<PAGE>
As filed with the Securities and Exchange Commission on October 15, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Guidant Corporation
(Exact name of registrant as specified in its charter)
Indiana 3841 35-1931722
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Identification No.)
Incorporation or Classification Code
Organization) Number)
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204
(317) 971-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
Ronald W. Dollens
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204
(317) 971-2000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copies to:
Bernard E. Kury, Esq. J. Casey McGlynn, Esq.
Jonathan L. Freedman, Esq. Christopher J. Ozburn, Esq.
Dewey Ballantine LLP Wilson Sonsini Goodrich & Rosati,
1301 Avenue of the Americas Professional Corporation
New York, New York 10019-1035 650 Page Mill Road
Palo Alto, California 94304-1050
---------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effectiveness of this Registration
Statement and the satisfaction or waiver of all other conditions to the merger
of a wholly-owned subsidiary of the Registrant with and into CardioThoracic
Systems, Inc. ("CTS") pursuant to the Agreement and Plan of Merger described
in the Proxy Statement/Prospectus forming part of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of each Class of Amount to be Offering Price Per Aggregate Offering Amount of
Securities to be Registered Registered(2) Unit Price(3) Registration Fee(4)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par
value(1).............. 6,088,245 N/A $286,096,914.46 $22,603.36
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes a Preferred Stock Purchase Right attached to each share of Common
Stock, that, prior to the occurrence of certain events, will not be
evidenced separately from the Common Stock.
(2) Represents the estimated maximum number of shares of common stock, no par
value, of Guidant Corporation to be issued to the holders of securities of
CTS pursuant to the Agreement and Plan of Merger.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and Rule 457(f) of the Securities Act. Pursuant to
Rule 457(f)(l), the proposed maximum aggregate offering price was
calculated as follows: (1) 16.9687, the average of the bid and ask prices
per share of the outstanding shares of common stock of CTS on October 12,
1999 multiplied by (2) 16,860,273, representing the sum of (a) 14,569,640,
the aggregate number of outstanding shares of CTS common stock on the
record date, and (b) 2,290,633, the estimated number of shares of CTS
common stock that may be issued pursuant to options granted under CTS
benefit plans.
(4) The total registration fee due is $79,534.94, calculated by multiplying
$286,096,914.46 by 0.000278. A fee of $56,931.58, calculated pursuant to
Rule 0-11 of the Securities Exchange Act of 1934, as amended, has been
previously paid in connection with the confidential filing of the
preliminary proxy statement/prospectus pursuant to Section 14(A) of the
Exchange Act. The remaining registration fee for the securities registered
hereby of $22,603.36, calculated by subtracting $56,931.58 from
$79,534.94, the total registration fee, is being paid herewith.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
October 15, 1999
Dear Stockholders:
We are pleased to inform you that CardioThoracic Systems has signed a merger
agreement with Guidant Corporation. As a result of the proposed merger, you
will receive, for each CTS share you own, subject to the adjustment provisions
described in this proxy statement/prospectus, Guidant shares having a value of
$19.50 per share. CTS will become a wholly-owned subsidiary of Guidant.
Guidant shares trade on the New York Stock Exchange under the symbol "GDT".
CTS has scheduled a special meeting of its stockholders to be held on
November 15, 1999 to consider and vote on the merger agreement. We cannot
complete the merger without the approval of the holders of a majority of the
outstanding shares of CTS common stock.
After careful consideration, your board of directors has unanimously
approved the merger agreement and determined that the merger is in the best
interest of CTS and its stockholders. The board of directors unanimously
recommends that you vote FOR the merger agreement.
In arriving at its determination and recommendation, the board of directors
took into account the factors described in the attached proxy
statement/prospectus, including an opinion of U.S. Bancorp Piper Jaffray Inc.
to the effect that the merger consideration is fair to CTS stockholders from a
financial point of view.
Your vote is very important. Please promptly complete, date, sign and return
the enclosed proxy card in the prepaid envelope enclosed to ensure that your
shares will be represented at the special meeting. If you do not vote at all,
it will, in effect, count as a vote against the merger.
We look forward to the successful combination of CTS and Guidant and to your
continued support as a stockholder of Guidant.
On behalf of the board of directors of CTS, we urge you to vote "FOR"
approval of the merger and the related merger agreement.
Sincerely,
Richard M. Ferrari
President, Chief Executive Officer
and Director
See "Risk Factors" beginning on page 14 for a discussion of risks which
should be considered by stockholders with respect to the merger.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the Guidant common stock to be issued in the merger
or determined if this proxy statement/prospectus is accurate or adequate.
Any representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated October 15, 1999 and was first
mailed to stockholders on or about October 15, 1999.
<PAGE>
[LOGO OF CARDIO THORACIC]
CARDIOTHORACIC SYSTEMS, INC.
10600 North Tantau Avenue
Cupertino, California 95014
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 15, 1999
----------------
To the Stockholders of CardioThoracic Systems, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of
CardioThoracic Systems, Inc. will be held at the principal offices of CTS at
10600 North Tantau Avenue, Cupertino, California, 95014, on the 15th day of
November, 1999, at 10:00 a.m. for the following purposes:
Item 1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger among CTS, Guidant Corporation and a wholly-
owned subsidiary of Guidant, and the merger contemplated by that agreement.
Item 2. To transact any other business as may properly be brought before
the special meeting or any adjournment of such meeting.
These items of business are described more fully in the proxy
statement/prospectus attached to this Notice.
Only holders of record of CTS stock at the close of business on October 11,
1999 will be entitled to notice of, and to vote at, the special meeting.
Your vote is very important. If you do not vote at all, it will, in effect,
count as a vote against the merger. Whether or not you expect to be present at
the meeting, we request that you date and sign the enclosed proxy and return
it as soon as possible in the addressed envelope provided. If you attend the
meeting you may revoke your proxy and vote in person.
By order of the board of directors,
J. Casey McGlynn
Secretary
Signature of J. Casey McGlynn
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 3
The Companies........................................................... 3
The Merger.............................................................. 3
MARKET PRICE AND DIVIDEND INFORMATION..................................... 6
Dividend Information.................................................... 6
Recent Closing Prices................................................... 7
Number of Stockholders.................................................. 7
SELECTED CONSOLIDATED FINANCIAL DATA...................................... 8
Comparative Per Share Information....................................... 11
RECENT DEVELOPMENTS....................................................... 12
RISK FACTORS.............................................................. 14
Guidant and CTS May Not Be Able to Keep Pace with the Rapid
Technological Changes in the Medical Devices Industry.................. 14
The Regulatory Review Process For Guidant's and CTS's Products Could Be
Long and Costly and May Not Ultimately Result in Approval.............. 14
Guidant and CTS May Not Meet Applicable Regulatory Quality Standards.... 14
Guidant's and CTS's Protection of Their Intellectual Property May Not Be
Sufficient............................................................. 15
Future Patent Litigation Could Be Costly and Disruptive to Guidant and
CTS.................................................................... 15
Any Adverse Outcome in Pending or Threatened Litigation Could Have a
Material Adverse Effect on Guidant and CTS............................. 15
Legal Action May Be Required in the Future to Enforce Proprietary
Technology and Trade Secrets........................................... 15
Guidant and CTS May Be Subject to Product Liability..................... 16
The Loss of Any of Guidant's or CTS's Single Source Suppliers Could Have
a Material Adverse Effect on Guidant and CTS........................... 16
Hospitals May Use Products or Therapies with a Lower Cost than Guidant's
or CTS's Products...................................................... 16
Payment Practices of Third Party Payors Could Have a Material Adverse
Effect on Guidant and CTS.............................................. 16
Health Care Policy Reforms May Have a Material Adverse Effect on Guidant
and CTS................................................................ 17
Stock Prices are Volatile............................................... 17
The Value of the Consideration You Receive in the Merger Depends on the
Price of Guidant Common Stock.......................................... 17
Failure to Successfully Integrate the Operations of CTS into Guidant
Could Have a Material Adverse Effect on Guidant........................ 17
Integrating the Business of CTS Could Be Costly and Time Consuming...... 17
There Is Uncertainty as to the Retention of Key CTS Personnel........... 17
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................... 18
THE SPECIAL MEETING....................................................... 19
Time and Place; Purpose................................................. 19
Voting Rights; Votes Required for Approval.............................. 19
Voting of Proxies....................................................... 19
Board Recommendation.................................................... 21
THE MERGER................................................................ 21
Background of the Merger................................................ 21
Reasons for the Merger.................................................. 24
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Operations Following the Merger.......................................... 26
Opinion of Financial Advisor............................................. 26
Interests of Certain Persons in the Merger............................... 31
Accounting Treatment..................................................... 33
Material Federal Income Tax Consequences................................. 33
Regulatory Matters....................................................... 34
No Appraisal Rights...................................................... 35
Stock Transfer Restriction Agreements.................................... 35
BUSINESS OF GUIDANT AND CTS................................................ 35
PRINCIPAL PROVISIONS OF THE MERGER AGREEMENT............................... 37
General.................................................................. 37
Consideration to be Received in the Merger............................... 37
Exchange of Shares....................................................... 38
Representations and Warranties........................................... 38
Covenants................................................................ 39
Conditions to the Consummation of the Merger............................. 42
Termination.............................................................. 43
Termination Fee.......................................................... 43
Expenses................................................................. 44
Amendment................................................................ 44
STOCK OPTION AGREEMENT..................................................... 44
SUPPORT AGREEMENT.......................................................... 45
COMPARISON OF STOCKHOLDER RIGHTS........................................... 47
CERTAIN TRANSACTIONS....................................................... 58
LEGAL MATTERS.............................................................. 58
EXPERTS.................................................................... 59
FUTURE STOCKHOLDER PROPOSALS............................................... 59
WHERE YOU CAN FIND MORE INFORMATION........................................ 59
TRADEMARKS................................................................. 61
LIST OF ANNEXES
Annex A -- Agreement and Plan of Merger
Annex B -- Stock Option Agreement
Annex C -- Support Agreement
Annex D -- Opinion of U.S. Bancorp Piper Jaffray Inc.
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What do I need to do now?
A: After you have carefully read this proxy statement/prospectus, just indicate
on your proxy card how you want to vote, and sign and mail it in the
enclosed return envelope as soon as possible, so that your shares will be
represented at the special meeting. If you sign and send in your proxy and
do not indicate how you want to vote, your proxy will be counted as a vote
in favor of the merger. If you do not vote in favor of the merger or you
abstain, it will have the effect of a vote against the merger.
The special meeting will take place on November 15, 1999 at 10:00 a.m.,
local time, at the offices of CTS, located at 10600 North Tantau Avenue,
Cupertino, California, 95014. You may attend and vote your shares in
person, even after submitting the enclosed proxy card. In addition, you may
take back your proxy up to and including the day of the special meeting by
following the directions on page 19 and either change your vote or attend
the special meeting and vote in person.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: No. You should instruct your broker to vote your shares, following the
directions provided by your broker. Your failure to instruct your broker
will be the equivalent of voting against the proposed merger.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, we will send you written instructions for
exchanging your share certificates.
Q: What will I receive in the Merger?
A: If the Merger is approved, you will have the right to receive, in exchange
for each share you own, the number of shares (rounded to four decimal
places) of Guidant common stock determined by dividing $19.50 by the average
selling price of a share of Guidant common stock during a specified period
prior to the special meeting. However, (1) if the applicable average selling
price during the period is greater than or equal to $66.00, then you will
have the right to receive, in exchange for each share of CTS common stock
you own, 0.2955 of a share of Guidant common stock and (2) if the applicable
average selling price during the period is less than or equal to $54.00,
then you will have the right to receive, in exchange for each share of CTS
common stock you own, 0.3611 of a share of Guidant common stock.
Guidant will not issue fractional shares. Instead, you will receive cash
for any fractional share of Guidant common stock owed to you based on the
applicable average selling price of a share of Guidant common stock.
Examples:
The following examples are based on various prices of a share of Guidant
common stock (which are, of course, not assured). Assuming that you own 1,000
shares of CTS common stock:
1. If the applicable average selling price of a share of Guidant common
stock is $67.00, then after the merger you will receive 295 shares of
Guidant common stock and a check for $33.50.
2. If the applicable average selling price of a share of Guidant common
stock is $61.00, then after the merger you will receive 319 shares of
Guidant common stock and a check for $42.70.
3. If the applicable average selling price of a share of Guidant common
stock is $53.00, then after the merger you will receive 361 shares of
Guidant common stock and a check for $5.30.
Q: When do you expect the Merger to be completed?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger by November 15, 1999.
<PAGE>
Q: What are the federal income tax consequences of the Merger to me?
A: The receipt of shares of Guidant common stock in the merger generally will
be tax free to CTS stockholders for United States federal income tax
purposes, although CTS stockholders will generally pay tax on cash received
for a fractional share of Guidant common stock. You are urged to review
certain federal income tax consequences to you in greater detail, see pages
33 through 34. However, tax matters are very complicated, and the tax
consequences of the merger to you will depend on the facts of your
particular situation. Consequently, you are also urged to consult your own
tax advisor as to the specific tax consequences to you of the merger,
including the applicable federal, state, local and foreign tax consequences.
Q: Are there any risks associated with the Merger?
A: The merger does involve risks. For a discussion of certain risk factors you
should consider in evaluating the merger, see "Risk Factors," beginning on
page 14.
Who Can Help Answer Your Questions
If you have more questions about the merger you should contact:
CardioThoracic Systems, Inc.
10600 North Tantau Avenue
Cupertino, California 95014
Attention: Steven M. Van Dick
Phone Number: (408) 342-1700
or
Beacon Hill Partners, Inc.
90 Broad Street
New York, New York 10004
Phone Number: (800) 967-7510
If you would like additional copies of the Proxy Statement/Prospectus you
should contact:
Beacon Hill Partners, Inc.
90 Broad Street
New York, New York 10004
Attn: Enrique Negron
Phone Number: (800) 967-7510
2
<PAGE>
SUMMARY
This summary contains selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read this entire document carefully, including the Annexes,
and the documents to which we refer. The SEC allows Guidant and CTS to
"incorporate by reference" information into this document, which means that
Guidant and CTS can disclose important information to you by referring you to
another document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this document, except for any information
superseded by information in this document. The previously filed documents
contain important information about Guidant and CTS and their financial
performance. A list of documents we incorporate by reference appears under the
heading "Where You Can Find More Information" on page 59.
The Companies
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204-5129
(317) 971-2000
Guidant is a multinational company that designs, develops, manufactures and
markets a broad range of innovative, high quality, therapeutic medical devices
for use in cardiac rhythm management, vascular intervention, and cardiac and
vascular surgery. Guidant's net sales for the year ended December 31, 1998 and
for the six months ended June 30, 1999 were $1,897.0 million and $1,193.6
million, respectively.
CardioThoracic Systems, Inc.
10600 North Tantau Avenue
Cupertino, California 95014
(408) 342-1700
CTS designs, develops, manufactures, and markets proprietary, disposable
instruments and systems for performing minimally invasive cardiac surgery.
CTS's current products are designed to enable the majority of cardiothoracic
surgeons, using their existing skills coupled with CTS sponsored training, to
perform minimally invasive cardiac surgery on a beating heart. CTS's net sales
for the year ended January 1, 1999 and the six months ended July 2, 1999 were
$16.1 million and $13.7 million, respectively.
The Merger
What CTS Stockholders Will Receive in the Merger
You will receive for each CTS share you hold, subject to the adjustment
provisions described below, shares of Guidant having a value of $19.50. The
value will be $19.50 so long as the applicable average price of Guidant shares
is between $54.00 and $66.00.
If the applicable average price of Guidant shares is at or above $66.00, you
will receive 0.2955 of a share of Guidant for each share of CTS you hold. In
these circumstances, the Guidant shares received for each CTS share would have
a value of more than $19.50.
If the applicable average price of Guidant shares is at or below $54.00, you
will receive 0.3611 of a share of Guidant for each share of CTS you hold. In
these circumstances, the Guidant shares received for each CTS share would have
a value of less than $19.50.
If the applicable average price of Guidant shares is less than $47.00, CTS
may terminate the merger agreement.
The average price of Guidant shares is the average per share closing price of
Guidant shares during the 20 trading days preceding the date of the last
trading day prior to the special meeting.
3
<PAGE>
Recommendation to Stockholders (see page 21)
CTS's board of directors believes that the merger is in your best interests
and unanimously recommends that you vote FOR the proposal to approve and adopt
the merger agreement and the merger.
Opinion of Financial Advisor (see page 26)
In connection with the merger, CTS's board of directors received an opinion
from its financial advisor, U.S. Bancorp Piper Jaffray Inc. This opinion
discusses the fairness from a financial point of view of the consideration to
be received by CTS's stockholders. We have attached the full text of this
opinion as Annex D to this document. This opinion describes the procedures
followed, assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion. We encourage you to read and
consider the opinion in its entirety. The opinion is directed to CTS's board of
directors and does not constitute a recommendation to any stockholder as to how
that stockholder should vote in connection with the proposed merger.
Material Federal Income Tax Consequences (see page 33)
The receipt of shares of Guidant common stock in the merger generally will be
tax free to CTS stockholders for United States federal income tax purposes,
although CTS stockholders will generally pay tax on cash received for a
fractional share of Guidant common stock.
Tax matters are very complicated, and the tax consequences of the merger to
you will depend on the facts of your particular situation. You are urged to
consult your own tax advisor as to the specific tax consequences to you of the
merger, including the applicable federal, state, local and foreign tax
consequences.
Accounting Treatment (see page 33)
CTS and Guidant expect the merger to qualify as a pooling of interests, which
means that the companies will be treated as if they had always been combined
for accounting and financial reporting purposes.
Share Ownership of Management and Directors
On October 11, 1999, directors and executive officers of CTS and their
affiliates owned and were entitled to vote 2,221,623 shares of CTS common
stock, or approximately 15.25% of the shares of CTS common stock outstanding on
the record date for the special meeting.
Richard M. Ferrari, President, Chief Executive Officer and a director of CTS,
and Charles S. Taylor, Vice President, Chief Technical Officer and a director
of CTS, have entered into a support agreement with Guidant under which they
have agreed to vote all of their CTS shares in favor of the merger and merger
agreement. As of October 11, 1999, Messrs. Ferrari and Taylor owned and were
entitled to vote a total of 1,889,693 shares of CTS common stock, or
approximately 12.97% of the shares of CTS common stock outstanding on the
record date for the special meeting.
No Appraisal Rights (see page 35)
You will not have dissenters' rights of appraisal by reason of the merger.
Comparative Per Share Market Price and Dividend Information (see page 6)
Guidant common shares are listed on the New York Stock Exchange under the
symbol "GDT". Shares of CTS common stock are quoted on the Nasdaq National
Market under the symbol "CTSI". On August 30, 1999, the last full trading day
prior to the public announcement of the proposed merger, the last sale price
per share of Guidant common stock was $58.81 and the last sale price per share
of CTS common stock was $19.00. On October 12, 1999, the most recent date for
which prices were practicably available prior to the printing of this document,
the last sale price per share of Guidant common stock was $48.31 and the last
sale price per share of CTS common stock was $16.88.
4
<PAGE>
Regulatory Approvals (see page 34)
Guidant and CTS each filed a Notification and Report Form under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, and the specified waiting
period is expected to expire on October 31, 1999.
Both Guidant and CTS have subsidiaries in Germany and are therefore subject
to certain pre-merger notification requirements in Germany. On October 8, 1999,
the parties filed a pre-merger notification with the German Federal Cartel
Office, and the specified waiting period is expected to expire on November 8,
1999.
Interests of CTS's Executive Officers and Directors in the Merger (see page 31)
Stockholders should note that a number of CTS directors and executive
officers may have interests in the merger that are different from, or in
addition to, the interests of the CTS stockholders generally.
Conditions to the Merger (see page 42)
The consummation of the merger is subject to a number of conditions,
including:
. approval of the merger agreement by a majority of the CTS stockholders;
. receipt of regulatory approvals and the absence of legal restraints;
. receipt of legal opinions as to the treatment of the merger as a
"reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code and other related matters; and
. with respect to Guidant, receipt of a letter from Guidant's independent
public accountants as to the merger qualifying as a transaction to be
accounted for in accordance with the pooling of interests method of
accounting.
Termination of the Merger Agreement (see page 43)
CTS and Guidant can jointly agree to terminate the merger agreement at any
time before completing the merger. In addition, either company can terminate
the merger agreement if:
. the merger is not completed by February 29, 2000;
. a law or court order prohibits the merger;
. CTS's stockholders fail to approve the merger; or
. the other party materially breaches any of the representations or
warranties it made or fails to materially comply with any of its
obligations under the merger agreement, and that breach is not or cannot
be cured within 30 days after notice of such breach is given to the
breaching party.
CTS can also terminate the merger agreement if CTS's board of directors has
determined that an alternative transaction with a third party is superior to
the merger.
Guidant can terminate the merger agreement if CTS recommends an alternative
transaction to its stockholders or if CTS's board of directors changes, in a
manner materially adverse to Guidant, or withdraws, its recommendations of the
merger proposal to its stockholders.
Termination Fee and Expenses (see page 43)
CTS is obligated to pay Guidant a termination fee of $9.0 million if the
merger agreement is terminated under specified circumstances.
Stock Option Agreement (see page 44)
CTS has granted Guidant an option to purchase 19.9% of CTS's outstanding
shares at a purchase price of $19.50 per share exercisable under the same
circumstances under which the termination fee is payable. Guidant's profit with
respect to the option is capped at $10.5 million, which amount includes the
$9.0 million termination fee referred to above.
5
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Guidant common stock is listed on the NYSE and Pacific Exchange, Inc. (symbol
"GDT"). CTS common stock is quoted on the Nasdaq National Market (symbol
"CTSI"). The table below sets forth, for the calendar quarters indicated, (1)
the high and low sales prices per share of Guidant common stock as reported on
the NYSE Composite Tape and the high and low bid prices for CTS common stock as
quoted on the Nasdaq National Market and (2) the dividends declared for the
Guidant common stock and the CTS common stock.
<TABLE>
<CAPTION>
Guidant CTS
Common Stock Common Stock
----------------------- -----------------------
High Low Dividends High Low Dividends
------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
1997:
First Quarter................. $18.07 $13.41 $0.00625 $26.25 $18.75 --
Second Quarter................ 22.00 14.63 0.00625 21.63 11.75 --
Third Quarter................. 28.28 21.00 0.00625 14.13 7.00 --
Fourth Quarter................ 34.75 24.32 0.00625 9.38 5.50 --
1998:
First Quarter................. 39.69 25.50 0.00625 8.58 5.88 --
Second Quarter................ 38.66 30.00 0.00625 6.75 4.63 --
Third Quarter................. 45.03 29.75 0.00625 5.38 3.63 --
Fourth Quarter................ 56.50 31.75 0.00625 10.25 3.13 --
1999:
First Quarter................. 69.88 48.88 -- 11.00 6.50 --
Second Quarter................ 66.63 45.00 -- 14.50 9.00 --
Third Quarter................. 63.13 46.00 -- 20.44 14.06 --
Fourth Quarter (through
October 16, 1999)............ 54.25 47.50 -- 17.50 16.50 --
</TABLE>
Dividend Information
In December of 1998, Guidant announced it will be eliminating future
quarterly dividend payments.
CTS has never paid any cash dividends on the CTS common stock, and
anticipates that it will continue to retain any earnings for the foreseeable
future for use in the operation of its business.
6
<PAGE>
Recent Closing Prices
The following table sets forth (1) the closing prices per share of Guidant
common stock on the NYSE and CTS common stock on the Nasdaq National Market on
August 30, 1999, the last trading day before announcement of the merger, and on
October 12, 1999, the latest practicable trading day before the printing of
this proxy statement/prospectus, and (2) the equivalent per share prices for
CTS common stock based on the Guidant common stock prices:
<TABLE>
<CAPTION>
Guidant Stock CTS Stock CTS Equivalent(1)
------------- --------- -----------------
<S> <C> <C> <C>
August 30, 1999....................... $58.81 $19.00 $19.50
October 12, 1999...................... $48.31 $16.875 $17.44
</TABLE>
- --------
(1) CTS Equivalent assumes that each share of CTS common stock will be
exchanged for shares of Guidant common stock at an exchange ratio
established pursuant to the merger agreement, assuming that the applicable
average price per share of Guidant common stock is the Guidant stock price
for the applicable dates set forth in this table.
Because the market price of Guidant common stock is subject to fluctuation,
the market value of the shares of Guidant common stock that holders of CTS
common stock will receive in the merger may increase or decrease prior to and
following the merger. The merger agreement contains provisions which address
certain market price fluctuations of Guidant common stock prior to the merger
by adjusting within specified parameters the exchange ratio based upon
Guidant's average share price. See "Principal Provisions of the Merger
Agreement--Consideration to be Received in the Merger". CTS stockholders are
urged to obtain current market quotations for Guidant common stock and CTS
common stock. No assurance can be given as to the future prices or markets for
Guidant common stock or CTS common stock.
Number of Stockholders
As of the record date, there were 243 stockholders of record who held shares
of CTS common stock, as shown on the records of CTS's transfer agent for such
shares.
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of Guidant as of and for
the years ended December 31, 1998, 1997, 1996, 1995 and 1994 are derived from
consolidated financial statements of Guidant which have been audited by Ernst &
Young LLP, independent auditors. The selected consolidated financial data as of
and for the six months ended June 30, 1999 and 1998, are derived from unaudited
consolidated financial statements and include all adjustments (consisting of
normal recurring accruals) which Guidant considers necessary for a fair
presentation of the consolidated financial position, results of operations and
cash flows. Operating results for the six months ended June 30, 1999, are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1999. This information is qualified in its entirety by, and
should be read in conjunction with the consolidated financial statements, the
notes thereto, and "Management's Discussion and Analysis of Results of
Operations and Financial Condition" for Guidant, incorporated by reference in
this proxy statement/prospectus.
Selected Consolidated Financial Data of Guidant
(In millions, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------------- ------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net sales:
Vascular
intervention......... $ 641.9 $ 523.4 $1,002.2 $ 591.4 $ 425.6 $ 447.9 $ 464.5
Cardiac rhythm
management........... 515.4 400.5 824.6 669.6 574.6 452.4 378.6
Cardiac & vascular
surgery.............. 36.3 34.2 70.2 67.2 49.5 31.0 19.3
---------- ---------- ---------- ---------- ---------- ----------- ----------
Total net sales....... 1,193.6 958.1 1,897.0 1,328.2 1,049.7 931.3 862.4
Cost of products sold.. 303.9(9) 217.4 422.0 320.8 315.9(5) 283.4 270.9
---------- ---------- ---------- ---------- ---------- ----------- ----------
Gross profit........... 889.7(9) 740.7 1,475.0 1,007.4 733.8(5) 647.9 591.5
Research and
development........... 161.5(9) 127.8 276.0 208.3 164.6 142.8 138.3
Purchased research and
development(3)........ 49.0 28.7 118.7 57.4 -- -- --
Sales, marketing, and
administrative........ 341.0(9) 276.2 558.6 439.7 328.4 292.8 269.8
Other--special......... -- -- -- 22.6(6) -- -- --
---------- ---------- ---------- ---------- ---------- ----------- ----------
Operating income(1).... 338.2(9) 308.0(8) 521.7 (7) 279.4(6) 240.8(5) 212.3 183.4
Other expenses, net.... 66.8(9) 100.8(8) 394.1 (7) 30.6(6) 104.8(5) 50.8 35.4
Net income (loss)...... $ 145.9(9) $ 134.0(8) $ (2.2)(7) $ 145.3(6) $ 52.3(5) $ 92.8 $ 84.2
Earnings (loss) per
share................. $ 0.49 $ 0.45 $ (0.01) $ 0.49 $ 0.18 $ 0.32
Diluted earnings (loss)
per share............. $ 0.48(9) $ 0.44(8) $ (0.01)(7) $ 0.48(6) $ 0.18(5) $ 0.32
Pro forma net
income(4)............. $ 68.3
Pro forma earnings per
share(4).............. $ 0.23
Cash dividends declared
per share............. $ -- $ 0.0125 $ 0.025 $ 0.025 $ 0.025 $ 0.0125 $ --
Weighted--average
shares outstanding--
diluted............... 305.67 301.72 294.59 299.78 296.26 293.26 291.0(4)
EBITDA(2).............. $ 413.4 $ 335.7 $ 643.7 $ 402.6 $ 320.6 $ 258.9 $ 220.0
<CAPTION>
June 30, December 31,
------------------------- ------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Position:
Working capital........ $ 225.3 $ 222.0 $ 176.3 $ 83.8(10) $ 127.6 $ 119.7 $ 134.1
Current ratio.......... 1.3:1(10) 1.5:1 1.3:1 1.2:1(10) 1.4:1 1.4:1 1.4:1
Capital expenditures,
net................... 88.8 49.5 116.0 76.8 63.6 64.9 51.8
Total assets........... 2,239.4(11) 1,305.9 1,569.5 1,225.0 1,024.9 1,069.1 1,122.5
Borrowings............. 1,118.9(11) 283.7 444.5 292.2 363.5 455.0 473.0
Borrowings as a
percentage of total
capitalization........ 64.2% 28.7% 44.5% 33.4% 43.8% 53.6% 62.6%
Shareholders' equity... $ 623.2 $ 704.4 $ 553.9 $ 581.8 $ 466.9 $ 394.4 $ 282.6
</TABLE>
8
<PAGE>
- --------
(1) For purposes of analysis and discussion herein, Guidant employs a concept
of operating income, which is defined as income before other expenses.
