the condition in Section 15 relating to
representations and warranties shall not have been satisfied.
Pursuant to the Merger Agreement, Parent will promptly pay the Company
in immediately available funds an amount equal to the Company's reasonable
expenses (not to exceed $500,000) incurred in connection with the Merger
Agreement and the transactions contemplated thereby if the Merger Agreement is
terminated by the Company and any representation or warranty made by Parent or
Purchaser in the Merger Agreement shall not have been true and correct in any
material respect as of the date thereof.
If any party (a "Responsible Party") fails promptly to pay any amount
due as described in the preceding paragraphs, the Responsible Party shall also
pay any costs and expenses incurred by such other party in connection with a
legal action to enforce the Merger Agreement that results in a judgment against
the Responsible Party for such amount.
In the event of the termination of the Merger Agreement, the Merger
Agreement will become void and have no effect, without any liability on the part
of any party thereto other than certain provisions of the Merger Agreement
relating to public announcements, termination, termination expenses of the
parties, governing law and waiver of jury trials; PROVIDED that a party will not
be relieved from liability for willful (i) failure to fulfill a condition, (ii)
failure to perform a covenant or (iii) any material breach of the Merger
Agreement.
EXPENSES. Except as discussed above, the Merger Agreement provides that
all costs and expenses incurred in connection with the transactions contemplated
by the Merger Agreement shall be paid by the party incurring such costs and
expenses.
AMENDMENTS; NO WAIVERS. Any provision of the Merger Agreement may be
amended or waived prior to the Effective Time if, and only if, such amendment or
waiver is in writing and signed, in the case of an amendment, by the Company,
Parent and Purchaser or in the case of a waiver, by the party against whom the
waiver is to be effective; PROVIDED that after the adoption of the Merger
Agreement by the shareholders of the Company, no such amendment or waiver shall,
without the further approval of such shareholders, reduce the amount or change
the kind of consideration to be received in exchange for the Shares.
STOCK OPTION AGREEMENT
Under the Stock Option Agreement, the Company granted to Purchaser an
irrevocable Top-Up Stock Option to purchase that number of Top-Up Option Shares
equal to the number of Shares that, when added to the number of Shares owned by
Purchaser, Parent and their subsidiaries immediately following consummation of
the Offer, will constitute 90% of the Shares then outstanding (assuming the
issuance of the Top-Up Option Shares) at a purchase price per Top-Up Option
Share equal to the Offer Price. However, the Top-Up Stock Option will not be
exercisable if the number of Shares subject thereto exceeds the number of
authorized Shares available for issuance.
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Subject to the terms and conditions of the Stock Option Agreement, the
Top-Up Stock Option may be exercised by Purchaser, at its election, in whole,
but not in part, at any one time after the occurrence of a Top-Up Exercise Event
(as defined below) and prior to the Top-Up Termination Date (as defined below).
A "Top-Up Exercise Event" will occur for purposes of the Stock Option Agreement
upon the Purchaser's acceptance for payment pursuant to the Offer of Shares
constituting more than 50% but less than 90% of the Shares then outstanding on a
fully diluted basis. Except as provided in the last sentence of this paragraph,
the "Top-Up Termination Date" will occur for purposes of the Stock Option
Agreement upon the earliest to occur of: (i) the Effective Time; (ii) the date
which is 20 business days after the occurrence of a Top-Up Exercise Event; (iii)
the termination of the Merger Agreement; and (iv) the date on which Purchaser
waives the Minimum Condition and accepts for payment the Revised Minimum Number
of Shares. Nevertheless, even if the Top-Up Termination Date has occurred,
Purchaser will be entitled to purchase the Top-Up Option Shares if it has
exercised the Top-Up Stock Option in accordance with the terms of the Stock
Option Agreement prior to such occurrence.
The obligation of the Company to deliver Top-Up Option Shares upon the
exercise of the Top-Up Stock Option is subject to the following conditions: (a)
any applicable waiting period under the HSR Act relating to the issuance of the
Top-Up Option Shares will have expired or been terminated; and (b) no provision
of any applicable law or regulation and no judgment, injunction, order or decree
shall prohibit the exercise of the Top-Up Stock Option or the delivery of the
Top-Up Option Shares in respect of any such exercise.
EMPLOYMENT MATTERS
Purchaser has agreed that Russell D. Hays, who currently serves as the
President and Chief Executive Officer of the Company, will continue in such
positions at the Surviving Corporation for a period of seven months after the
Effective Time at his base salary in effect at the Effective Time. At the end of
such period, Mr. Hays shall receive a retention bonus of $250,000 and payment of
all severance and benefits pursuant to his existing change of control agreement
(and may, under certain circumstances, enter into a consulting/non-compete
agreement with the Surviving Corporation).
Purchaser has executed a letter agreement with each of Laureen DeBuono,
Ed Lopez, Robert Luttrell, Christopher Pascoe and David Thrower regarding his or
her existing change of control agreement for the purpose of clarifying that
consummation of the Merger shall be deemed to be "good reason" under the change
of control agreement, and if such person terminates his or her employment with
the Company for any reason after the Effective Time and within 24 months after
the completion of the Offer, such person shall be thus entitled to all resulting
benefits under the change of control agreement (and may, under certain
circumstances, enter into a consulting/non-compete agreement with the Surviving
Corporation). Such letter agreement takes effect at the Effective Time.
THE RIGHTS AGREEMENT
On July 5, 1994, the Company adopted the Rights Agreement and
distributed a dividend of one right to purchase one one-thousandth of a share of
Series A participating preferred stock for each outstanding share of Common
Stock of the Company. The Rights become exercisable in certain limited
circumstances involving a potential business combination transaction of the
Company and are initially exercisable at a price of $50 per share. Following
certain other events after the Rights have become exercisable, each Right
entitles its holder to purchase for $50 an amount of Common Stock of the
Company, or in certain circumstances, securities of the acquirer, having a then
current market value of twice the exercise price of the Right. The Rights are
redeemable at the Company's option at $0.01 per Right before they become
exercisable. Until a Right is exercised, the holder of a Right, as such, has no
rights as a shareholder of the Company. The Rights expire on July 5, 2004.
Pursuant to the Rights Agreement, if a tender offer occurs at a time
when Continuing Directors (as defined below) are in office and a majority of the
Continuing Directors then in office has determined that the offer is both
adequate and otherwise in the best interests of the Company and its
shareholders, the Rights contained therein will not be exercisable as a result
of such offer. "Continuing Director" means a member of the Board of Directors of
the Company who is not an affiliate, associate, representative or nominee of an
Acquiring Person (as defined below) who was either (i) a member of the Board of
Directors of the Company prior to the date of adoption of the plan or
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(ii) subsequently became a director for the Company and whose election or
nomination for election was approved or recommended by a vote of a majority of
the Continuing Directors then members of the Board. An "Acquiring Person" is a
person or group of affiliated or associated persons who, without prior approval
of the company become the beneficial owners of 30% or more of the outstanding
shares of Common Stock of the Company. Because the offer has been approved by
the Company, consummation of the Offer by Purchaser will not result in any
Rights becoming exercisable.
NON-DISCLOSURE AGREEMENT
On November 1, 1997, the Company entered into the Non-Disclosure
Agreement with GN Danavox, a wholly-owned subsidiary of Parent. Subject to
certain exceptions, each party has agreed therein that it will retain any
confidential information received from the other party in confidence for a
period of two years from the date of receipt of such information (or until such
time as the information no longer qualifies as confidential information) and not
disclose to any third party confidential information of the other party, except
as authorized by such other party, and will use confidential information for no
purpose other than determining whether to enter into a business relationship
with the other party.
STANDSTILL AGREEMENT
On April 2, 1999, the Company and Parent entered into the Standstill
Agreement pursuant to which Parent agreed that, for a period of two (2) years
from the date thereof, neither it nor any of its affiliates, without the prior
written consent of the Company or its Board of Directors will acquire, or offer
to acquire, Shares or any other interest in the Company or take certain other
actions.
EXCLUSIVITY AGREEMENT
On April 12, 1999, the Company and Parent entered into the Exclusivity
Agreement whereby the Company, subject to certain exceptions, agreed to
negotiate exclusively with Parent with respect to a possible acquisition of the
Company until May 3, 1999.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) RECOMMENDATIONS WITH RESPECT TO THE OFFER.
RECOMMENDATION OF THE BOARD.
At a meeting held on May 3, 1999, the Board, based in part upon the
unanimous recommendation of the Special Committee, by unanimous vote of all
directors present and voting (a) determined that each of the Offer and the
Merger is fair to and in the best interests of the Public Shareholders, (b)
approved the Offer and the Merger, (c) approved and adopted the Merger Agreement
and the Stock Option Agreement, the execution of such agreements and the
transactions contemplated by such agreements and (d) recommended that such
shareholders accept the Offer and tender their Shares pursuant thereto.
THEREFORE, THE RESOUND CORPORATION BOARD RECOMMENDS THAT THE PUBLIC
SHAREHOLDERS TENDER ALL THEIR SHARES PURSUANT TO THE OFFER.
A copy of a letter to all shareholders of the Company communicating the
recommendations of the members of the Board is filed as Exhibit 6 hereto and is
incorporated by reference in its entirety.
(B) BACKGROUND OF THE OFFER; REASONS FOR THE RECOMMENDATION OF THE SPECIAL
COMMITTEE AND THE BOARD.
(1) BACKGROUND OF THE OFFER.
Great Nordic and ReSound have had numerous business contacts for
several years. In the fall of 1996, Danavox and ReSound, along with AudioLogic
Inc., established AudioLogic Hearings Systems, L.P., a joint
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venture formed to develop the fully, software based digital signal processing
platform that forms the basis for Danavox's and ReSound's new digital hearing
devices. In November 1997, Danavox and ReSound entered into a non-disclosure
agreement for the exchange of confidential information regarding certain
strategic arrangements. This led to discussions between management
representatives of each of the parties during the winter/spring of 1998
regarding various possible alternative transactions, including a possible joint
venture between ReSound and Danavox or a combination of Danavox with ReSound. In
June 1998, the parties agreed not to pursue further discussions.
In October 1998, J0rn Kildegaard, Executive Vice President of Great
Nordic, and Jesper Mailind, President and Chief Executive Officer of GN Danavox,
met with Russell D. Hays, the Chief Executive Officer of ReSound, and Laureen
DeBuono, the Chief Financial Officer of ReSound, to restart discussions
regarding these strategic alternatives.
During discussions that continued through December 1998, Great Nordic
proposed a transaction whereby Great Nordic would contribute Danavox and cash to
ReSound in exchange for a controlling interest in ReSound. On December 7, 1998,
the ReSound Board met to consider this proposed transaction, but took no action.
On January 25, 1999, Great Nordic sent a letter to the Board of
Directors of ReSound asking it to consider three alternative transactions: an
acquisition by Great Nordic of all outstanding shares of ReSound; a contribution
of Danavox and cash to ReSound where Great Nordic would receive a 51% ownership
interest in ReSound; and a contribution of Danavox to ReSound where Great Nordic
would receive minority ownership interest in ReSound but with the option to
acquire additional shares for cash to eventually obtain a majority ownership
position. No price was specified with respect to the acquisition of ReSound by
Great Nordic. The ReSound Board of Directors met to consider the Great Nordic
letter, but took no action.
