<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ECLIPSE SURGICAL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3845 77-0223470
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1049 KIEL COURT
SUNNYVALE, CA 94089
(408) 747-0120
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DOUGLAS MURPHY-CHUTORIAN, M.D.
CHAIRMAN & CHIEF EXECUTIVE OFFICER
1049 KIEL COURT
SUNNYVALE, CA 94089
(408) 747-0120
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JEFFREY D. SAPER, ESQ.
J. ROBERT SUFFOLETTA, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300 (TEL)
(650) 493-6811 (FAX)
BRUCE W. JENETT, ESQ.
HENRY LESSER, ESQ.
HELLER EHRMAN WHITE & MCAULIFFE
525 UNIVERSITY AVENUE
PALO ALTO, CALIFORNIA 94301
(650) 324-7000 (TEL)
(650) 324-0638 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
Upon Consummation of the Merger described herein.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [ ]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO TO BE PRICE OFFERING REGISTRATION
BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- -----------------------------------------------------------------------------------------------------------------------
Common Stock, no par value.......... 9,908,040 shares $12.375 $122,611,995 $287(3)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Represents the number of shares of the Common Stock of the Registrant which
may be issued to former stockholders of CardioGenesis Corporation pursuant
to the Merger described herein.
(2) Each share of CardioGenesis will be converted into 0.80 of a share of Common
Stock of the Registrant pursuant to the Merger described herein. Pursuant to
Rule 457(f) under the Securities Act of 1933, as amended, the registration
fee has been calculated as of February 5, 1999.
(3) The registration fee with respect to 9,824,861 shares of Common Stock in the
amount of $20,485 was previously paid pursuant to Section 14(g) of the
Securities Exchange Act of 1934, as amended, in connection with the filing
by the Registrant and CardioGenesis of a preliminary Joint Proxy
Statement/Prospectus related to the proposed Merger. The fee of $287 with
respect to the additional 83,179 shares being registered is being paid on
the date hereof.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[ECLIPSE LOGO]
TO THE SHAREHOLDERS OF
ECLIPSE SURGICAL TECHNOLOGIES, INC.
------------------------
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
------------------------
TO BE HELD ON
WEDNESDAY, MARCH 17, 1999
AT 9:00 A.M.
AT THE PRINCIPAL EXECUTIVE OFFICES OF ECLIPSE,
1049 KIEL COURT
SUNNYVALE, CALIFORNIA 94089
------------------------
The Board of Directors of Eclipse Surgical Technologies, Inc. asks you to attend
this important special meeting to vote on the following:
1. The approval of a reorganization agreement, pursuant to which a
subsidiary of Eclipse would be merged with and into CardioGenesis.
CardioGenesis would survive the transaction as a wholly-owned subsidiary of
Eclipse. In the merger, Eclipse will issue CardioGenesis stockholders 0.80
of a share of Eclipse common stock for each share of CardioGenesis common
stock. In order to effect this transaction, Eclipse shareholders will have
to approve the principal terms of the reorganization including the issuance
of shares of Eclipse common stock to the stockholders of CardioGenesis.
2. Any other business as may properly come before the special meeting
or any postponement or adjournment thereof.
Your Board of Directors, after careful consideration, has determined that the
reorganization proposal is in your best interests and recommends that you vote
to approve this proposal at the special meeting.
Only shareholders who held their shares of Eclipse common stock at the close of
business on February 8, 1999 will be entitled to notice of, and to vote at, the
special meeting or any adjournments or postponements. The merger cannot be
completed unless the holders of a majority of the shares outstanding on the
record date affirmatively vote to approve the reorganization.
Accompanying this notice is a Joint Proxy Statement/Prospectus discussing in
detail the proposed merger and the related reorganization agreement. We
encourage you to read this document carefully. Also enclosed is a proxy card so
you can vote on the reorganization proposal without attending the special
meeting. Please complete, sign and date the enclosed proxy card and return it to
us as soon as possible in the stamped envelope we have provided. If you decide
to come to the special meeting, you may vote your shares in person whether or
not you have mailed us a proxy. You may also revoke your proxy at any time
before the special meeting in writing.
For the Board of Directors,
/s/ DOUGLAS MURPHY-CHUTORIAN
Douglas Murphy-Chutorian, M.D.
Chairman of the Board and
Chief Executive Officer
Sunnyvale, California
February 9, 1999
<PAGE> 3
[CARDIOGENESIS LOGO]
540 OAKMEAD PARKWAY
SUNNYVALE, CALIFORNIA 94086
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 17, 1999
------------------------
TO THE STOCKHOLDERS OF CARDIOGENESIS CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"CardioGenesis Special Meeting") of CardioGenesis Corporation, a Delaware
corporation ("CardioGenesis"), will be held on Wednesday, March 17, 1999, at
9:00 a.m. local time, at the principal executive offices of CardioGenesis, 540
Oakmead Parkway, Sunnyvale, California 94086 to consider and vote upon the
following:
(1) A proposal to approve and adopt the Agreement and Plan of Reorganization
(the "Reorganization Agreement"), dated as of October 21, 1998, among
CardioGenesis, Eclipse Surgical Technologies, Inc., a California corporation
("Eclipse"), and RW Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of Eclipse ("Merger Sub"), and as contemplated
thereby, the merger of Merger Sub with and into CardioGenesis (the "Merger")
pursuant to which each share of Common Stock, $0.001 par value per share, of
CardioGenesis will be converted into the right to receive 0.80 of a share of
common stock, no par value per share, of Eclipse; and
(2) To transact such other business as may properly come before the
CardioGenesis Special Meeting or any adjournment thereof.
Only stockholders of record at the close of business on February 8, 1999 are
entitled to notice of, and to vote at, the CardioGenesis Special Meeting and any
adjournments thereof. A list of CardioGenesis stockholders entitled to vote at
the Special Meeting will be available for examination during ordinary business
hours at CardioGenesis' principal executive offices for ten days prior to the
CardioGenesis Special Meeting.
Approval and adoption of the Reorganization Agreement and approval of the Merger
will require the affirmative vote of the holders of at least a majority of the
shares of CardioGenesis Common Stock outstanding on the record date. A form of
proxy and the Joint Proxy Statement/Prospectus accompanying this Notice contain
more detailed information with respect to the matters to be considered at the
Special Meeting.
You are cordially invited to attend the CardioGenesis Special Meeting in person,
but if you are unable to do so, please complete, sign, date and promptly return
the enclosed proxy in the enclosed envelope. If you attend the CardioGenesis
Special Meeting and desire to revoke your proxy and vote in person, you may do
so. A proxy may be revoked at any time before it is voted.
THE CARDIOGENESIS BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ABOVE PROPOSAL.
By Order of the Board of Directors,
/s/ RICHARD P. POWERS
Richard P. Powers
Secretary
Sunnyvale, California
February 9, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE CARDIOGENESIS SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE
AFFIXED IF THE PROXY IS MAILED IN THE UNITED STATES.
<PAGE> 4
JOINT PROXY STATEMENT/PROSPECTUS
<TABLE>
<S> <C>
PROXY STATEMENT/PROSPECTUS PROXY STATEMENT
OF OF
ECLIPSE SURGICAL CARDIOGENESIS
TECHNOLOGIES, INC. CORPORATION
</TABLE>
The Eclipse Surgical Technologies, Inc. and CardioGenesis Corporation boards of
directors have approved a reorganization agreement that would merge
CardioGenesis with a subsidiary of Eclipse. Upon the completion of the merger,
each CardioGenesis stockholder will receive 0.80 of a share of Eclipse common
stock for each share of CardioGenesis common stock held by such stockholder.
Eclipse common stock trades on the Nasdaq National Market under the symbol ESTI.
CardioGenesis common stock trades on the Nasdaq National Market under the symbol
CGCP.
A total of approximately 9,908,040 shares of Eclipse common stock are expected
to be issued in the merger.
The Eclipse and CardioGenesis boards of directors have each called special
meetings for their shareholders to vote on matters relating to the merger.
You may vote at your special meeting if you own shares of Eclipse or
CardioGenesis as of the close of business on February 8, 1999. The dates, times
and places of these special meetings are as follows:
<TABLE>
<S> <C>
FOR ECLIPSE SHAREHOLDERS: FOR CARDIOGENESIS STOCKHOLDERS:
Wednesday, March 17, 1999 Wednesday, March 17, 1999
9:00 a.m. local time 9:00 a.m. local time
1049 Kiel Court 540 Oakmead Parkway
Sunnyvale, CA 94089 Sunnyvale, CA 94089
</TABLE>
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS JOINT PROXY
STATEMENT/PROSPECTUS, INCLUDING THE "RISK FACTORS" SECTION BEGINNING ON PAGE 12.
THE "RISK FACTORS" SECTION DESCRIBES RISKS THAT YOU SHOULD CONSIDER IN
DETERMINING WHETHER TO APPROVE THE PROPOSALS AT THE ECLIPSE AND CARDIOGENESIS
SPECIAL MEETINGS.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of this joint proxy statement/prospectus. Any
representation to the contrary is a criminal offense.
------------------------
This joint proxy statement/prospectus is dated February 9, 1999 and is expected
to be first sent to Eclipse shareholders and CardioGenesis stockholders on
February 12, 1999.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY............................. 1
The Companies..................... 1
Our Reasons for the Merger........ 1
What CardioGenesis Stockholders
Will Receive in the Merger..... 2
Ownership of Eclipse Immediately
Following the Merger........... 2
Eclipse Shareholders' Meeting..... 2
CardioGenesis Stockholders'
Meeting........................ 3
Our Recommendation to Our
Shareholders................... 3
Record Date; Voting Power......... 3
Vote Required..................... 3
Voting Procedures................. 3
Exchange of Stock Certificates.... 4
Share Ownership of Management and
Certain Holders................ 4
Voting Agreements Signed by
Certain Shareholders........... 4
No Appraisal Rights............... 4
Markets and Market Prices......... 4
Federal Income Tax Consequences... 5
Opinions of PaineWebber and Bear
Stearns........................ 5
Interests of Certain Persons in
the Merger..................... 5
Conditions to the Merger.......... 5
Termination of the Reorganization
Agreement...................... 6
Expenses and Termination Fees..... 6
Expected Accounting Treatment..... 6
Regulatory Approvals.............. 6
Recent CardioGenesis Financial
Results........................ 6
Recent Eclipse Financial
Results........................ 7
Selected Historical and Selected
Pro Forma Combined Financial
Information.................... 8
Comparative Per Share Data........ 11
RISK FACTORS........................ 12
Risk Related to the Merger........ 12
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk Related to Business of
Eclipse and CardioGenesis...... 13
COMPARATIVE MARKET PRICE DATA....... 26
WHERE YOU CAN FIND MORE
INFORMATION....................... 27
INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE...................... 27
FORWARD-LOOKING STATEMENTS.......... 28
ECLIPSE SPECIAL MEETING............. 29
Date, Time and Place of Eclipse
Special Meeting................ 29
Purpose........................... 29
Record Date and Outstanding
Shares......................... 29
Vote Required and Voting Rights... 29
Proxies........................... 29
Solicitation of Proxies;
Expenses....................... 30
Independent Accountants........... 30
Recommendation of the Eclipse
Board.......................... 30
CARDIOGENESIS SPECIAL MEETING....... 31
Date, Time and Place of
CardioGenesis Special
Meeting........................ 31
Purpose........................... 31
Record Date and Outstanding
Shares......................... 31
Vote Required and Voting Rights... 31
Proxies........................... 31
Solicitation of Proxies;
Expenses....................... 32
Independent Accountants........... 32
Recommendation of the
CardioGenesis Board............ 33
APPROVAL OF THE MERGER AND RELATED
TRANSACTIONS...................... 34
Joint Reasons For the Merger...... 34
Eclipse's Additional Reasons For
the Merger..................... 35
CardioGenesis' Additional Reasons
For the Merger................. 36
Material Contacts and Board
Deliberations.................. 38
PaineWebber Opinion............... 41
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Bear Stearns Opinion.............. 48
Material Federal Income Tax
Consequences................... 53
Governmental and Regulatory
Approvals...................... 55
Expected Accounting Treatment..... 55
THE REORGANIZATION AGREEMENT AND
RELATED AGREEMENTS................ 56
Effective Time; Effect of
Merger......................... 56
Conversion of Shares.............. 56
Treatment of Options and Stock
Purchase Rights................ 57
Stock Ownership Immediately
Following the Merger........... 57
Representations and Warranties.... 58
Conduct of Eclipse's and
CardioGenesis' Business Prior
to the Merger.................. 58
No Solicitation................... 60
Board and Management of the
Combined Company Following the
Merger......................... 62
Conditions to the Merger.......... 62
Termination of the Reorganization
Agreement...................... 63
Termination Fees.................. 64
Voting Agreements................. 64
Affiliate Agreements.............. 65
Interests of Certain Persons...... 65
No Dissenters' or Appraisal
Rights......................... 66
COMPARISON OF CAPITAL STOCK......... 67
Description of Eclipse Capital
Stock.......................... 67
Description of CardioGenesis
Capital Stock.................. 68
Comparison of Rights of
Stockholders of CardioGenesis
and Shareholders of Eclipse.... 68
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ECLIPSE AND CARDIOGENESIS UNAUDITED
PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS.............. 79
CARDIOGENESIS BUSINESS.............. 84
CARDIOGENESIS MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................ 102
CARDIOGENESIS MANAGEMENT AND
EXECUTIVE COMPENSATION............ 110
Executive Officers and
Directors...................... 110
Executive Compensation............ 111
Summary Compensation Table........ 111
Option Grants in Last Fiscal
Year........................... 111
Aggregated Option Exercises in
Last Fiscal Year and Fiscal
Year-End Option Values......... 112
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
OF CARDIOGENESIS.................. 113
LEGAL MATTERS....................... 114
EXPERTS............................. 114
SHAREHOLDER PROPOSALS............... 115
OTHER MATTERS....................... 115
CARDIOGENESIS INDEX TO FINANCIAL
STATEMENTS........................ F-1
APPENDICES:
Reorganization Agreement.......... A-1
PaineWebber Opinion............... B-1
Bear Stearns Opinion.............. C-1
</TABLE>
ii
<PAGE> 7
SUMMARY
This summary highlights selected information found in greater detail elsewhere
in this joint proxy statement/prospectus. This summary does not contain all of
the information that is important to you. We urge you to read the entire
document (including the appendices) and the documents which Eclipse has
incorporated by reference before you decide how to vote. The reorganization
agreement is attached as Appendix A to this joint proxy statement/ prospectus.
We encourage you to read the reorganization agreement. It is the legal document
governing the merger.
THE COMPANIES (PAGES 27 AND 84)
ECLIPSE SURGICAL TECHNOLOGIES, INC.
1049 Kiel Court
Sunnyvale, California 94089
(408) 747-0120
Eclipse is a medical device company which develops, manufactures, and markets
cardiac revascularization products for the treatment of advanced cardiovascular
disease and severe angina pain through transmyocardial revascularization (known
as TMR) procedures and percutaneous transluminal myocardial revascularization
(known as PTMR) procedures. TMR and PTMR procedures are investigational laser
heart treatments in which channels are made in the heart muscle. The TMR
procedure is performed by a heart surgeon through a small incision in the chest.
The PTMR procedure is performed in a catheter-based procedure under local
anesthesia by a cardiologist.
CARDIOGENESIS CORPORATION
540 Oakmead Parkway
Sunnyvale, California 94086
(408) 328-8500
CardioGenesis develops, manufactures and markets products involving TMR
technology. CardioGenesis also manufactures and markets disposable products to
perform intraoperative transmyocardial revascularization (known as ITMR),
catheter-based percutaneous myocardial revascularization (known as PMR), and
thoracoscopic transmyocardial revascularization (known as TTMR) to treat
patients afflicted with debilitating angina. These probes and catheter systems
deliver laser energy to create channels in the oxygen-deprived (ischemic)
regions of the heart muscle (myocardium).
OUR REASONS FOR THE MERGER (PAGE 34)
The Board of Directors of Eclipse and the Board of Directors of CardioGenesis
believe that the merger may result in a number of benefits, including:
- - Eclipse and CardioGenesis believe that the business combination of Eclipse and
CardioGenesis will create a leading provider of TMR laser systems employing a
fiber optic platform with a significant clinical/regulatory lead over
competitors;
- - Eclipse and CardioGenesis believe that their respective product lines are
complementary and that the combined company can offer products designed with
the best features of each company's approach to TMR procedures;
- - Eclipse and CardioGenesis estimate that the combined company would have a much
larger installed base of products, many of which will be installed at leading
cardiological and cardiac surgery centers in the United States;
- - Eclipse and CardioGenesis believe that the combined company will have a
substantial opportunity to consolidate their company's respective ongoing
clinical trials and product development
1
<PAGE> 8
activities and reduce associated expenses;
- - Eclipse and CardioGenesis believe that the combined company will possess a
significant proprietary patent position, supplementing Eclipse's issued
patents with those of CardioGenesis;
- - Eclipse and CardioGenesis expect that the combined company will be able to
achieve substantial benefits and considerable efficiencies from a single
manufacturing plant that produces at higher manufacturing volumes resulting in
improved operating margins;
- - Eclipse and CardioGenesis believe the transaction will create significant
potential cost savings at the general and administrative expense and
management levels as well as in sales and marketing; and
- - The Eclipse shareholders and CardioGenesis stockholders will have the ability
to participate in the potential for growth of the combined company after the
merger.
The ability of the combined company to realize these benefits is subject to a
number of risks as discussed on pages 12 through 25.
We hope to complete the merger in the first quarter of 1999.
WHAT CARDIOGENESIS STOCKHOLDERS WILL RECEIVE IN THE MERGER (PAGE 56)
CardioGenesis stockholders will receive 0.80 of a share of Eclipse common stock
for each share of CardioGenesis common stock they own prior to the merger. For
example, if you own 1,000 shares of CardioGenesis common stock, you will receive
800 shares of Eclipse common stock in exchange for your shares. Similarly, each
option or other right to purchase CardioGenesis common stock will convert into
an option or other right to purchase 0.80 as many shares of Eclipse common stock
at an adjusted exercise price. Eclipse will assume each employee stock option or
purchase right of CardioGenesis under the terms of the applicable stock option
or employee stock purchase plan.
Eclipse will not issue fractional shares. Instead, CardioGenesis stockholders
will receive cash for any fractional share of Eclipse common stock owed to them
based on the closing price of Eclipse common stock on Nasdaq on the trading day
immediately prior to the effective time of the merger.
OWNERSHIP OF ECLIPSE IMMEDIATELY FOLLOWING THE MERGER
Based upon the number of shares of CardioGenesis common stock issued and
outstanding on the record date, Eclipse will issue an aggregate of approximately
9,908,040 shares of Eclipse common stock in the merger and the former holders of
CardioGenesis common stock will hold approximately 36.0% of the total number of
shares of Eclipse common stock issued and outstanding immediately after the
merger.
Based on the number of outstanding options and rights to purchase CardioGenesis
common stock as of the record date, the total number of outstanding
CardioGenesis options and purchase rights will become options and rights to
purchase an aggregate of 1,887,085 shares of Eclipse common stock in the merger.
ECLIPSE SHAREHOLDERS' MEETING (PAGE 29)
The Eclipse special meeting will be held at Eclipse's offices located at 1049
Kiel Court, Sunnyvale, California 94089 on March 17, 1999 at 9:00 a.m. local
time. At the meeting, Eclipse will ask its shareholders to approve the
reorganization agreement including the issuance of Eclipse common stock in the
merger.
2
<PAGE> 9
CARDIOGENESIS STOCKHOLDERS' MEETING (PAGE 31)
The CardioGenesis special meeting will be held at CardioGenesis' offices located
at 540 Oakmead Parkway, Sunnyvale, California 94086 on March 17, 1999 at 9:00
a.m. local time. At the meeting, CardioGenesis will ask its stockholders to
approve and adopt the reorganization agreement and approve the merger.
OUR RECOMMENDATION TO OUR
SHAREHOLDERS (PAGES 30 AND 33)
To the Eclipse shareholders:
The Eclipse Board believes that the merger is fair to Eclipse and is in the best
interests of both you and Eclipse. The Eclipse Board unanimously recommends that
you vote "FOR" the proposal to approve the reorganization agreement including
the issuance of Eclipse common stock in the merger.
To the CardioGenesis stockholders:
The CardioGenesis Board believes that the merger is fair to and is in the best
interests of both you and CardioGenesis. The CardioGenesis Board unanimously
recommends that you vote "FOR" the proposal to approve and adopt the
reorganization agreement and to approve the merger.
RECORD DATE; VOTING POWER (PAGES 29 AND 31)
Each shareholder as of the close of business on February 8, 1999, which is the
"record date," will be entitled to vote at the Eclipse special meeting or the
CardioGenesis special meeting, as applicable.
At the close of business on the record date, 17,621,323 shares of Eclipse common
stock were outstanding and entitled to vote at the Eclipse special meeting. Each
Eclipse shareholder will have one vote at the Eclipse special meeting for each
share of Eclipse common stock owned as of the record date.
At the close of business on the record date, 12,385,051 shares of CardioGenesis
common stock were outstanding and entitled to vote at the CardioGenesis special
meeting. Each CardioGenesis stockholder will have one vote at the CardioGenesis
special meeting for each share of CardioGenesis common stock owned as of the
record date.
VOTE REQUIRED (PAGES 29 AND 31)
The approval of the proposal to approve the reorganization agreement including
the issuance of shares of Eclipse common stock in the merger requires the
affirmative vote of at least a majority of the shares of Eclipse common stock
outstanding and entitled to vote on the record date.
The approval of the proposal to approve and adopt the reorganization agreement
and to approve the merger requires the affirmative vote of at least a majority
of the shares of CardioGenesis common stock outstanding and entitled to vote on
the record date.
VOTING PROCEDURES (PAGES 29 AND 31)
There are two ways to vote at the Eclipse special meeting and the CardioGenesis
special meeting: either by attending the special meeting or by mailing a proxy.
However, whether or not a shareholder plans to attend the special meeting, such
shareholder should return his or her proxy. Please fill out and sign the proxy
card and mail it in the enclosed return envelope as soon as possible. Returning
the proxy card ensures that the shares will be represented at the special
meeting.
If a shareholder wants to change his or her vote, the shareholder should send in
a later-dated, signed proxy card to the company's secretary before the special
meeting or attend the special meeting in person and vote.
3
<PAGE> 10
EXCHANGE OF STOCK CERTIFICATES (PAGE 57)
If you are a CardioGenesis stockholder, you should NOT send in your stock
certificates now. After the merger is completed, Eclipse will send CardioGenesis
stockholders written instructions for exchanging their stock certificates.
Eclipse shareholders will keep their current certificates, and will continue to
hold the same number of shares of Eclipse common stock after the merger.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN HOLDERS (PAGE 113)
As of the record date, the directors and executive officers of Eclipse, as a
group, beneficially owned 4,914,633 shares of Eclipse common stock.
As of the record date, the directors and executive officers of CardioGenesis, as
a group, beneficially owned 4,271,693 shares of CardioGenesis common stock.
VOTING AGREEMENTS SIGNED BY CERTAIN SHAREHOLDERS (PAGE 64)
Douglas Murphy-Chutorian, M.D., Kenneth E. Bennert, Richard Mueller, Jr., Alan
L. Kaganov, Robert L. Mortensen, Iain M. Watson, and Janet Kaiser-Castaneda, who
together held or controlled approximately 28% of the Eclipse common stock
outstanding as of the record date, have entered into voting agreements with
CardioGenesis. These shareholders have agreed to vote in favor of the approval
of the reorganization agreement including the issuance of Eclipse common stock
in the merger and have granted CardioGenesis irrevocable proxies.
Allen W. Hill, Edward F. Brennan, Richard P. Powers, David C. Hull, Jr., E.
Walter Lange, Roseanne Varner, Jack M. Gill, and Robert C. Strauss, who together
held or controlled approximately 29% of the CardioGenesis common stock
outstanding as of the record date, have entered into voting agreements with
Eclipse. These stockholders have agreed to vote in favor of the approval and
adoption of the reorganization agreement and approval of the merger and have
granted Eclipse irrevocable proxies.
NO APPRAISAL RIGHTS
Neither CardioGenesis stockholders nor Eclipse shareholders are entitled to
appraisal or dissenters' rights in connection with the merger.
MARKETS AND MARKET PRICES (PAGE 26)
Eclipse common stock is quoted on Nasdaq under the symbol "ESTI." CardioGenesis
common stock is quoted on Nasdaq under the symbol "CGCP." Following the
completion of the merger, CardioGenesis common stock will cease to be quoted on
Nasdaq.
The following table sets forth the closing price per share of Eclipse common
stock, and the closing price per share of CardioGenesis common stock, each as
quoted on Nasdaq on October 21, 1998, the last trading day before Eclipse and
CardioGenesis announced that they had signed the reorganization agreement. The
table also includes the equivalent CardioGenesis per share price which equals
the Eclipse closing per share price multiplied by the 0.80 exchange ratio in the
merger. The equivalent CardioGenesis per share price can be compared to the
CardioGenesis closing per share price to indicate the premium that may be
realized by CardioGenesis stockholders as a result of the merger.
<TABLE>
<CAPTION>
ECLIPSE CARDIOGENESIS
COMMON COMMON EQUIVALENT
STOCK STOCK CARDIOGENESIS
CLOSING CLOSING PER SHARE
PRICE PRICE PRICE
------- ------------- -------------
<S> <C> <C> <C>
October 21, 1998..... $8.78 $2.2188 $7.025
</TABLE>
The actual prices of Eclipse and CardioGenesis common stock prior to or at the
time the merger is completed will vary
4
<PAGE> 11
and we cannot predict what they will be at that time or thereafter.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 53)
We expect the merger to be treated as a tax-free reorganization for federal
income tax purposes. CardioGenesis stockholders should not recognize gain or
loss on the exchange of their stock, except for taxes on cash received in lieu
of fractional shares. Eclipse shareholders will not recognize any gain or loss
in connection with the merger.
The reorganization agreement does not require the parties to obtain a ruling
from the IRS as to the tax consequences of the merger. As a condition to the
closing of the merger, CardioGenesis and Eclipse must both receive opinions from
their own legal counsel that, based on certain assumptions and certifications,
the merger will be treated as a tax-free reorganization for federal income tax
purposes.
TAX MATTERS ARE VERY COMPLICATED. THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL
DEPEND IN PART ON THE FACTS OF YOUR OWN SITUATION. WE URGE YOU TO CONSULT YOUR
OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING
APPLICABLE FEDERAL, LOCAL AND FOREIGN TAX.
OPINIONS OF PAINEWEBBER AND BEAR STEARNS (PAGES 41 AND 48)
In deciding to approve the merger, each Board considered the opinion of the
investment banking firm it retained.
- - Eclipse received an opinion from PaineWebber Incorporated, that the exchange
ratio for the merger was fair, from a financial point of view, to Eclipse as
of the date of the opinion.
- - CardioGenesis received an opinion from Bear, Stearns & Co. Inc., that the
exchange ratio for the merger was fair, from a financial point of view, to the
public stockholders of CardioGenesis as of the date of the opinion.
These opinions are attached as Appendices B and C to this joint proxy statement/
prospectus. We encourage you to read these opinions carefully and in their
entirety.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 65)
Certain members of CardioGenesis management and of the CardioGenesis Board have
interests in the merger as employees and/or directors that are different from,
or in addition to, your interests as a stockholder. If Eclipse and CardioGenesis
complete the merger, Eclipse will continue certain indemnification arrangements
for persons serving as directors and officers of CardioGenesis at the time of
the merger for six years. Also, Eclipse will maintain a directors' and officers'
liability insurance policy for the benefit of those persons for six years. In
addition, the Eclipse Board has agreed to nominate and appoint Allen W. Hill,
Jack M. Gill, and Robert C. Strauss to the Eclipse Board upon completion of the
merger. The reorganization agreement also provides that, upon completion of the
merger, Allen W. Hill will be the Chief Executive Officer of Eclipse and Richard
P. Powers will be the Executive Vice President of Finance and Administration,
Chief Financial Officer and Secretary of Eclipse.
CONDITIONS TO THE MERGER (PAGE 62)
The merger will not be completed unless the closing conditions in the
reorganization agreement are met. Eclipse and CardioGenesis may each waive
certain of the closing conditions of the other.
5
<PAGE> 12
TERMINATION OF THE REORGANIZATION AGREEMENT (PAGE 63)
Either Eclipse or CardioGenesis may terminate the reorganization agreement if:
- - we mutually consent in writing;
- - we do not complete the merger by April 30, 1999;
- - a governmental entity takes any action which permanently prevents us from
consummating the merger;
- - either of us fails to obtain the requisite shareholder approvals;
- - the CardioGenesis Board or the Eclipse Board recommends a superior proposal to
its shareholders, or if either the CardioGenesis Board or the Eclipse Board
withholds, withdraws, or modifies in an adverse manner to the other company
its recommendation relating to the merger; or
- - CardioGenesis or Eclipse breaches any of its representations, warranties or
covenants contained in the reorganization agreement.
EXPENSES AND TERMINATION FEES (PAGE 64)
We have agreed that we will each pay our own fees and expenses in connection
with the merger, except that we will share equally all fees and expenses (other
than attorneys' and accountants' fees and expenses) in connection with the
printing and filing of this joint proxy statement/ prospectus and the
registration statement of which this joint proxy statement/prospectus is a part.
In addition, either CardioGenesis or Eclipse must pay the other company $3.0
million if the reorganization agreement is terminated under certain
circumstances.
EXPECTED ACCOUNTING TREATMENT (PAGE 55)
We expect the merger will be accounted for as a pooling of interests in
accordance with GAAP.
REGULATORY APPROVALS (PAGE 55)
This transaction was not subject to the filing and waiting period requirements
of the Hart-Scott-Rodino Antitrust Improvement Act of 1976. Based on information
available to us, we believe that the merger will be effected in compliance with
federal, state and foreign antitrust laws.
RECENT CARDIOGENESIS FINANCIAL RESULTS
On February 9, 1999, CardioGenesis reported the following unaudited results of
operations for the year and fourth quarter ended December 31, 1998. In the
opinion of management, all adjustments consisting of normal recurring accruals
and considered necessary for a fair presentation of the results of operations
for the year have been included.
<TABLE>
<CAPTION>
FISCAL FOURTH
(IN THOUSANDS, EXCEPT PER YEAR QUARTER
SHARE AMOUNTS) -------- -------
<S> <C> <C>
Sales.................. $ 3,078 98
Net loss............... (27,413) (7,905)
Net loss per share..... (2.24) (0.64)
</TABLE>
6
<PAGE> 13
RECENT ECLIPSE FINANCIAL RESULTS
On February 8, 1999, Eclipse reported the following unaudited results of
operations for the year and fourth quarter ended December 31, 1998. In the
opinion of management, all adjustments consisting of normal recurring accruals
and considered necessary for a fair presentation of the results of operations
for the year have been included.
<TABLE>
<CAPTION>
FISCAL FOURTH
(IN THOUSANDS, EXCEPT YEAR QUARTER
PER SHARE AMOUNTS) -------- --------
<S> <C> <C>
Sales................ $ 12,002 $ 5,346
Net loss............. (20,354) $ (3,472)
Net loss per share... $ (1.18) $ (0.20)
</TABLE>
7
<PAGE> 14
SELECTED HISTORICAL AND SELECTED PRO FORMA
COMBINED FINANCIAL INFORMATION
We are providing the following information to aid you in your analysis of the
financial aspects of the merger. We derived this information from audited
financial statements for 1993 through 1997 and unaudited financial statements
for the nine months ended September 30, 1997 and 1998. This information is only
a summary and you should read it in conjunction with each company's historical
financial statements, related notes and accountants' reports, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the annual reports, quarterly reports and other information on file
with the SEC. For more financial information on Eclipse, see "Where You Can Find
More Information" on page 27. For more financial information on CardioGenesis,
see pages F-1 through F-22.
ECLIPSE SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Net revenues.................. $ 6,656 $ 3,863 $ 5,499 $ 9,759 $ 2,707 $ 2,020 $2,105
Loss from operations.......... (17,941) (14,715) (20,668) (5,712) (1,505) (1,547) (933)
Net loss...................... (16,882) (13,015) (18,247) (4,156) (2,426) (1,982) (936)
Net loss per share - basic and
diluted..................... $ (0.99) $ (0.80) $ (1.11) $ (0.30) $ (0.23) $ (0.19) $(0.10)
Shares used in computing net
loss per share - basic and
diluted..................... 17,126 16,303 16,404 14,078 10,470 10,231 9,381
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents.............. $2,134 $16,997 $24,106 $ 123 $ 132 $ 131
Marketable securities.................. 14,786 18,197 27,957 -- -- --
Total assets........................... 28,792 43,474 58,706 2,459 2,922 1,953
Long term debt, less current portion... 5 10 20 -- 1,009 --
Total shareholders' equity (deficit)... 22,686 38,228 55,666 (1,429) (139) 1,011
</TABLE>
8
<PAGE> 15
CARDIOGENESIS SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS SEPTEMBER 23,
ENDED 1993 (DATE OF
SEPTEMBER 30, YEAR ENDED DECEMBER 31, INCEPTION) TO
------------------- ------------------------------------------- DECEMBER 31,
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Net sales............ $ 2,979 $ 5,509 $ 7,559 $ 3,959 $ -- $ -- $ --
Loss from
operations......... (20,972) (14,597) (20,790) (11,086) (5,481) (1,982) (856)
Net loss............. (19,509) (12,409) (17,971) (8,800) (5,299) (1,784) (853)
Net loss per
share-basic and
diluted............ $ (1.60) $ (1.03) $ (1.49) $ (1.18) $(41,077.52) N/A N/A
Shares used in
computing net loss
per share.......... 12,189 12,008 12,029 7,427 .129 0 0
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------------------------------
1998 1997 1996 1995 1994 1993
------------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents............. $ 6,901 $ 6,047 $ 2,080 $ 4,150 $ 1,802 $1,113
Marketable securities................. 18,459 34,488 56,128 9,886 3,522 --
Total assets.......................... 32,041 48,240 64,297 16,223 5,885 1,127
Total stockholders' equity
(deficit)........................... 25,336 44,146 61,395 (7,831) (2,636) (852)
</TABLE>
9
<PAGE> 16
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
We have presented below unaudited pro forma combined financial information that
reflects the pooling of interests method of accounting, which means that for
accounting and financial reporting purposes, we will treat our companies as if
they had always been combined. We have included this information to give you a
better picture of what the results of operations and financial position of the
combined businesses of Eclipse and CardioGenesis might have been had the merger
occurred on an earlier date. We have combined Eclipse's consolidated financial
statements for the years ending 1995, 1996 and 1997 and for the nine months
ended September 30, 1997 and 1998 with CardioGenesis' consolidated financial
statements for the same periods in order to prepare the pro forma operating
data. The unaudited pro forma combined balance sheet data gives effect to the
merger as if it had occurred on September 30, 1998 and combines the unaudited
consolidated balance sheet data of Eclipse and the unaudited consolidated
balance sheet data of CardioGenesis as of September 30, 1998. The unaudited pro
forma combined statement of operations data for the three years ended December
31, 1997 and the nine months ended September 30, 1997 and 1998 give effect to
the merger as if it occurred at the beginning of the earliest period presented.
We are providing this information for illustrative purposes only. It does not
necessarily reflect what the results of operations or financial position of the
combined company would have been if the merger had actually occurred at the
beginning of the earliest period presented. This information also does not
necessarily indicate what the combined company's future operating results or
consolidated financial position will be. Eclipse and CardioGenesis estimate that
in total they will incur transaction and integration costs of approximately $5.0
million associated with the merger, which will be charged to their operations
when incurred, principally in the quarter in which the merger is completed.
These transaction costs primarily include financial advisory and legal fees and
costs associated with combining the operations of the two companies. An
estimated charge of $5.0 million is reflected in the unaudited pro forma
combined balance sheet data, but is not reflected in the unaudited pro forma
combined statement of operations data. This charge is a preliminary estimate
only, and is, therefore, subject to change. This information does not reflect
the effect of any potential changes in revenues or any operating synergies which
may result from combining the resources of our companies.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
DATA:
Net revenues................................. $ 9,635 $ 9,372 $ 13,058 $ 13,718 $ 2,707
Loss from operations......................... (38,913) (29,312) (41,458) (16,798) (6,986)
Net loss..................................... (36,391) (25,424) (36,218) (12,956) (7,725)
Net loss per share-basic and diluted......... (1.35) (0.98) (1.39) (0.65) (0.73)
Shares used in computing net loss per
share...................................... 26,877 25,909 26,027 20,020 10,573
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 9,035
Marketable securities....................................... 33,245
Total assets................................................ 60,833
Long-term obligations....................................... 5
Total shareholders' equity.................................. 43,022
</TABLE>
10
<PAGE> 17
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Eclipse and
CardioGenesis and combined per share data on an unaudited pro forma basis after
giving effect to the merger on a pooling of interests basis of accounting. You
should read the information set forth below in conjunction with the selected
historical financial data and the unaudited pro forma combined condensed
financial information, included elsewhere in this joint proxy
statement/prospectus. The pro forma combined financial data are not necessarily
indicative of the operating results that would have been achieved had the merger
been consummated as of the beginning of the periods presented and should not be
construed as representative of future operations. Historical book value per
share is computed by dividing total shareholders' equity by the number of shares
outstanding at the end of each period. For purposes of the pro forma combined
data, Eclipse's financial data for the three fiscal years ended December 31,
1997 and for the nine month periods ended September 30, 1997 and 1998 have been
combined with CardioGenesis financial data for the same periods. Pro forma
combined book value per share is computed by dividing pro forma shareholders'
equity by the number of shares of Eclipse common stock expected to be
outstanding immediately after the merger. The equivalent pro forma combined net
loss per CardioGenesis share and equivalent pro forma combined book value per
CardioGenesis share are calculated by multiplying the respective pro forma
amounts by the exchange ratio.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------
1998 1997 1997 1996 1995
-------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
HISTORICAL -- ECLIPSE:
Net loss per share................................ $(0.99) $(0.80) $(1.11) $(0.30) $(0.23)
</TABLE>
<TABLE>
<CAPTION>
SEP. 30, DEC. 31,
1998 1997
-------- --------
<S> <C> <C> <C> <C> <C>
Book value per share.............................. $ 1.30 $ 2.27
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------
1998 1997 1997 1996 1995
-------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
HISTORICAL -- CARDIOGENESIS:
Net loss per share................................ $(1.60) $(1.03) $(1.49) $(1.18) $(41,077.52)
</TABLE>
<TABLE>
<CAPTION>
SEP. 30, DEC. 31,
1998 1997
-------- --------
<S> <C> <C> <C> <C> <C>
Book value per share.............................. $ 2.07 $ 3.66
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------
1998 1997 1997 1996 1995
-------- ------ -------- ------ -----------
<S> <C> <C> <C> <C> <C>
PRO FORMA AND EQUIVALENT PRO FORMA COMBINED NET
LOSS PER SHARE:
Pro forma net loss per Eclipse share............ $(1.35) $(0.98) $(1.39) $(0.65) $(0.73)
Equivalent pro forma net loss per CardioGenesis
share......................................... $(1.08) $(0.79) $(1.11) $(0.52) $(0.58)
</TABLE>
<TABLE>
<CAPTION>
SEP. 30, DEC. 31,
1998 1997
-------- --------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED BOOK VALUE PER SHARE
(AT PERIOD END):
Pro forma combined book value per Eclipse
share......................................... $ 1.58 $ 2.92
Equivalent pro forma combined book value per
CardioGenesis share........................... $ 1.26 $ 2.33
</TABLE>
11
<PAGE> 18
RISK FACTORS
You should carefully consider the following factors in evaluating whether to:
- - approve and adopt the reorganization agreement and to approve the merger; or
- - approve the issuance of Eclipse common stock in the merger.
These factors do not contain all of the information that may be important to
you. You should read the entire joint proxy statement prospectus, including the
forward looking statements, before deciding how to vote.
RISKS RELATED TO THE MERGER
ECLIPSE AND CARDIOGENESIS MAY NOT RECOGNIZE THE ANTICIPATED BENEFITS OF THE
MERGER IF THEY ARE NOT ABLE TO INTEGRATE THEIR OPERATIONS EFFECTIVELY. The
combined company will not achieve the anticipated benefits of the merger unless
Eclipse and CardioGenesis successfully combine their operations in a timely
manner. If this does not happen, the combined company may suffer:
- - increased operating costs;
- - lower than anticipated financial results; or
- - the loss of customers or employees.
The failure to successfully integrate Eclipse and CardioGenesis would have a
material adverse effect on the business, financial condition and results of
operations of the combined company.
Integrating Eclipse and CardioGenesis will be a complex, time-consuming and
expensive process. Prior to the merger, Eclipse and CardioGenesis operated
independently, and following the merger, the combined company must operate as a
combined organization using common:
- - information communication systems;
- - operating procedures;
- - financial controls;
- - research and development and sales and marketing efforts;
- - distribution and other sales channels;
- - product lines;
- - business cultures; and
- - human resource practices.
Senior officers of the combined company will be required to devote substantial
attention to designing and implementing a plan to combine the companies. This
could distract them from managing the business of the combined company.
The integration of Eclipse and CardioGenesis may involve additional substantial
difficulties, costs and delays, including:
- - perceived adverse changes in customer service standards, business focus or
product offerings available to customers; and
- - inefficiencies in delivering products to the customers.
A DECREASE IN THE TRADING PRICE OF ECLIPSE COMMON STOCK WILL REDUCE THE VALUE
THAT CARDIOGENESIS STOCKHOLDERS WILL RECEIVE IN THE MERGER. Because the exchange
ratio for the merger is fixed, a decrease in the market price of Eclipse common
stock will reduce the dollar value of the stock received in the merger by
CardioGenesis stockholders. You are urged to obtain current quotations for
Eclipse and CardioGenesis common stock before voting your shares at your special
meeting of shareholders.
Eclipse common stock and CardioGenesis common stock historically have had
substantial price volatility. The recent market prices of Eclipse common stock
and CardioGenesis common stock are set forth on page 26 under "Comparative
Market Price Data."
EXPENSES RELATED TO THE MERGER WILL HAVE A NEGATIVE EFFECT ON RESULTS OF
OPERATIONS. We estimate that the negotiation and implementation of the merger
will result in aggregate pretax expenses to Eclipse and CardioGenesis of
approximately $5.0 million, primarily relating to costs associated with
combining the operations of the two companies and the fees of financial
12
<PAGE> 19
advisors, attorneys and accountants. We cannot assure you that our estimate is
correct or that unanticipated contingencies will not occur. These events could
substantially increase the costs of combining the operations of the two
companies. The costs associated with the merger will negatively impact results
of operations in the quarter ending March 31, 1999.
THE COMBINED COMPANY MAY NOT BE ABLE TO RETAIN AND INTEGRATE KEY PERSONNEL AND
THE FAILURE TO DO SO COULD ADVERSELY AFFECT THE BUSINESS OF THE COMBINED
COMPANY. The success of the combined company depends upon the continued service
of key personnel. The loss of services of any of the key members of the combined
company's management team or its failure to attract other qualified personnel
could materially adversely affect the combined company's business. None of the
key personnel of the combined company will be subject to an employment
agreement. The competition to attract, retain and motivate qualified technical,
sales and operations personnel is intense. We cannot assure you that the
combined company can retain its key personnel or attract other qualified
personnel in the future.
THE CARDIOGENESIS DISTRIBUTION AGREEMENT WITH BOSTON SCIENTIFIC CORPORATION MAY
INTERFERE WITH THE ABILITY OF THE COMBINED COMPANY TO DISTRIBUTE OUTSIDE OF THE
U.S. PRODUCTS THAT INCORPORATE CARDIOGENESIS TECHNOLOGY. In January 1997,
CardioGenesis and Boston Scientific Corporation entered into an International
Distribution Agreement under which Boston Scientific served as the exclusive
distributor for CardioGenesis products outside of the U.S. If the Boston
Scientific agreement were to continue in effect after the merger, CardioGenesis
could not, without Boston Scientific's approval, license Eclipse to incorporate
CardioGenesis technology into any Eclipse products to be sold outside of the
U.S. Furthermore, Boston Scientific would have the exclusive right, if it so
elected under the agreement, to market outside of the U.S. any products
manufactured by Eclipse that incorporated CardioGenesis technology. Accordingly,
in such event Eclipse could be required to terminate one or more of its existing
international distribution agreements. Such terminations could result in
difficulties in integrating product lines, and in delays in distribution, which
could have a material adverse effect on the combined company.
In early January 1999, CardioGenesis sent notice to Boston Scientific
terminating the agreement for various breaches by Boston Scientific of its
obligations under the agreement. Boston Scientific has contested such
termination and has contended that this termination by CardioGenesis was an
attempt to circumvent a provision of the agreement that requires payment to
Boston Scientific of a $10.0 million termination fee in the event the agreement
is terminated by a successor corporation. CardioGenesis has vigorously denied
Boston Scientific's contentions.
While CardioGenesis and Boston Scientific currently are in settlement
discussions with respect to the agreement, if CardioGenesis does not prevail in
its position, or is not able to negotiate a satisfactory resolution of this
matter with Boston Scientific, the combined company may be required to expend
significant time, energy and funds to resolve this matter, which could have a
material adverse effect on the business, financial condition and results of
operations on the combined company. See "CardioGenesis Business -- Termination
of Relationship with Boston Scientific" at page 89.
RISKS RELATED TO BUSINESS OF ECLIPSE AND CARDIOGENESIS
ECLIPSE OR CARDIOGENESIS MAY FAIL TO OBTAIN REQUIRED REGULATORY APPROVALS TO
MARKET THEIR PRODUCTS IN THE UNITED STATES. Eclipse or CardioGenesis may not be
able to obtain the regulatory approval required for commercial sale of their TMR
and PTMR laser systems in a timely manner. To date, none of the products of
Eclipse or CardioGenesis have been approved for sale in the United States.
13
<PAGE> 20
The business, financial condition and results of operations of Eclipse or
CardioGenesis could be materially and adversely affected by any of the following
events, circumstances or occurrences related to the regulatory process:
- - delays in initiating or completing clinical trials or in the receipt of
regulatory approvals;
- - the failure to obtain regulatory approvals for such products;
- - significant limitations in the indicated uses for which such products may be
marketed, or
- - substantial costs incurred in obtaining such approvals.
Eclipse and CardioGenesis must submit and the FDA must approve applications for
preliminary market approval, known as PMA, before they can sell their TMR and
PTMR laser systems as medical devices. Before submitting a PMA application, they
must complete clinical testing to demonstrate the safety and effectiveness of
their products.
In 1997, Eclipse submitted a PMA application to the FDA for certain applications
of its TMR laser system. On October 27, 1998, an advisory panel of the FDA
recommended that the FDA approve Eclipse's PMA application for the TMR laser
system. Along with its approval, the FDA panel requested that Eclipse conduct
postmarket surveillance in a form to be determined through further discussions
with the FDA. Eclipse also has applied for and received IDES, to engage in
various clinical trials of its PTMR products and procedures. Eclipse must
successfully complete clinical trials of its PTMR products and procedures before
filing a PMA application for those products and procedures.
CardioGenesis has received FDA approval of:
- - three IDEs for its ITMR laser system and all three of these trials have begun;
and
- - one IDE for its Axcis PMR laser system for a multi-center clinical trial of
no-option patients at up to 12 clinical sites.
CardioGenesis has not submitted an application to the FDA for an IDE for its
TTMR laser system.
ECLIPSE OR CARDIOGENESIS PRODUCTS MAY CONTAIN DEFECTS WHICH COULD DELAY
REGULATORY APPROVAL OR MARKET ACCEPTANCE OF THEIR PRODUCTS. In January 1996,
CardioGenesis reported to the FDA the existence of an error in the software
incorporated into the Ho:YAG laser included in its TMR laser systems.
CardioGenesis' laser manufacturer, New Star Lasers, determined that, under
certain circumstances, the laser could be fired even though its control panel
indicated it was in the "stand-by" mode. CardioGenesis initiated a voluntary
field correction of the lasers, categorized as a Class II recall by the FDA, and
the software error has been corrected. FDA defines a Class II recall as one in
which use of, or exposure to, the product may cause temporary or permanent
adverse health consequences. The FDA has acknowledged the correction of the
software error and the completion of the related field activities.
Eclipse or CardioGenesis may experience future product defects, malfunctions,
manufacturing difficulties or recalls related to the lasers or other components
used in their TMR systems. Any such occurrence could cause a delay in regulatory
approvals or adversely affect the acceptance of their products and could have a
material adverse effect on the business, financial condition and results of
operations of Eclipse or CardioGenesis.
ECLIPSE OR CARDIOGENESIS MAY FAIL TO COMPLY WITH INTERNATIONAL REGULATORY
REQUIREMENTS AND COULD BE SUBJECT TO REGULATORY DELAYS, FINES OR OTHER
PENALTIES. Regulatory requirements in foreign countries for international sales
of medical devices often vary from country to country. The impact of the
following factors would have a material adverse effect on the business,
financial condition and results of operations of Eclipse or CardioGenesis:
- - delays in receipt of, or failure to receive, foreign regulatory approvals or
clearances;
14
<PAGE> 21
- - the loss of previously obtained approvals or clearances; or
- - the failure to comply with existing or future regulatory requirements.
The products of Eclipse and CardioGenesis will be subject to other regulatory
requirements in the European Union and other countries.
Any enforcement action by regulatory authorities with respect to past or future
regulatory noncompliance could have a material adverse effect on the business,
financial condition and results of operations of Eclipse or CardioGenesis.
The time required to obtain approval for sale in foreign countries may be longer
or shorter than required for FDA approval, and the requirements may differ. In
addition, there may be foreign regulatory barriers other than regulatory
approval. Except as stated in the following sentence, the FDA must approve
exports of devices that require a PMA but are not yet approved domestically. An
unapproved device may be exported without prior FDA approval to any member
country of the European Union and the other "listed" countries, including
Australia, Canada, Israel, Japan, New Zealand, Switzerland and South Africa:
- - if the device is approved for sale by that country; or
- - for investigational use in accordance with the laws of that country.
Eclipse received the CE Mark for its TMR laser system in December 1996 and for
its PTMR laser system in July 1998. To sell its TMR laser systems within the
European Economic Area, CardioGenesis has received approval to affix CE markings
on TMR laser systems to attest CardioGenesis' compliance with the requirements
of the Medical Device Directive of the European Economic Area. In the European
Economic Area, Eclipse and CardioGenesis will be:
- - subject to continued supervision;
- - required to report any serious adverse incidents to the appropriate
authorities; and
- - required to comply with additional national requirements that are outside the
scope of the Medical Device Directive.
CardioGenesis has not received CE Mark certification for the sale of its TTMR
laser system in the European Economic Area.
Eclipse became ISO 9001 certified in May 1997. CardioGenesis has received ISO
9001/ EN 46001 certification, which was required to meet the CE Mark
certification prerequisites.
Eclipse or CardioGenesis may not be able to:
- - achieve or maintain the compliance required for CE marking on all or any of
their products; and
- - produce their products profitably and in a timely manner while complying with
the requirements of the Medical Device Directive and other regulatory
requirements.
If Eclipse or CardioGenesis fails to comply with applicable regulatory
requirements it could face:
- - fines, injunctions, civil penalties;
- - recalls or seizures of products;
- - total or partial suspensions of production;
- - refusals by foreign governments to permit product sales; and
- - criminal prosecution.
Furthermore, if existing regulations are changed or new regulations or policies
are adopted, Eclipse or CardioGenesis may:
- - not be able to obtain, or affect the timing of, future regulatory approvals or
clearances;
- - not be able to obtain necessary regulatory clearances or approvals on a timely
basis or at all; and
- - be required to incur significant costs in obtaining or maintaining such
foreign regulatory approvals.
ECLIPSE AND CARDIOGENESIS PRODUCTS ARE EXPERIMENTAL AND HAVE NOT BEEN BROADLY
ADOPTED BY THE MEDICAL COMMUNITY AND UNLESS THEY ARE BROADLY ADOPTED THEIR
BUSINESSES WILL BE
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ADVERSELY AFFECTED. TMR and PTMR products using lasers are experimental and has
not yet achieved broad clinical adoption. Eclipse and CardioGenesis cannot
predict whether or at what rate and how broadly their products will be adopted
by the medical community. The business, financial condition and results of
operations of Eclipse or CardioGenesis may be adversely and materially affected
if:
- - their respective products fail to achieve significant clinical adoption; or
- - their TMR or PTMR laser systems fail to achieve significant market acceptance.
Positive endorsements by physicians are essential for clinical adoption of TMR
and PTMR laser systems. Even if the clinical efficacy of TMR and PTMR laser
systems is established, physicians may elect not to recommend TMR or PTMR laser
systems for any number of reasons. The reasons why TMR or PTMR laser systems may
effectively treat coronary artery disease are not well understood. Although
Eclipse and CardioGenesis intend to use research, development and clinical
efforts to understand better the physiological effects of TMR and PTMR
treatment, Eclipse and CardioGenesis may not achieve such understanding on a
timely basis, or at all. TMR and PTMR laser systems may not be clinically
adopted unless Eclipse or CardioGenesis:
- - understand thoroughly the physiological effects of the products, or
- - disseminate such understanding within the medical community.
Clinical adoption of these products will also depend upon:
- - the ability of Eclipse or CardioGenesis to facilitate training of
cardiothoracic surgeons and interventional cardiologists in TMR and PTMR
therapy; and
- - the willingness of such physicians to adopt and recommend such procedures to
their patients.
Patient acceptance of the procedure will depend on:
- - physician recommendations;
- - the degree of invasiveness;
- - the effectiveness of the procedure; and
- - the rate and severity of complications associated with the procedure as
compared to other procedures.
ECLIPSE AND CARDIOGENESIS PRODUCTS DEPEND ON TMR TECHNOLOGY WHICH IS RAPIDLY
CHANGING, WHICH COULD REQUIRE THEM TO INCUR SUBSTANTIAL PRODUCT DEVELOPMENT
EXPENDITURES TO RESPOND TO INDUSTRY CHANGES. TMR and PTMR laser systems are the
only products of Eclipse and CardioGenesis. Accordingly, if Eclipse or
CardioGenesis fails to develop and commercialize successfully their TMR and PTMR
laser systems, then their business, financial condition and results of
operations would be materially adversely affected.
The medical device industry is characterized by rapid and significant
technological change. The future success of Eclipse and CardioGenesis will
depend in large part on their ability to respond to such changes. In addition,
Eclipse and CardioGenesis must expand the indications and applications for their
products by developing and introducing enhanced and new versions of their TMR
and PTMR laser systems. Product research and development requires substantial
expenditures and is inherently risky. Eclipse and CardioGenesis may not be able
to:
- - identify products for which demand exists; or
- - develop products that have the characteristics necessary to treat particular
indications.
Even if Eclipse or CardioGenesis identifies and develops such products, they may
not receive regulatory approval and may not be commercially successful.
THIRD PARTIES MAY LIMIT THE DEVELOPMENT AND PROTECTION OF ECLIPSE AND
CARDIOGENESIS INTELLECTUAL PROPERTY WHICH COULD ADVERSELY AFFECT THEIR
COMPETITIVE POSITIONS. The success of
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Eclipse and CardioGenesis is dependent in large part on their ability to:
- - obtain patent protection for their products and processes;
- - preserve their trade secrets and proprietary technology; and
- - operate without infringing upon the patents or proprietary rights of third
parties.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Companies in the
medical device industry have employed intellectual property litigation to gain a
competitive advantage. Certain competitors and potential competitors of Eclipse
and CardioGenesis have obtained United States patents covering technology that
could be used for certain TMR and PTMR procedures. There can be no assurance
such competitors, potential competitors or others have not filed and do not hold
international patents covering other TMR or PTMR technology. In addition,
international patents may not be interpreted the same as any counterpart United
States patents.
In September 1995, one of Eclipse's competitors sent Eclipse a notice of
potential infringement of their patent regarding a method for TMR utilizing
synchronization of laser pulses to the electrical signals from the heart. After
discussion with patent counsel, Eclipse concluded that it did not utilize the
process and/or apparatus that was the subject of the patent at issue, and
Eclipse provided a response to the competitor to that effect. Eclipse has not
received any additional correspondence from this competitor on these matters.
While Eclipse and CardioGenesis periodically review the scope of their patents
and other relevant patents of which they are aware, the question of patent
infringement involves complex legal and factual issues. Any conclusion regarding
infringement may not be consistent with the resolution of any such issues by a
court.
Eclipse and CardioGenesis may not be able to protect their intellectual property
because:
- - patents may not be issued;
- - patents may be challenged, invalidated or designed around by competitors; or
- - patent protection may not continue to be available for surgical methods in the
future.
COSTLY LITIGATION MAY BE NECESSARY TO PROTECT OUR INTELLECTUAL PROPERTY
RIGHTS. Eclipse and CardioGenesis may have to engage in time consuming and
costly litigation to protect their intellectual property rights or to determine
the proprietary rights of others.
In addition, Eclipse or CardioGenesis may become subject to:
- - patent infringement claims or litigation; or
- - interference proceedings declared by the U.S. Patent Office to determine the
priority of inventions.
Defending and prosecuting intellectual property suits, U.S. Patent Office
interference proceedings and related legal and administrative proceedings are
both costly and time-consuming. Eclipse or CardioGenesis may be required to
litigate further to:
- - enforce their issued patents;
- - protect their trade secrets or know-how; or
- - determine the enforceability, scope and validity of the proprietary rights of
others.
Any litigation or interference proceedings will result in:
- - substantial expense; and
- - significant diversion of effort by technical and management personnel.
If the results of such litigation or interference proceedings are adverse to
Eclipse or CardioGenesis, then the results may:
- - subject such company to significant liabilities to third parties;
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<PAGE> 24
- - require such company to seek licenses from third parties;
- - prevent such company from selling its products in certain markets or at all;
or
- - require such company to modify its products.
Although patent and intellectual property disputes regarding medical devices are
often settled through licensing and similar arrangements, costs associated with
such arrangements may be substantial and could include ongoing royalties.
Furthermore, there can be no assurance the necessary licenses would be available
on satisfactory terms, if at all.
Adverse determinations in a judicial or administrative proceeding or failure to
obtain necessary licenses could prevent Eclipse or CardioGenesis from
manufacturing and selling their products. This would have a material adverse
effect on the business, financial condition and results of operations of such
company.
ECLIPSE AND CARDIOGENESIS RELY ON PATENT AND TRADE SECRET LAWS WHICH ARE COMPLEX
AND MAY BE DIFFICULT TO ENFORCE. The validity and breadth of claims in medical
technology patents involve complex legal and factual questions and, therefore,
may be highly uncertain. Issued patent or patents based on pending patent
applications or any future patent application may not exclude competitors or may
not provide a competitive advantage to Eclipse or CardioGenesis. In addition,
patents issued or licensed to Eclipse or CardioGenesis may not be held valid if
subsequently challenged and others may claim rights in or ownership of such
patents.
Furthermore, there can be no assurance that competitors:
- - have not developed or will not develop similar products;
- - will not duplicate products of Eclipse or CardioGenesis; or
- - will not design around any patents issued to or licensed by Eclipse or
CardioGenesis.
Since patent applications in the United States are maintained in secrecy until
patents issue, Eclipse and CardioGenesis cannot be certain:
- - others did not first file applications for inventions covered by their pending
patent applications, nor
- - that they will not infringe any patents that may issue to others on such
applications.
The U.S. patent laws were recently amended to exempt physicians, other health
care professionals, and affiliated entities from infringement liability for
medical and surgical procedures performed on patients. Eclipse and CardioGenesis
are not able to predict if this amendment will materially affect their ability
to protect their proprietary methods and procedures.
Competitors may:
- - independently develop proprietary information substantially equivalent to the
proprietary information and techniques of Eclipse or CardioGenesis, or
- - otherwise gain access to their proprietary technology.
In addition to their patents, Eclipse and CardioGenesis rely upon trade secrets,
technical know-how and continuing technological innovation to develop and
maintain their competitive position. Eclipse and CardioGenesis may not be able
meaningfully to protect their unpatented technology because:
- - their employees, consultants and advisors may breach their confidentiality and
invention assignment agreements and there may not be an adequate remedy for
such breach;
- - their competitors may independently develop substantially equivalent
proprietary information and techniques; or
- - competitors may somehow otherwise gain access to their proprietary technology.
The inability of Eclipse or CardioGenesis to protect their unpatented
intellectual property could materially adversely affect their business.
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<PAGE> 25
ECLIPSE AND CARDIOGENESIS FACE INTENSE COMPETITION AND COMPETITIVE PRODUCTS
COULD RENDER THEIR PRODUCTS OBSOLETE. The market for TMR and PTMR laser systems
is intensely competitive and is constantly becoming more competitive. If
competitors are more effective in developing new products and procedures and
marketing existing and future products, the business, financial condition and
results of operations of Eclipse or CardioGenesis may be materially adversely
affected.
The market for TMR and PTMR laser systems is characterized by rapid technical
innovation. Accordingly, competitors may succeed in developing TMR and PTMR
products or procedures that:
- - are more effective than products marketed by Eclipse or CardioGenesis;
- - are more effectively marketed than products marketed by Eclipse or
CardioGenesis; or
- - may render the products or technology of Eclipse or CardioGenesis obsolete.