(2) Represents earnings before interest, income taxes, depreciation, and
amortization and excludes all special charges. EBITDA is presented because
it is a widely accepted financial indicator used by certain investors and
analysts to analyze and compare companies on the basis of operating
performance and because Guidant's management believes that EBITDA is an
additional meaningful measure of performance and liquidity. EBITDA is not
intended to present cash flows for the period, nor has it been presented
as an alternative to operating income (loss) as an indicator of operating
performance and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles. The items excluded from the calculation of EBITDA
are significant components in understanding and assessing Guidant's
financial performance. Guidant's computation of EBITDA may not be
comparable to the computation of similarly titled measures of other
companies. EBITDA does not represent funds available for discretionary
uses.
(3) Purchased research and development represents the appraised value of in-
process research and development in conjunction with acquisitions made by
Guidant.
(4) Pursuant to the formation and capitalization of Guidant in 1994, 1994
earnings were reported on a pro forma basis.
(5) Cost of products sold ("COPS") includes special obsolescence charges of
$28.8 million. Net other expenses include impairment charges on
atherectomy-related goodwill and other intangible assets of $66.9 million.
Excluding the effect of these charges, COPS was $287.1 million, gross
profit was $762.6 million, income from operations was $269.6 million, net
income was $136.4 million and diluted earnings per share was $0.46.
(6) Other-special represents merger-related costs of $11.1 million in
connection with the acquisition of EndoVascular Technologies, Inc. and a
special contribution to the Guidant Foundation, Inc. of $11.5 million. Net
other expenses include a one-time gain of $23.2 million on the sale of an
equity investment and a corporate legal reserve of $11.5 million.
Excluding the effect of these items, purchased research and development
and a cumulative effect of a change in accounting principle of $4.7
million, net of tax, operating income was $359.4 million, net income was
$197.4 million and diluted earnings per share was $0.66.
(7) Net other expenses include a $200.0 million charge relative to the
settlement of intellectual property litigation with Sulzer Medica, a $60.0
million charge upon agreement with C.R. Bard, Inc. that settled two patent
infringement lawsuits, a $9.2 million charge related to damages awarded to
General Surgical Innovations, Inc., and a $40.0 million non-cash
impairment charge on general surgery goodwill. Excluding the effect of
these charges and purchased research and development, operating income was
$640.4 million, net income was $359.4 million and diluted earnings per
share was $1.19 (adjusted diluted earnings per share calculation uses
302.27 shares outstanding).
(8) Net other expenses include $60.0 million related to the C.R. Bard, Inc.
agreement mentioned in (7) above. Excluding this special charge and
purchased research and development, operating income was $336.7 million,
net income was $191.4 million and diluted earnings per share was $0.63.
(9) COPS includes the impact of stay-pay for manufacturing personnel and
purchase accounting write-up of acquired Intermedics inventory sold during
the six months ended June 30, 1999. Research and development and sales,
marketing, and administrative expenses include the impact of non-
manufacturing stay-pay in conjunction with the Intermedics acquisition.
Net other expenses includes a one-time gain on an equity investment of
$14.4 million. Excluding these items, purchased research and development
and a cumulative effect of a change in accounting principle of $3.3
million, net of tax, COPS was $286.0 million, gross profit was $907.6
million, research and development was $160.5 million, sales, marketing,
and administrative was $338.6 million, operating income was $408.5
million, net income was $206.5 million and diluted earnings per share was
$0.68.
(10) Decline at December 31, 1997 (June 30, 1999) primarily resulted from the
classification of $212.2 million ($310.0 million) of Guidant's commercial
paper and bank borrowings as a current liability.
(11) Acquisition of the electrophysiology business of Sulzer Medica, Ltd.,
effective February 1, 1999, accounted for approximately $615 million of
the total assets increase, and $780 million of the total borrowings
increase.
9
<PAGE>
The following selected consolidated financial data of CTS as of and for the
years ended January 1, 1999, January 2, 1998, December 31, 1996 and the period
from June 15, 1995 (date of inception) to December 31, 1995 are derived from
consolidated financial statements of CTS which have been audited by
PricewaterhouseCoopers LLP, independent auditors. The selected consolidated
financial data as of and for the six months ended July 2, 1999 and July 3, 1998
are derived from unaudited consolidated financial statements and include all
adjustments (consisting of normal recurring accruals) which CTS considers
necessary for a fair presentation of the consolidated financial position,
results of operations and cash flows. Operating results for the six months
ended July 2, 1999 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1999. This information is
qualified in its entirety by, and should be read in conjunction with the
consolidated financial statements, the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
CTS, incorporated by reference in this proxy statement/prospectus.
Selected Consolidated Financial Data of CTS
(In millions, except per-share and other data)
<TABLE>
<CAPTION>
June 15,
Six Months Ended Year Ended 1995 (date of
---------------- ------------------------------------- inception) to
July 2, July 3, January 1, January 2, December 31, December 31,
1999 1998 1999 4 1998 1996 1995
------- -------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Operations:
Net sales............... $13.7 $ 6.8 $ 16.1 $ 9.4 $ 0.1 --
Cost of products sold... 4.9 3.3 7.2 6.0 0.8 --
------- -------- -------- -------- -------- -------
Gross profit (loss).... 8.8 3.5 8.9 3.4 (0.7) --
Research and
development............ 5.2 5.4 11.5 10.8 11.5 0.5
Sales, marketing, and
administrative......... 10.4 11.0 21.7 18.6 7.0 0.6
Other--special.......... -- -- 0.7 (1) -- -- --
------- -------- -------- -------- -------- -------
Operating loss(2)....... (6.8) (12.9) (25.0)(1) (26.0) (19.2) (1.1)
Other income, net....... 0.8 1.3 2.4 3.6 3.1 0.1
------- -------- -------- -------- -------- -------
Net loss................ $(6.0) $(11.6) $(22.6)(1) $(22.4) $(16.1) $(1.0)
Loss per share.......... $(0.42) $ (0.84) $ (1.62)(1) $ (1.66) $ (1.64) $(0.36)
Cash dividends declared
per share.............. -- -- -- -- -- --
Weighted-average shares
outstanding............ 14.36 13.83 13.97 13.51 9.79 2.78
<CAPTION>
July 2, July 3, January 1, January 2, December 31, December 31,
1999 1998 1999 1998 1996 1995
------- -------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Financial Position:
Working capital......... $27.8 $37.2 $25.7 $54.9 $54.5 $ 3.1
Current ratio........... 4.8:1 7.3:1 4.1:1 10.8:1 17.5:1 16.5:1
Capital expenditures,
net.................... 0.8 1.0 1.7 2.3 2.7 0.1
Total assets............ 43.9 59.0 49.8 69.3 83.7 3.4
Borrowings.............. 1.7 3.7 1.9 3.9 1.3 --
Borrowings as a
percentage of total
capitalization......... 4.6% 6.9% 4.5% 6.1% 1.6% --
Shareholders' equity.... $35.3 $49.8 $40.0 $60.1 $79.3 $ 3.2
</TABLE>
- --------
(1) Represents a restructuring charge in the fourth quarter of fiscal 1998 in
connection with the closure of CTS's German subsidiary. Excluding the
effect of the restructuring charge, operating loss was $24.3 million, net
loss was $21.9 million and loss per share was $1.57.
(2) For purposes of analysis Guidant employs a concept of operating income
(loss), which is defined as income (loss) before other expenses (income),
which has been included here for CTS for comparison purposes.
10
<PAGE>
Comparative Per Share Information
The following table sets forth certain earnings, dividend and book value per
share data for CTS and Guidant on an historical basis and historical equivalent
basis. The information set forth below should be read in conjunction with the
historical consolidated financial statements of CTS and Guidant, including the
notes thereto, incorporated by reference or appearing elsewhere in this proxy
statement/prospectus. See "Where You Can Find More Information".
<TABLE>
<CAPTION>
Six Months Ended Year Ended
------------------ ----------------------------------
July 2, July 3, January 1, January 2, December 31,
1999 1998 1999 1998 1996
-------- -------- ---------- ---------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
CTS Historical
Net loss per share.... $(0.42) $(0.84) $(1.62) $(1.66) $(1.64)
Cash dividends
declared per share... -- -- -- -- --
Book value per share.. $ 2.46 $ 3.60 $ 2.86 $ 4.45 $ 8.10
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------ ----------------------------------
1999 1998 1998 1997 1996
-------- -------- ---------- ---------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Guidant Historical
Diluted earnings
(loss) per share..... $ 0.48 $0.44 $(0.01) $0.48 $0.18
Cash dividends
declared per share... -- $0.0125 $ 0.025 $0.025 $0.025
Book value per share.. $ 2.04 $2.33 $ 1.88 $1.94 $1.58
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------ ----------------------------------
1999 1998 1998 1997 1996
-------- -------- ---------- ---------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Guidant Historical
Equivalent for CTS
Stockholders(1)
Diluted earnings
(loss) per share..... $ 0.17 $0.16 -- $0.17 $0.06
Cash dividends
declared per share... -- $0.005 $0.009 $0.009 $0.009
Book value per share.. $ 0.74 $0.84 $ 0.68 $0.70 $0.57
</TABLE>
- --------
(1) The historical amounts for Guidant have been multiplied by the assumed
conversion ratio of 0.3611 to arrive at the Guidant historical equivalent
for CTS stockholders. The assumed conversion ratio has been estimated based
on an assumed average price of Guidant common stock of $48.31 per share
(the closing for a share of Guidant common stock on October 12, 1999).
Assuming an average price of Guidant common stock of $67.00 per share, for
the six months ended June 30, 1999 and 1998 and the years ended December
31, 1998, 1997 and 1996, (1) equivalent earnings per share would have been
$0.14, $0.13, $0.00, $0.14 and $0.05, respectively, (2) equivalent cash
dividends declared per share would have been $0.00, $0.004, $0.007, $0.007
and $0.007, respectively, and (3) equivalent book value per share would
have been $0.60, $0.69, $0.56, $0.57 and $0.47, respectively. Assuming an
average price of Guidant common stock of $60.00 per share (the midpoint of
the pricing range "collar" used in the merger agreement), for the six
months ended June 30, 1999 and 1998 and the years ended December 31, 1998,
1997 and 1996, (1) equivalent earnings per share would have been $0.16,
$0.14, $0.00, $0.16 and $0.06, respectively, (2) equivalent cash dividends
declared per share would have been $0.00, $0.004, $0.008, $0.008 and
$0.008, respectively, and (3) equivalent book value per share would have
been $0.66, $0.76, $0.61, $0.63 and $0.51, respectively.
11
<PAGE>
RECENT DEVELOPMENTS
Guidant
On October 14, 1999, Guidant Corporation announced sales of $560.9 million
for the third quarter of 1999, an increase of 26% over the third quarter of
1998. Income from operations, excluding special charges*, grew 32% over the
previous year. Adjusted net income** of $100.0 million grew 23% over last year.
Earnings per share for the quarter, excluding special charges, were $0.33.
Three Months Ended September 30, 1999
Vascular Intervention sales of $290.1 million increased 34% in the third
quarter compared to the same period in 1998, with significant growth occurring
in all major geographies. Sales of coronary stent products grew 48% over last
year in both the U.S. and worldwide markets to $147 million and $205 million,
respectively. Worldwide stent prices declined 2% year over year, with U.S.
average selling prices declining 1% from second quarter 1999 levels.
Sales of Cardiac Rhythm Management products, which grew 25% over last year to
$266.3 million, were again a significant contributor to Guidant's top line
performance in the quarter. Brady pacing revenues grew 91% over the third
quarter of 1998 driven by strong sales of DISCOVERY and MERIDIAN pacemaker
products, augmented by the successful integration of the Intermedics sales
organization, and the successful launch in June 1999 of the PULSAR dual sensor
pacemaker line.
Guidant's implantable defibrillator sales of $135.1 million in the third
quarter of 1999 declined 7% from $145.7 million in the third quarter of 1998
primarily related to a 4% unit decline from last year. Combination dual chamber
pacemaker/defibrillator devices represented 42% of defibrillator units sold
worldwide in the third quarter of 1999.
Guidant Cardiac & Vascular Surgery received Food and Drug Administration
approval of the ANCURE System for minimally invasive treatment of abdominal
aortic aneurysms in late September and has begun an aggressive physician
training program and product launch effort around the country. The first
commercial sales and implants of the device in the U.S. market occurred in
early October. As announced on July 7, 1999, Guidant has completed the
divestiture of the Cardiac & Vascular Surgery non-cardiology oriented product
lines, negatively affecting total sales for Guidant in the quarter by
approximately 4 percentage points. Third quarter sales of Guidant's remaining
Cardiac & Vascular Surgery products totaled $4.5 million.
Adjusted gross profit for Guidant in the third quarter represented 76.3% of
sales compared to 78.5% in the same period last year. This decline in gross
profit percentage was due primarily to a higher mix of pacing product sales
along with new product and manufacturing plant startup costs. However, compared
to the second quarter of 1999, gross profit improved by 60 basis points as the
influence of these elements decreased.
Total operating expenses for the third quarter of 1999, excluding special
items, grew at a rate of 16% and lagged sales growth by over 10 percentage
points. Sales, marketing, and administrative expense increases over 1998 levels
were primarily due to worldwide product launches, international affiliate
development and the addition of Cardiac Rhythm Management sales personnel.
Research and development expense, excluding special charges, grew 5% over last
year as Guidant continues to invest in current and future technology platforms.
Income from operations, excluding special charges in both years, grew by 32%
in the period due to strong growth in sales. Adjusted other expenses increased
by $13.5 million over the prior year due primarily to higher interest and
amortization expenses associated with Guidant's acquisition of Intermedics in
February 1999.
Excluding special charges in both years, Guidant recorded a 23% increase in
net income to $100.0 million, or $0.33 per share. Reported net income and
earnings per share for the quarter were $98.7 million and $0.32, respectively,
compared to a loss of $177.0 million or $0.60 per share in the third quarter of
1998.
12
<PAGE>
Nine Months Ended September 30, 1999
For the nine months ended September 30, 1999, Guidant reported net sales of
$1,754.5 million, 25% higher than the same period last year. Adjusted gross
profit*** increased 22.5% to $1,335.7 million and represented 76.1% of sales.
Total operating expenses, excluding special items, grew 21%. Increased interest
and amortization expenses associated with Guidant's recent acquisitions were
responsible for (adjusted) other expense growth of approximately 90% to $113.7
million.
Excluding special items in both years, net income grew by 12% to $306.5
million, while adjusted earnings per share grew 11% to $1.00.
* For purposes of analysis and discussion, Guidant employs a concept of
operating income, which is defined as income before special items and
other expenses.
Guidant recorded special charges affecting operating income totaling
$30.0 million in the third quarter of 1999. An $8.3 million charge to
cost of products sold was recorded representing stay pay and production
bonuses for manufacturing personnel of Intermedics, along with the
impact of purchase accounting adjustments on acquired inventory related
to the acquisition of Intermedics, which was completed on February 1,
1999. An additional $21.7 million charge to operating expenses was
recorded, consisting of a $20.2 million contribution of securities to
the Guidant Foundation, and $1.5 million in special charges representing
the impact of stay pay for non-manufacturing personnel of Intermedics.
In the third quarter of 1998, Guidant recorded purchased research and
development expense of $90 million related to the acquisition of
InControl, Inc.
** In addition to the items noted previously, during the third quarter of
1999, Guidant recorded a net loss of $0.8 million in other expenses
representing a one-time gain on an equity investment and loss on sale
of the general surgery product line. A $29.5 million increase to
reported income tax was also made to exclude a special credit for a
change in the tax code relative to net operating loss carryforwards, an
adjustment related to the tax impact of the Guidant Foundation
contribution, and a further refinement of the tax provision relative to
Intermedics acquisition accounting. The effect of these special items
is not included in adjusted net income.
In the third quarter of 1998, Guidant recorded a $200 million charge
related to a litigation settlement with Intermedics.
*** In addition to the third quarter charges, Guidant recorded special
charges in cost of products sold and operating expenses for the first
half of 1999 totaling $70.3 million related to the acquisition of
Intermedics. Also recognized in the first half of 1999 was a one-time
gain on an equity investment of $14.4 million in other expenses, net.
In the first half of 1998, Guidant recognized a pre-tax charge of $60
million related to a technology license and litigation settlement with
C.R. Bard, Inc., in other expenses, and purchased research and
development expense of $28.7 million related to the acquisition of
NeoCardia, LLC, which impacted income from operations.
CTS
For the third quarter of 1999, CTS reported net sales of $8.1 million, an 84%
increase over 1998 third quarter net sales of $4.4 million. Also for the third
quarter of 1999, CTS reported a net loss of $1.8 million, or $0.13 per share on
14.5 million weighted average shares outstanding, compared to a net loss of
$4.9 million, or a net loss per share of $0.35 on 14.0 million weighted average
shares outstanding, for the third quarter of 1998.
For the first nine months of 1999, CTS reported net sales of $21.8 million, a
96% increase over net sales of $11.1 million reported for the first nine months
of 1998. Net loss for the nine month period was $7.8 million, or $0.54 per
share on 14.4 million weighted average shares outstanding, versus a net loss of
$16.5 million, or $1.19 per share on 13.9 million weighted average shares
outstanding, in the prior year period.
As of October 1, 1999, CTS had cash, cash equivalents and available-for-sale
securities of approximately $27.8 million.
13
<PAGE>
RISK FACTORS
CTS's stockholders should consider the following matters in deciding whether
to vote in favor of the merger agreement and the merger. Stockholders should
consider these matters in conjunction with the other information included or
incorporated by reference in this document.
Guidant and CTS May Not Be Able to Keep Pace with the Rapid Technological
Changes in the Medical Devices Industry
The medical device market is characterized by extensive research and
development, and rapid technological change. Development by other companies of
new or improved products, processes or technologies may make Guidant's and
CTS's products or proposed products obsolete or less competitive. Both Guidant
and CTS will be required to devote continued efforts and financial resources
to bring their development products to market, enhance their existing
products, and develop new products for the medical marketplace. If Guidant or
CTS fail to develop new products and enhance existing products, there could be
a material adverse effect on their financial condition and results of
operation.
The Regulatory Review Process For Guidant's and CTS's Products Could Be Long
and Costly and May Not Ultimately Result in Approval
Both Guidant's and CTS's products, development activities and manufacturing
processes are subject to extensive and rigorous regulation by the Food and
Drug Administration pursuant to the Federal Food, Drug, and Cosmetic Act, by
comparable agencies in foreign countries, and by other regulatory agencies and
governing bodies. Under the FDC Act, medical devices must receive FDA
clearance or approval before they can be commercially marketed in the United
States. In addition, most major markets for medical devices outside the United
States require clearance, approval or compliance with certain standards before
a product can be commercially marketed. The process of obtaining marketing
clearance from the FDA for new products, or with respect to enhancements or
modifications to existing products could:
. take a significant period of time,
. require the expenditure of substantial resources,
. involve rigorous pre-clinical and clinical testing,
. require changes to the products, and
. result in limitations on the indicated uses of the product.
Product approvals by the FDA can also be withdrawn due to failure to comply
with regulatory standards or the occurrence of unforeseen problems following
initial approval. There can be no assurance that Guidant or CTS will receive
the required clearance from the FDA for new products or modifications to
existing products on a timely basis. Later discovery of previously unknown
problems with a product or manufacturer could result in fines, delays or
suspensions of regulatory clearances, seizures or recalls of products,
operating restrictions and criminal prosecution, and could have a material
adverse effect on both Guidant's and CTS's businesses. The failure to receive
the clearance on a timely basis or the withdrawal of product approval by the
FDA could have a material adverse effect on the financial condition and
results of operations of Guidant and CTS.
Guidant and CTS May Not Meet Applicable Regulatory Quality Standards
FDA regulations require manufacturers of medical devices to adhere to
certain Quality Systems Regulations, which include testing, quality control,
and documentation procedures. Compliance with applicable regulatory
requirements is subject to continual review and will be monitored through
periodic inspections by the FDA. The failure of either Guidant or CTS and the
failure of their manufacturers to adhere to Quality Systems Regulations could
delay production of their products, which could in turn have a material
adverse effect on their financial position and results of operations.
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Guidant's and CTS's Protection of Their Intellectual Property May Not Be
Sufficient
Both Guidant's and CTS's ability to compete effectively with other companies
is materially dependent upon the proprietary nature of their technologies.
Both Guidant and CTS pursue a policy of generally obtaining patent protection
in both the United States and abroad for patentable subject matter in their
proprietary devices. Currently, Guidant and CTS each own numerous United
States and foreign patents and have numerous patent applications pending. Each
company also has license rights to certain patents held by third parties.
Neither Guidant nor CTS can assure you that any pending or future patent
applications will result in issued patents, that any current or future patents
issued to or licensed by either will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide a competitive
advantage to either company. The invalidation of key patents or proprietary
rights owned by either Guidant or CTS could have a material adverse effect on
its financial position and results of operations.
Future Patent Litigation Could Be Costly and Disruptive to Guidant and CTS
Companies that obtain patents for products or processes that are necessary
for or useful to the development of both Guidant's and CTS's products may
bring legal actions against the companies claiming infringement. In recent
years, it has been common for companies in the medical device field to
aggressively challenge the rights of other companies to prevent the marketing
of new devices. Regardless of the outcome, any future litigation may cost
either Guidant or CTS a substantial amount of money and may cause a
significant diversion of its technical and management personnel's efforts.
Neither Guidant nor CTS can assure you that they will have the financial
resources necessary to enforce any patent rights they may hold. In the event
either Guidant's or CTS's right to market any of its products were to be
successfully challenged, their financial position and results of operations
could be materially adversely affected.
Any Adverse Outcome in Pending or Threatened Litigation Could Have a Material
Adverse Effect on Guidant and CTS
Guidant is currently subject to claims of, and legal actions alleging,
infringement by Guidant of the patent rights of others.
With respect to CTS, Heartport, Inc. (formerly Stanford Surgical
Technologies, Inc.), the former employer of CTS's founder and Chief Technical
Officer, Charles S. Taylor, has alleged in certain correspondence in late 1995
and again in September 1997 that Mr. Taylor and CTS may have misappropriated
trade secrets of the former employer and breached confidentiality obligations
to the former employer. The former employer has also claimed in such
correspondence an ownership interest in certain developments and products of
CTS. CTS has agreed to provide for the defense of Mr. Taylor in the event that
litigation is commenced.
In the event of an adverse outcome with respect to one or more of these
claims or actions or any future claims or actions, Guidant or CTS may be
subject to significant liabilities to third parties, required to seek licenses
from third parties or prevented from manufacturing, selling or using certain
of its products. Neither Guidant nor CTS can assure you that they will be able
to obtain licenses on commercially reasonable terms.
Legal Action May Be Required in the Future to Enforce Proprietary Technology
and Trade Secrets
Both Guidant and CTS also rely on proprietary technology and trade secrets
that they seek to protect, in part, through confidentiality agreements with
certain employees, consultants and other parties. Either Guidant or CTS may
have to take legal action in the future to protect its trade secrets or know-
how or to defend them against claimed infringement of the rights of others and
to determine the scope and validity of the proprietary rights of others. Any
legal action of that type could be costly and time consuming to Guidant and
CTS, and Guidant and CTS cannot assure you that any lawsuit will be
successful. If any of the lawsuits were not successful, there could be a
material adverse effect on Guidant's and CTS's financial position and results
of operations.
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Guidant and CTS May Be Subject to Product Liability
Guidant's and CTS's business exposes the companies to potential product
liability risks, which are inherent in the design, manufacture and marketing
of medical devices. Both Guidant's and CTS's products are often used in
intensive care settings with seriously ill patients. In addition, many of the
medical devices manufactured and sold by Guidant are designed to be implanted
in the human body for long periods of time. Any of the following could result
in an unsafe condition or injury to, or death of, the patient:
. component failures,
. manufacturing flaws,
. design defects, or
. inadequate disclosure of product-related risks or product-related
information with respect to these or other products manufactured or sold
by Guidant or CTS.
These could result in product liability claims, a recall of one or more of
Guidant's or CTS's products, or a safety alert relating to one or more of
Guidant's or CTS's products. Neither Guidant nor CTS can assure you that their
current product liability insurance will be adequate or that they will be able
to obtain insurance in the future at satisfactory rates or in adequate
amounts. Product liability claims or product recalls in the future, regardless
of their ultimate outcome, could have a material adverse effect on both
Guidant's and CTS's business and reputation, and their ability to attract and
retain customers for their products.
The Loss of Any of Guidant's or CTS's Single Source Suppliers Could Have a
Material Adverse Effect on Guidant and CTS
Both Guidant and CTS purchase certain supplies used in their manufacturing
processes from single sources due to quality considerations, costs or
constraints resulting from regulatory requirements. Agreements with certain
suppliers are terminable by either party upon short notice. The establishment
of additional or replacement suppliers for certain components or materials may
not be able to be accomplished quickly. This is largely due to the FDA
approval system and the complex nature of manufacturing processes employed by
many suppliers. If a single source supplier reduces or interrupts the supply
of materials or components used in the manufacturing of either Guidant's or
CTS's products or increases the price of those materials or components, there
could be a material adverse effect on Guidant's and CTS's financial position
and results of operations.
Hospitals May Use Products or Therapies with a Lower Cost than Guidant's or
CTS's Products
Both Guidant's and CTS's products are purchased principally by hospitals or
physicians. Hospitals typically bill various third-party payors, such as
governmental programs (e.g., Medicare and Medicaid), private insurance plans
and managed care plans, for the health care services provided to their
patients. Third-party payors are increasingly negotiating the prices charged
for medical products and services. If hospitals respond to such pressures by
substituting lower cost products or other therapies for Guidant's or CTS's
products, both Guidant and CTS could be materially adversely affected.
Payment Practices of Third Party Payors Could Have a Material Adverse Effect
on Guidant and CTS
The ability of customers to obtain appropriate reimbursement for their
products and services from government and third-party payors is critical to
the success of all medical device companies around the world. Moreover, third-
party payors may deny reimbursement if it is determined that a device was not
used in accordance with cost-effective treatment methods as determined by the
payor, was experimental, or for other reasons. Several foreign governments
(most notably Germany and Spain) have attempted to dramatically reshape
reimbursement policies affecting medical devices. Further restrictions on
reimbursement of both Guidant's and CTS's customers would have an impact on
the products, including clinical products, purchased by customers and the
prices they are willing to pay.
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Health Care Policy Reforms May Have a Material Adverse Effect on Guidant and
CTS
The cost of health care has risen significantly over the past decade, and
there have been and may continue to be proposals by legislators, regulators
and third-party payors to curb these costs. Certain reform proposals or other
policy changes, if adopted, could impose limitations on the prices both
Guidant and CTS will be able to charge in the United States for their
products, or the amounts of reimbursement available for their products from
governmental agencies or third-party payors. Those limitations could have a
material adverse effect on Guidant's and CTS's financial position and results
of operations.
Stock Prices are Volatile
In recent years, the stock market in general has experienced extreme price
and volume fluctuations, which have particularly affected the market price of
many technology and health care companies and which have often been unrelated
to the operating performance of those companies. These broad market
fluctuations have in the past and may in the future adversely affect the
market price of Guidant's common stock received by CTS stockholders in the
merger.
