<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
INCONTROL, INC.
(NAME OF SUBJECT COMPANY)
----------------
INCONTROL, INC.
(NAME OF PERSON(S) FILING STATEMENT)
----------------
COMMON STOCK, PAR VALUE $.01
(TITLE OF CLASS OF SECURITIES)
----------------
45336L 10 3
(CUSIP NUMBER OF CLASS OF SECURITIES)
----------------
KURT C. WHEELER
INCONTROL, INC.
6675 185TH AVENUE N.E.
REDMOND, WASHINGTON 98052
(425) 861-9800
(NAME, ADDRESS, AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
----------------
COPY TO:
STEPHEN M. GRAHAM
MICHAEL C. PIRAINO
ALAN C. SMITH
PERKINS COIE
1201 THIRD AVENUE, 40TH FLOOR
SEATTLE, WASHINGTON 98101-3099
(206) 583-8888
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is InControl, Inc., a Delaware corporation
(the "Company"). The address of the Company's principal executive offices is
6675 185th Avenue N.E., Redmond, Washington 98052. The title of the class of
equity securities to which this Statement relates is the Company's common
stock, $.01 par value (the "Common Stock").
ITEM 2. TENDER OFFER OF THE BIDDER
This Solicitation/Recommendation Statement on Schedule 14D-9 relates to the
tender offer made by Pegasus Acquisitions Corp., a Delaware corporation
("Purchaser") and indirect wholly owned subsidiary of Guidant Corporation, an
Indiana corporation ("Parent"), as described in the Tender Offer Statement on
Schedule 14D-1 of Purchaser dated August 17, 1998, to purchase all outstanding
shares of Common Stock (the "Shares") at a purchase price of $6.00 per Share
(the "Offer Price"), net to the seller in cash, without interest thereon, upon
the terms and subject to the conditions set forth in the Offer to Purchase
dated August 17, 1998 (the "Offer to Purchase") and the related Letter of
Transmittal (which together constitute the "Offer"). The Offer to Purchase
states that the address of the principal executive offices of Purchaser is
4100 Hamline Avenue North, St. Paul, Minnesota 55112.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 10, 1998 (the "Merger Agreement"), among the Company, Purchaser
and Parent. Certain terms of the Merger Agreement are described below in Item
3(b)(2).
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above.
(b)(1) Information concerning certain contracts, agreements, arrangements
and understandings between the Company or its affiliates and certain of its
executive officers, directors or affiliates is set forth in the Company's
Information Statement attached hereto as Annex A, which is incorporated herein
by reference in its entirety. Certain information set forth in Annex A was
included in the Company's Proxy Statement filed with the SEC on March 27,
1998.
(b)(2) A summary of the terms and conditions of the Merger Agreement, the
Shareholder Agreement, dated August 10, 1998, between Parent and certain
stockholders of the Company owning of record approximately 9.4% of the
outstanding Shares on a fully diluted basis (the "Shareholder Agreement") and
the Credit Agreement, dated August 10, 1998, between Parent and the Company
(the "Credit Agreement"), each entered into in connection with the Merger
Agreement are contained in and incorporated herein by reference from pages 18
to 31 of the Offer to Purchase which is being mailed to the Company's
stockholders (the "Stockholders") together with this Schedule 14D-9 and is
filed with the Securities and Exchange Commission (the "Commission") as an
exhibit to Parent's Schedule 14D-1. The summary is qualified in its entirety
by reference to the Merger Agreement, the Shareholder Agreement and the Credit
Agreement, copies of which have been filed with the Commission as Exhibit 2,
Exhibit 3 and Exhibit 4 hereto and are incorporated by reference herein in
their entirety.
In connection with the execution of the Merger Agreement, the Company has
amended as of August 10, 1998 the Rights Agreement dated as of February 27,
1996 between the Company and First Interstate Bank of Washington, N.A. (now
ChaseMellon Shareholder Services, L.L.C.) (the "Rights Plan") to provide that
Parent, Purchaser or their affiliates and associates shall not be deemed an
"Acquiring Person" or a "Beneficial Owner" and that the date of execution,
delivery or consummation of the Merger Agreement and the Shareholder Agreement
and the transactions contemplated thereby, including the Offer, shall not be
deemed to be a "Distribution Date," as such terms are defined in the Rights
Plan. The foregoing summary of the Second Amendment of Rights Agreement is
qualified by reference to the entire text of the Second Amendment of Rights
Agreement, which has been filed with the Commission as Exhibit 1 hereto and
incorporated by reference herein in its entirety.
1
<PAGE>
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Board of Directors
The Board of Directors of the Company has unanimously approved the Merger
Agreement and the Shareholder Agreement and the transactions contemplated
thereby and determined that the Offer and the Merger as set forth in the
Merger Agreement are fair to, advisable and in the best interests of, the
Company and the Stockholders. The Board of Directors unanimously recommends
that the Stockholders ACCEPT the Offer and tender their shares of Common Stock
pursuant to the Offer. This recommendation is based in part upon an opinion
the Board of Directors received from Goldman, Sachs & Co. ("Goldman Sachs"),
dated August 10, 1998, described in Item 4(b) attached hereto as Annex B and
incorporated by reference herein in its entirety.
Background
In January 1998, the Company engaged in preliminary discussions with Goldman
Sachs concerning the possibility of entering into a strategic relationship
with another company for the purpose of raising capital to fund ongoing
operations.
In February and March 1998, the Company and Goldman Sachs had informal
discussions with several companies, including Parent, concerning the
possibility of entering into a strategic relationship with the Company. During
this time the Company and Goldman Sachs also explored the possibility of
raising additional capital through public and private offerings of debt or
equity.
By letter dated March 20, 1998, the Company formally engaged Goldman Sachs
to explore strategic alternatives, including the possible sale of all or a
portion of the Company. The services to be provided by Goldman Sachs included
providing financial advice and assistance in connection with a potential
transaction, including performing financial analyses, searching for a
purchaser acceptable to the Company, coordinating visits of potential
purchasers and assisting the Company in negotiating the financial aspects of
any transaction. Pursuant to the engagement, Goldman Sachs contacted several
companies thought to possibly have an interest in either acquiring the Company
or entering into a strategic relationship. Although the Company received
certain preliminary indications of interest as a result of these efforts, no
company other than Parent was willing to enter into meaningful discussions
with the Company concerning an acquisition or a strategic relationship.
On July 9, 1998, the Company received a non-binding written indication of
interest from Parent to acquire all of the Company's outstanding Shares for
$110,000,000, or approximately $5.00 per share. Also on July 9, 1998, the
Board of Directors of the Company met to discuss Parent's offer. Based in part
on discussions with Goldman Sachs, the Company determined that the offer of
approximately $5.00 per share was insufficient. The Board of Directors of the
Company instructed selected officers and Goldman Sachs to engage in further
discussions with Parent to explore a potential sale of the Company to Parent
on terms acceptable to the Company.
On July 13, 14, 20, 21 and 22, 1998, the Company presented to
representatives of Parent information regarding research and development,
intellectual property, clinical, regulatory, financial, personnel, legal,
contract and tax matters which had been previously requested by Parent. After
this meeting, representatives of the Company, Parent and Goldman Sachs had
further discussions clarifying information previously delivered to Parent and
additional requested information was sent to Parent.
On July 30, 1998, Parent's Board of Directors authorized Parent to make an
offer to acquire the Company.
On July 31, 1998, the Company received a written offer from Parent to
acquire all of the Company's outstanding Shares for $132,000,000. On August 3,
1998, the Board of Directors of the Company met and instructed selected
officers of the Company to advise Parent of its willingness to discuss a
transaction substantially on the terms offered, subject to certain conditions.
Thereafter, the Company and Goldman Sachs began discussions with Parent in
anticipation of negotiating the Merger Agreement.
2
<PAGE>
On August 3, 1998, Parent delivered to the Company a proposed form of Merger
Agreement and Shareholder Agreement, and the parties commenced negotiations.
On August 6, 1998, representatives of the Company and Parent met to conduct
further negotiations. Parent agreed to increase the offer price of its offer
to acquire all of the Company's outstanding shares to $6.00 per share for all
such shares, for an aggregate purchase price of approximately $135,000,000.
Parent also agreed to make the loan reflected in the Credit Agreement. After
this meeting, representatives of the Company, Parent and Goldman Sachs had
further discussions regarding the drafting of the definitive Merger Agreement
and Parent delivered to the Company a proposed form of Credit Agreement.
On August 9 and 10, 1998, representatives of Parent and the Company met in
New York to complete the negotiations of the Merger Agreement, the
Shareholders Agreement and the Credit Agreement.
On August 10, 1998, the Board of Directors met to discuss the final terms of
the proposed transaction. Following a presentation by Goldman Sachs and
Company counsel, and after discussion, Goldman Sachs delivered to the Board of
Directors of the Company its oral opinion, subsequently confirmed in writing,
that the $6.00 in cash per common share to be received by the Stockholders in
the Offer and the Merger is fair from a financial point of view to such
holders. Based upon these discussions and the factors described in subsection
(b) of Item 4 below, the Board of Directors of the Company unanimously
approved and adopted the Merger Agreement, the Shareholder Agreement, the
Credit Agreement and the Second Amendment of Rights Agreement.
Following the meeting of the Board of Directors, Parent, Purchaser and the
Company finalized the terms of, and executed and delivered, the Merger
Agreement.
On August 11, 1998, the Company and Parent announced the transaction
publicly by issuing the press release attached hereto as Exhibit 7.
(b) Reasons for the Recommendation of the Board of Directors
In approving the Merger Agreement and the transactions contemplated thereby
and recommending that the Company's stockholders accept the Offer and tender
their shares of Common Stock pursuant to the Offer, the Board of Directors
considered a number of factors including, but not limited to:
(i) The Board's familiarity with the Company's business, operations,
financial condition and competitive position, the prospects of the Company
and the nature of the industry in which the Company participates, on both
an historical and a prospective basis.
(ii) The presentation of Goldman Sachs at the August 10, 1998 meeting of
the Company's Board of Directors and the oral opinion of Goldman Sachs,
subsequently confirmed in writing (the "Opinion"), to the effect that, as
of the date of the Opinion, the $6.00 in cash per Share to be received by
the Stockholders in the Offer and the Merger is fair from a financial point
of view to such holders. The full text of the Opinion, which sets forth
assumptions made, matters considered and limitations on the review
undertaken in connection with the Opinion, is attached hereto as Annex B
and is incorporated herein by reference. Stockholders are urged to, and
should, read the Opinion in its entirety.
(iii) The fact that the Company had retained Goldman Sachs to solicit,
initiate and encourage the initiation of inquiries and proposals from third
parties concerning sales of assets and capital stock of the Company and
mergers or similar transactions with the Company and the fact that such
continuous and ongoing solicitation efforts of Goldman Sachs did not result
in any serious indications of interest in the acquisition of the Company
other than that of Parent; and the fact that the terms of the Merger
Agreement permit the Board of Directors to properly discharge its fiduciary
duties, which may include responding to inquiries and proposals from third
parties interested in the possible acquisition of the Company, providing
information to, and entering into discussions and negotiations with, such
parties.
3
<PAGE>
(iv) A review of the possible alternatives to the Offer and the Merger,
including the possibility of continuing to operate the Company as an
independent entity and seeking additional capital from another source, the
range of possible values to the Stockholders of such alternatives and the
timing and likelihood of actually accomplishing those alternatives.
(v) The fact that the Company was in immediate need of cash to fund
ongoing operations and Parent was willing to enter into the Credit
Agreement.
(vi) The relationship of the price to be received by the Stockholders in
the offer and the Merger to current and recent market prices for the Shares
and a comparison of the premium to be received by the Stockholders in the
Offer and the Merger to premiums paid over market prices in announced
mergers and acquisitions of companies in similar lines of business.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer and the Merger, the Board of Directors did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its respective
determinations.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Pursuant to an engagement letter dated March 20, 1998 (the "Engagement
Letter"), the Company engaged Goldman Sachs to render its opinion with respect
to the financial consideration to be received in connection with a sale of the
Company. Pursuant to the terms of the Engagement Letter, the Company has
agreed to pay Goldman Sachs a transaction fee in cash of 2% of the aggregate
consideration received, if 50% or more of the outstanding Common Stock or
assets of the Company is sold in one or a series of transactions. The Company
has also agreed to reimburse Goldman Sachs for its reasonable out-of-pocket
expenses, including fees and expenses of counsel, and to indemnify Goldman
Sachs for certain liabilities, including liabilities arising under the federal
securities laws or relating to or arising out of Goldman Sachs' engagement as
financial advisor.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) The Company made certain Alternative Minimum Tax ("AMT") Loans to its
employees that were due in April 1998. In June 1998, the Company's Board of
Directors declared the notes in default and invoked its only remedy of taking
back the 71,597 shares of the Company's Common Stock that were held as
collateral for the AMT Loans (except for the Chief Executive Officer's note,
which, at the time, was extended for one year). Subsequently, on August 10,
1998, the Company's Board of Directors also exercised the Company's rights to
take back the 28,312 shares of Company Common Stock that were held as
collateral for the Chief Executive Officer's AMT Loan obligation.
On June 30, 1998, the Board of Directors of the Company implemented an
option exchange program with respect to options held by certain of the
Company's employees, excluding the Chief Executive Officer, whereby such
employees who held options with an exercise price of $3.00 or greater
exchanged their options for a lesser number of replacement options with an
exercise price of $2.625 per share pursuant to terms of the Company's Restated
1990 Stock Option Plan. A total of 2,233,541 Options were exchanged pursuant
to this program, resulting in 663,446 options being issued at the new exercise
price.
On July 6, 1998, the Board of Directors of the Company implemented an option
exchange program with respect to options held by certain of the Company's
medical advisors and consultants, whereby such advisors and consultants who
held options with an exercise price of $3.00 or greater exchanged their
options for replacement options with an exercise price of $2.438 per share
pursuant to the terms of the Company's Restated 1990 Stock Option Plan. A
total of 146,738 Options were exchanged on a one-for-one basis pursuant to
this program.
On July 10, 1998, the Board of Directors of the Company implemented an
option exchange program with respect to options held by the Company's
directors, including the Chief Executive Officer, whereby such directors who
held options with an exercise price of $3.00 or greater exchanged their
options for a lesser number of replacement options with an exercise price of
$2.75 per share pursuant to the terms of the Company's 1996 Stock Option Plan
for Nonemployee Directors and the Company's Restated 1990 Stock Option Plan. A
total of 412,072 Options were exchanged pursuant to this program, resulting in
124,494 options being issued at the new exercise price.
4
<PAGE>
The Company issued to Koch Industries, Inc. 99,913 shares of Common Stock on
conversion of 229 shares of Series B Stock on July 27, 1998, 150,273 shares of
Common Stock on conversion of 415 shares of Series B Stock on August 3, 1998,
501,287 shares of Common Stock on conversion of 1,554 shares of Series B Stock
on August 4, 1998 and 235,801 shares of Common Stock on conversion of 837
shares of Series B Stock on August 13, 1998.
The Company issued to Advantage Fund II Ltd. 149,215 shares of Common Stock
on conversion of 342 shares of Series B Stock on July 27, 1998, 806,960 shares
of Common Stock on conversion of 2,049 shares of Series B Stock on August 4,
1998 and 609,083 shares of Common Stock on conversion of 2,162 shares of
Series B Stock on August 13, 1998.
In addition to the options granted pursuant to the option exchange programs
described above, the Company granted options to purchase 28,600 shares of
Common Stock at an average exercise price of $2.87 during the past 60 days.
(b) To the best of the Company's knowledge, its executive officers,
directors, employees, consultants and advisors currently intend to tender the
Shares held of record and beneficially owned by them pursuant to the Offer,
except those Shares held by such person(s) which, if tendered, could cause
such person(s) to incur liability under the provisions of Section 16(b) of the
Securities Exchange Act of 1934, as amended. Parent and Purchaser have entered
into a Shareholder Agreement with certain stockholders pursuant to which,
among other things, such stockholders have agreed to tender in the Offer, upon
the terms and subject to the conditions of the Shareholder Agreement,
approximately 9.4% of the Company's outstanding Shares (assuming the exercise
of such stockholders' options subject to the Shareholder Agreement).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result
in:
(i) An extraordinary transaction such as a merger or reorganization,
involving the Company or any subsidiary of the Company;
(ii) A purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company;
(iii) A tender offer for or other acquisition of securities by or of the
Company; or
(iv) Any material change in the present capitalization or dividend policy
of the Company.
(b) There are no transactions, Board resolutions, agreements in principle or
signed contracts in response to the Offer, other than as disclosed in Item
3(b) of this Statement, which relate to or result in one or more of the
matters referred to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
Section 203 of the DGCL, in general, prohibits a Delaware corporation such
as the Company from engaging in a "Business Combination" (defined as a variety
of transactions, including mergers) with an "Interested Stockholder" (defined
generally as a person that is the beneficial owner of 15% or more of a
corporation's outstanding voting stock) for a period of three years following
the date that such person became an Interested Stockholder unless (a) prior to
the date such person became an Interested Stockholder, the board of directors
of the corporation approved either the Business Combination or the transaction
that resulted in the stockholder becoming an Interested Stockholder, (b) upon
consummation of the transaction that resulted in the stockholder becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding stock held by directors who are also officers of the
corporation and employee stock ownership plans that do not provide employees
with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer or (c) on or subsequent to
the date such person became an Interested Stockholder, the Business
Combination is approved by the board of directors of the corporation and
authorized at a meeting of stockholders, and not by written consent, by the
affirmative vote of the holders of at least 66 2/3% of the outstanding voting
stock of the corporation not owned by the Interested Stockholder.
5
<PAGE>
The provisions of Section 203 of the DGCL are not applicable to any of the
transactions contemplated by the Merger Agreement or the Shareholder Agreement
because the Merger Agreement and the Shareholder Agreement and the
transactions contemplated thereby have been approved by the Board of
Directors.
The summary of Section 203 of the DGCL contained herein does not purport to
be exhaustive and is qualified in its entirety by reference to the actual text
of Section 203 of the DGCL.
Article 12 of the Company's Certificate of Incorporation, in general,
provides that a Business Combination (defined as a variety of transactions,
including a merger) must be approved by the affirmative vote of not less than
two-thirds of the outstanding shares entitled to vote thereon, voting as a
class, unless the Business Combination shall have been approved by at least
two-thirds of the Board of Directors of the Company (the "Required Board
Approval"). If the Required Board Approval is obtained, and approval of the
Business Combination by the Company's stockholders is required by law, the
Business Combination will require the affirmative vote of not less than 51% of
the outstanding shares entitled to vote thereon, and if approval of the
Business Combination by the Company's stockholders is not required by law, no
vote of the stockholders of the Company will be required.
The Required Board Approval has been obtained because the Merger Agreement
and the Shareholder Agreement and the transactions contemplated thereby have
been unanimously approved by the Board of Directors.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
Exhibit 1 Second Amendment of Rights Agreement by and between the Company and
First Interstate Bank of Washington (now ChaseMellon Shareholder
Services, L.L.C.), as Rights Agent, dated August 10, 1998.
Exhibit 2 Agreement and Plan of Merger, dated as of August 10, 1998, among the
Company, Purchaser and Parent.
Exhibit 3 Shareholder Agreement among Parent, Purchaser and the persons listed
on Schedule A thereto, dated August 10, 1998.
Exhibit 4 Credit Agreement by and between the Company and Parent, dated August
10, 1998.
Exhibit 5 Letter dated August 17, 1998 from the Company to the holders of
Common Stock*.
Exhibit 6 Opinion of Goldman, Sachs & Co., dated August 10, 1998 attached as
Annex B hereto and incorporated herein by reference.*
Exhibit 7 Text of Press Release dated August 11, 1998.
Exhibit 8 Information Statement of the Company attached as Annex A hereto and
incorporated herein by reference.*
Exhibit 9 Letter Agreement, dated as of August 14, 1998, among Parent,
Purchaser and the Company.
</TABLE>
- --------
* Included in copies mailed to shareholders of the Company.
6
<PAGE>
ANNEX A
INCONTROL, INC.
6675 185TH AVENUE N.E.
REDMOND, WA 98052-6734
INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE
SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about August 17, 1998 to
the holders of shares (the "Shares") of the Common Stock, par value $.01 per
share (the "Common Stock") of InControl, Inc., a Delaware corporation (the
"Company"), as part of the Company's Solicitation/Recommendation Statement on
Schedule 14D-9, dated as of such date (the "Schedule 14D-9"). The Schedule
14D-9 relates to a tender offer (the "Offer") by Pegasus Acquisitions Corp., a
Delaware corporation ("Purchaser") and an indirect wholly owned subsidiary of
Guidant Corporation, an Indiana corporation ("Parent"), to purchase all
outstanding Shares, at a price of $6.00 per Share, being made pursuant to an
Agreement and Plan of Merger, dated as of August 10, 1998 (the "Merger
Agreement"), among the Company, Purchaser and Parent. This Information
Statement is being distributed in connection with the contemplated election to
the Board of Directors of the Company (the "Board of Directors") of persons
designated by Parent as provided for in the Merger Agreement. A summary of the
terms and conditions of the Merger Agreement, a Shareholder Agreement, dated
August 10, 1998 between Parent and certain stockholders of the Company owning
of record approximately 9.4% of the outstanding Shares on a fully-diluted
basis (the "Shareholder Agreement") and a Credit Agreement, dated August 10,
1998, between Parent and the Company (the "Credit Agreement"), entered into in
connection with the Merger Agreement, are contained in and incorporated by
reference from pages 18 to 31 of the Offer to Purchase, which is being mailed
to stockholders together with this Information Statement and is filed with the
Securities and Exchange Commission (the "Commission") as an exhibit to
Parent's Schedule 14D-1. The summary is qualified in its entirety by reference
to the Merger Agreement, the Shareholder Agreement and the Credit Agreement,
copies of which are filed as Exhibit 2, Exhibit 3 and Exhibit 4, respectively,
to the Schedule 14D-9 and are incorporated by reference herein in their
entirety.
This Information Statement is required to be filed with the Commission and
transmitted to all stockholders of the Company by Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14f-1 promulgated thereunder. Holders of Shares are urged to read this
Information Statement carefully but are not required to take any action.
The information contained in this Information Statement concerning Purchaser
and Parent has been furnished to the Company by such persons, and the Company
assumes no responsibility for the accuracy or completeness of such
information. The principal executive offices of Purchaser and Parent are
located at 111 Monument Circle, Indianapolis, Indiana 46204-5129.
VOTING SECURITIES OF THE COMPANY
As of August 14, 1998, there were issued and outstanding 21,819,006 shares
of Common Stock, each of which entitles the holder thereof to one vote on all
matters submitted for a vote of the stockholders of the Company.
RIGHT TO DESIGNATE DIRECTORS
The Merger Agreement provides that, promptly upon the acceptance for payment
of the Shares by Purchaser pursuant to the Offer, Purchaser will be entitled
to designate such number of directors to the Board of Directors (the
"Designees") as will give Purchaser, subject to compliance with Section 14(f)
of the Exchange Act and subject to the remainder of this paragraph, a majority
of such directors, and the Company is obligated to cause the Designees to be
so elected by its existing Board of Directors. The Merger Agreement also
provides that, if the Designees are elected to the Board, until the effective
time (the "Effective Time") of the merger contemplated thereby (the "Merger"),
the Board of Directors must have at least two directors who are directors as
of the date of the Merger Agreement and who are not officers, directors,
employees or affiliates of Parent or Purchaser and are not officers of the
Company (the "Independent Directors"); provided that, in such event, if
<PAGE>
the number of Independent Directors is reduced below two for any reason
whatsoever, the remaining Independent Director shall designate a person to
fill such vacancy. Such person shall be deemed to be an Independent Director
for purposes of the Merger Agreement.
Subject to applicable law, the Company is obligated to take all action
requested by Parent necessary to effect any election or appointment described
above. In connection with the foregoing, the Company has agreed that it will
promptly, at the option of Parent, either increase the size of the Board of
Directors and/or obtain the resignation of such number of its current
directors as is necessary to enable the Designees to be elected or appointed
to, and to constitute a majority of the Company's Board of Directors. In
addition, subject to applicable law, at all times during which Purchaser has
the right to designate Designees, the Company is obligated, if requested by
Parent, to cause to be elected or appointed to each committee of the Board,
the board of directors of each subsidiary of the Company and each committee of
each such board of directors such number of designees of Purchaser as shall
constitute a majority of each committee, each subsidiary's Board of Directors
and each committee thereof.
Following the election or appointment of the Designees pursuant to the terms
of the Merger Agreement and prior to the Effective Time, the affirmative vote
of a majority of the Independent Directors then in office shall be required by
the Company to (i) amend or terminate the Merger Agreement, (ii) exercise or
waive any of the Company's rights under the Merger Agreement, (iii) extend the
time for performance of Parent's and Purchaser's obligations under the Merger
Agreement or (iv) following the termination of the Merger Agreement in
accordance with its terms enter into any other merger or consolidation between
the Company and Parent or any subsidiary of Parent.
INFORMATION WITH RESPECT TO PEGASUS DESIGNEES
Set forth below is the name, age, business address and principal occupation
or employment of, and the material positions held during the past five years
by, persons who may be designated by Purchaser to be appointed or elected to
the Company's Board of Directors. Such information was furnished by Purchaser
and Parent. The business address of all persons listed below is 111 Monument
Circle, 29th Floor, Indianapolis, Indiana 46204-5129.
None of the persons below or their associates is a director of, or holds any
position with, the Company. To the best of the Company's knowledge, none of
the persons listed below or their associates beneficially owns any equity
securities, or rights to acquire any equity securities, of the Company or has
been involved in any transaction with the Company or any of its directors or
executive officers that is required to be disclosed pursuant to the rules and
regulations of the SEC. Purchaser has informed the Company that each of the
persons listed below has consented to act as a director of the Company.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME AGE EMPLOYMENT AND EMPLOYMENT HISTORY
---- --- ---------------------------------
<S> <C> <C>
James M. Cornelius............. 54 Mr. Cornelius is Chairman of the Board of
Directors and a Director of Parent.
Previously, he was Vice President,
Finance and Chief Financial Officer of
Eli Lilly and Company ("Lilly") from 1983
until his retirement in October 1995 and
was a Director for Lilly. Mr. Cornelius
has served as Treasurer of Lilly and as
President of IVAC Corporation, a former
Lilly medical device subsidiary. He
joined Lilly in 1967. Mr. Cornelius is a
director of American United Life
Insurance Company, Chubb Corporation,
Lilly Industries, Inc., and the National
Bank of Indianapolis. Mr. Cornelius also
serves as a Trustee of the University of
Indianapolis.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME AGE EMPLOYMENT AND EMPLOYMENT HISTORY
---- --- ---------------------------------
<S> <C> <C>
Ronald W. Dollens.............. 51 Mr. Dollens is President, Chief Executive
Officer and a Director of Parent.
Previously, he served as President of
Lilly's Medical Devices and Diagnostics
("MDD") Division from 1991 until 1995.
Mr. Dollens served as Vice President of
Lilly's MDD Division and Chairman of
Parent's subsidiary, Advanced
Cardiovascular Systems, Inc. ("ACS") from
1990 to 1991. He also held the position
of President and Chief Executive Officer
of ACS. Mr. Dollens joined Lilly in 1972.
Mr. Dollens currently serves on the
boards of Physio-Control International
Corporation, the Eiteljorg Museum, the
Health Industry Manufacturers
Association, and the Indiana State
Symphony Society Board. He is also the
President of the Indiana Health Industry
Forum.
J. B. King..................... 68 Mr. King is Vice President, General
Counsel and a Director of Parent. Mr.
King also acts as counsel to the law firm
of Baker & Daniels, which provides legal
services to Parent. He previously was
Vice President and General Counsel for
Lilly, a position he held from 1987 until
he retired in 1995. Before joining Lilly,
Mr. King was a partner and chairman of
the management committee of Baker &
Daniels. Mr. King is a director of Bank
One, Indianapolis, N.A., the Indiana
Legal Foundation, IWC Resources, Inc.,
and the James Whitcomb Riley Memorial
Association.
Keith E. Brauer................ 50 Mr. Brauer is Vice President, Finance and
Chief Financial Officer for Parent.
Previously, he served as Executive
Director of Finance and Chief Accounting
Officer of Lilly from 1992 to 1994. Mr.
Brauer was Executive Director of Finance
and Chief Accounting Officer of Lilly
from 1988 to 1992 and Director of
Corporate Affairs of Lilly from 1986 to
1988. Additionally, he held the position
of Vice President of Finance and
Treasurer for Physio-Control corporation,
a former Lilly subsidiary. Mr. Brauer
joined Lilly in 1974. Mr. Brauer also
serves on the University of Michigan
Business School Corporate Advisory Board.
A. Jay Graf.................... 51 Mr. Graf is a Vice President of Parent
and President, Cardiac Rhythm Management
Group. He has been President and Chief
Executive Officer of Parent's subsidiary,
Cardiac Pacemakers, Inc. ("CPI") since
1992. He joined CPI as Executive Vice
President and Chief Operating Officer in
1990. Mr. Graf has also held the position
of Senior Vice President of Operations at
Physio-Control Corp. Additionally, Mr.
Graf held the positions of Vice President
of Sales and Technical Services and Vice
President of Marketing and Communications
at Physio Control Corp. He Joined Lilly
in 1976. Mr. Graf is a director of ATS
Medical, Inc. and Advance Biosurfaces.
</TABLE>
3
<PAGE>
DIRECTORS OF THE COMPANY
The following sets forth certain information regarding the members of the
Board of Directors of the Company as of August 17, 1998. Pursuant to the
Company's Certificate of Incorporation and its Bylaws, the members of the
Board of Directors serve for staggered three-year terms or until their
successors have been elected and qualified.
TERM EXPIRES 2001
ALAN D. FRAZIER (age 46). Mr. Frazier has been a Director of the Company
since 1991 and is founder and managing partner of Frazier & Company, a
healthcare focused venture capital firm. Previously, he was Executive Vice
President, Chief Financial Officer and Treasurer of Immunex Corporation, a
biopharmaceutical company. Mr. Frazier is currently a director of Integrated
Medical Resources, Inc., a medical management services company and NeoPath,
Inc., a medical device company. He also serves on the board of trustees of the
Fred Hutchinson Cancer Research Center. Mr. Frazier holds a B.A. in Economics
from the University of Washington.
KURT C. WHEELER (age 45). Mr. Wheeler is President, Chief Executive Officer
and Chairman of the Board of the Company. He co-founded the Company in 1990
and has served as the Company's President and Chief Executive Officer and as a
director since that time. Mr. Wheeler became a full-time employee of the
Company in 1992. From 1989 to 1992, he was a principal with the Mayfield Fund,
a venture capital fund. Mr. Wheeler has been involved in the early-stage
development of four biotechnology companies and previously was employed by Eli
Lilly & Company, a pharmaceutical company. Mr. Wheeler currently is a director
of Intra Therapeutics, Inc., a medical device company. Mr. Wheeler holds a
B.A. from Brigham Young University and an M.B.A. from Northwestern
University's Kellogg School.
TERM EXPIRES 2000
MICHAEL J. LEVINTHAL (age 43). Mr. Levinthal has been a Director of the
Company since 1990 and a General Partner of several Mayfield Fund partnerships
since 1983. Mr. Levinthal currently is a director of Symphonix, Inc. and
Focal, Inc., both of which are medical device companies. Mr. Levinthal holds a
B.S. and an M.S. in Engineering and an M.B.A. from Stanford University.
TERM EXPIRES 1999
MARK B. KNUDSON, PH.D. (age 49). Dr. Knudson has been a Director of the
Company since 1991. Since 1989, Dr. Knudson has been a limited partner of
Medical Innovation Fund and Medical Innovation Fund II and general partner of
Medical Innovation Fund II. Dr. Knudson currently is a director of
Integ Incorporated and Diametrics Medical, Inc., both of which are medical
device companies. Dr. Knudson holds a B.S. from Pacific Lutheran University
and a Ph.D. in Physiology and Pharmacology from Washington State University.
