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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF
THE SECURITIES EXCHANGE ACT OF 1934
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SPINE-TECH, INC.
(NAME OF SUBJECT COMPANY)
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SPINE-TECH, INC.
(NAME OF PERSON FILING STATEMENT)
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COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
(Title of Class of Securities)
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8488927 10 9
(CUSIP Number of Class of Securities)
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DAVID W. STASSEN
CHIEF EXECUTIVE OFFICER AND PRESIDENT
SPINE-TECH, INC.
7375 BUSH LAKE ROAD
MINNEAPOLIS, MINNESOTA 55439
(612) 832-5600
(Name, Address and Telephone Number of Person
Authorized to Receive Notice and Communications
on Behalf of the Person Filing Statement)
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COPIES TO:
W. SMITH SHARPE, ESQ.
FAEGRE & BENSON LLP
2200 NORWEST CENTER
90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA
(612) 336-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Spine-Tech, Inc., a Minnesota corporation
(the "Company"), and the address of its principal executive offices is 7375 Bush
Lake Road, Minneapolis, Minnesota 55439. The title of the class of equity
securities to which this Statement relates is the common stock, $.01 par value
per share (the "Common Stock"), of the Company and the associated preferred
share purchase rights (together with the Common Stock, the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer by Sulzer Medica Orthopedics
Acquisition Corp., a Minnesota corporation ("Purchaser"), an indirect wholly
owned subsidiary of Sulzer Medica Ltd, a corporation organized under the laws of
Switzerland ("Parent"), described in a Tender Offer Statement on Schedule 14D-1,
dated December 19, 1997 (the "Schedule 14D-1"), to acquire all outstanding
Shares at a price of $52.00 per Share, net to the seller in cash, without
interest thereon (the "Per Share Amount"), upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated December 19, 1997 (the
"Offer to Purchase"), and the related letter of transmittal (which, together
with the Offer to Purchase, constitute the "Offer" and are contained within the
Schedule 14D-1).
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of December 15, 1997 (the "Merger Agreement"), among Parent, Purchaser and
the Company. The Merger Agreement provides, among other things, that as promptly
as practicable after the satisfaction or waiver of the conditions set forth in
the Merger Agreement, Purchaser will be merged with and into the Company (the
"Merger"), and the Company will continue as the surviving corporation (the
"Surviving Corporation") and an indirect wholly owned subsidiary of Parent. A
copy of the Merger Agreement is filed herewith as Exhibit 1 and is incorporated
herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of
Parent and Purchaser are located at Zurcherstrasse 12, 8401 Winterthur,
Switzerland.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b)(1) Certain contracts, agreements, arrangements and understandings
between the Company or its affiliates and its executive officers, directors or
affiliates are set forth under the captions "Right to Designate Directors;
Purchaser Designees," "Board of Directors and Executive Officers," "Report of
the Compensation Committee," "Executive Compensation," "Compensation
Arrangements" and "Security Ownership of Principal Shareholders and Management"
in the Information Statement Pursuant to Section 14(f) of the Securities and
Exchange Act of 1934 and Rule 14f-1 Thereunder dated December 19, 1997 (the
"Information Statement") attached hereto as Annex I and incorporated herein by
reference.
(b)(2) Descriptions of (i) the Merger Agreement, (ii) the Confidentiality
Agreement and (iii) the Employment Agreements entered into between the Company
and each of David W. Stassen, Paul R. Lunsford, Douglas W. Kohrs, Keith M.
Eastman, Richard C. Jansen and David L. Shaw are set forth below. Except as
described in this Item 3(b), there are no material contracts, agreements,
arrangements or understandings, or any potential or actual conflicts of interest
between the Company or its affiliates and the Company, Parent, Purchaser or any
of their respective executive officers, directors or affiliates.
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THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is filed
as Exhibit 1 hereto. Such summary is qualified in its entirety by reference to
the Merger Agreement.
THE OFFER. The Merger Agreement provides for the commencement of the Offer
as promptly as practicable, but in no event later than five business days after
the initial public announcement of Purchaser's intention to commence the Offer
provided (i) the Merger Agreement is not terminated by its terms and (ii) none
of the events described below in "Conditions to the Offer" have occurred or are
existing. The obligation of Purchaser to accept for payment and pay for the
Shares tendered pursuant to the Offer is subject to the satisfaction of (i)
there being validly tendered and not withdrawn prior to expiration of the Offer
at least a majority of the Shares then outstanding on a fully diluted basis (the
"Minimum Condition") and (ii) certain other conditions described below in
"Conditions to the Offer". The Purchaser may waive any condition to the Offer,
increase the price per Share payable in the Offer and make any other changes to
the Offer. However, no change may (i) decrease the price per Share payable in
the Offer, (ii) reduce the maximum number of Shares to be purchased, (iii)
change the form of consideration to be paid in the Offer, (iv) modify the
conditions described below in "Conditions to the Offer", (v) impose conditions
to the Offer other than those described below in "Conditions to the Offer", or
(vi), except as provided in the following sentence, extend the Offer. The
Purchaser may, without the consent of the Company, (i) extend the Offer beyond
the scheduled expiration date (the initial scheduled expiration date being
January 21, 1998), if, at the scheduled expiration date, any of the conditions
to Purchaser's obligation to accept for payment, and to pay for, the Shares,
will not be satisfied or waived, (ii) extend the Offer for any period required
by any rule, regulation or interpretation of the Securities and Exchange
Commission (the "Commission") or the staff thereof applicable to the Offer or
(iii) extend the Offer for an aggregate period of not more than five business
days beyond the latest applicable date that would otherwise be permitted under
clause (i) or (ii) of this sentence, if as of such date, all of the conditions
to Purchaser's obligations to accept for payment, and to pay for, the Shares are
satisfied or waived, but the number of Shares validly tendered and not withdrawn
pursuant to the Offer equals 80% or more, but less than 90%, of the outstanding
Shares. The Per Share Amount will, subject to the applicable withholding of
taxes, be net to the seller in cash, upon the terms and conditions of the Offer.
Subject to the terms and conditions of the Offer, Purchaser shall, and Parent
will cause Purchaser to, promptly after expiration of the Offer, accept for
payment and pay for all Shares validly tendered and not withdrawn.
CONDITIONS TO THE OFFER. Notwithstanding any other provision of the Offer,
Purchaser is not required to accept for payment or pay for any Shares tendered
pursuant to the Offer, and may terminate or amend the Offer and may postpone the
acceptance for payment of and payment for Shares tendered, if (i) the Minimum
Condition is not satisfied after the Offer has remained open for at least 20
business days, (ii) any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act") has not expired or terminated
prior to the expiration of the Offer, or (iii) at any time on or after the date
of the Merger Agreement, and prior to the acceptance for payment of Shares, any
of the following conditions exist:
(a) there will have been threatened or instituted by any governmental
authority any action or proceeding before any court or governmental,
administrative or regulatory authority or agency of competent jurisdiction,
domestic or foreign, (i) challenging or seeking to make illegal, materially
delay or otherwise directly or indirectly restrain or prohibit or make
materially more costly the making of the Offer, the acceptance for payment
of, or payment for, any Shares by Parent, Purchaser or any other affiliate
of Parent, or the consummation of any other transaction contemplated by the
Offer or Merger, or seeking to obtain material damages in connection with
any transaction contemplated by the Offer or Merger; (ii) seeking to
prohibit or limit materially the ownership or operation by the Company,
Parent or any of their subsidiaries of all or any material portion of the
business or assets of the Company, Parent or any of their subsidiaries, or
to compel the Company, Parent or any of their subsidiaries to dispose of or
hold separate all or any portion of the business or assets of the Company,
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Parent or any of their subsidiaries, as a result of the transaction
contemplated by the Offer or Merger; (iii) seeking to impose or confirm
limitations on the ability of Parent, Purchaser or any other affiliate of
Parent to exercise effectively full rights of ownership of any Shares,
including, without limitation, the right to vote any Shares acquired by
Purchaser pursuant to the Offer or otherwise on all matters properly
presented to the Company's shareholders, including, without limitation, the
approval and adoption of the Merger Agreement and the transaction
contemplated by the Offer or Merger; (iv) seeking to require divestiture by
Parent, Purchaser or any other affiliate of Parent of any Shares; or (v)
which otherwise gives rise to any circumstance, change in or effect on the
Company or any Subsidiary that is, or is reasonably likely to be, materially
adverse to the business, financial condition, results of operations, assets
or liabilities (including, without limitation, contingent liabilities) of
the Company and the Subsidiaries, taken as a whole ("Material Adverse
Effect").
(b) there will have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to (i) Parent, the Company or any subsidiary or affiliate of
Parent or the Company or (ii) any transaction contemplated by the Offer or
Merger, by any legislative body, court, government or governmental,
administrative or regulatory authority or agency, domestic or foreign, other
than the routine application of the waiting period provisions of the HSR Act
to the Offer or the Merger, which is reasonably likely to result, directly
or indirectly, in any of the consequences referred to in clauses (i) through
(v) of paragraph (a) above, except that the Offer may not be terminated or
amended solely because of a temporary order or injunction unless it is not
lifted within 20 days after being issued;
(c) there will have occurred any changes, conditions, events or
developments that have, individually or in the aggregate, a Material Adverse
Effect;
(d) there will have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the New York Stock
Exchange, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or Switzerland, or (iii)
any limitation (whether or not mandatory) by any government or governmental,
administrative or regulatory authority or agency of the United States or
Switzerland on the extension of credit by banks or other lending
institutions;
(e) (i) it will have been publicly disclosed or Purchaser has otherwise
learned that beneficial ownership (determined for the purposes of this
paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act) of
more than 20% of the then outstanding Shares has been acquired by any
person, other than Parent or any of its affiliates or (ii) (A) the Board or
any committee thereof has withdrawn or modified in a manner adverse to
Parent or Purchaser the approval or recommendation of the Offer, the Merger
or the Merger Agreement, or approved or recommended any acquisition proposal
or any other acquisition of Shares other than the Offer or the Merger or (B)
the Board or any committee thereof has resolved to do any of the foregoing;
(f) the representations or warranties of the Company in the Merger
Agreement will not be true and correct, ignoring for this purpose any
qualification as to materiality or Material Adverse Effect, as if such
representations or warranties were made as of such time on or after the date
of this Agreement, except where the failure to be so true and correct,
individually and in the aggregate, would not have a Material Adverse Effect;
(g) the Company has failed to perform in any material respect any
obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under the
Agreement;
(h) the Agreement has been terminated in accordance with its terms; or
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(i) Purchaser and the Company have agreed that Purchaser will terminate
the Offer or postpone the acceptance for payment of or payment for Shares
thereunder;
which, in the reasonable good faith judgment of Purchaser in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
any of its affiliates) giving rise to any such condition, makes it inadvisable
to proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and Parent
and may be asserted by Purchaser or Parent regardless of the circumstances
giving rise to any such condition or may be waived by Purchaser or Parent in
whole or in part at any time and from time to time in their sole discretion. The
failure by Parent or Purchaser at any time to exercise any of the foregoing
rights will not be deemed a waiver of any such right; the waiver of any such
right with respect to particular facts and other circumstances will not be
deemed a waiver with respect to any other facts and circumstances; and each such
right will be deemed an ongoing right that may be asserted at any time and from
time to time.
THE MERGER. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof and in accordance with the Minnesota Business
Corporation Act ("Minnesota Law"), Purchaser will be merged with and into the
Company and the Company will continue as the Surviving Corporation and will
become an indirect wholly owned subsidiary of Parent. The date and time of the
filing of articles of merger causing the Merger to be consummated will be the
"Effective Time." Upon consummation of the Merger, each issued and outstanding
Share (other than any Shares held in the treasury of the Company or owned by
Purchaser, Parent or any direct or indirect wholly owned subsidiary of Parent or
of the Company and any outstanding Shares which are held by shareholders who
have not voted in favor of the Merger and who have properly exercised
dissenters' rights with respect to such Shares in accordance with Minnesota Law)
will be converted automatically into the right to receive the Per Share Amount
in cash. Pursuant to the Merger Agreement, each share of common stock, par value
$.01 per share, of Purchaser issued and outstanding immediately prior to the
Effective Time will be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock, par value $.01 per share, of
the Surviving Corporation.
CHARTER DOCUMENTS; INITIAL DIRECTORS AND OFFICERS. The Merger Agreement
provides that, at the Effective Time, the Articles of Incorporation of
Purchaser, as in effect immediately prior to the Effective Time, will be the
Articles of Incorporation of the Surviving Corporation; PROVIDED, HOWEVER, that
Article I of the Articles of Incorporation of the Surviving Corporation will be
amended to read as follows: "The name of the corporation is Spine-Tech, Inc."
The Merger Agreement also provides that the By-laws of Purchaser, as in effect
immediately prior to the Effective Time, will be the By-laws of the Surviving
Corporation until thereafter amended as provided by law, the Articles of
Incorporation of the Surviving Corporation and such By-laws. Pursuant to the
Merger Agreement, the directors of Purchaser immediately prior to the Effective
Time will be the initial directors of the Surviving Corporation and the officers
of the Purchaser immediately prior to the Effective Time will be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified in accordance with
the Articles of Incorporation and By-laws of the Surviving Corporation and
Minnesota Law.
SHAREHOLDERS' MEETING. The Merger Agreement provides that, if required by
applicable law in order to consummate the Merger, the Company, acting through
the Board, will, in accordance with applicable law and its Articles of
Incorporation and By-Laws, duly call, give notice of, convene and hold a special
meeting of its shareholders as soon as practicable following consummation of the
Offer for the purpose of considering and taking action on the Merger Agreement
and the transactions contemplated thereby. Notwithstanding the foregoing, in the
event that Purchaser acquires at least 90% of the then outstanding Shares, the
parties have agreed, subject to the conditions to the Merger described below, to
take all necessary and appropriate action to cause the Merger to become
effective, in accordance with Section 302A.621 of Minnesota Law, as soon as
reasonably practicable after such acquisition, without a meeting of the
shareholders of the Company.
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FILINGS. The Merger Agreement provides that the Company will, as promptly
as reasonably practicable following consummation of the Offer and if required by
applicable law, file a proxy statement with the Commission, and will use its
reasonable efforts to have the proxy statement cleared by the Commission. The
Company has agreed that, except if the Board determines in good faith an
alternative action is necessary in accordance with its fiduciary duties to the
Company and its shareholders under applicable law after consultation with its
outside legal counsel, the proxy statement will contain the recommendation of
the Board that the holders of the Shares approve and adopt the Merger Agreement
and the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER. Pursuant to the Merger Agreement,
the Company has agreed that, between the date of the Merger Agreement and the
Effective Time, except as set forth in the disclosure schedule of the Company or
as expressly contemplated by any other provision of the Merger Agreement, unless
Parent or Purchaser otherwise agree in writing, the businesses of the Company
and its subsidiaries will be conducted only in, and the Company and its
subsidiaries will not take any action with respect to their businesses except
in, the ordinary course of business; and each of the Company and its
subsidiaries will use its reasonable efforts to preserve substantially intact
the business organization of the Company and its subsidiaries, to keep available
the services of the current officers, employees and consultants of the Company
and its subsidiaries, and to preserve the current relationships of the Company
and its subsidiaries with physicians, customers, suppliers and other persons
with which the Company or any of its subsidiaries has significant business
relations. By way of amplification and not limitation, except as contemplated by
the Merger Agreement, neither the Company nor any subsidiary thereof will,
between the date of the Merger Agreement and the Effective Time, directly or
indirectly do any of the following without the prior written consent of Parent
or Purchaser:
(a) amend or otherwise change its Articles of Incorporation or By-laws
or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of, (i) any shares
of capital stock of the Company or any of its subsidiaries, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of the Company or any of its
subsidiaries (except for the issuance of Shares issuable pursuant to
outstanding options as of the date of the Merger Agreement, 6,500 Shares to
be issued pursuant to the Company's employee stock purchase plan and any
Shares required to be issued under the Rights Agreement, dated as of August
21, 1996, between the Company and Norwest Bank Minnesota, N.A. (the "Rights
Agreement")) or (ii) any assets of the Company or any of its subsidiaries,
except in the ordinary course of the business consistent with past practice;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock except that any subsidiary of the Company may declare and pay
a dividend to the Company;
(d) reclassify, combine, split, subdivide or redeem any of its capital
stock, or purchase or otherwise acquire, directly or indirectly, any of its
capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof; (ii) incur
any indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible
for, the obligations of any person, or make any loans or advances, except in
the ordinary course of business; (iii) enter into any material contract or
agreement other than in the ordinary course of business; (iv) authorize any
single capital expenditure which is in excess of $100,000 or capital
expenditures which are, in the aggregate, in excess of $250,000 for the
Company and its subsidiaries taken as a whole; or (v) enter into or amend
any contract, agreement, commitment or arrangement with respect to any of
the foregoing matters;
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(f) increase the compensation payable or to become payable or the
benefits provided to its officers or key employees, or grant any severance
or termination pay to, or enter into any employment or severance agreement
with, any director or officer or other key employee of the Company or any of
its subsidiaries, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or similar plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee, except to
the extent such endorsement or termination is required by law;
(g) subject to certain exceptions, hire or retain any single employee or
consultant at an annual rate of compensation in excess of $50,000, or
employees or consultants with annual rates of compensation in excess of
$250,000 in the aggregate;
(h) take any action, other than in the ordinary course of business
consistent with past practice, with respect to accounting policies or
procedures (including, without limitation, procedures with respect to the
payment of accounts payable and collection of accounts receivable);
(i) make any tax election or settle or compromise any material federal,
state, local or foreign income tax liability;
(j) commence or settle any litigation, suit, claim, action, proceeding
or investigation;
(k) amend, modify or consent to the termination of any material contract
or amend, modify or consent to the termination of the Company's or any of
its subsidiary's rights thereunder, in a manner materially adverse to the
Company or any of its subsidiaries, other than in the ordinary course of
business consistent with past practice;
(l) enter into any material contract, other than in the ordinary course
of business; or
(m) enter into any contract or agreement that contemplates the transfer
by the Company of any interest in certain owned or licensed intellectual
property.
DIRECTORS. The Merger Agreement provides that, promptly upon the purchase
by Purchaser of the Shares pursuant to the Offer (provided that the Minimum
Condition has been satisfied), and from time to time thereafter, Purchaser will
be entitled, subject to compliance with Section 14(f) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), to designate up to such number of
directors, rounded down to the next whole number (except where such rounding
down would cause Purchaser to not be entitled to designate at least a majority
of directors on the Board, in which case such number will be rounded up), on the
Board as will give Purchaser representation on the Board equal to the product of
the total number of directors on the Board (giving effect to the directors
elected pursuant to this sentence) multiplied by the percentage that the
aggregate number of Shares beneficially owned by Purchaser or any affiliate of
Purchaser following such purchase bears to the total number of Shares then
outstanding, and the Company will, at such time, promptly take all actions
necessary to cause Purchaser's designees to be elected or appointed as directors
of the Company, including increasing the size of the Board or securing the
resignations of incumbent directors or both. At such times, the Company will,
upon the written request of Purchaser, use its reasonable efforts to cause
persons designated by Purchaser to constitute the same percentage as persons
designated by Purchaser will constitute of the Board of (i) each committee of
the Board, (ii) the board of directors of each of the Company's subsidiaries and
(iii) each committee of each such board, in each case only to the extent
permitted by applicable law. Notwithstanding anything stated herein, if Shares
are purchased pursuant to the Offer, Parent and Purchaser will use reasonable
efforts to assure that until the Effective Time, the Board has at least one
director who is a director on the date of the Merger Agreement and is not an
employee of the Company.
Pursuant to the Merger Agreement, after the election of designees of
Purchaser pursuant to the preceding paragraph and prior to the Effective Time,
any amendment of the Merger Agreement or the
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Articles of Incorporation or By-laws of the Company, any termination of the
Merger Agreement by the Company, any extension by the Company of the time for
the performance of any of the obligations or other acts of Parent or Purchaser
or waiver of any of the Company's rights thereunder will require the concurrence
of a majority of the directors of the Company then in office who neither were
designated by Purchaser nor are employees of the Company.
NO SOLICITATION. The Company has agreed that it will, and will direct and
use all reasonable efforts to 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 any Acquisition Proposal
(as defined below). The Company will not, nor will it permit any of its
subsidiaries to, nor will it authorize or permit any officer, director or
employee of, or any investment banker, accountant, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, directly or
indirectly, (i) solicit or initiate, or knowingly encourage the submission of,
any Acquisition Proposal or (ii) participate in any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take any
other action to facilitate the making of any proposal that constitutes, or may
reasonably be expected to lead to, an Acquisition Proposal; PROVIDED, HOWEVER,
that, if and to the extent that, prior to the acceptance for payment of Shares
pursuant to the Offer, the Board determines in good faith that it is necessary
to do so in accordance with its fiduciary duties to the Company and its
shareholders under applicable law after consultation with its outside legal
counsel, the Company may, in response to a bona fide unsolicited Acquisition
Proposal, and subject to compliance with the notice requirements described
below, (x) furnish information with respect to the Company and provide access to
the person making such Acquisition Proposal pursuant to a customary
confidentiality agreement on terms no less favorable to the Company than those
contained in the confidentiality agreement described below between Parent and
the Company and (y) participate in discussions and negotiations regarding such
Acquisition Proposal.
For purposes of the Merger Agreement, "ACQUISITION PROPOSAL" means any bona
fide proposal or offer from any person relating to any direct or indirect
acquisition of over 20% of any class of equity securities of the Company or any
of its subsidiaries, any tender offer or exchange offer that if consummated
would result in any person beneficially owning 20% or more of any class of
equity securities of the Company or any of its subsidiaries, or any merger,
consolidation, business combination, sale of all or a substantial part of the
assets other than in the ordinary course of business, recapitalization,
liquidation, dissolution or similar transaction involving the Company and its
subsidiaries, other than the transactions contemplated by the Offer and the
Merger.
The Merger Agreement also provides that neither the Board nor any committee
thereof will (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Parent, the approval or recommendation by the Board or any
such committee of the Offer, the Merger Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal or (iii)
enter into any agreement with respect to any Acquisition Proposal.
Notwithstanding the foregoing, in the event that, prior to the time of
acceptance for payment of Shares pursuant to the Offer, the Board determines in
good faith that it is necessary in accordance with its fiduciary duties to the
Company and its shareholders under applicable law after consultation with its
outside legal counsel to enter into a definitive agreement with respect to a
Superior Proposal (as defined below), the Board may terminate the Merger
Agreement in accordance with clause d(ii) of "Termination" below and
concurrently with, or immediately after, such termination cause the Company to
enter into such agreement with respect to such Superior Proposal and withdraw or
modify its approval or recommendation of the Offer, the Merger or the Merger
Agreement. For purposes of the Merger Agreement, a "SUPERIOR PROPOSAL" means any
bona fide unsolicited proposal made by a third party to acquire, directly or
indirectly, more than 50% of the outstanding Shares or the shares of capital
stock of any surviving corporation in a merger with the Company on a fully
diluted basis or all or substantially all the assets of the Company and
otherwise on terms which the Board determines in its good faith judgment (after
consultation with its financial advisor) to be more favorable to the Company's
shareholders than the Offer and the Merger.
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The Merger Agreement provides that the Company will promptly advise Parent
orally and in writing of any request for information or of any Acquisition
Proposal and the material terms and conditions of such request or Acquisition
Proposal but need not identify the person making such request or Acquisition
Proposal.
DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE. The Merger
Agreement provides that the Articles of Incorporation and By-laws of the
Surviving Corporation will contain provisions no less favorable with respect to
indemnification, expense advancement and exculpation than are set forth in
Section 4.01 of the By-laws or in the Articles of Incorporation of the Company,
which provisions will not be amended, repealed or otherwise modified for a
period of six years from the Effective Time (or, in the event any claim is
asserted within such six year period, until final disposition of that claim) in
any manner that would affect adversely the rights thereunder of individuals who
at the Effective Time or at any time prior thereto were directors, officers,
employees, fiduciaries or agents of the Company, unless such modification is
required by Minnesota Law. To the extent that the obligations under such
provisions are not fully performed by the Surviving Corporation, Parent has
agreed to perform fully the obligations thereunder for the remaining period.
Parent or the Surviving Corporation will use its best efforts to maintain in
effect for a period of not less than six years from the Effective Time the
current directors' and officers' liability insurance policies maintained by the
Company (provided that Parent or the Surviving Corporation may substitute
therefor policies of at least the same coverage containing terms and conditions
which are no less favorable to such directors and officers) with respect to
matters occurring prior to the Effective Time. Notwithstanding the foregoing, in
no event will Parent or the Surviving Corporation be required to expend more
than an amount per year equal to 150% of current annual premiums paid by the
Company for such insurance (which premiums the Company has represented and
warranted to be $120,000 in the aggregate); and, PROVIDED, FURTHER, that if the
Parent or the Surviving Corporation is not able to obtain the amount of
insurance for such aggregate premium, Parent or the Surviving Corporation will
obtain as much insurance as can be obtained for an annual premium of 150% of
such current premiums.
RIGHTS PLANS. Pursuant to the Merger Agreement, the Company will not redeem
any preferred share purchase rights issued pursuant to the Rights Agreement (the
"Rights") prior to the Effective Time unless the Merger Agreement has terminated
as provided below or unless required to do so by order of a court of competent
jurisdiction. The Board agrees to take, or cause to be taken, such action as is
necessary to effect the amendments to the Rights Agreement so that (a) none of
the execution or delivery of this Agreement, the making of the Offer, the
acceptance for payment or payment for Shares by Purchaser pursuant to the Offer
or the consummation of the Merger or any other transaction contemplated by the
Merger Agreement will result in (i) the occurrence of the "flip-in event"
described under Section 11 of the Rights Agreement, (ii) the occurrence of the
"flip-over event" described in Section 13 of the Rights Agreement, or (iii) the
Rights becoming evidenced by, and transferable pursuant to, certificates
separate from the certificates representing Common Stock, and (b) the Rights
will expire pursuant to the terms of the Rights Agreement at the Effective Time.
EMPLOYEE STOCK OPTIONS. The Merger Agreement provides that the Company will
take all such actions as necessary to cause all stock options (including any
related alternative rights) granted under the Company's stock option plans
(including those granted to current or former employees, consultants and
directors of the Company or any of its subsidiaries) (the "Employee Stock
Options"), to become exercisable either prior to the purchase of the Shares
pursuant to the Offer or immediately prior to the Effective Time, as permitted
under the respective stock option plan. The Company agrees to take all such
actions as necessary to cause all Employee Stock Options that are outstanding
immediately prior to the Effective Time (whether or not then presently
exercisable or vested), to be cancelled. In exchange for the cancellation of
each such Employee Stock Option (whether or not presently exercisable or
vested), the holder thereof will be entitled to receive from the Company an
amount in cash equal to the product of the
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difference between the Per Share Amount and the per share exercise price of such
Employee Stock Option, and the number of shares of Common Stock covered by such
Employee Stock Option. All payments in respect of Employee Stock Options will be
made not later than five business days after the Effective Time, subject to the
Company's collection of all applicable withholding taxes. The Company's stock
option plans will be terminated as of the Effective Time and thereafter the only
rights of participants therein will be the right to receive the consideration
set forth in the previous sentence.
S&N OPTIONS. The Merger Agreement provides that all stock options
(including any related alternative rights) issued to Smith & Nephew Richards
Inc. by the Company (the "S&N Options") will vest, terminate, become exercisable
and be cancelled according to their terms and conditions. The Company will take
all necessary action to cause all S&N Options that are outstanding immediately
prior to the Effective Time (whether or not then presently exercisable and
vested) to be cancelled. In exchange for the cancellation of each S&N Option,
the holder of the S&N Options (whether or not then presently exercisable or
vested) will be entitled to receive from the Company an amount in cash equal to
the product of the difference between the Per Share Amount and the per share
exercise price of such S&N Option, and the number of shares of Common Stock
covered by such S&N Option.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties thereto including
representations by the Company as to the Company's corporate organization and
qualification, capitalization, authority, filings with the Commission and other
governmental authorities, financial statements, litigation, employment benefit
matters, intellectual property, property, taxes, insurance, environmental
matters, material contracts, compliance with law and amendments to the Rights
Agreement.
CONDITIONS TO CONSUMMATION OF THE MERGER. The Merger Agreement provides
that the respective obligations of each party to effect the Merger are subject
to the following conditions: (a) the Merger Agreement and the Merger will have
been approved and adopted by the affirmative vote of the shareholders of the
Company to the extent required by Minnesota Law and the Articles of
Incorporation of the Company; (b) any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act will have expired
or been terminated; (c) no foreign, United States or state governmental
authority or other agency or commission or foreign, United States or state court
of competent jurisdiction will have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is then in effect and
has the effect of making the acquisition of Shares by Parent or Purchaser or any
affiliate of either of them illegal or otherwise restricting, preventing or
prohibiting consummation of the Offer or the Merger; and (d) Purchaser or its
permitted assignee will have purchased all Shares validly tendered and not
withdrawn pursuant to the Offer; PROVIDED, HOWEVER, that the obligation of
Parent and Purchaser to effect the Merger will not be subject to the condition
set forth in clause (d) above if the failure of Purchaser to purchase the Shares
pursuant to the Offer will have constituted a breach of the Offer or the Merger
Agreement.
TERMINATION. The Merger Agreement may be terminated and the Merger and the
other transactions contemplated thereby may be abandoned at any time prior to
the Effective Time, notwithstanding any requisite approval and adoption of the
Merger Agreement and the transactions contemplated thereby by the shareholders
of the Company: (a) by mutual written consent of Parent, Purchaser and the
Company duly authorized by the Boards of Directors of Parent, Purchaser and the
Company; or (b) by Parent, Purchaser or the Company if (i) the Shares shall not
have been accepted for payment pursuant to the Offer on or before March 31,
1998; PROVIDED, HOWEVER, that the right to terminate the Merger Agreement
pursuant to the foregoing is not available to any party whose failure to fulfill
any obligation under the Merger Agreement has been the cause of, or resulted in,
the failure of the Shares to have been accepted for payment on or before such
date nor be available to Parent or Purchaser unless the failure to accept Shares
for payment pursuant to the Offer resulted from the failure of any one of the
conditions described
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above in "Conditions to the Offer" to have been satisfied; or (ii) any court of
competent jurisdiction or other governmental authority will have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable or, if a temporary order, shall not
have been lifted within 20 days of being issued; or (c) by Parent if due to an
occurrence or circumstance, other than as a result of a breach by Parent or
Purchaser of their obligations hereunder, resulting in a failure to satisfy any
condition described above in "Conditions to the Offer", Purchaser has (i) failed
to commence the Offer within 30 days following the date of the Merger Agreement
or (ii) terminated the Offer without having accepted any Shares for payment
thereunder; or (d) by the Company, upon approval of the Board, if (i) due to an
occurrence or circumstance that would result in a failure to satisfy any of the
conditions described above in "Conditions to the Offer", Purchaser has
terminated the Offer without having accepted any Shares for payment thereunder
or (ii) prior to the purchase of Shares pursuant to the Offer, if the Board
determines in good faith, after giving effect to any concessions that may be
offered by Parent, that it is necessary to do so in accordance with its
fiduciary duties to the Company and its shareholders under applicable law after
consultation with its outside legal counsel in order to enter into a definitive
agreement with respect to a Superior Proposal, upon five days' prior written
notice to Parent, setting forth in reasonable detail the final terms and
conditions of, the Superior Proposal (but the Company will not be required to
disclose the identity of the person making the Superior Proposal); PROVIDED,
HOWEVER, that any termination of the Merger Agreement pursuant to the foregoing
is not effective until the Company has made full payment of all amounts
described in "Fees and Expenses" below.
FEES AND EXPENSES. The Merger Agreement provides that (a) in the event that
(i) any person (including, without limitation, the Company or any affiliate
thereof), other than Parent or any affiliate of Parent, has become the
beneficial owner of more than 20% of the then outstanding Shares; and the Merger
Agreement has been terminated as described in "Termination" above; or (ii) any
person has publicly made or communicated to the Company an Acquisition Proposal
that is publicly disclosed and the Board will have either (A) withdrawn, amended
or modified its recommendation of the Offer in a manner adverse to Parent and
Purchaser, (B) recommended such Acquisition Proposal or (C) taken any action
with respect to the Rights Agreement to facilitate such Acquisition Proposal,
and (x) the Offer will have remained open for at least 20 business days, (y) the
Minimum Condition will not have been satisfied and (z) the Merger Agreement will
have been terminated as described in "Termination" above; or (iii) the Merger
Agreement is terminated as described in clause (d)(ii) of "Termination" above;
or (iv) the Company enters into an agreement with respect to an Acquisition
Proposal or an Acquisition Proposal is consummated, in each case within 18
months after the termination of the Merger Agreement as described in clause
(b)(i), (c) or (d)(i) of "Termination" above, which termination resulted from a
breach by the Company of its obligations thereunder, resulting in a failure to
satisfy any condition as described above in "Conditions to the Offer", and the
Company will not theretofore have been required to pay the Fee to Parent
pursuant to clause (a)(i), (a)(ii) or (a)(iii) hereof; then, in any such event,
the Company will pay Parent promptly (but in no event later than one business
day after the first of such events shall have occurred) a fee of $15,000,000
(the "Fee"), which amount shall be payable in immediately available funds, plus
all Expenses (as hereinafter defined). In no event will more than one Fee be
payable under the foregoing.
The Company will, at such time as a Fee is required to be paid, reimburse
each of Parent, Purchaser and their respective shareholders and affiliates (not
later than one business day after submission of statements therefor) for up to
$5,000,000 of actual and documented out-of-pocket expenses (including, without
limitation, fees and expenses payable to all banks, investment banking firms,
other financial institutions and other persons and their respective agents and
counsel, for arranging, committing to provide or providing any financing for the
transactions contemplated by the Offer or Merger or structuring the transactions
contemplated by the Offer or Merger and all fees of counsel, accountants,
experts and consultants to Parent, Purchaser and their respective shareholders
and affiliates, and all printing and advertising expenses) actually incurred or
accrued by either of them or on their behalf in connection with
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the transactions contemplated by the Offer or Merger, including, without
limitation, the financing thereof, and actually incurred by banks, investment
banking firms, other financial institutions and other persons and assumed by
Parent or Purchaser in connection with the negotiation, preparation, execution
and performance of the Merger Agreement, the structuring and financing of the
transactions contemplated by the Offer or Merger and any financing commitments
or agreements relating thereto (all of the foregoing being referred to herein
collectively as the "Expenses").
Except as set forth above, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated by the Offer and
Merger will be paid by the party incurring such expenses, whether or not any
transaction contemplated by the Offer or Merger is consummated.
In the event that the Company fails to pay the Fee or any Expenses when due,
the term "Expenses" shall be deemed to include the out-of-pocket costs and
expenses actually incurred or accrued by Parent and Purchaser (including,
without limitation, fees and out-of-pocket expenses of counsel) in connection
with the collection under and enforcement of the foregoing, together with
interest on such unpaid Fee and Expenses, commencing on the date that the Fee or
such Expenses became due, at a rate equal to the rate of interest publicly
announced by Citibank, N.A., from time to time, in The City of New York, as such
bank's Prime Rate plus 2.00%.
CONFIDENTIALITY AGREEMENT
On September 25, 1997 the Company and Parent entered into a confidentiality
agreement (the "Confidentiality Agreement"). The Confidentiality Agreement
contains customary provisions pursuant to which, among other matters, Parent and
the Company each agreed to keep confidential all non-public information
furnished to it by the other party (the "Confidential Information") and to use
such information solely in connection with a possible transaction involving the
Company and Parent. Parent also agreed not to use the Confidential Information
in connection with any trading in securities of the Company. Parent has agreed
in the Confidentiality Agreement that, for a period of eighteen months after the
date of the Confidentiality Agreement, neither it nor any of its affiliates
will, without the prior written consent of the Company, generally (i) acquire or
seek to acquire any of the Company's assets, other than in the ordinary course
of business, or voting stock representing in excess of 1% of the voting power of
the Company, other than in a confidential proposal to the Board of Directors of
the Company, (ii) solicit proxies with regard to the Company or (iii) otherwise
propose to influence or control management or policies of the Company or obtain
representation on the Company's Board of Directors. The foregoing summary of the
Confidentiality Agreement does not purport to be complete and is qualified in
its entirety by reference to the full text of the Confidentiality Agreement
which is filed herewith as Exhibit 2 and is incorporated herein by reference.
EMPLOYMENT AGREEMENTS
In connection with Parent's execution of the Merger Agreement, the Company
entered into employment agreements with each of David W. Stassen, Paul R.
Lunsford, Douglas W. Kohrs, Keith M. Eastman, Richard C. Jansen and David L.
Shaw (the "Executives"), each dated as of December 15, 1997 (the "Employment
Agreements"), that will become effective as of the Effective Time and will
become null and void if the Merger is not consummated by June 30, 1998. At the
Effective Time, the Employment Agreements will supersede the current employment
and/or management agreements between each Executive and the Company, which are
described in the Information Statement under the caption "Executive
Compensation--Compensation Arrangements." The following summary of the
Employment Agreements is qualified in its entirety by reference to the
Employment Agreements, which are filed herewith as Exhibits 3 through 8 and are
incorporated herein by reference.
Under the Employment Agreements, in exchange for full-time employment with
the Company, Mr. Stassen will receive an annual base salary of $260,000, Mr.
Lunsford will receive an annual base salary
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of $180,000, Mr. Kohrs will receive an annual base salary of $165,000, Mr.
Eastman will receive an annual base salary of $150,000, Mr. Jansen will receive
an annual base salary of $140,000 and Mr. Shaw will receive an annual base
salary of $125,000. The annual base salaries payable under the Employment
Agreements generally equal the Executives' current base salaries and can be
increased at the direction of officers of affiliates of Parent. Each Executive
will also be eligible for an annual bonus based upon the attainment of annual
sales and operating income objectives. The minimum annual bonus that may be
earned based upon the attainment of sales and operating income thresholds for
each year is 50% of the Executive's annual base salary and the maximum annual
bonus that may be earned is 100% of the Executive's annual base salary. Each
Executive will also be eligible for a long-term bonus based upon the attainment
of sales and operating income objectives over the two-year period ending on
December 31, 1999. The minimum long-term bonus that may be earned based upon the
attainment of sales and operating income thresholds for the two-year period is
150% of the Executive's annual average base salary and the maximum long-term
bonus that may be earned is 300% of the Executive's annual average base salary.
The Employment Agreements have a two-year term unless earlier terminated. If
the Company terminates the Employment Agreement other than for Cause (as defined
in the Employment Agreement) or if the Executive resigns for Constructive
Discharge (as defined in the Employment Agreement) or in the case of death or
Permanent Disability (as defined in the Employment Agreement), the Company must
continue the Executive's base salary through the second anniversary of the
Effective Time and will pay a portion of the Executive's annual and long-term
bonuses as set out in the Employment Agreement. During the terms of the
Employment Agreements, the Executives will be eligible to participate in
Parent's Management Stock Option Plan and will be entitled to participate in
Parent's benefit plans and programs on the same basis and on the same level as
other senior executives of the Company.
The Employment Agreements contain provisions restricting the Executives
from, during a period ending on the earlier of four years from the Effective
Time and two years from the date of cessation of the Executive's employment with
the Company, (i) soliciting or contacting any customer of the Company or its
affiliates for a pursuit competitive with the Company or its affiliates or
otherwise attempting to interfere with the business of the Company or its
affiliates and (ii) becoming engaged in any orthopedic business competitive with
the Company or any affiliated orthopedic business of Parent, except that the
last year of Mr. Kohrs' noncompetition obligations relates only to spine
products. The Employment Agreements also provide that any Developments (as
defined in the Employment Agreements) that are conceived of by Executive during
his employment under his Employment Agreement will be the sole property of the
Company and its affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) RECOMMENDATION OF THE BOARD OF DIRECTORS.
At a meeting of the Board of Directors held on December 15, 1997, the Board
of Directors unanimously approved the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and determined that
the terms of the Offer and the Merger are in the best interests of the Company
and its shareholders.
The Company's Board of Directors unanimously recommends that shareholders
accept the Offer and tender their shares pursuant to the Offer and approve and
adopt the Merger Agreement and the transactions contemplated by the Merger
Agreement, including the Merger, if a vote of shareholders is required to
complete the Merger.
A letter to the Company's shareholders communicating the Board of Directors'
recommendation and a press release announcing the Offer, the Merger and the
Merger Agreement are filed herewith as Exhibit 9 and Exhibit 10, respectively,
and are incorporated herein by reference.
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(B) BACKGROUND REASONS FOR THE BOARD OF DIRECTORS' RECOMMENDATION.
BACKGROUND. In April 1997, David W. Stassen, the Chief Executive Officer
and President of the Company, was approached concerning the possibility of a
strategic alliance or business combination with another medical device company.
In response, officers of the two companies had preliminary discussions at the
end of April 1997 and during the month of May 1997. During that time period, Mr.
Stassen and Keith M. Eastman, Chief Financial Officer of the Company, together
with representatives of Piper Jaffray Inc. ("Piper Jaffray"), also met with a
second medical device company to explore whether it would have any interest in
pursuing a possible transaction.
On May 27, 1997, at a meeting of the Board of Directors, Mr. Stassen
discussed, and provided information concerning, a medical device company that
was interested in a possible transaction with the Company. The Board then heard
presentations by two investment banking firms and, after discussing the factors
involved in selecting a financial advisor and the relative qualifications of the
two firms, the Board determined to engage Piper Jaffray as the Company's
exclusive representative and financial advisor for the purpose of advising the
Company concerning certain strategic alternatives, including the possibility of
a business combination or other transaction.
As a result of discussions with Piper Jaffray concerning the companies that
might be most likely to be interested in effecting a possible transaction, the
Board authorized Piper Jaffray to approach five medical device companies
concerning their possible interest in a business combination or other strategic
alliance with the Company. Three of the medical device companies initially
expressed an interest in a possible transaction with the Company and signed
confidentiality agreements with the Company. During May, June and July 1997,
senior management of the Company, with the assistance of Piper Jaffray, had
discussions with all three of the interested medical device companies, including
the company that had originally expressed an interest in April 1997, concerning
a possible transaction. After these discussions, two of the companies determined
not to proceed and, at its July 22, 1997 Board meeting, Piper Jaffray reviewed
with the Board the status of a possible stock-for-stock business combination
with the medical device company that had originally contacted the Company in
April 1997. After discussion, the Board authorized management to pursue
discussions and negotiations regarding a possible transaction with that company.
After further discussions and negotiations, the medical device company that
had originally contacted the Company determined not to proceed with the
transaction for what the Company understands were internal business reasons. On
August 28, 1997, Piper Jaffray met with Mr. Stassen to consider alternatives.
During this time, management of the Company was also exploring possible
collaborations and/or acquisitions by the Company or a public offering to raise
additional capital.
Following the completion of its initial public offering in July 1997, Parent
conducted an industry-wide search for potential acquisition candidates within
areas it previously had targeted for expansion and identified the Company as one
of the most attractive acquisition candidates in the spinal field. As a result,
Parent began its review of publicly available information concerning the
Company.
In early September 1997, with the consent of the Company, Piper Jaffray
contacted four additional medical device companies, including Parent, concerning
their interest in effecting a possible transaction with the Company. Robert
Cohen, Vice President Business Development of Parent, indicated that Parent
would have an interest in pursuing discussions. The other three companies did
not express an interest. On September 25, 1997, the Company and Parent entered
into the Confidentiality Agreement described in Item 3(b) above, and Parent
began its review and analysis of non-public information supplied to it by the
Company. On October 7, 1997, Mr. Cohen indicated to Piper Jaffray that Parent
was interested in continuing to explore a possible transaction. Parent continued
its analysis of the Company throughout October 1997.