The Value of the Consideration You Receive in the Merger Depends on the Price
of Guidant Common Stock
Fluctuations in the price of Guidant's common stock could affect the value
of the consideration you receive in the merger. Under the terms of the merger
agreement, the shares of CTS common stock will be converted into the right to
receive shares of Guidant common stock having a value of $19.50 per share,
subject to certain adjustment provisions. The number of Guidant shares
exchanged for CTS shares depends upon the value of the Guidant shares. See
"Principal Provisions of the Merger--Consideration to be Received In the
Merger". There can be no assurance that the market price of Guidant common
stock on and after the effective time of the merger will not be higher or
lower than the applicable average price used in determining the number of
shares of Guidant common stock you receive or the price as of any other date.
CTS stockholders should obtain and consider recent trading prices of Guidant
common stock in determining whether to vote in favor of the merger agreement
and the consummation of the merger.
Failure to Successfully Integrate the Operations of CTS into Guidant Could
Have a Material Adverse Effect on Guidant
Guidant and CTS expect that the merger will result in operating and
strategic benefits. The anticipated benefits of the merger may not be achieved
unless the operations of CTS are successfully combined with those of Guidant
in a coordinated, timely and efficient manner, and there can be no assurance
this will occur. Failure to achieve the anticipated benefits could have a
material adverse effect on Guidant's financial condition and results of
operations.
Integrating the Business of CTS Could Be Costly and Time Consuming
The integration of the CTS business by Guidant will require coordination of
the Guidant and CTS operations. The difficulties of coordination may be
increased by the necessity of combining personnel with disparate business
backgrounds and different corporate cultures. In addition, the process of
combining the two organizations could cause the interruption of, or a loss of
momentum in, the activities of CTS, which could have an adverse effect on
CTS's operations.
There Is Uncertainty as to the Retention of Key CTS Personnel
Although Guidant has expressed an intention of retaining certain key
personnel of CTS, there can be no assurance that CTS will retain its key
management, technical, sales and marketing personnel. Failure to retain some
or all of those people could have a material adverse effect upon Guidant's
financial condition and results of operations.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this proxy statement/prospectus (including
information included or incorporated by reference in this proxy
statement/prospectus) and other written and oral statements made from time to
time by Guidant and CTS do not relate strictly to historical or current facts.
As such, they are considered "forward-looking statements" which provide
current expectations or forecasts of future events. Such statements can be
identified by the use of terminology such as "anticipate," "believe,"
"estimate," "expect," "intend," "may," "could," "possible," "plan," "project,"
"will," "forecast" and similar words or expressions. Both Guidant's and CTS's
forward-looking statements generally relate to their growth strategies,
financial results, product development and regulatory approval programs, and
sales efforts. One must carefully consider forward-looking statements and
understand that such statements involve a variety of risks and uncertainties,
known and unknown, and may be affected by inaccurate assumptions.
Consequently, no forward-looking statement can be guaranteed and actual
results may vary materially. It is not possible to foresee or identify all
factors affecting Guidant's and CTS's forward-looking statements and investors
therefore should not consider any list of factors affecting their forward-
looking statements to be an exhaustive statement of all risks, uncertainties
or potentially inaccurate assumptions. Guidant and CTS undertake no obligation
to update any forward-looking statement.
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements. In order to comply with the terms of the safe
harbor, Guidant and CTS note that a variety of factors could cause their
actual results and experience to differ materially from the anticipated
results or other expectations expressed in their forward-looking statements.
Although it is not possible to create a comprehensive list of all factors that
may cause actual results and experience to differ materially from Guidant's
and CTS's forward-looking statements, such factors include, among others, (i)
trends toward managed care, health care cost containment and other changes in
government and private sector initiatives, in the U.S. and other countries in
which Guidant and CTS do business, that are placing increased emphasis on the
delivery of more cost-effective medical therapies; (ii) the trend of
consolidation in the medical device industry as well as among customers of
medical device manufacturers, resulting in more significant, complex and long-
term contracts than in the past and potentially greater pricing pressures;
(iii) the difficulties and uncertainties associated with the lengthy and
costly new product development and regulatory approval processes, excessive
manufacturing costs or infringement of patents or other intellectual property
rights of others; (iv) efficacy or safety concerns with respect to marketed
products, whether scientifically justified or not, that may lead to product
recalls, withdrawals or declining sales; (v) changes in, and the enforcement
of, governmental laws, regulations, policies, judicial decisions and
accounting standards that may be adverse to either Guidant or CTS; (vi)
increased public interest in recent years in product liability claims for
implanted medical devices, including pacemakers and leads; (vii) other legal
factors including environmental concerns, patent disputes and antitrust
litigation with competitors; (viii) agency or government actions or
investigations affecting the industry in general or Guidant or CTS in
particular; (ix) the development of new products or technologies by
competitors, technological obsolescence and other changes in competitive
factors; (x) risks associated with maintaining and expanding international
operations; (xi) business acquisitions, dispositions, discontinuations or
restructurings by Guidant; (xii) the integration of businesses acquired by
Guidant; (xiii) future difficulties obtaining necessary components or
materials used in Guidant's or CTS's products; (xiv) future difficulties
obtaining or the inability to obtain appropriate levels of product liability
insurance; (xv) competitive factors including the ability of Guidant or CTS to
obtain patent rights or other intellectual property rights sufficient to keep
competitors from marketing competing products, the introduction of new
products or therapies by competitors or scientific or medical developments
that render Guidant's or CTS's products obsolete, uneconomical or otherwise
non-competitive or the acquisition of patents by competitors that prevent
Guidant or CTS from selling a product or including key features in products;
(xvi) internal factors such as retention of key employees, change in business
strategies and the impact of restructuring and business combinations; (xvii)
the inability of certain of Guidant's or CTS's, or their suppliers' or
customers', computer systems to handle dates beyond the year 1999; (xviii) the
Euro conversions impact on the competitive environments in which either
Guidant or CTS operate or their impact on either Guidant's or CTS's
fundamental risk management philosophy; (xix) economic factors over which
Guidant or CTS have no control, including changes in inflation, foreign
currency rates and interest rates; and (xx) other factors over which Guidant
or CTS
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have no control, including earthquakes (particularly in light of the fact that
each has significant facilities located near major earthquake fault lines),
floods, fires or explosions. Guidant and CTS note these factors as permitted
by the Private Securities Litigation Reform Act of 1995.
THE SPECIAL MEETING
This document is furnished in connection with the solicitation of proxies
from the holders of CTS common stock by CTS's board of directors for use at
the special meeting. This document and accompanying form of proxy are first
being mailed to the CTS stockholders on or about October 15, 1999.
Time and Place; Purpose
The CTS special meeting will be held at CTS's offices at 10600 North Tantau
Avenue, Cupertino, California on November 15, 1999, starting at 10:00 a.m.,
local time. At the special meeting, the CTS stockholders will be asked to
consider and vote upon the merger agreement and the merger.
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the CTS special meeting, where they will have the opportunity to make a
statement, if they so desire, and will be available to respond to appropriate
questions.
Voting Rights; Votes Required for Approval
CTS's board of directors has fixed the close of business on October 11, 1999
as the record date for CTS stockholders entitled to notice of and to vote at
the special meeting.
Currently, the only outstanding voting securities of CTS are the shares of
CTS common stock. Only holders of record of shares of CTS common stock on the
CTS record date are entitled to notice of the CTS special meeting, and to vote
at the special meeting. Each holder of record, as of the record date, of CTS
common stock is entitled to cast one vote per share on the merger agreement
proposal.
On the record date, there were approximately 14,569,640 shares of CTS common
stock outstanding and entitled to vote at the special meeting, held by
approximately 243 shareholders of record.
The favorable vote of a majority of all outstanding shares of CTS common
stock outstanding on the record date is required to approve the merger
agreement.
On the record date, the directors and executive officers of CTS and their
affiliates beneficially owned and were entitled to vote 2,221,623 shares of
CTS common stock, or approximately 15.25% of the shares of CTS common stock
outstanding on the record date. Richard M. Ferrarri, President, Chief
Executive Officer and a director of CTS, and Charles S. Taylor, Vice
President, Chief Technical Officer and a director of CTS, entered into a
support agreement which is described in more detail under the heading "Support
Agreement" below.
Voting of Proxies
All shares of CTS common stock represented by proxies properly received
prior to or at the special meeting and not revoked will be voted in accordance
with the instructions indicated in these proxies. If no instructions are
indicated on a properly executed returned proxy, these proxies will be voted
FOR the approval of the merger agreement.
If a proposal to adjourn the CTS special meeting is properly presented, the
persons named in the enclosed form of proxy will not have discretion to vote
shares voted against the merger agreement, in favor of the adjournment
proposal. CTS is not aware of any matters expected to be presented at its
meeting other than as described in its notice of special meeting.
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Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
1. filing, including by telecopy, with the Secretary of CTS, before
taking the vote at the special meeting, a written notice of revocation
bearing a later date than the date of the proxy or a later-dated proxy
relating to the same shares; or
2. attending the relevant meeting and voting in person.
In order to vote in person at the CTS special meeting, CTS stockholders must
attend the meeting and cast their votes in accordance with the voting
procedures established for the meeting. Attendance at a meeting will not in
and of itself constitute a revocation of proxy. Any written notice of
revocation or subsequent proxy must be sent so as to be delivered at or before
the taking of the vote at the applicable meeting as follows:
CardioThoracic Systems, Inc.
10600 North Tantau Avenue
Cupertino, California 95014
Telecopy: (408) 342-1711
Attention: Secretary
CTS stockholders who require assistance in changing or revoking a proxy
should contact Steven M. Van Dick or Enrique Negron at the addresses or phone
numbers provided in this document under the caption "Questions and Answers
About the Merger--Who Can Help Answer Your Questions".
Abstentions may be specified on the merger agreement proposal. Since the
favorable vote of holders of a majority of the outstanding shares of CTS
common stock on the merger agreement proposal is required to approve this
proposal, a proxy marked "ABSTAIN" with respect to this proposal will have the
effect of a vote against this proposal. In addition, the failure of a CTS
stockholder in connection with the merger agreement proposal to return a proxy
will have the effect of a vote against the merger agreement proposal.
Under Nasdaq National Market rules, brokers who hold shares in street name
for customers have the authority to vote on "routine" proposals when they have
not received instructions from beneficial owners. Under Nasdaq National Market
rules, these brokers are precluded from exercising their voting discretion
with respect to the approval and adoption of non-routine matters like the
merger agreement proposal and, thus, absent specific instructions from the
beneficial owner of these shares, brokers are not empowered to vote these
shares with respect to the approval and adoption of the proposal. Since the
affirmative votes described above are required for approval of the merger
agreement proposal, a non-vote by a broker who has not received specific
voting instructions with respect to this proposal will have the effect of a
vote against the proposal.
The cost of solicitation of proxies will be paid by CTS. In addition to
solicitation by mail, arrangements will be made with brokerage houses and
other custodians, nominees and fiduciaries to send the proxy materials to
beneficial owners and CTS will, upon request, reimburse these brokerage houses
and custodians for their reasonable expenses in so doing. CTS has signed a
letter of agreement with Beacon Hill Partners, Inc. which provides that Beacon
Hill Partners will disseminate broker search cards, distribute proxy materials
in preparation for the special meeting and assist in the proxy solicitation
process. CTS estimates that Beacon Hills Partners' fee for these services will
be approximately $10,000, plus reimbursement for expenses incidental to the
solicitation. The letter agreement with Beacon Hill Partners contains
customary indemnification and confidentiality provisions. To the extent
necessary in order to ensure sufficient representation at its meeting, CTS may
request by telephone or telecopy the return of proxy cards. To the extent to
which this will be necessary depends entirely upon how promptly proxy cards
are returned. Stockholders are urged to send in their proxies without delay.
CTS stockholders should not send in any stock certificates with their proxy
cards. A transmittal form with instructions for the surrender of certificates
representing shares of CTS common stock will be mailed by Guidant to former
CTS stockholders as soon as practicable after the consummation of the merger.
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Board Recommendation
The CTS board unanimously recommends that stockholders vote FOR approval and
adoption of the merger agreement.
THE MERGER
Background of the Merger
Prior to January 1999, CTS held discussions concerning various potential
business relationships with a number of medical device companies. These
conversations were conducted at a variety of industry meetings, were general
in nature and did not lead to any specific proposals for either an acquisition
of CTS or other strategic relationship.
In January 1999, as part of its strategy of creating a diversified business
with products for a variety of minimally invasive coronary procedures, CTS
acquired a patent in the field of minimally invasive vessel harvesting. From
January 1999 to April 1999, CTS contacted key competitors in the field of
minimally invasive vein harvesting, including Guidant, for the purpose of
discussing with those competitors the possibility of CTS's sublicensing the
rights to the harvesting patent. Some of the discussions expanded to include
the potential acquisition of CTS, which would give the acquiror access to
CTS's minimally invasive cardiac surgery technology, in addition to providing
access to the harvesting patent.
On March 23, 1999, at a regularly scheduled meeting, the CTS board of
directors discussed CTS's strategy regarding its saphenous vein harvesting
technology and the interest of certain parties in acquiring rights to the
harvesting patent. The CTS board of directors directed management to pursue a
sublicensing arrangement with one of the parties, Party A, under which Party A
would be required to license to CTS any of Party A's current and future
intellectual property in the field of minimally invasive beating heart bypass
surgery in exchange for a sublicense to the harvesting patent. However, CTS
and Party A did not reach an agreement with regard to that arrangement.
On April 23, 1999, Guidant informed CTS that it was interested in discussing
the potential acquisition of CTS by Guidant and in obtaining a temporary,
royalty-free sublicense under the harvesting patent for use during the course
of such discussions. On April 28, 1999 CTS and Guidant met to review the terms
of this arrangement and to discuss the due diligence process that would be
necessary to proceed to an agreement for Guidant to acquire CTS. Also on April
28, 1999, CTS informed Party A that CTS would be interested in discussing a
potential acquisition of CTS by Party A.
On May 4, 1999, at a regularly scheduled meeting, the CTS board of directors
discussed the patent licensing negotiations, as well as the interest of
Guidant and Party A in a potential acquisition of CTS. At the May 4, 1999
meeting, the board also approved the engagement of U.S. Bancorp Piper Jaffray
as CTS's financial advisor with respect to merger discussions.
On May 5, 1999, CTS and U.S. Bancorp Piper Jaffray met to review various
companies in the cardiovascular device market and to identify other potential
acquirors of CTS. CTS then directed U.S. Bancorp Piper Jaffray to contact
Party B and Party C regarding a potential acquisition of CTS.
On May 11, 1999, CTS and Guidant entered into a confidentiality agreement
and a letter agreement that defined a due diligence process intended to lead
to Guidant's submission by July 2, 1999 of a non-binding indication of
interest to acquire CTS and that provided that Guidant and CTS would negotiate
in good faith until August 1, 1999 concerning the acquisition of CTS. The
letter agreement included a temporary, royalty-free sublicense under the
harvesting patent. See "Certain Transactions".
From May 18 through May 26, 1999, CTS and U.S. Bancorp Piper Jaffray met
with Guidant and J.P. Morgan, Guidant's financial advisors, on several
occasions to discuss CTS's intellectual property portfolio,
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regulatory matters, sales and marketing, research and development, and
finance. These due diligence meetings were intended to assist Guidant in its
preparation of a non-binding indication of interest to acquire CTS by the July
2 deadline.
On May 20, 1999, CTS and U.S. Bancorp Piper Jaffray met with Party A to
discuss a potential acquisition of CTS by Party A. On May 24, 1999, CTS and
Party A entered into a confidentiality agreement and a letter agreement that
defined a due diligence process intended to lead to Party A's submission by
August 3, 1999 of a non-binding indication of interest to acquire CTS. The
letter agreement included a temporary, royalty-free sublicense under the
harvesting patent.
On May 21, 1999, in response to inquiries by Party D and under a
confidentiality agreement previously executed by CTS and Party D, CTS and
Party D met to review the cardiac surgery market, CTS's sales and marketing
and product development activities and the possibility of an acquisition of
CTS by Party D.
On May 26, 1999, CTS and Party B entered into a confidentiality agreement.
On May 27 and 28, 1999, CTS met separately with Party A and Party B to provide
further due diligence information to those parties.
During the week of May 31, 1999, Party C and Party D each communicated to
U.S. Bancorp Piper Jaffray that they were not interested in pursuing an
acquisition of CTS.
On June 7, 1999, at CTS's instruction, U.S. Bancorp Piper Jaffray
communicated to each of Guidant, Party A and Party B that CTS wished to
receive their non-binding indications of interest on July 14, 1999, in order
to coordinate the submission of the indications of interest from all parties.
From June 7 through July 12, 1999 CTS met separately with Guidant and Party
B on several occasions, both in person and by telephone, to provide additional
due diligence information to those parties.
On July 12, 1999, Party A told U.S. Bancorp Piper Jaffray that it was not
Party A's intention to submit a non-binding indication of interest by July 14,
but rather by August 3, in accordance with the letter agreement between CTS
and Party A, due in part to changes in the organizational structure of Party
A.
On July 13, 1999, CTS met with Guidant by telephone to review CTS's advanced
research and development activities.
On July 14, 1999, Guidant and Party B each submitted a non-binding
indication of interest to U.S. Bancorp Piper Jaffray and U.S. Bancorp Piper
Jaffray reviewed the indications of interest with CTS.
On July 15, 1999, the CTS board of directors met by conference telephone to
discuss the non-binding indications of interest received from Guidant and
Party B. U.S. Bancorp Piper Jaffray CTS's legal counsel and CTS's executive
officers were also present. The board determined that neither indication of
interest represented a price per share that the CTS board of directors would
be willing to accept for CTS. The CTS board of directors instructed U.S.
Bancorp Piper Jaffray to inquire as to the parties' interest in increasing the
value of their non-binding indications of interest to a level which would be
acceptable to the CTS board of directors. The CTS board of directors also
authorized management to respond to further due diligence requests from
Guidant and Party B in order to give them more information with which could
lead to an increase in the value of their non-binding indications of interest.
From July 15 through July 19, 1999, U.S. Bancorp Piper Jaffray was in
contact with both Guidant and Party B regarding their non-binding indications
of interest. By July 20, 1999, both Guidant and Party B had submitted revised
non-binding indications of interest with improved prices per share they were
willing to pay for CTS.
On July 20, 1999, at a regularly scheduled meeting, the CTS board of
directors discussed the revised offers of Guidant and Party B. U.S. Bancorp
Piper Jaffray CTS's legal counsel and CTS's executive officers were also
present. The board determined that Party B's revised indication of interest
was superior to that of Guidant. In
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recognition of Party B's improved non-binding indication of interest, the
board determined to move forward with Party B on the condition that Party B
further improve its non-binding indication of interest. After the meeting,
Party B was informed of the CTS board of directors' willingness to move
forward with Party B in exchange for a further improved non-binding indication
of interest.
By July 26, 1999, Party B had not submitted an improved non-binding
indication of interest. On July 26, U.S. Bancorp Piper Jaffray instructed
Guidant and Party B to prepare their best and final bids for submission on
August 3 in conjunction with the anticipated submission of Party A's non-
binding indication of interest.
From July 26 through July 30, 1999, CTS met separately with Guidant, Party A
and Party B to provide further due diligence information to those parties, in
particular with respect to advanced research and development and intellectual
property.
On August 1, 1999, Guidant's Senior Management Committee held a meeting
where Guidant employees presented to the Senior Management Committee an
overview of CTS, including a clinical evaluation, a financial statements
review, and a review of product development projects and competitive
information.
On August 3, 1999, Party B told CTS that it was unwilling to change its July
20 revised non-binding indication of interest; Party A did not submit a non-
binding indication of interest; and Guidant submitted a revised non-binding
indication of interest valued at $19.50 per CTS share, subject to additional
due diligence by Guidant. Guidant also advised U.S. Bancorp Piper Jaffary that
Guidant would require a period of approximately 30 days for this due diligence
and negotiation, during which CTS would negotiate exclusively with Guidant
regarding an acquisition of CTS and would not consider proposals from other
parties.
On August 4, 1999, the CTS board of directors met by conference telephone to
review Party B's July 20 non-binding indication of interest and Guidant's
August 3 revised non-binding indication of interest. U.S. Bancorp Piper
Jaffray CTS's legal counsel and CTS's executive officers were also present.
The CTS board of directors determined that the non-binding indication of
interest from Guidant was superior to that of Party B and accordingly,
authorized management to complete due diligence with Guidant and to negotiate
a definitive merger agreement by the end of August. Legal counsel to CTS
advised the CTS board of directors of their fiduciary obligations with respect
to an agreement for a period of exclusive negotiation and the evaluation of a
possible acquisition transaction. The CTS board of directors authorized
management to enter into an agreement with Guidant for an exclusive period of
negotiation ending on August 30, 1999.
On August 6, 1999, the agreement granting Guidant an exclusive negotiation
period was executed, and from August 10 through August 29, CTS met with
Guidant to provide further due diligence information concerning CTS's advanced
research and development, sales, marketing, finance, manufacturing, human
resources and intellectual property. During this time, Guidant advised CTS
that the proposed acquisition transaction would include a stock option
agreement granting Guidant an option to purchase a number of shares equal to
19.9% of CTS's outstanding common stock in the event certain triggering events
occurred, and a support agreement pursuant to which certain CTS directors and
executive officers would agree to vote all shares of CTS common stock
beneficially owned by them in favor of the merger agreement.
On August 12, 1999, legal counsel to Guidant provided legal counsel to CTS
with an initial draft of a merger agreement, a stock option agreement and a
support agreement, which legal counsel to CTS revised and returned on August
18. Guidant's legal counsel provided a further revised draft of the merger
agreement to CTS's legal counsel to CTS on August 24.
On August 16, 1999, the Guidant board of directors convened to discuss the
strategic benefits of an acquisition of CTS and the related financial
considerations. Thereafter, the Guidant board of directors authorized the
execution and delivery of the merger agreement, stock option agreement and
support agreement subject to satisfactory completion of due diligence and
negotiations of the terms of the transaction.
23
<PAGE>
On August 28 and August 29, 1999, CTS, Guidant, U.S. Bancorp Piper Jaffray
J.P. Morgan and legal counsel to CTS and Guidant met at the offices of CTS's
legal counsel to review various matters relating to the proposed transaction.
During these meetings, legal counsel to CTS and Guidant continued the
negotiation of the revised draft merger agreement, stock option agreement and
support agreement, and U.S. Bancorp Piper Jaffray and J.P. Morgan continued
the negotiation of the financial terms of the transaction.
On August 30, 1999 the CTS board of directors met with its legal and
financial advisors to review the terms of the acquisition transaction. CTS's
officers were also present at the meeting. CTS's legal counsel reviewed the
proposed definitive merger agreement, stock option agreement and support
agreement. Representatives from U.S. Bancorp Piper Jaffray reviewed the
financial terms of the transaction and the related financial analyses. U.S.
Bancorp Piper Jaffray then rendered its opinion that, as of August 30, 1999,
the consideration to be received in the proposed merger was fair, from a
financial point of view, to the stockholders of CTS. After additional
discussion, the CTS board of directors unanimously approved the merger
agreement, the stock option agreement and the support agreement and
unanimously resolved to recommend to the CTS stockholders to approve and adopt
the merger. On the afternoon of August 30, 1999, the definitive merger
agreement, the support agreement and the stock option agreement were executed
by all parties and a joint public announcement of the transaction was made.
Reasons for the Merger
Guidant's Reasons for the Merger. Guidant's board of directors has
determined that the terms of the merger agreement and the merger are in the
best interests of Guidant. In the course of reaching its decision to approve
the merger agreement and the merger, the board consulted with Guidant's legal
and financial advisors as well as with Guidant's management, and considered a
number of factors, including among others its belief as to:
. CTS's lead over comparable companies in the less invasive cardiac
surgery market domestically and CTS's emerging presence internationally;
. the strategic fit and complementary nature of CTS's products with
Guidant's current business lines;
. the growth potential in the area of less invasive cardiac surgery and
related opportunities;
. the opportunity to retain key CTS personnel, whom Guidant believes have
valuable experience developing and marketing less invasive cardiac
surgery products;
. the intended treatment of the merger as a tax-free reorganization and as
a pooling-of-interests transaction for accounting purposes. See "--
Accounting Treatment" and "--Material Federal Income Tax Consequences of
the Merger".
Guidant's board of directors also considered a number of potentially
negative factors in its deliberations concerning the merger, including:
. the risks that CTS may not remain competitive in the market for cardiac
surgery products;
. the fact that the development of less invasive cardiac surgery systems
may be more expensive or require more time than currently anticipated;
and
. the risks of obtaining and maintaining patents and trade secret
protection for significant new technologies.
In view of the wide variety of factors, both positive and negative,
considered by the board of directors of Guidant, the board did not find it
practicable to quantify or otherwise assign relative weight to the specific
factors considered in making its determination. However, after taking into
consideration all of the factors set forth above, the board concluded that the
terms of the merger agreement and the merger are in the best interests of
Guidant.
CTS's Reasons for the Merger. The CTS board of directors considered the
following material factors:
. Analyses of the financial performance and condition and the businesses
and prospects of Guidant and CTS. These analyses included a review of
the recent and historic earnings and stock price performance
24
<PAGE>
of CTS and Guidant. The CTS board of directors also considered the
detailed financial analyses, pro forma and other information with
respect to Guidant and CTS presented by U.S. Bancorp Piper Jaffray as
well as the CTS board of directors' own knowledge of Guidant and CTS and
their respective businesses. The CTS board of directors also considered
the current economic, financial and business climate.
. The effect on CTS stockholders of CTS continuing as a stand-alone entity
compared to the effect of combining with Guidant, with respect to the
financial condition and prospects of the two companies on a stand-alone
basis and as a combined company. In particular, the CTS board of
directors considered that CTS competes in a limited number of segments
of the medical device market, and that the market price of CTS common
stock had experienced significant volatility.
. The view of CTS management that the medical device industry has
experienced significant consolidation as participants have sought to
broaden product lines, gain market share and increase international
market penetration to enable combined product offerings and capitation
arrangements with managed care organizations and health care provider
organizations, which are increasingly taking actions that favor health
care and medical device companies offering large and cost-effective
product portfolios.
. The relatively greater financial, manufacturing, personnel, sales and
distribution resources of Guidant and the likelihood that these
resources would allow CTS to accelerate its long-term growth strategy,
to facilitate the introduction of new products with a larger sales
force, and to compete more effectively in its targeted markets.
. The written opinion of U.S. Bancorp Piper Jaffray that, as of August 30,
1999, and based upon and subject to the various qualifications and
assumptions described in their opinion, the consideration to be received
in the merger was fair, from a financial point of view, to the
stockholders of CTS. See "--Opinion of Financial Advisor".
. The exchange ratio and the other terms of the merger agreement. See
"Principal Provisions of the Merger Agreement--Consideration to be
Received in the Merger".
. The expectation that the merger will be a tax-free transaction to CTS
and its stockholders and will be accounted for as a pooling of interests
transaction. See "--Accounting Treatment" and "--Material Federal Income
Tax Consequences of the Merger".
The CTS Board of Directors also considered the following potentially
negative factors in its deliberations concerning the merger:
. The loss of control over future operations of CTS following the merger.
. The risk that the combined company would be unable to retain key
employees.
. The risk that the benefits sought to be achieved in the merger may not
be achieved.
. The fact that the price to earnings multiple for Guidant common stock
was among the highest in the medical device industry.
. The other risks described under "Risk Factors".
In view of the wide variety of factors, both positive and negative,
considered by the board of directors of CTS, the board did not find it
practicable to quantify or otherwise assign relative weight to the specific
factors considered in making its determination. However, after taking into
consideration all of the factors set forth above, the board agreed that the
merger is fair to, and in the best interests of, CTS and its stockholders.
The board of directors of CTS unanimously recommends that CTS stockholders
vote FOR approval of the merger agreement and the consummation of the merger.
25
<PAGE>
Operations Following the Merger
Following the merger, CTS will continue its operations as a wholly-owned
subsidiary of Guidant. As a result of the merger, the membership of the board
of directors of Guidant will remain unchanged and officers of Guidant will
replace the members of the CTS board of directors. The stockholders of CTS
will become stockholders of Guidant, and their rights as stockholders will be
governed by Guidant's Amended and Restated Articles of Incorporation and
Guidant's bylaws and the laws of the State of Indiana. See "Comparison of
Stockholders' Rights".
Opinion of Financial Advisor
Pursuant to an engagement letter dated May 10, 1999, CTS retained U.S.
Bancorp Piper Jaffray to act as its financial advisor and, if requested, to
render to CTS's board of directors an opinion as to the fairness, from a
financial point of view, of the consideration to be received by CTS
stockholders in the merger.