DONALD C. HARRISON, M.D. (age 64). Dr. Harrison has been a Director of the
Company since 1996. He has been Professor of Medicine and Cardiology and
Senior Vice President and Provost for Health Affairs, University of
Cincinnati, since 1986. He is a past President of the American Heart
Association and was Chief of Cardiology at Stanford University School of
Medicine. Dr. Harrison holds a B.S. in Chemistry from Birmingham Southern
College and an M.D. from the University of Alabama School of Medicine.
COMPENSATION OF DIRECTORS
All directors of the Company hold office for staggered three-year terms or
until their successors have been elected and qualified. Nonemployee directors
receive a quarterly $2,000 retainer. In addition, nonemployee directors
receive $1,000 for each Board meeting and committee meeting attended.
The Company's 1996 Stock Option Plan for Nonemployee Directors (the "1996
Director Plan") was adopted at the Company's 1996 Annual Meeting of
Stockholders and amended and restated by the Board of
4
<PAGE>
Directors in September 1996 and on August 5, 1997. Each nonemployee director
serving at the time of approval of the 1996 Director Plan received, upon
adoption by the stockholders of the 1996 Director Plan, an option to purchase
20,000 shares of Common Stock. Currently, the 1996 Director Plan provides that
(i) each new nonemployee director will receive, upon election to the Board of
Directors, an initial option grant to purchase 30,000 shares of Common Stock
(an "Initial Grant") and (ii) after each Annual Meeting of Stockholders, each
nonemployee director will receive an option to purchase 10,000 shares of
Common Stock (an "Annual Grant"), with the exception of nonemployee directors
initially elected to the Board of Directors at such Annual Meeting who shall
have received an Initial Grant in connection with their election. The 1996
Director Plan provides that, in addition to Initial Grants and Annual Grants,
nonemployee directors are eligible to receive, during any fiscal year,
additional options to purchase in the aggregate no more than 15,000 shares of
Common Stock.
All options granted under the 1996 Director Plan vest upon the optionee's
continued service as a director in three equal annual installments, beginning
one year after the date of grant. Each option granted under the 1996 Director
Plan has a 10-year term. Options may be exercised within three months after
termination of a director's service with the Company (but not after the
expiration date of the option) or 12 months after the director's death. See
footnote (1) to the "Option Grants in Last Fiscal Year" table for a discussion
of the Company's repricing of outstanding options.
INFORMATION ON COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
The Company's Board of Directors has established a Compensation Committee,
an Audit Committee and a Nominating and Organization Committee.
The Compensation Committee establishes salaries, incentives and other forms
of compensation for directors, officers and other key employees of the
Company, administers the 1990 Option Plan and recommends policies relating to
benefit plans. The Compensation Committee currently consists of Drs. Harrison
and Knudson. There were three Compensation Committee meetings in 1997.
The Audit Committee reviews the Company's accounting practices, internal
accounting controls and financial results and oversees the engagement of the
Company's independent auditors. The Audit Committee currently consists of
Messrs. Frazier and Levinthal. There were three Audit Committee meetings in
1997.
The Nominating and Organization Committee makes recommendations to the Board
of Directors concerning the desired qualifications of prospective candidates
to fill vacancies on the Board of Directors and to serve as officers of the
Company. The Nominating and Organization Committee currently consists of Mr.
Wheeler and Dr. Harrison. There was one Nominating Committee meeting in 1997.
Stockholders may nominate candidates for director when such candidate is
nominated in compliance with the rules set forth in the Company's Amended and
Restated Bylaws.
In 1997, there were seven meetings of the Board of Directors. Each board
member attended at least 75% of the meetings of the Board and each Committee
of which he was a member.
EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of August 17, 1998,
are as follows:
<TABLE>
<CAPTION>
OFFICER
NAME AGE POSITION SINCE
---- --- -------- -------
<S> <C> <C> <C>
President, Chief Executive Officer
Kurt C. Wheeler.............. 45 and Chairman of the Board 1990
Executive Vice President, Medical
Jerry C. Griffin, M.D. ...... 53 Affairs 1992
Gregory M. Ayers, M.D., Ph.D. 36 Vice President, Clinical Affairs 1996
Vice President, Worldwide
John Michael Cleary.......... 40 Marketing and U.S. Sales 1996
Phillip D. Foshee, Jr. ...... 41 Vice President, Design Engineering 1997
Vice President, Worldwide
Robert A. Garee.............. 45 Operations 1996
Vice President, Intellectual
Richard O. Gray, Jr. ........ 52 Property 1994
Vice President, General Manager of
Michel E.J. Lussier.......... 41 European Operations 1994
Philip A. Okeson............. 35 Chief Financial Officer and 1998
Secretary
</TABLE>
5
<PAGE>
For a biographical summary of Mr. Wheeler, see "Directors of the Company."
JERRY C. GRIFFIN, M.D., Executive Vice President, Medical Affairs, joined
InControl in 1992. Dr. Griffin heads InControl's Scientific Advisory Board.
From 1984 to 1992, Dr. Griffin was employed by the University of California,
San Francisco, where he most recently was Professor of Medicine. Dr. Griffin
holds a B.S. from the University of Southern Mississippi and an M.D. from the
University of Mississippi.
GREGORY M. AYERS, M.D., PH.D., Vice President, Clinical Affairs, joined
InControl in 1992, and was appointed to his current position in 1996. From
1989 to 1992, he served as a post-doctorate research assistant at Indiana
University. He holds a B.S. in Engineering and a Ph.D. in Biomedical
Engineering from Purdue University and an M.D. from Indiana University.
JOHN MICHAEL (SEAN) CLEARY, Vice President, Worldwide Marketing and U.S.
Sales, joined InControl in 1996. From 1994 to 1996, he served as Regional
Manager for Cardiac Pacemakers, Inc., a division of Guidant Corporation, a
medical device company. From 1993 to 1994, Mr. Cleary served as Business
Development Manager for the Medical Devices and Diagnostic Division of Eli
Lilly & Company. From 1987 to 1993, he served as Sales Representative,
Marketing Manager, and Financial Analyst for Cardiac Pacemakers, Inc., which
was then a subsidiary of Eli Lilly & Company. Mr. Cleary holds a B.S. in
Industrial and Operations Engineering and an M.B.A. from the University of
Michigan.
PHILLIP D. FOSHEE, JR., Vice President, Design Engineering, joined InControl
in 1991. From 1990 until 1991, Mr. Foshee was a Principal Engineer for
Intermedics, Inc., a medical device company. From 1984 until 1990, he served
as manager of Integrated Circuit Development for Integrated Logic Inc., an
integrated circuit technology company. Mr. Foshee holds a B.S. in Electrical
Engineering and an M.S. in Electrical Engineering from Auburn University.
ROBERT A. GAREE, Vice President, Worldwide Operations, joined InControl in
1996. From 1990 to 1996, he was employed by Schneider (USA), Inc., a division
of Pfizer Inc., a research-based health care company. From 1990 to 1995, Mr.
Garee served as Director of Operation for the Cardiology and Peripheral
Divisions of Schneider (USA). From 1995 to 1996, he served as New Product
Program Director for its stent graft business. He holds a B.S. in Chemistry
from the State University of New York, Albany.
RICHARD O. GRAY, JR., Vice President, Intellectual Property, joined
InControl in 1994. From 1989 to 1994, Mr. Gray was a partner at the law firm
of Foley & Lardner, Chicago, Illinois, specializing in patent matters. Mr.
Gray holds a B.S. from Purdue University and a J.D. from Loyola University of
Chicago Law School.
MICHEL E.J. LUSSIER Vice President, General Manager of European Operations,
joined InControl in 1994. From 1980 to 1994, Mr. Lussier was employed by
Medtronic, Inc. ("Medtronic"), a medical electronics company. From 1990 to
1994, he served as Medtronic's European Business Director, Cardiac Pacing. Mr.
Lussier holds a B.S. in Electrical Engineering and an M.S. in Biomedical
Engineering from the University of Montreal and an M.B.A. from the European
Institute of Business Administration--INSEAD.
PHILIP A. OKESON, Chief Financial Officer and Secretary, joined InControl in
1993. He served the Company as Controller until 1998. Before coming to
InControl, Mr. Okeson was employed by Ernst & Young as a Senior Consultant and
by Physic Control in the area of financial analysis. Mr. Okeson holds an
M.B.A. from the University of Michigan and a B.S. in Business Administration
from the University of Alaska, Fairbanks.
6
<PAGE>
OPTION GRANTS
The following table sets forth certain information regarding options granted
during the year ended December 31, 1997 to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH)(2) DATE(3) 5%($) 10%($)
- ---- ---------- ------------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Kurt C. Wheeler.......... 55,000 5.7% $7.625 01/16/07 $ 243,743 $ 668,376
Jerry C. Griffin, M.D. .. 30,000 3.1% 7.625 01/16/07 143,860 364,569
5,469 * 9.500 08/05/07 32,675 82,804
John Michael Cleary...... 20,000 2.1% 7.625 01/16/07 95,906 243,046
Richard O. Gray, Jr. .... 20,000 2.1% 7.625 01/16/07 95,906 243,046
2,734 * 9.500 08/05/07 16,334 41,394
Michel E. Lussier........ 20,000 2.1% 7.625 01/16/07 95,906 243,046
2,734 * 9.500 08/05/07 16,334 41,394
</TABLE>
- --------
* Less than 1%.
(1) On June 30, 1998, the Board of Directors of the Company implemented an
option exchange program with respect to options held by certain of the
Company's employees, whereby such employees who held options with an
exercise price of $3.00 or greater exchanged their options for a lesser
number of replacement options with an exercise price of $2.625 per share
pursuant to terms of the Company's Restated 1990 Stock Option Plan. All of
the individuals named in this table, except for Mr. Wheeler, exchanged
options pursuant to this program. A total of 508,897 options were
exchanged by these individuals pursuant to this program, resulting in
156,330 options being issued at the new exercise price. On July 10, 1998,
the Board of Directors of the Company implemented an option exchange
program with respect to options held by the Company's directors, whereby
such directors who held options with an exercise price of $3.00 or greater
exchanged their options for a lesser number of replacement options with an
exercise price of $2.75 per share pursuant to the terms of the Company's
1996 Stock Option Plan for Nonemployee Directors and the Company's
Restated 1990 Stock Option Plan. A total of 159,500 options were exchanged
by Mr. Wheeler pursuant to this program, resulting in 50,021 options being
issued at the new exercise price.
(2) The option exercise price is equal to the estimated fair market value of
the underlying Common Stock on the date of grant, as determined by the
Board of Directors.
(3) Provided the holder remains employed by the Company, one quarter of the
options vest each year from the date of grant, becoming fully exercisable
four years from the date of grant. The options terminate 10 years from the
date of grant.
(4) Future value of current year grants assuming appreciation of 5% and 10%
per year over the 10-year option period. The actual value realized may be
greater or less than the potential realizable values set forth in the
table.
OPTION EXERCISES AND YEAR-END OPTION VALUES
None of the named executive officers exercised options during the year ended
December 31, 1997. The following table sets forth certain information
regarding options held as of the end of such year by each of the named
executive officers.
FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS HELD AT THE-MONEY OPTIONS AT
DECEMBER 31, 1997(#) DECEMBER 31, 1997($)(2)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kurt C. Wheeler............ 63,810 95,690 $ 0 $ 0
Jerry C. Griffin, M.D. .... 48,394 91,575 $ 0 $ 0
John Michael Cleary........ 27,083 92,917 $ 0 $ 0
Richard O. Gray, Jr. ...... 16,520 40,714 $ 0 $ 0
Michel E. Lussier.......... 99,853 57,381 $ 0 $ 0
</TABLE>
- --------
(1) See footnote (1) to the "Option Grants in Last Fiscal Year" table for a
discussion of the Company's repricing of outstanding options.
(2) Calculated based on the difference between the option exercise price and
the estimated fair market value of the Common Stock at December 31, 1997.
7
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth certain information as to the Company's Chief
Executive Officer and each of the four other most highly compensated executive
officers during the years ended December 31, 1997, 1996 and 1995 (the "named
executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------- -------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND PRINCIPAL COMPENSATION UNDERLYING COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($)(1) OPTIONS(#)(2) ($)
- ------------------ ---- --------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kurt C. Wheeler(1)....... 1997 $355,000 $36,210 $12,000 55,000 $ 16,800(3)
President and Chief 1996 347,500 36,000 4,500 107,255
Executive Officer 1995 302,750 32,000 100,000 21,300
Jerry C. Griffin, M.D. .. 1997 270,655 20,655 35,469
Exec. Vice President, 1996 265,000 4,500 86,650
Medical Affairs 1995 236,750 60,000 14,723
John Michael Cleary...... 1997 180,000 84,000 20,000 54,120(4)
Vice President, 1996 21,839 100,000
Worldwide Marketing 1995
and U.S. Sales
Richard O. Gray, Jr. .... 1997 229,327 17,213 22,734
Vice President, 1996 225,077 4,500 62,808
Intellectual Property 1995 206,000 30,000 45,000
Michel E. Lussier........ 1997 209,375 16,731 22,734 34,519(5)
Vice President, General 1996 240,419 4,500 37,185
Manager of European
Operations 1995 250,009 30,000 41,172
</TABLE>
- --------
(1) Other Annual Compensation amounts represent compensation paid under an
employment contract. See "--Employment Agreement; Change in Control
Arrangements--Employment Agreements."
(2) See footnote (1) to the "Option Grants in Last Fiscal Year" table for a
discussion of the Company's repricing of outstanding options.
(3) For Mr. Wheeler, the amount represents a $4,800 automobile expense paid
under his employment contract and a $12,000 housing allowance.
(4) For Mr. Cleary, the amount represents a $45,120 moving expense and a
$9,000 car allowance.
(5) For Mr. Lussier, the 1997 amount represents car lease payments of $12,619,
housing allowances of $14,400 and contributions to a pension plan of
$7,500.
8
<PAGE>
EMPLOYMENT AGREEMENT; CHANGE IN CONTROL ARRANGEMENTS
Employment Agreements. Kurt C. Wheeler, President and Chief Executive
Officer of the Company, is party to an Executive Employment Agreement with the
Company dated as of April 1, 1995, as amended by the First Amendment to
Executive Employment Agreement, dated September 30, 1996, the Second Amendment
to Executive Employment Agreement, dated September 1, 1997 and the Third
Amendment to Executive Employment Agreement, dated June 25, 1998 (as amended,
the "Employment Agreement"). The Employment Agreement provides that Mr.
Wheeler is entitled to receive an annual base salary of $325,000, with
increases to be considered by the Board of Directors annually. Pursuant to the
Employment Agreement, Mr. Wheeler receives a monthly automobile allowance of
$400, which allowance is reviewed annually by the Board of Directors, and
received a monthly housing allowance of $3,000 until April 1, 1997. In
addition, pursuant to the Employment Agreement, Mr. Wheeler is entitled to
receive loans not to exceed $816,041.93, consisting of a lump-sum loan in the
amount of $500,000 for relocation and monthly loans in the amount of $5,000,
in the aggregate not to exceed $316,041.93, for as long as Mr. Wheeler remains
an employee. The Company has loaned to Mr. Wheeler the full amount of the
funds provided for under these arrangements. Interest on the loans is set at
4.94% per annum, or the minimum interest necessary to prevent each loan from
being classified as a "below market loan" under Section 7872 of the Internal
Revenue Code of 1986, as amended (the "Code"), but not to exceed 8% per annum.
The principal amount and accrued interest on the loans is due upon the
earliest of (i) termination of the Employment Agreement by the Company for
cause or by Mr. Wheeler, (ii) six months after the aggregate value of all
securities of the Company then held by Mr. Wheeler exceeds $4,000,000 for a
period of 90 consecutive calendar days, so long as Mr. Wheeler is permitted to
freely sell his shares of Common Stock under applicable securities laws, (iii)
nine months after a merger, reorganization or sale of substantially all the
assets of the Company (an "Acquisition") in which Mr. Wheeler receives cash
and securities having a value in excess of $4,000,000 and the securities
received, if any, are publicly traded, and (iv) upon termination of the
Employment Agreement due to Mr. Wheeler's death or disability. If any of the
events described in clauses (ii)-(iv) do not occur on or before September 1,
1999, or in any event upon the occurrence of an Acquisition in which Mr.
Wheeler does not receive in exchange for his Shares cash and securities having
a value in excess of $4,000,000, the principal, but not the accrued interest
on the loans, will be forgiven, and the Company will compensate Mr. Wheeler
for any federal income tax associated with such forgiveness. Mr. Wheeler
expects to receive approximately $2,200,000 in exchange for his Shares as the
result of the Offer and the Merger. In conjunction with these loans and
$264,875 in loans relating to the acceleration and exercise of options in
connection with the Company's initial public offering, Mr. Wheeler executed
promissory notes in favor of the Company and pledged 88,312 shares of Common
Stock as collateral therefor.
Michel E. Lussier, Vice President, General Manager of European Operations
for the Company, is also party to an employment agreement with the Company
dated as of August 17, 1994. Pursuant to this agreement, Mr. Lussier is
entitled to receive a guaranteed net after-tax annual base salary of $120,000
paid in local currency. The local currency payments are calculated at a fixed
foreign exchange rate through August 1998. Increases in Mr. Lussier's
compensation are considered by the Board of Directors annually. Changes in the
foreign exchange rate will be considered after four years. In addition,
pursuant to this agreement, the Company provides Mr. Lussier with an
automobile and relevant automobile expenses, such as taxes, licenses and
insurance, at a total monthly cost of approximately $1,052 in 1997 and makes
contributions to a pension plan of approximately $7,500 annually. Mr. Lussier
also receives a monthly housing allowance of $1,200.
Change in Control Agreements. In May and September 1996, the Company entered
into Senior Management Employment Agreements with each of its executive
officers, except for Philip A. Okeson, with whom the Company entered into a
Senior Management Employment Agreement in June 1998. These agreements provide
that upon a "Change in Control" (as defined in the agreements) each such
executive will be entitled to receive an annual base salary not less than his
salary in effect prior to the Change in Control and an annual bonus at least
equal to the average of his annual bonuses for the three years prior to the
Change in Control. In addition, each such executive will be entitled to
insurance coverage and other employee benefits no less favorable than the
Company's benefits in effect prior to the Change in Control. If during the
two-year period after a Change in Control, the executive officer's employment
is terminated by the Company for any reason other than death,
9
<PAGE>
disability or "cause" or by the executive for "good reason" (as such terms are
defined in the agreements), such executive officer will be entitled to certain
additional benefits, including a lump-sum payment equal to two times the sum
of (i) the executive officer's annual salary prior to the Change in Control
(or on the date of termination, if such executive officer's salary is higher
on such date) and (ii) a percentage of such salary equal to the executive
officer's percentage bonus for the year prior to the Change in Control. If no
such bonus was paid, or if the bonus cannot be determined, such percentage
will be 10%. In addition, any such terminated executive officer will be
entitled to payment of an amount sufficient to compensate him for any excise
tax, including interest and penalties, imposed under Section 4999 of the Code
and to continuation of life insurance, disability, health and dental, and
other similar employee benefits for one year following termination. The Senior
Management Employment Agreements may be terminated on 60 days' written notice
prior to a Change in Control or 30 days' prior written notice once a Change in
Control has occurred; provided, however, that the Company will remain liable
for any obligations arising prior to such termination.
Restated 1990 Stock Option Plan. Under the Restated 1990 Stock Option Plan
(the "1990 Option Plan"), upon a "change in control" (as defined in the 1990
Option Plan), each outstanding option becomes 100% vested immediately prior to
the change in control, unless (i) in the opinion of the Company's independent
accountants, such accelerated vesting would render unavailable pooling of
interests accounting treatment for the change in control, (ii) such option is
assumed or replaced with a comparable option by the successor corporation
following the change in control, or (iii) such option is replaced with a cash
incentive program that preserves the spread existing at the time of the change
in control and provides for payouts in accordance with the option's vesting
schedule. Unless assumed by a successor corporation, all options under the
1990 Option Plan terminate upon a change in control. Any options held by an
executive officer or other employee of the Company that are assumed or
replaced by the successor corporation and do not otherwise accelerate upon a
change in control will become 100% vested if, within two years following the
change in control, the optionee's employment is terminated, other than
termination by the successor corporation for "cause" or by the employee
without "good reason" (as such terms are defined in the 1990 Option Plan).
1996 Stock Option Plan for Nonemployee Directors. Upon a merger (other than
a merger of the Company in which the holders of Common Stock immediately prior
to the merger have the same proportionate ownership of common stock in the
surviving corporation immediately after the merger), consolidation,
acquisition of property or stock, separation, reorganization (other than a
mere reincorporation or the creation of a holding company) or liquidation of
the Company, as a result of which the Company's stockholders receive cash,
stock or other property in exchange for or in connection with their shares of
Common Stock, any option granted under the 1996 Director Plan will terminate
(with certain exceptions), but the optionee would have the right immediately
prior to any such merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation to exercise his or her option in
whole or in part whether or not the vesting requirements set forth in the
option agreement have been satisfied.
Acceleration and Termination of Options. As of the Effective Time (as
defined in the Merger Agreement), (i) each outstanding stock option (the
"Options") to purchase Shares granted under the Company's stock option or
similar Plans (the "Company Option Plans"), whether or not then exercisable or
vested, will become fully exercisable and vested, (ii) each Option that is
then outstanding will be cancelled and (iii) in consideration of such
cancellation, and except to the extent that Parent or Purchaser and the holder
of any such Option otherwise agree, the Company (or, at Parent's option,
Purchaser) will pay to each holder of an Option an amount in respect thereof
equal to the product of (x) the excess, if any, of the Offer Price over the
exercise price of each such Option and (y) the number of Shares previously
subject to the Option immediately prior to its cancellation (such payment to
be net of any withholding taxes required by the Code or other applicable law.
Following the Effective Time no holder of an Option shall have any rights
thereunder other than to receive cash as contemplated by the Merger Agreement
and following the Effective Time no person shall have any right to acquire any
security of the Surviving Corporation (as defined in the Merger Agreement) (or
any subsidiary thereof) as a result of any agreement or obligation of the
Company or any subsidiary.
10
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
responsible for establishing the salaries of the Company's executive officers
and making recommendations concerning such salaries to the Board of Directors.
In addition, the Committee determines the number and terms of options granted
to the Company's executive officers and other employees. The Committee is
comprised of two independent nonemployee directors, Drs. Harrison and Knudson.
In 1997, the Committee was comprised of Mr. Frazier and Dr. Knudson.
The medical device industry is highly competitive with respect to
recruitment and retention of qualified personnel. In setting compensation
policy, the Company continually monitors this environment and works to respond
to change and to effect adjustments as required to remain competitive. Within
this context, the underlying objectives of the Company's compensation policy
are to attract, recruit and retain the best possible executive talent, to
motivate those executives to achieve optimum performance for the Company, to
link executive, employee and stockholder interests through equity-based plans
and to provide compensation that recognizes individual contributions as well
as overall progress of the Company toward its goals. The Committee employs
independently published surveys of compensation levels at comparable medical
device companies to ensure that the Company's compensation practices are
comparable to those at such companies.
During the latter part of 1996, the Company retained a compensation
consultant to assist the Committee in reviewing and making recommendations to
the Company's Board of Directors for updating the Company's compensation
policy. The input of the consultant and the resulting adjustments in the
Company's compensation policy are reflected in the Committee's decisions with
respect to 1997 compensation.
For 1997, there were three components to the Company's executive
compensation: base salary, bonuses tied to performance and the achievement of
Company milestones and long-term incentives in the form of stock options.
Base Salary. The Company, in consultation with the compensation consultant,
substituted base salary increases with the institution of the bonus program
described below. The compensation of two executive officers, however, was
determined to be below industry norms, and, accordingly, their base salaries
were increased approximately 7-15% above those established in 1996.
The Company has an employment agreement with Mr. Wheeler, which, among other
things, provides for an annual review of his base salary by the Committee. In
1997, in conjunction with its review of the compensation of all of the
Company's executives, Mr. Wheeler's base salary was not increased consistent
with the Company's determination to substitute increases in base salaries with
the institution of a bonus program. See "Executive Compensation--Employment
Agreement; Change in Control Arrangements."
Bonuses. Bonuses for 1997 were tied to the achievement and timing of Company
milestones with discretionary award modifiers based on individual performance.
The milestones were based on revenue targets, obtaining the conformite
europeenne ("CE") mark for the METRIX System, regulatory approval of TADPOLE
in either the United States or Europe and specified engineering milestones
connected with new product development. The bonuses relating to the non-
revenue milestones were also dependent upon the timing of their achievement.
There were three dates specified for each of these milestones, with the
earliest date resulting in the full bonus and the two later dates each
resulting in a reduction of the bonus. Out of these four milestones, the
Company obtained the CE mark on the METRIX System by the middle date and
regulatory approval in Europe of TADPOLE by the earliest date.
Long-Term Incentives. Stock options are granted periodically under the 1990
Option Plan to provide to the Chief Executive Officer and other named
executive officers a long-term incentive opportunity that is directly linked
to an increase in stockholder value. Vesting is used to encourage key
employees to continue in the employ of the Company, to provide further
incentives to enhance stockholder value and to reward key employees for the
11
<PAGE>
achievement of certain goals. Historically, the vesting provisions have
varied. Generally, options have standard four-year vesting schedules. Certain
options, however, have been granted which have vesting schedules providing for
acceleration of vesting upon the achievement of certain milestones, such as
the first implant of the METRIX device. In 1997, no options with performance-
based vesting were granted and no acceleration of vesting occurred with
respect to any outstanding options. In connection with its review of
compensation policies in late 1996, and in consultation with an independent
compensation consultant, the Company amended the 1990 Option Plan to provide
that all options granted under the 1990 Option Plan shall vest in equal,
annual installments of 25%, becoming fully vested four years from the date of
grant. In 1997, the Committee granted options to each of its executives,
consistent with the recommendations of an independent compensation consultant,
except for a reduction in the recommended grant to the Chief Executive
Officer.
To qualify compensation for deductibility for federal income tax purposes,
it is the Company's policy to meet the requirements for exclusion from the
limit on deduction imposed by Section 162(m) of the Code by paying
performance-based compensation if possible and, with respect to cases in which
it is not possible to meet the requirements for exclusion from Section 162(m)
of the Code, the Company intends to minimize any award of compensation in
excess of the limit.
Compensation Committee
Alan D. Frazier
Donald C. Harrison
Mark B. Knudson
12
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return on shares of the
Company's Common Stock with the cumulative total return of the Nasdaq US Stock
Market and the Hambrecht & Quist Healthcare Section Excluding Biotechnology
Index for the period beginning on September 9, 1994, the first day of trading,
and ending on December 31, 1997, the end of the Company's last fiscal year.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
INCONTROL, INC., NASDAQ US STOCK MARKET AND
HAMBRECHT & QUIST HEALTHCARE SECTION EXCLUDING BIOTECHNOLOGY INDEX
LOGO
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who beneficially own more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Commission. Officers,
directors and greater than 10% stockholders are required by Commission
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no forms were
required for those persons, the Company believes that during the 1997 fiscal
year all filing requirements applicable to its officers, directors and greater
than 10% beneficial owners were complied with, other than one late filing
relating to one purchase transaction by Donald C. Harrison, a director.
13
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 14, 1998, certain information
with respect to the beneficial ownership of the Common Stock by (i) each
person known by the Company to beneficially own more than 5% of the Common
Stock, (ii) each director and director nominee of the Company, (iii) each of
the Company's named executive officers, and (iv) all directors and executive
officers of the Company as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole voting and investment power
with respect to such shares.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED
-----------------
NAME NUMBER PERCENT
---- --------- -------
<S> <C> <C>
Kurt C. Wheeler(1)......................................... 412,555 1.9%
John M. Cleary............................................. 300 *
Jerry C. Griffin, M.D. .................................... 149,046 *
Richard O. Gray, Jr. ...................................... 45,000 *
Michel E. Lussier.......................................... 0 *
Alan D. Frazier(2)......................................... 180,869 *
Mark B. Knudson(3)......................................... 308,893 1.4%
Michael J. Levinthal(4).................................... 973,313 4.5%
Donald C. Harrison......................................... 3,000 *
General Electric Pension Trust............................. 1,662,448 7.6%
303 Summer Street
Stamford, CT 06904
All directors and executive officers as a group
(13 persons)(5)........................................... 2,140,552 9.8%
</TABLE>
- --------
* Represents holdings of less than 1%.
(1) Represents 367,555 shares, together with 15,000 shares held in a trust for
Mr. Wheeler's daughter, Whitney Elizabeth Wheeler, 15,000 shares held in a
trust for Mr. Wheeler's daughter, Hillary Margette Wheeler and 15,000
shares held in trust for Mr. Wheeler's son, Cameron Austin Wheeler. Quinn
C. Wheeler, Mr. Wheeler's brother, is the trustee of all three trusts. Mr.
Wheeler disclaims beneficial ownership of the shares held in trust for his
children.
(2) Represents 3,780 shares, together with 80,300 shares along with 66,886
shares issuable upon exercise of an outstanding warrant held by Frazier &
Company L.P, 28,903 shares held by Frazier Management L.L.C. and 1,000
shares held by Frazier & Company, Inc. The general partner of Frazier &
Company L.P. is Frazier Management, L.L.C., whose managing member is
Frazier & Company, Inc. Mr. Frazier disclaims beneficial ownership of the
shares held by Frazier & Company L.P., Frazier Management L.L.C. and
Frazier & Company, Inc.
(3) Represents 143 shares, together with 308,750 shares held by Medical
Innovation Fund, of which Dr. Knudson is a special limited partner. Dr.
Knudson disclaims beneficial ownership of the shares held by Medical
Innovation Partners.
(4) Represents 1,435 shares, together with 18,214 shares held in a trust over
which Mr. Levinthal maintains investment discretion. Also includes 832,874
shares held by Mayfield VI Investment Partners ("Mayfield VI"), of which
Mr. Levinthal is a general partner of the general partner, and 120,790
shares held by Mayfield Medical Partners, of which Mr. Levinthal is a
general partner. Mr. Levinthal disclaims beneficial ownership of all such
shares held by Mayfield VI and Mayfield Medical Partners.
(5) Includes 17,550 shares issuable upon exercise of outstanding options
exercisable within 60 days at an exercise price of $0.87 per share, held
by Gregory Ayers and 30,000 shares issuable upon exercise of outstanding
options exercisable within 60 days at an exercise price of $0.87 per
share, held by Phillip Foshee, Jr. See also footnotes 1-4 above.
CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into the Merger Agreement and certain stockholders
of the Company have entered into the Shareholder Agreement. The Merger
Agreement and Shareholder Agreement and the transactions contemplated thereby
are intended to effect a change in control of the Company.
14
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During January and April 1995, the Company made loans to Dr. Griffin and Mr.
Wheeler of $179,000 and $167,000, respectively, to pay for the tax liabilities
arising from the exercise of stock options during 1994 (the "AMT Loans").
These loans accrued interest at rates of 7.19% and 6.8% for loans made in
January and April, respectively. Interest was due on the anniversary dates of
the loans with the balances on these loans originally due on the second
anniversary date, which due date was extended so that the balances on the
loans were due on the third anniversary date. These loans were secured by the
pledge of 29,562 and 28,312 shares of Common Stock, respectively. In June
1998, the Company's Board of Directors declared Dr. Griffin's note in default
and invoked its only remedy of taking back the Company's stock that was held
as collateral for his AMT Loan. At the same time, the Board of Directors also
extended Mr. Wheeler's note for one year. On August 10, 1998, with the consent
of Mr. Wheeler, the Company's Board of Directors exercised the Company's right
to take back the Company's stock that was held as collateral for the Mr.
Wheeler's AMT Loan. As a result of the Company's exercise of its legal remedy,
these employees incurred tax liability attributable to their relief from debt.
On August 10, 1998, the Company's Board of Directors declared a performance
bonus to Mr. Wheeler and to Dr. Griffin of approximately $80,000 and $97,000,
respectively, which is intended to approximate the tax liabilities incurred by
these employees as a result of this transaction.
15
<PAGE>
ANNEX B
LOGO
PERSONAL AND CONFIDENTIAL
August 10, 1998
Board of Directors
InControl, Inc.
6675 185th Avenue, N.E.