Eclipse and CardioGenesis compete with:
- - PLC Systems, Inc.;
- - U.S. Surgical Corporation; and
- - Johnson & Johnson.
Each of these competitors are currently selling TMR and/or PTMR products for
investigational use in the U.S. and abroad. Certain companies, including PLC,
have:
- - completed enrollment in randomized clinical trials of products and procedures
involving TMR, and
- - received regulatory approvals in Europe to begin commercially marketing their
various TMR products.
Earlier entrants in the market in a therapeutic area often obtain and maintain
greater market share than later entrants.
Even in the event that Eclipse or CardioGenesis obtains regulatory approval for
one of their products, they will face competition for market acceptance and
market share for that product. Their ability to compete may depend in
significant part on the timing of introduction of competitive products into the
market, which will be affected by the pace, relative to competitors, at which
they are able to:
- - develops products;
- - complete clinical testing and regulatory approval processes;
- - obtain third party reimbursement acceptance; and
- - supply adequate quantities of the product to the market.
ECLIPSE AND CARDIOGENESIS SELL THEIR PRODUCTS INTERNATIONALLY WHICH SUBJECTS
THEM TO CERTAIN SIGNIFICANT RISKS OF TRANSACTING BUSINESS IN FOREIGN
COUNTRIES. International sales account for a significant portion of the revenue
of CardioGenesis. Even if the FDA approves the sale of CardioGenesis products in
the United States, CardioGenesis expects international sales will continue to
account for a significant portion of its revenues. Eclipse also sells its
products internationally. The international revenue of Eclipse and CardioGenesis
is subject to the following risks:
- - foreign currency fluctuations;
- - economic or political instability;
- - foreign tax laws;
- - shipping delays;
- - various tariffs and trade regulations;
- - restrictions and foreign medical regulations;
- - customs duties, export quotas or other trade restrictions; and
- - difficulty in protecting intellectual property rights.
Any of these factors could have a material adverse effect on the business,
financial condition and results of operations of Eclipse or CardioGenesis.
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<PAGE> 26
ECLIPSE AND CARDIOGENESIS PRODUCTS ALSO COMPETE WITH ALTERNATIVE TREATMENT
METHODS AND THEIR PRODUCTS MUST REPLACE THESE METHODS TO BE COMMERCIALLY
SUCCESSFUL. Many of the medical indications that may be treatable with TMR and
PTMR laser systems are currently being treated by drug therapies or surgery and
other interventional therapies, including percutaneous transluminal coronary
angioplasty (known as PTCA) and coronary artery bypass graft.
The business, financial condition and results of operations of Eclipse and
CardioGenesis would be materially adversely affected if TMR technology fails:
- - to replace or augment existing therapies; or
- - to be more effective, safer or more cost effective than new therapies.
A number of the existing therapies:
- - are widely accepted in the medical community;
- - have a long history of use; and
- - continue to be enhanced rapidly.
Procedures using TMR and PTMR technology may not be able to replace or augment
such established treatments. Clinical research results may not support the use
of TMR or PTMR procedures to augment or replace existing treatments.
Others are developing new surgical procedures and new drug therapies to treat
coronary artery disease. These new procedures and drug therapies could be more
effective, safer or more cost effective than TMR and PTMR laser systems.
The market acceptance and commercial success of Eclipse and CardioGenesis TMR
and PTMR laser systems will depend not only upon their safety and effectiveness,
but also upon the relative safety and effectiveness of alternative treatments.
ECLIPSE AND CARDIOGENESIS HAVE A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN
THE FUTURE. Eclipse and CardioGenesis cannot assure you that they will become
profitable in the future. Eclipse and CardioGenesis have incurred significant
losses since inception. Their revenues and operating income will be constrained:
- - until such time, if ever, as they obtain FDA and other regulatory approvals
for their products; and
- - for an uncertain period of time after such approvals are obtained.
The combined company may not achieve or sustain profitability in the future.
IF ECLIPSE AND CARDIOGENESIS EXPERIENCE INCREASED DEMAND FOR THEIR PRODUCTS,
THEY MAY NOT BE ABLE TO EXPAND THEIR BUSINESSES TO MEET SUCH DEMAND. Eclipse or
CardioGenesis may be required to expand their business to:
- - complete the clinical trials that are currently in progress;
- - prepare additional products for clinical trials;
- - develop future products; and
- - generally compete successfully.
Such expansion could place a significant strain on managerial, operational and
financial systems and resources. To accommodate such expansion and compete
effectively, Eclipse and CardioGenesis must:
- - improve information systems, procedures and controls; and
- - expand, train, motivate and manage their employees.
ECLIPSE AND CARDIOGENESIS DEPEND ON SINGLE SOURCE SUPPLIERS FOR CERTAIN KEY
COMPONENTS AND PRODUCTION COULD BE INTERRUPTED IF A KEY SUPPLIER HAD TO BE
REPLACED. Eclipse and CardioGenesis currently purchase certain critical laser
and fiber-optic components from single sources. Although each company has
identified alternative suppliers, a lengthy process would be required to qualify
them as additional or replacement suppliers. Any significant interruption in the
supply of critical materials or components could adversely affect the ability of
Eclipse or CardioGenesis to manufacture their products and could materially
adversely affect
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<PAGE> 27
their manufacturing operations, business and results of operations.
Eclipse and CardioGenesis anticipate that products will be manufactured based on
forecasted demand and will seek to purchase subassemblies and components in
anticipation of the actual receipt of purchase orders from customers. Lead times
for materials and components will vary significantly and depend on factors such
as the business practices of each specific supplier and the terms of particular
contracts, as well as the overall market demand for such materials and
components at any given time. If the forecasts are inaccurate, Eclipse or
CardioGenesis could experience fluctuations in inventory levels, resulting in
excess inventory, or shortages of critical components, either of which could
materially adversely affect their business and results of operations.
Certain suppliers to Eclipse and CardioGenesis could have difficulty expanding
their manufacturing capacity to meet the needs of Eclipse or CardioGenesis if
demand for such company's TMR and PTMR laser systems were to increase rapidly or
significantly. In addition, any defect or malfunction in the laser or other
products provided by such suppliers could cause a delay in regulatory approvals
or adversely affect product acceptance. There can be no assurance that:
- - materials obtained from outside suppliers will continue to be available in
adequate quantities; or
- - alternative suppliers can be located on a timely basis.
CardioGenesis purchases lasers from suppliers under OEM supply agreements.
However, Eclipse and CardioGenesis generally operate on a purchase order basis
with most other suppliers. Such vendors could at any time determine to cease the
supply and production of such components.
ECLIPSE AND CARDIOGENESIS HAVE LIMITED MANUFACTURING EXPERIENCE WHICH COULD
PREVENT THEM FROM SUCCESSFULLY INCREASING CAPACITY IN RESPONSE TO MARKET
DEMAND. Eclipse and CardioGenesis have limited experience in manufacturing
products. Manufacturers often encounter difficulties in increasing production,
including problems involving:
- - production yields;
- - adequate supplies of components;
- - quality control and assurance (including failure to comply with GMP
regulations, international quality standards and other regulatory
requirements); and
- - shortages of qualified personnel
There can be no assurance that Eclipse or CardioGenesis:
- - will be able successfully to increase manufacturing capacity; or
- - will be able to avoid manufacturing difficulties or product recalls.
ECLIPSE AND CARDIOGENESIS MUST COMPLY WITH FDA MANUFACTURING STANDARDS OR FACE
FINES OR OTHER PENALTIES INCLUDING SUSPENSION OF PRODUCTION. Eclipse and
CardioGenesis are required to demonstrate compliance with the FDA's current good
manufacturing practices regulations if they market devices in the United States
or manufacture finished devices in the United States. The FDA inspects
manufacturing facilities on a regular basis to determine compliance. If they
fail to comply with applicable FDA or other regulatory requirements, such
company can be subject to:
- - fines, injunctions, and civil penalties;
- - recalls or seizures of products;
- - total or partial suspensions of production; and
- - criminal prosecutions.
TO EXPAND THEIR BUSINESSES, ECLIPSE AND CARDIOGENESIS WILL BE REQUIRED TO
ESTABLISH EFFECTIVE SALES, MARKETING AND DISTRIBUTION SYSTEMS AND THEY HAVE
LIMITED EXPERIENCE TO DATE ESTABLISHING THESE OPERATIONS. To expand their
business, Eclipse and CardioGenesis must establish effective systems to sell,
market and distribute products. To date, Eclipse and CardioGenesis
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have had limited sales which have consisted primarily of sales of their TMR and
PTMR laser systems for investigational use only. For this reason, they have
maintained only a limited sales and marketing organization.
If their laser systems receive regulatory approval, Eclipse and CardioGenesis
each expect to market their products through a direct sales force and through
relationships with distributors or agents. This will require substantial
management efforts and financial resources. If Eclipse or CardioGenesis is not
able to establish relationships with distributors, or if such distributors are
not effective, their business and results of operations could be materially
adversely affected.
ECLIPSE AND CARDIOGENESIS MAY NEED ADDITIONAL CAPITAL OR THEY WILL BE UNABLE TO
CONTINUE EXPANDING THEIR CLINICAL TRIALS AND TESTING THEIR PRODUCTS. Eclipse and
CardioGenesis currently anticipate that their cash balances, together with sales
of products for investigational use, will be sufficient to meet their capital
requirements for the next twelve months. If either company cannot raise enough
additional funds, such company may not be able to continue expanding its
clinical trials and testing its products. If this were to occur, such company's
business, results of operations, financial condition and prospects would be
materially adversely affected.
Eclipse or CardioGenesis may require additional sources of cash at an earlier
date. The need for additional cash will depend upon the progress or expansion of
clinical trials and any need for additional trials or other testing of products
and the timing of these expenditures. Additional financing may not be available
when needed or on satisfactory terms, if at all.
IF CARDIOGENESIS IS NOT ABLE TO RETAIN ITS SCIENTIFIC ADVISORS IT MAY LOSE A
VALUABLE SOURCE OF PRACTICAL SCIENTIFIC AND MEDICAL KNOWLEDGE. CardioGenesis has
established a Scientific Advisory Board including experts in cardiac surgery,
interventional cardiology, cardiology and basic science. Members of the
Scientific Advisory Board consult with CardioGenesis regarding research and
development efforts at CardioGenesis. The members are employed elsewhere on a
full-time basis. As a result, they can only spend a limited amount of time on
CardioGenesis' affairs. There can be no assurance the members of CardioGenesis'
Scientific Advisory Board will continue to serve in such capacity.
ECLIPSE AND CARDIOGENESIS WILL BE UNABLE TO OBTAIN FDA APPROVAL IF THEIR
PRODUCTS ARE NOT PROVEN SAFE AND EFFECTIVE IN CLINICAL TESTS. The FDA has not
approved Eclipse's or CardioGenesis' TMR or PTMR laser systems for any
indication in the United States. There can be no assurance regarding the
clinical safety or efficacy of such systems. CardioGenesis has not begun
clinical trials of its TTMR laser system and there can be no assurance this
system will be approved for clinical trials. Conducting TMR clinical trials
will:
- - require substantial financial and management resources; and
- - take several years.
Eclipse and CardioGenesis cannot assure you that their TMR and PTMR laser
systems will prove to be safe or effective. The business, financial condition,
and results of operations of Eclipse or CardioGenesis would be materially and
adversely affected if their TMR and PTMR laser systems do not prove to be safe
and effective in clinical trials.
ECLIPSE AND CARDIOGENESIS MAY SUFFER LOSSES FROM PRODUCT LIABILITY CLAIMS IF
THEIR PRODUCTS CAUSE HARM TO PATIENTS. Eclipse and CardioGenesis are exposed to:
- - potential product liability claims; and
- - product recalls.
These risks are inherent in the design, development, manufacture and marketing
of medical devices. The products of Eclipse and CardioGenesis are designed to be
used in life-threatening situations where there is a high risk of serious injury
or death and such companies could be subject to product liability claims if
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the use of their TMR or PTMR laser systems is alleged to have caused adverse
effects on a patient or such products are believed to be defective.
Any regulatory clearance for commercial sale of these products will not remove
these risks. Any failure to comply with the FDA's GMP or other regulations could
have a material adverse effect on the ability of Eclipse or CardioGenesis to
defend against product liability lawsuits. Although neither company has
experienced any product liability claims to date, any such claims could have a
material adverse effect on their business, financial condition and results of
operations.
OUR INSURANCE MAY BE INSUFFICIENT TO COVER PRODUCT LIABILITY CLAIMS AGAINST
US. There can be no assurance that the product liability insurance maintained by
Eclipse or CardioGenesis will:
- - be adequate for any future product liability problems; or
- - that such insurance coverage will continue to be available on commercially
reasonable terms, or at all.
If such company were held liable for a product liability claim or series of
claims in excess of its insurance coverage, such liability could have a material
and adverse effect on such company's business, financial condition and results
of operations.
Eclipse maintains insurance against product liability claims in the amount of:
- - $10 million per occurrence; and
- - $10 million in the aggregate.
CardioGenesis has coverage limits of:
- - $5 million per occurrence and in the aggregate; and
- - additional coverage limits of deutsche mark 1 million (approximately $546,000)
per person and deutsche mark 50 million (approximately $27,300,000) in the
aggregate for use of CardioGenesis' TMR laser systems in Germany.
These coverage limits may not adequately protect Eclipse or CardioGenesis from
liabilities they might incur in connection with the development, manufacture and
sale of their products since:
- - TMR technology is not well understood; and
- - there is a lack of data regarding the clinical safety and efficacy of TMR
laser systems.
Eclipse or CardioGenesis may require increased product liability coverage if any
products are commercialized. Product liability insurance is expensive and in the
future may not be available on acceptable terms, if at all.
ECLIPSE AND CARDIOGENESIS MAY EXPERIENCE ADVERSE EFFECTS ON THEIR BUSINESSES
RELATED TO YEAR 2000 ISSUES AFFECTING THEIR SUPPLIERS. Many currently installed
computer systems and software products experience functional difficulty
distinguishing between twenty-first century dates and twentieth century dates.
This is commonly known as the Year 2000 Problem. As a result, many companies'
software and computer systems may need to be upgraded or replaced in order to
function properly in the future.
As the products that Eclipse itself supplies to its customers are not dependent
upon date data processing and do not have electrical ports for the connection of
other devices, Eclipse believes that these products are Year 2000 compliant.
Eclipse does not anticipate any material disruption in its operations as a
result of any internal or external Year 2000 compliance problems. However,
Eclipse expects to prepare for minor delays in the receipt of materials and
services as a result of third parties' failures to meet Year 2000 requirements.
Eclipse cannot assure you that it will not experience unexpected delays or
problems as a result of Year 2000 problems.
Eclipse is also working with its suppliers to ensure that its suppliers are Year
2000 compliant. If Eclipse is not able to procure
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adequate supplies, it will not be able to manufacture and sell its products,
which would have a significant material adverse effect on its business and
results of operations. Eclipse believes that the foregoing describes its most
reasonably likely worst case Year 2000 scenario.
For a description of Year 2000 issues related to CardioGenesis, see page 108.
THE OPERATING RESULTS OF ECLIPSE AND CARDIOGENESIS ARE EXPECTED TO FLUCTUATE AND
QUARTER TO QUARTER COMPARISONS OF THEIR RESULTS MAY NOT INDICATE FUTURE
PERFORMANCE. The operating results of Eclipse and CardioGenesis have fluctuated
significantly from quarter to quarter and are expected to fluctuate
significantly from quarter to quarter due to a number of events and factors,
including:
- - the timing and results of clinical trials;
- - delays associated with the FDA and other regulatory approval processes;
- - the enactment of health care reform legislation and any changes in third party
reimbursement policies;
- - the level of product demand and the timing of customer orders;
- - changes in competitive pricing policies;
- - the ability to develop, introduce and market new and enhanced versions of
products on a timely basis;
- - deferrals in customer orders in anticipation of new or enhanced products;
- - product quality problems;
- - personnel changes;
- - changes in strategy; and
- - the level of international sales.
Eclipse and CardioGenesis believe that quarter to quarter comparisons of their
operating results may not be a good indication of their future performance. It
is likely that the operating results of Eclipse or CardioGenesis for a future
quarter will fall below the expectations of public market analysts and
investors. If this occurs, the price of such company's common stock may fall,
perhaps substantially.
ECLIPSE AND CARDIOGENESIS MAY NOT BE ABLE TO SUCCESSFULLY MARKET THEIR PRODUCTS
IF THEY FAIL TO OBTAIN THIRD PARTY REIMBURSEMENT FOR THE PROCEDURES PERFORMED
WITH THEIR PRODUCTS. Few individuals are able to pay directly for the costs
associated with the use of the products of Eclipse and CardioGenesis. In the
United States, hospitals, physicians and other health care providers that
purchase medical devices generally rely on third party payors, such as Medicare,
to reimburse all or part of the cost of the procedure in which the medical
device is being used. A failure by third party payors to provide adequate
reimbursement for the TMR and PTMR procedures that use Eclipse or CardioGenesis
products would have a material adverse effect on such company's business,
financial condition, and results of operations.
Although Eclipse and CardioGenesis do not anticipate receiving reimbursements
for their laser systems from Medicare during their clinical trials, they will
seek reimbursement from other third party payors. There can be no assurance,
however, that such reimbursement will be available.
Third party payors may deny reimbursement if they determine that the device used
in a treatment is:
- - unnecessary,
- - inappropriate;
- - experimental;
- - used for a non-approved indication; or
- - not cost-effective.
Potential purchasers must determine whether the clinical benefits of Eclipse and
CardioGenesis TMR and PTMR laser systems justify:
- - the additional cost or the additional effort required to obtain prior
authorization or coverage; and
- - the uncertainty of actually obtaining such authorization or coverage.
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ECLIPSE AND CARDIOGENESIS MAY NOT ACHIEVE WIDE ACCEPTANCE OF THEIR PRODUCTS IN
FOREIGN MARKETS IF THEY FAIL TO OBTAIN THIRD PARTY REIMBURSEMENT FOR THE
PROCEDURES PERFORMED WITH THEIR PRODUCTS. If Eclipse or CardioGenesis obtains
the necessary foreign regulatory registrations or approvals, market acceptance
of such company's products in international markets would be dependent, in part,
upon the availability of reimbursement within prevailing health care payment
systems. Reimbursement and health care payment systems in international markets
vary significantly by country. They include both government sponsored health
care and private insurance. Although Eclipse and CardioGenesis expect to seek
international reimbursement approvals, there can be no assurance any such
approvals will be obtained in a timely manner, if at all. Failure to receive
international reimbursement approvals could have a material adverse effect on
market acceptance of TMR products in the international markets in which such
approvals are sought.
OVERALL INCREASES IN MEDICAL COSTS COULD ADVERSELY AFFECT OUR BUSINESS. Eclipse
and CardioGenesis believe that the overall escalating cost of medical products
and services has led, and will continue to lead, to increased pressures on the
health care industry, both foreign and domestic, to reduce the cost of products
and services, including products offered by them. There can be no assurance in
either United States or international markets that:
- - third party reimbursement and coverage will be available or adequate;
- - current reimbursement amounts will not be decreased in the future; or
- - future legislation, regulation or reimbursement policies of third party payors
will not otherwise adversely affect the demand for or the ability of Eclipse
and CardioGenesis to profitably sell their products.
Fundamental reforms in the healthcare industry in the United States and Europe
continue to be considered. Eclipse and CardioGenesis cannot predict whether or
when any healthcare reform proposals will be adopted and what effect such
proposals might have on their businesses.
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COMPARATIVE MARKET PRICE DATA
The table below sets forth, for the calendar quarters indicated, the high and
low closing prices of Eclipse common stock and CardioGenesis common stock as
reported on Nasdaq. Eclipse effected the initial public offering of its common
stock on May 31, 1996 and CardioGenesis effected the initial public offering of
its common stock on May 22, 1996.
<TABLE>
<CAPTION>
ECLIPSE COMMON CARDIOGENESIS
STOCK COMMON STOCK
------------------ ------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996 CALENDAR YEAR
Second Quarter........................ $16.50 $12.75 $20.75 $ 13.50
Third Quarter......................... 14.00 7.50 14.75 9.50
Fourth Quarter........................ 13.125 8.00 13.625 10.75
1997 CALENDAR YEAR
First Quarter......................... 9.50 5.625 17.50 11.50
Second Quarter........................ 8.00 5.00 13.00 7.25
Third Quarter......................... 9.625 7.00 13.625 9.75
Fourth Quarter........................ 9.00 5.50 12.50 5.375
1998 CALENDAR YEAR
First Quarter......................... 12.938 5.875 9.25 6.50
Second Quarter........................ 12.875 9.375 7.875 4.25
Third Quarter......................... 10.125 5.625 5.563 2.125
Fourth Quarter........................ 10.25 6.3125 6.438 1.75
1999 CALENDAR YEAR
First Quarter (through February 8,
1999).............................. 12.688 7.375 9.75 5.25
</TABLE>
On October 21, 1998, the last full trading day prior to the public announcement
of the execution and delivery of the reorganization agreement, the closing
prices on Nasdaq were $8.7813 per share of Eclipse common stock and $2.2188 per
share of CardioGenesis common stock. On February 8, 1999, the closing prices on
Nasdaq were $12.625 per share of Eclipse common stock and $9.5625 per share of
CardioGenesis common stock.
Because the exchange ratio for the merger is fixed, changes in the market price
of Eclipse common stock will affect the dollar value of the shares of Eclipse
common stock to be received by CardioGenesis stockholders in the merger. Eclipse
shareholders and CardioGenesis stockholders are urged to obtain current market
quotations for Eclipse common stock and CardioGenesis common stock prior to the
special meetings.
Neither Eclipse nor CardioGenesis has ever paid cash dividends. Eclipse and
CardioGenesis anticipate that the combined company will retain earnings for
development of its business and will not distribute earnings to shareholders as
dividends. The declaration and payment by the combined company of any future
dividends and the amount thereof will depend upon the combined company's results
of operations, financial condition, cash requirements, future prospects,
limitations imposed by credit agreements or senior securities and other factors
deemed relevant by its Board of Directors.
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WHERE YOU CAN FIND MORE INFORMATION
Eclipse and CardioGenesis file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may inspect and copy such
material at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the SEC's regional
offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, Suite 1300, New York, New York 10048. You may also obtain
copies of such material from the SEC at prescribed rates by writing to the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for more information on the public
reference rooms. You can also find our SEC filings at the SEC's website at
www.sec.gov, or additional corporate information at Eclipse's website at
www.eclipsesurg.com and CardioGenesis' website at www.cardiogenesis.com.
Information found at the Eclipse website or the CardioGenesis website is not
deemed to be a part of this joint proxy statement/prospectus.
Eclipse common stock and CardioGenesis common stock are quoted on the Nasdaq
National Market and such reports, proxy statements and other information can
also be inspected at the offices of the National Association of Securities
Dealers, Inc. located at 9513 Key West Avenue, Rockville, Maryland 20850. After
the consummation of the merger, CardioGenesis will no longer file reports, proxy
statements or other information with the SEC or Nasdaq. Instead such information
will be provided, to the extent required, in filings made by Eclipse.
Eclipse was incorporated in California in April 1989. CardioGenesis was
incorporated in California in September 1993 and changed its state of
incorporation to Delaware in May 1996.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Eclipse is "incorporating by reference" into this joint proxy
statement/prospectus the information contained in documents that it files with
the SEC, which means that Eclipse can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this joint proxy statement/prospectus. Information in
this joint proxy statement/prospectus supersedes information incorporated by
reference that Eclipse filed with the SEC prior to the date of this joint proxy
statement/prospectus, while information that Eclipse files later with the SEC
will automatically update and supersede this information. Eclipse incorporates
by reference the documents listed below and any future filings it will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the date of this joint proxy statement/prospectus:
- Eclipse's Annual Report on Form 10-K for the fiscal year ended December
31, 1997;
- The description of Eclipse common stock contained in its Registration
Statement on Form 8-A filed with the SEC on April 18, 1996;
- Eclipse's Definitive Proxy Statement on Schedule 14A dated March 25,
1998;
- Eclipse's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998;
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<PAGE> 34
- Eclipse's Current Report on Form 8-K dated November 3, 1998; and
- Eclipse's Current Report on Form 8-K dated December 11, 1998.
You may request a copy of any of these Eclipse filings, at no cost to you, by
writing or telephoning Eclipse at:
Eclipse Surgical Technologies, Inc.
Attention: Investor Relations
1049 Kiel Court
Sunnyvale, CA 94089
Telephone (408) 747-0120
YOU SHOULD MAKE YOUR REQUEST BY MARCH 10, 1999 TO ENSURE DELIVERY OF ANY OF THE
ABOVE DOCUMENTS PRIOR TO YOUR SPECIAL MEETING.
You should rely only on the information provided or incorporated by reference in
this joint proxy statement/prospectus. We have authorized no one to provide you
with different information. You should not assume that the information in this
joint proxy statement/ prospectus is accurate as of any date other than the date
on the front of the document.
FORWARD-LOOKING STATEMENTS
We have each made forward-looking statements in this joint proxy
statement/prospectus (and Eclipse has made forward-looking statements in the
documents that are incorporated by reference in this joint proxy
statement/prospectus) that are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of operations of Eclipse, CardioGenesis or the combined company.
Also, when we use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. You
should note that the merger and an investment in securities of Eclipse involve
certain risks and uncertainties that could affect the future financial results
of Eclipse. Some of these risks include: risks related to the integration of
Eclipse and CardioGenesis, risks associated with a fixed exchange ratio, risks
relating to the respective businesses of Eclipse and CardioGenesis and other
risks and uncertainties discussed under "Risk Factors" and elsewhere in this
joint proxy statement/prospectus and in the Eclipse documents incorporated by
reference. For more information on these risks, see "Risk Factors" beginning on
page 12.
This joint proxy statement/prospectus contains trademarks of Eclipse and
CardioGenesis and may contain trademarks of others.
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<PAGE> 35
ECLIPSE SPECIAL MEETING
DATE, TIME AND PLACE OF ECLIPSE SPECIAL MEETING
The Eclipse special meeting will be held at Eclipse's headquarters at 1049 Kiel
Court, Sunnyvale, California 94089, on Wednesday, March 17, 1999 at 9:00 a.m.
local time.
PURPOSE
The purpose of the Eclipse special meeting is to approve the reorganization
agreement including the issuance of shares of Eclipse common stock to the
CardioGenesis stockholders in the merger.
RECORD DATE AND OUTSTANDING SHARES
The Eclipse Board has fixed February 8, 1999 as the record date for the Eclipse
special meeting. Only Eclipse shareholders of record on the record date are
entitled to notice of and to vote at the Eclipse special meeting. As of the
record date, there were approximately 178 shareholders of record holding an
aggregate of approximately 17,621,323 shares of Eclipse common stock.
VOTE REQUIRED AND VOTING RIGHTS
Under California law and the charter documents of Eclipse, approval of the
reorganization agreement including the issuance of shares of Eclipse common
stock in the merger requires the affirmative vote of at least a majority of the
shares of Eclipse common stock outstanding on the record date. Each shareholder
of record of Eclipse common stock on the record date is entitled to cast one
vote per share, exercisable in person or by properly executed proxy, on each
matter properly submitted for the vote of the shareholders of Eclipse at the
Eclipse special meeting.
The presence, in person or by properly executed proxy, of the holders of at
least a majority of the outstanding shares of Eclipse common stock entitled to
vote at the Eclipse special meeting will constitute a quorum. Broker non-votes
and shares held by persons abstaining will be counted in determining whether a
quorum is present at the Eclipse special meeting. For the Eclipse proposal,
abstentions are counted as votes cast and accordingly have the same effect as
votes against the proposal, whereas broker non-votes are not counted as votes
cast and therefore once a quorum is present, will have no effect on the
proposal.
The members of the Eclipse Board and certain executive officers of Eclipse, who
together beneficially hold approximately 28% of the Eclipse common stock
outstanding as of the record date, have entered into voting agreements with
CardioGenesis, in which they have agreed, in their capacity as a shareholder of
Eclipse, to vote in favor of the issuance of Eclipse common stock in the merger
and have granted CardioGenesis an irrevocable proxy.
PROXIES
Each of the persons named in the Eclipse proxy as a proxy holder is an officer
of Eclipse. All shares of Eclipse common stock that are entitled to vote and are
represented at the Eclipse special meeting either in person or by properly
executed proxies received prior to or at the Eclipse special meeting and not
duly and timely revoked will be voted at the Eclipse special meeting according
to the instructions indicated on such proxies. If no such
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<PAGE> 36
instructions are indicated, such proxies will be voted for approval of the
reorganization agreement including the issuance of shares of Eclipse common
stock in the merger.
Any proxy given in this solicitation may be revoked by the person giving it at
any time before it is voted. Proxies may be revoked by:
- filing with the Secretary of Eclipse at or before the taking of the vote
at the Eclipse special meeting, a written notice of revocation bearing a
later date than the proxy;
- duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Eclipse before the taking of the vote
at the Eclipse special meeting; or
- attending the Eclipse special meeting and voting in person (although
attendance at the Eclipse special meeting will not in and of itself
constitute a revocation of a proxy).
Any written notice of revocation or later-dated proxy should be sent so as to be
delivered to Eclipse at 1049 Kiel Court, Sunnyvale, California 94089, Attention:
Secretary, or hand-delivered to the Secretary of Eclipse, in each case at or
before the taking of the vote at the Eclipse special meeting.
SOLICITATION OF PROXIES; EXPENSES
Eclipse will bear all costs of soliciting proxies for the Eclipse special
meeting, except that Eclipse and CardioGenesis have each agreed to pay one-half
of the filing and printing costs associated with this joint proxy
statement/prospectus. In addition, Eclipse may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Proxies may also be
solicited by certain Eclipse directors, officers and regular employees
personally or by telephone, telegram, letter or facsimile. Such persons will not
receive additional compensation, but may be reimbursed for reasonable
out-of-pocket expenses incurred in connection with such solicitation. In
addition, Eclipse has retained Morrow & Co. to assist in the solicitation of
proxies from brokers, nominees, institutions and individuals at an estimated fee
of $6,000 plus reimbursement of reasonable expenses. Arrangements will also be
made with custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
entities, and Eclipse will reimburse such entities for reasonable expenses
incurred in connection therewith.
INDEPENDENT ACCOUNTANTS
One or more representatives of PricewaterhouseCoopers LLP, independent
accountants for Eclipse, are expected to be present at the Eclipse special
meeting and will have an opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
RECOMMENDATION OF THE ECLIPSE BOARD
THE ECLIPSE BOARD HAS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT AND THE
MERGER AND HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS
OF, ECLIPSE AND ITS SHAREHOLDERS. AFTER CAREFUL CONSIDERATION, THE ECLIPSE BOARD
UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE APPROVAL OF THE REORGANIZATION
AGREEMENT INCLUDING THE ISSUANCE OF SHARES OF ECLIPSE COMMON STOCK IN THE
MERGER.
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CARDIOGENESIS SPECIAL MEETING
DATE, TIME AND PLACE OF CARDIOGENESIS SPECIAL MEETING
The CardioGenesis special meeting will be held at CardioGenesis' headquarters at
540 Oakmead Parkway, Sunnyvale, California, on Wednesday, March 17, 1999 at 9:00
a.m. local time.
PURPOSE
The purpose of the CardioGenesis special meeting is to approve and adopt the
reorganization agreement and to approve the merger. CardioGenesis stockholders
may also consider and vote upon such other matters as may properly come before
the CardioGenesis special meeting or any adjournments of the meeting.
RECORD DATE AND OUTSTANDING SHARES
The CardioGenesis Board has fixed February 8, 1999 as the record date for the
CardioGenesis special meeting. Only stockholders of record of CardioGenesis
common stock on the record date are entitled to notice of, and to vote at, the
CardioGenesis special meeting. As of the record date, there were 88 stockholders
of record holding an aggregate of 12,385,051 shares of CardioGenesis common
stock.
VOTE REQUIRED AND VOTING RIGHTS
The affirmative vote of the holders of at least a majority of the CardioGenesis
common stock outstanding as of the record date is required to approve and adopt
the reorganization agreement and approve the merger, according to the
requirements of Delaware law and CardioGenesis' restated certificate of
incorporation. Each stockholder of record of CardioGenesis common stock on the
record date, will be entitled to cast one vote per share on each matter to be
acted upon at the CardioGenesis special meeting.
The representation, in person or by proxy, of at least a majority of the
outstanding shares of CardioGenesis common stock entitled to vote at the
CardioGenesis special meeting is necessary to constitute a quorum for the
transaction of business. The effect of an abstention or a broker non-vote is the
same as a vote against the proposal for purposes of obtaining the required vote
of a majority of the outstanding shares of CardioGenesis common stock to approve
and adopt the reorganization agreement and approve the merger.
Certain CardioGenesis directors and certain executive officers of CardioGenesis,
who together hold approximately 29% of the CardioGenesis common stock
outstanding as of the record date, have entered into voting agreements with
Eclipse in which they have agreed to vote in favor of the approval of the
reorganization agreement and approval of the merger and have granted Eclipse an
irrevocable proxy.
PROXIES
Each of the persons named in the CardioGenesis proxy as a proxy holder is an
officer of CardioGenesis. All shares of CardioGenesis common stock that are
entitled to vote and are represented at the CardioGenesis special meeting either
in person or by properly executed proxies received prior to or at the
CardioGenesis special meeting and not duly and timely revoked will be voted at
the CardioGenesis special meeting according to the instructions
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<PAGE> 38
indicated on such proxies. If no such instructions are indicated, such proxies
will be voted for the approval and adoption of the reorganization agreement and
approval of the merger.
If any other matters are properly presented for consideration at the
CardioGenesis special meeting, including a motion to adjourn the CardioGenesis
special meeting to another time or place (including for purposes of soliciting
additional proxies), unless otherwise indicated on a proxy, the person named as
proxy and acting thereunder will have the discretion to vote on such matters in
accordance with his or her best judgement. Such person will not vote any proxy
that votes against the reorganization agreement and the merger in favor of a
motion to adjourn the special meeting for purposes of soliciting additional
proxies.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- filing with the Secretary of CardioGenesis at or before the taking of the
vote at the CardioGenesis special meeting, a written notice of revocation
bearing a later date than the proxy;
- duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of CardioGenesis before the taking of the
vote at the CardioGenesis special meeting; or
- attending the CardioGenesis special meeting and voting in person
(although attendance at the CardioGenesis special meeting will not in and
of itself constitute a revocation of a proxy).
Any written notice of revocation or later-dated proxy should be sent so as to be
delivered to CardioGenesis at 540 Oakmead Parkway, Sunnyvale, California 94086,
Attention: Secretary, or hand-delivered to the Secretary of CardioGenesis, in
each case at or before the taking of the vote at the CardioGenesis special
meeting.
SOLICITATION OF PROXIES; EXPENSES
CardioGenesis will bear all costs of soliciting proxies for the CardioGenesis
special meeting, except that Eclipse and CardioGenesis have each agreed to pay
one-half of the filing and printing costs associated with this joint proxy
statement/prospectus. In addition, CardioGenesis may reimburse brokerage firms
and other persons representing beneficial owners of shares for their expenses in
forwarding solicitation materials to such beneficial owners. Proxies may also be
solicited by certain CardioGenesis directors, officers and regular employees
personally or by telephone, telegram, letter or facsimile. Such persons will not
receive additional compensation, but may be reimbursed for reasonable out-of-
pocket expenses incurred in connection with such solicitation. In addition,
CardioGenesis has retained MacKenzie Partners, Inc. to assist in the
solicitation of proxies from brokers, nominees, institutions and individuals at
an estimated fee of $10,000 plus reimbursement of reasonable expenses.
Arrangements will also be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such entities, and CardioGenesis will reimburse such entities for
reasonable expenses incurred in the proxy solicitation.
INDEPENDENT ACCOUNTANTS
One or more representatives of PricewaterhouseCoopers LLP, independent
accountants for CardioGenesis, are expected to be present at the CardioGenesis
special meeting and will
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<PAGE> 39
have an opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
RECOMMENDATION OF THE CARDIOGENESIS BOARD
THE CARDIOGENESIS BOARD HAS UNANIMOUSLY APPROVED THE REORGANIZATION AGREEMENT
AND THE MERGER AND HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, CARDIOGENESIS AND ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION,
THE CARDIOGENESIS BOARD UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF APPROVAL AND
ADOPTION OF THE REORGANIZATION AGREEMENT AND APPROVAL OF THE MERGER.
CARDIOGENESIS STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
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<PAGE> 40
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
Certain statements made in this section are forward-looking statements. For a
discussion of forward-looking statements, see page 28.
JOINT REASONS FOR THE MERGER
The Boards of Directors of Eclipse and CardioGenesis believe that by combining
the complementary product lines of the two companies, the combined company would
have the potential to realize long-term improved operating and financial results
and a stronger position in the industry. Eclipse and CardioGenesis have each
identified reasons for the merger, which are discussed below. In addition, the
Eclipse Board and the CardioGenesis Board believe the following are reasons why
the merger will be beneficial to both companies and their shareholders:
- Eclipse and CardioGenesis believe that the business combination of
Eclipse and CardioGenesis will create a leading provider of TMR laser
systems employing a fiber optic platform with a significant
clinical/regulatory lead over competitors.
- Eclipse and CardioGenesis believe that their respective product lines are
complementary and that the combined company can offer products designed
with the best features of each company's approach to TMR procedures.
- Eclipse and CardioGenesis estimate that the combined company will have a
much larger installed base of products many of which will be installed at
leading cardiological and cardiac surgery centers in the United States.
- Eclipse and CardioGenesis believe that the combined company will have a
substantial opportunity to consolidate their respective ongoing clinical
trials and product development activities and reduce associated expenses.
- Eclipse and CardioGenesis believe that the combined company will possess
a significant proprietary patent position, supplementing Eclipse's issued
patents with those of CardioGenesis.
- Eclipse and CardioGenesis expect that the combined company will be able
to achieve substantial benefits and considerable efficiencies from a
single manufacturing plant that produces at higher manufacturing volumes
and that absorbs manufacturing overhead to improve operating margins.
- Eclipse and CardioGenesis believe the transaction will create potential
annual cost savings of approximately $14.6 million. Annual cost savings
in manufacturing are estimated to be $1.4 million consisting of reduced
facilities and depreciation costs of $600,000 and salary and fringe
benefits savings of $800,000. Estimated annual savings in the research
and development and clinical and regulatory areas of $11.3 million
consist of $10.0 million of reduced costs paid to outside parties related
primarily to conducting and monitoring clinical trials, $1.2 million in
savings related to salaries and fringe benefits and $100,000 of reduced
depreciation costs. Estimated annual cost savings in general and
administrative, and marketing and sales of approximately $1.9 million
consist of $1.2 million in savings related to salaries and fringe
benefits, $400,000 in reduced facilities and depreciation costs and
$300,000 in reduced advertising costs. The figures above are annual
amounts. Based upon the
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<PAGE> 41
anticipated closing date of the merger, the combined company expects to
realize cost savings of approximately $10.9 million during fiscal year
1999.
- Eclipse shareholders and CardioGenesis stockholders will have the ability
to participate in the potential for growth of the combined company.
Each Board of Directors recognizes that the ability of the combined company to
realize the potential benefits of the merger is subject to a number of risks
including those discussed on pages 12 through 25.
ECLIPSE'S ADDITIONAL REASONS FOR THE MERGER
On October 21, 1998, the Eclipse Board determined the merger to be advisable and
fair and in the best interests of Eclipse and its shareholders and approved the
reorganization agreement and the merger. The Eclipse Board unanimously
recommends that the Eclipse shareholders vote FOR the approval of the
reorganization agreement including the issuance of shares of Eclipse common
stock in the merger.
In addition to the joint benefits described above, in the course of its
deliberations the Eclipse Board considered a number of factors relating to the
merger, including the following:
- historical information concerning Eclipse's and CardioGenesis' respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public reports
concerning results of operations during the most recent fiscal year and
fiscal quarter for each company filed with the SEC;
- Eclipse management's view of the financial condition, results of
operations and businesses of Eclipse and CardioGenesis before and after
giving effect to the merger;
- current financial market conditions and historical market prices,
volatility and trading information with respect to Eclipse common stock
and CardioGenesis common stock;
- the consideration to be received by CardioGenesis stockholders in the
merger, the relationship between the market value of the Eclipse common
stock to be issued in exchange for each share of CardioGenesis common
stock, the market value of the CardioGenesis common stock and a
comparison of comparable merger transactions;
- the belief that the terms of the reorganization agreement, including the
parties' representations, warranties and covenants, and the conditions to
their respective obligations, are reasonable;
- Eclipse management's view of the prospects of Eclipse as an independent
company;
- the likelihood that in the future another party could enter into a
strategic relationship with or acquire CardioGenesis if the merger were
not undertaken;
- the financial analysis performed by PaineWebber presented at Eclipse
Board meetings on October 18, 1998 and October 21, 1998. This analysis is
described on page 48 and was the basis for PaineWebber's opinion, dated
October 21, 1998, that, as of such date, the exchange ratio was fair,
from a financial point of view, to Eclipse;
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<PAGE> 42
- the expected impact of the merger on Eclipse's customers and employees;
- reports from Eclipse management, legal and financial advisors as to the
results of their due diligence investigation of CardioGenesis; and
- the expectation that the merger will be accounted for as a pooling of
interests.
The Eclipse Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the merger, including:
- the risk that the potential benefits sought in the merger might not be
fully realized;
- the possibility that the merger might not be consummated and the effect
of public announcement of the merger on (a) Eclipse's sales and operating
results, (b) Eclipse's ability to attract and retain key management and
technical personnel and (c) progress of certain development projects;
- the potential dilutive effect of the issuance of Eclipse common stock in
the merger;
- charges estimated at $4.0 to 6.0 million to be incurred in connection
with the merger, including costs of integrating the businesses and
transaction expenses arising from the merger; and
- the risk that despite the efforts of the combined company, key technical
and management personnel might not remain employed by the combined
company, and that product lines and sales channels might not be timely or
well integrated.
The foregoing discussion of the benefits and factors considered by the Eclipse
Board is not intended to be exhaustive, but summarizes all material benefits and
factors considered. The Eclipse Board did not find it practicable in view of the
wide variety of factors it considered to quantify or otherwise assign relative
weight to the specific factors considered. However, after taking into account
all of the factors above, the Eclipse Board determined unanimously that the
merger was fair and in the best interests of Eclipse and its shareholders and
that Eclipse should proceed with the merger and the reorganization agreement.
CARDIOGENESIS' ADDITIONAL REASONS FOR THE MERGER
On October 21, 1998, the CardioGenesis Board determined the merger to be
advisable and fair to, and in the best interests of, CardioGenesis and the
CardioGenesis stockholders and approved the reorganization agreement and the
merger. The CardioGenesis Board unanimously recommends that the CardioGenesis
stockholders vote FOR the proposal to approve and adopt the reorganization
agreement and approve the merger.
In addition to the joint benefits described above, in the course of its
deliberations during CardioGenesis Board meetings held on October 12, 1998 and
October 21, 1998, the CardioGenesis Board reviewed with CardioGenesis management
a number of additional factors relevant to the merger, including the strategic
overview and prospects for CardioGenesis, its products and its finances. At the
October 21, 1998 meeting, the CardioGenesis Board considered a financial
presentation by Bear Stearns, including the opinion of Bear Stearns, which
concluded that the exchange ratio was fair, from a financial point of view, to
the public stockholders of CardioGenesis on such date (a copy of which is
attached as Appendix C).
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The CardioGenesis Board also considered, among other matters:
- historical information concerning CardioGenesis' and Eclipse's respective
businesses, prospects, financial performance and condition, operations,
technology, management and competitive position, including public reports
concerning results of operations during the most recent fiscal year and
fiscal quarter for each company with the SEC;
- CardioGenesis management's view as to the financial condition, results of
operations and businesses of Eclipse and CardioGenesis before and after
giving effect to the merger, based on management due diligence and
publicly available financial information;
- current financial market conditions and historical market prices,
volatility and trading information with respect to Eclipse common stock
and CardioGenesis common stock;
- the consideration to be received by CardioGenesis stockholders in the
merger and the relationship between the market value of the Eclipse
common stock to be issued in exchange for each share of CardioGenesis
common stock and a comparison of comparable merger transactions;
- the tax and accounting treatments to be accorded the merger and the pro
forma effect of same on the combined company;
- CardioGenesis management's view as to the prospects of CardioGenesis as
an independent company;
- CardioGenesis management's view as to the potential for other parties to
enter into strategic relationships with or to acquire Eclipse if the
merger was not undertaken;
- the impact of the merger on CardioGenesis' customers and employees; and
- reports from CardioGenesis management, legal and financial advisors as to
the results of their due diligence investigation of Eclipse.
The CardioGenesis Board considered generally the material terms of the merger
and concluded that such terms were appropriate for a transaction of that type.
The CardioGenesis Board also considered CardioGenesis' and Eclipse's respective
rights to consider and negotiate other acquisition proposals in certain
circumstances, as well as the possible effects of the provisions regarding
termination fees.
The CardioGenesis Board took note of the fact that the reorganization agreement
provides for a fixed exchange ratio, which posed some risk to CardioGenesis
stockholders in the event of a decline in the value of Eclipse common stock. If
such a decline occurred, the exchange ratio might represent less of a premium
over the market price of CardioGenesis common stock than it represented on
October 21, 1998. However, the CardioGenesis Board concluded that, from a
long-range perspective, as distinguished from the market price of the Eclipse
common stock on any given date, the exchange ratio represented an attractive
price for CardioGenesis, in part, because it preserved the "upside" opportunity
to benefit from any future increase in the market price of Eclipse common stock,
whether due to the combination of the two companies or otherwise. Based on its
familiarity with the medical device industry generally and information available
to it with respect to Eclipse specifically, the CardioGenesis Board determined
that the benefits of a fixed
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<PAGE> 44
exchange ratio at least equaled, and possibly outweighed, the risks of such a
pricing mechanism.
The CardioGenesis Board also identified and considered a number of other
potentially negative factors in its deliberations concerning the merger,
including:
- the risk that the potential benefits sought in the merger might not be
fully realized;
- the possibility that the merger would not be consummated and the effect
of the public announcement of the merger on (a) CardioGenesis' sales and
operating results, (b) CardioGenesis' ability to attract and retain key
management, marketing and technical personnel, and (c) progress of
certain development projects;
- charges estimated at $4.0 to 6.0 million to be incurred in connection
with the merger, including costs of integrating the businesses and
transaction expenses arising from the merger; and
- the risk that despite the efforts of the combined company, key technical
and management personnel may not remain employed by the combined company.
The CardioGenesis Board believed that these risks were outweighed by the
potential benefits of the merger. See "Risk Factors -- Risks Related to the
Merger."
The foregoing discussion of benefits and factors considered by the CardioGenesis
Board is not intended to be exhaustive, but summarizes all material benefits and
factors considered. The CardioGenesis Board did not assign any relative or
specific weights to the foregoing factors nor did it specifically characterize
any factor as positive or negative (except as described above), and individual
directors may have given differing weights to different factors and may have
viewed certain factors more positively or negatively than others. Throughout its
deliberations, the CardioGenesis Board received the advice of Heller Ehrman
White & McAuliffe, its legal advisor, and Bear Stearns, its financial advisor.
THE CARDIOGENESIS BOARD UNANIMOUSLY RECOMMENDS THAT CARDIOGENESIS STOCKHOLDERS
APPROVE THE REORGANIZATION AGREEMENT AND THE MERGER.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
In January 1998, Douglas Murphy-Chutorian, M.D., Chairman of the Board and Chief
Executive Officer of Eclipse, contacted Allen W. Hill, President and Chief
Executive Officer of CardioGenesis, and had a preliminary conversation
concerning industry issues and generally regarding the possibility of a business
combination. Mr. Hill advised the CardioGenesis Board of his conversation with
Dr. Murphy-Chutorian. No further discussions were held between the parties.
In late August 1998, Dr. Murphy-Chutorian contacted Mr. Hill to determine
whether CardioGenesis might be interested in a possible business combination
between Eclipse and CardioGenesis. As a result of this conversation, Dr.
Murphy-Chutorian and Mr. Hill met later in August 1998 and discussed the
business objectives of each of Eclipse and CardioGenesis. They also discussed a
possible business combination between the two companies and focused on the
strengths and weaknesses of each company and the attributes, potential benefits
and synergies of a business combination. Dr. Murphy-Chutorian and Mr. Hill
agreed to report on the discussions at this meeting to their respective Boards
of Directors.
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<PAGE> 45
On September 1, 1998, the Eclipse Board held a meeting at which a possible
business combination with CardioGenesis was discussed. At this meeting, the
Board directed management to invite Mr. Hill to make a presentation to the
Eclipse Board.
On September 10 and September 16, 1998, Mr. Hill and Richard Powers,
CardioGenesis' Chief Financial Officer, Executive Vice President of Finance and
Administration, and Dr. Murphy-Chutorian and Richard Mueller, Eclipse's
President and Chief Operating Officer, made presentations of non-confidential
information to the Eclipse Board and the CardioGenesis Board, respectively, that
included a description of each company's products, customer base and history.
Each presentation included a discussion of each company's financial results for
its current fiscal year through June 30, 1998 and the potential benefits and
risks of a strategic combination of Eclipse and CardioGenesis. Following each
presentation, each Board discussed at length a possible business combination of
Eclipse and CardioGenesis, including the potential terms of such a transaction.
Thereafter, each Board authorized its management to proceed with further
discussions and to commence a more comprehensive review of the other company.
Each Board also directed its management to engage an investment banking firm to
render a fairness opinion with respect to a transaction, in the case of Eclipse,
and to act as financial advisor, in the case of CardioGenesis, and to consult
with their respective legal counsel regarding the structure and timing of a
possible transaction.
During the weeks of September 13 and September 20, 1998, Dr. Murphy-Chutorian,
Mr. Mueller, Kenneth E. Bennert, Chief Financial Officer of Eclipse, Mr. Hill,
and Mr. Powers, along with their respective legal counsel and independent
accountants, held discussions regarding the terms and structure of the proposed
business combination. On September 20, 1998, Eclipse and CardioGenesis executed
mutual confidential non-disclosure agreements providing for the exchange of
non-public proprietary information by the two companies for the purpose of
evaluating a possible business combination. Thereafter, Eclipse and
CardioGenesis, and their respective legal counsel and independent accountants,
conducted extensive due diligence reviews of, among other things, each other's
business, assets, financial condition, results of operations, legal affairs and
prospects.
On October 5, 1998, Eclipse retained PaineWebber to render a fairness opinion
with respect to the proposed business combination with CardioGenesis and
CardioGenesis retained Bear Stearns to act as its financial advisor in
connection with the proposed business combination.
On October 12, 1998, the CardioGenesis Board held a special meeting at which the
management of CardioGenesis, and its legal counsel, financial advisor and
independent accountants, reviewed the status of their due diligence reviews of
Eclipse, the potential benefits and risks associated with a business combination
with Eclipse, including the likelihood of consummating the transaction, and the
proposed terms of the reorganization agreement. After an extensive discussion,
the Board approved the retention of Bear Stearns and authorized senior
management and the company's legal counsel and financial advisor to continue
negotiations with Eclipse.
At a special meeting held on October 16, 1998, the Eclipse Board discussed the
potential benefits and risks associated with a business combination of Eclipse
and CardioGenesis. Representatives from Wilson Sonsini Goodrich & Rosati, P.C.,
(WSGR) legal counsel to Eclipse, were also present at the meeting and reviewed
the terms of the proposed transaction with the Board and reported to the Board
on their ongoing due diligence review
39
<PAGE> 46
of CardioGenesis. WSGR also reviewed with the Board their fiduciary duties under
California law. PaineWebber also attended the special meeting by telephone
conference call. At the meeting, the Eclipse Board authorized management to
continue negotiations with CardioGenesis and directed management to work with
legal counsel and the independent accountants to continue their due diligence
review.
On October 18, 1998, the Eclipse Board met with representatives of WSGR and
PaineWebber to further consider the potential business combination with
CardioGenesis. At this meeting, Eclipse senior management, WSGR and PaineWebber
reported on the ongoing discussions with CardioGenesis, the further results of
the due diligence evaluation of CardioGenesis and the principal terms of the
reorganization agreement and related documents. WSGR also reviewed with the
Board their fiduciary duties under California law. PaineWebber reviewed with the
Eclipse Board its preliminary analysis as to the fairness of the proposed
exchange ratio for the transaction. The PaineWebber analysis was based on the
methodology used by PaineWebber to reach its fairness opinion which was
delivered in final form on October 21, 1998. At the end of the meeting, the
Eclipse Board authorized management to continue negotiations with CardioGenesis
and directed management to work with legal counsel and the independent
accountants to complete their due diligence review.
During October 1998, Dr. Murphy-Chutorian, Messrs. Mueller and Bennert and
Messrs. Hill and Powers, along with their respective legal counsel and
independent accountants, continued to discuss the terms and structure of the
proposed business combination. During this time, Eclipse and CardioGenesis and
their respective legal counsel and independent accountants continued their due
diligence reviews of the other company.
On October 21, 1998, the CardioGenesis Board held a special meeting to discuss
with senior management and its legal counsel, financial advisor and independent
accountants, the proposed terms of the business combination and the status of
the due diligence reviews on Eclipse. Legal counsel reported on its ongoing
review of Eclipse's legal affairs, and members of senior management and the
company's accountants and financial advisor reported on the results of the
business, financial and FDA due diligence with respect to Eclipse. Bear Stearns
then presented, and the directors reviewed and discussed, certain financial
analyses with respect to CardioGenesis, Eclipse and the proposed business
combination as described under "-- Bear Stearns Opinion" on page 48; and counsel
reviewed the changes negotiated in the form of reorganization agreement. The
Board agreed to adjourn the meeting and reconvene later in the day to consider
the final terms of the business combination and further consider the matters
presented and discussed.
At the reconvened meeting, the CardioGenesis Board discussed the final changes
to the reorganization agreement and related documents, and received updated
reports from its senior management, legal counsel and financial advisor. Bear
Stearns then delivered to the Board its opinion that the exchange ratio was
fair, from a financial point of view, to CardioGenesis stockholders. After
further discussion, the CardioGenesis Board:
- determined that the terms of the reorganization agreement and
transactions contemplated thereby were fair to, and in the best interests
of, CardioGenesis stockholders,
- approved the reorganization agreement and related documents, and the
merger, and
40
<PAGE> 47
- resolved to recommend that the CardioGenesis stockholders vote in favor
of the approval and adoption of the reorganization agreement and approval
of the merger at a special meeting of the CardioGenesis stockholders to
be held for such purpose.
On October 21, 1998, the Eclipse Board held a special meeting by telephone
conference call to discuss with senior management, WSGR and PaineWebber the
proposed terms of the reorganization agreement and the status of the ongoing
negotiations with CardioGenesis regarding such agreement and related documents.
Prior to the meeting, the directors had been provided with the current version
of the reorganization agreement and related documents. The Board also received
an update on the additional due diligence that had been conducted. The Eclipse
Board discussed in detail the terms of the proposed transaction and agreed to
hold another meeting later in the day to consider the final terms of the
transaction.
Later on October 21, 1998, the Eclipse Board held another special meeting by
telephone conference call to consider the proposed final terms of the
reorganization agreement, the merger and related documents. Representatives from
WSGR and PaineWebber also participated in the meeting. The directors discussed
with WSGR the proposed final changes to the reorganization agreement and related
documents. At this meeting, PaineWebber provided the Eclipse Board with its oral
and written opinion that the exchange ratio was fair, from a financial point of
view, to Eclipse. Upon further discussion among the directors, the Eclipse Board
unanimously:
- determined that the terms of the reorganization agreement and the
transactions contemplated thereby were fair to, and in the best interests
of Eclipse shareholders;
- approved the reorganization agreement, the merger and all related
agreements and
- resolved to recommend that the Eclipse shareholders vote in favor of the
reorganization agreement including the issuance of Eclipse common stock
in connection with the merger at a special meeting of the Eclipse
shareholders to be held for such purpose.
Later on October 21, 1998, following the Eclipse Board meeting and the
CardioGenesis Board meeting, the reorganization agreement was executed by both
companies and the related documents were executed by certain officers and
directors of Eclipse and CardioGenesis. On October 22, 1998, prior to the
beginning of trading, Eclipse and CardioGenesis issued a joint press release
announcing the proposed business combination.
PAINEWEBBER OPINION
THE FULL TEXT OF THE PAINEWEBBER OPINION, DATED OCTOBER 21, 1998, WHICH SETS
FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS
DOCUMENT. YOU SHOULD READ THE PAINEWEBBER OPINION CAREFULLY AND IN ITS ENTIRETY.
THE SUMMARY OF THE PAINEWEBBER OPINION INCLUDED IN THIS DOCUMENT IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE PAINEWEBBER OPINION.
Eclipse retained PaineWebber to render an opinion as to whether or not the
CardioGenesis/Eclipse exchange ratio was fair, from a financial point of view,
to Eclipse.
In connection with the consideration by the Eclipse board of directors of the
reorganization agreement, PaineWebber delivered its written opinion, dated
October 21, 1998, to the
41
<PAGE> 48
effect that, as of that date, and based upon its review and assumptions and
subject to the limitations summarized below, the exchange ratio is fair, from a
financial point of view, to Eclipse. The PaineWebber opinion was directed to,
and prepared at the request and for the information of, the Eclipse board of
directors and does not constitute a recommendation to any holder of Eclipse
common stock as to how any such shareholder should vote with respect to the
merger. The methodology used by PaineWebber to reach the fairness opinion formed
the basis for the PaineWebber presentation to the Eclipse Board on October 18,
1998.
In arriving at its opinion, PaineWebber, among other things:
- reviewed, among other public information, CardioGenesis' annual reports,
forms 10-K and related financial information for the two fiscal years
ended December 31, 1997 and CardioGenesis' form 10-Q and the related
unaudited financial information for the six months ended June 30, 1998;
- reviewed, among other public information, Eclipse's annual reports, forms
10-K and related financial information for the two fiscal years ended
December 31, 1997 and Eclipse's form 10-Q and the related unaudited
financial information for the six months ended June 30, 1998;
- reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of CardioGenesis
and Eclipse, furnished to PaineWebber by or on behalf of CardioGenesis
and Eclipse;
- reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the pro forma
combined entities, furnished by Eclipse;
- conducted discussions with members of senior management of CardioGenesis
and Eclipse concerning their respective businesses and prospects;
- reviewed the historical market prices and trading activity for
CardioGenesis common stock and Eclipse common stock and compared them
with those of certain other publicly traded companies which PaineWebber
deemed to be relevant;
- compared the financial position and results of operations of
CardioGenesis and Eclipse with those of certain companies which
PaineWebber deemed to be relevant;
- compared the proposed financial terms of the merger with the financial
terms of certain other mergers and acquisitions which PaineWebber deemed
to be relevant;
- reviewed a draft of the reorganization agreement; and
- reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as
PaineWebber deemed necessary, including PaineWebber's assessment of
regulatory, general economic, market and monetary conditions.
In preparing the PaineWebber opinion:
- PaineWebber relied upon the accuracy and completeness of all information
supplied or otherwise made available to it by Eclipse and CardioGenesis.
- PaineWebber did not assume any responsibility to independently verify
such information. With respect to the financial forecasts examined by
PaineWebber,
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<PAGE> 49
PaineWebber assumed that they were reasonably prepared and reflect the
best currently available estimates and good faith judgments of the
management of Eclipse and CardioGenesis as to the future performance of
the Eclipse and CardioGenesis.
- PaineWebber also relied upon assurances of the management of Eclipse and
CardioGenesis that they are unaware of any facts that would make the
information or financial forecasts provided to PaineWebber incomplete or
misleading.
- PaineWebber did not make any independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Eclipse or
CardioGenesis nor was PaineWebber furnished with any such evaluations or
appraisals.
PaineWebber has also assumed the following with Eclipse's consent:
- The merger will be a tax-free reorganization.
- The merger will be accounted for under the pooling-of-interests
accounting treatment.
- Any material liabilities (contingent or otherwise, known or unknown) of
Eclipse and CardioGenesis were as set forth in the consolidated financial
statements of Eclipse and CardioGenesis.
No opinion was expressed in the PaineWebber opinion as to the price at which the
securities of Eclipse may trade at any time. The PaineWebber opinion was based
on economic, monetary and market conditions existing on the date of the opinion.
The following paragraphs summarize the material analyses performed by
PaineWebber in arriving at the PaineWebber opinion.
Stock trading history. PaineWebber reviewed trading prices for the shares of
CardioGenesis common stock. This stock trading history review indicated that for
CardioGenesis' latest twelve months ended October 19, 1998, the low and high
closing prices were $1.75 and $9.50. PaineWebber also reviewed CardioGenesis
stock price averages over periods prior to October 19, 1998 as set forth in the
following table.