U.S. Bancorp Piper Jaffray delivered to the board of directors of CTS on
August 30, 1999 its opinion that, as of that date and based upon and subject
to the assumptions, factors and limitations set forth in the written opinion
and described below, the consideration proposed to be received by CTS
stockholders in the proposed merger was fair, from a financial point of view,
to those stockholders. A copy of U.S. Bancorp Piper Jaffray's written opinion
is attached to this proxy statement/prospectus as Annex D and is incorporated
into this proxy statement/prospectus by reference.
While U.S. Bancorp Piper Jaffray rendered its opinion and provided certain
analyses to the board of directors of CTS, U.S. Bancorp Piper Jaffray was not
requested to and did not make any recommendation to the board of directors as
to the specific form or amount of the consideration to be received by CTS
stockholders in the proposed merger, which was determined through negotiations
between CTS and Guidant. U.S. Bancorp Piper Jaffray's written opinion, which
was directed to the CTS board of directors, addresses only the fairness, from
a financial point of view, of the proposed consideration to be received by CTS
stockholders in the proposed merger, does not address the value of a share of
CTS common stock or Guidant common stock, does not address CTS's underlying
business decision to participate in the merger and does not constitute a
recommendation to any CTS stockholder as to how a stockholder should vote with
respect to the merger.
In arriving it its opinion, U.S. Bancorp Piper Jaffray reviewed:
. a draft of the merger agreement dated August 24, 1999;
. publicly available financial, operating and business information related
to Guidant and CTS;
. publicly available market and securities data of Guidant, CTS and
selected public companies that U.S. Bancorp Piper Jaffray considered
comparable to Guidant and CTS;
. analyst reports relating to Guidant and CTS;
. to the extent publicly available, financial information relating to
selected transactions that U.S. Bancorp Piper Jaffray considered
comparable to the proposed merger; and
. internal financial information of CTS prepared for financial planning
purposes and furnished by CTS management.
In addition, U.S. Bancorp Piper Jaffray visited facilities of CTS and
conducted discussions with members of senior management of both Guidant and
CTS concerning the financial condition, current operating results and business
outlook of Guidant, CTS and the combined company following the merger.
In delivering its opinion to the board of directors of CTS, U.S. Bancorp
Piper Jaffray prepared and delivered to the board of directors written
materials containing various analyses and other information material to the
opinion. The following is a summary of the analyses contained in the
materials.
26
<PAGE>
Implied Value of Consideration. Giving effect to the range of exchange
ratios within the $66.00 per share upper limit and the $54.00 per share lower
limit of the collar, resulting in an implied value of the Guidant common stock
consideration of $19.50 per CTS share, and the number of outstanding CTS
common shares and common share equivalents, U.S. Bancorp Piper Jaffray
calculated the aggregate implied equity value of the stock consideration
payable in the merger for CTS common stock to be approximately $313.3 million.
U.S. Bancorp Piper Jaffray also calculated the implied "company value" (equity
value plus debt less cash) of CTS to be approximately $288.6 million. U.S.
Bancorp Piper Jaffray also calculated that at Guidant common stock prices
between $54.00 and $66.00, stockholders of CTS would be issued between 1.39%
and 1.72% of Guidant common stock in the merger.
CTS Market Analysis. U.S. Bancorp Piper Jaffray reviewed the stock trading
history and published analyst earnings estimates of CTS common stock. U.S.
Bancorp Piper Jaffray presented the recent common stock trading information
contained in the following table:
<TABLE>
<S> <C>
Closing price on August 27, 1999..................................... $18.94
30 day closing average............................................... 17.25
60 day closing average............................................... 15.37
90 day closing average............................................... 13.96
52 week high trade................................................... 20.63
52 week low trade.................................................... 2.81
</TABLE>
U.S. Bancorp Piper Jaffray also presented a graph illustrating the relative
stock price performance of CTS against the comparable group described below
and a small cap medical technology index prepared by U.S. Bancorp Piper
Jaffray.
CTS Comparable Company Analysis. U.S. Bancorp Piper Jaffray compared
financial information and valuation ratios relating to CTS to corresponding
data and ratios from eight publicly traded companies that U.S. Bancorp Piper
Jaffray considered comparable to CTS. This group included Arthrocare,
Biomatrix, Cyberonics, Cytyc, Gliatech, Osteotech, Resmed and Ventana Medical
Systems. This group was selected from companies that are in the medical
technology industry, have innovative technologies and products generating
gross margins of at least 60%, have trailing twelve months revenue greater
than $20 million and less than $100 million and have trailing twelve months
revenue growth greater than 15%.
This analysis produced multiples of selected valuation data as follows:
<TABLE>
<CAPTION>
Comparable Companies
------------------------
CTS Low Mean Median High
------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Company value to latest twelve months
revenue...................................... 12.4x 3.8x 6.8x 6.7x 10.1x
Company value to estimated fiscal year 1999
revenue...................................... 9.0x 3.0x 5.7x 5.3x 9.8x
Company value to estimated fiscal year 2000
revenue...................................... 6.2x 2.1x 3.8x 4.1x 5.0x
Company value to EBIT......................... NM 14.7x 15.8x 14.9x 17.8x
Common stock value per share to latest twelve
months net income per share.................. NM 23.1x 26.2x 25.3x 30.2x
Common stock value per share to estimated
calendar 1999 net income per share........... NM 22.4x 38.1x 26.9x 88.5x
Common stock value per share to estimated
calendar 2000 net income per share........... 130.0x 15.1x 23.6x 21.7x 33.8x
</TABLE>
Comparable Transaction Analysis. U.S. Bancorp Piper Jaffray reviewed merger
and acquisition transactions that it deemed comparable to the merger. It
selected these transactions by searching SEC filings,
27
<PAGE>
public company disclosures, press releases, press reports, databases and other
sources and by applying the following criteria:
. transactions that were announced or completed between January 1, 1995
and August 27, 1999;
. transactions in which the acquiring company purchased 50% or more of the
target company; and
. transactions in which the target company operates in the medical
technology industry.
U.S. Bancorp Piper Jaffray further examined the 98 medical technology
industry transactions by separately reviewing 26 transactions related to the
cardiovascular market and ten transactions involving certain medical
technology companies with high growth, high margin products with leading
positions, intellectual property or other assets establishing franchise value.
U.S. Bancorp Piper Jaffray compared the resulting multiples of selected
valuation data to multiples for CTS derived from the implied value payable in
the merger.
MEDICAL TECHNOLOGY COMPANIES
<TABLE>
<CAPTION>
Comparable Transactions
-------------------------
CTS Low Mean Median High
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Company value to latest twelve months
revenue...................................... 12.4x 0.8x 3.8x 2.5x 15.0x
Company value to latest twelve months EBIT.... NM 8.6x 22.1x 18.8x 74.9x
Equity value to latest twelve months net
income....................................... NM 13.7x 37.8x 30.3x 131.1x
</TABLE>
CARDIOVASCULAR COMPANIES
<TABLE>
<CAPTION>
Comparable Transactions
-------------------------
CTS Low Mean Median High
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Company value to latest twelve months
revenue...................................... 12.4x 1.5x 5.2x 3.6x 15.0x
Company value to latest twelve months EBIT.... NM 16.2x 32.2x 32.2x 74.9x
Equity value to latest twelve months net
income....................................... NM 22.8x 56.4x 49.5x 131.1x
</TABLE>
FRANCHISE MEDICAL COMPANIES
<TABLE>
<CAPTION>
Comparable Transactions
-------------------------
CTS Low Mean Median High
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Company value to latest twelve months
revenue...................................... 12.4x 6.4x 9.8x 8.8x 15.0x
Company value to latest twelve months EBIT.... NM 16.6x 41.1x 45.9x 64.0x
Equity value to latest twelve months net
income....................................... NM 22.8x 65.9x 69.4x 126.1x
</TABLE>
Premiums Paid Analysis. U.S. Bancorp Piper Jaffray reviewed publicly
available information for two groups of selected completed acquisition
transactions: medical technology companies generally and franchise medical
technology companies more specifically.
The table below shows a comparison of the premiums paid in these
transactions to the premium that would be paid to CTS stockholders based on
the implied value payable in the merger. The premium calculations for CTS
stock are based upon an assumed announcement date of August 27, 1999.
MEDICAL TECHNOLOGY COMPANIES
<TABLE>
<CAPTION>
Implied Premium (Discount)
--------------------------------
Comparable Transactions
--------------------------
CTS Low Mean Median High
---- ------ ---- ------ -----
<S> <C> <C> <C> <C> <C>
One week before announcement.................. 1.3% (11.8%) 34.4% 28.0% 150.9%
Four weeks before announcement................ 9.9% (9.3%) 44.9% 39.2% 130.0%
Eight weeks before announcement............... 38.7% (0.3%) 54.4% 50.0% 190.6%
</TABLE>
28
<PAGE>
FRANCHISE MEDICAL COMPANIES
<TABLE>
<CAPTION>
Implied Premium (Discount)
-----------------------------
Comparable
Transactions
-----------------------
CTS Low Mean Median High
---- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
One week before announcement..................... 1.3% 4.3% 31.7% 25.8% 71.1%
Four weeks before announcement................... 9.9% 22.7% 42.5% 31.7% 75.6%
Eight weeks before announcement.................. 38.7% 23.8% 46.3% 41.1% 80.3%
</TABLE>
Pro Forma Contribution Analysis. U.S. Bancorp Piper Jaffray analyzed the
expected contributions of each of CTS and Guidant to revenue, operating income
and pre-tax income of the combined company for the years ending December 31,
1999, 2000 and 2001 based on internal financial planning data of CTS furnished
by CTS management and analyst estimates for Guidant. The analysis indicated
that during these periods CTS would contribute to the combined entity revenues
ranging from 1.42% to 4.24%, operating income ranging from 0% to 2.33% and
pre-tax income ranging from 0% to 2.81%. CTS stockholders will receive
approximately 1.54% of the shares of the combined company.
CTS Discounted Cash Flow Analysis. U.S. Bancorp Piper Jaffray performed a
discounted cash flow analysis for CTS in which it calculated the present value
of the projected future cash flows of CTS using internal financial planning
data prepared by CTS management. U.S. Bancorp Piper Jaffray estimated a range
of theoretical values for CTS based on the net present value of its implied
annual cash flows and a terminal value for CTS in 2003 calculated based upon a
multiple of operating income. U.S. Bancorp Piper Jaffray applied a range of
discount rates of 25% to 35% and a range of terminal value multiples of 12x to
14x of forecasted 2003 operating income. This analysis yielded the following
results:
<TABLE>
<CAPTION>
Per Share Equity Value of Company
---------------------------------
<S> <C>
Low.......................................................... $ 12.93
Mid.......................................................... 15.79
High......................................................... 19.44
<CAPTION>
Aggregate Equity Value of Company
---------------------------------
<S> <C>
Low.......................................................... $203,784,000
Mid.......................................................... 251,362,000
High......................................................... 312,327,000
</TABLE>
Analysis of Guidant Common Stock. U.S. Bancorp Piper Jaffray reviewed
general background information concerning Guidant, including publicly
available analyst estimates and ratings of Guidant common stock, recent
financial and operating results and outlook, the price performance of Guidant
common stock over the previous twelve months relative to the S&P 500 and to a
comparable company group, and the stock price and volume over selected
periods. U.S. Bancorp Piper Jaffray also reviewed the stock trading history of
Guidant common stock at the dates and for the periods indicated below.
<TABLE>
<S> <C>
Closing price on August 27, 1999..................................... $59.50
30 day closing average............................................... 59.34
60 day closing average............................................... 55.26
90 day closing average............................................... 54.78
52 week high trade................................................... 69.88
52 week low trade.................................................... 29.75
</TABLE>
In addition, U.S. Bancorp Piper Jaffray compared selected financial data and
ratios for Guidant to the corresponding data and ratios for a comparable
company group comprised of C.R. Bard, Baxter, Boston Scientific, Medtronic and
St. Jude Medical. The stock price used in the calculations was Guidant closing
price of $59.50 on August 27, 1999.
29
<PAGE>
This analysis produced multiples of selected valuation data as follows:
<TABLE>
<CAPTION>
Guidant Comparable Companies
------- --------------------------
Low Mean Median High
---- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Stock price as a % of 52 week high........ 85.2% 76.8% 83.9% 83.5% 91.4%
Company value to [latest twelve months]
revenue.................................. 8.9x 2.4x 5.0x 3.4x 10.3x
Company value to [latest twelve months]
EBIT..................................... 34.6x 16.7x 26.8x 22.9x 53.2x
Common stock value per share to latest
twelve months net income per share....... 48.4x 28.5x 51.1x 42.2x 90.9x
Common stock value per share to estimated
calendar 1999 net income per share....... 43.8x 20.8x 28.7x 23.9x 42.6x
Common stock value per share to estimated
calendar 2000 net income per share....... 36.5x 17.9x 23.8x 21.2x 35.2x
'98 - '99 P/E to Growth Ratio............. 306.3% 67.3% 135.3% 104.2% 223.7%
'99 - '00 P/E to Growth Ratio............. 183.9% 86.3% 128.7% 111.8% 168.7%
</TABLE>
In reaching its conclusion as to the fairness of the merger consideration
and in its presentation to the board of directors of CTS, U.S. Bancorp Piper
Jaffray did not rely on any single analysis or factor described above, assign
relative weights to the analyses or factors considered by it, or make any
conclusion as to how the results of any given analysis, taken alone, supported
its opinion. The preparation of a fairness opinion is a complex process and
not necessarily susceptible to partial analysis or summary description. U.S.
Bancorp Piper Jaffray believes that its analyses must be considered as a whole
and that selection of portions of its analyses and of the factors considered
by it, without considering all of the factors and analyses, would create a
misleading view of the processes underlying the opinion.
The analyses of U.S. Bancorp Piper Jaffray are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by the analyses. Analyses relating to the value of
companies do not purport to be appraisals or valuations or necessarily reflect
the price at which companies may actually be sold. No company or transaction
used in any analysis for purposes of comparison is identical to CTS, Guidant
or the merger. Accordingly, an analysis of the results of the comparisons is
not mathematical; rather, it involves complex considerations and judgments
about differences in the companies to which CTS and Guidant were compared and
other factors that could affect the public trading value of the companies.
For purposes of its opinion, U.S. Bancorp Piper Jaffray relied upon and
assumed the accuracy, completeness and fairness of the financial statements
and other information provided to it by CTS and Guidant or otherwise made
available to it and did not assume responsibility for the independent
verification of that information. Information prepared for financial planning
purposes was not prepared with the expectation of public disclosure. U.S.
Bancorp Piper Jaffray relied upon the assurances of the management of CTS and
Guidant that the information provided to it by CTS and Guidant was prepared on
a reasonable basis, the financial planning data and other business outlook
information reflects the best currently available estimates of management, and
management was not aware of any information or facts that would make the
information provided to U.S. Bancorp Piper Jaffray incomplete or misleading.
For purposes of its opinion, U.S. Bancorp Piper Jaffray assumed that the
merger will constitute a reorganization for federal income tax purposes and
will be treated as a pooling of interests for accounting purposes. U.S.
Bancorp Piper Jaffray also assumed that, in the course of obtaining the
necessary regulatory approvals and consents for the merger, no restrictions
will be imposed that would have a material adverse effect on the contemplated
benefits of the merger to CTS and its stockholders.
In arriving at its opinion, U.S. Bancorp Piper Jaffray did not perform any
appraisals or valuations of any specific assets or liabilities of CTS or
Guidant, and was not furnished with any such appraisals or valuations. U.S.
Bancorp Piper Jaffray analyzed CTS as a going concern and accordingly
expressed no opinion as to the liquidation value of any entity. U.S. Bancorp
Piper Jaffray expressed no opinion as to the price at which shares
30
<PAGE>
of CTS or Guidant common stock have traded or at which the shares of CTS or
Guidant may trade at any future time. The opinion is based on information
available to U.S. Bancorp Piper Jaffray and the facts and circumstances as
they existed and were subject to evaluation on the date of the opinion. Events
occurring after that date could materially affect the assumptions used in
preparing the opinion. U.S. Bancorp Piper Jaffray has not undertaken to and is
not obligated to affirm or revise its opinion or otherwise comment on any
events occurring after the date it was given.
U.S. Bancorp Piper Jaffray as a customary part of its investment banking
business, evaluates businesses and their securities in connection with mergers
and acquisitions, underwritings and secondary distributions of securities,
private placements and valuations for estate, corporate and other purposes.
The board of directors of CTS selected U.S. Bancorp Piper Jaffray because of
its expertise, reputation and familiarity with the medical technology industry
in general and with CTS in particular. U.S. Bancorp Piper Jaffray maintains a
market in the common stock of CTS. In the ordinary course of its business,
U.S. Bancorp Piper Jaffray and its affiliates may actively trade securities of
CTS or Guidant for their own accounts or the accounts of their customers and,
accordingly, may at any time hold a long or short position in those
securities. U.S. Bancorp Piper Jaffray has provided investment banking
services to CTS in the past for which it received customary fees.
Under the terms of the engagement letter dated May 10, 1999, CTS has agreed
to pay U.S. Bancorp Piper Jaffray a fee equal to 1.5% of the aggregate
consideration paid to CTS stockholders in connection with the merger for its
financial advisory services, subject to a minimum fee of $500,000. CTS has
agreed to pay U.S. Bancorp Piper Jaffray $250,000 for rendering its opinion,
which will be credited against payment of the fee for financial advisory
services. The contingent nature of the financial advisory fee may have created
a potential conflict of interest in that CTS would be unlikely to consummate
the merger unless it had received the opinion of U.S. Bancorp Piper Jaffray.
Whether or not the transaction is consummated, CTS has agreed to pay the
reasonable out-of-pocket expenses of U.S. Bancorp Piper Jaffray and to
indemnify U.S. Bancorp Piper Jaffray against certain liabilities. These
liabilities include liabilities under the federal securities laws in
connection with the engagement of U.S. Bancorp Piper Jaffray by CTS's board of
directors.
Interests of Certain Persons in the Merger
In considering the recommendation of CTS's board of directors with respect
to the merger proposal, CTS stockholders should be aware that the directors
and executive officers of CTS may be deemed to have interests in the merger
that are in addition to their interests as CTS stockholders generally. CTS's
board of directors was aware of these interests and considered them, among
other matters, in approving the merger.
Employment Agreements. Jeffrey G. Gold, CTS's Executive Vice President and
Chief Operating Officer, has an employment agreement with CTS that provides,
in connection with the merger, for forgiveness of all outstanding indebtedness
to CTS and for full vesting of all options granted upon the commencement of
his employment with CTS. Mr. Gold was granted options to purchase 120,000
shares of CTS common stock upon the commencement of his employment; as of
October 11, 1999, 45,001 of these options were unvested. As of October 11,
1999, Mr. Gold had no outstanding indebtedness to CTS.
Richard A. Lotti, CTS's Vice President, Business Development, has an
employment agreement with CTS that provides for full vesting of all of Mr.
Lotti's outstanding options in connection with the merger. As of October 11,
1999, Mr. Lotti held options to purchase 135,000 shares of CTS common stock,
84,584 of which were unvested. In addition, if Mr. Lotti's position is
involuntarily terminated after the closing of the merger, the outstanding
principal balance and interest on a loan made by CTS to Mr. Lotti in
connection with the commencement of his employment with CTS will be forgiven.
As of October 11, 1999, the outstanding principal balance of the loan was
$60,000. The loan bears interest at a rate of 5.77% per year. In addition, if
Mr. Lotti's employment is involuntarily terminated other than for cause, he
will be entitled to receive six months of base salary.
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Charles S. Taylor, CTS's Vice President and Chief Technical Officer, has an
employment agreement with CTS that provides for base salary continuation for
three months following the termination of Mr. Taylor's employment without
cause or pursuant to a mutual agreement for separation from CTS.
Steven M. Van Dick, CTS's Vice President of Finance and Administration and
Chief Financial Officer, has an employment agreement with CTS that provides
for full vesting of all of Mr. Van Dick's outstanding options in connection
with the merger. As of October 11, 1999, Mr. Van Dick held options to purchase
245,000 shares of CTS common stock, 78,125 of which were unvested. In
addition, if Mr. Van Dick's employment is terminated (other than for cause)
within 12 months of the closing of the merger, he will be entitled to receive
12 months severance pay, vacation pay equal to the amount of compensation for
accrued but unused vacation time, and life, medical, dental, accident and
disability insurance and other similar benefits provided to key CTS executives
for 12 months following the termination.
Guidant has not entered into an employment agreement with any of the
executive officers of CTS. However, Guidant has discussed the terms of
employment it proposes to offer to each of the executive officers of CTS. In
each case Guidant has offered to continue the CTS executive officer at the
same salary that he is earning currently at CTS. Each of the CTS executive
officers would be eligible for an annual cash bonus pursuant to the existing
terms of CTS's officer bonus plan. Certain of the CTS executive officers have
been informed that they would be offered an option to purchase shares of
Guidant common stock after the merger is consummated, subject to vesting and
other conditions.
Stock Option Plans. As of October 11, 1999, directors and executive officers
of CTS owned (1) 2,221,623 shares of CTS common stock for which they will
receive the same consideration as other CTS stockholders and (2) unexercised
options to purchase 484,456 shares of CTS common stock. For a description of
how stock options will be treated in the merger, see "Principal Provisions of
the Merger Agreement--Consideration to be Received in the Merger".
Employee Stock Purchase Plan. Of the executive officers of CTS, Michael J.
Billig, Jeffrey G. Gold, Richard A. Lotti and Steven M. Van Dick contribute
through payroll deduction to the CTS Employee Stock Purchase Plan and will
purchase shares of CTS common stock pursuant to the Employee Stock Purchase
Plan immediately prior to the Effective Time. Purchasers of shares of CTS
common stock pursuant to the Employee Stock Purchase Plan will receive the
same consideration as other CTS stockholders. For a description of how common
stock purchased pursuant to the Employee Stock Purchase Plan will be treated
in the merger, see "Principal Provisions of the Merger Agreement--Covenants--
Employee Stock Purchase Plan".
Indemnification and Insurance. Under the merger agreement, Guidant has
agreed that the indemnification obligations set forth in CTS's charter and by-
laws shall survive the merger and shall not be adversely amended for six years
after the effective time. Guidant will indemnify present or former directors
or officers of CTS or its subsidiaries for all acts or omissions occurring
prior to the effective time of the merger to the fullest extent permitted
under applicable law. Prior to the effective time of the merger, CTS will
purchase a six-year "runoff" addition to its existing directors' and officers'
liability insurance policy, for a premium not to exceed $700,000, unless: (1)
Guidant's directors' and officers' liability insurance policy provides
coverage no less favorable to the CTS directors and officers than the coverage
that would be provided by the runoff policy and (2) Guidant causes its
directors' and officers' liability insurance policy, to cover all persons who
would be covered by the runoff policy. If CTS does not purchase the runoff
policy, then for six years following the effective time of the merger Guidant
has agreed not to reduce the coverage provided by its directors' and officers'
liability insurance policy to any person who would have been covered by the
runoff policy.
CTS has entered into indemnification agreements with its officers and
directors. These agreements require CTS, among other things, to indemnify its
directors and officers against certain civil and criminal liabilities that
arise by reason of their status or service as directors or officers (other
than liabilities arising from actions not taken in good faith). The agreements
also require CTS to advance the directors and officers legal expenses incurred
as a result of any proceeding against them as to which they could be
indemnified. Guidant has agreed to continue such indemnification rights
following consummation of the merger.
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Accounting Treatment
The merger is expected to be accounted for as a pooling of interests in
accordance with Accounting Principles Board Opinion No. 16, the interpretive
releases issued thereto, and the pronouncements of the Securities and Exchange
Commission. Under the pooling of interests method of accounting, the recorded
assets and liabilities of Guidant and CTS will be carried forward to the
combined company at their historical recorded amounts, income of the combined
company will include income of CTS and Guidant for the entire fiscal year in
which the combination occurs, and the reported income of the separate
companies for previous periods will be combined and restated as income of the
combined company. It is a condition to the consummation of the merger that
Guidant receive a letter from its independent auditors, in form and substance
reasonably satisfactory to it, stating that they concur with Guidant
management's conclusion that the merger will qualify as a transaction to be
accounted for as a pooling of interests.
Material Federal Income Tax Consequences
Dewey Ballantine LLP and Wilson Sonsini Goodrich & Rosati, Professional
Corporation have provided opinions to Guidant and CTS, respectively, regarding
the material federal income tax consequences of the merger. These opinions
have been filed with the SEC as exhibits to the registration statement related
to this proxy statement/prospectus. The opinions rely on assumptions,
including assumptions regarding the absence of changes in existing facts and
the completion of the merger in accordance with the proxy statement/prospectus
and the merger agreement. The opinions also rely on representations and
covenants, including those contained in the officer's certificates of Guidant
and CTS. If any of these assumptions, representations or covenants are
inaccurate, the conclusions contained in the opinions could be affected.
The material federal income tax consequences of the merger as set forth in
the opinions described above are as follows:
. The merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code.
. CTS stockholders will not recognize any gain or loss upon the exchange
of their CTS common stock solely for shares of Guidant common stock
pursuant to the merger, except with respect to any cash they receive
instead of a fractional share of Guidant common stock.
. The aggregate tax basis of the shares of Guidant common stock received
solely in exchange for shares of CTS common stock pursuant to the
merger, including a fractional share of Guidant common stock for which
cash is received, will be the same as the aggregate tax basis of the
shares of CTS common stock exchanged for them.
. The holding period for shares of Guidant common stock received in
exchange for shares of CTS common stock pursuant to the merger will
include the holding period of the shares of CTS common stock exchanged
for them.
. CTS stockholders who receive cash instead of a fractional share of
Guidant common stock should be treated as having received the fractional
share in the merger and then as having the fractional share redeemed by
Guidant in a distribution under Section 302 of the Internal Revenue
Code. Accordingly, these stockholders should generally recognize gain or
loss equal to the difference, if any, between the tax basis of the
fractional share and the amount of cash received. The gain or loss
generally will be capital gain or loss and, in the case of individuals,
long-term capital gain or loss eligible for reduced rates of taxation if
the CTS stock exchanged has been held for more than one year.
. None of CTS, Clydesdale Acquisition Corp., a subsidiary of Guidant and
the entity that will be merged with and into CTS, or Guidant will
recognize any gain or loss as a result of the merger.
The tax opinions summarized above assume that you hold your shares of CTS
common stock as capital assets. Further, the tax opinions do not address all
of the federal income tax consequences that may be relevant to you in light of
your particular circumstances; nor do the tax opinions address the federal
income tax
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consequences that may be applicable to taxpayers subject to special treatment
under the Internal Revenue Code, such as:
. insurance companies;
. financial institutions;
. dealers in securities;
. traders that mark to market;
. tax-exempt organizations;
. stockholders who hold their shares as part of a hedge, appreciated
financial position, straddle or conversion transaction;
. stockholders who acquired their shares through the exercise of options
or otherwise as compensation or through a tax-qualified retirement plan;
and
. foreign corporations, foreign partnerships or other foreign entities and
individuals who are not citizens or residents of the United States.
No information is provided in this document or the tax opinions summarized
above with respect to the tax consequences, if any, of the merger under
applicable foreign, state, local and other tax laws. The tax opinions
summarized above are based upon the provisions of the Internal Revenue Code,
applicable Treasury regulations, and IRS rulings and judicial decisions, as in
effect as of the date of this document. There can be no assurance that future
legislative, administrative or judicial changes or interpretations, which
changes could apply retroactively, will not affect the accuracy of the
statements or conclusions set forth in the tax opinions summarized above. No
rulings have been or will be sought from the IRS concerning the tax
consequences of the merger, and the opinions of counsel as to the material
federal income tax consequences summarized above will not be binding on the
IRS or any court.
The preceding summary of the tax opinions does not purport to be a complete
analysis or discussion of all potential tax effects relevant to the merger.
Thus, CTS stockholders are urged to consult their own tax advisors as to the
specific tax consequences to them of the merger, including tax return
reporting requirements, the applicability and effect of federal, state, local,
foreign and other tax laws and the effect of any proposed changes in the tax
laws.
Regulatory Matters
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the rules and
regulations promulgated under the Hart-Scott-Rodino Act, prohibit Guidant and
CTS from consummating the merger until they notify and furnish information to
the Federal Trade Commission and the Antitrust Division of the United States
Department of Justice and specified waiting period requirements are satisfied.
Guidant and CTS each filed a Notification and Report Form under the Hart-
Scott-Rodino Act with the Federal Trade Commission and the Antritrust Division
on October 1, 1999, and the specified waiting period is expected to expire on
October 31, 1999.