Redmond, Washington 98052-6734
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value $0.01
per share (the "Shares"), of InControl, Inc. (the "Company") of the $6.00 per
share in cash proposed to be paid by Guidant Corporation ("Buyer") in the
Tender Offer and the Merger (each as defined below), pursuant to the Agreement
and Plan of Merger, dated as of August 10, 1998, among Buyer, Pegasus
Acquisition Corp., a wholly-owned subsidiary of Buyer ("Acquisition Sub"), and
the Company (the "Agreement"). The Agreement provides for a tender offer for
all of the Shares (the "Tender Offer") pursuant to which the Acquisition Sub
will pay $6.00 per share in cash for each Share accepted. The Agreement further
provides that, following completion of the Tender Offer, Acquisition Sub will
be merged into the Company (the "Merger") and each outstanding Share (other
than Shares owned by Buyer or Acquisition Sub) will be converted into the right
to receive $6.00 in cash.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services
to the Company from time to time, including having acted as lead managing
underwriter of the Company's offering of Shares in 1996 and acting as its
financial advisor in connection with, and having participated in certain of the
negotiations leading to, the Agreement. We have also provided certain
investment banking services to Buyer from time to time, including having acted
as a managing underwriter of the Buyer's initial public offering in 1994 and
having acted as a dealer in the Buyer's current commercial paper program, and
may provide investment banking services to Buyer in the future. In addition,
Goldman, Sachs & Co. provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of the Company or Buyer for its own account and for the accounts of customers.
<PAGE>
InControl, Inc.
August 10, 1998
Page Two
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
the Company for the four years ended December 31, 1997; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company;
certain other communications from the Company to its stockholders; and certain
internal financial analyses and forecasts for the Company prepared by its
management. We also have held discussions with members of the senior
management of the Company regarding its past and current business operations,
financial condition and future prospects. In addition, we have reviewed the
reported price and trading activity for the Shares, compared certain financial
and stock market information for the Company with similar information for
certain other companies the securities of which are publicly traded, reviewed
the financial terms of certain recent business combinations in the medical
technology industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In addition, we have not
made an independent evaluation or appraisal of the assets and liabilities of
the Company or any of its subsidiaries and we have not been furnished with any
such evaluation or appraisal. Our advisory services and the opinion expressed
herein are provided for the information and assistance of the Board of
Directors of the Company in connection with its consideration of the
transactions contemplated by the Agreement and such opinion does not
constitute a recommendation as to whether or not any holder of Shares should
tender such Shares in connection with such transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the $6.00
per Share in cash to be received by the holders of Shares in the Tender Offer
and Merger is fair from a financial point of view to such holders.
Very truly yours,
Goldman, Sachs & Co.
B-2
<PAGE>
SIGNATURES
After due inquiry, and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
Dated: August 17, 1998 InControl, Inc.
/s/ Kurt C. Wheeler
By: _________________________________
Kurt C. Wheeler
President, Chief Executive Officer
andChairman of the Board
1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<S> <C> <C>
Exhibit 1 Second Amendment of Rights Agreement by and between
the Company and First Interstate Bank of Washington
(now ChaseMellon Shareholder Services, L.L.C.), as
Rights Agent, dated August 10, 1998.
Exhibit 2 Agreement and Plan of Merger, dated as of August 10,
1998, among the Company, Purchaser and Parent.
Exhibit 3 Shareholder Agreement among Parent, Purchaser and the
persons listed on Schedule A thereto, dated August
10, 1998.
Exhibit 4 Credit Agreement by and between the Company and
Parent, dated August 10, 1998.
Exhibit 5 Letter dated August 17, 1998 from the Company to the
holders of Common Stock*.
Exhibit 6 Opinion of Goldman, Sachs & Co., dated August 10,
1998 attached as Annex B hereto and incorporated
herein by reference.*
Exhibit 7 Text of Press Release dated August 11, 1998.
Exhibit 8 Information Statement of the Company attached as
Annex A hereto and incorporated herein by reference.*
Exhibit 9 Letter Agreement, dated as of August 14, 1998, among
Parent, Purchaser and the Company.
</TABLE>
- --------
* Included in copies mailed to shareholders of the Company.
<PAGE>
EXHIBIT 1
SECOND AMENDMENT OF RIGHTS AGREEMENT
Pursuant to Section 26 of the Rights Agreement, dated as of February 27,
1996, as amended, by and between InControl, Inc. (the "Company") and First
Interstate Bank of Washington, N.A. (now ChaseMellon Shareholder Services,
L.L.C.) (the "Rights Agreement"), the Company, by this Second Amendment of
Rights Agreement, dated August 10, 1998, does hereby amend the Rights Agreement
as follows:
Section 1 is hereby amended to add the following paragraph as a new last
paragraph at the end of the definition of "Acquiring Person":
"Notwithstanding the foregoing, solely in connection with the transactions
contemplated by that certain Agreement and Plan of Merger among Guidant
Corporation ("Guidant"), Pegasus Acquisitions Corp. ("Pegasus") and the Company
dated as of August 10, 1998 (the "Merger Agreement") and that certain
Shareholder Agreement, dated as of August 10, 1998, among Guidant and
shareholders of the Company listed therein (the "Shareholder Agreement"),
Guidant, Pegasus or any of their Affiliates or Associates shall not be deemed to
be an Acquiring Person by reason of the transactions contemplated by the Merger
Agreement and the Shareholder Agreement, but shall be deemed to be an Acquiring
Person if any of them acquire Beneficial Ownership of any shares of Common Stock
other than pursuant to the Merger Agreement or the Shareholder Agreement and the
transactions contemplated thereby."
Section 1 is hereby amended to add the following paragraph as a new last
paragraph at the end of the definition of "Beneficial Owner":
"Notwithstanding the foregoing, Guidant, Pegasus or any of their Affiliates
or Associates shall not be deemed to be a Beneficial Owner for any purpose of
the Rights Agreement of any shares of Common Stock acquired or to be acquired
pursuant to the execution, delivery or consummation of the transactions
contemplated by the Merger Agreement or the Shareholder Agreement, including
without limitation the granting of an irrevocable proxy pursuant to the
Shareholder Agreement, but shall be deemed to be a Beneficial Owner of any
shares of Common Stock acquired otherwise than pursuant to the Merger Agreement
or the Shareholder Agreement."
Section 3(b) is hereby amended to add the following sentence as the last
sentence at the end of Section 3(b):
<PAGE>
"Notwithstanding anything herein to the contrary, the date of execution,
delivery or consummation of the Merger Agreement and the transactions
contemplated thereby, including the Offer (as defined in the Merger Agreement),
shall not be deemed to be a Distribution Date for any purpose of this Agreement
solely by reason of such execution, delivery or consummation; provided, however,
that any other acquisition of Beneficial Ownership of any shares of Common Stock
by Guidant, Pegasus or any of their Affiliates or Associates otherwise than
pursuant to the Merger Agreement or the Shareholder Agreement and the
transactions contemplated thereby may give rise to a Distribution Date."
IN WITNESS WHEREOF, the Company has executed this Second Amendment of
Rights Agreement as of the date first written above.
INCONTROL, INC.
/s/ Kurt C. Wheeler
--------------------
Kurt C. Wheeler
President and Chief Executive Officer
<PAGE>
Exhibit 2
<PAGE>
================================================================================
AGREEMENT AND PLAN OF MERGER
among
GUIDANT CORPORATION
PEGASUS ACQUISITIONS CORP.
and
INCONTROL, INC.
Dated as of August 10, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. THE OFFER............................................................................... 1
SECTION 1.1 The Offer............................................................................ 1
SECTION 1.2 Company Actions...................................................................... 3
SECTION 1.3 Directors............................................................................ 4
ARTICLE II. THE MERGER............................................................................. 5
SECTION 2.1 The Merger........................................................................... 5
SECTION 2.2 Effective Time....................................................................... 5
SECTION 2.3 Certificate of Incorporation and By-laws............................................. 6
SECTION 2.4 Directors and Officers............................................................... 6
ARTICLE III. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES............................................................. 6
SECTION 3.1 Effect on Capital Stock.............................................................. 6
SECTION 3.2 Exchange of Certificates............................................................. 7
SECTION 3.3 Options.............................................................................. 9
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................... 9
SECTION 4.1 Organization......................................................................... 9
SECTION 4.2 Capitalization....................................................................... 10
SECTION 4.3 Authority............................................................................ 11
SECTION 4.4 Consents and Approvals; No Violations................................................ 11
SECTION 4.5 SEC Reports and Financial Statements................................................. 12
SECTION 4.6 Absence of Certain Changes or Events................................................. 13
SECTION 4.7 No Undisclosed Liabilities........................................................... 13
SECTION 4.8 Information Supplied................................................................. 13
SECTION 4.9 Employee Benefit Plans; Labor Matters................................................ 13
SECTION 4.10 Contracts............................................................................ 16
SECTION 4.11 Litigation........................................................................... 16
SECTION 4.12 Compliance with Applicable Law....................................................... 16
SECTION 4.13 Tax Matters.......................................................................... 17
SECTION 4.14 Environmental........................................................................ 19
SECTION 4.15 State Takeover Statutes.............................................................. 20
SECTION 4.16 Intellectual Property................................................................ 20
SECTION 4.17 FDA and Product Matters.............................................................. 21
SECTION 4.18 Year 2000............................................................................ 21
SECTION 4.19 Insurance............................................................................ 22
SECTION 4.20 Absence of Questionable Payments..................................................... 22
SECTION 4.21 Opinion of Financial Advisor......................................................... 23
SECTION 4.22 Brokers and Finders.................................................................. 23
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB........................................ 23
SECTION 5.1 Organization......................................................................... 23
SECTION 5.2 Authority............................................................................ 23
SECTION 5.3 Consents and Approvals; No Violations................................................ 24
SECTION 5.4 Information Supplied................................................................. 24
SECTION 5.5 Interim Operations of Sub............................................................ 25
SECTION 5.6 Brokers.............................................................................. 25
SECTION 5.7 Financing............................................................................ 25
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI. COVENANTS.............................................................................. 25
SECTION 6.1 Covenants of the Company............................................................. 25
SECTION 6.2 No Solicitation...................................................................... 27
SECTION 6.3 Shareholder Approval; Preparation of Proxy Statement................................. 29
SECTION 6.4 Access to Information................................................................ 30
SECTION 6.5 Updating............................................................................. 30
SECTION 6.6 Reasonable Efforts................................................................... 31
SECTION 6.7 Indemnification; Insurance........................................................... 32
SECTION 6.8 Certain Litigation................................................................... 33
SECTION 6.9 Certain Transaction Related Fees..................................................... 33
SECTION 6.10 Benefit Arrangements................................................................. 33
SECTION 6.11 Takeover Statutes.................................................................... 34
SECTION 6.12 Shareholder Agreement Legend......................................................... 34
SECTION 6.13 Loan Agreement....................................................................... 34
SECTION 6.14 Redemption of Series B Stock......................................................... 35
ARTICLE VII. CONDITIONS............................................................................ 35
SECTION 7.1 Conditions to Each Party's Obligation To Effect the Merger........................... 35
ARTICLE VIII. TERMINATION AND AMENDMENT............................................................ 36
SECTION 8.1 Termination.......................................................................... 36
SECTION 8.2 Effect of Termination................................................................ 37
SECTION 8.3 Amendment............................................................................ 37
SECTION 8.4 Extension; Waiver.................................................................... 37
SECTION 8.5 Expenses............................................................................. 38
ARTICLE IX. MISCELLANEOUS.......................................................................... 39
SECTION 9.1 Nonsurvival of Representations and Warranties........................................ 39
SECTION 9.2 Notices.............................................................................. 39
SECTION 9.3 Interpretation....................................................................... 40
SECTION 9.4 Counterparts......................................................................... 41
SECTION 9.5 Entire Agreement; No Third Party Beneficiaries....................................... 41
SECTION 9.6 Governing Law........................................................................ 41
SECTION 9.7 Publicity............................................................................ 41
SECTION 9.8 Assignment........................................................................... 41
SECTION 9.9 Enforcement.......................................................................... 41
SECTION 9.10 Severability......................................................................... 42
Conditions to the Offer ......................................................................Exhibit A
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of August 10, 1998, among GUIDANT
CORPORATION, an Indiana corporation ("Parent"), PEGASUS ACQUISITIONS CORP., a
Delaware corporation and an indirect wholly-owned subsidiary of Parent ("Sub"),
and INCONTROL, INC., a Delaware corporation (the "Company").
WHEREAS, Parent proposes to cause Sub to make a tender offer (as it may be
amended from time to time as permitted under this Agreement, the "Offer") to
purchase all the outstanding shares of Common Stock, par value $0.01 per share
(the "Common Stock"), including shares of Common Stock issued from time to time
upon conversion of the Series B Convertible Preferred Stock, par value $0.01 per
share (the "Series B Stock") or upon the exercise of any Options (as defined in
Section 3.3) (the "Shares") (which shall include all related rights (the
"Rights") issued pursuant to the Rights Plan dated as of February 27, 1996
between the Company and First Interstate Bank of Washington, N.A. (the "Rights
Plan")), of the Company at a purchase price (the "Offer Price") of $6.00 per
Share, net to the seller in cash, without interest thereon, or such higher price
as Sub may offer upon the terms and subject to the conditions set forth in this
Agreement; and the Board of Directors of the Company has adopted resolutions
approving the Offer and recommending that holders of Shares accept the Offer;
WHEREAS, the merger of Sub with and into the Company (the "Merger") upon
the terms and subject to the conditions set forth in this Agreement has been
authorized by all necessary corporate action on behalf of Parent and Sub and has
been adopted by the Board of Directors of the Company;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, Parent, Sub and certain
shareholders of the Company are entering into a Shareholder Agreement (the
"Shareholder Agreement") pursuant to which such shareholders have, among other
things, agreed to sell all such shareholders' Shares to Sub at the price per
Share paid in the Offer, upon the terms and subject to the conditions set forth
in the Shareholder Agreement; and the Shareholder Agreement has been approved by
the Board of Directors of the Company; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger and also to prescribe various conditions to the Offer and
the Merger.
NOW, THEREFORE, Parent, Sub and the Company hereby agree as follows:
ARTICLE I.
THE OFFER
SECTION 1.1 The Offer.
----------
(a) Subject to the provisions of this Agreement, as promptly as
practicable but in no event later than five business days after the date of the
public
<PAGE>
announcement by Parent and the Company of this Agreement, Sub shall commence the
Offer. Sub shall purchase for cash all Shares tendered at the highest price
offered (which shall in no event be less than the Offer Price) if they are
validly tendered and not withdrawn prior to the expiration of the Offer as set
forth in the Offer Documents (as defined in Section 1.1(b)). The obligation of
Sub to, and of Parent to cause Sub to, commence the Offer and accept for
payment, and pay for, any Shares tendered pursuant to the Offer shall be subject
only to the conditions set forth in Exhibit A (the "Offer Conditions") (any of
which may be waived in whole or in part by Sub in its reasonable discretion,
except that Sub shall not waive the Minimum Condition (as defined in Exhibit A)
without the consent of the Company) and to the terms and conditions of this
Agreement.
Sub expressly reserves the right to modify the terms of the Offer, except
that, without the consent of the Company, Sub shall not (i) reduce the number of
Shares subject to the Offer, (ii) reduce the Offer Price, (iii) amend or add to
the Offer Conditions, (iv) except as provided in the next sentence, extend the
Offer, (v) change the form of consideration payable in the Offer or (vi) amend
any other term of the Offer in any manner adverse to the holders of the Shares.
Notwithstanding the foregoing, Sub may, without the consent of the Company, (i)
extend the Offer, if at the scheduled or extended expiration date of the Offer
any of the Offer Conditions shall not be satisfied or waived, until such time as
such conditions are satisfied or waived, (ii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the Securities
and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer
and (iii) extend the Offer for any reason on one or more occasions for an
aggregate period of not more than 10 business days beyond the latest expiration
date that would otherwise be permitted under clause (i) or (ii) of this
sentence. In the event that (i) the redemption notice period provided in the
Certificate of Designations of the Series B Stock shall not have expired and
(ii) the Company shall have given a notice of redemption of the Series B Stock
in accordance with the Certificate of Designations, Sub shall extend the
Expiration Date until such time as such notice period shall have expired.
Subject to the terms and conditions of the Offer and this Agreement, Sub shall,
and Parent shall cause Sub to, accept for payment, and pay for, all Shares
validly tendered pursuant to the Offer that Sub becomes obligated to accept for
payment, and pay for, pursuant to the Offer as promptly as practicable after the
expiration of the Offer.
(b) On the date of commencement of the Offer, Parent and Sub shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 (the "Schedule 14D-
1") with respect to the Offer, which shall contain an offer to purchase and a
related letter of transmittal (such Schedule 14D-1 and the documents included
therein pursuant to which the Offer will be made, together with any supplements
or amendments thereto, the "Offer Documents"). Parent and Sub agree that the
Offer Documents shall comply in all material respects with the Securities
Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations
promulgated thereunder and the Offer Documents, on the date first published,
sent or given to the Company's shareholders, shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
covenant is made by Parent or Sub
2
<PAGE>
with respect to information supplied by the Company or any of its shareholders
specifically for inclusion or incorporation by reference in the Offer Documents.
Each of Parent, Sub and the Company agree promptly to correct any information
provided by it for use in the Offer Documents if and to the extent that such
information shall have become false or misleading in any material respect, and
Parent and Sub further agree to take all steps necessary to cause the Schedule
14D-1 as so corrected to be filed with the SEC and the other Offer Documents as
so corrected to be disseminated to the Company's shareholders, in each case as
and to the extent required by applicable federal securities laws. The Company
and its counsel shall be given reasonable opportunity to review and comment upon
the Offer Documents prior to their filing with the SEC or dissemination to the
shareholders of the Company. Parent and Sub agree to provide the Company and its
counsel any comments Parent, Sub or their counsel may receive from the SEC or
its staff with respect to the Offer Documents promptly after the receipt of such
comments.
(c) Parent shall provide or cause to be provided to Sub on a timely
basis the funds necessary to accept for payment, and pay for, any Shares that
Sub becomes obligated to accept for payment, and pay for, pursuant to the Offer.
SECTION 1.2 Company Actions.
----------------
(a) The Company hereby approves of and consents to the Offer and
represents that the Board of Directors of the Company, at a meeting duly called
and held, duly and unanimously adopted resolutions (i) approving this Agreement
and the Shareholder Agreement, approving the Offer and the Merger (and effecting
the other actions referred to in Section 4.15), determining that the terms of
the Offer and the Merger are fair to, advisable and in the best interests of,
the Company and its shareholders, recommending that the Company's shareholders
accept the Offer, tender their shares pursuant to the Offer and approve this
Agreement (if required) and approving the acquisition of Shares by Sub pursuant
to the Offer, the Merger and the Shareholder Agreement and the other
transactions contemplated by this Agreement and the Shareholder Agreement. The
Company has been advised by each of its directors and executive officers that
each such person intends to tender all Shares owned by such person pursuant to
the Offer.
(b) On the date the Offer Documents are filed with the SEC, the
Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, and the documents
included therein, together with any supplements or amendments thereto, the
"Schedule 14D-9") containing, subject to the fiduciary duties of the Board of
Directors as determined in good faith following receipt of advice of legal
counsel, the recommendation described in paragraph (a) and shall mail the
Schedule 14D-9 to the shareholders of the Company. The Company agrees that the
Schedule 14D-9 shall comply in all material respects with the requirements of
the Exchange Act and the rules and regulations promulgated thereunder and, on
the date filed with the SEC and on the date first published, sent or given to
the Company's shareholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not
3
<PAGE>
misleading, except that no covenant is made by the Company with respect to
information supplied by Parent or Sub specifically for inclusion in the Schedule
14D-9. Each of the Company, Parent and Sub agrees promptly to correct any
information provided by it for use in the Schedule 14D-9 if and to the extent
that such information shall have become false or misleading in any material
respect, and the Company further agrees to take all steps necessary to amend or
supplement the Schedule 14D-9 and to cause the Schedule 14D-9 as so amended or
supplemented to be filed with the SEC and disseminated to the Company's
shareholders, in each case as and to the extent required by applicable federal
securities laws. Parent and its counsel shall be given reasonable opportunity to
review and comment upon the Schedule 14D-9 prior to its filing with the SEC or
dissemination to shareholders of the Company. The Company agrees to provide
Parent and its counsel any comments the Company or its counsel may receive from
the SEC or its staff with respect to the Schedule 14D-9 promptly after the
receipt of such comments.
(c) In connection with the Offer and the Merger, the Company shall
cause its transfer agent to furnish Sub promptly with mailing labels containing
the names and addresses of the record holders of Shares as of a recent date and
of those persons becoming record holders subsequent to such date, together with
copies of all lists of shareholders, security position listings and computer
files and all other information in the Company's possession or control regarding
the beneficial owners of Shares, and shall furnish to Sub such information and
assistance (including updated lists of shareholders, security position listings
and computer files) as Parent may reasonably request in communicating the Offer
to the Company's shareholders. Parent and Sub shall use such information only in
connection with the Offer and the Merger, and if this Agreement is terminated in
accordance with its terms, each of them shall, upon the Company's request,
deliver to the Company all of such information and any copies or excerpts
thereof in its possession or under its control.
SECTION 1.3 Directors.
----------
(a) Promptly upon the acceptance for payment of Shares by Sub
pursuant to the Offer, Sub shall be entitled to designate such number of
directors on the Board of Directors of (i) the Company as will give Sub, subject
to compliance with Section 14(f) of the Exchange Act, a majority of such
directors, and the Company shall, at such time, cause Sub's designees to be so
elected by its existing Board of Directors and (ii) each subsidiary of the
Company and each committee of the Board of Directors of the Company and each
such subsidiary as will give Sub a majority of such directors or committee, and
the Company shall, at such time, cause Sub's designees to be so elected. In the
event that Sub's designees are elected to the Board of Directors of the Company,
until the Effective Time such Board of Directors shall have at least two
directors who are directors on the date of this Agreement and who are not
officers of the Company (the "Independent Directors"); and provided that, in
such event, if the number of Independent Directors shall be reduced below two
for any reason whatsoever, the remaining Independent Director shall designate a
person to fill such vacancy who shall be deemed to be an Independent Director
for purposes of this Agreement or, if no Independent Directors then remain, the
other directors shall designate two persons to fill such vacancies who shall not
be officers or affiliates of the Company, or officers or affiliates
4
<PAGE>
of Parent or any of its subsidiaries, and such persons shall be deemed to be
Independent Directors for purposes of this Agreement.
(b) Subject to applicable law, the Company shall take all action
requested by Parent necessary to effect any such election, including mailing to
its shareholders the Information Statement (as hereinafter defined) containing
the information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder, and the Company agrees to make such mailing with the
mailing of the Schedule 14D-9 (provided that Sub shall have provided to the
Company on a timely basis all information required to be included in the
Information Statement with respect to Sub's designees). In connection with the
foregoing, the Company will promptly, at the option of Parent, either increase
the size of the Company's and each subsidiary's Board of Directors and each
committee thereof and/or obtain the resignation of such number of its current
directors as is necessary to enable Sub's designees to be elected or appointed
to, and to constitute a majority of the Company's and each subsidiary's Board of
Directors and each committee thereof as provided above.
(c) Following the election or appointment of Sub's designees pursuant
to this Section 1.3 and prior to the Effective Time, the affirmative vote of a
majority of the Independent Directors then in office shall be required by the
Company to (i) amend or terminate this Agreement by the Company, (ii) exercise
or waive any of the Company's rights or remedies under this Agreement, (iii)
extend the time for performance of Parent's and Sub's respective obligations
under this Agreement or (iv) following the termination of this Agreement in
accordance with its terms enter into any other merger or consolidation between
the Company and Parent or any subsidiary of Parent.
ARTICLE II.
THE MERGER
SECTION 2.1 The Merger.
-----------
Upon the terms and subject to the conditions set forth herein, at the
Effective Time, Sub shall be merged with and into the Company (the "Merger"),
the separate existence of Sub shall cease and the Company shall continue as the
surviving corporation (hereinafter sometimes referred to as the "Surviving
Corporation"). The Merger shall have the effects set forth in the Delaware
General Corporation Law (the "DGCL").
SECTION 2.2 Effective Time.
---------------
As promptly as practicable (but in no event more than two business
days) after the satisfaction or waiver of the conditions to the Merger (other
than conditions which by their nature are to be satisfied at the closing, but
subject to such conditions) the parties shall (a) file a certificate of merger
or, if applicable, a certificate of ownership and merger (the "Certificate of
Merger") in such form as is required by and executed in accordance with the
relevant provisions of the DGCL and (b) make all other filings or recordings
required under the DGCL. The Merger shall become effective at such time as
5
<PAGE>
the Certificate of Merger is duly filed with the Delaware Secretary of State or
at such subsequent time as Parent and the Company shall agree and as shall be
specified in the Certificate of Merger (the date and time the Merger becomes
effective being the "Effective Time"). Prior to such filing, a closing (the
"Closing") shall be held at the offices of Dewey Ballantine LLP, New York, New
York.
SECTION 2.3 Certificate of Incorporation and By-laws.
-----------------------------------------
(a) The Certificate of Incorporation of Sub as in effect immediately
prior to the Effective Time shall be the initial certificate of incorporation of
the Surviving Corporation.
(b) The By-laws of Sub, as in effect immediately prior to the
Effective Time, shall be the initial By-laws of the Surviving Corporation.
SECTION 2.4 Directors and Officers.
-----------------------
(a) The directors of Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation.
(b) The officers of the Company immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation.
ARTICLE III.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
SECTION 3.1 Effect on Capital Stock.
------------------------
As of the Effective Time, by virtue of the Merger and without any
action on the part of any holder thereof:
(a) Capital Stock of Sub. Each issued and outstanding share of common
-----------------------
stock of Sub shall be converted into and become one fully paid and nonassessable
share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent Owned Stock. Each
-----------------------------------------------------
Share that is owned by the Company or any subsidiary and each Share that is
owned by Parent or any subsidiary or Sub shall be canceled and retired and shall
cease to exist, and no consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock. Subject to SECTION 3.1 (d), each
---------------------------
issued and outstanding Share (other than Shares to be canceled in accordance
with SECTION 3.1 (b) hereof) shall be converted into the right to receive in
cash, without interest, the highest price per share paid in the Offer (the
"Merger Consideration"). As of the Effective Time, all such Shares shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate
6
<PAGE>
representing any such Shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration.
(d) Dissenting Shares. Notwithstanding anything in this Agreement
-----------------
to the contrary, any Shares held by a person (a "Dissenting Shareholder") who
does not vote to approve the Merger and complies with all the provisions of the
DGCL concerning the right of holders of Shares to dissent from the Merger and
require payment of fair value (as defined in the DGCL) for their Shares
("Dissenting Shares") shall not be converted as described in SECTION 3.1 (c),
but shall be converted into the right to receive such consideration as may be
determined to be due to such Dissenting Shareholder pursuant to the DGCL. If,
after the Effective Time, such Dissenting Shareholder withdraws his demand or
fails to perfect or otherwise loses his rights as a Dissenting Shareholder to
payment of fair value, in any case pursuant to the DGCL, his Shares shall be
deemed to be converted as of the Effective Time into the right to receive the
Merger Consideration. The Company shall give Parent (i) prompt notice of any
demands for fair value for Shares received by the Company and (ii) the
opportunity to participate in and direct all negotiations and proceedings with
respect to any such demands. The Company shall not, without the prior written
consent of Parent, make any payment with respect to, or settle, offer to settle
or otherwise negotiate, any such demands.
(e) Withholding Tax. The right of any shareholder to receive the
---------------
Merger Consideration shall be subject to and reduced by the amount of any
required tax withholding obligation required by the Code (as hereinafter
defined) or other applicable law.
SECTION 3.2 Exchange of Certificates.
-------------------------
(a) Exchange Agent. Prior to the Effective Time, Parent shall
--------------
designate a bank or trust company reasonably acceptable to the Company to act as
Exchange Agent in the Merger (the "Exchange Agent"), and, from time to time, on,
prior to or after the Effective Time, Parent shall make available, or cause the
Surviving Corporation to make available, to the Exchange Agent cash in amounts
and at the times necessary for the prompt payment of the Merger Consideration
upon surrender of certificates that immediately prior to the Effective Time
represented outstanding Shares ("Certificates").
(b) Exchange Procedure. As soon as reasonably practicable after
------------------
the Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in a
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 the Merger Consideration. Upon surrender of a Certificate to the Exchange
Agent, together with a duly executed letter of transmittal and such other
documents as may reasonably be required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor the Merger
Consideration for each Share theretofore represented by such Certificate, and
the Certificate so surrendered shall forthwith be canceled.
7
<PAGE>
(c) No Further Ownership Rights in Shares. All Merger Consideration
-------------------------------------
delivered upon the surrender of Certificates in accordance with the terms of
this Article III shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Shares theretofore represented by such Certificates.
Until surrendered as contemplated by this Section 3.2, each Certificate shall be
deemed at all times after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration into which the Shares
theretofore represented by such Certificate shall have been converted pursuant
to Section 3.1. No interest will be paid or will accrue on the cash payable upon
the surrender of any Certificate.
(d) Stock Transfer Books. At the Effective Time, the stock transfer
--------------------
books of the Company shall be closed, and there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
Shares that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article III.
(e) Lost Certificates. If any Certificate shall have been lost,
-----------------
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and the posting by
such person of a bond or other surety in such amount as the Exchange Agent and
Parent may reasonably direct as indemnity against any claim that may be made
with respect to such Certificate and subject to such other reasonable conditions
as the Exchange Agent and Parent may impose, the Exchange Agent shall deliver in
exchange for such Certificate the Merger Consideration into which the Shares
theretofore represented by such Certificate shall have been converted pursuant
to Section 3.1.
(f) Transferred Certificates. If any payment under this Article III
------------------------
is to be made to a person other than the person in whose name the Certificate
surrendered in exchange therefor is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the payment
to a person other than the registered holder of the Certificate surrendered or
such person shall establish to the satisfaction of the Surviving Corporation
that such tax has been paid or is not applicable.
(g) Investment. The Exchange Agent shall invest any funds held by
----------
it for purposes of this Section 3.2 as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Parent.
(h) No Liability. None of Parent, Sub, the Company or the Exchange
------------
Agent shall be liable to any person in respect of any cash delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
Any portion of the cash that has been made available to the Exchange Agent
pursuant to this Section 3.2 that remains unclaimed by the holder of any
Certificate six months after the Effective Time, shall be returned to Parent and
any such holder who has not exchanged such holder's
8
<PAGE>
Certificate prior to such time shall thereafter look only to the Surviving
Corporation for any claim for Merger Consideration hereunder.
SECTION 3.3 Options.
--------
(a) The Company has taken all necessary action so that effective as
of the Effective Time, (i) each outstanding stock option (the "Options") to
purchase Shares granted under the Company's stock option or similar Plans (the
"Company Option Plans"), whether or not then exercisable or vested, will become
fully exercisable and vested, (ii) each Option that is then outstanding will be
cancelled and (iii) in consideration of such cancellation, and except to the
extent that Parent or Sub and the holder of any such Option otherwise agree, the
Company (or, at Parent's option, Sub) will pay to each holder of an Option an
amount in respect thereof equal to the product of (x) the excess, if any, of the
Offer Price over the exercise price of each such Option and (y) the number of
Shares previously subject to the Option immediately prior to its cancellation
(such payment to be net of any withholding taxes required by the Code or other
applicable law). The Company represents that (i) no consent of any holder of any
option is necessary for the transactions contemplated by this Section 3.3(a),
(ii) following the Effective Time no holder of an Option shall have any rights
thereunder other than to receive cash as contemplated by this Section and (iii)
following the Effective Time no person shall have any right to acquire any
security of the Surviving Corporation (or any subsidiary thereof) as a result of
any agreement or obligation of the Company or any subsidiary.