Following further discussions in February 1999, on February 24, 1999,
Great Nordic sent a letter to the Board of Directors of ReSound indicating that
Great Nordic was prepared to negotiate an acquisition of all outstanding shares
of the Company at a cash price of $6.50 per share. Great Nordic indicated that
its willingness to enter into a definitive agreement was conditioned on access
to the Company's books and records and execution of an agreement granting Great
Nordic exclusivity in any negotiations regarding an acquisition of the Company.
The ReSound Board of Directors met to consider the Great Nordic letter, but took
no action. In discussions between representatives of each of Gleacher & Co., the
financial advisor to Great Nordic, and BancBoston Robertson Stephens Inc.
("BancBoston Robertson Stephens"), the financial advisor to ReSound,
BancBoston Robertson Stephens indicated that a price of $6.50 per share was
insufficient and provided further information to Great Nordic regarding
ReSound's operating results and projections.
As a result of this additional information and further discussions, on
March 24, 1999, Great Nordic sent a letter to the Board of Directors of ReSound
indicating that Great Nordic was prepared to purchase all outstanding shares of
ReSound at a price of $7.50 per share in cash in a two-step acquisition after a
period of exclusive negotiations with the Board of Directors of ReSound and
completion of legal and business due diligence. In response to inquiries from
BancBoston Robertson Stephens and Gleacher & Co. regarding post-acquisition
strategy, Great Nordic also indicated that its post-acquisition strategy
included: having Redwood City become the global headquarters of the combined
operations of ReSound and Danavox; maintaining "ReSound" as the leading brand
name; and expanding ReSound's factory in Cork, Ireland. The ReSound Board of
Directors met to consider the Great Nordic letter and authorized senior
management of ReSound and BancBoston Robertson Stephens to seek a higher price
from Great Nordic. On April 1, 1999, representatives of Gleacher & Co. and
BancBoston Robertson Stephens met in New York City to discuss the Great Nordic
proposal. BancBoston Robertson Stephens indicated that a higher price would be
necessary in order to obtain an exclusivity agreement and also stated that, in
exchange for the exclusivity agreement, ReSound would require Great Nordic to
enter into a customary "standstill" arrangement with respect to the Company.
After discussions with representatives of Great Nordic, representatives of
Gleacher & Co. told representatives of BancBoston Robertson Stephens that Great
Nordic was prepared to increase its offer to $7.65 per share in cash. Following
this meeting, legal counsel for each of Great Nordic and ReSound negotiated a
standstill agreement and an exclusivity agreement, which agreements were signed
on April 2 and April 12, respectively.
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On April 14, 1999 representatives of Great Nordic and ReSound met in
the offices of Davis Polk & Wardwell in New York City to commence business and
legal due diligence and to discuss principal terms of a definitive merger
agreement. The parties also discussed the roles of current members of ReSound's
senior management following the consummation of a transaction. Following these
meetings, counsel for Great Nordic delivered to counsel for ReSound a first
draft of a definitive Merger Agreement and a form of letter for several members
of senior management of ReSound regarding their change of control agreements.
Advisors for ReSound objected to several provisions of the draft Merger
Agreement, including the proposed $8.75 million break-up fee, terms of the
tender offer, conditions to the tender offer, terms restricting ReSound's
ability to accept a superior offer and the ability of the parties to terminate
the Merger Agreement. Over several days of discussions, Great Nordic's advisors
agreed to reduce the break-up fee to $7 million and eliminate or revise other
terms and conditions in the Merger Agreement.
On April 22, 1999 the Board of Directors of ReSound met to consider the
terms and conditions of Great Nordic's offer as negotiated by its advisors and
senior management. At this meeting, the Board debated the merits of going
forward with the Great Nordic transaction and established a special committee of
certain of the independent directors of ReSound, consisting of Messrs. Downey,
Kleiner, Perkins and Schlein, to consider Great Nordic's offer and certain other
strategic alternatives, including continuing to operate ReSound as an
independent company. The Special Committee directed Dr. Rodney Perkins, Chairman
of the Board of ReSound, to meet with representatives of Great Nordic to
continue discussions regarding Great Nordic's offer and other alternative
transactions, including transactions in which Great Nordic would acquire a
minority or majority ownership interest in ReSound.
Dr. Perkins flew to Copenhagen, Denmark and, on April 26 met with
J0rgen Lindegaard, the Chief Executive Officer of Great Nordic, and Mr.
Kildegaard at the offices of Great Nordic. At this meeting the parties discussed
the previous negotiations, the advantages to each of the parties of the proposed
business combination and the merits of the alternative transactions described
above. Following this meeting, on April 27 Great Nordic sent a letter to Dr.
Perkins and the Board of Directors of ReSound stating that it remained committed
to proceeding with the proposed purchased of ReSound in a $7.65 per share cash
offer to all shareholders. Great Nordic also indicated that it believed that a
100% acquisition of ReSound was superior to an acquisition that left ReSound as
a public company and that Great Nordic could not implement all the strategies
necessary to combine and improve its hearing aid business if ReSound remained a
public company.
On April 30, 1999, Dr. Perkins sent a letter to Great Nordic stating
that the ReSound Board was continuing to discuss the Great Nordic offer and
other strategic alternatives, including continuing to operate ReSound as an
independent company, and invited Messrs. Lindegaard and Kildegaard to meet with
the Board of Directors of ReSound or its special committee. After further
correspondence, Great Nordic agreed to meet with representatives of ReSound on
May 5 in California. On May 3, the ReSound Board of Directors met to consider
the Great Nordic offer and approved the transaction subject to reaching final
agreement with Great Nordic on price. The ReSound Board of Directors delegated
to Michael P. Downey and Philip Schlein, Directors of ReSound and members of
ReSound's special committee, authority to negotiate the final price with Great
Nordic. On May 5, Mr. Kildegaard and Poul Erik Tofte, the Chief Financial
Officer of Great Nordic, met with Michael P. Downey and Philip Schlein at the
offices of the Venture Law Group in Menlo Park, California. Messrs. Downey and
Schlein asked Great Nordic to increase its offer price to $8.00. Mr. Kildegaard
indicated that he did not have authority to increase Great Nordic's offer to
$8.00, but that he and Mr. Lindegaard were prepared to recommend that the Board
of Directors of Great Nordic, at its meeting scheduled for May 10, 1999, approve
the proposed offer for ReSound at $8.00 per share in cash. Mr. Kildegaard
indicated that any approval would be conditioned on completion of legal and
business due diligence and review by Great Nordic and its advisors of ReSound's
disclosure schedules to the Merger Agreement. From May 5 through May 9,
representatives of ReSound and Great Nordic prepared and reviewed the disclosure
schedules and completed the pre-signing due diligence process.
On May 7, 1999 ReSound publicly announced that it was in discussions
with a third party regarding a possible business combination at a cash price of
$8.00 per share. On May 10, 1999, the Board of Directors of Great Nordic met and
approved the Merger Agreement and the acquisition of all outstanding shares of
ReSound at a cash
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price of $8.00 per share. Thereupon, representatives of ReSound and Great Nordic
executed the Merger Agreement and the Stock Option Agreement.
(2) REASONS FOR THE RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD.
In reaching its determinations referred to immediately above, the Board
and Special Committee considered the following factors, each of which, in the
view of the Board and Special Committee, supported such determinations:
(i) the amount of consideration to be received by the Company's
shareholders in the Offer and the Merger pursuant to the
Merger Agreement, as well as the fact that shareholders would
receive a cash payment with no financing condition;
(ii) the Company's prospects if it were to remain independent,
including the risks inherent in remaining independent, and the
prospects of the Company going forward as an independent
company;
(iii) the possible alternatives to the Offer and the Merger
including (a) the possibility of continuing to operate the
Company as an independent entity and (b) the possibility of
entering into strategic combinations with other entities (with
respect to which the Company had discussions with multiple
potential partners), the range of possible benefits to the
Company's shareholders of such alternatives and the timing and
the likelihood of accomplishing the goal of any of such
alternatives;
(iv) the current status of the hearing device market and the
competitive advantage in the industry of large companies,
including Parent, with significant distribution capacity,
installed infrastructure, compatible product and service
offerings, and substantial financial resources;
(v) the financial condition, historical results of operations and
business and strategic objectives of the Company, as well as
the risks involved in achieving those objectives;
(vi) other historical information concerning the Company's
business, prospects, financial performance and condition,
operations, technology, management and competitive position;
(vii) the fact that the $8.00 per Share to be paid in the Offer and
as the consideration in the Merger represents: a premium of
(a) approximately 71% over $4.683, the per-share average
closing price of the Shares for the 30 trading days prior to
May 10, 1999, (b) approximately 110% over $3.813, the
per-share closing price for the Shares on the Nasdaq National
Market on March 26, 1999, 30 trading days prior to May 10,
1999, and (c) a premium of approximately 22% over $6.563, the
per-share closing price for the Shares on the Nasdaq National
Market on May 7, 1999, the last trading day prior to the
public announcement of the execution of the Merger Agreement
on May 10, 1999;
(viii) current financial market conditions, and historical market
prices, volatility and trading information with respect to the
Common Stock of the Company;
(ix) the written opinion dated May 5, 1999 of BancBoston Robertson
Stephens that, as of such date and based upon and subject to
the matters set forth therein, the $8.00 in cash to be paid in
the Offer and the Merger was fair from a financial point of
view to the holders of Shares and the presentation made by
BancBoston Robertson Stephens to the Board relating to the
valuation analyses performed by BancBoston Robertson Stephens
in connection with such opinion. The full text of the opinion
of BancBoston Robertson Stephens containing the assumptions
made, the matters considered and the scope of the review
undertaken in connection with rendering such opinion as well
as the limitations of such opinion is attached hereto as Annex
B and is
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incorporated herein by reference. The opinion was not intended
to be and does not constitute a recommendation to any holder
of Shares whether or not to tender his or her Shares in the
Offer. SHAREHOLDERS ARE URGED TO READ THE FULL TEXT OF THE
OPINION IN CONJUNCTION WITH THE OFFER;
(x) the high likelihood that the proposed acquisition would be
consummated, in light of the experience, reputation and
financial capabilities of Parent, and that the proposed
acquisition could be consummated more quickly than a long-form
merger and, on the other hand, the risks to the Company if the
acquisition were not consummated or were not consummated for a
significant period of time, including a potential negative
effect on (a) the Company's sales and operating results, (b)
progress of certain development projects and (c) the Company's
stock price;
(xi) the terms of the Merger Agreement, including the parties'
representations, warranties and covenants, and the conditions
to their respective obligations; and
(xii) the fact that pursuant to the Merger Agreement, the Company is
not prohibited from responding to any unsolicited Superior
Proposal (as defined in the Merger Agreement) to acquire the
Company in the manner provided in the Merger Agreement, and
the Company may terminate the Merger Agreement and accept such
Superior Proposal subject to the Company's compliance with the
terms of the Merger Agreement and the Company's obligation to
pay the termination fee in the amount and in the manner
described in the Merger Agreement.
In reaching its determinations to recommend the Offer and the Merger to
the Public Shareholders, the Board considered the recommendation of the Special
Committee and the factors set forth immediately above, each of which, in view of
the Board, supported such determinations.