On October 14, 1997, Mr. Stassen, Mr. Eastman and Douglas W. Kohrs, Vice
President, Research and Development of the Company, a representative of Piper
Jaffray and Mr. Cohen and Jerry L. Marlar,
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President Sulzer Orthopedics Inc., met in Houston. At the meeting, the Company's
representatives made a
presentation to Parent's representatives concerning the Company's operations,
including its product development.
On October 30, 1997, Fritz Fahrni, Chairman of the Parent, Andre P. Buchel,
the President and Chief Executive Officer of Parent, and Mr. Cohen met with
Messrs. Stassen, Eastman and Kohrs and a representative of Piper Jaffray in
Minneapolis to discuss the Company's operations, the possibility of a
transaction and the integration of the companies in the event of such a
transaction.
From November 3 through November 5, 1997, representatives of Parent and the
Company met in Minneapolis to facilitate Parent's due diligence review of the
Company. During those meetings, Mr. Cohen indicated to Mr. Stassen that Parent
was interested in continuing to explore a transaction. Following these meetings,
Parent continued its analysis of a possible acquisition of the Company.
On November 20, 1997, Messrs. Stassen, Eastman and Kohrs met in London with
Mr. Cohen and Felix Scherrer, President of Sulzer Orthopedics Ltd., to continue
to discuss a potential transaction and the integration issues that might arise
in the event of such a transaction.
On November 27, 1997, Parent's Board of Directors reviewed the potential
acquisition of the Company and authorized Parent's management to continue to
pursue the potential transaction. On November 29, 1997, Mr. Cohen telephoned Mr.
Stassen and requested that they meet in New York so that Parent could make an
acquisition proposal to the Company.
On December 1, 1997, representatives of Parent and Credit Suisse First
Boston Corporation ("Credit Suisse First Boston"), its financial advisor, and
Shearman & Sterling, Parent's counsel, met in New York with Messrs. Stassen and
Eastman and Piper Jaffray. During those meetings, Parent made a proposal to
acquire the Company that was equivalent to approximately $49.40 per Share. The
Company's representatives indicated that they believed that Parent's proposal
did not deliver sufficient value to the Company's shareholders, but that they
would review the proposal with the Board. Shortly following the meeting, Parent
delivered an initial draft of the Merger Agreement to the Company.
At a Board meeting of the Company on December 4, 1997, the proposal and the
proposed terms of the initial draft of the Merger Agreement were reviewed by
Faegre & Benson LLP, counsel to the Company, with the Board, and Piper Jaffray
reviewed with the Board the process that had been undertaken and analyzed the
proposed transaction assuming the merger price proposed by Parent. The Board
instructed management to continue negotiations and to attempt to obtain a higher
price for the Company.
Following the December 4, 1997 Board meeting, Mr. Stassen advised Mr. Cohen
that the Board would consider a transaction that delivered $52.00 per share in
cash to the Company's shareholders, and on December 5, 1997, Faegre & Benson LLP
communicated to Shearman & Sterling the Company's initial response to the draft
Merger Agreement. After Parent reviewed this response, Mr. Cohen advised Mr.
Stassen on December 8, 1997 that Parent was willing to discuss such a
transaction, but only if Parent was able to reach a satisfactory agreement with
the Company's senior management concerning their continuing role in the Company
following the transaction. Shearman & Sterling and Faegre & Benson LLP continued
to negotiate the terms of the Merger Agreement.
On December 12, 1997, Parent reviewed the proposal to acquire the Company at
$52.00 per Share with the Board of Directors of Sulzer AG, which owns
approximately 75% of Parent's outstanding common stock, and Sulzer AG's Board of
Directors endorsed the transaction.
Prior to the meeting of the Company's Board on December 12, 1997, Piper
Jaffray, in separate conversations, contacted Mr. Cohen and Credit Suisse First
Boston and discussed whether Parent would be willing to increase its price. Mr.
Cohen and a representative of Credit Suisse First Boston each stated that it was
his belief that the Board of Directors of Parent would not entertain a request
for a higher price.
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The Board of the Company met later on December 12 to discuss Parent's new
proposal to acquire the Company for $52.00 per Share. Mr. Stassen discussed
recent developments, including certain adverse rulings regarding the products of
two competitors by an FDA panel and the effect of this development on the
Company's stock price as well as its impact on the future prospects of the
Company. The Board also was informed (i) of Piper Jaffray's contact with Mr.
Cohen and a representative of Credit Suisse First Boston concerning whether
Parent would be willing to increase its price, (ii) that Piper Jaffray had been
informed by Mr. Cohen and the representative of Credit Suisse First Boston, and
believed, that it was unlikely that Parent would increase the price, (iii) that
Piper Jaffray had effectively canvassed the market of logical buyers and (iv)
that Piper Jaffray was prepared to deliver its opinion that as of such date and
based upon and subject to the matters considered by Piper Jaffray, the $52.00
price proposed to be received by the holders of Shares in the Offer and the
Merger was fair, from a financial point of view, to such holders. The most
recent draft of the Merger Agreement received from Shearman & Sterling that day
was distributed and reviewed with Faegre & Benson LLP and major outstanding
issues were discussed. Mr. Stassen reviewed with the Board Parent's position
that its proposal assumed that it would be able to reach satisfactory
arrangements with the Company's senior management concerning their role in the
Company following the transaction, and the Board was informed that Parent was
requesting a termination fee of $20 million and that certain conditions to the
Offer remained in the proposed Merger Agreement which the Board determined were
not acceptable. The Board authorized management to propose a termination fee of
$12 million and to continue negotiations on the other outstanding issues.
Shearman & Sterling and Faegre & Benson LLP continued their negotiation of
the Merger Agreement. On December 14, 1997, Messrs. Stassen and Eastman met with
representatives of Parent in Angleton, Texas, where they reached agreement
concerning employment arrangements following the transaction.
On December 15, 1997, the Company's Board met again. Management, Piper
Jaffray and Faegre & Benson LLP updated the Board on the status of discussions,
including the willingness of Parent to accept a $15 million termination fee and
to further limit its conditions to the Offer. Piper Jaffray updated certain
aspects of its fairness opinion presentation, and formally presented its opinion
to the Board. A special committee of the Board, consisting of all of the
independent directors of the Board for purposes of Section 302A.673 of the
Minnesota Law, unanimously approved the Offer, the Merger and the Merger
Agreement. Immediately thereafter, the Board unanimously approved the Offer, the
Merger and the Merger Agreement and determined that the terms of the Offer and
the Merger are in the best interests of the Company and its shareholders.
That evening the parties signed the Merger Agreement.
REASONS FOR THE TRANSACTION; FACTORS CONSIDERED BY THE BOARD.
In approving the Merger, the Offer and the Merger Agreement and recommending
that all shareholders tender their Shares pursuant to the Offer and approve and
adopt the Merger Agreement and the transactions contemplated by the Merger
Agreement, including the Merger, the Board of Directors considered a number of
factors, including:
1. the financial and other terms and conditions of the Offer, the Merger
and the Merger Agreement;
2. the Board's familiarity with and review of the business, financial
condition, results of operations and prospects of the Company, including the
desirability of attempting to diversify the business of the Company through
acquisition or other expansion, the need for additional capital and
management resources and sales persons whether or not the business of the
Company was diversified, and the risks of attempting to expand the business
or diversify through acquisitions;
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3. the historical market price performance of the Common Stock of the
Company, the present value of the projected future market price of the
stock, the timing of the transaction and the risks that such projected
performance might not be achieved.
4. the prospect, including anticipated timing, of additional competitors
in the Company's business and the potential effects of such competitors on
the Company's business, taking into account recent efforts of two potential
competitors who had not received requisite FDA approvals and recent setbacks
of those competitors before an FDA panel;
5. the possible alternatives to the Offer and the Merger, including that
the Purchaser appeared unlikely to pay a higher price despite the effort to
increase the proposed price, that Piper Jaffray had effectively canvassed
the market of other logical buyers and that continuing independence would,
as a practical matter, necessitate changes of the nature set forth in
paragraph 2 above that would involve the risks referred to in paragraphs 2,
3 and 4 above;
6. the presentations of Piper Jaffray at the December 4, 12 and 15, 1997
Board of Directors' meetings and the opinion of Piper Jaffray (the
"Opinion") to the effect that, as of the date of the Opinion and based upon
and subject to certain matters stated therein, the consideration to be
received by the holders of Shares in the Offer and the Merger is fair, from
a financial point of view, to such holders;
7. the fact that the Merger Agreement, which prohibits the Company, its
subsidiaries and their respective officers, directors, employees, advisors
or representatives from soliciting, initiating or knowingly encouraging any
potential acquisition proposal (as defined in the Merger Agreement), does
permit the Company to furnish non-public information and provide access to,
or to participate in discussions and negotiations with, any person or entity
that makes a bona fide unsolicited acquisition proposal after the date of
the Merger Agreement, if the Board of Directors determines in good faith
that it is necessary to do so in accordance with its fiduciary duties to the
Company and its shareholders under applicable law, after consultation with
its outside legal counsel;
8. the Board's belief that the terms of the Merger Agreement, taking
into account the termination fee and reimbursement of actual and documented
out-of-pocket expenses payable to Parent in the event of the Company's
acceptance of a superior acquisition proposal, should not unduly discourage
superior third party offers; and
9. the limited number of conditions to the obligations of Parent and
Purchaser to consummate the Offer and the Merger, including the absence of a
financing condition to the Offer.
The Board of Directors did not assign relative weights to the factors or
determine that any factor was of more importance than other factors. Rather, the
Board of Directors viewed its position and recommendation as being based on the
totality of the information presented to and considered by it.
The full text of the Opinion, which sets forth the assumptions made, general
procedures followed, matters considered and limitations on the review undertaken
by Piper Jaffray, is filed herewith as Exhibit 11 and is incorporated herein by
reference. Shareholders are urged to read the Opinion carefully in its entirety.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company and Piper Jaffray entered into an agreement, dated June 10,
1997, pursuant to which Piper Jaffray was retained as the Company's exclusive
representative and financial advisor for the purpose of advising the Company
concerning certain strategic alternatives, including a possible merger or other
business combination. For its services as financial advisor, the Company has
agreed to pay Piper Jaffray the following fees: (a) a cash fee of $1,750,000 if
the Company effected a transaction with the medical device company that
initially contacted the Company, provided that the Company had not received an
indication
16
<PAGE>
of interest from a third party, (b) a cash fee equal to 0.65% of the aggregate
consideration paid to the Company or its shareholders in connection with a
possible transaction if the conditions in clause (a) did not apply and (c) in
the event a fairness opinion is requested, a cash fee of $350,000 due upon
delivery of the written fairness opinion, which is to be credited against the
payment set forth in (a) or (b) above. The Company has also agreed to reimburse
Piper Jaffray for its reasonable out-of-pocket expenses (including the fees and
expenses of its counsel) and to indemnify Piper Jaffray against certain
liabilities and expenses.
Neither the Company nor any other persons acting on its behalf currently
intends to employ, retain or compensate any other person to make solicitations
or recommendations to shareholders on its behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) No transactions in the Shares have been effected during the past 60 days
by the Company or, to the knowledge of the Company, by any executive officer,
director, affiliate or subsidiary of the Company, other than (i) grants of
options and (ii) sales or gifts of an aggregate of 1,220 Shares by David L.
Shaw, Vice President--Manufacturing Operations.
(b) To the knowledge of the Company, its executive officers, directors,
affiliates and subsidiaries presently intend to tender, pursuant to the Offer,
any Shares which are held of record or are beneficially owned by them, except in
certain cases in which an individual may benefit from extending his holding
period for long term capital gains by holding certain Shares until the Effective
Time.
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. As described in Item 3(b) above, the Board of Directors
of the Company, in connection with the exercise of its fiduciary duties, is
permitted under certain conditions to engage in negotiations in response to an
unsolicited Acquisition Proposal.
(b) Except as described in Items 3(b) and 4 above, there are no
transactions, Board resolutions, agreements in principle or signed contracts in
response to the Offer which relate to or would result in one or more of the
matters referred to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
(a) The Information Statement attached as Annex I hereto and incorporated
herein by reference is being furnished pursuant to Rule 14f-1 under the Exchange
Act in connection with potential designation by Parent, pursuant to the Merger
Agreement, of certain persons to be appointed to the Company Board other than at
a meeting of shareholders, as described in Item 3.
(b) At its meeting held on December 15, 1997, a special committee of the
Board of Directors authorized and approved entering into the Merger Agreement
and the transactions contemplated thereby for purposes of Sections 302A.671 and
302A.673 of the Minnesota Law. At that meeting, the Special Committee also took
all necessary action such that (i) neither the Offer nor the Merger would
constitute a "flip-in event" or a "flip-over event" as described in the Rights
Agreement, or would result in the Rights becoming evidenced by, and transferable
pursuant to, certificates separate from the certificates representing Company
Common Stock and (ii) the Rights will expire under the terms of the Rights
Agreement at the Effective Time.
17
<PAGE>
(c) No dissenters' rights are available in connection with the Offer.
However, if the Merger is consummated, dissenting shareholders who comply with
statutory procedural requirements will be entitled to exercise dissenters'
rights for the fair value for their Shares under Section 302A.473 of Minnesota
Law. To be entitled to payment, the dissenting shareholder must not accept the
Offer, must file with the Company, prior to the vote for the Merger, a written
notice of intent to demand payment of the fair value of the shares, must not
vote in favor of the Merger and must satisfy the other procedural requirements
of Section 302A.473 of Minnesota Law. Any shareholder contemplating the exercise
of their dissenters' rights should review carefully the provisions of Section
302A.471 and 302A.473 of Minnesota Law, particularly the procedural steps
required to perfect such rights. SUCH RIGHTS WILL BE LOST IF THE PROCEDURAL
REQUIREMENTS OF SECTION 302A.473 ARE NOT FULLY AND PRECISELY SATISFIED.
If a vote of shareholders is required to approve the Merger under Minnesota
Law, the notice and proxy statement for the shareholder meeting will again
inform each shareholder of record as of the record date of the shareholder
meeting (excluding persons who tender all of their Shares pursuant to the Offer
if such Shares are purchased in the Offer) of their dissenters' rights and shall
include a copy of Section 302A.471 and 302A.473 of Minnesota Law and a summary
description of the procedures to be followed under those Sections to obtain
payment of fair value for their Shares under those Sections. If a shareholder
vote is not required to approve the Merger, the Surviving Corporation will send
a notice to those persons who are shareholders of the Surviving Corporation
immediately prior to the Effective Time of the Merger which, among other things,
includes a copy of Sections 302A.471 and 302A.473 of Minnesota Law and a summary
description of the procedures to be followed under those Sections to obtain
payment of fair value for their Shares under those Sections.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
Exhibit 1 Agreement and Plan of Merger, dated December 15, 1997, among Purchaser, Parent
and the Company.
Exhibit 2 Confidentiality Agreement, dated September 25, 1997, between the Company and
Parent.
Exhibit 3 Employment Agreement, dated as of December 15, 1997, between the Company and
David W. Stassen.
Exhibit 4 Employment Agreement, dated as of December 15, 1997, between the Company and Paul
R. Lunsford.
Exhibit 5 Employment Agreement, dated as of December 15, 1997, between the Company and
Douglas W. Kohrs.
Exhibit 6 Employment Agreement, dated as of December 15, 1997, between the Company and
Keith M. Eastman.
Exhibit 7 Employment Agreement, dated as of December 15, 1997, between the Company and
Richard C. Jansen.
Exhibit 8 Employment Agreement, dated as of December 15, 1997, between the Company and
David L. Shaw.
Exhibit 9 Letter to shareholders of the Company, dated December 19, 1997.+
Exhibit Press release issued by the Company on December 16, 1997.
10
Exhibit Opinion of Piper Jaffray Inc. dated December 15, 1997.+
11
Exhibit The Company's 1996 Omnibus Stock Plan.*
12
</TABLE>
- ------------------------
+ Included in copies of the Schedule 14D-9 mailed to shareholders.
* Incorporated by reference to Exhibit 10.14 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
18
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
SPINE-TECH, INC.
By: /s/ DAVID W. STASSEN
-----------------------
David W. Stassen,
CHIEF EXECUTIVE OFFICER
AND PRESIDENT
Dated: December 19, 1997
19
<PAGE>
ANNEX I
SPINE-TECH, INC.
7375 BUSH LAKE ROAD
MINNEAPOLIS, MINNESOTA 55439
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14F-1 THEREUNDER
------------------------
GENERAL INFORMATION
This Information Statement is being mailed on or about December 19, 1997 as
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Spine-Tech, Inc., a Minnesota corporation (the "Company"),
to the holders of record of shares of common stock, par value $.01 per share, of
the Company (the "Common Stock" or the "Shares"). You are receiving this
Information Statement in connection with the possible election of persons
designated by Purchaser (as defined below) to a majority of the seats of the
Board of Directors of the Company.
On December 15, 1997, the Company, Sulzer Medica Ltd, a corporation
organized under the laws of Switzerland ("Parent"), and Sulzer Medica
Orthopedics Acquisition Corp., a Minnesota corporation and an indirect wholly
owned subsidiary of Parent ("Purchaser"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which (i) Purchaser will commence a
tender offer (the "Offer") for all outstanding Shares at a price of $52.00 per
Share, net to the seller in cash without interest thereon and (ii) Purchaser
will be merged with and into the Company (the "Merger"). As a result of the
Offer and the Merger, the Company will continue as an indirect wholly owned
subsidiary of Parent.
The Merger Agreement provides that, promptly upon the purchase by Purchaser
of the Shares pursuant to the Offer (provided that the Minimum Condition has
been satisfied), Purchaser will be entitled to designate directors (the
"Purchaser Designees") on the Company Board that will give Purchaser
representation substantially proportionate to its ownership interest. The Merger
Agreement requires the Company promptly to take necessary action to cause the
Purchaser Designees to be elected or appointed to the Company Board under the
circumstances described therein. This Information Statement is required by
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Rule 14f-1 thereunder. Capitalized terms used herein and not
otherwise defined shall have the meaning set forth in the Schedule 14D-9.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action in connection with this Information
Statement.
The information contained in this Information Statement concerning Purchaser
and the Purchaser Designees has been furnished to the Company by Purchaser. The
Company assumes no responsibility for the accuracy or completeness of such
information.
The Common Stock is the only class of voting securities of the Company
outstanding. Each share of Common Stock has one vote. As of December 15, 1997
there were 10,323,730 shares of Common Stock outstanding.
RIGHT TO DESIGNATE DIRECTORS; PURCHASER DESIGNEES
The Merger Agreement provides that, promptly upon the purchase by Purchaser
of the Shares pursuant to the Offer (provided that the Minimum Condition has
been satisfied), and from time to time thereafter, Purchaser will be entitled,
subject to compliance with Section 14(f) of the Exchange Act, to designate up to
such number of directors, rounded down to the next whole number (except where
such rounding down would cause Purchaser to not be entitled to designate at
least a majority of directors on the Board, in which case such number will be
rounded up), on the Board as will give Purchaser representation
<PAGE>
on the Board equal to the product of the total number of directors on the Board
(giving effect to the directors elected pursuant to this sentence) multiplied by
the percentage that the aggregate number of Shares beneficially owned by
Purchaser or any affiliate of Purchaser following such purchase bears to the
total number of Shares then outstanding, and the Company will, at such time,
promptly take all actions necessary to cause Purchaser's designees to be elected
or appointed as directors of the Company, including increasing the size of the
Board or securing the resignations of incumbent directors or both. At such
times, the Company will, upon the written request of Purchaser, use its
reasonable efforts to cause Purchaser Designees to constitute the same
percentage as persons designated by Purchaser will constitute of the Board of
(i) each committee of the Board, (ii) the board of directors of each of the
Company's subsidiaries and (iii) each committee of each such board, in each case
only to the extent permitted by applicable law. Notwithstanding anything stated
herein, if Shares are purchased pursuant to the Offer, Parent and Purchaser will
use reasonable efforts to assure that, until the Effective Time, the Board has
at least one director who is a director on the date of the Merger Agreement and
is not an employee of the Company.
As of the date of this Information Statement, Purchaser has not determined
who will be the Purchaser Designees. However, the Purchaser Designees will be
selected by Purchaser from among the directors and executive officers of Parent
or Purchaser. Certain information regarding the list of candidates as Purchaser
Designees is contained in Schedule I annexed hereto.
None of the persons from among whom the Purchaser Designees will be selected
or their associates is a director of, or holds any position with, the Company.
To the knowledge of the Company, except as set forth in Schedule I annexed
hereto, none of the Purchaser Designees or their associates beneficially owns
any equity securities, or rights to acquire any equity securities, of the
Company or has been involved in any transactions with the Company or any of its
directors or executive officers that are required to be disclosed pursuant to
the rules and regulations of the Commission.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors currently consists of four directors, each of whom
holds office until his resignation or removal and until his successor is duly
elected and qualified at the next Annual Meeting of Shareholders.
DAVID W. STASSEN, age 45, has served as President and Chief Executive
Officer of the Company since June 1992 and as a director of the Company since
June 1991. From January 1990 to June 1992, he served as Executive Vice President
of St. Paul Venture Capital, Inc., a venture capital company. He is currently a
director of Avecor Cardiovascular, Inc. and RSI Systems, Inc.
ROBERT J. DEPASQUA, age 48, has served as a director of the Company since
June 1992. From 1989 to July 1994, he served as the President, Chief Executive
Officer and a director of Spectranetics Corp., a medical device company. He
remained a director of Spectranetics until his resignation in September 1996.
JAMES F. LYONS, age 66, has served as a director of the Company since July
1993. Mr. Lyons is currently Chairman of the Board of Directors of Bio-Vascular,
Inc., a medical device company. Mr. Lyons is also a founder of Avecor
Cardiovascular, Inc., and served as the Chairman of its Board of Directors until
April 1996. Mr. Lyons also serves as a director of ATS Medical and Quantech Ltd.
KENNETH W. ANSTEY, age 50, has served as a director of the Company since May
1995. Mr. Anstey has served as President and CEO of Oratec Interventions, Inc.
since July 1997. From December 1995 until March 1997, Mr. Anstey served as
President and Chief Executive Officer of Biofield, Inc., a medical technology
company. From August 1991 to December 1995, Mr. Anstey served as President and
Chief Executive Officer of Mitek Surgical Products, Inc., a supplier of
minimally invasive proprietary surgical implants, which is a subsidiary of
Johnson & Johnson. From 1989 to July 1991, Mr. Anstey served as President of
ConvaTec Inc., a manufacturer and marketer of ostomy and wound care products,
which is a
2
<PAGE>
subsidiary of Bristol Meyers Squibb Corporation. Mr. Anstey serves as a director
of Vision-Sciences, Inc. and Cellpro, Inc.
KEITH M. EASTMAN, age 47, has served as Chief Financial Officer of the
Company since September 1992. Mr. Eastman was an independent consultant from
January 1991 to September 1992 and served as Chief Financial Officer of CIMA
Labs, Inc., a pharmaceutical manufacturer, from December 1991 to August 1992.
PAUL R. LUNSFORD, JR., age 39, has served as Vice President, Sales and
Marketing since August 1997. From February 1996 to July 1997, he served as
National Sales manager for the Company. From March 1995 to February 1996 he
served as Director of Corporate Sales for Boston Scientific Corporation, a
specialty medical device company. Prior to that time he was employed by Scimed
Life Systems Inc., a manufacturer and marketer of cardiovascular catheters and
devices, where he served as Director of National Accounts from August 1994 to
March 1995 and Director of Sales from December 1991 to August 1994.
DOUGLAS W. KOHRS, age 39, has served as Vice President, Research and Product
Development since January 1993 and previously served as Director of Product
Development and Marketing for the Company from August 1991 to January 1993.
RICHARD C. JANSEN, age 48, has served as Vice President, Regulatory and
Clinical Affairs since August 1993 and previously served as Director of
Regulatory Affairs and Operations of the Company from August 1991 to August
1993.
DAVID L. SHAW, age 51, has served as Vice President, Manufacturing
Operations since June 1994 and previously served as Director of Manufacturing of
the Company from June 1992 to June 1994. From December 1991 to June 1992, Mr.
Shaw worked as a manufacturing consultant for the Company.
Executive officers are elected annually by the Board of Directors and serve
a one-year period or until their successors are elected.
None of the above directors is related to each other or to any executive
officer of the Company, and none of the above executive officers is related to
each other or to any director of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
The Audit Committee of the Board of Directors consists of Robert J. DePasqua
and James F. Lyons. It has the responsibility to meet with the Company's
independent auditors and approve the scope and timing of the independent
auditors' audit, evaluate the independent auditors' opinions as to internal
controls and discuss the meaning and significance of the audited financial
results. The Audit Committee held one meeting in 1996.
The Compensation Committee of the Board of Directors consists of Robert J.
DePasqua and James F. Lyons. It has the responsibility to grant or make
recommendations to the Board of Directors concerning employee stock options,
bonuses and other compensation. The Compensation Committee adopted resolutions
by written action 70 times during fiscal 1996. The majority of these written
actions related to the grant of stock options to each new employee of the
Company.
The Board of Directors does not have a nominating committee.
The Board of Directors held four meetings during 1996. All directors
attended at least 75% of the meetings of the Board of Directors during 1996.
DIRECTOR COMPENSATION
Non-employee directors of the Company received an annual retainer of
$12,000, plus $1,000 for each meeting of the Board of Directors. The Spine-Tech,
Inc. 1996 Omnibus Stock Plan (the "1996 Plan")
3
<PAGE>
provides for the non-discretionary grant of a non-statutory stock option to
purchase 15,000 shares of Common Stock upon election or appointment to the Board
of Directors to each non-employee director at a price equal to the fair market
value of a share of Common Stock on the date of grant. Of the shares covered by
such initial grant, 5,000 vest immediately upon grant and 5,000 vest upon each
of the next two anniversaries of the director's election or appointment. After a
non-employee director has served the Company as a director for two full years,
that director will be granted an option to purchase 5,000 shares of Common Stock
at the conclusion of each subsequent annual meeting of shareholders of the
Company, at a price equal to the fair market value of a share of Common Stock on
the date of grant, these options to vest one year from the date of grant.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") of the Board of Directors is
responsible for establishing compensation policies for all executive officers of
the Company, including the five most highly compensated executive officers of
the Company named in the accompanying tables. The Committee establishes the
total compensation for the executive officers in light of these policies. The
Committee is composed entirely of non-employee directors.
The following report describes the Company's executive compensation program
and discusses the factors considered by the Committee in determining the
compensation of the Company's Chief Executive Officer and other executive
officers for 1996.
COMPENSATION OBJECTIVES
The Committee's objective is to make the compensation packages of the
executive officers of the Company sufficient to attract and retain highly
talented and productive executives and to provide effective incentives to
motivate and reward Company executives for achieving the Company's financial and
strategic goals essential to its long-term success and growth in shareholder
value. A benefits consultant provides the Committee with compensation statistics
from other companies comparable in size and industry. The Company's current
compensation levels are at the low end of the range for comparable companies.
The Company's executive compensation package consists of two main components (in
addition to the benefit plans offered to all employees): base salary and
long-term incentive compensation, consisting of grants made under the Company's
stock incentive program. Under certain circumstances, the Company's executive
compensation will include an annual bonus.
BASE SALARY
The base salary of each of the executive officers, including the Company's
Chief Executive Officer and President (the "CEO"), is determined annually by the
Committee and ratified by the Board of Directors after considering the
compensation levels of personnel with similar responsibilities at other
companies in the medical device industry, the Company's financial performance
during the prior fiscal year, and, in the case of executive officers other than
the CEO, the individual performance of each executive officer. Salary decisions
concerning executive officers are made by the Committee in conjunction with the
Board of Directors in a review process that includes the CEO's recommendations
for all executive officers other than himself.
The measures of individual performance considered in setting 1996 and
current salaries of individual executive officers, including the CEO, included a
number of quantitative and qualitative factors such as the Company's historical
and recent financial performance, the individual's progress toward non-financial
goals within his area of responsibility, individual performance, experience and
level of responsibility and other contributions made to the Company's success.
4
<PAGE>
STOCK OPTIONS
The Company's stock option program is intended to provide a long-term
incentive for executive officers and other key employees. The purpose of the
program is to promote the interests of the Company and its shareholders by
providing the Company's personnel with an opportunity to acquire a proprietary
interest in the Company and thereby develop a stronger incentive to put forth
maximum effort for its continued success and growth and to aid the Company in
attracting and retaining personnel of outstanding ability.
The Company's stock option program is administered by the Committee and
authorizes the Committee to grant to employees, including all executive
officers, options to purchase the Company's Common Stock. Generally, options are
granted to purchase shares of Common Stock over a ten-year period at the fair
market value per share at the time the options are granted. Options granted
during 1996 generally vest over four years after the date of grant. Potential
recipients and the number of shares to be awarded to each recipient are proposed
by the CEO and the Chief Financial Officer on the basis of their views of the
overall strategic contribution of such individuals to corporate performance. The
Committee reviews and approves the final list of option recipients and the
amounts of the awards. In granting options, the Committee considers several
factors, including the position of the potential optionee, as well as the number
of options currently held by him.
ANNUAL BONUS
Except for two key milestones achieved in 1995, the Company traditionally
has not paid annual bonuses to its executive officers. In 1996, David L. Shaw,
the Company's Vice President of Manufacturing and Operations, received a cash
bonus for his work in connection with the Company achieving ISO 9001 and CE Mark
certifications.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), which became effective January 1, 1994, limits the tax deductibility of
compensation in excess of $1 million to each of the CEO and the four other
highest paid executive officers, unless such compensation is based on
performance in accordance with rules promulgated in connection with Section
162(m). The Committee will seek to comply with these rules to the extent
compliance is practicable and in the best interests of the Company and its
shareholders.
COMPENSATION COMMITTEE
Robert J. DePasqua, Chairman
James F. Lyons
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation of the Company's Chief Executive Officer and each of its four other
most highly compensated executive officers for the years ended December 31,
1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------------
--------------------- SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS UNDERLYING OPTIONS
- ------------------------------------------------------------- --------- ---------- --------- -------------------
<S> <C> <C> <C> <C>
David W. Stassen............................................. 1996 $ 177,396 $ -- 55,000
Chief Executive Officer and 1995 152,295 25,000 --
President 1994 130,166 20,000 75,000
Keith M. Eastman............................................. 1996 111,032 -- 35,000
Chief Financial Officer and 1995 101,600 20,000 --
Secretary 1994 93,533 -- 45,000
Ted K. Schwarzrock(1)........................................ 1996 120,000 -- --
Vice President, Sales and 1995 114,167 -- 10,000
Marketing 1994 108,000 -- 60,000
Douglas W. Kohrs............................................. 1996 116,516 -- 35,000
Vice President, Research and 1995 108,563 -- --
Product Development 1994 91,688 -- 45,000
David L. Shaw................................................ 1996 99,462 10,000 15,000
Vice President, Marketing 1995 94,500 -- --
and Operations 1994 76,750 -- 75,000
</TABLE>
- ------------------------
(1) Mr. Schwartzrock resigned effective August 5, 1997.
STOCK OPTIONS
The following table summarizes option grants made during 1996 to the
executive officers named in the Summary Compensation Table.
6
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
PERCENT OF TOTAL OPTION TERM(3)
OPTIONS OPTIONS EXERCISE EXPIRATION ------------------------
NAME GRANTED(1) GRANTED(2) PRICE DATE 5% 10%
- -------------------------------------- ----------- ----------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David W. Stassen...................... 30,000 5.4% $ 22.25 3/18/06 $ 419,787 $ 1,063,823
25,000 4.5% 25.00 7/25/06 393,059 996,089
Keith M. Eastman...................... 25,000 4.5% 22.25 3/18/06 349,823 886,519
10,000 1.8% 23.75 9/24/06 149,362 378,514
Ted K. Schwarzrock.................... -- -- -- -- -- --
Douglas W. Kohrs...................... 25,000 4.5% 22.25 3/18/06 349,823 886,519
10,000 1.8% 23.38 9/15/06 147,036 372,617
David L. Shaw......................... 15,000 2.7% 22.25 3/18/06 209,894 531,912
</TABLE>
- ------------------------
(1) Options granted pursuant to the Plan. Options become exercisable with
respect to one-fourth of the shares covered thereby on the first through
fourth anniversary of the date of grant but will vest and be exercisable in
their entirety prior to the Effective Time under the terms of the Plan. Each
option has a maximum term of ten years, subject to earlier termination in
the event of the optionee's cessation of service with the Company. The
options were granted at the fair market value of the shares subject to the
options on the date of grant.
(2) Reflects the percent of options granted to employees during 1996 under the
Plan.
(3) Potential realized values shown above represent the potential gains based
upon compound price appreciation of 5% and 10% from the date of grant
through the full option term. The actual value realized, if any, on stock
option exercises will be dependent upon overall market conditions and the
future performance of the Company and its Common Stock. There is no
assurance that the actual value will approximate the amounts reflected in
this table.
The following table summarizes option exercises during 1996 by the executive
officers named in the Summary Compensation Table, and the value of their
unexercised options at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
ACQUIRED ON VALUE -------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ----------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
David W. Stassen............... 2,000 $ 48,000 410,500 92,500 $ 9,754,875 $ 885,375
Keith M. Eastman............... 17,000 540,720 112,375 63,125 2,586,924 689,781
Ted K. Schwarzrock............. 5,000 126,080 100,625 61,875 2,211,445 1,230,132
Douglas W. Kohrs............... 10,000 236,600 149,750 57,500 3,545,910 567,875
David L. Shaw.................. 12,000 276,960 79,500 57,000 1,820,236 962,611
</TABLE>
- ------------------------
(1) Value realized and value of unexercised options are calculated by
determining the difference between the fair market value of the shares
underlying the options at exercise or at December 31, 1996, as applicable.
7
<PAGE>
COMPENSATION ARRANGEMENTS
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain executive
officers that will become effective as of the Effective Time, and which will
become null and void if the Merger is not consummated. See "Employment
Agreements" under Item 3(b) in the Schedule 14D-9.
The Company is currently party to effective employment agreements with David
W. Stassen, Douglas W. Kohrs, Richard C. Jansen and Paul R. Lunsford. These
employment agreements remain in effect until terminated by either party with
notice, subject to the Company's right to terminate the agreement immediately
for cause or upon the employee's death. Under each employment agreement, the
employee has agreed that, during the term of employment and for a period of one
year thereafter, he will not compete with the Company. These employment
agreements will terminate upon the effectiveness of the new Employment
Agreements at the Effective Time.
MANAGEMENT AGREEMENTS
The Company has entered into currently effective five-year management
agreements, which automatically renew for one-year terms, with each of Messrs.
Stassen, Eastman, Kohrs, Jansen and Shaw. The management agreements are
substantially similar. Their purpose is to encourage the executive (1) to
continue to carry out his duties in the event of a possible change in control of
the Company and (2) to remain in the service of the Company in order to
facilitate an orderly transition in the event of an actual change in control of
the Company.
Under the terms of each management agreement, if, between the occurrence of
a change in control of the Company and the end of the three-year anniversary
date of such occurrence, an executive's employment is voluntarily or
involuntarily terminated for any reason (unless such termination is a voluntary
termination by the employee other than for good reason (as defined in the
management agreement) or is on account of the death or disability of the
employee or is a termination for cause (as defined in the management agreement),
he will be entitled to receive severance compensation. Severance compensation is
also payable if the termination occurs before the change in control, but after
steps to change control have been taken. Severance compensation consists of (i)
one times the executive's Average Annual Compensation for an executive who has
been employed by the Company for one year or more, but less than three years,
(ii) two times the executive's Average Annual Compensation for an executive
employed by the Company for at least three years, but less than five years, or
(iii) three times the executive's Average Annual Compensation less $1.00 for an
executive who has been employed by the Company for at least five years or more.
"Average Annual Compensation" means the average annual compensation payable by
the Company and includible in gross income for federal income tax purposes of
the executive during the shorter period consisting of the five most recently
completed taxable years of the executive ending before the change in control or
that portion of such period during which he was employed by the Company. Each
executive is also entitled to receive continuation of certain employee benefit
plans of the Company, subject to reduction for the amount of any other severance
compensation or benefits paid by the Company to the employee under other
agreements of the Company, if any. If a change in control occurred as of March
28, 1997 (the date of the Company's last proxy statement), Messrs. Stassen,
Eastman, Kohrs and Shaw would receive $302,835, $203,879, $270,554 and $168,820,
respectively. If and when the Employment Agreements entered into in connection
with the Offer and the Merger become effective, these management agreements will
be of no further force and effect.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of December 15, 1997 by each
shareholder who is known by the Company to own beneficially (under the
circumstances described in the last two sentences of this paragraph) more than
five
8
<PAGE>
percent of the Company's outstanding Common Stock, each director, each executive
officer and all directors and executive officers as a group. Except as otherwise
noted below, the listed beneficial owner has sole voting and investment power
with respect to such shares and the address of the listed beneficial owner is
that of the Company. The options referred to in the footnotes to the table are
presently exercisable or will become exercisable prior to the Effective Time.
For this reason, the Shares subject to all options held by directors and
executive officers are listed in the table as being beneficially owned by them
even if certain of such Shares would not be deemed to be so beneficially owned
for purposes of the Exchange Act.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING SHARES
- ----------------------------------------------------------------------- -------------------- ---------------------
<S> <C> <C>
David W. Stassen....................................................... 555,000(1) 5.1%
7375 Bush Lake Road
Minneapolis, MN 55409
Douglas W. Kohrs....................................................... 228,374(2) 2.2%
Keith M. Eastman....................................................... 212,161(3) 2.0%
Richard C. Jansen...................................................... 200,500(4) 1.9%
David L. Shaw.......................................................... 147,517(5) 1.4%
Paul R. Lunsford....................................................... 101,627(6) 1.0%
James F. Lyons......................................................... 50,750(7) *
Robert J. DePasqua..................................................... 44,008(8) *
Kenneth W. Anstey...................................................... 15,000(9) *
All directors and executive officers as a group (9 persons)............ 1,544,937(10) 13.2%
</TABLE>
- ------------------------
* Less than one percent
(1) Includes an aggregate of 4,378 shares held of record by Mr. Stassen's wife
and children, in which shares he disclaims beneficial ownership. Also
includes 503,000 shares issuable pursuant to options.
(2) Includes 217,250 shares issuable pursuant to options.
(3) Includes 18,300 shares held of record by H&E Investors, a partnership of
which Mr. Eastman is a general partner. Also includes 172,500 shares
issuable pursuant to options.
(4) Includes an aggregate of 2,500 shares held of record by his children, in
which shares he disclaims beneficial ownership. Also includes 168,000 shares
issuable pursuant to options.
(5) Includes an aggregate of 220 shares held of record by his grandchildren, in
which shares he disclaims beneficial ownership, and 131,500 shares issuable
pursuant to options.
(6) Includes 100,000 shares issuable pursuant to options.
(7) Includes 26,250 shares issuable pursuant to options.
(8) All shares are held in joint tenancy with Mr. DePasqua's spouse, except for
258 shares held of record by Mr. DePasqua's son, in which shares he
disclaims beneficial ownership. Includes 3,750 shares issuable pursuant to
options.
(9) Includes 15,000 shares issuable pursuant to options.
(10) Includes 1,337,250 shares issuable pursuant to options.
PERFORMANCE GRAPH
The following graph compares the cumulative shareholder return on the Common
Stock of the Company for the period from the date of the Company's initial
public offering (June 22, 1995) to December 31, 1996, with the total cumulative
return on the NASDAQ Stock Market-U.S. Companies
9
<PAGE>
Index (the "NASDAQ-U.S. Index") and the Hambrecht & Quist Health Care-Excluding
Biotechnology Index (the "H&Q Health Care Index") over the same period. The
graph assumes that $100 was invested on June 22, 1995 in each of the Common
Stock of the Company, the NASDAQ-U.S. Index and the H&Q Health Care Index, and
that all dividends were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
HAMBRECHT & QUIST HEALTHCARE
<S> <C> <C> <C>
SPINE-TECH, INC. NASDAQ STOCK MARKET-US EXCLUDING BIOTECHNOLOGY
6/22/95 $100.00 $100.00 $100.00
12/95 $258.00 $113.00 $134.00
12/96 $278.00 $138.00 $149.00
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As required by the Securities and Exchange Commission rules under Section
16(a) of the Exchange Act, and based solely on a review of copies of forms
submitted to the Company during and with respect to 1996, the Company makes the
following disclosures. In February 1997, Mr. Kohrs amended a previously filed
Form 5 to report a grant of an incentive stock option under the Plan. In
February 1997, Mr. Stassen filed late a Form 4 to report an option exercise in
December 1996. Mr. Stassen also filed late a Form 5 in March 1997 to report a
grant of an incentive stock option under the Plan. In March 1997, Mr. Eastman
amended a previously filed Form 5 to report a grant of an incentive stock option
under the Plan.
10
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT AND PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets
forth the name, address, citizenship, age and present principal occupation or
employment, and material occupations, positions, offices or employments and
business addresses thereof for the past five years of each director and
executive officer of Parent. Unless otherwise indicated, the current business
address of each person is Sulzer Medica Ltd, Zurcherstrasse 12, 8401 Winterthur,
Switzerland. Unless otherwise indicated, each such person is a citizen of
Switzerland, and each occupation set forth opposite an individual's name refers
to employment with Parent.
<TABLE>
<CAPTION>
NAME, CITIZENSHIP PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
AND CURRENT BUSINESS ADDRESS AGE AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
Dr. Fritz Fahrni 54 Chairman of the Board of Directors since 1997. President and Chief
Sulzer AG Executive Officer of Sulzer AG since 1988.
Postfach 8401 Winterthur,
Switzerland
Pierre Borgeaud 63 Director since 1997. Chairman of the Board of Sulzer AG since 1988.
Sulzer AG
Postfach 8401 Winterthur,
Switzerland
Dr. Peter Spalti 67 Director since 1997. Chairman and Chief Executive Officer of Winterthur
Winterthur Swiss Insurance Swiss Insurance Company, General Guisan-Strasse 40 P.O. Box 357 CH-8401
Company Winterthur, since 1989. Director of Sulzer AG since 1982 and Vice Chairman
General Guisan Strasse 40 of the Sulzer AG Board.
8401 Winterthur,
Switzerland
Dr. Reto F. Domeniconi 61 Director since 1997. Director of Sulzer AG since 1994. Chief Financial
Clos des Mesanges Officer of the Nestle Group, Vevey, Switzerland, from 1983 to 1996.
1807 Blonay, Switzerland Retired.
Max Link 57 Director since 1997. Chief Executive Officer of Corange Ltd Hamilton,
Tobelmofstrasse 30 Bermuda, from 1993 to 1994. Chairman of Sandoz Pharma, 4002 Basel,
8044 Zurich, Switzerland Switzerland, from 1992 to 1993, Chief Executive Officer of Sandoz Pharma
from 1987 to 1992.
Larry L. Mathis 54 Director since 1997. President and Chief Executive Officer of The Methodist
U.S. citizen Health Care System, 6565 Faunin St., Houston, TX 77030 since 1983. Chairman
The Methodist Health Care of the American College of Healthcare Executives, Past- Chairman of the
System American Hospital Association, the Texas Hospital Association, the Greater
3037 Reba Drive Houston Hospital Council and the National Task Force on Health Care
Houston, TX 77019 Technology Assessment.
Andre P. Buchel 58 President from 1990 and Chief Executive Officer since 1997. From 1990, also
President and Chief Executive Officer of Sulzer Medica USA Inc., 4000
Technology Drive, Angleton, TX 77515, and Executive Vice President of
Sulzer AG.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
NAME, CITIZENSHIP PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
AND CURRENT BUSINESS ADDRESS AGE AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
Josef Ruegg 56 Chief Financial Officer since 1997 and Group Vice President Finance and
Controlling since 1989.