At any time before or after the completion of the merger, the Antitrust
Division or the FTC could take any action under the antitrust laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
consummation of the merger or seeking the divestiture of substantial assets of
Guidant or CTS. Private parties and the state attorneys general may also bring
actions under the U.S. antitrust laws. Although Guidant and CTS believe that
the merger is legal under the U.S. antitrust laws, there can be no assurance
that a challenge to the merger on antitrust grounds will not be made or, if
such a challenge is made, that it would not be successful.
Both Guidant and CTS have subsidiaries in Germany and are therefore subject
to the German Act Against Restraints of Competition (Gesetz gegen
Wettbewerbsbeschrankungen--GWB). The Act prohibits Guidant and CTS from
completing the merger until the German Federal Cartel Office has been notified
of the transaction and has cleared the transaction. Upon receipt of the
notification, the Cartel Office conducts a preliminary review with
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a maximum duration of one month. Upon conclusion of the preliminary review,
the Cartel Office may either approve the transaction or initiate an in-depth
review with a maximum duration of four months if further examination is
necessary to determine whether the transaction is compatible with the Act. On
October 8, 1999, Guidant and CTS jointly filed a pre-merger notification with
the Cartel Office, pursuant to Section 39(1) of the Act, and the specified
waiting period is expected to expire on November 8, 1999. It is possible,
however, that the Cartel Office might open an in-depth review to further
examine the merger under the Act.
No Appraisal Rights
CTS stockholders are not entitled to appraisal or dissenters' rights under
Delaware law in connection with the merger because CTS's common stock was
quoted on the Nasdaq National Market on the record date for CTS's special
meeting of stockholders, and the Guidant common shares that the CTS
stockholders will be entitled to receive in the merger will be listed on the
New York Stock Exchange at the effective time of the merger.
Stock Transfer Restriction Agreements
This document does not cover any resales of the Guidant common shares to be
received by CTS's stockholders upon consummation of the merger, and no person
is authorized to make any use of this document in connection with any such
resale.
All Guidant common shares received by CTS stockholders in the merger will be
freely transferable, with the exception of the Guidant common shares received
by persons who are deemed to be "affiliates" of CTS under the Securities Act
of 1933 and the rules and regulations promulgated under that act, at the time
of the CTS special meeting. These "affiliates" may only re-sell their Guidant
common shares in transactions permitted by Rule 145 under the Securities Act
of 1933 (or Rule 144 under the Securities Act of 1933 in the case of persons
who become affiliates of Guidant) or as otherwise permitted under that act.
Persons who may be deemed to be affiliates of CTS or Guidant for these
purposes generally include individuals or entities that control, are
controlled by, or are under common control with, CTS or Guidant and may
include officers, directors and principal stockholders of CTS or Guidant. The
merger agreement requires CTS to use its reasonable best efforts to deliver or
cause to be delivered to Guidant on or prior to the effective time of the
merger from each of these affiliates an executed letter agreement to the
effect that these persons will not offer or sell or otherwise dispose of any
Guidant common shares issued to these persons in the merger in violation of
the Securities Act of 1933. In addition, in order for the merger to qualify
for pooling of interests accounting treatment, affiliates of CTS may not sell
(subject to certain de minimis exceptions), or in any other way reduce the
relative risk, within the period beginning 30 days prior to the effective time
of the merger and ending at such time as Guidant has published results
covering at least 30 days of combined operations of Guidant and CTS, with
respect to (1) the shares of CTS common stock held prior to the effective time
and (2) the shares of Guidant common stock acquired pursuant to the merger.
BUSINESS OF GUIDANT AND CTS
Guidant. Guidant is a multinational company that designs, develops,
manufactures and markets a broad range of innovative, high quality,
therapeutic medical devices for use in cardiac rhythm management, vascular
intervention, and cardiac and vascular surgery. Guidant's net sales for the
year ended December 31, 1998 and for the six months ended June 30, 1999 were
$1,897.0 million and $1,193.6 million, respectively.
Guidant's cardiac rhythm management line is organized into two major product
categories: tachycardia and bradycardia. The tachycardia product category
includes automatic implantable cardioverter defibrillator systems, endocardial
defibrillation leads, programmers and accessories used primarily in the
treatment of abnormally fast arrhythmias. The bradycardia product category
includes pacemaker pulse generators, endocardial pacing leads, programmers and
accessories used primarily in the treatment of slow or irregular arrhythmias.
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Guidant offers its customers a wide range of vascular intervention products,
including stent systems, coronary dilatation catheters, guide wires, guiding
catheters, atherectomy catheters and related accessories.
With respect to cardiac and vascular surgery, Guidant is involved in the
development and marketing of innovative surgical devices and systems which
alter the surgeon's approach to surgical procedures and may provide improved
clinical benefit, reduced procedure time and better patient outcomes.
Recent Developments with Respect to Guidant. On November 6, 1997, Medtronic,
Inc., filed suit against Guidant's subsidiary Advanced Cardiovascular Systems,
Inc. in the District Court of Minnesota, alleging that the ACS RX MULTI-LINK
Coronary Stent infringes a patent owned by Medtronic. On September 16, 1999,
the court issued a Markman ruling construing some of the claim terms. A trial
by jury is set to commence on October 18, 1999. A jury verdict is expected in
late November or early December, 1999, with a final judgment to follow. In the
suit, Medtronic seeks an injunction against further manufacture and sale of
the product in the U.S. and monetary damages. The damage claim presently
asserted by Medtronic is for $293,715,828, and it is further alleged that
damages should be trebled and attorneys fees awarded to Medtronic on the basis
of its claim of willful infringement. Medtronic has recently filed a new
complaint in a separate suit to add allegations of infringement of the same
patent by the ACS MULTI-LINK DUET and SOLO Coronary Stents and MEGALINK
Peripheral Stent. Additionally, Medtronic is seeking to amend the new
complaint to include the ACS OTW MULTI-LINK Coronary Stent. In this new
complaint, Medtronic also seeks injunctive relief and monetary damages.
CTS. CTS designs, develops, manufactures and markets proprietary, disposable
instruments and systems for performing minimally invasive cardiac surgery.
CTS's current products are designed to enable the majority of cardiothoracic
surgeons, using their existing skills coupled with CTS sponsored training, to
perform minimally invasive cardiac surgery on a beating heart.
The majority of CTS's products are disposable surgical instruments designed
to facilitate minimally invasive cardiac surgery procedures. CTS's current and
future products can be placed into four groups: beating heart products,
stopped heart products, conduit harvesting products and ancillary products.
CTS's net sales for the year ended January 1, 1999 and the six months ended
July 2, 1999 were $16.1 million and $13.7 million, respectively.
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PRINCIPAL PROVISIONS OF THE MERGER AGREEMENT
General
The merger agreement contemplates the merger of Clydesdale with and into
CTS, with CTS surviving the merger as a wholly-owned subsidiary of Guidant.
The merger will become effective at the effective time in accordance with the
certificate of merger to be filed with the Secretary of State of the State of
Delaware. It is anticipated that this filing will be made as soon as
practicable after the last of the conditions precedent to the merger, as set
forth in the merger agreement, has been satisfied or waived. The following is
a description of the material terms of the merger agreement but it does not
purport to be complete. Stockholders are encouraged to read the merger
agreement in its entirety. A copy of the merger agreement is attached as Annex
A to this proxy statement/prospectus.
Consideration to be Received in the Merger
CTS Common Stock. At the effective time of the merger,
1. each issued and outstanding share of CTS common stock, together with
the purchase rights attached to the common stock, other than shares to be
canceled pursuant to clause 2 immediately below, will be converted into the
right to receive Guidant common shares having a value of $19.50 per share,
subject to the adjustment provisions described below, and
2. each share of CTS common stock, together with the purchase rights
attached to the common stock, held by CTS as treasury shares or owned by
Guidant or Clydesdale will be canceled and retired.
The exchange ratio is subject to adjustment provisions, which may result in
each share of CTS having a value of more or less than $19.50. If the
applicable average price of Guidant common stock is at or above $66.00, each
share of CTS common stock referred to in clause 1 above will be converted into
the right to receive 0.2955 of a share of Guidant common stock. If the
applicable average price of Guidant common stock is at or below $54.00, each
share of CTS common stock referred to in clause 1 above will be converted into
the right to receive 0.3611 of a share of Guidant common stock. The applicable
average price of Guidant shares is the average per share closing price of
Guidant shares during the 20 trading days preceding the date of the last
trading day prior to the special meeting. Cash will be paid instead of any
fractional Guidant common shares that would otherwise be issuable.
CTS Stock Options. The merger agreement provides that at the effective time
of the merger, each CTS option outstanding immediately prior to the effective
time of the merger, regardless of the extent vested and exercisable, will be
deemed to constitute an option to acquire, on the same terms and conditions as
were applicable under the CTS stock option, the same number of Guidant common
shares as the holder of the CTS option would have been entitled to receive
pursuant to the merger agreement had the holder exercised the CTS option in
full immediately prior to the effective time of the merger, rounded down to
the nearest whole share. The option exercise price per share, rounded up to
the nearest whole cent, will equal:
. the option exercise price per share of CTS common stock otherwise
purchasable pursuant to the CTS option
divided by
. the number of Guidant common shares received per CTS common share in the
merger.
Guidant has agreed, at or prior to the effective time of the merger, to
reserve for issuance the number of Guidant common shares that will become
subject to these substitute options. Within five days of the effective time of
the merger, Guidant will file a registration statement, with respect to the
Guidant common shares subject to these substitute options (except to the
extent the shares have already been registered), and will use its reasonable
best efforts to maintain the effectiveness of the registration statement in
effect until the exercise or expiration of these substitute options.
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Exchange of Shares
Subject to the terms and conditions of the merger agreement, Guidant will
deposit with First Chicago Trust Company of New York, acting as the exchange
agent, certificates representing the Guidant common shares to be issued in
exchange for the outstanding shares of CTS common stock and cash in an amount
equal to Guidant's good faith estimate of the cash required to be paid for
fractional Guidant common shares and dividends and other distributions on the
Guidant common shares. Guidant may, in lieu of issuing certificates for
Guidant common stock, make book entry notations pursuant to established book
entry procedures of the Securities Exchange Act of 1934. Promptly after the
effective time of the merger, Guidant will cause First Chicago Trust Company
to send to each holder of record of shares of CTS common stock a letter of
transmittal and instructions. Thereafter, holders of shares of CTS common
stock may surrender their certificates to First Chicago Trust Company,
together with a duly executed letter of transmittal. In exchange for their
share certificates, holders will receive Guidant common share certificates
representing the number of whole shares, and cash in lieu of fractional
shares, as described under "--Consideration to be Received in the Merger".
Holders of unexchanged shares of CTS common stock will not be entitled to
receive any dividends or other distributions payable by Guidant until their
certificates are surrendered. Upon surrender, however, subject to applicable
laws, the holders will receive accumulated dividends and distributions,
without interest, together with cash in lieu of fractional shares.
CTS stockholders should not send their stock certificates until they receive
a letter of transmittal.
Representations and Warranties
The merger agreement contains customary reciprocal representations and
warranties of Guidant and CTS as to, among other things,
. due organization and good standing;
. corporate authority to carry on its business;
. compliance with laws;
. corporate authority to enter into the contemplated transactions;
. validity of agreements;
. capitalization;
. absence of conflicts with organizational documents, material agreements
and laws;
. recent reports filed with the SEC;
. investigations and litigation;
. absence of any changes or events;
. ownership of stock of the other party;
. tax and accounting treatment of the transactions; and
. brokers.
In addition, CTS has made representations and warranties regarding, among
other matters,
. ownership of subsidiaries and other entities;
. intellectual property;
. governmental approval of products being manufactured, sold or
distributed;
. taxes and tax returns;
. existence and enforceability of material contracts;
. employee benefit plans;
. labor matters;
. environmental matters;
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. inapplicability of state takeover statutes and rights agreement to the
transaction; and
. receipt of an opinion from a financial advisor.
Many of these representations and warranties are qualified by the concept of
"material adverse effect", that is to say, these representations and
warranties are not intended to apply to facts or circumstances which would not
have a material adverse effect on the business, prospects, results of
operations or financial condition of the representing party and its
subsidiaries. For purposes of the merger agreement, material adverse effect
does not include effects caused by:
. changes in general economic or securities markets conditions;
. changes that affect any industry in which Guidant and CTS compete;
. changes resulting from the public announcement or pendency of the merger
or the transactions contemplated by the merger agreement;
. changes resulting from the breach of specified covenants relating to the
conduct of the party's business pending the effective time of the
merger; or
. with respect to CTS, changes caused by certain specified actual or
potential litigation.
None of the representations and warranties contained in the merger agreement
will survive the effective time of the merger.
Covenants
Conduct of Business Pending the Merger. Pursuant to the merger agreement,
CTS has agreed that from August 30, 1999 until the effective time of the
merger, except as set forth in the merger agreement, or with the prior written
consent of Guidant, CTS and CTS's subsidiary will conduct their business in
all material respects in the ordinary course consistent with past practice and
will use commercially reasonable efforts to preserve intact their business
organizations and goodwill, keep available the services of their respective
officers and employees and maintain satisfactory relationships with those
persons with which each has business relationships.
Specifically, from the date of the merger agreement until the effective time
of the merger, CTS may not, nor may it permit its subsidiary to:
. acquire or agree to acquire any business or any other entity;
. acquire or agree to acquire any assets, other than in the ordinary
course of business and except for in-licenses of technology, the cost of
which does not exceed $1,000,000 individually or $2,000,000 in the
aggregate;
. release or relinquish or agree to release or relinquish any material
contracts;
. make any changes with respect to its capital stock or grant any options,
warrants or other rights to purchase securities of CTS or its
subsidiary, other than those permitted under the merger agreement;
. take any action which prevents the merger form qualifying as a tax-free
reorganization for federal income tax purposes or would prevent the
merger from being accounted for as a pooling of interests;
. make any material changes to any of its current employee benefit
arrangements or grant any salary increases, other than those permitted
under the merger agreement;
. make any changes to the compensation arrangements for the sales force of
CTS or its subsidiary;
. grant any promotion to any management level employee of CTS or its
subsidiary;
. incur any new indebtedness;
. change or make any tax elections or settle any tax liability;
. declare or pay any dividend, or redeem, purchase or otherwise acquire
any capital stock of CTS or its subsidiary;
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. make any capital expenditures in excess of $1,000,000 in the aggregate;
. solicit or hire any employee of Guidant;
. contact Guidant's sales representatives, customers, vendors or strategic
partners concerning Guidant or the merger; or
. make any public disclosure regarding Guidant's plan for integrating the
operations of CTS with Guidant.
In addition, CTS has agreed to give prompt notice to Guidant of (1) any of
its representations or warranties made by it in the merger becoming untrue or
inaccurate; (2) any adjustment to any tax relating to CTS or its subsidiary;
and (3) any notice from any employee of CTS or its subsidiary of such
employee's intention to terminate employment with CTS or its subsidiary.
Guidant has agreed that from the date of the merger agreement until the
effective time of the merger, except as set forth in the merger agreement,
without the prior consent of CTS, Guidant will not, nor may it permit any
subsidiary to:
. take any action which would prevent the merger from qualifying as a tax-
free reorganization for federal income tax purposes or would prevent the
merger from being accounted for as a pooling of interests;
. solicit or hire any employee of CTS;
. contact CTS's sales representatives, customers, vendors or strategic
partners concerning CTS or the merger; or
. make any public disclosure regarding its plans for integrating the
operations of CTS with Guidant.
Guidant has also agreed to give, and cause Clydesdale to give, prompt notice
to CTS of any of its representations or warranties made by Guidant or
Clydesdale in the merger agreement becoming untrue or inaccurate.
No Solicitation of Transactions. CTS, its affiliates and their respective
officers, directors, employees, representatives and agents have agreed to
cease any existing discussions or negotiations with any person other than
Guidant with respect to any transaction. A transaction involves any merger,
consolidation, share exchange, business combination, sale, lease, license,
exchange, mortgage, pledge, transfer or other disposition of substantial
assets of CTS, other than in the ordinary course of business. A transaction
also involves a sale, pledge, issuance or other transfer or disposition of
shares of capital stock of CTS or any other similar transaction involving CTS
or its subsidiary.
However, if the CTS board receives an unsolicited written proposal from any
person with respect to any such transaction described above, CTS may furnish
information and access to that person, and may participate in negotiations and
discussions with that person, but only if:
. the board of CTS determines in its good faith judgment, based as to
legal matters on the advice of outside legal counsel and as to financial
matters upon the advice of an investment banking firm of national
reputation, that the proposal is a superior proposal, as described
below; and
. that failing to furnish the requested information or access to that
person, or engage in the negotiations or discussions with that person,
may constitute a breach of the board's fiduciary duty.
A superior proposal is any proposal for a transaction of the type described
above which:
. in the good faith judgment of the CTS board, after consultation with
outside financial advisors, is superior to the transaction with Guidant
from a financial point of view to the stockholders of CTS;
. faces no material legal or other impediments which are more adverse, in
the aggregate, to CTS than the impediments faced by CTS in relation to
the transaction with Guidant; and
. is reasonably capable of being financed.
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The CTS board has agreed not to recommend to the CTS stockholders that the
stockholders tender their shares of CTS common stock in any tender offer or
exchange offer unless: (1) in the good faith judgment of the CTS board, after
consultation with outside financial advisors, the tender offer is a superior
proposal and (2) that failing to make the recommendation may constitute a
breach of the board's fiduciary duty under applicable laws. Notwithstanding
the foregoing, nothing contained in the merger agreement will prevent CTS's
board of directors from complying with Rules 14d-9 and 14e-2 under the
Securities Exchange Act of 1934 with regard to any tender offers.
Pursuant to the terms of the merger agreement, CTS may terminate the merger
agreement if:
. in the exercise of its good faith judgment as to fiduciary duties to its
stockholders imposed by law based as to legal matters on the advice of
outside legal counsel and as to financial matters upon the advice of an
investment banking firm of national reputation, the board determines
that termination is required by reason of a superior proposal being
made; and
. CTS pays Guidant a termination fee of $9.0 million.
Employee Stock Purchase Plan. The merger agreement provides that, prior to
the effective time, all outstanding purchase rights under CTS's 1998 Employee
Stock Purchase Plan will be exercised upon the earlier of the applicable stock
purchase date or immediately prior to the effective time. However, if the
effective time is later than October 31, 1999, then a new purchase period will
commence on November 1, 1999 and will end upon the earlier of April 30, 2000
or immediately prior to the effective time. Each participant in the Stock
Purchase Plan will be issued shares of CTS common stock upon such exercise
pursuant to the terms of the Stock Purchase Plan. Each share of CTS common
stock so issued shall by virtue of the merger be converted into the right to
receive Guidant common stock.
Employee Benefits. The merger agreement provides that following the
effective time of the merger, Guidant will provide benefits to CTS's employees
and officers who are employed by Guidant after the effective time that are
substantially identical to the benefits provided to similarly situated
employees of Guidant. Guidant will grant all CTS employees credit for all
service (to the same extent as service with Guidant is taken into account with
respect to similarly situated employees of Guidant) with CTS prior to the
effective time of the merger for (1) participation and vesting purposes, (2)
for purposes of vacation accrual and (3) for purposes of severance pay and
service awards after the effective time as if such service with CTS was
service with Guidant. Where applicable, with respect to any medical or dental
benefit plan of Guidant, Guidant will waive any pre-existing condition
exclusion and actively-at-work requirements and provide that any covered
expenses incurred on or before the effective time of the merger by an employee
or an employee's covered dependents shall be taken into account for purposes
of satisfying applicable deductible, coinsurance and maximum out of pocket
provisions after the effective time to the same extent as such expenses are
taken into account for the benefit of similarly situated employees of Guidant.
Indemnification and Insurance. The agreement of the parties on these matters
is discussed above under the heading "The Merger--Interests of Certain Persons
in the Merger--Indemnification and Insurance".
Temporary License. The agreement of the parties regarding the temporary
license of certain intellectual property is discussed under the heading
"Certain Transactions" below.
Other Covenants. The merger agreement also contains certain other covenants
including, among other things, covenants relating to the special meeting,
public announcements, access to personnel and data, cooperation regarding
certain filings with governmental and other agencies and organizations and
obtaining affiliate agreements.
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Conditions to the Consummation of the Merger
Conditions to Each Party's Obligations to Effect the Merger. Each party's
obligation to complete the merger is subject to the satisfaction of several
conditions including:
. Stockholder Approval. Receipt of the approval by CTS's stockholders of
the merger agreement and the transactions contemplated by the merger
agreement.
. Listing or Quotation of Stock. Approval for listing on the New York
Stock Exchange and Pacific Exchange, subject to official notice of
issuance, of the Guidant common shares to be issued in the merger.
. No Governmental Restraints. The absence of any order, injunction or
decree, or any other governmental action, that permanently restrains,
enjoins or otherwise prohibits the consummation of the merger.
. Effectiveness of Registration Statement. The continuing effectiveness of
the registration statement of which this proxy statement/prospectus
forms a part.
. Regulatory Matters. Expiration of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act and receipt of the necessary
clearance from the German Federal Cartel Office. See "The Merger--
Regulatory Matters".
Additional Conditions to Obligations of Guidant. The obligation of Guidant
and Clydesdale to complete the merger is subject to the satisfaction of each
of the following additional conditions:
. Performance of Obligations; Representations and Warranties. The
performance in all material respects by CTS of all of its obligations
under the merger agreement and option agreement (described below)
required to be performed by it at or prior to the effective time of the
merger. The performance in all material respects by the stockholders of
all of their agreements under the support agreement (as described below)
required to be performed by them at or prior to the effective time of
the merger. The representations and warranties of CTS set forth in the
merger agreement and the option agreement, and the representations and
warranties of the stockholders set forth in the support agreement, being
true and correct in all material respects, except representations and
warranties that are qualified as to materiality being true and correct,
as of the effective time of the merger, except that, if any
representation or warranty speaks as of an earlier date, it shall be
true and correct as of that date.
. Tax Opinion. Guidant having received a written opinion from Dewey
Ballantine LLP, its counsel, to the effect that the merger will be
treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code and as to related
matters.
. Pooling Letter. Guidant having received a letter from its independent
public accountants stating they concur with Guidant's conclusion that
the merger will qualify as a transaction to be accounted for as a
pooling of interests.
Additional Conditions to Obligations of CTS. The obligation of CTS to
complete the merger is subject to the satisfaction of each of the following
additional conditions:
. Performance of Obligations; Representations and Warranties. The
performance in all material respects by Guidant and Clydesdale of all
obligations under the merger agreement required to be performed by them
prior to the effective time of the merger. The representations and
warranties of Guidant and Clydesdale set forth in the merger agreement
being true and correct in all material respects, except representations
and warranties that are qualified as to materiality being true and
correct, as of the effective time of the merger, except that, if any
representation or warranty speaks as of an earlier date, it shall be
true and correct as of that date.
. Tax Opinion. CTS having received a written opinion from Wilson Sonsini
Goodrich & Rosati, Professional Corporation, its counsel, to the effect
that the merger will be treated for federal income
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tax purposes as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code and as to related matters.
Termination
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after approval of the merger by the CTS
stockholders:
(a) by mutual consent of Guidant, CTS and Clydesdale;
(b) by either Guidant or CTS, if the merger has not been completed by
February 29, 2000. However, this right to terminate the merger agreement
will not be available to a party whose breach of any obligation under the
merger agreement has been the cause of the failure of the merger to occur
on or before February 29, 2000;
(c) by either Guidant or CTS, if a court or other governmental entity has
issued an order or taken any other action prohibiting the transactions
contemplated by the merger agreement. However, the party seeking to
terminate the merger agreement shall have used all reasonable efforts to
remove such order or prohibition;
(d) by either Guidant or CTS if the CTS stockholders have not approved
the merger agreement as required;
(e) by CTS, if Guidant or Clydesdale has breached or failed to perform
any representation, warranty, covenant or agreement which (1) has had or is
reasonably likely to have a material adverse effect on Guidant or (2) would
cause the conditions set forth in paragraph (a) of "--Conditions to the
Consummation of the Merger--Additional Conditions to Obligations of CTS"
not to be satisfied, and the breach is not curable or, if curable, is not
cured within 30 days after written notice of the breach is given by CTS to
Guidant;
(f) by CTS, if its board of directors has determined, in accordance with
the requirements described under "--Covenants--No Solicitation of
Transactions", to approve or recommend a superior proposal;
(g) by CTS, if the applicable average price per share of Guidant common
stock is less than $47.00;
(h) by Guidant, if CTS has breached or failed to perform any
representation, warranty, covenant or agreement which (1) has had or is
reasonably likely to have a material adverse effect on CTS or (2) would
cause the conditions set forth in paragraph (a) of "--Conditions to the
Consummation of the Merger--Additional Conditions to Obligations of
Guidant" not to be satisfied, and the breach is not curable or, if curable,
is not cured within 30 days after written notice of the breach is given by
Guidant to CTS; and
(i) by Guidant, if CTS's board of directors has:
1. withdrawn or modified in a manner adverse to Guidant its
recommendation of the merger agreement, the option agreement, the
support agreement or the merger, or
2. recommended another acquisition proposal to the CTS stockholders.
Termination Fee
If the merger agreement is terminated pursuant to paragraphs (f) or (i)
under "--Termination" above, CTS will pay to Guidant a termination fee of $9.0
million in cash.
CTS is also obligated to pay Guidant the termination fee as described above
if the merger agreement is terminated pursuant to paragraph (d) under "--
Termination", and, a proposal has been made, prior to such termination, with
respect to:
. the sale of all or substantially all of the assets of CTS,
. the acquisition of more than 50% of CTS's voting stock, or
. another similar transaction involving a change of control of CTS,
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and, within one year after the termination,
. any person acquires more than 50% of CTS's voting stock, or
. due organization and good standing;
.CTS enters into any agreement with respect to the type of transaction
described above.
Expenses
Whether or not the merger is consummated, all costs and expenses incurred in
connection with the merger agreement, the option agreement and support
agreement and the transactions contemplated by the merger agreement, the
option agreement and support agreement will be paid by the party incurring
such expenses, except as otherwise provided in the merger agreement. The
merger agreement provides that Guidant and CTS shall each pay one-half of the
filing fee in connection with filing the registration statement, of which this
proxy statement/prospectus is a part, with the Securities and Exchange
Commission and the expenses incurred in connection with printing and mailing
this proxy statement/prospectus. The merger agreement further provides that
CTS shall not incur fees, costs or other expenses, including for legal,
investment banking and other advisory services (other than the fees owed by
CTS to U.S. Bancorp Piper Jaffray Inc.), in excess of $750,000.
Amendment
The merger agreement may be amended by the parties to the merger agreement,
by action taken by their respective boards of directors, at any time before or
after approval of matters presented in connection with the merger by the
stockholders of CTS, but after any such stockholder approval, no amendment
will be made which by law requires the further approval of stockholders
without obtaining such further approval. The merger agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties to the merger agreement.
STOCK OPTION AGREEMENT
In connection with the merger agreement, Guidant and CTS entered into the
stock option agreement. The following is a description of the material terms
of the stock option agreement but it does not purport to be complete.
Stockholders are encouraged to read the stock option agreement in its
entirety. A copy of the stock option agreement is attached as Annex B to this
proxy statement/prospectus.
Pursuant to the stock option agreement, CTS has granted Guidant an
irrevocable option to purchase up to that number of shares which equals 19.9%
of the outstanding shares of CTS common stock immediately prior to the
exercise of the option, at a cash purchase price equal to $19.50 per share.
The option may be exercised by Guidant, in whole or in part, at any time, or
from time to time, following the occurrence of an event which obligates CTS to
pay a termination fee as specified in "Principal Provisions of the Merger
Agreement--Termination Fee" above, and prior to the earlier of (1) the
effective time of the merger, (2) termination of the merger agreement other
than under circumstances which obligate CTS to pay a termination fee, and (3)
one year after the occurrence of an event which obligates CTS to pay a
termination fee.
Pursuant to the terms of the stock option agreement, CTS's obligation to
deliver CTS shares upon exercise of the option is subject to the following
conditions:
. that no court or other governmental entity has issued an order or taken
any other action permanently enjoining or otherwise prohibiting the
delivery of the CTS shares; and
. any applicable waiting period under the United States federal antitrust
laws has expired or been terminated.