The members of the Board, including the Special Committee, evaluated
the various factors listed above in light of their knowledge of the business,
financial condition and prospects of the Company, and based upon the advice of
financial and legal advisors. In light of the number and variety of factors that
the Board and the Special Committee considered in connection with their
evaluation of the Offer and the Merger, neither the Board nor the Special
Committee found it practicable to assign relative weights to the foregoing
factors and, accordingly, neither the Board nor the Special Committee did so. In
addition to the factors listed above, the Board and the Special Committee had
each considered the fact that consummation of the Offer and the Merger would
eliminate the opportunity of the Public Shareholders to participate in any
potential future growth in the value of the Company, but determined that this
loss of opportunity was reflected by the price of $8.00 per Share to be paid in
the Offer and the Merger. In addition, the Board and the Special Committee
considered the possibility that, in the event the Offer but not the Merger is
consummated, the number of shareholders could be reduced, which could adversely
affect the liquidity and market value of the Shares.
The Board, including the Special Committee, believes that the Offer and the
Merger are procedurally fair because, among other things: (i) the Special
Committee consisted of directors who are neither designees of Purchaser nor
officers of the Company (other than the Chairman of the Board) who were
appointed to represent the interests of the Public Shareholders; (ii) the
Special Committee retained and were advised by independent legal counsel; (iii)
the Company retained BancBoston Robertson Stephens as its independent financial
advisor to assist the Company in evaluating the Offer and the Merger; (iv) the
deliberations pursuant to which the Special Committee evaluated the Offer and
the Merger and alternatives thereto; and (v) the fact that the $8.00 per Share
price and the other terms and conditions of the Merger Agreement resulted from
active arm's length bargaining between representatives of the Special Committee,
on the one hand, and Purchaser, on the other.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Pursuant to an engagement letter dated October 15, 1998 (the
"Engagement Letter"), BancBoston Robertson Stephens was retained by the Company
as its exclusive financial advisor in connection with a possible sale of, or
business combination involving, the Company and a third party (the
"Transaction"). Pursuant to the
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<PAGE>
Engagement Letter, the Company agreed to pay BancBoston Robertson Stephens a fee
of $250,000 (the "Opinion Fee") upon delivery of its opinion, whether or not a
favorable opinion was delivered. The Company also agreed to pay BancBoston
Robertson Stephens, upon consummation of the Transaction, a transaction fee,
against which the Opinion Fee will be credited, in an amount equal to 1.25% of
the sum of the cash consideration paid by the purchaser in the Transaction and
any debt assumed in connection therewith. In addition, the Company also agreed
to reimburse BancBoston Robertson Stephens for its reasonable out-of-pocket
expenses incurred in connection with its engagement, including the fees of its
counsel. The Company further agreed to indemnify BancBoston Robertson Stephens
against certain liabilities arising out of its engagement, including liabilities
under the federal securities laws.
The Company selected BancBoston Robertson Stephens as its financial
advisor on the basis of its experience and expertise in transactions similar to
the Offer and the Merger, its reputation in the investment community, and its
knowledge of and familiarity with the Company resulting from the investment
banking services it has previously provided to the Company.
In the past, a foreign affiliate of BancBoston Robertson Stephens has
provided investment banking services to Great Nordic from time to time in the
technology sector for which it has been paid fees, including acting as exclusive
financial advisor in connection with its acquisition of Fastware S.A. in October
1998. In addition, such foreign affiliate is currently providing advisory
services to a subsidiary of Great Nordic in connection with one or more
opportunities in the technology sector that such subsidiary may consider that
are unrelated to the Offer and the Merger. In the ordinary course of business,
BancBoston Robertson Stephens may trade in ReSound's securities and Great
Nordic's securities for its own account and the accounts of its customers and,
accordingly, may at any time hold a long or short position in ReSound's or Great
Nordic's securities.
Neither the Company nor any person acting on its behalf has employed,
retained or agreed to compensate any other person to make solicitations or
recommendations to the Public Shareholders on behalf of the Company concerning
the Offer and the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the best knowledge of the Company, no transactions in Shares
have been effected during the past 60 days by the Company or any of its
executive officers, directors or affiliates, except that (i) Robert Wilson, a
member of the Company's Board, exercised an option to purchase 12,000 shares of
the Company's Common Stock at a per share price of $4.44 on April 14, 1999 and
(ii) John Giroux, one of the Company's executive officers, exercised an option
to purchase 10,000 shares of the Company's Common Stock at a per share price of
$4.44 on April 14, 1999.
(b) To the best knowledge of the Company, its executive officers,
directors and affiliates who own Publicly Held Shares, either directly or
beneficially, currently intend to tender such Shares to Purchaser pursuant to
the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as described in Items 3 and 4 above, including as set forth
in the Offer, to the knowledge of the Company no negotiation is being undertaken
or is underway by the Company in response to the Offer which relates to or would
result in (1) any extraordinary transaction, such as a merger or reorganization,
involving the Company or any affiliate or subsidiary of the Company, (2) a
purchase, sale or transfer of a material amount of assets by the Company or any
subsidiary of the Company, (3) a tender offer for or other acquisition of
securities by or of the Company, or (4) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as described in Items 3 and 4 above, there are no
transactions, board resolutions, agreements in principle, or signed contracts in
response to the Offer which relate to or would result in one or more of the
matters referred to in clauses (1) through (4) of paragraph (a) of this Item 7.
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<PAGE>
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Reference is hereby made to the Offer to Purchase and the related
Letter of Transmittal which are attached as Exhibits 1 and 2, respectively, and
are herein incorporated by reference in their entirety.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1 Form of Offer to Purchase, dated May 14, 1999 (incorporated by
reference to Exhibit (a)(1) to Parent and Purchasers' Tender
Offer Statement on Schedule 14D-1 dated May 14, 1999, as
amended (the "Schedule 14D-1")).
Exhibit 2 Form of Letter of Transmittal (incorporated by reference to
Exhibit (a)(2) to the Schedule 14D-1).
Exhibit 3 Agreement and Plan of Merger, dated as of May 10, 1999, among
the Company, Parent and Purchaser (incorporated by reference
to Exhibit (c)(1) to the Schedule 14D-1).
Exhibit 4 Stock Option Agreement, dated as of May 10, 1999, among the
Company, Parent and Purchaser (incorporated by reference to
Exhibit (c)(2) to the Schedule 14D-1).
Exhibit 5 Opinion of BancBoston Robertson Stephens Inc., dated May 5,
1999 (incorporated by reference to Annex B of this Schedule
14D-9).*
Exhibit 6 Letter to Shareholders of the Company dated May 14, 1999.*
Exhibit 7 Form of Directors' and Officers' Indemnification Agreement.
(A)
Exhibit 8 Contract Consulting Agreement dated July 25, 1996 with Dr.
Rodney Perkins. (B)
Exhibit 9 Contract Consulting Agreement dated July 25, 1996 with Dr.
Richard L. Goode. (B)
Exhibit 10 Change of Control Agreement. (C)
Exhibit 11 Amended and Restated Change of Control Agreement. (D)
Exhibit 12 Consulting Agreement dated January 1, 1999 with Dr. Rodney
Perkins. (E)
Exhibit 13 Form of Letter Regarding Change of Control Agreements
(incorporated by reference to Exhibit (c)(3) to the Schedule
14D-1).
ANNEX A INFORMATION STATEMENT *
ANNEX B OPINION OF BANCBOSTON ROBERTSON STEPHENS INC. *
- --------
* Included with Schedule 14D-9 mailed to shareholders.
(A) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Registration Statement on Form S-1 and
Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto (File No.
33-46527), which became effective on March 4, 1993.
(B) Incorporated by reference to exhibits filed in response to Item 14,
"Exhibits, Financial Statement Schedules and Reports on Form 8-K" of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
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<PAGE>
(C) Incorporated by reference to exhibits filed in response to Item 14,
"Exhibits and Reports on Form 8-K" of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1997.
(D) Incorporated by reference to exhibits filed in response to Item 14,
"Exhibits and Reports on Form 8-K" of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 26, 1998.
(E) Incorporated by reference to exhibits filed in response to Item 14,
"Exhibits, Financial Statement Schedules and Reports on Form 8-K," of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
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<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
By: /s/ Russell D. Hays
--------------------------------------
Russell D. Hays
President and Chief Executive Officer
Dated: May 14, 1999
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<PAGE>
ANNEX A
RESOUND CORPORATION
220 SAGINAW DRIVE, SEAPORT CENTRE, REDWOOD CITY, CALIFORNIA 94063
INFORMATION STATEMENT PURSUANT TO SECTION 14(f)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
GENERAL
This Information Statement (the "Statement") is being mailed on or
about May 14, 1999 as part of the Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Schedule 14D-9") of ReSound Corporation, a California
corporation (the "Company"), with respect to the tender offer by GN Acquisition
Corporation ("Purchaser"), a California corporation and a wholly-owned indirect
subsidiary of GN Great Nordic Ltd., a Danish corporation ("Parent"), for shares
of the Company's Common Stock, par value $0.01 including the associated stock
purchase rights ("Shares") per share. Capitalized terms used and not otherwise
defined herein shall have the meaning set forth in the Schedule 14D-9. This
Statement is furnished in connection with the possible election of persons
designated by Parent to a majority of the seats on the Company's Board of
Directors (the "Company Board"). The Agreement and Plan of Merger by and among
the Company, Parent and Purchaser, dated as of May 10, 1999 (as the same may be
amended from time to time, the "Merger Agreement"), provides that promptly upon
the acceptance for payment by Parent or any of its subsidiaries of Shares
purchased pursuant to the Offer, and from time to time thereafter as Shares are
acquired by Parent or any of its subsidiaries, Parent will be entitled to
designate such number of directors ("Parent Designees"), rounded up to the next
greatest whole number, on the Company Board as will give Parent representation
on the Company Board equal to that number of directors which equals the product
of the total number of directors on the Company Board (giving effect to the
directors appointed or elected pursuant to this sentence and including current
directors serving as officers of the Company) multiplied by the percentage that
the aggregate number of Shares beneficially owned by Purchaser, Parent or any of
their affiliates (including Shares accepted for payment pursuant to the Offer,
but excluding Shares held by the Company or any of its affiliates, which would
not include Parent, Purchaser or its affiliates) bears to the number of Shares
outstanding. However, if Purchaser has acquired the Revised Minimum Number of
Shares in the Offer, such number of directors will be rounded up to the greatest
whole number plus one to give Purchaser at least a majority of the members of
the Company Board. Furthermore, in the event that Purchaser's designees are
appointed or elected to the Company Board, until the Effective Time, the Company
Board will have at least one director who is a director on the date of the
Merger Agreement and who is not an executive officer of the Company (the
"Independent Director"). At such times, the Company will also cause (i) each
committee of the Company Board other than any committee of the Board established
to take action under the Merger Agreement, and (ii) each committee of such
subsidiaries' boards of directors to include persons designated by Parent
constituting the same percentage of each such committee or board of directors as
Parent's Designees are of the Company Board. The Company will, upon request by
Parent, promptly increase the size of the Company Board or exercise its best
efforts to secure the resignations of such number of directors, or both, as is
necessary to enable Parent's designees to be elected or appointed to the Company
Board and will cause Parent's designees to be so elected or appointed.
This Statement is required by Section 14(f) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1 promulgated
thereunder. You are urged to read this Statement carefully. You are not,
however, required to take any action. The Offer commenced on May 14, 1999 and is
scheduled to expire at 12:00 Midnight, New York City time, on June 11, 1999,
unless extended. The information contained in this Information Statement
concerning Parent and Purchaser has been furnished to the Company by Parent, and
the Company assumes no responsibility for the accuracy, completeness or fairness
of any such information. At the close of business on May 4, 1999, there were
20,927,169 Shares issued and outstanding, which is the only class of securities
outstanding having the right to vote for the election of the Company's
directors, each of which entitles its record holder to one vote.