Vanessa Oelz.................. 44 Secretary General since 1997. Employed by Sulzer Management Ltd, from 1989
to 1997.
John H. Rankin 49 Vice President Human Resources since 1997. Employed by the Graduate School
U.S. citizen of Business & Public Administration, Olten, Riggenbachstrasse 16, 4601
Olten, Switzerland, from 1996 to 1997. Employed by Kraft Jacobs Suchard
European Headquarters, Klausstrasse 4, 8022 Zurich, Switzerland, from 1992
to 1996.
</TABLE>
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The following table sets
forth the name, address, citizenship, age and present principal occupation or
employment, and material occupations, positions, offices or employments and
business addresses thereof for the past five years of each director and
executive officer of Purchaser. Unless otherwise indicated, the current business
address of each person is Sulzer Medica Orthopedics Acquisition Corp., 4000
Technology Drive, Angleton, TX 77515. Unless otherwise indicated, each such
person is a citizen of the United States of America, and each occupation set
forth opposite an individual's name refers to employment with Purchaser.
<TABLE>
<CAPTION>
NAME, CITIZENSHIP PRESENT PRINCIPAL OCCUPATION OR
AND CURRENT BUSINESS ADDRESS AGE EMPLOYMENT AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Andre P. Buchel 58 President, Chief Executive Officer, Chief Financial Officer and sole
Swiss citizen Director since 1997. President since 1990 and Chief Executive Officer
Sulzer AG since 1997 of Sulzer AG, Zurcherstrasse 12, 8401 Winterthur,
Zurcherstrasse 12 Switzerland. From 1990, President and Chief Executive Officer of
8401 Winterthur, Sulzer Medica USA Inc. and Executive Vice President of Sulzer AG.
Switzerland
Robert Cohen 39 Vice President Business Development since 1997. Group Vice President
Business Development of Sulzer Medica USA Inc. since 1992.
Lawrence H. Panitz 56 Vice President, Secretary and General Counsel since 1997. Group Vice
President and General Counsel of Sulzer Medica USA Inc. since 1997.
Vice President Legal Affairs of ICN Pharmaceuticals, 3300 Hylach
Avenue, Costa Mesa, CA, from 1993 to 1997. Partner and Head of
Corporate Finance Group of Messrs. Frere Cholmely, Attorneys, 15 Rue
Guillmard, 1050 Brussels, Belgium.
T.C. Selman II 47 Vice President Human Resources since 1997. Group Vice President Human
Resources and Facilities, Sulzer Medica USA Inc.
James H. Johnson 53 Vice President and Assistant Secretary since 1997. Assistant General
Counsel of Sulzer Medica USA Inc. Attorney and shareholder of Jenkins
& Gilchrist, a professional corporation, 1445 Ross Avenue, #3200,
Dallas TX 75202, from 1994 to 1997. Vice President, Associate General
Counsel and Secretary of Ornda Healthcorp., Dallas, TX and Nashville,
TN, from 1985 to 1994.
</TABLE>
3. DIRECTORS AND EXECUTIVE OFFICERS OF SULZER AG. The following table sets
forth the name, address, citizenship, age and present principal occupation or
employment, and material occupations, positions, offices or employments and
business addresses thereof for the past five years of each director and
executive officer of Sulzer AG. Unless otherwise indicated, the current business
address of each person is Sulzer AG, Postfach 8401 Winterthur, Switzerland.
Unless otherwise indicated, each such person is a
2
<PAGE>
citizen of Switzerland, and each occupation set forth opposite an individual's
name refers to employment with Sulzer AG.
<TABLE>
<CAPTION>
NAME, CITIZENSHIP PRESENT PRINCIPAL OCCUPATION OR
AND CURRENT BUSINESS ADDRESS AGE EMPLOYMENT AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Pierre Borgeaud 63 Chairman of the Board of Directors since 1988.
Dr. Peter Spalti 67 Vice Chairman of the Board of Directors. Chairman and Chief Executive
Winterthur Swiss Insurance Company Officer of Winterthur Swiss Insurance Company.
General Guisan-Strasse 40
P.O. Box 357 CH-8401
Winterthur, Switzerland
Dr. Georges Blum 62 Director. President of the Board of Directors of Swiss Bank
Swiss Bank Corporation Corporation since 1996. President of the Corporate Executive
Postfach 4002 Basel, Management of Swiss Bank Corporation since 1993.
Switzerland
Urs Buhler 54 Director. Employed by Buhler AG since 1970.
Buhler AG
9240 Uzwil, Switzerland
Dr. Reto F. Domeniconi 61 Director. Chief Financial Officer of Nestle S.A., Vevey, Switzerland,
Clos des Mesanges, from 1983 to 1995. Retired.
1807 Blonay, Switzerland
Jan Kleinewefers 62 Director. Employed by Kleinewefers Beteiligungs-GmbH for the past
German citizen five years.
Kleinewefers Beteiligungs-GmbH
Postfach 1521, D-47715
Krefeld, Germany
Bernard Koechlin 67 Director. Employed by Zschokke Holding AG since 1992.
Zschokke Holding AG
42 Rue du 31-Decembre
1211 Genf 6, Switzerland
Dr. Guido Richterich 67 Director. Vice President of the Board of Directors since 1994 and
F. Hoffman-La Roche AG Member of the Executive Committee since 1982 of F. Hoffman- La Roche
Gienzachiestrasse 124 AG.
14070 Basel, Switzerland
Jacob Schmidheiny 54 Director. President of the Board of Directors of Zurcher Ziegeleien
Zurcher Ziegeleien Holding Postfach Holding since 1984.
8045 Zurich,
Switzerland
Dr. Leonardo E. Vannotti 58 Director. Chairman of Carlo Gavazzi since 1996. Self-employed from
Cerlo Gavazzi 1994 to 1996. Employed by Ascom Holding, Bern, Switzerland, from
Hertensteinstrasse 33 1990-1993.
5408 Ennetbaden, Switzerland
Dr. Fritz Fahrni 55 President and Chief Executive Officer since 1988.
Dr. Viktor Beglinger 59 Member of the Corporate Executive Management. Head of Human Research
Sulzer Management AG Development since 1994 and Head of Sulzer Infra Group from 1986 to
Postfach 8401 Winterthur, 1994.
Switzerland
Karl Boohsler 51 Member of the Corporate Executive Management. President of Sulzer
Sulzer Infra AG Infra Group for past five years.
Postfach 8401 Winterthur,
Switzerland
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME, CITIZENSHIP PRESENT PRINCIPAL OCCUPATION OR
AND CURRENT BUSINESS ADDRESS AGE EMPLOYMENT AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Andre P. Buchel 58 Member of the Corporate Executive Management. From 1990, Executive
Sulzer Medica AG Vice President of Sulzer AG, President of Sulzer Medica Ltd and
Postfach 8401 Winterthur, President and Chief Executive Officer of Sulzer Medica USA Inc. From
Switzerland 1997, Chief Executive Officer of Sulzer Medica Ltd.
Richard Burger 54 Member of the Corporate Executive Management. Head of Sulzer Roteq
Sulzer Roteq Group since 1995. Employed by Sulzer AG for past five years.
Hardstrasse 319
8023 Zurich, Switzerland
Dr. Cristoph Etter 59 Member of the Corporate Executive Management. Head of Sulzer
Sulzer International AG International Ltd for past five years.
Postfach 8401 Winterthur,
Switzerland
Erich Muller 59 Member of the Corporate Executive Management. Chief Financial Officer
Sulzer Management AG of Sulzer AG since 1984.
Postfach 8401 Winterthur,
Switzerland
Helmut Pirchl 62 Member of the Corporate Executive Management. Head of Sulzer Ruti Ltd
Austrian citizen for past five years.
Sulzer Ruti AG
8630 Ruti, Switzerland
Dr. Edward Rikli 46 Member of the Corporate Executive Management. Employed by Sulzer
Sulzer Management AG Escher Wyss AG from 1986 to 1996.
Postfach 8401 Winterthur,
Switzerland
Urs Scherrer 59 Member of the Corporate Executive Management. Employed by Sulzer
Sulzer Wintec AG Wintec AG for past five years.
Postfach 8401 Winterthur,
Switzerland
</TABLE>
4
<PAGE>
FINAL COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
Among
SULZER MEDICA LTD,
SULZER MEDICA ORTHOPEDICS ACQUISITION CORP.
and
SPINE-TECH, INC.
Dated as of December 15, 1997
================================================================================
<PAGE>
i
TABLE OF CONTENTS
PAGE
ARTICLE I
THE OFFER
SECTION 1.01. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Company Action. . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.02. Effective Time. . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.03. Effect of the Merger. . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.04. Articles of Incorporation; By-laws. . . . . . . . . . . . . . 5
SECTION 2.05. Directors and Officers. . . . . . . . . . . . . . . . . . . . 5
SECTION 2.06. Conversion of Securities. . . . . . . . . . . . . . . . . . . 5
SECTION 2.07. Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.08. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.09. Surrender of Shares; Stock Transfer Books . . . . . . . . . . 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries. . . . . . . . . 8
SECTION 3.02. Articles of Incorporation; By-laws. . . . . . . . . . . . . . 9
SECTION 3.03. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.04. Authority Relative to this Agreement. . . . . . . . . . . . . 10
SECTION 3.05. No Conflict; Required Filings and Consents. . . . . . . . . . 10
SECTION 3.06. Permits; Company Products; Regulation . . . . . . . . . . . . 11
SECTION 3.07. SEC Filings; Financial Statements . . . . . . . . . . . . . . 12
SECTION 3.08. Absence of Certain Changes or Events. . . . . . . . . . . . . 13
SECTION 3.09. Absence of Litigation . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.10. Employee Benefit Plans; Labor Matters . . . . . . . . . . . . 14
SECTION 3.11. Offer Documents; Schedule 14D-9; Proxy Statement. . . . . . . 16
SECTION 3.12. Property. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.13. Intellectual Property . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.14. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.15. Environmental Matters . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
ii
SECTION 3.16. Material Contracts. . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.17. Employee Confidentiality. . . . . . . . . . . . . . . . . . . 22
SECTION 3.18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.19. Fraud and Abuse . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.20. Amendment to Rights Agreement . . . . . . . . . . . . . . . . 24
SECTION 3.21. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.22. No Implied Representation . . . . . . . . . . . . . . . . . . 24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
SECTION 4.01. Corporate Organization. . . . . . . . . . . . . . . . . . . . 25
SECTION 4.02. Authority Relative to this Agreement. . . . . . . . . . . . . 25
SECTION 4.03. No Conflict; Required Filings and Consents. . . . . . . . . . 25
SECTION 4.04. Offer Documents; Proxy Statement. . . . . . . . . . . . . . . 26
SECTION 4.05. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.06. Interim Operations of Purchaser . . . . . . . . . . . . . . . 26
SECTION 4.07. Absence of Litigation . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.08. Ownership of Company Capital Stock. . . . . . . . . . . . . . 27
SECTION 4.09. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.10. No Implied Representation . . . . . . . . . . . . . . . . . . 27
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business Pending the Merger. . . . . . . . . . . . 27
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Shareholders' Meeting . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.02. Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.03. Company Board Representation; Section 14(f) . . . . . . . . . 31
SECTION 6.04. Access to Information; Confidentiality. . . . . . . . . . . . 31
SECTION 6.05. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.06. Employee Stock Options and Other Employee Benefits. . . . . . 34
SECTION 6.07. S&N Options . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 6.08. Directors' and Officers' Indemnification and Insurance. . . . 35
SECTION 6.09. Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 6.10. Notification of Certain Matters . . . . . . . . . . . . . . . 36
<PAGE>
iii
SECTION 6.11. Further Action; Reasonable Efforts. . . . . . . . . . . . . . 36
SECTION 6.12. Public Announcements. . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.13. Confidentiality Agreement . . . . . . . . . . . . . . . . . . 37
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger. . . . . . . . . . . . . . . . . . . 37
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 8.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.03. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.04. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.05. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 9.03. Certain Definitions . . . . . . . . . . . . . . . . . . . . . 43
SECTION 9.04. Severability. . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.05. Entire Agreement; Assignment. . . . . . . . . . . . . . . . . 45
SECTION 9.06. Parties in Interest . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.07. Specific Performance. . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.09. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.10. Interpretation. . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.11. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 9.12. Company Disclosure Schedule . . . . . . . . . . . . . . . . . 46
ANNEX A Conditions to the Offer
EXHIBIT I Articles of Incorporation of Purchaser
<PAGE>
iv
Glossary of Defined Terms
Defined Term Location of Definition
Action . . . . . . . . . . . . . . . . . . . . . . . Section 3.09
acquisition proposal . . . . . . . . . . . . . . . . Section 6.05(a)
affiliate. . . . . . . . . . . . . . . . . . . . . . Section 9.03(a)
Agreement. . . . . . . . . . . . . . . . . . . . . . Preamble
Articles of Merger . . . . . . . . . . . . . . . . . Section 2.02
beneficial owner . . . . . . . . . . . . . . . . . . Section 9.03(b)
Blue Sky Laws. . . . . . . . . . . . . . . . . . . . Section 3.05(b)
Board. . . . . . . . . . . . . . . . . . . . . . . . Recitals
business day . . . . . . . . . . . . . . . . . . . . Section 9.03(c)
Certificates . . . . . . . . . . . . . . . . . . . . Section 2.09(b)
Code . . . . . . . . . . . . . . . . . . . . . . . . Section 3.10(a)
Company. . . . . . . . . . . . . . . . . . . . . . . Preamble
Company Common Stock . . . . . . . . . . . . . . . . Recitals
Company Disclosure Schedule . . . . . . . . . . . . Article III
Company Options. . . . . . . . . . . . . . . . . . . Section 3.03
Company Preferred Stock. . . . . . . . . . . . . . . Section 3.03
Company Rights . . . . . . . . . . . . . . . . . . . Section 3.03
Company Stock Plans. . . . . . . . . . . . . . . . . Section 3.03
Confidentiality Agreement. . . . . . . . . . . . . . Section 6.04(b)
Constituent Corporations . . . . . . . . . . . . . . Preamble
control. . . . . . . . . . . . . . . . . . . . . . . Section 9.03(d)
controlled by. . . . . . . . . . . . . . . . . . . . Section 9.03(d)
CSFB . . . . . . . . . . . . . . . . . . . . . . . . Section 4.09
Current Premiums . . . . . . . . . . . . . . . . . . Section 6.08(b)
Dissenting Shares. . . . . . . . . . . . . . . . . . Section 2.08(a)
Effective Time . . . . . . . . . . . . . . . . . . . Section 2.02
Employee Stock Options . . . . . . . . . . . . . . . Section 6.06(a)
Employment Contracts . . . . . . . . . . . . . . . . Section 6.06(b)
Environmental Laws . . . . . . . . . . . . . . . . . Section 3.15(a)
ERISA. . . . . . . . . . . . . . . . . . . . . . . . Section 3.10(a)
Exchange Act . . . . . . . . . . . . . . . . . . . . Section 1.02(b)
Expenses . . . . . . . . . . . . . . . . . . . . . . Section 8.03(b)
FDA. . . . . . . . . . . . . . . . . . . . . . . . . Section 3.06(b)
Fee. . . . . . . . . . . . . . . . . . . . . . . . . Section 8.03(a)
GAAP . . . . . . . . . . . . . . . . . . . . . . . . Section 3.07(b)
<PAGE>
v
Governmental Authority . . . . . . . . . . . . . . . Section 3.05(b)
Hazardous Substances . . . . . . . . . . . . . . . . Section 3.15(a)
HSR Act. . . . . . . . . . . . . . . . . . . . . . . Section 3.05(b)
Intellectual Property. . . . . . . . . . . . . . . . Section 9.03(e)
IRS. . . . . . . . . . . . . . . . . . . . . . . . . Section 3.10(a)
knowledge of the Company . . . . . . . . . . . . . . Section 9.03(f)
Law. . . . . . . . . . . . . . . . . . . . . . . . . Section 3.05(a)
Licensed Intellectual Property . . . . . . . . . . . Section 9.03(g)
Marks. . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(e)
Material Adverse Effect. . . . . . . . . . . . . . . Section 3.01
Material Contracts . . . . . . . . . . . . . . . . . Section 3.16(a)
Merger . . . . . . . . . . . . . . . . . . . . . . . Recitals
Merger Consideration . . . . . . . . . . . . . . . . Section 2.06(a)
Minimum Condition. . . . . . . . . . . . . . . . . . Section 1.01(a)
Minnesota Law. . . . . . . . . . . . . . . . . . . . Recitals
Multiemployer Plan . . . . . . . . . . . . . . . . . Section 3.10(b)
Multiple Employer Plan . . . . . . . . . . . . . . . Section 3.10(b)
NASD . . . . . . . . . . . . . . . . . . . . . . . . Section 3.05(b)
Offer. . . . . . . . . . . . . . . . . . . . . . . . Recitals
Offer Documents. . . . . . . . . . . . . . . . . . . Section 1.01(b)
Offer to Purchase. . . . . . . . . . . . . . . . . . Section 1.01(b)
Order. . . . . . . . . . . . . . . . . . . . . . . . Section 6.11(b)
Owned Intellectual Property. . . . . . . . . . . . . Section 9.03(h)
Parent . . . . . . . . . . . . . . . . . . . . . . . Preamble
Paying Agent . . . . . . . . . . . . . . . . . . . . Section 2.09(a)
Per Share Amount . . . . . . . . . . . . . . . . . . Recitals
Permits. . . . . . . . . . . . . . . . . . . . . . . Section 3.06(a)
person . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(i)
Piper Jaffray. . . . . . . . . . . . . . . . . . . . Section 1.02(a)
Plans. . . . . . . . . . . . . . . . . . . . . . . . Section 3.10(a)
Products . . . . . . . . . . . . . . . . . . . . . . Section 3.06(b)
Proxy Statement. . . . . . . . . . . . . . . . . . . Section 3.11
Purchaser. . . . . . . . . . . . . . . . . . . . . . Preamble
Rights Agreement . . . . . . . . . . . . . . . . . . Section 3.03
Schedule 14D-9 . . . . . . . . . . . . . . . . . . . Section 1.02(b)
Schedule 14D-1 . . . . . . . . . . . . . . . . . . . Section 1.01(b)
SEC. . . . . . . . . . . . . . . . . . . . . . . . . Section 1.01(a)
SEC Reports. . . . . . . . . . . . . . . . . . . . . Section 3.07(a)
Securities Act . . . . . . . . . . . . . . . . . . . Section 3.07(a)
Shares . . . . . . . . . . . . . . . . . . . . . . . Recitals
Shareholders' Meeting. . . . . . . . . . . . . . . . Section 6.01(a)
S&N. . . . . . . . . . . . . . . . . . . . . . . . . Section 3.03
S&N Options. . . . . . . . . . . . . . . . . . . . . Section 6.07(a)
<PAGE>
vi
subsidiary . . . . . . . . . . . . . . . . . . . . . Section 9.03(j)
Subsidiaries . . . . . . . . . . . . . . . . . . . . Section 3.01
Superior Proposal. . . . . . . . . . . . . . . . . . Section 6.05(b)
Surviving Corporation. . . . . . . . . . . . . . . . Section 2.01
Tax/Taxes. . . . . . . . . . . . . . . . . . . . . . Section 3.14(b)
Tax Return . . . . . . . . . . . . . . . . . . . . . Section 3.14(c)
Transactions . . . . . . . . . . . . . . . . . . . . Section 3.04
under common control with. . . . . . . . . . . . . . Section 9.03(d)
WARN . . . . . . . . . . . . . . . . . . . . . . . . Section 3.10(f)
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of December 15, 1997 (this
"AGREEMENT"), among SULZER MEDICA LTD, a corporation organized under the laws of
Switzerland ("PARENT"), SULZER MEDICA ORTHOPEDICS ACQUISITION CORP., a Minnesota
corporation and an indirect wholly owned subsidiary of Parent ("PURCHASER"), and
SPINE-TECH, INC., a Minnesota corporation (the "COMPANY") (Purchaser and the
Company being sometimes hereinafter referred to as the "CONSTITUENT
CORPORATIONS").
WHEREAS, the Boards of Directors of Parent, Purchaser and the Company
have each determined that it is in the best interests of their respective
shareholders for Parent to acquire the Company upon the terms and subject to the
conditions set forth herein;
WHEREAS, it is proposed that Purchaser shall make a cash tender offer
(as it may be amended from time to time as permitted hereunder, the "OFFER") to
acquire all of the issued and outstanding shares of common stock, $0.01 par
value, of the Company ("COMPANY COMMON STOCK") (such shares of Company Common
Stock, including the Company Rights (as defined in Section 3.03) associated with
such shares, being hereinafter collectively referred to herein as "SHARES") for
$52.00 per Share (such amount, or any greater amount per Share paid pursuant to
the Offer, being the "PER SHARE AMOUNT") net to the seller in cash, upon the
terms and subject to the conditions of this Agreement and the Offer;
WHEREAS, the Board of Directors of the Company (the "BOARD") has
unanimously consented to the making of the Offer by Purchaser and resolved and
agreed to recommend that holders of Shares tender their Shares pursuant to the
Offer;
WHEREAS, the Boards of Directors of Parent (on its own behalf and as
the sole shareholder of Purchaser), Purchaser and the Company have each approved
this Agreement and the merger (the "MERGER") of Purchaser with and into the
Company in accordance with the Minnesota Business Corporation Act (the
"MINNESOTA LAW") following the consummation of the Offer and upon the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. THE OFFER. (a) Provided that this Agreement shall not
have been terminated in accordance with Section 8.01 and none of the events set
forth in Annex A hereto shall have occurred or be existing (and shall not have
been waived by Purchaser),
<PAGE>
2
Purchaser shall commence the Offer as promptly as reasonably practicable after
the date hereof, but in no event later than five business days after the initial
public announcement of Purchaser's intention to commence the Offer. The
obligation of Purchaser to accept for payment and pay for Shares tendered
pursuant to the Offer shall be subject to the condition (the "MINIMUM
CONDITION") that a number of Shares that, when added to the Shares already owned
by Parent, shall constitute at least a majority of the then outstanding Shares
on a fully diluted basis (including, without limitation, all Shares issuable
upon the conversion of any outstanding convertible securities or upon the
exercise of any outstanding options, warrants or rights (other than the Company
Rights)) shall have been validly tendered and not withdrawn prior to the
expiration of the Offer and also shall be subject to the satisfaction or waiver
of each of the other conditions set forth in Annex A hereto. Purchaser
expressly reserves the right to waive any such condition, to increase the price
per Share payable in the Offer, and to make any other changes in the terms and
conditions of the Offer; PROVIDED, HOWEVER, that no change may be made which
decreases the price per Share payable in the Offer, reduces the maximum number
of Shares to be purchased in the Offer, changes the form of consideration to be
paid in the Offer, modifies the conditions to the Offer set forth in Annex A
hereto or imposes conditions to the Offer other than those set forth in Annex A
hereto or, except as provided in the next sentence, extends the Offer.
Notwithstanding the foregoing, Purchaser may, without the consent of the
Company, (i) extend the Offer beyond the scheduled expiration date, which shall
be 20 business days following the commencement of the Offer, if, at the
scheduled expiration of the Offer, any of the conditions to Purchaser's
obligation to accept for payment, and to pay for, the Shares, shall not be
satisfied or waived, (ii) extend the Offer for any period required by any rule,
regulation or interpretation of the Securities and Exchange Commission (the
"SEC") or the staff thereof applicable to the Offer, or (iii) extend the Offer
for an aggregate period of not more than 5 business days beyond the latest
applicable date that would otherwise be permitted under clause (i) or (ii) of
this sentence, if, as of such date, all of the conditions to Purchaser's
obligations to accept for payment, and to pay for, the Shares are satisfied or
waived, but the number of Shares validly tendered and not withdrawn pursuant to
the Offer equals 80 percent or more, but less than 90 percent, of the
outstanding Shares. The Per Share Amount shall, subject to applicable
withholding of taxes, be net to the seller in cash, upon the terms and subject
to the conditions of the Offer. Subject to the terms and conditions of the
Offer, Purchaser shall, and Parent shall cause Purchaser to, promptly after
expiration of the Offer, accept for payment and pay for all Shares validly
tendered and not withdrawn.
(b) As promptly as practicable on the date of commencement of the
Offer, Purchaser shall file with the SEC a Tender Offer Statement on Schedule
14D-1 (together with all amendments and supplements thereto, the "SCHEDULE
14D-1") with respect to the Offer. The Schedule 14D-1 shall contain or shall
incorporate by reference an offer to purchase (the "OFFER TO PURCHASE") and
forms of the related letter of transmittal and any related summary advertisement
(the Schedule 14D-1, the Offer to Purchase and such other documents, together
with all supplements and amendments thereto, being, collectively, the "OFFER
DOCUMENTS"). Purchaser shall disseminate the Offer to Purchase, the related
letter of
<PAGE>
3
transmittal and other Offer Documents to the extent required by applicable
federal securities laws. The Offer Documents will comply in all material
respects with the provisions of applicable federal securities laws. Each of
Parent, Purchaser and the Company agrees to correct promptly any information
provided by it for use in the Offer Documents which shall have become false or
misleading, and Parent and Purchaser 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 holders of Shares,
in each case as and to the extent required by applicable federal securities
laws.
(c) Purchaser and Parent will file with the Commissioner of Commerce
of the State of Minnesota any registration statement relating to the Offer
required to be filed pursuant to Chapter 80B of the Minnesota Statutes.
SECTION 1.02. COMPANY ACTION. (a) The Company hereby consents to
the Offer and represents that (i) the Board, at a meeting duly called and held
on December 15, 1997, and a special committee of the Board, formed in accordance
with Section 302A.673 of the Minnesota Law, at a meeting duly called and held on
December 15, 1997, have, in each case, unanimously (A) determined that this
Agreement and the transactions contemplated hereby are in the best interests of
the Company and its shareholders, (B) approved this Agreement, the Merger, the
Offer and the other transactions contemplated hereby and (C) resolved to
recommend that the shareholders of the Company accept the Offer and approve and
adopt this Agreement and the transactions contemplated hereby, and (ii) Piper
Jaffray Inc. ("PIPER JAFFRAY") has delivered to the Board its opinion that the
consideration to be received by the holders of Shares pursuant to each of the
Offer and the Merger is fair to the holders of Shares from a financial point of
view. The Company hereby consents to the inclusion in the Offer Documents of
the recommendation of the Board described in the immediately preceding sentence
unless the Board shall determine in good faith that it is necessary to withdraw
such recommendation in accordance with its fiduciary duties to the Company and
its shareholders after consultation with its outside legal counsel..
(b) As promptly as practicable on the date of commencement of the
Offer, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "SCHEDULE 14D-9") containing the recommendation of the Board
described in Section 1.02(a), unless the Board determines in good faith in
accordance with Section 6.05(b) an alternative recommendation to be necessary in
accordance with its fiduciary duties to the Company and its shareholders under
applicable law after consultation with its outside legal counsel. The Company
shall disseminate the Schedule 14D-9 to the extent required by Rule 14d-9
promulgated under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), and any other applicable federal securities laws. The Schedule 14D-9
will comply in all material respects with the provisions of applicable federal
securities laws. Each of the Company, Parent and Purchaser agrees to correct
promptly any information provided by it for use in the Schedule 14D-9 which
shall have become false or misleading, and the
<PAGE>
4
Company further agrees to take all steps necessary to cause the Schedule 14D-9
as so corrected to be filed with the SEC and disseminated to holders of Shares,
in each case as and to the extent required by applicable federal securities
laws.
(c) The Company shall promptly furnish Purchaser with mailing labels
containing the names and addresses of all record holders of Shares and with
security position listings of Shares held in stock depositories, each as of a
recent date, together with all other available listings and computer files
containing names, addresses and security position listings of record holders and
beneficial owners of Shares. The Company shall furnish Purchaser with such
additional information, including, without limitation, updated listings and
computer files of shareholders, mailing labels and security position listings,
and such other assistance as Parent, Purchaser or their agents may reasonably
request. Subject to the requirements of applicable law, and except for such
steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer or the Merger, Parent and Purchaser
shall, and each of Parent and Purchaser shall cause its affiliates, associates,
agents, representatives and advisors to, hold in confidence the information
contained in such labels, listings and files, shall use such information solely
in connection with the Offer and the Merger, and, if this Agreement shall be
terminated in accordance with Section 8.01 or if the Offer is otherwise
terminated, shall promptly deliver to the Company all copies (whether in human
or machine readable form) of such information and any information derived
therefrom then in their possession or the possession of their agents and
representatives.
ARTICLE II
THE MERGER
SECTION 2.01. THE MERGER. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with the Minnesota
Law, at the Effective Time (as hereinafter defined) Purchaser shall be merged
with and into the Company. As a result of the Merger, the separate corporate
existence of Purchaser shall cease, and the Company shall continue as the
surviving corporation of the Merger (the "SURVIVING CORPORATION").
SECTION 2.02. EFFECTIVE TIME. As promptly as practicable, but not
later than three business days, after the satisfaction or waiver of the
conditions set forth in Article VII, the parties hereto shall cause the Merger
to be consummated by filing articles of merger (the "ARTICLES OF MERGER") with
the Secretary of State of the State of Minnesota, in such form as is required
by, and executed by the party or parties required to execute the Articles of
Merger in accordance with the relevant provisions of, the Minnesota Law (the
date and time of such filing being the "EFFECTIVE TIME").
<PAGE>
5
SECTION 2.03. EFFECT OF THE MERGER. At the Effective Time, the
Merger shall have the effect provided in the applicable provisions of the
Minnesota Law.
SECTION 2.04. ARTICLES OF INCORPORATION; BY-LAWS. (a) At the
Effective Time the Articles of Incorporation of Purchaser, as in effect
immediately prior to the Effective Time, (in the form attached as Exhibit I)
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Articles of Incorporation;
PROVIDED, HOWEVER, that, at the Effective Time, by virtue of the Merger and this
Agreement and without any further action by the Constituent Corporations,
Article I of the Articles of Incorporation shall be amended to read as follows:
"The name of the corporation is Spine-Tech, Inc."
(b) The By-laws of Purchaser, as in effect immediately prior to the
Effective Time, by virtue of the Merger and this Agreement and without any
further action by the Constituent Corporations, shall be the By-laws of the
Surviving Corporation until thereafter amended as provided by law, the Articles
of Incorporation of the Surviving Corporation and such By-laws.
SECTION 2.05. DIRECTORS AND OFFICERS. The directors of Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-laws of the Surviving Corporation and the Minnesota Law,
and the officers of the Purchaser immediately prior to the Effective Time shall
be the initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified in accordance
with the Articles of Incorporation and By-laws of the Surviving Corporation and
the Minnesota Law.
SECTION 2.06. CONVERSION OF SECURITIES. The manner and basis of
converting the shares of stock of each of the Constituent Corporations is
hereinafter set forth in this Section 2.06. At the Effective Time, by virtue of
the Merger and without any further action on the part of Purchaser, the Company
or the holders of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be cancelled pursuant to Section
2.06(b) and any Dissenting Shares (as hereinafter defined)) shall be
converted automatically into the right to receive the Per Share Amount in
cash (the "MERGER CONSIDERATION"), prorated for fractional shares, payable,
without interest, to the holder of such Share, upon surrender, in the
manner provided in Section 2.09, of the certificate that formerly evidenced
such Share and all such Shares, when so converted, shall no longer be
outstanding and shall automatically be cancelled;
<PAGE>
6
(b) Each Share held in the treasury of the Company and each
Share owned by Purchaser, Parent or any direct or indirect wholly owned
subsidiary of Parent or of the Company immediately prior to the Effective
Time shall be cancelled without any conversion thereof and no payment or
distribution shall be made with respect thereto; and
(c) Each share of common stock, par value $0.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of common stock, par value $0.01 per share, of the
Surviving Corporation.
SECTION 2.07. OPTIONS. All outstanding Employee Stock Options (as
defined in Section 6.06(a)) and S&N Options (as defined in Section 6.07(a)) will
be cancelled immediately prior to the Effective Time and, in consideration of
such cancellation, the Company will, and Parent agrees to cause the Company to,
pay each holder of an Employee Stock Option or S&N Option, as the case may be,
the cash amount determined in accordance with Section 6.06(a) or Section
6.07(a), respectively.
SECTION 2.08. DISSENTING SHARES. (a) Notwithstanding any provision
of this Agreement to the contrary, Shares that are outstanding immediately prior
to the Effective Time and which are held of record or beneficially owned by
persons who shall not have voted such Shares in favor of the Merger and who
shall have properly exercised dissenters' rights with respect to such Shares in
accordance with Sections 302A.471 and 302A.473 of the Minnesota Law
(collectively, the "DISSENTING SHARES") shall not be converted into the Merger
Consideration. Such shareholders shall be entitled to receive payment of the
fair value of such Shares held by them in accordance with the provisions of such
Section 302A.473, except that all Dissenting Shares held of record or
beneficially owned by persons who shall have failed to perfect or who
effectively shall have withdrawn or lost their dissenters' rights to such Shares
under such Section 302A.473 shall thereupon be deemed to have been converted
into, as of the Effective Time, the right to receive the Merger Consideration,
without any interest thereon, upon surrender, in the manner provided in Section
2.09, of the certificate or certificates that formerly evidenced such Shares.
(b) The Company shall give Parent (i) prompt notice of any notice of
intent to demand the fair value of any Shares received by the Company pursuant
to Section 302A.473 of the Minnesota Law, withdrawals of such notices, and any
other instruments served pursuant to the Minnesota Law and received by the
Company with respect to Dissenting Shares and (ii) the opportunity to direct all
negotiations and proceedings with respect to the exercise of dissenters' rights
under the Minnesota Law. The Company shall not, except with the prior written
consent of Parent, make any payment with respect to the exercise of dissenters'
rights or offer to settle or settle any such rights.
<PAGE>
7
SECTION 2.09. SURRENDER OF SHARES; STOCK TRANSFER BOOKS. (a) Prior
to the Effective Time, Purchaser shall designate a bank or trust company located
in the United States having capital surplus and undivided profits exceeding
$500,000,000 to act as agent (the "PAYING AGENT") for the holders of Shares in
connection with the Merger to receive the funds to which holders of Shares shall
become entitled pursuant to Section 2.06(a). Such funds shall be invested by
the Paying Agent as directed by the Surviving Corporation.
(b) Promptly after the Effective Time, the Surviving Corporation
shall cause to be mailed to each person who was, at the Effective Time, a holder
of record of Shares entitled to receive the Merger Consideration pursuant to
Section 2.06(a): (i) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "CERTIFICATES") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and (ii) instructions for use
in effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as reasonably may be
required pursuant to such instructions, the holder of such Certificate shall be
entitled promptly to receive in exchange therefor the Merger Consideration for
each Share formerly evidenced by such Certificate, and such Certificate shall
then be cancelled. No interest shall accrue or be paid on the Merger
Consideration payable upon the surrender of any Certificate for the benefit of
the holder of such Certificate. If payment of the Merger Consideration is to be
made to a person other than the person in whose name the surrendered Certificate
is registered on the stock transfer books of the Company, it shall be a
condition of payment that the Certificate so surrendered shall be endorsed
properly or otherwise be in proper form for transfer and that the person
requesting such payment shall have paid all transfer and other taxes required by
reason of the payment of the Merger Consideration to a person other than the
registered holder of the Certificate surrendered or shall have established to
the satisfaction of the Surviving Corporation that such taxes either have been
paid or are not applicable.
(c) In the event any Certificate or Certificates shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate or Certificates to have been lost, stolen or
destroyed, the amount to which such person would have been entitled under
Section 2.09(b) hereof but for failure to deliver such Certificate or
Certificates to the Paying Agent shall nevertheless be paid to such person;
PROVIDED, HOWEVER, that the Surviving Corporation may, in its sole discretion
and as a condition precedent to such payment, require such person to give the
Surviving Corporation a written indemnity agreement in form and substance
reasonably satisfactory to the Surviving Corporation and, if reasonably deemed
advisable by the Surviving Corporation, a bond in such sum as it may reasonably
direct as indemnity against any claim that may be had against the Surviving
Corporation or Parent with respect to the Certificate or Certificates alleged to
have been lost, stolen or destroyed.
<PAGE>
8
(d) At any time following the sixth month after the Effective Time,
the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds which had been made available to the Paying Agent and
not disbursed to holders of Shares (including, without limitation, all interest
and other income received by the Paying Agent in respect of all funds made
available to it), and thereafter such holders shall be entitled to look to the
Surviving Corporation (subject to abandoned property, escheat and other similar
laws) only as general creditors thereof with respect to any Merger Consideration
that may be payable upon due surrender of the Certificates held by them, and
Parent and the Surviving Corporation jointly and severally agree to be liable
for payments required to be made before or after the expiration of such six
month period under Section 2.06(a) hereof or Section 302A.473 of the Minnesota
Law. Notwithstanding the foregoing, neither the Surviving Corporation nor the
Paying Agent shall be liable to any holder of a Share for any Merger
Consideration delivered in respect of such Share to a public official pursuant
to any abandoned property, escheat or other similar law.
(e) At the close of business on the day of the Effective Time, the
stock transfer books of the Company shall be closed and thereafter there shall
be no further registration of transfers of Shares on the records of the Company.
From and after the Effective Time, the holders of Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided herein or by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the
Company to Parent concurrently with the execution of this Agreement (the
"COMPANY DISCLOSURE SCHEDULE"), which shall identify exceptions by specific
Section references, or as otherwise described in the SEC Reports (as hereinafter
defined) filed prior the date of this Agreement, the Company hereby represents
and warrants to Parent and Purchaser that:
SECTION 3.01. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of
the Company and its two direct, wholly owned subsidiaries, Spine-Tech FSC Inc.,
a corporation organized under the laws of Barbados and Spine-Tech Surgical Inc.,
a Minnesota corporation (the "SUBSIDIARIES"), is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
corporate authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so incorporated, existing or in good
standing or to have such power, authority and governmental approvals would not,
individually or in the aggregate, have a Material Adverse Effect (as defined
below). Each of the Company and the Subsidiaries is duly
<PAGE>
9
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing which would not, individually or in the aggregate, have a
Material Adverse Effect. When used in connection with the Company or the
Subsidiaries, the term "MATERIAL ADVERSE EFFECT" means any circumstance, change
in or effect on the Company or any Subsidiary that is, or is reasonably likely
to be, materially adverse to the business, financial condition, results of
operations, assets or liabilities (including, without limitation, contingent
liabilities) of the Company and the Subsidiaries, taken as a whole. Other than
the Subsidiaries, there are no corporations, partnerships, joint ventures,
associations or other entities in which the Company owns, of record or
beneficially, any direct or indirect equity or similar interest or any right
(contingent or otherwise) to acquire the same.
SECTION 3.02. ARTICLES OF INCORPORATION; BY-LAWS. The Company has
heretofore made available to Parent a complete and correct copy of the Articles
of Incorporation and the By-laws (or equivalent organizational documents), each
as amended to date, of each of the Company and the Subsidiaries. Such Articles
of Incorporation, By-laws or equivalent organizational documents are in full
force and effect. Neither the Company nor the Subsidiaries is in violation of
any of the provisions of their respective Articles of Incorporation or By-laws
(or equivalent organizational documents).
SECTION 3.03. CAPITALIZATION. The authorized capital stock of the
Company consists of 15,000,000 shares of Company Common Stock and 5,000,000
shares of preferred stock ("COMPANY PREFERRED STOCK"), of which 300,000 shares
have been designated Series A Junior Participating Preferred Stock, $.01 par
value per share. As of the date hereof, (i) 10,323,730 Shares are issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (ii)
no Shares are held in the treasury of the Company, (iii) no Shares are held by
the Subsidiaries, and (iv) 2,233,331 Shares are reserved for future issuance
pursuant to employee and other stock options (the "COMPANY OPTIONS") granted
under the Company's 1996 Omnibus Stock Plan, 1996 Employee Stock Purchase Plan,
1994 Stock Option Plan, 1993 Non-Employee Director Stock Option Plan and 1991
Stock Option Plan (collectively, the "COMPANY STOCK PLANS") and to Smith &
Nephew Richards Inc. ("S&N"). The number and exercise prices of such options
are set forth on Section 3.03 of the Company Disclosure Schedule. As of the
date hereof, no shares of Company Preferred Stock are issued and outstanding.
Except for (i) Company Options, and (ii) the preferred share purchase rights
(the "COMPANY RIGHTS") issued pursuant to the Rights Agreement, dated as of
August 21, 1996 (the "RIGHTS AGREEMENT"), between the Company and Norwest Bank
Minnesota, N.A., as rights agent, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of the Company or any Subsidiary or obligating
the Company or any Subsidiary to issue or sell any shares of capital stock of,
or other equity interests in, the Company or such Subsidiary. All Shares
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the
<PAGE>
10
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
contractual obligations of the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any Shares or any capital stock of any Subsidiary. Each
outstanding share of capital stock of the Subsidiaries is duly authorized,
validly issued, fully paid and nonassessable and is owned by the Company free
and clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on voting rights, charges and other
encumbrances of any nature whatsoever. There are no outstanding contractual
obligations of the Company or any Subsidiary to provide funds to any person
outside the ordinary course of business consistent with past practice, or to
make any investment (in the form of a loan or capital contribution) in any other
person.
SECTION 3.04. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has
all necessary corporate power and corporate authority to execute and deliver
this Agreement, to perform its obligations hereunder and, subject to approval by
the holders of the Shares at the Shareholders' Meeting (as hereinafter defined)
if so required by law with respect to its obligations to consummate the Merger,
to consummate the transactions contemplated hereby (the "TRANSACTIONS"). The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the Transactions have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the approval and adoption
of this Agreement by the holders of a majority of the then outstanding Shares if
and to the extent required by applicable law, and the filing and recordation of
appropriate articles of merger as required by the Minnesota Law). As an
amplification and not in limitation of the immediately preceding sentence, a
special committee of the Board formed pursuant to Section 302A.673 of the
Minnesota Law has taken all actions required to render inapplicable to the
Transactions the restrictions on business combinations contained in Section
302A.671 and Section 302A.673 of the Minnesota Law. This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent and Purchaser, constitutes a
legal, valid and binding obligation of the Company.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Articles of Incorporation or By-laws of the Company or equivalent
organizational documents of the Subsidiaries, (ii) assuming that all consents,
approvals, authorizations and other actions described in Section 3.05(b) have
been made and all filings and obligations described in subsection (b) have been
made, conflict with or violate any foreign or domestic law, statute, ordinance,
rule, regulation, order, judgment or decree ("LAW") applicable to the Company or
any Subsidiary or by which any property or asset of the Company or any
Subsidiary is bound, or (iii) result in any breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any right of
<PAGE>
11
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the Company
or any Subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, Permit (as hereinafter defined) or other instrument
or agreement, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate, have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic (local, state or federal)
or foreign ("GOVERNMENTAL AUTHORITY"), except (i) for applicable requirements,
if any, of the Exchange Act, state securities or "blue sky" laws ("BLUE SKY
LAWS"), the National Association of Securities Dealers ("NASD"), state takeover
laws, the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT") and filing and
recordation of appropriate articles of merger as required by the Minnesota Law,
and (ii) where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the Offer or the Merger, or otherwise prevent the Company from
performing its obligations under this Agreement, and would not, individually or
in the aggregate, have a Material Adverse Effect.