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The stock option agreement provides that, following the exercise of the
option, CTS has the right to repurchase any of the CTS shares acquired upon
exercise of the option at the higher of (1) the highest price per share paid
or proposed to be paid by a person to the stockholders of CTS to effect a
transaction specified in "Principal Provisions of the Merger Agreement--
Termination Fee" and (2) the closing price for CTS common stock as reported on
the last trading day immediately prior to the date on which CTS gives notice
to Guidant of its election to repurchase the shares.
The price paid or proposed to be paid by a person to the stockholders of
CTS, in the instances described in clause (A) above, may include property
other than cash, in which case the price shall be the sum of (1) the fixed
cash amount, if any, and (2) the fair market value of any other property.
The stock option agreement provides that in no event will Guidant's total
profit, as described below, exceed $10,500,000 and, if it otherwise would
exceed this amount, Guidant will either (i) repay the excess amount to CTS in
cash or other consideration, (2) deliver to CTS shares of CTS common stock for
cancellation or (3) undertake any combination of (1) and (2) so that Guidant's
total profit will not exceed $10,500,000.
For the purposes of the stock option agreement, total profit is calculated
as the sum of the following:
. the amount of the termination fee received by Guidant pursuant to the
merger agreement;
. the amount received by Guidant pursuant to CTS's repurchase of the
option shares pursuant to the stock option agreement, minus Guidant's
purchase price for the option shares; and
. the net cash amounts received by Guidant pursuant to the sale of option
shares to any unaffiliated party, minus Guidant's purchase price for the
option shares.
The stock option agreement further provides that the option may not be
exercised for a number of CTS shares as would, as of the date of the exercise,
result in a notional total profit, as described below, of more than
$10,500,000 and, if exercise of the option otherwise would exceed this amount,
CTS may decrease the number of shares covered by the option so that the
notional total profit will not exceed $10,500,000.
The notional total profit is calculated as the total profit determined as of
the date of the proposed exercise of the option assuming that the option were
exercised on that date and assuming that the shares, together with all other
shares owned by Guidant, were sold for cash at the closing market price for
the CTS common stock as of the close of business on the preceding trading day,
less customary brokerage commissions.
CTS granted the option to Guidant in part to enable Guidant to complete the
merger. The stock option agreement could discourage other companies from
trying or proposing to combine with CTS before Guidant completes the merger.
In particular, the stock option agreement could jeopardize the ability of
another party to acquire CTS in a transaction accounted for as a pooling of
interests.
SUPPORT AGREEMENT
As an inducement to Guidant entering into the merger agreement, Richard M.
Ferrari, President, Chief Executive Officer and a director of CTS, and Charles
S. Taylor, Vice President, Chief Technical Officer and director of CTS,
entered into a support agreement with Guidant dated as of August 30, 1999. As
of the date of the support agreement, Messrs. Ferrari and Taylor together
beneficially owned approximately 13.24%, including exercisable CTS stock
options, of the outstanding shares of CTS common stock. The following is a
summary of the material terms of the support agreement, but it does not
purport to be complete. Stockholders are encouraged to read the support
agreement in its entirety. A copy of the support agreement is attached as
Annex C to this proxy statement/prospectus.
Pursuant to the support agreement, Messrs. Ferrari and Taylor have agreed,
among other things, to vote (or cause to be voted) all shares of CTS common
stock owned or subsequently acquired by them (1) to approve and
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adopt the merger agreement and (2) in favor of the merger. Messrs. Ferrari's
and Taylor's obligations under the support agreement to vote are conditioned
on (1) the performance by Guidant and Clydesdale of all of their obligations
under the merger agreement that are required to be performed before the
special meeting and (2) the effectiveness of a registration statement with
respect to the shares of Guidant common stock to be issued in the merger.
Messrs. Ferrari and Taylor have revoked any and all previous proxies, and
granted an irrevocable proxy appointing Guidant, James M. Cornelius, Ronald W.
Dollens and J.B. King as their attorney-in-fact and proxy, with full power to
vote their shares.
The support agreement provides that Messrs. Ferrari and Taylor will not,
among other things,
. directly or indirectly sell, assign, transfer, pledge or otherwise
dispose of any of their shares;
. deposit any of their shares into a voting trust or enter into a voting
agreement with or grant any proxy with respect to the shares; and
. to enter into any agreement regarding any of the above.
In addition, Messrs. Ferrari and Taylor agreed, in their capacity as
stockholders of CTS, not to authorize or knowingly permit any of their
investment bankers, attorneys, accountants, consultants and other agents or
advisors to, directly or indirectly,
. take any action to solicit, initiate or facilitate or encourage the
submission of any acquisition proposal, or
. engage in any negotiations concerning, or provide to any person any
confidential information with respect to, or have any discussions with,
any person relating to an acquisition proposal or any tender offer for
or solicitation of proxies with respect to CTS shares.
However, Messrs. Ferrari and Taylor may take any action in their capacity as
directors of CTS that the board of directors would be permitted to take in
accordance with the terms and conditions of the merger agreement.
Messrs. Ferrari and Taylor have also agreed to notify Guidant immediately in
writing (1) if any inquiries or acquisition proposals are made by any person,
and (2) if any information is requested or any negotiations or discussions are
initiated by any person with respect to an acquisition proposal.
The support agreement terminates upon the earlier of the termination of the
merger agreement and the closing of the merger.
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COMPARISON OF STOCKHOLDER RIGHTS
Holders of shares of CTS common stock will, upon the exchange of their
shares pursuant to the merger, become holders of shares of Guidant common
stock, and their rights as holders of Guidant common stock will be governed by
the Indiana Business Corporation Law and Guidant's articles of incorporation
and bylaws. The material differences between the rights of holders of shares
of CTS common stock and the rights of holders of shares of Guidant common
stock, which result from differences in their governing corporate documents
and differences in Indiana and Delaware corporate law, are summarized below.
GUIDANT CTS
GENERAL
. Guidant is an Indiana corporation . CTS is a Delaware corporation
subject to the provisions of the subject to the provisions of the
Indiana Business Corporation Law. Delaware General Corporation Law.
. The rights of Guidant . The rights of CTS stockholders
shareholders are governed by are governed by CTS's certificate
Guidant's articles of of incorporation and bylaws, in
incorporation and bylaws, in addition to Delaware law.
addition to Indiana law. . CTS stockholders will, upon
consummation of the merger,
become shareholders of Guidant.
AUTHORIZED CAPITAL
. The authorized and outstanding . The authorized and outstanding
capital stock of Guidant consists capital stock of CTS consists of:
of: . 60,000,000 shares of CTS
. 1,000,000,000 Guidant common common stock, $0.001 par
shares, without par value, of value, of which 14,497,668
which 301,677,625 shares were shares were outstanding as of
outstanding and 458,226 August 27, 1999; and
shares were held in treasury . 5,100,000 shares of preferred
as of August 27, 1999; stock, $.001 par value, of
. 50,000,000 shares of which 60,000 are designated
preferred stock, without par as "Series A Participating
value, of which 1,500,000 are Preferred Stock" and relate
designated as "Series A to CTS's stockholder rights
Participating Preferred plan, which is described in
Stock" and relate to "--Stockholder Rights Plans"
Guidant's shareholder rights below. No shares of CTS
plan, which is described in preferred stock were
"--Stockholder Rights Plans" outstanding as of the record
below. No shares of Guidant date of the special meeting.
preferred stock were
outstanding as of the record
date of the special meeting.
AMENDMENT OF GOVERNING DOCUMENTS
Articles / Certificate
. The following is required to . The following is required to
amend the Guidant articles: amend the CTS certificate:
. the board shall first approve . the board shall first approve
a proposed amendment and a proposed amendment and
submit it to the submit it to the
shareholders; stockholders; and
. the approval of a majority of . the approval of a majority of
the votes cast by the outstanding shares of
shareholders entitled to vote stock of each class entitled
is required to adopt the to vote, including shares of
amendment; and preferred stock, is required
. amendments to Article 5 of to adopt the amendment.
the Guidant articles
governing, among other
things, the number of
directors, classes of
directors,
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GUIDANT CTS
removal of directors,
amendments to the Guidant
bylaws, transactions
involving a conflict of
interest, approval or
ratification by shareholders
of contracts or acts of
Guidant or its board, and the
indemnification of directors,
officers, employees and
agents of Guidant require the
affirmative vote of the
holders of at least 80% of
the shares of Guidant common
stock outstanding at the time
of the amendment.
Bylaws
. The Guidant bylaws may be . The CTS bylaws may be amended,
amended, adopted or repealed by a adopted or repealed by a majority
majority vote of the board of vote of the board of directors or
directors. by a majority vote of the CTS
. Guidant shareholders have no stockholders entitled to vote.
power to amend, adopt or repeal
the Guidant bylaws.
DIRECTORS
Number
. The number of directors must be . The board of directors shall
between 7 and 19, with the actual consist of 6 members unless
number to be determined by the changed by an amendment to the
board of directors. certificate or the bylaws.
. The current number of directors . The current number of directors
is 12. is 6.
Classification
. The Guidant board of directors is . The CTS board of directors is
divided into three classes with divided into three classes. Each
approximately one-third of the class has two directors. One
directors standing for election class is elected annually for a
each year for three-year terms. term of up to three years.
Removal
. Any director may be removed, with . Any director may be removed, with
or without cause, upon the or without cause, by the holders
affirmative vote of at least 80% of a majority of the CTS shares
of the outstanding shares of then entitled to vote at an
voting stock voting together as a election of directors.
single class.
Vacancies
. A vacancy occurring on the . A vacancy occurring on the CTS
Guidant board of directors, board of directors may be filled
including a vacancy resulting by the vote of a majority of the
from an increase in the number of remaining CTS directors then in
directors, may be filled by the office, even if less than a
vote of a majority of the quorum, or by a sole remaining
remaining Guidant directors then director; provided that
in office, even if less than a
quorum; provided that
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GUIDANT CTS
. If the vacancy is filled by a . A vacancy created by the removal
shareholder vote and the vacant of a director as a result of a
office was held by a director stockholder vote or a court order
elected by a voting group of may be filled only by the
shareholders, only the holders of affirmative vote of the majority
shares of that voting group are of the shares represented and
entitled to vote. voting at a meeting of
stockholders at which a quorum is
present.
Liability of Directors
. The IBCL provides that a director . The CTS certificate contains a
is not liable for any acts or provision that eliminates, to the
omissions unless the director has fullest extent permitted by
breached or failed to perform his Delaware law, the personal
or her duties in compliance with liability of directors to the
the IBCL, and the director's corporation or to its
breach or failure to act stockholders for monetary damages
constitutes willful misconduct or resulting from a breach of
recklessness. Compliance with the fiduciary duty as a director.
IBCL generally requires a
director to act in good faith
with the care that a prudent
person in a like position would
exercise under similar
circumstances, and in a manner
that the director reasonably
believes to be in the best
interests of the corporation.
Indemnification
. In accordance with the Guidant . In accordance with the CTS
articles and to the fullest certificate, CTS may indemnify,
extent permitted by the IBCL, to the fullest extent permitted
Guidant may indemnify directors, by law, any directors, officers,
officers, agents or employees employees and their heirs who
(and their estates, heirs and have been made (or are threatened
personal representatives) who to be made) a party to any form
have been made a party to a of legal proceeding involving CTS
proceeding involving Guidant or any CTS predecessor.
against all liability and . In accordance with the CTS
reasonable expenses that may be bylaws, CTS is required to
incurred in connection with or indemnify against any amounts
resulting from that proceeding. actually and reasonably incurred
. Also in accordance with the and, to the fullest extent
Guidant articles, any payment of permitted by the DGCL, any
expenses to directors, officers, director or officer who has been
agents or employees (and their made (or is threatened to be
estates, heirs and personal made) a party to any form of
representatives) in advance of legal proceeding by reason of the
the final disposition of a fact that that person is or was a
proceeding shall be made only director or officer of CTS.
upon delivery to Guidant of an . Also in accordance with the CTS
undertaking to repay all amounts bylaws, any payment of expenses
advanced if it is ultimately to a director or officer in
determined that he or she is not advance of the final disposition
entitled to be indemnified. of a legal proceeding shall be
. Guidant's articles deem its made only upon delivery to CTS of
indemnification provisions to be an undertaking by the director or
a contract between Guidant and officer to repay all amounts
the affected person, and any advanced if it is ultimately
rights held by the affected determined that the director or
person in accordance with the officer is not entitled to be
indemnified.
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GUIDANT CTS
indemnification provisions cannot . The DGCL states that directors,
be diminished or negatively officers, employees and agents
impaired by any repeal, amendment may be indemnified as provided
or modification of these above so long as:
provisions occurring after the . they acted in good faith;
affected person had reason to . they acted in a manner which
rely on these provisions. they reasonably believed to
be in or not opposed to the
best interests of the
corporation; and
. with respect to any criminal
proceeding, they had no
reasonable cause to believe
that their conduct was
unlawful.
STOCKHOLDERS
Meetings of Stockholders
. The annual meeting of . The annual meeting or
shareholders shall be held on a stockholders shall be held on a
date and at a time fixed by the date and at a place fixed by the
Guidant board of directors. CTS board of directors.
. In accordance with the Guidant . In accordance with the CTS
bylaws, all notices of bylaws, all notices of
shareholder meetings shall be in stockholder meetings shall
writing specifying the place, specify the date, place, hour and
date, hour and purpose of the purpose of the meeting. These
meeting. These notices must be notices must be sent or otherwise
delivered or mailed to each provided not less than 10 and not
shareholder of record entitled to more than 60 days before the date
vote at the meeting not less than of the meeting.
10 and not more than 60 days . Special meetings of the CTS
before the date of the meeting. stockholders may be called at any
. Special meetings of the Guidant time by the CTS board of
shareholders may be called at any directors, the Chairman of the
time by the Guidant board of board, or by the President of
directors, the Chairman of the CTS.
board, or by the President of . The CTS bylaws specifically state
Guidant. that no other persons are
. The Guidant bylaws specifically permitted to call special
state that shareholders do not meetings.
have the right to call special
meetings.
Stockholder Inspection Rights and Stockholder Lists
. Under Indiana law and in . In accordance with the CTS bylaws
accordance with Guidant's bylaws, and Delaware law, any CTS
any Guidant shareholder of record stockholder is entitled, upon
is entitled, upon written demand, written demand, to inspect and
to inspect and copy books and copy books and records including
records including Guidant's stock the corporation's stock ledger
ledger and a list of its and a list of its stockholders as
shareholders as long as the long as the inspection is for a
inspection is for a proper proper purpose and during the
purpose and during the usual usual hours of business.
hours of business.
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GUIDANT CTS
Stockholder Action Without Meeting
. Under Indiana law, any action . In accordance with the CTS
required or permitted to be taken certificate, no action may be
at a shareholders' meeting may be taken by stockholders of CTS
taken without a meeting if the except at an annual or special
action is taken by all the stockholders' meeting and no
shareholders entitled to vote on action may be taken by the
the action. The action must be stockholders by written consent.
evidenced by one or more written
consents describing the action
taken, which must be signed by
all of the shareholders entitled
to vote on the action.
Dividends and Distributions
. In accordance with the IBCL, the . Subject to any restrictions
Guidant board of directors may contained in CTS's certificate,
authorize and pay dividends to Delaware law generally provides
its shareholders provided that: that a corporation may declare
. Guidant's debts can be paid as and pay dividends out of surplus
they fall due; or, if no surplus exists, out of
. Guidant's total assets would net profits for the fiscal year
exceed its total liabilities in which the dividend is declared
plus any amount that would be and/or the preceding fiscal year.
needed if Guidant were to be There are no provisions in the
dissolved; and CTS certificate that modify
. the payment of the dividend Delaware law concerning the
does not conflict with payment of dividends.
Guidant's articles. . However, under Delaware law, the
There are no provisions in the directors of a Delaware
Guidant articles that modify corporation may not pay any
Indiana law concerning the dividends out of net profits if
payment of dividends. the capital of the corporation
. Holders of shares of Guidant's has been diminished by
Series A Participating Preferred depreciation in the value of its
Stock quarterly dividends equal property, or by losses, or
to the greater of (i) $0.05 or otherwise, to an amount less than
(ii) 400 times the aggregate per the aggregate amount of capital
share amount of all dividends represented by the issued and
declared on the Guidant common outstanding stock of all classes
stock, other than dividends of shares.
payable in shares of Guidant . Holders of shares of CTS's Series
common stock or a subdivision of A Participating Preferred Stock
the outstanding shares of Guidant are entitled to receive quarterly
common stock. dividends equal to 1,000 times
the aggregate per share amount of
all dividends declared on the CTS
common stock, other than
dividends payable in shares of
CTS common stock or a subdivision
of the outstanding shares of CTS
common stock.
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<PAGE>
GUIDANT CTS
Dissenters' Rights
Dissenters' rights are those rights granted to shareholders to dissent from
particular types of corporate transactions, and to obtain payment for their
shares.
. The IBCL provides that a . The DGCL provides that a
shareholder of an Indiana stockholder of a Delaware
corporation is entitled to corporation is entitled to
receive payment of the fair value receive payment of the fair value
of the shareholder's common stock of the stockholder's common stock
under certain circumstances if under certain circumstances if
the shareholder dissents from a the stockholder dissents from
merger, share exchange, sale or mergers, statutory share
exchange of all or substantially exchanges and other corporate
all of the corporation's transactions. However, appraisal
property, and certain control rights are not available if the
share acquisitions. However, shares of the Delaware
dissenter's rights are not corporation are:
available if the shares of the . listed on a national
Indiana corporation are: securities exchange or
. registered on a U.S. designated as a national
securities exchange that is market system security on an
in turn registered under the interdealer quotation system
Securities Exchange Act of by the National Association
1934 (such as the NYSE); or of Securities Dealers, Inc.;
. traded on the National or
Association of Securities . held of record by more than
Dealers, Inc. Automated 2,000 holders.
Quotation System Over-the- . Notwithstanding the circumstances
Counter Markets (such as the in which appraisal rights are
NASDAQ) or a similar market. unavailable as outlined above,
. The IBCL also permits a appraisal rights are available to
corporation to grant appraisal stockholders who are required by
rights in connection with other the terms of a transaction to
corporate actions by inclusion of accept consideration other than:
a provision in its articles, . shares of stock of the
bylaws or by a resolution of the surviving corporation;
board of directors. There are no . shares of stock of any other
provisions in Guidant's articles corporation which are listed
and bylaws that modify Indiana on a national securities
law concerning appraisal rights. exchange, or designated as a
. Dissenter's rights are not national market system
available to Guidant shareholders security on an interdealer
because Guidant's shares are quotation system, or held of
registered on the NYSE. record by more than 2,000
stockholders; and/or
. cash in lieu of fractional
shares of stock.
. Appraisal rights are not
available under Delaware law in
the event of the sale of all or
substantially all of a
corporation's assets or the
adoption of an amendment to its
certificate unless rights to
appraisal are granted in the
corporation's certificate. CTS's
certificate does not grant
appraisal rights.
. Appraisal rights are not
available to CTS stockholders
because CTS's shares are
registered on the NASDAQ.
52
<PAGE>
GUIDANT CTS
Approval of, and Special Rights with Respect to,
Mergers or Consolidations and Other Transactions
. Under Indiana corporation law, a . Under Delaware corporation law,
merger requires the approval of a unless otherwise provided in the
majority of the board of certificate, a merger requiring
directors of each corporation and stockholder approval requires the
the approval of a majority of affirmative vote of a majority of
each voting group entitled to the outstanding stock of the
vote separately on the plan, corporation.
unless a greater vote or a vote . Furthermore, under Delaware law,
by voting groups is required by unless otherwise provided in the
the IBCL, the articles or the corporation's certificate,
board of directors. approval of the stockholders of
. There are no provisions in the surviving corporation in a
the Guidant articles that merger is not required if:
modify Indiana law concerning . the plan of merger does not
approval of a merger or effect an amendment to the
consolidation; and certificate of the surviving
. separate voting by voting corporation that would
groups is required if the otherwise require stockholder
plan of merger contains a approval;
provision that, if contained . the shares outstanding
in a proposed amendment to immediately preceding the
the articles, would require merger are not changed by the
action by one or more merger; and
separate voting groups. . the authorized unissued
. Furthermore, under Indiana law, shares or the treasury shares
approval of the shareholders of of common stock of the
an Indiana corporation which is a surviving corporation to be
surviving corporation in a merger issued or delivered pursuant
is not required if: to the merger, plus those
. the articles of the surviving shares that are issuable upon
corporation will not differ conversion of any other
from its articles before the shares, securities or
merger; obligations to be issued or
. immediately after the delivered pursuant to the
effective date each merger, do not exceed 20% of
shareholder of the surviving the shares of common stock of
corporation will hold the the surviving corporation
same proportionate number of outstanding immediately prior
shares as those held by the to the merger.
shareholder immediately prior There are no provisions in the
to the merger, with identical CTS certificate that modify
designations, preferences, Delaware law concerning
limitations and rights; and stockholder approval of a merger
. the number of voting or or consolidation.
participating shares, as the . Under Delaware corporation law, a
case may be, outstanding sale of all or substantially all
immediately after the merger of a corporation's assets
(either by conversion of requires the approval of the
other securities or upon board of directors and the
exercise of rights or holders of a majority of the
warrants issued pursuant to outstanding stock of the
the merger), plus the number corporation entitled to vote on
of voting or participating the sale.
shares issuable as a result
of the merger, will not
exceed by more than 20% the
number of voting or
participating shares
(adjusted to reflect any
share split under the plan of
merger) of the surviving
corporation outstanding
immediately prior to the
merger.
. Under Indiana corporation law, a
sale of all or substantially all
of Guidant's assets outside of
the regular course of business
requires the
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<PAGE>
GUIDANT CTS
approval of the board of
directors and the affirmative
vote of a majority of all the
votes entitled to be cast on the
transaction unless the board of
directors or Guidant's articles
require a greater vote or a vote
by voting groups. There are not
provisions in the Guidant
articles that modify Indiana law
concerning the stockholder vote
required for the sale of all or
substantially all of Guidant's
assets.
STATE LAWS REGARDING DISSOLUTION AND LIQUIDATION
Voluntary Dissolution
. Under Indiana law, the . Delaware law generally provides
dissolution of an Indiana that the dissolution of a
corporation must be proposed by Delaware corporation must be
the board of directors to the approved first by a majority of
shareholders. The shareholders the whole board of directors and
must approve the proposal by a then recommended to the
majority of all the votes stockholders and approved by the
entitled to be cast unless the holders of a majority of all
articles or the board of votes entitled to be cast by each
directors require a greater vote voting group entitled to vote on
or a vote by voting groups. the dissolution unless the
. The Guidant articles generally do certificate of the corporation
not modify Indiana law regarding requires a greater or lesser
voting requirements for vote. There are no provisions in
dissolution. However, in the the CTS certificate that modify
event that a "Related Person" Delaware law concerning the
exists, the affirmative vote of voting requirements for
at least 80% of all the votes dissolution.
entitled to be cast by holders of
the outstanding shares of the
voting stock, voting as a class,
will be required in order to
approve the voluntary dissolution
of Guidant.
. Related Person is defined in
Article 6 of the Guidant
articles and generally
includes any corporation,
person or entity which
beneficially owns or
controls, directly or
indirectly, 5% or more of the
outstanding shares of Guidant
voting stock.
Liquidation Rights
. In the event of the liquidation, . In the event of the liquidation,
dissolution or winding-up of the dissolution or winding-up of the
affairs of Guidant, holders of affairs of CTS, holders of
outstanding Guidant common shares outstanding shares of CTS common
are entitled to share, in stock are entitled to share
proportion to their respective ratably and equally with all
interests, in Guidant's assets other holders of common shares in
and funds remaining after CTS's assets and funds remaining
payment, or provision for after payment, or provision for
payment, of all debts and other payment, of all debts and other
liabilities of Guidant and the liabilities of CTS and the
amounts to which the holders of amounts to which the holders of
preferred stock shall be CTS preferred stock shall be
entitled. entitled.
. Holders of shares of Guidant's . Holders of shares of CTS's Series
Series A Participating Preferred A Participating Preferred Stock
Stock are entitled to a are entitled to a liquidation
liquidation preference in the preference in the event of any
event of a voluntary liquidation,
dissolution or winding-up of:
54
<PAGE>
GUIDANT CTS
. $400 per share plus an amount liquidation, dissolution or
equal to accrued and unpaid winding-up of CTS. The
dividends and distributions liquidation preference per share
thereon, whether or not is equal to 1000 times the
declared, to the date of the aggregate amount to be
payment or, if greater distributed per share to holders
. an aggregate amount per share of shares of CTS common stock
(subject to adjustment) equal plus an amount equal to any
to 400 times the aggregate accrued and unpaid dividends on
amount to be distributed per the shares of Series A
share to holders of common Participating Preferred Stock.
stock, plus an amount equal
to accrued and unpaid
dividends and distributions
on that amount, whether or
not declared, to the date of
the payment.
State Anti-Takeover Laws
Guidant.
There are provisions of Indiana law that may be deemed to have an anti-
takeover effect. These provisions are designed to protect shareholders against
coercive, unfair or inadequate tender offers and other abusive tactics, and to
encourage any person contemplating a business combination with Guidant to
negotiate with the board of directors for the fair and equitable treatment of
all shareholders.
Section 23-1-43-18 of the IBCL provides that a corporation may not engage in
any business combination with any interested shareholder for a period of 5
years following the interested shareholder's share acquisition date unless the
business combination or the purchase of shares made by the interested
shareholder is approved by the board of directors of the corporation prior to
the interested shareholder's share acquisition date. An interested shareholder
is defined in the IBCL as any person owning 10% or more of the voting power of
the outstanding voting shares of the corporation.
The Guidant articles provide that, in addition to applicable law and unless
otherwise provided for in the articles, Guidant, acting on its own behalf or
as a shareholder of any majority-owned subsidiary, shall not give effect to or
approve certain specified transactions if any Related Person exists as of the
record date for the determination of the shareholders entitled to vote
thereon. Related Person is defined in the Guidant articles and generally
includes any other corporation, person, or entity which beneficially owns or
controls, directly or indirectly, 5% or more of the outstanding shares of
Guidant voting stock. However, Guidant may give effect or approve transactions
involving a Related Person if all of the following are satisfied:
. the actions and transactions were authorized by the affirmative vote of
at least 80% of all of the votes entitled to be cast by holders of the
outstanding shares of voting stock voting together as a single class
(which is not applicable if the action or transaction is approved by
Guidant's Board and by a majority of Guidant's "Continuing Directors"
(as defined in the Guidant articles));
. unless approved by a majority of the Continuing Directors, after
becoming a Related Person and prior to consummation of such action or
transaction:
. the Related Person shall not have acquired from Guidant or any of
its subsidiaries any newly issued or treasury shares of capital
stock or any newly issued securities convertible into capital stock
of Guidant or any of its majority-owned subsidiaries, directly or
indirectly, subject to certain exceptions;
. the Related Person shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder), of any form of
financial assistance or tax credits provided by Guidant or any of
its majority-owned subsidiaries, or made any major changes to the
businesses
55
<PAGE>
or capital structures of Guidant or any of its majority-owned
subsidiaries, or reduced the current rate of dividends payable on
Guidant's capital stock below the rate in effect immediately prior to
the time such Related Person became a Related Person; and
. the Related Person shall have taken all required actions within its
power to ensure that Guidant's board of directors included
representation by Continuing Directors as provided in Guidant's
articles; and
. a proxy statement in compliance with the requirements of the Exchange
Act and Guidant's articles shall be mailed to the shareholders of
Guidant for the purpose of soliciting shareholder approval of such
action or transaction unless the action or transaction has been approved
by a majority of the Continuing Directors.
CTS.
CTS is subject to Section 203 of the Delaware General Corporation Law. In
general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date that this stockholder became an
interested stockholder, unless:
. prior to the date that the stockholder became an interested stockholder,
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the board
of directors of the corporation;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding, shares owned by (1) persons who are both
directors and officers and (2) employee stock plans in circumstances
specified in Section 203; or
. on or after the date that the stockholder became an interested
stockholder, the business combination is approved by the board and
authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66 2/3 percent of
the outstanding voting stock which is not owned by the interested
stockholder.
Under Delaware law a business combination includes a merger, consolidation,
asset sale, or other transaction resulting in a financial benefit to the
interested stockholder, and an interested stockholder is a person who,
together with affiliates and associates, owns, or within three years did own,
15% or more of the corporation's voting stock. The restrictions imposed by
Section 203 will not apply to a corporation if, among other things:
. the corporation's original certificate contains a provision expressly
electing not to be governed by Section 203; or
. twelve months have passed after the corporation, by action of its
stockholders holding a majority of the outstanding stock, adopts an
amendment to its certificate or bylaws expressly electing not to be
governed by Section 203.