<PAGE>
DESIGNEES TO THE COMPANY'S BOARD OF DIRECTORS
Parent has informed the Company that the Parent Designees it has the
right to designate to the Company Board pursuant to the Merger Agreement will be
chosen from the individuals listed in Schedule I to the Offer to Purchase, a
copy of which is being mailed to shareholders together with the Schedule 14D-9.
Information about such individuals is also included in such Schedule I, which is
hereby incorporated herein by reference.
Parent has advised the Company that each of the Parent Designees has
consented to act as a director, if so designated. Parent has also advised the
Company that, to the best knowledge of Parent or Purchaser, none of such
individuals (i) currently is a director of, or holds, any position with, the
Company, (ii) beneficially owns any equity securities, or rights to acquire any
equity securities, of the Company or (iii) has been involved in any transactions
with the Company or any of its directors, executive officers, affiliates or
associates which are required to be disclosed pursuant to the rules and
regulations of the Commission.
It is expected that the Parent Designees may assume office at any time
following the purchase by Parent or Purchaser, as applicable, of the specified
minimum number of shares of Common Stock pursuant to the Offer, which purchases
cannot be earlier than June 11, 1999.
CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The names of the Company's executive officers and directors and certain
information about them as of March 26, 1999, are set forth below:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Russell D. Hays................................ 54 President, Chief Executive Officer and Director
Laureen DeBuono................................ 41 Executive Vice President and Chief Operating Officer
John H. Giroux................................. 54 Senior Vice President and President, ReSound North America
Peter Nolan.................................... 44 Senior Vice President, Worldwide Operations
David S. Thrower............................... 34 Senior Vice President, Global Marketing
Robert D. Luttrell............................. 39 Vice President and Chief Financial Officer
Edward Lopez................................... 39 Vice President, Business Development, General Counsel and
Secretary
Chaslav V. Pavlovic............................ 50 Vice President, Research and Development
Michael P. Downey.............................. 50 Chairman of the Board, Artisoft, Inc.
Richard L. Goode, M.D.......................... 63 Professor of Otolaryngology at Stanford University School of
Medicine
Eugene Kleiner................................. 75 Private investor and consultant
Rodney Perkins, M.D............................ 62 Chairman of the Board of Directors of the Company; a
practicing otologic surgeon; President of the California Ear
Institute at Stanford, a clinic specializing in the diagnosis
and treatment of hearing disorders; President of Project
HEAR, a non-profit research organization; and Professor of
Surgery, Stanford University School of Medicine
Philip S. Schlein.............................. 64 Venture partner of BHMS Partners LP, a general partner of
U.S. Venture Partners, a venture capital firm
Robert C. Wilson............................... 78 Chairman of Wilson & Chambers, a venture capital and
consulting firm
</TABLE>
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<PAGE>
Except as set forth below, each executive officer and member of the
board of directors has been engaged in the principal occupation set forth next
to his or her name above during the past five years. There is no family
relationship between any director and executive officer of the Company.
Mr. Hays joined ReSound as President and Chief Executive Officer, and
was elected to its Board of Directors, in February 1998. From 1995 to 1998, Mr.
Hays served as Executive Vice President and President of the Hospital Business
of Nellcor Puritan Bennett, a medical device company that develops and markets
products that diagnose, monitor and treat respiratory disorders. From 1992 to
1995, Mr. Hays served as President and Chief Executive Officer of Enzytech,
Inc., a company that develops and markets drug delivery technologies. From 1985
to 1992, Mr. Hays held senior management positions with Baxter Healthcare
Corporation, most recently as Vice President and General Manager of the
Immunotherapy Division of Baxter Biotech, and before that in the areas of
strategic planning and business development, marketing and business development,
and technology assessment and development. Prior to this, he held various
positions with Stryker Corporation, Baxter Travenol Labs, Inc., Amerace
Corporation, Reynolds Products, Inc., and Schaub Engineering Company. Mr. Hays
holds an M.B.A. from the J.L. Kellogg Graduate School at Northwestern University
and a B.S. in Physics from Elmhurst College.
Ms. DeBuono joined the Company in October 1998 as Executive Vice
President, Chief Operating Officer and Chief Financial Officer. With the
addition of Robert D. Luttrell as Vice President, Chief Financial Officer in
February 1999, Ms. DeBuono no longer serves as Chief Financial Officer. Before
joining the Company, Ms. DeBuono was Executive Vice President, Human Resources,
General Counsel and Secretary at Nellcor Puritan Bennett from 1994 to 1998 and
served as General Counsel and Secretary at Nellcor Puritan Bennett from April
1992 to June 1994. Prior to joining Nellcor Puritan Bennett, Ms. DeBuono was
Division and Corporate Counsel with the Clorox Company, a diversified consumer
products company, from 1987 to 1992 and Corporate Counsel with Varian
Associates, Inc., an electronics device company, from 1984 to 1987. Ms. DeBuono
holds a B.A. from Duke University, an M.A. from Stanford University and a J.D.
from New York University.
Mr. Giroux joined the Company in January 1991 as Vice President,
Marketing. He was elected Vice President, Sales and Marketing in December 1991
and in June 1993 was promoted to Senior Vice President, Sales and Marketing. In
January 1996, he was elected Senior Vice President of the Company and President
of ReSound U.S.A. (subsequently changed to ReSound North America). Mr. Giroux
has 27 years of experience in the marketing of consumer health care products.
Before joining the Company, Mr. Giroux was Vice President of Marketing for
Allergan Optical at Allergan, Inc., from February 1988 to June 1990. Prior to
joining Allergan, Inc., Mr. Giroux was Vice President at Ogilvy & Mather
Worldwide, an advertising firm, from July 1984 to February 1988. Prior to July
1984, Mr. Giroux was Vice President, Sales and Marketing of the Consumer
Products Division of G.D. Searle and Company, a pharmaceutical company. Mr.
Giroux holds a B.A. in economics from Providence College.
Mr. Nolan joined the Company in June 1994 as General Manager of ReSound
Ireland Ltd. He was named Vice President of Manufacturing in December 1995 and
was promoted to Senior Vice President of Worldwide Operations in October 1998.
Before joining the Company, Mr. Nolan was General Manager of Wang Laboratories
Ireland B.V., the European manufacturing and distribution headquarters for Wang,
from 1992 until June 1994 and held other senior management positions with that
company, which he joined in 1984. Mr. Nolan has also held various manufacturing
and engineering positions with Digital Equipment International B.V., Atari Ltd.,
Varian Instruments Ltd., and Westinghouse Electronics Ltd. Mr. Nolan holds a
Bachelor of Technology - Production Engineering from the University of Limerick,
Ireland.
Mr. Thrower joined ReSound in July 1998 as Senior Vice President of
Global Marketing. In December 1998, Mr. Thrower's role was expanded to include
responsibility for ReSound Communications. Before joining ReSound, Mr. Thrower
served as Vice President of Quattro Consulting, Inc., a management consulting
firm exclusively focused on the medical device and technology industries, from
1993 to 1998. Prior to joining Quattro Consulting, Inc., Mr. Thrower was a
consultant at Bain & Company, from 1986 to 1990 and again from 1992 to 1993. Mr.
Thrower holds an MBA from Harvard Graduate School of Business Administration and
a BS in Mathematical and Computational Sciences from Stanford University.
A-3
<PAGE>
Mr. Luttrell joined ReSound in February 1999 as Vice President and
Chief Financial Officer. Before joining the Company, Mr. Luttrell served as
Corporate Controller for Nellcor Puritan Bennett from 1995 until January 1999,
and held other financial management positions since joining that company in
1990. From 1987 to 1990, Mr. Luttrell held various financial management
positions with Applied Biosystems, a supplier of life sciences analytical
instrumentation and consumables. Mr. Luttrell also held financial management
positions with Fairchild Semiconductor from 1985 to 1987 and worked on the audit
staff of Arthur Young and Company from 1983 through 1985. Mr. Luttrell holds a
B.S. degree in business from San Francisco State University and is a Certified
Public Accountant in California.
Mr. Lopez joined ReSound in June 1998 as Vice President, Business
Development and General Counsel. In December 1998, Mr. Lopez was elected to the
office of Secretary of the Company. Prior to joining ReSound, Mr. Lopez was
Corporate Counsel and Senior Corporate Counsel with Nellcor Puritan Bennett from
October 1993 to February 1998. From 1987 until joining Nellcor Puritan Bennett
in 1993, Mr. Lopez worked with Morrison & Foerster, an international law firm
headquartered in San Francisco, California, where he focused his practice on
general corporate, mergers and acquisition, securities and finance matters. Mr.
Lopez received a J.D. from the Harvard Law School in 1985 and an A.B. in
economics and political science from Columbia University in 1982. Mr. Lopez is a
member of the Corporate Law Departments Committee of the Business Law Section of
the State Bar of California.
Mr. Pavlovic joined the Company in February 1994 as Vice President of
Research. In December 1996, he was promoted to Vice President for Research and
Development. Before joining the Company, Dr. Pavlovic was Associate Professor of
Audiology at the University of Iowa from December 1985 through February 1993;
Professor of Audiology at the University of Provence, France, from March 1993 to
June 1998; and a Coordinator of the European project EURAUD (European
Audiological Tests and Station); Chair, American National Standards Institute
S3-79 Writing Group (Calculation of the Articulation Index); USA representative
to the International Standards Organization ISO/TC 43/SC1; Coordinator of the
Overall Quality Assessment Subgroup, European Consortium for Speech Assessment
Methods (SAM, Project Esprit); Coordinator of participating French laboratories
on projects TIDE and OSCAR (pattern extraction hearing aids); Member, American
National Standards institute S12-8 Writing Group (rating noise with respect to
speech interference); Member of the Editorial Board, Acoustics; Staff Editor,
Journal D'Acoustique; Board of Directors, Journal D'Acoustique; and Member,
Technical Committee on Speech Communication, Acoustical Society of America. Dr.
Pavlovic has produced more than 50 publications and over 60 major international
presentations. Dr. Pavlovic has a Ph.D. in Audiology from Wichita State
University, and an M.S. and B.S. in Electrical Engineering from Salford
University, England and the University of Belgrade, Yugoslavia, respectively.
Mr. Downey has served as a director of the Company since October 1998.
From 1989 until November, 1997, Mr. Downey served as the senior financial
executive of Nellcor Puritan Bennett. From 1984 to 1986, he was Vice President
of Finance with Shugart Corporation, a manufacturer of disk drives. He currently
serves as Chairman of the Board of Artisoft, Inc., a networking and computer
telephony company, and as a member of the Board of Directors of Emulex
Corporation, a publicly traded company engaged in the design and manufacture of
both software- and hardware-based network access products.
Dr. Goode is a founder of the Company and has served as a director
since February 1984. Dr. Goode is Professor of Otolaryngology -- Head and Neck
Surgery at Stanford University School of Medicine and is the past president of
the American Academy of Otolaryngology. Dr. Goode was formerly President of the
American Academy of Facial Plastic and Reconstructive Surgery as well as
Chairman of the FDA's Device Panel for Otolaryngology. Dr. Goode has conducted
extensive medical research on electromagnetic transduction and biosurgical
devices since the early 1970s. Dr. Goode received his M.D. from the University
of Southern California and his B.A. from the University of California at Santa
Barbara.