SECTION 3.06. PERMITS; COMPANY PRODUCTS; REGULATION. (a) Each of
the Company and each Subsidiary are in possession of all franchises, grants,
authorizations, clearances, licenses, registrations, permits, easements,
variances, exceptions, consents, certificates, approvals and orders of any
Governmental Authority necessary for the Company or each Subsidiary to own,
lease and operate its properties or to carry on its business as it is now being
conducted (the "PERMITS"), except where the failure to have, or the suspension
or cancellation of, any of the Permits would not, individually or in the
aggregate, have a Material Adverse Effect. As of the date hereof, no suspension
or cancellation of any of the Permits is pending or, to the knowledge of the
Company, threatened, except where the failure to have, or the suspension or
cancellation of, any of the Permits would not, individually or in the aggregate,
have a Material Adverse Effect. A list of the material Permits is set forth in
Section 3.06(a) of the Company Disclosure Schedule. Neither the Company nor any
Subsidiary is in conflict with, or in default or violation of, (i) the Foreign
Corrupt Practices Act of 1977, as amended, (ii) any Law applicable to the
Company or any Subsidiary or by which any property or asset of the Company or
any Subsidiary is bound or affected, or (iii) any Permits, except for any such
conflicts, defaults or violations that would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) Except as would not have a Material Adverse Effect, since January
1, 1992, there have been no written notices, citations or decisions by any
Governmental Authority that any product produced, manufactured or marketed at
any time by the Company (the "PRODUCTS") is defective or fails to meet any
applicable standards promulgated by such
<PAGE>
12
Governmental Authority, and the Company does not know of any such defect or
failure. Except as would not have a Material Adverse Effect, the Company has
complied with the Law, policies, procedures and specifications applicable to the
Company with respect to the design, manufacture, labelling, testing and
inspection of Products in the United States and the operation of manufacturing
facilities in the United States promulgated by the Food and Drug Administration
("FDA"), and has complied with the Law, policies, procedures and specifications
applicable to the Company in any jurisdiction outside the United States with
respect to the design, manufacture, labelling, testing and inspection of
Products and the operation of manufacturing facilities outside of the United
States. Since January 1, 1992, there have been no recalls, field notifications
or seizures ordered or, to the knowledge of the Company, threatened by any
Governmental Authority with respect to any of the Products that would,
individually or in the aggregate, have a Material Adverse Effect, and the
Company has not independently engaged in such recalls or field notifications.
The Company has not received any warning letter or Section 305 notices from the
FDA.
(c) The Company has obtained, in all countries where the Company is
marketing or has marketed its Products, all applicable Permits required to be
obtained by it by Governmental Authorities (including the FDA) in such countries
regulating the safety, effectiveness and market clearance of the Products that
are currently marketed by the Company or its affiliates, except where the
failure to obtain such Permits would not, individually or in the aggregate, have
a Material Adverse Effect. Section 3.06(c)(i) of the Company Disclosure
Schedule sets forth a list of all licenses, registrations, approvals, permits
and device listings. Section 3.06(c)(ii) of the Company Disclosure Schedule
sets forth a description of all Company inspections by regulatory authorities,
recalls, product actions and audits since January 1, 1992 and a description of
ongoing clinical studies.
SECTION 3.07. SEC FILINGS; FINANCIAL STATEMENTS. (a) The Company
has filed all forms, reports and documents required to be filed by it with the
SEC since June 22, 1995 through the date of this Agreement (collectively, the
"SEC REPORTS"). The SEC Reports (i) at the time of their filing complied in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT"), or the Exchange Act, as the case may be, and the
applicable rules and regulations thereunder and (ii) did not, at the time they
were filed, 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 made therein, in the light of the circumstances under which they were
made, not misleading. The Subsidiaries are not required to file any form,
report or other document with the SEC.
(b) Each of the financial statements (including, in each case, any
notes thereto) contained in the SEC Reports was prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods indicated (except as may be indicated in
the notes thereto), and each fairly presented in all material respects the
financial position, results of operations and cash flows of the Company and its
Subsidiaries, if any, as at the respective dates thereof and for the
<PAGE>
13
respective periods indicated therein, except as otherwise noted therein
(subject, in the case of unaudited statements, to normal year-end adjustments
and except that the unaudited financial statements do not contain all of the
footnote disclosures required by GAAP).
(c) Neither the Company nor any Subsidiary has any liability of any
nature (whether accrued, absolute, contingent or otherwise), except (i)
liabilities and obligations disclosed pursuant to any other representation or
warranty set forth in this Agreement, (ii) debts, liabilities and obligations
set forth in the Company Disclosure Schedule or which, because of the exceptions
set forth in the other representations and warranties contained in this
Agreement, are not required to be disclosed in the Company Disclosure Schedule
in order to avoid a breach of any other representation or warranty contained in
this Agreement, (iii) liabilities and obligations disclosed in any SEC Report
prior to the date hereof, including any Form 10-Q filed since December 31, 1996,
and (iv) other liabilities and obligations which, after giving effect to the
proceeds reasonably expected to be received from any insurance coverage, would
not, individually or in the aggregate, have a Material Adverse Effect.
(d) The Company has heretofore furnished to Parent complete and
correct copies of all amendments and modifications that have not been filed by
the Company with the SEC to all agreements, documents and other instruments that
previously had been filed by the Company with the SEC and are currently in
effect.
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December
31, 1996, except as contemplated by or as disclosed in this Agreement or as
disclosed in any SEC Report filed since December 31, 1996, the Company and the
Subsidiary have conducted their businesses only in the ordinary course and in a
manner consistent with past practice and, since such date, there has not been
(a), after giving effect to the proceeds reasonably expected to be received from
any insurance coverage, any Material Adverse Effect, (b) any material change by
the Company in its accounting methods, principles or practices, including
without limitation, those used in the calculation of contractual adjustments or
bad debts, (c) any revaluation by the Company of any material assets (including,
without limitation, any writing down of the value of inventory or writing off of
accounts receivable), other than in the ordinary course of business consistent
with past practice, (d) any declaration, setting aside or payment of any
dividend or distribution in respect of the Shares or any redemption, purchase or
other acquisition of any of its securities or (e) any increase in, or
establishment or modification of, any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or employees of the Company or any Subsidiary,
except increases in the salaries of employees who are not officers, payment of
profit sharing and bonuses, and granting of stock options to employees who are
not officers in the ordinary course of business consistent with past practice.
<PAGE>
14
SECTION 3.09. ABSENCE OF LITIGATION. There is no litigation, suit,
claim, action, proceeding or investigation (an "ACTION") pending or, to the
knowledge of the Company, threatened against the Company or any Subsidiary, or
any property or asset of the Company or any Subsidiary, before any court,
arbitrator or Governmental Authority, which (i) individually or in the
aggregate, reasonably would be expected to have a Material Adverse Effect or
(ii) as of the date of this Agreement, seeks to delay or prevent the
consummation of any Transaction. Neither the Company nor any Subsidiary nor any
property or asset of the Company or any Subsidiary is subject to any continuing
order of, consent decree, settlement agreement or other similar written
agreement with, or, to the knowledge of the Company, continuing investigation
by, any Governmental Authority, or any order, writ, judgment, injunction,
decree, determination or award of any Governmental Authority or arbitrator
having, individually or in the aggregate, a Material Adverse Effect.
SECTION 3.10. EMPLOYEE BENEFIT PLANS; LABOR MATTERS. (a) Section
3.10 of the Company Disclosure Schedule contains a true and complete list of all
employee benefit plans (within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
stock option, stock purchase, restricted stock, incentive, deferred
compensation, retiree medical or life insurance, supplemental retirement,
severance or other benefit plans, programs or arrangements, and all employment,
termination, severance or other contracts or agreements to which the Company or
any Subsidiary is a party, with respect to which the Company or any Subsidiary
has any obligation or which are maintained, contributed to or sponsored by the
Company or any Subsidiary for the benefit of any current or former employee,
officer or director of the Company or any Subsidiary (collectively, the
"PLANS"). Each Plan is in writing and the Company has previously furnished or
made available to Parent a true and complete copy of each Plan and a true and
complete copy of each material document prepared in connection with each such
Plan, including, without limitation, (i) a copy of each trust or other funding
arrangement, (ii) each summary plan description and summary of material
modifications, (iii) the most recently filed Internal Revenue Service ("IRS")
Form 5500, (iv) the most recently received IRS determination letter for each
such Plan, and (v) the most recently prepared actuarial report and financial
statement in connection with each such Plan. Neither the Company nor any
Subsidiary has any express or implied commitment (i) to create, incur liability
with respect to or cause to exist any other employee benefit plan, program or
arrangement, (ii) to enter into any contract or agreement to provide
compensation or benefits to any individual or (iii) to modify, change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Internal Revenue Code of 1986, as amended
(the "CODE").
(b) None of the Plans is a multiemployer plan, within the meaning of
Section 3(37) or 4001(a)(3) of ERISA (a "MULTIEMPLOYER PLAN"), or a single
employer pension plan, within the meaning of Section 4001(a)(15) of ERISA, for
which the Company or any Subsidiary could incur liability under Section 4063 or
4064 of ERISA (a "MULTIPLE EMPLOYER PLAN"). None of the Plans is a "defined
benefit plan" within the meaning of
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15
Section 3(35) of ERISA. Except as disclosed in Section 3.10 of the Company
Disclosure Schedule, none of the Plans (i) provides for the payment of
separation, severance, termination or similar-type benefits to any person, (ii)
obligates the Company or any Subsidiary to pay separation, severance,
termination or other benefits as a result of any Transaction or (iii) obligates
the Company or any Subsidiary to make any payment or provide any benefit that
could be subject to a tax under Section 4999 of the Code. None of the Plans
provides for or promises retiree medical, disability or life insurance benefits
to any current or former employee, officer or director of the Company or any
Subsidiary, except for continued healthcare coverage under COBRA.
(c) Each Plan which is intended to be qualified under Section 401(a)
of the Code has received a favorable determination letter from the IRS that such
Plan is so qualified, and each trust established in connection with any Plan
which is intended to be exempt from federal income taxation under Section 501(a)
of the Code has received a determination letter from the IRS that such trust is
so exempt. No fact or event has occurred since the date of any such
determination letter from the IRS that could adversely affect the qualified
status of any such Plan or the exempt status of any such trust. Each trust
maintained or contributed to by the Company or any Subsidiary which is intended
to be qualified as a voluntary employees' beneficiary association exempt from
federal income taxation under Sections 501(a) and 501(c)(9) of the Code has
received a favorable determination letter from the IRS that it is so qualified
and so exempt, and no fact or event has occurred since the date of such
determination by the IRS that could adversely affect such qualified or exempt
status.
(d) There has been no prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan.
Neither the Company nor any Subsidiary is currently liable or has previously
incurred any liability for any tax or penalty arising under Section 4971, 4972,
4979, 4980 or 4980B of the Code or Section 502(c) of ERISA, and no fact or event
exists which could give rise to any such liability. Neither the Company nor any
Subsidiary has incurred any liability under, or by operation of, Title IV of
ERISA and no fact or event exists which could give rise to any such liability.
(e) Each Plan is now and has been operated in all respects in
accordance with the requirements of all applicable laws, including, without
limitation, ERISA and the Code, and the Company and the Subsidiaries have
performed all obligations required to be performed by them under, and are not in
any respect in default under or in violation of, any Plan. The audited balance
sheet of the Company dated December 31, 1996 reflects an accrual of all amounts
of employer contributions and premiums accrued but unpaid with respect to the
Plans.
(f) Neither the Company nor any Subsidiary has incurred any liability
under, and have complied in all respects with, the Worker Adjustment Retraining
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16
Notification Act and the regulations promulgated thereunder ("WARN") and do not
reasonably expect to incur any such liability as a result of actions taken or
not taken prior to the Effective Time.
(g) (i) There are no claims or actions pending or, to the knowledge
of the Company, threatened between the Company or any Subsidiary and any of
their respective employees, which controversies have a Material Adverse Effect;
(ii) neither the Company nor any Subsidiary is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company or any Subsidiary, nor, to the knowledge of the Company,
are there any activities or proceedings of any labor union to organize any such
employees; (iii) neither the Company nor any Subsidiary has breached or
otherwise failed to comply with any provision of any such agreement or contract
and there are no grievances outstanding against the Company or any Subsidiary
under any such agreement or contract; (iv) there are no unfair labor practice
complaints pending against the Company or any Subsidiary before the National
Labor Relations Board or any current union representation questions involving
employees of the Company or any Subsidiary; and (v) there is no strike,
slowdown, work stoppage or lockout, or, to the knowledge of the Company, threat
thereof, by or with respect to any employees of the Company or any Subsidiary.
SECTION 3.11. OFFER DOCUMENTS; SCHEDULE 14D-9; PROXY STATEMENT.
Neither the Schedule 14D-9 nor any information supplied by the Company for
inclusion in the Offer Documents shall, at the respective times the Schedule
14D-9, the Offer Documents or any amendments or supplements thereto are filed
with the SEC or are first published, sent or given to shareholders of the
Company, as the case may be, 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 made therein, in the light of the circumstances
under which they are made, not misleading. Neither the proxy statement to be
sent to the shareholders of the Company in connection with the Shareholders'
Meeting (as hereinafter defined) nor the information statement to be sent to
such shareholders, as appropriate (such proxy statement or information
statement, as amended or supplemented, being referred to herein as the "PROXY
STATEMENT"), shall, at the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to shareholders of the Company, 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 made therein,
in the light of the circumstances under which they are made, not misleading or
shall, at the time of the Shareholders' Meeting or at the Effective Time, omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Shareholders'
Meeting which shall have become false or misleading. Notwithstanding the
foregoing, no representation or warranty is made by the Company with respect to
statements therein based on information supplied by Parent or Purchaser or any
of their representatives which is contained in the Schedule 14D-9, the Offer
Documents, the Proxy Statement or any amendment or supplement thereto. The
Schedule 14D-9 and the Proxy Statement shall
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17
comply in all material respects as to form with the requirements of the Exchange
Act and the applicable rules and regulations thereunder.
SECTION 3.12. PROPERTY. The Company and the Subsidiary have
sufficient title to, or right to use, all their tangible properties and assets
necessary to conduct their respective businesses as currently conducted or as
contemplated to be conducted, with only such exceptions as, individually or in
the aggregate, would not interfere with the current use of such property or
asset in such a manner as to have a Material Adverse Effect.
SECTION 3.13. INTELLECTUAL PROPERTY. (a) Section 3.13(a)(i) of the
Company Disclosure Schedule sets forth a true and complete list and a brief
description of all patents, registered trademarks, registered service marks and
registered copyrights, and all applications therefor, constituting Owned
Intellectual Property (including a complete identification of each patent and
patent application and each registration, certificate or application for
registration thereof, of all Owned Intellectual Property, and for all such Owned
Intellectual Property used by the Company or any Subsidiary in connection with
the development, manufacture, testing, or production of products, or otherwise
used, held or intended to be used in the business of the Company or any
Subsidiary, also lists the name and title of the person or persons responsible
for the creation thereof) and Section 3.13(a)(ii) of the Company Disclosure
Schedule sets forth a true and complete list and a brief description, including
a description of any license, franchise or sublicense thereof, of all Licensed
Intellectual Property, except customary non-negotiated licenses by the Company
as licensee of computer software. For each registration, certificate or patent
or application for registration or patent listed in Section 3.13(a)(i) of the
Company Disclosure Schedule held by assignment, the assignment has been lawfully
obtained and has been duly recorded with the state or national patent or
trademark office (or such other Governmental Authority as may be necessary under
any law) from which the original patent, certificate or registration issued or
before which the patent application or application for registration is pending.
Except as would not, individually or in the aggregate, have a Material Adverse
Effect, the rights of the Company or any Subsidiary, as the case may be, in or
to the Owned Intellectual Property set forth on Section 3.13(a)(i) of the
Company Disclosure Schedule are held exclusively by the Company or such
Subsidiary, do not conflict with the rights of any other person or entity, and
neither the Company nor any such Subsidiary has received any claim or written
notice from any person or entity to such effect.
(b) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, (i) all the Owned Intellectual Property is owned by the
Company or any Subsidiary, free and clear of any encumbrance, (ii) no existing
product of the Company or any Subsidiary or any product of the Company or any
Subsidiary currently in development is being provided, manufactured, sold or
developed in violation of any patents or trademarks, or any other rights of any
person or entity, and (iii) no Actions have been made or asserted or are pending
(nor, to the knowledge of the Company, has any such Action been threatened)
against the Company or any Subsidiary either (A) based upon or challenging or
seeking to
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18
deny or restrict the use by the Company or any Subsidiary of any of the Owned
Intellectual Property or the Licensed Intellectual Property or (B) alleging that
any services provided, or products manufactured or sold by the Company or any
Subsidiary are being provided, manufactured or sold in violation of any patents
or trademarks, or any other rights of any person or entity. Except as would
not, individually or in the aggregate, have a Material Adverse Effect, to the
knowledge of the Company, no person or entity is using any patents, copyrights,
trademarks, service marks, trade names, trade secrets or similar property that
are confusingly similar to the Owned Intellectual Property or, except with
respect to customary non-negotiated licenses by the Company as licensee of
computer software, the Licensed Intellectual Property or that infringe upon the
Owned Intellectual Property or, except with respect to customary non-negotiated
licenses by the Company as licensee of computer software, the Licensed
Intellectual Property or upon the rights of the Company or any Subsidiary
therein. Neither the Company nor any Subsidiary has granted any license or
other right to any other person or entity with respect to the Owned Intellectual
Property or the Licensed Intellectual Property. Except as would not,
individually or in the aggregate, have a Material Adverse Effect, the
consummation of the Transactions will not result in the termination or
impairment of any of the Owned Intellectual Property or the Licensed
Intellectual Property.
(c) To the knowledge of the Company, with respect to all Licensed
Intellectual Property and Owned Intellectual Property, the registered user
provisions of all countries in which the Company or any Subsidiary has obtained
a registered trademark requiring such registrations have been or are in the
process of being complied with in all material respects.
(d) The Company has delivered or made available to Parent correct and
complete copies of all licenses, franchises and sublicenses for Licensed
Intellectual Property set forth in Section 3.13(a)(ii) of the Company Disclosure
Schedule and any and all ancillary documents pertaining thereto (including,
without limitation, all amendments, consents and evidence of commencement dates
and expiration dates). With respect to each of such licenses and sublicenses:
(i) such license, franchise or sublicense, together with all
ancillary documents delivered pursuant to the first sentence of this
Section 3.13(d), is legal, valid, binding, enforceable and in full force
and effect and represents the entire agreement between the respective
licensor and licensee with respect to the subject matter of such license or
sublicense;
(ii) such license, franchise or sublicense will not cease to be legal,
valid, binding, enforceable and in full force and effect on terms identical
to those currently in effect as a result of the consummation of the
Transactions, nor will the consummation of the Transactions constitute a
breach or default under such license, franchise or sublicense;
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19
(iii) with respect to each such license or sublicense, except as
would not, individually or in the aggregate, have a Material Adverse
Effect: (A) neither the Company nor any Subsidiary has received any notice
of termination or cancellation under such license or sublicense and no
licensor or sublicensor has any right of termination or cancellation under
such license or sublicense prior to the expiration of its term except in
connection with the default of the Company or any Subsidiary thereunder or
pursuant to applicable Laws relating to bankruptcy or reorganization, (B)
neither the Company nor any Subsidiary has received any notice of a breach
or default under such license or sublicense, which breach or default has
not been cured, and (C) neither the Company nor any Subsidiary has granted
to any other person or entity any rights, adverse or otherwise, under such
license or sublicense; and
(iv) except as would not, individually or in the aggregate, have a
Material Adverse Effect, none of the Company, any Subsidiary and, to the
knowledge of the Company, any other party to such license or sublicense is
in breach or default of such license or sublicense; and, to the knowledge
of the Company, no event has occurred that, with notice or lapse of time
would constitute such a breach or default or permit termination,
modification or acceleration under such license or sublicense by any party
thereto (other than the Company or any Subsidiary).
(e) The Owned Intellectual Property and the Licensed Intellectual
Property constitutes all Intellectual Property necessary in the conduct of the
business of the Company and the Subsidiaries, and there are no other items of
Intellectual Property that are material to the Company, the Subsidiaries or
their businesses.
SECTION 3.14. TAXES. (a) The Company and the Subsidiaries have
timely filed all Tax Returns required to be filed by them, or extensions of time
for such filings have been filed, other than Tax Returns where the failure to
file would not have a Material Adverse Effect, and, except as would not,
individually or in the aggregate, have a Material Adverse Effect, such returns
and reports are true, complete and correct. Except as would not have a Material
Adverse Effect, the Company and the Subsidiaries have paid and discharged within
the time and in the manner prescribed by the law all Taxes that are due and
payable, other than such payments as are being contested in good faith by
appropriate proceedings. The accruals and reserves for Taxes reflected in the
Company's audited consolidated balance sheet for the fiscal year ended December
31, 1996 are in accordance with GAAP. Neither the IRS nor any other taxing
authority or agency, domestic or foreign, is now asserting or, to the knowledge
of the Company, threatening to assert against the Company or any Subsidiary any
deficiency or claim for additional Taxes or interest thereon or penalties in
connection therewith. Except as would not have a Material Adverse Effect, no
adjustment relating to such returns has been proposed in writing by any Tax
authority (insofar as either relates to the activities or income of the Company
or any Subsidiary or could result in liability of the Company or any Subsidiary
on the basis of joint and/or several liability) and, to the knowledge of the
Company and the Subsidiaries, no basis exists for any
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20
such adjustment, other than adjustments which would not, individually or in the
aggregate, have a Material Adverse Effect. Neither the Company nor any
Subsidiary has received a written ruling from, or entered into a written and
legally binding agreement with, a taxing authority relating to Taxes of the
Company or any Subsidiary. Neither the Company nor any Subsidiary has granted
any waiver of any statute of limitations with respect to, or any extension of a
period for the assessment of, any income Tax. The statute of limitations for
the assessment of any federal income Taxes has expired for all income Tax
Returns of the Company, or such income Tax Returns of the Company and the
Subsidiaries have been examined by the IRS for all periods. There are no Tax
liens upon the assets of the Company or any Subsidiary except for Tax liens that
would not, individually or in the aggregate, have a Material Adverse Effect. No
audits or other administrative proceeding or court proceedings are presently
pending with regard to any Taxes or Tax Returns of the Company or any
Subsidiary. Neither the Company nor any Subsidiary is a party to any agreement
relating to allocating or sharing of Taxes which has not been disclosed on its
Tax Returns. No consent under Section 341(f) of the Code has been filed with
respect to the Company or any Subsidiary. Except as would not have a Material
Adverse Effect, neither the Company nor any of its Subsidiaries has a permanent
establishment or office or fixed place of business through which the business of
the Company or any of its Subsidiaries is wholly or partly carried on outside
the United States. Neither the Company nor any of its Subsidiaries has
participated in or cooperated with an international boycott within the meaning
of Section 999 of the Code.
(b) "TAX" or "TAXES" means any and all taxes, fees, levies, duties,
tariffs, imposts, and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Authority, including, without
limitation, taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added or gains taxes; license,
registration and documentation fees; and customs' duties, tariffs, and similar
charges.
(c) "TAX RETURN" means any report, return, information statement,
payee statement declaration or other information required to be provided to any
federal, state, local or foreign government or taxing authority, or otherwise
retained, with respect to Taxes.
SECTION 3.15. ENVIRONMENTAL MATTERS. (a) For purposes of this
Agreement, the following terms shall have the following meanings: (i)
"HAZARDOUS SUBSTANCES" means (A) those substances defined in or regulated under
the following federal statutes and their state counterparts, as each may be
amended from time to time, and all regulations thereunder: the Hazardous
Materials Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the Clean
Water Act, the Safe Drinking Water Act, the Atomic Energy
<PAGE>
21
Act, the Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air
Act; (B) petroleum and petroleum products including crude oil and any fractions
thereof; (C) natural gas, synthetic gas, and any mixtures thereof; (D) radon;
(E) any other contaminant; and (F) any substance with respect to which a
federal, state or local agency requires environmental investigation, monitoring,
reporting or remediation; and (ii) "ENVIRONMENTAL LAWS" means any federal, state
or local law relating to (A) releases or threatened releases of Hazardous
Substances or materials containing Hazardous Substances; (B) the manufacture,
handling, transport, use, treatment, storage or disposal of Hazardous Substances
or materials containing Hazardous Substances; or (C) otherwise relating to
pollution of the environment or the protection of human health.
(b) Except as would not, individually or in the aggregate, have a
Material Adverse Effect: (i) the Company and the Subsidiaries have not violated
and are not in violation of any Environmental Law; (ii) none of the properties
owned or leased by the Company or any Subsidiary (including, without limitation,
soils and surface and ground waters) are contaminated with any Hazardous
Substance at levels which exceed standards established by applicable
Governmental Authorities; (iii) the Company and the Subsidiaries have no
liability for any off-site contamination; and (iv) the Company and the
Subsidiaries have no liability under any Environmental Law.
SECTION 3.16. MATERIAL CONTRACTS. (a) Subsections (i) through (ix)
of Section 3.16 of the Company Disclosure Schedule contain a list of the
following types of contracts and agreements to which the Company or any
Subsidiary is a party (such contracts, agreements and arrangements as are
required to be set forth in Section 3.16(a) of the Company Disclosure Schedule,
together with all agreements relating to Intellectual Property set forth in
Section 3.13(a) of the Company Disclosure Schedule, being the "MATERIAL
CONTRACTS"):
(i) each contract and agreement (excluding individual purchase and
sales orders) which (A) is likely to involve consideration of more than
$100,000 in the aggregate during the calendar year ending December 31,
1997, (B) is likely to involve consideration of more than $100,000 in the
aggregate over the remaining term of such contract, and which, in either
case, cannot be cancelled by the Company or any Subsidiary upon 90 days' or
less notice without penalty or further payment;
(ii) all broker, distributor, dealer, manufacturer's representative,
franchise, agency, sales promotion, market research, marketing consulting
and advertising contracts and agreements to which the Company or any
Subsidiary is a party (true and complete copies of such contracts and
agreements have been provided to Parent);
(iii) all management contracts (excluding contracts for employment)
and contracts with physicians or other consultants, including any contracts
involving the payment of royalties or other amounts calculated based upon
the revenues or income
<PAGE>
22
of the Company or any Subsidiary or income or revenues related to any
product of the Company or any Subsidiary to which the Company or any
Subsidiary is a party;
(iv) all contracts and agreements relating to indebtedness;
(v) all contracts and agreements with any Governmental Authority to
which the Company or any Subsidiary is a party other than for purchases or
sales of inventory to a Governmental Authority in the ordinary course of
business consistent with past practice;
(vi) all contracts and agreements that limit the ability of the
Company or any Subsidiary to compete in any line of business or with any
person or entity or in any geographic area or during any period of time;
(vii) all contracts and agreements providing for benefits under any
Plan;
(viii) all material contracts or arrangements that result in any
person or entity holding a power of attorney from the Company or any
Subsidiary that relates to the Company, such Subsidiary or their
businesses; and
(ix) all contracts for employment required to be listed in Section
3.10 of the Company Disclosure Schedule.
(b) Except as would not, individually or in the aggregate, have a
Material Adverse Effect, each contract referred to in paragraphs (i) through
(ix) above is a legal, valid and binding agreement, neither the Company nor any
Subsidiary is in default under any Material Contract, and neither the Company
nor any Subsidiary is in receipt of any claim of default under any Material
Contract. The Company has furnished or made available to Parent true and
complete copies of all Material Contracts in effect as of the date hereof that
are not included as exhibits to the SEC Reports filed prior to the date hereof.
SECTION 3.17. EMPLOYEE CONFIDENTIALITY. All directors, officers,
management employees and technical and professional employees of the Company and
the Subsidiaries are under written obligation to the Company or a Subsidiary (or
bound by applicable Law) to maintain in confidence all confidential or
proprietary information acquired in the course of their employment and to assign
to the Company all inventions made in connection with the scope of their
employment during the tenure of their employment and for a reasonable time
period thereafter.
SECTION 3.18. INSURANCE. (a) Section 3.18(a) of the Company
Disclosure Schedule sets forth the following information with respect to each
insurance policy under which the Company or any Subsidiary has been an insured,
a named insured or otherwise the principal beneficiary of coverage at any time
within the past year:
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23
(i) the name of the insurer and the names of the principal insured,
each named insured and each additional insured;
(ii) the policy number, the period of coverage, description and scope
(including an indication of whether the coverage was on a claims-made,
occurrence or other basis) and amount (including a description of how
deductibles, retentions and aggregates are calculated and operate) of
coverage;
(iii) if coverage is written on a claims-made basis, the retro date
and details concerning endorsements or terms which further restrict
coverage (E.G., "laser beam" endorsements);
(iv) summary of loss amounts paid to date, reserves for open claims,
and, if applicable, the remaining unexhausted coverage limits available to
the insured under each policy; and
(v) the premium charged for the policy, including, without
limitation, a description of any premium financing, retroactive premium
adjustments or other loss-sharing arrangements.
(b) With respect to each such insurance policy: (i) the policy is
legal, valid, binding and enforceable in accordance with its terms and, except
for policies that have expired under their terms in the ordinary course, is in
full force and effect; (ii) neither the Company nor any Subsidiary is in
material breach or default (including any such breach or default with respect to
the payment of premiums or the giving of notice), and no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default or permit termination or modification, under the policy; and (iii) to
the knowledge of the Company, no insurer on the policy has been declared
insolvent or placed in receivership, conservatorship or liquidation.
(c) At no time has the Company or any Subsidiary (i) subsequent to
January 1, 1992, been denied any insurance or indemnity bond coverage which it
has requested or (ii) subsequent to January 1, 1992, made any material
reduction in the scope or amount of its insurance coverage, or subsequent to
January 1, 1992, received notice from any of its insurance carriers that any
insurance coverage listed in Section 3.18(a) of the Company Disclosure Schedule
will not be available in the future substantially on the same terms as are now
in effect.
SECTION 3.19. FRAUD AND ABUSE. Neither the Company nor any
Subsidiary have engaged knowingly and willfully in any activities which are
prohibited under federal Medicare and Medicaid statutes, including, without
limitation, 42 U.S.C. Section 1320a-7b and 42 U.S.C. Section 1395nn or related
state or local statutes or regulations or which otherwise constitutes fraud,
including, without limitation, the following: (a) knowingly and willfully
<PAGE>
24
making or causing to be made a false statement or representation of a material
fact in any application for any benefit or payment; (b) knowingly and willfully
making or causing to be made any false statement or representation of a material
fact for use in determining rights to any benefit or payment; (c) knowingly and
willfully failing to disclose knowledge of the occurrence of any event affecting
the initial or continued right to any benefit or payment on its behalf or on
behalf of another, with intent to secure such benefit or payment fraudulently;
(d) knowingly and willfully soliciting or receiving any remuneration (including
any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay such remuneration (i) in return for referring
an individual to a person for the furnishing or arranging for the furnishing of
any item or service for which payment may be made in whole or in part by
Medicare or Medicaid or (ii) in return for purchasing, leasing, or ordering or
arranging for or recommending purchasing, leasing, or ordering any good,
facility, service, or item for which payment may be made in whole or in part by
Medicare or Medicaid.
SECTION 3.20. AMENDMENT TO RIGHTS AGREEMENT. The Board has taken all
necessary action to approve the amendment of the Rights Agreement so that (a)
none of the execution or delivery of this Agreement, the making of the Offer,
the acceptance for payment or payment for Shares by Purchaser pursuant to the
Offer or the consummation of the Merger or any other Transaction will result in
(i) the occurrence of the "flip-in event" described under Section 11 of the
Rights Agreement, (ii) the occurrence of the "flip-over event" described in
Section 13 of the Rights Agreement, or (iii) the Company Rights becoming
evidenced by, and transferable pursuant to, certificates separate from the
certificates representing Company Common Stock, and (b) the Company Rights will
expire pursuant to the terms of the Rights Agreement at the Effective Time.
SECTION 3.21. BROKERS. No broker, finder or investment banker (other
than Piper Jaffray) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of the Company. The Company has heretofore made available to
Parent a complete and correct copy of all agreements between the Company and
Piper Jaffray pursuant to which such firm would be entitled to any payment
relating to the Transactions.
SECTION 3.22. NO IMPLIED REPRESENTATION. It is the explicit intent
of each party hereto that the Company is making no representation or warranty
whatsoever, not express or implied, beyond those given in this Agreement,
including but not limited to any implied warranty or representation as to
condition, merchantability or suitability. It is understood that any estimates,
projections or other predictions contained herein or referred to in the Company
Disclosure Schedule or in any material that has been provided to Purchaser or
Parent are not and shall not be deemed to be representations or warranties of
the Company.
<PAGE>
25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby jointly and severally represent and
warrant to Company that:
SECTION 4.01. CORPORATE ORGANIZATION. Each of Parent and Purchaser
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has the requisite corporate
power and corporate authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as it is now being
conducted, except where the failure to have such governmental approvals would
not delay consummation of the Transactions, or otherwise prevent Parent or
Purchaser from performing its obligations under this Agreement.
SECTION 4.02. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent
and Purchaser has all necessary corporate power and corporate authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the Transactions. The execution and delivery of this Agreement by
Parent and Purchaser and the consummation by Parent and Purchaser of the
Transactions have been duly and validly authorized by all necessary corporate
action, and no other corporate proceedings on the part of Parent or Purchaser
(including any action by the sole shareholder of Purchaser) are necessary to
authorize this Agreement or to consummate the Transactions (other than, with
respect to the Merger, the filing and recordation of appropriate articles of
merger as required by the Minnesota Law). This Agreement has been duly and
validly executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Parent and Purchaser enforceable against each
of Parent and Purchaser in accordance with its terms.
SECTION 4.03. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution and delivery of this Agreement by Parent and Purchaser do not, and the
performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the Articles of Incorporation or By-laws (or equivalent
organizational documents) of either Parent or Purchaser, (ii) assuming that all
consents, approvals, authorizations and other actions described in Section
4.03(b) have been obtained and all filings and obligations described in
subsection (b) have been made, conflict with or violate any Law applicable to
Parent or Purchaser or by which any property or asset of either of them is bound
or affected, or (iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Parent or Purchaser pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation, except, with respect to clauses (ii) and (iii), for
any such conflicts,
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26
violations, breaches, defaults, or other occurrences which would not prevent or
delay consummation of the Transactions, or otherwise prevent Parent or Purchaser
from performing its obligations under this Agreement.
(b) The execution and delivery of this Agreement by Parent and
Purchaser do not, and the performance of this Agreement by Parent and Purchaser
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any Governmental Authority, except (i) for applicable
requirements, if any, of the Exchange Act, Blue Sky Laws, the NASD, state
takeover laws, the pre-merger notification requirements of the HSR Act and
filing and recordation of appropriate articles of merger as required by the
Minnesota Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
prevent or delay consummation of the Offer or the Merger, or otherwise prevent
Parent or Purchaser from performing their respective obligations under this
Agreement.
SECTION 4.04. OFFER DOCUMENTS; PROXY STATEMENT. Neither the Offer
Documents nor any information supplied by Parent or Purchaser for inclusion in
the Schedule 14D-9 will, at the time the Offer Documents, the Schedule 14D-9, or
any amendments or supplements thereto, are filed with the SEC or are first
published, sent or given to shareholders of the Company, as the case may be,
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
made therein, in the light of the circumstances under which they are made, not
misleading. The information supplied by Parent for inclusion in the Proxy
Statement will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to shareholders of the Company, 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, or at the
time of the Shareholders' Meeting or at the Effective Time, omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Shareholders' Meeting which
shall have become false or misleading. Notwithstanding the foregoing, Parent
and Purchaser make no representation or warranty with respect to any information
supplied by the Company or any of its representatives which is contained in any
of the Offer Documents, the Proxy Statement or any amendment or supplement
thereto. The Offer Documents shall comply in all material respects as to form
with the requirements of the Exchange Act and the rules and regulations
thereunder.
SECTION 4.05. FINANCING. Parent and Purchaser have, or will have,
available all of the funds necessary for the acquisition of all the outstanding
Shares pursuant to the Offer and the Merger, as the case may be, and to perform
their respective obligations under this Agreement.
<PAGE>
27
SECTION 4.06. INTERIM OPERATIONS OF PURCHASER. Purchaser was formed
solely for the purpose of engaging in the Transactions and has not engaged in
any business activities or conducted any operations other than in connection
with the Transactions.
SECTION 4.07. ABSENCE OF LITIGATION. There is no Action pending or,
to the knowledge of the Parent and Purchaser, threatened against Parent or
Purchaser, or any property or asset of Parent or Purchaser, before any court,
arbitrator or Governmental Authority, which individually or in the aggregate,
reasonably would be expected to delay consummation of the Transactions or
otherwise prevent Parent or Purchaser from performing its obligations under this
Agreement. Neither Parent nor Purchaser nor any property or asset of Parent or
Purchaser is subject to any continuing order of, consent decree, settlement
agreement or other similar written agreement with, or, to the knowledge of
Parent and Purchaser, continuing investigation by, any Governmental Authority,
or any order, writ, judgment, injunction, decree, determination or award of any
Governmental Authority or arbitrator which, individually or in the aggregate,
would delay consummation of the Transactions or otherwise prevent Parent or
Purchaser from performing its obligations under this Agreement.
SECTION 4.08. OWNERSHIP OF COMPANY CAPITAL STOCK. As of the date of
this Agreement, neither Parent, Purchaser nor any of their affiliates is the
beneficial owner of any shares of capital stock of the Company.
SECTION 4.09. BROKERS. No broker, finder or investment banker (other
than Credit Suisse First Boston Corporation ("CSFB")) is entitled to any
brokerage, finder's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of Parent or
Purchaser. Parent agrees to pay all such fees and commissions of CSFB.
SECTION 4.10. NO IMPLIED REPRESENTATION. It is the explicit intent
of each party hereto that neither Parent nor Purchaser is making any
representation or warranty whatsoever, express or implied, beyond those given in
this Agreement, including but not limited to any implied warranty or
representation as to condition, merchantability or suitability.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. CONDUCT OF BUSINESS PENDING THE MERGER. The Company
agrees that, between the date of this Agreement and the Effective Time, except
as set forth in Section 5.01 of the Company Disclosure Schedule or as expressly
contemplated by any other provision of this Agreement, unless Parent or
Purchaser shall otherwise agree in writing, the businesses of the Company and
the Subsidiaries shall be conducted only in, and the Company
<PAGE>
28
and the Subsidiaries shall not take any action with respect to their businesses
except in, the ordinary course of business; and each of the Company and the
Subsidiaries shall use its reasonable efforts to preserve substantially intact
the business organization of the Company and the Subsidiaries, to keep available
the services of the current officers, employees and consultants of the Company
and the Subsidiaries, and to preserve the current relationships of the Company
and the Subsidiaries with physicians, customers, suppliers and other persons
with which the Company or any Subsidiary has significant business relations. By
way of amplification and not limitation, except as contemplated by this
Agreement, neither the Company nor any Subsidiary shall, between the date of
this Agreement and the Effective Time, directly or indirectly do any of the
following without the prior written consent of Parent or Purchaser:
(a) amend or otherwise change its Articles of Incorporation or
By-laws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of, (i) any
shares of capital stock of the Company or any Subsidiary, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of the Company or any Subsidiary
(except for the issuance of Shares issuable pursuant to Company Options
outstanding on the date hereof, 6,500 Shares to be issued pursuant to the
1996 Employee Stock Purchase Plan and any Shares required to be issued
under the Rights Agreement) or (ii) any assets of the Company or any
Subsidiary, except in the ordinary course of the business consistent with
past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock except that any Subsidiary may declare and pay
a dividend to the Company;
(d) reclassify, combine, split, subdivide or redeem any of its
capital stock, or purchase or otherwise acquire, directly or indirectly,
any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof; (ii)
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or
advances, except in the ordinary course of business; (iii) enter into any
material contract or agreement other than in the ordinary course of
business; (iv) authorize any single capital expenditure which is in excess
of $100,000 or capital expenditures which are, in the aggregate, in excess
of $250,000 for the Company and the Subsidiaries taken as a whole; or (v)
enter into or amend any contract, agreement,
<PAGE>
29
commitment or arrangement with respect to any matter set forth in this
Section 5.01(e);
(f) increase the compensation payable or to become payable or the
benefits provided to its officers or key employees, or grant any severance
or termination pay to, or enter into any employment or severance agreement
with any director or officer or other key employee of the Company or any
Subsidiary, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or similar plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee, except to
the extent such endorsement or termination is required by law;
(g) hire or retain any single employee or consultant at an annual
rate of compensation in excess of $50,000, or employees or consultants with
annual rates of compensation in excess of $250,000 in the aggregate;
(h) take any action, other than in the ordinary course of business
consistent with past practice, with respect to accounting policies or
procedures (including, without limitation, procedures with respect to the
payment of accounts payable and collection of accounts receivable);
(i) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(j) commence or settle any Action;
(k) amend, modify or consent to the termination of any Material
Contract or amend, modify or consent to the termination of the Company's or
any Subsidiary's rights thereunder, in a manner materially adverse to the
Company or any Subsidiary, other than in the ordinary course of business
consistent with past practice;
(l) enter into any contract or agreement that would have been a
Material Contract if entered into prior to the date hereof, other than in
the ordinary course of business; or
(m) enter into any contract or agreement that contemplates the
transfer by the Company of any interest in Owned Intellectual Property or
Licensed Intellectual Property.
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ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. SHAREHOLDERS' MEETING . (a) If required by applicable
law in order to consummate the Merger, the Company, acting through the Board,
shall, in accordance with applicable law and the Company's Articles of
Incorporation and By-laws, (i) duly call, give notice of, convene and hold a
special meeting of its shareholders as soon as practicable following
consummation of the Offer for the purpose of considering and taking action on
this Agreement and the Transactions (the "SHAREHOLDERS' MEETING") and (ii)
unless the Board determines in good faith that an alternative action is
necessary in accordance with its fiduciary duties to the Company and its
shareholders under applicable law after consultation with its outside legal
counsel, (A) include in the Proxy Statement the unanimous recommendation of the
Board that the holders of the Shares approve and adopt this Agreement and the
Merger and (B) use its reasonable efforts to obtain such approval and adoption
of the holders of Shares. At the Shareholders' Meeting, Parent and Purchaser
shall cause all Shares then owned by them and their subsidiaries to be voted in
favor of the approval and adoption of this Agreement and the Merger.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90 percent of the then outstanding Shares, the parties hereto
agree, subject to Article VII, to take all necessary and appropriate action to
cause the Merger to become effective, in accordance with Section 302A.621 of the
Minnesota Law, as soon as reasonably practicable after such acquisition, without
a meeting of the shareholders of the Company.
SECTION 6.02. PROXY STATEMENT. If required by applicable law, as
promptly as reasonably practicable following consummation of the Offer, the
Company shall file the Proxy Statement with the SEC under the Exchange Act, and
shall use its reasonable efforts to have the Proxy Statement cleared by the SEC.
Parent, Purchaser and the Company shall cooperate with each other in the
preparation of the Proxy Statement, and the Company shall notify Parent of the
receipt of any comments of the SEC with respect to the Proxy Statement and of
any requests by the SEC for any amendment or supplement thereto or for
additional information and shall provide to Parent promptly copies of all
correspondence between the Company or any representative of the Company and the
SEC. The Company shall give Parent and its counsel the reasonable opportunity
to review the Proxy Statement prior to its being filed with the SEC and shall
give Parent and its counsel the opportunity to review all amendments and
supplements to the Proxy Statement and all responses to requests for additional
information and replies to comments prior to their being filed with, or sent to,
the SEC. Each of the Company, Parent and Purchaser agrees to use its reasonable
efforts, after consultation with the other parties hereto, to respond promptly
to all such comments of, and requests by, the SEC and to cause the Proxy
Statement and all required amendments and supplements thereto to be mailed to
the holders of Shares entitled to vote at the Shareholders' Meeting at the
earliest practicable time.