<TABLE>
<CAPTION>
TRADING PERIOD AVERAGE PRICE
-------------- -------------
<S> <C>
Latest 30 days............................ $2.41
Latest 60 days............................ $2.71
Latest 90 days............................ $3.36
Latest 120 days........................... $3.81
</TABLE>
PaineWebber also reviewed trading prices for the shares of Eclipse common stock.
This stock trading history review indicated that for Eclipse's last twelve
months ended October 19, 1998, the low and high closing prices were $5.50 and
$13.50. PaineWebber also reviewed Eclipse stock price averages over periods
prior to October 19, 1998 as set forth in the following table.
<TABLE>
<CAPTION>
TRADING PERIOD AVERAGE PRICE
-------------- -------------
<S> <C>
Latest 30 days............................ $ 8.88
Latest 60 days............................ $ 7.75
Latest 90 days............................ $ 9.88
Latest 120 days........................... $10.56
</TABLE>
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<PAGE> 50
Exchange ratio analysis. PaineWebber calculated exchange ratios based on the
trading price relationship between CardioGenesis common stock and Eclipse common
stock from May 30, 1996 to October 19, 1998. This exchange ratio review
indicated that the low and high implied CardioGenesis/Eclipse exchange ratio
were 0.2238x and 2.6000x. PaineWebber also reviewed the CardioGenesis/Eclipse
exchange ratio on the dates set forth in the following table.
<TABLE>
<CAPTION>
DATE EXCHANGE RATIO
---- --------------
<S> <C>
October 19, 1998......................... 0.3333x
30 days prior............................ 0.2676x
60 days prior............................ 0.4355x
90 days prior............................ 0.5506x
120 days prior........................... 0.4734x
One year prior........................... 1.1429x
</TABLE>
Selected comparable public company analysis. Using publicly available
information, PaineWebber compared selected historical and projected financial,
operating and stock market performance data of CardioGenesis and Eclipse to the
corresponding data of the comparable companies. The comparable companies
consisted of:
<TABLE>
<S> <C>
CardioGenesis Cambridge Heart, Inc.
Eclipse Endosonics Corporation
PLC Systems Inc. Heartport, Inc.
Arthrocare Corporation Perclose, Inc.
ATS Medical, Inc. Thoratec Laboratories Corporation
</TABLE>
PaineWebber reviewed, among other information, the comparable companies'
multiples of total enterprise value (market value plus total debt less cash and
cash equivalents as of June 30, 1998) to (1) projected calendar year 1999
revenue and (2) projected calendar year 2000 revenue. PaineWebber also reviewed,
among other information, the comparable companies' multiples of market value to
(1) projected calendar year 1999 earnings per share (EPS) and (2) projected
calendar year 2000 EPS. All projected calendar year 1999 and 2000 estimates were
based on publicly available research estimates for the comparable companies and
on the projections for CardioGenesis and Eclipse as provided by Eclipse
management. The comparable companies analysis resulted in the following range of
values as of October 19, 1998:
<TABLE>
<CAPTION>
ANALYSIS MULTIPLE RANGE
-------- --------------
<S> <C>
Projected calendar year 1999 revenue.... 1.01x to 4.60x
Projected calendar year 2000 revenue.... 0.18x to 3.33x
Projected calendar year 1999 EPS........ 9.1x to 87.5x
Projected calendar year 2000 EPS........ 4.4x to 18.9x
</TABLE>
When Eclipse and CardioGenesis were excluded from the comparable companies the
same multiple ranges resulted as above, except the projected calendar year 1999
EPS ranged from 12.7x to 87.5x and the projected calendar year 2000 EPS ranged
from 12.6x to 18.9x.
PaineWebber applied the comparable companies' median multiples to CardioGenesis'
projected calendar year 1999 and 2000 revenue and EPS, as provided by Eclipse
management, and derived a range of fully diluted equity values for CardioGenesis
of $8.51 to $23.12 per CardioGenesis share. Based on a closing stock price of
$8.25 for Eclipse
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<PAGE> 51
common stock as of October 19, 1998, such derived equity value range for
CardioGenesis implied an exchange ratio range of 1.0314x to 2.8027x.
Discounted cash flow analysis. PaineWebber analyzed CardioGenesis based on an
unleveraged discounted cash flow analysis of CardioGenesis projections, as
provided by Eclipse management. The discounted cash flow analysis determined the
discounted present value of the unleveraged after-tax cash flows generated over
the time period included in the projections and then added a terminal value
based upon a range of revenue multiples from 1.00x to 1.75x and earnings before
interest and taxes (EBIT) multiples from 8.0x to 11.0x. The unleveraged
after-tax cash flows and terminal value were discounted using a range of
discount rates from 15.0% to 22.5%. Based on this analysis, PaineWebber derived
a range of possible CardioGenesis fully diluted equity values of $10.66 to
$23.58 per share. Based on the closing stock price of $8.25 for Eclipse Common
Stock on October 19, 1998, this range of equity values implied an exchange ratio
range of 1.2924x to 2.8581x.
PaineWebber also analyzed Eclipse based on an unleveraged discounted cash flow
analysis of Eclipse projections, as provided by Eclipse management. The
discounted cash flow analysis was performed using the same methodology, range of
terminal value multiples and range of discount rates as were utilized in the
analysis of CardioGenesis above. Based on this analysis, PaineWebber derived a
range of possible Eclipse fully diluted equity values of $6.41 to $9.59 per
share.
Premiums paid analysis. PaineWebber reviewed purchase price per share premiums
paid in 153 publicly-disclosed cash and stock merger transactions announced
since January 1, 1998 with market values between $30.0 million and $200.0
million. PaineWebber also reviewed purchase price per share premiums paid in 21
publicly-disclosed cash and stock merger transactions of companies affiliated
with the life sciences sector announced since January 1, 1997 with market values
between $30.0 million and $200.0 million. This analysis indicated mean premiums
to the target's closing stock price as indicated in the following table:
<TABLE>
<CAPTION>
DATE PRIOR TO MEAN OF MEAN OF LIFE SCIENCES
ANNOUNCEMENT ALL TRANSACTIONS TRANSACTIONS
------------- ---------------- ---------------------
<S> <C> <C>
One Day 27.6% 21.4%
One Week 34.4 29.3
Four Weeks 37.0 41.0
</TABLE>
Based on the closing prices of CardioGenesis' common stock one day, one week and
four weeks prior to its closing stock price of October 19, 1998, applying the
mean premiums to the applicable stock prices yielded fully diluted equity values
of $2.91 to $3.83 per share. Based on the closing stock price of $8.25 for
Eclipse common stock on October 19, 1998, this range of equity values implied an
exchange ratio range of 0.3526x to 0.4642x.
Selected comparable mergers and acquisitions analysis. PaineWebber reviewed
publicly available financial information for selected mergers and acquisitions
involving companies that are affiliated with the life sciences sector. The
selected mergers and acquisitions PaineWebber analyzed included
(acquiror/target):
- Medtronic, Inc./Instent Inc.
- St. Jude Medical Inc./Ventritex, Inc.
- Endosonics Corporation/Cardiometrics, Inc.
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<PAGE> 52
- Johnson & Johnson/Biopsys Medical, Inc.
- Guidant Corporation/EndoVascular Tech.
- Hewlett-Packard Company/Heartstream Inc.
- Medtronic, Inc./Physio-Control International Corporation
- Medtronic, Inc./AVECOR Cardiovascular Inc.
- Guidant Corporation/InControl Inc.
PaineWebber reviewed the consideration paid (based on stock prices on the day
prior to the announcement of the transaction) in the comparable transactions and
calculated the multiples of total enterprise value to the following:
- the target's last twelve months (prior to the announcement of the
transaction) revenue;
- the target's projected one-year forward revenue;
- the target's projected two-year forward revenue;
- the target's projected one-year forward EBIT;
- the target's projected two-year forward EBIT
PaineWebber also calculated multiples of market value to (1) projected one-year
forward EPS and (2) projected two-year forward EPS. All projected one-year and
two-year forward results were based on publicly available research estimates
prior to the announcement of the transaction. PaineWebber also reviewed
multiples of the consideration paid to the target's book value. The comparable
transactions analysis resulted in the following range of values:
<TABLE>
<CAPTION>
ANALYSIS MULTIPLE RANGE
-------- ---------------
<S> <C>
Last twelve months revenue..................... 2.02x to 79.72x
Projected one-year forward revenue............. 1.91x to 18.43x
Projected two-year forward revenue............. 1.78x to 7.37x
Projected one-year forward EBIT................ 20.4x to 90.9x
Projected two-year forward EBIT................ 16.6x to 25.0x
Projected one-year forward EPS................. 26.4x to 98.4x
Projected two-year forward EPS................. 8.3x to 37.2x
Book value..................................... 2.7x to 43.4x
</TABLE>
Contribution analysis. PaineWebber analyzed Eclipse's and CardioGensis' relative
contribution to the combined entity with respect to projected revenue, EBIT and
pre-tax income based on projections provided by Eclipse management including
synergies. Based on the exchange ratio, holders of CardioGenesis common stock
will own approximately 35.2% of
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<PAGE> 53
the common stock outstanding of the combined company after giving effect to the
merger. CardioGenesis is estimated to contribute to the combined entity as
follows:
<TABLE>
<CAPTION>
ANALYSIS CONTRIBUTION
-------- ------------
<S> <C>
Projected 1999 revenue.............................. 32.0%
Projected 2000 revenue.............................. 45.9%
Projected 1999 EBIT................................. 41.6%
Projected 2000 EBIT................................. 55.6%
Projected 1999 pre-tax income....................... 41.4%
Projected 2000 pre-tax income....................... 53.1%
</TABLE>
The results of this contribution analysis are not necessarily indicative of the
contributions that the respective businesses may have in the future.
Pro forma merger analysis. PaineWebber performed an analysis of the potential
pro forma effect of the merger on Eclipse's projected EPS for the fiscal years
1999 through 2003. In performing this analysis, PaineWebber assumed, with
Eclipse's consent, (1) the merger would be accounted for under the
pooling-of-interests method of accounting; and (2) synergies may be achieved as
a result of the merger. PaineWebber combined the projected operating results of
Eclipse (provided by Eclipse management) with the projected operating results of
CardioGenesis (provided by Eclipse management) to arrive at the combined company
projected net income. PaineWebber divided this by the pro forma fully diluted
shares outstanding to arrive at a combined company fully diluted EPS.
PaineWebber then compared the combined company projected EPS to Eclipse's
projected EPS based on the projections to determine the pro forma impact on
Eclipse's projected EPS.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant quantitative methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Accordingly, PaineWebber believes that its analysis must be
considered as a whole and that considering any portion of such analysis and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the PaineWebber
opinion. In its analyses, PaineWebber made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Eclipse and CardioGenesis. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses relating
to the value of businesses do not purport to be appraisals or to reflect the
prices at which businesses may actually be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. Due to the
substantial uncertainty inherent in and the subjective nature of the assumptions
underlying its analyses and estimates, PaineWebber's opinion is necessarily
qualified by the accuracy of these assumptions. PaineWebber cannot and does not
guarantee the accuracy of these assumptions.
Eclipse selected PaineWebber to render a fairness opinion in connection with the
merger because PaineWebber is a prominent investment banking and financial
advisory firm with experience in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes.
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<PAGE> 54
Pursuant to an engagement letter between Eclipse and PaineWebber dated October
5, 1998, PaineWebber earned a fee of $500,000 for rendering the opinion. In
addition, PaineWebber will be reimbursed for certain of its related expenses.
Eclipse also agreed, under separate agreement, to indemnify PaineWebber, its
affiliates and each of its directors, officers, agents and employees and each
person, if any, controlling PaineWebber or any of its affiliates against certain
liabilities, including liabilities under federal securities laws.
In the past, PaineWebber and its affiliates, have provided investment banking
services to Eclipse and have received customary fees for rendering these
services.
In the ordinary course of PaineWebber's business, PaineWebber may actively trade
the securities of Eclipse and CardioGenesis for its own account and for the
accounts of its customers and, accordingly, may at any time hold long or short
positions in such securities.
BEAR STEARNS OPINION
CardioGenesis retained Bear Stearns to act as its financial advisor in
connection with the merger. In connection with such engagement, CardioGenesis
requested that Bear Stearns render its opinion as to the fairness, from a
financial point of view, of the exchange ratio to the public stockholders of
CardioGenesis.
On October 21, 1998, in connection with the evaluation of the merger by the
CardioGenesis Board, Bear Stearns rendered its oral opinion that, as of such
date, and subject to certain assumptions, factors and limitations described
below, the exchange ratio was fair, from a financial point of view, to the
public stockholders of CardioGenesis. Bear Stearns also delivered a written
opinion to the CardioGenesis Board, that, as of October 21, 1998, the exchange
ratio was fair, from a financial point of view, to the public stockholders of
CardioGenesis.
THE FULL TEXT OF THE BEAR STEARNS FAIRNESS OPINION, WHICH SETS FORTH THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN IN CONNECTION WITH SUCH OPINION, IS ATTACHED AS APPENDIX C TO
THIS JOINT PROXY STATEMENT/ PROSPECTUS. STOCKHOLDERS ARE URGED TO READ THE BEAR
STEARNS OPINION IN ITS ENTIRETY. THE BEAR STEARNS OPINION ADDRESSES ONLY THE
EXCHANGE RATIO UNDER THE REORGANIZATION AGREEMENT AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY CARDIOGENESIS STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE AT THE CARDIOGENESIS SPECIAL MEETING. THE DESCRIPTION OF THE BEAR
STEARNS OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Bear Stearns:
- reviewed the reorganization agreement dated October 21, 1998;
- reviewed CardioGenesis' and Eclipse's Annual Reports to Stockholders and
Annual Reports on Form 10-K for the fiscal years ended December 31, 1996
and December 31, 1997, and Quarterly Reports on Form 10-Q for the periods
ended March 31, 1998 and June 30, 1998;
- reviewed certain operating and financial information, including
projections, provided to it by management relating to CardioGenesis' and
Eclipse's business and prospects;
- met with certain members of CardioGenesis' and Eclipse's senior
management to discuss each company's operations, historical financial
statements and future
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prospects, including, without limitation, the timing and extent of
regulatory approvals and successful commercial introductions of certain
products;
- reviewed the historical market prices and trading volumes of the common
shares of CardioGenesis and Eclipse;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which Bear Stearns deemed generally
comparable to CardioGenesis and Eclipse;
- reviewed the terms of recent mergers and acquisitions of companies which
Bear Stearns deemed generally comparable to CardioGenesis and the merger;
- considered the pro forma effects of the merger on Eclipse's revenues,
operating income, and earnings, including pre-tax amounts of synergies
expected by CardioGenesis and Eclipse following the merger; and
- conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
In conducting its analysis, Bear Stearns relied upon and assumed, without
independent verification, the following:
- the accuracy and completeness of the financial and other projections
provided by CardioGenesis' and Eclipse's senior managements;
- the best currently available estimates and judgements of the senior
managements of CardioGenesis and Eclipse with respect to potential
synergies which could be achieved upon completion of the merger;
- the assumptions made by the senior managements of CardioGenesis and
Eclipse regarding the timing and extent of regulatory approvals and
reimbursement and successful introductions of certain products and that
the receipt and timing of regulatory approvals and reimbursement and
successful commercial introductions have a material impact on the
projected financial results of the respective companies and potential
synergies;
- the assurances of the senior managements of CardioGenesis and Eclipse
that they were unaware of any facts that would make the information or
projections provided incomplete or misleading; and
- the merger will qualify as a tax-free "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code and that the merger will
qualify as a pooling of interests under GAAP.
In arriving at its opinion, Bear Stearns did not perform or obtain any
independent appraisals of the assets or liabilities of CardioGenesis or Eclipse,
nor were they furnished with any such appraisals.
The Bear Stearns opinion was necessarily based on economic, market and other
conditions, and the information made available to Bear Stearns, as of the date
of the Bear Stearns opinion. Bear Stearns did not express any opinion as to the
price or range of prices at which shares of common stock of Eclipse may trade
prior to or subsequent to the consummation of the merger.
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<PAGE> 56
In connection with preparing and rendering its opinion, Bear Stearns performed a
variety of valuation, financial and comparative analyses. The summary of such
analyses, as set forth below, does not purport to be a complete description of
the analyses underlying the Bear Stearns opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to summary
description. Bear Stearns believes that its analyses must be considered as a
whole, and that selecting portions of its analyses and the factors considered by
it without considering all such factors and analyses, could create an incomplete
view of the processes underlying the Bear Stearns opinion. Moreover, the
estimates contained in such analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
may actually be sold. Accordingly, such estimates are inherently subject to
substantial uncertainties.
The following is a summary of the material valuation, financial and comparative
analyses presented by Bear Stearns to the CardioGenesis Board of Directors on
October 21, 1998 in connection with its opinion as of such date.
Historical Stock Performance. Bear Stearns reviewed the performance of the per
share stock market price and equity value of CardioGenesis common stock and
Eclipse common stock for selected time periods since the initial public offering
of each company. Time periods selected were; at the initial public offering,
first close after the initial public offering, average from initial public
offering to October 21, 1998, trailing 2-year, 12-month, 6-month, 3-month, and
30-day averages and closing price as of October 21, 1998.
The share prices and equity values on the selected dates were as follows:
<TABLE>
<CAPTION>
CARDIOGENESIS ECLIPSE SURGICAL
-------------------------- --------------------------
SHARE PRICE EQUITY VALUE SHARE PRICE EQUITY VALUE
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
At IPO............................ $20.00 $238.5 $16.00 $250.9
First close after IPO............. 20.50 244.5 16.50 258.8
IPO -- October 21, 1998........... 9.75 119.1 8.91 154.1
Trailing 2-year average........... 9.14 111.6 8.42 145.6
Trailing 12-months average........ 6.08 74.2 8.88 153.5
Trailing 6-months average......... 4.50 55.0 9.23 159.6
Trailing 3-months average......... 3.29 40.2 7.63 131.9
Trailing 30-days average.......... 2.41 29.5 8.04 139.0
Closing price -- October 21,
1998............................ 2.22 27.1 8.78 151.9
</TABLE>
In addition, Bear Stearns reviewed the trading levels of the common stock of
each company at different market prices from the initial public offering to
October 21, 1998. Bear Stearns also reviewed the implied value per share to be
received by CardioGenesis stockholders based on the exchange ratio. Bear Stearns
determined that based on (i) the October 21, 1998 closing price of $2.22 per
share of CardioGenesis common stock and (ii) the October 21, 1998 closing price
of $8.78 per share of Eclipse common stock, the merger implied a value per share
of $7.03 for CardioGenesis common stock, which represented a premium of 216.6%
over the October 21, 1998 closing price.
Pro Forma Merger Analysis. Bear Stearns prepared pro forma analyses of the
financial impact of the merger. Using the actual financial results for the
fiscal year ended
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December 31, 1997, the latest twelve months ended June 30, 1998, the latest
quarter annualized, and projected financial results provided by their respective
managements for the fiscal years ending December 31, 1998 through December 31,
2002, for both CardioGenesis and Eclipse, Bear Stearns compared the results of
the respective companies on a stand-alone basis with the results of the
companies combined on a pro forma basis to give effect to the merger. These
comparisons were based on the following assumptions: (a) an exchange ratio of
0.80 and (b) the merger being accounted for as a pooling of interests. The
analysis indicated that the proposed transaction would be accretive to
CardioGenesis stockholders in the years 1998-2001 and dilutive to earnings in
2002. From the pro forma analyses, Bear Stearns performed the Relative
Contribution Analysis and Has/Gets Analysis outlined below.
Relative Contribution Analysis. Bear Stearns calculated the relative
contribution by each of CardioGenesis and Eclipse to the combined company
(assuming no synergies) with respect to revenue, EBIT and net income. In 1998 to
2000, CardioGenesis, on a stand-alone basis expects to be operating at a loss
and thus a relative contribution analysis is not meaningful. CardioGenesis'
relative contribution to the combined company in the years 1998 - 2002 is as
follows:
<TABLE>
<CAPTION>
CARDIOGENESIS RELATIVE CONTRIBUTION
------------------------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue..................................... 34% 21% 37% 42% 44%
EBIT........................................ NM NM NM 27 49
Net Income.................................. NM NM NM 27 48
</TABLE>
By way of comparison, Bear Stearns observed that the exchange ratio would result
in holders of CardioGenesis common stock receiving a 36% ownership position in
the newly combined company.
Has/Gets Analysis. Bear Stearns also conducted a has/gets analysis for 1998-2002
estimated revenues, EBIT and earnings per share. Giving effect to the exchange
ratio, the has/gets analysis, assuming synergies, implies the merger would be
accretive to CardioGenesis stockholders in 1998, 1999, 2000 and 2001, and
dilutive to CardioGenesis stockholders in 2002. In performing such analyses Bear
Stearns did not take into account any future equity financings by either company
which may be required to fund future operations. Pro forma for the merger, the
effect on earnings per share to CardioGenesis stockholders is as follows:
<TABLE>
<CAPTION>
CARDIOGENESIS EARNINGS PER SHARE
ACCRETION/(DILUTION), ASSUMING SYNERGIES
------------------------------------------
1998 1999 2000 2001 2002
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
CardioGenesis earnings per share...... $(2.04) $(1.54) $(0.31) $ 0.55 $ 1.45
Earnings per share after the merger... (1.26) 0.09 0.53 0.84 1.22
Earnings per share
accretion/(dilution)................ 0.77 1.63 0.84 0.29 (0.23)
</TABLE>
Comparable Company Analysis. Bear Stearns compared certain operating, financial,
trading and valuation information for CardioGenesis and Eclipse to certain
publicly available operating, financial, trading and valuation information of
seven selected small capitalization medical device companies, which, in Bear
Stearns' judgement, were the most
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comparable to CardioGenesis and Eclipse for the purposes of this analysis. These
companies included:
- CardioThoracic Systems Inc.,
- Computer Motion, Inc.,
- EndoSonics Corporation,
- Heartport, Inc.,
- Novoste Corporation,
- Perclose Inc., and
- PLC Systems Inc.
Bear Stearns' analysis was based on the closing prices on October 21, 1998. For
comparative purposes, Bear Stearns calculated the implied price per share and
related valuation multiples for CardioGenesis based on the October 21, 1998
Eclipse closing stock price of $8.78, which implied a per share price of $7.03
for CardioGenesis. The comparable companies analysis resulted in the following
set of valuation multiples relative to the merger:
<TABLE>
<CAPTION>
SELECTED
COMPARABLE COMPANIES
----------------------
MERGER LOW HIGH MEAN
------ ---- ----- -----
<S> <C> <C> <C> <C>
Price/2000 estimated earnings per share.......... 12.8x 9.2x 42.1x 14.6x
Price/2001 estimated earnings per share.......... 4.8 3.3 17.1 5.9
</TABLE>
Bear Stearns noted in its analysis that all of the comparable companies selected
were small capitalization, early-stage medical device companies operating at a
loss, as are CardioGenesis and Eclipse, and thus the derivation of meaningful
valuation parameters was limited.
Precedent Transaction Analysis. Bear Stearns reviewed and analyzed the publicly
available financial terms of five selected precedent merger and acquisition
transactions. In Bear Stearns' judgement these were the most comparable recent
transactions involving small capitalization target companies in the medical
device industry. These five transactions included:
- Johnson & Johnson's pending acquisition of FemRx,
- Hewlett Packard's acquisition of Heartstream,
- Johnson & Johnson's acquisition of Gynecare,
- Urohealth Systems' acquisition of Imagyn Medical, and
- EndoSonics' acquisition of Cardiometrics.
Bear Stearns reviewed the prices paid in the precedent transactions and analyzed
various operating and financial information and imputed premiums paid, valuation
multiples and ratios. For comparative purposes, Bear Stearns calculated the
Enterprise Value / latest twelve months revenue multiple, premium paid over the
prior day's closing stock price, and premium paid over the average closing price
for four weeks prior for CardioGenesis based on the 0.80 exchange ratio. Bear
Stearns noted that all of the target companies used in the
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analysis were small capitalization, early-stage medical device companies
operating at a loss, as are CardioGenesis and Eclipse, and thus the derivation
of meaningful valuation parameters was limited. The precedent transaction
analysis resulted in the following set of valuation multiples relative to the
merger:
<TABLE>
<CAPTION>
SELECTED
PRECEDENT TRANSACTIONS
-----------------------
MERGER LOW HIGH MEAN
------ ----- ----- -----
<S> <C> <C> <C> <C>
Enterprise Value / latest twelve months
revenue....................................... 11.7x 1.8x 17.9x 7.6x
Premium paid / prior day's closing stock
price......................................... 217% (7.4%) 41.2% 21.2%
Premium paid / average closing stock price for
four weeks prior.............................. 167% (9.3%) 81.4% 46.5%
</TABLE>
Pursuant to its engagement letter, dated October 5, 1998, CardioGenesis is
obligated to pay Bear Stearns an opinion fee of $350,000 and an advisory fee of
$500,000. The opinion fee is to be credited against the advisory fee.
CardioGenesis has also agreed to reimburse Bear Stearns for its reasonable
out-of-pocket expenses, including fees and expenses of legal counsel, and to
indemnify Bear Stearns and certain related persons against certain liabilities.
Bear Stearns previously acted as an underwriter in connection with
CardioGenesis' initial public offering on May 22, 1996. In the ordinary course
of business, Bear Stearns may actively trade the equity securities of
CardioGenesis for its own account and for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Bear Stearns is an internationally recognized investment banking firm and was
selected as financial advisor to CardioGenesis in connection with the merger and
was asked to render its opinion in connection with the merger based on Bear
Stearns' qualifications, expertise and reputation in providing advice to
companies in the health care industry, as well as its familiarity with
CardioGenesis and Eclipse. As part of its investment banking business, Bear
Stearns is regularly engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive bidding, secondary distribution of listed and unlisted securities,
private placements and valuation for estate, corporate and other purposes.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax consequences
of the merger that are generally applicable to CardioGenesis stockholders
exchanging their CardioGenesis common stock for Eclipse common stock. This
discussion is based on U.S. federal income tax law, including the Internal
Revenue Code, regulations, rulings, decisions and administrative practice, all
as in effect on the date hereof. Future legislation, regulations, administrative
interpretations or court decisions could change such laws either prospectively
or retroactively. This discussion is also based on the opinions of legal counsel
referred to below. This discussion does not deal with all income tax
considerations that may be relevant to particular CardioGenesis stockholders in
light of their particular circumstances, such as stockholders who are dealers in
securities, who are foreign persons, who acquired their shares in connection
with previous mergers involving CardioGenesis or an affiliate or who acquired
their shares in connection with stock option or stock purchase plans or in other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of transactions effectuated prior to or after the
merger
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(whether or not such transactions are in connection with the merger), including
without limitation transactions in which shares of CardioGenesis common stock
were or are acquired or shares of Eclipse common stock were or are disposed of.
Furthermore, no foreign, state or local tax considerations are addressed herein.
Accordingly, CardioGenesis stockholders are urged to consult their own tax
advisors as to the specific tax consequences of the merger, including the
applicable federal, state, local and foreign tax consequences to them of the
merger.
Eclipse and CardioGenesis have each received an opinion from their legal
counsel, WSGR and Heller Ehrman, respectively, to the effect that, for federal
income tax purposes, the merger will qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code. As a reorganization, the
merger will have the following federal income tax consequences (subject to the
limitations and qualifications referred to herein):
- no gain or loss will be recognized by CardioGenesis stockholders (except
that cash received in lieu of fractional shares may cause recognition of
gain or loss) upon their receipt of Eclipse common stock in the merger in
exchange for CardioGenesis common stock;
- cash payments in lieu of a fractional share will be treated as if such
fractional share of Eclipse common stock had been issued in the merger
and then redeemed by Eclipse. A CardioGenesis stockholder receiving such
cash will generally recognize capital gain or loss upon such payment
equal to the difference (if any) between such stockholder's basis in the
fractional share and the amount of cash received;
- the aggregate tax basis of the Eclipse common stock actually received in
the merger by a CardioGenesis stockholder will be the same as the
aggregate tax basis of the CardioGenesis common stock surrendered in
exchange therefor, minus the tax basis allocated to any fractional share
of Eclipse common stock treated as issued and redeemed;
- the holding period of the Eclipse common stock received in the merger by
a CardioGenesis stockholder will include the period during which the
stockholder held the CardioGenesis common stock surrendered in exchange
therefor, provided that the CardioGenesis common stock is held as a
capital asset at the time of the merger; and
- none of Eclipse, merger sub or CardioGenesis will recognize gain or loss
solely as a result of the merger.
The parties are not requesting a ruling from the IRS in connection with the
merger. The tax opinions referred to above neither bind the IRS or a court nor
preclude the IRS or a court from adopting a contrary position. In addition, the
tax opinions are subject to certain assumptions and qualifications and are based
on the truth and accuracy of certain customary representations made by Eclipse,
merger sub and CardioGenesis, including customary representations in
certificates to be delivered to counsel by the respective managements of
Eclipse, merger sub and CardioGenesis including, for example:
- representations related to the ownership and operations of merger sub and
CardioGenesis;
- the terms of the merger; and
- the conduct of the business of CardioGenesis following the merger.
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<PAGE> 61
A successful IRS challenge to the "reorganization" status of the merger would
result in a CardioGenesis stockholder recognizing gain or loss with respect to
each share of CardioGenesis common stock surrendered equal to the difference
between the stockholder's basis in such share and the fair market value, as of
the effective time of the merger, of the common stock of Eclipse received in
exchange therefor. In such event, a stockholder's aggregate basis in the common
stock of Eclipse so received would equal such fair market value and his holding
period for such stock would begin the day after the merger.
If either Eclipse or CardioGenesis waives the condition that requires delivery
of a tax opinion from its respective legal counsel and such waiver is due to a
material change in the tax consequences of the merger, Eclipse and CardioGenesis
will notify their respective shareholders of such change, and if shareholder
approval has already been obtained, such approval will be resolicited.
GOVERNMENTAL AND REGULATORY APPROVALS
The parties were not required to file notifications and furnish information to
comply with requirements of the HSR Act to the Federal Trade Commission or the
Department of Justice. At any time before or after consummation of the merger,
the DOJ, the FTC or any state or foreign governmental authority, could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
merger or seeking divestiture of CardioGenesis or businesses of Eclipse or
CardioGenesis by Eclipse. Private parties may also seek to take legal action
under the antitrust laws under certain circumstances.
Based on information available to them, Eclipse and CardioGenesis believe that
the merger will be effected in compliance with federal, state and foreign
antitrust laws. However, there can be no assurance that a challenge to the
consummation of the merger on antitrust grounds will not be made or that, if
such a challenge were made, Eclipse and CardioGenesis would prevail.
EXPECTED ACCOUNTING TREATMENT
The merger is intended to qualify as a pooling of interests in accordance with
GAAP. Consummation of the merger is conditioned upon receipt by Eclipse and
CardioGenesis at the closing of the merger of letters from
PricewaterhouseCoopers LLP, to the effect that, after reasonable investigation,
they are not aware of any fact concerning Eclipse or CardioGenesis that could
preclude pooling of interests accounting for the merger under Accounting
Principles Board Opinion No. 16, if consummated according to the terms of the
reorganization agreement.
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<PAGE> 62
THE REORGANIZATION AGREEMENT AND RELATED AGREEMENTS
The following is a summary of the material provisions of the reorganization
agreement and other related agreements. A copy of the reorganization agreement
is attached to this joint proxy statement/prospectus as Appendix A. You are
encouraged to read the entire reorganization agreement.
EFFECTIVE TIME; EFFECT OF MERGER
The closing of the merger will take place at a time and date to be specified by
the parties, which will be no later than the second business day after the
satisfaction or waiver of the conditions set forth in the reorganization
agreement, or at such other time, date and location as CardioGenesis and Eclipse
agree in writing.
At the closing, Eclipse and CardioGenesis will cause the merger to be
consummated by filing a certificate of merger with the Secretary of State of the
State of Delaware in accordance with Delaware law; the time of such filing (or
such later time as may be agreed to in writing by CardioGenesis and Eclipse) is
the "effective time." In connection with the merger, Eclipse formed a
wholly-owned subsidiary, called merger sub in this joint proxy
statement/prospectus, solely for the purpose of effectuating the merger.
At the effective time, the separate corporate existence of merger sub will cease
and CardioGenesis will continue as the surviving corporation. In addition, all
of the debts, liabilities and duties of CardioGenesis and merger sub will vest
in and become debts, liabilities and duties of the surviving corporation.
At the effective time, the certificate of incorporation of merger sub in effect
immediately prior to the effective time will become the certificate of
incorporation of the surviving corporation and the bylaws of merger sub will
become the bylaws of the surviving corporation.
CONVERSION OF SHARES
At the effective time, by virtue of the merger and without any action on the
part of merger sub, CardioGenesis or the holders of any CardioGenesis or merger
sub securities, each share of CardioGenesis common stock issued and outstanding
immediately prior to the effective time will be canceled and converted into 0.80
of a share of Eclipse common stock. Each share of CardioGenesis common stock
held by CardioGenesis, merger sub, Eclipse or any direct or indirect
wholly-owned subsidiary of CardioGenesis or Eclipse immediately prior to the
effective time will be canceled without any conversion thereof.
Each share of common stock of merger sub issued and outstanding immediately
prior to the effective time will be converted into one share of common stock of
the surviving corporation.
The exchange ratio will be adjusted to reflect appropriately the effect of any
stock split, reverse stock split, stock dividend, reorganization,
recapitalization or other like change with respect to Eclipse common stock or
CardioGenesis common stock occurring on or after October 21, 1998 and prior to
the effective time. None of such actions is planned by either company.
No fractional shares of Eclipse common stock will be issued in the merger. Each
holder of CardioGenesis common stock who would otherwise be entitled to a
fraction of a share of
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<PAGE> 63
Eclipse common stock will receive an amount of cash equal to the product of such
fraction multiplied by the value of one share of Eclipse common stock.
Promptly after the effective time, Eclipse will cause the exchange agent to
deliver to each CardioGenesis stockholder of record as of such date a letter of
transmittal and instructions for use in effecting the surrender of certificates
which, prior to the merger, represented shares of CardioGenesis common stock, in
exchange for shares of Eclipse common stock and cash in lieu of fractional
shares. CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF CARDIOGENESIS
COMMON STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM THE
EXCHANGE AGENT. If you have lost your stock certificate, you will be required to
deliver an affidavit of loss and may be required to post a bond.
TREATMENT OF OPTIONS AND STOCK PURCHASE RIGHTS
As of the record date there were options to purchase a total of 2,358,856 shares
of CardioGenesis common stock outstanding.
At the effective time, each outstanding CardioGenesis stock option will be
assumed by Eclipse. Each CardioGenesis stock option so assumed will continue to
be subject to the same terms and conditions set forth in the applicable
CardioGenesis stock option plan immediately prior to the effective time, except
that the number of shares and exercise price of each such CardioGenesis stock
option will be appropriately adjusted for the exchange ratio. It is intended
that the CardioGenesis stock options assumed by Eclipse will qualify as
incentive stock options, as defined in Section 422 of the Internal Revenue Code,
to the extent they qualified as incentive stock options immediately prior to the
effective time.
At the effective time, each right to acquire CardioGenesis common stock
outstanding under the CardioGenesis stock purchase plan will be assumed by
Eclipse and appropriately adjusted for the exchange ratio.
STOCK OWNERSHIP IMMEDIATELY FOLLOWING THE MERGER
Based upon the capitalization of CardioGenesis as of the close of business on
February 8, 1999 and the exchange ratio, an aggregate of approximately 9,908,040
shares of Eclipse common stock will be issued to CardioGenesis stockholders in
the merger and the former holders of CardioGenesis common stock will hold
approximately 36.0% of the total number of shares of Eclipse common stock issued
and outstanding immediately after the merger. At the effective time, Eclipse
will also assume all CardioGenesis options outstanding and all CardioGenesis
stock purchase rights for an aggregate of up to approximately 1,887,085
additional shares of Eclipse common stock. Based upon the number of shares of
Eclipse common stock issued and outstanding as of February 8, 1999, and after
giving effect to the issuance of Eclipse common stock in the merger as described
in the previous sentence, holders of former CardioGenesis options and stock
purchase rights would hold options and rights to acquire up to approximately
6.4% of Eclipse's total issued and outstanding shares immediately after the
effective time of the merger (assuming the exercise of only such options and
rights). The foregoing numbers of shares and percentages are subject to change
in the event that the capitalization of either Eclipse or CardioGenesis changes
subsequent to February 8, 1999.
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REPRESENTATIONS AND WARRANTIES
CardioGenesis, Eclipse and merger sub have made representations and warranties
in the reorganization agreement relating to, among other things:
- their respective capitalization and organization and that of their
respective subsidiaries;
- authorization, execution, delivery and enforceability of the
reorganization agreement and related matters;
- documents and financial statements filed with the SEC and the accuracy of
information contained in such filings;
- absence of undisclosed liabilities;
- taxes, tax returns and tax deficiencies;
- intellectual property rights;
- compliance with laws;
- material litigation;
- brokers' and finders' fees;
- employment, environmental and labor matters;
- title to properties;
- agreements, contracts and commitments;
- ability to account for the merger as a pooling of interests;
- change of control payments;
- accuracy of information provided for this joint proxy
statement/prospectus;
- approvals of the CardioGenesis Board and the Eclipse Board; and
- opinions received from Bear Stearns and PaineWebber regarding the merger.
The reorganization agreement also contains a representation by CardioGenesis
relating to the non-applicability of Section 203 of the Delaware General
Corporation Law. None of the representations and warranties of the parties in
the reorganization agreement described above will survive the effective time.
The parties to the reorganization agreement have agreed to make representations
that will serve as a basis for the tax opinions to be delivered by legal
counsel.
CONDUCT OF ECLIPSE'S AND CARDIOGENESIS' BUSINESS PRIOR TO THE MERGER
Until the earlier of the termination of the reorganization agreement or the
effective time, each of CardioGenesis and Eclipse has agreed to:
- carry on its business diligently in the usual, regular and ordinary
course;
- to pay its debts and taxes when due subject to good faith disputes;
- to pay or perform other material obligations when due; and
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- to preserve intact its present business organization, keep available the
services of its present officers and employees and preserve its
relationships with customers, suppliers, distributors, licensors,
licensees, and others with which it has business dealings.
The reorganization agreement further provides that until the date of the merger,
neither CardioGenesis nor Eclipse will do any of the following:
- waive any stock repurchase rights, change the period of exercisability of
options or restricted stock, reprice any options; or authorize cash
payments in exchange for any options;
- grant severance to any employee, except in amounts consistent with
existing policies and past practices or pursuant to written agreements,
or adopt any new severance plan;
- transfer or license, or otherwise extend, amend or modify any rights to
the CardioGenesis intellectual property rights or the Eclipse
intellectual property rights, as the case may be, or enter into grants to
future patent rights, other than in the ordinary course of business
consistent with past practice; provided, however, that Eclipse will be
permitted to undertake a transaction involving its Microheart subsidiary;
- declare or pay any dividends on, or make any other distributions in
respect of its capital stock, or split, combine or reclassify any capital
stock, or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for any capital stock;
- repurchase any shares of capital stock, except in carrying out existing
rights of repurchase under any stock plan;
- issue or authorize the issuance of any shares of capital stock or any
securities convertible into capital stock, or subscriptions, rights,
warrants or options to acquire capital stock or any securities
convertible into capital stock, other than:
(a) upon the exercise of stock options;
(b) the grant of options to purchase CardioGenesis common stock
or Eclipse common stock, as the case may be, at fair market
value in the ordinary course of business; and
(c) shares of CardioGenesis common stock or Eclipse common stock,
as the case may be, issuable to participants in the Eclipse
1996 Employee Stock Purchase Plan or the CardioGenesis
Purchase Plan consistent with past practice and the terms
thereof;
- amend any charter document or bylaw;
- acquire or agree to acquire any business, corporation or other business
organization, or otherwise acquire or agree to acquire any assets which
are material to the business of CardioGenesis or Eclipse, as the case may
be, or enter into any material joint ventures, strategic partnerships or
alliances;
- sell, lease, license, encumber or otherwise dispose of any properties or
assets which are material, individually or in the aggregate, to the
business of CardioGenesis or
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Eclipse, as the case may be, except in the ordinary course of business
consistent with past practice;
- incur any indebtedness for borrowed money, other than trade payables or
under existing credit facilities, or guarantee any such indebtedness or
the debt of others;
- adopt or amend any employee benefit plan, or enter into any employment
contract, pay any special bonus or special remuneration to any director
or employee, or increase the salaries or wage rates of its officers or
employees other than in the ordinary course of business, consistent with
past practice, or change in any material respect any management policies
or procedures;
- pay, discharge or satisfy any claim, liability or obligation, other than
in the ordinary course of business;
- make any grant of exclusive rights to any third party;
- take any action that would be reasonably likely to interfere with
Eclipse's ability to account for the merger as a pooling of interests; or
- agree in writing or otherwise to take any of the actions described above.
NO SOLICITATION
Until the earlier of the date of the merger or termination of the reorganization
agreement, each of Eclipse and CardioGenesis has agreed that it will not, its
subsidiaries will not, and it will instruct its respective directors, officers,
employees, representatives, investment bankers, agents and affiliates not to:
- solicit or encourage submission of any proposal or offer by any third
party;
- participate in any discussions or negotiations with, or disclose any
non-public information to, any third party relating to an acquisition
proposal as described below; or
- enter into any agreement or understanding with any third party in
connection with any acquisition proposal.
For purposes of the reorganization agreement, an "acquisition proposal" means
any proposal or offer relating to:
- any merger, consolidation, sale of substantial assets or similar
transaction involving the entity or any subsidiaries of the entity;
- sale of 15% or more of the outstanding shares of capital stock of the
entity in a tender or exchange offer or otherwise;
- the acquisition of beneficial ownership or right to acquire beneficial
ownership of, or the formation of any "group" (as defined under Section
13(d) of the Exchange Act) that beneficially owns or has the right to
acquire beneficial ownership of, 15% or more of the then outstanding
shares of capital stock of the entity (except for acquisitions for
passive investment purposes only); or
- any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
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Each of Eclipse and CardioGenesis and their respective Boards, may take the
following actions:
- participate in discussions or negotiations with and/or furnish non-public
information to any third party that has made an unsolicited acquisition
proposal in writing; and
- recommend an unsolicited acquisition proposal if the Board of the
affected company determines in good faith (a) after consultation with its
financial advisor, that such acquisition proposal would result in a
superior proposal, as described below, and (b) following consultation
with outside legal counsel, that the failure to participate in such
discussions or negotiations, or to furnish such information or recommend,
approve or accept such acquisition proposal would violate the Board's
fiduciary duties under applicable law.
For purposes of the reorganization agreement, a "superior proposal" means any
acquisition proposal, made in writing and not initiated, solicited or encouraged
in violation of the reorganization agreement, on terms which the Board of the
affected company determines in good faith, after consultation with its financial
advisor, to be more favorable to its stockholders than the merger.
In addition, each of Eclipse and CardioGenesis has agreed to notify the other in
the event an inquiry or acquisition proposal is made or information or access is
requested, and to furnish to the other the significant terms and conditions of
any acquisition proposal.
Under the reorganization agreement, the CardioGenesis Board is required to
recommend to its stockholders approval and adoption of the merger agreement and
approval of the merger, and the Eclipse Board is required to recommend to its
shareholders the issuance of the Eclipse common stock required by the
reorganization agreement. The Boards may not:
- withdraw or modify, or propose to withdraw or modify, in any manner
adverse to the other company, its approval and recommendation of the
merger agreement and the merger, or the issuance of shares, as the case
may be; or
- approve or recommend, or propose to approve or recommend, any acquisition
proposal unless, in each case, the Board of the affected company has (a)
determined that such acquisition proposal is a superior proposal, (b)
determined in good faith, following consultation with outside legal
counsel, that the failure to take such action would violate the Board's
fiduciary duties under applicable law, and (c) provided the other company
with a copy of the superior proposal 48 hours before.
If either the CardioGenesis Board or the Eclipse Board determine to recommend a
superior proposal to its stockholders, such Board may withdraw, modify or
refrain from making a recommendation concerning the merger and discontinue
soliciting proxies for the approval and adoption of the reorganization agreement
and approval of the merger, or the issuance of the Eclipse common stock, as the
case may be; provided, however, that such company shall remain obligated to hold
and convene its special meeting.
The reorganization agreement provides that Eclipse may undertake a transaction
involving its MicroHeart, Inc. subsidiary and that such a transaction will not
be considered an "acquisition proposal" for purposes of the reorganization
agreement.
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BOARD AND MANAGEMENT OF THE COMBINED COMPANY FOLLOWING THE MERGER
After the effective time, the Board of Directors of the combined company will
consist of seven members, four from Eclipse and three from Cardio-Genesis. The
designees from Eclipse will be Douglas Murphy-Chutorian, M.D., Robert L.
Mortensen, Iain M. Watson and Alan L. Kaganov. The designees from CardioGenesis
will be Allen W. Hill, Jack M. Gill and Robert C. Strauss. If, prior to the
effective time, any of the Eclipse or CardioGenesis designees declines or is
unable to serve, then the company designating such person will designate another
person, reasonably acceptable to the other company, to serve in such person's
stead.
At the effective time, the Eclipse Board will elect Douglas Murphy-Chutorian,
M.D., as Chairman of the Board; Allen W. Hill as Chief Executive Officer and
Richard P. Powers as Executive Vice President of Finance and Administration and
Chief Financial Officer and Secretary.
CONDITIONS TO THE MERGER
The respective obligations of each party to the reorganization agreement to
effect the merger are subject to the satisfaction or waiver at or prior to the
effective time of the following conditions:
- Eclipse shareholders and CardioGenesis stockholders shall have approved
the issuance of Eclipse common stock in the merger and the reorganization
agreement and the merger, respectively;
- the SEC shall have declared effective the registration statement of which
this joint proxy statement/prospectus is a part, and the registration
statement shall not be subject to any stop order suspending its
effectiveness or to any proceedings seeking a stop order;
- no governmental entity shall have taken any action which renders the
merger illegal or prohibits the consummation of the merger;
- Eclipse and CardioGenesis will each have received written opinions from
its legal counsel to the effect that the merger will constitute a
tax-free reorganization within the meaning of Section 368(a) of the Code;
- the shares of Eclipse common stock issuable to CardioGenesis stockholders
and such other shares required to be reserved for issuance in connection
with the merger will have been authorized for listing on Nasdaq; and
- each of Eclipse and CardioGenesis will have received a letter from its
independent accountants to the effect that they are not aware of any fact
that could preclude Eclipse from accounting for the merger as a pooling
of interests in accordance with GAAP.
In addition, the obligation of CardioGenesis to consummate the merger is subject
to the satisfaction or waiver at or prior to the effective time of each of the
following conditions:
- the representations and warranties of Eclipse and merger sub contained in
the reorganization agreement will be true and correct;
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- Eclipse and merger sub will have performed or complied in all material
respects with all agreements and covenants required by the reorganization
agreement to be performed or complied with by them on or prior to the
effective time; and
- no material adverse effect with respect to Eclipse will have occurred
since the date of the reorganization agreement.
Furthermore, the obligations of Eclipse and merger sub to consummate and effect
the merger are subject to the satisfaction or waiver at or prior to the
effective time of each of the following additional conditions:
- the representations and warranties of CardioGenesis contained in the
reorganization agreement will be true and correct;
- CardioGenesis will have performed or complied in all material respects
with all agreements and covenants required by the reorganization
agreement to be performed or complied with by it on or prior to the
effective time; and
- no material adverse effect with respect to CardioGenesis will have
occurred since the date of the reorganization agreement.
TERMINATION OF THE REORGANIZATION AGREEMENT
The reorganization agreement provides that it may be terminated at any time
prior to the effective time:
- by the mutual written consent of Eclipse and CardioGenesis;
- by either Eclipse or CardioGenesis if the merger has not been consummated
by April 30, 1999; provided, that this right to terminate the
reorganization agreement is not available to any party that breached its
obligations under the reorganization agreement in a manner that resulted
in the failure of the merger to occur on or before such date;
- by either Eclipse or CardioGenesis if a governmental entity takes any
action, which is final and not appealable, that permanently restrains,
enjoins or otherwise prohibits the merger;
- by either Eclipse or CardioGenesis if the required shareholder approvals
have not been obtained by reason of the failure to obtain the required
vote at the CardioGenesis special meeting or the Eclipse special meeting;
provided, that this right to terminate the reorganization agreement is
not available to any party that breached its obligations under the
reorganization agreement in a manner that caused the failure to obtain
such shareholder approval;
- by Eclipse, if the CardioGenesis Board recommends a superior proposal to
its stockholders, or if the CardioGenesis Board withholds, withdraws or
modifies in a manner adverse to Eclipse its recommendation concerning the
merger;
- by CardioGenesis, if the Eclipse Board recommends a superior proposal to
its shareholders, or if the Eclipse Board withholds, withdraws or
modifies in a manner adverse to CardioGenesis its recommendation
concerning the issuance of shares of Eclipse common stock in the merger;
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- by CardioGenesis, upon a breach of any representation, warranty, covenant
or agreement on the part of Eclipse set forth in the reorganization
agreement, or if any representation or warranty of Eclipse shall have
become untrue; provided, that if such inaccuracy or breach is curable
prior to April 30, 1999 through the exercise of commercially reasonable
efforts, then CardioGenesis may not terminate the reorganization
agreement if Eclipse continues to exercise commercially reasonable
efforts to cure such breach; or
- by Eclipse, upon a breach of any representation, warranty, covenant or
agreement on the part of CardioGenesis set forth in the reorganization
agreement, or if any representation or warranty of CardioGenesis shall
have become untrue; provided, that if such inaccuracy or breach is
curable prior to April 30, 1999 through the exercise of commercially
reasonable efforts, then Eclipse may not terminate the reorganization
agreement if CardioGenesis continues to exercise such commercially
reasonable efforts to cure such breach.
TERMINATION FEES
All fees and expenses incurred in connection with the reorganization agreement
and the transactions contemplated thereby will be paid by the party incurring
such expenses whether or not the merger is completed, except that Eclipse and
CardioGenesis will share equally all fees and expenses, other than attorneys'
and accountants' fees and expenses, incurred in connection with the printing and
filing of this joint proxy statement/prospectus.
Each of Eclipse and CardioGenesis has agreed that if (a) its Board withholds,
withdraws or modifies, in a manner adverse to the other, its recommendation
under the reorganization agreement, or (b) its Board recommends a superior
proposal to its shareholders, then it will pay to the other party a $3 million
termination fee within one business day of the earlier of the termination of the
reorganization agreement by the other party or a negative vote at the Eclipse
special meeting or at the CardioGenesis special meeting, as appropriate.
The termination fee will also be payable in the event:
- either of the special meetings is not held on or before April 30, 1999 or
a negative vote on the reorganization agreement and the merger, or the
issuance of shares, is recorded at the CardioGenesis or Eclipse special
meeting;
- the other party terminates the reorganization agreement in accordance
with its terms; and
- the party who failed to hold its special meeting or at which the negative
vote was recorded either enters into a definitive agreement with respect
to an acquisition proposal or consummates such a transaction, within nine
months of the failed meeting date or the negative vote.
Eclipse and CardioGenesis have agreed that payment of the termination fees will
not be the exclusive remedy in the event of a breach of the reorganization
agreement.
VOTING AGREEMENTS
Each of the directors and executive officers of Eclipse, who together held
approximately 28% of the Eclipse common stock outstanding as of the record date,
have entered into voting agreements with CardioGenesis and granted it
irrevocable proxies. These share-
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holders, as such, have agreed to vote all of their shares of Eclipse common
stock in favor of the issuance of shares of Eclipse common stock in the merger.
Each of the directors and executive officers of CardioGenesis, who together held
approximately 29% of the CardioGenesis common stock outstanding as of the record
date, have entered into voting agreements with Eclipse and granted it
irrevocable proxies. These stockholders, as such, have agreed to vote all of
their shares of CardioGenesis common stock in favor of the approval and adoption
of the reorganization agreement and approval of the merger.
AFFILIATE AGREEMENTS
Each of the directors and executive officers of Eclipse have entered into
agreements restricting sales, dispositions or other transactions reducing their
risk of investment in respect of the shares of Eclipse common stock held by them
to help ensure that the merger will be treated as a pooling of interests for
accounting purposes. Each of the directors and executive officers of
CardioGenesis have similarly entered into agreements restricting sales,
dispositions or other transactions reducing their risk of investment in respect
of the shares of CardioGenesis common stock held by them prior to the merger and
the shares of Eclipse common stock received by them in the merger so as to
comply with the requirements of applicable federal securities and tax laws and
to help ensure that the merger will be treated as a pooling of interests for
accounting purposes.
INTERESTS OF CERTAIN PERSONS
Indemnification. The reorganization agreement provides that from and after the
effective time, the bylaws of the surviving corporation will honor the
indemnification provisions set forth in CardioGenesis' bylaws, which provisions
will not be amended or repealed for a period of six years in any manner that
would adversely affect the rights of individuals who were directors, officers,
employees or agents of CardioGenesis, at the effective time, unless required by
law. Eclipse and the surviving corporation will honor and fulfill the
obligations of CardioGenesis under existing indemnification agreements between
CardioGenesis and its officers and directors.
The reorganization agreement also provides that for a period of six years after
the effective time, Eclipse or the surviving corporation will maintain in
effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by CardioGenesis' insurance policy on
terms comparable to those applicable to the then current directors and officers
of CardioGenesis. However, in no event will Eclipse or the surviving corporation
be required to pay in excess of 125% of the annual premium currently paid by
CardioGenesis for such coverage. Furthermore, if the premium for such coverage
exceeds that amount, Eclipse or the surviving corporation will purchase a policy
with the greatest coverage available for 125% of the current annual premium.
The indemnification and insurance obligations of the reorganization agreement
are intended to benefit the indemnified parties and will be binding on all
successors and assigns of the surviving corporation.
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Management. For information regarding the composition of the Board of Directors
and the senior management of the combined company after the merger, see
"-- Board and Management of the Combined Company Following the Merger" at page
62.
NO DISSENTERS' OR APPRAISAL RIGHTS
Under Delaware law, stockholders of CardioGenesis are not entitled to appraisal
rights in connection with the merger. Shareholders of Eclipse are not entitled
to dissenters' rights under California law in the merger.
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COMPARISON OF CAPITAL STOCK
DESCRIPTION OF ECLIPSE CAPITAL STOCK
The authorized capital stock of Eclipse consists of 50,000,000 shares of common
stock, no par value per share, and 5,000,000 shares of preferred stock, no par
value per share.
Eclipse Common Stock. As of the record date, there were 17,621,323 shares of
Eclipse common stock outstanding held of record by 178 shareholders. The holders
of Eclipse common stock are entitled to one vote per share on all matters to be
voted upon by the shareholders. The shareholders have the right to take any
action which may be taken at any annual or special meeting by written consent
without a meeting, and may cumulate votes in connection with the election of
directors. The holders of Eclipse common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of Eclipse, the holders of Eclipse common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and any liquidation preference on the preferred stock. The Eclipse
common stock has no preemptive or conversion rights or other subscription
rights. There are no redemption or sinking fund provisions applicable to the
Eclipse common stock. All outstanding shares of Eclipse common stock are fully
paid and non-assessable, and the shares of Eclipse common stock to be
outstanding upon completion of the merger will be fully paid and non-assessable.
Eclipse Preferred Stock. Eclipse has 5,000,000 shares of preferred stock
authorized, of which, as of the record date, no shares were outstanding.
Although it presently has no intention to do so, the Eclipse Board, without
shareholder approval, has the authority to designate one or more series of
preferred stock and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, preemptive
rights, terms of redemption, liquidation preferences and sinking fund terms. The
Board of Directors similarly has the authority to fix the number of shares of
each such series (up to an aggregate for all series of preferred stock of
5,000,000 shares); to increase or decrease such number of shares (but not below
the number of shares of any such series then outstanding) and to issue up to
5,000,000 shares. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring, or preventing a change in control of Eclipse.
Eclipse Warrants. As of February 8, 1999, there were warrants outstanding to
purchase an aggregate of 479,334 shares of Eclipse common stock at exercise
prices ranging from $1.67 to $4.17 per share and expiration dates through 1999.
All warrants contain provisions for the adjustment of the exercise price upon
the occurrence of certain events including stock dividends, stock splits,
reorganizations, reclassifications and mergers and terminate upon certain public
offerings, mergers or sale of Eclipse assets.
Transfer Agent and Registrar. The transfer agent and registrar of the Eclipse
common stock is Boston Equiserve LLC and its telephone number is (650) 917-3800.
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DESCRIPTION OF CARDIOGENESIS CAPITAL STOCK
The authorized capital stock of CardioGenesis consists of 40,000,000 shares of
common stock, $0.001 par value per share, and 2,000,000 shares of preferred
stock, $0.001 par value per share.
CardioGenesis Common Stock. As of the record date, there were 12,385,051 shares
of CardioGenesis common stock outstanding held of record by 88 stockholders.
Holders of CardioGenesis common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of CardioGenesis
common stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the CardioGenesis Board out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
CardioGenesis, the holders of CardioGenesis common stock are entitled to share
ratably in all assets remaining after payment of liabilities and any liquidation
preference on the preferred stock. The CardioGenesis common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the CardioGenesis common
stock. All outstanding shares of CardioGenesis common stock are fully paid and
non-assessable.
Preferred Stock. CardioGenesis has 2,000,000 shares of preferred stock
authorized, of which, as of the record date, no shares were outstanding. The
CardioGenesis Board has the authority to provide for the issuance of these
shares of preferred stock in one or more series, to establish the number of
shares in each series and to fix the designations, powers, preferences, rights,
qualifications, limitations and restrictions, without any further vote or action
by the stockholders. Although it presently has no intention to do so, the
CardioGenesis Board, without stockholder approval, can issue preferred stock
with voting and conversion rights which could adversely affect the voting power
or other rights of the holders of CardioGenesis common stock and the issuance of
preferred stock may have the effect of delaying, deferring or preventing a
change in control of CardioGenesis.
Transfer Agent and Registrar. The transfer agent and registrar of the
CardioGenesis common stock is Boston Equiserve LLC and its telephone number is
(650) 917-3800.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CARDIOGENESIS AND SHAREHOLDERS OF
ECLIPSE
The rights of Eclipse's shareholders are governed by its Amended and Restated
Articles of Incorporation, its Amended and Restated Bylaws and the laws of the
State of California. The rights of CardioGenesis' stockholders are governed by
the CardioGenesis certificate, its bylaws and the laws of the State of Delaware.
After the effective time, the CardioGenesis stockholders will become Eclipse
shareholders and will be governed by the Eclipse articles, Eclipse bylaws and
the laws of the State of California.
While the rights and privileges of stockholders of a Delaware corporation such
as CardioGenesis are, in many instances, comparable to those of shareholders of
a California corporation such as Eclipse, there are certain differences. The
following is a summary of the material differences between the rights of holders
of CardioGenesis common stock and the rights of holders of Eclipse common stock
at the date hereof. These differences arise from differences between the
Delaware General Corporation Law and the California Corporation Code and between
the CardioGenesis certificate and bylaws, on the one hand, and the Eclipse
articles and bylaws, on the other hand.
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Vote Required for Extraordinary Transactions. California law requires that the
principal terms of a merger be approved by the affirmative vote of at least a
majority of the outstanding shares of each class entitled to vote thereon,
except that, unless required by its articles of incorporation, no shareholder
vote is required of any corporation if such corporation or its shareholders will
own, immediately after the merger, more than five-sixths of the voting power of
the surviving or acquiring corporation or its parent. The Eclipse articles do
not require such a vote or the vote of a greater percentage of the outstanding
shares. California law further requires the affirmative vote of at least a
majority of the outstanding shares entitled to vote thereon if:
- the surviving corporation's articles of incorporation will be amended and
would otherwise require shareholder approval; or
- shareholders of such corporation will receive shares of the surviving
corporation having different rights, preferences, privileges or
restrictions (including shares in a foreign corporation) than the shares
surrendered.
Shareholder approval is not required under California law for mergers or
consolidations in which a parent corporation merges or consolidates with a
subsidiary of which it owns at least 90% of the outstanding shares of each class
of stock.
Delaware law requires the affirmative vote of at least a majority of the
outstanding stock entitled to vote thereon to authorize any merger or
consolidation of a corporation, except that, unless required by its certificate
of incorporation, no stockholder vote is required of the surviving corporation
if:
- such corporation's certificate of incorporation is not amended in any
respect by the merger;
- each share of stock of such corporation outstanding immediately prior to
the effective date of the merger will be an identical outstanding or
treasury share of the surviving corporation after the effective date of
the merger; and
- the number of shares to be issued in the merger does not exceed 20% of
such corporation's outstanding common stock immediately prior to the
effective date of the merger.
The CardioGenesis certificate does not require such a vote or the vote of a
greater percentage of the outstanding shares. Stockholder approval is also not
required under Delaware law for mergers or consolidations in which a parent
corporation merges or consolidates with a subsidiary of which it owns at least
90% of the outstanding shares of each class of stock.
Both California law and Delaware law require that a sale of all or substantially
all of the corporation's assets be approved by at least a majority of the
outstanding stock entitled to vote.