Mr. Kleiner is a founder of the Company and has served as a director
since January 1985. Mr. Kleiner is a private investor and consultant. Mr.
Kleiner is also a member of the advisory board of Paine Webber R&D Development
Corporation. Mr. Kleiner was a founder of Fairchild Semiconductor Corporation,
Tandem Computers Inc. (where he also served previously as a director), Genentech
Inc. and Kleiner Perkins Caufield & Byers. He holds
A-4
<PAGE>
an M.I.E. from New York University and a B.M.E. and an honorary doctorate in
engineering from the Polytechnic University.
Dr. Perkins is a founder of the Company and has been the Chairman of
the Board of Directors since the Company's inception in 1984. Dr. Perkins also
served as the President and Chief Executive Officer of the Company from 1984 to
July 1988. Dr. Perkins, a specialist in otologic surgery, is President of the
California Ear Institute at Stanford and has been in private practice since
1968. He is Professor of Surgery at Stanford University School of Medicine, and
is the founder and President of Project HEAR, a nonprofit medical institute for
ear research and education. He is also a founder of Collagen Corporation, a
biomaterials company, and a founder of Laserscope, a surgical systems company.
Dr. Perkins was formerly Chairman of the Board of Laserscope and remains a
director of Laserscope. Dr. Perkins received his M.D. from Indiana University
School of Medicine and his undergraduate degree from Indiana University.
Mr. Schlein has served as a director of the Company since January 1988.
Mr. Schlein has been a general partner, and subsequently a venture partner, of
BHMS Partners, L.P., a general partner of U.S. Venture Partners, a venture
capital firm, since April 1985. Mr. Schlein held various executive positions
with R. H. Macy & Co., Inc. from 1957 to 1973 and was President and Chief
Executive Officer of Macy's California division from 1974 to 1985. Additionally,
Mr. Schlein has previously served as a director of Apple Computer, Inc. and
currently serves as a director of Ross Stores, Inc., Burham Pacific and Quick
Response Services. Mr. Schlein received his B.S. from the University of
Pennsylvania.
Mr. Wilson has served as a director of the Company since August 1987.
Mr. Wilson has been Chairman of Wilson & Chambers, a venture capital and
consulting firm, since December 1982. Mr. Wilson was President, Chief Executive
Officer and Chairman of the Board at Memorex Corporation from 1974 until 1980.
From 1971 to 1974, Mr. Wilson was President and Chief Executive Officer of
Collins Radio Company, a communications company. From 1969 to 1971, Mr. Wilson
was employed by Rockwell International, a diversified manufacturing company,
first as President of Commercial Products and later as Executive Vice President.
He is currently a director of Carco Electronics, DataLink Systems Corporation,
Giga-Tronics Incorporated and Spectrian Corporation. Mr. Wilson has previously
served as a director of several corporations, including Chrysler Corporation,
GAF Corporation, Rockwell International and Western Digital Corporation. Mr.
Wilson holds a B.S. from the University of California at Berkeley.
CORPORATE GOVERNANCE
The Board of Directors of the Company held a total of seven meetings
during the year ended December 31, 1998. The Board of Directors has an Audit
Committee, a Scientific Advisory Committee, a Human Resources Committee, a Stock
and Option Committee and a Nominating Committee. The Board of Directors elects
its committee members each year following the Annual Meeting of Shareholders.
The Audit Committee currently consists of Richard L. Goode and Robert
C. Wilson. The Audit Committee held five meetings during 1998. The Audit
Committee recommends engagement of the Company's independent auditors and is
primarily responsible for approving the services performed by the Company's
independent accountants and for reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls.
The Scientific Advisory Committee currently consists of Richard L.
Goode, Eugene Kleiner and Rodney Perkins. The Scientific Advisory Committee held
two meetings during 1998. The Scientific Advisory Committee reviews and
evaluates the alternatives available to the Company with respect to its
technologies and makes recommendations regarding such technologies to the
Company's Board of Directors.
The Human Resources Committee currently consists of Richard L. Goode,
Rodney Perkins and Philip S. Schlein. The Human Resources Committee held six
meetings during 1998. The Human Resources Committee recommends salaries and
other compensation for directors, officers and other employees of the Company,
administers (with the Stock and Option Committee and the Board of Directors) the
various incentive compensation
A-5
<PAGE>
and benefit plans of the Company and recommends policies relating to such plans.
The Stock and Option Committee of the Board of Directors currently
consists of Eugene Kleiner and Philip S. Schlein. The Stock and Option Committee
held no meetings during 1998. The Stock and Option Committee administers
(together with the Human Resources Committee and the Board of Directors) the
Company's 1988 Stock Option Plan and the Company's 1997 Stock Plan with respect
to the Company's directors and officers eligible to participate in such Plans.
The Nominating Committee is responsible for recommending nominees for
members of the Company's Board of Directors. The Nominating Committee currently
consists of Russell D. Hays, Rodney Perkins and Philip S. Schlein. This
Committee held no meetings during 1998.
No incumbent director attended fewer than 75% of the aggregate number
of meetings of the Board of Directors and meetings of the committees of the
Board of Directors that he was eligible to attend in 1998.
COMPENSATION OF DIRECTORS
Non-employee members of the Board of Directors receive a quarterly fee
of $3,000, $1,000 for each meeting of the Board of Directors attended and $500
for each committee meeting attended, with committee chairpersons receiving $625
for each committee meeting attended. In addition, non-employee members of the
Board of Directors receive options to purchase shares of the Company's Common
Stock pursuant to its 1992 Directors' Stock Option Plan (the "Directors' Option
Plan"). The Directors' Option Plan provides for the grant of nonstatutory stock
options to non-employee directors of the Company at an exercise price not less
than the fair market value of the Company's Common Stock on the date of grant.
Under the Directors' Option Plan, persons who first become non-employee
directors after March 31, 1992 are granted an option (the "First Option") to
purchase 20,000 shares of the Company's Common Stock on the date he or she first
becomes a director. Thereafter, on the last day of each fiscal year, each
non-employee director (including directors who were not eligible for a First
Option) is granted an option to purchase 5,000 shares of Common Stock (an
"Annual Option") if, on such date, he or she has served on the Company's Board
of Directors for at least six months. The Directors' Option Plan provides that
the First Option becomes exercisable in installments of twenty-five percent of
the shares subject to the First Option on each of the first, second, third and
fourth anniversaries of the date of grant of the First Option, and that each
Annual Option becomes exercisable at a rate of 25% per year over four years.
In 1998, the Company paid Dr. Perkins and Dr. Goode $48,000 and
$12,000, respectively, pursuant to consulting arrangements under which Dr.
Perkins and Dr. Goode provided marketing, product development and financial
consulting services to the Company. For the first three months of 1999, the
Company paid Dr. Perkins and Dr. Goode $12,000 and $3,000, respectively,
pursuant to such consulting arrangements. On January 28, 1998, the Stock and
Option Committee of the Company's Board of Directors granted Dr. Perkins an
option to purchase 25,000 shares of the Company's Common Stock pursuant to the
Company's 1988 Stock Option Plan, as amended. This option is subject to vesting
over a four-year period beginning on January 1, 1998, with 1/8th of the shares
subject to the option vesting at the end of six months from that date and 1/48th
of the total number of shares vesting at the end of each month thereafter. On
October 23, 1998, the Human Resources Committee of the Company's Board of
Directors granted Dr. Perkins an option to purchase 25,000 shares of the
Company's Common Stock pursuant to the Company's 1997 Stock Plan. This option is
subject to vesting over a four-year period beginning on January 1, 1999, with
1/8th of the shares subject to the option vesting at the end of six months from
that date and 1/48th of the total number of shares vesting at the end of each
month thereafter. See "Human Resources Committee Interlocks and Insider
Participation" for additional information with respect to Dr. Perkins and the
California Ear Institute at Stanford and SoundPort Corporation.
A-6
<PAGE>
REPORT OF THE HUMAN RESOURCES COMMITTEE AND STOCK AND OPTION COMMITTEE
GENERAL
The compensation of the Chief Executive Officer and the management
employees who report to the Chief Executive Officer is established and
periodically reviewed by the Board of Directors. The Board of Directors
establishes executive compensation to be competitive with that of comparable
companies in order to help motivate and retain the talent, leadership skills and
experience needed to help successfully guide the Company, and to provide a
strong incentive for key personnel to achieve the Company's financial, product
development and sales and marketing objectives.
Each year, the Chief Executive Officer and the Company's other
executive officers establish a number of corporate goals addressing such
business objectives as financial performance, product performance improvements
and product and market development and expansion as a key element in the
Company's compensation programs. With the aim of achieving these corporate-level
goals, the compensation of the Company's executive officers is determined by
reference both to individual performance and to corporate performance. Of these
two elements, corporate performance has the most significant impact on executive
officer compensation through cash bonuses and the value of stock options.
There are three specific objectives to the Company's executive
compensation programs:
1. PERFORMANCE-BASED COMPENSATION -- The Company believes that it
is important to reward individual executives for their performance as well
as for the overall performance of the Company.
2. COMPETITIVE COMPENSATION LEVELS -- To attract and retain
talented individuals, the Company believes it must maintain compensation
levels and programs that are competitive in the relevant employment market.
3. MAXIMIZATION OF SHAREHOLDER INTERESTS -- Ultimately, management
seeks to generate a satisfactory return for the Company's shareholders.
Therefore, it is critical to align management's interests with the interests
of the Company's shareholders in establishing compensation programs.
COMPENSATION OF EXECUTIVE OFFICERS
To achieve the compensation objectives outlined above, the Company's
executive compensation is comprised of three key components: (i) salary, (ii)
annual cash bonuses and (iii) stock options.
Specific recommendations with respect to salary and annual cash bonuses
for the executive officers (except the Chief Executive Officer) are made by the
Chief Executive Officer, with the final decisions being made by the Board of
Directors in accordance with the recommendations of the Human Resources
Committee. In the case of the Chief Executive Officer, the Board of Directors
determines actions to be taken, consistent with the recommendations of the Human
Resources Committee. With respect to stock options, the final decisions are made
by the Stock and Option Committee and the Human Resources Committee.
Salaries are generally reviewed in the early spring of each year and
appropriate adjustments are made after taking into account such factors as
individual performance and experience, market data, responsibility and salary
levels within the Company and the salary range established for the position.
Cash bonus arrangements are established at the commencement of each
fiscal year. Payment of cash bonuses depends upon corporate financial
performance for the year and achievement of individual goals by each executive.
The Company's cash bonus policy for fiscal year 1998 was to set aside ten
percent of the Company's net profits for potential bonuses to employees,
including executive officers, eligible to participate in the incentive
compensation plan. The maximum eligible bonus for each employee was from zero to
100% of the employee's annual base salary, depending upon the employee's
position. The portion of the maximum eligible bonus actually payable was to be
based upon an assessment of the individual executive's performance. The
executive must have
A-7
<PAGE>
remained employed by the Company at the time of payment of bonuses to have been
eligible to receive a bonus.
Because stock options provide an incentive for executives to maximize
shareholder value over time, stock options are a key to aligning the interests
of management and shareholders. Value accrues to executives only as the value of
the Company's stock appreciates. Vesting schedules encourage a long-term
commitment to the Company by its executive officers. The number of stock options
held by each executive officer is periodically reviewed against ranges
established for each position, and additional awards are considered to optimize
the level of incentives and rewards.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Effective February 2, 1998, Russell D. Hays replaced Peter
Riepenhausen as President and Chief Executive Officer of the Company. Mr.