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31
SECTION 6.03. COMPANY BOARD REPRESENTATION; SECTION 14(F). (a)
Promptly upon the purchase by Purchaser of Shares pursuant to the Offer
(provided that the Minimum Condition has been satisfied), and from time to time
thereafter, Purchaser shall be entitled, subject to compliance with Section
14(f) of the Exchange Act, to designate up to such number of directors, rounded
down to the next whole number (except where such rounding down would cause
Purchaser to not be entitled to designate at least a majority of directors on
the Board, in which case such number shall be rounded up), on the Board as shall
give Purchaser representation on the Board equal to the product of the total
number of directors on the Board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of Shares beneficially owned by Purchaser or any affiliate of Purchaser
following such purchase bears to the total number of Shares then outstanding,
and the Company shall, at such time, promptly take all actions necessary to
cause Purchaser's designees to be elected or appointed as directors of the
Company, including increasing the size of the Board or securing the resignations
of incumbent directors or both. At such times, the Company shall, upon the
written request of Purchaser, use its reasonable efforts to cause persons
designated by Purchaser to constitute the same percentage as persons designated
by Purchaser shall constitute of the Board of (i) each committee of the Board,
(ii) the board of directors of each Subsidiary and (iii) each committee of each
such board, in each case only to the extent permitted by applicable law.
Notwithstanding anything stated herein, if Shares are purchased pursuant to the
Offer, Parent and Purchaser shall use reasonable efforts to assure that until
the Effective Time, the Board shall have at least one director who is a director
on the date hereof and is not an employee of the Company.
(b) The Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order
to fulfill its obligations under this Section 6.03 and shall include in the
Schedule 14D-9 such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 to fulfill such
obligations. Parent or Purchaser shall supply to the Company and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by such Section 14(f) and
Rule 14f-1.
(c) Following the election of designees of Purchaser pursuant to
this Section 6.03, prior to the Effective Time, any amendment of this
Agreement or the Articles of Incorporation or By-laws of the Company, any
termination of this Agreement by the Company, any extension by the Company of
the time for the performance of any of the obligations or other acts of
Parent or Purchaser or waiver of any of the Company's rights hereunder shall
require the concurrence of a majority of the directors of the Company then in
office who neither were designated by Purchaser nor are employees of the
Company.
SECTION 6.04. ACCESS TO INFORMATION; CONFIDENTIALITY. (a) From the
date hereof to the Effective Time, upon reasonable notice, the Company shall,
and shall cause the
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32
Subsidiary and the officers, directors, employees, auditors and agents of the
Company and the Subsidiary to, afford the officers, employees and agents of
Parent and Purchaser reasonable access during normal business hours and upon
reasonable notice to the officers, employees, agents, properties, offices and
other facilities, books and records of the Company and each Subsidiary, and
shall furnish Parent and Purchaser with all financial, operating and other data
and information as Parent or Purchaser, through its officers, employees or
agents, may reasonably request. Parent and Purchaser shall make all reasonable
efforts to minimize any disruption to the businesses of the Company and the
Subsidiaries which may result from the requests for data and information
hereunder.
(b) All information obtained by Parent or Purchaser pursuant to this
Section 6.04 shall be kept confidential in accordance with the confidentiality
agreement, dated September 25, 1997 (the "CONFIDENTIALITY AGREEMENT"), between
Parent and the Company.
(c) No investigation pursuant to this Section 6.04 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
SECTION 6.05. NO SOLICITATION. (a) The Company shall, and shall
direct and use all reasonable efforts to 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 any
"acquisition proposal" (as defined in this Section 6.05(a)). The Company shall
not, nor shall it permit any Subsidiary to, nor shall it authorize or permit any
officer, director or employee of, or any investment banker, accountant, attorney
or other advisor or representative of, the Company or the Subsidiary to,
directly or indirectly, (i) solicit or initiate, or knowingly encourage the
submission of, any acquisition proposal or (ii) participate in any discussions
or negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate the making of any proposal that
constitutes, or may reasonably be expected to lead to, an acquisition proposal;
PROVIDED, HOWEVER, that, if and to the extent that, prior to the acceptance for
payment of Shares pursuant to the Offer, the Board determines in good faith that
it is necessary to do so in accordance with its fiduciary duties to the Company
and its shareholders under applicable law after consultation with its outside
legal counsel, the Company may, in response to a bona fide unsolicited
acquisition proposal, and subject to compliance with Section 6.05(c), (x)
furnish information with respect to the Company and provide access to the person
making such acquisition proposal pursuant to a customary confidentiality
agreement on terms no less favorable to the Company than those contained in the
Confidentiality Agreement and (y) participate in discussions and negotiations
regarding such acquisition proposal. For purposes of this Agreement,
"ACQUISITION PROPOSAL" means any bona fide proposal or offer from any person
relating to any direct or indirect acquisition of over 20% of any class of
equity securities of the Company or any Subsidiary, any tender offer or exchange
offer that if consummated would result in any person beneficially owning 20% or
more of any class of
<PAGE>
33
equity securities of the Company or any Subsidiary, or any merger,
consolidation, business combination, sale of all or a substantial part of the
assets other than in the ordinary course of business, recapitalization,
liquidation, dissolution or similar transaction involving the Company or any
Subsidiary, other than the Transactions.
(b) Except as set forth in this Section 6.05, neither the Board nor
any committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent, the approval or recommendation by the
Board or any such committee of the Offer, this Agreement or the Merger, (ii)
approve or recommend, or propose to approve or recommend, any acquisition
proposal or (iii) enter into any agreement with respect to any acquisition
proposal. Notwithstanding the foregoing, in the event that, prior to the time
of acceptance for payment of Shares pursuant to the Offer, the Board determines
in good faith that it is necessary in accordance with its fiduciary duties to
the Company and its shareholders under applicable law after consultation with
its outside legal counsel to enter into a definitive agreement with respect to a
Superior Proposal, the Board may terminate this Agreement in accordance with
Section 8.01(d)(ii) and concurrently with, or immediately after, such
termination cause the Company to enter into such agreement with respect to such
Superior Proposal and withdraw or modify its approval or recommendation of the
Offer, the Merger or this Agreement. For purposes of this Agreement, a
"SUPERIOR PROPOSAL" means any bona fide unsolicited proposal made by a third
party to acquire, directly or indirectly, more than 50% of the outstanding
Shares or the shares of capital stock of any surviving corporation in a merger
with the Company on a fully diluted basis or all or substantially all the assets
of the Company and otherwise on terms which the Board determines in its good
faith judgment (after consultation with its financial advisor) to be more
favorable to the Company's shareholders than the Offer and the Merger.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 6.05, the Company shall promptly advise
Parent orally and in writing of any request for information or of any
acquisition proposal and the material terms and conditions of such request or
acquisition proposal but need not identify the person making such request or
acquisition proposal.
(d) Nothing contained in this Section 6.05 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 the Board determines in good faith that it is
necessary to do so in accordance with its fiduciary duties to the Company and
its shareholders under applicable law after consultation with its outside legal
counsel, PROVIDED, HOWEVER, neither the Company nor the Board nor any committee
thereof shall, except as permitted by Section 6.05(b) or required pursuant to
Rule 14e-2(a) promulgated under the Exchange Act, withdraw or modify, or propose
publicly to withdraw or modify, its position with respect to the Offer, this
Agreement or the Merger or to approve or recommend, or propose publicly to
approve or recommend, an acquisition proposal.
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34
(e) The Company agrees not to release any third party from, or waive
any provision of, any confidentiality or standstill agreement to which the
Company is a party.
SECTION 6.06. EMPLOYEE STOCK OPTIONS AND OTHER EMPLOYEE BENEFITS.
(a) The Company shall take all such actions as shall be necessary to cause all
Company Options (including any related alternative rights) granted under the
Company Stock Plans (including those granted to current or former employees,
consultants and directors of the Company or any of its Subsidiaries) (the
"EMPLOYEE STOCK OPTIONS") to become exercisable either prior to the purchase of
the Shares pursuant to the Offer or immediately prior to the Effective Time, as
permitted pursuant to the terms and conditions of the applicable Company Stock
Plan. The Company shall take all such actions as shall be necessary to cause
all Employee Stock Options that are outstanding immediately prior to the
Effective Time (whether or not then presently exercisable or vested), to be
cancelled. In exchange for the cancellation of each such Employee Stock Option
(whether or not presently exercisable or vested), the holder thereof shall be
entitled to receive from the Company an amount in cash equal to the product of
the difference between the Per Share Amount and the per share exercise price of
such Employee Stock Option, and the number of shares of Company Common Stock
covered by such Employee Stock Option. All payments in respect of such Employee
Stock Options shall be made after the Effective Time and not later than five
business days following such time, subject to the Company's collection of all
applicable withholding taxes required by law to be collected by the Company.
The Company Stock Plans shall be terminated as of the Effective Time and
thereafter the only rights of participants therein shall be the right to receive
the consideration set forth in the previous sentence. Prior to the Effective
Time, the Company shall take action as may be necessary to carry out the terms
of this Section 6.06(a).
(b) Section 6.06(b) of the Company Disclosure Schedule contains a
list of each employee of the Company and the Subsidiary who has a written
employment agreement that provides for the payment of severance or similar-type
payments or benefits to such employee following such employee's termination of
employment with the Company and Subsidiary (the "EMPLOYMENT CONTRACTS").
(c) For the period through and including December 31, 1998, Parent
shall, or shall cause the Surviving Corporation to, maintain employee benefit
plans, programs and arrangements which are, in the aggregate, for the employees
as a whole who were active full-time employees of the Company or any Subsidiary
immediately prior to the Effective Time and continue to be active full-time
employees of Purchaser, the Surviving Corporation, any Subsidiary or any other
affiliate of Purchaser, no less favorable than those provided by the Company and
the Subsidiary immediately prior to the Effective Time. From and after the
Effective Time, for purposes of determining eligibility, vesting and entitlement
to vacation and severance and other benefits for employees actively employed
full-time by the Company or any Subsidiary immediately prior to the Effective
Time under any compensation, severance, welfare, pension, benefit, savings or
other plan of Purchaser or any of its affiliates in which active full-time
employees of the Company and any Subsidiary
<PAGE>
35
become eligible to participate (whether pursuant to this Section 6.06(c) or
otherwise), service with the Company or any Subsidiary (whether before or after
the Effective Time) shall be credited as if such service had been rendered to
Purchaser or such affiliate.
SECTION 6.07. S&N OPTIONS. (a) All Company Options (including any
related alternative rights) issued to S&N by the Company (the "S&N OPTIONS")
shall vest, terminate, become exercisable and be cancelled in accordance with
their terms and conditions. The Company shall take all such actions as shall be
necessary to cause all S&N Options that are outstanding immediately prior to the
Effective Time (whether or not then presently exercisable or vested) to be
cancelled. In exchange for the cancellation of each S&N Option, the holder of
the S&N Options (whether or not then presently exercisable or vested) shall be
entitled to receive from the Company an amount in cash equal to the product of
the difference between the Per Share Amount and the per share exercise price of
such S&N Option, and the number of shares of Company Common Stock covered by
such S&N Option. Prior to the Effective Time, the Company shall take action as
may be necessary to carry out the terms of this Section 6.07(a).
(b) The Company has provided Parent true and complete copies of the
S&N Options. Section 6.07(b) of the Company Disclosure Schedule sets forth a
true and complete list of the S&N Options, together with information as to each
S&N Option with respect to date of grant, vesting date, and amount of Company
Common Stock underlying such S&N Option.
SECTION 6.08. DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) The By-laws or Articles of Incorporation of the Surviving Corporation shall
contain provisions no less favorable with respect to indemnification, expense
advancement and exculpation than are set forth in Section 4.01 of the By-laws or
in the Articles of Incorporation of the Company, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time (or, in the event any claim is asserted within such six year
period, until final disposition of that claim) in any manner that would affect
adversely the rights thereunder of individuals who at the Effective Time or at
any time prior thereto were directors, officers, employees, fiduciaries or
agents of the Company, unless such modification shall be required by Minnesota
Law. To the extent that the obligations under such provisions are not fully
performed by the Surviving Corporation, Parent agrees to perform fully the
obligations thereunder for the remaining period.
(b) Parent or the Surviving Corporation shall use its best efforts to
maintain in effect for a period of not less than six years from the Effective
Time the current directors' and officers' liability insurance policies
maintained by the Company (provided that Parent or the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are no less favorable to such directors and officers) with
respect to matters occurring prior to the Effective Time. Notwithstanding the
foregoing, in no event shall Parent or the Surviving Corporation be required to
expend
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36
pursuant to this Section 6.08(b) more than an amount per year equal to 150% of
current annual premiums (the "CURRENT PREMIUMS") paid by the Company for such
insurance (which premiums the Company represents and warrants to be $120,000 in
the aggregate); and, PROVIDED, FURTHER, that if the Parent or the Surviving
Corporation is not able to obtain the amount of insurance required by this
Section 6.08(b) for such aggregate premium, Parent or the Surviving Corporation
shall obtain as much insurance as can be obtained for an annual premium of 150%
of the Current Premiums.
SECTION 6.09. RIGHTS PLAN. The Company shall not redeem the Company
Rights prior to the Effective Time unless this Agreement shall have been
terminated pursuant to Article VIII or unless required to do so by order of a
court of competent jurisdiction. The Board shall take, or cause to be taken,
such action as is necessary to effect the amendments to the Rights Plan as
approved by the Board and described in Section 3.20.
SECTION 6.10. NOTIFICATION OF CERTAIN MATTERS. The Company shall
give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) the occurrence, or non-occurrence, to the extent the Company has
knowledge thereof, of any event the occurrence, or non-occurrence, of which
would cause any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect when made provided that no breach
of this covenant shall be deemed to have occurred if the occurrence or
non-occurrence did not result in a breach that had a Material Adverse Effect,
and (ii) any material failure of the Company, Parent or Purchaser, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery
of any notice pursuant to this Section 6.10 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
SECTION 6.11. FURTHER ACTION; REASONABLE EFFORTS. (a) Upon the
terms and subject to the conditions hereof, each of the parties hereto shall (i)
make promptly its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the Transactions and (ii) use all
reasonable efforts to take, or cause to be taken, all appropriate action, 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, including, without limitation, using its reasonable efforts to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and each Subsidiary as are necessary for the consummation of
the Transactions and to fulfill the conditions to the Offer and the Merger. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall use their reasonable efforts to
take all such action.
(b) Each of the parties hereto agrees to cooperate and use its
reasonable efforts vigorously to contest and resist any action, including
administrative or judicial action,
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37
and to have vacated, lifted, reversed or overturned any decree, judgment,
injunction or other order (whether temporary, preliminary or permanent) (an
"ORDER") that is in effect and that restricts, prevents or prohibits the
consummation of the Transactions, including, without limitation, by vigorously
pursuing all available avenues of administrative and judicial appeal.
(c) Each of the parties hereto agrees that the provisions of this
Section shall not interfere with Board's exercise of its fiduciary duties to the
Company and its shareholders as specified in Sections 1.02, 6.01, 6.05 and 8.01.
SECTION 6.12. PUBLIC ANNOUNCEMENTS. Unless otherwise required by
applicable law or stock exchange or NASD requirements applicable to any party
hereto, neither Parent nor the Company shall issue any such press release or
make any such public statement shall with respect to this Agreement or any
Transaction without the consent of the other. In the event that Parent or the
Company shall be required by applicable law or stock exchange or NASD
requirements to make any such release or statement, it shall first consult the
other.
SECTION 6.13. CONFIDENTIALITY AGREEMENT. The Company hereby waives
the provisions of the Confidentiality Agreement as and to the extent necessary
to permit the consummation of each Transaction. Upon the acceptance for payment
of Shares pursuant to the Offer, the Confidentiality Agreement shall be deemed
to have terminated without further action by the parties thereto.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. CONDITIONS TO THE MERGER. The respective obligations
of each party to effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the shareholders of
the Company to the extent required by the Minnesota Law and the Articles of
Incorporation of the Company;
(b) HSR ACT. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated;
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38
(c) NO ORDER. No foreign, United States or state governmental
authority or other agency or commission or foreign, United States or state
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making the acquisition of
Shares by Parent or Purchaser or any affiliate of either of them illegal or
otherwise restricting, preventing or prohibiting consummation of the Offer
or Merger; and
(d) OFFER. Purchaser or its permitted assignee shall have purchased
all Shares validly tendered and not withdrawn pursuant to the Offer;
PROVIDED, HOWEVER, that the obligation of Parent and Purchaser to effect
the Merger shall not be conditioned upon this Section 7.01(d) if the
failure of Purchaser to purchase the Shares pursuant to the Offer shall
have constituted a breach of the Offer or this Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION. This Agreement may be terminated and the
Merger and the other Transactions may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and adoption of this
Agreement and the transactions contemplated hereby by the shareholders of the
Company:
(a) By mutual written consent of Parent, Purchaser and the Company
duly authorized by the Boards of Directors of Parent, Purchaser and the
Company; or
(b) By Parent, Purchaser or the Company if (i) the Shares shall not
have been accepted for payment pursuant to the Offer on or before March 31,
1998; PROVIDED, HOWEVER, that the right to terminate this Agreement under
this Section 8.01(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Shares to have been accepted for payment on
or before such date nor be available to Parent or Purchaser unless the
failure to accept Shares for payment pursuant to the Offer resulted from
the failure of any one of the conditions set forth in Annex A to have been
satisfied; or (ii) any court of competent jurisdiction or other
governmental authority shall have issued an order, decree, ruling or taken
any other action restraining, enjoining or otherwise prohibiting the Merger
and such order, decree, ruling or other action shall have become final and
nonappealable or, if a temporary order, shall not have been lifted within
20 days of being issued; or
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39
(c) By Parent if due to an occurrence or circumstance, other than as
a result of a breach by Parent or Purchaser of their obligations hereunder,
resulting in a failure to satisfy any condition set forth in Annex A
hereto, Purchaser shall have (i) failed to commence the Offer within 30
days following the date of this Agreement or (ii) terminated the Offer
without having accepted any Shares for payment thereunder; or
(d) By the Company, upon approval of the Board, if (i) due to an
occurrence or circumstance that would result in a failure to satisfy any of
the conditions set forth in Annex A hereto, Purchaser shall have terminated
the Offer without having accepted any Shares for payment thereunder or (ii)
prior to the purchase of Shares pursuant to the Offer, if the Board
determines in good faith, after giving effect to any concessions that may
be offered by Parent, that it is necessary to do so in accordance with its
fiduciary duties to the Company and its shareholders under applicable law
after consultation with its outside legal counsel in order to enter into a
definitive agreement with respect to a Superior Proposal, upon five days'
prior written notice to Parent, setting forth in reasonable detail the
final terms and conditions of the Superior Proposal (but the Company shall
not be required to disclose the identity of the person making the Superior
Proposal); PROVIDED, HOWEVER, that any termination of this Agreement
pursuant to this Section 8.01(d)(ii) shall not be effective until the
Company has made full payment of all amounts provided under Section 8.03.
SECTION 8.02. EFFECT OF TERMINATION. In the event of the termination
of this Agreement pursuant to Section 8.01, this Agreement shall forthwith
become void, and there shall be no liability on the part of any party hereto,
except (i) as set forth in Sections 8.03 and 9.01 and (ii) nothing herein shall
relieve any party from liability for any willful and material breach hereof.
SECTION 8.03. FEES AND EXPENSES. (a) In the event that
(i) any person (including, without limitation, the Company or any
affiliate thereof), other than Parent or any affiliate of Parent, shall
have become the beneficial owner of more than 20% of the then outstanding
Shares; and this Agreement shall have been terminated pursuant to Section
8.01; or
(ii) any person shall have publicly made or communicated to the
Company an acquisition proposal that is publicly disclosed and the Board
shall have either (A) withdrawn, amended or modified its recommendation of
the Offer in a manner adverse to Parent and Purchaser, (B) recommended such
acquisition proposal or (C) taken any action with respect to the Rights
Agreement to facilitate such acquisition proposal, and (x) the Offer shall
have remained open for at least 20 business days, (y)
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40
the Minimum Condition shall not have been satisfied and (z) this Agreement
shall have been terminated pursuant to Section 8.01; or
(iii) this Agreement is terminated pursuant to Section 8.01(d)(ii);
or
(iv) the Company enters into an agreement with respect to an
acquisition proposal or an acquisition proposal is consummated, in each
case within 18 months after the termination of this Agreement pursuant to
Section 8.01(b)(i), 8.01(c), or 8.01(d)(i), which termination resulted from
a breach by the Company of its obligations hereunder, resulting in a
failure to satisfy any condition set forth on Annex A hereto, and the
Company shall not theretofore have been required to pay the Fee to Parent
pursuant to Section 8.03(a)(i), 8.03(a)(ii) or 8.03(a)(iii);
then, in any such event, the Company shall pay Parent promptly (but in no event
later than one business day after the first of such events shall have occurred)
a fee of $15,000,000 (the "FEE"), which amount shall be payable in immediately
available funds, plus all Expenses (as hereinafter defined). In no event shall
more than one Fee be payable under this Section 8.03(a).
(b) The Company shall, at such time as a Fee is required to be paid,
reimburse each of Parent, Purchaser and their respective stockholders and
affiliates (not later than one business day after submission of statements
therefor) for up to $5,000,000 of actual and documented out-of-pocket expenses
(including, without limitation, fees and expenses payable to all banks,
investment banking firms, other financial institutions and other persons and
their respective agents and counsel, for arranging, committing to provide or
providing any financing for the Transactions or structuring the Transactions and
all fees of counsel, accountants, experts and consultants to Parent, Purchaser
and their respective shareholders and affiliates, and all printing and
advertising expenses) actually incurred or accrued by either of them or on their
behalf in connection with the Transactions, including, without limitation, the
financing thereof, and actually incurred by banks, investment banking firms,
other financial institutions and other persons and assumed by Parent or
Purchaser in connection with the negotiation, preparation, execution and
performance of this Agreement, the structuring and financing of the Transactions
and any financing commitments or agreements relating thereto (all of the
foregoing being referred to herein collectively as the "EXPENSES").
(c) Except as set forth in this Section 8.03, all costs and expenses
incurred in connection with this Agreement and the Transactions shall be paid by
the party incurring such expenses, whether or not any Transaction is
consummated.
(d) In the event that the Company shall fail to pay the Fee or any
Expenses when due, the term "Expenses" shall be deemed to include the
out-of-pocket costs and expenses actually incurred by Parent and Purchaser
(including, without limitation, fees and
<PAGE>
41
out-of-pocket expenses of counsel) in connection with the collection under and
enforcement of this Section 8.03, together with interest on such unpaid Fee and
Expenses, commencing on the date that the Fee or such Expenses became due, at a
rate equal to the rate of interest publicly announced by Citibank, N.A., from
time to time, in The City of New York, as such bank's Prime Rate plus 2.00%.
SECTION 8.04. AMENDMENT. Subject to Section 6.03 and applicable law,
this Agreement may be amended by the parties hereto by action taken by or on
behalf of their respective Boards of Directors at any time prior to the
Effective Time; PROVIDED, HOWEVER, that, after the approval and adoption of this
Agreement and the transactions contemplated hereby by the shareholders of the
Company, no amendment may be made which would reduce the amount or change the
type of consideration into which each Share shall be converted upon consummation
of the Merger. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 8.05. WAIVER. At any time prior to the Effective Time, any
party hereto may (i) extend the time for the performance of any obligation or
other act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid if set forth in
an instrument in writing signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that the agreements set
forth in Articles II and IX and Sections 6.06(a) and 6.08 shall survive the
Effective Time indefinitely and those set forth in Sections 6.04(b), 8.03 and
9.01 shall survive termination indefinitely.
SECTION 9.02. NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) or overnight courier, to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 9.02):
<PAGE>
42
if to Parent or Purchaser:
Sulzer Medica Ltd
CH - 8401
Winterthur, Switzerland
Telecopier: 41-52-262-0059
Attention: Andre P. Buchel
and
Sulzer Medica Orthopedics Acquisition Corp.
c/o Sulzer Medica USA Inc.
Angleton, Texas 77515
Telecopier: (409) 849-1940
Attention: Lawrence H. Panitz, Esq.
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Peter D. Lyons, Esq.
if to the Company:
Spine-Tech, Inc.
7375 Bush Lake Road
Minneapolis, Minnesota 55439-2029
Telecopier: (612) 830-6388
Attention: David W. Stassen
with a copy to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402-3901
Telecopier: (612) 336-3026
Attention: W. Smith Sharpe, Esq.
<PAGE>
43
SECTION 9.03. CERTAIN DEFINITIONS. For purposes of this Agreement,
the term:
(a) "AFFILIATE" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with, such specified person;
(b) "BENEFICIAL OWNER" with respect to any Shares means a person who
shall be deemed to be the beneficial owner of such Shares (i) which such
person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly
or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or associates or person with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any Shares;
(c) "BUSINESS DAY" means any day on which the principal offices of
the SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in The City of New York or the State of
Minnesota;
(d) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise;
(e) "INTELLECTUAL PROPERTY" means (a) inventions, whether or not
patentable, whether or not reduced to practice, or whether or not yet made
the subject of a pending patent application or applications, (b)
potentially patentable subject matter, including, without limitation, any
patent disclosures, whether or not reduced to practice and whether or not
yet made the subject of a pending patent application or applications, (c)
national and multinational statutory invention registrations, patents,
patent registrations, inventor's certificates, renewals, substitutions and
patent applications (including all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations) and all rights
therein provided by multinational treaties or conventions and all
improvements to the inventions disclosed in each such registration, patent,
certificate or application, (d) trademarks, service marks, trade
<PAGE>
44
dress, logos, trade names and corporate names, whether or not registered,
including all common-law rights, and registrations and applications for
registration thereof (for purposes of this subpart (d), collectively,
"MARKS"), including, but not limited to, all Marks registered in the United
States Patent and Trademark Office, the Trademark Offices of the States and
Territories of the United States of America, and the Trademark Offices of
other nations throughout the world, and all rights therein provided by
multinational treaties or conventions, (e) copyrights (registered or
otherwise) and registrations and applications for registration thereof, and
all rights therein provided by multinational treaties or conventions, (f)
moral rights (including, without limitation, rights of paternity and
integrity), and waivers of such rights by others, (g) computer software
specifically designed or custom created, including, without limitation,
source code, operating systems and specifications, Company data, Company
data bases, Company files, Company documentation and other materials
related thereto, (h) trade secrets and confidential, technical or business
information (including ideas, formulas, compositions, inventions, and
conceptions of inventions whether patentable or unpatentable and whether or
not reduced to practice), (i) whether or not confidential, technology
(including know-how and show-how), manufacturing and production processes
and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data and copyrightable
works, (j) copies and tangible embodiments of all of the foregoing, in
whatever form or medium, (k) all rights to obtain and rights to apply for
patents, and to register trademarks and copyrights, and (l) all rights to
sue and recover and retain damages and costs and attorneys' fees for
present and past infringement of any of the Intellectual Property rights
hereinabove set out;
(f) "KNOWLEDGE OF THE COMPANY" means the actual knowledge of the
executive officers of the Company;
(g) "LICENSED INTELLECTUAL PROPERTY" means all Intellectual Property
licensed, sublicensed or franchised to the Company or any Subsidiary from a
third party and which the Company or such Subsidiary has a right to use in
its business, is necessary to operate either such business, is used by the
Company or any Subsidiary in connection with the development, manufacture
or production of products or is otherwise used, held or intended to be used
by either the Company or any Subsidiary in its business;
(h) "OWNED INTELLECTUAL PROPERTY" means all Intellectual Property in
and to which the Company or any Subsidiary holds, or has a right to hold,
right, title and interest and which the Company or such Subsidiary has a
right to use in its business, is necessary to operate either such business,
is used by the Company or any Subsidiary in connection with the
development, manufacture or production of products or is otherwise used,
held or intended to be used by either the Company or any Subsidiary in its
business;
<PAGE>
45
(i) "PERSON" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person"
as defined in Section 13(d)(3) of the Exchange Act), trust, association or
entity or government, political subdivision, agency or instrumentality of a
government; and
(j) "SUBSIDIARY" or "SUBSIDIARIES" of the Company, the Surviving
Corporation, Parent or any other person means an entity, a majority of the
voting power which is controlled by such person, directly or indirectly,
through one or more intermediaries.
SECTION 9.04. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
SECTION 9.05. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes, except as set forth in Sections 6.04(b) and 6.13,
all prior agreements and undertakings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof. This Agreement shall
not be assigned by operation of law or otherwise, except that Parent and
Purchaser may assign all or any of their rights and obligations hereunder to any
affiliate of Parent, PROVIDED that no such assignment shall relieve the
assigning party of its 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 9.06. PARTIES IN INTEREST. Except as set forth in Section
6.07, this Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
SECTION 9.07. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
<PAGE>
46
SECTION 9.08. GOVERNING LAW. Except to the extent that the laws of
Minnesota are mandatorily applicable to the Merger, this Agreement shall be
governed by, and construed in accordance with, the laws of the State of New York
applicable to contracts executed in and to be performed in that State. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any U.S. federal court located in the Borough of
Manhattan, The City of New York. The parties hereto hereby (i) submit to the
exclusive jurisdiction of any U.S. federal court located in the Borough of
Manhattan, The City of New York for the purpose of any Action arising out of or
based upon this Agreement or the Transactions brought by any party hereto, and
(ii) waive, and agree not to assert by way of motion, as a defense, or
otherwise, in any such Action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that the Action is brought in an
inconvenient forum, that the venue of the Action is improper, or that this
Agreement or the Transactions may not be enforced in or by any of the
above-named courts.
SECTION 9.09. HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.10. INTERPRETATION. As used in this Agreement, unless
otherwise expressly defined herein, (i) the term "including" shall mean
"including without limitation"; and (ii) all dollar amounts are expressed in
United States funds.
SECTION 9.11. COUNTERPARTS. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
SECTION 9.12. COMPANY DISCLOSURE SCHEDULE. Matters reflected in the
Company Disclosure Schedule are not necessarily limited to matters required by
this Agreement to be reflected in the Company Disclosure Schedule. Such
additional matters are set forth for informational purposes and do not
necessarily include other matters of a similar nature.
<PAGE>
47
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SULZER MEDICA LTD
By /s/ A. Buchel
--------------------------------
Name: Andre P. Buchel
Title: CEO
SULZER MEDICA ORTHOPEDICS ACQUISITION
CORP.
By /s/ A. Buchel
--------------------------------
Name: Andre P. Buchel
Title: CEO
SPINE-TECH, INC.
By /s/ David W. Stassen
--------------------------------
Name: David W. Stassen
Title: CEO
<PAGE>
ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not
be required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) the Minimum Condition shall
not have been satisfied after the Offer has remained open for at least 20
business days, (ii) any applicable waiting period under the HSR Act shall not
have expired or been terminated prior to the expiration of the Offer, or (iii)
at any time on or after the date of this Agreement, and prior to the acceptance
for payment of Shares, any of the following conditions shall exist:
(a) there shall have been threatened or instituted by any
Governmental Authority any action or proceeding before any court or
governmental, administrative or regulatory authority or agency of competent
jurisdiction, domestic or foreign, (i) challenging or seeking to make
illegal, materially delay or otherwise directly or indirectly restrain or
prohibit or make materially more costly the making of the Offer, the
acceptance for payment of, or payment for, any Shares by Parent, Purchaser
or any other affiliate of Parent, or the consummation of any other
Transaction, or seeking to obtain material damages in connection with any
Transaction; (ii) seeking to prohibit or limit materially the ownership or
operation by the Company, Parent or any of their subsidiaries of all or any
material portion of the business or assets of the Company, Parent or any of
their subsidiaries, or to compel the Company, Parent or any of their
subsidiaries to dispose of or hold separate all or any portion of the
business or assets of the Company, Parent or any of their subsidiaries, as
a result of the Transactions; (iii) seeking to impose or confirm
limitations on the ability of Parent, Purchaser or any other affiliate of
Parent to exercise effectively full rights of ownership of any Shares,
including, without limitation, the right to vote any Shares acquired by
Purchaser pursuant to the Offer or otherwise on all matters properly
presented to the Company's shareholders, including, without limitation, the
approval and adoption of this Agreement and the Transactions; (iv) seeking
to require divestiture by Parent, Purchaser or any other affiliate of
Parent of any Shares; or (v) which otherwise has a Material Adverse Effect;
(b) there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to (i) Parent, the Company or any subsidiary or affiliate of
Parent or the Company or (ii) any Transaction, by any legislative body,
court, government or governmental, administrative or regulatory authority
or agency, domestic or foreign, other than the routine application of the
waiting period provisions of the HSR Act to the Offer or the Merger, which
is
<PAGE>
2
reasonably likely to result, directly or indirectly, in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above,
except that the Offer may not be terminated or amended solely because of a
temporary order or injunction unless it is not lifted within 20 days after
being issued;
(c) there shall have occurred any changes, conditions, events or
developments that have, individually or in the aggregate, a Material
Adverse Effect;
(d) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the New York Stock
Exchange, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or Switzerland or (iii)
any limitation (whether or not mandatory) by any government or
governmental, administrative or regulatory authority or agency of the
United States or Switzerland on the extension of credit by banks or other
lending institutions;
(e) (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of more than 20% of the then outstanding Shares has been acquired by
any person, other than Parent or any of its affiliates or (ii) (A) the
Board or any committee thereof shall have withdrawn or modified in a manner
adverse to Parent or Purchaser the approval or recommendation of the Offer,
the Merger or the Agreement, or approved or recommended any acquisition
proposal or any other acquisition of Shares other than the Offer or the
Merger or (B) the Board or any committee thereof shall have resolved to do
any of the foregoing;
(f) the representations or warranties of the Company in the Agreement
shall not be true and correct, ignoring for this purpose any qualification
as to materiality or Material Adverse Effect, as if such representations or
warranties were made as of such time on or after the date of this
Agreement, except where the failure to be so true and correct, individually
and in the aggregate, would not have a Material Adverse Effect;
(g) the Company shall have failed to perform in any material respect
any obligation or to comply in any material respect with any agreement or
covenant of the Company to be performed or complied with by it under the
Agreement;
(h) the Agreement shall have been terminated in accordance with its
terms; or
<PAGE>
3
(i) Purchaser and the Company shall have agreed that Purchaser shall
terminate the Offer or postpone the acceptance for payment of or payment
for Shares thereunder;
which, in the reasonable good faith judgment of Purchaser in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
any of its affiliates) giving rise to any such condition, makes it inadvisable
to proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and
Parent and may be asserted by Purchaser or Parent regardless of the
circumstances giving rise to any such condition or may be waived by Purchaser or
Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent or Purchaser 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 other 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.
<PAGE>
EXHIBIT I
ARTICLES OF INCORPORATION
<PAGE>
STATE OF MINNESOTA
[SEAL OF THE STATE OF MINNESOTA]
SECRETARY OF STATE
This is to acknowledge that the items desribed below have been accepted by the
Secretary of State of Minnesota on the date noted. Those documents will be
microfilmed and the original will be returned to the submitter within ten days.
The microfilm will be available for public inspection at the office of the
Secretary of State.
- --------------------------------------------------------------------------------
Description of Item Date Accepted
Articles 12/12/97
- --------------------------------------------------------------------------------
Company Name
Pike Acquisition Corp.
- --------------------------------------------------------------------------------
Secretary of State
Business Service Division by: /s/ Linda J. Crawley
180 State Office Bldg., 100 Constitution Ave. ---------------------------
St. Paul, MN 55155-1299, (612)296-2803 Evidence of Filing
<PAGE>
ARTICLES OF INCORPORATION
OF
PIKE ACQUISITION CORP.
The undersigned incorprator, being a natural person 18 years of age or
older, in order to form a corporate entity under Minnesota Statutes, Chapter
302A, hereby adopts the following Articles of Incorporation:
ARTICLE I
The name of the corporation is Pike Acquisition Corp. (the
"Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State
of Minnesota is C T Corporation System, Inc., 405 Second Avenue, South,
Minneapolis, MN 55041.
ARTICLE III
The Corporation is authorized to issue an aggreagte total of 1,000
shares, all of which shall be designated Common Stock, having a par value of
$.01 per share.
ARTICLE IV
The name and address of the incorporator of this Corporation is as
follows:
James Silk
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
<PAGE>
2
ARTICLE V
No shareholder of this Corporation shall have any cumulative voting
rights.
ARTICLE VI
No shareholder of this Corporation shall have any preemptive rights by
virtue of Section 302A.413 of the Minnesota Statutes (or any similar provisions
of future law) to subscribe for, purchase or acquire (i) any shares of the
Corporation of any class or series, whether unissued or now or hereafter
authorized, or (ii) any obligations or other securities convertible into or
exchangeable for (or that carry any other right to acquire) any such shares,
securities or obligations, or (iii) any other rights to purchase any such
shares, securities or obligations. The Corporation shall have the power,
however, in its discretion to grant such rights by agreement or other instrument
to any person or persons (whether or not they are shareholders).
ARTICLE VII
Any action required or permitted to be taken at a meeting of the Board
of Directors of this Corporation not needing approval by the shareholders under
Minnesota Statutes, Chapter 302A, may be taken by written action signed by the
number of directors that would be required to take such action at a meeting of
the Board of Directors at which all directors are present.
ARTICLE VIII
No director of this Corporation shall be personally liable to the
Corporation or its shareholders for monetary dameges for breach of fiuciary duty
by such director as a director; provided, however, that this Article shall not
eliminate or limit the liability of a director to the extent provided by
applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders, (ii) for act or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 302A.559 or 80A.23 of the Minnesota Statutes, (iv) for any transaction
from which the director derived an improper personal benefit or (v) for any act
or omission occuring prior to the effective date of this Article. No amendment
to or repeal of this Article shall apply to or have any effect on the liability
or alleged liability of any director of the Corporation for or with respect to
any acts or omissions of such director occurring prior to such amendment or
repeal.
<PAGE>
3
IN WITNESS WHEREOF, I have hereunto set my hand this 12th day of
December, 1997.
/s/ James G. Silk
------------------------------
James G. Silk, Incorporator
[Stamped by
Minnesota
Secretary of
State]
<PAGE>
[SEAL OF THE STATE OF MINNESOTA]
MINNESOTA SECRETARY OF STATE
AMENDMENT OF ARTICLES OF INCORPORATION
---------------------------------------
READ INSTRUCTIONS LISTED BELOW, BEFORE COMPLETING THIS FORM.
1. Only complete the "Amendment of Articles of Incorporation" form if you are
making changes to items 2-4 of the "Annual Registration" form (reverse side).
2. Type or print in black ink.
3. There is a $35.00 fee payable to the Secretary of State for filing this
"Amendment of Articles of Incorporation".
4. Return Completed Amendment Form and Fee to the address listed on the bottom
of the form.
- --------------------------------------------------------------------------------
CORPORATE NAME:(List the name of the company prior to any desired name change)
Pike Acquisition Corp.
- --------------------------------------------------------------------------------
This amendment is effective on the day it is filed with the Secretary of State,
unless you indicate another date, no later than 30 days after filing with the
Secretary of State.
----------------------------
The following amendment(s) of articles regulating the above corporation were
adopted: (Insert full text of newly amended article(s) indicating which
article(s) is (are) being amended or added.) If the full text of the amendment
will not fit in the space provided, attach additional numbered pages. (Total
number of pages including this form ____.)
ARTICLE 1
The name of the corporation is Sulzer Medica Orthopedics Acquisition Corp. (the
"Corporation").
This amendment has been approved pursuant to MINNESOTA STATUTES CHAPTER 302A OR
317A. I certify that I am authorized to execute this amendment and further
certify that I understand that by signing this amendment, I am subject to the
penalties of perjury as set forth in section 609.48 as if I has signed this
amendment under oath.
/s/ Illegible
--------------------------------
(Signature of Authorized Person)
- ---------------------------------------------- --------------------------------
If you have any questions please contact the FOR OFFICE USE ONLY
Secretary of State's office at (612) 296-2803.
RETURN TO:
Secretary of State/Records Processing Station
180 State Office Bldg., 100 Constitution Ave.
St. Paul, MN 55155-1299
<PAGE>
Exhibit 2
CONFIDENTIAL
September 25, 1997
Sulzer Medica
400 Technology Drive
Angleton, Texas 77515
Attention: Robert Cohen
Group Vice President of Business Development
CONFIDENTIALITY AGREEMENT
Ladies and Gentlemen:
In connection with your possible interest in a business transaction
involving Spine-Tech, Inc. (the "Company"), the Company and you may provide
each other with certain information which is either non-public, confidential
or proprietary in nature. For purposes of this Agreement, the party
disclosing such information in any given instance is sometimes referred to as
the "Disclosing Party" and the Party receiving such information is
sometimes referred to as the "Recipient Party." All information furnished or
to be furnished to the Recipient party by the Disclosing Party, or by its
representatives with respect to the Disclosing Party (including without
limitation any information in the Disclosing Party's possession that has been
supplied to the Disclosing Party by customers or other third parties and that
is furnished to the Recipient Party, if any), in whole or in part, together
with analyses, compilations, studies or other documents prepared by the
Recipient Party, any of the Recipient Party's affiliates, the Recipient
Party's partners, directors, officers, employees, agents or advisers, or
those of any of the Recipient Party's affiliates, which contain or otherwise
reflect such information, is hereinafter referred to as "Information". In
addition, the fact that such information will be, or has been, delivered to
the Recipient Party itself constitutes Information for purposes of this
Agreement. If the Company and you shall hereafter determine to enter into
discussions or negotiations concerning a possible transaction involving the
Company and
<PAGE>
you or an affiliate of yours, the existence and nature of such discussions
and negotiations will also constitute Information for purposes of this
Agreement. In consideration of the foregoing and good and valuable other
consideration, the receipt of which is hereby acknowledged, you and the
Company agree as follows:
1. All Information will be kept confidential and will not, without the
prior written consent of the Disclosing Party, be disclosed by the Recipient
Party, any of the Recipient Party's affiliates, the Recipient Party's
partners, directors, officers, employees, agents or advisers, or those of any
of the Recipient Party's affiliates, in any manner whatsoever, in whole or in
part, and will not be used by any of the foregoing other than in connection
with considering your possible interest in a transaction with the Company.
Moreover, the Recipient Party agrees to transmit Information only to the
Recipient Party's partners, directors, officers, employees, agents and
advisers, or those of the Recipient Party's affiliates who need to know
Information for the purpose of considering the Recipient Party's possible
interest in a transaction with the Disclosing Party and who are informed by
the Recipient Party of the confidential nature of Information, and who agree
to be bound by this Agreement. The Recipient Party will be responsible for
any breach of any provision of this Agreement by the Recipient Party's
affiliates, partners, directors, officers, employees, agents and advisers and
those of the Recipient Party's affiliates.
2. In no event shall Information be used by the Recipient Party, the
Recipient Party's affiliates, or any of the Recipient Party's partners,
directors, officers, employees, agents or advisers, or those of the Recipient
Party's affiliates, in connection with purchases or sales of, or trading in,
any securities of the Disclosing Party, including but not limited to direct
or indirect purchases or sales, offers or agreements to purchase or sell, or
rights or options to purchase or sell any such securities. You hereby
acknowledge that neither you nor any of your subsidiaries own any capital
stock of the Company.
3. You agree that, except as otherwise provided in the last sentence of
this paragraph 3, for a period of eighteen months from the date hereof, you
and your affiliates and associates (as such terms are defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended (the "Exchange Act'))
will not (and you and they will not assist or encourage others to), directly
or indirectly, without the prior written consent of the Company.