Amendment to Governing Documents. Unless otherwise specified in a California
corporation's articles of incorporation, an amendment to the articles of
incorporation requires the approval of the corporation's board of directors and
the affirmative vote of at least a majority of the outstanding shares entitled
to vote thereon, either before or after the board approval. The Eclipse articles
do not require a greater level of approval for an amendment.
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Under California law, the holders of the outstanding shares of a class are
entitled to vote as a class if a proposed amendment to the articles of
incorporation would:
- effect an exchange, reclassification or cancellation of all or part of
the shares of such class, including a reverse stock split but excluding a
forward stock split.
- effect an exchange, or create a right of exchange, of all or part of the
shares of another class into the shares of such class.
- change the rights, preferences, privileges or restrictions of the shares
of such class.
- create a new class of shares having rights, preferences or privileges
prior to the shares of such class, or increase the rights, preferences or
privileges or the number of authorized shares of any class having rights,
preference or privileges prior to the shares of such class; or
- in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions
or authorize the board of directors to do so.
Under California law, a corporation's bylaws may be adopted, amended or repealed
either by the board of directors or the shareholders of the corporation. The
Eclipse bylaws provide that the bylaws may be adopted, amended or repealed
either by the vote or written consent of the holders of a majority of the
outstanding shares entitled to vote or by the board of directors; provided,
however, that the Eclipse Board of Directors may not amend the Eclipse bylaws in
order to change the authorized number of directors (except to alter the
authorized number of directors within the existing range of a minimum of four
and a maximum of seven directors).
Delaware law requires a vote of the corporation's board of directors and the
affirmative vote of a majority of the outstanding stock of each class entitled
to vote for any amendment to the certificate of incorporation, unless a greater
level of approval is required by the certificate of incorporation. The
CardioGenesis certificate does not require a greater level of approval for
amendments. If an amendment would alter the powers, preferences or special
rights of a particular class or series of stock so as to affect them adversely,
the class or series will be given the power to vote as a class notwithstanding
the absence of any specifically enumerated power in the certificate of
incorporation. Delaware law also states that the power to adopt, amend or repeal
the bylaws of a corporation will be in the stockholders entitled to vote,
provided that the corporation in its certificate of incorporation may confer
such power on the board of directors in addition to the stockholders. The
CardioGenesis certificate expressly authorizes the CardioGenesis Board of
Directors to adopt, amend or repeal the CardioGenesis bylaws.
Director Nominations. The CardioGenesis bylaws provide that no nominations for
directors of CardioGenesis by any person other than the CardioGenesis Board may
be presented to any meeting of stockholders unless the person making the
nomination is a record stockholder and has delivered a written notice to the
secretary of CardioGenesis. In order to be timely, a stockholder's notice must
be delivered between 30 and 60 days prior to the first anniversary of the
preceding year's annual meeting; except that if the date of the annual meeting
is more than 30 days before or 60 days after the anniversary date, or in the
case of a special meeting, the stockholder notice must be delivered between 30
and 60 days prior to such meeting or the 10th day following the day on which
public announcement is first made of the date of the meeting.
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The Eclipse bylaws impose comparable conditions on the submission of nominations
for the election of directors. The Eclipse bylaws require that a shareholder who
wishes to submit a nomination for the approval of the Eclipse shareholders at
any regular or special meeting of shareholders be a shareholder of record who
has delivered a written notice to the secretary of the corporation not less than
90 days prior to such meeting, except that in the event that less than 100 days'
notice or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder must be received not later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or public disclosure was made.
Cumulative Voting for Directors. The Eclipse bylaws provide that shareholders
are entitled to cumulate their votes to elect directors who have been properly
nominated at a shareholders' meeting at which directors are to be elected. Every
Eclipse shareholder is entitled to cumulate votes in the following manner: the
shareholder can either (a) give one candidate a number of votes equal to the
number of directors to be elected multiplied by the number of votes to which
that shareholder's shares are normally entitled or (b) distribute the
shareholder's votes on the same principle among any or all of the candidates.
Votes for directors are then tallied such that candidates receiving the highest
number of affirmative votes, up to the number of directors to be elected at such
meeting, shall be elected. The CardioGenesis bylaws do not provide for
cumulative voting. Instead, the CardioGenesis bylaws provide that on all matters
properly to be voted upon by the stockholders, including election of directors,
each stockholder is entitled to one vote for each share of stock held by such
stockholder.
Shareholder Proposals. There is no specific statutory requirement under either
California law or Delaware law for advance notice of shareholder proposals. The
CardioGenesis bylaws provide that no proposal by any person other than the
CardioGenesis Board may be submitted for the approval of the CardioGenesis
stockholders at any regular or special meeting of stockholders unless the person
advancing the proposal is a record stockholder and has delivered a written
notice to the secretary of CardioGenesis between 30 and 60 days prior to the
first anniversary of the preceding year's stockholder meeting; except that in
the event that the date of the annual meeting is more than 30 days before or
more than 60 days after such anniversary date, or in the case of a special
meeting, the stockholder notice must be delivered between 30 and 60 days prior
to such meeting or the 10th day following the day on which public announcement
of the date of such meeting is first made by CardioGenesis.
The Eclipse bylaws impose comparable conditions on the submission of shareholder
proposals. The Eclipse bylaws require that a shareholder who wishes to submit a
proposal for the approval of the Eclipse shareholders at any regular or special
meeting of shareholders be a record shareholder who has delivered a written
notice to the secretary of the corporation not less than 90 days prior to such
meeting, except that in the event that less than 100 days notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder must be received not later than the close of business on the
10th day following the day on which such notice of the date of the meeting was
mailed or public disclosure was made.
Shareholder Consent in Lieu of Meeting. Under Delaware law and California law,
unless otherwise provided in the certificate or articles of incorporation, as
the case may be, any action required to be taken or which may be taken at an
annual or special meeting of
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stockholders may be taken without a meeting if a consent in writing is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize such action at a meeting at which all
shares entitled to vote were present and voted. California law and the Eclipse
bylaws provide that directors may not be elected by written consent except by
unanimous written consent of all shares entitled to vote for the election of
directors. However, the Eclipse bylaws allow a director to be elected at any
time to fill any vacancy on the Eclipse Board of Directors by written consent of
the holders of a majority of the outstanding shares entitled to vote for the
election of directors, provided that the vacancy was not created by removal of a
director and that it has not been filled by the directors. The CardioGenesis
certificate and bylaws provide that any action by the stockholders must be taken
at an annual or special meeting of stockholders and may not be taken by written
consent.
Special Shareholder Meetings. The CardioGenesis bylaws provide that a special
meeting of the stockholders may only be called by the Board of Directors, the
chairman of the board, the chief executive officer or the president. The Eclipse
bylaws provide that a special meeting may only be called by the Eclipse Board of
Directors or upon the written request of shareholders entitled to cast not less
than 10% of the votes at the meeting.
Anti-Takeover Provisions and Interested Stockholder Transactions. Delaware law
subjects certain transactions involving a corporation and significant
stockholders to special stockholder approval requirements. California law also
has provisions that address certain transactions with significant shareholders.
Delaware law prohibits, in certain circumstances, a "business combination"
between the corporation and an "interested stockholder" within three years of
the stockholder becoming an "interested stockholder." An "interested
stockholder" is a holder who, directly or indirectly, controls 15% or more of
the outstanding voting stock or is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock at any time
within the prior three-year period. A "business combination" includes generally
a merger or consolidation, a sale or other disposition of assets having an
aggregate market value equal to 10% or more of the consolidated assets of the
corporation or the aggregate market value of the outstanding stock of the
corporation and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation.
This three-year moratorium provision does not apply where:
- either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the
corporation's board of directors prior to the date the interested
stockholder acquired such 15% interest;
- upon the consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the outstanding voting stock of the
corporation, excluding for purposes of determining the number of shares
outstanding shares held by persons who are directors and also officers
and by employee stock plans in which participants do not have the right
to determine confidentiality whether shares held subject to the plan will
be tendered;
- the business combination is approved by a majority of the board of
directors and the affirmative vote of two-thirds of the outstanding votes
entitled to be cast by disinterested stockholders at an annual or special
meeting;
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- the corporation does not have a class of voting stock that is listed on a
national securities exchange, authorized for quotation on Nasdaq, or held
of record by more than 2,000 stockholders unless any of the foregoing
results from action taken, directly or indirectly, by an interested
stockholder or from a transaction in which a person becomes an interested
stockholder; or
- the corporation has elected not to be governed by this provision.
The CardioGenesis Board has not made an election to be governed by this
provision of Delaware law.
Under California law, there is no comparable provision. However, California law
does provide that, except where the fairness of the terms and conditions of the
transaction has been approved by the California Commissioner of Corporations and
except in a "short-form" merger of a parent corporation with an at least
90%-owned subsidiary, if the surviving corporation or its parent corporation
owns, directly or indirectly, shares of the target corporation representing more
than 50% of the voting power of the target corporation prior to the merger, the
nonredeemable common stock of a target corporation may be converted only into
nonredeemable common stock of the surviving corporation or its parent
corporation, unless all of the shareholders of the class consent. The effect of
this provision is to prohibit a cash-out merger of minority shareholders, except
where the majority shareholders already own 90% or more of the voting power of
the target corporation and could, therefore, effect a short-form merger to
accomplish such a cash-out of minority shareholders.
California law also provides that, with exceptions, when a tender offer or
proposal for a reorganization or sale of assets is made by an "interested party"
(in general, a controlling or managing party of the target corporation), a
fairness opinion regarding the consideration to be paid to the shareholders must
be delivered to the shareholders. Furthermore, if a tender offer for shares or
vote is sought pursuant to an interested party's proposal and another party
makes a later proposal at least 10 days before the date of acceptance of an
interested party's tender or proposal, the shareholders must be informed of the
later offer and be afforded a reasonable opportunity to withdraw any vote,
consent, proxy or tendered shares.
Limitation of Liability. Delaware law and California law each provide that the
charter documents of a corporation may include provisions which limit or
eliminate the liability of directors to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. The CardioGenesis
certificate contains a provision limiting the personal monetary liability of its
directors to the fullest extent permitted by Delaware law. The Eclipse articles
contain a provision limiting the liability of its directors to the fullest
extent provided by California law.
Under Delaware law, this limitation of liability will not apply where the
monetary damages arise from:
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- breach of the duty of loyalty; or
- the payment of unlawful dividends or expenditure of funds for unlawful
stock purchases or redemptions or transactions from which such director
derived an improper personal benefit.
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Under California law, this limitation of liability will not apply where the
monetary damages arise from:
- intentional misconduct or knowing and culpable violation of law;
- acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the
absence of good faith on the part of the director;
- the receipt of an improper personal benefit;
- acts or omissions that show reckless disregard for the director's duty to
the corporation or its shareholders, where the director in the ordinary
course of performing a director's duties was aware or should have been
aware of a risk of serious injury to the corporation or its shareholders;
- acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the corporation
and its shareholders; or
- interested transactions between the corporation and a director in which a
director has a material financial interest and liability for improper
distributions, loans or guarantees.
Indemnification. Delaware law provides that a corporation may indemnify its
present and former directors, officers, employees and agents against expenses
(including attorneys' fees) and, except in actions initiated by or in the right
of the corporation, against judgments, fines and amounts paid in settlement
actually and reasonably incurred by an indemnitee in actions brought against
them, if such person acted in good faith, and in a manner which the person
reasonably believed to be in, or not opposed to, the best interests of the
stockholders and, in the case of a criminal proceeding, had no reasonable cause
to believe the person's conduct was unlawful. The corporation must indemnify an
indemnitee to the extent that he or she is successful on the merits or otherwise
in the defense of any action, suit or proceeding or the defense of any claim,
issue or matter therein. The CardioGenesis bylaws provide for indemnification of
directors or officers to the fullest extent authorized by Delaware law.
Under Section 317 of the California Corporations Code, a corporation has the
power to indemnify present and former directors, officers, employees and agents
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred, other than in connection with actions by or in the right of
the corporation, if that person acted in good faith and in a manner the person
reasonably believed to be in the best interests of the corporation and, in the
case of a criminal proceeding, had no reasonable cause to believe the conduct of
the person was unlawful. Furthermore, under Section 317, a corporation has the
power to indemnify, with certain exceptions, any person who is a party to any
action by or in the right of the corporation, against expenses actually and
reasonably incurred by that person in connection with the defense or settlement
of the action if the person acted in good faith, and in a manner the person
believed to be in the best interests of the corporation and its shareholders.
The indemnification authorized by Section 317 of the California Corporations
Code is not exclusive, and a corporation may grant its directors, officers,
employees or other agents certain additional rights to indemnification. The
Eclipse articles and bylaws provide for the indemnification of its agents to the
fullest extent permissible under California law, which
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may be in excess of the indemnification expressly permitted by Section 317,
subject to the limits set forth in Section 204 of the California Corporations
Code with respect to actions for breach of duty to the corporation and its
shareholders.
Delaware law and California law each allow for the advance payment of an
indemnitee's expenses prior to the final disposition of an action, provided that
the indemnitee undertakes to repay any such amount advanced if it is later
determined that the indemnitee is not entitled to indemnification with regard to
the action for which the expenses were advanced.
Derivative Action. California law provides that a shareholder bringing a
derivative action on behalf of the corporation need not have been a shareholder
at the time of the transaction in question, if certain tests are met. California
law also provides that the corporation or the defendant in a derivative suit may
make a motion to the court for an order requiring the plaintiff shareholder to
furnish a security bond.
Derivative actions may be brought in Delaware by a stockholder on behalf of, and
for the benefit of, the corporation. Delaware law provides that a stockholder
must plead in the complaint that such stockholder was a stockholder of the
corporation at the time of the transaction of which such stockholder complains.
A stockholder may not sue derivatively unless such stockholder first makes
demand on the corporation that it bring suit and such demand has been refused,
unless it is shown that such demand would have been futile.
Interested Director Transactions. Under both California law and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors (or officers in the case of Delaware law) has an interest are not void
or voidable because of such interest provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain exceptions, the conditions are
similar under California law and Delaware law. Under either statute:
- the shareholders or the disinterested members of the board of directors
must approve any such contract or transaction after full disclosure of
the material facts, and in the case of board approval, the contract or
transaction must also be "just and reasonable" (in California) or "fair"
(in Delaware) to the corporation, or
- the contract or transaction must have been just and reasonable or fair as
to the corporation at the time it was approved.
If the transaction has not been approved by the board of directors or
shareholders of the corporation, the burden of proof to show the transaction
meets the applicable statutory standard in both California and Delaware rests
with the interested party.
Under California law, if shareholder approval is sought, the interested director
is not entitled to vote his shares at a shareholder meeting with respect to any
action regarding such contract or transaction. If Board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors, except that
interested directors may be counted for purposes of establishing a quorum. Under
Delaware law, if board approval is sought, the contract or transaction must be
approved by a majority of the disinterested directors even though less than a
majority of a quorum.
Removal of Directors. Under California law, any director or the entire board may
be removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote. However, for corporations like Eclipse that
permit cumulative voting, no
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director may be removed (unless the entire board is removed) if the number of
votes cast against removal would be sufficient to elect the director under
cumulative voting.
Under Delaware law, a director of a corporation that does not have a classified
board may be removed with or without cause by the holders of a majority of the
shares then entitled to vote at an election of directors, subject to limitations
for corporations that permit cumulative voting. CardioGenesis does not have a
classified Board. The CardioGenesis bylaws provide that directors may be
removed, with or without cause, at an election of directors.
Filling Board Vacancies. Under California law, shareholders may fill any vacancy
on the board not otherwise filled by the board. Unless the articles or bylaws
provide otherwise, the board may fill any vacancy other than one caused by
removal of a director. A vacancy created by removal may be filled only by the
shareholders, unless the corporation's articles of incorporation or bylaws also
authorize the board to fill such vacancies. The Eclipse bylaws do not permit the
Board to fill vacancies created by a vote of the shareholders or court order.
Under Delaware law, vacancies and newly-created directorships may be filled by a
majority of the directors then in office or by the stockholders, unless
otherwise provided in the certificate of incorporation or bylaws. Neither the
CardioGenesis certificate nor the CardioGenesis bylaws restrict the ability of
its stockholders to fill Board vacancies.
Certain Loans. California law requires that any loan or guaranty by the
corporation to or for a director or officer must be approved by shareholders,
unless extended or granted under a plan approved by shareholders. Shareholders
may also approve a bylaw authorizing the corporation's board of directors to
approve loans or guaranties to or for officers (including officers who are also
directors), if the board determines that the loan or guaranty may reasonably be
expected to benefit the corporation. The Eclipse bylaws do not contain such a
provision. Under Delaware law, a corporation may make loans to, guarantee the
obligations of or otherwise assist its officers or other employees (including
any officer or other employee who is also a director) when, in the board's
judgment, such action may reasonably be expected to benefit the corporation.
Appraisal Rights. Under Delaware law, holders of shares of any class or series
have the right, in certain circumstances, to dissent from a merger or
consolidation by demanding payment in cash for their shares equal to the fair
value (excluding any appreciation or depreciation as a consequence or in
expectation of the transaction) of such shares, as determined by agreement with
the corporation or by an independent appraiser appointed by a court in an action
timely brought by the corporation or the dissenters. Delaware law grants
dissenters' appraisal rights only in the case of mergers or consolidations and
not in the case of a sale or transfer of assets or a purchase of assets for
stock regardless of the number of shares being issued. Further, no appraisal
rights are available for shares of any class or series which are listed on a
national securities exchange or designated as a national market system security
on Nasdaq or held of record by more than 2,000 stockholders, unless the
agreement of merger or consolidation converts such shares into anything other
than:
- stock of the surviving corporation;
- stock of another corporation which is either listed on a national
securities exchange or designated as a national market system security on
Nasdaq or held of record by more than 2,000 stockholders;
- cash in lieu of fractional shares; or
- some combination of the above.
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In addition, dissenters' rights are not available for any shares of the
surviving corporation if the merger did not require the vote of the stockholders
of the surviving corporation. See "The Reorganization Agreement and Related
Agreements -- No Dissenters' or Appraisal Rights" at page 66.
Generally, shareholders of a California corporation who dissent from a merger,
consolidation or reorganization of the corporation are entitled to exercise
dissenters' rights but not in the case of this merger, because Eclipse will
survive this merger as the controlling corporation.
Dividends and Repurchases of Shares. California law dispenses with the concept
of par value and statutory definitions of capital and surplus. Delaware law,
however, retains the concept of par value and defines capital and surplus.
Under California law, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases of its shares)
unless the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution.
Alternatively, a corporation may make a distribution if immediately after giving
effect to such distribution, the corporation's assets (exclusive of goodwill,
capitalized research and development expenses and deferred charges) would be at
least equal to 1 1/4 times its liabilities (not including deferred taxes,
deferred income and other deferred credits), and the corporation's current
assets would be at least equal to its current liabilities (or 1 1/4 times its
current liabilities if the average pre-tax and pre-interest expense earnings for
the preceding two fiscal years were less than the average interest expense for
such years). Such tests are applied to California corporations on a consolidated
basis.
Delaware law permits a corporation to declare and pay dividends out of surplus.
If there is no surplus, a corporation is permitted to declare and pay dividends
out of net profits for the fiscal year in which the dividend is declared and/or
for the preceding fiscal year as long as the amount of capital of the
corporation following the declaration and payment of the dividend is not less
than the aggregate amount of the capital represented by the issued and
outstanding stock of all classes having a preference upon the distribution of
assets. In addition, Delaware law generally provides that a corporation may
redeem or repurchase its shares only if such redemption or repurchase would not
impair the capital of the corporation.
Inspection of Shareholder List. Both California law and Delaware law allow any
shareholder to inspect the shareholder list for a purpose reasonably related to
the shareholder's interest as a shareholder. In addition, California law grants
an absolute right to inspect and copy the shareholder list to holders of at
least five percent of a corporation's voting shares and holders of at least one
percent of such shares who filed a "Schedule 14B" with the SEC relating to the
election of directors. Delaware law does not provide an absolute right of
inspection.
Dissolution. Under California law, holders of shares having 50 percent or more
of the corporation's total voting power may authorize a corporation's
dissolution without board approval. That right may not be modified by the
articles of incorporation. Under Delaware law, unless the board approves the
dissolution, the dissolution must be approved by holders of shares having 100
percent of the corporation's voting power.
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The foregoing discussion of certain similarities and material differences
between the rights of Eclipse shareholders and the rights of CardioGenesis
stockholders under their respective articles/certificate of incorporation and
bylaws is only a summary of certain provisions and does not purport to be a
complete description of such similarities and differences, and is qualified in
its entirety by reference to the California Corporations Code and the Delaware
General Corporation Law, the common law thereunder and the full text of the
articles/ certificate of incorporation and bylaws of each of Eclipse and
CardioGenesis.
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ECLIPSE AND CARDIOGENESIS
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the financial position or results of operations that would have actually been
reported had the merger occurred at the beginning of the periods presented, nor
is it necessarily indicative of future financial position or results of
operations. The following unaudited pro forma combined condensed financial
statements have been prepared to give effect to the merger using the pooling of
interests method of accounting. Both Eclipse and CardioGenesis have calendar
year-ends. These unaudited pro forma combined condensed financial statements are
based upon the respective historical consolidated financial statements of
Eclipse, which are incorporated by reference in this joint proxy
statement/prospectus, and of CardioGenesis, which are included elsewhere in this
joint proxy statement/prospectus, and should be read in conjunction with the
respective historical consolidated financial statements and notes thereto, and
do not incorporate, nor do they assume any benefits from costs savings or
synergies of, operations of the combined company.
The unaudited pro forma combined condensed balance sheet gives effect to the
merger as if it had occurred on September 30, 1998 and combines the unaudited
consolidated balance sheet of Eclipse and the unaudited consolidated balance
sheet of CardioGenesis as of September 30, 1998. The unaudited pro forma
combined condensed statements of operations for the nine months ended September
30, 1998 and 1997 and for each of the three years ended December 31, 1997 give
effect to the merger as if it occurred as of the beginning of the earliest
period presented and are a summation of the historical consolidated statements
of operations of Eclipse and CardioGenesis and include no pro forma adjustments.
Eclipse and CardioGenesis estimate that they will incur transaction costs of
approximately $4.0-$6.0 million in connection with the merger, which will be
charged to operations when incurred, principally in the quarter of the
completion of the merger. The combined company may incur additional costs in
connection with the merger and the integration of the two companies. Management
may not be successful in its efforts to integrate the operations of Eclipse and
CardioGenesis. See "Risk Factors -- Risks Related to Merger."
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UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
----------------------------------------------------
PRO FORMA PRO FORMA
CARDIOGENESIS ECLIPSE ADJUSTMENTS COMBINED
------------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents......... $ 6,901 $ 2,134 $ 9,035
Marketable securities............. 2,783 252 3,035
Accounts receivable, net.......... 1,633 3,271 4,904
Inventories....................... 1,829 5,350 7,179
Other current assets.............. 1,614 640 2,254
------- ------- -------
Total current assets...... 14,760 11,647 26,407
Property, plant and equipment..... 1,581 1,269 2,850
Marketable securities
(non-current).................. 15,676 14,534 30,210
Other assets...................... 24 1,342 1,366
------- ------- -------
Total assets.............. $32,041 $28,792 $60,833
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued
liabilities.................... $ 6,410 $ 5,101 $5,000 $16,511
Deferred revenue.................. 295 -- 295
Note payable...................... -- 1,000 1,000
------- ------- ------ -------
Total current
liabilities............. 6,705 6,101 5,000 17,806
Long term debt, less current
portion........................ -- 5 -- 5
------- ------- ------ -------
Total liabilities......... 6,705 6,106 5,000 17,811
Shareholders' equity.............. 25,336 22,686 (5,000) 43,022
------- ------- ------ -------
Total liabilities and
shareholders' equity.... $32,041 $28,792 $ -- $60,833
======= ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma combined condensed financial statements.
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UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------- -------------------------------
1998 1997 1997 1996 1995
----------- ----------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net revenues.................. $ 9,635 $ 9,372 $ 13,058 $ 13,718 $ 2,707
Cost of revenues.............. 5,937 5,433 7,770 6,424 1,642
-------- -------- -------- -------- -------
Gross profit........ 3,698 3,939 5,288 7,294 1,065
-------- -------- -------- -------- -------
Operating expenses............
Research and development.... 23,279 18,829 26,217 13,726 4,977
Sales and marketing......... 12,668 8,434 12,771 5,744 1,215
General and
administrative........... 6,664 5,988 7,758 4,622 1,859
-------- -------- -------- -------- -------
Total operating
expenses.......... 42,611 33,251 46,746 24,092 8,051
-------- -------- -------- -------- -------
Operating loss................ (38,913) (29,312) (41,458) (16,798) (6,986)
Interest income............... 2,596 3,907 5,301 4,071 184
Interest expense.............. (74) (19) (61) (229) (923)
-------- -------- -------- -------- -------
Net loss............ $(36,391) $(25,424) $(36,218) $(12,956) $(7,725)
======== ======== ======== ======== =======
Net loss per share --.........
Basic and diluted........... $ (1.35) $ (0.98) $ (1.39) $ (0.65) $ (0.73)
======== ======== ======== ======== =======
Weighted average shares
outstanding --.............. 26,877 25,909 26,027 20,020 10,573
======== ======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these unaudited
pro forma combined condensed financial statements.
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<PAGE> 88
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
1. PERIODS PRESENTED
The unaudited pro forma combined condensed balance sheet gives effect to the
merger as if it had occurred on September 30, 1998 and combines the unaudited
consolidated balance sheet of Eclipse and the unaudited consolidated balance
sheet of CardioGenesis as of September 30, 1998.
The unaudited pro forma combined condensed statements of operations for the nine
months ended September 30, 1998 and 1997 and the three years ended December 31,
1997 give effect to the merger as if it occurred as of the beginning of the
earliest period presented.
2. PRO FORMA NET LOSS PER SHARE
The unaudited pro forma combined net loss per share data is based upon the
weighted average number of common and potential common shares outstanding of
Eclipse and CardioGenesis for each period using an exchange ratio of 0.80 of a
share of Eclipse common stock for each share of CardioGenesis common stock.
Basic net loss per share is computed using the weighted average common shares
outstanding during the period. Diluted net loss per share is computed using the
weighted average number of common and potential common shares outstanding during
the period. Potential common shares consist of the incremental common shares
issuable upon the exercise of stock options (using the treasury stock method).
Potential common shares which consist of stock options to purchase 4,770,557
shares of common stock were outstanding at September 30, 1998, but were not
included in the computation of pro forma diluted net loss per share because
their effect is anti-dilutive.
3. CONFORMING ADJUSTMENTS AND INTERCOMPANY TRANSACTIONS
There were no material adjustments required to conform the accounting policies
of Eclipse and CardioGenesis. Certain amounts have been reclassified to conform
to the pro forma presentation. There are no material intercompany transactions
included in the unaudited pro forma combined condensed financial statements.
4. TRANSACTION COSTS
Eclipse and CardioGenesis estimate that they will incur transaction and
integration costs of approximately $5.0 million in connection with the merger,
which will be charged to operations when incurred, principally in the quarter of
the completion of the merger. These charges include direct transaction costs of
approximately $2,650,000, consisting of financial advisory services of
approximately $1,000,000, legal fees of approximately $750,000, accounting fees
of approximately $500,000, printing costs of approximately $150,000 and costs of
solicitation and registration of approximately $250,000. These charges also
include costs of approximately $1,443,000 related to severance of employees and
approximately $1,000,000 in costs related to a distribution agreement. An
estimated charge of approximately $5.0 million is reflected in the pro forma
combined condensed balance sheet but is not reflected in the unaudited pro forma
combined condensed statements of
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NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
operations. This charge is a preliminary estimate only, and is, therefore,
subject to change. See "Risk Factors -- Risks Related to Merger -- Expenses
related to the merger will have a negative effect on results of operations."
5. ISSUANCE OF ECLIPSE COMMON STOCK
The unaudited pro forma combined condensed financial statements reflect the
issuance of 0.80 of a share of Eclipse common stock for each share of
CardioGenesis common stock outstanding. The following table sets forth the pro
forma share issuances in connection with the merger (shares in thousands):
<TABLE>
<S> <C>
CardioGenesis common stock outstanding as of September 30,
1998...................................................... 12,266
Exchange ratio.............................................. 0.80:1.0
Pro forma number of shares of Eclipse common stock to be
exchanged for CardioGenesis common stock.................. 9,813
Eclipse common stock outstanding as of September 30, 1998... 17,396
Pro forma shares of Eclipse common stock outstanding after
completion of the merger as of September 30, 1998......... 27,209
</TABLE>
Upon the consummation of the merger, all outstanding options to purchase
CardioGenesis common stock will be exchanged for options to purchase Eclipse
common stock based upon the exchange ratio of 0.80:1.0. As of September 30,
1998, options to purchase 2,467,369 shares of CardioGenesis common stock were
outstanding.
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CARDIOGENESIS BUSINESS
OVERVIEW
The following description of CardioGenesis' business contains forward-looking
statements. For a discussion of forward-looking information, see page 28.
GENERAL
CardioGenesis is developing proprietary probe and catheter systems to perform
both surgical and catheter-based percutaneous TMR procedures. TMR procedures are
used to treat patients with severe CAD who suffer from recurrent debilitating
chest pain known as angina, associated with CAD. Unlike CABG surgery and PTCA
procedures, which are used to bypass, reopen or widen blocked or narrowed
arteries, TMR procedures involve the use of laser energy, delivered through
probes and catheters, to create typically between 15 and 30 channels in the
ischemic (oxygen-starved) regions of the heart muscle. Clinical studies of TMR
procedures to treat severe angina at some of the world's leading medical centers
have demonstrated improvements in clinical conditions and have reported
reductions in the frequency of repeated diagnostic procedures and
hospitalizations. While the mechanism of the potential clinical benefit of TMR
procedures is currently unproven, and additional clinical and mechanism
investigations are ongoing, CardioGenesis believes the reported benefits of TMR
procedures are associated with angiogenesis, the formation of new blood vessels.
CardioGenesis is currently developing three types of TMR systems, based upon its
patented technology, for use by cardiothoracic surgeons and interventional
cardiologists to treat patients with severe CAD. CardioGenesis' ITMR system and
TTMR system use an epicardial approach (i.e., creating channels from outside the
heart into the left ventricle) and its PMR system uses an endocardial approach
(i.e., creating channels from inside the left ventricle partially through the
myocardium).
CardioGenesis' objective is to establish the TMR procedure as a conventional
therapy to treat CAD and to become the worldwide market leader of TMR systems.
To establish CardioGenesis as the leading provider of TMR systems, CardioGenesis
intends to continue to conduct clinical trials at, and focus its marketing
efforts on, high volume, prestigious cardiovascular centers. CardioGenesis'
clinical efforts have been focused on patients with severe angina for whom
existing therapies cannot be used (so-called "no-option" patients).
CardioGenesis plans to conduct clinical trials to broaden the applications for
its TMR systems to cover multiple indications, including use as an adjunct to
other interventional therapies, such as CABG and PTCA procedures. CardioGenesis
intends to build upon its domestic and international intellectual property
position, particularly its issued percutaneous and intraoperative TMR method
patents. CardioGenesis seeks to rapidly establish a large installed base of its
TMR systems in key international markets, emerging secondary markets, and,
following FDA approval, in the United States, thereby creating an opportunity
for a recurring revenue stream from the sale of its disposable probes and
catheters. To help achieve this goal, CardioGenesis entered into an exclusive
international distribution agreement with Boston Scientific in January 1997. See
" -- Termination of Relationship with Boston Scientific" for information
regarding the termination of the agreement. Additionally, CardioGenesis intends
to invest significant resources in research and development and to enhance its
understanding of the TMR mechanism to enable it to
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further develop its products and to promote widespread adoption of TMR in the
medical community.
CARDIOGENESIS TMR APPROACHES AND MARKETS
CardioGenesis' proprietary TMR systems are designed to create channels either
epicardially or endocardially. CardioGenesis' ITMR system and TTMR system use an
epicardial approach and its PMR system uses an endocardial approach.
ITMR. In an intraoperative TMR procedure, the heart is exposed by a
cardiothoracic surgeon through either a thoracotomy (an incision through the
chest wall) or a sternotomy (an incision through the sternum). CardioGenesis'
ITMR probe is then applied directly onto the myocardium delivering laser energy
to create channels into the left ventricle. CardioGenesis initiated Phase I
feasibility clinical trials with the ITMR System in "no-option" patients in
November 1995. In June 1996, CardioGenesis received approval from the FDA to
expand its multi-center ITMR clinical trial to a Phase II, prospective,
randomized clinical trial in "no-option" patients.
Enrollment in the Phase II, randomized, no-option trial is now complete.
CardioGenesis is nearing completion of its submission of data and information on
the CardioGenesis CardioSync ITMR system in a modular format to the FDA. The FDA
has requested that CardioGenesis delay submission of the final clinical package
until the agency catches up with their September 30, 1998 fiscal year end
backlog. CardioGenesis is not aware of any FDA issues with their modular
submission to date. CardioGenesis believes its relationship with the FDA remains
strong, and does not believe that this request will slow CardioGenesis' progress
toward a PMA panel date or ultimate FDA approval.
In August 1996, CardioGenesis received an IDE from the FDA and has begun a
clinical study of its ITMR system used as an adjunctive therapy to CABG in
patients with severe angina who are only partially treatable by CABG. The
adjunct to CABG clinical trial is ongoing.
PMR. CardioGenesis' percutaneous PMR system is designed to be used by an
interventional cardiologist in a cardiac catheterization laboratory. In this
procedure, the cardiologist accesses the heart by inserting a fiber optic
equipped catheter system into the femoral artery at the groin and then advancing
it through the aorta into the left ventricle. Once in the ventricle, the fiber
optic catheter is guided to the ischemic areas of the endocardial wall surface
to create channels partially through the wall of the heart. CardioGenesis
believes that PMR, as a catheter-based procedure, is less invasive, less
traumatic, and more cost-effective than other TMR approaches. In November 1996,
CardioGenesis initiated clinical testing in Europe of its PMR system in
"no-option" patients. In July 1997, CardioGenesis received an IDE from the FDA
which allows a multi-center clinical trial of its PMR system to treat angina in
no-option patients at up to twelve clinical sites.
TTMR. In a thoracoscopic TMR procedure, a TTMR probe is used by a cardiothoracic
surgeon in combination with endoscopic instruments to access and visualize the
heart. Through these endoscopic instruments, the TTMR probe is maneuvered and
placed on the beating heart delivering laser energy to create channels into the
left ventricle.
CardioGenesis believes the approaches discussed above may be used for a number
of CAD indications. However, none of CardioGenesis' TMR systems has received FDA
approval,
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and there can be no assurance any of these approaches will receive FDA approval
for any of the indications discussed below or will be accepted by the medical
community as viable methods for the treatment of CAD. See "Risk Factors -- Risks
Related to Business of Eclipse and CardioGenesis."
POTENTIAL INDICATIONS
CardioGenesis believes the three approaches it is developing could be used to
address a range of indications for TMR therapy and estimates each year there are
more than 500,000 patients in the United States and other key markets who could
potentially benefit from TMR therapy.
"No-option." TMR therapy is currently being studied as a treatment for patients
with severe CAD not treatable by PTCA, CABG or other interventional therapies.
These patients have severe diffuse multivessel CAD and may have undergone
multiple prior cardiac procedures. CardioGenesis believes all of its TMR systems
could be used in the treatment of "no-option" patients.
Adjunct to CABG. TMR therapy is also currently being studied in combination with
CABG, in cases where the patient has one or more areas of the heart afflicted by
severe CAD that cannot be adequately bypassed. In these cases, the coronary
arteries that can be bypassed are grafted, while other areas that are ischemic
and not suitable for bypass are treated with TMR therapy. CardioGenesis believes
its ITMR and TTMR systems could address this potential indication.
Adjunct to PTCA. CardioGenesis believes its proprietary PMR system may be used
in combination with a PTCA procedure, where there is evidence of severely
ischemic regions of the heart not amenable to treatment with PTCA alone. In this
situation, CardioGenesis' PMR system would be used to treat the regions of the
heart where a PTCA procedure is not effective.
None of CardioGenesis' TMR systems has been proven to be safe or efficacious nor
has CardioGenesis received regulatory approval to market any of its TMR systems
in the United States. See "Risk Factors -- Risks Related to Business of Eclipse
and CardioGenesis."
PRODUCTS
CardioGenesis' TMR systems include disposable fiber optic probes and catheters
for transmitting laser energy to the myocardium, a Ho:YAG laser unit, and an
electrocardiogram monitor, which are described below.
Disposable Fiber Optic Probes and Catheters. The proprietary probes used in
CardioGenesis' ITMR and TTMR systems and the proprietary catheters used in
CardioGenesis' PMR System are flexible, fiber-optic based devices for
positioning and transmitting laser energy to create channels through the wall of
the heart. The tip of the probe includes a proprietary lens apparatus that
creates laser energy distribution to allow for progressive, controlled
penetration of the myocardium. A highly flexible optical fiber, encased within a
protective fiber jacket, transmits energy to the lens from the laser. The probes
and catheters are designed as disposable single-use devices. The PMR aligning
catheter can be directed anywhere into the left ventricle. The catheter system
permits steering within the ventricle to guide the optical system to the
appropriate areas of the heart wall. Once the
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catheter system is oriented toward the target to be treated, the lens is
independently advanced to the ventricular wall assuring perpendicular contact on
the myocardial wall.
Ho:YAG Laser. CardioGenesis' TMR systems incorporate a proprietary Ho:YAG laser
specifically designed for TMR applications. CardioGenesis' current laser is a
portable unit, weighing approximately 140 pounds, which delivers laser energy.
CardioGenesis believes that the Ho:YAG laser is optimally suited for TMR
procedures because of:
- its tissue ablation characteristics;
- its ability to deliver treatment energy through a fiber optic device,
thereby allowing percutaneous applications;
- its reliability when compared with other types of lasers; and
- its ability to be manufactured cost-effectively.
ECG Monitor. CardioGenesis' TMR systems include a commercially available,
microprocessor-controlled ECG monitor and a CardioGenesis proprietary software
algorithm. This ECG monitor provides the means for timing the firing of
CardioGenesis' laser to the patient's cardiac electrical activity. Based on
early research sponsored by CardioGenesis and conducted at a major academic
institution, CardioGenesis believes timing the laser to the patient's cardiac
electrical activity may be a significant factor in minimizing the occurrence of
arrhythmias (irregular heartbeats).
CardioGenesis' TMR systems are designed to offer the following advantages:
- Flexible System Design. CardioGenesis' TMR systems are designed to
deliver laser energy in a progressive, controlled manner through a fiber
optic probe or catheter, providing CardioGenesis with a technology
adaptable for multiple approaches and indications.
- Price/Performance. CardioGenesis has designed its TMR systems to be cost-
effective, enabling flexibility in the pricing of its laser systems and
disposable probes and catheters. CardioGenesis believes that this
flexibility will enable it to offer superior price/performance to its
customers.
- Size and Portability. CardioGenesis' current TMR systems weigh
approximately 140 pounds, are portable and do not occupy a significant
amount of space in an operating room or cardiac catheterization
laboratory.
- Reliability. The Ho:YAG laser used in CardioGenesis' TMR systems is a
solid state laser designed for reliability, thereby minimizing maintenance
costs. CardioGenesis' TMR systems are also designed to meet and withstand
the rigors of shipment, installation, repeated use, and relocation within
the hospital environment.
In July 1996, CardioGenesis received the CE Mark approval to market its ITMR
system in the European Community. The CE Mark is granted to companies whose
products meet the essential requirements of the MDD and provides the regulatory
approval necessary for commercialization in the European Community. In October
1996, at the European Association of Cardio-Thoracic Surgery's annual meeting in
Prague, Czech Republic, CardioGenesis commercially launched the ITMR system in
Europe. In January 1998, CardioGenesis received the CE Mark approval for use of
its PMR system in the European Community.
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CardioGenesis is not currently developing any products outside the field of TMR
therapy. Consequently, CardioGenesis is dependent on the successful development
and commercialization of CardioGenesis' TMR systems. See "Risk Factors -- Risks
Related to Business of Eclipse and CardioGenesis.
MARKETING, SALES AND DISTRIBUTION
CardioGenesis' marketing strategy is designed to generate broad market
acceptance of the TMR procedure based on demonstrated clinical efficacy and
cost-effectiveness. CardioGenesis' strategy includes developing and maintaining
close working relationships with key cardiothoracic surgeons and interventional
cardiologists who practice at major cardiac care centers. CardioGenesis seeks to
rapidly establish a large installed base of its TMR systems in key international
markets and emerging secondary markets thereby creating an opportunity for a
recurring revenue stream from the sale of its disposable probes and catheters.
CardioGenesis expects that education and awareness of cardiothoracic surgeons,
interventional cardiologists and patients as to the benefits of CardioGenesis'
TMR systems will be a key component of its marketing and sales effort for its
TMR probe and catheter systems. CardioGenesis currently supports and intends to
support rigorous clinical research designed to support the safety and efficacy
of its TMR systems. In addition, to increase awareness of its TMR systems,
CardioGenesis has encouraged and intends to encourage the appropriate
presentation of the results of this research by the research investigators at
major national and international medical symposia and by the publication of
clinical and scientific reports of such results in major peer-reviewed
publications.
In the United States, CardioGenesis intends to market its products, if approved
by the FDA, with a direct sales organization. CardioGenesis has deployed a U.S.
sales force. However, additional resources will be required to develop a sales
force capable of effectively commercializing CardioGenesis' TMR systems in the
United States. Failure to build an effective sales and marketing organization
could have a material adverse effect on CardioGenesis' business, financial
condition and results of operations.
Until such time, if ever, as the FDA approves CardioGenesis' TMR systems for
marketing in the United States, CardioGenesis anticipates it will continue to
derive a significant portion of its revenues from international sales. Even if
FDA approval is obtained, CardioGenesis expects international sales will
continue to account for a significant portion of CardioGenesis' total revenues.
As a result, a significant portion of CardioGenesis' revenues both before and
after such approval is obtained will be subject to the risks associated with
international sales. See "Risk Factors -- Risks Related to Business of Eclipse
and CardioGenesis.
On January 22, 1999, CardioGenesis entered into an Authorized Distributor
Agreement with Eclipse, under which CardioGenesis was appointed as the exclusive
distributor of the Eclipse holmium laser system and certain related products for
certain states or portions of certain states in the United States. The parties
decided in mid-January 1999 to enter into the distributor agreement to generate
revenues for both Eclipse and CardioGenesis from sales by CardioGenesis of
Eclipse products pending the merger. The distributor agreement allows
CardioGenesis to set its own resale prices to end-users. CardioGenesis has no
minimum commitments under the distributor agreement. CardioGenesis will maintain
no
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inventory of Eclipse products; the products will be drop-shipped by Eclipse
directly to customers of CardioGenesis.
The distributor agreement may be terminated by either party upon sixty days'
prior written notice, and terminates automatically upon FDA approval of
CardioGenesis' products for sale in the U.S. There is no requirement under the
Agreement, nor any expectation by CardioGenesis or Eclipse, that the distributor
agreement will be renewed after its termination. The distributor agreement
contains customary post-termination obligations for CardioGenesis relating to
the maintenance and availability of records, cessation of use of trademarks and
logos of Eclipse, payment of outstanding invoices, and return of advertising and
similar materials.
CardioGenesis does not believe that any sales made by it of Eclipse products
during the term of the distributor agreement will materially adversely impact
its ability to sell its own products, following FDA approval of such products,
if the merger does not occur.
TERMINATION OF RELATIONSHIP WITH BOSTON SCIENTIFIC
In early January 1999, CardioGenesis sent Boston Scientific written notice
terminating the Boston Scientific agreement because of various breaches by
Boston Scientific of its obligations under the agreement. The notice also
demanded that Boston Scientific make required payments to CardioGenesis and make
the required minimum purchases of CardioGenesis products for the fourth quarter
of 1998 and for calendar year 1998. If the breaches by Boston Scientific are not
cured within the time periods specified in the agreement, the agreement will
terminate.
Subsequently, CardioGenesis sent additional termination notices to Boston
Scientific relating specifically to Boston Scientific's failure to timely cure
its payment breach and to timely place and pay for the required minimum purchase
order.
CardioGenesis decided to terminate the agreement because of its belief, after
numerous discussions with Boston Scientific over the past year and taking into
account Boston Scientific's past breaches, that Boston Scientific will be unable
to, or will not, devote the required resources and focus to marketing and sales
of CardioGenesis products.
Boston Scientific has disputed CardioGenesis' right to terminate the agreement.
CardioGenesis has contested, and intends further if necessary to vigorously
contest, such dispute. While the parties are currently in settlement
discussions, the costs to CardioGenesis, and the outcome, of any such dispute
are not quantifiable at this time.
Boston Scientific does not have the right under the Boston Scientific agreement
to terminate the Boston Scientific agreement as a result of the merger.
CardioGenesis has no obligation to repurchase any inventory from Boston
Scientific upon such termination. CardioGenesis would have no other contingent
obligations to Boston Scientific under the Boston Scientific agreement after
such termination, other than:
- customary obligations to sell to Boston Scientific or to end-users parts
for CardioGenesis products that had previously been sold to the end-users
by Boston Scientific;
- to work with Boston Scientific to transfer from Boston Scientific to
CardioGenesis any end-user leases and rentals of CardioGenesis products
placed by Boston Scientific;
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- payment of any amounts owed by CardioGenesis to Boston Scientific under
the Boston Scientific agreement that had accrued prior to the date of
termination;
- customary warranty obligations; and
- customary survival of confidentiality and record-keeping obligations.
Due to the early, developing stage of the international markets for
CardioGenesis' products, and the state of development of its own international
sales and marketing staff, CardioGenesis believes that the termination of the
Boston Scientific agreement and the subsequent transition will not have a
material adverse effect on CardioGenesis, whether or not the merger is
consummated.
Given the expected closing date of the merger, and the normal process of product
integration that would typically follow such closing, CardioGenesis does not
anticipate that the effective date of such termination, as determined under the
Boston Scientific agreement, will materially adversely impact the ability of the
combined company to determine and implement the timing and scope of such
integration.
CLINICAL TRIALS
ITMR. Clinical data from CardioGenesis' prospective randomized ITMR trial
presented at recent medical symposia indicate that patients who received
treatment with the ITMR System achieved approximately a two class drop in angina
class as measured on the Canadian Cardiovascular Society Angina Scale and a 45
percent improvement in exercise tolerance, as opposed to no improvement in
angina class or exercise tolerance in study patients who did not receive the
ITMR therapy. There are no reported operative deaths in CardioGenesis'
randomized study and the mortality rate in the ITMR therapy group is less than
six percent.
Enrollment in the Phase II, randomized, no-option trial is now complete.
CardioGenesis is nearing completion of its submission of data and information on
the CardioGenesis CardioSync ITMR System in a modular format to the FDA. The FDA
has requested that CardioGenesis delay submission of the final clinical package
until the agency catches up with their September 30, 1998 fiscal year end
backlog. CardioGenesis is not aware of any FDA issues with their modular
submission to date. CardioGenesis believes its relationship with the FDA remains
strong, and does not believe that this request will slow CardioGenesis' progress
toward a PMA panel date or ultimate FDA approval.
Adjunct to CABG. In August 1996, CardioGenesis launched an additional
prospective, randomized, multi-center clinical study under an FDA authorized IDE
to evaluate the ITMR therapy as an adjunct to CABG surgery in up to 500 patients
at up to 25 clinical sites.
PMR. Pilot clinical studies for the PMR system were first conducted in Europe in
November 1996 and CardioGenesis treated the first U.S. human patient in July
1997. CardioGenesis was the first company to initiate clinical studies of a
minimally invasive percutaneous approach to transmyocardial revascularization.
More than 350 patients have been treated with the PMR system at clinical
investigation centers in the U.S. and Europe. In July 1997, CardioGenesis
received an IDE from the FDA which allows a multi-center clinical trial of the
Axcis PMR system to treat angina in no-option patients. Enrollment and treatment
for the prospective randomized Phase II trial of CardioGenesis' Axcis PMR system
has been completed and the trials are ongoing with three, six and twelve month
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patient follow ups. The trial, which includes over 290 patients, is being
conducted at 12 major cardiovascular treatment centers in both the U.S. and
Europe. CardioGenesis plans to pursue a modular submission for regulatory
approval and intends to submit information and updates for the formal follow up
period of the study. This proactive and collaborative approach to submission
provides CardioGenesis with a means for frequent reviews by the FDA of
information required for PMA of the Axcis PMR system. Clinical data presented at
recent medical symposia indicate patients treated with the PMR system are
achieving angina class reductions and exercise tolerance improvements comparable
to those achieved by patients treated with the ITMR system.
Due to the severity of the underlying illnesses of the patients in this
population, CardioGenesis expects the use of its TMR systems to be accompanied
by a certain level of patient morbidity and mortality. There can be no assurance
any clinical investigations CardioGenesis conducts when completed, will provide
sufficient safety and effectiveness data and information to support a PMA
application and to obtain FDA marketing approval. See "-- Government Regulation"
and "Risk Factors -- Risks Related to Business of Eclipse and CardioGenesis."
MANUFACTURING
GENERAL
CardioGenesis' manufacturing activities conducted at its facility in Sunnyvale,
California consist of assembly and testing of the fiber optic probe and catheter
systems used for the TMR procedures. CardioGenesis has developed various
proprietary processes used to manufacture its probes and catheters.
CardioGenesis uses third party suppliers to manufacture the Ho:YAG laser and ECG
monitor included in its TMR systems and for other services and operations
including sterilization of its products.
CardioGenesis' facilities include a controlled environment room where most
assembly operations are performed. CardioGenesis has complied with various
international regulatory requirements including meeting ISO 9001/EN 46001 and
MDD requirements and has obtained a CE Mark approval to market both the ITMR
System and the PMR System in Europe. Before the FDA will approve a PMA
application, it will inspect CardioGenesis' manufacturing facilities and
processes for compliance with FDA regulations. CardioGenesis' manufacturing
facilities have not yet been inspected by the FDA. In the event additional
manufacturing sites are added or manufacturing processes are changed, such new
facilities and processes are also subject to regulatory inspection for
compliance with United States and international regulations. See "-- Government
Regulation" and "Risk Factors -- Risks Related to Business of Eclipse and
CardioGenesis."
SUPPLIERS
A major component used in CardioGenesis' TMR systems, the ECG monitor, is
currently available from a sole source. In addition, several other components
used in CardioGenesis' TMR systems are purchased by CardioGenesis from a single
supplier. CardioGenesis periodically conducts assessments of alternative vendors
for various components used in its TMR systems. However, the qualification of
additional or replacement vendors for certain components is a lengthy process.
See "Risk Factors -- Risks Related to Business of CardioGenesis and Eclipse."
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Commencing in the fourth quarter 1997, CardioGenesis began purchasing lasers
from Carl Baasel Lasertechnik GmbH under an OEM Product Development and Supply
Agreement. Under the Baasel OEM agreement, CardioGenesis has exclusive rights to
sell or otherwise distribute the laser on a worldwide basis either incorporated
into CardioGenesis' products or on a stand-alone basis. The Baasel OEM agreement
prohibits Baasel from selling or otherwise distributing the laser in the
configuration developed for and used by CardioGenesis' TMR systems to any third
party unless approved in advance in writing by CardioGenesis. During the term of
the Baasel OEM agreement and for a period of one year thereafter, Baasel is
prohibited from making a laser, or any major subassembly of a laser, that is the
same or as functionally equivalent to CardioGenesis' laser for use competitive
with that of CardioGenesis.
PATENTS AND PROPRIETARY RIGHTS
CardioGenesis relies on a combination of patent, trade secret, copyright and
trademark laws and contractual restrictions to establish and protect proprietary
rights in its TMR systems.
CardioGenesis holds seven patents in the United States. One of CardioGenesis'
United States patents is directed to methods of PMR therapy, in which a catheter
system is inserted through a patient's vascular system into the heart, and
energy is applied to the inner wall of the heart creating revascularization in
the myocardium. Two of CardioGenesis' United States patents are directed to
methods of ITMR and TTMR therapies, where a flexible probe is inserted into a
patient's chest cavity and energy is applied to the outer wall of the heart
creating revascularization through the heart muscle. These patents expire in the
year 2012. CardioGenesis also has two patents, which expire in the year 2009,
one directed to a specialized lens and means for securing the lens to an optical
fiber to provide a desirable energy emission pattern and one of which is related
to a system for detecting broken optical fibers. CardioGenesis also has a patent
which expires in the year 2013 relating to a reinforced optical fiber system.
CardioGenesis has 28 United States patent applications pending and intends to
file additional patent applications on various features of its TMR systems in
the future. CardioGenesis has 15 international patent applications pending and
intends to file additional international patent applications corresponding to
most of the pending United States patent applications. Several of the pending
patent applications have received Notices of Allowance, and CardioGenesis
expects one or more U.S. patents to issue. However, there can be no assurance
additional patents will issue with respect to any currently pending or future
patent application.
The medical device industry has been characterized by extensive litigation
regarding patents and other intellectual property rights, and some companies in
the medical device industry have employed intellectual property litigation to
attempt in whole or, in part, to gain a competitive advantage. Certain of
CardioGenesis' competitors and potential competitors have obtained United States
patents covering technology that could be used for certain TMR procedures, and
there can be no assurance such competitors, potential competitors or others have
not filed and do not hold international patents covering other TMR technology.
See "Risk Factors -- Risks Related to Business of Eclipse and CardioGenesis."
RESEARCH AND DEVELOPMENT
CardioGenesis' research and development efforts to date have been focused on
development of CardioGenesis' ITMR, PMR and TTMR systems. CardioGenesis is
committed to enhancing the medical community's knowledge and acceptance of TMR
therapy for the
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treatment of severe angina. CardioGenesis intends to continue its basic research
of the TMR mechanism and to focus on the expansion of the indications and
approaches for using its TMR systems, in particular its PMR system. In addition,
CardioGenesis will continue to address improvements in the devices that are a
part of the TMR systems, including improvements which may reduce the cost of its
TMR systems. Based on its research, CardioGenesis believes the reported
reduction in chest pain, improvement in exercise tolerance, and perceived
long-term increase in myocardial blood flow may be associated with the formation
of new blood vessels (angiogenesis). Further product research and development by
CardioGenesis will require substantial expenditures and has inherent risks, and
there can be no assurance CardioGenesis will be successful in identifying
products for which demand exists or in developing products that have the
characteristics necessary to treat particular indications, or that any new
products introduced by CardioGenesis will receive regulatory approval or be
commercially successful. Total research and development expenses of
CardioGenesis were approximately $14.2 million, $7.1 million, and $4.0 million
for the years ended December 31, 1997, 1996 and 1995, respectively, and
approximately $12.3 million for the nine months ended September 30, 1998.
Research and development work by CardioGenesis related to TMR therapy is being
carried out at Columbia University under an agreement that has been extended
into 1999. Under this agreement, CardioGenesis has a worldwide exclusive license
to any patents that issue in connection with the research conducted. The license
also includes a paid up, exclusive worldwide license to use and disclose
(subject to certain nondisclosure requirements) information, data and know-how
relating to the subject matter of the research and CardioGenesis' products
resulting from the research. The license may become nonexclusive, at the
election of Columbia, if CardioGenesis fails to use reasonable efforts to
develop and market the products resulting from the research for commercial sale
and distribution throughout the world. The license also contains certain
most-favored licensing provisions in the event that the license becomes
nonexclusive. The agreement provides for the payment of certain royalties by
CardioGenesis to Columbia based on its net revenues from products to the extent
such products include the patented technology developed by Columbia under the
agreement, including any sales made under an IDE. These royalties are offset by
funds advanced by CardioGenesis and prior sponsors to whom CardioGenesis is a
successor under the Columbia agreement to fund such research of Columbia.
CardioGenesis is not required to pay royalties to Columbia under the agreement
until certain conditions are met, and such conditions have not been met.
COMPETITION
The TMR market is intensely competitive and is constantly becoming more
competitive. Some of CardioGenesis' competitors and many of its potential
competitors have substantially greater name recognition and capital resources
than does CardioGenesis and also may have greater resources and expertise in the
areas of research and development, obtaining regulatory approvals, manufacturing
and marketing. The TMR market is characterized by rapid technical innovation.
Accordingly, CardioGenesis' competitors may succeed in developing TMR products
or procedures that are more effective or more effectively marketed than products
marketed by CardioGenesis or may render CardioGenesis' technology obsolete.
Additionally, even if CardioGenesis' products provide performance comparable to
competing products, CardioGenesis may not be able to obtain necessary regulatory
approvals to compete against competitors in terms of manufacturing, marketing
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and sales. In the field of TMR products, both Eclipse and PLC have received
favorable PMA review from the FDA and have received regulatory approvals and
begun to market products in Europe. In addition, PLC has received FDA approval
to commercially market a TMR product in the U.S. Earlier entrants in the market
in a therapeutic area often obtain and maintain greater market share than later
entrants.
CardioGenesis believes the primary competitive factors in the market for TMR
systems include clinical performance, product safety and reliability,
availability of third party reimbursement, product design specifically for TMR
product use, product quality, ease of use, price of systems and disposable
components, customer service, and company reputation. In addition, the length of
time required for products to be developed and receive regulatory approval and
the ability to use patents or other proprietary rights to prevent sales by
competitors are also important competitive factors. CardioGenesis believes it
competes favorably with respect to these factors, although certain competitors
are at a more advanced stage in the clinical trial and regulatory approval
processes. There can be no assurance CardioGenesis will be able to continue to
compete successfully in the future with respect to any or all of the factors
that are or may be relevant to success in its markets.
Many of the medical indications that may be treatable with TMR therapy are
currently being treated by drug therapies or surgery and other interventional
therapies, including CABG and PTCA therapies. A number of these therapies are
widely accepted in the medical community, have a long history of use and
continue to be enhanced rapidly. Procedures using TMR therapy may not be able to
replace or augment such established treatments or clinical research may not
support the use of TMR therapy. Additionally, new surgical procedures and new
drug therapies are being developed to treat CAD. These new procedures and drug
therapies could be more effective, safer or more cost-effective than TMR
therapy. If TMR therapy fails to replace or augment existing therapies or its
therapies are not more effective, safer or cost-effective than new therapies,
CardioGenesis' business, financial condition and results of operations could be
materially adversely affected. See "Risk Factors -- Risks Related to Business of
Eclipse and CardioGenesis."
GOVERNMENT REGULATION
UNITED STATES
CardioGenesis' TMR systems and accessories are regulated in the United States as
medical devices. As such, CardioGenesis is subject to extensive regulation by
the FDA and state and local authorities including the CDHS. Under the authority
of the FD&C Act and related regulations, the FDA regulates the pre-clinical and
clinical testing, manufacture, labeling, distribution, sale, marketing,
advertising and promotion of medical devices. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, refusal of the government to grant PMA approval under Section 515 of
the FD&C Act or premarket notification clearance under Section 510(k) of the
FD&C Act, withdrawal of marketing clearances or approvals, or a recommendation
by the FDA that CardioGenesis not be permitted to enter into government
contracts and criminal prosecution. In certain circumstances, the FDA also has
the authority to order recall, repair, replacement of or refund of the cost of,
a device manufactured or distributed by CardioGenesis. To date, none of
CardioGenesis' products has been approved for sale in the United States. FDA
approval of a PMA for the relevant TMR system will be required before such TMR
system can be marketed in the United States.
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In the United States, medical devices are classified as Class I, II or III on
the basis of the controls deemed by the FDA to be necessary to reasonably assure
their safety and effectiveness. Class I devices are subject to general controls
(e.g., labeling, premarket notification and adherence to FDA-mandated current
good manufacturing practice GMP requirements), and Class II devices are subject
to general controls and special controls (e.g., performance standards,
postmarket surveillance, patient registries and FDA guidelines). Generally,
Class III devices are those that must receive premarket approval by the FDA to
assure their safety and effectiveness (e.g., life-sustaining, life-supporting
and implantable devices, or new devices which have been found not to be
substantially equivalent to legally marketed devices). Class III devices usually
require clinical testing and FDA approval prior to marketing and distribution.
CardioGenesis' TMR systems are Class III devices.
Before a new medical device can be introduced into the market, the manufacturer
generally must obtain FDA clearance of a 510(k) or approval of a PMA under
Section 515 of the FD&C Act. A PMA application is required if a proposed device
is not substantially equivalent to a legally marketed Class I or Class II
device, or if it is a Class III device for which the FDA has called for PMAs. A
PMA must be supported by valid scientific evidence that typically includes
extensive data, including biocompatability data, preclinical study data (e.g.,
bench testing, laboratory and animal studies) and clinical study data, to
demonstrate the safety and efficacy of the device. If human clinical trials of a
device are required and the device presents, in the FDA's view, a "significant
risk," the sponsor of the trial (usually the manufacturer or the distributor of
the device) is required to file an IDE application with the FDA prior to
commencing human clinical trials. The IDE application must be supported by data,
typically including the results of animal and laboratory testing. If the IDE
application is approved by the FDA and by one or more appropriate institutional
review boards (IRBs), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the sponsors and all reviewing IRBs conclude that the device presents a
"nonsignificant risk" to the patient, a sponsor may begin clinical trials after
obtaining approval for the study protocol by one or more of the appropriate
IRBs, without the need for FDA approval of the study protocol. Sponsors of
clinical trials are permitted under FDA regulations to sell devices distributed
in the course of the clinical study provided such compensation does not exceed
recovery of the costs of manufacture, research, development and handling. An IDE
supplement must be submitted to and approved by the FDA before a sponsor or an
investigator may make a change to the investigational plan that may affect its
scientific soundness or the rights, safety or welfare of human subjects. The FDA
has the authority to re-evaluate, alter, suspend or terminate clinical testing
based on its assessment of data collected throughout the trials.