Hays' annual salary is $350,000, with a potential bonus of $262,500 (75% of
base salary) contingent upon Mr. Hays' achieving certain objectives. Because
the Company did not achieve a net profit in 1998, Mr. Hays was not paid a
bonus with respect to fiscal 1998. When setting his base salary, the
Company's Board of Directors considered compensation levels for Chief
Executive Officers of other companies of similar size to the Company in
comparable industries, the compensation level of the Company's prior Chief
Executive Officer and Mr. Hays' prior rate of compensation. Mr. Hays was
granted options to purchase 400,000 shares of the Company's Common Stock on
January 28, 1998 at an exercise price of $5.063 per share, which options vest
at the rate of 1/8th of the shares on the sixth-month anniversary of the date
of grant and 1/48th of the shares each month thereafter. In addition, Mr.
Hays purchased 100,000 shares of the Company's Common Stock at a purchase
price of $0.01 per share. Such shares are subject to a repurchase option in
favor of the Company in the event Mr. Hays ceases to be an employee of the
Company. Such repurchase option will lapse in full in a single installment on
January 19, 2001 provided that Mr. Hays is employed by the Company on such
date. Mr. Hays did not participate in the Human Resources Committee's
determination of his salary or the determination of options granted to him.
CHANGE OF CONTROL AGREEMENTS
In 1997, the Board of Directors authorized the entering into by the
Company of Change of Control Agreements with its executive officers (the "Change
of Control Agreements"). The Change of Control Agreements, as amended in 1998,
provide that if, within two years of a Change of Control of the Company (as
defined below), an executive officer is terminated other than for cause or
resigns as a result of certain actions by the Company (such as a demotion or
reduction in pay), then the executive officer shall receive: (1) a certain
percent of the Target Incentive Award (as such term is defined below) based on
the date of the termination, (2) a lump sum equal to two times the sum of the
executive officer's base annual salary plus the Target Incentive Award, (3)
continuation of health, dental and life insurance benefits for two years, (4)
full acceleration of vesting of options or shares of restricted stock held by
the executive officer and (5) certain outplacement and career counseling
services. For purposes of the Change of Control Agreements, a Change of Control
of the Company means (1) a transaction or series of transactions that results in
any person acquiring more than 25% of the Company's voting stock, (2) the
departure of two or more incumbent directors where such directors' replacements
are not unanimously approved by the Company's Board of Directors, (3) certain
shareholder-approved mergers and consolidations and (4) the liquidation or
dissolution of the Company. For purposes of the Change of Control Agreements,
the Target Incentive Award equals the base salary of the executive officer in
question multiplied by the maximum potential bonus percentage for such officer
under the Company's incentive compensation plan.
HUMAN RESOURCES COMMITTEE
Richard L. Goode
Philip S. Schlein
Rodney Perkins, M.D.
STOCK AND OPTION COMMITEE
Eugene Kleiner
Philip S. Schlein
A-8
<PAGE>
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are currently no employee directors serving on the Human
Resources Committee of the Company's Board of Directors. The following
non-employee directors currently serve on the Human Resources Committee: Philip
S. Schlein, Richard L. Goode, M.D. and Rodney Perkins, M.D.
Dr. Rodney Perkins is currently the Chairman of the Board of Directors
of the Company and also served as the Company's President and Chief Executive
Officer from 1984 to July 1988. In 1998 and for the first three months of 1999,
the Company paid Dr. Perkins $48,000 and $12,000, respectively, related to
consulting services beyond his current responsibilities as Chairman of the Board
of Directors. On January 28, 1998, the Stock and Option Committee of the
Company's Board of Directors granted Dr. Perkins an option to purchase 25,000
shares of the Company's Common Stock pursuant to the Company's 1988 Stock Option
Plan, as amended. This option is subject to vesting over a four-year period
beginning on January 1, 1998, with 1/8th of the shares subject to the option
vesting at the end of six months from that date and 1/48th of the total number
of shares vesting at the end of each month thereafter. On October 23, 1998, the
Human Resources Committee of the Company's Board of Directors granted Dr.
Perkins an option to purchase 25,000 shares of the Company's Common Stock
pursuant to the Company's 1997 Stock Plan. This option is subject to vesting
over a four-year period beginning on January 1, 1999, with 1/8th of the shares
subject to the option vesting at the end of six months from that date and 1/48th
of the total number of shares vesting at the end of each month thereafter. Dr.
Perkins is also President of the California Ear Institute at Stanford ("CEI"), a
medical clinic specializing in the diagnosis and treatment of hearing disorders
that served as a site for clinical trials of the Company's products. In 1998,
the Company had net sales of approximately $149,000 to CEI, representing an
immaterial percentage of the Company's total net sales in 1998. At March 31,
1999, accounts receivable from CEI were approximately $30,200, representing an
immaterial percentage of the Company's accounts receivable balance at March 31,
1999. In addition, Dr. Perkins is President and Chief Executive Officer of
SoundPort Corporation ("SoundPort"), a company specializing in the development
and sale of implantable hearing enhancement devices ("IHEDs"). Pursuant to a
License Agreement entered into as of February 21, 1997, the Company granted to
SoundPort exclusive, royalty-free, worldwide licenses to use certain Company
technology for the development and sale of IHEDs. In consideration of these
licenses, SoundPort has issued to the Company 975,000 shares of Series A
Preferred Stock and a warrant which permits the Company to maintain its equity
interest in SoundPort at certain specified levels. Dr. Perkins is a member of
the Human Resources Committee of the Board of Directors of Laserscope, a
surgical systems company. The Company and Laserscope have not conducted any
business with each other in the past, and the Company does not presently
anticipate doing so in the future.
A-9
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation received by the Company's
Chief Executive Officer and the four other most highly compensated executive
officers of the Company whose total annual salary and bonus exceeded $100,000
for 1998, and, where relevant, the compensation received by each such individual
for the two prior years. In addition, the following table shows the compensation
received by the Company's former Chief Executive Officer and two other former
executive officers whose total annual salary and bonus would have exceeded
$100,000 for 1998 had they remained employed by the Company, and the
compensation received by each such individual for the two prior years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
NAME AND PRINCIPAL ---------------------------------------- OTHER UNDERLYING
POSITION YEAR SALARY($)(1) BONUS($)(2)(3) COMPENSATION(#) OPTIONS (SHARES)(4)
-------- ---- ------------ -------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Russell D. Hays(5)............. 1998 320,385 -- 209,054(6) 400,000
President and Chief
Executive Officer
Peter Riepenhausen(7).......... 1998 42,327 -- 328,611(8) --
Former President and Chief 1997 341,919 -- 2,112 550,000
Executive Officer 1996 322,893 -- -- 50,000
Laureen DeBuono(9)............. 1998 63,462 157,450(10) 246,000(11) 256,250
Executive Vice President and
Chief Operating Officer
John H. Giroux................. 1998 199,770 67,108 7,338(12)
Senior Vice President and 1997 185,011 -- 7,200(13) 106,771
President, ReSound North America 1996 169,483 25,000 -- 25,000
Chaslav V. Pavlovic............ 1998 165,786 15,000 -- --
Vice President, Research and 1997 156,744 -- -- 76,750
Development 1996 146,225 -- -- 17,750
Peter Nolan.................... 1998 146,913 13,517 42,570(14) 42,500
Senior Vice President, Worldwide 1997 141,831 15,331 13,763(15) 47,750
Operations 1996 130,370 44,644 14,620 (16) 17,750
Andreas Joder(17).............. 1998 192,200 20,400 9,152(18) --
Former Senior Vice President 1997 196,784 -- 6,268(19) 100,000
Operations 1996(20) 133,980 -- -- --
Stephan Becker -Vogt(21)....... 1998 221,806 -- 400,000(22)
former Senior Vice President and 1997 205,376 -- 13,526(23) 156,250
Executive Vice President of 1996 219,371 -- -- 25,000
ReSound Europe
</TABLE>
- ------------
(1) Includes amounts deferred under the Company's 401(k) plan.
(2) Includes bonuses earned in the indicated year and paid in the subsequent
year. Excludes bonuses paid in the indicated year but earned in the
preceding year.
(3) Executive officers are entitled to discretionary bonuses based on
individual and corporate performance. These bonuses are determined based
upon the recommendation of the Human Resources Committee of the Board of
Directors.
(4) Options were granted under the Company's 1988 Stock Option Plan. Data for
1997 includes options reissued pursuant to a repricing of certain of the
Company's outstanding options.
A-10
<PAGE>
(5) Mr. Hays commenced employment with the Company in February 1998.
(6) Mr. Hays received a relocation adjustment of $209,054 in 1998.
(7) Mr. Riepenhausen resigned from the Company effective as of February 2,
1998.
(8) Mr. Riepenhausen received severance payments totaling $328,611 in 1998 in
partial satisfaction of the Company's severance obligations to Mr.
Riepenhausen.
(9) Ms. DeBuono commenced employment with the Company in October 1998.
(10) Consists of a signing bonus paid to Ms. DeBuono.
(11) Ms. DeBuono received consulting fees totaling $246,000 in 1998 prior to
commencing employment with the Company.
(12) Mr. Giroux received a $7,338 car allowance in 1998.
(13) Mr. Giroux received a $7,200 car allowance in 1997.
(14) Mr. Nolan received a $19,864 car allowance and a $22,706 relocation
adjustment in 1998.
(15) Mr. Nolan received a $13,763 car allowance in 1997.
(16) Mr. Nolan received a $14,620 car allowance in 1996.
(17) Mr. Joder resigned from the Company in October, 1998.
(18) Mr. Joder received a $9,152 car allowance in 1998.
(19) Mr. Joder received a $6,268 car allowance in 1997.
(20) Mr. Joder commenced employment with the Company in April 1996.
(21) Mr. Becker-Vogt resigned as Senior Vice President and Executive Vice
President of ReSound Europe in December 1998.
(22) Mr. Becker-Vogt received a $400,000 severance payment in December 1998.
(23) Mr. Becker-Vogt received a $13,526 car allowance in 1997.
(24) In addition to a stock option, Mr. Hays was also granted the right to
purchase 100,000 shares of the Company's Common Stock at a purchase price
at $0.01 per share. Based on the closing market price of the Company's
Common Stock on the date Mr. Hays was granted this right to purchase,
these shares had a value of approximately $543,000. Such shares are
subject to a repurchase option in favor of the Company in the event Mr.
Hays ceases to be an employee of the Company. Such repurchase option will
lapse in full on January 19, 2001 provided that Mr. Hays is employed by
the Company on that date. Mr. Hays' restricted stock grant represents all
of the restricted stock holdings as of December 31, 1998.