(a) acquire or agree (except with the Company) or publicly offer, seek
or propose to acquire, or cause to be acquired (by merger, tender
offer, purchase, statutory share exchange or otherwise), ownership
(including, but not limited to, beneficial ownership as defined in
Rule 13d-3 under the Exchange Act) of any of the Company's assets
(other than acquisitions of inventory in the ordinary course of
business) or businesses or any voting stock that would result in
beneficial ownership by you and your affiliates and associates of
voting stock of the Company in excess of 1% of the total voting
power of the outstanding shares of stock of the Company in the
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aggregate, for which purpose any rights or options (including
without limitation convertible securities) to acquire such ownership
of voting stock shall constitute beneficial ownership of such voting
stock, regardless of when they are exercisable, provided that
nothing herein stated shall limit your right to make a proposal to
the Board of Directors of the Company on a confidential basis as
long as such proposal is not made public by you (or any of your
affiliates or associates or any person acting in concert with you or
any of your affiliates or associates) by press release or other
public communication or filing unless you are legally compelled to
make such disclosure; or
(b) seek or propose to influence or control the management or policies
of the Company or to obtain representation on the Company's Board of
Directors, or solicit, or participate in the solicitation of,
proxies or consents with respect to any securities of the Company in
connection with the election of directors or any other matter or
disclose to the public by press release or other communication its
or their position concerning the election of directors or any other
matter to be considered by the shareholders of the Company, or
request permission to do any of the foregoing; or
(c) make any other public announcement with respect to any of the
foregoing; or
(d) publicly request the Company, direct or indirectly, to waive or
amend any provision of this paragraph 3.
Notwithstanding anything stated above in this paragraph 3, this paragraph 3
(except this sentence) shall be of no force or effect following (i) the
publication by the Company or a proposing person, in a newspaper or
periodical of general circulation or by press release, of an offer or
proposal for, or the execution of an agreement in principle or definitive
acquisition agreement for, a business transaction involving the sale of the
Company, any merger or other business combination involving the Company or
the sale of any substantial portion of the stock or assets of the Company
(other than sales of inventory in the ordinary course of business) sufficient
to substantially preclude the benefits that would otherwise be obtained by
you from a transaction with you (other than the publication by you or any of
your affiliates or associates or any person acting in concert with you or any
of your affiliates or associates of such an offer or proposal) or (ii) the
making (including a public announcement of an intention to make) by any
person (other than the Company or you or any of your affiliates or associates
or any person acting in concert with you or any of your affiliates or
associates) of any tender offer or exchange offer to purchase outstanding
shares of the Company's voting stock representing 10% or more of the total
voting power of the Company's voting stock.
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4. All information, and all copies thereof, except for that portion of
Information which consists of analyses, compilations, studies or other
documents prepared by the Recipient Party, the Recipient Party's partners,
directors, officers, employees, agents or advisors, or those of the Recipient
Party's affiliates, will be returned to the Disclosing Party without
retaining any copies thereof immediately upon request of the Disclosing
Party. That portion of Information which consists of analyses, compilations,
studies or other documents prepared by the Recipient Party's affiliates, the
Recipient Party's partners, directors, officers, employees, agents or
advisers, or those of the Recipient Party's affiliates, will be held by the
Recipient Party or them and kept confidential and subject to the terms of
this Agreement or, at the request of the Disclosing Party, destroyed. Such
destruction will be confirmed in writing upon request of the Disclosing
Party. Notwithstanding any contrary foregoing provisions, the Recipient Party
may, if it so elects, retain one copy only of Information in a secure
location with appropriate restricted access for evidentiary purposes.
5. Nothing stated herein shall preclude the Recipient Party, the
Recipient Party's affiliates, the Recipient Party's partners, directors,
officers, employees, agents or advisers, or those of the Recipient Party's
affiliates, from disclosing Information that the Recipient Party is legally
compelled to disclose, provided that the procedures referred to in this
paragraph 5 are satisfied. In the event that the Recipient Party or any
persons to whom the Recipient Party transmits Information pursuant to this
Agreement become legally compelled to disclose any Information, the Recipient
Party will provide the Disclosing Party with prompt notice thereof and
cooperate with the Disclosing Party so that the Disclosing Party may seek a
protective order or other appropriate remedy and/or waive compliance with the
provisions of this Agreement. In the event that such protective order or
other remedy is not obtained, or that the Disclosing Party waives compliance
with the provisions of this Agreement, the Recipient Party or such person
will furnish only that portion of such Information that the Recipient Party
or such person is advised by written opinion of counsel, reasonably
satisfactory to the Disclosing Party, is legally required and the Recipient
Party or such person will exercise the Recipient Party's or such person's
best efforts to obtain a protective order or other reasonable assurance that
confidential treatment will be accorded such Information.
6. Although each party hereto understands that the Disclosing Party has
included, or may include, certain data in the Information which it believes
to be relevant for the purpose of the Recipient Party's evaluation, neither
such party nor its advisers makes any representation or warranty as to the
accuracy or completeness of Information or of any other written or oral
communication transmitted or made available to the Recipient Party, and each
such party expressly disclaims any and all liability based on such
information or communications or on omissions therefrom.
7. The term "Information" does not include information that (a) becomes
generally available to the public other than as a result of a disclosure by
the Recipient Party or anyone to whom the Recipient Party transmits
Information, (b) was known or available to the
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Recipient Party or in the Recipient Party's possession on a non-confidential
basis prior to its disclosure to the Recipient Party by the Disclosing Party,
(c) is developed by the Recipient Party following disclosure by the
Disclosing Party, but independently and without reference to such disclosure,
or (d) becomes available to the Recipient Party on a non-confidential basis
from a source other than the Disclosing Party who is not bound by a
confidentiality agreement or other obligation of secrecy with respect to such
information.
8. It is understood and agreed that nothing stated herein shall entitle
either party to receive any Information from the other party other than
Information that the other party determines to provide or obligate either
party in any manner to enter into discussions or negotiations with the other
party or accept any proposals from the other party or to continue any
discussions or negotiations with the other party if it does enter into any
discussions or negotiations with the other party or to enter into any
definitive agreements with the other party and that neither party shall be
obligated to the other party in any respect except to the extent expressly
set forth in any definitive written agreement, if any, hereafter entered into
by the Company and you. Each party acknowledges that it has been advised by
the other party that the other party has not made any determination to enter
into a business transaction with such party or anyone else of the nature of
the business transaction in which you have expressed an interest.
9. It is further understood and agreed that no failure or delay by
either party in exercising any right, power or privilege under this Agreement
shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise of any right, power or
privilege hereunder.
10. Each party recognizes that irreparable injury may result to the
non-breaching party and its business and property if the other party breaches
any provision of this Agreement and that money damages would not be a
sufficient remedy for any such breach. Each party therefore agrees that if it
should engage, or cause or permit any other person or entity to engage, in
any act in violation of any provision hereof, the other party shall be
entitled, in addition to such other remedies, damages and relief as may be
available under applicable law, to an injunction prohibiting the breaching
party from engaging in any such act or specifically enforcing this Agreement,
as the case may be.
11. This Agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota, without giving effect to the principles
of conflict of laws thereof.
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If you are in agreement with the foregoing, please sign below and return
one or more fully executed copies of this Agreement to the undersigned.
Very truly yours,
SPINE-TECH, INC.
By /s/ Thomas P. Schnettler
---------------------------------
Its Managing Director
-----------------------------
as agent for the Company.
Accepted and agreed as of
the date first above written.
SULZER MEDICA
By /s/ Robert Cohen
-----------------------------
Its Group Vice President
--------------------------
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Exhibit 3
EMPLOYMENT AGREEMENT
Employment Agreement (the "AGREEMENT") dated as of December 15, 1997,
by and between SPINE-TECH, INC., a Minnesota corporation (the "COMPANY"), and
David W. Stassen ("EXECUTIVE").
WHEREAS, SULZER MEDICA LTD., a corporation organized under the laws of
Switzerland ("PARENT"), SULZER MEDICA ORTHOPEDICS ACQUISITION CORP., a Minnesota
corporation and a wholly owned subsidiary of Parent (the "PURCHASER"), and the
Company have entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "MERGER AGREEMENT"), pursuant to which the Purchaser will merge with
and into the Company (the "MERGER"); and
WHEREAS, in connection with the Merger, the parties desire to enter
into this Agreement, to be effective at the Effective Time (as defined in the
Merger Agreement);
NOW, THEREFORE, in consideration of the mutual covenants in this
Agreement, the parties agree as follows:
1. EFFECTIVENESS OF AGREEMENT AND EMPLOYMENT OF EXECUTIVE.
1.1. EFFECTIVENESS OF AGREEMENT. This Agreement shall become
effective as of the Effective Time, at which time it shall supersede the
employment and management agreement dated June 15, 1992 and February 1, 1996
respectively, between the Company and Executive. In the event that the Merger
(as defined in the Merger Agreement) is not consummated by June 30, 1998, this
Agreement shall be null and void.
1.2. EMPLOYMENT BY THE COMPANY. The Company hereby employs Executive
as President, and Executive hereby accepts such employment with the Company.
Executive shall report to, and perform such duties and services for the Company,
Parent and their respective subsidiaries and affiliates (Parent and such
subsidiaries and affiliates collectively, "AFFILIATES") as may be designated
from time to time by, the President of Sulzer Orthopedics Inc. or the Board of
Directors of Parent (the "BOARD"), or the designee of either thereof. Executive
shall use his diligent efforts to promote the interests of the Company and the
Affiliates, and shall devote substantially all of his business time and
attention to his employment under this Agreement; PROVIDED, HOWEVER, that
nothing in this Agreement shall preclude Executive from (a) serving as, and
receiving compensation for serving as, a director or member of a committee of
any corporation or other business organization involving no conflict of interest
with the interests of the Company and its Affiliates and, except with respect to
directorships held as of the date hereof, approved by the President of Sulzer
Orthopedics Inc., (b) engaging in charitable and community activities, or (c)
managing his personal
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investments as long as such activities do not materially interfere with the
regular performance of his duties under this Agreement.
1.3. CONFIDENTIALITY. Executive understands and acknowledges that in
the course of his employment, he will have access to and will learn information
proprietary to the Company and its Affiliates that concerns the operation and
methodology of the Company and its Affiliates, including, without limitation,
business plans, financial information, protocols, proposals, manuals, clinical
procedures and guidelines, scientific data, computer source codes, programs,
software, knowhow and specifications, copyrights, trade secrets, market
information, Developments (as hereinafter defined), data and customer
information (collectively, "PROPRIETARY INFORMATION"). Executive agrees that,
at all times (including following termination of the Employment Period (as
hereinafter defined)), he will keep confidential and will not disclose directly
or indirectly any such Proprietary Information to any third party, except as
required to fulfill his duties hereunder, and will not misuse, misappropriate or
exploit such Proprietary Information in any way. The restrictions contained
herein shall not apply (a) to any information which Executive can demonstrate by
written record was already available to the public at the time of disclosure, or
subsequently become available to the public, otherwise than by breach of this
Agreement, or (b) to any disclosures required by law or administrative process
or in the defense of any claim against Executive or in the prosecution of any
claim by Executive against the Company or any of its Affiliates. Upon any
termination of the Employment Period, Executive shall immediately return to the
Company all copies of any Proprietary Information in his possession.
1.4. RESTRICTIONS ON SOLICITATION. During the period (the "RESTRICTED
PERIOD") beginning on the Effective Time and ending on the earlier of (a) the
fourth anniversary of the Effective Time and (b) the second anniversary of the
date of cessation of the Employment Period for any reason whatsoever, Executive
shall not, directly or indirectly, solicit or contact any customer of the
Company or any of the Affiliates for any commercial pursuit that is in
competition with the Company or any of the Affiliates, or that is contained from
time to time by the Company's business plan, or take away or interfere or
attempt to interfere with any custom, trade, business or patronage of the
Company or any of the Affiliates, or induce, or attempt to induce, any
employees, agents or consultants of or to the Company or any of the Affiliates
to do anything from which Executive is restricted by reason of this Agreement
nor shall Executive, directly or indirectly, offer or aid others to offer
employment to or interfere or attempt to interfere with any employees, agents or
consultants of the Company or any of the Affiliates.
1.5. RESTRICTIONS ON COMPETITIVE EMPLOYMENT. During the Restricted
Period, Executive shall not (as principal, agent, employee, consultant or
otherwise), directly or indirectly, engage in activities for, or render services
to, any firm or business (other than the Company, Parent or any Affiliates of
Parent) engaged or about to become engaged in any orthopedics products business
competitive with the Company or any affiliated orthopedic business of Parent (a
"COMPETITIVE BUSINESS"). Notwithstanding the foregoing, Executive may have an
interest consisting of publicly traded securities constituting less than 1
percent of any class of publicly traded securities in any public company engaged
in a Competitive Business so
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long as he is not employed by and does not consult with, or become a director of
or otherwise engage in any activities for, such company.
1.6. ASSIGNMENT OF DEVELOPMENTS. All Developments that are at any
time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, during or as a result of Executive's employment under
this Agreement or any prior employment with the Company or the Affiliates, shall
be the sole and absolute property of the Company and the Affiliates, free of any
reserved or other rights of any kind on Executive's part. During Executive's
employment and, if such Developments were made, conceived or suggested by
Executive during or as a result of Executive's employment under this Agreement
or any prior employment with the Company or the Affiliates, thereafter,
Executive shall promptly make full disclosure of any such Developments to the
Company and, at the Company's cost and expense, do all acts and things
(including, among others, the execution and delivery under oath of patent and
copyright applications and instruments of assignment) deemed by the Company to
be necessary or desirable at any time in order to effect the full assignment to
the Company and the Affiliates of Executive's right and title, if any, to such
Developments. For purposes of this Agreement, the term "DEVELOPMENTS" shall
mean all data, discoveries, findings, reports, designs, inventions,
improvements, methods, practices, techniques, developments, programs, concepts,
and ideas, whether or not patentable, relating to the present or planned
activities, or future activities of which Executive is aware, or the products
and services of the Company or any of the Affiliates; PROVIDED, HOWEVER, that
the term "Developments" does not include any invention for which no equipment,
supplies, facility or Proprietary Information of the Company was used and that
was developed entirely on Executive's own time and (i) that does not relate (A)
directly to the business of the Company or (B) to the Company's actual or
demonstrably anticipated research or development or (ii) that does not result
from any work performed by Executive for the Company.
1.7. REMEDIES. Executive acknowledges and agrees that damages for a
breach or threatened breach of any of the covenants set forth in Section 1.3,
1.4 or 1.5 will be difficult to determine and will not afford a full and
adequate remedy, and therefore agrees that the Company, in addition to seeking
actual damages in connection therewith, may seek specific enforcement of any
such covenant in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction, without the
necessity of a bond.
2. COMPENSATION AND BENEFITS.
2.1. SALARY. The Company shall pay Executive for services during the
Employment Period a base salary at the annual rate of $260,000, or such higher
amount as may be established as provided herein. Any and all increases to
Executive's base salary shall be determined by the President of Sulzer
Orthopedics Inc. and the Group Vice President Human Resources of Sulzer Medica
USA, it being understood and agreed that the first review of such salary shall
occur on or around December 15, 1998 and any increase would be effective January
1, 1999. Such base salary shall be payable in equal installments, no less
frequently than monthly, pursuant to the Company's customary payroll policies in
force at the
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time of payment, less any required or authorized payroll deductions. In no
event shall Executive's base salary for any year be reduced below the greater of
the dollar amount specified in the first sentence of this Section 2.1 or the
amount of base salary paid by the Company to Executive for the immediately
preceding annual period.
2.2 ANNUAL BONUS. Executive shall participate in an annual bonus plan
for each of 1998 and 1999 under which bonuses shall be based on the attainment
of annual sales and operating income objectives, as follows:
(1) Actual sales and actual operating income for each year shall be
expressed as a percentage of the respective objectives for such
year;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"FINAL ANNUAL PERCENTAGE").
If the Final Annual Percentage equals or exceeds 100%, an annual bonus shall be
paid, such annual bonus to be in an amount equal to 50% of Executive's then base
salary (annualized for any partial calendar year) plus 2.5% of such base salary
for every 1% by which the Final Annual Percentage exceeds 100% (but the total
annual bonus payable under this Section 2.2 shall not exceed 100% of such base
salary). The sales and operating income objectives for 1998 are set forth on
Exhibit A hereto and such objectives for 1999 shall be established by the Board
in good faith. Subject to Executive's employment by the Company on December 31,
1998, the annual bonus with respect to 1998 shall be paid to Executive no later
than March 15, 1999; subject to Executive's employment by the Company on
December 31, 1999, the annual bonus with respect to 1999 shall be paid to
Executive no later than March 15, 2000.
2.3 LONG TERM INCENTIVE PLAN. Executive shall participate in a
long-term bonus plan based on the attainment of sales and operating income
objectives for the two-year period ending on December 31, 1999, as follows:
(1) Actual sales and actual operating income for such period shall be
expressed as a percentage of the respective objectives for such
period;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"Final Long-Term Percentage").
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If the Final Long-Term Percentage equals or exceeds 100%, a long-term bonus
shall be paid, such long-term bonus to be in an amount equal to 150% of
Executive's average base salary for 1998 and 1999 (annualized for any partial
calendar year) plus 7.5% of such average base salary for every 1% by which the
Final Long-Term Percentage exceeds 100% (but the total long-term bonus payable
under this Section 2.3 shall not exceed 300% of such average base salary). The
sales and earnings objectives for the two-year period are set forth on Exhibit B
hereto. Subject to Executive's continuous employment through December 31, 1999,
any long-term bonus due to him shall be paid no later than March 15, 2000.
2.4. BENEFITS. During the Employment Period, Executive shall be
entitled to participate, on the same basis and at the same level as other senior
executives of the Company, in any group insurance, hospitalization, medical,
health and accident, disability, fringe benefit and tax-qualified retirement
plans or programs of the Company now existing or hereafter established to the
extent that he is eligible under the general provisions thereof; PROVIDED,
HOWEVER, that the benefits provided to the Executive and his dependents
hereunder shall in no event be less favorable to them, as a whole, than the
benefits provided by the Company to its senior executives and their dependents
on the date hereof.
2.5. EXPENSES. Pursuant to the Company's customary policies in force
at the time of payment, Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly and reasonably incurred by him on behalf of the Company or its
Affiliates in the performance of his duties hereunder.
3. EMPLOYMENT PERIOD.
Executive's employment under this Agreement shall commence as of the
Effective Time, and shall terminate on the second anniversary thereof (the
"EMPLOYMENT PERIOD"), unless terminated earlier pursuant to Section 4.
4. TERMINATION. The Employment Period may be terminated at any time by
the Company or Executive.
4.1. TERMINATION BY THE COMPANY FOR CAUSE; RESIGNATION WITHOUT
CONSTRUCTIVE DISCHARGE. Upon a termination of the Employment Period by the
Company for Cause or a resignation by Executive without Constructive Discharge
(as defined below), the Company shall have no obligation to Executive other than
the payment of Executive's earned and unpaid base salary (and bonus with respect
to any completed fiscal year or other completed fiscal period) to the effective
date of such termination.
For purposes of this Agreement, the term "CAUSE" shall mean and be
limited to, (i) gross neglect of duties by the Executive resulting in a material
adverse effect on the Company's business, (ii) Executive's unauthorized
appropriation of material property of the Company, or (iii) an act or acts
committed by the Executive constituting a felony and detrimental to the Company
or its reputation.
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4.2. DEATH; PERMANENT DISABILITY; TERMINATION BY THE COMPANY WITHOUT
CAUSE; RESIGNATION FOR CONSTRUCTIVE DISCHARGE. In the event of Executive's
death or Permanent Disability, the Company's termination of the Employment
Period for any reason other than for Cause or Executive's resignation for
Constructive Discharge, the Company shall have no obligation to Executive other
than (i) a continuation of his base salary through the second anniversary of the
Effective Time, and (ii) the payment of a portion of the awards which would have
been payable to the Executive as annual and long-term bonuses as follows:
(a) with respect to the annual bonus (x) Executive shall be entitled
to receive the full amount of any bonus with respect to any
completed fiscal year, payable on the date such bonus would have
been paid had Executive's employment with the Company not
terminated, and (y) with respect to the annual bonus payable with
respect to any fiscal year of the Company in which Executive's
employment terminates, Executive shall be paid a pro rata amount
equal to the amount he would have received had he been employed
by the Company on December 31 of such fiscal year times a
fraction, the numerator of which is the number of days which
Executive was employed by the Company in such fiscal year and the
denominator of which is 365, which payment shall be made no later
than the date such bonus would have been paid had Executive's
employment not terminated;
(b) with respect to the long-term bonus, Executive shall not be
entitled to any portion thereof if his employment has terminated
prior to December 31, 1998; if his employment terminates after
such date, he shall be paid a pro rata amount equal to the amount
he would have received had he been employed by the Company on
December 31, 1999 times a fraction, the numerator of which is the
total number of days which Executive was employed by the Company
from the date of this Agreement through the date of termination
and the denominator of which is 730, which payment shall be made
no later than the date such bonus would have been paid had
Executive's employment not terminated.
Notwithstanding the foregoing, such salary continuation (a) shall be subject to
Executive's compliance with the restrictive covenants contained in Section 1
hereof and (b) may be reduced by any disability benefits received by Executive
in the event of his Permanent Disability.
As used herein, "CONSTRUCTIVE DISCHARGE" means:
(i) the assignment to Executive of any duties inconsistent in any
respect with Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated hereunder, or any other action
by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent
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action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(ii) any material reduction by the Company of Executive's base salary
or fringe benefits, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof
given by Executive;
(iii) the Company's requiring Executive to be based at any office or
location other than as has been the custom immediately prior to
the date of this Agreement; or
(iv) a substantial breach of this Agreement by the Company that
results in material economic harm to Executive.
For purpose of this Section 4.2, any good faith determination of "Constructive
Discharge" made by Executive shall be conclusive.
"PERMANENT DISABILITY" means a disability entitling Executive to
long-term disability benefits under the long-term disability plan applicable to
Executive.
4.3. LIQUIDATED DAMAGES. Executive acknowledges that any payments
under this Section 4 resulting from any termination of the Employment Period are
in lieu of any and all claims that the Executive may have against the Company,
and represent liquidated damages (and not a penalty).
5. OPTIONS. During the Employment Period, Executive shall be
eligible to participate in the Parent's Management Stock Option Plan. The
amount of annual grants of stock options to be made to Executive under such plan
(based on the fair market value of the stock subject to the options as of the
date of grant) shall be 1.5 times Executive's base salary. Such options shall
be non-qualified stock options and shall vest in four equal installments on the
first through fourth anniversaries of the relevant data of grant.
6. LIMITATION ON PAYMENTS. In the event that any payments or
benefits hereunder would, absent the application of this Section 6, be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended, then the Company shall reduce the payments and benefits due
hereunder to the smallest extent necessary such that no such excise tax shall
apply.
7. NOTICES. Any notice or communication given by either party
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
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(a) if to the Company:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: T.C. Selman II,
Group Vice President
with a copy to:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: Lawrence Panitz
General Counsel
(b) if to the Executive:
Spine-Tech, Inc.
7375 Bush Lake Road
Minneapolis, Minnesota 55439
Telecopier No.: 612-830-6388
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by Federal Express, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address to which notices to such person shall
thereafter be sent.
8. MISCELLANEOUS.
8.1. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto
contain the entire understanding of the parties in respect of their subject
matter and supersede upon their effectiveness all other prior agreements and
understandings between the parties with respect to such subject matter.
8.2. AMENDMENT; WAIVER. This Agreement may not be amended,
supplemented, cancelled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
8.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the
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Company's business and properties. Executive's rights or obligations under this
Agreement may not be assigned by Executive, except that the rights specified in
Section 4.2 shall pass upon the Executive's death to Executive's executor or
administrator.
8.4. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
8.5. GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws and public policy
(other than conflict of laws principles) of the State of Minnesota applicable to
contracts executed and to be wholly performed within such State.
8.6. FURTHER ASSURANCES. Each of the parties agrees to execute,
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the
provisions or intent of this Agreement.
8.7. SEVERABILITY; ARBITRATION. (a) The parties have carefully
reviewed the provisions of this Agreement and agree that they are fair and
equitable. However, in light of the possibility of differing interpretations of
law and changes in circumstances, the parties agree that if any one or more of
the provisions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Moreover, if any of the provisions contained in this Agreement is determined by
a court of competent jurisdiction to be excessively broad as to duration,
activity, geographic application or subject, it shall be construed, by limiting
or reducing it to the extent legally permitted, so as to be enforceable to the
extent compatible with then applicable law.
(b) ARBITRATION. Except for disputes arising under Section 1.3, 1.4
or 1.5 hereof, all disputes arising under this Agreement shall be submitted to
final and binding arbitration in Minneapolis, Minnesota. The arbitrator shall
be selected and the arbitration shall be conducted pursuant to the then most
recent Employment Dispute Resolution Rules of the American Arbitration
Association. The decision of the arbitrator shall be final and binding, and any
court of competent jurisdiction may enter judgment upon the award. All fees and
expenses of the arbitrator shall be shared equally by Executive and the Company.
The arbitrator shall have jurisdiction and authority to interpret and apply the
provisions of this Agreement and relevant federal, state and local laws insofar
as necessary to the determination of the dispute and to remedy any breaches of
this Agreement and/or applicable laws, but shall not have jurisdiction or
authority to award punitive damages or alter in any way the provisions of this
Agreement. The arbitrator shall have the authority to award attorney's fees and
costs to the prevailing party. The party agree that this arbitration provision
shall be in lieu of any claims procedure which may be required under federal
law.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPINE-TECH INC.
By: /s/ David W. Stassen
----------------------------
Name: David W. Stassen
Title: CEO
EXECUTIVE
By: /s/ David W. Stassen
----------------------------
Name: David W. Stassen
Title: President
Acknowledged this 15 day of December 1997.
SULZER MEDICA LTD.
By: /s/ A. Buchel
---------------------------
Name: Andre P. Buchel
Title: CEO
10
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EXHIBIT A
ANNUAL BONUS OBJECTIVES
1998
SALES: $119,000,000
EARNINGS(1): $51,000,000
- ----------------
(1) Operating Income
11
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EXHIBIT B
LONG TERM INCENTIVE OBJECTIVES
1998 & 1999
1998 1999
SALES: $119,000,000 $229,000,000
EARNINGS(2): $51,000,000 $98,000,000
- ------------------
(2) Operating income
12
<PAGE>
Exhibit 4
EMPLOYMENT AGREEMENT
Employment Agreement (the "AGREEMENT") dated as of December 15, 1997,
by and between SPINE-TECH, INC., a Minnesota corporation (the "COMPANY"), and
Paul R. Lunsford ("EXECUTIVE").
WHEREAS, SULZER MEDICA LTD., a corporation organized under the laws of
Switzerland ("PARENT"), SULZER MEDICA ORTHOPEDICS ACQUISITION CORP., a Minnesota
corporation and a wholly owned subsidiary of Parent (the "PURCHASER"), and the
Company have entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "MERGER AGREEMENT"), pursuant to which the Purchaser will merge with
and into the Company (the "MERGER"); and
WHEREAS, in connection with the Merger, the parties desire to enter
into this Agreement, to be effective at the Effective Time (as defined in the
Merger Agreement);
NOW, THEREFORE, in consideration of the mutual covenants in this
Agreement, the parties agree as follows:
1. EFFECTIVENESS OF AGREEMENT AND EMPLOYMENT OF EXECUTIVE.
1.1. EFFECTIVENESS OF AGREEMENT. This Agreement shall become
effective as of the Effective Time, at which time it shall supersede the
employment agreement between the Company and Executive. In the event that the
Merger (as defined in the Merger Agreement) is not consummated by June 30, 1998,
this Agreement shall be null and void.
1.2. EMPLOYMENT BY THE COMPANY. The Company hereby employs Executive
as Vice President Sales, and Executive hereby accepts such employment with the
Company. Executive shall report to, and perform such duties and services for
the Company, Parent and their respective subsidiaries and affiliates (Parent and
such subsidiaries and affiliates collectively, "AFFILIATES") as may be
designated from time to time by, the President of Sulzer Orthopedics Inc. or the
Board of Directors of Parent (the "BOARD"), or the designee of either thereof.
Executive shall use his diligent efforts to promote the interests of the Company
and the Affiliates, and shall devote substantially all of his business time and
attention to his employment under this Agreement; PROVIDED, HOWEVER, that
nothing in this Agreement shall preclude Executive from (a) serving as, and
receiving compensation for serving as, a director or member of a committee of
any corporation or other business organization involving no conflict of interest
with the interests of the Company and its Affiliates and, except with respect to
directorships held as of the date hereof, approved by the Board, (b) engaging in
charitable and community activities, or (c) managing his personal investments as
long as such activities do not materially interfere with the regular performance
of his duties under this Agreement.
<PAGE>
1.3. CONFIDENTIALITY. Executive understands and acknowledges that in
the course of his employment, he will have access to and will learn information
proprietary to the Company and its Affiliates that concerns the operation and
methodology of the Company and its Affiliates, including, without limitation,
business plans, financial information, protocols, proposals, manuals, clinical
procedures and guidelines, scientific data, computer source codes, programs,
software, knowhow and specifications, copyrights, trade secrets, market
information, Developments (as hereinafter defined), data and customer
information (collectively, "PROPRIETARY INFORMATION"). Executive agrees that,
at all times (including following termination of the Employment Period (as
hereinafter defined)), he will keep confidential and will not disclose directly
or indirectly any such Proprietary Information to any third party, except as
required to fulfill his duties hereunder, and will not misuse, misappropriate or
exploit such Proprietary Information in any way. The restrictions contained
herein shall not apply (a) to any information which Executive can demonstrate by
written record was already available to the public at the time of disclosure, or
subsequently become available to the public, otherwise than by breach of this
Agreement, or (b) to any disclosures required by law or administrative process
or in the defense of any claim against Executive or in the prosecution of any
claim by Executive against the Company or any of its Affiliates. Upon any
termination of the Employment Period, Executive shall immediately return to the
Company all copies of any Proprietary Information in his possession.
1.4. RESTRICTIONS ON SOLICITATION. During the period (the "RESTRICTED
PERIOD") beginning on the Effective Time and ending on the earlier of (a) the
fourth anniversary of the Effective Time and (b) the second anniversary of the
date of cessation of the Employment Period for any reason whatsoever, Executive
shall not, directly or indirectly, solicit or contact any customer of the
Company or any of the Affiliates for any commercial pursuit that is in
competition with the Company or any of the Affiliates, or that is contained from
time to time by the Company's business plan, or take away or interfere or
attempt to interfere with any custom, trade, business or patronage of the
Company or any of the Affiliates, or induce, or attempt to induce, any
employees, agents or consultants of or to the Company or any of the Affiliates
to do anything from which Executive is restricted by reason of this Agreement
nor shall Executive, directly or indirectly, offer or aid others to offer
employment to or interfere or attempt to interfere with any employees, agents or
consultants of the Company or any of the Affiliates.
1.5. RESTRICTIONS ON COMPETITIVE EMPLOYMENT. During the Restricted
Period, Executive shall not (as principal, agent, employee, consultant or
otherwise), directly or indirectly, engage in activities for, or render services
to, any firm or business (other than the Company, Parent or any Affiliates of
Parent) engaged or about to become engaged in any orthopedics products business
competitive with the Company or any affiliated orthopedic business of Parent (a
"COMPETITIVE BUSINESS"). Notwithstanding the foregoing, Executive may have an
interest consisting of publicly traded securities constituting less than 1
percent of any class of publicly traded securities in any public company engaged
in a Competitive Business so long as he is not employed by and does not consult
with, or become a director of or otherwise engage in any activities for, such
company.
2
<PAGE>
1.6. ASSIGNMENT OF DEVELOPMENTS. All Developments that are at any
time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, during or as a result of Executive's employment under
this Agreement or any prior employment with the Company or the Affiliates, shall
be the sole and absolute property of the Company and the Affiliates, free of any
reserved or other rights of any kind on Executive's part. During Executive's
employment and, if such Developments were made, conceived or suggested by
Executive during or as a result of Executive's employment under this Agreement
or any prior employment with the Company or the Affiliates, thereafter,
Executive shall promptly make full disclosure of any such Developments to the
Company and, at the Company's cost and expense, do all acts and things
(including, among others, the execution and delivery under oath of patent and
copyright applications and instruments of assignment) deemed by the Company to
be necessary or desirable at any time in order to effect the full assignment to
the Company and the Affiliates of Executive's right and title, if any, to such
Developments. For purposes of this Agreement, the term "DEVELOPMENTS" shall
mean all data, discoveries, findings, reports, designs, inventions,
improvements, methods, practices, techniques, developments, programs, concepts,
and ideas, whether or not patentable, relating to the present or planned
activities, or future activities of which Executive is aware, or the products
and services of the Company or any of the Affiliates; PROVIDED, HOWEVER, that
the term "Developments" does not include any invention for which no equipment,
supplies, facility or Proprietary Information of the Company was used and that
was developed entirely on Executive's own time and (i) that does not relate (A)
directly to the business of the Company or (B) to the Company's actual or
demonstrably anticipated research or development or (ii) that does not result
from any work performed by Executive for the Company.
1.7. REMEDIES. Executive acknowledges and agrees that damages for a
breach or threatened breach of any of the covenants set forth in Section 1.3,
1.4 or 1.5 will be difficult to determine and will not afford a full and
adequate remedy, and therefore agrees that the Company, in addition to seeking
actual damages in connection therewith, may seek specific enforcement of any
such covenant in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction, without the
necessity of a bond.
2. COMPENSATION AND BENEFITS.
2.1. SALARY. The Company shall pay Executive for services during the
Employment Period a base salary at the annual rate of $180,000 (it being
understood and agreed that Executive shall not be paid commissions), or such
higher amount as may be established as provided herein. Any and all increases
to Executive's base salary shall be determined by the President of Sulzer
Orthopedics Inc. and the Group Vice President Human Resources of Sulzer Medica
USA, it being understood and agreed that the first review of such salary shall
occur on or around December 15, 1998 and any increase would be effective January
1, 1999. Such base salary shall be payable in equal installments, no less
frequently than monthly, pursuant to the Company's customary payroll policies in
force at the time of payment, less any required or authorized payroll
deductions. In no event shall Executive's base salary for any year be reduced
below the greater of the dollar amount specified in the first
3
<PAGE>
sentence of this Section 2.1 or the amount of base salary paid by the Company to
Executive for the immediately preceding annual period.
2.2 ANNUAL BONUS. Executive shall participate in an annual bonus plan
for each of 1998 and 1999 under which bonuses shall be based on the attainment
of annual sales and operating income objectives, as follows:
(1) Actual sales and actual operating income for each year shall be
expressed as a percentage of the respective objectives for such
year;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"FINAL ANNUAL PERCENTAGE").
If the Final Annual Percentage equals or exceeds 100%, an annual bonus shall be
paid, such annual bonus to be in an amount equal to 50% of Executive's then base
salary (annualized for any partial calendar year) plus 2.5% of such base salary
for every 1% by which the Final Annual Percentage exceeds 100% (but the total
annual bonus payable under this Section 2.2 shall not exceed 100% of such base
salary). The sales and operating income objectives for 1998 are set forth on
Exhibit A hereto and such objectives for 1999 shall be established by the Board
in good faith. Subject to Executive's employment by the Company on December 31,
1998, the annual bonus with respect to 1998 shall be paid to Executive no later
than March 15, 1999; subject to Executive's employment by the Company on
December 31, 1999, the annual bonus with respect to 1999 shall be paid to
Executive no later than March 15, 2000.
2.3 LONG TERM INCENTIVE PLAN. Executive shall participate in a
long-term bonus plan based on the attainment of sales and operating income
objectives for the two-year period ending on December 31, 1999, as follows:
(1) Actual sales and actual operating income for such period shall be
expressed as a percentage of the respective objectives for such
period;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"Final Long-Term Percentage").
If the Final Long-Term Percentage equals or exceeds 100%, a long-term bonus
shall be paid, such long-term bonus to be in an amount equal to 150% of
Executive's average base salary for 1998 and 1999 (annualized for any partial
calendar year) plus 7.5% of such average base
4
<PAGE>
salary for every 1% by which the Final Long-Term Percentage exceeds 100% (but
the total long-term bonus payable under this Section 2.3 shall not exceed 300%
of such average base salary). The sales and earnings objectives for the
two-year period are set forth on Exhibit B hereto. Subject to Executive's
continuous employment through December 31, 1999, any long-term bonus due to him
shall be paid no later than March 15, 2000.
2.4. BENEFITS. During the Employment Period, Executive shall be
entitled to participate, on the same basis and at the same level as other senior
executives of the Company, in any group insurance, hospitalization, medical,
health and accident, disability, fringe benefit and tax-qualified retirement
plans or programs of the Company now existing or hereafter established to the
extent that he is eligible under the general provisions thereof; PROVIDED,
HOWEVER, that the benefits provided to the Executive and his dependents
hereunder shall in no event be less favorable to them, as a whole, than the
benefits provided by the Company to its senior executives and their dependents
on the date hereof.
2.5. EXPENSES. Pursuant to the Company's customary policies in force
at the time of payment, Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly and reasonably incurred by him on behalf of the Company or its
Affiliates in the performance of his duties hereunder.
3. EMPLOYMENT PERIOD.
Executive's employment under this Agreement shall commence as of the
Effective Time, and shall terminate on the second anniversary thereof (the
"EMPLOYMENT PERIOD"), unless terminated earlier pursuant to Section 4.
4. TERMINATION. The Employment Period may be terminated at any time by
the Company or Executive.
4.1. TERMINATION BY THE COMPANY FOR CAUSE; RESIGNATION WITHOUT
CONSTRUCTIVE DISCHARGE. Upon a termination of the Employment Period by the
Company for Cause or a resignation by Executive without Constructive Discharge
(as defined below), the Company shall have no obligation to Executive other than
the payment of Executive's earned and unpaid base salary (and bonus with respect
to any completed fiscal year or other completed fiscal period) to the effective
date of such termination.
For purposes of this Agreement, the term "CAUSE" shall mean and be
limited to, (i) gross neglect of duties by the Executive resulting in a material
adverse effect on the Company's business, (ii) Executive's unauthorized
appropriation of material property of the Company, or (iii) an act or acts
committed by the Executive constituting a felony and detrimental to the Company
or its reputation.
4.2. DEATH; PERMANENT DISABILITY; TERMINATION BY THE COMPANY WITHOUT
CAUSE; RESIGNATION FOR CONSTRUCTIVE DISCHARGE. In the event of Executive's
death or Permanent Disability, the Company's termination of the Employment
Period for any reason
5
<PAGE>
other than for Cause or Executive's resignation for Constructive Discharge, the
Company shall have no obligation to Executive other than (i) a continuation of
his base salary through the second anniversary of the Effective Time, and (ii)
the payment of a portion of the awards which would have been payable to the
Executive as annual and long-term bonuses as follows:
(a) with respect to the annual bonus (x) Executive shall be entitled
to receive the full amount of any bonus with respect to any
completed fiscal year, payable on the date such bonus would have
been paid had Executive's employment with the Company not
terminated, and (y) with respect to the annual bonus payable with
respect to any fiscal year of the Company in which Executive's
employment terminates, Executive shall be paid a pro rata amount
equal to the amount he would have received had he been employed
by the Company on December 31 of such fiscal year times a
fraction, the numerator of which is the number of days which
Executive was employed by the Company in such fiscal year and the
denominator of which is 365, which payment shall be made no later
than the date such bonus would have been paid had Executive's
employment not terminated;
(b) with respect to the long-term bonus, Executive shall not be
entitled to any portion thereof if his employment has terminated
prior to December 31, 1998; if his employment terminates after
such date, he shall be paid a pro rata amount equal to the amount
he would have received had he been employed by the Company on
December 31, 1999 times a fraction, the numerator of which is the
total number of days which Executive was employed by the Company
from the date of this Agreement through the date of termination
and the denominator of which is 730, which payment shall be made
no later than the date such bonus would have been paid had
Executive's employment not terminated.
Notwithstanding the foregoing, such salary continuation (a) shall be subject to
Executive's compliance with the restrictive covenants contained in Section 1
hereof and (b) may be reduced by any disability benefits received by Executive
in the event of his Permanent Disability.
As used herein, "CONSTRUCTIVE DISCHARGE" means:
(i) the assignment to Executive of any duties inconsistent in any
respect with Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated hereunder, or any other action
by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
6
<PAGE>
(ii) any material reduction by the Company of Executive's base salary
or fringe benefits, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof
given by Executive;
(iii) the Company's requiring Executive to be based at any office or
location other than as has been the custom immediately prior to
the date of this Agreement; or
(iv) a substantial breach of this Agreement by the Company that
results in material economic harm to Executive.
For purpose of this Section 4.2, any good faith determination of "Constructive
Discharge" made by Executive shall be conclusive.
"PERMANENT DISABILITY" means a disability entitling Executive to
long-term disability benefits under the long-term disability plan applicable to
Executive.
4.3. LIQUIDATED DAMAGES. Executive acknowledges that any payments
under this Section 4 resulting from any termination of the Employment Period are
in lieu of any and all claims that the Executive may have against the Company,
and represent liquidated damages (and not a penalty).
5. OPTIONS. During the Employment Period, Executive shall be
eligible to participate in the Parent's Management Stock Option Plan. The
amount of annual grants of stock options to be made to Executive under such plan
(based on the fair market value of the stock subject to the options as of the
date of grant) shall be 1.5 times Executive's base salary. Such options shall
be non-qualified stock options and shall vest in four equal installments on the
first through fourth anniversaries of the relevant data of grant.
6. LIMITATION ON PAYMENTS. In the event that any payments or
benefits hereunder would, absent the application of this Section 6, be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended, then the Company shall reduce the payments and benefits due
hereunder to the smallest extent necessary such that no such excise tax shall
apply.
7. NOTICES. Any notice or communication given by either party
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
7
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(a) if to the Company:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: T.C. Selman II,
Group Vice President
with a copy to:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: Lawrence Panitz
General Counsel
(b) if to the Executive:
Spine-Tech, Inc.
7375 Bush Lake Road
Minneapolis, Minnesota 55439
Telecopier No.: 612-830-6388
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by Federal Express, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address to which notices to such person shall
thereafter be sent.
8. MISCELLANEOUS.
8.1. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto
contain the entire understanding of the parties in respect of their subject
matter and supersede upon their effectiveness all other prior agreements and
understandings between the parties with respect to such subject matter.
8.2. AMENDMENT; WAIVER. This Agreement may not be amended,
supplemented, cancelled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
8.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the
8
<PAGE>
Company's business and properties. Executive's rights or obligations under this
Agreement may not be assigned by Executive, except that the rights specified in
Section 4.2 shall pass upon the Executive's death to Executive's executor or
administrator.
8.4. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
8.5. GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws and public policy
(other than conflict of laws principles) of the State of Minnesota applicable to
contracts executed and to be wholly performed within such State.
8.6. FURTHER ASSURANCES. Each of the parties agrees to execute,
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the
provisions or intent of this Agreement.
8.7. SEVERABILITY; ARBITRATION. (a) The parties have carefully
reviewed the provisions of this Agreement and agree that they are fair and
equitable. However, in light of the possibility of differing interpretations of
law and changes in circumstances, the parties agree that if any one or more of
the provisions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Moreover, if any of the provisions contained in this Agreement is determined by
a court of competent jurisdiction to be excessively broad as to duration,
activity, geographic application or subject, it shall be construed, by limiting
or reducing it to the extent legally permitted, so as to be enforceable to the
extent compatible with then applicable law.
(b) ARBITRATION. Except for disputes arising under Section 1.3, 1.4
or 1.5 hereof, all disputes arising under this Agreement shall be submitted to
final and binding arbitration in Minneapolis, Minnesota. The arbitrator shall
be selected and the arbitration shall be conducted pursuant to the then most
recent Employment Dispute Resolution Rules of the American Arbitration
Association. The decision of the arbitrator shall be final and binding, and any
court of competent jurisdiction may enter judgment upon the award. All fees and
expenses of the arbitrator shall be shared equally by Executive and the Company.