(b) The Company Option Plans shall terminate as of the Effective
Time, and the provisions in any other plan or arrangement of the Company
providing for the offering, issuance, purchase, transfer or grant of any capital
stock of the Company or any interest in respect of any capital stock of the
Company shall be deleted as of the Effective Time, and the Company shall ensure
that following the Effective Time no holder of any Option or Warrant or any
participant in any Company Option Plan or other plan or arrangement of the
Company shall have any right thereunder to acquire any capital stock of the
Company or the Surviving Corporation.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the
Company to Parent prior to the execution of this Agreement (the "Company
Disclosure Schedule"), which Company Disclosure Schedule identifies the Section
(or, if applicable, subsection) to which such exception relates, the Company
represents and warrants to Parent and Sub as follows:
SECTION 4.1 Organization.
-------------
Each of the Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite corporate power and
authority to own, lease or operate its properties
9
<PAGE>
and to carry on its business as now being conducted. Each of the Company and its
subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not have a Material Adverse
Effect on the Company. For purposes of this Agreement, a "Material Adverse
Effect" means, with respect to any person, a fact, event or effect which has
had, or is reasonably likely to have, together with all similar or related
facts, events and effects, a material adverse effect on the financial condition,
business, assets, prospects or results of operations of such person and its
subsidiaries taken as a whole or on the ability of such person to perform its
obligations hereunder or which would prevent or materially delay the
consummation of the transactions contemplated hereby. The Company has made
available to Parent complete and correct copies of its Certificate of
Incorporation and Bylaws and the certificate of incorporation and by-laws (or
similar organizational documents) of each of its subsidiaries.
SECTION 4.2 Capitalization.
---------------
(a) The authorized capital stock of the Company consists of
40,000,000 Shares and 10,000,000 shares of preferred stock (400,000 of which are
designated as Series A Participating Cumulative Preferred Stock issuable upon
exercise of the Rights and 8,710 of which are designated Series B Stock. At the
close of business on August 6, 1998, (i) 20,974,122 Shares were issued and
outstanding, (ii) 2,999 shares of Series B Stock were issued and outstanding
held beneficially and of record by two owners and (iii) 1,442,217 Shares were
issuable upon the exercise of Options to purchase Shares under the Company
Option Plans, 102,901 Shares were issuable upon exercise of the outstanding
warrants to purchase Shares (the "Warrants") and 838,653 Shares are issuable
upon conversion of the Series B Stock. All outstanding shares of capital stock
of Company have been duly authorized and validly issued and are fully paid and
nonassessable. The Shares issuable upon exercise of the Options and Warrants and
conversion of the Series B Stock are duly authorized, and when issued in
accordance with the terms of the Options, Warrants or Series B Stock, as
applicable, will be validly issued and fully paid and nonassessable. Except as
set forth above, and for changes since such date resulting from (i) the exercise
of Options or Warrants, outstanding on such date in accordance with their terms,
(ii) fluctuations in the price of the Common Stock and the applicable conversion
percentage for the Series B Stock or (iii) conversion of any shares of Series B
Stock, there are outstanding (x) no shares of capital stock or other voting
securities of the Company, (y) no securities of the Company convertible into or
exchangeable for shares of capital stock or other securities of the Company, and
(z) no options or other rights to acquire from the Company, and no obligation of
the Company to issue, any capital stock or other securities. There are no
outstanding obligations of the Company or any subsidiary to repurchase, redeem
or otherwise acquire any securities of the Company or to vote or to dispose of
any shares of the capital stock of any of the Company's subsidiaries.
(b) Section 4.2(b) of the Company Disclosure Schedule lists each
outstanding Option and Warrant as of August 6, 1998, the holder thereof, the
number of
10
<PAGE>
Shares issuable thereunder and the exercise price thereof. Subject to providing
the notice required pursuant to the terms of the Warrants and as contemplated by
Section 6.14(c) hereof, at the Effective Time all of the Warrants will have
expired and be of no further force or effect in accordance with their terms.
(c) Section 4.2(c) of the Company Disclosure Schedule lists each
subsidiary of the Company. All the outstanding shares of capital stock of each
such subsidiary are owned by the Company, by another wholly owned subsidiary of
the Company or by the Company and another wholly owned subsidiary of the
Company, free and clear of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature (collectively, "Liens"), and are duly
authorized, validly issued, fully paid and nonassessable. Except for the capital
stock of its subsidiaries, the Company does not own, directly or indirectly, any
capital stock or other ownership interest in any entity.
SECTION 4.3 Authority.
----------
The Company has all requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation by the Company of the Merger and of the other transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate such
transactions, other than, with respect to the Merger, the adoption of this
Agreement by the holders of a majority of the outstanding Shares (the "Company
Shareholder Approval") (if required). This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject
to applicable bankruptcy, insolvency, moratorium or other similar laws relating
to creditors' rights and general principles of equity (the "Enforceability
Exceptions").
SECTION 4.4 Consents and Approvals; No Violations.
--------------------------------------
(a) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
by this Agreement do not and will not require any filing or registration with,
notification to, or authorization, permit, consent or approval of, or other
action by or in respect of, any United States federal, state, local, foreign,
supranational or other governmental body, court, agency, official or regulatory
or other authority (collectively, "Governmental Entities") other than (i) the
filing of the Certificate of Merger as contemplated by Article I hereof, (ii)
compliance with any applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (iii) compliance with any
applicable requirements of the Exchange Act and (iv) any filing, registration or
notification the failure of which to make or any authorization, permit, consent
or approval the failure of which to obtain would not reasonably be expected to
have a Material Adverse Effect on the Company.
11
<PAGE>
(b) The execution, delivery and performance by the Company of this
Agreement and the consummation by the Company of the transactions contemplated
by this Agreement do not and will not (i) conflict with or result in any breach
of any provision of the Certificate of Incorporation or Bylaws of the Company or
any similar organizational documents of any of its subsidiaries, (ii) result in
a violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default under, or give rise to any right of termination,
amendment, cancellation, acceleration or loss of benefits under, or result in
the creation of any Lien upon any of the properties or assets of the Company or
any of its subsidiaries under, or require consent pursuant to, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
permit, concession, franchise, contract, agreement or other instrument or
obligation (a "contract") to which the Company or any of its subsidiaries is a
party or by which any of its properties or assets may be bound or (iii) violate
any judgment, order, writ, preliminary or permanent injunction or decree (each
an "Order") or any statute, law, ordinance, rule or regulation of any
Governmental Entity (each, a "Law") applicable to the Company, any of its
subsidiaries or any of their properties or assets, except in the case of clauses
(ii) or (iii) for violations, breaches, defaults, rights, or Liens that would
not reasonably be expected to have a Material Adverse Effect on the Company.
SECTION 4.5 SEC Reports and Financial Statements.
-------------------------------------
(a) The Company has filed with the SEC all forms (including, without
limitation, the Company's Registration Statement on Form S-3, Registration No.
333-53117, as amended by Form S-3/A No. 1, Form S-3/A No. 2 and Form S-3/A No.
3), reports, schedules, statements and other documents required to be filed by
it since January 1, 1995 (collectively, the "Company SEC Documents"). The
Company SEC Documents (a) do not 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 light of the circumstances under which
they were made, not misleading and (b) comply in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC thereunder. No
subsidiary of the Company is required to make any filings with the SEC.
(b) The financial statements of the Company included in the Company
SEC Documents comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present
(subject, in the case of the unaudited statements, to normal, recurring audit
adjustments not material in amount) the consolidated financial position of the
Company and its consolidated subsidiaries as at the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended.
12
<PAGE>
SECTION 4.6 Absence of Certain Changes or Events.
-------------------------------------
Except as disclosed in the Company SEC Documents filed and publicly
available prior to the date of this Agreement (the "Company Filed SEC
Documents"), since December 31, 1997, (i) the Company and its subsidiaries have
conducted their respective business only in the ordinary course, (ii) there has
not been any Material Adverse Effect with respect to the Company and (iii)
neither the Company nor any subsidiary has taken any action contemplated by
Section 6.1.
SECTION 4.7 No Undisclosed Liabilities.
---------------------------
Except as and to the extent set forth in the Company Filed SEC
Documents, neither the Company nor any of its subsidiaries has any liabilities
of any nature, whether or not accrued, contingent or otherwise, that would have
a Material Adverse Effect on the Company.
SECTION 4.8 Information Supplied.
---------------------
None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in (i) the Offer Documents, (ii) the
Schedule 14D-9, (iii) the information to be filed by the Company in connection
with the Offer pursuant to Rule 14f-1 promulgated under the Exchange Act (the
"Information Statement") or (iv) the Proxy Statement (as hereinafter defined),
will, in the case of the Offer Documents, the Schedule 14D-9 and the Information
Statement, at the respective times the Offer Documents, the Schedule 14D-9 and
the Information Statement are filed with the SEC or first published, sent or
given to the Company's shareholders, or, in the case of the Proxy Statement, at
the time the Proxy Statement is first mailed to the Company's shareholders or at
the time of the Shareholders Meeting (as defined in Section 7.1), 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 misleading. The
Schedule 14D-9, the Information Statement and the Proxy Statement (the
"Specified Documents") will comply in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder. No
representation or warranty is made by the Company in this Section 4.8 with
respect to statements made or incorporated by reference in the Specified
Documents based on information supplied by Parent or Sub for inclusion or
incorporation by reference therein.
SECTION 4.9 Employee Benefit Plans; Labor Matters.
--------------------------------------
(a) Section 4.9(a) of the Company Disclosure Schedule sets forth each
material plan, agreement, arrangement or commitment that is an employment or
consulting agreement; executive or incentive compensation plan, bonus plan,
deferred compensation plan or agreement; employee pension, profit sharing,
savings or retirement plan; employee stock option or stock purchase plan; group
life, health, or accident insurance or other employee benefit plan, agreement,
arrangement or commitment, including, without limitation, any severance,
holiday, vacation, Christmas or other bonus plans (including, but not limited
to, "employee benefit plans", as defined in Section 3(3)
13
<PAGE>
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
currently maintained by the Company or any of its subsidiaries for any of its
present or former employees, consultants, officers or directors ("the Company
Personnel") or with respect to which the Company or any of its subsidiaries has
material liability or makes (or has an obligation to make) contributions
("Company Plans").
(b) The Company has provided Parent with (i) copies of all the
Company Plans or in the case of an unwritten plan, a written description
thereof, (ii) copies of any annual reports (Form 5500 Series), annual financial
or actuarial reports and Internal Revenue Service determination letters relating
to such Company Plans and (iii) copies of all summary plan descriptions (whether
or not required to be furnished under ERISA) and employee communications
relating to such Company Plans and distributed to the Company Personnel, in each
case under this subsection (b), existing or in effect during or within the past
three years.
(c) There are no Company Personnel who are entitled to (i) any
pension benefit or deferred compensation that is unfunded or (ii) any pension or
other benefit to be paid after termination of employment, except as referred by
law, involving 4980(B) and 601-609 of ERISA or pursuant to plans intended to be
qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and listed on Section 4.9(c) of the Company Disclosure Schedule,
and no other benefits whatsoever are payable to any Company Personnel after
termination of employment (including retiree medical and death benefits).
(d) Each Company Plan that is an employee welfare benefit plan under
Section 3(l) of ERISA is either (i) funded through an insurance company contract
and is not a "welfare benefit fund" within the meaning of Section 419 of the
Code or (ii) is unfunded.
(e) All contributions or payments owed with respect to any
periods prior to the Effective Time under any Company Plan have been or will be
made or accrued prior to the Effective Time. Each Company Plan by its terms and
operation is in material compliance with all applicable laws (including, but not
limited to, ERISA, the Code and the Age Discrimination in Employment Act of
1967, as amended).
(f) There are no actions, suits or claims (other than routine claims
for benefits) pending or, to the Company's knowledge, threatened against any
Company Plan or, to the Company's knowledge, against any administrator or
fiduciary of any Company Plan with respect to such Company Plan that would, if
adversely decided with respect to the Company Plan, administrator or fiduciary,
have a Material Adverse Effect on the Company. As to each Company Plan for which
an annual report is required to be filed under ERISA or the Code, all such
filings, including schedules, have been made on a timely basis and with respect
to the most recent report regarding each such Company Plan, liabilities do not
exceed assets, and no material adverse change has occurred with respect to the
financial matters covered thereby.
14
<PAGE>
(g) Neither the Company nor any entity required to be aggregated with
the Company pursuant to Sections 414(b), (c), (m) or (o) of the Code contributes
to, maintains or has any material liability with respect to a plan subject to
Title IV of ERISA, Section 412 of the Code or Section 302 of ERISA. Neither the
Company nor any entity required to be aggregated with the Company pursuant to
Sections 414(b) or (c) of the Code contributes to or has ever contributed to or
been obligated to contribute to a plan that is a "multiemployer plan" (as
defined in Section 3(37) of ERISA.)
(h) Each Company Plan that is intended to be qualified under Section
401(a) of the Code is the subject of a favorable determination letter from the
Internal Revenue Service stating that such plan is so qualified and nothing has
occurred since the date of the most recent such letter issued with respect to
such Company Plan to cause such letter to be no longer valid or effective.
(i) Neither the Company, any subsidiary nor any other person,
including any fiduciary, has engaged in any "prohibited transaction" (as defined
in Section 4975 of the Code or Section 406 of ERISA), which could subject any of
the Company Plans (or their trusts), the Company, or any person who the Company
has an obligation to indemnify, to any material tax or penalty imposed under
Section 4975 of the Code or Section 502 of ERISA.
(j) The events contemplated by this Agreement and the Shareholder
Agreement (either alone or together with any other event) will not (i) entitle
any Company Personnel to severance pay, unemployment compensation, or other
similar payments under any Company Plan, law or otherwise, (ii) accelerate the
time of payment or vesting or increase the amount of benefits due under any
Company Plan or compensation to any Company Personnel, (iii) result in any
payments (including parachute payments) under any Company Plan, law or otherwise
becoming due to any Company Personnel or other person, or (iv) terminate or
modify or give a third party a right to terminate or modify the provisions or
terms of any Company Plan.
(k) The Company, its subsidiaries and each member of their respective
business enterprises have complied with the Worker Adjustment and Retraining
Notification Act in all material respects.
(l) Neither the Company nor any of its subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. There is no unfair labor
practice or labor arbitration proceeding pending or, to the knowledge of the
Company, threatened against the Company or its subsidiaries relating to their
business, except for any such proceeding that would not have a Material Adverse
Effect on the Company. To the knowledge of the Company, there are no
organizational efforts with respect to the formation of a collective bargaining
unit currently being made or threatened involving employees of the Company or
any of its subsidiaries. The Company and its subsidiaries are in compliance in
all material respects with all applicable laws regarding employment consulting,
employment practices, wages, hours and terms and conditions of employment.
15
<PAGE>
SECTION 4.10 Contracts.
---------
Except as disclosed in the Company Filed SEC Documents, there are no
contracts that are material to the financial condition, business, assets,
prospects or results of operations of the Company and its subsidiaries taken as
a whole. Neither the Company nor any of its subsidiaries, or to the best
knowledge of the Company, any other party, is in violation or breach of or in
default (nor does there exist any condition which upon the passage of time or
the giving of notice would result in a violation or breach of, or constitute a
default under, or give rise to any right of termination, amendment,
cancellation, acceleration or loss of benefits, or result in the creation of any
Lien upon any of the properties or assets of the Company or any of its
subsidiaries) under any contract to which it is a party or by which it or any of
its properties or assets is bound, except as disclosed in the Company Filed SEC
Documents and except for violations, breaches or defaults that would not have a
Material Adverse Effect on the Company. Except as disclosed in the Company Filed
SEC Documents, no other party to any such contract has, to the best knowledge of
the Company, alleged that the Company or any subsidiary is in violation or
breach of or in default under any such contract or has notified the Company or
any subsidiary of an intention to modify any material terms of or not to renew
any such contract, where such events would have a Material Adverse Effect on the
Company. To the knowledge of the Company, there are no facts, circumstances or
conditions which would reasonably be expected to result in the loss of any
customer accounting for more than 5% of the consolidated revenues of the Company
and its subsidiaries.
SECTION 4.11 Litigation.
----------
Except as disclosed in the Company Filed SEC Documents, there is no
suit, claim, action, proceeding or investigation pending before any Governmental
Entity or, to the best knowledge of the Company, threatened against the Company
or any of its subsidiaries that would have a Material Adverse Effect. Except as
disclosed in the Company Filed SEC Documents, neither the Company nor any of its
subsidiaries is subject to any outstanding Order that would have a Material
Adverse Effect on the Company
SECTION 4.12 Compliance with Applicable Law.
------------------------------
The Company and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Entities
necessary for the lawful conduct of their respective businesses (the "Company
Permits"), except for failures to hold such Company Permits that would not have
a Material Adverse Effect on the Company. The Company and its subsidiaries are
in compliance with the terms of the Company Permits, except where the failure so
to comply would not have a Material Adverse Effect on the Company. The
businesses of the Company and its subsidiaries have not been, and are not being,
conducted in violation of any Law, except for violations that would not have a
Material Adverse Effect. No investigation or review by any Governmental Entity
with respect to the Company or any of its subsidiaries is pending or, to the
best knowledge of the Company, threatened, nor has any Governmental Entity
16
<PAGE>
indicated an intention to conduct any such investigation or review, other than,
in each case, where the outcome would not have a Material Adverse Effect on the
Company.
SECTION 4.13 Tax Matters.
-----------
(a) Definitions:
"Tax" or "Taxes" means all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, employment,
excise, withholding, property, sales, use, transfer, license, payroll and
franchise taxes, together with any interest and any penalties, additions to tax
or additional amounts with respect thereto, imposed by the United States, or
state, local or foreign government or subdivision or agency thereof, together
with any liability under Treas. Reg. (S) 1.1502-6 (or any similar provision of
state, local or foreign law) or as transferee to assets or as a successor, or
pursuant to any agreement to share liability for Taxes.
"Taxable Period" means any tax year or any other period that is treated as
a taxable year (or other period, or portion thereof, in the case of a Tax
imposed with respect to such period or portion thereof, e.g., a quarter) with
respect to which any Tax may be imposed under any applicable statute, rule, or
regulation.
"Tax Reserve" shall have the meaning set forth in Section 4.13(d).
"Tax Return" shall mean any report, return, election, notice or other
information required by applicable law to be supplied to a taxing authority in
connection with Taxes.
All citations to provisions of the Code, or to the Treasury Regulations
promulgated thereunder, shall include any amendments thereto and any substitute
or successor provisions thereto.
(b) All Tax Returns required to be filed by or with respect to the
Company and each of its subsidiaries on or before the Effective Time have been
or will be timely filed. All such Tax Returns (i) were prepared in the manner
required by applicable law, (ii) are true, correct, and complete in all material
respects, and (iii) reflect the liability for Taxes of the Company and each of
its subsidiaries except to the extent that a proper reserve for Taxes has been
reflected on the financial statements as of and for the year ended December 31,
1997 included in the Company Filed SEC Documents, in accordance with GAAP. All
Taxes shown to be payable on such Tax Returns, and all assessments of Tax made
against the Company and each of its subsidiaries with respect to such Tax
Returns, have been paid when due except to the extent that a proper reserve for
Taxes has been reflected on the financial statements as of and for the year
ended December 31, 1997 included in the Company Filed SEC Documents, in
accordance with GAAP. No adjustment relating to any such Tax Return has been
proposed by any taxing authority.
(c) The Company and each of its subsidiaries have made (or there has
been made on its behalf) all required current estimated Tax payments sufficient
to avoid any material estimated tax underpayment penalties.
17
<PAGE>
(d) The Company and each of its subsidiaries have (i) timely paid or
caused to be paid or will cause to be timely paid all Taxes that are or were due
on or prior to the date hereof or the Effective Time, whether or not shown (or
required to be shown) on a Tax Return and (ii) provided a sufficient reserve in
accordance with GAAP for the payment of all Taxes not yet due and payable (the
"Tax Reserve") on the financial statements as of and for the year ended December
31, 1997 included in the Company Filed SEC Documents. There are no Taxes that
would be due if asserted by a taxing authority, except with respect to which the
Company and each of its subsidiaries are maintaining adequate reserves in
accordance with GAAP on such financial statements included in the Company Filed
SEC Documents.
(e) The Company and each of its subsidiaries have complied (and until
the Effective Time will comply) in all material respects with the provisions of
the Code relating to the withholding and payment of Taxes, including, without
limitation, the withholding and reporting requirements under Code sections 1441
through 1464, 3401 through 3406, and 6041 through 6049, as well as similar
provisions under any other laws, and have, within the time and in the manner
prescribed by law, withheld from employee wages and paid over to the proper
governmental authorities all amounts required.
(f) None of the Tax Returns have been examined by the Internal
Revenue Service or relevant state, local or foreign taxing authorities and no
statute of limitations has been extended for any period. There are no threatened
actions, suits, proceedings, investigations or claims relating to or asserted
for Taxes of the Company and/or any of its subsidiaries to the Company's
knowledge and to the Company's knowledge, there is no basis for any such claim.
(g) No claim has ever been made in writing by any taxing authority
with respect to the Company or any of its subsidiaries in a jurisdiction where
the Company and/or any of its subsidiaries do not file reports and returns that
the Company or any such subsidiary is or may be subject to taxation by that
jurisdiction. Except for liens for real and personal property Taxes that are not
yet due and payable, there are no liens for any Tax upon any asset of the
Company or any of its subsidiaries.
(h) Neither the Company nor any of its subsidiaries has agreed or is
required to include in income or make any material adjustment under either
Section 481(a) or Section 482 of the Code (or an analogous provision of state,
local, or foreign law) by reason of a change in accounting or otherwise. Neither
the Company nor any of its subsidiaries has disposed of any material property in
a transaction being accounted for under the installment method pursuant to
Section 453 of the Code.
(i) Neither the Company nor any of its subsidiaries is a party to any
agreement to share Taxes with respect to any Taxable Period.
(j) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by the Company or any subsidiary thereof by
reason of Section 280G of the Code.
18
<PAGE>
(k) Neither the Company nor any of its subsidiaries has at any time
distributed the stock of any corporation in a transaction satisfying the
requirements of Section 355 of the Code since April 16, 1997.
(l) Neither the Company nor any of its subsidiaries has an overall
foreign loss within the meaning of Section 904(f) of the Code.
SECTION 4.14 Environmental.
--------------
(a) Except to the extent that any of the following, individually or
in the aggregate, would not result in a Material Adverse Effect on the Company
(i) the Company and its subsidiaries comply and have complied with all
applicable Environmental Laws (as defined below), (ii) no Hazardous Substances
(as defined below) are present at or have been disposed on or released or
discharged from, onto or under any of the properties currently owned, leased,
operated or otherwise used by the Company or its subsidiaries (including soils,
groundwater, surface water, buildings or other structures), (iii) no Hazardous
Substances were present at or disposed on or released or discharged from, onto
or under any of the properties formerly owned, leased, operated or otherwise
used by the Company or its subsidiaries during the period of ownership, lease,
operation or use by Company or its subsidiaries, (iv) neither the Company nor
any subsidiary is subject to any liability or obligation in connection with
Hazardous Substances present at any location owned, leased, operated or
otherwise used by any third party, (v) neither the Company nor any subsidiary
has received any written notice, demand, letter, claim or request for
information alleging that the Company or any subsidiary is or may be in
violation of or liable under any Environmental Law, (vi) neither the Company nor
any subsidiary is subject to any order, decree, injunction or other written
directive of any Governmental Authority or is subject to any indemnity or other
agreement with any person or entity relating to Hazardous Substances and (vii)
there are no circumstances or conditions involving the Company and its
subsidiaries, any assets (including real property) or businesses previously
owned, leased, operated or otherwise used by Company or its subsidiaries, or any
of the assets (including real property) or businesses of any predecessors of
Company or its subsidiaries that could reasonably be expected to result in any
damages or liabilities to the Company or any subsidiary arising under or
pursuant to Environmental Law or in any restriction on the ownership, use or
transfer of any of the assets of the Company or any subsidiary arising under or
pursuant to any Environmental Law.
(b) As used herein, the term "Environmental Law" means any
international, national, provincial, regional, federal, state, municipal or
local law, regulation, order, judgement, decree, permit, authorization, common
or decisional law (including, without limitation, principles of negligence and
strict liability) or agency requirement relating to the protection,
investigation or restoration of the environment (including, without limitation,
natural resources) or the health or safety of human or other living organisms,
including, without limitation, the manufacture, introduction into commerce,
export, import, handling, use, presence, disposal, release or threatened release
of any Hazardous Substance or noise, odor, wetlands, pollution, contamination or
any injury or threat of injury to persons or property.
19
<PAGE>
(c) As used herein, the term "Hazardous Substance" means any element,
compound, substance or other material (including any pollutant, contaminant,
hazardous waste, hazardous substance, chemical substance, or product) that is
listed, classified or regulated pursuant to any Environmental Law, including,
without limitation, any petroleum product, by-product or additive, asbestos,
presumed asbestos-containing material, asbestos-containing material, medical
waste, chlorofluorocarbon, hydrochlorofluorocarbon, lead-containing paint or
plumbing, polychlorinated biphenyls, radioactive material or radon.
SECTION 4.15 State Takeover Statutes.
-----------------------
The Board of Directors of the Company has adopted, approved and found
advisable this Agreement, the Offer, the Shareholder Agreement, the acquisition
of Shares by Sub pursuant to the Offer and the Shareholder Agreement and the
other transactions contemplated by this Agreement and the Shareholder Agreement,
and such adoptions, approvals and findings are sufficient to render inapplicable
to the Offer, the Merger, this Agreement, the Shareholder Agreement, the
acquisition of Shares by Sub pursuant to the Offer and the Shareholder Agreement
and the other transactions contemplated by this Agreement and the Shareholder
Agreement the provisions of Section 203 of the DGCL, the Rights Plan, the Rights
and Article 12.2.1. of the Company's Certificate of Incorporation. No other
"fair price", "moratorium", "control share acquisition" or other form of anti-
takeover statute or regulation or similar Law, or any other provision of the
Company's Certificate of Incorporation or By-Laws, applies or purports to apply
to the Offer, the Merger, this Agreement, the Shareholder Agreement, the
acquisition of Shares by Sub pursuant to the Offer and the Shareholder Agreement
or any of the transactions contemplated by this Agreement or the Shareholder
Agreement.
SECTION 4.16 Intellectual Property.
---------------------
(a) Section 4.16(a) of the Company Disclosure Schedule contains a
complete list of all United States and foreign patents and patent applications,
copyrights (whether registered or as to which registration has been applied
for), trademarks (whether registered or not), trade names and service marks
owned by or licensed to the Company or any of its subsidiaries as of the date
hereof.
(b) Except as set forth in the Company Filed SEC Documents, (i) to
the knowledge of the Company, except as otherwise disclosed orally to Parent,
there is no existing or threatened infringement, misuse or misappropriation by
others, of any United States or foreign patents, patent applications,
trademarks, whether registered or not, tradenames, service marks, copyrights,
processes, designs, formulae, inventions, know-how, trade secrets, proprietary
information or concepts (the "Intellectual Property") of the Company or any of
its subsidiaries that is reasonably likely to be material to the Company's
operation, (ii) there are no pending or threatened claims by the Company or any
of its subsidiaries against others for infringement, misuse or misappropriating,
of any Intellectual Property of the Company or its subsidiaries that are
reasonably likely to be material to the Company's operation and (iii) to the
knowledge of the Company, neither the Company nor any of its subsidiaries is
infringing, misusing or misappropriating any
20
<PAGE>
Intellectual Property of any third party and, to the Company's knowledge, no
claim of such infringement, misuse or misappropriation is pending or threatened.
(c) The Company and its subsidiaries own or possess adequate licenses
or other valid rights to use all of the Intellectual Property used by the
Company and its subsidiaries or set forth on Schedule 4.16(a) of the Company
Disclosure Schedule. The Company has no knowledge of any facts or claims which
may bring the validity or enforceability of its issued patents into question.
SECTION 4.17 FDA and Product Matters.
-----------------------
There are no products now being manufactured, sold or distributed by
the Company or any subsidiaries which at the date hereof would require any
approval of the United States Food and Drug Administration (the "FDA") or any
other Governmental Entity that regulates the safety, effectiveness, market
clearances, market or post-market surveillance of the products of the Company
and its subsidiaries, for which such approval has not been obtained. All
products now being commercially distributed by the Company or any subsidiary in
any jurisdiction meet, in all material respects, the applicable legal
requirements of such jurisdiction with respect to their safety, effectiveness,
market clearance, marketing, and post-market surveillance and all requisite
governmental approvals have been duly obtained and are in full force and effect,
and there is no basis known to the Company for the FDA or any other Governmental
Entity to rescind any approval for any of their commercially distributed
products. There is no action or proceeding by the FDA or any other Governmental
Entity claiming that any product now being commercially distributed or used in
any clinical trials by the Company or any subsidiary is defective or fails to
meet any applicable regulatory standards or that the Company or any subsidiary
have violated any applicable Laws governing the marketing or post-market
surveillance requirements for any product. There are no recall procedures
pending or, to the knowledge of the Company, threatened against the Company or
any subsidiary, and no such proceeding was brought at any time in the past,
relating to the safety or efficacy of any of its or their products, and, to the
knowledge of the Company, there is no basis of any such action or proceeding.
No institutional review board or institutional review committee or other similar
group has terminated or recommended termination of a clinical study of any
product of the Company or any subsidiary.
SECTION 4.18 Year 2000.
---------
All information technology currently used and expected to be used by
the Company and each subsidiary following December 31, 1999 in the
administration and the business operations of the Company and its subsidiaries,
including, without limitation, in all products and services (i) provided by the
Company and each subsidiary, whether to third parties or for internal use or
(ii) to the best of the Company's knowledge after reasonable investigation,
currently used and expected to be used in combination with any information
technology of its or any subsidiary's clients, customers, suppliers or vendors,
accurately processes or will process date and time data (including but not
limited to calculating, comparing and sequencing) from, into and between the
years 1999 and 2000 and the twentieth century and the twenty-first century,
including leap year calculations
21
<PAGE>
(the "Y2K Calculations"), and neither performance nor functionality of such
technology will be affected by dates prior to, during or after the year 2000.
Neither the Company nor any subsidiary has any obligations under warranty
agreements, service agreements or otherwise to remedy any information technology
defect relating to or arising out of Y2K Calculations. The aggregate costs,
expenses and liabilities incurred prior to the date hereof and reasonably
expected by the Company to be incurred in the future in connection with assuring
the accuracy of the two immediately preceding sentences will not be material to
the Company. The Company Filed SEC Documents contain disclosure (the "Y2K
Disclosure") which is responsive in all material respects to the requirements of
Staff Legal Bulletin No. 5 (CF/IM) issued by the SEC, and the Y2K Disclosure is
true and correct in all material respects.
SECTION 4.19 Insurance.
---------
The Company and each subsidiary maintains (a) insurance on all of its
property that insures against loss or damage by fire or other casualty and (b)
insurance against liabilities, claims and risks of a nature and in such amounts
as are normal and customary in its industry for companies of similar size and
financial condition. All insurance policies of the Company and each subsidiary
are in full force and effect, all premiums with respect thereto cover all
periods up to and including the date this representation is made have been paid,
and no written notice of cancellation or termination has been received with
respect to any such policy. Such policies are sufficient for compliance with
all requirements of law currently applicable to the Company and each subsidiary
and of all agreements to which the Company and each subsidiary is a party, will
remain in full force and effect through the respective expiration dates of such
policies without the payment of additional premiums, and will not in any way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by this Agreement or the Shareholder Agreement. Neither the Company nor any
subsidiary has been refused any insurance with respect to its assets or
operations, nor has its coverage been limited, by any insurance carrier to which
it has applied for any such insurance or with which it has carried insurance.
SECTION 4.20 Absence of Questionable Payments.
--------------------------------
Neither the Company nor any subsidiary nor, to the Company's
knowledge, any director, officer, agent, employee or other person acting on
behalf of the Company or any subsidiary, has used any Company or subsidiary
funds for improper or unlawful contributions, payments, gifts or entertainment,
or to induce any person or entity to do business with the Company or any
subsidiary, or made any improper or unlawful expenditures relating to political
activity to domestic or foreign government officials or others. The Company and
its subsidiaries have adequate financial controls to prevent such improper or
unlawful contributions, payments, gifts, entertainment or expenditures. Neither
the Company nor any subsidiary nor, to the Company's knowledge, any current
director, officer, agent, employee or other person acting on behalf of the
Company or any subsidiary, has accepted or received any improper or unlawful
contributions, payments, gifts or expenditures. The Company and its
subsidiaries at all times complied, and are in compliance, in all material
respects with the Foreign Corrupt
22
<PAGE>
Practices Act and, in all material respects with all other Laws and regulations
relating to prevention of corrupt practices.