A-11
<PAGE>
STOCK OPTION GRANTS IN 1998
The following table sets forth information for the executive officers
named in the Summary Compensation Table with respect to grants of options to
purchase Common Stock of the Company made in 1998.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF STOCK PRICE
UNDERLYING TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (SHARES) FISCAL YEAR(1) (PER SHARE) DATE 5%($) 10%($)
- ---- ---------- -------------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Russell D. Hays.............. 400,000 29.8% $5.06 1/28/03 $445,960 $962,339
Peter Riepenhausen........... -- -- -- -- -- --
Laureen DeBuono.............. 6,250 0.5% $6.50 5/21/03 $9,701 $21,101
250,000 18.6% $5.41 10/23/03 $357,803 $786,833
Chaslov V. Pavlovic.......... -- -- -- -- -- --
John H. Giroux............... -- -- -- -- -- --
Peter Nolan.................. 7,500 0.6% $5.00 7/23/03 $9,348 $20,423
35,000 2.6% $5.41 10/23/03 $50,092 $110,157
Andreas Joder................ -- -- -- -- -- --
Stephan Becker-Vogt.......... -- -- -- -- -- --
</TABLE>
- ----------
(1) The Company granted options to employees to purchase an aggregate of
1,394,323 shares of Common Stock during 1998.
(2) Potential realizable values are reported net of the option exercise price
but before taxes associated with exercise. These amounts represent certain
assumed rates of appreciation only. Actual realized gains, if any, on
stock option exercises are dependent on future performance of the
Company's Common Stock, as well as the optionee's continued employment
through the vesting period.
A-12
<PAGE>
AGGREGATED OPTION EXERCISES IN 1998
AND YEAR-END OPTION VALUES
The following table sets forth information for the executive officers named
in the Summary Compensation Table with respect to exercises in 1998 of options
to purchase Common Stock of the Company.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY
SECURITIES UNDERLYING OPTIONS
NUMBER OF UNEXERCISED OPTIONS AT FISCAL YEAR
SHARES AT FISCAL YEAR END END($)
ACQUIRED ON VALUE (EXERCISABLE/ (EXERCISABLE/
NAME EXERCISE REALIZED($)(1) UNEXERCISABLE) UNEXERCISABLE)(2)
- ---- -------- -------------- -------------- -----------------
<S> <C> <C> <C> <C>
Russell D. Hays................. -- -- 91,665/308,333 --
Peter Riepenhausen.............. -- -- 437,499/112,500 --
Laureen DeBuono................. -- -- 16,666/239,584 --
John H. Giroux.................. -- -- 69,477/37,919 2,031/--
Chaslav V. Pavlovic............. -- -- 51,790/24,959 --
Peter Nolan..................... -- -- 38,394/126,856 --
Andreas Joder................... -- -- 47,916/52,083 --
Stephan Becker-Vogt............. -- -- 104,303/51,945 --
</TABLE>
- ----------
(1) Value realized is calculated based on the closing price of the Company's
Common Stock as reported on the Nasdaq Stock Market on the date of exercise
minus the exercise price of the option, and does not necessarily indicate
that the optionee sold such stock.
(2) Based on the closing price of the Company's Common Stock as reported on the
Nasdaq Stock Market on December 31, 1998 of $3.75 per share.
A-13
<PAGE>
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the
Company's Common Stock as of December 31, 1998 as to (i) each person who is
known by the Company to beneficially own more than five percent of the Company's
Common Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table under Item 11 and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
5% SHAREHOLDERS, DIRECTORS, ----------------------
NAMED EXECUTIVE OFFICERS PERCENT OF
AND DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP NUMBER TOTAL
- ----------------------------------------------- ----------- ----------
<S> <C> <C>
Rockefeller & Company, Inc.................... 1,571,670 7.6%
30 Rockefeller Plaza, 54th Floor
New York, NY 10112
T. Rowe Price Associates (2).................. 1,146,116 5.5%
100 E. Pratt Street
Baltimore, MD 21202
Heartland Advisors, Inc....................... 1,551,700 7.5%
790 North Milwaukee Street
Milwaukee, WI 53202
Stephan Becker-Vogt (3)....................... 155,131 *
Laureen DeBuono(3)............................ 27,083 *
Michael P. Downey............................. 2,500 *
John H. Giroux (3)............................ 81,554 *
Richard L. Goode, M.D. (3)(4)................. 42,182 *
Russell D. Hays (3)........................... 208,332 1.0%
Andreas Joder (3)............................. 53,647 *
Eugene Kleiner (3)(4)(5)...................... 467,563 2.2%
Peter Nolan(3)................................ 31,279 *
Chaslav V. Pavlovic(3)........................ 56,816 *
Rodney Perkins, M.D. (3)(4)(6)................ 822,080 3.9%
Peter Riepenhausen (3)(4)(7).................. 615,832 2.9%
Philip S. Schlein (3)(8)...................... 24,250 *
Robert C. Wilson (3)(4)....................... 146,521 *
All directors and executive officers as a group
(16 persons)(3)(5)(6)(7)(8)................. 2,784,349 13.4%
</TABLE>
- ----------
* Less than 1%.
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in this table have
sole voting and investment power with respect to all shares of Common
Stock. The percent of total is calculated based upon 20,737,396 shares of
Common Stock outstanding on December 31, 1998.
(2) These securities are owned by various individual and institutional
investors for which T. Rowe Price Associates, Inc. ("Price Associates")
serves as investment adviser with power to direct investments, power to
vote the shares or both. Price Associates is deemed to be a beneficial
owner of such shares; however, Price Associates expressly disclaims
beneficial ownership of such shares.
A-14
<PAGE>
(3) Includes with respect to each named person the following number of shares
subject to stock options that are exercisable within 60 days of December
31, 1998: Mr. Becker-Vogt, 111,789; Ms. DeBuono, 27,083; Mr. Downey, 2,500;
Mr. Giroux, 76,218; Mr. Goode, 12,813; Mr. Hays, 108,332; Mr. Joder,
53,647; Mr. Kleiner, 17,500; Mr. Nolan, 31,279; Mr. Pavlovic, 55,049; Dr.
Perkins, 80,290; Mr. Riepenhausen, 522,917; Mr. Schlein, 21,250; and Mr.
Wilson, 60,312.
(4) Includes 17,582 shares subject to a warrant exercisable within 60 days of
December 31, 1998.
(5) Includes 5,000 shares held by the Eugene and Rose Kleiner Trust.
(6) Includes 114,333 shares held by Dr. Perkins as trustee of the Wayne Calvin
Perkins Trust.
(7) Includes 42,625 shares held by Peter Riepenhausen and Waltraud
Riepenhausen, as trustees of the Riepenhausen Family Trust. Mr.
Riepenhausen resigned from the position of President and Chief Executive
Officer effective February 2, 1998.
(8) Includes 3,000 shares held by M. Maher, W. Bowes, Jr., and Mr. Schlein,
Trustee, Presidio Management Group Profit Sharing and 401(k) Savings Plan.
(9) Includes an aggregate of 87,910 shares subject to the warrants described in
footnote (4) held by Dr. Goode, Mr. Kleiner, Dr. Perkins, Mr. Riepenhausen
and Mr. Wilson.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Commencing in April 1997, the Company entered into Change of Control
Agreements with each of its then-current executive officers (the "Change of
Control Agreements") which, as amended in 1998, provide for certain payments and
benefits in the event of certain terminations following a Change of Control. See
"Change of Control Agreements."
In October 1995, the Company borrowed $1.7 million under a guaranteed
loan from Silicon Valley Bank. This loan was repaid in full in October 1996.
Such loan was guaranteed by six of the Company's directors at the time it was
entered into: Drs. Goode and Perkins, James J. Gallogly and Messrs. Kleiner,
Riepenhausen and Wilson. In connection with their agreement to execute and
deliver personal guarantees to Silicon Valley Bank with respect to this loan,
the Company issued warrants to purchase an aggregate of 105,492 shares of Common
Stock to the six directors who executed such guarantees at an initial exercise
price of $8.13 per share, exercisable immediately, expiring December 1, 2000.
The Company has entered into indemnification agreements with each of
its directors and executive officers which may require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers, to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' liability insurance if
available on reasonable terms.
Dr. Rodney Perkins is currently the Chairman of the Board of Directors
of the Company and also served as the Company's President and Chief Executive
Officer from 1984 to July 1988. In 1998 and for the first three months of 1999,
the Company paid Dr. Perkins $48,000 and $12,000, respectively, related to
consulting services beyond his current responsibilities as Chairman of the Board
of Directors. On January 28, 1998, the Stock and Option Committee of the
Company's Board of Directors granted Dr. Perkins an option to purchase 25,000
shares of the Company's Common Stock pursuant to the Company's 1988 Stock Option
Plan, as amended. This option is subject to vesting over a four-year period
beginning on January 1, 1998, with 1/8th of the shares subject to the option
vesting at the end of six months from that date and 1/48th of the total number
of shares vesting at the end of each month thereafter. On October 23, 1998, the
Human Resources Committee of the Company's Board of Directors granted Dr.
Perkins an option to purchase 25,000 shares of the Company's Common Stock
pursuant to the
A-15
<PAGE>
Company's 1997 Stock Plan. This option is subject to vesting over a four-year
period beginning on January 1, 1999, with 1/8th of the shares subject to the
option vesting at the end of six months from that date and 1/48th of the total
number of shares vesting at the end of each month thereafter. Dr. Perkins is
also President of the California Ear Institute at Stanford ("CEI"), a medical
clinic specializing in the diagnosis and treatment of hearing disorders that
served as a site for clinical trials of the Company's products. In 1998, the
Company had net sales of approximately $149,000 to CEI, representing an
immaterial percentage of the Company's total net sales in 1998. At March 31,
1999, accounts receivable from CEI were approximately $30,200, representing an
immaterial percentage of the Company's accounts receivable balance at March 31,
1999. In addition, Dr. Perkins is President and Chief Executive Officer of
SoundPort Corporation ("SoundPort"), a company specializing in the development
and sale of implantable hearing enhancement devices ("IHEDs"). Pursuant to a
License Agreement entered into as of February 21, 1997, the Company granted to
SoundPort exclusive, royalty-free, worldwide licenses to use certain Company
technology for the development and sale of IHEDs. In consideration of these
licenses, SoundPort has issued to the Company 975,000 shares of Series A
Preferred Stock and a warrant which permits the Company to maintain its equity
interest in SoundPort at certain specified levels. Dr. Perkins is a member of
the Human Resources Committee of the Board of Directors of Laserscope, a
surgical systems company. The Company and Laserscope have not conducted any
business with each other in the past, and the Company does not presently
anticipate doing so in the future.
A-16
<PAGE>
PERFORMANCE GRAPH
The following graph summarizes cumulative total shareholder return data
(assuming reinvestment of dividends) for the period beginning on December 31,
1993 and ending on December 31, 1998. The graph assumes that $100 was invested
on December 31, 1993: (i) in the Common Stock of ReSound, (ii) in the Nasdaq
Market Index and (iii) in the MG Medical Appliances/Equipment Index (all such
information provided by Media General Financial Services, Inc.). The stock price
performance on the following graph is not necessarily indicative of future stock
price performance.
<TABLE>
<CAPTION>
- ----------------- ----------- ----------- ---------- ---------- ----------- -----------
1993 1994 1995 1996 1997 1998
- ----------------- ----------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ReSound 100.00 49.69 36.48 35.85 27.67 18.87
- ----------------- ----------- ----------- ---------- ---------- ----------- -----------
Market Index 100.00 104.99 136.18 169.23 207.00 291.96
- ----------------- ----------- ----------- ---------- ---------- ----------- -----------
Industry 100.00 111.17 190.27 200.05 245.72 308.32
- ----------------- ----------- ----------- ---------- ---------- ----------- -----------
</TABLE>
A-17
<PAGE>
ANNEX B
BancBoston Robertson Stephens Inc.