The PMA must also contain a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling, promotional labeling and materials concerning training
methods (if any). Upon submission of a PMA, the FDA makes a threshold
determination as to whether the application is sufficiently complete to permit
filing for a substantive review. If the FDA determines that the PMA application
is sufficiently complete to permit a substantive review, the FDA will accept the
application for filing. Once the submission is accepted for filing, the FDA
begins an in-depth review of the PMA. An FDA review of a PMA generally takes six
to twelve months from the date the PMA is accepted for filing, but may take
significantly longer if the FDA requests additional
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information and/or if any major amendments to the PMA are filed. The review time
is often significantly extended by the FDA's requests asking for more
information or clarification of information already provided in the submission.
During the review period, an advisory committee, typically a panel of
clinicians, will likely be convened by the FDA to review and evaluate the
application and provide recommendations to the FDA as to whether the device
should be approved. The FDA is not bound by the recommendations of the advisory
panel. Toward the end of the PMA review process, the FDA generally will conduct
an inspection of the manufacturer's facilities to ensure that the facilities are
in compliance with the applicable GMP requirements and may also conduct a
bioresearch monitoring inspection to ensure the integrity and scientific
validity of the clinical data.
If the FDA's evaluations of both the PMA and the manufacturing facilities are
favorable, the FDA will issue either an approval letter or an "approvable
letter" containing a number of conditions that must be met in order to secure
approval of the PMA. When and if those conditions have been fulfilled to the
satisfaction of the FDA, the agency will issue an order approving the PMA,
authorizing commercial marketing of the device for certain indications. If the
FDA's evaluation of the PMA or manufacturing facilities is not favorable, the
FDA will deny approval of the PMA or issue a "not approvable letter." The FDA
may also determine that additional pre-clinical or clinical trials are
necessary, in which case approval of the PMA could be delayed for up to several
years while additional pre-clinical or clinical trials are conducted and
submitted in an amendment to the PMA. The PMA process can be expensive,
uncertain and lengthy, and a number of devices for which FDA approval has been
sought by other companies have never been approved for marketing.
Any products manufactured or distributed by CardioGenesis pursuant to the IDE or
subsequent FDA clearances or approvals are subject to pervasive and continuing
regulatory oversight by the FDA, including record-keeping requirements and
reporting of adverse experiences with the use of the device. Device
manufacturers are required to register their establishments and list their
devices with the FDA and certain state agencies and are subject to periodic
inspections. The FD&C Act requires medical devices be manufactured in accordance
with the FDA's current GMP regulations. These regulations require, among other
things, the manufacturing process be regulated and controlled by the use of
written procedures and the ability to produce devices which meet the
manufacturer's specifications be validated by extensive and detailed testing of
every aspect of the process. They also require investigation of any deficiencies
in the manufacturing process or in the products produced and detailed record
keeping. Manufacturing facilities are subject to FDA and CDHS inspection on a
periodic basis to monitor compliance with GMP requirements. If violations of the
applicable regulations are noted during FDA and CDHS inspections of
CardioGenesis', or its subcontractors' manufacturing facilities, the FDA and
CDHS can, among other things, prohibit further manufacturing, distribution and
sale of CardioGenesis' devices until the violations are cured. Other applicable
requirements include the FDA's medical device reporting regulation, which
requires that CardioGenesis provide information to the FDA on deaths or serious
injuries alleged to have been associated with the use of its marketed devices,
as well as product malfunctions that would likely cause or contribute to a death
or serious injury if the malfunction were to recur.
Labeling, advertising and promotion activities for investigational and marketed
devices are subject to scrutiny by the FDA and, in certain instances, by the
Federal Trade Commission. The FDA enforces statutory prohibitions against
promoting and marketing of products for unapproved uses. CardioGenesis and its
products are also subject to a variety of state laws
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and regulations in those states or localities where its products are or will be
marketed. Any applicable state or local regulations may hinder CardioGenesis'
ability to market its products in those states or localities. CardioGenesis is
also subject to numerous federal, state and local laws relating to such matters
as safe working conditions, manufacturing practices, environmental protection,
fire hazard control and disposal of hazardous or potentially hazardous
substances. Compliance with such laws and regulations now or in the future could
require substantial expenditures by CardioGenesis.
Changes in existing requirements or interpretations (on which regulations
heavily depend) or adoption of new requirements or policies could adversely
affect the ability of CardioGenesis to comply with regulatory requirements.
Compliance with such laws and regulations now or in the future could require
substantial expenditures by CardioGenesis. Failure to comply with regulatory
requirements, or an increase in the cost of compliance, could have a material
adverse effect on CardioGenesis' business, financial condition and results of
operations.
In addition to the requirements for medical devices in general, the FDA places
additional regulations, in the form of performance standards, upon the
manufacture of medical laser products. CardioGenesis will self-certify for
conformance to these standards. CardioGenesis is required to file with the FDA
initial and annual reports of production quantities with respect to its laser.
See "Risk Factors -- Risks Related to Business of Eclipse and CardioGenesis."
INTERNATIONAL
In order to market its TMR systems in European and certain other foreign
countries, CardioGenesis must obtain certain regulatory approvals and clearances
and otherwise comply with extensive regulations regarding product safety,
manufacturing processes and quality. These regulations, including the
requirements for approvals or clearance to market and the time required for
regulatory review, vary from country to country. In July 1996, CardioGenesis
received CE Mark approval to market its ITMR system in the European Community.
The CE Mark is granted to companies whose products meet the essential
requirements of the European MDD and provides the regulatory approval necessary
for commercialization in Europe. In January 1998, CardioGenesis received the CE
Mark approval to market its PMR system in the European Community. CardioGenesis
may rely in some circumstances on international distributors for the receipt of
premarket approvals and compliance with clinical trial requirements in certain
countries where CardioGenesis intends to market its TMR products. Any
enforcement action by regulatory authorities with respect to past or future
regulatory noncompliance could have a material adverse effect on CardioGenesis'
business, financial condition and results of operations.
The time required to obtain approval for sale in foreign countries may be longer
or shorter than that required for FDA approval for U.S. sales, and the
requirements may differ. In addition, there may be foreign regulatory barriers
other than premarket approval. The FDA must approve exports of devices that
require a PMA but are not yet approved domestically, unless they are approved
for sale by any member country of the European Union and the other "listed"
countries, including Australia, Canada, Israel, Japan, New Zealand, Switzerland
and South Africa, in which case they can be exported for sale to any country
without prior FDA approval. In addition, an unapproved device may be exported
without prior FDA approval to the listed countries for investigational use in
accordance with the laws of those countries. To obtain FDA export approval when
required, CardioGenesis must provide the FDA with data and information to
demonstrate that the device: (1) is not
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contrary to public health and safety; and (2) has the approval of the country to
which it is intended for export. To allow the FDA to determine that export of a
device is not contrary to public health and safety, CardioGenesis is required to
submit basic data regarding the safety of the device unless the device is the
subject of an FDA-approved IDE and it will be marketed or used for clinical
trials in the importing country for the same intended use, or at least two IRBs
in the United States have determined that the device is a nonsignificant risk
device and the device will be marketed or used for clinical trials in the
importing country for the same intended use. CardioGenesis also must submit a
letter to the FDA from the foreign country approving importation of the device.
To sell its products within the EEA, consisting of the countries of the European
Union and Norway and Iceland, CardioGenesis is required to meet the requirements
of the MDD and to affix the CE mark on its products to attest to such
compliance. To comply, CardioGenesis' products must meet the "essential
requirements," as defined under the MDD, relating to safety and performance and
CardioGenesis must successfully undergo verification of its regulatory
compliance ("conformity assessment") by a "notified body" selected by
CardioGenesis. Under MDD, CardioGenesis' TMR systems are in Class III, the
highest risk class, and therefore are subject to the most rigorous controls. In
addition to having to comply with the requirements of any particular country,
the authorities have the right under the MDD to prohibit a particular
investigation and impose specific conditions.
Since CardioGenesis obtained the CE Mark approval for its ITMR and PMR systems,
it is now subject to continued supervision by the notified body and will be
required to report any serious adverse incidents to the appropriate authorities.
CardioGenesis also will be required to comply with additional national
requirements that are outside the scope of the MDD. See "Risk Factors -- Risks
Related to Business of Eclipse and CardioGenesis."
THIRD PARTY REIMBURSEMENT
In the United States, hospitals, physicians and other health care providers that
purchase medical devices generally rely on third party payors to reimburse all
or part of the cost of the procedure in which the medical device is being used.
Third party reimbursement has generally been available in the United States for
cardiovascular surgery and interventional cardiology procedures using devices
that have received FDA approval for marketing. Although CardioGenesis does not
anticipate receiving reimbursements for its TMR systems from Medicare during its
clinical trials, CardioGenesis does intend to seek reimbursement from other
third party payors. There can be no assurance, however, that such reimbursement
will be available. A failure by physicians to receive what they consider to be
adequate reimbursement for the TMR procedures in which CardioGenesis' products
are used could have a material adverse effect on CardioGenesis' business,
financial condition and results of operations. In addition, failure to receive
international reimbursement approvals could limit market acceptance of
CardioGenesis' products in the international markets in which such approvals are
sought which could have a material adverse effect on CardioGenesis' business,
financial condition and results of operations. See "Risk Factors -- Risks
Related to the Business of Eclipse and CardioGenesis."
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PRODUCT LIABILITY AND INSURANCE
CardioGenesis' business exposes CardioGenesis to potential product liability
risks or product recalls that are inherent in the design, development,
manufacture and marketing of medical devices. CardioGenesis could be subject to
product liability claims if the use of CardioGenesis' TMR systems is alleged to
have caused adverse effects on a patient or such products are believed to be
defective. CardioGenesis' products are designed to be used in life-threatening
situations where there is a high risk of serious injury or death. Such risks
will continue to exist with respect to those products that may in the future
receive regulatory clearance for commercial sale. The failure to comply with the
FDA's GMP or other regulations could have a material adverse effect on the
ability of CardioGenesis to defend against product liability lawsuits. Although
CardioGenesis has not experienced any product liability claims to date, any such
claims could have a material adverse effect on CardioGenesis' business,
financial condition and results of operations. There can be no assurance
CardioGenesis' product liability insurance, with coverage limits of $5.0 million
per occurrence and in the aggregate and additional coverage limits of deutsche
marke 1.0 million (approximately $546,000) per person and deutsche marke 50
million (approximately $27,300,000) in the aggregate for use of CardioGenesis'
TMR systems in Germany, will be adequate for any future product liability
problems or that such insurance coverage will continue to be available on
commercially reasonable terms or at all. Since TMR therapy is not well
understood and there is a lack of data regarding the clinical safety and
efficacy of CardioGenesis' TMR systems, there can be no assurance such coverage
limits would be adequate to protect CardioGenesis from liabilities it might
incur in connection with the development, manufacture and sale of its products.
In addition, CardioGenesis may require increased product liability coverage if
any products are commercialized. Product liability insurance is expensive and in
the future may not be available to CardioGenesis on acceptable terms, if at all.
If CardioGenesis is held liable for a product liability claim or series of
claims brought against CardioGenesis in excess of its insurance coverage such
liability could have a material and adverse effect on CardioGenesis' business,
financial condition and results of operations.
EMPLOYEES
As of September 30, 1998, CardioGenesis had a total of 89 employees, including
16 in research and development, 17 in operations, 14 in clinical and regulatory
affairs, 8 in quality assurance, 22 in sales and marketing and 12 in finance and
administration. In addition, CardioGenesis has consulting and other contract
arrangements. CardioGenesis believes the success of its business will depend, in
significant part, on its ability to attract and retain qualified personnel. None
of CardioGenesis' employees are represented by a collective bargaining agreement
and CardioGenesis has not experienced any work stoppage. CardioGenesis considers
its relations with its employees to be good.
SCIENTIFIC ADVISORY BOARD
CardioGenesis has a Scientific Advisory Board consisting primarily of leading
physicians and scientists in the field of CAD. Scientific Advisory Board members
consult regularly with the engineers, physicians and scientists at CardioGenesis
and advise CardioGenesis on the specification and design of CardioGenesis'
products and clinical trials. The members of the Scientific Advisory Board are
prominent scholars in their field and, as a result, may serve as consultants to
a variety of companies. Because the members of CardioGenesis'
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Scientific Advisory Board may have consulting or advisory positions with
companies that may be competitors of CardioGenesis, each member of the
Scientific Advisory Board has entered into a confidentiality arrangement with
CardioGenesis. CardioGenesis compensates certain members of its Scientific
Advisory Board for participating in meetings of the Board or for performing
other services for CardioGenesis. CardioGenesis' Scientific Advisory Board
consists of:
<TABLE>
<CAPTION>
NAME TITLE/OCCUPATION
---- ----------------
<S> <C>
Daniel Burkhoff, M.D., Ph.D. ............. Director of Cardiac Physiology Laboratory,
Columbia Presbyterian Medical Center;
Assistant Professor of Medicine, Columbia
University
Keith L. March, M.D., Ph.D. .............. Associate Professor of Medicine, Krannert
Institute of Cardiology, Indiana University
Medical Center
Stephen N. Oesterle....................... Director of Invasive Cardiology, Department
of Cardiology, Massachusetts General
Hospital
John R. Resar, M.D. ...................... Assistant Professor, Department of Medicine,
John Hopkins University
Timothy A. Sanborn........................ Director, Cardiac Catheterization
Laboratory, Professor of Medicine,
Department of Cardiology, The New York
Hospital
Craig R. Smith, M.D. ..................... Chief, Division of Cardiothoracic Surgery,
Columbia Presbyterian Medical Center;
Associate Professor of Surgery, Columbia
University
Sharon Tomsen, M.D. ...................... Associate Professor, Surgical Oncology and
Anatomic Pathology; Program Director, Laser
Biology Research Program, University of
Texas M.D. Anderson Cancer Center; Adjunct
Associate Professor, Biomedical Engineering
Program, University of Texas, Austin
</TABLE>
PROPERTIES
CardioGenesis currently maintains its primary offices, research laboratories and
manufacturing and warehouse operations in a facility in Sunnyvale, California
having approximately 19,000 square feet of space. These premises are leased
pursuant to an agreement which expires in October 1999. CardioGenesis believes
this facility will be adequate for its operations through at least 1999,
including anticipated manufacturing volume.
LEGAL PROCEEDINGS
In 1996, CardioGenesis initiated a suit in the United States against PLC seeking
a judgment that the PLC patent is invalid and unenforceable. In 1997, PLC
counterclaimed in that suit alleging infringement by CardioGenesis of the PLC
patent. Also in 1997, PLC initiated suit in Germany against CardioGenesis and
CardioGenesis' former German sales agent alleging infringement of a European
counterpart to the PLC patent. In 1997, CardioGenesis filed an Opposition in the
European Patent Office to a European counterpart to the PLC patent, seeking to
have the European patent declared invalid.
On January 5, 1999, before trial on the U.S. suit commenced CardioGenesis and
PLC settled all litigation between them, both in the U.S. and in Germany, with
respect to the PLC patent and the European patents. Under the Settlement and
License Agreement
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signed by the parties CardioGenesis stipulated to the validity of the PLC
patents and PLC granted CardioGenesis a non-exclusive worldwide license to the
PLC patents. CardioGenesis agreed to pay PLC a license fee, and minimum
royalties, totaling $2.5 million over an approximately forty-month period, with
a running royalty credited against the minimums.
The Settlement and License Agreement does not apply to any products or
technology that do not use the PLC patents, nor does the agreement provide PLC
any rights to any CardioGenesis intellectual property. The Eclipse TMR products
do not use the technology associated with the PLC patents.
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CARDIOGENESIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition and
results of operations contains forward-looking statements. For a discussion of
forward-looking statements, see page 28.
SUMMARY
Since its inception, CardioGenesis has been primarily engaged in the design,
development, and marketing of its TMR systems. CardioGenesis has only a limited
operating history and has experienced significant operating losses since its
inception. CardioGenesis incurred a net loss of $19.5 million in the nine months
ended September 30, 1998. The development and potential commercialization of
CardioGenesis' products will continue to require significant research and
development, regulatory, sales and marketing, manufacturing and other
expenditures. Operating losses are expected to continue at least through 1999 as
CardioGenesis continues to perform research and development, to fund clinical
trials in support of regulatory and reimbursement approvals, and to expand its
marketing and sales activities in the U.S. and internationally by supporting
Boston Scientific, CardioGenesis' exclusive distributor in international
markets. There can be no assurance that CardioGenesis' TMR systems will ever
generate significant revenues or that CardioGenesis will achieve or sustain
profitability.
The research, manufacture, sale and distribution of medical devices such as
CardioGenesis' TMR systems are subject to numerous regulations imposed by
governmental authorities, principally the FDA and corresponding state and
foreign agencies. The regulatory process is lengthy, expensive and uncertain.
FDA approval of a PMA application is required before any of CardioGenesis' TMR
systems can be marketed in the United States. Securing FDA approvals and
clearances will require submission to the FDA of extensive clinical data and
technical information. Also, many foreign governments and the European Union
also have review processes for medical devices. CardioGenesis has received CE
Mark approval to market its intraoperative CardioSync(TM) (ITMR) system and
percutaneous Axcis(TM) PMR system in the European Union. The CE Mark is granted
to companies whose products meet the essential requirements of the European MDD
and provides the regulatory approval necessary for commercialization in Europe.
CardioGenesis will be subject to continued supervision by regulators and will be
required to report any serious adverse incidents to the appropriate authorities.
CardioGenesis also will be required to comply with additional national
requirements that are outside the scope of the MDD. CardioGenesis plans to
continue to seek regulatory approvals to allow for marketing and distribution of
its products in international markets.
CardioGenesis commenced clinical trials of its CardioSync ITMR system in October
1995 and began clinical trials of its Axcis PMR system in November 1996.
Clinical trials of CardioGenesis' thoracoscopic TMR (TTMR) system have not
commenced.
In July 1996, CardioGenesis began a Phase II clinical trial under an IDE that
allowed a prospective, randomized, multi-center clinical trial of its CardioSync
ITMR system in "no-option" patients with severe CAD. Enrollment in the Phase II,
randomized, no-option trial is now complete. CardioGenesis is nearing completion
of its submission of data and information on the CardioGenesis CardioSync ITMR
system in a modular format to the FDA. The FDA has requested that CardioGenesis
delay submission of the final clinical
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package until the agency catches up with their September 30, 1998 fiscal year
end backlog. CardioGenesis is not aware of any FDA issues with its modular
submission to date. CardioGenesis believes that its relationship with the FDA
remains strong, and does not believe that this request will slow CardioGenesis'
progress toward a PMA panel date or ultimate FDA approval.
In August 1996, CardioGenesis received an IDE from the FDA and has begun a major
clinical study of its CardioSync ITMR System used as an adjunctive therapy to
CABG surgery in patients with severe angina who are only partially treatable by
CABG. The adjunct to CABG clinical trials are ongoing.
Clinical trials for CardioGenesis' Axcis PMR system commenced in Europe in
November 1996. In January 1998, CardioGenesis received the CE Mark approval for
use of its Axcis PMR system in the European Community. In July 1997,
CardioGenesis received an IDE from the FDA which allows a multi-center clinical
trial of the Axcis PMR system to treat angina in no-option patients. Enrollment
and treatment for the prospective randomized Phase II trial of CardioGenesis'
Axcis PMR system has been completed and the trials are ongoing with three, six
and twelve month patient follow ups.
The trial, which includes over 290 patients, is being conducted at 12 major
cardiovascular treatment centers in both the U.S. and Europe. CardioGenesis
plans to pursue a modular submission for regulatory approval and intends to
submit information and updates for the formal follow up period of the study.
This proactive and collaborative approach to submissions provides CardioGenesis
with a means for frequent reviews by the FDA of information required for PMA of
the Axcis PMR system.
In September 1998, CardioGenesis received a preliminary IDE from the FDA and has
begun a prospective, randomized clinical study of its Axcis PMR system used as
an adjunctive therapy to PTCA surgery. The trial, which has been approved for 40
patients, is being conducted at 5 major cardiovascular treatment centers in the
U.S. CardioGenesis anticipates trial in the future.
CardioGenesis recorded sales of $3.0 million for the first nine months of 1998
from sales of its CardioSync ITMR systems, Axcis PMR systems and disposable
probes and catheters to clinical trial sites in the U.S. and to its
international distributor, Boston Scientific. CardioGenesis recognizes product
revenues upon shipment of its products to customers and fulfillment of
acceptance terms, if any, and when no significant contractual obligations remain
outstanding. Deferred revenue consists of shipments that have been made which
are subject to limited rights of return or other contingencies. CardioGenesis
anticipates that it will continue to derive revenues from product sales over the
next several years from international sales. Any such international sales will
be subject to a number of risks, including foreign currency fluctuations,
economic or political instability, foreign tax laws, shipping delays, various
tariffs and trade regulations and restrictions and foreign medical regulations,
any of which could have a material adverse impact on CardioGenesis' revenues.
Results of CardioGenesis' operations have varied and are expected to fluctuate
significantly from quarter to quarter depending on numerous factors, including:
- Boston Scientific;
- Demand for CardioGenesis' products, new product introductions by
CardioGenesis or its competitors or transitions to new products;
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- the timing of orders and shipments;
- the degree of acceptance of TMR therapy by the medical community;
- competition, including pricing pressures;
- potential third party patent infringement claims;
- the timing of regulatory and third party reimbursement approvals;
- expansion of CardioGenesis' manufacturing capacity and CardioGenesis'
ability to manufacture its products efficiently;
- the timing of research and development expenses, including clinical
trial-related expenditures; and
- seasonal factors affecting the number of procedures performed.
Due to such fluctuations in operating results, period-to-period comparisons of
CardioGenesis' operating results are not necessarily meaningful and should not
be relied upon as indicators of likely future performance.
On October 21, 1998, CardioGenesis entered into an agreement to merge with
Eclipse. In the merger, 0.80 of a share of Eclipse common stock will be issued
for each share of CardioGenesis common stock. The two companies expect that the
transaction will, due to its structure, qualify as a tax-free reorganization to
be accounted for as a pooling of interests. The Boards of Directors of
CardioGenesis and Eclipse have approved the reorganization agreement; however,
the merger is subject to approval by the shareholders of CardioGenesis and
Eclipse.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
Sales. Sales were recognized for the first time in 1996. Sales of CardioGenesis'
TMR systems for commercial use in Europe and for use at clinical trial sites in
both the U.S. and Europe totaled approximately $7.6 million and $4.0 million for
the year ended December 31, 1997 and 1996, respectively. The increase in sales
from 1996 to 1997 is primarily due to the exclusive international distribution
agreement with Boston Scientific.
Cost of Sales. Cost of sales for the year ended December 31, 1997 was
approximately $5.0 million, or 66% of sales. Cost of sales for the year ended
December 31, 1996 was approximately $2.9 million, or 72% of sales. The decrease
in cost of sales as a percent of sales from 1996 to 1997 was primarily due to
the allocation of fixed overhead costs over more units. However, no assurance
can be given that demand for CardioGenesis' products will grow sufficiently to
require increased levels of production.
Research and Development Expenses. Research and development expenses increased
$7.1 million to $14.2 million for 1997 from $7.1 million for 1996 and increased
$3.1 million in 1996 from $4.0 million for 1995. The increase from 1996 to 1997
was primarily due to increased activity in the clinical trials and continued
investment in research in the field of TMR therapy. The increase from 1995 to
1996 was primarily due to expenses related to the initiation of three additional
clinical trials, two with CardioGenesis' ITMR System and one with the PMR
System. Also, CardioGenesis increased its investment in mechanism research in
the field of TMR therapy.
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CardioGenesis expects research and development expenses to continue to increase
throughout 1998 as CardioGenesis continues to enroll patients in its ongoing
clinical trials, initiates additional clinical trials, and continues to invest
in TMR mechanism research.
General and Administrative Expenses. General and administrative expenses
increased $1.1 million to $3.7 million for 1997 from $2.6 million for 1996 and
increased $1.4 million in 1996 from $1.2 million for 1995. The increase in 1997
was primarily due to increased finance and administration personnel costs to
support CardioGenesis' growth, increased legal fees associated with research and
development agreements and the exclusive international distribution agreement
with Boston Scientific, and legal fees related to the PLC litigation. The
increase from 1995 to 1996 is primarily attributed to employee growth, legal
fees relating to the exclusive distribution agreement with Boston Scientific,
legal fees associated with the initiation of the suit by CardioGenesis against
PLC, increased property, general and product liability insurance costs, public
and investor relations costs, and the costs incurred to comply with the
additional requirements associated with being a public company. CardioGenesis
expects that its general and administrative expenses will continue to increase
in 1998.
Sales and Marketing Expenses. Sales and marketing expenses increased $3 million
to $5.4 million for 1997 from $2.4 million for 1996 and increased $2.1 million
in 1996 from $336,000 in 1995. The increase in 1997 was primarily due to the
addition of sales and marketing personnel and the implementation of marketing
and training programs, transition costs related to the BSC international sales
agreement, and continued costs associated with the launch of CardioGenesis' TMR
system in Europe. The increase from 1995 to 1996 is primarily attributed to
preparing for and launching the ITMR system in Europe, employee growth, and the
implementation of outreach programs at the clinical sites. CardioGenesis expects
that sales and marketing expenses will continue to increase in 1998 as
CardioGenesis expands clinical studies, conducts physician training, and
supports the sales and marketing activities of BSC.
Interest Income. Interest income increased $.5 million to $2.8 million for 1997
from $2.3 million for 1996 and increased $2.1 million in 1996 from $182,000 in
1995. The increase in interest income in 1997 was attributable primarily to
fluctuations in CardioGenesis' cash and cash equivalents and short-term
investments balances, coupled with interest rate fluctuations. The increase in
interest income in 1996 was due to the investment of the proceeds from
CardioGenesis' initial public offering of common stock in May 1996 of
approximately $54.5 million, net of issuance costs.
Deferred Compensation Expense. CardioGenesis recorded deferred compensation
expense of approximately $1.4 million and $874,000 with respect to options to
purchase common stock granted and preferred stock issued during 1996 and 1995,
respectively. Deferred compensation expense is being amortized over the vesting
period, which is generally four years. CardioGenesis recognized compensation
expense of $480,000, $849,000 and $104,000 for 1997, 1996 and 1995,
respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Sales. Sales of CardioGenesis' CardioSync ITMR systems, Axcis PMR systems and
disposable products for commercial use in Europe and for use at clinical trial
sites in both the U.S. and Europe decreased approximately $2.5 million to $3.0
million for the nine months ended September 30, 1998 from $5.5 million for the
same period in 1997. This
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reduction in sales is due primarily to constraints on capital equipment
purchases resulting from hospital budgets and government overview outside the
U.S., and by the limited current availability of reimbursement for TMR
procedures in Europe.
Cost of Sales. Cost of sales consists of direct and indirect costs of providing
CardioSync ITMR systems, Axcis PMR systems and disposable products to customers.
Cost of sales was approximately $2.7 million, or 89% of sales, for the nine
months ended September 30, 1998 and $3.4 million, or 63% of sales, for the same
period in 1997. The increase in cost of sales as a percent of sales from 1997 to
1998 was primarily due to the allocation of fixed overhead costs over fewer
units.
Research and Development Expenses. Research and development expenses increased
approximately $2.1 million to $12.3 million for the nine months ended September
30, 1998 from $10.2 million for the same period in 1997. The increase in 1998
was primarily due to higher clinical expenses for increased activity in the
clinical trials and continued investment in research in the field of TMR
therapy. CardioGenesis expects research and development expenses to continue to
increase at least through 1998 as CardioGenesis continues patient follow-ups in
its ongoing clinical trials, initiates additional clinical trials, and continues
to invest in TMR mechanism research.
General and Administrative Expenses. General and administrative expenses
increased approximately $1.5 million to $4.2 million for the nine months ended
September 30, 1998 from $2.8 million for the same period in 1997. The increase
in 1998 was primarily due to legal fees related to the lawsuit by CardioGenesis
against PLC seeking a judgment that the PLC patent is not infringed by
CardioGenesis and is invalid and unenforceable. CardioGenesis expects that
general and administrative expenses will continue to increase at least through
1998.
Sales and Marketing Expenses. Sales and marketing expenses increased
approximately $1.1 million to $4.8 million for the nine months ended September
30, 1998 from $3.7 million for the same period in 1997. The increase in 1998 was
primarily due to increased sales and marketing costs associated with the
distribution of the CardioSync ITMR and Axcis PMR systems in Europe.
CardioGenesis expects that sales and marketing expenses will continue to
increase in 1998 as CardioGenesis conducts physician training and expands sales
and marketing activities in the U.S. and in Europe.
Interest Income and Other, Net. Interest income and other, net decreased
$725,000 to $1.5 million for the nine months ended September 30, 1998 from $2.2
million for the same period in 1997. The decrease is primarily due to decreases
in CardioGenesis' cash and cash equivalents and short-term investments balances.
Deferred Compensation Expense. CardioGenesis recorded deferred compensation
expense of approximately $1.4 million and $874,000 with respect to options to
purchase common stock granted and preferred stock issued during 1996 and 1995,
respectively. Deferred compensation expense is being amortized over the vesting
period of the options, which is generally four years. Compensation expense of
$343,000 and $359,000 was recognized for the nine months ended September 30,
1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
CardioGenesis has funded its operations since inception primarily through the
private sale of capital stock and interest income on proceeds from private
financings as well as
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proceeds and interest thereon from its initial public offering in May 1996.
Through September 30, 1998, CardioGenesis had raised approximately $77.2 million
from the sale of stock, net of issuance costs.
In June 1998, CardioGenesis entered into a loan and security agreement with a
bank which provides an $8.0 million line of credit. Amounts borrowed under the
agreement bear interest at a rate equal to the bank's prime rate and are
collateralized by CardioGenesis' assets. The agreement contains certain
financial covenants and the line of credit is available until May 15, 1999.
There was no outstanding balance as of September 30, 1998.
Net cash used in CardioGenesis' operations was $17.4 million, $9.2 million, and
$5.0 million for the years ended December 31, 1997, 1996, and 1995,
respectively, and $14.9 million for the nine months ended September 30, 1998.
The increases in net cash used in CardioGenesis' operations were primarily a
result of higher research and development, general and administrative, and sales
and marketing activities. CardioGenesis' acquisition of property and equipment
was $360,000, $1.7 million, and $175,000 for the years ended December 31, 1997,
1996, and 1995, respectively, and $628,000 for the nine months ended September
30, 1998. The increase in capital expenditures for 1996 was primarily due to
relocating CardioGenesis' facilities to Sunnyvale, California and to providing
equipment for the new employees hired during the year.
At September 30, 1998, CardioGenesis had cash, cash equivalents and
available-for-sale securities, totaling $25.4 million. CardioGenesis plans to
finance its operations and capital needs principally from the cash, cash
equivalents and available-for-sale securities, and, to the extent available,
from bank and lease financing, and believes these sources of cash will be
sufficient to fund its operations through the next 12 months. However,
CardioGenesis' future liquidity and capital requirements will depend upon
numerous factors, including:
- the level of sales of CardioGenesis' products in major and emerging
international markets;
- market acceptance of, and demand for CardioGenesis' products;
- CardioGenesis' clinical research and product development programs;
- the receipt of, and the time required to obtain, regulatory clearances
and approvals;
- the resources CardioGenesis devotes to the development, manufacture and
marketing of its products;
- the resources required to hire and develop a direct sales force in the
United States, and to expand manufacturing capacity;
- facilities requirements; and
- other factors.
Although CardioGenesis believes its current levels of cash, cash equivalents,
and available-for-sale securities, together with cash generated from operations,
will provide adequate funding for its operations and capital requirements
through the next 12 months, CardioGenesis may be required to raise additional
funds through public or private debt or equity financings, collaborative
relationships, bank facilities or other arrangements. However, CardioGenesis may
require additional funding sooner, and such additional funding, if needed, may
not be available on terms attractive to CardioGenesis, if at all.
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Any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may involve restrictive covenants.
As of December 31, 1997, CardioGenesis had federal and California net operating
loss carryforwards of approximately $32.5 million and $10.0 million,
respectively. The federal and California net operating loss carryforwards will
expire by the years 2012 and 2002, respectively, if not utilized. Utilization of
net operating loss carryforwards is subject to certain limitations under the Tax
Reform Act of 1986, as amended, where certain changes occur in the stock
ownership of a company. These annual limitations may result in expiration of net
operating loss carryforwards before they can be fully utilized.
IMPACT OF YEAR 2000 ON INFORMATION SYSTEMS
CardioGenesis has completed its preliminary assessment of both its IT
(information technology) and non-IT systems. For CardioGenesis' IT systems,
non-compliant software and hardware have been identified and upgrades are in
progress. CardioGenesis generally does not customize or use internally developed
software for the IT function and therefore, the IT upgrades in progress consist
of replacing existing software with Year 2000-compliant revisions supplied by
the manufacturers of the software. CardioGenesis's IT system is expected to be
Year 2000-compliant by March 31, 1999.
Several non-IT systems have been identified which are not Year 2000-compliant.
CardioGenesis is developing remediation plans for these systems which may
include the purchase of vendor-supported upgrades or the purchase of new systems
known to be Year 2000-compliant. CardioGenesis's non-IT systems are expected to
be Year 2000-compliant by June 30, 1999.
CardioGenesis is obtaining written assurance from its suppliers that date
sensitive components incorporated into CardioGenesis' products are Year
2000-compliant. CardioGenesis expects to receive such assurances by March 31,
1999.
CardioGenesis is preparing to contact key vendors and other third parties with
which CardioGenesis has a significant relationship to determine their readiness
with respect to Year 2000 issues. CardioGenesis is setting a preliminary target
to receive this information by June 30, 1999, but there is a possibility, based
on the timeliness of the responses, that this process could take longer.
CardioGenesis has prepared a preliminary estimate of total Year 2000 remediation
efforts of $50,000, none of which has been spent as of September 30, 1998. This
anticipated expense is primarily for upgrades of non-compliant non-IT systems
and for diagnostic software for the IT system.
CardioGenesis has not yet evaluated the consequences of its most reasonably
likely worst case Year 2000 scenario. CardioGenesis is in the process of
preparing Year 2000 contingency plans to address the question of what
CardioGenesis will do if it is not ready. The contingency plans are expected to
be complete by June 30, 1999.
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information." SFAS
No. 131 requires publicly-held companies to report financial and other
information about key revenue-producing segments of the entity for which such
information is available and is utilized by the chief operating decision maker.
Specific information to be reported for individual segments includes profit or
loss, certain revenue and expense items and total assets. A reconciliation of
segment financial information to amounts reported in the financial statements
would be provided. SFAS No. 131 is effective for CardioGenesis for the year
ending December 31, 1998. CardioGenesis operates in one business segment;
namely, the research, development, manufacture and sale of cardiovascular
surgical devices.
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CARDIOGENESIS MANAGEMENT AND EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS AND DIRECTORS
Each executive officer or director of CardioGenesis who will serve as an
executive officer or director of Eclipse is listed in the table below together
with his age as of October 21, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Allen W. Hill................ 48 President, Chief Executive Officer and Director
Richard P. Powers............ 57 Executive Vice President of Finance and
Administration, Chief Financial Officer and
Secretary
Jack M. Gill................. 62 Chairman of the Board
Robert C. Strauss............ 57 Director
</TABLE>
Allen W. Hill has served as President and Chief Executive Officer and as a
director of CardioGenesis since July 1995. From February 1990 to May 1995, Mr.
Hill served as President, Chief Executive Officer and director of Cyberonics,
Inc., a medical device company. From 1975 to January 1990, Mr. Hill held various
positions at Baxter International, most recently as Vice President of Operations
and Vice President of Sales and Marketing, for its Edwards Critical Care
Division. Mr. Hill received his B.S. degree in Marketing from Oklahoma State
University.
Richard P. Powers has served as Executive Vice President of Finance of
CardioGenesis since July 1998, Vice President of Finance and Administration and
Chief Financial Officer since March 1996 and Secretary since April 1996. From
September 1995 to February 1996, Mr. Powers served as a consultant to and
director of Qualtos Computer Inc., a provider of on-line support networks and
software. From 1986 to August 1995, Mr. Powers was Senior Vice President and
Chief Financial Officer of Syntex Corporation, a pharmaceutical company. He
received his B.S. degree in Accounting from Canisius College and his M.B.A. from
the University of Rochester.
Jack M. Gill has served as Chairman of the Board of Directors of CardioGenesis
since November 1993. Dr. Gill is a founding general partner of Vanguard Venture
Partners and has served in such capacity since 1981. From 1972 to 1982, Dr. Gill
was Executive Vice President and Group Manager of the Scientific Division of
Spectra Physics. Dr. Gill is a director of a number of privately held medical
device companies. Dr. Gill received his B.S. degree in Engineering from Lamar
University and his Ph.D. in Organic Chemistry from Indiana University.
Robert C. Strauss has served as a director of CardioGenesis since December 1997.
In December 1997, Mr. Strauss accepted the position of President and Chief
Executive Officer of Noven Pharmaceuticals, Inc. From March 1997 to July 1997,
he served as President and Chief Operating Officer of IVAX Corporation, a
pharmaceutical company. In 1983, Mr. Strauss joined Cordis Corporation, a
medical device company, as Chief Financial Officer and from February 1987 to
February 1997, he served as President and Chief Executive Officer of Cordis. In
1995, he was also named Chairman of Cordis. Mr. Strauss serves on the Board of
Trustees for the University of Miami and holds positions on the Board of
Directors of several public companies. Mr. Strauss received his B.S. degree in
Engineering Physics from the University of Illinois and his M.S. in Physics from
the University of Idaho.
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EXECUTIVE COMPENSATION
The following table shows for the fiscal years ended December 31, 1995, 1996 and
1997 certain compensation awarded or paid to, or earned by, Messrs. Hill and
Powers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
----------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS (#) COMPENSATION
- --------------------------- ------ -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Allen W. Hill.............. 1997 $250,000 $60,000 $-- 50,000 $ --
President and 1996 220,000 50,000 -- -- --
Chief Executive Officer 1995 95,704 25,000 -- 376,946 22,679(2)
Richard P. Powers.......... 1997 166,400 30,000 -- 40,000 --
Executive Vice President of
Finance and 1996 126,667 27,400 -- 98,400 --
Administration, Chief
Financial 1995 -- -- -- -- --
Officer and Secretary
</TABLE>
- ---------------
(1) Bonuses are paid at the discretion of the CardioGenesis compensation
committee based on the achievement of certain objectives.
(2) Represents relocation expenses.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth further information regarding option grants
pursuant to the CardioGenesis 1996 Equity Incentive Plan during 1997 to Mr. Hill
and Mr. Powers. In accordance with the rules of the SEC, the table sets forth
the hypothetical gains or "option spreads" that would exist for the options at
the end of their respective ten-year terms. These gains are based on assumed
rates of annual compound stock price appreciation of 5% and 10% from the date
the option was granted to the end of the option term.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
----------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE MARKET APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE VALUE ON OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE GRANT EXPIRATION ---------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE DATE 5% 10%
---- ------------- ------------- --------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Allen W. Hill...... 50,000 7.0% $7.25 $7.25 5/28/07 $227,974 $577,732
Richard P.
Powers........... 40,000 5.6% $7.25 $7.25 5/28/07 $182,379 $462,185
</TABLE>
- ---------------
(1) The options shown in the table were granted at fair market value, are
incentive stock options and will expire ten years from the date of grant,
subject to earlier termination upon termination of the optionee's
employment. The options become exercisable with respect to 12.5% of the
shares on the six month anniversary of the vesting commencement date and
vest as to an additional 2.083% of the shares for each full month thereafter
that the optionee renders services to CardioGenesis.
(2) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the rules of the SEC and do not represent CardioGenesis'
estimate or projection of future CardioGenesis common stock prices.
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<PAGE> 118
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning the exercise of
options by Mr. Hill and Mr. Powers during 1997, including the aggregate amount
of gains on the date of exercise. In addition, the table includes the number of
shares covered by both exercisable and unexercisable stock options as of
December 31, 1997. Also reported are values of "in-the-money" options that
represent the positive spread between the respective exercise prices of
outstanding stock options and $6.25 per share, which was the closing price of
CardioGenesis common stock as reported on the Nasdaq National Market on December
31, 1997, the last day of trading for 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1997(1) DECEMBER 31, 1997(2)
ON EXERCISES REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allen W. Hill...... 0 0 187,916 239,030 $1,086,477 $850,264
Richard P.
Powers........... 0 0 48,883 89,517 190,311 395,728
</TABLE>
- ---------------
(1) "Value Realized" represents the fair market value of the shares of
CardioGenesis common stock underlying the option on the date of exercise
less the aggregate exercise price of the option.
(2) These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized and are based on the
positive spread between the respective exercise prices of outstanding
options and the closing price of CardioGenesis common stock on December 31,
1997, which was $6.25 per share.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF CARDIOGENESIS
The following table sets forth certain information, as of the record date with
respect to beneficial ownership of CardioGenesis' common stock by: (1) each
stockholder known by CardioGenesis to be the beneficial owner of more than 5% of
CardioGenesis' common stock; (2) each director and nominee; (3) each named
executive officer, and (4) all directors and executive officers as a group.
Percentage ownership is based upon an aggregate of 12,385,051 shares outstanding
as of the record date. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of the record date are deemed to be
outstanding and to be beneficially owned by the person holding such options for
the purpose of computing the percentage ownership of such person; but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person.
<TABLE>
<CAPTION>
SHARES OF CARDIOGENESIS COMMON STOCK
BENEFICIALLY OWNED
----------------------------------------
NUMBER SUBJECT TO
OPTIONS
EXERCISABLE
TOTAL WITHIN 60 DAYS
NAME NUMBER OF THE RECORD DATE PERCENT
---- --------- ------------------ -------
<S> <C> <C> <C>
David C. Hull, Jr.
Director(1)............................................ 1,939,422 4,099 15.7%
Advanced Cardiovascular Systems, Inc.
3200 Lakeside Drive
Santa Clara, CA 95052.................................. 1,695,760 -- 13.7
Centennial Fund IV, L.P.
c/o The Centennial Funds
1330 Post Oak Park, Suite 1525
Houston, TX 77056(2)................................... 1,647,800 -- 13.3
Jack M. Gill
Chairman of the Board
Vanguard IV, L.P.(3)................................... 1,476,372 4,099 11.9
Kleiner Perkins Caufield & Byers VII
2750 Sand Hill Road
Menlo Park, CA 94025(4)................................ 946,557 -- 7.6
State of Wisconsin Investment Board
P.O. Box 7842
Madison, WI 53707...................................... 804,500 -- 6.5
Allen W. Hill............................................ 408,550 332,584 3.2
Richard P. Powers........................................ 167,205 103,556 1.3
Edward F. Brennan
Executive Vice President............................... 137,178 116,605 1.1
Thomas D. Kiley
Director............................................... 84,235 24,599 *
Carole E. Marcot
Vice President of Regulatory Affairs................... 48,654 30,706 *
E. Walter Lange
Director............................................... 4,526 4,526 *
Robert C. Strauss
Director............................................... 3,843 3,843 *
Kenneth Aron(5).......................................... 1,400 -- *
Roseanne Varner
Director............................................... 1,708 1,708 *
All executive officers & directors as a group (10
persons)............................................... 4,271,693 626,325 32.8%
</TABLE>
- ---------------
* Less than 1%.
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<PAGE> 120
(1) In addition to 12,688 shares held directly by Mr. Hull, the number of shares
beneficially owned by Mr. Hull includes shares directly held by the entities
identified in the following table because Mr. Hull may be deemed to
beneficially own such shares under SEC regulations due to the relationship
he has with each such entity (as indicated below):
<TABLE>
<CAPTION>
NUMBER OF SHARES
RECORD OWNER OWNED OF RECORD MR. HULL'S RELATIONSHIP TO RECORD OWNER
------------ ---------------- ---------------------------------------
<S> <C> <C>
Centennial Fund IV, L.P. 1,647,800 Individual general partner of sole
general partner of record owner
Criterion Venture Partners III, Limited 223,636 Individual general partner of sole
general partner of record owner
Centennial Holdings IV, L.P. 23,423 Individual general partner
Centennial Holdings I, LLC 8,149 Executive officer and director
Criterion Investments, Inc. 19,647 Executive officer and director
</TABLE>
(2) Excludes shares directly held by all other entities identified in note (1).
Each of Centennial Fund IV, L.P. and its general partner disclaim beneficial
ownership of all shares directly or beneficially owned by Criterion Venture
Partners III, Limited.
(3) With the exception of shares subject to options exercisable within 60 days
of the record date, all of the shares listed as beneficially owned by Dr.
Gill are directly held by Vanguard IV, L.P. Dr. Gill may be deemed to
beneficially own such shares because he is the general partner of Vanguard
Venture Partners, which is the general partner of Vanguard IV, L.P. Dr. Gill
disclaims beneficial ownership of such shares, except to the extent that he
has any pecuniary interest in such shares.
(4) Represents 894,396 shares held of record by Kleiner Perkins Caufield & Byers
VII, L.P. and 52,181 shares held of record by KPCB Life Sciences Zaibatsu
Fund II.
(5) Dr. Aron, CardioGenesis' former Vice President of Research and Development,
resigned from CardioGenesis effective July 10, 1998.
LEGAL MATTERS
The validity of the shares of Eclipse common stock to be issued in connection
with the merger and the federal income tax consequences of the merger will be
passed upon for Eclipse by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. The federal income tax consequences of the
merger will be passed upon for CardioGenesis by Heller Ehrman White & McAuliffe,
Palo Alto, California.
EXPERTS
The consolidated financial statements of Eclipse Surgical Technologies, Inc.
incorporated in this joint proxy statement/prospectus by reference to the Annual
Report on Form 10-K as of and for the three years ended December 31, 1997, have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of CardioGenesis as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
included in this joint proxy statement/prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
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SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, Eclipse shareholders may present
proper proposals for inclusion in Eclipse's proxy statement and for
consideration at the next annual meeting of its shareholders by submitting such
proposals to Eclipse in a timely manner. As noted in Eclipse's proxy statement
relating to its 1998 Annual Meeting of Shareholders, in order to be so included
for the 1999 annual meeting, shareholder proposals must be received by Eclipse
no later than December 31, 1998 and must otherwise comply with the requirements
of Rule 14a-8. The Eclipse bylaws require that a shareholder who wishes to
submit a proposal for the approval of the Eclipse shareholders at any regular or
special meeting of shareholders be a record shareholder who has delivered a
written notice to the secretary of the corporation not less than 90 days prior
to such meeting, except that in the event that less than 100 days notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder must be received not later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or public disclosure was made.
Pursuant to Rule 14a-8 under the Exchange Act, CardioGenesis stockholders may
present proper proposals for inclusion in CardioGenesis' proxy statement and for
consideration at the next annual meeting of its stockholders by submitting such
proposals to CardioGenesis in a timely manner. As noted in CardioGenesis' proxy
statement relating to its 1998 annual meeting of stockholders, in order to be so
included for the 1999 annual meeting, in the event that the merger has not been
consummated prior thereto, stockholder proposals must have been received by
CardioGenesis no later than December 29, 1998, and must otherwise have complied
with the requirements of Rule 14a-8. In addition, the bylaws of CardioGenesis
provide that only stockholder proposals submitted in a timely manner to the
Secretary of CardioGenesis may be acted upon at an annual meeting of
stockholders. To be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive office of CardioGenesis not less
than 60 nor more than 90 days prior to the date of the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary day, notice by the stockholder to be timely must be
delivered not earlier than the 90th day prior to such annual meeting and not
later than the later of the 60th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made by CardioGenesis. Any proposals by stockholders should be mailed
to or delivered at, CardioGenesis Corporation, 540 Oakmead Parkway, Sunnyvale,
California 94086, Attention: Secretary.
OTHER MATTERS
The CardioGenesis Board is not currently aware of any other matters which will
come before the CardioGenesis special meeting.
115
<PAGE> 122
CARDIOGENESIS CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-3
Consolidated Statements of Operations for the Years ended
December 31, 1997, 1996 and 1995....................... F-4
Consolidated Statement of Stockholders' Equity (Deficit)
for the Years ended December 31, 1997, 1996 and 1995... F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995....................... F-6
Notes to Consolidated Financial Statements................ F-7
Condensed Consolidated Financial Statements (unaudited):
Condensed Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997............................. F-18
Condensed Consolidated Statements of Operations for the
Nine Months ended September 30, 1998 and 1997.......... F-19
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1998 and 1997.......... F-20
Notes to Condensed Consolidated Financial Statements...... F-21
</TABLE>
F-1
<PAGE> 123
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of CardioGenesis Corporation:
We have audited the accompanying consolidated balance sheets of CardioGenesis
Corporation as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CardioGenesis
Corporation as of December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND
L.L.P.
San Jose, California
January 30, 1998
F-2
<PAGE> 124
CARDIOGENESIS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 6,047 $ 2,080
Available-for-sale securities.......................... 24,469 53,626
Accounts receivable, net............................... 3,293 2,024
Inventories............................................ 1,109 1,108
Interest receivable.................................... 574 934
Prepaids and other..................................... 1,177 454
-------- --------
Total current assets........................... 36,669 60,226
Property and equipment, net.............................. 1,529 1,546
Available-for-sale securities, noncurrent................ 10,019 2,502
Other assets............................................. 23 23
-------- --------
Total assets................................... $ 48,240 $ 64,297
======== ========
LIABILITIES
Current liabilities:
Accounts payable....................................... $ 1,450 $ 237
Short-term note payable................................ 40 215
Accrued expenses....................................... 1,828 1,696
Accrued compensation................................... 626 384
Deferred revenue....................................... 150 370
-------- --------
Total liabilities.............................. 4,094 2,902
-------- --------
Commitments and contingencies (Note 6)
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value:
Authorized: 2,000 shares
Issued and outstanding: no shares in 1997 and 1996
Common stock, $0.001 par value:
Authorized: 40,000 shares
Issued and outstanding: 12,067 shares in 1997 and
11,967 shares in 1996............................... 12 12
Additional paid in capital............................... 79,680 79,450
Deferred compensation.................................... (848) (1,328)
Unrealized gains on available-for-sale securities........ 39 --
Cumulative foreign currency translation adjustments...... (31) (4)
Accumulated deficit...................................... (34,706) (16,735)
-------- --------
Total stockholders' equity..................... 44,146 61,395
-------- --------
Total liabilities and stockholders'
equity................................. $ 48,240 $ 64,297
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 125
CARDIOGENESIS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- ------- -----------
<S> <C> <C> <C>
Sales....................................... $ 7,559 $ 3,959
Cost of sales............................... 4,991 2,866
-------- -------
Gross profit......................... 2,568 1,093
-------- -------
Operating expenses:.........................
Research and development.................. 14,210 7,140 $ 3,967
General and administrative................ 3,722 2,622 1,178
Sales and marketing....................... 5,426 2,417 336
-------- ------- -----------
Total operating expenses............. 23,358 12,179 5,481
-------- ------- -----------
Operating loss....................... (20,790) (11,086) (5,481)
Interest income............................. 2,855 2,319 182
Interest expense and other.................. (36) (33) --
-------- ------- -----------
Net loss.......................... $(17,971) $(8,800) $ (5,299)
======== ======= ===========
Net loss per common share and per common
share -- assuming dilution................ $ (1.49) $ (1.18) $(41,077.52)
======== ======= ===========
Shares used in computing net loss per common
share and per common share -- assuming
dilution.................................. 12,029 7,427 .129
======== ======= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 126
CARDIOGENESIS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED CUMULATIVE
GAINS ON FOREIGN TOTAL
COMMON STOCK ADDITIONAL AVAILABLE- CURRENCY STOCKHOLDERS'
--------------- PAID-IN DEFERRED ACCUMULATED FOR-SALE TRANSLATION EQUITY
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT SECURITIES ADJUSTMENTS (DEFICIT)
------ ------ ---------- ------------ ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1995.................... $ (2,636) $ (2,636)
Deferred compensation
related to issuance of
preferred stock and
grants of stock
options............... $ 874 $ (874) --
Amortization of deferred
compensation.......... 104 104
Net loss................ (5,299) (5,299)
------ --- ------- ------- -------- --- ---- --------
Balances, December 31,
1995.................... 874 (770) (7,935) (7,831)
Deferred compensation
related to issuance of
preferred stock and
grants of stock
options............... 1,407 (1,407) --
Amortization of deferred
compensation.......... 849 849
Issuance of common stock
upon exercise of stock
options and stock
grants................ 409 75 75
Conversion of redeemable
preferred stock to
common stock in
connection with
initial public
offering in May
1996.................. 8,558 $ 9 22,622 22,631
Issuance of common stock
in initial public
offering, net of
issuance costs of
$5,533................ 3,000 3 54,472 54,475
Foreign currency
translation
adjustment............ $ (4) (4)
Net loss................ (8,800) (8,800)
------ --- ------- ------- -------- --- ---- --------
Balances, December 31,
1996.................... 11,967 12 79,450 (1,328) 16,735 (4) 61,395
Amortization of deferred
compensation.......... 480 480
Issuance of common stock
upon exercise of stock
options and stock
grants................ 83 76 76
Issuance of common stock
under the Employee
Stock Purchase Plan... 17 154 154
Change in unrealized
gains on available for
sale securities....... $39 39
Foreign currency
translation
adjustment............ (27) (27)
Net loss................ (17,971) (17,971)
------ --- ------- ------- -------- --- ---- --------
Balances, December 31,
1997.................... 12,067 $12 $79,680 $ (848) $(34,706) $39 $(31) $ 44,146
====== === ======= ======= ======== === ==== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 127
CARDIOGENESIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (17,971) $ (8,800) $ (5,299)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 375 310 114
Amortization of deferred compensation.................. 480 849 104
Loss on disposal of property and equipment............. 2 152 215
Changes in assets and liabilities:
Accounts receivable.................................. (1,268) (1,154) (870)
Inventories.......................................... (1) (483) (625)
Interest receivable.................................. 360 (832) (102)
Prepaids and other................................... (723) (231) (161)
Accounts payable..................................... 1,213 (283) 475
Accrued expenses..................................... 132 1,395 126
Accrued compensation................................. 242 411 129
Deferred revenue..................................... (220) (500) 870
--------- --------- --------
Net cash used in operating activities.................... (17,379) (9,166) (5,024)
--------- --------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities................ (129,897) (200,922) (30,235)
Maturities of available-for-sale securities.............. 151,575 154,681 23,869
Acquisition of property and equipment.................... (360) (1,678) (175)
(Increase) decrease in other assets...................... -- 13 (21)
--------- --------- --------
Net cash provided by (used in) investing activities...... 21,318 (47,906) (6,562)
--------- --------- --------
Cash flows from financing activities:
Proceeds from note payable............................... -- 215 --
Payments on note payable................................. (175) -- --
Proceeds from issuance of preferred stock, net of
issuance costs......................................... -- 241 13,934
Proceeds from issuance of common stock, net of issuance
costs.................................................. 230 54,550 --
--------- --------- --------
Net cash provided by financing activities................ 55 55,006 13,934
--------- --------- --------
Net increase (decrease) in cash and cash equivalents....... 3,994 (2,066) 2,348
Effect of exchange rates on cash and cash equivalents...... (27) (4) --
Cash and cash equivalents, beginning of year............... 2,080 4,150 1,802
--------- --------- --------
Cash and cash equivalents, end of year..................... $ 6,047 $ 2,080 $ 4,150
========= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Conversion of redeemable preferred stock to common stock
in connection with the Company's initial public
offering............................................... $ 22,631
=========
Unrealized gains on available-for-sale securities........ $ 39
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 128
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
CardioGenesis Corporation (the Company) was incorporated in September 1993 to
conduct research, develop and manufacture cardiovascular surgical devices,
including disposable systems, to perform both surgical and catheter based
percutaneous transmyocardial revascularization. Since its inception, the Company
has devoted substantially all of its efforts to developing products and bringing
them to market, raising capital and recruiting personnel. The Company's
principal operations commenced during 1996 at which time it emerged from the
development stage.
In the course of its development activities, the Company has sustained operating
losses and expects such losses to continue at least through 1999. The Company
will finance its operations primarily through its cash, cash equivalents and
available-for-sale securities, together with existing credit facilities and
future revenues. There can be no assurance that the Company will not require
additional funding and should this prove necessary, the Company may sell
additional shares of its common or preferred stock through private placement or
further public offerings.
In May 1996, the Company completed its initial public offering (IPO) selling
3,000,000 shares of its common stock with net proceeds of $54.5 million.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of CardioGenesis
Corporation and its wholly owned subsidiary after all intercompany balances and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less from the date of purchase and money market
funds to be cash equivalents.
AVAILABLE-FOR-SALE SECURITIES
All investments are classified as available-for-sale and therefore are carried
at fair market value. Unrealized gains and losses on such securities are
reported as a separate component of stockholders' equity. Realized gains and
losses on sales of all such securities are reported in earnings and computed
using the specific identification cost method.
INVENTORIES
Inventories are stated at the lower of cost (determined on a first-in, first-out
basis) or market.
F-7
<PAGE> 129
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the respective assets,
generally two to seven years. Amortization of leasehold improvements is provided
on a straight-line basis over the estimated useful life of the related asset or
the lease term, whichever is shorter. Maintenance and repairs are charged to
operations as incurred.
REVENUE RECOGNITION
The Company recognizes product sales upon shipment of product to the customer
and fulfillment of acceptance terms, if any, and when no significant contractual
obligations remain outstanding.
LEGAL EXPENSES
Legal costs are charged to operations as incurred.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
CONCENTRATION OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES
The majority of the Company's cash, cash equivalents and available-for-sale
securities are invested in deposits with a major bank in the United States.
Deposits in this bank may exceed the amount of insurance provided on such
deposits.
Sales to both international and domestic customers are generally made on open
credit terms. Management performs ongoing credit evaluations of the Company's
customers and maintains an allowance for potential credit losses when needed,
but historically has not experienced any significant losses related to
individual customers or groups of customers in any particular geographic area.
The Company's products require approval of the FDA or other international
regulatory agencies prior to commercialized sales. The Company cannot be assured
that its products will receive this regulatory approval. During 1996, the
Company received approval to market its ITMR system in the European Community.
In January 1998, the Company received approval to market the Company's PMR
system in the European Community. If the Company was denied regulatory approval
or approval was delayed, it would have a material adverse impact on the Company.
The Company purchases all of its ECG monitors from one of two suppliers.
Management believes that other producers could be found to supply ECG monitors
to the Company's specifications with relatively consistent pricing. Management
believes that there would be minimal delay if the Company was required to change
suppliers. If the Company experienced delays in locating a new supplier of ECG
monitors, it would have a material adverse impact on the Company.
F-8
<PAGE> 130
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Export sales totaled approximately $4.7 million and $2.0 million for 1997 and
1996, respectively. Export sales to customers in Germany accounted for 19% of
total sales in fiscal year 1996. Export sales to customers in the Netherlands
accounted for 56% of total sales in 1997. Sales to one customer comprised 62% of
total sales in 1997.
The Company operates in an industry which experiences rapid technological
changes, which may render inventories maintained by the Company obsolete.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The Company's international subsidiary uses its local currency as its functional
currency. Assets and liabilities are translated at exchange rates in effect at
the balance sheet date and income and expense accounts at average exchange rates
during the year. Resulting translation adjustments are recorded directly to a
separate component of stockholders' equity.
COMPUTATION OF NET LOSS PER COMMON SHARE AND PER COMMON SHARE -- ASSUMING
DILUTION
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share" and the Securities and Exchange Commission Staff Accounting
Bulletin No. 98 (SAB No. 98) effective December 31, 1997; accordingly, all prior
periods have been restated. Net loss per common share and per common
share -- assuming dilution are computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares from stock options
and preferred stock are excluded from the computation of net loss per common
share -- assuming dilution as their effect is antidilutive. No additional shares
are considered to be outstanding for either computation under the provisions of
SAB No. 98.
F-9
<PAGE> 131
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the financial statements have been reclassified to conform
with the current year's presentation. The reclassifications had no impact on
previously reported net losses.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period, resulting from transactions and other
events and circumstances from nonowner sources. The impact of adopting SFAS No.
130, which is effective for the Company in 1998, has not been determined.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information." SFAS
No. 131 requires publicly-held companies to report financial and other
information about key revenue-producing segments of the entity for which such
information is available and is utilized by the chief operating decision maker.
Specific information to be reported for individual segments includes profit or
loss, certain revenue and expense items and total assets. A reconciliation of
segment financial information to amounts reported in the financial statements
would be provided. SFAS No. 131 is effective for the Company in 1998. The
Company operates in one business segment; namely, the research, development,
manufacture, and sale of cardiovascular surgical devices.