SECTION 4.21 Opinion of Financial Advisor.
----------------------------
The Company has received the opinion of Goldman, Sachs & Co. (the
"Financial Advisor"), dated the date of this Agreement, to the effect that, as
of the date of this Agreement, the consideration to be received in the Offer and
the Merger by the Company's shareholders is fair to the Company's shareholders
from a financial point of view, and a complete and correct signed copy of such
opinion has been, or promptly upon receipt thereof will be, made available to
Parent.
SECTION 4.22 Brokers and Finders.
-------------------
No broker, investment banker, financial advisor or other person, other
than the Financial Advisor, the fees and expenses of which will be paid by the
Company (as reflected in an agreement between such firm and the Company, a copy
of which has been delivered to Parent), is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the
Company as follows:
SECTION 5.1 Organization.
------------
Each of Parent and Sub is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority
would not be reasonably expected to prevent or materially delay the consummation
of the Offer or the Merger.
SECTION 5.2 Authority.
---------
Each of Parent and Sub has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance 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 Sub and
no other corporate proceedings on the part of Parent and Sub are necessary to
authorize this Agreement or to consummate such transactions. No vote of Parent
shareholders is required to approve this Agreement or the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent and Sub, as the case may be, and constitutes a valid and
23
<PAGE>
binding obligation of each of Parent and Sub enforceable against them in
accordance with its terms, subject to the Enforceability Exceptions.
SECTION 5.3 Consents and Approvals; No Violations.
--------------------------------------
(a) The execution, delivery and performance by Parent and Sub of this
Agreement and the consummation by Parent and Sub of the transactions
contemplated by this Agreement do not and will not require any filing or
registration with, notification to, or authorization, permit, consent or
approval of, or other action by or in respect of, any Governmental Entities
other than (i) the filing of the Certificate of Merger as contemplated by
Article I hereof, (ii) compliance with any applicable requirements of the HSR
Act and (iii) compliance with any applicable requirements of the Exchange Act.
(b) The execution, delivery and performance by Parent and Sub of this
Agreement and the consummation by Parent and Sub of the transactions
contemplated by this Agreement do not and will not (i) conflict with or result
in any breach of any provision of the Certificate of Incorporation or By-laws of
Parent and Sub, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default under, or give rise to
any right of termination, amendment, cancellation, acceleration or loss of
benefits under, or result in the creation of any Lien upon any of the properties
or assets of Parent or Sub or any of their subsidiaries under, or require
consent pursuant to, any of the terms, conditions or provisions of contract to
which Parent or Sub or any of their subsidiaries is a party or by which any of
its properties or assets may be bound or (iii) violate any Order or any Law
applicable to Parent or Sub, any of their subsidiaries or any of their
properties or assets, except in the case of clauses (ii) or (iii) for
violations, breaches or defaults that would not reasonably be expected have a
Material Adverse Effect on Parent.
SECTION 5.4 Information Supplied.
--------------------
None of the information supplied or to be supplied by Parent or Sub
specifically for inclusion or incorporation by reference in (i) the Offer
Documents, (ii) the Schedule 14D-9, (iii) the Information Statement or (iv) the
Proxy Statement will, in the case of the Offer Documents, the Schedule 14D-9 and
the Information Statement, at the respective times the Offer Documents, the
Schedule 14D-9 and the Information Statement are filed with the SEC or first
published, sent or given to the Company's shareholders, or, in the case of the
Proxy Statement, at the time the Proxy Statement is first mailed to the
Company's shareholders or at the time of the Shareholders Meeting, 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 misleading. The Offer
Documents will comply in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder. No representation or
warranty is made by Parent or Sub in this Section 5.4 with respect to statements
made or incorporated by reference in the Offer Documents based on information
supplied by the Company or any subsidiary specifically for inclusion or
incorporation by reference therein.
24
<PAGE>
SECTION 5.5 Interim Operations of Sub.
-------------------------
Sub was formed solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business activities and has
conducted its operations only as contemplated hereby.
SECTION 5.6 Brokers.
-------
Except for Piper Jaffray Inc., no broker, investment banker, financial
advisor or other person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Parent or Sub.
SECTION 5.7 Financing.
---------
Parent has, or will have, sufficient funds available to purchase, or
to cause Sub to purchase, all the Shares pursuant to the Offer and the Merger
and to pay all fees and expenses related to the transactions contemplated by
this Agreement.
ARTICLE VI.
COVENANTS
SECTION 6.1 Covenants of the Company.
------------------------
Until such time as Parent's designees shall constitute a majority of
the members of the Board of Directors of the Company, except as provided in the
Company Disclosure Schedule, the Company shall, and shall cause its subsidiaries
to, conduct their business in the ordinary course and use all reasonable efforts
to preserve intact their business organizations and relationships with third
parties and to keep available the services of their present officers and
employees and preserve their relationships with customers, consultants, doctors,
clinical investigators, suppliers and others having business dealings with the
Company and its subsidiaries. Without limiting the generality of the foregoing,
except as expressly permitted in this Agreement, from the date hereof until such
time as Parent's designees shall constitute a majority of the members of the
Board of Directors of the Company, the Company shall not, and shall cause its
subsidiaries not to:
(a) Dividends; Changes in Stock. (i) declare or pay any dividends on
---------------------------
or make other distributions in respect of any of its capital stock (except for
dividends by a wholly owned subsidiary of the Company to its parent and cash
dividends on the Series B Stock in accordance with the Certificate of
Designations of the Series B Stock), (ii) split, combine or reclassify any of
its capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any of its subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities (except for the redemption of the Series B Stock in accordance with
the Certificate of Designations of the Series B Stock
25
<PAGE>
and the acquisition of Common Stock of the Company that was held as collateral
for the Company's Alternative Minimum Tax Loans (the "AMT Loans"), as disclosed
in Section 4.6 of the Company Disclosure Schedule);
(b) Issuance of Securities. Issue, deliver, sell, pledge, encumber,
----------------------
grant, confer or award, or authorize or propose the issuance, delivery, sale,
pledge, encumbrance, grant, conferring, or award of, any shares of its capital
stock or any other security or any option, warrant, conversion right or other
right to acquire any capital stock or other security other than the issuance of
Shares upon the exercise of Options or Warrants or the conversion of Series B
Stock outstanding on the date of this Agreement and in accordance with the terms
of such Options, Warrants or Series B Stock, as applicable;
(c) Governing Documents. Amend or propose to amend its certificate of
-------------------
incorporation or by-laws (or similar organizational documents);
(d) Acquisitions. Subject to Section 6.2, authorize, propose, or
------------
enter into, or announce an intention to authorize, propose, or enter into, an
agreement with respect to any merger, consolidation or business combination
(other than the Merger), any acquisition of assets not in the ordinary course of
business or any securities, any disposition, lease or license of assets not in
the ordinary course of business or any disposition of any securities, or
relinquishment of any material contract rights;
(e) Taxes. (x) change any significant practice with respect to Taxes,
-----
(y) make, revoke or change any significant election with respect to Taxes or (z)
settle or compromise any significant tax liability except in any situation
described in clauses (x) - (z) in which a delay in such action would result in
material penalties or material detriment to the Company and its subsidiaries
taken as a whole;
(f) Indebtedness. except pursuant to the Loan Agreement (as
------------
hereinafter defined) (i) incur or suffer to exist any indebtedness for borrowed
money or guarantee any such indebtedness, enter into any "keep-well" or other
agreement to maintain any financial statement condition of another person or
enter into any arrangement having the economic effect of any of the foregoing,
except for working capital borrowings incurred in the ordinary course of
business, (ii) make any loans, advances or capital contributions to, or
investments in, any other person, other than to the Company or any wholly owned
subsidiary of the Company or (iii) incur any liability other than in the
ordinary course of business;
(g) Capital Expenditures. make or agree to make any capital
--------------------
expenditures out of the ordinary course of business;
(h) Discharge of Liabilities. except pursuant to the Loan Agreement,
------------------------
pay, discharge, settle or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge, settlement or satisfaction, in the ordinary course of
business or in accordance with their terms, of claims, liabilities or
obligations recognized or disclosed in the most recent
26
<PAGE>
financial statements (or the notes thereto) of the Company included in the
Company Filed SEC Documents or incurred since the date of such financial
statements in the ordinary course of business;
(i) Material Contracts. (i) modify, amend or terminate any material
------------------
contract, (ii) waive, release or assign any material rights or claims, (iii)
waive the benefits of, or agree to modify in any manner, any confidentiality,
standstill or similar agreement or (iv) except in the ordinary course of
business, enter into any material contracts or transactions;
(j) Benefits Changes. except for the transactions relating to the AMT
----------------
Loans described in Section 4.6 of the Company Disclosure Schedule, (i) increase
the compensation or benefits of any director, officer, employee or consultant,
except for increases in the ordinary course of business, (ii) adopt any new
Company Plan or any amendment to an existing Company Plan, (iii) enter into any
employment or consulting agreement with any director, officer, employee or
consultant or (iv) accelerate the payment of compensation or benefits to any
director, officer, employee or consultant; or
(k) General. authorize any of, or commit or agree to take any of, the
-------
foregoing actions or any action which would result in a breach of any
representation or warranty of the Company contained in this Agreement as of the
date when made or as of any future date or would result in any of the Offer
Conditions not being satisfied.
SECTION 6.2 No Solicitation.
----------------
(a) The Company shall, and shall cause its officers, directors,
employees, representatives and agents to, immediately cease any discussions or
negotiations with any parties that may be ongoing with respect to a Takeover
Proposal (as hereinafter defined). The Company shall not, and shall cause its
officers, directors, employees, representatives and agents not to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed or reasonably likely to
facilitate or encourage, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Takeover Proposal or
(ii) participate in any discussions or negotiations regarding any Takeover
Proposal. For purposes of this Agreement, "Takeover Proposal" means any inquiry,
proposal, offer or expression of interest by any third party relating a merger,
consolidation or other business combination involving the Company or any
subsidiary, or any purchase of more than 15% of the consolidated assets of the
Company or more than 15% of the Shares, or any similar transaction. Any material
modification of a Takeover Proposal shall constitute a new Takeover Proposal.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall (i) withdraw or modify, or propose to withdraw or modify, the
approval, recommendation or statement as to advisability by such Board of
Directors or such committee of the Offer, the Merger or this Agreement, (ii)
approve or recommend or take no position with respect to, or propose to approve
or recommend or take no position with respect to, any Takeover Proposal, (iii)
cause the Company to enter into any agreement
27
<PAGE>
related to any Takeover Proposal (other than a confidentiality agreement
contemplated by paragraph (a) above) or (iv) take or fail to take any action
(including amending the Rights Plan or the Rights) which is designed to or which
has the effect of making all or any part of the Rights, the Rights Plan, Section
203 of the DGCL or Article 12.1.1. of the Company's Certificate of Incorporation
not applicable to or not triggered by any Takeover Proposal.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above,
prior to the purchase of at least a majority of the outstanding Shares pursuant
to the Offer, the Company may, to the extent the Board of Directors of the
Company determines, in good faith, after consultation with and based upon the
advice of outside legal counsel, that its fiduciary duties under applicable law
require it to do so, participate in discussions or negotiations with, and
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
Takeover Proposal (which may be subject to customary conditions, including a
"due diligence" condition) if such person, group or entity enters into a
confidentiality agreement substantially identical to the Confidentiality
Agreement (as hereinafter defined) and the Board of Directors of the Company in
its good faith reasonable judgment determines, after consultation with its
independent financial advisors, that (i) such Takeover Proposal would result in
a transaction more favorable than the transactions contemplated hereby to the
shareholders from a financial point of view, (ii) the person making such
Takeover Proposal is financially capable of consummating such Takeover Proposal
or that the financing necessary to consummate such Takeover Proposal, to the
extent required, is then committed or is capable of being obtained by such
person and (iii) such Takeover Proposal is otherwise as likely to be consummated
as are the transactions contemplated hereby (such a Takeover Proposal being
hereinafter referred to as a "Superior Proposal"). In addition, notwithstanding
the provisions of paragraph (a) above, in connection with a possible Takeover
Proposal, the Company may refer a third party to this Section 6.2 or make a copy
of this Section 6.2 available to a third party. In the event the Company
receives a Superior Proposal, nothing contained in this Agreement (but subject
to the terms hereof, including without limitation Section 8.5) will prevent the
Board of Directors of the Company from recommending such Superior Proposal to
its shareholders, if the Board determines, in good faith, after consultation
with and based upon the advice of 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 6.3, and, to the extent it does so, the
Company may refrain from soliciting proxies to secure the vote of its
shareholders as may be required by Section 6.3 and the Board of Directors of the
Company may amend the Schedule 14D-9 to reflect the withdrawal of its
recommendation set forth therein and file a new Schedule 14D-9 setting forth its
recommendation with respect to such Superior Proposal; provided however, that
the Company shall (i) provide Parent at least twenty-four (24) hours' prior
notice of any Company Board of Directors meeting at which it is reasonably
expected to contemplate a Superior Proposal and (ii) not accept or recommend to
its shareholders a Superior Proposal for a period of not less than five (5)
business days after Parent's receipt of a copy of such Superior Proposal; and
provided, further, that, unless this Agreement has been terminated in accordance
with Section 8.1, nothing contained in this Section 6.2
28
<PAGE>
shall limit the Company's obligation to call, give notice of, hold or convene
the Shareholders Meeting (regardless of whether the recommendation of the Board
of Directors of the Company shall have been withdrawn, modified or not yet made)
or to provide the shareholders with material information relating to such
meeting.
(d) The Company shall immediately advise Parent orally and in writing
of any request for information or of any Takeover Proposal, the material terms
and conditions of such request or Takeover Proposal and the identity of the
person making such request or Takeover Proposal. The Company will immediately
inform Parent of any material change in the details (including amendments or
proposed amendments) of any such request or Takeover Proposal.
(e) Nothing contained in this Section 6.2 shall prohibit the Company
from taking and disclosing to its shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Company's shareholders if, in the good faith judgment of the Board of Directors
of the Company, after consultation with outside counsel, failure so to disclose
would be inconsistent with applicable law, provided, however, that except as set
forth above, neither the Company nor its Board of Directors nor any committee
thereof shall withdraw or modify, or propose to withdraw or modify, its position
with respect to the Offer, the Merger or this Agreement or approve or recommend,
or propose to approve or recommend, or state to be advisable, a Takeover
Proposal.
SECTION 6.3 Shareholder Approval; Preparation of Proxy Statement.
----------------------------------------------------
(a) If the Company Shareholder Approval is required by law, the
Company shall, as promptly as practicable following the expiration of the Offer,
duly call, give notice of, convene and hold a meeting of its shareholders (the
"Shareholders Meeting") for the purpose of obtaining the Company Shareholder
Approval. The Company shall, through its Board of Directors, recommend to its
shareholders that the Company Shareholder Approval be given. Notwithstanding the
foregoing, if Sub or any other subsidiary of Parent shall acquire at least 90%
of the outstanding Shares, the parties shall, at the option and request of
Parent, take all necessary and appropriate action to cause the Merger to become
effective as soon as practicable after the expiration of the Offer without a
Shareholders Meeting in accordance with the short form merger provisions of the
DGCL. Without limiting the generality of the foregoing, the Company agrees that
its obligations pursuant to the first sentence of this Section 6.3(a) shall not
be affected by (i) the commencement, public proposal, public disclosure or
communication to the Company of any Takeover Proposal or (ii) the withdrawal or
modification by the Board of Directors of the Company of its approval or
recommendation of the Offer, this Agreement or the Merger.
(b) If the Company Shareholder Approval is required by law, the
Company shall, as soon as practicable following the expiration of the Offer,
prepare and file a preliminary proxy statement (the "Proxy Statement") with the
SEC and shall use all reasonable efforts to respond to any comments of the SEC
or its staff and to cause the Proxy Statement to be mailed to the Company's
shareholders as promptly as practicable.
29
<PAGE>
The Company shall notify Parent promptly of the receipt of any comments from the
SEC or its staff and of any request by the SEC or its staff for amendments or
supplements to the Proxy Statement or for additional information and will supply
Parent with copies of all correspondence between the Company or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement or the Merger. The Company shall give Parent
an opportunity to comment on any correspondence with the SEC or its staff or any
proposed material to be included in the Proxy Statement prior to transmission to
the SEC or its staff and shall not transmit any such material to which Parent
reasonably objects. If at any time prior to the Shareholders Meeting there shall
occur any event that should be set forth in an amendment or supplement to the
Proxy Statement, the Company shall promptly prepare and mail to its shareholders
such an amendment or supplement. The Company shall not mail any Proxy Statement,
or any amendment or supplement thereto, to which Parent reasonably objects.
(c) Parent agrees to cause all Shares owned by Parent or any
subsidiary of Parent to be voted in favor of the Company Shareholder Approval.
SECTION 6.4 Access to Information.
---------------------
The Company shall, and shall cause each of its subsidiaries to, afford
to Parent and its officers, employees, accountants, counsel, agents and other
representatives reasonable access to all of the properties, personnel, books and
records of the Company and its subsidiaries, and shall furnish promptly all
information concerning the business, properties and personnel of Company and its
subsidiaries as Parent may reasonably request. All such information shall be
kept confidential in accordance with the terms of the Confidentiality Agreement
between Parent and the Company (the "Confidentiality Agreement").
SECTION 6.5 Updating.
--------
From time to time prior to the Effective Time, the Company shall
supplement or amend the Company Disclosure Schedule with respect to any matter
hereafter arising or any information obtained after the date hereof of which, if
existing, occurring or known at or prior to the date of this Agreement, would
have been required to be set forth or described in the Company Disclosure
Schedule or which is necessary to complete or correct any information in such
schedule or in any representation and warranty of the Company which has been
rendered inaccurate thereby, except for such information that would not cause
any representation or warranty of the Company or the Company Disclosure Schedule
to be untrue or incomplete in any material respect. For purposes of determining
the satisfaction of the conditions to the consummation of the transactions
contemplated hereby, no such supplement, amendment or information shall be
considered. The Company shall promptly inform Parent of (a) any claim by a
third party that a contract has been breached, is in default, may not be renewed
or that a consent would be required as a result of the transactions contemplated
by this Agreement or the Shareholder Agreement, (b) any Material Adverse Effect
on the Company, (c) any litigation or Governmental Entity complaint,
investigation or hearing (or communications indicating the same may be
contemplated) against or affecting the Company or any
30
<PAGE>
subsidiary or (d) any written notice from any taxing authority proposing any
adjustment for any Tax of the Company or any subsidiary and provide to Parent a
copy of such notice. The Company shall promptly deliver to Parent true and
correct copies of any forms, reports, schedules, statements and other documents
filed by the Company or any subsidiary with the SEC subsequent to the date
hereof.
SECTION 6.6 Reasonable Efforts.
-------------------
(a) Subject to Section 6.6(c), each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement and the Shareholder Agreement
as promptly as practicable including, but not limited to, (i) the
preparation and filing of all forms, registrations and notices required to
be filed to consummate the transactions contemplated by this Agreement and
the Shareholder Agreement and the taking of such commercially reasonable
actions as are necessary to obtain any requisite approvals, consents,
orders, exemptions or waivers by any third party or Governmental Entity,
including filings pursuant to the HSR Act and (ii) using all reasonable
efforts to cause the satisfaction of all conditions to Closing. Each party
shall promptly consult with the other with respect to, provide any
necessary information with respect to and provide the other (or its
counsel) copies of, all filings made by such party with any Governmental
Entity or any other information supplied by such party to a Governmental
Entity in connection with this Agreement or the Shareholder Agreement and
the transactions contemplated by this Agreement or the Shareholder
Agreement.
(b) Each party hereto shall promptly inform the others of any
communication from any Governmental Entity regarding any of the
transactions contemplated by this Agreement or the Shareholder Agreement.
If any party or affiliate thereof receives a request for additional
information or documentary material from any such Governmental Entity with
respect to the transactions contemplated by this Agreement or the
Shareholder Agreement, then such party will endeavor in good faith to make,
or cause to be made, as soon as reasonably practicable and after
consultation with the other party, an appropriate response in compliance
with such request. Nothing herein shall require any party to waive any
substantial rights or agree to any substantial limitation on its (or the
Surviving Corporation's) operations or to dispose of any assets.
(c) Nothing in this Section 6.6 shall require, or be construed to
require, Parent or any of its affiliates to proffer to, or agree to (i)
license, sell, hold separate, discontinue or limit, before or after the
Effective Time, any assets, businesses, or interest in any assets or
businesses of Parent, the Company or any of their respective affiliates (or
to consent to any license, sale, holding separate, or discontinuance or
limitation by the Company of any of its assets or businesses) or (ii) agree
to any conditions relating to, or changes or restriction in, the operations
of any such asset or businesses which, in either case, could, in the
judgment of the Board of Directors of Parent, materially and adversely
impact the economic or business benefits to Parent of the transactions
contemplated by this Agreement.
31
<PAGE>
(d) Parent shall cause Sub to comply with its obligations under this
Agreement.
SECTION 6.7 Indemnification; Insurance.
---------------------------
(a) Parent and Sub agree that all rights to indemnification for acts
or omissions occurring prior to the Effective Time now existing in favor of
the current or former directors or officers (the "Indemnified Parties") of
the Company and its subsidiaries as provided in their respective articles
of incorporation or by-laws (or similar organizational documents), shall
survive the Merger and shall continue in full force and effect in
accordance with their terms for the period of all applicable statutes of
limitations from the Effective Time. Further, Parent and Sub agree that the
limitations of liability regarding the directors of the Company as
currently provided in Article 10 of the Company's Certificate of
Incorporation shall continue in full force and effect and during the period
of all applicable statutes of limitations and shall not be amended in a
manner that adversely affects the rights of any party to indemnification
thereunder or under this Section 6.7.
(b) For the period of all applicable statutes of limitations from the
Effective Time, Parent shall, unless Parent agrees in writing to guarantee
the indemnification obligations set forth in Section 6.7(a), maintain in
effect the Company's current directors' and officers' liability insurance
covering those persons who are currently covered by the Company's
directors' and officers' liability insurance policy (a true and correct
copy of which has been heretofore delivered to Parent) (or, in lieu of
maintaining such insurance, cause coverage to be provided under any policy
maintained for the benefit of Parent or any of its subsidiaries or
otherwise obtained by Parent, so long as the terms thereof are no less
advantageous to the intended beneficiaries thereof than those of the
Company's policy), provided, however, that in no event shall Parent be
required to expend in excess of 150% of the annual premiums currently paid
by the Company for such insurance, which the Company represents is
approximately $175,000, and, provided further, that if the annual premiums
of such insurance coverage exceed such amount, Parent shall be obligated to
obtain a policy with the greatest coverage available for a cost not
exceeding such amount.
(c) This Section 6.7 shall survive the consummation of the Merger at
the Effective Time, is intended to benefit the Indemnified Parties, and
shall be binding on all successors and assigns of Parent and the Surviving
Corporation. Parent, Sub, the Company and the Surviving Corporation agree
to reimburse each of the Indemnified Parties against all costs and expenses
(including reasonable attorneys' fees and disbursements) incurred by any
such Indemnified Party against Parent, Sub, the Company or the Surviving
Corporation to enforce to the fullest extent the rights to indemnification
set forth in this Section 6.7, provided that there is a finding that such
Indemnified Party was entitled to such indemnification.
32
<PAGE>
SECTION 6.8 Certain Litigation.
------------------
The Company agrees that it shall not settle any litigation commenced
after the date hereof against the Company or any of its directors by any
shareholder of the Company relating to the Offer, the Merger, this
Agreement, or the Shareholder Agreement, without the prior written consent
of Parent. In addition, except as provided in Section 6.2(c), the Company
shall not voluntarily cooperate with any third party that may hereafter
seek to restrain or prohibit or otherwise oppose the Offer or the Merger
and shall cooperate with Parent and Sub to resist any such effort to
restrain or prohibit or otherwise oppose the Offer or the Merger.
SECTION 6.9 Certain Transaction Related Fees.
--------------------------------
The Company shall not, and shall not permit any subsidiary to, incur,
spend or otherwise become liable or obligated for any fees, costs or other
expenses arising out of or related to the transactions contemplated hereby
and by the Shareholder Agreement, including, without limitation, fees of
legal counsel, investment banking, and other financial and other advisors,
in excess of $4,000,000. The Company shall not, without the prior written
consent of Parent, amend the arrangements with the Financial Advisor, which
have been disclosed by the Company to Parent.
SECTION 6.10 Benefit Arrangements.
---------------------
For a period of at least one year following the Effective Time, Parent
will provide benefits to employees of the Company and its subsidiaries that
are substantially equivalent to the benefits currently provided to
similarly situated employees of Parent and its subsidiaries. From and after
the Effective Time, Parent and its subsidiaries shall grant all employees
of the Company and its subsidiaries who are employed by the Company or any
subsidiary of the Company immediately before the Effective Time credit for
all service (to the same extent as service with Parent is taken into
account with respect to similarly situated employees of Parent or its
subsidiaries) with the Company or its subsidiaries prior to the Effective
Time for (i) vesting purposes and (ii) for purposes of vacation accrual
after the Effective Time as if such service with the Company or its
subsidiaries were service with Parent or its subsidiaries, provided,
however, that past service credit in any plan intended to be qualified
under Section 401(a) of the Code shall not exceed five years. Parent and
the Company agree that with respect to any medical or dental benefit plan
of Parent, Parent shall waive (or cause to be waived) any pre-existing
condition exclusion and actively-at-work requirements (provided, however,
that no such waiver shall apply to a pre-existing condition of any employee
of the Company or a subsidiary of the Company who was, as of the Effective
Time, excluded from participation in a similar plan maintained by the
Company or any of its subsidiaries immediately before the Effective Time by
virtue of such pre-existing condition and provided that any covered
expenses incurred on or before the Effective Time by an employee or an
employee's covered dependents shall be taken into account for purposes of
satisfying applicable deductible, coinsurance and maximum out-of-pocket
provisions after the Effective Time to the same extent as such expenses are
taken into account for the benefit of similarly situated employees of
Parent or its subsidiaries. Following the
33
<PAGE>
date hereof, Parent and the Company agree to negotiate in good faith the
terms and conditions of severance arrangements with respect to employees of
the Company. Nothing contained herein shall prevent, prohibit, restrict or
limit in any way Parent's ability to terminate the employment of any
employee of the Company or any of its subsidiaries and any agreements to
provide to such employee benefits pursuant to this Section 6.10 shall
terminate with respect to such employee at the time such employee's
employment is terminated.
SECTION 6.11 Takeover Statutes.
------------------
If any "fair price," "moratorium," "control share acquisition" or
other form of antitakeover Law is or shall become applicable to the Offer,
the Merger, this Agreement, the Shareholder Agreement, the acquisition of
Shares by Sub pursuant to the Offer and the Shareholder Agreement or any
other transaction contemplated hereby or by the Shareholder Agreement,
unless the Board of Directors recommends a Superior Proposal in accordance
with Sections 6.2(c) and 8.5 hereof, the Company and the members of the
Board of Directors of the Company shall grant such approvals and take such
actions as are necessary so that the Offer, the Merger, this Agreement, the
Shareholder Agreement, the acquisition of Shares by Sub pursuant to the
Offer and the Shareholder Agreement and any other transaction contemplated
hereby and by the Shareholder Agreement may be consummated as promptly as
practicable on the terms contemplated hereby and by the Shareholder
Agreement and otherwise act to eliminate or minimize the effects of such
Law on the Offer, the Merger, this Agreement, the Shareholder Agreement,
the acquisition of Shares by Sub pursuant to the Offer and the Shareholder
Agreement and any other transaction contemplated hereby and by the
Shareholder Agreement.
SECTION 6.12 Shareholder Agreement Legend.
----------------------------
The Company will not register the transfer of any Certificate unless
such transfer is made in accordance with the terms of the Shareholder
Agreement. The Company will inscribe upon any Certificate representing the
Shares owned beneficially or otherwise by a Shareholder (as such term is
defined in the Shareholder Agreement) the following legend: THE SHARES OF
COMMON STOCK, VALUE $0.01 PER SHARE OF THE COMPANY REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A SHAREHOLDER AGREEMENT DATED AS OF AUGUST 10,
1998, AND ARE SUBJECT TO THE TERMS THEREOF. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
SECTION 6.13 Loan Agreement.
--------------
Promptly following the execution and delivery of this Agreement,
Parent and the Company shall enter into a loan agreement in the form
attached hereto as Exhibit 6.13 (the "Loan Agreement").
34
<PAGE>
SECTION 6.14 Redemption of Series B Stock.
----------------------------
(a) The Company shall take all action necessary to redeem, including,
without limitation, providing notices of redemption required pursuant to
the Certificate of Designations governing the Series B Stock promptly
following the satisfaction of all conditions to such redemption as provided
in the Certificate of Designations for the Series B Stock and shall redeem
if permitted to do so pursuant to the terms of the Certificate of
Designations any and all outstanding shares of Series B Stock (other than
shares of Series B Stock converted by the holders thereof into shares of
Common Stock) prior to the Effective Time in accordance with the
Certificate of Designations of the Series B Stock.
(b) Purchaser shall make an offer to each holder of the outstanding
Series B Stock to purchase all outstanding Series B Stock held by such
holder at the price per share of Series B Stock contemplated by Section
5(d) of the Certificate of Designations of the Series B Stock.
(c) The Company shall take all action necessary to cause the
expiration of the Warrants as of the Effective Time in accordance with the
terms of the Warrants, including, without limitation, providing notice of
the Offer and the Merger as contemplated by the terms of the Warrants
promptly following the date of this Agreement.
ARTICLE VII.
CONDITIONS
SECTION 7.1 Conditions to Each Party's Obligation To Effect the
---------------------------------------------------
Merger.
------
The respective obligation of each party to effect the Merger shall be
subject to the satisfaction of the following conditions:
(a) Company Shareholder Approval. If required by applicable law, the
----------------------------
Company Shareholder Approval shall have been obtained.
(b) No Injunctions or Restraints. No Law or Order issued by any court
----------------------------
of competent jurisdiction or other Governmental Entity or other legal
restraint or prohibition preventing the consummation of the Merger shall be
in effect, provided, however, that each of the parties shall have used
reasonable efforts to prevent the entry of any such Order and to appeal as
promptly as possible any Order that may be entered.
(c) Purchase of Shares. Sub shall have previously accepted for
------------------
payment and paid for all Shares validly tendered and not withdrawn pursuant
to the Offer.
(d) All authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by,
any Governmental Entity or third party necessary for the consummation of
the transactions contemplated by this Agreement shall have been filed,
occurred or been obtained, with such exceptions as
35
<PAGE>
would not individually or in the aggregate have a Material Adverse Effect
on the Company.
ARTICLE VIII.
TERMINATION AND AMENDMENT
SECTION 8.1 Termination.
-----------
Subject to Section 8.5(b), this Agreement may be terminated at any
time prior to the Effective Time, whether before or after approval of the
terms of this Agreement by the shareholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if (x) the Offer shall have expired without the
acceptance for payment of Shares thereunder or (y) Sub
shall not have accepted for payment any Shares pursuant
to the Offer prior to March 31, 1999, provided,
however, that the right to terminate this Agreement
pursuant to this (b)(i) shall not be available to any
party whose failure to perform any of its obligations
under this Agreement results in the failure of any such
condition or if the failure of such condition results
from facts or circumstances that constitute a breach of
representation or warranty under this Agreement by such
party; or
(ii) if any Governmental Entity shall have issued an Order
or taken any other action permanently enjoining,
restraining or otherwise prohibiting the acceptance for
payment of, or payment for, Shares pursuant to the
Offer or the Merger and such Order or other action
shall have become final and nonappealable;
(c) by Parent prior to the purchase of Shares pursuant to the Offer
if the Company shall have breached or failed to perform any representation,
warranty, covenant or other agreement contained in this Agreement that
would give rise to the failure of a condition set forth in paragraph (e) or
(f) of Exhibit A;
(d) by Parent or Sub if either (A) Parent or Sub is entitled to
terminate the Offer as a result of the occurrence of any event set forth in
paragraph (d) of Exhibit A to this Agreement or (B) the Company has
breached in any material respect its covenants contained in Section 6.2; or
(e) by the Company prior to the purchase of Shares pursuant to the
Offer if Parent or Sub shall have breached or failed to perform any of
their respective representations, warranties, covenants or other agreements
contained in this Agreement,
36
<PAGE>
except, in any case, such breaches and failures which are not reasonably
likely to materially and adversely affect Parent's or Sub's ability to
consummate the Offer or the Merger.