The certificate and bylaws of CTS do not include provisions electing not to
be governed by Section 203; therefore, the restrictions imposed by Section 203
apply to CTS.
Stockholder Rights Plans
Guidant.
Guidant maintains a shareholder rights plan that entitles each Guidant
shareholder to a preferred stock purchase right for each share of Guidant
common stock held under the circumstances that are described below. This
preferred stock purchase right permits Guidant shareholders to purchase from
Guidant one four-hundredth ( 1/400) of a share of Series A Participating
Preferred Stock at an exercise price of $10.88. The description and
56
<PAGE>
terms of the preferred stock purchase rights are set forth in the Rights
Agreement dated as of October 17, 1994, between Guidant and Bank One,
Indianapolis, N.A., as rights agent.
Guidant may redeem the preferred stock purchase rights for $0.0025 per right
up until and including the tenth business day after the date of a public
announcement that a person or group of affiliated or associated persons
("Acquiring Person") has acquired ownership of common stock equal to 10% or
more of Guidant's general voting power (the "Stock Acquisition Date").
The shareholder rights plan provides that if Guidant is acquired in a
business combination at any time after a Stock Acquisition Date, each holder
of a preferred stock purchase right will generally be entitled to purchase, at
the exercise price, a number of the acquiring company's shares having a market
value of twice the exercise price. The shareholder rights plan also provides
that in the event of certain other business combinations, certain self-dealing
transactions, or the acquisition by a person or group of stock equal to 15% or
more of Guidant's general voting power, each holder of a preferred stock
purchase right will generally be entitled to purchase, at the exercise price,
a number of shares of Guidant common stock having a market value of twice the
exercise price.
Any preferred stock purchase rights beneficially owned by an Acquiring
Person shall not be entitled to the benefit of the adjustments with respect to
the number of shares described above. The preferred stock purchase rights will
expire on October 17, 2004, unless redeemed by Guidant prior to that date.
CTS.
CTS maintains a stockholder rights plan that entitles holders of CTS common
stock to one preferred share purchase right for each outstanding share of CTS
common stock, under the circumstances that are described below. This preferred
share purchase right permits CTS stockholders to purchase from CTS one one-
thousandth ( 1/1000) of a share of Series A Participating Preferred Stock
(subject to adjustment) at an exercise price of $150.00. The description and
terms of the preferred share purchase rights are set forth in the Preferred
Shares Rights Agreement dated as of February 14, 1997, and amended and
restated as of August 30, 1999, between CTS and Norwest Bank Minnesota, N.A.,
as rights agent.
CTS may, at its discretion and with the approval of its board of directors,
redeem all, but not less than all, of the then outstanding preferred share
purchase rights at a redemption price of $0.01 per right, adjusted to reflect
any stock split, stock dividend or similar transaction, at any time prior to
the earlier of:
. the tenth day after the public announcement that a person or group has
acquired or obtained the right to acquire beneficial ownership of 15% or
more of CTS's common stock; or
. the tenth business day (or some later date as may be determined by CTS's
board of directors) after a person or group announces a tender or
exchange offer, the consummation of which would result in ownership by a
person or group of 15% or more of CTS's common stock.
The CTS board of directors has the sole discretion to decide whether to pay
the redemption price in common stock or in cash.
The stockholder rights plan provides that if an Acquiring Person (as defined
in the Preferred Shares Rights Agreement) becomes the beneficial owner of 15%
or more of CTS's common stock, each preferred share purchase right (other than
rights owned by an Acquiring Person or its affiliates) will entitle the holder
thereof to purchase, at the exercise price, a number of shares of CTS's common
stock having a market value of twice the exercise price.
If any of the following transactions occur after an Acquiring Person becomes
the beneficial owner of 15% or more of CTS's common stock:
. CTS is acquired in a merger or other business combination transaction,
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<PAGE>
. CTS consummates a merger or other business combination transaction in
which CTS is the continuing or surviving corporation, or
. CTS sells more than 50% of its assets or earning power,
then each preferred share purchase right (other than rights owned by an
Acquiring Person or its affiliates) will entitle the holder thereof to
purchase shares of common stock of the corporation acquiring CTS, CTS or the
purchaser of 50% or more of CTS's assets or earning power, respectively,
having a value of twice the exercise price.
At any time after the date when an Acquiring Person becomes the beneficial
owner of 15% or more of CTS's common stock and prior to the acquisition by the
Acquiring Person of 50% of the outstanding common stock of CTS, CTS's board of
directors may exchange all or a portion of the preferred share purchase rights
(other than rights owned by an Acquiring Person or its affiliates) for shares
of CTS common stock at an exchange rate of one share of common stock for one
preferred share purchase right (subject to adjustment).
The preferred share purchase rights will expire on January 28, 2007, unless
exchanged or redeemed by CTS prior to that date.
On August 30, 1999, the CTS board of directors voted to exempt the merger
from the effects of the Preferred Shares Rights Agreement dated as of February
14, 1997, and on August 30, 1999, CTS entered into an amendment to the rights
agreement.
Listing or Quotation of Guidant Common Shares; Delisting of CTS Common Stock
It is a condition to the merger that Guidant common shares issuable in the
merger be approved for listing on the NYSE and the Pacific Exchange on or
prior to the effective time of the merger, subject to official notice of
issuance. If the merger is consummated, shares of CTS common stock will cease
to be listed on the NASDAQ.
CERTAIN TRANSACTIONS
On May 3, 1999, CTS and Guidant entered into an agreement under which CTS
granted to Origin Medsystems, Inc., a wholly-owned subsidiary of Guidant, a
non-exclusive, royalty-free, temporary license to certain intellectual
property rights that may be necessary for the manufacture, use and sale of the
VASOVIEWTM Saphenous Vein Harvesting System, including U.S. Patent No. Re.
36,043. Under the terms of the license agreement, CTS may terminate the
temporary license at any time after July 31, 1999 by giving Origin written
notice thirty days in advance of the termination.
Pursuant to the merger agreement, however, CTS has agreed not to terminate
the license before the earlier of the effective time of the merger or the
termination of the merger agreement. If CTS terminates the license upon
termination of the merger agreement, it has agreed to provide Origin with
written notice thirty days in advance of the termination. In addition, Guidant
has agreed to pay royalties to CTS, beginning on September 1, 1999, based on
net sales. The amount of the royalties are equal to CTS's obligations to pay
royalties to the third party from whom CTS has licensed the intellectual
property.
LEGAL MATTERS
The validity of the Guidant common stock to be issued to CTS stockholders
will be passed upon for Guidant by Mr. J.B. King, Vice President and General
Counsel for Guidant. As of October 12, 1999, Mr. King owned directly and
indirectly 165,567 shares of Guidant common stock and held options to acquire
an additional 674,944 shares of Guidant common stock. Certain legal matters
with respect to federal income tax consequences in connection with the merger
will be passed upon for Guidant by Dewey Ballantine LLP, New York, New York.
Certain legal matters with respect to federal income tax consequences in
connection with the merger will be passed upon for CTS by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California.
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EXPERTS
The consolidated financial statements and schedule of Guidant at December
31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, incorporated by reference in this proxy
statement/prospectus, which are referred to herein and made part of the
registration statement of which this proxy statement/prospectus is a part,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon also incorporated herein by reference. Such consolidated
financial statements of Guidant are incorporated herein by reference in
reliance upon such report of Ernst & Young LLP given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements incorporated in this proxy
statement/prospectus by reference to the Annual Report on Form 10-K of CTS at
January 1, 1999 and January 2, 1998, and for each of the three years in the
period ended January 1, 1999 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Sulzer Electrophysiology
incorporated in this proxy statement/prospectus by reference to the Report on
Form 8-K of Guidant filed September 23, 1999 for the three years ended
December 31, 1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
It is expected that representatives of PricewaterhouseCoopers LLP will be
present at the special meeting, to respond to appropriate questions and to
make a statement if they desire.
FUTURE STOCKHOLDER PROPOSALS
In the event the merger is not consummated, the only stockholder proposals
eligible to be considered for inclusion in the proxy materials for the 2000
annual meeting of CTS will be those which were submitted to CTS no later than
December 10, 1999, as provided in the 1999 Annual Meeting Proxy Statement of
CTS. The inclusion of any proposal will be subject to applicable rules of the
Securities and Exchange Commission.
WHERE YOU CAN FIND MORE INFORMATION
Guidant and CTS file annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Guidant's and CTS's SEC filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
SEC at http://www.sec.gov.
Guidant filed a Registration Statement on Form S-4 to register with the SEC
the Guidant common shares to be issued to CTS stockholders in the merger. This
document is a part of that Registration Statement and constitutes a prospectus
of Guidant in addition to being a proxy statement of CTS for its special
meeting. As permitted by SEC rules, this document does not contain all the
information you can find in the Registration Statement or the exhibits to the
Registration Statement.
The SEC allows Guidant and CTS to "incorporate by reference" information
into this document, which means that Guidant and CTS can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of
this document, except for any information superseded by information in this
document. This document incorporates by reference the documents set forth
below that Guidant and CTS have previously filed with the SEC. These documents
contain important information about Guidant and CTS and their financial
performance.
59
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<TABLE>
<CAPTION>
Guidant's SEC Filings
(File No. 1-13388) Period
--------------------- ------
<S> <C>
Quarterly Reports on Form 10-Q............. Quarters ended March 31, 1999 and June 30, 1999
Annual Report on Form 10-K................. Fiscal year ended December 31, 1998
Current Report on Form 8-K................. Filed on February 4, 1999, February 11, 1999,
February 17, 1999 and September 23, 1999
Proxy Statement for the Annual Meeting of
Shareholders on Schedule 14A dated March
30, 1999.................................. Filed March 26, 1999
Description of Guidant Common Stock and
associated Preferred Stock Purchase Rights
from Registration Statement on Form 8-A,
as amended................................ Filed on October 6, 1994
</TABLE>
Guidant is also incorporating by reference additional documents that Guidant
files with the SEC between the date of this document and the date of the CTS
special meeting.
<TABLE>
<CAPTION>
CTS's SEC Filings
(File No. 0-27880) Period
------------------ ------
<S> <C>
Quarterly Reports on Form 10-Q............. Quarters ended April 2, 1999 and July 2, 1999
Annual Report on Form 10-K................. Fiscal year ended January 1, 1999
Current Report on Form 8-K................. Filed on September 23, 1999
Proxy Statement for the Annual Meeting of
Stockholders on Schedule 14A dated April
1, 1999................................... Filed on April 2, 1999
Description of CTS Common Stock from
Registration Statement on Form 8-A........ Filed on March 1, 1996
Description of CTS Preferred Share Purchase
Rights from Registration Statement on Form
8-A....................................... Filed on February 27, 1997
Amended description of CTS Preferred Share
Purchase Rights from Registration
Statement on Form 8-A/A................... Filed on September 24, 1999
</TABLE>
CTS is also incorporating by reference additional documents that CTS files
with the SEC between the date of this document and the date of the CTS special
meeting.
Guidant has supplied all information contained or incorporated by reference
in this document relating to Guidant, and CTS has supplied all the information
contained or incorporated by reference in this document relating to CTS.
You may already have been sent some of the documents incorporated by
reference, but you can obtain any of them from Guidant or CTS, as appropriate,
or the SEC. Documents incorporated by reference are available from Guidant or
CTS, as appropriate, without charge, excluding all exhibits unless an exhibit
has been specifically incorporated by reference in this document. Stockholders
may obtain documents incorporated by reference in this document by Guidant by
requesting them in writing or by telephone at the following address:
Guidant Corporation
111 Monument Circle
Indianapolis, Indiana 46204
Investor Relations
Tel.: (317) 971-2000
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Stockholders may obtain documents incorporated by reference in this document
by CTS by requesting them in writing or by telephone at the following address:
CardioThoracic Systems, Inc.
10600 North Tantau Avenue
Cupertino, California 95014
Tel.: (408) 342-1700
If you would like to request documents from Guidant or CTS, please do so by
November 1, 1999 in order to receive them before the special meeting. Guidant
or CTS will send requested documents by first-class mail within one business
day of receiving the request.
You should rely only on the information contained or incorporated by
reference in this document to vote on the merger agreement proposal. We have
not authorized anyone to provide you with information that is different from
what is contained in this document. This document is dated October 15, 1999.
You should not assume that the information contained in this document is
accurate as of any date other than this date, and neither the mailing of this
document to stockholders nor the issuance of Guidant common shares in the
merger shall create any implication to the contrary.
TRADEMARKS
ACS, Guidant and the Guidant logo are registered trademarks of Guidant
Corporation. ACS MULTI-LINK DUET, ACS OTW MULTI-LINK, ACS RX MULTI-LINK,
ANCURE, DISCOVERY, MEGALINK, MERIDIAN, PULSAR, SOLO and VASOVIEW are
trademarks of Guidant Corporation. CardioThoracic Systems, CTS and the CTS
logo are registered trademarks of CardioThoracic Systems, Inc.
61
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
by and among
GUIDANT CORPORATION
CLYDESDALE ACQUISITION CORP.
and
CARDIOTHORACIC SYSTEMS, INC.
Dated as of August 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
No.
----
<C> <S> <C>
ARTICLE 1 The Merger ................................................... A-1
1.1 The Merger..................................................... A-1
1.2 The Closing.................................................... A-2
1.3 Effective Time................................................. A-2
1.4 The Charter and Bylaws......................................... A-2
1.5 Directors of the Surviving Corporation......................... A-2
1.6 Officers of the Surviving Corporation.......................... A-2
ARTICLE 2 Conversion and Exchange of Securities ........................ A-3
2.1 Merger Sub Stock............................................... A-3
2.2 Company Stock.................................................. A-3
2.3 Exchange of Certificates Representing Company Common Stock..... A-4
2.4 Adjustment of Exchange Ratio................................... A-6
ARTICLE 3 Representations and Warranties of the Company ................ A-6
Existence; Good Standing; Corporate Authority; Compliance with
3.1 Law............................................................ A-6
3.2 Authorization, Validity and Effect of Agreements............... A-6
3.3 Capitalization................................................. A-7
3.4 Subsidiaries................................................... A-7
3.5 Other Interests................................................ A-7
3.6 No Violation................................................... A-8
3.7 SEC Documents.................................................. A-8
3.8 Patents, Trademarks, Copyrights and Trade Secrets.............. A-9
3.9 Investigations; Litigation..................................... A-9
3.10 Governmental Approvals......................................... A-10
3.11 Absence of Certain Changes..................................... A-10
3.12 Taxes and Tax Returns.......................................... A-10
3.13 Material Contracts............................................. A-12
3.14 Employee Benefit Plans......................................... A-13
3.15 Labor Matters.................................................. A-14
3.16 Parent Stock Ownership......................................... A-14
3.17 Pooling of Interests; Tax Reorganization....................... A-15
3.18 Environmental Matters.......................................... A-15
3.19 State Takeover Statutes and Shareholder Rights Plan............ A-15
3.20 No Brokers..................................................... A-15
3.21 Opinion of Financial Advisor................................... A-16
ARTICLE 4 Representations and Warranties of Parent and Merger Sub ...... A-16
Existence; Good Standing; Corporate Authority; Compliance with
4.1 Law............................................................ A-16
4.2 Authorization, Validity and Effect of Agreements............... A-16
4.3 Capitalization................................................. A-16
4.4 Merger Sub..................................................... A-17
4.5 No Violation................................................... A-17
4.6 SEC Documents.................................................. A-18
4.7 Investigations; Litigation..................................... A-18
4.8 Absence of Certain Changes..................................... A-18
4.9 Company Stock Ownership........................................ A-18
4.10 No Brokers..................................................... A-19
4.11 Pooling of Interests; Tax Reorganization....................... A-19
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
Page
No.
----
<C> <S> <C>
ARTICLE 5 Covenants .................................................... A-19
5.1 Alternative Proposals.......................................... A-19
5.2 Interim Operations............................................. A-20
5.3 Meeting of Stockholders........................................ A-22
5.4 Filings; Other Actions......................................... A-23
5.5 Inspection of Records.......................................... A-23
5.6 Publicity...................................................... A-23
5.7 Registration Statement......................................... A-23
5.8 Listing Application............................................ A-24
5.9 Affiliate Letters.............................................. A-24
5.10 Expenses....................................................... A-24
5.11 Certain Transaction Related Fees............................... A-25
5.12 Directors' and Officers' Indemnification and Insurance......... A-25
5.13 Shareholder Rights Plan and Takeover Statutes.................. A-25
5.14 Conveyance Taxes............................................... A-26
5.15 Certain Tax Matters............................................ A-26
5.16 Benefit Arrangements........................................... A-26
5.17 Company Employee Stock Purchase Plan........................... A-27
5.18 Temporary License.............................................. A-27
5.19 Support Agreement Legend....................................... A-27
ARTICLE 6 Conditions ................................................... A-28
6.1 Conditions to Each Party's Obligation to Effect the Merger..... A-28
6.2 Conditions to Obligation of the Company to Effect the Merger... A-28
Conditions to Obligation of Parent and Merger Sub to Effect the
6.3 Merger......................................................... A-29
ARTICLE 7 Termination .................................................. A-29
7.1 Termination by Mutual Consent.................................. A-29
7.2 Termination by Either Parent or the Company.................... A-29
7.3 Termination by the Company..................................... A-30
7.4 Termination by Parent.......................................... A-30
7.5 Effect of Termination and Abandonment.......................... A-30
7.6 Extension; Waiver.............................................. A-31
ARTICLE 8 General Provisions ........................................... A-31
8.1 Nonsurvival of Representations, Warranties and Agreements...... A-31
8.2 Notices........................................................ A-32
8.3 Assignment; Binding Effect..................................... A-32
8.4 Entire Agreement............................................... A-33
8.5 Amendment...................................................... A-33
8.6 Governing Law.................................................. A-33
8.7 Counterparts................................................... A-33
8.8 Headings....................................................... A-33
8.9 Interpretation................................................. A-33
8.10 Waivers........................................................ A-33
8.11 Incorporation of Exhibits...................................... A-34
8.12 Severability................................................... A-34
8.13 Enforcement of Agreement....................................... A-34
8.14 Definitions.................................................... A-34
EXHIBIT A Form of Affiliate Letter...................................... A-37
SCHEDULE
Company Disclosure Schedule
</TABLE>
A-ii
<PAGE>
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of August 30,
1999, between Guidant Corporation, an Indiana corporation ("Parent"),
Clydesdale Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), and CardioThoracic Systems, Inc., a
Delaware corporation (the "Company").
Recitals
A. Parent and the Company each have determined that a business combination
between Parent and the Company is in the best interests of their respective
companies and stockholders and presents an opportunity for their respective
companies to achieve long-term strategic and financial benefits, and
accordingly have agreed to effect the merger provided for herein upon the
terms and subject to the conditions set forth herein.
B. The respective Boards of Directors of Parent, Merger Sub and the Company,
and Parent, acting as the sole stockholder of Merger Sub, have approved the
merger of Merger Sub with and into the Company (the "Merger"), upon the terms
and subject to the conditions set forth in this Agreement, whereby each issued
and outstanding share of common stock, par value $0.001 per share, of the
Company, together with the associated right (a "Right") to purchase, pursuant
to the Company's February 14, 1997 Preferred Shares Rights Agreement, as
amended effective August 30, 1999 (the "Rights Agreement"), one one-thousandth
of a share of the Company's Series A Participating Preferred Stock, par value
$0.001 per share (such common stock, together with the Rights, "Company Common
Stock"), other than shares to be cancelled pursuant to Section 2.2(c) of this
Agreement, will be converted into the right to receive common stock, without
par value, of Parent ("Parent Common Stock").
C. Concurrently with the execution of this Agreement, in order to induce
Parent and Merger Sub to enter into the Agreement, certain stockholders of the
Company are entering into a support agreement (the "Support Agreement") with
Parent, providing for certain voting and other restrictions with respect to
the shares of Company Common Stock beneficially owned by them upon the terms
and conditions specified therein.
D. Concurrently with the execution of this Agreement, in order to induce
Parent and Merger Sub to enter into the Agreement, the Company is entering
into an option agreement with Parent pursuant to which Parent shall be granted
the right to purchase up to 19.9% of the issued and outstanding shares of
Company Common Stock upon the occurrence of certain events as set forth
therein (the "Option Agreement").
E. It is intended that for federal income tax purposes, the merger provided
for herein shall qualify as a reorganization within the meaning of Section
368(a) of the Code (as defined in Section 3.12).
F. The parties intend to cause the Merger to be accounted for as a pooling
of interests pursuant to APB Opinion No. 16, Staff Accounting Series Releases
130, 135 and 146 and Staff Accounting Bulletin Topic Two.
G. Merger Sub is a wholly-owned subsidiary of Parent and has been formed
solely to facilitate the Merger and has conducted and will conduct no business
or activity other than in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
The Merger
1.1 The Merger.
Subject to the terms and conditions of this Agreement, at the Effective Time
(as defined in Section 1.3), Merger Sub shall be merged with and into the
Company in accordance with this Agreement, and the separate
A-1
<PAGE>
corporate existence of Merger Sub shall thereupon cease. The Company shall be
the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation") and will be a wholly owned subsidiary of Parent.
The Merger shall have the effects specified in the Delaware General
Corporation Law ("DGCL").
1.2 The Closing.
Subject to the terms and conditions of this Agreement, the closing of the
Merger (the "Closing") shall take place (a) at the offices of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto,
California, at 10:00 a.m., local time, on the first business day immediately
following the day on which the last to be fulfilled or waived of the
conditions set forth in Article 6 shall be fulfilled or waived in accordance
herewith or (b) at such other time, date or place as Parent and the Company
may agree in writing. The date on which the Closing occurs is hereinafter
referred to as the "Closing Date."
1.3 Effective Time.
If all the conditions set forth in Article 6 shall have been fulfilled or
waived in accordance herewith and this Agreement shall not have been
terminated as provided in Article 7, the parties hereto shall cause a
Certificate of Merger meeting the requirements of Section 251 of the DGCL (the
"Certificate of Merger") to be properly executed and filed in accordance with
such Section on the Closing Date. The Merger shall become effective at the
time of filing of the Certificate of Merger with the Secretary of State of the
State of Delaware in accordance with the DGCL or at such later time which the
parties hereto shall have agreed upon and designated in such filings as the
effective time of the Merger (the "Effective Time").
1.4 The Charter and Bylaws.
(a) The Certificate of Incorporation of Merger Sub as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation until duly amended as provided therein or by applicable
law, except that the name of the Surviving Corporation in such Certificate of
Incorporation shall be changed to "CardioThoracic Systems, Inc."
(b) The Bylaws of Merger Sub in effect at the Effective Time shall be the
Bylaws of the Surviving Corporation, until thereafter amended as provided
therein or by applicable law (subject in all cases to Section 5.11).
1.5 Directors of the Surviving Corporation.
The directors of Merger Sub immediately prior to the Effective Time shall be
the directors of the Surviving Corporation as of the Effective Time and until
their successors are duly appointed or elected in accordance with applicable
law.
1.6 Officers of the Surviving Corporation.
The officers of Merger Sub immediately prior to the Effective Time shall be
the officers of the Surviving Corporation as of the Effective Time and until
their successors are duly appointed or elected in accordance with applicable
law.
A-2
<PAGE>
ARTICLE 2
Conversion and Exchange of Securities
2.1 Merger Sub Stock.
At the Effective Time, each share of common stock, par value $0.01 per
share, of Merger Sub outstanding immediately prior to the Effective Time shall
be converted into and exchanged for one validly issued, fully paid and non-
assessable share of common stock, par value $0.01 per share, of the Surviving
Corporation.
2.2 Company Stock.
(a) Subject to Section 2.3(e), at the Effective Time, each share of Company
Common Stock including all associated Rights issued and outstanding
immediately prior to the Effective Time (other than shares to be cancelled
pursuant to Section 2.2(c)) shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into the right to
receive such number or fraction of a number, rounded to four decimal places
(the "Exchange Ratio"), of fully paid and nonassessable shares of Parent
Common Stock that equals the amount obtained by dividing the Per Share Price
(as hereinafter defined) by the Average Price (as hereinafter defined);
provided, however, that in no event shall the Exchange Ratio exceed .3611 or
be less than .2955. The "Per Share Price" shall mean $19.50. The "Average
Price" shall mean the average per share closing price of Parent Common Stock
during the 20 full trading days preceding the date of the last full trading
day prior to the Company Stockholders Meeting (as defined in Section 5.3
hereof) or any adjournment or postponement at which the approval of this
Agreement and the Merger by the stockholders of the Company is obtained, as
such prices are reported on the New York Stock Exchange ("NYSE") Composite
Transactions Tape (as reported by The Wall Street Journal, or, if not reported
thereby, any other authoritative source).
(b) As a result of the Merger and without any action on the part of the
holder thereof, at the Effective Time, all shares of Company Common Stock
outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall cease to exist, and each holder of shares of Company
Common Stock shall thereafter cease to have any rights with respect to such
shares of Company Common Stock, except the right to receive, without interest,
the consideration contemplated by Section 2.2(a) and cash in accordance with
Sections 2.3(c) and 2.3(e) upon the surrender of a certificate (a
"Certificate") representing such shares of Company Common Stock.
(c) Each share of Company Common Stock issued and held in the Company's
treasury at the Effective Time, and each share of Company Common Stock that is
owned by Parent or Merger Sub at the Effective Time, shall, by virtue of the
Merger, cease to be outstanding and shall be canceled and retired and shall
cease to exist without payment of any consideration therefor.
(d) All options to purchase capital stock of the Company (the "Company
Options") outstanding, whether or not exercisable and whether or not vested,
at the Effective Time under the Company's Incentive Stock Plan, Director
Option Plan, Nonstatutory Stock Option Plan and 1998 Nonstatutory Stock Option
Plan (collectively, the "Company Stock Option Plans") or under any other
outstanding option or warrant agreements granting options to purchase capital
stock of the Company, shall by virtue of the Merger and without any further
action on the part of the Company or the holder thereof, cease to represent a
right to acquire Company Common Stock and shall be converted into an option to
purchase Parent Common Stock in such manner that Parent (i) is "assuming a
stock option in a transaction to which Section 424(a) applied" within the
meaning of Section 424 of the Code, or (ii) to the extent that Section 424 of
the Code does not apply to any such Company Options, would be a transaction
within Section 424 of the Code. Each Company Option converted by Parent shall
be exercisable upon the same terms and conditions as under the applicable
Company Stock Option Plan and the applicable option agreement issued
thereunder, except that (A) each such Company Option shall be exercisable for
that whole number of shares of Parent Common Stock (rounded down to the
nearest whole share) into which the number of shares of Company Common Stock
subject to such Company Option immediately prior to the Effective Time would
be converted under Section 2.2(a), and (B) the option price per share of
Parent Common Stock shall be an amount equal to the option price per share of
Company Common Stock subject to such
A-3
<PAGE>
Company Option in effect immediately prior to the Effective Time divided by
the Exchange Ratio (the option price per share, as so determined, being
rounded upward to the nearest full cent).
(e) Parent shall (i) on or prior to the Effective Time, reserve for issuance
the number of shares of Parent Common Stock that will become subject to
options to purchase shares of Parent Common Stock ("Parent Options") pursuant
to Section 2.2(d), (ii) from and after the Effective Time, upon exercise of
the Parent Options in accordance with the terms thereof, make available for
issuance all shares of Parent Common Stock covered thereby and (iii) as
promptly as practicable after the Effective Time, issue to each holder of an
outstanding Company Option a document evidencing the foregoing assumption by
Parent.
(f) It is the intention of the parties that the Company Options converted by
Parent qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent permitted under Section 422
of the Code and to the extent the Company Options qualified as incentive stock
options prior to the Effective Time.
(g) Parent shall, within five days after the Effective Time, file a
registration statement on Form S-8 or an amendment to an existing registration
statement on Form S-8 under the Securities Act of 1933, as amended (the
"Securities Act"), covering the shares of Parent Common Stock issuable upon
the exercise of Parent Options created upon the assumption by Parent of
Company Options under Section 2.2(d), except to the extent the shares issuable
pursuant to the assumption of Company Options by Parent have already been
registered, and will use its reasonable best efforts to cause such
registration statement to become effective and to maintain such registration
in effect until the exercise or expiration of such Parent Options. No payment
shall be made for fractional interests under Section 2.2(d)(ii)(A).