Floor 36
590 Madison Avenue
New York, NY 10022
212-319-8900
[BancBoston Robertson Stephens logo]
May 5, 1999
Board of Directors
ReSound Corporation
220 Saginaw Drive
Seaport Centre
Redwood City, CA 94063
Members of the Board:
We understand that ReSound Corporation (the "Company"), GN Great Nordic
("Acquiror") and GN Great Nordic Merger Sub, a wholly owned subsidiary of
Acquiror ("Merger Subsidiary") are proposing to enter into an Agreement and Plan
of Merger (the "Agreement") which will provide for, among other things, the
Offer and the Merger (as such terms are defined below). Under the terms, and
subject to the conditions, set forth in the Agreement, (i) Merger Subsidiary
shall commence a tender offer (the "Offer") to purchase all of the outstanding
shares (the "Shares") of the Company's common stock, $0.01 par value, at a price
of $8.00 per Share, net to the seller in cash, and (ii) following the Offer,
Merger Subsidiary will be merged with and into the Company (the "Merger").
Pursuant to the Merger, the Company will become a wholly owned subsidiary of
Acquiror and each Share, other than Shares held in treasury or owned by Acquiror
or any of its subsidiaries or as to which dissenters' rights have been properly
exercised ("Dissenting Shares"), shall be converted into the right to receive
$8.00 in cash or any higher price paid for each Share in the Offer, without
interest. The terms and conditions of the Offer and the Merger are set out more
fully in the Agreement.
You have asked us whether, in our opinion, the cash consideration to be paid in
the Offer and the Merger is fair from a financial point of view and as of the
date hereof to the "Holders of Shares." The Holders of Shares shall be defined
as all holders of Shares other than Acquiror, Merger Subsidiary, any affiliates
of Acquiror or Merger Subsidiary or any holders of Dissenting Shares.
For purposes of this opinion we have, among other things:
(i) reviewed certain publicly available financial statements and
other business and financial information of the Company,
including the Company's press release of April 21, 1999
relating to the Company's financial results for the first
quarter of 1999;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared
by the Company's management;
(iii) reviewed certain financial forecasts and other forward looking
financial information prepared by the Company's management;
(iv) held discussions with the management of the Company concerning
the business, past and current operations, financial condition
and future prospects of the Company;
<PAGE>
(v) reviewed the financial terms and conditions set forth in the
Agreement;
(vi) reviewed the stock price and trading history of the Company;
(vii) compared the financial performance of the Company and the
prices and trading activity of the Shares with those of
certain other publicly traded companies comparable with the
Company;
(viii) compared the financial terms of the Offer and the Merger with
the financial terms, to the extent publicly available, of
other transactions that we deemed relevant;
(ix) prepared a discounted cash flow analysis of the Company;
(x) participated in discussions and negotiations among
representatives of the Company and Acquiror and their
financial and legal advisors; and
(xi) made such other studies and inquiries, and took into account
such other matters as we deemed relevant, including our
assessment of general economic, market and monetary
conditions.
In our review and analysis, and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by the Company's management) or publicly available
and have neither attempted to verify, nor assumed responsibility for verifying,
any of such information. We have relied upon the assurances of the Company's
management that it is not aware of any facts that would make such information
inaccurate or misleading. Furthermore, we did not obtain or make, or assume any
responsibility for assuming or making, any independent evaluation or appraisal
of the properties, assets or liabilities (contingent or otherwise) of the
Company, nor were we furnished with any such evaluation or appraisal. With
respect to the financial forecasts and projections (and the assumptions and
bases therefor) for the Company that we have reviewed, upon the advice of the
Company's management, we have assumed that such forecasts and projections have
been reasonably prepared in good faith on the basis of reasonable assumptions
and reflect the best currently available estimates and judgments as to the
future financial condition and performance of the Company, and we have further
assumed that such projections and forecasts will be realized in the amounts and
in the time periods currently estimated. We have assumed that the Offer and the
Merger will be consummated upon the terms set forth in the Draft Agreement
without material alteration thereof. In addition, we have assumed that the
historical financial statements of the Company reviewed by us have been prepared
and fairly presented in accordance with U.S. generally accepted accounting
principles consistently applied. We have relied as to all legal matters relevant
to rendering our opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other conditions as
in effect on, and information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect the conclusion
expressed in this opinion and that we disclaim any undertaking or obligation to
advise any person of any change in any matter affecting this opinion which may
come or be brought to our attention after the date of this opinion. Our opinion
is limited to the fairness, from a financial point of view and as of the date
hereof, to the Holders of Shares of the cash consideration to be paid in the
Offer and the Merger. We do not express any opinion as to (i) the value of any
employee agreement or other arrangement entered into in connection with the
Offer and the Merger or (ii) any tax or other consequences that might result
from the Offer and the Merger. Our opinion does not address the relative merits
of the Offer and the Merger and the other business strategies that the Company's
Board of Directors has considered or may be considering, nor does it address the
decision of the Company's Board of Directors to proceed with the Offer and the
Merger.
<PAGE>
We are acting as financial advisor to the Company in connection with the Offer
and the Merger and will receive (i) a fee contingent upon the delivery of this
opinion and (ii) an additional fee contingent upon the consummation of the
Merger. In addition, the Company has agreed to indemnify us for certain
liabilities that may arise out of the rendering of this opinion. In the past, a
foreign affiliate of ours has provided certain investment banking services to
Acquiror from time to time in the technology sector for which it has been paid
fees, including acting as exclusive financial advisor to Acquiror in connection
with its acquisition of Fastware S.A. in October of 1998. In addition, such
foreign affiliate is currently providing advisory services to a subsidiary of
Acquiror in connection with one or more opportunities in the technology sector
that such subsidiary may consider that are unrelated to the Offer and the
Merger. In the ordinary course of business, we may trade in the Company's
securities and Acquiror's securities for our own account and the account of our
customers and, accordingly, may at any time hold a long or short position in the
Company's securities or Acquiror's securities.
Our opinion expressed herein is provided for the information of the Board of
Directors of the Company in connection with its evaluation of the Offer and the
Merger. Our opinion is not intended to be and does not constitute a
recommendation to any Holder of Shares whether or not to tender his/her Shares
in the Offer or, if required, how to vote, or whether or not to take any other
action, with respect to the Offer or the Merger. This opinion may not be
summarized, described or referred to or furnished to any party except with our
express prior written consent.
Based upon and subject to the foregoing considerations, it is our opinion that,
as of the date hereof, the cash consideration to be paid in the Offer and the
Merger is fair to the Holders of Shares from a financial point of view.
Very truly yours,
BANCBOSTON ROBERTSON STEPHENS INC.
/S/ BANCBOSTON ROBERTSON STEPHENS INC.
--------------------------------------
<PAGE>
EXHIBIT INDEX
Exhibit 1 Form of Offer to Purchase, dated May 14, 1999 (incorporated by
reference to Exhibit (a)(1) to Parent and Purchasers' Tender
Offer Statement on Schedule 14D-1 dated May 14, 1999, as
amended (the "Schedule 14D-1")).
Exhibit 2 Form of Letter of Transmittal (incorporated by reference to
Exhibit (a)(2) to the Schedule 14D-1).
Exhibit 3 Agreement and Plan of Merger, dated as of May 10, 1999, among
the Company, Parent and Purchaser (incorporated by reference
to Exhibit (c)(1) to the Schedule 14D-1).
Exhibit 4 Stock Option Agreement, dated as of May 10, 1999, among the
Company, Parent and Purchaser (incorporated by reference to
Exhibit (c)(2) to the Schedule 14D-1).
Exhibit 5 Opinion of BancBoston Robertson Stephens Inc., dated May 5,
1999 (incorporated by reference to Annex B of this Schedule
14D-9).*
Exhibit 6 Letter to Shareholders of the Company dated May 14, 1999.*
Exhibit 7 Form of Directors' and Officers' Indemnification Agreement.
(A)
Exhibit 8 Contract Consulting Agreement dated July 25, 1996 with Dr.
Rodney Perkins. (B)
Exhibit 9 Contract Consulting Agreement dated July 25, 1996 with Dr.
Richard L. Goode. (B)
Exhibit 10 Change of Control Agreement. (C)
Exhibit 11 Amended and Restated Change of Control Agreement. (D)
Exhibit 12 Consulting Agreement dated January 1, 1999 with Dr. Rodney
Perkins. (E)
Exhibit 13 Form of Letter Regarding Change of Control Agreements
(incorporated by reference to Exhibit (c)(3) to the Schedule
14D-1).
ANNEX A INFORMATION STATEMENT *
ANNEX B OPINION OF BANCBOSTON ROBERTSON STEPHENS INC. *
- ---------
* Included with Schedule 14D-9 mailed to shareholders.
(A) Incorporated by reference to exhibits filed in response to Item 16(a),
"Exhibits," of the Company's Registration Statement on Form S-1 and
Amendment No. 1, Amendment No. 2 and Amendment No. 3 thereto (File No.
33-46527), which became effective on March 4, 1993.
(B) Incorporated by reference to exhibits filed in response to Item 14,
"Exhibits, Financial Statement Schedules and Reports on Form 8-K" of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
(C) Incorporated by reference to exhibits filed in response to Item 14,
"Exhibits and Reports on Form 8-K" of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1997.
(D) Incorporated by reference to exhibits filed in response to Item 14,
"Exhibits and Reports on Form 8-K" of the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 26, 1998.
<PAGE>
(E) Incorporated by reference to exhibits filed in response to Item 14,
"Exhibits, Financial Statement Schedules and Reports on Form 8-K," of
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
-2-
<PAGE>
Exhibit 6
[Company Logo]
May 14, 1999
To Our Shareholders:
I am pleased to inform you that on May 10, 1999, ReSound Corporation
(the "Company") entered into an Agreement and Plan of Merger with GN Great
Nordic Ltd. and GN Acquisition Corporation, an indirect wholly-owned subsidiary
of GN Great Nordic Ltd. Under the Agreement, GN Acquisition Corporation has
commenced a cash tender offer to purchase all of the outstanding shares of the
Company's Common Stock for $8.00 per share. The Offer will be followed by a
Merger in which any remaining shares of the Company's Common Stock will be
converted into the right to receive $8.00 per share in cash, without interest.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT
EACH OF THE OFFER, THE MERGER AND THE STOCK OPTION AGREEMENT DESCRIBED HEREIN IS
FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS, HAS
APPROVED THE OFFER, THE MERGER AND THE STOCK OPTION AGREEMENT AND RECOMMENDS
THAT THE COMPANY'S SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES
PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors, which are described in the attached
Schedule 14D-9 that has been filed today with the Securities and Exchange
Commission. These factors include, among other things, the written opinion dated
May 5, 1999 of BancBoston Robertson Stephens Inc., the Company's financial
advisor, that, as of such date and based upon and subject to the matters set
forth therein, the $8.00 in cash to be paid in the Offer and the Merger was fair
from a financial point of view to the shareholders of the Company.
In addition to the attached Schedule 14D-9 relating to the Offer, also
enclosed is the Offer to Purchase, dated May 14, 1999, of GN Acquisition
Corporation, together with related materials to be used for tendering your
shares. These documents set forth the terms and conditions of the Offer and the
Merger and provide instructions as to how to tender your shares. I urge you to
read the enclosed materials carefully.
Sincerely,
/s/ Russell D. Hays
Russell D. Hays
President and Chief Executive Officer