(f) by Parent if any person, entity or group (as such terms are
defined or used in Section 13d-3 of the Exchange Act) other than Parent or
Sub acquires beneficial ownership (as such term is defined or used in Rule
13d-3 under the Exchange Act) of 30% or more of the outstanding Shares;
(g) by the Company if prior to the purchase of at least a majority of
the outstanding Shares pursuant to the Offer, the Board of Directors of the
Company shall have withdrawn or modified its approval or recommendation of
the Offer, this Agreement or the Merger to permit the Company to negotiate
or execute a definitive agreement relating to a Superior Proposal or to
approve a Superior Proposal, or the Board of Directors of the Company shall
have recommended such Superior Proposal, in each case in accordance with
Section 6.2(c) hereof.
SECTION 8.2 Effect of Termination.
---------------------
Except as specifically provided in this Section 8.2 hereof, in the
event of a termination of this Agreement by either the Company or Parent as
provided in Section 8.1, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of Parent, Sub or the
Company or their respective officers or directors, provided, however, that
(i) nothing herein shall relieve any party for liability for any willful
breach hereof and (ii) the Confidentiality Agreement, including the
standstill provisions therein, the Loan Agreement and the agreements
contained in Section 8.5 of this Agreement shall survive any termination
hereof.
SECTION 8.3 Amendment.
---------
This Agreement may be amended by the parties hereto, by duly
authorized action taken, at any time before or after obtaining the Company
Shareholder Approval, but, after the purchase of Shares pursuant to the
Offer, no amendment shall be made which decreases the Merger Consideration
and, after the Company Shareholder Approval, no amendment shall be made
which by law requires further approval by such shareholders without
obtaining such further approval. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.
SECTION 8.4 Extension; Waiver.
-----------------
At any time prior to the Effective Time, the parties hereto may, to
the extent legally allowed, subject to Section 8.3, (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 contained herein or in any document delivered pursuant hereto or
(iii) waive compliance with any of the agreements or conditions 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 a written instrument signed
on behalf of such
37
<PAGE>
party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of
those rights.
SECTION 8.5 Expenses.
---------
(a) Except as otherwise provided in this Section 8.5, each party
shall bear its own expenses in connection with the transactions
contemplated by this Agreement.
(b) If (i) this Agreement is terminated pursuant to Sections 8.1(c),
8.1(d) or 8.1(g), or (ii) at any time on or prior to six months from the
date of any termination of this Agreement for any reason other than any
termination by the Company pursuant to Section 8.1(e), there shall occur a
Change in Control (as hereinafter defined), then the Company shall pay to
Parent a fee of $5,000,000 by wire transfer of immediately available funds.
Such fee shall be paid prior to and as a condition to any termination in
the event of any termination pursuant to Section 8.1(g) by the Company, and
in any other event within one business day following such termination. The
Company acknowledges that the agreements contained in this Section 8.5(b)
are an integral part of the transactions contemplated in this Agreement,
and that, without these agreements, Parent would not enter into this
Agreement. Accordingly, if the Company fails to pay the amount due pursuant
to this Section 8.5(b) when it is required to be paid, and, in order to
obtain such payment, Parent commences a suit which results in a judgment
against the Company for the fee set forth in this Section 8.5(b), the
Company shall pay to Parent its costs and expenses (including attorneys'
fees) in connection with such suit, including any costs of collection,
together with interest on the amount of the fee at the rate of 12% per
annum from the date such fee was required to be paid.
(c) For purposes hereof, "Change of Control" means the occurrence of
any of the following events:
(i) the Company is merged or consolidated with or into another
corporation (other than as contemplated by this Agreement) with
the effect that the common shareholders immediately prior to such
merger or consolidation hold less than fifty percent (50%) of the
ordinary voting power of the outstanding securities of the
surviving corporation of such merger or the corporation resulting
from such consolidation;
(ii) a change in the composition of the Board of Directors of the
Company after the date hereof (other than as contemplated by this
Agreement) as a result of which fewer than a majority of the
incumbent directors are directors who either (i) had been
directors of the Company 12 months prior to such change, or (ii)
were elected, or nominated for election, to the Board of
Directors with the affirmative votes of a majority of the
directors who had been directors of the Company 12 months prior
to such change and who were still in office at the time of the
election or nomination;
(iii) any person or persons, entity or group (as such terms are defined
or
38
<PAGE>
used in Section 13d-3 under the Exchange Act) shall:
A. as a result of a tender or exchange offer, open market
purchases, merger, privately negotiated purchases or
otherwise, have become, directly or indirectly, the
beneficial owner (as such term is defined or used in
Rule 13d-3 under the Exchange Act) of thirty percent
(30%) or more of the Shares;
B. commence, or announce the intention to commence, any
tender offer or exchange offer for thirty percent (30%)
or more of the Shares; or
(iv) the Company shall enter into any agreement, including without
limitation an agreement in principle, regarding any Takeover
Proposal.
ARTICLE IX.
MISCELLANEOUS
SECTION 9.1 Nonsurvival of Representations and Warranties.
---------------------------------------------
None of the representations and warranties in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the
Effective Time.
SECTION 9.2 Notices.
-------
All notices and other communications hereunder shall be in writing and
shall be deemed given upon receipt by the parties at the following
addresses (or at such other address for a party as shall be specified by
like notice):
(a) if to Parent or Sub, to
Guidant Corporation
111 Monument Circle
Indianapolis, Indiana 46204-5129
Attention: J.B. King, Esq.
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Fax: (212) 259-6333
Attention: Bernard E. Kury, Esq.
Jonathan L. Freedman, Esq.
(b) if to the Company, to
39
<PAGE>
InControl, Inc.
6675 185th Ave. N.E.
Redmond, WA 98052-6734
Fax: (425) 861-9301
Attention: Kurt C. Wheeler
with a copy to:
Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
Fax: (206) 583-8500
Attention: Stephen M. Graham, Esq.
Alan C. Smith, Esq.
SECTION 9.3 Interpretation.
--------------
(a) When a reference is made in this Agreement to an Article or
a Section, such reference shall be to an Article or a Section of this
Agreement unless otherwise indicated.
(b) 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.
(c) This Agreement is the result of the joint efforts of Parent,
Sub and the Company, and each provision hereof has been subject to the
mutual consultation, negotiation and agreement of the parties and there
shall be no construction against any party based on any presumption of that
party's involvement in the drafting thereof.
(d) The words "include", "includes" or "including" shall be
deemed to be followed by the words "without limitation."
(e) "knowledge" means actual awareness of a particular fact or
other matter. Knowledge of a corporate entity is deemed to include actual
knowledge of its officers and directors.
(f) A "subsidiary" of any person means another person, an amount
of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person.
(g) The term "ordinary course of business" (or similar terms)
shall be deemed to be followed by the words "consistent with past
practice."
40
<PAGE>
SECTION 9.4 Counterparts.
------------
This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement, it being understood that
all parties need not sign the same counterpart.
SECTION 9.5 Entire Agreement; No Third Party Beneficiaries.
----------------------------------------------
This Agreement (including the documents and the instruments referred
to herein) (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) except as provided in Section 6.7,
is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
SECTION 9.6 Governing Law.
-------------
This Agreement shall be governed and construed in accordance with the
laws of the State of Delaware without regard to any applicable conflicts of law.
SECTION 9.7 Publicity.
---------
Except as otherwise required by law, court process or the rules of any
applicable securities exchange or the Nasdaq National Market or as contemplated
or provided elsewhere herein, no party hereto shall issue any press release or
otherwise make any public statement with respect to the transactions
contemplated by this Agreement without prior consultation with the other parties
hereto.
SECTION 9.8 Assignment.
----------
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties,
except that Sub may assign, in its sole discretion, any or all of its rights,
interests, liabilities and obligations hereunder to Parent or to any wholly
owned subsidiary of Parent, upon which assignment Sub will be relieved of and
released from its liabilities and obligations hereunder. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
SECTION 9.9 Enforcement.
-----------
The parties 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
of this Agreement, in addition to any other remedy to which they are entitled at
law or in equity. In addition, each of the parties hereto waives any right to
trial by jury with respect to any claim or proceeding related to or arising out
of this Agreement or any of the transactions contemplated hereby.
41
<PAGE>
SECTION 9.10 Severability.
------------
This Agreement shall be deemed severable; the invalidity or
unenforceability of any term or provision of this Agreement shall not affect the
validity or enforceability of the balance of this Agreement or of any other term
hereof, which shall remain in full force and effect. If of any of the provisions
hereof are determined to be invalid or unenforceable, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible.
42
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
GUIDANT CORPORATION
By: /s/ Ronald W. Dollens
----------------------------
Name: Ronald W. Dollens
Title: President and CEO
PEGASUS ACQUISITIONS CORP.
By: /s/ A. Jay Graf
----------------------------
Name: A. Jay Graf
Title: President
INCONTROL, INC.
By: /s/ Kurt C. Wheeler
----------------------------
Name: Kurt C. Wheeler
Title: Chairman of the Board
President and CEO
43
<PAGE>
EXHIBIT A
Conditions of the Offer
Notwithstanding any other term of the Offer, Sub shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to Sub's
obligation to pay for or return tendered Shares after the termination or
withdrawal of the Offer), to pay for any Shares tendered pursuant to the Offer
unless prior to the Expiration Date (as defined in the Offer) (i) there shall
have been validly tendered a majority of the outstanding Shares (determined on a
fully diluted basis) (the "Minimum Condition") (ii) the Series B Stock shall
have been redeemed by the Company or converted into shares of Common Stock (in
either case in accordance with the Certificate of Designations for the Series B
Stock) and (iii) any waiting period under the HSR Act applicable to the purchase
of Shares pursuant to the Offer shall have expired or been terminated.
Furthermore, notwithstanding any other term of the Offer or this Agreement, Sub
shall not be required to accept for payment or, subject as aforesaid, to pay for
any Shares not theretofore accepted for payment or paid for, and may terminate
the Offer if, at any time on or after the date of this Agreement and prior to
the Expiration Date, any of the following conditions exists:
(a) there shall be threatened, instituted or pending by any
Governmental Entity any suit, action or proceeding (i) challenging the
acquisition by Parent or Sub of any Shares under the Offer, seeking to restrain
or prohibit the making or consummation of the Offer or the Merger or seeking to
obtain from the Company, Parent or Sub any damages that are material in relation
to the Company and its subsidiaries taken as a whole, (ii) seeking to prohibit
or materially limit the ownership or operation by the Company, Parent or any of
their respective subsidiaries of a material portion of the business or assets of
the Company and its subsidiaries, taken as a whole, or Parent and its
subsidiaries, taken as a whole, or to compel the Company and its subsidiaries,
taken as a whole or Parent to dispose of or hold separate any material portion
of the business or assets of the Company or Parent and its subsidiaries, taken
as a whole, in each case as a result of the Offer or any of the other
transactions contemplated by this Agreement or the Shareholder Agreement, (iii)
seeking to impose material limitations on the ability of Parent or Sub to
acquire or hold, or exercise full rights of ownership of, any Shares to be
accepted for payment pursuant to the Offer including, without limitation, the
right to vote such Shares on all matters properly presented to the shareholders
of the Company, (iv) seeking to prohibit Parent or any of its subsidiaries from
effectively controlling in any material respect any material portion of the
business or operations of the Company or its subsidiaries or (v) which otherwise
is reasonably likely to have a Material Adverse Effect on the Company;
(b) there shall be any Law or Order enacted, entered, enforced,
promulgated or deemed applicable to the Offer or the Merger, by any Governmental
Entity, other than the routine application to the Offer or the Merger of
applicable waiting periods under the HSR Act, that is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (v) of paragraph (a) above;
44
<PAGE>
(c) there shall have occurred any Material Adverse Effect with
respect to the Company;
(d) (i) the Board of Directors of the Company or any committee
thereof shall have (x) withdrawn or modified in a manner adverse to Parent or
Sub its approval, recommendation or statement as to advisability of the Offer or
the Merger or its adoption of this Agreement or the Shareholder Agreement, (y)
approved, recommended, stated to be advisable or taken a neutral position (or
failed to or was otherwise unable to take a position) with respect to any
Takeover Proposal, (z) failed to reaffirm its approval, recommendation or
statement as to advisability of the Offer or the Merger or its adoption of this
Agreement or the Shareholder Agreement within five business days of being
requested by Parent to do so or (ii) the Board of Directors of the Company or
any committee thereof shall have resolved to take any of the foregoing actions,
except any taking or disclosing to the shareholders a position contemplated by
Rule 14e-2(a)(2) or (3) promulgated under the Exchange Act with respect to any
Takeover Proposal if within five (5) business days of taking or disclosing to
the shareholders the aforementioned position, the Board of Directors publicly
reconfirms its recommendation of the transactions contemplated hereby as set
forth in Section 1.2(a) hereof;
(e) any of the representations and warranties of the Company set
forth in this Agreement shall not be true and correct (except where such failure
to be true and correct would not have a Material Adverse Effect on the Company
(except with respect to any representation or warranty which is already
qualified by a materiality standard in which case such representation or
warranty shall not be true and correct in all respects)), in each case at the
date of the Agreement and at the scheduled or extended expiration of the Offer;
(f) the Company shall have failed to perform or comply with any
agreement, obligation or covenant to be performed or complied with by it under
this Agreement in all material respects, which failure to perform or comply has
not been cured within five business days after the giving of written notice to
the Company; or
(g) this Agreement shall have been terminated in accordance with its
terms.
The foregoing conditions are for the sole benefit of Parent and Sub and
may, subject to the terms of this Agreement, be waived by Parent and Sub in
whole or in part at any time and from time to time in their reasonable
discretion. The failure by Parent or Sub at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and circumstances shall not be
deemed a waiver with respect to any other facts and circumstances and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
Terms used but not defined herein shall have the meanings assigned to such
terms in the Agreement to which this Exhibit A is a part.
45
<PAGE>
Exhibit 3
<PAGE>
FORM OF SHAREHOLDER AGREEMENT
-----------------------------
SHAREHOLDER AGREEMENT, dated as of August 10, 1998, among GUIDANT
CORPORATION, an Indiana corporation ("Parent"), PEGASUS ACQUISITIONS CORP., a
Delaware corporation and a wholly-owned subsidiary of Parent ("Sub"), and the
persons listed on Schedule A hereto (the "Shareholders").
WHEREAS, Parent, Sub and InControl, Inc., a Delaware corporation (the
"Company"), propose to enter into an Agreement and Plan of Merger, dated the
date hereof (as the same may be amended or supplemented, the "Merger Agreement")
providing for (i) the making of a cash tender offer (as such offer may be
amended from time to time as permitted under the Merger Agreement, the "Offer")
by Sub for all the outstanding shares of Common Stock, par value $0.01 per
share, of the Company (the "Company Common Stock") and (ii) the merger of Sub
with the Company (the "Merger");
WHEREAS, each Shareholder is the record and beneficial owner of the number
of shares of Company Common Stock set forth opposite such Shareholder's name on
Schedule A hereto; such shares of Company Common Stock, as such shares may be
adjusted by stock dividend, stock split, recapitalization, combination or
exchange of shares, merger, consolidation, reorganization or other change or
transaction of or by the Company, together with shares of Company Common Stock
that may be acquired after the date hereof by such Shareholder, including shares
of Company Common Stock issuable upon the exercise of options to purchase
Company Common Stock (as the same may be adjusted as aforesaid), being
collectively referred to herein as the "Shares"; and
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Parent and Sub have requested that the Shareholders enter into this
Agreement;
NOW, THEREFORE, to induce Parent and Sub to enter into, and in
consideration of their entering into, the Merger Agreement, and in consideration
of the promises and the representations, warranties and agreements contained
herein, the parties agree as follows:
1. Tender of Shares.
----------------
Each Shareholder hereby agrees that it shall tender its Shares into the
Offer and that it shall not withdraw any Shares so tendered.
2. Representations and Warranties of the Shareholders. Each Shareholder
--------------------------------------------------
hereby represents and warrants severally and not jointly to Parent and Sub as
follows:
(a) Authority. The Shareholder has all requisite power and authority to
---------
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
and the consummation of the
1
<PAGE>
transactions contemplated hereby have been duly authorized by the Shareholder.
This Agreement has been duly executed and delivered by the Shareholder and,
assuming this Agreement constitutes a valid and binding obligation of Parent and
Sub, constitutes a valid and binding obligation of the Shareholder enforceable
against the Shareholder in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity (the "Enforceability Exceptions").
Except for the expiration or termination of the waiting periods under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") and
filings with the Securities and Exchange Commission, neither the execution,
delivery or performance of this Agreement by the Shareholder nor the
consummation by the Shareholder of the transactions contemplated hereby will (i)
require any filing with, or permit, authorization, consent or approval of, any
federal, state, local or foreign government or any court, tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency, domestic, foreign or supranational (a "Governmental
Entity"), (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default under, or give rise to
any right of termination, amendment, cancellation or acceleration under, or
result in the creation of any pledge, claim, lien, charge, encumbrance or
security interest of any kind or nature whatsoever (a "Lien") upon any of the
properties or assets of the Shareholder under, or require consent pursuant to,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, permit, concession, franchise, contract, agreement or
other instrument or obligation (a "Contract") to which the Shareholder is a
party or by which the Shareholder or any of the Shareholder's properties or
assets, including the Shareholder's Shares, may be bound or (iii) violate any
judgment, order, writ, preliminary or permanent injunction or decree (an
"Order") or any statute, law, ordinance, rule or regulation of any Governmental
Entity (a "Law") applicable to the Shareholder or any of the Shareholder's
properties or assets, including the Shareholder's Shares.
(b) The Shares. The Shareholder's Shares and the certificates representing
----------
such Shares are now, and at all times during the term hereof will be, held by
such Shareholder, or by a nominee or custodian for the benefit of such
Shareholder, and the Shareholder has good and marketable title to such Shares,
free and clear of any Liens, proxies, voting trusts or agreements,
understandings or arrangements, except for any such Liens or proxies arising
hereunder. The Shareholder owns of record or beneficially no shares of Company
Common Stock other than such Shareholder's Shares and shares of Company Common
Stock issuable upon the exercise of Company Stock Options.
(c) Brokers. No broker, investment banker, financial advisor or other
-------
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of such Shareholder.
(d) Merger Agreement. The Shareholder understands and acknowledges that
----------------
Parent is entering into, and causing Sub to enter into, the Merger Agreement in
upon the Shareholder's execution and delivery of this Agreement.
2
<PAGE>
3. Representations and Warranties of Parent and Sub. Parent and Sub hereby
------------------------------------------------
jointly and severally represent and warrant to the Shareholders as follows:
(a) Authority. Parent and Sub have the requisite corporate power and
---------
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by Parent and Sub and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Parent and Sub. This Agreement has been duly executed and
delivered by Parent and Sub and, assuming this Agreement constitutes a valid and
binding obligation of the Shareholders, constitutes a valid and binding
obligation of Parent and Sub enforceable in accordance with its terms, subject
to the Enforceability Exceptions.
(b) Securities Act. The Shares will be acquired in compliance with, and
--------------
Sub will not offer to sell or otherwise dispose of any Shares so acquired by it
in violation of any of, the Securities Exchange Act of 1934 or the registration
requirements of the Securities Act of 1933.
4. Covenants of the Shareholders. Each Shareholder agrees as follows:
-----------------------------
(a) The Shareholder shall not, except as contemplated by the terms of this
Agreement, (i) sell, transfer, pledge, assign or otherwise dispose of, or enter
into any Contract, option or other arrangement (including any profit sharing
arrangement) or understanding with respect to the sale, transfer, pledge,
assignment or other disposition of, or grant or suffer to exist any Lien with
respect to, the Shares to any person other than Sub or Sub's designee, (ii)
enter into any voting arrangement, whether by proxy, voting agreement, voting
trust, power-of-attorney or otherwise, with respect to the Shares or (iii) take
any other action that would in any way restrict, limit or interfere with the
performance of its obligations hereunder or the transactions contemplated
hereby.
(b) Until the Merger is consummated or the Merger Agreement is terminated,
the Shareholder shall not, nor shall the Shareholder cause any investment
banker, financial adviser, attorney, accountant or other representative or agent
of the Shareholder to, directly or indirectly (i) solicit, initiate or encourage
(including by way of furnishing information), or take any other action designed
or reasonably likely to facilitate, any inquiries or the making of any proposal
which constitutes, or may reasonably be expected to lead to, any Takeover
Proposal or (ii) participate in any discussions or negotiations regarding any
Takeover Proposal.
(c) At any meeting of shareholders of the Company called to vote upon the
Merger and the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval (including by written
consent) with respect to the Merger and the Merger Agreement is sought, each
Shareholder shall, including by initiating a written consent solicitation if
requested by Parent, vote (or cause to be voted) such Shareholder's Shares in
favor of the Merger, the adoption by the Company of the Merger Agreement and the
approval of the other
3
<PAGE>
transactions contemplated by the Merger Agreement. At any meeting of
shareholders of the Company or at any adjournment thereof or in any other
circumstances upon which the Shareholder's vote, consent or other approval is
sought, such Shareholder shall vote (or cause to be voted) such Shareholder's
Shares against (i) any merger agreement or merger (other than the Merger
Agreement and the Merger), consolidation, combination, sale of assets,
reorganization, recapitalization, dissolution, liquidation or winding up of or
by the Company or any other Takeover Proposal (collectively, "Alternative
Transactions") or (ii) any amendment of the Company's Certificate of
Incorporation or By-laws or other proposal or transaction involving the Company
or any of its subsidiaries, which amendment or other proposal or transaction
would in any manner impede, frustrate, prevent or nullify the Offer, the Merger,
the Merger Agreement or any of the other transactions contemplated by the Merger
Agreement (collectively, "Frustrating Transactions").
5. Grant of Irrevocable Proxy; Appointment of Proxy. (a) Each Shareholder
------------------------------------------------
hereby irrevocably grants to, and appoints, each of James M. Cornelius, Ronald
W. Dollens, and J. B. King and any other individual who shall hereafter be
designated by Parent, and each of them, such Shareholder's proxy and attorney-
in-fact (with full power of substitution), for and in the name, place and stead
of such Shareholder, to vote such Shareholder's Shares, or grant a consent or
approval in respect of such Shares, at any meeting of shareholders of the
Company or at any adjournment thereof or in any other circumstances upon which
their vote, consent or other approval is sought, (i) in favor of the Merger, the
adoption by the Company of the Merger Agreement and the approval of the other
transactions contemplated by the Merger Agreement and against (i) any merger
agreement or merger (other than the Merger Agreement and the Merger),
consolidation, combination, sale of assets, reorganization, recapitalization,
dissolution, liquidation or winding up of or by the Company and (ii) any
Alternative Transaction or Frustrating Transaction.
(b) Each Shareholder represents that any proxies heretofore given in
respect of such Shareholder's Shares are not irrevocable, and that any such
proxies are hereby revoked.
(c) Each Shareholder hereby affirms that the irrevocable proxy set forth
in this Section 5 is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of such Shareholder under this Agreement. Such Shareholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked, subject to Section 8. Such Shareholder hereby
ratifies and confirms all that such irrevocable proxy may lawfully do or cause
to be done by virtue hereof. Such irrevocable proxy is executed and intended to
be irrevocable in accordance with the provisions of Section 212 of the Delaware
General Corporation Law. Such irrevocable proxy shall be valid until the
termination of this Agreement pursuant to Section 8.
6. Further Assurances. Each Shareholder will, from time to time, execute
------------------
and deliver, or cause to be executed and delivered, such additional or further
transfers,
4
<PAGE>
assignments, endorsements, consents and other instruments as Parent or Sub may
reasonably request for the purpose of effectively carrying out the transactions
contemplated by this Agreement and to vest the power to vote such Shareholder's
Shares as contemplated by Section 5. Parent and Sub jointly and severally agree
to use reasonable efforts to take, or cause to be taken, all actions necessary
to comply promptly with all legal requirements that may be imposed with respect
to the transactions contemplated by this Agreement (including legal requirements
of the HSR Act).
7. Assignment. Neither this Agreement nor any of the rights, interests or
----------
obligations hereunder shall be assigned by any of the parties without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any or all of its rights, interests, liabilities and obligations
hereunder to Parent or to any wholly owned subsidiary of Parent, upon which
assignment Sub shall be relieved of and released from its liabilities and
obligations hereunder. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns. Each Shareholder agrees that this
Agreement and the obligations of such Shareholder hereunder shall attach to such
Shareholder's Shares and shall be binding upon any person or entity to which
legal or beneficial ownership of such Shares shall pass, whether by operation of
law or otherwise, including without limitation such Shareholder's heirs,
guardians, administrators or successors.
8. Termination. This Agreement, and all rights and obligations of the
-----------
parties hereunder, shall terminate upon the earliest of (a) the date upon which
the Merger Agreement is terminated pursuant to Section 8.1(a) thereof, (b) the
date upon which the Merger Agreement is terminated pursuant to Section 8.1(e)
thereof, (c) the later of (i) the first anniversary of the date of termination
of the Merger Agreement other than pursuant to Section 8.1(a) and (ii) the date
on which all waiting periods under the HSR Act applicable to the purchase of
Shares pursuant to Section 1 shall have expired or been terminated and (d) the
date that Parent or Sub shall have purchased the Shareholders' Shares pursuant
to Section 1.
9. General Provisions.
(a) Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense.
(b) Amendments. This Agreement may not be amended except by an instrument
----------
in writing signed by each of the parties hereto.
(c) Notice. All notices and other communications hereunder shall be in
------
writing and shall be deemed given upon receipt to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(i) if to Parent, to
5
<PAGE>
Guidant Corporation
111 Monument Circle
Indianapolis, Indiana 46204-5129
Attention: J.B. King, Esq.
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
Fax: (212) 259-6333
Attention: Bernard E. Kury, Esq.
Jonathan L. Freedman, Esq.
and
(ii) if to a Shareholder, to the address set forth under the name of such
Shareholder on Schedule A hereto
with a copy to:
Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
Fax: (206) 583-8500
Attention: Stephen M. Graham, Esq.
Alan C. Smith, Esq.
(d) Interpretation. When a reference is made in this Agreement to a
--------------
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Wherever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
(e) Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement, it
being understood that all parties need not sign the same counterpart.
(f) Entire Agreement; No Third-Party Beneficiaries. This Agreement
----------------
(including the documents and instruments referred to herein) (i) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (ii) is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
6
<PAGE>
(g) Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
(h) Publicity. Except as otherwise required by law, court process or the
---------
rules of a national securities exchange or the Nasdaq National Market or as
contemplated or provided in the Merger Agreement, for so long as this Agreement
is in effect, neither any Shareholder nor Parent shall issue or cause the
publication of any press release or other public announcement with respect to
the transactions contemplated by this Agreement or the Merger Agreement without
the consent of the other parties, which consent shall not be unreasonably
withheld.
10. Shareholder Capacity. No person executing this Agreement who is or
--------------------
becomes during the term hereof a director or officer of the Company makes any
agreement or understanding herein in his or her capacity as such director or
officer. Each Shareholder signs solely in his or her capacity as the record
holder and beneficial owner of, or the trustee of a trust whose beneficiaries
are the beneficial owners of, such Shareholder's Shares and nothing herein shall
limit or affect any actions taken by a Shareholder in its capacity as an officer
or director of the Company to the extent specifically permitted by the Merger
Agreement.
11. Performance by Sub. Parent covenants and agrees for the benefit of the
------------------
Shareholders that it shall cause Sub to perform in full each obligation of Sub
set forth in this Agreement.
12. Enforcement. The parties 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 of this Agreement in court of the United States located
in the State of Delaware or any Delaware State court, this being in addition to
any other remedy to which they are entitled at law or in equity. In addition,
each of the parties hereto waives any right to trial by jury with respect to any
claim or proceeding related to or arising out of this Agreement or any of the
transactions contemplated hereby.
7
<PAGE>
IN WITNESS WHEREOF, each of Parent and Sub has caused this Agreement to be
signed by its officer thereunto duly authorized and each Shareholder has signed
this Agreement, all as of the date first written above.
GUIDANT CORPORATION
By: _________________________
Name:
Title:
PEGASUS ACQUISITIONS CORP.
By: _________________________
Name:
Title:
SHAREHOLDER:
[SHAREHOLDER]
8
<PAGE>
SCHEDULE A
[Intentionally Omitted]
9
<PAGE>
Exhibit 4
<PAGE>
CREDIT AGREEMENT
By and Between
INCONTROL, INC.
Borrower,
and
GUIDANT CORPORATION
Lender,
Dated as of August 10, 1998
____________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 Definitions...................................................................................... 1
ARTICLE 2 Loan............................................................................................. 7
2.1 Loan................................................................................................. 7
2.2 Interest............................................................................................. 8
2.3 Payments............................................................................................. 8
ARTICLE 3 Conditions Precedent............................................................................. 10
3.1 Conditions to Disbursement........................................................................... 10
3.2 Conditions for the Benefit of the Lender............................................................. 11
ARTICLE 4 Representations and Warranties of the Borrower................................................... 11
4.1 Due Organization..................................................................................... 11
4.2 Capitalization....................................................................................... 11
4.3 Requisite Power...................................................................................... 12
4.4 Authorization........................................................................................ 12
4.5 Officer Authorization................................................................................ 12
4.6 Binding Nature....................................................................................... 12
4.7 No Conflict.......................................................................................... 12
4.8 No Event of Default.................................................................................. 12
4.9 Full Disclosure...................................................................................... 12
4.10 Merger Agreement Representations..................................................................... 12
ARTICLE 5 Affirmative Covenants............................................................................ 13
5.1 Financial Statements and Notices..................................................................... 13
5.2 Access............................................................................................... 14
5.3 Maintenance of Existence............................................................................. 14
5.4 Facilities........................................................................................... 14
5.5 Compliance with Laws................................................................................. 14
5.6 Material Agreements.................................................................................. 15
5.7 Insurance............................................................................................ 15
5.8 Taxes and Other Liabilities.......................................................................... 15
5.9 Governmental Approvals............................................................................... 15
ARTICLE 6 Negative Covenants............................................................................... 15
6.1 Certain Covenants of the Company..................................................................... 15
6.2 Change of Business................................................................................... 15
6.3 Liens and Encumbrances............................................................................... 15
6.4 Sale-Leasebacks...................................................................................... 15
6.5 Transactions With Affiliates......................................................................... 16
6.6 Investments.......................................................................................... 16
6.7 Obligations.......................................................................................... 16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.8 Intellectual Property................................................................................... 16
ARTICLE 7 Events of Default................................................................................... 16
7.1 Events of Default....................................................................................... 16
7.2 Acceleration............................................................................................ 18
ARTICLE 8 Representations and Warranties of the Lender........................................................ 18
8.1 Due Organization........................................................................................ 18
8.2 Requisite Power......................................................................................... 18
8.3 Authorization........................................................................................... 18
8.4 Officer Authorization................................................................................... 18
8.5 Binding Nature.......................................................................................... 19
8.6 No Conflict............................................................................................. 19
ARTICLE 9 Miscellaneous....................................................................................... 19
9.1 Successors and Assigns and Sale of Interests............................................................ 19
9.2 No Implied Waiver....................................................................................... 19
9.3 Amendments and Waivers.................................................................................. 19
9.4 Remedies Cumulative..................................................................................... 19
9.5 Severability............................................................................................ 19
9.6 Costs, Expenses and Attorneys' Fees..................................................................... 20
9.7 General Indemnification................................................................................. 20
9.8 Confidentiality......................................................................................... 20
9.9 Notices................................................................................................. 21
9.10 Entire Agreement....................................................................................... 21
9.11 Governing Law and Consent to Jurisdiction.............................................................. 22
9.12 Publicity.............................................................................................. 22
9.13 Counterparts........................................................................................... 22
9.14 Headings............................................................................................... 22
</TABLE>
EXHIBITS AND SCHEDULES
----------------------
No. Description
--- -----------
Exhibit 2.1 (b) Form of Note
Schedule I Liens
Schedule II Existing Defaults
ii
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is entered into as of August 10,
---------
1998, between INCONTROL, INC., A DELAWARE CORPORATION (THE "BORROWER"), AND
--------
GUIDANT CORPORATION, AN INDIANA CORPORATION (THE "LENDER").