The arbitrator shall have jurisdiction and authority to interpret and apply the
provisions of this Agreement and relevant federal, state and local laws insofar
as necessary to the determination of the dispute and to remedy any breaches of
this Agreement and/or applicable laws, but shall not have jurisdiction or
authority to award punitive damages or alter in any way the provisions of this
Agreement. The arbitrator shall have the authority to award attorney's fees and
costs to the prevailing party. The party agree that this arbitration provision
shall be in lieu of any claims procedure which may be required under federal
law.
9
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPINE-TECH INC.
By: /s/ David W. Stassen
--------------------------
Name: David W. Stassen
Title: CEO
EXECUTIVE
By: /s/ Paul R. Lunsford
--------------------------
Name: Paul R. Lunsford
Title: Vice President Sales
Acknowledged this 15 day of December 1997.
SULZER MEDICA LTD.
By: /s/ A. Buchel
---------------------------
Name: Andre P. Buchel
Title: CEO
10
<PAGE>
EXHIBIT A
ANNUAL BONUS OBJECTIVES
1998
SALES: $119,000,000
EARNINGS(1): $51,000,000
- --------------------
(1) Operating income
11
<PAGE>
EXHIBIT B
LONG TERM INCENTIVE OBJECTIVES
1998 & 1999
1998 1999
SALES: $119,000,000 $229,000,000
EARNINGS(2): $51,000,000 $98,000,000
- -----------------
(2) Operating income
12
<PAGE>
Exhibit 5
EMPLOYMENT AGREEMENT
Employment Agreement (the "AGREEMENT") dated as of December 15, 1997,
by and between SPINE-TECH, INC., a Minnesota corporation (the "COMPANY"), and
Douglas W. Kohrs ("EXECUTIVE").
WHEREAS, SULZER MEDICA LTD., a corporation organized under the laws of
Switzerland ("PARENT"), SULZER MEDICA ORTHOPEDICS ACQUISITION CORP.., a
Minnesota corporation and a wholly owned subsidiary of Parent (the "PURCHASER"),
and the Company have entered into an Agreement and Plan of Merger, dated as of
the date hereof (the "MERGER AGREEMENT"), pursuant to which the Purchaser will
merge with and into the Company (the "MERGER"); and
WHEREAS, in connection with the Merger, the parties desire to enter
into this Agreement, to be effective at the Effective Time (as defined in the
Merger Agreement);
NOW, THEREFORE, in consideration of the mutual covenants in this
Agreement, the parties agree as follows:
1. EFFECTIVENESS OF AGREEMENT AND EMPLOYMENT OF EXECUTIVE.
1.1. EFFECTIVENESS OF AGREEMENT. This Agreement shall become
effective as of the Effective Time, at which time it shall supersede the
management agreement dated February 1, 1996 and the employment agreement between
the Company and Executive. In the event that the Merger (as defined in the
Merger Agreement) is not consummated by June 30, 1998, this Agreement shall be
null and void.
1.2. EMPLOYMENT BY THE COMPANY. The Company hereby employs Executive
as Vice President Research and Development, and Executive hereby accepts such
employment with the Company. Executive shall report to, and perform such duties
and services for the Company, Parent and their respective subsidiaries and
affiliates (Parent and such subsidiaries and affiliates collectively,
"AFFILIATES") as may be designated from time to time by, the President of Sulzer
Orthopedics Inc. or the Board of Directors of Parent (the "BOARD"), or the
designee of either thereof. Executive shall use his diligent efforts to promote
the interests of the Company and the Affiliates, and shall devote substantially
all of his business time and attention to his employment under this Agreement;
PROVIDED, HOWEVER, that nothing in this Agreement shall preclude Executive from
(a) serving as, and receiving compensation for serving as, a director or member
of a committee of any corporation or other business organization involving no
conflict of interest with the interests of the Company and its Affiliates and,
except with respect to directorships held as of the date hereof, approved by the
President of Sulzer Orthopedics Inc., (b) engaging in charitable and community
activities, or
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(c) managing his personal investments as long as such activities do not
materially interfere with the regular performance of his duties under this
Agreement.
1.3. CONFIDENTIALITY. Executive understands and acknowledges that in
the course of his employment, he will have access to and will learn information
proprietary to the Company and its Affiliates that concerns the operation and
methodology of the Company and its Affiliates, including, without limitation,
business plans, financial information, protocols, proposals, manuals, clinical
procedures and guidelines, scientific data, computer source codes, programs,
software, knowhow and specifications, copyrights, trade secrets, market
information, Developments (as hereinafter defined), data and customer
information (collectively, "PROPRIETARY INFORMATION"). Executive agrees that,
at all times (including following termination of the Employment Period (as
hereinafter defined)), he will keep confidential and will not disclose directly
or indirectly any such Proprietary Information to any third party, except as
required to fulfill his duties hereunder, and will not misuse, misappropriate or
exploit such Proprietary Information in any way. The restrictions contained
herein shall not apply (a) to any information which Executive can demonstrate by
written record was already available to the public at the time of disclosure, or
subsequently become available to the public, otherwise than by breach of this
Agreement, or (b) to any disclosures required by law or administrative process
or in the defense of any claim against Executive or in the prosecution of any
claim by Executive against the Company or any of its Affiliates. Upon any
termination of the Employment Period, Executive shall immediately return to the
Company all copies of any Proprietary Information in his possession.
1.4. RESTRICTIONS ON SOLICITATION. During the period (the "RESTRICTED
PERIOD") beginning on the Effective Time and ending on the earlier of (a) the
fourth anniversary of the Effective Time and (b) the second anniversary of the
date of cessation of the Employment Period for any reason whatsoever, Executive
shall not, directly or indirectly, solicit or contact any customer of the
Company or any of the Affiliates for any commercial pursuit that is in
competition with the Company or any of the Affiliates, or that is contained from
time to time by the Company's business plan, or take away or interfere or
attempt to interfere with any custom, trade, business or patronage of the
Company or any of the Affiliates, or induce, or attempt to induce, any
employees, agents or consultants of or to the Company or any of the Affiliates
to do anything from which Executive is restricted by reason of this Agreement
nor shall Executive, directly or indirectly, offer or aid others to offer
employment to or interfere or attempt to interfere with any employees, agents or
consultants of the Company or any of the Affiliates.
1.5. RESTRICTIONS ON COMPETITIVE EMPLOYMENT. During the Restricted
Period, Executive shall not (as principal, agent, employee, consultant or
otherwise), directly or indirectly, engage in activities for, or render services
to, any firm or business (other than the Company, Parent or any Affiliates of
Parent) engaged or about to become engaged in any orthopedics products business
competitive with the Company or any affiliated orthopedic business of Parent (a
"COMPETITIVE BUSINESS"). Notwithstanding the foregoing, (a) Executive may have
an interest consisting of publicly traded securities constituting less than 1
percent of any class of publicly traded securities in any public company engaged
in a Competitive
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Business so long as he is not employed by and does not consult with, or become a
director of or otherwise engage in any activities for, such company, and (b) the
Competitive Business shall be limited to spine products in the final year of the
Restricted Period.
1.6. ASSIGNMENT OF DEVELOPMENTS. All Developments that are at any
time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, during or as a result of Executive's employment under
this Agreement or any prior employment with the Company or the Affiliates, shall
be the sole and absolute property of the Company and the Affiliates, free of any
reserved or other rights of any kind on Executive's part. During Executive's
employment and, if such Developments were made, conceived or suggested by
Executive during or as a result of Executive's employment under this Agreement
or any prior employment with the Company or the Affiliates, thereafter,
Executive shall promptly make full disclosure of any such Developments to the
Company and, at the Company's cost and expense, do all acts and things
(including, among others, the execution and delivery under oath of patent and
copyright applications and instruments of assignment) deemed by the Company to
be necessary or desirable at any time in order to effect the full assignment to
the Company and the Affiliates of Executive's right and title, if any, to such
Developments. For purposes of this Agreement, the term "DEVELOPMENTS" shall
mean all data, discoveries, findings, reports, designs, inventions,
improvements, methods, practices, techniques, developments, programs, concepts,
and ideas, whether or not patentable, relating to the present or planned
activities, or future activities of which Executive is aware, or the products
and services of the Company or any of the Affiliates; PROVIDED, HOWEVER, that
the term "Developments" does not include any invention for which no equipment,
supplies, facility or Proprietary Information of the Company was used and that
was developed entirely on Executive's own time and (i) that does not relate (A)
directly to the business of the Company or (B) to the Company's actual or
demonstrably anticipated research or development or (ii) that does not result
from any work performed by Executive for the Company.
1.7. REMEDIES. Executive acknowledges and agrees that damages for a
breach or threatened breach of any of the covenants set forth in Section 1.3,
1.4 or 1.5 will be difficult to determine and will not afford a full and
adequate remedy, and therefore agrees that the Company, in addition to seeking
actual damages in connection therewith, may seek specific enforcement of any
such covenant in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction, without the
necessity of a bond.
2. COMPENSATION AND BENEFITS.
2.1. SALARY. The Company shall pay Executive for services during the
Employment Period a base salary at the annual rate of $165,000, or such higher
amount as may be established as provided herein. Any and all increases to
Executive's base salary shall be determined by the President of Sulzer
Orthopedics Inc. and the Group Vice President Human Resources of Sulzer Medica
USA, it being understood and agreed that the first review of such salary shall
occur on or around December 15, 1998 and any increase would be effective
January 1, 1999. Such base salary shall be payable in equal installments, no
less
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frequently than monthly, pursuant to the Company's customary payroll policies in
force at the time of payment, less any required or authorized payroll
deductions. In no event shall Executive's base salary for any year be reduced
below the greater of the dollar amount specified in the first sentence of this
Section 2.1 or the amount of base salary paid by the Company to Executive for
the immediately preceding annual period.
2.2 ANNUAL BONUS. Executive shall participate in an annual bonus plan
for each of 1998 and 1999 under which bonuses shall be based on the attainment
of annual sales and operating income objectives, as follows:
(1) Actual sales and actual operating income for each year shall be
expressed as a percentage of the respective objectives for such
year;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"FINAL ANNUAL PERCENTAGE").
If the Final Annual Percentage equals or exceeds 100%, an annual bonus shall be
paid, such annual bonus to be in an amount equal to 50% of Executive's then base
salary (annualized for any partial calendar year) plus 2.5% of such base salary
for every 1% by which the Final Annual Percentage exceeds 100% (but the total
annual bonus payable under this Section 2.2 shall not exceed 100% of such base
salary). The sales and operating income objectives for 1998 are set forth on
Exhibit A hereto and such objectives for 1999 shall be established by the Board
in good faith. Subject to Executive's employment by the Company on December 31,
1998, the annual bonus with respect to 1998 shall be paid to Executive no later
than March 15, 1999; subject to Executive's employment by the Company on
December 31, 1999, the annual bonus with respect to 1999 shall be paid to
Executive no later than March 15, 2000.
2.3 LONG TERM INCENTIVE PLAN. Executive shall participate in a
long-term bonus plan based on the attainment of sales and operating income
objectives for the two-year period ending on December 31, 1999, as follows:
(1) Actual sales and actual operating income for such period shall be
expressed as a percentage of the respective objectives for such
period;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"Final Long-Term Percentage").
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If the Final Long-Term Percentage equals or exceeds 100%, a long-term bonus
shall be paid, such long-term bonus to be in an amount equal to 150% of
Executive's average base salary for 1998 and 1999 (annualized for any partial
calendar year) plus 7.5% of such average base salary for every 1% by which the
Final Long-Term Percentage exceeds 100% (but the total long-term bonus payable
under this Section 2.3 shall not exceed 300% of such average base salary). The
sales and earnings objectives for the two-year period are set forth on Exhibit B
hereto. Subject to Executive's continuous employment through December 31, 1999,
any long-term bonus due to him shall be paid no later than March 15, 2000.
2.4. BENEFITS. During the Employment Period, Executive shall be
entitled to participate, on the same basis and at the same level as other senior
executives of the Company, in any group insurance, hospitalization, medical,
health and accident, disability, fringe benefit and tax-qualified retirement
plans or programs of the Company now existing or hereafter established to the
extent that he is eligible under the general provisions thereof; PROVIDED,
HOWEVER, that the benefits provided to the Executive and his dependents
hereunder shall in no event be less favorable to them, as a whole, than the
benefits provided by the Company to its senior executives and their dependents
on the date hereof.
2.5. EXPENSES. Pursuant to the Company's customary policies in force
at the time of payment, Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly and reasonably incurred by him on behalf of the Company or its
Affiliates in the performance of his duties hereunder.
3. EMPLOYMENT PERIOD.
Executive's employment under this Agreement shall commence as of the
Effective Time, and shall terminate on the second anniversary thereof (the
"EMPLOYMENT PERIOD"), unless terminated earlier pursuant to Section 4.
4. TERMINATION. The Employment Period may be terminated at any time by
the Company or Executive.
4.1. TERMINATION BY THE COMPANY FOR CAUSE; RESIGNATION WITHOUT
CONSTRUCTIVE DISCHARGE. Upon a termination of the Employment Period by the
Company for Cause or a resignation by Executive without Constructive Discharge
(as defined below), the Company shall have no obligation to Executive other than
the payment of Executive's earned and unpaid base salary (and bonus with respect
to any completed fiscal year or other completed fiscal period) to the effective
date of such termination.
For purposes of this Agreement, the term "CAUSE" shall mean and be
limited to, (i) gross neglect of duties by the Executive resulting in a material
adverse effect on the Company's business, (ii) Executive's unauthorized
appropriation of material property of the Company, or (iii) an act or acts
committed by the Executive constituting a felony and detrimental to the Company
or its reputation.
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4.2. DEATH; PERMANENT DISABILITY; TERMINATION BY THE COMPANY WITHOUT
CAUSE; RESIGNATION FOR CONSTRUCTIVE DISCHARGE. In the event of Executive's
death or Permanent Disability, the Company's termination of the Employment
Period for any reason other than for Cause or Executive's resignation for
Constructive Discharge, the Company shall have no obligation to Executive other
than (i) a continuation of his base salary through the second anniversary of the
Effective Time, and (ii) the payment of a portion of the awards which would have
been payable to the Executive as annual and long-term bonuses as follows:
(a) with respect to the annual bonus (x) Executive shall be entitled
to receive the full amount of any bonus with respect to any
completed fiscal year, payable on the date such bonus would have
been paid had Executive's employment with the Company not
terminated, and (y) with respect to the annual bonus payable with
respect to any fiscal year of the Company in which Executive's
employment terminates, Executive shall be paid a pro rata amount
equal to the amount he would have received had he been employed
by the Company on December 31 of such fiscal year times a
fraction, the numerator of which is the number of days which
Executive was employed by the Company in such fiscal year and the
denominator of which is 365, which payment shall be made no later
than the date such bonus would have been paid had Executive's
employment not terminated;
(b) with respect to the long-term bonus, Executive shall not be
entitled to any portion thereof if his employment has terminated
prior to December 31, 1998; if his employment terminates after
such date, he shall be paid a pro rata amount equal to the amount
he would have received had he been employed by the Company on
December 31, 1999 times a fraction, the numerator of which is the
total number of days which Executive was employed by the Company
from the date of this Agreement through the date of termination
and the denominator of which is 730, which payment shall be made
no later than the date such bonus would have been paid had
Executive's employment not terminated.
Notwithstanding the foregoing, such salary continuation (a) shall be subject to
Executive's compliance with the restrictive covenants contained in Section 1
hereof and (b) may be reduced by any disability benefits received by Executive
in the event of his Permanent Disability.
As used herein, "CONSTRUCTIVE DISCHARGE" means:
(i) the assignment to Executive of any duties inconsistent in any
respect with Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated hereunder, or any other action
by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent
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action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(ii) any material reduction by the Company of Executive's base salary
or fringe benefits, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof
given by Executive;
(iii) the Company's requiring Executive to be based at any office or
location other than as has been the custom immediately prior to
the date of this Agreement; or
(iv) a substantial breach of this Agreement by the Company that
results in material economic harm to Executive.
For purpose of this Section 4.2, any good faith determination of "Constructive
Discharge" made by Executive shall be conclusive.
"PERMANENT DISABILITY" means a disability entitling Executive to
long-term disability benefits under the long-term disability plan applicable to
Executive.
4.3. LIQUIDATED DAMAGES. Executive acknowledges that any payments
under this Section 4 resulting from any termination of the Employment Period are
in lieu of any and all claims that the Executive may have against the Company,
and represent liquidated damages (and not a penalty).
5. OPTIONS. During the Employment Period, Executive shall be
eligible to participate in the Parent's Management Stock Option Plan. The
amount of annual grants of stock options to be made to Executive under such plan
(based on the fair market value of the stock subject to the options as of the
date of grant) shall be 1.5 times Executive's base salary. Such options shall
be non-qualified stock options and shall vest in four equal installments on the
first through fourth anniversaries of the relevant data of grant.
6. LIMITATION ON PAYMENTS. In the event that any payments or
benefits hereunder would, absent the application of this Section 6, be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended, then the Company shall reduce the payments and benefits due
hereunder to the smallest extent necessary such that no such excise tax shall
apply.
7. NOTICES. Any notice or communication given by either party
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
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(a) if to the Company:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: T.C. Selman II,
Group Vice President
with a copy to:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: Lawrence Panitz
General Counsel
(b) if to the Executive:
Spine-Tech, Inc.
7375 Bush Lake Road
Minneapolis, Minnesota 55439
Telecopier No.: 612-830-6388
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by Federal Express, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address to which notices to such person shall
thereafter be sent.
8. MISCELLANEOUS.
8.1. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto
contain the entire understanding of the parties in respect of their subject
matter and supersede upon their effectiveness all other prior agreements and
understandings between the parties with respect to such subject matter.
8.2. AMENDMENT; WAIVER. This Agreement may not be amended,
supplemented, cancelled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
8.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the
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Company's business and properties. Executive's rights or obligations under this
Agreement may not be assigned by Executive, except that the rights specified in
Section 4.2 shall pass upon the Executive's death to Executive's executor or
administrator.
8.4. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
8.5. GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws and public policy
(other than conflict of laws principles) of the State of Minnesota applicable to
contracts executed and to be wholly performed within such State.
8.6. FURTHER ASSURANCES. Each of the parties agrees to execute,
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the
provisions or intent of this Agreement.
8.7. SEVERABILITY; ARBITRATION. (a) The parties have carefully
reviewed the provisions of this Agreement and agree that they are fair and
equitable. However, in light of the possibility of differing interpretations of
law and changes in circumstances, the parties agree that if any one or more of
the provisions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Moreover, if any of the provisions contained in this Agreement is determined by
a court of competent jurisdiction to be excessively broad as to duration,
activity, geographic application or subject, it shall be construed, by limiting
or reducing it to the extent legally permitted, so as to be enforceable to the
extent compatible with then applicable law.
(b) ARBITRATION. Except for disputes arising under Section 1.3, 1.4
or 1.5 hereof, all disputes arising under this Agreement shall be submitted to
final and binding arbitration in Minneapolis, Minnesota. The arbitrator shall
be selected and the arbitration shall be conducted pursuant to the then most
recent Employment Dispute Resolution Rules of the American Arbitration
Association. The decision of the arbitrator shall be final and binding, and any
court of competent jurisdiction may enter judgment upon the award. All fees and
expenses of the arbitrator shall be shared equally by Executive and the Company.
The arbitrator shall have jurisdiction and authority to interpret and apply the
provisions of this Agreement and relevant federal, state and local laws insofar
as necessary to the determination of the dispute and to remedy any breaches of
this Agreement and/or applicable laws, but shall not have jurisdiction or
authority to award punitive damages or alter in any way the provisions of this
Agreement. The arbitrator shall have the authority to award attorney's fees and
costs to the prevailing party. The party agree that this arbitration provision
shall be in lieu of any claims procedure which may be required under federal
law.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPINE-TECH INC.
By: /s/ David W. Stassen
----------------------------
Name: David W. Stassen
Title: CEO
EXECUTIVE
By: /s/ Douglas W. Kohrs
----------------------------
Name: Douglas W. Kohrs
Title: Vice President Research and
Development
Acknowledged this 15 day of December 1997.
SULZER MEDICA LTD.
By: /s/ A. Buchel
----------------------------
Name: Andre P. Buchel
Title: CEO
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EXHIBIT A
ANNUAL BONUS OBJECTIVES
1998
SALES: $119,000,000
EARNINGS(1): $51,000,000
- ------------------------
(1) Operating income
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EXHIBIT B
LONG TERM INCENTIVE OBJECTIVES
1998 & 1999
1998 1999
SALES: $119,000,000 $229,000,000
EARNINGS(2): $51,000,000 $98,000,000
- ---------------------
(2) Operating income
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Exhibit 6
EMPLOYMENT AGREEMENT
Employment Agreement (the "AGREEMENT") dated as of December 15, 1997,
by and between SPINE-TECH, INC., a Minnesota corporation (the "COMPANY"), and
Keith M. Eastman ("EXECUTIVE").
WHEREAS, SULZER MEDICA LTD., a corporation organized under the laws of
Switzerland ("PARENT"), SULZER MEDICA ORTHOPEDICS ACQUISITION CORP., a Minnesota
corporation and a wholly owned subsidiary of Parent (the "PURCHASER"), and the
Company have entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "MERGER AGREEMENT"), pursuant to which the Purchaser will merge with
and into the Company (the "MERGER"); and
WHEREAS, in connection with the Merger, the parties desire to enter
into this Agreement, to be effective at the Effective Time (as defined in the
Merger Agreement);
NOW, THEREFORE, in consideration of the mutual covenants in this
Agreement, the parties agree as follows:
1. EFFECTIVENESS OF AGREEMENT AND EMPLOYMENT OF EXECUTIVE.
1.1. EFFECTIVENESS OF AGREEMENT. This Agreement shall become
effective as of the Effective Time, at which time it shall supersede the
management agreement dated February 1, 1996 between the Company and Executive.
In the event that the Merger (as defined in the Merger Agreement) is not
consummated by June 30, 1998, this Agreement shall be null and void.
1.2. EMPLOYMENT BY THE COMPANY. The Company hereby employs Executive
as Vice President Finance, and Executive hereby accepts such employment with the
Company. Executive shall report to, and perform such duties and services for
the Company, Parent and their respective subsidiaries and affiliates (Parent and
such subsidiaries and affiliates collectively, "AFFILIATES") as may be
designated from time to time by, the President of Sulzer Orthopedics Inc. or the
Board of Directors of Parent (the "BOARD"), or the designee of either thereof.
Executive shall use his diligent efforts to promote the interests of the Company
and the Affiliates, and shall devote substantially all of his business time and
attention to his employment under this Agreement; PROVIDED, HOWEVER, that
nothing in this Agreement shall preclude Executive from (a) serving as, and
receiving compensation for serving as, a director or member of a committee of
any corporation or other business organization involving no conflict of interest
with the interests of the Company and its Affiliates and, except with respect to
directorships held as of the date hereof, approved by the President of Sulzer
Orthopedics Inc., (b) engaging in charitable and community activities, or (c)
managing his personal
<PAGE>
investments as long as such activities do not materially interfere with the
regular performance of his duties under this Agreement.
1.3. CONFIDENTIALITY. Executive understands and acknowledges that in
the course of his employment, he will have access to and will learn information
proprietary to the Company and its Affiliates that concerns the operation and
methodology of the Company and its Affiliates, including, without limitation,
business plans, financial information, protocols, proposals, manuals, clinical
procedures and guidelines, scientific data, computer source codes, programs,
software, knowhow and specifications, copyrights, trade secrets, market
information, Developments (as hereinafter defined), data and customer
information (collectively, "PROPRIETARY INFORMATION"). Executive agrees that,
at all times (including following termination of the Employment Period (as
hereinafter defined)), he will keep confidential and will not disclose directly
or indirectly any such Proprietary Information to any third party, except as
required to fulfill his duties hereunder, and will not misuse, misappropriate or
exploit such Proprietary Information in any way. The restrictions contained
herein shall not apply (a) to any information which Executive can demonstrate by
written record was already available to the public at the time of disclosure, or
subsequently become available to the public, otherwise than by breach of this
Agreement, or (b) to any disclosures required by law or administrative process
or in the defense of any claim against Executive or in the prosecution of any
claim by Executive against the Company or any of its Affiliates. Upon any
termination of the Employment Period, Executive shall immediately return to the
Company all copies of any Proprietary Information in his possession.
1.4. RESTRICTIONS ON SOLICITATION. During the period (the "RESTRICTED
PERIOD") beginning on the Effective Time and ending on the earlier of (a) the
fourth anniversary of the Effective Time and (b) the second anniversary of the
date of cessation of the Employment Period for any reason whatsoever, Executive
shall not, directly or indirectly, solicit or contact any customer of the
Company or any of the Affiliates for any commercial pursuit that is in
competition with the Company or any of the Affiliates, or that is contained from
time to time by the Company's business plan, or take away or interfere or
attempt to interfere with any custom, trade, business or patronage of the
Company or any of the Affiliates, or induce, or attempt to induce, any
employees, agents or consultants of or to the Company or any of the Affiliates
to do anything from which Executive is restricted by reason of this Agreement
nor shall Executive, directly or indirectly, offer or aid others to offer
employment to or interfere or attempt to interfere with any employees, agents or
consultants of the Company or any of the Affiliates.
1.5. RESTRICTIONS ON COMPETITIVE EMPLOYMENT. During the Restricted
Period, Executive shall not (as principal, agent, employee, consultant or
otherwise), directly or indirectly, engage in activities for, or render services
to, any firm or business (other than the Company, Parent or any Affiliates of
Parent) engaged or about to become engaged in any orthopedics products business
competitive with the Company or any affiliated orthopedic business of Parent (a
"COMPETITIVE BUSINESS"). Notwithstanding the foregoing, Executive may have an
interest consisting of publicly traded securities constituting less than 1
percent of any class of publicly traded securities in any public company engaged
in a Competitive Business so
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long as he is not employed by and does not consult with, or become a director of
or otherwise engage in any activities for, such company.
1.6. ASSIGNMENT OF DEVELOPMENTS. All Developments that are at any
time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, during or as a result of Executive's employment under
this Agreement or any prior employment with the Company or the Affiliates, shall
be the sole and absolute property of the Company and the Affiliates, free of any
reserved or other rights of any kind on Executive's part. During Executive's
employment and, if such Developments were made, conceived or suggested by
Executive during or as a result of Executive's employment under this Agreement
or any prior employment with the Company or the Affiliates, thereafter,
Executive shall promptly make full disclosure of any such Developments to the
Company and, at the Company's cost and expense, do all acts and things
(including, among others, the execution and delivery under oath of patent and
copyright applications and instruments of assignment) deemed by the Company to
be necessary or desirable at any time in order to effect the full assignment to
the Company and the Affiliates of Executive's right and title, if any, to such
Developments. For purposes of this Agreement, the term "DEVELOPMENTS" shall
mean all data, discoveries, findings, reports, designs, inventions,
improvements, methods, practices, techniques, developments, programs, concepts,
and ideas, whether or not patentable, relating to the present or planned
activities, or future activities of which Executive is aware, or the products
and services of the Company or any of the Affiliates; PROVIDED, HOWEVER, that
the term "Developments" does not include any invention for which no equipment,
supplies, facility or Proprietary Information of the Company was used and that
was developed entirely on Executive's own time and (i) that does not relate (A)
directly to the business of the Company or (B) to the Company's actual or
demonstrably anticipated research or development or (ii) that does not result
from any work performed by Executive for the Company.
1.7. REMEDIES. Executive acknowledges and agrees that damages for a
breach or threatened breach of any of the covenants set forth in Section 1.3,
1.4 or 1.5 will be difficult to determine and will not afford a full and
adequate remedy, and therefore agrees that the Company, in addition to seeking
actual damages in connection therewith, may seek specific enforcement of any
such covenant in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction, without the
necessity of a bond.
2. COMPENSATION AND BENEFITS.
2.1. SALARY. The Company shall pay Executive for services during the
Employment Period a base salary at the annual rate of $150,000, or such higher
amount as may be established as provided herein. Any and all increases to
Executive's base salary shall be determined by the President of Sulzer
Orthopedics Inc. and the Group Vice President Human Resources of Sulzer Medica
USA, it being understood and agreed that the first review of such salary shall
occur on or around December 15, 1998 and any increase would be effective January
1, 1999. Such base salary shall be payable in equal installments, no less
frequently than monthly, pursuant to the Company's customary payroll policies in
force at the
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time of payment, less any required or authorized payroll deductions. In no
event shall Executive's base salary for any year be reduced below the greater of
the dollar amount specified in the first sentence of this Section 2.1 or the
amount of base salary paid by the Company to Executive for the immediately
preceding annual period.
2.2 ANNUAL BONUS. Executive shall participate in an annual bonus plan
for each of 1998 and 1999 under which bonuses shall be based on the attainment
of annual sales and operating income objectives, as follows:
(1) Actual sales and actual operating income for each year shall be
expressed as a percentage of the respective objectives for such
year;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"FINAL ANNUAL PERCENTAGE").
If the Final Annual Percentage equals or exceeds 100%, an annual bonus shall be
paid, such annual bonus to be in an amount equal to 50% of Executive's then base
salary (annualized for any partial calendar year) plus 2.5% of such base salary
for every 1% by which the Final Annual Percentage exceeds 100% (but the total
annual bonus payable under this Section 2.2 shall not exceed 100% of such base
salary). The sales and operating income objectives for 1998 are set forth on
Exhibit A hereto and such objectives for 1999 shall be established by the Board
in good faith. Subject to Executive's employment by the Company on December 31,
1998, the annual bonus with respect to 1998 shall be paid to Executive no later
than March 15, 1999; subject to Executive's employment by the Company on
December 31, 1999, the annual bonus with respect to 1999 shall be paid to
Executive no later than March 15, 2000.
2.3 LONG TERM INCENTIVE PLAN. Executive shall participate in a
long-term bonus plan based on the attainment of sales and operating income
objectives for the two-year period ending on December 31, 1999, as follows:
(1) Actual sales and actual operating income for such period shall be
expressed as a percentage of the respective objectives for such
period;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"Final Long-Term Percentage").
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If the Final Long-Term Percentage equals or exceeds 100%, a long-term bonus
shall be paid, such long-term bonus to be in an amount equal to 150% of
Executive's average base salary for 1998 and 1999 (annualized for any partial
calendar year) plus 7.5% of such average base salary for every 1% by which the
Final Long-Term Percentage exceeds 100% (but the total long-term bonus payable
under this Section 2.3 shall not exceed 300% of such average base salary). The
sales and earnings objectives for the two-year period are set forth on Exhibit B
hereto. Subject to Executive's continuous employment through December 31, 1999,
any long-term bonus due to him shall be paid no later than March 15, 2000.
2.4. BENEFITS. During the Employment Period, Executive shall be
entitled to participate, on the same basis and at the same level as other senior
executives of the Company, in any group insurance, hospitalization, medical,
health and accident, disability, fringe benefit and tax-qualified retirement
plans or programs of the Company now existing or hereafter established to the
extent that he is eligible under the general provisions thereof; PROVIDED,
HOWEVER, that the benefits provided to the Executive and his dependents
hereunder shall in no event be less favorable to them, as a whole, than the
benefits provided by the Company to its senior executives and their dependents
on the date hereof.
2.5. EXPENSES. Pursuant to the Company's customary policies in force
at the time of payment, Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly and reasonably incurred by him on behalf of the Company or its
Affiliates in the performance of his duties hereunder.
3. EMPLOYMENT PERIOD.
Executive's employment under this Agreement shall commence as of the
Effective Time, and shall terminate on the second anniversary thereof (the
"EMPLOYMENT PERIOD"), unless terminated earlier pursuant to Section 4.
4. TERMINATION. The Employment Period may be terminated at any time by
the Company or Executive.
4.1. TERMINATION BY THE COMPANY FOR CAUSE; RESIGNATION WITHOUT
CONSTRUCTIVE DISCHARGE. Upon a termination of the Employment Period by the
Company for Cause or a resignation by Executive without Constructive Discharge
(as defined below), the Company shall have no obligation to Executive other than
the payment of Executive's earned and unpaid base salary (and bonus with respect
to any completed fiscal year or other completed fiscal period) to the effective
date of such termination.
For purposes of this Agreement, the term "CAUSE" shall mean and be
limited to, (i) gross neglect of duties by the Executive resulting in a material
adverse effect on the Company's business, (ii) Executive's unauthorized
appropriation of material property of the Company, or (iii) an act or acts
committed by the Executive constituting a felony and detrimental to the Company
or its reputation.
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4.2. DEATH; PERMANENT DISABILITY; TERMINATION BY THE COMPANY WITHOUT
CAUSE; RESIGNATION FOR CONSTRUCTIVE DISCHARGE. In the event of Executive's
death or Permanent Disability, the Company's termination of the Employment
Period for any reason other than for Cause or Executive's resignation for
Constructive Discharge, the Company shall have no obligation to Executive other
than (i) a continuation of his base salary through the second anniversary of the
Effective Time, and (ii) the payment of a portion of the awards which would have
been payable to the Executive as annual and long-term bonuses as follows:
(a) with respect to the annual bonus (x) Executive shall be entitled
to receive the full amount of any bonus with respect to any
completed fiscal year, payable on the date such bonus would have
been paid had Executive's employment with the Company not
terminated, and (y) with respect to the annual bonus payable with
respect to any fiscal year of the Company in which Executive's
employment terminates, Executive shall be paid a pro rata amount
equal to the amount he would have received had he been employed
by the Company on December 31 of such fiscal year times a
fraction, the numerator of which is the number of days which
Executive was employed by the Company in such fiscal year and the
denominator of which is 365, which payment shall be made no later
than the date such bonus would have been paid had Executive's
employment not terminated;
(b) with respect to the long-term bonus, Executive shall not be
entitled to any portion thereof if his employment has terminated
prior to December 31, 1998; if his employment terminates after
such date, he shall be paid a pro rata amount equal to the amount
he would have received had he been employed by the Company on
December 31, 1999 times a fraction, the numerator of which is the
total number of days which Executive was employed by the Company
from the date of this Agreement through the date of termination
and the denominator of which is 730, which payment shall be made
no later than the date such bonus would have been paid had
Executive's employment not terminated.
Notwithstanding the foregoing, such salary continuation (a) shall be subject to
Executive's compliance with the restrictive covenants contained in Section 1
hereof and (b) may be reduced by any disability benefits received by Executive
in the event of his Permanent Disability.
As used herein, "CONSTRUCTIVE DISCHARGE" means:
(i) the assignment to Executive of any duties inconsistent in any
respect with Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated hereunder, or any other action
by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent
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action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(ii) any material reduction by the Company of Executive's base salary
or fringe benefits, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof
given by Executive;
(iii) the Company's requiring Executive to be based at any office or
location other than as has been the custom immediately prior to
the date of this Agreement; or
(iv) a substantial breach of this Agreement by the Company that
results in material economic harm to Executive.
For purpose of this Section 4.2, any good faith determination of "Constructive
Discharge" made by Executive shall be conclusive.
"PERMANENT DISABILITY" means a disability entitling Executive to
long-term disability benefits under the long-term disability plan applicable to
Executive.
4.3. LIQUIDATED DAMAGES. Executive acknowledges that any payments
under this Section 4 resulting from any termination of the Employment Period are
in lieu of any and all claims that the Executive may have against the Company,
and represent liquidated damages (and not a penalty).
5. OPTIONS. During the Employment Period, Executive shall be
eligible to participate in the Parent's Management Stock Option Plan. The
amount of annual grants of stock options to be made to Executive under such plan
(based on the fair market value of the stock subject to the options as of the
date of grant) shall be 1.5 times Executive's base salary. Such options shall
be non-qualified stock options and shall vest in four equal installments on the
first through fourth anniversaries of the relevant data of grant.
6. LIMITATION ON PAYMENTS. In the event that any payments or
benefits hereunder would, absent the application of this Section 6, be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended, then the Company shall reduce the payments and benefits due
hereunder to the smallest extent necessary such that no such excise tax shall
apply.
7. NOTICES. Any notice or communication given by either party
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
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(a) if to the Company:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: T.C. Selman II,
Group Vice President
with a copy to:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: Lawrence Panitz
General Counsel
(b) if to the Executive:
Spine-Tech, Inc.
7375 Bush Lake Road
Minneapolis, Minnesota 55439
Telecopier No.: 612-830-6388
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by Federal Express, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address to which notices to such person shall
thereafter be sent.
8. MISCELLANEOUS.
8.1. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto
contain the entire understanding of the parties in respect of their subject
matter and supersede upon their effectiveness all other prior agreements and
understandings between the parties with respect to such subject matter.
8.2. AMENDMENT; WAIVER. This Agreement may not be amended,
supplemented, cancelled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
8.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the
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Company's business and properties. Executive's rights or obligations under this
Agreement may not be assigned by Executive, except that the rights specified in
Section 4.2 shall pass upon the Executive's death to Executive's executor or
administrator.
8.4. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
8.5. GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws and public policy
(other than conflict of laws principles) of the State of Minnesota applicable to
contracts executed and to be wholly performed within such State.
8.6. FURTHER ASSURANCES. Each of the parties agrees to execute,
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the
provisions or intent of this Agreement.
8.7. SEVERABILITY; ARBITRATION. (a) The parties have carefully
reviewed the provisions of this Agreement and agree that they are fair and
equitable. However, in light of the possibility of differing interpretations of
law and changes in circumstances, the parties agree that if any one or more of
the provisions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Moreover, if any of the provisions contained in this Agreement is determined by
a court of competent jurisdiction to be excessively broad as to duration,
activity, geographic application or subject, it shall be construed, by limiting
or reducing it to the extent legally permitted, so as to be enforceable to the
extent compatible with then applicable law.
(b) ARBITRATION. Except for disputes arising under Section 1.3, 1.4
or 1.5 hereof, all disputes arising under this Agreement shall be submitted to
final and binding arbitration in Minneapolis, Minnesota. The arbitrator shall
be selected and the arbitration shall be conducted pursuant to the then most
recent Employment Dispute Resolution Rules of the American Arbitration
Association. The decision of the arbitrator shall be final and binding, and any
court of competent jurisdiction may enter judgment upon the award. All fees and
expenses of the arbitrator shall be shared equally by Executive and the Company.
The arbitrator shall have jurisdiction and authority to interpret and apply the
provisions of this Agreement and relevant federal, state and local laws insofar
as necessary to the determination of the dispute and to remedy any breaches of
this Agreement and/or applicable laws, but shall not have jurisdiction or
authority to award punitive damages or alter in any way the provisions of this
Agreement. The arbitrator shall have the authority to award attorney's fees and
costs to the prevailing party. The party agree that this arbitration provision
shall be in lieu of any claims procedure which may be required under federal
law.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPINE-TECH INC.
By: /s/ David W. Stassen
--------------------------
Name: David W. Stassen
Title: CEO
EXECUTIVE
By: /s/ Keith M. Eastman
--------------------------
Name: Keith M. Eastman
Title: Vice President Finance
Acknowledged this 15 day of December 1997.
SULZER MEDICA LTD.
By: /s/ A. Buchel
---------------------------
Name: Andre P. Buchel
Title: CEO
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EXHIBIT A
ANNUAL BONUS OBJECTIVES
1998
SALES: $119,000,000
EARNINGS(1): $51,000,000
- ---------------------
(1) Operating income
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EXHIBIT B
LONG TERM INCENTIVE OBJECTIVES
1998 & 1999
1998 1999
SALES: $119,000,000 $229,000,000
EARNINGS(2): $51,000,000 $98,000,000
- ----------------------
(2) Operating income
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Exhibit 7
EMPLOYMENT AGREEMENT
Employment Agreement (the "AGREEMENT") dated as of December 15, 1997,
by and between SPINE-TECH, INC., a Minnesota corporation (the "COMPANY"), and
Richard C. Jansen ("EXECUTIVE").
WHEREAS, SULZER MEDICA LTD., a corporation organized under the laws of
Switzerland ("PARENT"), SULZER MEDICA ORTHOPEDICS ACQUISITION CORP., a Minnesota
corporation and a wholly owned subsidiary of Parent (the "PURCHASER"), and the
Company have entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "MERGER AGREEMENT"), pursuant to which the Purchaser will merge with
and into the Company (the "MERGER"); and
WHEREAS, in connection with the Merger, the parties desire to enter
into this Agreement, to be effective at the Effective Time (as defined in the
Merger Agreement);
NOW, THEREFORE, in consideration of the mutual covenants in this
Agreement, the parties agree as follows:
1. EFFECTIVENESS OF AGREEMENT AND EMPLOYMENT OF EXECUTIVE.
1.1. EFFECTIVENESS OF AGREEMENT. This Agreement shall become
effective as of the Effective Time, at which time it shall supersede the
management agreement dated February 1, 1996 and the employment agreement
between the Company and Executive. In the event that the Merger (as defined
in the Merger Agreement) is not consummated by June 30, 1998, this Agreement
shall be null and void.
1.2. EMPLOYMENT BY THE COMPANY. The Company hereby employs
Executive as Vice President Finance, and Executive hereby accepts such
employment with the Company. Executive shall report to, and perform such
duties and services for the Company, Parent and their respective subsidiaries
and affiliates (Parent and such subsidiaries and affiliates collectively,
"AFFILIATES") as may be designated from time to time by, the President of
Sulzer Orthopedics Inc. or the Board of Directors of Parent (the "BOARD"), or
the designee of either thereof. Executive shall use his diligent efforts to
promote the interests of the Company and the Affiliates, and shall devote
substantially all of his business time and attention to his employment under
this Agreement; PROVIDED, HOWEVER, that nothing in this Agreement shall
preclude Executive from (a) serving as, and receiving compensation for
serving as, a director or member of a committee of any corporation or other
business organization involving no conflict of interest with the interests of
the Company and its Affiliates and, except with respect to directorships held
as of the date hereof, approved by the President of Sulzer Orthopedics Inc.,
(b) engaging in charitable and community activities, or (c) managing his
personal
<PAGE>
investments as long as such activities do not materially interfere with the
regular performance of his duties under this Agreement.
1.3. CONFIDENTIALITY. Executive understands and acknowledges that in
the course of his employment, he will have access to and will learn information
proprietary to the Company and its Affiliates that concerns the operation and
methodology of the Company and its Affiliates, including, without limitation,
business plans, financial information, protocols, proposals, manuals, clinical
procedures and guidelines, scientific data, computer source codes, programs,
software, knowhow and specifications, copyrights, trade secrets, market
information, Developments (as hereinafter defined), data and customer
information (collectively, "PROPRIETARY INFORMATION"). Executive agrees that,
at all times (including following termination of the Employment Period (as
hereinafter defined)), he will keep confidential and will not disclose directly
or indirectly any such Proprietary Information to any third party, except as
required to fulfill his duties hereunder, and will not misuse, misappropriate or
exploit such Proprietary Information in any way. The restrictions contained
herein shall not apply (a) to any information which Executive can demonstrate by
written record was already available to the public at the time of disclosure, or
subsequently become available to the public, otherwise than by breach of this
Agreement, or (b) to any disclosures required by law or administrative process
or in the defense of any claim against Executive or in the prosecution of any
claim by Executive against the Company or any of its Affiliates. Upon any
termination of the Employment Period, Executive shall immediately return to the
Company all copies of any Proprietary Information in his possession.