2. AVAILABLE-FOR-SALE SECURITIES
At December 31, 1997, available-for-sale securities consisted of corporate
obligations and obligations of federal government agencies, bearing interest at
rates ranging from 5.51% to 8.45% per annum, and maturing from January 28, 1998,
through October 10, 1999. The maturities of the available-for-sale securities do
not exceed two years.
The amortized cost and fair value of available-for-sale securities at December
31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------------------- --------------------
AMORTIZED UNREALIZED FAIR AMORTIZED FAIR
COST GAIN VALUE COST VALUE
--------- ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
U.S. Government
securities............ $ 8,491 $19 $ 8,510 $26,446 $26,446
Corporate obligations... 25,958 20 25,978 29,682 29,682
------- --- ------- ------- -------
$34,449 $39 $34,488 $56,128 $56,128
======= === ======= ======= =======
</TABLE>
F-10
<PAGE> 132
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
Raw materials............................................... $ 736 $ 20
Finished goods.............................................. 373 1,088
------ ------
$1,109 $1,108
====== ======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
Computer equipment.......................................... $ 520 $ 403
Laboratory equipment........................................ 514 430
Furniture and equipment..................................... 698 447
Leasehold improvements...................................... 540 731
------ ------
2,272 2,011
Less accumulated depreciation and amortization.............. 743 465
------ ------
$1,529 $1,546
====== ======
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
Clinical patient research................................... $1,074 $ 333
Contract research........................................... 231 266
Consulting.................................................. -- 275
Distributors................................................ -- 400
Legal....................................................... 358 176
Employee Stock Purchase Plan................................ 73 72
Other....................................................... 92 174
------ ------
$1,828 $1,696
====== ======
</TABLE>
F-11
<PAGE> 133
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES:
FACILITY LEASE
The Company leases its Sunnyvale, California facility under a noncancelable
operating lease expiring in October 1999. In addition to monthly rent, the lease
is subject to additional payments for utilities and other costs above the base
amounts. The Company has the option to extend the term of this lease for an
additional five years upon all of the same terms and conditions except base
rent.
Future minimum lease payments are as follows at December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
1998.................................................... $191
1999.................................................... 160
----
$351
====
</TABLE>
Rent expense for the years ended December 31, 1997, 1996 and 1995 was $229,000,
$229,000 and $65,000, respectively.
RESEARCH AGREEMENT
The Company, in its acquisition of technology in 1993, assumed certain
obligations under an ongoing research and development agreement with Columbia
University. The agreement provides for a license fee of $1.5 million to be paid
to Columbia on the date the technology licensed under the agreement meets all
the following conditions: marketing approval from the FDA; issuance of a United
States patent for the product; and demonstration of the manufacturability of the
product. The Company must pay a royalty to Columbia of 1.4% of all net revenues
from sales of the products subject to the license beginning twelve months
preceding the issuance of the first United States patent. A royalty of 50% is
required for all sublicense revenue. The agreement allows for cumulative
research payments under the agreement to be deducted from future royalty
payments required. Previous payments under the agreement made by the Company and
the assignor to Columbia which would reduce future royalties for product sales
have been expensed, as incurred, as research and development expenses.
The Company has agreements to pay consultants and institutions $655,000 for
various research and development efforts in 1998.
LITIGATION
The Company is a party to various legal actions that have occurred in the normal
course of business. In the opinion of management, the outcome of these actions
will not have a material effect on the financial position, cash flows, or
results of operations of the Company.
F-12
<PAGE> 134
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY
COMMON STOCK
At December 31, 1997, the Company had 40 million shares of common stock
authorized. In April 1996, the Company reincorporated in the State of Delaware.
The financial statements have been retroactively adjusted to reflect the
reincorporation. In April 1996, the Company had a 4.1-for-5 reverse stock split
of the Company's common and preferred stock. The financial statements have been
retroactively restated to give effect to the split.
EMPLOYEE STOCK PURCHASE PLAN
In April 1996, the Board of Directors adopted the 1996 Employee Stock Purchase
Plan and reserved 123,000 shares of common stock for issuance under the Plan.
The Plan provides for consecutive 24 month offering periods. Each offering
period is comprised of four six month purchase periods. Shares are purchased
through employees' payroll deductions at exercise prices equal to 85% of the
lesser of the fair market value of the Company's common stock at either the
first day of the applicable offering period or the last day of the respective
purchase period. 17,000 shares had been issued under this plan as of December
31, 1997.
STOCK OPTION PLANS
In November 1993, the Company established the 1993 Equity Incentive Plan that,
as amended in 1995, authorized the Board of Directors to grant 1,640,000
incentive and nonstatutory stock options to employees, officers, directors and
consultants of the Company. The Plan expires in 2003.
In April 1996, the Company adopted the 1996 Equity Incentive Plan. Pursuant to
the provisions of this plan, the Board of Directors may grant incentive and
nonstatutory stock options to employees, officers, directors and consultants of
the Company. At December 31, 1997, there were 1,120,000 shares reserved for
issuance under this plan. The Plan expires in 2006.
Additionally in April 1996, the Company adopted the 1996 Directors Stock Option
Plan. Only nonstatutory stock options may be granted under this plan, and only
to non-employee directors of the company. At December 31, 1997, there were
98,000 shares reserved for issuance under this plan. The Plan expires in 2006.
Under the Plans, options must be granted at not less than the fair market value
at the date of grant as determined by the Board of Directors, or committee
thereof, except for options granted to a person owning greater than 10% of the
total combined voting power of all classes of stock of the Company, for which
the exercise price of the options must be not less than 110% of the fair market
value at the time of grant as determined by the Board of Directors or committee
thereof and nonstatutory stock options, for which the exercise price of the
options must not be less than 85% of the fair market value at the time of grant
as determined by the Board of Directors or committee thereof. The Board of
Directors, or committee thereof, has the authority to set the term of the
options (no longer than ten years from the date of grant, five years for greater
than 10% owners of voting stock).
F-13
<PAGE> 135
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Under the Plans, options generally vest at a rate of 25% annually after the
vesting commencement date.
Activity under the Plans is set forth below (in thousands, except per share
data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES -----------------------------------
AVAILABLE NUMBER
FOR OF EXERCISE AGGREGATE
GRANT SHARES PRICE PRICE
--------- ------ ------------ ---------
<S> <C> <C> <C> <C>
Balances, January 1, 1995......... 740 531 $0.12-$0.24 $ 82
Additional shares reserved by
plan amendment............... 369
Options granted................. (813) 813 $0.24-$0.61 233
Options canceled................ 8 (8) $0.24 (2)
------ ----- ------------ -------
Balances, December 31, 1995....... 304 1,336 $0.12-$0.61 313
Additional shares reserved by
plan amendment............... 918
Options granted................. (646) 646 $0.61-$14.50 5,161
Options canceled................ 75 (75) $0.12-$14.50 (648)
Options exercised............... (409) $0.12-$1.83 (75)
------ ----- ------------ -------
Balances, December 31, 1996....... 651 1,498 $0.12-$14.50 4,751
Additional shares reserved by
plan amendment............... 300
Options granted................. (1,318) 1,318 $6.50-$15.25 10,153
Options canceled................ 692 (692) $0.12-$15.25 (7,032)
Options exercised............... (83) $0.12-$10.75 (76)
------ ----- ------------ -------
Balances, December 31, 1997....... 325 2,041 $0.12-$14.50 $ 7,796
====== ===== ============ =======
</TABLE>
In December 1997, the Company offered employees the right to cancel certain
outstanding stock options and receive new options with an exercise price of
$6.50 per share, the closing price of the common stock on the date individual
employees agreed to cancel their original outstanding stock options. Options to
purchase a total of 502,000 shares at original exercise prices ranging from
$7.25 to $15.25 per share were canceled and new options were issued in December
1997. The option term and vesting under the new options are identical to the
terms of the canceled options.
F-14
<PAGE> 136
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The options outstanding and currently exercisable by exercise price at December
31, 1997 are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
OPTIONS CURRENTLY
OPTIONS OUTSTANDING EXERCISABLE
- ----------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED AVERAGE
REMAINING AVERAGE ----------------------
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- -------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.12-$0.24 751 7.13 $0.22 511 $0.21
$0.61-$0.61 160 8.00 $0.61 73 $0.61
$1.83-$1.83 149 8.17 $1.83 75 $1.83
$6.50-$14.50 981 9.32 $7.25 196 $8.16
----- ---
2,041 855
===== ===
</TABLE>
At December 31, 1997, options to purchase 855,000 shares were exercisable at an
average exercise price of $2.21 per share and 2,041,000 shares of common stock
are reserved in the event of options exercised.
Deferred compensation to be recognized as a result of stock options granted and
preferred stock issued during 1996 and 1995 totaled $1.4 million and $874,000
respectively. Amortization of deferred compensation is generally over a vesting
period of four years, with compensation expense recognized in the periods ended
December 31, 1997, 1996 and 1995 of $480,000, $849,000 and $104,000
respectively.
F-15
<PAGE> 137
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
Plans (including the Employee Stock Purchase Plan). Had compensation cost for
the Plans been determined based on the fair value at the grant date for awards
in 1997, 1996 and 1995 consistent with the provisions of SFAS No. 123, the
Company's net loss and net loss per common share and per common
share -- assuming dilution for the years ended December 31, 1997, 1996 and 1995
would have been increased to the pro forma amounts indicated below (in
thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
-------- -------- -----------
<S> <C> <C> <C>
Net loss -- as reported..................... $(17,971) $ (8,800) $ (5,299)
======== ======== ===========
Net loss -- pro forma....................... $(19,800) $ (9,258) $ (5,318)
======== ======== ===========
Net loss per common share and per common
share -- assuming dilution -- as
reported.................................. $ (1.49) $ (1.18) $(41,077.52)
======== ======== ===========
Net loss per common share and per common
share -- assuming dilution -- pro forma... $ (1.65) $ (1.25) $(41,224.81)
======== ======== ===========
</TABLE>
The above pro forma disclosures are not necessarily representative of the
effects on reported net income or loss for future years.
The fair value of each option grant is estimated on the date of grant using the
minimum value method (prior to the IPO) and the Black-Scholes method (subsequent
to the IPO) with the following weighted average assumptions by subgroup:
<TABLE>
<CAPTION>
OPTION PLANS STOCK
------------------ PURCHASE
GROUP A GROUP B PLAN
------- ------- --------
<S> <C> <C> <C>
Risk-free interest rate.......................... 6.48% 5.86% 5.32%
Expected life.................................... 4.23 4.54 0.5
Expected dividends............................... $ -- $ -- $ --
Expected volatility.............................. 0.7633 0.7633 0.7633
</TABLE>
The weighted average expected life was calculated based on the vesting period
and the exercise behavior of each subgroup. Group A represents higher paid
employees, while Group B represents lower paid employees. The risk-free interest
rate was calculated in accordance with the grant date and expected life
calculated for each subgroup.
F-16
<PAGE> 138
CARDIOGENESIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
At December 31, 1997 and 1996, the components of deferred tax assets are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Intangible assets......................................... $ (4) $ 40
Depreciation.............................................. 39 6
Tax credits............................................... 972 229
Accrued expenses and other................................ 471 219
Capitalized research and development...................... 676 628
Deferred revenue.......................................... -- 111
Net operating loss carryforwards.......................... 11,636 4,779
-------- -------
Net deferred tax assets................................... 13,790 6,012
Less valuation allowance.................................. (13,790) (6,012)
-------- -------
$ -- $ --
======== =======
</TABLE>
The Company had federal and state net operating loss carryforwards of
approximately $32.5 million and $10.0 million, respectively, at December 31,
1997, available to offset future regular and alternative minimum taxable income.
The Company's federal and state net operating loss carryforwards will expire by
the years 2012 and 2002, respectively.
The Tax Reform Act of 1986 substantially changed the rules relative to net
operating loss carryforwards in the event of an "ownership change" of a
corporation. Future changes in ownership may result in limitations on the annual
utilization of net operating loss carryforwards.
9. RELATED PARTY TRANSACTIONS
The Company paid $113,000, $159,000, and $178,000 for consulting fees to certain
stockholders during the years ended December 31, 1997, 1996 and 1995,
respectively.
10. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company's allowance for doubtful accounts at December 31, 1997, 1996 and
1995 was $50,000, $225,000, and $0, respectively. Increases to the reserve
consisting of bad debt expense amounted to $207,000, $225,000 and $0 for 1997,
1996, and 1995, respectively. Deductions from the reserve of $382,000, $0, and
$0 for fiscal years 1997, 1996 and 1995, respectively, consisted of write-offs
of specific receivables against the reserve.
F-17
<PAGE> 139
CARDIOGENESIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 6,901 $ 6,047
Available-for-sale securities....................... 2,783 24,469
Accounts receivable, net............................ 1,633 3,293
Inventories......................................... 1,829 1,109
Other current assets................................ 1,614 1,751
------- -------
Total current assets........................ 14,760 36,669
Property and equipment, net........................... 1,581 1,529
Available-for-sale securities, non-current............ 15,676 10,019
Other assets.......................................... 24 23
------- -------
Total assets................................ $32,041 $48,240
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $ 6,410 $ 3,944
Deferred revenue.................................... 295 150
------- -------
Total liabilities........................... 6,705 4,094
Contingencies (Note 3)
Stockholders' equity.................................. 25,336 44,146
------- -------
Total liabilities and stockholders'
equity................................... $32,041 $48,240
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-18
<PAGE> 140
CARDIOGENESIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Sales.................................................... $ 2,979 $ 5,509
Cost of sales............................................ 2,657 3,448
-------- --------
Gross profit........................................ 322 2,061
-------- --------
Operating expenses:
Research and development............................... 12,257 10,203
General and administrative............................. 4,221 2,762
Sales and marketing.................................... 4,816 3,693
-------- --------
Total operating expenses............................ 21,294 16,658
-------- --------
Operating loss...................................... (20,972) (14,597)
Interest income and other, net........................... 1,463 2,188
-------- --------
Net loss............................................ $(19,509) $(12,409)
Other comprehensive income:
Change in unrealized gains on available-for-sale
securities.......................................... 66 --
-------- --------
Comprehensive income..................................... $(19,443) $(12,409)
Net loss per common share and per common share - assuming
dilution............................................... $ (1.60) $ (1.03)
======== ========
Shares used in computing net loss per common share and
per common share - assuming dilution................... 12,189 12,008
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-19
<PAGE> 141
CARDIOGENESIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities :
Net loss............................................... $(19,509) $(12,409)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 576 335
Amortization of deferred compensation............... 343 359
Changes in assets and liabilities:
Accounts receivable............................... 1,660 380
Inventories....................................... (720) (32)
Other current assets.............................. 137 (639)
Accounts payable and accrued expenses............. 2,466 580
Deferred revenue.................................. 145 (370)
-------- --------
Net cash used in operating activities............. (14,902) (11,796)
-------- --------
Cash flows from investing activities:
Purchase of available-for-sale securities.............. (15,362) (29,268)
Maturities of available-for-sale securities............ 31,458 43,840
Acquisition of property and equipment.................. (628) (360)
Other assets........................................... (1) --
-------- --------
Net cash provided by investing activities......... 15,467 14,212
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock................. 289 237
-------- --------
Net cash provided by financing activities......... 289 237
-------- --------
Effect of foreign currency translation adjustment........ -- (31)
-------- --------
Net increase in cash and cash equivalents................ 854 2,622
Cash and cash equivalents, beginning of period........... 6,047 2,080
-------- --------
Cash and cash equivalents, end of period................. $ 6,901 $ 4,702
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-20
<PAGE> 142
CARDIOGENESIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- INTERIM CONSOLIDATED FINANCIAL STATEMENTS
These interim consolidated financial statements are unaudited, but have been
prepared in accordance with generally accepted accounting principles for interim
information and with the instructions to Form 10-Q. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of financial position, results of operations
and cash flows at the dates and for the periods presented have been included.
The interim financial information herein is not necessarily indicative of
results for any future period. The interim consolidated financial statements
should be read in conjunction with the audited financial statements and the
notes thereto for the fiscal year ended December 31, 1997 included in the
Company's Form 10-K filed with the SEC.
The Company has adopted the provisions of Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income."
NOTE 2 -- INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- -------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Raw materials........................ $1,512 $ 736
Finished goods....................... 317 373
------ ------
$1,829 $1,109
====== ======
</TABLE>
NOTE 3 -- CONTINGENCIES
In September 1996, the Company filed an action for declaratory relief against
PLC Systems, Inc. of Canada and its wholly-owned U.S. subsidiary, PLC Medical
Systems, Inc. (collectively "PLC"), seeking a judgment that PLC's United States
patent No. 5,125,926 to a certain heart-synchronized pulsed laser system is not
infringed, is invalid and is unenforceable. In the suit, filed in the United
States District Court for the Northern District of California, the Company
initially requested the Court to enter judgment that the Company's TMR systems
do not infringe the PLC patent. In October 1996, PLC responded to the complaint.
In its response, PLC took the position that the PLC patent has been infringed by
the Company, but made no further claims. In September 1997, the Company filed an
amended complaint asking the Federal District Court to consider evidence of
inequitable conduct in the U.S. Patent Office while the PLC patent was being
obtained by PLC. The amended complaint asserts that the PLC patent is invalid
and unenforceable because material prior work of another party was withheld from
the Patent Office. Trial is set to begin on January 11, 1999.
On February 9, 1998, PLC submitted the PLC patent to the U.S. Patent Office
seeking reissue on the basis that the PLC Patent as granted is "wholly or partly
inoperative or invalid."
F-21
<PAGE> 143
CARDIOGENESIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
In January 1997, the Company filed an Opposition to a European patent owned by
PLC (the "European Patent") that is a counterpart to the PLC patent. The
Opposition seeks to have the European Patent declared invalid. The Company
believes it has meritorious positions with respect to the invalidity of the
European Patent and intends to pursue the Opposition proceeding vigorously.
There is also a second opposition to the European Patent being pursued by a
third party.
In September 1997, the Company was served with a complaint filed by PLC in
Munich, Germany alleging that the Company and its former German sales agent have
infringed EP 0 553 576, a European counterpart of the PLC Patent. The Company
has referred the complaint to patent counsel and is proceeding in its defense.
NOTE 4 -- COMPUTATION OF NET LOSS PER COMMON SHARE AND
PER COMMON SHARE -- ASSUMING DILUTION
The Company has adopted Financial Accounting Standards Board Statement No. 128
"Earnings Per Share" and the provisions of the Securities and Exchange
Commission Staff Accounting Bulletin (SAB) No. 98, and accordingly all prior
periods have been restated. Net loss per common share and per common share
-- assuming dilution are computed using the weighted average number of shares
of common stock outstanding. Common equivalent shares from stock options are
excluded from the computation of diluted net loss per common share as their
effect is antidilutive.
Stock options to purchase 2,467,369 shares of common stock at prices ranging
from $.1220 per share to $12.875 per share were outstanding at September 30,
1998, but were not included in the computation of diluted net loss per common
share because they were antidilutive. The aforementioned stock options could
potentially dilute earnings per share in the future.
NOTE 5 -- LINE OF CREDIT
In June 1998, the Company entered into a loan and security agreement with a bank
which provides an $8 million line of credit. Amounts borrowed under the
agreement bear interest at a rate equal to the bank's prime rate and are
collateralized by the Company's assets. The agreement contains certain financial
covenants and is available until May 15, 1999. There was no outstanding balance
as of September 30, 1998.
NOTE 6 -- PROPOSED MERGER
On October 21, 1998, the Company entered into an agreement to merge with Eclipse
Surgical Technologies, Inc. Pursuant to the merger, 0.80 of a share of Eclipse
common stock will be issued for each share of the Company's common stock. The
two companies expect that the transaction will, due to its structure, qualify as
a tax-free reorganization to be accounted for as a pooling of interests. The
Boards of Directors of the Company and Eclipse have approved the agreement;
however, the merger is subject to approval by the stockholders of the Company
and Eclipse.
F-22
<PAGE> 144
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
ECLIPSE SURGICAL TECHNOLOGIES, INC.
RW ACQUISITION CORPORATION
AND
CARDIOGENESIS CORPORATION
DATED AS OF OCTOBER 21, 1998
<PAGE> 145
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER................................................ A-2
1.1 The Merger.................................................. A-2
1.2 Effective Time; Closing..................................... A-2
1.3 Effect of the Merger........................................ A-2
1.4 Certificate of Incorporation; Bylaws........................ A-2
1.5 Directors and Officers...................................... A-3
1.6 Effect on Capital Stock..................................... A-3
1.7 Surrender of Certificates................................... A-4
1.8 No Further Ownership Rights in the Company Common Stock..... A-5
1.9 Lost, Stolen or Destroyed Certificates...................... A-6
1.10 Tax and Accounting Consequences............................. A-6
1.11 Taking of Necessary Action; Further Action.................. A-6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY............
A-6
2.1 Organization of the Company................................. A-6
2.2 Company Capital Structure................................... A-7
2.3 Obligations With Respect to Capital Stock................... A-8
2.4 Authority................................................... A-8
2.5 Company SEC Filings; Company Financial Statements........... A-9
2.6 Absence of Certain Changes or Events........................ A-10
2.7 Tax......................................................... A-11
2.8 Intellectual Property....................................... A-13
2.9 Compliance; Permits; Restrictions........................... A-13
2.10 Litigation.................................................. A-15
2.11 Brokers' and Finders' Fees.................................. A-15
2.12 Employee Benefit Plans and Employment Matters............... A-15
2.13 Absence of Liens and Encumbrances........................... A-19
2.14 Environmental Matters....................................... A-19
2.15 Labor Matters............................................... A-20
2.16 Agreements, Contracts and Commitments....................... A-21
2.17 Pooling of Interests........................................ A-21
2.18 Change of Control Payments.................................. A-21
2.19 Registration Statement; Proxy Statement/Prospectus.......... A-22
2.20 Board Approval.............................................. A-22
2.21 Fairness Opinion............................................ A-22
2.22 Section 203 of the Delaware General Corporation Law Not
Applicable.................................................. A-22
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB..................................................... A-23
3.1 Organization of Parent...................................... A-23
3.2 Parent and Merger Sub Capital Structure..................... A-24
3.3 Obligations With Respect to Capital Stock................... A-24
3.4 Authority................................................... A-25
3.5 Parent SEC Filings; Parent Financial Statements............. A-26
3.6 Absence of Certain Changes or Events........................ A-27
3.7 Tax......................................................... A-27
3.8 Intellectual Property....................................... A-29
</TABLE>
i
<PAGE> 146
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.9 Compliance; Permits; Restrictions........................... A-29
3.10 Litigation.................................................. A-31
3.11 Brokers' and Finders' Fees.................................. A-31
3.12 Employee Benefit Plans and Employment Matters............... A-31
3.13 Absence of Liens and Encumbrances........................... A-34
3.14 Environmental Matters....................................... A-34
3.15 Labor Matters............................................... A-35
3.16 Agreements, Contracts and Commitments....................... A-36
3.17 Pooling of Interests........................................ A-36
3.18 Change of Control Payments.................................. A-37
3.19 Registration Statement; Proxy Statement/Prospectus.......... A-37
3.20 Board Approval.............................................. A-37
3.21 Fairness Opinion............................................ A-37
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME...................... A-37
4.1 Conduct of Business......................................... A-37
ARTICLE V ADDITIONAL AGREEMENTS..................................... A-40
5.1 Proxy Statement/Prospectus; Registration Statement; Other
Filings; Board Recommendations.............................. A-40
5.2 Meetings of Stockholders and Shareholders................... A-41
5.3 Confidentiality............................................. A-41
5.4 No Solicitation............................................. A-41
5.5 Public Disclosure........................................... A-45
5.6 Legal Requirements.......................................... A-45
5.7 Third Party Consents........................................ A-45
5.8 FIRPTA...................................................... A-45
5.9 Notification of Certain Matters............................. A-45
5.10 Best Efforts and Further Assurances......................... A-46
5.11 Stock Options and Employee Benefits......................... A-46
5.12 Form S-8.................................................... A-47
5.13 Indemnification and Insurance............................... A-47
5.14 Nasdaq Listing.............................................. A-47
5.15 Parent Affiliate Agreement.................................. A-47
5.16 Company Affiliate Agreement................................. A-47
5.17 Board of Directors and Certain Officers of the Combined
Company..................................................... A-48
ARTICLE VI CONDITIONS TO THE MERGER................................. A-48
6.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... A-48
6.2 Additional Conditions to Obligations of the Company......... A-49
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub.................................................. A-50
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER....................... A-51
7.1 Termination................................................. A-51
7.2 Notice of Termination; Effect of Termination................ A-52
7.3 Fees and Expenses........................................... A-52
7.4 Amendment................................................... A-54
7.5 Extension; Waiver........................................... A-54
</TABLE>
ii
<PAGE> 147
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE VIII GENERAL PROVISIONS..................................... A-54
8.1 Non-Survival of Representations, Warranties and Covenants... A-54
8.2 Notices..................................................... A-54
8.3 Interpretation.............................................. A-55
8.4 Counterparts................................................ A-55
8.5 Entire Agreement; Third Party Beneficiaries................. A-55
8.6 Severability................................................ A-55
8.7 Other Remedies; Specific Performance........................ A-56
8.8 Governing Law............................................... A-56
8.9 Rules of Construction....................................... A-56
8.10 Assignment.................................................. A-56
8.11 Definition of "Knowledge"................................... A-56
</TABLE>
iii
<PAGE> 148
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Company Voting Agreement
Exhibit B Form of Parent Voting Agreement
Exhibit C Certificate of Merger
Exhibit D Form of Parent Affiliate Agreement
Exhibit E Form of Company Affiliate Agreement
</TABLE>
iv
<PAGE> 149
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of October
21, 1998 among Eclipse Surgical Technologies, Inc., a California corporation
("PARENT"), RW Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Parent ("MERGER SUB"), and Cardiogenesis Corporation,
a Delaware corporation ("the COMPANY").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as defined in
Section 1.2) and in accordance with the Delaware General Corporation Law
("DELAWARE LAW"), Parent, Merger Sub and the Company intend to enter into a
business combination transaction.
B. Immediately upon the Effective Time (as defined in Section 1.2) of the Merger
(as defined herein), the Board of Directors of Parent (as the combined company
resulting from such business combination transaction) will consist of seven (7)
members, with designees of the Company, as set forth herein, to hold three (3)
of such seats and designees of Parent, as set forth herein, to hold four (4) of
such seats. It is also contemplated that the senior management of the combined
company will, as set forth herein, consist of senior management from both the
Company and Parent.
C. The Board of Directors of the Company (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of the
Company and fair to, and in the best interests of, the Company and its
stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of the Company adopt and approve this Agreement
and approve the Merger.
D. The Board of Directors of Parent (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Parent
and fair to, and in the best interests of, Parent and its shareholders, (ii) has
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement and (iii) has determined to recommend that the shareholders of
Parent vote to approve the issuance of shares of Parent Common Stock (as defined
herein) to the stockholders of the Company pursuant to the terms of the Merger.
E. Concurrently with the execution of this Agreement, and as a condition and
inducement to Parent's willingness to enter into this Agreement, certain
affiliates of the Company are entering into Voting Agreements in substantially
the form attached hereto as Exhibit A (the "COMPANY VOTING AGREEMENTS"). In
addition, concurrently with the execution of this Agreement and as a condition
and inducement to the Company's willingness to enter into this Agreement,
certain affiliates of Parent are entering into Voting Agreements in
substantially the form attached hereto as Exhibit B (the "PARENT VOTING
AGREEMENTS").
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
A-1
<PAGE> 150
G. It is also intended by the parties hereto that the Merger shall qualify for
accounting treatment as a pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and representations
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject
to and upon the terms and conditions of this Agreement and the applicable
provisions of Delaware Law, Merger Sub shall be merged with and into the Company
(the "Merger"), the separate corporate existence of Merger Sub shall cease and
the Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "SURVIVING CORPORATION."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing a Certificate
of Merger, substantially in the form of Exhibit C hereto (the "CERTIFICATE OF
MERGER"), with the Secretary of State of the State of Delaware in accordance
with the relevant provisions of Delaware Law (the time of such filing (or such
later time as may be agreed in writing by the parties and specified in the
Certificate of Merger) being the "EFFECTIVE TIME") as soon as practicable on or
after the Closing Date (as defined herein). Unless the context otherwise
requires, the term "AGREEMENT" as used herein refers collectively to this
Agreement and Plan of Reorganization and the Certificate of Merger. The closing
of the Merger (the "CLOSING") shall take place at the offices of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, at a time and date to be specified
by the parties, which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Article VI, or at such
other time, date and location as the parties hereto agree in writing (the
"CLOSING DATE").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall
be as provided in this Agreement and the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation of the
Surviving Corporation; provided, however, that Article I of the Certificate
of Incorporation shall be amended to read as follows: "The name of the
corporation is CardioGenesis Corporation."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the
Surviving Corporation until thereafter amended.
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1.5 Directors and Officers. Upon the Effective Time, the Board of Directors of
Parent shall be Douglas Murphy-Chutorian, Robert L. Mortensen, Iain M. Watson,
Alan L. Kaganov, Allen W. Hill, Jack M. Gill and Robert C. Strauss and the
officers of the Parent shall include Douglas Murphy-Churtorian as Chairman of
the Board of Directors, Allen W. Hill as Chief Executive Officer and Richard P.
Powers as Executive Vice President of Finance and Administration and Chief
Financial Officer and Secretary, each such director and officer to serve until
his respective successor is duly elected or appointed and qualified. In
addition, at the Effective Time, the Board of Directors of the Surviving
Corporation shall consist of each of the directors of Parent and the officers of
Surviving Corporation shall include each of the officers of Parent all as
identified in the previous sentence, each such director and officer to serve
until his respective successor is duly elected or appointed and qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of Merger Sub, the Company or the holders of any
of the following securities:
(a) Conversion of Company Common Stock. Each share of Common Stock,
$0.001 par value per share, of the Company (the "COMPANY COMMON STOCK")
issued and outstanding immediately prior to the Effective Time, (other than
any shares of the Company Common Stock to be canceled pursuant to Section
1.6(b)) will be canceled and extinguished and automatically converted
(subject to Sections 1.6(e) and (f)) into the right to receive 0.80 (the
"EXCHANGE RATIO") of a share of Common Stock, no par value, of Parent (the
"PARENT COMMON STOCK") upon surrender of the certificate representing such
share of the Company Common Stock in the manner provided in Section 1.7 (or
in the case of a lost, stolen or destroyed certificate, upon delivery of an
affidavit (and bond, if required) in the manner provided in Section 1.9).
If any shares of the Company Common Stock outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk
of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company, then the shares of
Parent Common Stock issued in exchange for such shares of Company Common
Stock will also be unvested and subject to the same repurchase option, risk
of forfeiture or other condition, and the certificates representing such
shares of Parent Common Stock may accordingly be marked with appropriate
legends. The Company shall take all action that may be necessary to ensure
that, from and after the Effective Time, Parent is entitled to exercise any
such repurchase option or other right set forth in any such restricted
stock purchase agreement or other agreement.
(b) Cancellation of Parent-Owned Stock. Each share of the Company
Common Stock held by the Company or owned by Merger Sub, Parent or any
direct or indirect wholly-owned subsidiary of the Company or of Parent
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) Stock Options; Employee Stock Purchase Plans. At the Effective
Time, all options to purchase the Company Common Stock then outstanding
under the Company's 1993 Equity Incentive Plan (the "1993 PLAN"), the
Company's 1996 Equity Incentive Plan (the "1996 PLAN") and the Company's
1996 Directors Stock Option Plan (the "DIRECTORS PLAN" and together with
the 1993 Plan and the
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1996 Plan, the "COMPANY STOCK OPTION PLANS") shall be assumed by Parent in
accordance with Section 5.11 hereof. Options outstanding under the
Company's 1996 Employee Stock Purchase Plan (the "COMPANY PURCHASE PLAN")
shall be treated as set forth in Section 5.11.
(d) Capital Stock of Merger Sub. Each share of Common Stock, $0.001
par value, of Merger Sub (the "MERGER SUB COMMON STOCK") issued and
outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock,
$0.001 par value, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted (such adjustment to be subject to the consent of the Company,
which shall not be unreasonably withheld) to reflect appropriately the
effect of any stock split, reverse stock split, stock dividend (including
any dividend or distribution of securities convertible into Parent Common
Stock or Company Common Stock), reorganization, recapitalization or other
like change with respect to Parent Common Stock or Company Common Stock
occurring on or after the date hereof and prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a
fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock to be received by such holder)
shall receive from Parent an amount of cash (rounded to the nearest whole
cent) equal to the product of (i) such fraction, multiplied by (ii) the
closing price of one share of Parent Common Stock on the trading day
immediately prior to the Effective Time, as reported on the Nasdaq National
Market System ("NASDAQ").
1.7 Surrender of Certificates.
(a) Exchange Agent. Parent shall select an institution reasonably
satisfactory to the Company to act as the exchange agent (the "EXCHANGE
AGENT") in the Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent, for exchange in
accordance with this Article I, certificates representing the shares of
Parent Common Stock issuable pursuant to Section 1.6 in exchange for
outstanding shares of Company Common Stock, and cash in an amount
sufficient for payment in lieu of fractional shares pursuant to Section
1.6(f).
(c) Exchange Procedures. Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "CERTIFICATES") which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into the right to receive
shares of Parent Common Stock pursuant to Section 1.6 and cash in lieu of
any fractional shares pursuant to Section 1.6(f), (i) a letter of
transmittal (which shall specify that delivery shall be
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effected, and risk of loss and title to the Certificates shall pass, only
upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Parent
Common Stock and cash in lieu of any fractional shares pursuant to Section
1.6(f). Upon surrender of Certificates for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holders of such
Certificates shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock and payment
in lieu of fractional shares which such holders have the right to receive
pursuant to Section 1.6(f) and the Certificates so surrendered shall
forthwith be canceled. Until so surrendered, outstanding Certificates will
be deemed from and after the Effective Time, for all corporate purposes to
evidence only the ownership of the number of full shares of Parent Common
Stock into which such shares of Company Common Stock shall have been so
converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6(f).
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered Certificates with respect
to the shares of Parent Common Stock represented thereby until the holders
of record of such Certificates shall surrender such Certificates. Following
surrender of any such Certificates, the Exchange Agent shall deliver to the
record holders thereof, without interest, certificates representing whole
shares of Parent Common Stock issued in exchange therefor along with
payment in lieu of fractional shares pursuant to Section 1.6(f) hereof and,
subject to applicable law, the amount of any such dividends or other
distributions with a record date after the Effective Time payable with
respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If certificates for shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will
be properly endorsed and otherwise in proper form for transfer and that the
persons requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the
issuance of certificates for shares of Parent Common Stock in any name
other than that of the registered holder of the Certificates surrendered,
or established to the satisfaction of Parent or any agent designated by it
that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, neither the Exchange Agent, Parent, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of Parent Common
Stock or Company Common Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
1.8 No Further Ownership Rights in the Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of the
Company
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Common Stock in accordance with the terms hereof (together with any cash paid in
respect thereof pursuant to Section 1.6(f) and 1.7(d)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Company Common Stock, and there shall be no further registration of transfers on
the records of the Surviving Corporation of shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If after the Effective
Time Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates shall
have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange
for such lost, stolen or destroyed Certificates, upon the making of an affidavit
of that fact by the holder thereof, such shares of Parent Common Stock, cash for
fractional shares, if any, as may be required pursuant to Section 1.6(f) and any
dividends or distributions payable pursuant to Section 1.7(d); provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
1.10 Tax and Accounting Consequences.
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United
States Treasury Regulations.
(b) It is intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub will take all such lawful and necessary action, so long
as such action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, subject to the
exceptions specifically disclosed in writing and referencing a specific
representation in the disclosure letter supplied by the Company to Parent dated
as of the date hereof and certified by a duly authorized officer of the Company
(the "COMPANY SCHEDULES"), as follows:
2.1 Organization of the Company.
(a) The Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to
own, lease and operate its assets and property and to carry on its business
as now being conducted and as
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proposed to be conducted; and is duly qualified or licensed to do business
and is in good standing in each jurisdiction where the character of the
properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except where the failure
to be so qualified would not have a Material Adverse Effect (as defined
herein) on the Company.
(b) The Company has delivered to Parent a true and complete list of
all of the Company's subsidiaries, indicating the jurisdiction of
incorporation of each subsidiary and listing the shareholders of each such
subsidiary and the number of shares held by each such shareholder.
(c) The Company has delivered or made available to Parent a true and
correct copy of the Certificate of Incorporation and Bylaws of the Company
and similar governing instruments of each of its subsidiaries, each as
amended to date, and each such instrument is in full force and effect.
Neither the Company nor any of its subsidiaries is in violation of any of
the provisions of its Certificate of Incorporation or Bylaws or equivalent
governing instruments.
(d) When used in connection with the Company, the term "MATERIAL
ADVERSE EFFECT" means, for purposes of this Agreement, any change, event or
effect that is materially adverse to the business, assets (including
intangible assets), financial condition or results of operations of the
Company and its subsidiaries taken as a whole except for those changes,
events and effects that are directly caused by (i) conditions affecting the
United States economy as a whole, or (ii) conditions affecting the medical
device industry as a whole, which conditions (in the case of clause (i) or
(ii)) do not affect the Company in a disproportionate manner) or (iii)
conditions that in the good faith judgment of the Company's Board of
Directors result principally from the execution or delivery of this
Agreement or the announcement of the pendency of the Merger.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 40,000,000
shares of Common Stock, $0.001 par value per share, of which there were
12,281,076 shares issued and outstanding as of the date of this Agreement
and 2,000,000 shares of Preferred Stock, $0.001 par value per share, of
which no shares are issued or outstanding as of the date of this Agreement.
All outstanding shares of Company Common Stock are duly authorized, validly
issued, fully paid and nonassessable and are not subject to preemptive
rights created by statute, the Certificate of Incorporation or Bylaws of
the Company or any agreement or document to which the Company is a party or
by which it is bound.
(b) As of the date of this Agreement, 2,497,023 shares of Company
Common Stock are reserved for future issuance under the Company Stock
Option Plans and 168,689 shares of Company Common Stock are reserved for
future issuance under the Company Purchase Plan. (Stock options granted by
the Company pursuant to the Company Stock Option Plans are referred to in
this Agreement as "COMPANY STOCK OPTIONS"). Section 2.2(b) of the Company
Schedules sets forth the following information with respect to each Company
Stock Option outstanding as of the date of this Agreement: (i) the name of
the optionee; (ii) the particular plan pursuant to which such Company Stock
Option was granted; (iii) the number of shares of Company Common Stock
subject to such Company Stock Option; (iv) the
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exercise price of such Company Stock Option; (v) the date on which such
Company Stock Option was granted; and (vi) the date on which such Company
Stock Option expires. The Company has made available to Parent accurate and
complete copies of the Company Stock Option Plans and the forms of all
agreements evidencing the Company Stock Options. All shares of Company
Common Stock subject to issuance as aforesaid, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are
issuable, would be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 2.2(b)(i) of the Company
Schedules, there are no commitments or agreements of any character to which
the Company is bound obligating the Company to accelerate the vesting of
any Company Stock Option as a result of the Merger.
2.3 Obligations With Respect to Capital Stock. Except as set forth in Section
2.2, there are no equity securities, partnership interests or similar ownership
interests of any class of the Company, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except for securities the Company owns, directly or indirectly
through one or more subsidiaries, there are no equity securities, partnership
interests or similar ownership interests of any class of any subsidiary of the
Company, or any security exchangeable or convertible into or exercisable for
such equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding. Except as set forth in Section
2.2, there are no options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which the Company or any of its
subsidiaries is a party or by which it is bound obligating the Company or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition, of any shares of capital stock, partnership interests
or similar ownership interests of the Company or any of its subsidiaries or
obligating the Company or any of its subsidiaries to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement. There are no registration rights and, to the
knowledge of the Company, as of the date of this Agreement, there are no voting
trusts, proxies or other agreements or understandings (except for the Company
Voting Agreements) with respect to any equity security of any class of the
Company or with respect to any equity security, partnership interest or similar
ownership interest of any class of any of its subsidiaries.
2.4 Authority.
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company, subject only to the
approval and adoption of this Agreement and the approval of the Merger by
the Company's stockholders and the filing of the Certificate of Merger
pursuant to Delaware Law. A vote of the holders of a majority of the
outstanding shares of Company Common Stock is required for the Company's
stockholders to approve and adopt this Agreement and approve the Merger.
This Agreement has been duly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and, if
applicable, Merger Sub,
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constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of the Company or the
equivalent organizational documents of any of its subsidiaries, (ii)
subject to obtaining the approval and adoption of this Agreement and the
approval of the Merger by the Company's stockholders as contemplated in
Section 5.2 and compliance with the requirements set forth in Section
2.4(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to the Company or any of its subsidiaries or
by which its or any of their respective properties is bound or affected, or
(iii) assuming the receipt of all material consents, waivers and approvals
referred to in the last sentence of this Section 2.4(a), result in any
breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or impair the Company's rights
or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or encumbrance on any of the
properties or assets of the Company or any of its subsidiaries pursuant to,
any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or its or any of their respective properties are
bound or affected. The Company Schedules list all material consents,
waivers and approvals under any of the Company's or any of its
subsidiaries' agreements, contracts, licenses or leases required to be
obtained in connection with the consummation of the transactions
contemplated hereby.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission
or other governmental authority or instrumentality, foreign or domestic
("GOVERNMENTAL ENTITY"), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement or the
consummation of the Merger, except for (i) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (ii) the
filing of the Proxy Statement (as defined in Section 2.19) with the
Securities and Exchange Commission ("SEC") in accordance with the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (iii)
such consents, approvals, orders, authorizations, registrations,
declarations and filings (if any) as may be required under applicable
federal and state securities laws and the securities or antitrust laws of
any foreign country, and (iv) such other consents, authorizations, filings,
approvals and registrations (if any) which if not obtained or made would
not be material to the Company or Parent or have a material adverse effect
on the ability of the parties to consummate the Merger.
2.5 Company SEC Filings; Company Financial Statements.
(a) The Company has filed all forms, reports and documents required to
be filed with the SEC since May 21, 1996, and has made available to Parent
such forms, reports and documents in the form filed with the SEC. All such
required forms, reports and documents (including those that the Company may
file subsequent to the date hereof) are referred to herein as the "COMPANY
SEC REPORTS." As of
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their respective dates, the Company SEC Reports (i) were prepared in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT"), or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such
Company SEC Reports, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. None of the Company's
subsidiaries is required to file any forms, reports or other documents with
the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports (the
"COMPANY FINANCIALS"), including any Company SEC Reports filed after the
date hereof until the Closing, (x) complied as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, (y) was prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case
of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q under the Exchange Act) and (z) fairly presented the
consolidated financial position of the Company and its subsidiaries as at
the respective dates thereof and the consolidated results of the Company's
operations and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes and were
or are subject to normal and recurring year-end adjustments. The balance
sheet of the Company contained in the Company SEC Reports as of June 30,
1998 is hereinafter referred to as the "COMPANY BALANCE SHEET." Except as
disclosed in the Company Financials, since the date of the Company Balance
Sheet neither the Company nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of the Company and its subsidiaries taken
as a whole, except liabilities (i) provided for in the Company Balance
Sheet, or (ii) incurred since the date of the Company Balance Sheet in the
ordinary course of business consistent with past practices.
(c) The Company has heretofore furnished to Parent a complete and
correct copy of any amendments or modifications, which have not yet been
filed with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by the
Company with the SEC pursuant to the Securities Act or the Exchange Act.
2.6 Absence of Certain Changes or Events. Since the date of the Company Balance
Sheet there has not been: (i) any Material Adverse Effect on the Company, (ii)
any declaration, setting aside or payment of any dividend on, or other
distribution (whether in cash, stock or property) in respect of, any of the
Company's or any of its subsidiaries' capital stock, or any purchase, redemption
or other acquisition by the Company of any of the Company's capital stock or any
other securities of the Company or its subsidiaries or any options, warrants,
calls or rights to acquire any such shares or other securities except for
repurchases from employees following their termination pursuant to the terms of
their
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pre-existing stock option or purchase agreements, (iii) any split, combination
or reclassification of any of the Company's or any of its subsidiaries' capital
stock, (iv) any granting by the Company or any of its subsidiaries of any
increase in compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by the Company or any of its subsidiaries of any bonus, except
for bonuses made in the ordinary course of business consistent with past
practice, or any granting by the Company or any of its subsidiaries of any
increase in severance or termination pay or any entry by the Company or any of
its subsidiaries into any currently effective employment, severance, termination
or indemnification agreement or any agreement the benefits of which are
contingent or the terms of which are materially altered upon the occurrence of a
transaction involving the Company of the nature contemplated hereby, (v) entry
by the Company or any of its subsidiaries into any licensing or other agreement
with regard to the acquisition or disposition of any material Company IP Rights
(as defined in Section 2.8) other than licenses in the ordinary course of
business consistent with past practice, (vi) any material change by the Company
in its accounting methods, principles or practices, except as required by
concurrent changes in GAAP, or (vii) any revaluation by the Company of any of
its assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable other than in the ordinary
course of business.
2.7 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities relating to taxes, including taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits.
(i) The Company and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information
statements and reports ("RETURNS") relating to Taxes required to be
filed by the Company and each of its subsidiaries, except such Returns
which are not material to the Company, and have paid all Taxes shown to
be due on such Returns.
(ii) The Company and each of its subsidiaries as of the Effective
Time will have withheld and paid over, as appropriate, with respect to
its employees all federal and state, local and/or foreign income taxes,
Taxes pursuant to the Federal Insurance Contribution Act ("FICA"), Taxes
pursuant to the Federal Unemployment Tax Act ("FUTA") and other Taxes
required to be withheld.
(iii) Neither the Company nor any of its subsidiaries has been
delinquent in the payment of any Tax nor is there any Tax deficiency
outstanding, proposed or assessed against the Company or any of its
subsidiaries, nor has the Company or any of its subsidiaries executed
any waiver of any statute of limitations on or extending the period for
the assessment or collection of any Tax.
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(iv) No audit or other examination of any Return of the Company or
any of its subsidiaries is presently in progress, nor has the Company or
any of its subsidiaries been notified of any request for such an audit
or other examination.
(v) No adjustment relating to any Returns filed by the Company or
any of its subsidiaries has been proposed formally or informally by any
Tax authority to the Company or any of its subsidiaries or any
representative thereof and, to the knowledge of the Company, no basis
exists for any such adjustment which would be material to the Company.
(vi) Neither the Company nor any of its subsidiaries has any
liability for unpaid Taxes which has not been accrued for or reserved on
the Company Balance Sheet, whether asserted or unasserted, contingent or
otherwise, which is material to the Company, and the Company has not
incurred any liability for Taxes other than in the ordinary course of
business since the date of the Company Balance Sheet.
(vii) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(viii) There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering
any employee or former employee of the Company or any of its
subsidiaries that, individually or collectively, could give rise to the
payment of any amount that would not be deductible pursuant to Sections
280G or 404 of the Code.
(ix) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code) owned by the
Company.
(x) The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xi) No power of attorney that is currently in force has been
granted with respect to any matter relating to Taxes payable by the
Company or any of its subsidiaries.
(xii) Neither the Company nor any of its subsidiaries is or has
been a member of a consolidated, combined or affiliated group or is a
party to or affected by any tax-sharing or allocation agreement or
arrangement.
(xiii) The Company Schedules list (A) any Tax exemption, Tax
holiday or other Tax-sparing arrangement that the Company or any of its
subsidiaries has in any jurisdiction, including the nature, amount and
lengths of such Tax exemption, Tax holiday or other Tax-sparing
arrangement and (B) any expatriate tax programs or policies affecting
the Company or any of its subsidiaries. Each of the Company and its
subsidiaries is in full compliance with all terms and conditions of any
Tax exemption, Tax holiday or other Tax-sparing arrangement or order of
any Governmental Entity and the consummation of the transactions
contemplated hereby will not have any adverse effect on the continued
validity and effectiveness
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of any such Tax exemption, Tax holiday or other Tax-sparing arrangement
or order.
2.8 Intellectual Property.
(a) To the knowledge of the Company, the Company and its subsidiaries
own, or have the right to use, sell or license all intellectual property
necessary or required for the conduct of their respective businesses as
presently conducted (such intellectual property and the rights thereto are
collectively referred to herein as the "COMPANY IP Rights").
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any of the Company IP
Rights to which the Company or any subsidiary of the Company is a party or
by which, to its knowledge, it is bound or affected, will not cause the
forfeiture or termination or give rise to a right of forfeiture or
termination of any the Company IP Rights or materially impair the right of
the Company, the Surviving Corporation or Parent to use, sell or license
any the Company IP Rights or portion thereof.
(c) To the knowledge of the Company, the manufacture, marketing,
license, sale or intended use of any product or technology currently
licensed or sold or under development by the Company or any of its
subsidiaries does not violate any license or agreement between the Company
or any of its subsidiaries and any third party nor infringe any
intellectual property right of any other party.
(d) There is no pending or, to the knowledge of the Company,
threatened claim or litigation contesting the validity, ownership or right
to use, sell, license or dispose of any the Company IP Rights, nor has the
Company received any written notice asserting that any the Company IP
Rights or the proposed use, sale, license or disposition thereof conflicts
or will conflict with the rights of any other party. Schedule 2.8 of the
Company Schedules lists each patent held by the Company and the expiration
date of each such patent.
(e) The Company has taken commercially reasonable steps designed to
safeguard and maintain the confidentiality of, and its proprietary rights
in, all the Company IP Rights.
2.9 Compliance; Permits; Restrictions.
(a) Neither the Company nor any of its subsidiaries is, in any
material respect, in conflict with, or in default or violation of (i) any
law, rule, regulation, order, judgment or decree applicable to the Company
or any of its subsidiaries or by which the Company or any of its
subsidiaries or any of their respective properties is bound or affected, or
(ii) any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries or its or any of their respective properties is
bound or affected. No investigation or review by any Governmental Entity is
pending or, to the Company's knowledge, threatened against the Company or
any of its subsidiaries, nor has any Governmental Entity indicated an
intention to conduct the same. There is no agreement, judgment, injunction,
order or decree binding upon the Company or any of its subsidiaries which
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has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company or any of its
subsidiaries, any acquisition of material property by the Company or any of
its subsidiaries or the conduct of business by the Company as currently
conducted.
(b) The Company and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities
which are material to the operation of the business of the Company
(collectively, the "COMPANY PERMITS"). The Company and its subsidiaries are
in compliance in all material respects with the terms of the Company
Permits.
(c) FDA and Related Matters
(i) Section 2.9(c) of the Company Schedules sets forth a list, for
the period between January 1, 1996 and the date hereof, of (A) all
Regulatory or Warning Letters, Notices of Adverse Findings and Section
305 Notices and similar letters or notices issued by the Food and Drug
Administration ("FDA") (or any other federal, state, local or foreign
governmental entity that is concerned with the safety, efficacy,
reliability or manufacturing of drug or medical device products (each, a
"REGULATORY AGENCY")) to the Company or any of its subsidiaries that,
individually or in the aggregate, would have a Material Adverse Effect
on the Company, (B) all product recalls, notifications and safety alerts
conducted by the Company or any of its subsidiaries, whether or not
required by the FDA, and any request from the FDA or any Regulatory
Agency requesting the Company or any of its subsidiaries to cease to
investigate, test or market any product, which recalls, notifications,
safety alerts or requests would, individually or in the aggregate, have
a Material Adverse Effect on the Company, and (C) any criminal,
injunctive, seizure or civil penalty actions begun or threatened by the
FDA or any Regulatory Agency against the Company or any of its
subsidiaries of which the Company has knowledge, and all related consent
decrees (including plea agreements) issued with respect to the Company
or any of its subsidiaries. Copies of all documents referred to in
Section 2.9(c) of the Company Schedules have been made available to the
Parent.
(ii) The Company has made submissions to obtain material approvals,
certifications, authorizations, clearances and permits for marketing,
and has made filings with, or notifications to, the FDA and Regulatory
Agencies (or has documented a basis for not making such filings or
notifications) pursuant to applicable requirements of the Federal Food,
Drug and Cosmetics Act, as amended (the "FDA ACT"), and applicable laws,
regulations and rules with respect to each of the products sold by the
Company that is listed on Section 2.9(c) of the Company Schedules. The
products listed on Section 2.9(c) of the Company Schedules collectively
constitute in excess of 95% of the gross revenues generated during the
twelve (12)-month period ending December 31, 1997 by that portion of the
business of the Company which is subject to the jurisdiction of the FDA
or any Regulatory Agency. The Company has no knowledge that any of the
material approvals, clearances, authorizations, registrations,
certifications, permits, filings or notifications that it or any of its
subsidiaries has received or made to the FDA or any Regulatory Agency
that relate to the marketing of the products listed on Section 2.9(c) of
the Company Schedules have been or are
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being revoked; provided, however, that the Parent understands and
acknowledges that the FDA or any other Regulatory Agency may disagree
with the Company's assessment and undertake actions, at any time, to
remove from commercial distribution any such product.
(iii) Except as disclosed in Section 2.9(c) of the Company
Schedules, the Company has no knowledge of any pending regulatory action
of any sort (other than non-material routine or periodic inspections of
reviews) against the Company, or any contract manufacturer (a "CONTRACT
MANUFACTURER"), of certain of the Company's products by the FDA or any
Regulatory Agency or any other duly authorized governmental authority
which regulates the sale of drugs or medical devices in any jurisdiction
which could have a Material Adverse Effect on the Company or in any
material way limit or restrict the ability of the Company to market its
existing products. Except as set forth on Section 2.9(c) of the Company
Schedules, neither the Company, nor, to the knowledge of the Company,
the Contract Manufacturer, has knowingly committed or permitted to exist
any violation of the rules and regulations of the FDA or any Regulatory
Agency or any other duly authorized governmental authority which
regulates the sale of drugs or medical devices, which has not been cured
by the Company, or, to the knowledge of the Company, the Contract
Manufacturers or waived by the FDA or any such Regulatory Agency or
authority, provided, however, that the Parent understands and
acknowledges that the FDA or any other Regulatory Agency may disagree
with the Company's assessment and undertake enforcement actions at any
time.
2.10 Litigation. Except as disclosed in Section 2.10 of the Company Schedules,
there is no action, suit, proceeding, claim, arbitration or investigation
pending, or as to which the Company or any of its subsidiaries has received any
notice of assertion nor, to the Company's knowledge, is there a threatened
action, suit, proceeding, claim, arbitration or investigation against the
Company or any of its subsidiaries which reasonably would be likely to be
material to the Company, or which in any manner challenges or seeks to prevent,
enjoin, alter or delay any of the transactions contemplated by this Agreement.
2.11 Brokers' and Finders' Fees. Except for fees payable to Bear, Stearns and
Co. Inc. ("BEAR STEARNS") pursuant to an engagement letter between the Company
and Bear Stearns dated October 5, 1998, a copy of which has been provided to
Parent, the Company has not incurred, nor will it incur, directly or indirectly,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.12 Employee Benefit Plans and Employment Matters.
(a) Definitions. With the exception of the definition of "Affiliate"
set forth in Section 2.12(a)(i) below (which definition will apply only to
this Section 2.12 and Section 3.12), for purposes of this Agreement, the
following terms shall have the meanings set forth below:
(i) "AFFILIATE" means any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued thereunder;
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(ii) "COMPANY EMPLOYEE PLAN" means any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten, funded or
unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by the
Company or any Affiliate for the benefit of any Company Employee;
(iii) "COBRA" means the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended;
(iv) "DOL" means the Department of Labor;
(v) "COMPANY EMPLOYEE" means any current, former, or retired
employee, officer, or director of the Company or any Affiliate;
(vi) "COMPANY EMPLOYEE AGREEMENT" means each management,
employment, severance, consulting, relocation, repatriation,
expatriation, visas, work permit or similar agreement or contract
between the Company or any Affiliate and any Company Employee or
consultant;
(vii) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended;
(viii) "FMLA" means the Family Medical Leave Act of 1993, as
amended;
(ix) "COMPANY INTERNATIONAL EMPLOYEE PLAN" means each Company
Employee Plan that has been adopted or maintained by the Company,
whether informally or formally, for the benefit of Company Employees
outside the United States;
(x) "IRS" means the Internal Revenue Service;
(xi) "COMPANY MULTIEMPLOYER PLAN" means any "Company Pension Plan"
(as defined below) which is a "multiemployer plan," as defined in
Section 3(37) of ERISA;
(xii) "PBGC" means the Pension Benefit Guaranty Corporation; and
(xiii) "COMPANY PENSION PLAN" means each Company Employee Plan
which is an "employee pension benefit plan," within the meaning of
Section 3(2) of ERISA.
(xiv) "WARN" means the Worker Adjustment and Retraining
Notification Act of 1988, as amended.
(b) Schedule. Section 2.12(b) of the Company Schedules contain an
accurate and complete list of each Company Employee Plan and each Company
Employee Agreement. The Company does not have any plan or commitment to
establish any new Company Employee Plan, to modify any Company Employee
Plan or Company Employee Agreement (except to the extent required by law or
to conform any such Company Employee Plan or Company Employee Agreement to
the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to
enter into any Company Employee Plan or
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Company Employee Agreement, nor does it have any intention or commitment to
do any of the foregoing.
(c) Documents. The Company has provided to Parent: (i) correct and
complete copies of all documents embodying each Company Employee Plan and
each Company Employee Agreement including all amendments thereto and
written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company Employee Plan; (iii) the
three (3) most recent annual reports (Form Series 5500 and all schedules
and financial statements attached thereto), if any, required under ERISA or
the Code in connection with each Company Employee Plan or related trust;
(iv) if the Company Employee Plan is funded, the most recent annual and
periodic accounting of Company Employee Plan assets; (v) the most recent
summary plan description together with the summary of material
modifications thereto, if any, required under ERISA with respect to each
Company Employee Plan; (vi) all IRS determination, opinion, notification
and advisory letters, and rulings relating to Company Employee Plans and
copies of all applications and correspondence to or from the IRS or the DOL
with respect to any Company Employee Plan; (vii) all material written
agreements and contracts relating to each Company Employee Plan, including,
but not limited to, administrative service agreements, group annuity
contracts and group insurance contracts; (viii) all communications material
to any Company Employee relating to any Company Employee Plan and any
proposed Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or other events which would
result in any material liability to the Company; (ix) all COBRA forms and
related notices; and (x) all registration statements and prospectuses
prepared in connection with each Company Employee Plan.
(d) Company Employee Plan Compliance. (i) The Company has, to its
knowledge, performed in all material respects all obligations required to
be performed by it under, is not in default or violation of, and has no
knowledge of any default or violation by any other party to each Company
Employee Plan, and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code; (ii) each
Company Employee Plan intended to qualify under Section 401(a) of the Code
and each trust intended to qualify under Section 501(a) of the Code has
either received a favorable determination letter from the IRS with respect
to each such Plan as to its qualified status under the Code, including all
amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has remaining a period of time under applicable
Treasury regulations or IRS pronouncements in which to apply for such a
determination letter and make any amendments necessary to obtain a
favorable determination; (iii) no "prohibited transaction," within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and
not otherwise exempt under Section 408 of ERISA, has occurred with respect
to any Company Employee Plan; (iv) to the Company's knowledge, there are no
actions, suits or claims pending or threatened or reasonably anticipated
(other than routine claims for benefits) against any Company Employee Plan
or against the assets of any Company Employee Plan; (v) each Company
Employee Plan can be amended, terminated or otherwise discontinued after
the Effective Time in accordance with its terms, without liability to
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Parent, the Company or any of its Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (vi) to
the Company's knowledge, there are no audits, inquiries or proceedings
pending or threatened by the IRS or DOL with respect to any Company
Employee Plan; and (vii) to the Company's knowledge, neither the Company
nor any Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 402(i) of ERISA or Sections 4975
through 4980 of the Code.
(e) Company Pension Plans. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Company Pension Plan which is subject to Title IV of ERISA or Section 412
of the Code.
(f) Company Multiemployer Plans. At no time has the Company
contributed to or been requested to contribute to any Company Multiemployer
Plan.
(g) No Post-Employment Obligations. No Company Employee Plan provides,
or has any liability to provide, retiree life insurance, retiree health or
other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and the
Company has never represented, promised or contracted (whether in oral or
written form) to any Company Employee (either individually or to Company
Employees as a group) or any other person that such Company Employee(s) or
other person would be provided with retiree life insurance, retiree health
or other retiree employee welfare benefit, except to the extent required by
statute.
(h) Health Care Continuation Obligations. Neither the Company nor any
Affiliate has, prior to the Effective Time, and in any material respect,
violated any of the health care continuation requirements of COBRA, the
requirements of FMLA or any similar provisions of state law applicable to
the Company Employees.
(i) Effect of Transaction
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan, Company Employee Agreement, trust or
loan that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any Company Employee.
(ii) No payment or benefit which will or may be made by the Company
or its Affiliates with respect to any Company Employee as a result of
the transactions contemplated by this Agreement will be characterized as
an "excess parachute payment," within the meaning of Section 280G(b)(1)
of the Code.