------
W I T N E S S E T H:
- - - - - - - - - -
In consideration of the premises and mutual agreements herein contained,
the parties hereto agree as follows:
ARTICLE 1
Definitions
-----------
In addition to any terms defined elsewhere in this Agreement, the following
terms have the meanings indicated for purposes of this Agreement (such
definitions being equally applicable to the singular and plural forms of the
defined term):
"Acceleration" means that the Loan (a) shall not have been paid at the
------------
Maturity Date, or (b) shall have become due and payable prior to its stated
maturity pursuant to Section 7.2 hereof.
"Agreement" or "Credit Agreement" means this Credit Agreement, as from time
--------- ----------------
to time amended, modified or supplemented.
"Banking Day" means a day other than a Saturday or a Sunday when commercial
-----------
banks are open for business in New York, New York.
"Borrower" shall have the meaning specified in the heading to this
--------
Agreement.
"Borrowing Notice" shall have the meaning specified in Section 2.1(f)
----------------
hereof.
"Business" means the design, development, manufacture and sale of
--------
implantable atrial defibrillators and related products, including transvenous
defibrillation leads and temporary defibrillation catheters.
"Cash Equivalents" means the net current cash value of (a) obligations
----------------
issued or guaranteed by the United States of America; (b) certificates of
deposit, bankers' acceptances and other "money market instruments" issued by any
Permissible Bank; (c) open market commercial paper bearing the highest credit
rating issued by Standard & Poor's Corp. or by another nationally recognized
credit rating firm; (d) repurchase agreements entered into with any Permissible
Bank; and (e) shares of "money market funds," each having net assets of not less
than $500,000,000.
"Change of Control" means the occurrence of any of the following events:
-----------------
<PAGE>
(a) the Borrower is merged or consolidated with or into another
corporation (other than as contemplated by the Merger Agreement) with
the effect that the common stockholders immediately prior to such
merger or consolidation hold less than fifty percent (50%) of the
ordinary voting power of the outstanding securities of the surviving
corporation of such merger or the corporation resulting from such
consolidation;
(b) a change in the composition of the Board of Directors of the Borrower
after the date hereof (other than as contemplated by the Merger
Agreement) as a result of which fewer than a majority of the incumbent
directors are directors who either (i) had been directors of the
Borrower 12 months prior to such change, or (ii) were elected, or
nominated for election, to the Board of Directors with the affirmative
votes of a majority of the directors who had been directors of the
Borrower 12 months prior to such change and who were still in office
at the time of the election or nomination;
(c) any person or persons, entity or group (within the meaning of Rule
13d-5 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) shall:
(i) as a result of a tender or exchange offer, open market
purchases, merger, privately negotiated purchases or
otherwise, have become, directly or indirectly, the
beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of thirty percent (30%) or more of the Shares;
or
(ii) commence, or announce the intention to commence, any tender
offer or exchange offer for thirty percent (30%) or more of
the Shares;
(d) The Merger Agreement shall terminate pursuant to Sections 8.1(d) or
8.1(g) thereof; or
(e) Borrower shall enter into any agreement, including without limitation
an agreement in principle, regarding any Takeover Proposal.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Disbursement Date" means any date on which a disbursement of the Loan is
-----------------
made. Each Disbursement Date shall be on the date designated in a written
notice from the Borrower to the Lender; provided, however, that the Lender shall
-------- -------
not be required to make any disbursement if the conditions thereto are not
satisfied.
"Dollars" and "$" mean United States Dollars.
------- -
"Effective Date" means the date of this Agreement.
--------------
"Environmental Claim" means all claims, however asserted, by any
-------------------
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law or for release or injury
to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or
otherwise alleging liability or responsibility for damages (punitive or
otherwise), cleanup, removal, remedial or response costs, restitution, civil or
criminal penalties, injunctive relief, or other type of relief.
2
<PAGE>
"Environmental Laws" means any Governmental Requirement pertaining to land
------------------
use, air, soil, surface water, groundwater (including the protection, cleanup,
removal, remediation or damage thereof), public or employee health or safety or
any other environmental matter; including without limitation, the following laws
as the same may be amended from time to time:
(1) Clean Air Act (42 U.S.C. Section 7401, et seq.);
-- ---
(2) Clean Water Act (33 U.S.C. Section 1251, et seq.);
-- ---
(3) Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et
--
seq.);
---
(4) Comprehensive Environmental Response, Compensation and Liability Act
(42 U.S.C. Section 9601, et seq.);
-- ---
(5) Safe Drinking Water Act (42 U.S.C. Section 300f, et seq.);
-- ---
(6) Toxic Substances Control Act (15 U.S.C. Section 2601, et seq.);
-- ---
(7) Rivers and Harbors Act (33 U.S.C. Section 401, et seq.);
-- ---
(8) Endangered Species Act (16 U.S.C. Section 1531, et seq.);
-- ---
(9) Occupational Safety and Health Act (29 U.S.C. Section 651, et seq.).
-- ---
"Event of Default" shall have the meaning set forth in Article 7 hereof.
----------------
"Fully Diluted Common Equity" means the number of shares of the Borrower's
---------------------------
common stock that would be outstanding assuming the exercise or conversion of
all outstanding options, warrants, convertible securities and any other rights
to acquire common stock.
"GAAP" means generally accepted accounting principles set forth in the
----
pronouncements of the Financial Accounting Standards Board applied on a
consistent basis or in such other statements, opinions or interpretive releases
by such other entities as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of determination. Each accounting term not defined herein and each accounting
term partly defined herein to the extent not defined shall have the meaning
given to it under GAAP.
"Governmental Approvals" means any consent, right, exemption, concession,
----------------------
permit, license, authorization, certificate, order, franchise, determination or
approval of any federal, state, provincial, municipal or governmental
department, commission, board, bureau, agency or instrumentality required for
the ownership of, or activities of the Borrower or any other Person in
connection with, the business, assets and properties of the Borrower.
"Governmental Authority" means any nation or government, any state,
----------------------
province or other political subdivision thereof or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
3
<PAGE>
"Governmental Requirements" means all legal requirements in effect from
-------------------------
time to time including all laws, statutes, codes, acts, ordinances, orders,
judgments, decrees, injunctions, rules, regulations, permits, licenses,
authorizations, certificates, orders, franchises, determinations, approvals,
notices, demand letters, directions and requirements of all governments,
departments, commissions, boards, courts, authorities, agencies, officials and
officers, and all instruments of record, foreseen or unforeseen, ordinary or
extraordinary, including but not limited to any change in any law, regulation or
the interpretation thereof by any foreign or domestic governmental or other
authority (whether or not having the force of law), relating now or at any time
heretofore or hereafter to the business or operations of the Borrower or to any
of the property owned, leased or used by the Borrower, including, without
limitation, the development, design, construction, acquisition, start-up,
ownership and operation and maintenance of property.
"Hazardous Substance" means any pollutant, contaminant, toxic or hazardous
-------------------
substance, material, constituent or waste as such terms are defined in or
pursuant to any Environmental Law.
"Incipient Default" shall have the meaning set forth in Section 3.1(c)
-----------------
hereof.
"Indebtedness" means (a) any obligation for borrowed money; (b) any
------------
obligation evidenced by bonds, debentures, notes or other similar instruments;
(c) any obligation to pay the deferred purchase price of property or for
services (other than in the ordinary course of business); (d) any capitalized
lease obligation; (e) any obligation or liability secured by a lien on any asset
of the Borrower, whether or not such obligation or liability is assumed; and (f)
any other long-term obligation or liability which is required by GAAP to be
shown as part of the liabilities on a balance sheet; provided, however, that
-------- -------
Indebtedness shall not mean obligations incurred in connection with (x) the
acquisition of equipment which is less than or equal to (A) if a Loan Extension
Event has occurred, two million Dollars ($2,000,000) or (B) if no Loan Extension
Event has occurred, one million Dollars ($1,000,000), in each case in the
aggregate at any time outstanding or (y) any judgment, order or decree that does
not constitute an Event of Default pursuant to Section 7.1(e) hereof.
"Insolvency Proceeding" means (a) any case, action or proceeding before any
---------------------
court or other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors; and (b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors or other, similar arrangement.
"Intellectual Property" has the meaning specified in the Merger Agreement.
---------------------
"Investment," as applied to any party, means any direct or indirect
----------
ownership or purchase or other acquisition by that party of any capital stock,
equity interest, obligations or other securities, or a beneficial interest in
any capital stock, equity interest, obligations, or all or substantially all
assets used to conduct a business or a line of business, or any direct or
indirect loan, or capital contribution by that party to any other party, or any
joint venture or other arrangement involving the sharing of profits or losses
from joint business activities.
"Lender" shall have the meaning specified in the heading of this Agreement.
------
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, charge or deposit arrangement, encumbrance, lien (statutory or
other) or preference, priority or other security
4
<PAGE>
interest or preferential arrangement of any kind or nature whatsoever
(including, without limitation, those created by, arising under or evidenced by
any conditional sale or other title retention agreement, the interest of a
lessor under a capital lease obligation, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor, under the UCC or any comparable law) and any contingent or other
agreement to provide any of the foregoing; provided, however, that Lien shall
-------- -------
not mean liens created in connection with the acquisition of equipment which
secure obligations less than or equal (A) if a Loan Extension Event has
occurred, two million Dollars ($2,000,000) or (B) if no Loan Extension Event has
occurred, one million Dollars ($1,000,000), in each case in the aggregate at any
time outstanding.
"Loan" shall have the meaning set forth in Section 2.1(a) hereof.
----
"Loan Documents" means this Agreement and the Note and all agreements,
--------------
instruments and documents (including, without limitation, if any, security
agreements, loan agreements, notes, fee agreements, guaranties, mortgages, deeds
of trust, subordination agreements, pledges, assignments of intellectual
property, powers of attorney, consents, assignments, contracts, notices, leases,
financing statements, letter of credit applications, reimbursement agreements,
certificates, statements, reports and notices and all other writings)
heretofore, now or hereafter executed by, on behalf of or for the benefit of the
Borrower and delivered to the Lender pursuant to or in connection with this
Agreement or the transactions contemplated hereby, together with all amendments,
modifications and supplements thereto.
"Loan Extension Event" shall have the meaning set forth in Section 2.1(e)
--------------------
hereof.
"Material Adverse Change" means a material adverse change in the business,
-----------------------
assets, prospects, operations, or financial condition of the Borrower and its
subsidiaries considered as a whole.
"Material Adverse Effect" means a material adverse effect on the business,
-----------------------
assets, prospects, operations, or financial condition of the Borrower and its
subsidiaries considered as a whole.
"Maturity" means the date on which the Loan or any portion thereof becomes
--------
due and payable whether as stated, by virtue of mandatory prepayment, by
acceleration or otherwise.
"Maturity Date" means, subject to Section 2.1(e), February 10, 1999.
-------------
"Merger Agreement" means that certain Agreement and Plan of Merger, dated
----------------
August 10, 1998, by and among Borrower, Lender and Pegasus Acquisitions Corp., a
Delaware corporation and a wholly-owned subsidiary of Lender.
"Monthly Disbursement Limit" has the meaning specified in Section 2.1(a),
--------------------------
subject to Section 2.1(d).
"Monthly Disbursement Limit Increase Event" means, with respect to a
-----------------------------------------
calendar month, the occurrence of any of the following events:
5
<PAGE>
(a) the Borrower has paid or is obligated to make a payment to a holder of
Series B Stock to redeem within such calendar month the Series B Stock
of such holder in accordance with the terms of the Certificate of
Designations of the Series B Stock;
(b) the Borrower has paid or is obligated to make a payment within such
calendar month to any taxing authority of any tax (i) imposed on any
amount other than operating income and (ii) not normally and
customarily incurred in the ordinary course of business; or
(c) any fees and expenses of Goldman, Sachs & Co. as financial advisor to
the Borrower in connection with the transactions contemplated by the
Merger Agreement shall be paid or become due and payable within such
calendar month, in accordance with the terms of an engagement letter
(a copy of which has been made available to Lender), provided that a
Monthly Disbursement Limit Increase Event shall not include any
payment of additional fees and expenses to Goldman, Sachs & Co. in
accordance with the terms and conditions of any amendment or
modification of such engagement letter unless Lender has consented to
such amendment or modification.
"Monthly Disbursement Limit Increase Event Payment" shall mean, with
-------------------------------------------------
respect to a Monthly Disbursement Limit Increase Event, any payment the Borrower
has made or is obligated to make as a result of the occurrence of such Monthly
Disbursement Limit Increase Event.
"Note" has the meaning specified in Section 2.1(b).
----
"Obligations" means all loans, advances, debts, liabilities, obligations,
-----------
covenants and duties owing, to the Lender by the Borrower of any kind or nature,
present or future, whether or not evidenced by any note, guaranty or other
instrument, arising under any Loan Document, whether or not for the payment of
money, arising by reason of an extension of credit, absolute or contingent, due
or to become due, now existing or hereafter arising, including all principal,
interest, charges, expenses, fees, attorneys' fees and disbursements and any
other sum chargeable to the Borrower under this Agreement or any other Loan
Document.
"Permissible Bank" means any bank or trust company organized under the laws
----------------
of the United States of America or any state thereof and having capital and
surplus of an aggregate amount not less than $500,000,000.
"Permitted Encumbrances" means: (a) liens arising in connection with
----------------------
worker's compensation and unemployment insurance; (b) any lien existing or
arising by operation of law in the ordinary course of business, such as a
"banker's lien" or similar right of offset; (c) liens for taxes, fees,
assessments or other government charges or levies, either not delinquent or
being contested in good faith by appropriate proceedings; (d) liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default hereunder; (e) easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title or similar encumbrances affecting real
property not interfering in any material respect with the ordinary conduct of
business; (f) liens in favor of customs and revenue authorities arising in the
ordinary course of business; (g) liens (including a lien consisting of the
rights of a lessor under a sale-leaseback transaction) created in connection
with the acquisition of equipment, which liens secure obligations not in excess
of (A) if a Loan Extension Event has occurred, two million Dollars
6
<PAGE>
($2,000,000) or (B) if no Loan Extension Event has occurred, one million Dollars
($1,000,000), in each case in the aggregate at any time outstanding; (h) liens
securing Indebtedness, which liens secure Indebtedness not in excess of (A) if a
Loan Extension Event has occurred, two million Dollars ($2,000,000) or (B) if no
Loan Extension Event has occurred, one million Dollars ($1,000,000), in each
case in the aggregate at any time outstanding; and (i) those liens outstanding
as of the date hereof and set forth on Schedule I hereto.
"Person" means any individual, corporation, partnership, limited liability
------
company, trust, association or other entity or organization, including any
government, political subdivision, agency or instrumentality thereof.
"Series B Stock" has the meaning specified in the Merger Agreement.
--------------
"Shares" has the meaning specified in the Merger Agreement.
------
"Takeover Proposal" has the meaning specified in the Merger Agreement.
-----------------
ARTICLE 2
Loan
----
2.1 Loan.
----
(a) Loan. Subject to all of the terms and conditions of this
----
Agreement, Lender agrees to make a loan (the "Loan") to the Borrower in the
----
amount of ten million Dollars ($10,000,000) to be governed by the terms and
conditions of, and repaid in accordance with, this Agreement. Disbursement
amounts shall be in multiples of one hundred thousand Dollars ($100,000).
Subject to the satisfaction of applicable conditions set forth in Article 3
hereof, the Loan shall be disbursed to the Borrower as follows: up to three
million Dollars ($3,000,000) shall be disbursed on the first Disbursement Date
and any subsequent Disbursement Date. Subject to Section 2.1(d), in no event
shall the Lender be obligated to disburse to the Borrower more than three
million Dollars ($3,000,000) in any calendar month (the "Monthly Disbursement
--------------------
Limit"). Subject to Section 2.1(e), in no event shall the Lender be obligated to
- -----
disburse to the Borrower more than ten million Dollars ($10,000,000) in total.
In addition, no more than two Disbursement Dates shall occur in any calendar
month. The Borrower shall use the proceeds of the Loan solely for the general
corporate purposes of the Business. Amounts prepaid in respect of the Loan
(whether repaid when due or prepaid) may not be reborrowed.
(b) Note. The Borrower's obligation to the Lender to repay the
----
Loan shall be evidenced by a promissory note of the Borrower (the "Note") in the
----
form attached hereto as Exhibit 2.1(b).
(c) Disbursement. Upon the prior or contemporaneous
------------
satisfaction of all the applicable conditions precedent set forth in Article 3
hereof, or waiver by the Lender of any conditions not so satisfied, the Lender
shall disburse the proceeds of each disbursement of the Loan to the Borrower (or
to such other Person as the Borrower may designate in writing) by wire transfer
of immediately available funds to such bank account as is specified in writing
by Borrower to
7
<PAGE>
Lender. Such disbursement shall be made on such date as is specified in the
Borrowing Notice, which date shall not be earlier than five (5) Banking Days
following such notice.
(d) Increases in Monthly Disbursement Limit. If, at any time, a
---------------------------------------
Monthly Disbursement Limit Increase Event occurs, then the Monthly Disbursement
Limit for the calendar month in which such Monthly Disbursement Limit Increase
Event occurs shall be increased to an amount which is the sum of (x) three
million Dollars ($3,000,000) and (y) the amount of any Monthly Disbursement
Limit Increase Event Payment; provided, however, and subject to Section 2.1(e),
that in no event shall the total amount required to be disbursed by Lender to
the Borrower exceed ten million Dollars ($10,000,000) in total.
(e) Lender's Breach of Merger Agreement. If the Lender shall at
-----------------------------------
any time breach in any material respect or fail to perform in any material
respects any of its covenants or other agreements contained in the Merger
Agreement (a "Loan Extension Event"), then (i) the total amount required to be
--------------------
disbursed by Lender hereto shall be increased to fifteen million Dollars
($15,000,000) and (ii) the Maturity Date shall be one year from the date hereof.
(f) Borrowing Notice. The Borrower shall provide the Lender
----------------
with at least five (5) Banking Days' written notice of a requested disbursement
(a "Borrowing Notice"), which notice shall include, if applicable, notification
----------------
that a Monthly Disbursement Limit Increase Event has occurred and providing a
reasonably detailed calculation of the amount of any Monthly Disbursement Limit
Increase Event Payment. Borrower shall provide Lender with reasonable access to
all information reasonably needed by Lender to verify that a Monthly
Disbursement Limit Increase Event has occurred and the amount of the Monthly
Disbursement Limit Increase Event Payment related to such Monthly Disbursement
Limit Increase Event, and the Lender shall not be required to disburse any funds
pursuant hereto until the Lender has verified to its reasonable satisfaction
such facts and amount.
2.2 Interest.
--------
(a) Interest. Subject to the immediately succeeding sentence,
--------
the outstanding principal amount of the Loan shall bear interest at a rate per
annum equal to seven percent (7.00%). Upon the occurrence and during the
continuation of an Incipient Default or an Event of Default, the outstanding
principal amount of the Loan shall, to the extent permitted by applicable law,
bear interest at a rate equal to the applicable rate provided above plus two
percent (2.00%) per annum. Interest shall be payable as set forth in Section
2.3(a) below.
(b) Computation of Interest. Interest shall be computed for the
-----------------------
actual number of days elapsed on the basis of a year consisting of 360 days.
Payments.
(a) Interest Payments. Interest accrued in respect of the Loan
-----------------
shall be added to the outstanding principal amount thereof as of the last day of
each calendar month. The Lender and the Borrower acknowledge that the
outstanding principal amount may thereby exceed ten million Dollars
($10,000,000) by an amount equal to the aggregate amount of accrued interest
that is added to outstanding principal. On the Maturity Date, Borrower shall pay
Lender all interest then accrued and not so added to the principal balance of
the Loan.
8
<PAGE>
(b) Loan Payment. The Borrower shall repay the entire
------------
outstanding principal amount of the Loan in full on the Maturity Date.
(c) Optional Prepayment. The Borrower may at any time prepay
-------------------
the entire outstanding principal amount of the Loan or any portion thereof;
provided that (i) all accrued interest on the amount so prepaid shall be paid in
- --------
full and (ii) in the case of a prepayment of less than the entire outstanding
principal amount of the Loan, the principal amount outstanding after such
prepayment shall be an integral multiple of one hundred thousand Dollars
($100,000). If the Borrower prepays the outstanding principal amount of the Loan
in full, the Lender shall not be obligated to make any further disbursements
under this Agreement.
(d) Prepayment for Sale of Assets. The Borrower shall repay the
-----------------------------
outstanding principal amount of the Loan in its entirety plus all interest
accrued to the date of prepayment immediately upon the occurrence of a sale,
lease, exchange or transfer of all or substantially all of the assets of the
Borrower, and in such event the Lender shall have no further obligation to make
any further disbursements under this Agreement.
(e) Change of Control-Repayment. Upon the occurrence of a
---------------------------
Change of Control, the Borrower shall immediately notify the Lender in writing
of such occurrence and offer to pay to the Lender the outstanding principal
amount of the Loan plus all interest accrued to date. The Lender shall have the
option of requiring the Borrower to repay the Loan in accordance with this
Section 2.3(e) by giving the Borrower written notice to such effect. The
Borrower shall repay such amounts within one (1) Banking Day after the Lender's
notice.
(f) Payments by the Borrower. All payments (including
------------------------
prepayments) to be made by the Borrower on account of Principal and interest
shall be made without set-off or counterclaim and shall be made to the Lender by
wire transfer in Dollars and in immediately available funds to Lender's Account
No. 102-7141, at Mellon Bank, located in Pittsburgh, Pennsylvania, A.B.A. No.
0430-0026-1 no later than 12:00 noon (Eastern Standard Time) of the Banking Day
on which payment is due. Any payment which is received by the Lender later than
12:00 noon (Eastern Standard Time) shall be deemed to have been received on the
immediately succeeding Banking Day. Whenever any payment hereunder shall be
stated to be due on a day other than a Banking Day, such payment shall be made
on the next succeeding Banking Day, and such extension of time shall in such
case be included in the computation of interest.
(g) Offset. In addition to and not in limitation of all rights
------
of offset that the Lender may have under applicable law, Lender, upon the
occurrence and during the continuance of an Acceleration, shall have the right
to appropriate and apply to the payment of all Obligations any and all amounts
that Lender may owe Borrower for any reason. Lender agrees promptly to notify
the Borrower after any such offset and application; provided, however, that the
-------- -------
failure to give such notice shall not affect the validity of such offset and
application. The rights of Lender under this Section 2.3(h) are in addition to
the other rights and remedies which the Lender may have.
9
<PAGE>
ARTICLE 3
Conditions Precedent
--------------------
3.1 Conditions to Disbursement.
---------------------------
(a) The obligation of the Lender to make the first disbursement of
the Loan shall be subject to the prior or contemporaneous satisfaction of each
of the following conditions:
(i) Delivery of Documents. The Note shall have been duly executed
---------------------
and delivered to the Lender;
(ii) Certificate of Secretary. The Lender shall have received, dated
------------------------
and in full force and effect as of the date of the first Disbursement
Date, a certificate of the Secretary or an Assistant Secretary of the
Borrower as to authorization of the execution, delivery and
performance of this Agreement and all of the other Loan Documents by
the Borrower; and
(iii) Legal Opinion. The Lender shall have received an opinion of
-------------
counsel to the Borrower, in form and substance satisfactory to the
Lender and its counsel, as to the enforceability of this Agreement and
the other Loan Documents (to the extent applicable) and as to such
other matters as the Lender and its counsel may reasonably request.
(b) The obligation of the Lender to make each disbursement of the
Loan, including the first disbursement thereof, shall be subject to the prior or
contemporaneous satisfaction of each of the following conditions:
(i) Reports, Certificates and Other Information. The Lender shall
-------------------------------------------
have received the following, dated and in full force and effect on
each of the respective Disbursement Dates:
(A) a certificate, signed by an authorized officer of the
Borrower, stating (x) that the representations and
warranties contained in Article 4 hereof are then accurate
and complete in all material respects as though made on and
as of such date and (y) that there has then occurred no
Event of Default or Incipient Default which is continuing;
and
(B) such other instruments or documents as the Lender may
reasonably request relating to the existence and good
standing of the Borrower or to the corporate authorization
by the Borrower for the execution, delivery and performance
of this Agreement or any of the other Loan Documents.
(ii) No Existing Default. No Event of Default or Incipient Default
-------------------
shall exist on the respective Disbursement Date or after giving effect
to the transactions contemplated to take place hereunder on such date;
10
<PAGE>
(iii) Representations and Warranties Correct. The representations and
--------------------------------------
warranties set forth in Article 4 hereof shall be true and correct in
all material respects on and as of the respective Disbursement Date,
and after giving effect to the transactions contemplated to occur on
such date;
(iv) Cash Balances. The Lender shall have received a certificate of
-------------
the principal financial officer of the Borrower in form and substance
satisfactory to the Lender stating that as of the close of the second
Banking Day prior to the respective Disbursement Date, the aggregate
amount of cash and Cash Equivalents of the Borrower and its
subsidiaries on a consolidated basis does not exceed four million
Dollars ($4,000,000); and
(v) Other Documents. The Lender shall have received any other
---------------
document, instrument, undertaking or certificate stated in any of the
Loan Documents to be delivered on the Disbursement Date or as the
Lender may reasonably request.
3.2 Conditions for the Benefit of the Lender. The conditions set forth
----------------------------------------
in this Article 3 are for the exclusive benefit of the Lender and may be waived,
for purposes of this Agreement, only by a written waiver declaration signed by
the Lender.
ARTICLE 4
Representations and Warranties of the Borrower
----------------------------------------------
In order to induce Lender to enter into or become party to this Agreement
and to make the Loan, the Borrower makes the following representations and
warranties to the Lender:
4.1 Due Organization. The Borrower is a corporation duly organized, validly
----------------
existing and in good standing under the laws of the State of Delaware. The
Borrower is duly licensed or qualified to conduct business and in good standing
in each jurisdiction wherein the character of the property owned or the nature
of the business transacted by it makes such licensing or qualifications
necessary, except as to jurisdictions where the failure to be so licensed or
qualified would not have a Material Adverse Effect.
4.2 Capitalization.
--------------
(a) The corporate charter or certificate of incorporation and all
amendments thereto for the Borrower have been duly filed and are in proper
order. All of the outstanding capital stock of the Borrower has been validly
issued in compliance with all federal and state securities laws and is fully
paid and nonassessable.
(b) As of each Disbursement Date, the Borrower is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock other than the Borrower's obligation to
redeem the Series B Stock in accordance with the terms of the Certificate of
Designations of the Series B Stock and as contemplated by the Merger Agreement.
11
<PAGE>
4.3 Requisite Power. The Borrower has all requisite corporate or other
---------------
legal power and all Governmental Approvals necessary to own and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted. The Borrower has all requisite power to borrow the sums provided for
in this Agreement and to execute, deliver, issue and perform this Agreement and
the Note.
4.4 Authorization. All corporate action on the part of the Borrower and
-------------
its directors and stockholders necessary for the authorization, execution,
delivery and performance of this Agreement and the Note and the other Loan
Documents has been duly taken and is in full force and effect.
4.5 Officer Authorization. Each authorized officer of the Borrower
---------------------
executing this Agreement or any of the other Loan Documents is (as of the date
of such execution) duly and properly in office and fully authorized to execute
and deliver the same.
4.6 Binding Nature. This Agreement, the Note and each of the other Loan
--------------
Documents is, or upon the execution and delivery thereof will be, a legal, valid
and binding obligation of the Borrower, and in full force and effect and
enforceable in accordance with its respective terms, except for the effect of
applicable laws regarding bankruptcy or insolvency or similar laws affecting
creditors' rights generally and by general principles of equity relating to
enforceability.
4.7 No Conflict. Neither the execution nor delivery of this Agreement,
-----------
the Note or any of the other Loan Documents nor fulfillment of nor compliance
with the terms and provisions hereof or thereof will (a) conflict with or result
in a breach of any Governmental Requirement, or of any agreement or instrument
binding upon the Borrower, where such conflict or breach is reasonably likely to
have a Material Adverse Effect, or conflict with or result in a breach of any
provision of the corporate charter or by-laws of the Borrower, or (b) result in
the creation or imposition of any Lien (other than a Permitted Lien) upon any
property of the Borrower pursuant to any such agreement or instrument, except
pursuant to or as contemplated by this Agreement or any other Loan Documents. No
authorization, consent or approval or other action by, and no notice to or
filing with, any Governmental Authority or any other Person is required to be
obtained or made by the Borrower, for the due execution, delivery and
performance by the Borrower of this Agreement, the Note or any of the other Loan
Documents or for the validity or enforceability thereof.
4.8 No Event of Default. No Event of Default or Incipient Default has
-------------------
occurred and is continuing or would result from the execution of this Agreement.
4.9 Full Disclosure. None of the representations or warranties made by
---------------
the Borrower in the Loan Documents as of the date of such representations and
warranties contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they are made, not
misleading.
4.10 Merger Agreement Representations. The representations and warranties
--------------------------------
contained in Sections 4.5 through 4.20 of the Merger Agreement (including the
defined terms used therein) are incorporated by reference herein in their
entirety, as if set forth herein in their entirety.
12
<PAGE>
ARTICLE 5
Affirmative Covenants
---------------------
The Borrower covenants and agrees that so long as any Obligation is
outstanding it will comply with and, if applicable, cause any of its
subsidiaries to comply with the following provisions:
5.1 Financial Statements and Notices. The Borrower shall furnish to the
--------------------------------
Lender the following financial statements, information and notices:
(a) Within forty-five (45) days after the close of the first
three quarters of Borrower's fiscal year, commencing with the fiscal quarter
ending September 30, 1998, for the Borrower and its subsidiaries on a
consolidated basis: (i) a statement of cash flows for such quarter; (ii) an
income statement for such quarter; and (iii) a balance sheet as of the end of
such quarter. All such statements shall be prepared on a consolidated and
consolidating basis for the Borrower and its subsidiaries, in reasonable detail,
subject to year-end audit adjustments and without footnotes, shall include
appropriate comparisons to the same period for the prior year, and shall be
certified by the principal financial officer of the Borrower to have been
prepared in accordance with GAAP consistently applied, subject to year-end audit
adjustments;
(b) Within ninety (90) days after the close of Borrower's fiscal
year, commencing with the fiscal year ending December 31, 1998 a copy of the
annual audit report for such year for the Borrower, including for the Borrower
and its subsidiaries on a consolidated basis (i) a statement of stockholders'
equity for such fiscal year; (ii) a statement of cash flows for such fiscal
year, (iii) an income statement for such fiscal year, and (iv) a balance sheet
as of the end of such fiscal year, together with like internal unaudited
consolidating financial statements for the Borrower and its subsidiaries. All
statements required by this Section 5.1(b) shall include appropriate comparisons
to the prior year. Such consolidated financial statements shall be audited by an
independent certified public accounting firm and shall include a report of such
accounting firm, which report shall be unqualified as to the Borrower's status
as a going concern and as to the scope of the audit performed by such accounting
firm and shall state that such financial statements fairly present in all
material respects the financial position of the Borrower and its subsidiaries as
at the dates indicated and the results of their operations and their cash flows
for the periods indicated in conformity with GAAP, consistently applied;
(c) Promptly after they are sent, made available or filed,
copies of all reports, proxy statements and financial statements that the
Borrower sends or makes available to its stockholders and all registration
statements and reports that the Borrower may file with the Securities and
Exchange Commission;
(d) Promptly, but in no event later than five (5) Banking Days
after the principal financial officer of the Borrower obtains knowledge of the
occurrence of an Event of Default or an Incipient Default, provide the Lender
with a statement of an authorized officer of the Borrower setting forth details
of such Event of Default or Incipient Default and the action which the Borrower
proposes to take with respect thereto;
13
<PAGE>
(e) Promptly but in no event later than five (5) Banking Days
after the principal financial officer of the Borrower learns thereof, written
notice of any actual or threatened claims, litigation, suits, investigations, or
proceedings against or affecting the Borrower, including, without limitation:
(i) any claim, litigation, suit, investigation, proceeding or dispute involving
a monetary amount, whether or not covered by insurance, in excess of one million
Dollars ($1,000,000), (ii) any denial, suspension, or revocation of any material
Governmental Approval; (iii) any investigation or proceeding before or by any
Governmental Authority which is reasonably likely to have a Material Adverse
Effect; (iv) any Environmental Claim from any person concerning any alleged
violation of any Environmental Law by the Borrower or any of its predecessors
which is reasonably likely to either (x) have a Material Adverse Effect or (y)
result in a liability to the Borrower, whether or not insured, in excess of one
million Dollars ($1,000,000); or (v) the commencement of any investigation by
any Government Authority, or the receipt by the Borrower of written request by
any Government Authority for information, relating to the handling, storage or
disposal of any Hazardous Substance, or the release thereof into the
environment, by the Borrower, or any of its predecessors, or any other Person,
which investigation or request is other than routine; and
(f) Within a reasonable time after a request therefor, such
other information as the Lender may reasonably request.