1.4. RESTRICTIONS ON SOLICITATION. During the period (the "RESTRICTED
PERIOD") beginning on the Effective Time and ending on the earlier of (a) the
fourth anniversary of the Effective Time and (b) the second anniversary of the
date of cessation of the Employment Period for any reason whatsoever, Executive
shall not, directly or indirectly, solicit or contact any customer of the
Company or any of the Affiliates for any commercial pursuit that is in
competition with the Company or any of the Affiliates, or that is contained from
time to time by the Company's business plan, or take away or interfere or
attempt to interfere with any custom, trade, business or patronage of the
Company or any of the Affiliates, or induce, or attempt to induce, any
employees, agents or consultants of or to the Company or any of the Affiliates
to do anything from which Executive is restricted by reason of this Agreement
nor shall Executive, directly or indirectly, offer or aid others to offer
employment to or interfere or attempt to interfere with any employees, agents or
consultants of the Company or any of the Affiliates.
1.5. RESTRICTIONS ON COMPETITIVE EMPLOYMENT. During the Restricted
Period, Executive shall not (as principal, agent, employee, consultant or
otherwise), directly or indirectly, engage in activities for, or render services
to, any firm or business (other than the Company, Parent or any Affiliates of
Parent) engaged or about to become engaged in any orthopedics products business
competitive with the Company or any affiliated orthopedic business of Parent (a
"COMPETITIVE BUSINESS"). Notwithstanding the foregoing, Executive may have an
interest consisting of publicly traded securities constituting less than 1
percent of any class of publicly traded securities in any public company engaged
in a Competitive Business so
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long as he is not employed by and does not consult with, or become a director of
or otherwise engage in any activities for, such company.
1.6. ASSIGNMENT OF DEVELOPMENTS. All Developments that are at any
time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, during or as a result of Executive's employment under
this Agreement or any prior employment with the Company or the Affiliates, shall
be the sole and absolute property of the Company and the Affiliates, free of any
reserved or other rights of any kind on Executive's part. During Executive's
employment and, if such Developments were made, conceived or suggested by
Executive during or as a result of Executive's employment under this Agreement
or any prior employment with the Company or the Affiliates, thereafter,
Executive shall promptly make full disclosure of any such Developments to the
Company and, at the Company's cost and expense, do all acts and things
(including, among others, the execution and delivery under oath of patent and
copyright applications and instruments of assignment) deemed by the Company to
be necessary or desirable at any time in order to effect the full assignment to
the Company and the Affiliates of Executive's right and title, if any, to such
Developments. For purposes of this Agreement, the term "DEVELOPMENTS" shall
mean all data, discoveries, findings, reports, designs, inventions,
improvements, methods, practices, techniques, developments, programs, concepts,
and ideas, whether or not patentable, relating to the present or planned
activities, or future activities of which Executive is aware, or the products
and services of the Company or any of the Affiliates; PROVIDED, HOWEVER, that
the term "Developments" does not include any invention for which no equipment,
supplies, facility or Proprietary Information of the Company was used and that
was developed entirely on Executive's own time and (i) that does not relate (A)
directly to the business of the Company or (B) to the Company's actual or
demonstrably anticipated research or development or (ii) that does not result
from any work performed by Executive for the Company.
1.7. REMEDIES. Executive acknowledges and agrees that damages for a
breach or threatened breach of any of the covenants set forth in Section 1.3,
1.4 or 1.5 will be difficult to determine and will not afford a full and
adequate remedy, and therefore agrees that the Company, in addition to seeking
actual damages in connection therewith, may seek specific enforcement of any
such covenant in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction, without the
necessity of a bond.
2. COMPENSATION AND BENEFITS.
2.1. SALARY. The Company shall pay Executive for services during the
Employment Period a base salary at the annual rate of $150,000, or such higher
amount as may be established as provided herein. Any and all increases to
Executive's base salary shall be determined by the President of Sulzer
Orthopedics Inc. and the Group Vice President Human Resources of Sulzer Medica
USA, it being understood and agreed that the first review of such salary shall
occur on or around December 15, 1998 and any increase would be effective January
1, 1999. Such base salary shall be payable in equal installments, no less
frequently than monthly, pursuant to the Company's customary payroll policies in
force at the
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time of payment, less any required or authorized payroll deductions. In no
event shall Executive's base salary for any year be reduced below the greater of
the dollar amount specified in the first sentence of this Section 2.1 or the
amount of base salary paid by the Company to Executive for the immediately
preceding annual period.
2.2 ANNUAL BONUS. Executive shall participate in an annual bonus plan
for each of 1998 and 1999 under which bonuses shall be based on the attainment
of annual sales and operating income objectives, as follows:
(1) Actual sales and actual operating income for each year shall be
expressed as a percentage of the respective objectives for such
year;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"FINAL ANNUAL PERCENTAGE").
If the Final Annual Percentage equals or exceeds 100%, an annual bonus shall be
paid, such annual bonus to be in an amount equal to 50% of Executive's then base
salary (annualized for any partial calendar year) plus 2.5% of such base salary
for every 1% by which the Final Annual Percentage exceeds 100% (but the total
annual bonus payable under this Section 2.2 shall not exceed 100% of such base
salary). The sales and operating income objectives for 1998 are set forth on
Exhibit A hereto and such objectives for 1999 shall be established by the Board
in good faith. Subject to Executive's employment by the Company on December 31,
1998, the annual bonus with respect to 1998 shall be paid to Executive no later
than March 15, 1999; subject to Executive's employment by the Company on
December 31, 1999, the annual bonus with respect to 1999 shall be paid to
Executive no later than March 15, 2000.
2.3 LONG TERM INCENTIVE PLAN. Executive shall participate in a
long-term bonus plan based on the attainment of sales and operating income
objectives for the two-year period ending on December 31, 1999, as follows:
(1) Actual sales and actual operating income for such period shall be
expressed as a percentage of the respective objectives for such
period;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"Final Long-Term Percentage").
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If the Final Long-Term Percentage equals or exceeds 100%, a long-term bonus
shall be paid, such long-term bonus to be in an amount equal to 150% of
Executive's average base salary for 1998 and 1999 (annualized for any partial
calendar year) plus 7.5% of such average base salary for every 1% by which the
Final Long-Term Percentage exceeds 100% (but the total long-term bonus payable
under this Section 2.3 shall not exceed 300% of such average base salary). The
sales and earnings objectives for the two-year period are set forth on Exhibit B
hereto. Subject to Executive's continuous employment through December 31, 1999,
any long-term bonus due to him shall be paid no later than March 15, 2000.
2.4. BENEFITS. During the Employment Period, Executive shall be
entitled to participate, on the same basis and at the same level as other senior
executives of the Company, in any group insurance, hospitalization, medical,
health and accident, disability, fringe benefit and tax-qualified retirement
plans or programs of the Company now existing or hereafter established to the
extent that he is eligible under the general provisions thereof; PROVIDED,
HOWEVER, that the benefits provided to the Executive and his dependents
hereunder shall in no event be less favorable to them, as a whole, than the
benefits provided by the Company to its senior executives and their dependents
on the date hereof.
2.5. EXPENSES. Pursuant to the Company's customary policies in force
at the time of payment, Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly and reasonably incurred by him on behalf of the Company or its
Affiliates in the performance of his duties hereunder.
3. EMPLOYMENT PERIOD.
Executive's employment under this Agreement shall commence as of the
Effective Time, and shall terminate on the second anniversary thereof (the
"EMPLOYMENT PERIOD"), unless terminated earlier pursuant to Section 4.
4. TERMINATION. The Employment Period may be terminated at any time by
the Company or Executive.
4.1. TERMINATION BY THE COMPANY FOR CAUSE; RESIGNATION WITHOUT
CONSTRUCTIVE DISCHARGE. Upon a termination of the Employment Period by the
Company for Cause or a resignation by Executive without Constructive Discharge
(as defined below), the Company shall have no obligation to Executive other than
the payment of Executive's earned and unpaid base salary (and bonus with respect
to any completed fiscal year or other completed fiscal period) to the effective
date of such termination.
For purposes of this Agreement, the term "CAUSE" shall mean and be
limited to, (i) gross neglect of duties by the Executive resulting in a material
adverse effect on the Company's business, (ii) Executive's unauthorized
appropriation of material property of the Company, or (iii) an act or acts
committed by the Executive constituting a felony and detrimental to the Company
or its reputation.
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4.2. DEATH; PERMANENT DISABILITY; TERMINATION BY THE COMPANY WITHOUT
CAUSE; RESIGNATION FOR CONSTRUCTIVE DISCHARGE. In the event of Executive's
death or Permanent Disability, the Company's termination of the Employment
Period for any reason other than for Cause or Executive's resignation for
Constructive Discharge, the Company shall have no obligation to Executive other
than (i) a continuation of his base salary through the second anniversary of the
Effective Time, and (ii) the payment of a portion of the awards which would have
been payable to the Executive as annual and long-term bonuses as follows:
(a) with respect to the annual bonus (x) Executive shall be entitled
to receive the full amount of any bonus with respect to any
completed fiscal year, payable on the date such bonus would have
been paid had Executive's employment with the Company not
terminated, and (y) with respect to the annual bonus payable with
respect to any fiscal year of the Company in which Executive's
employment terminates, Executive shall be paid a pro rata amount
equal to the amount he would have received had he been employed
by the Company on December 31 of such fiscal year times a
fraction, the numerator of which is the number of days which
Executive was employed by the Company in such fiscal year and the
denominator of which is 365, which payment shall be made no later
than the date such bonus would have been paid had Executive's
employment not terminated;
(b) with respect to the long-term bonus, Executive shall not be
entitled to any portion thereof if his employment has terminated
prior to December 31, 1998; if his employment terminates after
such date, he shall be paid a pro rata amount equal to the amount
he would have received had he been employed by the Company on
December 31, 1999 times a fraction, the numerator of which is the
total number of days which Executive was employed by the Company
from the date of this Agreement through the date of termination
and the denominator of which is 730, which payment shall be made
no later than the date such bonus would have been paid had
Executive's employment not terminated.
Notwithstanding the foregoing, such salary continuation (a) shall be subject to
Executive's compliance with the restrictive covenants contained in Section 1
hereof and (b) may be reduced by any disability benefits received by Executive
in the event of his Permanent Disability.
As used herein, "CONSTRUCTIVE DISCHARGE" means:
(i) the assignment to Executive of any duties inconsistent in any
respect with Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated hereunder, or any other action
by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent
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action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(ii) any material reduction by the Company of Executive's base salary
or fringe benefits, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof
given by Executive;
(iii) the Company's requiring Executive to be based at any office or
location other than as has been the custom immediately prior to
the date of this Agreement; or
(iv) a substantial breach of this Agreement by the Company that
results in material economic harm to Executive.
For purpose of this Section 4.2, any good faith determination of "Constructive
Discharge" made by Executive shall be conclusive.
"PERMANENT DISABILITY" means a disability entitling Executive to
long-term disability benefits under the long-term disability plan applicable to
Executive.
4.3. LIQUIDATED DAMAGES. Executive acknowledges that any payments
under this Section 4 resulting from any termination of the Employment Period are
in lieu of any and all claims that the Executive may have against the Company,
and represent liquidated damages (and not a penalty).
5. OPTIONS. During the Employment Period, Executive shall be
eligible to participate in the Parent's Management Stock Option Plan. The
amount of annual grants of stock options to be made to Executive under such plan
(based on the fair market value of the stock subject to the options as of the
date of grant) shall be 1.5 times Executive's base salary. Such options shall
be non-qualified stock options and shall vest in four equal installments on the
first through fourth anniversaries of the relevant data of grant.
6. LIMITATION ON PAYMENTS. In the event that any payments or
benefits hereunder would, absent the application of this Section 6, be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended, then the Company shall reduce the payments and benefits due
hereunder to the smallest extent necessary such that no such excise tax shall
apply.
7. NOTICES. Any notice or communication given by either party
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
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(a) if to the Company:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: T.C. Selman II,
Group Vice President
with a copy to:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: Lawrence Panitz
General Counsel
(b) if to the Executive:
Spine-Tech, Inc.
7375 Bush Lake Road
Minneapolis, Minnesota 55439
Telecopier No.: 612-830-6388
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by Federal Express, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address to which notices to such person shall
thereafter be sent.
8. MISCELLANEOUS.
8.1. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto
contain the entire understanding of the parties in respect of their subject
matter and supersede upon their effectiveness all other prior agreements and
understandings between the parties with respect to such subject matter.
8.2. AMENDMENT; WAIVER. This Agreement may not be amended,
supplemented, cancelled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
8.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the
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Company's business and properties. Executive's rights or obligations under this
Agreement may not be assigned by Executive, except that the rights specified in
Section 4.2 shall pass upon the Executive's death to Executive's executor or
administrator.
8.4. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
8.5. GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws and public policy
(other than conflict of laws principles) of the State of Minnesota applicable to
contracts executed and to be wholly performed within such State.
8.6. FURTHER ASSURANCES. Each of the parties agrees to execute,
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the
provisions or intent of this Agreement.
8.7. SEVERABILITY; ARBITRATION. (a) The parties have carefully
reviewed the provisions of this Agreement and agree that they are fair and
equitable. However, in light of the possibility of differing interpretations of
law and changes in circumstances, the parties agree that if any one or more of
the provisions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Moreover, if any of the provisions contained in this Agreement is determined by
a court of competent jurisdiction to be excessively broad as to duration,
activity, geographic application or subject, it shall be construed, by limiting
or reducing it to the extent legally permitted, so as to be enforceable to the
extent compatible with then applicable law.
(b) ARBITRATION. Except for disputes arising under Section 1.3, 1.4
or 1.5 hereof, all disputes arising under this Agreement shall be submitted to
final and binding arbitration in Minneapolis, Minnesota. The arbitrator shall
be selected and the arbitration shall be conducted pursuant to the then most
recent Employment Dispute Resolution Rules of the American Arbitration
Association. The decision of the arbitrator shall be final and binding, and any
court of competent jurisdiction may enter judgment upon the award. All fees and
expenses of the arbitrator shall be shared equally by Executive and the Company.
The arbitrator shall have jurisdiction and authority to interpret and apply the
provisions of this Agreement and relevant federal, state and local laws insofar
as necessary to the determination of the dispute and to remedy any breaches of
this Agreement and/or applicable laws, but shall not have jurisdiction or
authority to award punitive damages or alter in any way the provisions of this
Agreement. The arbitrator shall have the authority to award attorney's fees and
costs to the prevailing party. The party agree that this arbitration provision
shall be in lieu of any claims procedure which may be required under federal
law.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPINE-TECH INC.
By: /s/ David W. Stassen
--------------------------
Name: David W. Stassen
Title: CEO
EXECUTIVE
By: /s/ Richard C. Jansen
--------------------------
Name: Richard C. Jansen
Title: Vice President Regulatory
Acknowledged this 15 day of December 1997.
SULZER MEDICA LTD.
By: /s/ A. Buchel
---------------------------
Name: Andre P. Buchel
Title: CEO
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EXHIBIT A
ANNUAL BONUS OBJECTIVES
1998
SALES: $119,000,000
EARNINGS(1): $51,000,000
- ---------------------
(1) Operating income
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EXHIBIT B
LONG TERM INCENTIVE OBJECTIVES
1998 & 1999
1998 1999
SALES: $119,000,000 $229,000,000
EARNINGS(2): $51,000,000 $98,000,000
- ----------------------
(2) Operating income
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Exhibit 8
EMPLOYMENT AGREEMENT
Employment Agreement (the "AGREEMENT") dated as of December 15, 1997,
by and between SPINE-TECH, INC., a Minnesota corporation (the "COMPANY"), and
David L. Shaw ("EXECUTIVE").
WHEREAS, SULZER MEDICA LTD., a corporation organized under the laws of
Switzerland ("PARENT"), SULZER MEDICA ORTHOPEDICS ACQUISITION CORP., a Minnesota
corporation and a wholly owned subsidiary of Parent (the "PURCHASER"), and the
Company have entered into an Agreement and Plan of Merger, dated as of the date
hereof (the "MERGER AGREEMENT"), pursuant to which the Purchaser will merge with
and into the Company (the "MERGER"); and
WHEREAS, in connection with the Merger, the parties desire to enter
into this Agreement, to be effective at the Effective Time (as defined in the
Merger Agreement);
NOW, THEREFORE, in consideration of the mutual covenants in this
Agreement, the parties agree as follows:
1. EFFECTIVENESS OF AGREEMENT AND EMPLOYMENT OF EXECUTIVE.
1.1. EFFECTIVENESS OF AGREEMENT. This Agreement shall become
effective as of the Effective Time, at which time it shall supersede the
management agreement dated February 1, 1996 between the Company and Executive.
In the event that the Merger (as defined in the Merger Agreement) is not
consummated by June 30, 1998, this Agreement shall be null and void.
1.2. EMPLOYMENT BY THE COMPANY. The Company hereby employs
Executive as Vice President Operations Finance, and Executive hereby accepts
such employment with the Company. Executive shall report to, and perform
such duties and services for the Company, Parent and their respective
subsidiaries and affiliates (Parent and such subsidiaries and affiliates
collectively, "AFFILIATES") as may be designated from time to time by, the
President of Sulzer Orthopedics Inc. or the Board of Directors of Parent (the
"BOARD"), or the designee of either thereof. Executive shall use his diligent
efforts to promote the interests of the Company and the Affiliates, and shall
devote substantially all of his business time and attention to his employment
under this Agreement; PROVIDED, HOWEVER, that nothing in this Agreement shall
preclude Executive from (a) serving as, and receiving compensation for
serving as, a director or member of a committee of any corporation or other
business organization involving no conflict of interest with the interests of
the Company and its Affiliates and, except with respect to directorships held
as of the date hereof, approved by the President of Sulzer Orthopedics Inc.,
(b) engaging in charitable and community activities, or (c) managing his
personal
<PAGE>
investments as long as such activities do not materially interfere with the
regular performance of his duties under this Agreement.
1.3. CONFIDENTIALITY. Executive understands and acknowledges that in
the course of his employment, he will have access to and will learn information
proprietary to the Company and its Affiliates that concerns the operation and
methodology of the Company and its Affiliates, including, without limitation,
business plans, financial information, protocols, proposals, manuals, clinical
procedures and guidelines, scientific data, computer source codes, programs,
software, knowhow and specifications, copyrights, trade secrets, market
information, Developments (as hereinafter defined), data and customer
information (collectively, "PROPRIETARY INFORMATION"). Executive agrees that,
at all times (including following termination of the Employment Period (as
hereinafter defined)), he will keep confidential and will not disclose directly
or indirectly any such Proprietary Information to any third party, except as
required to fulfill his duties hereunder, and will not misuse, misappropriate or
exploit such Proprietary Information in any way. The restrictions contained
herein shall not apply (a) to any information which Executive can demonstrate by
written record was already available to the public at the time of disclosure, or
subsequently become available to the public, otherwise than by breach of this
Agreement, or (b) to any disclosures required by law or administrative process
or in the defense of any claim against Executive or in the prosecution of any
claim by Executive against the Company or any of its Affiliates. Upon any
termination of the Employment Period, Executive shall immediately return to the
Company all copies of any Proprietary Information in his possession.
1.4. RESTRICTIONS ON SOLICITATION. During the period (the "RESTRICTED
PERIOD") beginning on the Effective Time and ending on the earlier of (a) the
fourth anniversary of the Effective Time and (b) the second anniversary of the
date of cessation of the Employment Period for any reason whatsoever, Executive
shall not, directly or indirectly, solicit or contact any customer of the
Company or any of the Affiliates for any commercial pursuit that is in
competition with the Company or any of the Affiliates, or that is contained from
time to time by the Company's business plan, or take away or interfere or
attempt to interfere with any custom, trade, business or patronage of the
Company or any of the Affiliates, or induce, or attempt to induce, any
employees, agents or consultants of or to the Company or any of the Affiliates
to do anything from which Executive is restricted by reason of this Agreement
nor shall Executive, directly or indirectly, offer or aid others to offer
employment to or interfere or attempt to interfere with any employees, agents or
consultants of the Company or any of the Affiliates.
1.5. RESTRICTIONS ON COMPETITIVE EMPLOYMENT. During the Restricted
Period, Executive shall not (as principal, agent, employee, consultant or
otherwise), directly or indirectly, engage in activities for, or render services
to, any firm or business (other than the Company, Parent or any Affiliates of
Parent) engaged or about to become engaged in any orthopedics products business
competitive with the Company or any affiliated orthopedic business of Parent (a
"COMPETITIVE BUSINESS"). Notwithstanding the foregoing, Executive may have an
interest consisting of publicly traded securities constituting less than 1
percent of any class of publicly traded securities in any public company engaged
in a Competitive Business so
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long as he is not employed by and does not consult with, or become a director of
or otherwise engage in any activities for, such company.
1.6. ASSIGNMENT OF DEVELOPMENTS. All Developments that are at any
time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, during or as a result of Executive's employment under
this Agreement or any prior employment with the Company or the Affiliates, shall
be the sole and absolute property of the Company and the Affiliates, free of any
reserved or other rights of any kind on Executive's part. During Executive's
employment and, if such Developments were made, conceived or suggested by
Executive during or as a result of Executive's employment under this Agreement
or any prior employment with the Company or the Affiliates, thereafter,
Executive shall promptly make full disclosure of any such Developments to the
Company and, at the Company's cost and expense, do all acts and things
(including, among others, the execution and delivery under oath of patent and
copyright applications and instruments of assignment) deemed by the Company to
be necessary or desirable at any time in order to effect the full assignment to
the Company and the Affiliates of Executive's right and title, if any, to such
Developments. For purposes of this Agreement, the term "DEVELOPMENTS" shall
mean all data, discoveries, findings, reports, designs, inventions,
improvements, methods, practices, techniques, developments, programs, concepts,
and ideas, whether or not patentable, relating to the present or planned
activities, or future activities of which Executive is aware, or the products
and services of the Company or any of the Affiliates; PROVIDED, HOWEVER, that
the term "Developments" does not include any invention for which no equipment,
supplies, facility or Proprietary Information of the Company was used and that
was developed entirely on Executive's own time and (i) that does not relate (A)
directly to the business of the Company or (B) to the Company's actual or
demonstrably anticipated research or development or (ii) that does not result
from any work performed by Executive for the Company.
1.7. REMEDIES. Executive acknowledges and agrees that damages for a
breach or threatened breach of any of the covenants set forth in Section 1.3,
1.4 or 1.5 will be difficult to determine and will not afford a full and
adequate remedy, and therefore agrees that the Company, in addition to seeking
actual damages in connection therewith, may seek specific enforcement of any
such covenant in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction, without the
necessity of a bond.
2. COMPENSATION AND BENEFITS.
2.1. SALARY. The Company shall pay Executive for services during the
Employment Period a base salary at the annual rate of $125,000, or such higher
amount as may be established as provided herein. Any and all increases to
Executive's base salary shall be determined by the President of Sulzer
Orthopedics Inc. and the Group Vice President Human Resources of Sulzer Medica
USA, it being understood and agreed that the first review of such salary shall
occur on or around December 15, 1998 and any increase would be effective January
1, 1999. Such base salary shall be payable in equal installments, no less
frequently than monthly, pursuant to the Company's customary payroll policies in
force at the
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time of payment, less any required or authorized payroll deductions. In no
event shall Executive's base salary for any year be reduced below the greater of
the dollar amount specified in the first sentence of this Section 2.1 or the
amount of base salary paid by the Company to Executive for the immediately
preceding annual period.
2.2 ANNUAL BONUS. Executive shall participate in an annual bonus plan
for each of 1998 and 1999 under which bonuses shall be based on the attainment
of annual sales and operating income objectives, as follows:
(1) Actual sales and actual operating income for each year shall be
expressed as a percentage of the respective objectives for such
year;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"FINAL ANNUAL PERCENTAGE").
If the Final Annual Percentage equals or exceeds 100%, an annual bonus shall be
paid, such annual bonus to be in an amount equal to 50% of Executive's then base
salary (annualized for any partial calendar year) plus 2.5% of such base salary
for every 1% by which the Final Annual Percentage exceeds 100% (but the total
annual bonus payable under this Section 2.2 shall not exceed 100% of such base
salary). The sales and operating income objectives for 1998 are set forth on
Exhibit A hereto and such objectives for 1999 shall be established by the Board
in good faith. Subject to Executive's employment by the Company on December 31,
1998, the annual bonus with respect to 1998 shall be paid to Executive no later
than March 15, 1999; subject to Executive's employment by the Company on
December 31, 1999, the annual bonus with respect to 1999 shall be paid to
Executive no later than March 15, 2000.
2.3 LONG TERM INCENTIVE PLAN. Executive shall participate in a
long-term bonus plan based on the attainment of sales and operating income
objectives for the two-year period ending on December 31, 1999, as follows:
(1) Actual sales and actual operating income for such period shall be
expressed as a percentage of the respective objectives for such
period;
(2) The percentage determined for sales shall be multiplied by .25
and the percentage determined for operating income shall be
multiplied by .75; and
(3) The two products so determined shall be added together (the
"Final Long-Term Percentage").
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If the Final Long-Term Percentage equals or exceeds 100%, a long-term bonus
shall be paid, such long-term bonus to be in an amount equal to 150% of
Executive's average base salary for 1998 and 1999 (annualized for any partial
calendar year) plus 7.5% of such average base salary for every 1% by which the
Final Long-Term Percentage exceeds 100% (but the total long-term bonus payable
under this Section 2.3 shall not exceed 300% of such average base salary). The
sales and earnings objectives for the two-year period are set forth on Exhibit B
hereto. Subject to Executive's continuous employment through December 31, 1999,
any long-term bonus due to him shall be paid no later than March 15, 2000.
2.4. BENEFITS. During the Employment Period, Executive shall be
entitled to participate, on the same basis and at the same level as other senior
executives of the Company, in any group insurance, hospitalization, medical,
health and accident, disability, fringe benefit and tax-qualified retirement
plans or programs of the Company now existing or hereafter established to the
extent that he is eligible under the general provisions thereof; PROVIDED,
HOWEVER, that the benefits provided to the Executive and his dependents
hereunder shall in no event be less favorable to them, as a whole, than the
benefits provided by the Company to its senior executives and their dependents
on the date hereof.
2.5. EXPENSES. Pursuant to the Company's customary policies in force
at the time of payment, Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly and reasonably incurred by him on behalf of the Company or its
Affiliates in the performance of his duties hereunder.
3. EMPLOYMENT PERIOD.
Executive's employment under this Agreement shall commence as of the
Effective Time, and shall terminate on the second anniversary thereof (the
"EMPLOYMENT PERIOD"), unless terminated earlier pursuant to Section 4.
4. TERMINATION. The Employment Period may be terminated at any time by
the Company or Executive.
4.1. TERMINATION BY THE COMPANY FOR CAUSE; RESIGNATION WITHOUT
CONSTRUCTIVE DISCHARGE. Upon a termination of the Employment Period by the
Company for Cause or a resignation by Executive without Constructive Discharge
(as defined below), the Company shall have no obligation to Executive other than
the payment of Executive's earned and unpaid base salary (and bonus with respect
to any completed fiscal year or other completed fiscal period) to the effective
date of such termination.
For purposes of this Agreement, the term "CAUSE" shall mean and be
limited to, (i) gross neglect of duties by the Executive resulting in a material
adverse effect on the Company's business, (ii) Executive's unauthorized
appropriation of material property of the Company, or (iii) an act or acts
committed by the Executive constituting a felony and detrimental to the Company
or its reputation.
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4.2. DEATH; PERMANENT DISABILITY; TERMINATION BY THE COMPANY WITHOUT
CAUSE; RESIGNATION FOR CONSTRUCTIVE DISCHARGE. In the event of Executive's
death or Permanent Disability, the Company's termination of the Employment
Period for any reason other than for Cause or Executive's resignation for
Constructive Discharge, the Company shall have no obligation to Executive other
than (i) a continuation of his base salary through the second anniversary of the
Effective Time, and (ii) the payment of a portion of the awards which would have
been payable to the Executive as annual and long-term bonuses as follows:
(a) with respect to the annual bonus (x) Executive shall be entitled
to receive the full amount of any bonus with respect to any
completed fiscal year, payable on the date such bonus would have
been paid had Executive's employment with the Company not
terminated, and (y) with respect to the annual bonus payable with
respect to any fiscal year of the Company in which Executive's
employment terminates, Executive shall be paid a pro rata amount
equal to the amount he would have received had he been employed
by the Company on December 31 of such fiscal year times a
fraction, the numerator of which is the number of days which
Executive was employed by the Company in such fiscal year and the
denominator of which is 365, which payment shall be made no later
than the date such bonus would have been paid had Executive's
employment not terminated;
(b) with respect to the long-term bonus, Executive shall not be
entitled to any portion thereof if his employment has terminated
prior to December 31, 1998; if his employment terminates after
such date, he shall be paid a pro rata amount equal to the amount
he would have received had he been employed by the Company on
December 31, 1999 times a fraction, the numerator of which is the
total number of days which Executive was employed by the Company
from the date of this Agreement through the date of termination
and the denominator of which is 730, which payment shall be made
no later than the date such bonus would have been paid had
Executive's employment not terminated.
Notwithstanding the foregoing, such salary continuation (a) shall be subject to
Executive's compliance with the restrictive covenants contained in Section 1
hereof and (b) may be reduced by any disability benefits received by Executive
in the event of his Permanent Disability.
As used herein, "CONSTRUCTIVE DISCHARGE" means:
(i) the assignment to Executive of any duties inconsistent in any
respect with Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated hereunder, or any other action
by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent
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<PAGE>
action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
(ii) any material reduction by the Company of Executive's base salary
or fringe benefits, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof
given by Executive;
(iii) the Company's requiring Executive to be based at any office or
location other than as has been the custom immediately prior to
the date of this Agreement; or
(iv) a substantial breach of this Agreement by the Company that
results in material economic harm to Executive.
For purpose of this Section 4.2, any good faith determination of "Constructive
Discharge" made by Executive shall be conclusive.
"PERMANENT DISABILITY" means a disability entitling Executive to
long-term disability benefits under the long-term disability plan applicable to
Executive.
4.3. LIQUIDATED DAMAGES. Executive acknowledges that any payments
under this Section 4 resulting from any termination of the Employment Period are
in lieu of any and all claims that the Executive may have against the Company,
and represent liquidated damages (and not a penalty).
5. OPTIONS. During the Employment Period, Executive shall be
eligible to participate in the Parent's Management Stock Option Plan. The
amount of annual grants of stock options to be made to Executive under such plan
(based on the fair market value of the stock subject to the options as of the
date of grant) shall be 1.5 times Executive's base salary. Such options shall
be non-qualified stock options and shall vest in four equal installments on the
first through fourth anniversaries of the relevant data of grant.
6. LIMITATION ON PAYMENTS. In the event that any payments or
benefits hereunder would, absent the application of this Section 6, be subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986,
as amended, then the Company shall reduce the payments and benefits due
hereunder to the smallest extent necessary such that no such excise tax shall
apply.
7. NOTICES. Any notice or communication given by either party
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
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(a) if to the Company:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: T.C. Selman II,
Group Vice President
with a copy to:
Sulzer Medica USA Inc.
4000 Technology Drive
Angleton, Texas 77515
Attn: Lawrence Panitz
General Counsel
(b) if to the Executive:
Spine-Tech, Inc.
7375 Bush Lake Road
Minneapolis, Minnesota 55439
Telecopier No.: 612-830-6388
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by Federal Express, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address to which notices to such person shall
thereafter be sent.
8. MISCELLANEOUS.
8.1. ENTIRE AGREEMENT. This Agreement and Exhibits A and B hereto
contain the entire understanding of the parties in respect of their subject
matter and supersede upon their effectiveness all other prior agreements and
understandings between the parties with respect to such subject matter.
8.2. AMENDMENT; WAIVER. This Agreement may not be amended,
supplemented, cancelled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
8.3. BINDING EFFECT; ASSIGNMENT. The rights and obligations of this
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the
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Company's business and properties. Executive's rights or obligations under this
Agreement may not be assigned by Executive, except that the rights specified in
Section 4.2 shall pass upon the Executive's death to Executive's executor or
administrator.
8.4. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
8.5. GOVERNING LAW; INTERPRETATION. This Agreement shall be construed
in accordance with and governed for all purposes by the laws and public policy
(other than conflict of laws principles) of the State of Minnesota applicable to
contracts executed and to be wholly performed within such State.
8.6. FURTHER ASSURANCES. Each of the parties agrees to execute,
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the
provisions or intent of this Agreement.
8.7. SEVERABILITY; ARBITRATION. (a) The parties have carefully
reviewed the provisions of this Agreement and agree that they are fair and
equitable. However, in light of the possibility of differing interpretations of
law and changes in circumstances, the parties agree that if any one or more of
the provisions of this Agreement shall be determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall, to the extent permitted by law, remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Moreover, if any of the provisions contained in this Agreement is determined by
a court of competent jurisdiction to be excessively broad as to duration,
activity, geographic application or subject, it shall be construed, by limiting
or reducing it to the extent legally permitted, so as to be enforceable to the
extent compatible with then applicable law.
(b) ARBITRATION. Except for disputes arising under Section 1.3, 1.4
or 1.5 hereof, all disputes arising under this Agreement shall be submitted to
final and binding arbitration in Minneapolis, Minnesota. The arbitrator shall
be selected and the arbitration shall be conducted pursuant to the then most
recent Employment Dispute Resolution Rules of the American Arbitration
Association. The decision of the arbitrator shall be final and binding, and any
court of competent jurisdiction may enter judgment upon the award. All fees and
expenses of the arbitrator shall be shared equally by Executive and the Company.
The arbitrator shall have jurisdiction and authority to interpret and apply the
provisions of this Agreement and relevant federal, state and local laws insofar
as necessary to the determination of the dispute and to remedy any breaches of
this Agreement and/or applicable laws, but shall not have jurisdiction or
authority to award punitive damages or alter in any way the provisions of this
Agreement. The arbitrator shall have the authority to award attorney's fees and
costs to the prevailing party. The party agree that this arbitration provision
shall be in lieu of any claims procedure which may be required under federal
law.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SPINE-TECH INC.
By: /s/ David W. Stassen
--------------------------
Name: David W. Stassen
Title: CEO
EXECUTIVE
By: /s/ David L. Shaw
--------------------------
Name: David L. Shaw
Title: Vice President Operations
Acknowledged this 15 day of December 1997.
SULZER MEDICA LTD.
By: /s/ A. Buchel
---------------------------
Name: Andre P. Buchel
Title: CEO
10
<PAGE>
EXHIBIT A
ANNUAL BONUS OBJECTIVES
1998
SALES: $119,000,000
EARNINGS(1): $51,000,000
- ---------------------
(1) Operating income
11
<PAGE>
EXHIBIT B
LONG TERM INCENTIVE OBJECTIVES
1998 & 1999
1998 1999
SALES: $119,000,000 $229,000,000
EARNINGS(2): $51,000,000 $98,000,000
- ----------------------
(2) Operating income
12
<PAGE>
[LOGO]
December 19, 1997
Dear Shareholders:
We are very pleased to inform you that on December 15, 1997 Spine-Tech
entered into an Agreement and Plan of Merger with Sulzer Medica Ltd pursuant to
which Sulzer Medica Orthopedics Acquisition Corp., an indirect wholly owned
subsidiary of Sulzer Medica, today commenced a cash tender offer for all
outstanding shares of Spine-Tech's common stock at a price of $52.00 per share.
Following completion of this offer, upon the terms and subject to the conditions
of the Agreement and Plan of Merger, Sulzer Medica Orthopedics Acquisition Corp.
will be merged with and into Spine-Tech, and each of the shares of Spine-Tech's
common stock not owned by Sulzer Medica and its affiliates or by dissenting
shareholders will be converted into the right to receive $52.00, the same price
paid pursuant to the tender offer.
Your Board of Directors has unanimously approved the Agreement and Plan of
Merger, has determined that the Sulzer Medica offer is in the best interests of
Spine-Tech and its shareholders and recommends that shareholders accept the
offer and tender their shares pursuant to the offer.
In arriving at its determination, your Board of Directors considered a
number of factors described in the attached Schedule 14D-9 that is being filed
today with the Securities and Exchange Commission, including the opinion of its
financial advisor, Piper Jaffray Inc., that the consideration to be received by
the holders of Spine-Tech's common stock pursuant to the Agreement and Plan of
Merger is fair to such shareholders from a financial point of view.
Accompanying this letter is the Sulzer Medica Offer to Purchase dated
December 19, 1997, together with related materials including a Letter of
Transmittal to be used for tendering your shares. These documents set forth the
terms and conditions of the Sulzer Medica offer and provide instructions as to
how to tender your shares. I urge you to read the enclosed materials carefully
in making your decision with respect to tendering your shares pursuant to the
Sulzer Medica offer.
I, personally, along with your Board of Directors, management and employees
of Spine-Tech, thank you most sincerely for your support over the years.
Sincerely,
[SIGNATURE]
David W. Stassen
Chief Executive Officer and President
<PAGE>
Exhibit 10
December 16, 1997
David W. Stassen, President and CEO
Keith M. Eastman, Chief Financial Officer
Spine-Tech, Inc. (612) 832-5600
John Mackay
Padilla Speer Beardsley Inc. (612) 871-8877
FOR IMMEDIATE RELEASE
SPINE-TECH, INC., ANNOUNCES DEFINITIVE AGREEMENT
TO MERGE WITH SULZER MEDICA
Cash Tender Offer Valued at $595 Million
MINNEAPOLIS, December 16 -- Spine-Tech, Inc., (Nasdaq: SPYN), a
medical manufacturer based in Minneapolis, today announced the signing of a
definitive agreement to merge with Sulzer Medica (Zurich: SMEN; NYSE:SM), a
leading cardiovascular and orthopedic implant company headquartered in
Winterthur, Switzerland. The transaction involves a cash tender offer by
Sulzer Medica for all of the outstanding Spine-Tech common shares at $52 per
share for a total net value of approximately $595 million. The tender offer,
which has been approved by the board of directors of each company, will be
conditioned on the tender of a majority of the outstanding Spine-Tech shares,
the expiration of anti-trust waiting periods and other customary conditions.
<PAGE>
Spine-Tech, Inc.
Page 2
Spine-Tech is a market and technology leader in the field of less
invasive spinal implants. The company's leading product is the BAK-TM-
Interbody Fusion System, an innovative system of spinal implants and
instruments which are used to promote spinal fusion in patients suffering
from chronic, disabling back pain resulting from degenerative disc disease.
The BAK received marketing clearance from the U.S. Food and Drug
Administration in September 1996 and is currently leading the market in the
rapidly growing, minimally invasive spinal fusion implant market.
Spine-Tech will operate as a business unit of Sulzer Orthopedics.
David Stassen, president and chief executive officer of Spine-Tech, will
become the global head of Sulzer Medica's spinal business. Mr. Stassen and
key Spine-Tech management have expressed their commitment to stay with the
company in order to drive its continued growth and prosperity.
Piper Jaffray Incorporated acted as financial adviser to Spine-Tech
in this transaction.
Sulzer Medica, with annual sales of approximately $1 billion,
currently employs approximately 4,800 people worldwide. Suzler Medica is
focused on the development of implantable medical devices and biomaterials
for the cardiovascular and orthopedic markets worldwide. The company's
products include heart valves, pacemakers, defibrillators, ablation
catheters, vascular grafts, artificial knees, hips, shoulders, spine and
dental implants.
Spine-Tech is a market leader in the field of less invasive spinal
implants. The company's products are used to surgically treat patients
suffering from chronic, disabling pain caused by degenerative conditions of
the spine.
<PAGE>
[LOGO]
Piper
Jaffray Inc.
222 South Ninth
Street
Minneapolis, MN
55402-3804
612 342-6000
December 15, 1997
The Board of Directors
Spine-Tech, Inc.
7375 Bush Lake Road
Minneapolis, MN 55439
Attention: David W. Stassen
Chief Executive Officer
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Spine-Tech, Inc. ("Spine-Tech") of the proposed
$52.00 per share of common stock ("Common Stock") of Spine-Tech in cash to be
paid pursuant to an Agreement and Plan of Merger (the "Agreement") among Sulzer
Medica Ltd., Sulzer Medica Orthopedics Acquisition Corp. ("Purchaser"), a wholly
owned subsidiary of Sulzer Medica Ltd., and Spine-Tech. Pursuant to the
Agreement, Purchaser would make a cash tender offer ("Tender Offer") for all of
the outstanding Common Stock for $52.00 per share. Following completion of the
Tender Offer, Purchaser would be merged into Spine-Tech (the "Merger") and each
outstanding share of Common Stock would be converted into the right to receive
$52.00. The terms and conditions of the Tender Offer and Merger are more fully
set forth in the Agreement.
Piper Jaffray Inc., as a customary part of its investment banking business,
is engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, underwriting and secondary distributions of
securities, private placements and valuations for estate, corporate and other
purposes. We have acted as exclusive financial advisor to Spine-Tech in
connection with the Agreement and will receive a fee for our services which is
contingent upon consummation of the Agreement. In addition, we will receive a
separate fee for providing this opinion. This opinion fee is not contingent upon
the consummation of the Agreement. Spine-Tech has also agreed to indemnify us
against certain liabilities in connection with our services. We make a market in
the Common Stock and provide research coverage for Spine-Tech. We acted as
co-manager of the initial public offering of the Common Stock on June 22, 1995.
In the ordinary course of our business, we and our affiliates may actively trade
securities of Spine-Tech for our own account or the account of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) a draft copy of the Agreement and Plan of
Merger dated December 12, 1997, (ii) certain proprietary information related to
Spine-Tech, (iii) certain publicly available financial and other information
relative to Spine-Tech, (iv) certain internal financial information of
Spine-Tech on a stand-alone basis furnished by the management of Spine-Tech, (v)
to the extent publicly available, the stock price premiums paid and financial
terms of certain acquisition transactions involving companies operating in
industries in which Spine-Tech operates and operating performance and valuation
analyses of selected public companies deemed comparable to Spine-Tech, and (vi)
certain publicly available financial and securities data of Spine-Tech. In
addition, we had discussions with members of the management of Spine-Tech
concerning the financial condition, current operating results and business
outlook for Spine-Tech on a stand-alone basis.
<PAGE>
We have relied upon and assumed the accuracy, completeness and fairness of
the financial statements and other information provided to us by Spine-Tech, or
otherwise made available to us, and have not assumed responsibility for the
independent verification of such information. We have relied upon the assurances
of the management of Spine-Tech that the information provided to us by
Spine-Tech has been prepared on a reasonable basis, and, with respect to
financial planning data and other business outlook information, reflects the
best currently available estimates, and that they are not aware of any
information or facts that would make the information provided to us incomplete
or misleading.
In arriving at our opinion, we have not performed any appraisals or
valuations of any specific assets or liabilities of Spine-Tech, and have not
been furnished with any such appraisals or valuations. We express no opinion
regarding the liquidation value of any entity.
This opinion is necessarily based upon the information available to us and
facts and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of Common Stock have traded or may trade
at any future time. We have not undertaken to reaffirm or revise this opinion or
otherwise comment upon any events occurring after the date hereof and, except as
provided in our engagement letter if requested by the Company, do not have any
obligation to update, revise or reaffirm this opinion.
This opinion is directed to the Board of Directors of Spine-Tech and is not
intended to be and does not constitute a recommendation to any shareholder. We
were not requested to opine as to, and this opinion does not address, the basic
business decision to proceed with or effect the Transaction. Except as provided
in our engagement letter, this opinion shall not be published or otherwise used,
nor shall any public references to us be made, without our prior written
approval.
Based upon and subject to the foregoing and based upon such other factors as
we consider relevant, it is our opinion that the $52.00 per share in cash
proposed to be received by the shareholders of Spine-Tech pursuant to the
Agreement is fair, from a financial point of view, to the shareholders of
Spine-Tech as of the date hereof.
Sincerely,
/s/ Piper Jaffray Inc.
PIPER JAFFRAY INC.