(j) Employment Matters. To the Company's knowledge, the Company (i) is
in compliance in all material respects with all applicable foreign,
federal, state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and
hours, in each case, with respect to Company Employees; (ii) has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Company Employees; (iii) is not liable for
any arrears of wages or any taxes or any penalty for failure to comply with
any of the foregoing; and (iv) is not liable for any material payment to
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any trust or other fund or to any governmental or administrative authority,
with respect to unemployment compensation benefits, social security or
other benefits or obligations for Company Employees (other than routine
payments to be made in the normal course of business and consistent with
past practice). There are no pending, threatened or reasonably anticipated
claims or actions against the Company under any worker's compensation
policy or long-term disability policy. To the Company's knowledge, no
employee of the Company has violated any employment contract, nondisclosure
agreement or noncompetition agreement by which such employee is bound due
to such employee being employed by the Company and disclosing to the
Company or using trade secrets or proprietary information of any other
person or entity.
(k) Company International Employee Plan. Each Company International
Employee Plan has been established, maintained and administered in material
compliance with its terms and conditions and with the requirements
prescribed by any and all statutory or regulatory laws that are applicable
to such Company International Employee Plan. Furthermore, no Company
International Employee Plan has unfunded liabilities, that as of the
Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent the Company from
terminating or amending any Company International Employee Plan at any time
for any reason.
2.13 Absence of Liens and Encumbrances. The Company and each of its
subsidiaries has good and valid title to, or, in the case of leased properties
and assets, valid leasehold interests in, all of its material tangible
properties and assets, real, personal and mixed, used in its business, free and
clear of any liens or encumbrances except as reflected in the Company Financials
and except for liens for taxes not yet due and payable and such imperfections of
title and encumbrances, if any, which would not be material to the Company.
2.14 Environmental Matters.
(a) Hazardous Material. To the knowledge of the Company, except as
reasonably would not be likely to result in a material liability to the
Company, no underground storage tanks and no amount of any substance that
has been designated by any Governmental Entity or by applicable federal,
state or local law to be radioactive, toxic, hazardous or otherwise a
danger to health or the environment, including, without limitation, PCBs,
asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a
hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws which term shall not include office and janitorial supplies
(insofar as they are stored or used in the ordinary course of business) (a
"HAZARDOUS MATERIAL"), are present, as a result of the actions of the
Company or any of its subsidiaries or any affiliate of the Company, or, to
the Company's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that the Company or
any of its subsidiaries has at any time owned, operated, occupied or
leased.
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(b) Hazardous Materials Activities. Except as reasonably would not be
likely to result in a material liability to the Company, neither the
Company nor any of its subsidiaries has transported, stored, used,
manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has the Company or any of its subsidiaries disposed of,
transported, sold, used, released, exposed its employees or others to or
manufactured any product containing a Hazardous Material (collectively
"HAZARDOUS MATERIALS ACTIVITIES") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental Entity in effect prior to
or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
(c) Permits. The Company and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"COMPANY ENVIRONMENTAL PERMITS") necessary for the conduct of the Company's
and its subsidiaries' Hazardous Material Activities and other businesses of
the Company and its subsidiaries as such activities and businesses are
currently being conducted. To the knowledge of the Company, there are no
facts or circumstances indicating that any Company Environmental Permit
will or may be revoked, suspended, canceled or not renewed. All appropriate
action in connection with the renewal or extension of any Company
Environmental Permit has been taken.
(d) Environmental Liabilities. No material action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to the Company's knowledge, threatened concerning any Company
Environmental Permit, Hazardous Material or any Hazardous Materials
Activity of the Company or any of its subsidiaries. The Company is not
aware of any fact or circumstance which could involve the Company or any of
its subsidiaries in any material environmental litigation or impose upon
the Company any material environmental liability. The Company and its
subsidiaries have not received notice, nor to the Company's knowledge is
there a threatened notice, that the Company or its subsidiaries are
responsible, or potentially responsible, for the investigation,
remediation, clean-up, or similar action at property presently or formerly
used by the Company or any of its subsidiaries for recycling, disposal, or
handling of waste.
2.15 Labor Matters. No work stoppage or labor strike against the Company is
pending, threatened or reasonably anticipated. The Company does not have
knowledge of any activities or proceedings of any labor union to organize any
Company Employees. There are no actions, suits, claims, labor disputes or
grievances pending, or, to the knowledge of the Company, threatened or
reasonably anticipated relating to any labor, safety or discrimination matters
involving any Company Employee, including, without limitation, charges of unfair
labor practices or discrimination complaints, which, if adversely determined,
would, individually or in the aggregate, result in any material liability to the
Company. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act.
The Company is not presently, nor has it been in the past, a party to, or bound
by, any collective bargaining agreement or union contract with respect to
Company Employees and no collective bargaining agreement is being negotiated by
the Company. The Company and its subsidiaries are and have been in compliance in
all material respects with all applicable
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laws regarding employment practices, terms and conditions of employment, and
wages and hours (including, without limitation, WARN or any similar state or
local law).
2.16 Agreements, Contracts and Commitments. Except as set forth in Section 2.16
and Section 2.2(b) of the Company Schedules, neither the Company nor any of its
subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment
with any officer or director level employee or member of the Company's
Board of Directors, other than those that are terminable by the Company or
any of its subsidiaries on no more than thirty (30) days notice without
liability or financial obligation;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification or guaranty not entered into in
the ordinary course of business other than indemnification agreements
between the Company or any of its subsidiaries and any of its officers or
directors;
(d) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company or any of its subsidiaries to engage in
any line of business or compete with any person or granting any exclusive
distribution rights; (e) any agreement, contract or commitment currently in
force relating to the disposition or acquisition of assets not in the
ordinary course of business or any ownership interest in any corporation,
partnership, joint venture or other business enterprise; or
(f) any material joint marketing or development agreement.
Neither the Company nor any of its subsidiaries, nor to the Company's knowledge
any other party to a Company Contract (as defined herein), has breached,
violated or defaulted under, or received notice that it has breached, violated
or defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which the Company or any of its
subsidiaries is a party or by which it is bound of the type described in clauses
(a) through (f) above (any such agreement, contract or commitment, a "COMPANY
CONTRACT") in such a manner as would permit any other party to cancel or
terminate any such Company Contract, or would permit any other party to seek
damages, which would be reasonably likely to be material to the Company.
2.17 Pooling of Interests. The Company has provided PricewaterhouseCoopers LLP,
its independent accountants, all of the information that has been requested by
such firm in connection with such firm's analysis of the availability of
pooling-of-interest accounting for the Merger and, having conferred with such
firm, nothing has come to the Company's knowledge that has led it to believe
that either the Company or any of its directors, officers, affiliates or
stockholders has taken any action which would preclude Parent's ability to
account for the Merger as a pooling of interests.
2.18 Change of Control Payments. The Company Schedules set forth each plan or
agreement pursuant to which any amounts may become payable (whether currently or
in
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the future) to current or former officers or directors of the Company as a
result of or in connection with the Merger.
2.19 Registration Statement; Proxy Statement/Prospectus. The information to be
supplied by the Company for inclusion in the Registration Statement (as defined
in Section 3.4(b)) shall not at the time the Registration Statement is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading. The information to be supplied by the Company for
inclusion in the proxy statement/prospectus to be sent to the stockholders of
the Company and shareholders of Parent in connection with the meeting of the
Company's stockholders to consider the approval and adoption of this Agreement
and the approval of the Merger (the "COMPANY STOCKHOLDERS' MEETING") and in
connection with the meeting of Parent's shareholders to consider the approval of
the issuance of shares of Parent Common Stock by virtue of the Merger (the
"PARENT SHAREHOLDERS' MEETING") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "PROXY STATEMENT") shall not, on the
date the Proxy Statement is first mailed to the Company's stockholders and
Parent's shareholders, at the time of the Company Stockholders' Meeting or the
Parent Shareholders' Meeting and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Company
Stockholders' Meeting or the Parent Shareholders' Meeting which has become false
or misleading. The Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder. If at any time prior to the Effective Time, any event relating to
the Company or any of its affiliates, officers or directors should be discovered
by the Company which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, the Company shall promptly
inform Parent. Notwithstanding the foregoing, the Company makes no
representation or warranty with respect to any information supplied by Parent or
Merger Sub which is contained in any of the foregoing documents.
2.20 Board Approval. The Board of Directors of the Company has, as of the date
of this Agreement, determined (i) that the Merger is fair to, and in the best
interests of the Company and its stockholders, (ii) to propose this Agreement
for approval and adoption by the Company's stockholders and to declare the
advisability of this Agreement, and (iii) to recommend that the stockholders of
the Company approve and adopt this Agreement and approve the Merger.
2.21 Fairness Opinion. The Company has received a written opinion from Bear,
Stearns and Co. Inc. dated as of the date hereof, to the effect that as of the
date hereof, the Exchange Ratio is fair to the Company's stockholders from a
financial point of view and has delivered to Parent a copy of such opinion.
2.22 Section 203 of the Delaware General Corporation Law Not Applicable. The
Board of Directors of the Company has taken all actions so that the restrictions
contained in Section 203 of the Delaware Law applicable to a "business
combination" (as defined in such Section 203) will not apply to the execution,
delivery or performance of this
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Agreement or to the consummation of the Merger or the other transactions
contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company, subject to the
exceptions specifically disclosed in writing in the disclosure letter supplied
by Parent to the Company dated as of the date hereof and certified by a duly
authorized officer of Parent (the "PARENT SCHEDULES"), as follows:
3.1 Organization of Parent.
(a) Parent and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to
own, lease and operate its assets and property and to carry on its business
as now being conducted and as proposed to be conducted; and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its activities makes such qualification or
licensing necessary, except where the failure to be so qualified would not
have a Material Adverse Effect (as defined herein) on Parent.
(b) Parent has delivered to the Company a true and complete list of
all of Parent's subsidiaries, indicating the jurisdiction of incorporation
of each subsidiary and listing the shareholders of each such subsidiary and
the number of shares held by each such shareholder.
(c) Parent has delivered or made available to the Company a true and
correct copy of the Articles of Incorporation and Bylaws of Parent and
similar governing instruments of each of its subsidiaries, each as amended
to date, and each such instrument is in full force and effect. Neither
Parent nor any of its subsidiaries is in violation of any of the provisions
of its Articles of Incorporation or Bylaws or equivalent governing
instruments.
(d) When used in connection with Parent, the term "MATERIAL ADVERSE
EFFECT" means, for purposes of this Agreement, any change, event or effect
that is materially adverse to the business, assets (including intangible
assets), financial condition or results of operations of Parent and its
subsidiaries taken as a whole except for those changes, events and effects
that are directly caused by (i) conditions affecting the United States
economy as a whole, or (ii) conditions affecting the medical device
industry as a whole, which conditions (in the case of clause (i) or (ii))
do not affect Parent in a disproportionate manner), or (iii) conditions
that in the good faith judgment of Parent's Board of Directors result
principally from the execution or delivery of this Agreement or the
announcement of the pendency of the Merger, or (iv) the recommendation or
other results (including any delay or rejection) of the FDA panel that is
to consider Parent's pre-market approval application for certain of its
products, unless such delay or rejection is announced by
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the FDA publicly or to Parent to be due to allegations by the FDA of fraud
or criminal action by Parent.
3.2 Parent and Merger Sub Capital Structure.
(a) The authorized capital stock of Parent consists of 50,000,000
shares of Common Stock, no par value, of which as of October 16, 1998 there
were 17,395,885 shares issued and outstanding as of the date of this
Agreement and 5,000,000 shares of Preferred Stock, no par value, of which
no shares are issued or outstanding as of the date of this Agreement. All
outstanding shares of Parent Common Stock are duly authorized, validly
issued, fully paid and nonassessable and are not subject to preemptive
rights created by statute, the Articles of Incorporation or Bylaws of
Parent or any agreement or document to which Parent is a party or by which
it is bound. The authorized capital stock of Merger Sub consists of 1,000
shares of Common Stock, $0.001 par value per share, all of which, as of the
date hereof, are issued and outstanding and are held by Parent. Merger Sub
was formed on October 16, 1998, for the purpose of consummating the Merger,
has no material assets or liabilities except as necessary for such purpose
and has not, and prior to the Effective Time will not have, conducted any
business except as necessary for such purpose.
(b) As of the date of this Agreement, Parent had reserved an aggregate
of 4,000,000 shares and 200,000 shares, respectively, of Parent Common
Stock, net of exercises, for issuance to employees, consultants and
non-employee directors pursuant to Parent's Stock Option Plan and Director
Stock Option Plan, under which options are outstanding for an aggregate of
2,797,520 shares and 75,000 shares, respectively. (The Stock Option Plan,
Dual Stock Option Plan and Director Stock Option Plan are collectively
referred to in this Agreement as the "PARENT STOCK OPTION PLANS." Stock
options granted pursuant to the Parent Stock Option Plans are referred to
in this Agreement as "PARENT STOCK OPTIONS.") Parent has made available to
the Company accurate and complete copies of all Parent Stock Option Plans
and the forms of all agreements evidencing the Parent Stock Options. There
are no commitments or agreements of any character to which Parent is bound
obligating Parent to accelerate the vesting of any Parent Stock Option as a
result of the Merger. As of the date of this Agreement, an aggregate of
250,000 shares of Parent Common Stock have been reserved for issuance
pursuant to Parent's Employee Stock Purchase Plan (the "PARENT PURCHASE
PLAN").
3.3 Obligations With Respect to Capital Stock. Except as set forth in Section
3.2, there are no equity securities, partnership interests or similar ownership
interests of any class of Parent, or any securities exchangeable or convertible
into or exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except for
securities Parent owns, directly or indirectly through one or more subsidiaries,
there are no equity securities, partnership interests or similar ownership
interests of any class of any subsidiary of Parent, or any security exchangeable
or convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Section 3.2, there are no options, warrants,
equity securities, partnership interests or similar ownership interests, calls,
rights (including preemptive rights), commitments or agreements of any character
to which Parent or any of its subsidiaries is a party or by which it is bound
obligating Parent or any of its subsidiaries to issue, deliver or sell, or cause
to be
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issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause
the repurchase, redemption or acquisition, of any shares of capital stock,
partnership interests or similar ownership interests of Parent or any of its
subsidiaries or obligating Parent or any of its subsidiaries to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. There are no registration rights
and, to the knowledge of Parent, as of the date of this Agreement, there are no
voting trusts, proxies or other agreements or understandings (except for the
Parent Voting Agreements) with respect to any equity security of any class of
Parent or with respect to any equity security, partnership interest or similar
ownership interest of any class of any of its subsidiaries.
3.4 Authority.
(a) Each of Parent and Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Parent and Merger Sub, subject only to the filing of the Certificate of
Merger pursuant to Delaware Law and the approval by Parent's shareholders
of the issuance of shares of Parent Common Stock issuable under the terms
of the Merger. A vote of the holders of a majority of the outstanding
shares of Parent Common Stock is required for Parent's shareholders to
approve the issuance of shares of Parent Common Stock by virtue of the
Merger. This Agreement has been duly executed and delivered by each of
Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the Company, constitutes the valid and binding obligation of
each of Parent and Merger Sub, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy and other similar
laws and general principles of equity. The execution and delivery of this
Agreement by each of Parent and Merger Sub do not, and the performance of
this Agreement by each of Parent and Merger Sub will not (i) conflict with
or violate the Articles of Incorporation or Bylaws of Parent or the
Certificate of Incorporation or Bylaws of Merger Sub or the equivalent
organizational documents of any of Parent's other subsidiaries, (ii)
subject to obtaining the approval of Parent's shareholders of the issuance
of shares of Parent Common Stock by virtue of the Merger as contemplated in
Section 5.2 and compliance with the requirements set forth in Section
3.4(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or any of its subsidiaries
(including Merger Sub) or by which its or any of their respective
properties is bound or affected, or (iii) assuming the receipt of all
material consents, waivers and approvals referred to in the last sentence
of this Section 3.4(a), result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or impair Parent's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Parent or any of its
subsidiaries (including Merger Sub) pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which Parent or any of its
subsidiaries (including Merger Sub) is a party or by which Parent or any of
its subsidiaries or its or any of their respective properties are bound or
affected. The Parent Schedules list all
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material consents, waivers and approvals under any of Parent's or any of
its subsidiaries' agreements, contracts, licenses or leases required to be
obtained in connection with the consummation of the transactions
contemplated hereby.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement or the consummation of the Merger, except for
(i) the filing of a Form S-4 Registration Statement (the "REGISTRATION
STATEMENT") with the SEC in accordance with the Securities Act, (ii) the
filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, (iii) the filing of the Proxy Statement with the SEC in
accordance with the Exchange Act, (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings (if any) as may be
required under applicable federal and state securities laws and the
securities or antitrust laws of any foreign country, and (v) such other
consents, authorizations, filings, approvals and registrations (if any)
which if not obtained or made would not be material to Parent or the
Company or have a material adverse effect on the ability of the parties to
consummate the Merger.
3.5 Parent SEC Filings; Parent Financial Statements.
(a) Parent has filed all forms, reports and documents required to be
filed with the SEC since May 31, 1996, and has made available to the
Company such forms, reports and documents in the form filed with the SEC.
All such required forms, reports and documents (including those that Parent
may file subsequent to the date hereof) are referred to herein as the
"PARENT SEC REPORTS." As of their respective dates, the Parent SEC Reports
(i) were prepared in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Parent SEC Reports,
and (ii) did not at the time they were filed (or if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. None of Parent's subsidiaries is required to
file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in Parent SEC Reports (the
"PARENT FINANCIALS"), including any Parent SEC Reports filed after the date
hereof until the Closing, (x) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto,
(y) was prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may
be permitted by the SEC on Form 10-Q under the Exchange Act) and (z) fairly
presented the consolidated financial position of Parent and its
subsidiaries as at the respective dates thereof and the consolidated
results of Parent's operations and cash flows for the periods indicated,
except that the unaudited interim financial statements may not contain
footnotes and were or are subject to normal and recurring year-end
adjustments. The balance sheet of Parent contained in Parent SEC Reports as
of June 30, 1998 is hereinafter referred to as the "PARENT BALANCE
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SHEET." Except as disclosed in the Parent Financials, since the date of the
Parent Balance Sheet neither Parent nor any of its subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and its subsidiaries taken as a
whole, except liabilities (i) provided for in the Parent Balance Sheet, or
(ii) incurred since the date of the Parent Balance Sheet in the ordinary
course of business consistent with past practices.
(c) Parent has heretofore furnished to the Company a complete and
correct copy of any amendments or modifications, which have not yet been
filed with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by Parent
with the SEC pursuant to the Securities Act or the Exchange Act.
3.6 Absence of Certain Changes or Events. Since the date of Parent Balance
Sheet there has not been: (i) any Material Adverse Effect on Parent, (ii) any
declaration, setting aside or payment of any dividend on, or other distribution
(whether in cash, stock or property) in respect of, any of Parent's or any of
its subsidiaries' capital stock, or any purchase, redemption or other
acquisition by Parent of any of Parent's capital stock or any other securities
of Parent or its subsidiaries or any options, warrants, calls or rights to
acquire any such shares or other securities except for repurchases from
employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements, (iii) any split, combination
or reclassification of any of Parent's or any of its subsidiaries' capital
stock, (iv) any granting by Parent or any of its subsidiaries of any increase in
compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by Parent or any of its subsidiaries of any bonus, except for
bonuses made in the ordinary course of business consistent with past practice,
or any granting by Parent or any of its subsidiaries of any increase in
severance or termination pay or any entry by Parent or any of its subsidiaries
into any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving Parent of the nature contemplated hereby, (v) entry by
Parent or any of its subsidiaries into any licensing or other agreement with
regard to the acquisition or disposition of any material Parent IP Rights (as
defined in Section 3.8) other than licenses in the ordinary course of business
consistent with past practice, (vi) any material change by Parent in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (vii) any revaluation by Parent of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable other than in the ordinary course of
business.
3.7 Tax.
(a) Tax Returns and Audits.
(i) Parent and each of its subsidiaries have timely filed all
Returns relating to Taxes required to be filed by Parent and each of its
subsidiaries, except such Returns which are not material to Parent, and
have paid all Taxes shown to be due on such Returns.
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(ii) Parent and each of its subsidiaries as of the Effective Time
will have withheld and paid over, as appropriate, with respect to its
employees all federal and state, local and/or foreign income taxes,
FICA, FUTA and other Taxes required to be withheld.
(iii) Neither Parent nor any of its subsidiaries has been
delinquent in the payment of any Tax nor is there any Tax deficiency
outstanding, proposed or assessed against Parent or any of its
subsidiaries, nor has Parent or any of its subsidiaries executed any
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) No audit or other examination of any Return of Parent or any
of its subsidiaries is presently in progress, nor has Parent or any of
its subsidiaries been notified of any request for such an audit or other
examination.
(v) No adjustment relating to any Returns filed by Parent or any of
its subsidiaries has been proposed formally or informally by any Tax
authority to Parent or any of its subsidiaries or any representative
thereof and, to the knowledge of Parent, no basis exists for any such
adjustment which would be material to Parent.
(vi) Neither Parent nor any of its subsidiaries has any liability
for unpaid Taxes which has not been accrued for or reserved on the
Parent Balance Sheet, whether asserted or unasserted, contingent or
otherwise, which is material to Parent, and the Company has not incurred
any liability for Taxes other than in the ordinary course of business
since the date of the Company Balance Sheet.
(vii) None of Parent's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(viii) There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering
any employee or former employee of Parent or any of its subsidiaries
that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Sections 280G or 404
of the Code.
(ix) Neither Parent nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as defined in Section 341(f)(4) of the Code) owned by Parent.
(x) Parent is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xi) No power of attorney that is currently in force has been
granted with respect to any matter relating to Taxes payable by Parent
or any of its subsidiaries.
(xii) Neither Parent nor any of its subsidiaries is or has been a
member of a consolidated, combined or affiliated group or is a party to
or affected by any tax-sharing or allocation agreement or arrangement.
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(xiii) The Parent Schedules list (y) any Tax exemption, Tax holiday
or other Tax-sparing arrangement that Parent or any of its subsidiaries
has in any jurisdiction, including the nature, amount and lengths of
such Tax exemption, Tax holiday or other Tax-sparing arrangement and (z)
any expatriate tax programs or policies affecting Parent or any of its
subsidiaries. Each of Parent and its subsidiaries is in full compliance
with all terms and conditions of any Tax exemption, Tax holiday or other
Tax-sparing arrangement or order of any Governmental Entity and the
consummation of the transactions contemplated hereby will not have any
adverse effect on the continued validity and effectiveness of any such
Tax exemption, Tax holiday or other Tax-sparing arrangement or order.
3.8 Intellectual Property.
(a) To the knowledge of Parent, the Parent and its subsidiaries own,
or have the right to use, sell or license all intellectual property
necessary or required for the conduct of their respective businesses as
presently conducted (such intellectual property and the rights thereto are
collectively referred to herein as the "PARENT IP Rights").
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any of the Parent IP Rights
to which the Parent or any subsidiary of the Parent is a party or by which,
to its knowledge, it is bound or affected, will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any
Parent IP Rights or materially impair the right of Parent, the Surviving
Corporation or the Company to use, sell or license any Parent IP Rights or
portion thereof.
(c) To the knowledge of Parent, the manufacture, marketing, license,
sale or intended use of any product or technology currently licensed or
sold or under development by Parent or any of its subsidiaries does not
violate any license or agreement between Parent or any of its subsidiaries
and any third party or infringe any intellectual property right of any
other party.
(d) There is no pending or, to the knowledge of Parent, threatened
claim or litigation contesting the validity, ownership or right to use,
sell, license or dispose of any Parent IP Rights, nor has Parent received
any written notice asserting that any Parent IP Rights or the proposed use,
sale, license or disposition thereof conflicts or will conflict with the
rights of any other party. Schedule 3.8 of the Parent Schedules lists each
patent held by the Parent and the expiration date of each such patent.
(e) Parent has taken commercially reasonable steps designed to
safeguard and maintain the confidentiality of, and its proprietary rights
in, all Parent IP Rights.
3.9 Compliance; Permits; Restrictions.
(a) Neither Parent nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which Parent or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which Parent or any of its
subsidiaries is a party
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or by which Parent or any of its subsidiaries or its or any of their
respective properties is bound or affected. No investigation or review by
any Governmental Entity is pending or, to Parent's knowledge, threatened
against Parent or any of its subsidiaries, nor has any Governmental Entity
indicated an intention to conduct the same. There is no agreement,
judgment, injunction, order or decree binding upon Parent or any of its
subsidiaries which has or could reasonably be expected to have the effect
of prohibiting or materially impairing any business practice of Parent or
any of its subsidiaries, any acquisition of material property by Parent or
any of its subsidiaries or the conduct of business by Parent as currently
conducted.
(b) Parent and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to the operation of the business of Parent (collectively, the
"PARENT PERMITS"). Parent and its subsidiaries are in compliance in all
material respects with the terms of the Parent Permits.
(c) FDA and Related Matters.
(i) Section 3.9(c) of the Parent Schedules sets forth a list, for
the period between January 1, 1996 and the date hereof, of (A) all
Regulatory or Warning Letters, Notices of Adverse Findings and Section
305 Notices and similar letters or notices issued by the FDA (or any
other Regulatory Agency) to the Parent or any of its subsidiaries that,
individually or in the aggregate, would have a Material Adverse Effect
on the Parent, (B) all product recalls, notifications and safety alerts
conducted by the Parent or any of its subsidiaries, whether or not
required by the FDA, and any request from the FDA or any Regulatory
Agency requesting the Parent or any of its subsidiaries to cease to
investigate, test or market any product, which recalls, notifications,
safety alerts or requests would, individually or in the aggregate, have
a Material Adverse Effect on the Parent, and (C) any criminal,
injunctive, seizure or civil penalty actions begun or threatened by the
FDA or any Regulatory Agency against the Parent or any of its
subsidiaries of which the Parent has knowledge, and all related consent
decrees (including plea agreements) issued with respect to the Parent or
any of its subsidiaries. Copies of all documents referred to in Section
3.9(c) of the Parent Schedules have been made available to the Company.
(ii) The Parent has made submissions to obtain material approvals,
certifications, authorizations, clearances and permits for marketing,
and has made filings with, or notifications to, the FDA and Regulatory
Agencies (or has documented a basis for not making such filings or
notifications) pursuant to applicable requirements of the FDA Act, and
applicable laws, regulations and rules with respect to each of the
products sold by the Parent that is listed on Section 3.9(c) of the
Parent Schedules. The products listed on Section 3.9(c) of the Parent
Schedules collectively constitute in excess of 95% of the gross revenues
generated during the twelve (12)-month period ending December 31, 1997
by that portion of the business of the Parent which is subject to the
jurisdiction of the FDA or any Regulatory Agency. The Parent has no
knowledge that any of the material approvals, clearances,
authorizations, registrations, certifications, permits, filings or
notifications that it or any of its subsidiaries has received or made to
the FDA or any Regulatory Agency that relate to the
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marketing of the products listed on Section 3.9(c) of the Parent
Schedules have been or are being revoked; provided, however, that the
Company understands and acknowledges that the FDA or any other
Regulatory Agency may disagree with the Parent's assessment and
undertake actions, at any time, to remove from commercial distribution
any such product.
(iii) Except as disclosed in Section 3.9(c) of the Parent
Schedules, the Parent has no knowledge of any pending regulatory action
of any sort (other than non-material routine or periodic inspections of
reviews) against the Parent or any Contract Manufacturer by the FDA or
any Regulatory Agency or any other duly authorized governmental
authority which regulates the sale of drugs or medical devices in any
jurisdiction which could have a Material Adverse Effect on the Parent,
or in any material way limit or restrict the ability of the Parent to
market its existing products. Except as set forth on Section 3.9(c) of
the Parent Schedules, neither the Parent, nor, to the knowledge of the
Parent, the Contract Manufacturer, has knowingly committed or permitted
to exist any violation of the rules and regulations of the FDA or any
Regulatory Agency or any other duly authorized governmental authority
which regulates the sale of drugs or medical devices which has not been
cured by the Parent, or, to the knowledge of the Parent, the Contract
Manufacturer or waived by the FDA or any such Regulatory Agency
authority, provided, however, that the Company understands and
acknowledges that the FDA or any other Regulatory Agency may disagree
with the Parent's assessment and undertake enforcement actions at any
time.
3.10 Litigation. There is no action, suit, proceeding, claim, arbitration or
investigation pending, or as to which Parent or any of its subsidiaries has
received any notice of assertion nor, to Parent's knowledge, is there a
threatened action, suit, proceeding, claim, arbitration or investigation against
Parent or any of its subsidiaries which reasonably would be likely to be
material to Parent, or which in any manner challenges or seeks to prevent,
enjoin, alter or delay any of the transactions contemplated by this Agreement.
3.11 Brokers' and Finders' Fees. Except for fees payable to PaineWebber
Incorporated pursuant to an engagement letter dated October 5, 1998, Parent has
not incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.12 Employee Benefit Plans and Employment Matters.
(a) Definitions. For purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "PARENT EMPLOYEE PLAN" means any plan, program, policy,
practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit
plan," within the meaning of Section 3(3) of ERISA which is or has been
maintained, contributed to, or required to be contributed to, by Parent
or any Affiliate for the benefit of any Parent Employee;
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(ii) "PARENT EMPLOYEE" means any current, former, or retired
employee, officer, or director of Parent or any Affiliate;
(iii) "PARENT EMPLOYEE AGREEMENT" means each management,
employment, severance, consulting, relocation, repatriation,
expatriation, visas, work permit or similar agreement or contract
between Parent or any Affiliate and any Employee or consultant;
(iv) "PARENT INTERNATIONAL EMPLOYEE PLAN" means each Parent
Employee Plan that has been adopted or maintained by Parent, whether
informally or formally, for the benefit of Employees outside the United
States; and
(v) "PARENT PENSION PLAN" means each Parent Employee Plan which is
an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Section 3.12(b) of the Parent Schedules contain an
accurate and complete list of each Parent Employee Plan and each Parent
Employee Agreement. Parent does not have any plan or commitment to
establish any new Parent Employee Plan, to modify any Parent Employee Plan
or Parent Employee Agreement (except to the extent required by law or to
conform any such Parent Employee Plan or Parent Employee Agreement to the
requirements of any applicable law, in each case as previously disclosed to
the Company in writing, or as required by this Agreement), or to enter into
any Parent Employee Plan or Parent Employee Agreement, nor does it have any
intention or commitment to do any of the foregoing.
(c) Documents. Parent has provided to the Company: (i) correct and
complete copies of all documents embodying each Parent Employee Plan and
each Parent Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations,
if any, prepared for each Parent Employee Plan; (iii) the three (3) most
recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Parent Employee Plan or related trust; (iv) if the
Parent Employee Plan is funded, the most recent annual and periodic
accounting of Parent Employee Plan assets; (v) the most recent summary plan
description together with the summary of material modifications thereto, if
any, required under ERISA with respect to each Parent Employee Plan; (vi)
all IRS determination, opinion, notification and advisory letters, and
rulings relating to Parent Employee Plans and copies of all applications
and correspondence to or from the IRS or the DOL with respect to any Parent
Employee Plan; (vii) all material written agreements and contracts relating
to each Parent Employee Plan, including, but not limited to, administrative
service agreements, group annuity contracts and group insurance contracts;
(viii) all communications material to any Parent Employee relating to any
Parent Employee Plan and any proposed Parent Employee Plans, in each case,
relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or
other events which would result in any material liability to Parent; (ix)
all COBRA forms and related notices; and (x) all registration statements
and prospectuses prepared in connection with each Parent Employee Plan.
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(d) Parent Employee Plan Compliance. (i) Parent has, to its knowledge,
performed in all material respects all obligations required to be performed
by it under, is not in default or violation of, and has no knowledge of any
default or violation by any other party to each Parent Employee Plan, and
each Parent Employee Plan has been established and maintained in all
material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) each Parent Employee Plan intended to
qualify under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code has either received a favorable
determination letter from the IRS with respect to each such Plan as to its
qualified status under the Code, including all amendments to the Code
effected by the Tax Reform Act of 1986 and subsequent legislation, or has
remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a determination letter and make
any amendments necessary to obtain a favorable determination; (iii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408
of ERISA, has occurred with respect to any Parent Employee Plan; (iv) to
Parent's knowledge, there are no actions, suits or claims pending or
threatened or reasonably anticipated (other than routine claims for
benefits) against any Parent Employee Plan or against the assets of any
Parent Employee Plan; (v) each Parent Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance
with its terms, without liability to Parent or any of its Affiliates (other
than ordinary administration expenses typically incurred in a termination
event); (vi) to Parent's knowledge, there are no audits, inquiries or
proceedings pending or threatened by the IRS or DOL with respect to any
Parent Employee Plan; and (vii) to Parent's knowledge, neither Parent nor
any Affiliate is subject to any penalty or tax with respect to any Parent
Employee Plan under Section 402(i) of ERISA or Sections 4975 through 4980
of the Code.
(e) Parent Pension Plans. Parent does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Parent Pension Plan which is subject to Title IV of ERISA or Section 412 of
the Code.
(f) Parent Multiemployer Plans. At no time has Parent contributed to
or been requested to contribute to any Parent Multiemployer Plan.
(g) No Post-Employment Obligations. No Parent Employee Plan provides,
or has any liability to provide, retiree life insurance, retiree health or
other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and Parent
has never represented, promised or contracted (whether in oral or written
form) to any Parent Employee (either individually or to Parent Employees as
a group) or any other person that such Parent Employee(s) or other person
would be provided with retiree life insurance, retiree health or other
retiree employee welfare benefit, except to the extent required by statute.
(h) Health Care Continuation Obligations. Neither Parent nor any
Affiliate has, prior to the Effective Time, and in any material respect,
violated any of the health care continuation requirements of COBRA, the
requirements of FMLA or any similar provisions of state law applicable to
its Employees.
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(i) Effect of Transaction
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Parent Employee Plan, Parent Employee Agreement, trust or loan
that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any Parent Employee.
(ii) No payment or benefit which will or may be made by Parent or
its Affiliates with respect to any Parent Employee as a result of the
transactions contemplated by this Agreement will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of
the Code.
(j) Employment Matters. To Parent's knowledge, Parent (i) is in
compliance in all material respects with all applicable foreign, federal,
state and local laws, rules and regulations respecting employment,
employment practices, terms and conditions of employment and wages and
hours, in each case, with respect to Parent Employees; (ii) has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Parent Employees; (iii) is not liable for
any arrears of wages or any taxes or any penalty for failure to comply with
any of the foregoing; and (iv) is not liable for any material payment to
any trust or other fund or to any governmental or administrative authority,
with respect to unemployment compensation benefits, social security or
other benefits or obligations for Employees (other than routine payments to
be made in the normal course of business and consistent with past
practice). There are no pending, threatened or reasonably anticipated
claims or actions against Parent under any worker's compensation policy or
long-term disability policy. To Parent's knowledge, no Parent Employee has
violated any employment contract, nondisclosure agreement or noncompetition
agreement by which such employee is bound due to such employee being
employed by Parent and disclosing to Parent or using trade secrets or
proprietary information of any other person or entity.
(k) Parent International Employee Plan. Each Parent International
Employee Plan has been established, maintained and administered in material
compliance with its terms and conditions and with the requirements
prescribed by any and all statutory or regulatory laws that are applicable
to such Parent International Employee Plan. Furthermore, no Parent
International Employee Plan has unfunded liabilities, that as of the
Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent Parent from
terminating or amending any Parent International Employee Plan at any time
for any reason.
3.13 Absence of Liens and Encumbrances. Parent and each of its subsidiaries has
good and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its material tangible properties and assets,
real, personal and mixed, used in its business, free and clear of any liens or
encumbrances except as reflected in the Parent Financials and except for liens
for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which would not be material to Parent.
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3.14 Environmental Matters.
(a) Hazardous Material. To the knowledge of Parent, except as
reasonably would not be likely to result in a material liability to Parent,
no underground storage tanks and no amount of any Hazardous Material, but
excluding office and janitorial supplies, are present, as a result of the
actions of Parent or any of its subsidiaries or any affiliate of Parent,
or, to Parent's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that Parent or any of
its subsidiaries has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as reasonably would not be
likely to result in a material liability to Parent, neither Parent nor any
of its subsidiaries has transported, stored, used, manufactured, disposed
of, released or exposed its employees or others to Hazardous Materials in
violation of any law in effect on or before the Closing Date, nor has
Parent or any of its subsidiaries engaged in any Hazardous Materials
Activities in violation of any rule, regulation, treaty or statute
promulgated by any Governmental Entity in effect prior to or as of the date
hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Permits. Parent and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"PARENT ENVIRONMENTAL PERMITS") necessary for the conduct of Parent's and
its subsidiaries' Hazardous Material Activities and other businesses of
Parent and its subsidiaries as such activities and businesses are currently
being conducted. To the knowledge of Parent, there are no facts or
circumstances indicating that any Parent Environment Permit will or may be
revoked, suspended, canceled or not renewed. All appropriate action in
connection with the renewal or extension of any Parent Environmental Permit
has been taken.
(d) Environmental Liabilities. No material action, proceeding,
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to Parent's knowledge, threatened concerning any Parent
Environmental Permit, Hazardous Material or any Hazardous Materials
Activity of Parent or any of its subsidiaries. Parent is not aware of any
fact or circumstance which could involve Parent or any of its subsidiaries
in any material environmental litigation or impose upon Parent any material
environmental liability. Parent and its subsidiaries have not received
notice, nor to the Parent's knowledge is there a threatened notice, that
Parent or its subsidiaries are responsible, or potentially responsible, for
the investigation, remediation, clean-up, or similar action at property
presently or formerly used by Parent or any of its subsidiaries for
recycling, disposal, or handling of waste.
3.15 Labor Matters. No work stoppage or labor strike against Parent is pending,
threatened or reasonably anticipated. Parent does not have knowledge of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of Parent, threatened or reasonably anticipated relating to any labor,
safety or discrimination matters involving any Employee, including, without
limitation, charges of unfair labor practices or discrimination complaints,
which, if adversely determined, would, individually or in the aggregate, result
in any material liability to Parent. Neither Parent nor any of its subsidiaries
has engaged in any unfair labor practices within the meaning of the National
Labor Relations Act. Parent
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is not presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Parent
Employees and no collective bargaining agreement is being negotiated by Parent.
Parent and its subsidiaries are and have been in compliance in all material
respects with all applicable laws regarding employment practices, terms and
conditions of employment, and wages and hours (including, without limitation,
WARN or any similar state or local law).
3.16 Agreements, Contracts and Commitments. Except as set forth in Section 3.16
and Section 3.2(b) of the Parent Schedules, neither Parent nor any of its
subsidiaries is a party to or is bound by:
(a) any employment or consulting agreement, contract or commitment
with any officer or director level employee or member of Parent's Board of
Directors, other than those that are terminable by Parent or any of its
subsidiaries on no more than thirty days notice without liability or
financial obligation;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(c) any agreement of indemnification or guaranty not entered into in
the ordinary course of business other than indemnification agreements
between Parent or any of its subsidiaries and any of its officers or
directors;
(d) any agreement, contract or commitment containing any covenant
limiting the freedom of Parent or any of its subsidiaries to engage in any
line of business or compete with any person or granting any exclusive
distribution rights;
(e) any agreement, contract or commitment currently in force relating
to the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise; or
(f) any material joint marketing or development agreement.
Neither Parent nor any of its subsidiaries, nor to Parent's knowledge any other
party to a Parent Contract (as defined below), has breached, violated or
defaulted under, or received notice that it has breached violated or defaulted
under, any of the material terms or conditions of any of the agreements,
contracts or commitments to which Parent or any of its subsidiaries is a party
or by which it is bound of the type described in clauses (a) through (f) above
(any such agreement, contract or commitment, a "PARENT CONTRACT") in such a
manner as would permit any other party to cancel or terminate any such Parent
Contract, or would permit any other party to seek damages, which would be
reasonably likely to be material to Parent.
3.17 Pooling of Interests. Parent has provided to Pricewaterhouse-Coopers LLP,
its independent accountants, all of the information that has been requested by
such firm in connection with such firm's analysis of the availability of
pooling-of-interest accounting for the Merger and, having conferred with such
firm, nothing has come to Parent's knowledge that has led it to believe that
neither Parent nor any of its directors, officers, affiliates or
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stockholders has taken any action which would preclude Parent's ability to
account for the Merger as a pooling of interests.
3.18 Change of Control Payments. There is no plan or agreement pursuant to
which any amounts may become payable (whether currently or in the future) to
current or former officers or directors of Parent as a result of or in
connection with the Merger.
3.19 Registration Statement; Proxy Statement/Prospectus. The information to be
supplied by Parent for inclusion in the Registration Statement shall not at the
time the Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The
information to be supplied by Parent for inclusion in the Proxy Statement shall
not, on the date the Proxy Statement is first mailed to Parent's shareholders
and the Company's stockholders, at the time of the Parent Shareholders' Meeting
or the Company Stockholders' Meeting and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the Parent
Shareholders' Meeting or the Company Stockholders' Meeting which has become
false or misleading. The Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder. If at any time prior to the Effective Time, any event relating to
Parent or any of its affiliates, officers or directors should be discovered by
Parent which should be set forth in an amendment to the Registration Statement
or a supplement to the Proxy Statement, Parent shall promptly inform the
Company. Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any information supplied by the Company which is
contained in any of the foregoing documents.
3.20 Board Approval. The Board of Directors of Parent has, as of the date of
this Agreement, determined (i) that the Merger is fair to, and in the best
interests of Parent and its shareholders, and (ii) to recommend that the
shareholders of Parent approve the issuance of shares of Parent Common Stock by
virtue of the Merger.
3.21 Fairness Opinion. Parent has received a written opinion from PaineWebber
Incorporated, dated as of the date hereof, to the effect that as of the date
hereof, the Exchange Ratio is fair to Parent from a financial point of view and
has delivered to the Company a copy of such opinion.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business. During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement pursuant to
its terms or the Effective Time, the Company (which for the purposes of this
Article 4 shall include the Company and each of its subsidiaries) and Parent
(which for the purposes of this Article 4 shall include Parent and each of its
subsidiaries) agree, except (i) in the case of the Company as provided in
Article 4 of the Company Schedules and in the case of Parent as provided in
Article 4 of the Parent Schedules, or (ii) to the extent that the other
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of them shall otherwise consent in writing, to carry on its business diligently
and in accordance with good commercial practice and to carry on its business in
the usual, regular and ordinary course, in substantially the same manner as
heretofore conducted and in compliance with all applicable laws and regulations,
to pay its debts and taxes when due subject to good faith disputes over such
debts or taxes, to pay or perform other material obligations when due, and use
its commercially reasonable efforts consistent with past practices and policies
to preserve intact its present business organization, keep available the
services of its present officers and employees and preserve its relationships
with customers, suppliers, distributors, licensors, licensees, and others with
which it has business dealings. In addition, each of the Company and Parent will
promptly notify the other of any material event involving its business or
operations. No information or knowledge obtained in any investigation will
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.
In addition, except as permitted by the terms of this Agreement, and except in
the case of the Company as provided in Article 4 of the Company Schedules and in
the case of Parent as provided in Article 4 of the Parent Schedules, without the
prior written consent of the other, neither the Company nor Parent shall do any
of the following, and neither the Company nor Parent shall permit its
subsidiaries to do any of the following, nor take, or cause or permit to be
taken, any other action that would be reasonably likely to have the effect of
causing any of its respective representatives or warranties contained in this
Agreement to become untrue if such representation or warranty were deemed made
at the time such action is taken:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize
cash payments in exchange for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the
date hereof and as previously disclosed in writing to the other, or adopt
any new severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company IP Rights
or the Parent IP Rights, as the case may be, or enter into grants to future
patent rights, other than in the ordinary course of business consistent
with past practice;
(d) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any capital stock or
split, combine or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;
(e) Repurchase or otherwise acquire, directly or indirectly, any
shares of capital stock except pursuant to rights of repurchase of any such
shares under any employee, consultant or director stock plan existing on
the date hereof;
(f) Issue, deliver, sell, authorize or propose the issuance, delivery
or sale of, any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or options to
acquire any shares of capital stock or any
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securities convertible into shares of capital stock, or enter into other
agreements or commitments of any character obligating it to issue any such
shares or convertible securities, other than (i) the issuance of shares of
Company Common Stock or Parent Common Stock, as the case may be, pursuant
to the exercise of stock options therefor outstanding as of the date of
this Agreement, (ii) the grant of options to purchase shares of Company
Common Stock or Parent Common Stock, as the case may be, to be granted at
fair market value in the ordinary course of business, consistent with past
practice and in accordance with stock option plans existing on the date
hereof, (iii) shares of Company Common Stock or Parent Common Stock, as the
case may be, issuable upon the exercise of the options referred to in
clause (ii), and (iv) shares of Company Common Stock or Parent Common
Stock, as the case may be, issuable to participants in the Parent Purchase
Plan or the Company Purchase Plan consistent with past practice and the
terms thereof;
(g) Cause, permit or propose any amendments to any charter document or
Bylaw (or similar governing instruments of any subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a material portion of the assets
of, or by any other manner, any business or any corporation, partnership
interest, association or other business organization or division thereof,
or otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the business of the Company or Parent,
as the case may be, or enter into any material joint ventures, strategic
partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate,
to the business of the Company or Parent, as the case may be, except in the
ordinary course of business consistent with past practice;
(j) Incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to existing credit facilities in the
ordinary course of business) or guarantee any such indebtedness or issue or
sell any debt securities or warrants or rights to acquire debt securities
of the Company or Parent, as the case may be, or guarantee any debt
securities of others;
(k) Adopt or amend any employee benefit or employee stock purchase or
employee option plan, or enter into any employment contract, pay any
special bonus or special remuneration to any director or employee, or
increase the salaries or wage rates of its officers or employees other than
in the ordinary course of business, consistent with past practice, or
change in any material respect any management policies or procedures;
(l) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business;
(m) Make any grant of exclusive rights to any third party;
(n) Take any action that would be reasonably likely to interfere with
Parent's ability to account for the Merger as a pooling of interests; or
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(o) Agree in writing or otherwise to take any of the actions described
in Article 4 (a) through (n) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings; Board
Recommendations.
(a) As promptly as practicable after the execution of this Agreement,
the Company and Parent will prepare, and file with the SEC, the Proxy
Statement and Parent will prepare and file with the SEC the Registration
Statement in which the Proxy Statement will be included. Each of the
Company and Parent will respond to any comments of the SEC, will use its
respective best efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such
filing and will cause the Proxy Statement to be mailed to its respective
stockholders or shareholders, as the case may be, at the earliest
practicable time. As promptly as practicable after the date of this
Agreement, the Company and Parent will prepare and file any other filings
required under the Exchange Act, the Securities Act or any other Federal,
foreign or Blue Sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "OTHER FILINGS"). Each of the Company
and Parent will notify the other promptly upon the receipt of any comments
from the SEC or its staff and of any request by the SEC or its staff or any
other government officials for amendments or supplements to the
Registration Statement, the Proxy Statement or any Other Filing or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the
other hand, with respect to the Registration Statement, the Proxy
Statement, the Merger or any Other Filing. The Proxy Statement, the
Registration Statement and the Other Filings will comply in all material
respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is
required to be set forth in an amendment or supplement to the Proxy
Statement, the Registration Statement or any Other Filing, the Company or
Parent, as the case may be, will promptly inform the other of such
occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of the Company or
shareholders of Parent, such amendment or supplement.
(b) The Proxy Statement will include the recommendation of the Board
of Directors of the Company in favor of adoption and approval of this
Agreement and approval of the Merger (except that the Board of Directors of
the Company may withdraw, modify or refrain from making such recommendation
to the extent that the Board determines, in good faith, after consultation
with outside legal counsel, that compliance with the Board's fiduciary
duties under applicable law would require it to do so). In addition, the
Proxy Statement will include the recommendations of the Board of Directors
of Parent in favor of the issuance of shares of Parent Common Stock by
virtue of the Merger (except that the Board of Directors of Parent may
withdraw, modify or refrain from making such recommendations to the extent
that the Board determines, in good faith, after consultation with outside
legal counsel, that
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compliance with the Board's fiduciary duties under applicable law would
require it to do so).
5.2 Meetings of Stockholders and Shareholders. Promptly after the date hereof,
the Company will take all action necessary in accordance with Delaware Law and
its Certificate of Incorporation and Bylaws to convene the Company Stockholders'
Meeting to be held as promptly as practicable, and in any event (to the extent
permissible under applicable law) within 45 days after the declaration of
effectiveness of the Registration Statement, for the purpose of voting upon this
Agreement. The Company will consult with Parent and use its best efforts to hold
the Company Stockholders' Meeting on the same day as the Parent Shareholders'
Meeting. Promptly after the date hereof, Parent will take all action necessary
in accordance with the California General Corporation Law and its Articles of
Incorporation and Bylaws to convene the Parent Shareholders' Meeting to be held
as promptly as practicable, and in any event (to the extent permissible under
applicable law) within 45 days after the declaration of effectiveness of the
Registration Statement, for the purpose of voting upon the issuance of shares of
Parent Common Stock by virtue of the Merger. Parent will consult with the
Company and will use its best efforts to hold the Parent Shareholders' Meeting
on the same day as the Company Stockholders' Meeting. For so long as the Board
of Directors of the Company continues to make the recommendation set forth in
Section 5.1(b), the Company will use its best efforts to solicit from its
stockholders proxies in favor of the adoption and approval of this Agreement and
the approval of the Merger and will take all other action necessary or advisable
to secure the vote or consent of its shareholders required by the rules of the
National Association of Securities Dealers, Inc. or Delaware Law to obtain such
approvals; provided, however, that if the Board of Directors of the Company
withdraws such recommendation in accordance with Section 5.4(b)(ii) of this
Agreement, it shall nevertheless, without recommendation, submit this Agreement
and the Merger to the Company's stockholders for approval and adoption at the
Company Stockholder Meeting unless otherwise excused from doing so upon
termination of this Agreement in accordance with Article VII hereof. For so long
as the Board of Directors of Parent continues to make the recommendations set
forth in Section 5.1(b), Parent will use its best efforts to solicit from its
shareholders proxies in favor of the issuance of shares of Parent Common Stock
by virtue of the Merger and will take all other action necessary or advisable to
secure the vote or consent of its shareholders required by the rules of the
National Association of Securities Dealers, Inc. or the California General
Corporation Law to obtain such approvals.
5.3 Confidentiality. The parties acknowledge that the Company and Parent have
previously executed each other's form of Confidentiality Agreement, each dated
September 20, 1998 (collectively, the "CONFIDENTIALITY AGREEMENT"), which
Confidentiality Agreement will continue in full force and effect in accordance
with its terms.
5.4 No Solicitation.
(a) Restrictions on Parent.
(i) From and after the date of this Agreement until the earlier of
the Effective Time or termination of this Agreement pursuant to its
terms, Parent and its subsidiaries shall not, and will instruct their
respective directors, officers, employees, representatives, investment
bankers, agents and affiliates not to, directly or indirectly, (i)
solicit or knowingly encourage submission of, any
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proposals or offers by any person, entity or group (other than the
Company and its affiliates, agents and representatives), or (ii)
participate in any discussions or negotiations with, or disclose any
non-public information concerning Parent or any of its subsidiaries to,
or afford any access to the properties, books or records of Parent or
any of its subsidiaries to, or otherwise assist or facilitate, or enter
into any agreement or understanding with, any person, entity or group
(other than the Company and its affiliates, agents and representatives),
in connection with any Acquisition Proposal with respect to Parent.
Parent will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing. For the purposes of this Agreement, an
"ACQUISITION PROPOSAL" with respect to an entity means any proposal or
offer relating to (i) any merger, consolidation, sale of substantial
assets or similar transactions involving the entity or any subsidiaries
of the entity (other than sales of assets or inventory in the ordinary
course of business or as permitted under the terms of this Agreement),
(ii) sale of 15% or more of the outstanding shares of capital stock of
the entity (including without limitation by way of a tender offer or an
exchange offer), (iii) the acquisition by any person of beneficial
ownership or a right to acquire beneficial ownership of, or the
formation of any "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) which beneficially owns,
or has the right to acquire beneficial ownership of, 15% or more of the
then outstanding shares of capital stock of the entity (except for
acquisitions for passive investment purposes only in circumstances where
the person or group qualifies for and files a Schedule 13G with respect
thereto and only for so long as such person or group continues to be
eligible to report its beneficial ownership of such capital stock on
Schedule 13G); or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any
of the foregoing. Parent will immediately cease any and all existing
activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Parent will (i) notify
the Company as promptly as practicable if any inquiry or proposal is
made or any information or access is requested in connection with an
Acquisition Proposal or potential Acquisition Proposal and (ii) as
promptly as practicable notify the Company of the significant terms and
conditions of any such Acquisition Proposal. In addition, subject to the
other provisions of this Section 5.4(a), from and after the date of this
Agreement until the earlier of the Effective Time and termination of
this Agreement pursuant to its terms, Parent and its subsidiaries will
not, and will instruct their respective directors, officers, employees,
representatives, investment bankers, agents and affiliates not to,
directly or indirectly, make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Proposal
made by any person, entity or group (other than the Company); provided,
however, that nothing herein shall prohibit Parent's Board of Directors
from taking and disclosing to Parent's shareholders a position with
respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated
under the Exchange Act.
(ii) Notwithstanding the provisions of paragraph (a)(i) above,
prior to the Effective Time, Parent may, to the extent the Board of
Directors of Parent determines, in good faith, after consultation with
outside legal counsel, that the
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Board's fiduciary duties under applicable law require it to do so,
participate in discussions or negotiations with, and, subject to the
requirements of paragraph (a)(iii), below, furnish information to any
person, entity or group after such person, entity or group has delivered
to Parent in writing, an unsolicited bona fide Acquisition Proposal
which the Board of Directors of Parent in its good faith reasonable
judgment determines, after consultation with its independent financial
advisors, would result in a transaction more favorable than the Merger
to the stockholders of Parent (a "PARENT SUPERIOR PROPOSAL"). In
addition, notwithstanding the provisions of paragraph (a)(i) above, in
connection with a possible Acquisition Proposal, Parent may refer any
third party to this Section 5.4(a) or make a copy of this Section 5.4(a)
available to a third party. In the event Parent receives a Parent
Superior Proposal, nothing contained in this Agreement (but subject to
the terms hereof) will prevent the Board of Directors of Parent from
recommending such Parent Superior Proposal to Parent's shareholders, if
the Board determines, in good faith, after consultation with outside
legal counsel, that such action is required by its fiduciary duties
under applicable law; in such case, the Board of Directors of Parent may
withdraw, modify or refrain from making its recommendations set forth in
Section 5.1(b), and, to the extent it does so, Parent may refrain from
soliciting proxies and taking such other action necessary to secure the
vote of its shareholders as may be required by Section 5.2; provided,
however, that Parent shall not recommend to its shareholders a Parent
Superior Proposal for a period of not less than 48 hours after the
Company's receipt of a copy of such Parent Superior Proposal (or a
description of the significant terms and conditions thereof, if not in
writing).
(iii) Notwithstanding anything to the contrary herein, Parent will
not provide any non-public information to a third party unless: (x)
Parent provides such non-public information pursuant to a nondisclosure
agreement with terms regarding the protection of confidential
information at least as restrictive as such terms in the Confidentiality
Agreement; and (y) such non-public information is the same information
previously delivered to the Company.
(iv) Notwithstanding the foregoing provisions of this Section
5.4(a), Parent shall be permitted to undertake the transaction involving
its Microheart, Inc. subsidiary described in Article IV of the Parent
Schedules and such transaction shall not be considered an "Acquisition
Proposal" for purposes of this Agreement.
(b) Restrictions on the Company.
(i) From and after the date of this Agreement until the earlier of
the Effective Time or termination of this Agreement pursuant to its
terms, the Company and its subsidiaries will not, and will instruct
their respective directors, officers, employees, representatives,
investment bankers, agents and affiliates not to, directly or
indirectly, (i) solicit or knowingly encourage submission of, any
proposals or offers by any person, entity or group (other than Parent
and its affiliates, agents and representatives), or (ii) participate in
any discussions or negotiations with, or disclose any non-public
information concerning the Company or any of its subsidiaries to, or
afford any access to the properties, books or records of the Company or
any of its subsidiaries to, or otherwise assist
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or facilitate, or enter into any agreement or understanding with, any
person, entity or group (other than Parent and its affiliates, agents
and representatives), in connection with any Acquisition Proposal with
respect to the Company. The Company will immediately cease any and all
existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. The Company
will (i) notify Parent as promptly as practicable if any inquiry or
proposal is made or any information or access is requested in connection
with an Acquisition Proposal or potential Acquisition Proposal and (ii)
as promptly as practicable notify Parent of the significant terms and
conditions of any such Acquisition Proposal. In addition, subject to the
other provisions of this Section 5.4(b), from and after the date of this
Agreement until the earlier of the Effective Time and termination of
this Agreement pursuant to its terms, the Company and its subsidiaries
will not, and will instruct their respective directors, officers,
employees, representatives, investment bankers, agents and affiliates
not to, directly or indirectly, make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Proposal
made by any person, entity or group (other than Parent); provided,
however, that nothing herein shall prohibit the Company's Board of
Directors from taking and disclosing to the Company's stockholders a
position with respect to a tender offer pursuant to Rules 14d-9 and
14e-2 promulgated under the Exchange Act.
(ii) Notwithstanding the provisions of paragraph (b)(i) above,
prior to the Effective Time, the Company may, to the extent the Board of
Directors of the Company determines, in good faith, after consultation
with outside legal counsel, that the Board's fiduciary duties under
applicable law require it to do so, participate in discussions or
negotiations with, and, subject to the requirements of paragraph
(b)(iii), below, furnish information to any person, entity or group
after such person, entity or group has delivered to the Company in
writing, an unsolicited bona fide Acquisition Proposal which the Board
of Directors of the Company in its good faith reasonable judgment
determines, after consultation with its independent financial advisors,
would result in a transaction more favorable than the Merger to the
stockholders of the Company (a "COMPANY SUPERIOR PROPOSAL"). In
addition, notwithstanding the provisions of paragraph (b)(i) above, in
connection with a possible Acquisition Proposal, the Company may refer
any third party to this Section 5.4(b) or make a copy of this Section
5.4(b) available to a third party. In the event the Company receives a
the Company Superior Proposal, nothing contained in this Agreement (but
subject to the terms hereof) will prevent the Board of Directors of the
Company from recommending such the Company Superior Proposal to its
stockholders, if the Board determines, in good faith, after consultation
with outside legal counsel, that such action is required by its
fiduciary duties under applicable law; in such case, the Board of
Directors of the Company may withdraw, modify or refrain from making its
recommendation set forth in Section 5.1(b), and, to the extent it does
so, the Company may refrain from soliciting proxies and taking such
other action necessary to secure the vote of its stockholders as may be
required by Section 5.2; provided, however, that the Company shall not
recommend to its stockholders a the Company Superior Proposal for a
period of not less than 48 hours after Parent's receipt of a copy of
such the Company Superior Proposal (or a description of the significant
terms and conditions thereof, if not in
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writing); and provided further, that nothing contained in this Section
shall limit the Company's obligation to hold and convene the Company
Stockholders' Meeting (regardless of whether the recommendation of the
Board of Directors of the Company shall have been withdrawn, modified or
not yet made).
(iii) Notwithstanding anything to the contrary in paragraph (b),
the Company will not provide any non-public information to a third party
unless: (x) the Company provides such non-public information pursuant to
a nondisclosure agreement with terms regarding the protection of
confidential information at least as restrictive as such terms in the
Confidentiality Agreement; and (y) such non-public information is the
same information previously delivered to Parent.
5.5 Public Disclosure. Parent and the Company will consult with each other
before issuing any press release or otherwise making any public statement with
respect to the Merger, this Agreement or an Acquisition Proposal and will not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange or Nasdaq.
5.6 Legal Requirements. Each of Parent, Merger Sub and the Company will use its
respective reasonable commercial efforts to take all actions necessary or
desirable to comply promptly with all legal requirements which may be imposed on
them with respect to the consummation of the transactions contemplated by this
Agreement (including furnishing all information required in connection with
approvals by or filings with any Governmental Entity, and prompt resolution of
any litigation prompted hereby) and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such filings
with or investigations by any Governmental Entity, and any other such
requirements imposed upon any of them or their respective subsidiaries in
connection with the consummation of the transactions contemplated by this
Agreement. Parent will use its commercially reasonable efforts to take such
steps as may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of Parent Common Stock
pursuant hereto. The Company will use its commercially reasonable efforts to
assist Parent as may be necessary to comply with the securities and blue sky
laws of all jurisdictions which are applicable in connection with the issuance
of Parent Common Stock pursuant hereto.
5.7 Third Party Consents. As soon as practicable following the date hereof,
Parent and the Company will each use its commercially reasonable efforts to
obtain all material consents, waivers and approvals under any of its or its
subsidiaries' agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby.