Each notice pursuant to this Section 5.1 (d), (e) or (f) shall be
accompanied by a written statement by an authorized officer of the Borrower
setting forth details of the occurrence referred to therein known to such
officer and stating what action the Borrower proposes to take with respect
thereto.
5.2 Access. The Borrower shall permit the Lender, at such reasonable
------
times and intervals as the Lender may designate upon reasonable notice, at its
own expense by and through the representatives and agents of the Lender, to
inspect, audit and examine its books and records, to make copies thereof, to
discuss its affairs, finances and accounts with its officers and independent
public accountants, and to visit and inspect its properties.
5.3 Maintenance of Existence. The Borrower and each of its subsidiaries
------------------------
shall preserve and maintain their respective corporate existences and all of
their material licenses, privileges and franchises and other rights necessary or
desirable in the normal course of their businesses.
5.4 Facilities. The Borrower and its subsidiaries shall use commercially
----------
reasonable efforts to keep the properties used in their respective businesses in
good repair, working order and condition, and from time to time shall use
commercially reasonable efforts to make necessary repairs or replacements
thereto so that their property shall be maintained adequately for its intended
use. The foregoing notwithstanding, the Borrower may dispose of obsolete and
unneeded property.
5.5 Compliance with Laws. The Borrower and its subsidiaries shall use
--------------------
commercially reasonable efforts to comply in all respects with all Governmental
Requirements, except where the failure to do so could not in the aggregate have
a Material Adverse Effect.
14
<PAGE>
5.6 Material Agreements. The Borrower and its subsidiaries shall use
-------------------
commercially reasonable efforts to comply in all material respects with the
terms of each agreement to which any of them is a party.
5.7 Insurance. The Borrower and its subsidiaries shall maintain in full
---------
force and effect insurance of such types and in such amounts as are customarily
carried in their respective lines of business, including, but not limited to,
fire, public liability, property damage, hazard insurance, products liability
and workers' compensation insurance.
5.8 Taxes and Other Liabilities. The Borrower and its subsidiaries shall
---------------------------
pay and discharge when due any and all indebtedness, obligations, liabilities,
assessments and real and personal property taxes, including, but not limited to,
federal and state income and personal and real property taxes, except as may be
subject to good faith contest or as to which a bona fide dispute may arise;
provided, however, that an adequate reserve therefor is made in accordance with
- -------- -------
GAAP.
5.9 Governmental Approvals. The Borrower and its subsidiaries shall use
----------------------
commercially reasonable efforts to apply for, diligently pursue, and obtain or
cause to be obtained, and shall thereafter maintain in full force and effect all
material Governmental Approvals that shall now or hereafter be necessary under
any Governmental Requirement (a) for land use, public and employee health and
safety, pollution or protection of the environment and (b) for the operation of
the business of the Borrower and the subsidiaries, except where the failure to
obtain or maintain such Governmental Approval would not have a Material Adverse
Effect.
ARTICLE 6
Negative Covenants
------------------
The Borrower covenants and agrees that so long as any Obligation is
outstanding and the Lender has not failed to make a disbursement of the Loan
which Lender was required to make, the Borrower will comply with and, if
applicable, cause any of its subsidiaries to comply with, the following
provisions:
6.1 Certain Covenants of the Company. The Borrower shall not, directly or
--------------------------------
indirectly, take (and shall cause its subsidiaries not to take) any of the
actions contemplated by Section 6.1 of the Merger Agreement.
6.2 Change of Business. The Borrower shall not engage in any business
------------------
other than the Business.
6.3 Liens and Encumbrances. The Borrower shall not, and shall not allow
----------------------
any of its subsidiaries to, create, incur, assume, or permit to exist any Lien
of any kind upon any of the property or assets of the Borrower or such
subsidiary now owned or hereafter acquired, including, without limitation, any
Intellectual Property, other than Permitted Encumbrances,.
6.4 Sale-Leasebacks. Neither the Borrower nor any of its subsidiaries
---------------
shall enter into or become liable in connection with any sale-leaseback
transaction, except for a sale-leaseback in connection with which the property
subject thereto is subject to a Permitted Encumbrance.
15
<PAGE>
6.5 Transactions With Affiliates. Except on terms no less favorable to
----------------------------
the Borrower than would be obtainable if no such relationship existed, Borrower
shall not purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or loan or advance money to, or otherwise deal with any
affiliate or subsidiary.
6.6 Investments. Neither the Borrower nor any of its subsidiaries shall
-----------
make or permit to remain outstanding any Investment, except (a) Investments by
the Borrower in its subsidiaries; (b) investment-grade debt securities having a
term not longer than one (1) year; (c) certificates of deposit issued by a
Permissible Bank and having a term not longer than one (1) year; (d) Investments
received in the settlement of any debt owing to the Borrower or any of its
subsidiaries, where such debt was incurred in the ordinary course of business;
(e) other Investments not to exceed one hundred thousand Dollars ($100,000) in
the aggregate at any time outstanding; and (f) other Investments in connection
with a bona fide acquisition, joint venture or other business relationship;
---- ----
provided such sale or other issuance is in furtherance of the Business and does
- --------
not result in the issuance of securities representing ten percent (10%) or more
of Fully Diluted Common Equity immediately prior to such sale or other issuance.
6.7 Obligations.
-----------
(a) Neither the Borrower nor any of its subsidiaries shall enter
into or otherwise become liable in connection with any contracts, agreements or
understandings which, individually or in the aggregate, obligate the Borrower or
any of its subsidiaries to pay or otherwise give consideration which is equal to
or greater than (A) if a Loan Extension Event has occurred, two million Dollars
($2,000,000) or (B) if no Loan Extension Event has occurred, one million Dollars
($1,000,000), in each case per year.
(b) Borrower shall not make any grants or gifts to any person or
enter into any commitments to do the same.
6.8 Intellectual Property. Neither the Borrower nor any of its
---------------------
subsidiaries shall sell, assign, transfer, convey or grant any license or any
other right in or to any Intellectual Property.
ARTICLE 7
Events of Default
-----------------
7.1 Events of Default. Each of the following shall constitute an Event of
-----------------
Default under this Agreement:
(a) Principal Payments. The Borrower shall fail to pay when due
------------------
(whether due when scheduled or as a result of a mandatory prepayment) any
payment of principal or premium in respect of the Loan;
(b) Interest and Other Payments. The Borrower shall fail to pay
---------------------------
when due any payment of interest or other sum payable hereunder or under any of
the other Loan Documents or in the Merger Agreement and continuance of such
default for fifteen (15) Banking Days after notice thereof to the Borrower from
the Lender;
16
<PAGE>
(c) Other Covenants and Loan Agreements. The Borrower shall
-----------------------------------
default in the performance of any of its respective agreements set forth in any
provision herein, in any of the other Loan Documents or in the Merger Agreement
(and not constituting an Event of Default under any of the other clauses of this
Section 7.1), such default shall continue for thirty (30) days after notice
thereof to the Borrower from the Lender, and with respect to those covenants
contained in Article 5 only, such default shall have a Material Adverse Effect;
(d) Representations and Warranties. Any representation or
------------------------------
warranty contained in Section 4 hereof or certification pursuant to Section
3.2(b)(i) or 5.1 made by the Borrower, any officer of the Borrower or in the
Merger Agreement, shall be untrue in any material respect, in any case on any
date as of which the facts set forth are stated or certified;
(e) Judgments. Any final judgment, order or decree shall be
---------
rendered against the Borrower in an amount equal to or greater than five hundred
thousand Dollars ($500,000), and either (i) enforcement proceedings shall have
been commenced by any Person upon such judgment or order or (ii) there shall be
any period of thirty (30) consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect, unless such judgment, order or decree shall, within such 30-day
period, be vacated or discharged (other than by satisfaction thereof);
(f) Cross-Default. Other than as set forth on Schedule II
-------------
hereto, the Borrower shall (i) fail to pay when due, by stated maturity,
acceleration or otherwise, any Indebtedness for borrowed money of, or any
guaranty of Indebtedness for borrowed money by, the Borrower (not arising
hereunder or under any of the other Loan Documents) outstanding in aggregate
principal amount greater than five hundred thousand Dollars ($500,000), and such
failure continues after the applicable grace period, if any, specified in the
document relating thereto, or (ii) fail to perform or observe (subject to any
applicable grace period) any agreement, covenant or condition with respect to
any such Indebtedness or guaranty if the effect of such failure is to accelerate
the maturity of any such Indebtedness or to permit the holder or holders of any
such Indebtedness or guaranty, or any trustee or agent for such holders, to
cause such Indebtedness to become due and payable prior to its expressed
maturity or to call upon such guaranty in advance of nonpayment of the
guaranteed Indebtedness;
(g) Insolvency. An Insolvency Proceeding (whether voluntary or
----------
involuntary) shall be commended against the Borrower or any subsidiary of the
Borrower; or the Borrower or any subsidiary of the Borrower shall file a
petition initiating or shall otherwise institute any similar Insolvency
Proceeding under any other applicable federal or state law, or shall consent
thereto; or the Borrower or any subsidiary of the Borrower shall apply for, or
by consent or acquiescence there shall be an appointment of, a receiver,
liquidator, sequestrator, trustee or other officer with similar powers, or the
Borrower or any subsidiary of the Borrower shall make an assignment for the
benefit of creditors; or the Borrower or any subsidiary of the Borrower shall
admit in writing its inability to pay its debts generally as they become due;
or, if an involuntary case shall be commenced seeking the liquidation or
reorganization of the Borrower or any subsidiary of the Borrower under Chapter 7
or Chapter 11, respectively, of the United States Bankruptcy Code, or any
similar proceeding shall be commenced against the Borrower or any subsidiary of
the Borrower under any other applicable federal or state law, and (i) the
petition commencing the involuntary case is not timely controverted; or (ii) the
petition commencing the involuntary case is
17
<PAGE>
not dismissed within forty-five (45) days of its filing; or (iii) an interim
trustee is appointed to take possession of all or a portion of the property
and/or to operate all or any part of the business of the debtor; or (iv) an
order for relief shall have been issued or entered therein; or a decree or order
of a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee or other officer having similar
powers over the debtor, or of all or any part of the property of any of the
foregoing, shall have been entered; or any other similar relief shall be granted
against the Borrower or any subsidiary of the Borrower, under any applicable
federal or state law; or
(h) Invalidity of Loan Documents. Any of the Loan Documents
----------------------------
shall cease for any reason to be in full force and effect and the Lender shall
be substantially deprived of any of its rights under the Loan Documents or any
party thereto (other than Lender) shall purport to disavow its obligations
thereunder, shall declare that it does not have any further obligation
thereunder or shall contest the validity or enforceability thereof.
7.2 Acceleration. If any Event of Default described in Section 7.1(g)
------------
hereof shall occur, the Note and all other Obligations shall become immediately
due and payable, all without notice of any kind, and the Lender shall have no
further obligation to make any disbursement of the Loan which has not then been
made. Notwithstanding any other provision in this Agreement, if any other Event
of Default shall occur, the Lender shall have no further obligation to make any
disbursement of the Loan which has not then been made and may declare, at any
time after the occurrence of an Event of Default, the Note and all other
Obligations to be due and payable, whereupon the Note and all other Obligations
shall immediately become due and payable, all as so declared by the Lender and
without presentment, demand, protest or other notice of any kind. Any such
declaration made pursuant to this Section 7.2 may be rescinded by the Lender.
ARTICLE 8
Representations and Warranties of the Lender
--------------------------------------------
The Lender makes the following representations and warranties to the
Borrower:
8.1 Due Organization. The Lender is a corporation duly organized, validly
----------------
existing and in good standing under the laws of the State of Indiana.
8.2 Requisite Power. The Lender has all requisite corporate or other
---------------
legal power and all governmental licenses, permits, authorizations, consents and
approvals necessary to enter into and perform its obligations under this
Agreement.
8.3 Authorization. All corporate action on the part of the Lender and its
-------------
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement and the other Loan Documents has been duly
taken and is in full force and effect.
8.4 Officer Authorization. Each authorized officer of the Lender executing
---------------------
this Agreement or any of the other Loan Documents is (as of the date of such
execution) duly and properly in office and fully authorized to execute and
deliver the same.
18
<PAGE>
8.5 Binding Nature. This Agreement is a legal, valid and binding
--------------
obligation of the Lender, and in full force and effect and enforceable in
accordance with its terms, except for the effect of applicable laws regarding
bankruptcy or insolvency or similar laws affecting creditors' rights generally
and by general principles of equity relating to enforceability.
8.6 No Conflict. Neither the execution nor delivery of this Agreement or
-----------
any of the other Loan Documents nor fulfillment of nor compliance with the terms
and provisions hereof or thereof will (a) conflict with or result in a breach of
any material Governmental Requirement, or of any material agreement or
instrument binding upon the Lender, or conflict with or result in a breach of
any provision of the articles of incorporation or by-laws of the Lender. No
authorization, consent or approval or other action by, and no notice to or
filing with, any Governmental Authority or any other Person is required to be
obtained or made by the Lender, for the due execution, delivery and performance
by the Lender of this Agreement or any of the other Loan Documents or for the
validity or enforceability thereof.
ARTICLE 9
Miscellaneous
-------------
9.1 Successors and Assigns and Sale of Interests. The terms and
--------------------------------------------
provisions of this Agreement shall be binding upon, and, subject to the
provisions of this Section 9.1, the benefits thereof shall inure to, the parties
hereto and their respective successors and assigns; provided, however, that the
-------- -------
Borrower shall not assign this Agreement or any of its rights, duties or
obligations hereunder without the prior written consent of the Lender, and the
Lender shall not delegate its obligations or duties hereunder without the prior
written consent of the Borrower.
9.2 No Implied Waiver. No delay or omission to exercise any right, power
-----------------
or remedy accruing to the Lender upon any breach or default of the Borrower
under this Agreement or under any of the other Loan Documents shall impair any
such right, power or remedy of the Lender, nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default occurring thereafter, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring theretofore or thereafter.
9.3 Amendments and Waivers. No amendment or waiver of any provision of
----------------------
this Agreement or any other Loan Document and no consent with respect to any
departure by the Borrower therefrom, shall be effective unless the same shall be
in writing and signed by the Lender, and then any such waiver shall be effective
only in the specific instance and for the specific purpose for which given.
9.4 Remedies Cumulative. All rights and remedies, either under this
-------------------
Agreement, by law or otherwise afforded to the Lender shall be cumulative and
not exclusive, and any single or partial exercise of any power or right
hereunder or thereunder does not preclude other or further exercise thereof, or
the exercise of any other power or right. In no event shall either party hereto
be liable for consequential damages for breach hereof, even if foreseeable.
9.5 Severability. Any provision of this Agreement, the Note or any of the
------------
other Loan Documents which is prohibited or unenforceable in any jurisdiction,
shall be, only as to such
19
<PAGE>
jurisdiction, ineffective to the extent of such prohibition or unenforceability,
but all the remaining provisions of this Agreement, the Note and the other Loan
Documents shall remain valid.
9.6 Costs, Expenses and Attorneys' Fees. Each party shall pay all of its
-----------------------------------
fees and expenses associated with the negotiation, preparation, execution and
closing of this Agreement and the first disbursement of the Loan, including, but
not limited to, reasonable attorneys' fees and expenses. The Borrower shall pay
all costs and expenses, including, but not limited to, reasonable attorneys'
fees and expenses (including the allocated cost of in-house counsel), expended
or incurred by the Lender in collecting any sum which becomes due under the Note
or under this Agreement, any of the other Loan documents, or in the protection,
perfection, preservation and enforcement of any and all rights of the Lender in
connection with the Loan Documents including, without limitation, the fees and
costs incurred in any out-of-court work-out or a bankruptcy or reorganization
proceeding. This obligation on the part of the Borrower shall survive the
expiration or termination of this Agreement, without occurrence of the Closing
Date and shall survive repayment of the Loan in full.
9.7 General Indemnification. The Borrower shall indemnify and hold the
-----------------------
Lender and each of its directors, officers, employees, affiliates, attorneys and
agents (collectively referred to herein as the "Lender Indemnitees") harmless
------------------
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever (including without limitation, any expenses
(including attorneys' fees and the allocated cost of in-house counsel) incurred
by any such Lender Indemnitee in connection with any investigation in connection
with any such matter, whether or not any such Lender Indemnitee shall be
designated a party thereto) which may be imposed on, incurred by or asserted
against such Lender Indemnities by any Person other than the Lender with which
such Lender Indemnitee is affiliated (whether direct, indirect or consequential
and whether based on any federal or state laws or other statutory regulations,
including, without limitation, securities, environmental and commercial laws and
regulations, under common law or at equitable cause, or on contract or
otherwise) in any manner relating to or arising out of this Agreement and any
other Loan Documents, or any act, event or transaction related or attendant
thereto; the making of the Loan hereunder, the management of the Loan (including
any liability under federal, state or local Environmental Laws or regulations),
the use or intended use of the proceeds of the Loan (collectively, the
"Indemnified Matters"); provided, however, that the Borrower shall have no
------------------- -------- -------
obligation to any Lender Indemnitee under this Section 9.7 with respect to
Indemnified Matters to the extent such Indemnified Matters were caused by or
resulted from the gross negligence or willful misconduct of a Lender Indemnitee.
To the extent that the undertaking to indemnify, pay and hold harmless set forth
in the preceding sentence may be unenforceable because it is violative of any
law or public policy, the Borrower shall contribute to the payment and
satisfaction of all Indemnified Matters incurred by the Lender Indemnities the
maximum portion which the Borrower is permitted to pay and satisfy under
applicable law. This indemnification shall survive repayment by the Borrower of
the Loan made under this Agreement, and the termination of this Agreement
without occurrence of the Closing Date.
9.8 Confidentiality. Lender agrees that all information furnished to
---------------
Lender by Borrower pursuant to this Agreement will be held under the Lender's
obligations pursuant to that certain Confidentiality Agreement by and between
Lender and Borrower (the "Confidentiality Agreement"). Borrower agrees that,
-------------------------
notwithstanding the terms of said Confidentiality Agreement,
20
<PAGE>
all such information may be used by Lender in connection with this Agreement and
that Lender need not comply with the provisions of the third-to-last paragraph
of the Confidentiality Agreement until all Obligations hereunder have been paid
or otherwise satisfied in full and the Lender has no further obligation to make
the Loan.
9.9 Notices. Any notice which the Borrower or the Lender may be required
-------
or may desire to give to the other party under any provision of this Agreement
shall be in writing by electronic facsimile transmission and shall be deemed to
have been given or made when transmitted to the Lender or the Borrower as
follows:
To the Borrower: InControl, Inc.
6675 185th Avenue
Redmond, Washington 98052-6734
Attention: Chief Executive Officer
Facsimile: (425) 861-9301
with a copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
Attention: Stephen M. Graham, Esq.
Alan C. Smith, Esq.
Facsimile: (206) 583-8500
To the Lender: Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, IN 46204-5129
Attention: Treasurer
Facsimile: (317) 971-2050
with a copy to: Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Attention: Bernard E. Kury, Esq.
Jonathan L. Freedman, Esq.
Facsimile: (212) 259-6333
Any party may change the address to which all notices, requests and other
communications are to be sent to it by giving written notice of such address
change to the other parties in conformity with this paragraph, but such change
shall not be effective until notice of such change has been received by the
other parties.
9.10 Entire Agreement. This Agreement, together with the exhibits to this
----------------
Agreement, all of the other Loan Documents and the Merger Agreement, is intended
by the Borrower and the Lender as a final expression of their agreement and,
together with all of the other Loan Documents and the Merger Agreement, is
intended as a complete statement of the terms and conditions of their agreement.
This Agreement, the other Loan Documents and the Merger Agreement contain all of
21
<PAGE>
the agreements and understandings between the Borrower and the Lender concerning
the Loan and the other transactions contemplated hereby.
9.11 Governing Law and Consent to Jurisdiction. The validity, construction
-----------------------------------------
and effect of this Agreement, the Note and all of the other Loan Documents shall
be governed by the laws of the State of Washington, without regard to its laws
regarding choice of applicable law. All judicial proceedings brought against the
Borrower with respect to this Agreement, the Note or any of the other Loan
Documents may be brought in any state or federal court of competent jurisdiction
in the State of Indiana, and the Borrower accepts for itself and its assets and
properties, generally and unconditionally, the nonexclusive jurisdiction of the
aforesaid courts. The Borrower waives, to the fullest extent permitted by
applicable law, any objection (including, without limitation, any objection to
the laying of venue or based on the grounds of forum non conveniens) which it
may now or hereafter have to the bringing of any such action or proceeding in
any such jurisdiction. Nothing herein shall limit the right of Lender to bring
proceedings against the Borrower in the court of any other jurisdiction. TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER WAIVES COMPLETELY ANY
RIGHT WHICH IT MIGHT OTHERWISE HAVE TO TRIAL BY JURY.
9.12 Publicity. Neither party may disclose the existence or content of
---------
this Agreement without the prior written consent of the other party, unless such
disclosure is in the judgment of the disclosing party reasonably necessary to
comply with applicable law or the rules of any stock exchange. Each party shall
have the opportunity to review and approve any press releases with respect to
this Agreement and/or the transaction contemplated hereunder prior to
disclosure. In the case of any disclosure required by law or the rules of any
stock exchange, the parties shall consult with each other for the purpose of
limiting disclosure to such matters as are required by law or the rules of any
stock exchange.
9.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts each of which shall be an original with the same effect as if the
signatures thereto and hereto were upon the same instrument.
9.14 Headings. Captions, headings and the table of contents in this
--------
Agreement are for convenience only, and are not to be deemed part of this
Agreement.
[Signature Page Follows]
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by its
duly authorized officers as of the date and year first above written.
INCONTROL, INC.
By: /s/ Kurt C. Wheeler
---------------------------
Kurt C. Wheeler
Chairman of the Board,
President and CEO
GUIDANT CORPORATION
By: /s/ Ronald W. Dollens
---------------------------
Ronald W. Dollens
President and CEO
23
<PAGE>
[Exhibits Intentionally Omitted]
24
<PAGE>
EXHIBIT 5
[InControl Logo]
InControl, Inc.
6675 185th Avenue, N.E.
Redmond, WA 98052-6734
Kurt C. Wheeler
President and Chief
Executive Officer
August 17, 1998
To the Stockholders of InControl, Inc.
I am writing to inform you that on August 10, 1998, InControl, Inc.
("InControl") entered into a merger agreement with Guidant Corporation
("Guidant") and Pegasus Acquisitions Corporation, an indirect, wholly owned
subsidiary of Guidant ("Pegasus"), which provides for the acquisition by
Guidant of all of the outstanding shares of InControl by means of a cash
tender offer and a subsequent merger.
As the first step of this acquisition, Pegasus is making a cash tender offer
for all outstanding shares of InControl's common stock at a price of $6.00 per
share, net to the seller in cash. Subject to certain conditions, Pegasus and
InControl will be merged subsequent to the completion of the tender offer, and
the remaining outstanding shares will be converted into the right to receive
$6.00 cash per share, or such higher price as Pegasus may offer in the tender
offer.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE TENDER OFFER AND
THE MERGER ARE FAIR TO, ADVISABLE AND IN THE BEST INTERESTS OF INCONTROL
AND INCONTROL'S STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT EACH STOCKHOLDER
ACCEPT THE TENDER OFFER AND TENDER HIS OR HER SHARES.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached Schedule 14D-9, which
is being filed with the Securities and Exchange Commission, including the
opinion of Goldman, Sachs & Co., the Company's financial advisor, to the
effect that, as of the date of the merger agreement, the consideration to be
received by the Company's stockholders pursuant to the offer and the merger is
fair to the Company's stockholders from a financial point of view.
In addition to the attached Schedule 14D-9, also enclosed with this letter
is Pegasus's Offer to Purchase dated August 17, 1998, together with related
materials, including a Letter of Transmittal to be used for tendering your
shares. The Offer to Purchase and the Letter of Transmittal set forth in
detail the terms and conditions of the tender offer and provide instructions
as to how to tender your shares. I urge you to read the enclosed material
carefully.
If you desire assistance in completing the Letter of Transmittal or
tendering your shares, please call Georgeson & Company, Inc., the Information
Agent for the tender offer, collect at (212) 440-9800 or call toll-free at 1-
800-223-2064.
Very truly yours,
Kurt C. Wheeler
President, Chief Executive Officer
and Chairman of the Board
<PAGE>
Exhibit 7
<PAGE>
GUIDANT TO ACQUIRE INCONTROL FOR
APPROXIMATELY $135 MILLION IN CASH
INDIANAPOLIS, Ind. and REDMOND, Wash.--(BW HealthWire)--Aug. 11, 1998--Guidant
Corporation (NYSE:GDT - news; PCX:GDT), a world leader in the treatment of
--- ----
cardiovascular disease through innovative medical devices, and InControl Inc.,
(NASDAQ:INCL - news), a pioneer in the development of device technology for the
---- ----
treatment of atrial arrhythmias, today announced that a definitive agreement has
been signed, setting the stage for Guidant to acquire InControl.
"The acquisition of InControl, with its unmatched understanding of device
treatment for atrial arrhythmias, complements our leadership position in the
treatment of ventricular arrhythmias and creates exciting new opportunities for
Guidant's future product portfolio," explained James M. Cornelius, Guidant
chairman of the board of directors.
Pursuant to the terms of the agreement, each outstanding share of InControl
common stock will be purchased for $6.00 in cash, for a total purchase price in
excess of $135 million. To implement the agreement, Guidant will commence a
cash tender offer within five business days. The completion of the tender offer
is subject to a number of customary conditions, including the acquisition of a
majority of InControl's outstanding common stock on a fully diluted basis and
the expiration of the waiting period under the Hart-Scott-Rodino Act. Shares
not purchased under the tender offer will be acquired in a subsequent merger at
the same price as soon as practicable after completion of the tender offer. The
acquisition will be accounted for under the purchase method and will result in a
one-time charge of approximately $90 million, which represents the value
assigned to purchased research and development. Excluding this one-time charge,
the acquisition is not expected to be materially dilutive to Guidant's earnings.
Ron Dollens, Guidant president and CEO, commented, "With the acquisition of
InControl we gain access to the pre-eminent intellectual property portfolio in
the field of device-based delivery of atrial therapies. Moreover, we gain an
organization whose knowledge of atrial arrhythmias is without equal. We plan to
merge operations of InControl into our Cardiac Rhythm Management business
group."
"Atrial arrhythmias represent an enormous unmet clinical need," according to Jay
Graf, president of the Guidant CRM Group. "The acquisition of InControl will
substantially enhance our on-going work in creating devices that treat multiple
heart rhythm disorders. We believe that a variety of pacing, defibrillation and
ablation therapies will be used to treat atrial heart rhythm disorders in the
future. The InControl patent portfolio provides us with the freedom to create
advanced devices designed to provide physicians with maximum flexibility to
match therapy to patient need."
"Guidant was clearly our first choice as a business partner," noted Kurt C.
Wheeler, chairman, CEO and president of InControl. "We match up well
technologically, culturally and in a common view of how
<PAGE>
patients with atrial arrhythmias will be managed." InControl's main product is
the Metrix(TM), an implantable atrial defibrillator. The Metrix has CE mark
approval and is being sold in Europe. It is in clinical investigation in the
United States. Guidant intends to complete that clinical trial and seek FDA
approval to market in the United States.
A global leader in the medical device industry, Guidant provides innovative,
minimally invasive and cost-effective products and services for the treatment of
cardiovascular and vascular disease.
InControl designs, develops and manufactures devices for the treatment of atrial
arrhythmias.
For more information about Guidant's products and services, visit the company's
Web site at http://www.guidant.com.
----------------------
For more information about InControl, visit InControl's Web site at
http://www.incontrol.com.
- ------------------------
- --------------------
Contact:
Guidant Corporation
Todd McKinney, Investor Relations, 317/971-2094
Carol A. Lindahl, Media Relations, 651/582-4461
Rob Allen, Media Relations, 317/971-2031
or
InControl Inc.
Phil M. Okeson, 425/861-9800. Ext. 157
Sean M. Cleary, 425/861-9800, ext. 660
<PAGE>
Exhibit 9
<PAGE>
[LETTERHEAD OF INCONTROL, INC.]
August 14, 1998
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, IN 46204
Pegasus Acquisitions Corp.
4111 Hamline Avenue North
St. Paul, MN 55112
Attention: A. Jay Graf, President
Re: Representation as to Preferred Stock and Waiver of Certain
-----------------------------------------------------------
Covenants in the Merger Agreement
---------------------------------
Gentlemen:
Reference is made to that certain Agreement and Plan of Merger (the
"Merger Agreement"), dated as of August 10, 1998, by and among InControl, Inc.,
a Delaware corporation (the "Company"), Guidant Corporation, an Indiana
corporation ("Parent") and Pegasus Acquisitions Corp., a Delaware corporation
and an indirect wholly-owned subsidiary of Parent ("Sub," and together with
Parent, the "Purchasers"). Any term used herein and not otherwise defined herein
shall have the meaning assigned to such term in the Merger Agreement.
1. The Company hereby represents and warrants that as of the date
hereof, all of the shares of Series B Stock issued and outstanding
as of August 6, 1998 have been converted by the holders thereof into
an aggregate of 844,884 shares of Common Stock, and no shares of the
Company's Series B Stock remain issued or outstanding.
2. The Company hereby waives the performance of the covenant contained
in Section 6.14(b) of the Merger Agreement.
3. The Purchasers hereby waive performance of the covenant contained in
Section 6.14(a) of the Merger Agreement.
4. The Purchasers hereby deem the condition to the Offer contained in
Exhibit A to the Merger Agreement that all shares of Series B Stock
shall have been redeemed by the Company or converted into shares of
Common Stock satisfied.
<PAGE>
The execution and delivery of this letter agreement shall not, except as
specifically provided above, constitute a waiver by any party to the Merger
Agreement of any other term or condition of the Merger Agreement, and, except as
specifically provided above, the Merger Agreement shall remain unamended and in
full force and effect.
To evidence your agreement with the foregoing, please execute this
letter agreement in the space provided below and return said executed
counterpart to the undersigned, whereupon this letter agreement shall be a
binding agreement among the Company and the Purchasers.
Very truly yours,
INCONTROL, INC.
/s/ Kurt C. Wheeler
By: ___________________________
Kurt C. Wheeler
Chairman of the Board, President & CEO
AGREED AND ACCEPTED TO:
GUIDANT CORPORATION
/s/ A. Jay Graf
BY: ______________________________________________________________
A. Jay Graf
Vice President
PEGASUS ACQUISITIONS CORP.
/s/ A. Jay Graf
BY: ______________________________________________________________
A. Jay Graf
President