5.8 FIRPTA. At or prior to the Closing, the Company, if requested by Parent,
shall deliver to the IRS a notice that the Company Common Stock is not a "U.S.
Real Property Interest" as defined and in accordance with the requirements of
Treasury Regulation Section 1.897-2(h)(2).
5.9 Notification of Certain Matters. Parent and Merger Sub will give prompt
notice to the Company, and the Company will give prompt notice to Parent, of the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be reasonably likely to cause (a) any representation or warranty
contained in this Agreement and made by it to be untrue or inaccurate in any
material respect at any time from the date of this Agreement to the Effective
Time such that the conditions set forth in Section 6.2(a) or
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6.3(a), as the case may be, would not be satisfied as a result thereof or (b)
any material failure of Parent and Merger Sub or the Company, as the case may
be, or of any officer, director, employee or agent thereof, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement. Notwithstanding the above, the delivery of any notice
pursuant to this section will not limit or otherwise affect the remedies
available hereunder to the party receiving such notice.
5.10 Best Efforts and Further Assurances. Subject to the respective rights and
obligations of Parent and the Company under this Agreement, each of the parties
to this Agreement will use its best efforts to effectuate the Merger and the
other transactions contemplated hereby and to fulfill and cause to be fulfilled
the conditions to closing under this Agreement; provided that neither Parent nor
the Company nor any subsidiary or affiliate thereof will be required to agree to
any divestiture by itself or any of its affiliates of shares of capital stock or
of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock. Subject to the
foregoing, each party hereto, at the reasonable request of another party hereto,
will execute and deliver such other instruments and do and perform such other
acts and things as may be necessary or desirable for effecting completely the
consummation of the transactions contemplated hereby.
5.11 Stock Options and Employee Benefits.
(a) At the Effective Time, each outstanding Company Stock Option under
the Company Stock Option Plans, whether or not exercisable, will be assumed
by Parent. Each Company Stock Option so assumed by Parent under this
Agreement will continue to have, and be subject to, the same terms and
conditions set forth in the applicable the Company Stock Option Plan
immediately prior to the Effective Time (including, without limitation, any
repurchase rights), except that (i) each Company Stock Option will be
exercisable (or will become exercisable in accordance with its terms) for
that number of whole shares of Parent Common Stock equal to the product of
the number of shares of Company Common Stock that were issuable upon
exercise of such the Company Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the
nearest whole number of shares of Parent Common Stock, and (ii) the per
share exercise price for the shares of Parent Common Stock issuable upon
exercise of such assumed Company Stock Option will be equal to the quotient
determined by dividing the exercise price per share of the Company Common
Stock at which such the Company Stock Option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent. After the Effective Time, Parent will issue to each
holder of an outstanding Company Stock Option a notice describing the
foregoing assumption of such the Company Stock Option by Parent.
(b) It is intended that the Company Stock Options assumed by Parent
shall qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent the Company Stock Options
qualified as incentive stock options immediately prior to the Effective
Time.
(c) Parent has reserved sufficient shares of Parent Common Stock for
issuance under Section 5.11(a) and under Section 1.6(c) hereof.
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(d) At the Effective Time, each outstanding purchase right under the
Company Purchase Plan shall be deemed to constitute a purchase right to
acquire, on the same terms and conditions as were applicable under the
Company Purchase Plan immediately prior to the Effective Time, shares of
Parent Common Stock appropriately adjusted for the Exchange Ratio.
5.12 Form S-8. Parent agrees to file a registration statement on Form S-8 for
the shares of Parent Common Stock issuable with respect to assumed Company Stock
Options as soon as is reasonably practicable after the Effective Time.
5.13 Indemnification and Insurance.
(a) The Bylaws of the Surviving Corporation will honor, and Parent
will cause the Surviving Corporation to honor, the provisions with respect
to indemnification set forth in the Bylaws of the Company immediately prior
to the Effective Time, which provisions will not be amended, repealed or
otherwise modified for a period of six (6) years after the Effective Time
in any manner that would adversely affect the rights thereunder of
individuals who at the Effective Time were directors, officers, employees
or agents of the Company, unless such modification is required by law.
(b) Parent will and will cause the Surviving Corporation to honor and
fulfill the obligations of the Company pursuant to indemnification
agreements with the Company's directors and officers existing at or before
the Effective Time.
(c) For a period of six (6) years after the Effective Time, Parent
will or will cause the Surviving Corporation to maintain in effect, if
available, directors' and officers' liability insurance covering those
persons who are currently covered by the Company's directors' and officers'
liability insurance policy (a copy of which has been made available to
Parent) on terms comparable to those now applicable to directors and
officers of the Company; provided, however, that in no event will Parent or
the Surviving Corporation be required to expend in excess of 125% of the
annual premium currently paid by the Company for such coverage; and
provided further, that if the premium for such coverage exceeds such
amount, Parent or the Surviving Corporation will purchase a policy with the
greatest coverage available for such 125% of the annual premium.
5.14 Nasdaq Listing. Parent agrees to authorize for listing on Nasdaq the
shares of Parent Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger, upon official notice of issuance.
5.15 Parent Affiliate Agreement. Set forth on the Parent Schedules is a list of
those persons who may be deemed to be, in Parent's reasonable judgment,
affiliates of Parent within the meaning of Rule 145 promulgated under the
Securities Act (each a "PARENT AFFILIATE"). Parent will provide the Company with
such information and documents as the Company reasonably requests for purposes
of reviewing such list. Parent will use its best efforts to deliver or cause to
be delivered to the Company, as promptly as practicable on or following the date
hereof, from each Parent Affiliate an executed affiliate agreement in
substantially the form attached hereto as Exhibit D, each of which will be in
full force and effect as of the Effective Time.
5.16 Company Affiliate Agreement. Set forth on the Company Schedules is a list
of those persons who may be deemed to be, in the Company's reasonable judgment,
affiliates of the Company within the meaning of Rule 145 promulgated under the
Securities Act
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(each a "COMPANY AFFILIATE"). The Company will provide Parent with such
information and documents as Parent reasonably requests for purposes of
reviewing such list. The Company will use its best efforts to deliver or cause
to be delivered to Parent, as promptly as practicable on or following the date
hereof, from each the Company Affiliate an executed affiliate agreement in
substantially the form attached hereto as Exhibit E (the "COMPANY AFFILIATE
AGREEMENT"), each of which will be in full force and effect as of the Effective
Time. Parent will be entitled to place appropriate legends on the certificates
evidencing any Parent Common Stock to be received by a Company Affiliate
pursuant to the terms of this Agreement, and to issue appropriate stop transfer
instructions to the transfer agent for the Parent Common Stock, consistent with
the terms of the Company Affiliate Agreement.
5.17 Board of Directors and Certain Officers of the Combined Company.
(a) The Board of Directors of Parent will take all actions necessary
to cause the Board of Directors of Parent and the Surviving Corporation,
immediately after the Effective Time, to consist of the seven (7) persons
named in Section 1.5 hereof, four (4) of whom were directors of Parent
immediately prior to the Effective Time, and three (3) of whom were
directors of the Company prior to the Effective Time (the "COMPANY
DESIGNEES"). If, prior to the Effective Time, any of the Company Designees
or the Parent's designees shall decline or be unable to serve as a director
of Parent or the Surviving Corporation, the Company (if such person was
designated by the Company) or Parent (if such person was designated by
Parent) shall designate another person to serve in such person's stead,
which person shall be reasonably acceptable to the other party.
(b) The Board of Directors of Parent will take all actions necessary
to cause the officers of Parent and the Surviving Corporation, immediately
after the Effective Time, to include the persons named in Section 1.5
hereof.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Stockholder and Shareholder Approval. This Agreement shall have
been approved and adopted, and the Merger shall have been duly approved, by
the requisite vote under applicable law, by the stockholders of the
Company; and the issuance of shares of Parent Common Stock by virtue of the
Merger shall have been duly approved by the requisite vote under applicable
law and the rules of the National Association of Securities Dealers, Inc.
by the shareholders of Parent.
(b) Registration Statement Effective; Proxy Statement. The SEC shall
have declared the Registration Statement effective. No stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose, and no
similar proceeding in respect of the Proxy Statement, shall have been
initiated or threatened in writing by the SEC.
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(c) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger.
(d) Tax Opinions. Parent and the Company shall each have received
written opinions from their respective counsel, Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and Heller Ehrman White & McAuliffe, to
the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code. The parties to this Agreement agree
to make reasonable representations as requested by such counsel for the
purpose of rendering such opinions.
(e) Nasdaq Listing. The shares of Parent Common Stock issuable to
stockholders of the Company pursuant to this Agreement and such other
shares required to be reserved for issuance in connection with the Merger
shall have been authorized for listing on Nasdaq upon official notice of
issuance.
(f) Opinion of Accountants. Each of Parent and the Company shall have
received a letter from PricewaterhouseCoopers LLP, dated within two (2)
business days prior to the Effective Time, as follows:
(i) A letter from PricewaterhouseCoopers LLP, independent
accountants for the Company, and addressed to the Company, reasonably
satisfactory in form and substance to Parent and PricewaterhouseCoopers
LLP, independent accountants for the Parent, to the effect that, after
reasonable investigation, the independent accountants for the Company
are not aware of any fact concerning the Merger or any of the
stockholders or affiliates of the Company that could preclude Parent
from accounting for the Merger as a "pooling of interests" in accordance
with generally accepted accounting principles, Accounting Principles
Board Opinion No. 16 and all published rules, regulations and policies
of the SEC.
(ii) A letter from PricewaterhouseCoopers LLP, independent
accountants for the Parent, and addressed to the Parent, reasonably
satisfactory in form and substance to Parent, to the effect that, after
reasonable investigation, the independent accountants for Parent are not
aware of any fact concerning Parent or any of its shareholders or
affiliates that could preclude Parent from accounting for the Merger as
a "pooling of interests" and that PricewaterhouseCoopers LLP concurs
with Parent management's conclusion that the Merger may be accounted for
as a "pooling of interests", in each case in accordance with generally
accepted accounting principles, Accounting Principles Board Opinion No.
16 and all published rules, regulations and policies of the SEC.
6.2 Additional Conditions to Obligations of the Company. The obligation of the
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall have been true
and correct in all material respects as of the date of this Agreement. In
addition, the representations and warranties of Parent and Merger Sub
contained in this Agreement
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shall be true and correct in all material respects on and as of the
Effective Time except for changes contemplated by this Agreement and except
for those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such particular
date), with the same force and effect as if made on and as of the Effective
Time, except in such cases (other than the representations in Sections 3.2,
3.3 and 3.21) where the failure to be so true and correct would not have a
Material Adverse Effect on Parent. The Company shall have received a
certificate with respect to the foregoing signed on behalf of Parent by the
Chief Executive Officer and the Chief Financial Officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Effective Time, and the Company shall have received
a certificate to such effect signed on behalf of Parent by the Chief
Executive Officer and the Chief Financial Officer of Parent.
(c) Material Adverse Effect. No Material Adverse Effect with respect
to Parent shall have occurred since the date of this Agreement.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. The representations and warranties
of the Company contained in this Agreement shall have been true and correct
in all material respects as of the date of this Agreement. In addition, the
representations and warranties of the Company contained in this Agreement
shall be true and correct in all material respects on and as of the
Effective Time except for changes contemplated by this Agreement and except
for those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such particular
date), with the same force and effect as if made on and as of the Effective
Time, except in such cases (other than the representations in Sections 2.2,
2.3 and 2.21) where the failure to be so true and correct would not have a
Material Adverse Effect on the Company. Parent shall have received a
certificate with respect to the foregoing signed on behalf of the Company
by the President and Chief Executive Officer and the Chief Financial
Officer of the Company.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and the Parent shall have received a
certificate to such effect signed on behalf of the Company by the President
and Chief Executive Officer and the Chief Financial Officer of the Company.
(c) Material Adverse Effect. No Material Adverse Effect with respect
to the Company shall have occurred since the date of this Agreement.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval of the Merger by
the stockholders of the Company or the approval of the issuance of Parent Common
Stock in connection with the Merger by the shareholders of Parent:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company;
(b) by either the Company or Parent if the Merger shall not have been
consummated by February 28, 1999; provided, however, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available
to any party whose action or failure to act has been a principal cause of
or resulted in the failure of the Merger to occur on or before such date
and such action or failure to act constitutes a breach of this Agreement;
(c) by either the Company or Parent if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action (an
"ORDER"), in any case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, which order, decree or
ruling is final and nonappealable;
(d) by either the Company or Parent if the required approvals of the
stockholders of the Company or the shareholders of Parent contemplated by
this Agreement shall not have been obtained by reason of the failure to
obtain the required vote upon a vote taken at a meeting of stockholders or
shareholders, as the case may be, duly convened therefor or at any
adjournment thereof (provided that the right to terminate this Agreement
under this Section 7.1(d) shall not be available to any party where the
failure to obtain shareholder or stockholder approval of such party shall
have been caused by the action or failure to act of such party in breach of
this Agreement);
(e) by Parent, if the Board of Directors of the Company recommends a
Company Superior Proposal to the stockholders of the Company, or if the
Board of Directors of the Company shall have withheld, withdrawn or
modified in a manner adverse to Parent its recommendation in favor of
adoption and approval of this Agreement and approval of the Merger;
(f) by the Company, if the Board of Directors of Parent recommends a
Parent Superior Proposal to the shareholders of Parent, or if the Board of
Directors of Parent shall have withheld, withdrawn or modified in a manner
adverse to the Company its recommendation in favor of approving the
issuance of the shares of Parent Common Stock by virtue of the Merger;
(g) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or
if any representation or warranty of Parent shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided
that if such inaccuracy in Parent's representations and warranties or
breach by Parent is curable prior to February 28, 1999 by Parent
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through the exercise of its commercially reasonable efforts, then the
Company may not terminate this Agreement under this Section 7.1(g) provided
Parent continues to exercise such commercially reasonable efforts to cure
such breach; or
(h) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided
that if such inaccuracy in the Company's representations and warranties or
breach by the Company is curable prior to February 28, 1999 by the Company
through the exercise of its commercially reasonable efforts, then Parent
may not terminate this Agreement under this Section 7.1(h) provided the
Company continues to exercise such commercially reasonable efforts to cure
such breach.
7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article 8 (miscellaneous), each of which
shall survive the termination of this Agreement, and (ii) nothing herein shall
relieve any party from liability for any breach of this Agreement. No
termination of this Agreement shall affect the obligations of the parties
contained in the Confidentiality Agreement, all of which obligations shall
survive termination of this Agreement in accordance with their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses
whether or not the Merger is consummated; provided, however, that Parent
and the Company shall share equally all fees and expenses, other than
attorneys' and accountants' fees and expenses, incurred in relation to the
printing and filing of the Proxy Statement (including any preliminary
materials related thereto) and the Registration Statement (including
financial statements and exhibits) and any amendments or supplements
thereto.
(b) Company Payment.
(i) If (x) the Board of Directors of the Company shall have
withheld, withdrawn or modified in a manner adverse to Parent its
recommendation in favor of the adoption and approval of this Agreement
and the Merger or (y) the Board of Directors of the Company recommends a
Company Superior Proposal to the stockholders of the Company, the
Company shall pay to Parent an amount equal to $3.0 million within one
(1) business day following the first to occur of (A) termination of this
Agreement pursuant to Section 7.1(e) hereof and (B) a Company Negative
Vote (as defined below).
(ii) If no payment is required pursuant to Section 7.3(b)(i) above,
and if (x) the vote of the stockholders of the Company approving and
adopting this Agreement and approving the Merger shall not have been
obtained by reason of
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the failure to obtain the required vote upon a vote taken at a meeting
of stockholders duly convened therefor or at any adjournment thereof (a
"COMPANY NEGATIVE VOTE") and (y) this Agreement shall have been
terminated by Parent pursuant to Section 7.1(d) and (z) within nine (9)
months following such Company Negative Vote, the Company shall execute
and deliver a definitive agreement with respect to an Acquisition
Proposal or otherwise consummates an Acquisition Proposal, the Company
shall pay to Parent an amount equal to $3.0 million within one (1)
business day following demand therefor by Parent.
(iii) If no payment is required pursuant to Section 7.3(b)(i) or
(ii) above, and if (x) the Company Stockholders' Meeting is not held on
or prior to February 28, 1999 and (y) this Agreement shall have been
terminated by Parent pursuant to Section 7.1(b) and (z) within nine (9)
months following such termination, the Company shall enter into a
definitive agreement with respect to an Acquisition Proposal or
otherwise consummates an Acquisition Proposal, the Company shall pay to
Parent an amount equal to $3.0 million within one (1) business day
following demand therefor by Parent.
(c) Parent Payment.
(i) If (x) the Board of Directors of the Parent shall have
withheld, withdrawn or modified in a manner adverse to the Company its
recommendation in favor of the approval of the issuance of the shares of
Parent Common Stock under the terms of the Merger or (y) the Board of
Directors of the Parent recommends a Parent Superior Proposal to the
shareholders of the Parent, the Parent shall pay to the Company an
amount equal to $3.0 million within one (1) business day following the
first to occur of (A) termination of this Agreement pursuant to Section
7.1(f) hereof and (B) a Parent Negative Vote (as defined below).
(ii) If no payment is required pursuant to Section 7.3(c)(i) above,
and if (x) the vote of the stockholders of the Parent approving the
issuance of the shares of Parent Common Stock under the terms of the
Merger shall not have been obtained by reason of the failure to obtain
the required vote upon a vote taken at a meeting of shareholders duly
convened therefor or at any adjournment thereof (a "PARENT NEGATIVE
VOTE") and (y) this Agreement shall have been terminated by the Company
pursuant to Section 7.1(d) and (z) within nine (9) months following such
Parent Negative Vote, the Parent shall execute and deliver a definitive
agreement with respect to an Acquisition Proposal or otherwise
consummates an Acquisition Proposal, the Parent shall pay to the Company
an amount equal to $3.0 million within one (1) business day following
demand therefor by the Company.
(iii) If no payment is required pursuant to Section 7.3(c)(i) or
(ii) above, and if (x) the Parent Shareholders' Meeting is not held on
or prior to February 28, 1999 and (y) this Agreement shall have been
terminated by the Company pursuant to Section 7.1(b) and (z) within nine
(9) months following such termination, the Parent shall enter into a
definitive agreement with respect to an Acquisition Proposal or
otherwise consummates an Acquisition Proposal,
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the Parent shall pay to the Company an amount equal to $3.0 million
within one (1) business day following demand therefor by the Company.
(d) Not in Lieu of Damages. Payment of the fees described in Section
7.3(b) and (c) above shall not be in lieu of damages incurred in the event
of a breach of this Agreement.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by the
parties hereto at any time by execution of an instrument in writing signed on
behalf of each of the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time any party hereto
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. Delay in exercising any right under this Agreement shall
not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Covenants. The
representations and warranties of the Company, Parent and Merger Sub contained
in this Agreement shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by commercial delivery
service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Eclipse Surgical Technologies, Inc.
559 Weddell Avenue
Sunnyvale, California 94089
Attention: Chief Executive Officer
Telephone No.: (408) 747-0120
Telecopy No.: (408) 747-0635
with copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Telephone No.: (650) 493-9300
Telecopy No.: (650) 493-6811
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(b) if to the Company, to:
Cardiogenesis Corporation
540 Oakmead Parkway
Sunnyvale, California 94086
Attention: Chief Executive Officer
Telephone No.: (408) 328-8500
Telecopy No.: (408)328-8510
with a copy to:
Heller Ehrman White & McAuliffe
525 University Avenue
Palo Alto, CA 94301
Attention: Bruce W. Jenett, Esq.
Telephone No.: (650) 324-7122
Telecopy No.: (650) 324-0638
8.3 Interpretation. When a reference is made in this Agreement to Exhibits,
such reference shall be to an Exhibit to this Agreement unless otherwise
indicated. The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein
shall be deemed in each case to be followed by the words "without limitation."
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. When reference is made herein to "THE BUSINESS OF" an entity,
such reference shall be deemed to include the business of all direct and
indirect subsidiaries of such entity. Reference to the subsidiaries of an entity
shall be "deemed to include" all direct and indirect subsidiaries of such
entity. References herein to "Sections" are references to Sections hereof unless
otherwise stated herein.
8.4 Counterparts. This Agreement may be executed in counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other party, it being understood that all parties need not sign the same
counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedules and the
Parent Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (b) are not intended to confer upon any other
person any rights or remedies hereunder except as otherwise provided in Section
5.13.
8.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable
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provision that will achieve, to the extent possible, the economic, business and
other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof;
provided that issues involving the corporate governance of any of the parties
hereto shall be governed by their respective jurisdictions of incorporation.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
the Delaware Chancery Court and the federal district court for the District of
Delaware, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of Delaware for such
persons and waives and covenants not to assert or plead any objection which they
might otherwise have to such jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 Definition of "Knowledge". Wherever used in this Agreement, the term
"KNOWLEDGE" shall mean the actual knowledge of: (a) in the case of the Company,
its (i) President and Chief Executive Officer, (ii) Executive Vice President and
Chief Financial Officer and (iii) other Executive Vice Presidents; and (b) in
the case of Parent and Merger Sub, Parent's (i) Chief Executive Officer, (ii)
President and Chief Operating Officer and (iii) Chief Financial Officer.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized respective officers as of the date first written above.
ECLIPSE SURGICAL TECHNOLOGIES, INC.
By: /s/ DOUGLAS MURPHY-CHUTORIAN
------------------------------------------
Name: Douglas Murphy-Chutorian
Title: Chief Executive Officer and
President
RW ACQUISITION CORPORATION
By: /s/ DOUGLAS MURPHY-CHUTORIAN
------------------------------------------
Name: Douglas Murphy-Chutorian
Title: Chief Executive Officer
CARDIOGENESIS CORPORATION
By: /s/ ALLEN W. HILL
------------------------------------------
Name: Allen W. Hill
Title: Chief Executive Officer and
President
****SIGNATURE PAGE TO REORGANIZATION AGREEMENT ****
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AMENDMENT NUMBER 1
TO
REORGANIZATION AGREEMENT
This Amendment Number 1 to Agreement and Plan of Reorganization, dated as of
October 21, 1998 (the "Reorganization Agreement"), is made and entered into this
8th day of February 1999, pursuant to Section 7.4 of the Reorganization
Agreement.
AGREEMENT
1. The Reorganization Agreement is hereby amended so that all references in
Sections 7.1(b), 7.1(g), 7.1(h), 7.3(b) and 7.3(c) thereof to "February 28,
1999" are hereby changed to "April 30, 1999."
2. Except as amended hereby, the Reorganization Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the date
first above written.
<TABLE>
<S> <C>
CARDIOGENESIS CORPORATION ECLIPSE SURGICAL TECHNOLOGIES, INC.
By: /s/ ALLEN W. HILL By: /s/ KENNETH E. BENNERT
- ------------------------------------------------ ------------------------------------------------
Name: Allen W. Hill Name: Kenneth E. Bennert
Title: President and Chief Executive Officer Title: Chief Financial Officer
RW ACQUISITION CORPORATION
By: /s/ DOUGLAS MURPHY-CHUTORIAN
- ------------------------------------------------
Name: Douglas Murphy-Chutorian
Title: Chief Executive Officer
</TABLE>
<PAGE> 207
APPENDIX B
October 21, 1998
Confidential [PaineWebber Logo]
Board of Directors
Eclipse Surgical Technologies, Inc.
559 Weddell Drive
Sunnyvale, CA 94089
Gentlemen:
Eclipse Surgical Technologies, Inc. (the "Company"), RW Acquisition Corp.
("Sub"), a wholly-owned subsidiary of Eclipse Surgical Technologies, Inc. and
CardioGenesis Corporation ("CardioGenesis") propose to enter into an Agreement
and Plan of Reorganization (the "Agreement") pursuant to which Sub will be
merged with and into CardioGenesis (the "Merger"). At the Effective Time of the
Merger (as defined in the Agreement), each outstanding share of common stock,
par value $.0001 per share, of CardioGenesis (other than shares owned by the
Company, CardioGenesis or any of their respective subsidiaries) will be
automatically converted into 0.8000 (the "Exchange Ratio") of a fully paid and
non-assessable share of common stock, no par value per share, of the Company.
The Merger is expected to be considered by the shareholders of the Company and
CardioGenesis respectively at special meetings and consummated shortly
thereafter.
You have asked us whether or not, in our opinion, the proposed Exchange Ratio is
fair to the Company from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the two fiscal years ended December 31, 1997 and
the Company's Form 10-Q and the related unaudited financial information for
the six months ended June 30, 1998;
(2) Reviewed CardioGenesis' Annual Reports, Forms 10-K and related
financial information for the two fiscal years ended December 31, 1997 and
CardioGenesis' Form 10-Q and the related unaudited financial information
for the six months ended June 30, 1998;
(3) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Company and CardioGenesis, furnished to us by the Company and
CardioGenesis, respectively;
(4) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
pro forma combined entities, furnished to us by the Company;
(5) Conducted discussions with members of senior management of the
Company and CardioGenesis concerning their respective businesses and
prospects;
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(6) Reviewed the historical market prices and trading activity for the
common stock of the Company and CardioGenesis and compared them with those
of certain publicly traded companies which we deemed to be relevant;
(7) Compared the financial position and results of operations of the
Company and CardioGenesis with those of certain companies which we deemed
to be relevant;
(8) Compared the proposed financial terms of the Merger with the
financial terms of certain other mergers and acquisitions which we deemed
to be relevant;
(9) Reviewed a draft of the Agreement dated October 19, 1998; and
(10) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of regulatory, general economic,
market and monetary conditions.
In preparing our opinion, we have relied upon the accuracy and completeness of
all information supplied or otherwise made available to us by the Company and
CardioGenesis, and we have not assumed any responsibility to independently
verify such information. With respect to the financial forecasts examined by us,
we have assumed that they were reasonably prepared and reflect the best
currently available estimates and good faith judgments of the management of the
Company and CardioGenesis, respectively, as to the future performance of the
Company and CardioGenesis. We have also relied upon assurances of the management
of the Company and CardioGenesis, respectively, that they are unaware of any
facts that would make the information or financial forecasts provided to us
incomplete or misleading. We have not made any independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Company
or CardioGenesis nor have we been furnished with any such evaluations or
appraisals. We have also assumed with your consent, that (i) the Merger will be
a tax-free reorganization, (ii) the Merger will be accounted for under the
pooling-of-interests accounting treatment and (iii) any material liabilities
(contingent or otherwise, known or unknown) of the Company and CardioGenesis are
as set forth in the consolidated financial statements of the Company and
CardioGenesis, respectively. No opinion is expressed herein as to the price at
which the securities of the Company may trade at any time. Our opinion is based
on economic, monetary and market conditions existing on the date hereof.
Our Opinion is directed to the Board of Directors of the Company and does not
constitute a recommendation to any shareholder of the Company as to how any such
shareholder should vote on the Merger. This opinion does not address the
relative merits of the Merger and any other transactions or business strategies
discussed by the Board of Directors of the Company as alternatives to the Merger
or the decision of the Board of Directors of the Company to proceed with the
Merger.
In the past, PaineWebber Incorporated and its affiliates, have provided
investment banking services to the Company and have received customary fees for
rendering these services.
In the ordinary course of business, PaineWebber Incorporated may trade in the
securities of the Company and CardioGenesis for our own account and for the
accounts of our customers and, accordingly, may at any time hold long or short
positions in such securities.
This opinion has been prepared for the information of the Board of Directors of
the Company in connection with the Merger and shall not be reproduced,
summarized,
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<PAGE> 209
described or referred to, provided to any person or otherwise made public or
used for any other purpose without the prior written consent of PaineWebber
Incorporated, provided, however, that this letter may be reproduced in full in
the Proxy Statement/Prospectus related to the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that the
proposed Exchange Ratio, is fair to the Company from a financial point of view.
Very truly yours,
PAINEWEBBER INCORPORATED
/s/ PaineWebber Incorporated
----------------------------
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APPENDIX C
LOGO
BEAR, STEARNS & CO. INC.
1999 AVENUE OF THE STARS
LOS ANGELES, CALIFORNIA 90067-6100
(310) 201-2600
ATLANTA - BOSTON
CHICAGO - DALLAS - LOS ANGELES
NEW YORK - SAN FRANCISCO
FRANKFURT - GENEVA - HONG KONG
LONDON - PARIS - TOKYO
October 21, 1998
Board of Directors
CardioGenesis Corporation
540 Oakmead Parkway
Sunnyvale, CA 94086
Attention: Jack M. Gill, Chairman
Ladies and Gentlemen:
We understand that CardioGenesis Corporation ("CardioGenesis") and Eclipse
Surgical Technologies, Inc. ("Eclipse") have entered into an Agreement (the
"Agreement") dated October 21, 1998, pursuant to which CardioGenesis and Eclipse
will effect a merger (the "Merger"). Pursuant to the terms of the Merger,
CardioGenesis shareholders will receive a fixed exchange ratio (the "Exchange
Ratio") of 0.80 shares of Eclipse common stock for each share of CardioGenesis
common stock. You have provided us with a copy of the Agreement, which includes
the Agreement in substantially the form to be sent to the shareholders of
CardioGenesis.
You have asked us to render our opinion as to whether the Exchange Ratio is
fair, from a financial point of view, to the public shareholders of
CardioGenesis.
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Agreement dated October 21, 1998;
2. reviewed CardioGenesis' and Eclipse's Annual Reports to
Shareholders and Annual Reports on Form 10-K for the fiscal years ended
December 31, 1996 and December 31, 1997, and its Quarterly Reports on Form
10-Q for the periods ended March 30, 1998 and June 30, 1998;
3. reviewed certain operating and financial information, including
projections, provided to us by management relating to CardioGenesis' and
Eclipse's business and prospects;
4. met with certain members of CardioGenesis' senior management to
discuss its operations, historical financial statements and future
prospects, including, without limitation, the timing and extent of
regulatory approvals and successful commercial introductions of certain
products;
5. met with certain members of Eclipse's senior management to discuss
its operations, historical financial statements and future prospects,
including, without
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limitation, the timing and extent of regulatory approvals and successful
commercial introductions of certain products;
6. reviewed the historical prices and trading volumes of the common
shares of CardioGenesis and Eclipse;
7. reviewed publicly available financial data, stock market
performance data and valuation parameters of companies which we deemed
generally comparable to CardioGenesis and Eclipse;
8. reviewed the terms of recent acquisitions of companies which we
deemed generally comparable to CardioGenesis and the Merger; and
9. conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other projections provided to us by CardioGenesis and Eclipse. With respect to
CardioGenesis' and Eclipse's projected financial results and potential synergies
that could be achieved upon consummation of the Merger, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the senior managements of CardioGenesis and
Eclipse as to the expected future performance of CardioGenesis and Eclipse,
respectively. We have also relied upon the assumptions made by the senior
managements of CardioGenesis and Eclipse regarding the timing and extent of
regulatory approvals and reimbursement reimbursement and successful commercial
introductions of certain products and we note that the receipt and timing of
regulatory approvals and reimbursement and successful commercial introductions
have a material impact on the projected financial results of the respective
companies and potential synergies. We have not assumed any responsibility for
the independent verification of any such information (including the assumptions
of timing and extent of regulatory approvals and reimbursement and successful
commercial introductions of certain products) or of the projections provided to
us and we have further relied upon the assurances of the senior managements of
CardioGenesis and Eclipse that they are unaware of any facts that would make the
information or projections provided to us incomplete or misleading. In arriving
at our opinion, we have not performed or obtained any independent appraisal of
the assets or liabilities of CardioGenesis and Eclipse, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions, and the information made available to us,
as of the date hereof. We have assumed that the Merger will qualify as a
tax-free "reorganization" within the meaning of Section 368(a) of the Code. You
have informed us that the Merger will qualify as a pooling-of-interests under
generally accepted accounting principles.
We do not express any opinion as to the price or range of prices at which shares
of common stock of Eclipse may trade prior to or subsequent to the consummation
of the Merger.
We have acted as a financial advisor to CardioGenesis in connection with the
Merger and will receive a fee for such services.
Bear Stearns previously acted as an underwriter in connection with
CardioGenesis' Initial Public Offering on May 22, 1996. In the ordinary course
of business, Bear Stearns may actively trade the equity securities of
CardioGenesis for its own account and for the
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account of its customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of CardioGenesis and does not constitute a recommendation to
the Board of Directors of CardioGenesis or any holders of CardioGenesis Common
Stock as to how to vote in connection with the Merger. This opinion does not
address CardioGenesis' underlying business decision to pursue the Merger. This
letter is not to be used for any other purpose, or reproduced, disseminated,
quoted to or referred to at any time, in whole or in part, without our prior
written consent; provided, however, that this letter may be included in its
entirety in any joint proxy statement/prospectus to be distributed to the
holders of CardioGenesis Common Stock in connection with the Merger.
Based on and subject to the foregoing, it is our opinion that the Exchange Ratio
is fair, from a financial point of view, to the public shareholders of
CardioGenesis Corporation.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ BRIAN A. MCCARTHY
-----------------------------------
Brian A. McCarthy
Senior Managing Director
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317 of the California Corporations Code authorizes a court to award, or
a corporation's Board of Directors to grant, indemnity to directors and officers
in terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act. Article IV of the Registrant's Amended and
Restated Articles of Incorporation and Article V of the Registrant's Amended and
Restated Bylaws provide for indemnification of its directors, officers,
employees and other agents to the maximum extent permitted by the California
Corporations Code. In addition, the Registrant has entered into indemnification
agreements with its officers and directors.
The reorganization agreement provides that commencing with the effectiveness of
the merger, the Registrant will honor the obligations of CardioGenesis to
indemnify its officers and directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1* Agreement and Plan of Reorganization, dated as of October
21, 1998, among Eclipse Surgical Technologies, Inc., RW
Acquisition Corporation and CardioGenesis Corporation.
2.2* Form of Affiliate Agreement for Eclipse Surgical
Technologies, Inc.
2.3** Form of Affiliate Agreement for CardioGenesis Corporation.
2.4** Form of Voting Agreement for CardioGenesis Corporation.
2.5* Form of Voting Agreement for Eclipse Surgical Technologies,
Inc.
2.6 Form of Certificate of Merger between CardioGenesis
Corporation and RW Acquisition Corporation.
2.7 Amendment Number 1 to Reorganization Agreement, dated as of
February 8, 1999, among Eclipse Surgical Technologies, Inc.,
RW Acquisition Corporation and CardioGenesis Corporation
(see Appendix A).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
8.1 Tax Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
8.2 Tax Opinion of Heller Ehrman White & McAuliffe.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in opinions filed as Exhibits 5.1 and
8.1).
23.2 Consent of Heller Ehrman White & McAuliffe (included in
opinion filed as Exhibit 8.2).
23.3 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.4 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.5 Consent of PaineWebber Incorporated.
23.6 Consent of Bear, Stearns & Co. Inc.
24.1 Power of Attorney (see Page II-4).
99.1 Eclipse Form of Proxy.
</TABLE>
II-1
<PAGE> 214
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
99.2 CardioGenesis Form of Proxy.
99.3 Consents of Persons About to Become Directors.
99.4 Opinion of PaineWebber Incorporated, dated October 21, 1998
(see Appendix B).
99.5 Opinion of Bear, Stearns & Co. Inc., dated October 21, 1998
(see Appendix C).
</TABLE>
- ---------------
* Incorporated herein by reference from Eclipse's Current Report on Form 8-K
(File No. 000-28288), filed on November 3, 1998.
** Incorporated herein by reference from CardioGenesis' Current Report on Form
8-K (File No. 000-228424), filed on November 3, 1998.
(b) Financial Statement Schedules
The information required to be set forth herein is incorporated by reference to
Eclipse's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement
will be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time will be deemed to be the initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of
II-2
<PAGE> 215
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of the applicable
form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(8) To supply by means of a post-effective amendment all required
information concerning a transaction, and CardioGenesis being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-3
<PAGE> 216
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 9th day of February
1999.
ECLIPSE SURGICAL TECHNOLOGIES, INC.
By: /s/ DOUGLAS MURPHY-CHUTORIAN, M.D.
------------------------------------------
Douglas Murphy-Chutorian, M.D.
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Douglas Murphy-Chutorian, M.D. and
Kenneth E. Bennert and each of them, jointly and severally, as his true and
lawful attorneys-in-fact and agents, each with full power of substitution for
him and in his name, place and stead in any and all capacities, to sign any and
all amendments to this Registration Statement, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-of-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorneys-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on February 9,
1999 in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ DOUGLAS MURPHY-CHUTORIAN, M.D. Chairman of the Board and Chief
- --------------------------------------------------- Executive Officer (Principal
(Douglas Murphy-Chutorian, M.D.) Executive Officer)
/s/ RICHARD MUELLER, JR. President, Chief Operating Officer
- --------------------------------------------------- and Director
(Richard Mueller, Jr.)
/s/ KENNETH E. BENNERT Vice President, Finance and
- --------------------------------------------------- Administration, Chief Financial
(Kenneth E. Bennert) Officer (Principal Financial and
Accounting Officer)
/s/ ALAN L. KAGANOV Director
- ---------------------------------------------------
(Alan L. Kaganov)
/s/ ROBERT L. MORTENSEN Director
- ---------------------------------------------------
(Robert L. Mortensen)
/s/ IAIN M. WATSON Director
- ---------------------------------------------------
(Iain M. Watson)
</TABLE>
II-4
<PAGE> 217
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1* Agreement and Plan of Reorganization, dated as of October
21, 1998, among Eclipse Surgical Technologies, Inc., RW
Acquisition Corporation and CardioGenesis Corporation.
2.2* Form of Affiliate Agreement for Eclipse Surgical
Technologies, Inc.
2.3** Form of Affiliate Agreement for CardioGenesis Corporation.
2.4** Form of Voting Agreement for CardioGenesis Corporation.
2.5* Form of Voting Agreement for Eclipse Surgical Technologies,
Inc.
2.6 Form of Certificate of Merger between CardioGenesis
Corporation and RW Acquisition Corporation.
2.7 Amendment Number 1 to Reorganization Agreement, dated as of
February 8, 1999, among Eclipse Surgical Technologies,
Inc., RW Acquisition Corporation and CardioGenesis
Corporation (see Appendix A).
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
8.1 Tax Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation.
8.2 Tax Opinion of Heller Ehrman White & McAuliffe.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in opinions filed as Exhibits 5.1
and 8.1).
23.2 Consent of Heller Ehrman White & McAuliffe (included in
opinion filed as Exhibit 8.2).
23.3 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.4 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
23.5 Consent of PaineWebber Incorporated.
23.6 Consent of Bear, Stearns & Co. Inc.
24.1 Power of Attorney (see Page II-4).
99.1 Eclipse Form of Proxy.
99.2 CardioGenesis Form of Proxy.
99.3 Consents of Persons About to Become Directors.
99.4 Opinion of PaineWebber Incorporated, dated October 21, 1998
(see Appendix B).
99.5 Opinion of Bear, Stearns & Co. Inc., dated October 21, 1998
(see Appendix C).
</TABLE>
- ---------------
* Incorporated herein by reference from Eclipse's Current Report on Form 8-K
(File No. 000-28288), filed on November 3, 1998.
** Incorporated herein by reference from CardioGenesis' Current Report on Form
8-K (File No. 000-228424), filed on November 3, 1998.
<PAGE> 1
EXHIBIT 2.6
CERTIFICATE OF MERGER
MERGING
RW ACQUISITION CORPORATION,
a Delaware corporation
WITH AND INTO
CARDIOGENESIS CORPORATION
a Delaware corporation
------------------------------------
Pursuant to Section 251 of the General Corporation Law of the State of Delaware
------------------------------------
RW Acquisition Corporation, a Delaware corporation ("Merger Sub"), and
Cardiogenesis Corporation, a Delaware corporation ("Cardiogenesis"), DO HEREBY
CERTIFY AS FOLLOWS:
FIRST: That the constituent corporations to the merger certified here are
Merger Sub and Cardiogenesis. Merger Sub was incorporated on October 16, 1998
pursuant to the Delaware General Corporation Law (the "Delaware Law"), and
Cardiogenesis was incorporated on April 11, 1996 pursuant to the Delaware Law.
SECOND: That an Agreement and Plan of Reorganization (the "Reorganization
Agreement") dated as of October 21, 1998 by and among Eclipse Surgical
Technologies, Inc., a California corporation, Merger Sub and Cardiogenesis,
setting forth the terms and conditions of the merger of Merger Sub with and into
Cardiogenesis (the "Merger"), has been approved, adopted, certified, executed
and acknowledged by each of the constituent corporations in accordance with
Section 251 of the Delaware Law.
THIRD: That Cardiogenesis shall be the surviving corporation in the merger
(the "Surviving Corporation") and the name of the Surviving Corporation shall be
Cardiogenesis Corporation.
FOURTH: That Pursuant to the Reorganization Agreement, the Restated
Certificate of Incorporation of the Surviving Corporation is amended to read in
its entirety as set forth in Exhibit A attached hereto.
<PAGE> 2
FIFTH: That an executed copy of the Reorganization Agreement is on file at
the office of the Surviving Corporation at the following address:
Cardiogenesis Corporation
540 Oakmead Parkway
Sunnyvale, California 94086
SIXTH: That an executed copy of the Reorganization Agreement will be
furnished by the Surviving Corporation, on request and without cost, to any
stockholder of any constituent corporation.
SEVENTH: That the Merger shall become effective upon the filing of this
Certificate of Merger with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, each of Merger Sub and Cardiogenesis has caused this
Certificate of Merger to be executed in its corporate name as of this ___ day of
_______, 199_.
CARDIOGENESIS CORPORATION
a Delaware corporation
By: _____________________________________
Allen W. Hill
President & Chief Executive Officer
ATTEST:
- -------------------------
Secretary
RW ACQUISITION CORPORATION
a Delaware corporation
By: _____________________________________
Douglas Murphy-Chutorian
Chief Executive Officer
ATTEST:
- --------------------------
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD]
February 9, 1999
Eclipse Surgical Technologies, Inc.
1049 Kiel Court
Sunnyvale, CA 94089
RE: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 filed by you
with the Securities and Exchange Commission in connection with the registration
under the Securities Act of 1933, as amended, of 9,908,040 shares of your Common
Stock, no par value (the "Shares"), to be issued to the stockholders of
CardioGenesis Corporation ("CardioGenesis") in connection with the merger of
CardioGenesis with and into a wholly-owned subsidiary of Eclipse. As counsel to
you in connection with this transaction, we have examined the proceedings
proposed to be taken by you in connection with issuance of the Shares.
Based upon the foregoing, we are of the opinion that the Shares, when
issued in the manner described in the Registration Statement, will be duly
authorized, validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI, P.C.
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
Exhibit 8.1
February 9, 1999
Eclipse Surgical Technologies, Inc.
1049 Kiel Court
Sunnyvale, California 94089
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement filed with the Securities and Exchange Commission (the
"Registration Statement") filed pursuant to the Agreement and Plan of
Reorganization (the "Agreement") dated as of October 21, 1998 by and among
Eclipse Surgical Technologies, Inc., a California corporation ("Parent"), RW
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), and CardioGenesis Corporation, a Delaware corporation
("Company").
Except as otherwise provided, capitalized terms used but not defined
herein shall have the meanings set forth in the Reorganization Agreement.
We have acted as counsel to Parent and Merger Sub in connection with
the Merger. As such, and for the purpose of rendering this opinion, we have
examined, and are relying upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents
(including all exhibits and schedules attached thereto):
1. The Reorganization Agreement;
2. The Form S-4 Registration Statement filed with the Securities
and Exchange Commission on February 9, 1999 (which contains a
Proxy Statement);
3. Those certain tax representation letters delivered to us by
Parent, Merger Sub and Company containing certain
representations of Parent, Merger Sub and Company (the "Tax
Representation Letters"); and
4. Such other instruments and documents related to the formation,
organization and operation of Parent, Merger Sub and Company
and related to the consummation of the Merger and the other
transactions contemplated by the Reorganization Agreement as
we have deemed necessary or appropriate.
<PAGE> 2
Eclipse Surgical Technologies, Inc.
February 9, 1999
Page 2
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
a. Original documents submitted to us (including signatures
thereto) are authentic, documents submitted to us as copies
conform to the original documents, and that all such documents
have been (or will be by the Effective Time) duly and validly
executed and delivered where due execution and delivery are a
prerequisite to the effectiveness thereof;
b. All representations, warranties and statements made or agreed
to by Parent, Merger Sub and Company, their managements,
employees, officers, directors and shareholders in connection
with the Merger, including, but not limited to, those set
forth in the Reorganization Agreement (including the exhibits
thereto) and the Tax Representation Letters are true and
accurate at all relevant times;
c. All covenants contained in the Reorganization Agreement
(including exhibits thereto) and the Tax Representation
Letters are performed without waiver or breach of any material
provision thereof;
d. The Merger will be reported by Parent, Merger Sub and Company
on their respective federal income tax returns in a manner
consistent with the opinion set forth below; and
e. Any representation or statement made "to the best of
knowledge" or similarly qualified is correct without such
qualification.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, if the Merger is consummated in accordance with the
Reorganization Agreement (and without any waiver, breach or amendment of any of
the provisions thereof), then for federal income tax purposes, the Merger will
be a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended.
In addition, we are of the opinion that the disclosure entitled
"Material Federal Income Tax Consequences" in the Proxy Statement constituting a
part of the Registration Statement, insofar as it relates to statements of law
and legal conclusions, is correct in all material respects.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Reorganization
<PAGE> 3
Eclipse Surgical Technologies, Inc.
February 9, 1999
Page 3
Agreement. In addition, no opinion is expressed as to any tax consequence of the
Merger or the other transactions contemplated by the Reorganization Agreement
except as specifically set forth herein, and this opinion may not be relied upon
except with respect to the consequences specifically discussed herein. No
opinion is expressed as to the federal income tax treatment that may be relevant
to a particular investor in light of personal circumstances or to certain types
of investors subject to special treatment under the federal income tax laws (for
example, life insurance companies, dealers in securities, taxpayers subject to
the alternative minimum tax banks, tax-exempt organizations, non-United States
persons, and stockholders who acquired their shares of Company stock pursuant to
the exercise of options or otherwise as compensation).
No opinion is expressed as to any other transaction whatsoever,
including the Merger, if all of the transactions described in the Reorganization
Agreement are not consummated in accordance with the terms of the Reorganization
Agreement and without waiver of any material provision thereof. To the extent
that any of the representations, warranties, covenants, statements and
assumptions material to our opinion and upon which we have relied are not
accurate and complete in all material respects at all relevant times, our
opinion would be adversely affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income
tax consequences of the Merger and is not binding on the Internal Revenue
Service or any court of law, tribunal, administrative agency or other
governmental body. The conclusions are based on the Internal Revenue Code of
1986, as amended, existing judicial decisions, administrative regulations and
published rulings. No assurance can be given that future legislative, judicial
or administrative changes or interpretations would not adversely affect the
accuracy of the conclusions stated herein. Nevertheless, by rendering this
opinion, we undertake no responsibility to advise you of any new developments in
the application or interpretation of the federal income tax laws.
This opinion is being delivered for the purposes of being included as
an exhibit to the Registration Statement. We hereby consent to the use of our
name under the heading "Material Federal Income Tax Consequences" in the Proxy
Statement and to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI, P.C.
--------------------------------------
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
Exhibit 8.2
[HELLER EHRMAN WHITE & MCAULIFFE LETTERHEAD]
February 9, 1999
CardioGenesis Corporation
540 Oakmead Parkway
Sunnyvale, California 94086
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the proposed merger (the "Merger") of RW Acquisition Corporation
("Merger Sub"), a wholly owned subsidiary of Eclipse Surgical Technologies, Inc.
("Eclipse"), with and into CardioGenesis Corporation ("CardioGenesis"). Except
as otherwise provided, capitalized terms used but not defined herein shall have
the meanings set forth in the Agreement and Plan of Reorganization dated as of
October 21, 1998 (the "Merger Agreement") by and among Eclipse, Merger Sub, and
CardioGenesis. Unless otherwise indicated, all "Section" references are to the
Internal Revenue Code of 1986, as amended (the "Code").
We have acted as counsel to CardioGenesis in connection with the Merger.
As such, and for the purpose of rendering this opinion, we have examined, and
are relying
<PAGE> 2
CardioGenesis Corporation HELLER EHRMAN WHITE & MCAULIFFE
February 9, 1999 ATTORNEYS
Page 2
upon (without any independent investigation or review thereof) the truth and
accuracy at all relevant times of, the statements, covenants, representations,
and warranties contained in the following documents (including all exhibits and
schedules attached thereto):
(a) the Merger Agreement;
(b) those tax representation letters delivered to us by Eclipse, Merger
Sub and CardioGenesis pursuant to the Merger Agreement (the "Tax Representation
Letters");
(c) the Form S-4 Registration Statement filed with the Securities and
Exchange Commission on February 9, 1999 (which contains a Proxy Statement);
and
(d) such other instruments and documents related to the formation,
organization, and operation of Eclipse, Merger Sub, and CardioGenesis and
related to the consummation of the Merger and the other transactions
contemplated by the Merger Agreement as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
(a) Original documents submitted to us (including signatures thereto)
are authentic, documents submitted to us as copies conform to the original
documents, and all such documents have been (or will be by the Effective Time)
duly and validly executed and delivered where due execution and delivery are a
prerequisite to the effectiveness thereof;
(b) All representations, warranties, and statements made or agreed to by
Eclipse, Merger Sub, and CardioGenesis, their managements, employees, officers,
directors, and stockholders in connection with the Merger, including but not
limited to, those set forth in the Merger Agreement (including the exhibits
thereto) and the Tax Representation Letters are true and accurate at all
relevant times;
(c) All covenants contained in the Merger Agreement (including exhibits
thereto) and the Tax Representation Letters are performed without waiver or
breach of any material provision thereof;
(d) The Merger will be reported by Eclipse, Merger Sub, and
CardioGenesis on their respective federal income tax returns in a manner
consistent with the opinion set forth below; and
<PAGE> 3
CardioGenesis Corporation HELLER EHRMAN WHITE & MCAULIFFE
February 9, 1999 ATTORNEYS
Page 3
(e) Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, and assumptions set forth herein, we are of the
opinion that, if the Merger is consummated in accordance with the Merger
Agreement, for United States federal income tax purposes the Merger will be a
reorganization within the meaning of Section 368(a)(1) of the Code.
In addition to your request for our opinion on the above specific matter
of federal income tax law, you have asked us to review the discussion of federal
income tax issues contained in the Registration Statement of Eclipse on Form S-4
filed on February 9, 1999 ("Registration Statement"). We have reviewed the
discussion entitled "Material Federal Income Tax Consequences" contained in the
Registration Statement, and, insofar as it relates to statements of law and
legal conclusions, it is correct in all material respects.
This opinion is limited to the federal income tax consequences of the
Merger and does not address the various state, local, or foreign tax
consequences that may result from the Merger or the other transactions
contemplated by the Merger Agreement. In addition, no opinion is expressed as to
any federal income tax consequence of the Merger or the other transactions
contemplated by the Merger Agreement except as specifically set forth herein,
and this opinion may not be relied upon except with respect to the consequences
specifically discussed herein. No opinion is expressed as to the federal income
tax treatment that may be relevant to a particular investor in light of personal
circumstances or to certain types of investors subject to special treatment
under the federal income tax laws (for example, life insurance companies,
dealers in securities, taxpayers subject to the alternative minimum tax in the
year in which the Merger occurs, banks, tax-exempt organizations, non-United
States persons, and stockholders who acquired their shares of CardioGenesis
stock pursuant to the exercise of options or otherwise as compensation or who
hold their CardioGenesis stock as part of a straddle or risk reduction
transaction). To the extent that any of the representations, warranties,
statements, and assumptions material to our opinion and upon which we have
relied are not accurate and complete in all material respects at all relevant
times, our opinion could be adversely affected and should not be relied upon.
This opinion is not binding on the Internal Revenue Service or any court
of law, administrative agency or other governmental body and represents only our
judgment as to
<PAGE> 4
CardioGenesis Corporation HELLER EHRMAN WHITE & MCAULIFFE
February 9, 1999 ATTORNEYS
Page 4
the likely outcome if the federal income tax consequences of the Merger were
properly presented to a court of competent jurisdiction. Our conclusions are
based on the Code, existing judicial decisions, administrative regulations, and
published rulings. No assurance can be given that future legislative, judicial,
or administrative changes or interpretations will not adversely affect the
accuracy of our conclusions. Nevertheless, by rendering this opinion, we
undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws.
We consent to the reference to our firm under the caption "Material
Federal Income Tax Consequences" in the Proxy Statement included in the
Registration Statement and to the reproduction and filing of this opinion as an
exhibit to the Registration Statement. In giving this consent, however, we do
not admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Heller Ehrman White & McAuliffe
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of CardioGenesis
Corporation and Eclipse Surgical Technologies, Inc. of our report dated January
30, 1998, which appears in Eclipse Surgical Technologies, Inc.'s 1997 Annual
Report on Form 10-K for the year ended December 31, 1997. We also consent to
the reference to us under the heading of "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP
San Jose, California
February 8, 1999
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in the Prospectus constituting part of this
Registration Statement on S-4 of CardioGenesis Corporation and Eclipse Surgical
Technologies, Inc. of our report dated January 30, 1998 relating to the
financial statements of CardioGenesis Corporation, which appears in such
Prospectus. We also consent to the reference to us under the heading of
"Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
- ----------------------------------
PricewaterhouseCoopers LLP
San Jose, California
February 8, 1999
<PAGE> 1
Exhibit 23.5
February 5, 1999
PaineWebber Incorporated ("PaineWebber") hereby consents to the
inclusion in this Proxy Statement-Prospectus, filed as a part of this
Registration Statement on Form S-4, of its opinion dated October 21, 1998, and
to the references made to PaineWebber in the "Summary: Opinions of PaineWebber
and Bear Stearns", "Approval of the Merger and Related Transactions: Material
Contacts and Board Deliberations", and "Approval of the Merger and Related
Transactions: PaineWebber Opinion" sections of such Proxy Statement-Prospectus.
In giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission promulgated thereunder.
Very truly yours,
PAINEWEBBER INCORPORATED
By PAINEWEBBER INCORPORATED
------------------------
<PAGE> 1
EXHIBIT 23.6
CONSENT OF BEAR, STEARNS & CO. INC.
Bear, Stearns & Co. Inc. ("Bear Stearns") hereby consents to the inclusion in
the Joint Proxy Statement/Prospectus, constituting a part of the Registration
Statement on Form S-4, filed by Eclipse Surgical Technologies, Inc., of its
opinion, dated October 21, 1998, and to the references made to Bear Stearns in
the "Summary -- Opinions of PaineWebber and Bear Stearns," "Approval of the
Merger and Related Transactions -- CardioGenesis' Additional Reasons For the
Merger," "-- Material Contacts and Board Deliberations," and "-- Bear Stearns
Opinion" sections of such Joint Proxy Statement/ Prospectus. In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, or the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
Dated: February 8, 1999
BEAR, STEARNS & CO. INC.
By: /s/ COURT H. HOUSEWORTH
-----------------------------------
Court H. Houseworth
<PAGE> 1
EXHIBIT 99.1
ECLIPSE SURGICAL TECHNOLOGIES, INC.
P PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
R
O THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
X
Y
The undersigned shareholder of Eclipse Surgical Technologies, Inc., a
California corporation ("Eclipse"), hereby acknowledges receipt of the Notice of
Special Meeting of Shareholders and Joint Proxy Statement/Prospectus, each dated
February 9, 1999, and hereby appoints Douglas Murphy-Chutorian and Richard
Mueller, Jr., and each of them, proxies and attorneys-in-fact, with full power
to each of substitution, on behalf of and in the name of the undersigned, to
vote as designated on the reverse side, all shares of Common Stock of Eclipse
that the undersigned is entitled to vote at the Special Meeting of Shareholders
of Eclipse to be held on March 17, 1999 at 9:00 a.m., local time, at the
principal executive offices of Eclipse, 1049 Kiel Court, Sunnyvale, California
94089 and at any adjournment thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED
FOR THE PROPOSAL ON THE REVERSE SIDE HEREOF.
(Continued and to be signed on the reverse side.) SEE REVERSE SIDE
<PAGE> 2
Please mark vote in square in the following using dark ink only
THE ECLIPSE SURGICAL TECHNOLOGIES, INC. BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" PROPOSAL 1
<TABLE>
<S> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ] 1. Proposal to approve the principal terms of the Agreement and Plan
of Reorganization, dated as of October 21, 1998, among Eclipse,
CardioGenesis Corporation, a Delaware corporation ("CardioGenesis"),
and RW Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Eclipse ("Merger Sub"), providing for
the merger of Merger Sub with and into CardioGenesis (the "Merger"),
including the issuance of shares of Eclipse common stock to the
stockholders of CardioGenesis.
[Shareholder name and Please sign exactly as name appears on your stock certificate
address label] Dated
Signature
(Signatures if held jointly)
(Title)
Note: When shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator, trustee,
guardian or corporate officer or partner, please give full title
as such. If a corporation, please sign in corporate name by
President or other authorized officer. If a partnership, please
sign partnership name by authorized person.
New Address (if applicable)
</TABLE>
<PAGE> 1
EXHIBIT 99.2
CARDIOGENESIS CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of CardioGenesis Corporation, a Delaware
corporation ("CardioGenesis"), hereby acknowledges receipt of the Notice of
Special Meeting of Stockholders and Joint Proxy Statement/Prospectus, each dated
February 9, 1999, and hereby appoints Allen W. Hill and Richard P. Powers, and
each of them, proxies and attorneys-in-fact, with full power to each of
substitution, on behalf of and in the name of the undersigned, to vote as
designated on the reverse side, all shares of Common Stock of CardioGenesis that
the undersigned is entitled to vote at the Special Meeting of Stockholders of
CardioGenesis to be held on March 17, 1999 at 9:00 a.m., local time, at the
principal executive offices of CardioGenesis, 540 Oakmead Parkway, Sunnyvale,
California 94086 and at any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION AND
THE MERGER, AND THE PROXIES, IN THEIR DISCRETION, WILL VOTE ON SUCH OTHER
MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
(Continued and to be signed on the reverse side.)
<PAGE> 2
Please mark vote in square in the following using dark ink only
THE CARDIOGENESIS BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING
PROPOSALS:
FOR AGAINST ABSTAIN 1. Proposal to approve and adopt the Agreement and
[ ] [ ] [ ] Plan of Reorganization, dated as of October 21,
1998, among CardioGenesis, Eclipse Surgical
Technologies, Inc. and RW Acquisition
Corporation, a Delaware corporation and a
wholly-owned subsidiary of Eclipse ("Merger
Sub"), and to approve the merger of Merger Sub
with and into CardioGenesis.
2. In their discretion, to vote upon such other
business as may properly come before the Special
Meeting or any adjournment thereof, including,
among other things, a motion to adjourn the
Special Meeting to another time and/or place
for, among other things, the purpose of
soliciting additional proxies.
[Stockholder name and
address label]
------------------------------------------------
Signature
------------------------------------------------
(Signatures if held jointly)
Dated
------------------------------------------
(Please sign exactly as name appears on your
stock certificate. When shares are held by joint
New Address tenants, both should sign. When signing as
(if applicable) attorney, executor, administrator, trustee,
guardian or corporate officer or partner, please
give full title as such. If a corporation,
please sign in corporate name by President or
other authorized officer. If a partner, please
sign partnership name by authorized person.)
<PAGE> 1
EXHIBIT 99.3
CONSENT OF DIRECTOR DESIGNATE
The undersigned hereby consents to the inclusion of his name and the reference
to him as a director designate under the caption "The Reorganization Agreement
and Related Agreements -- Board and Management of the Combined Company Following
the Merger" in the Joint Proxy Statement/Prospectus, constituting a part of the
Registration Statement on Form S-4 filed by Eclipse Surgical Technologies, Inc.
on February 9, 1999.
Dated: February 8, 1999
/s/ ALLEN W. HILL
--------------------------------------
Allen W. Hill
<PAGE> 2
EXHIBIT 99.3
CONSENT OF DIRECTOR DESIGNATE
The undersigned hereby consents to the inclusion of his name and the reference
to him as a director designate under the caption "The Reorganization Agreement
and Related Agreements -- Board and Management of the Combined Company Following
the Merger" in the Joint Proxy Statement/Prospectus, constituting a part of the
Registration Statement on Form S-4 filed by Eclipse Surgical Technologies, Inc.
on February 9, 1999.
Dated: February 8, 1999
/s/ JACK M. GILL
--------------------------------------
Jack M. Gill
<PAGE> 3
EXHIBIT 99.3
CONSENT OF DIRECTOR DESIGNATE
The undersigned hereby consents to the inclusion of his name and the reference
to him as a director designate under the caption "The Reorganization Agreement
and Related Agreements -- Board and Management of the Combined Company Following
the Merger" in the Joint Proxy Statement/Prospectus, constituting a part of the
Registration Statement on Form S-4 filed by Eclipse Surgical Technologies, Inc.
on February 9, 1999.
Dated: February 8, 1999
/s/ ROBERT C. STRAUSS
--------------------------------------
Robert C. Strauss