(h) A holder of a Parent Option may exercise such Parent Option in whole or
in part in accordance with its terms by delivering a properly executed notice
of exercise to Parent, together with the consideration therefor and the
Federal withholding tax information and payments, if any, required in
accordance with the related Company Stock Option Plan.
2.3 Exchange of Certificates Representing Company Common Stock.
(a) As of the Effective Time, Parent shall deposit, or shall cause to be
deposited, with First Chicago Trust Company of New York (the "Exchange
Agent"), for the benefit of the holders of shares of Company Common Stock, for
exchange in accordance with this Article 2, certificates representing the
shares of Parent Common Stock to be issued in connection with the Merger and
cash in an amount equal to Parent's good faith estimate of the cash required
to be paid to holders of shares of Company Common Stock in lieu of fractional
shares expected to be payable in connection with the Merger (such cash and
certificates for shares of Parent Common Stock, together with any dividends or
distributions with respect thereto (relating to record dates for such
dividends or distributions after the Effective Time), being hereinafter
referred to as the "Exchange Fund") to be issued pursuant to Section 2.2 and
paid pursuant to this Section 2.3 in exchange for outstanding shares of
Company Common Stock. Notwithstanding anything in this Agreement to the
contrary, Parent may, in lieu of issuing certificates for Parent Common Stock,
make book-entry notations pursuant to established book-entry procedures of the
Exchange Agent, and all references in this Agreement to certificates for
Parent Common Stock will be deemed to be references to book-entry notations.
(b) Promptly after the Effective Time, Parent shall cause the Exchange Agent
to mail to each holder of record of shares of Company Common Stock (i) a
letter of transmittal specifying that delivery shall be effected, and risk of
loss and title to such shares of Company Common Stock shall pass, only upon
delivery of the Certificates representing such shares to the Exchange Agent
and which letter shall be in such form and have such other provisions as
Parent may reasonably specify and (ii) instructions for use in effecting the
surrender of Certificates in exchange for the consideration contemplated by
Section 2.2 and this Section 2.3, including cash in lieu of fractional shares.
Upon surrender of a Certificate for cancellation to the Exchange Agent
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, the holder of
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<PAGE>
the shares represented by such Certificate shall be entitled to receive in
exchange therefor (x) a certificate representing that number of whole shares
of Parent Common Stock and (y) a check representing the amount of cash in lieu
of fractional shares, if any, and unpaid dividends and distributions, if any,
that such holder has the right to receive in respect of the Certificate
surrendered pursuant to the provisions of this Article 2, after giving effect
to any required withholding tax, and the shares represented by the Certificate
so surrendered shall forthwith be canceled. No interest will be paid or
accrued on the cash payable to holders of shares of Company Common Stock. In
the event of a transfer of ownership of Company Common Stock that is not
registered in the transfer records of the Company, a certificate representing
the proper number of shares of Parent Common Stock, together with a check for
the cash to be paid pursuant to Section 2.3(b)(y) may be issued to such a
transferee if the Certificate representing such Company Common Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on Parent Common Stock
shall be paid with respect to any shares of Company Common Stock represented
by a Certificate until such Certificate is surrendered for exchange as
provided herein. Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the holder of the certificates
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends
or other distributions with a record date after the Effective Time theretofore
payable with respect to such whole shares of Parent Common Stock and not paid,
less the amount of any withholding taxes which may be required thereon, and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Parent Common Stock, less the amount of any withholding
taxes which may be required thereon.
(d) At or after the Effective Time, there shall be no transfers on the stock
transfer books of the Company of the shares of Company Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation, they shall be
canceled and exchanged for certificates for shares of Parent Common Stock and
cash deliverable in respect thereof pursuant to this Agreement in accordance
with the procedures set forth in this Article 2. Certificates surrendered for
exchange by any Affiliate (as defined in Section 5.9 hereof), shall not be
exchanged until Parent has received a written agreement from such person as
provided in Section 5.9.
(e) No fractional shares of Parent Common Stock shall be issued pursuant
hereto. In lieu of the issuance of any fractional share of Parent Common
Stock, cash adjustments will be paid to holders in respect of any fractional
share of Parent Common Stock that would otherwise be issuable, and the amount
of such cash adjustment shall be equal to the product obtained by multiplying
such stockholder's fractional share of Parent Common Stock that would
otherwise be issuable by the Average Price.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Parent Common Stock) that remains
unclaimed by the former stockholders of the Company six months after the
Effective Time shall be delivered to Parent. Any former stockholders of the
Company who have not theretofore complied with this Article 2 shall thereafter
look only to Parent, and Parent shall comply with such requests, made in
accordance with the terms of this Agreement, for payment of their shares of
Parent Common Stock, cash and unpaid dividends and distributions on Parent
Common Stock deliverable in respect of each share of Company Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon.
(g) None of Parent, the Company, the Surviving Corporation, the Exchange
Agent or any other person shall be liable (except to the extent provided by
applicable law) to any former holder of shares of Company Common Stock for any
amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
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<PAGE>
(h) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and the posting by such person of
a bond in such amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the shares of Parent Common Stock and cash
deliverable in respect thereof pursuant to this Agreement.
2.4 Adjustment of Exchange Ratio.
In the event that, subsequent to the date of this Agreement but prior to the
Effective Time, the outstanding shares of Parent Common Stock or Company
Common Stock, respectively, shall have been changed into a different number of
shares or a different class as a result of a stock split, reverse stock split,
stock dividend, subdivision, reclassification, combination, exchange,
recapitalization or other similar transaction, the Exchange Ratio shall be
appropriately adjusted.
ARTICLE 3
Representations and Warranties of the Company
Except as set forth in the disclosure schedule delivered at or prior to the
execution hereof to Parent (the "Company Disclosure Schedule") or in the
Company Reports (as defined below) filed on or prior to the date hereof, the
Company represents and warrants to Parent as of the date of this Agreement as
follows (it being understood that disclosure in one instance is sufficient for
all purposes if the context thereof is reasonably evident and it being
understood that disclosure of an item is not to be construed as an admission
of any fact):
3.1 Existence; Good Standing; Corporate Authority; Compliance with Law.
The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware. The Company is duly licensed or qualified
to do business as a foreign corporation and is in good standing under the laws
of any other state of the United States in which the character of the
properties owned or leased by it or in which the transaction of its business
makes such qualification necessary, except where the failure to be so
qualified or to be in good standing is not reasonably likely to result in a
Company Material Adverse Effect (as defined in Section 8.14 hereof). The
Company has all requisite corporate power and authority to own, operate and
lease its properties and carry on its business as now conducted or as
reasonably contemplated in the future. The Company has no Subsidiaries other
than CardioThoracic Systems GmbH (the "Company Subsidiary"). The Company
Subsidiary is inactive, does not carry on any business, and does not own any
properties or assets. The Company Subsidiary is a corporation duly organized,
validly existing and in good standing, under the laws of Germany. Neither the
Company nor the Company Subsidiary is in violation of any order of any court,
governmental authority or arbitration board or tribunal, or any law,
ordinance, governmental rule or regulation to which the Company or the Company
Subsidiary or any of their respective properties or assets is subject, other
than any violations that are not reasonably likely to result in a Company
Material Adverse Effect. The Company and the Company Subsidiary have obtained
all licenses, permits and other authorizations and have taken all actions
required by applicable law or governmental regulations in connection with
their business as now conducted, except where the failure to obtain any such
item or to take any such action is not reasonably likely to result in a
Company Material Adverse Effect.
3.2 Authorization, Validity and Effect of Agreements.
The Company has the requisite corporate power and authority to execute and
deliver this Agreement, the Option Agreement and all other agreements and
documents contemplated hereby and thereby and to perform its obligations
hereunder. Subject only to the approval of this Agreement and the Merger by
the holders of a majority of the outstanding shares of Company Common Stock,
the consummation by the Company of the transactions contemplated hereby and by
the Option Agreement and the Support Agreement has been unanimously approved
A-6
<PAGE>
by the Board of Directors of the Company (the "Company Board") and duly
authorized by all requisite corporate action. This Agreement and the Option
Agreement constitute the valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
3.3 Capitalization.
The authorized capital stock of the Company consists of 60,000,000 shares of
Company Common Stock and 5,100,000 shares of preferred stock, $0.001 par value
per share ("Company Preferred Stock"). As of August 27, 1999, there were
14,497,668 shares of Company Common Stock issued and outstanding, and no
shares of Company Preferred Stock issued and outstanding. Since such date, no
shares of capital stock of Company have been issued, except shares of Company
Common Stock issued pursuant to the exercise of options outstanding, under the
Company Stock Option Plans. As of August 27, 1999, options to acquire
2,185,255 shares of Company Common Stock were outstanding pursuant to the
terms of the Company Stock Option Plans and 159,922 shares of Company Common
Stock were reserved for issuance pursuant to the CardioThoracic Systems, Inc.
1998 Employee Stock Purchase Plan (the "Stock Purchase Plan"). Prior to the
Closing Date and in accordance with Section 5.2 of this Agreement, the Company
anticipates that options to acquire additional shares of Company Common Stock
will be granted to certain employees pursuant to the Company Stock Option
Plans. The Company has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) on
any matter with respect to such securities. All issued and outstanding shares
of Company Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights, and were issued in compliance
with all applicable federal and state securities laws, rules and regulations.
Pursuant to the Stock Purchase Plan, Purchase Periods (as defined in the Stock
Purchase Plan) commenced on November 2, 1998 and May 3, 1999 and will end upon
the earlier of (i) April 30, 1999 and October 29, 1999, respectively (with
respect to each such Purchase Period, respectively, the "Stock Purchase Date")
or (ii) immediately prior to the Effective Time, provided that if the
Effective Time is later than October 31, 1999, then a new Purchase Period will
commence on November 1, 1999 and will end upon the earlier of April 30, 2000
or immediately prior to the Effective Time. Except for the outstanding
purchase rights held by participants in the current Purchase Periods, there
are no other purchase rights or options outstanding under the Stock Purchase
Plan. There are not at the date of this Agreement any existing options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments, other than under the Company Stock Option Plans and
the Stock Purchase Plan and the Option Agreement, that obligate the Company or
any of its Subsidiaries to issue, transfer or sell any shares of capital stock
of the Company or any of its Subsidiaries, except that as of the date hereof,
there were 60,000 shares of Series A Participating Preferred Stock reserved
for issuance pursuant to the Rights Agreement. After the Effective Time, the
Surviving Corporation will have no obligation to issue, transfer or sell any
shares of capital stock or other securities of the Company or the Surviving
Corporation pursuant to any Company Plan (as defined in Section 3.14) or
otherwise.
3.4 Subsidiaries.
The Company owns directly or indirectly each of the outstanding shares of
capital stock of the Company Subsidiary. Each of the outstanding shares of
capital stock of the Company Subsidiary is duly authorized, validly issued,
fully paid and nonassessable, and is owned, directly or indirectly, by the
Company free and clear of all liens, pledges, security interests, claims or
other encumbrances.
3.5 Other Interests.
Except for the Company's ownership of the Company Subsidiary, neither the
Company nor the Company Subsidiary owns directly or indirectly any interest or
investment (whether equity or debt) in any corporation, partnership, joint
venture, business, trust or entity, other than marketable securities available
for sale.
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3.6 No Violation.
Neither the execution and delivery by the Company of this Agreement or the
Option Agreement nor the consummation by the Company of the transactions
contemplated hereby and thereby in accordance with the terms hereof and
thereof or the performance of the Support Agreement by the parties thereto,
will: (i) conflict with or result in a breach of any provisions of the
Certificate of Incorporation or Bylaws of the Company; (ii) result in a breach
or violation of, a default under any existing Company Plan, or any grant or
award made under any of the foregoing; (iii) violate, conflict with, result in
a breach of any provision of, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, result in
the termination or in a right of termination or cancellation of, accelerate
the performance required by, result in the triggering of any payment or other
material obligations pursuant to, result in the creation of any lien, security
interest, charge or encumbrance upon any of the material properties of the
Company or the Company Subsidiary under, or result in being declared void,
voidable, or without further binding effect, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust or any
license, franchise, permit, lease, contract, agreement or other instrument,
binding commitment or obligation to which the Company or the Company
Subsidiary is a party, or by which the Company or the Company Subsidiary or
any of their respective properties is bound or affected, except for any of the
foregoing matters which is not reasonably likely to (a) result in a Company
Material Adverse Effect or (b) impair in any material respect the ability of
the Company to perform its obligations under this Agreement or the Option
Agreement, or (c) prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement or the Option Agreement; or (iv)
other than filings by the Company required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), the filing by the Company
Subsidiary of any pre-merger notification required to be filed with the German
Federal Cartel Office, the filing with the Securities and Exchange Commission
(the "SEC") of a proxy statement relating to the approval by the Company's
stockholders of this Agreement and such reports under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as may be required in connection
with this Agreement and the transactions contemplated by this Agreement, and
the filing of the Certificate of Merger with the Delaware Secretary of State
and appropriate documents with the relevant authorities of other states in
which the Company is qualified to do business or as required under the DGCL
and the rules of the Nasdaq National Market, require, by or with respect to
the Company or the Company Subsidiary in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company
of the Merger, any consent, approval or authorization of, or declaration,
filing or registration with, any domestic governmental or regulatory
authority, other than consents, approvals, authorizations, declarations or
filings or registration which, if not obtained or made, are not reasonably
likely to result in a Company Material Adverse Effect. The stockholders of the
Company have no appraisal, dissenters or other similar rights with respect to
the Merger, whether pursuant to the DGCL, Section 2115 or Chapter 13 of the
California General Corporation Law, or otherwise.
3.7 SEC Documents.
As of their respective dates, or, if amended, as of the date of the last
such amendment, each registration statement, report, proxy statement or
information statement (as defined in Regulation 14C under the Exchange Act) of
the Company prepared by the Company since its initial public offering
(including without limitation, the Registration Statement on Form S-1
(Registration No. 333-1840) with respect to its initial public offering), in
the form (including exhibits and any amendments thereto) filed with the
Securities and Exchange Commission (the "SEC"), (collectively, the "Company
Reports") (i) complied as to form in all material respects with the applicable
requirements of the Securities Act, the Exchange Act, and the rules and
regulations thereunder applicable to such Company Reports and (ii) at the time
they were filed did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under
which they were made, not misleading. Each of the consolidated balance sheets
included in or incorporated by reference into the Company Reports (including
the related notes and schedules) fairly presents the consolidated financial
position of the Company and the Company Subsidiary as of its date, and each of
the consolidated statements of operations, stockholders' equity and cash flows
included in or incorporated by reference into the Company Reports (including
any related notes and
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schedules) fairly presents the financial position, results of operations and
cash flows, as the case may be, of the Company and the Company Subsidiary for
the periods set forth therein (subject, in the case of unaudited statements,
to normal year-end audit adjustments which are not reasonably likely to be
material in amount or effect, and the absence of footnotes), in each case in
accordance with generally accepted accounting principles ("GAAP") consistently
applied during the periods involved, except as may be noted therein. Neither
the Company nor the Company Subsidiary has any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise), except (a) as
set forth in the Company Reports, (b) liabilities or obligations reflected on,
or reserved against in, a balance sheet of the Company or in the notes
thereto, prepared in accordance with GAAP consistently applied and included in
the Company Reports, (c) liabilities or obligations incurred in the ordinary
course of business which are not reasonably likely to have a Company Material
Adverse Effect and (d) arising under executory contracts not currently in
default.
3.8 Patents, Trademarks, Copyrights and Trade Secrets.
(a) Section 3.8 of the Company Disclosure Schedule contains a complete list
of all United States and foreign patents and patent applications, copyrights
(whether registered or as to which registration has been applied for),
trademarks (whether registered or as to which registration has been applied
for), trade names and service marks owned by or licensed to the Company or any
of its Subsidiaries as of the date hereof.
(b) To the knowledge of the Company, there is no infringement, misuse or
misappropriation by others, of any United States or foreign patents, patent
applications, trademarks, whether registered or as to which registration has
been applied for, tradenames, service marks, copyrights, processes, designs,
formulae, inventions, know-how, trade secrets or concepts (the "Intellectual
Property") of the Company or the Company Subsidiary that is reasonably likely
to cause a Company Material Adverse Effect, except as has been disclosed by
the Company to Parent. There are no pending or threatened claims by the
Company or the Company Subsidiary against others for infringement, misuse or
misappropriation, of any Intellectual Property of the Company or the Company
Subsidiary that are reasonably likely to cause a Company Material Adverse
Effect. Neither the Company nor the Company Subsidiary is infringing, misusing
or misappropriating any Intellectual Property of any third party and no claim
of such infringement, misuse or misappropriation is pending or, to the
knowledge of the Company, threatened.
(c) Except as set forth in Section 3.8 of the Company Disclosure Schedule or
the Company Reports, the Company and the Company Subsidiary own or possess
adequate licenses or other valid rights to use all of the Intellectual
Property of the Company and the Company Subsidiary used or proposed to be used
in the business of the Company and the Company Subsidiary as currently
conducted. The Company has no knowledge of any facts or claims which may bring
the validity of its issued patents into question.
3.9 Investigations; Litigation.
Except in the ordinary course of the Company's business, (a) no
investigation or review by any governmental entity with respect to the Company
or the Company Subsidiary is pending (or, to the Company's knowledge,
threatened) that, if concluded adversely to the Company or the Company
Subsidiary, individually or in the aggregate is reasonably likely to have a
Company Material Adverse Effect nor has any governmental entity indicated to
the Company an intention to conduct the same; and (b) there are no actions,
suits or proceedings pending against the Company or the Company Subsidiary or,
to the knowledge of the Company, threatened against the Company or the Company
Subsidiary, at law or in equity, or before or by any federal, state, local or
foreign commission, board, bureau, agency or instrumentality that, if
concluded adversely to the Company or the Company Subsidiary, individually or
in the aggregate is reasonably likely to have a Company Material Adverse
Effect. The Company has disclosed to Parent any and all information known to
any executive officer of the Company concerning or relating to any litigation
brought or threatened to be brought against the Company or any of its current
or former employees, officers or directors in connection with the matters set
forth in Section 8.14 of the Company Disclosure Schedule.
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3.10 Governmental Approvals.
There are no products now being manufactured, sold or distributed by the
Company or the Company Subsidiary which at the date hereof would require any
approval of the United States Food and Drug Administration (the "FDA") or any
other governmental body that regulates the safety, effectiveness, market
clearances, market or post-market surveillance of the products of the Company
and the Company Subsidiary, whether Federal, state, local or foreign, for the
purpose for which they are being manufactured, sold or distributed, for which
such approval has not been obtained. All products now being commercially
distributed by the Company or the Company Subsidiary in the United States, and
to the knowledge of the Company, all products now being commercially
distributed outside the United States, meet, in all material respects, the
applicable legal requirements of such jurisdiction with respect to their
safety, effectiveness, market clearance, marketing, and post-market
surveillance and all requisite governmental approvals have been duly obtained
and are in full force and effect, and there is no basis known to the Company
for the FDA or any other governmental body to rescind any approval for any of
their commercially distributed products for the purpose for which they are
being manufactured, sold or distributed. There is no action or proceeding by
the FDA or any other governmental body claiming that any product now being
commercially distributed or used in any clinical trials by the Company or the
Company Subsidiary is defective or fails to meet any applicable regulatory
standards or that the Company has violated any applicable rules or regulations
governing the marketing or post-market surveillance requirements for any
product, including, but not limited to, recall procedures, pending or, to the
knowledge of the Company, threatened against the Company or the Company
Subsidiary, and no such proceeding was brought at any time in the past,
relating to the safety or efficacy of any of its products, and, to the
knowledge of the Company, there is no basis for any such action or proceeding.
No institutional review board or institutional review committee or other
similar group has terminated or recommended termination of a clinical study of
any product of the Company or the Company Subsidiary.
3.11 Absence of Certain Changes.
Since January 1, 1999, the Company has conducted its business only in the
ordinary course of such business, and there has not been (i) any Company
Material Adverse Effect or any event which is reasonably likely to result in a
Company Material Adverse Effect; (ii) any declaration, setting aside or
payment of any dividend or other distribution with respect to its capital
stock; or (iii) any material change in its accounting principles, practices or
methods, except as required under GAAP or applicable law.
3.12 Taxes and Tax Returns.
(a) Definitions:
"Code" means the Internal Revenue Code of 1986, as amended. All citations
to provisions of the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments thereto and any substitute or
successor provisions thereto.
"Taxes" means any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions, levies and
liabilities, including, without limitation, taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, gains, franchise, withholding, payroll,
recapture, employment, excise, unemployment, insurance, social security,
business license, occupation, business organization, stamp, environmental
and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts. For purposes of this Agreement,
"Taxes" also includes any obligations under any agreements or arrangements
with any person with respect to the liability for, or sharing of, Taxes
(including, without limitation, pursuant to Treas. Reg. (S) 1.1502-6 or
comparable provisions of state, local or foreign Tax law) and including,
without limitation, any liability for Taxes as a transferee or successor,
by contract or otherwise.
"Taxable Period" means any taxable year or any other period that is
treated as a taxable year (or other period, or portion thereof, in the case
of a Tax imposed with respect to such other period or portion thereof,
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e.g., a quarter) with respect to which any Tax may be imposed under any
applicable statute, rule, or regulation.
"Tax Reserve" shall have the meaning set forth in Section 3.12(d).
"Tax Return" means any report, return, election, notice, estimate,
declaration, information statement and other forms and documents
(including, without limitation, all schedules, exhibits and other
attachments thereto) relating to and filed or required to be filed with a
taxing authority in connection with any Taxes (including, without
limitation, estimated Taxes).
(b) All material Tax Returns required to be filed by or with respect to the
Company and the Company Subsidiary for all Taxable Periods have been timely
filed and all such Tax Returns, (i) except where the failure to do so is not
reasonably likely to have a Company Material Adverse Effect, were prepared in
the manner required by applicable law, (ii) are true, correct, and complete in
all material respects, and (iii) accurately reflect the liability for Taxes of
the Company and the Company Subsidiary. All Taxes shown to be payable on such
Tax Returns, and all assessments of Tax made against the Company and the
Company Subsidiary with respect to such Tax Returns, have been paid when due.
No adjustment relating to any such Tax Return has been proposed or threatened
formally or informally by any taxing authority and no basis exists for any
such adjustment.
(c) The Company and the Company Subsidiary have made (or there has been made
on their behalf) all required current estimated Tax payments sufficient to
avoid any underpayment penalties.
(d) The Company and the Company Subsidiary have (i) timely paid or caused to
be timely paid all material Taxes due, whether or not shown (or required to be
shown) on a Tax Return and (ii) provided a sufficient reserve (without regard
to deferred Tax assets and liabilities) for the payment of all material Taxes
not yet due and payable (the "Tax Reserve") on the financial statements
included in the Company Reports.
(e) The Company and the Company Subsidiary have complied in all material
respects with the provisions of the Code relating to the withholding and
payment of Taxes, including, without limitation, the withholding and reporting
requirements under Code sections 1441 through 1464, 3401 through 3406, and
6041 through 6049, as well as similar provisions under any other laws, and
have, within the time and in the manner prescribed by law, withheld from
employee wages and paid over to the proper governmental authorities all
amounts required.
(f) None of the Tax Returns of the Company or the Company Subsidiary has
been or is currently being examined by the Internal Revenue Service ("IRS") or
relevant state, local or foreign taxing authorities. No state of facts exists
or has existed which would constitute grounds for the assessment of any
liability for Taxes with respect to periods (or portions thereof) which have
not been audited by the IRS or other taxing authority. There are no
examinations or other administrative or court proceedings relating to Taxes in
progress or pending, nor has the Company or the Company Subsidiary received a
revenue agent's or similar report asserting a Tax deficiency. There are no
current or, to the Company's knowledge, threatened actions, suits,
proceedings, investigations, audits or claims relating to or asserted for
Taxes of the Company or the Company Subsidiary and there is no basis for any
such claim.
(g) No claim has ever been made in writing by any taxing authority with
respect to the Company or the Company Subsidiary in a jurisdiction where the
Company and/or the Company Subsidiary do not file Tax Returns that the Company
or the Company Subsidiary is or may be subject to taxation by that
jurisdiction. There are no security interests on any of the assets of the
Company or the Company Subsidiary that arose in connection with any failure
(or alleged failure) to pay any Taxes and, except for liens for real and
personal property Taxes that are not yet due and payable, there are no liens
for any Tax upon any asset of the Company or the Company Subsidiary.
(h) Neither the Company nor the Company Subsidiary has agreed or is required
to include in income or make any adjustment under either Section 481(a) or
Section 482 of the Code (or an analogous provision of state, local, or foreign
law) by reason of a change in accounting method or otherwise. Neither the
Company nor the
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Company Subsidiary has disposed of any property in a transaction being
accounted for under the installment method pursuant to Section 453 of the
Code.
(i) Neither the Company nor the Company Subsidiary is, or has been, a party
to any agreement (other than this Agreement) relating to allocating or sharing
the payment of, or liability for, Taxes with respect to any Taxable Period.
(j) Neither the Company nor the Company Subsidiary is a party to any
contract, agreement, plan or arrangement that, individually or in the
aggregate, or when taken together with any payment that may be made under this
Agreement or any agreements contemplated hereby, could give rise to the
payment of any "excess parachute payment" within the meaning of Section 280G
of the Code.
(k) Neither the Company nor the Company Subsidiary has distributed the stock
of any corporation in a transaction satisfying the requirements of Section 355
of the Code since April 16, 1997. The stock of neither the Company nor the
Company Subsidiary has been distributed in a transaction satisfying the
requirements of Section 355 of the Code since April 16, 1997.
(l) True and complete copies of all federal, state, local and foreign Tax
Returns of the Company and the Company Subsidiary have been made available to
Parent prior to the date hereof. Since the date of the most recent Company
Report, neither the Company nor the Company Subsidiary has incurred any
liability for Taxes that is reasonably likely to result in a material decrease
in the net worth of the Company or the Company Subsidiary.
(m) No extension of time with respect to any date on which a Tax Return was
or is to be filed by the Company or the Company Subsidiary is in force, and no
waiver or agreement by the Company or the Company Subsidiary is in force for
the extension of time for the assessment or payment of any Taxes.
(n) Neither the Company nor the Company Subsidiary has been a member of an
(i) affiliated group (within the meaning of Section 1504 of the Code) or (ii)
affiliated, combined, consolidated, unitary, or similar group for state, local
or foreign Tax purposes, other than the group of which the Company is the
common parent.
(o) Neither the Company nor the Company Subsidiary is a party to any joint
venture, partnership, or other arrangement or contract that could be treated
as a partnership for U.S. federal income tax purposes.
(p) None of the indebtedness of the Company or the Company Subsidiary
constitutes "corporate acquisition indebtedness" (as defined in Section 279(b)
of the Code) with respect to which any interest deductions may be disallowed
under Section 279 of the Code.
(q) Neither the Company nor the Company Subsidiary is or has been a U.S.
real property holding corporation (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(ii) of the
Code.
(r) Neither the Company nor the Company Subsidiary has consented to have the
provisions of Section 341(f)(2) of the Code applied to it.
(s) Section 3.12 of the Company Disclosure Schedule sets forth the amount of
any deferred gain or loss allocable to the Company arising out of any
intercompany transactions. Neither the Company nor the Company Subsidiary has
an excess loss account (within the meaning of Treas. Reg. (S) 1.1502-19) with
respect to the stock of the Company Subsidiary.
3.13 Material Contracts.
Section 3.13 of the Company Disclosure Schedule sets forth a complete list
as of the date of this Agreement of (i) contracts, binding commitments and
agreements (for purposes of this Agreement, contracts, binding
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commitments and agreements shall include, without limitation, all
collaborative arrangements or relationships of the Company and the Company
Subsidiary) to which the Company or the Company Subsidiary is a party or under
which any of them is obligated or bound or to which any of their properties or
assets may be subject, which (a) involve a payment or receipt after the date
hereof of more than $400,000, (b) are purchase orders involving more than
$400,000 or are supply agreements, (c) involve the licensing of or by the
Company or the Company Subsidiary of any Intellectual Property or (d) are
joint development agreements. There is no document or contract of a character
required to be described in, filed with the SEC as an exhibit to, or
incorporated by reference into, any periodical or other report made under the
Exchange Act and the rules and regulations promulgated thereunder, which is
not described, incorporated or filed as required. All material terms of each
of the contracts set forth on Section 3.13 of the Company Disclosure Schedule
and each of the contracts disclosed in the Company Reports are in full force
and effect and are enforceable against the Company and, to the knowledge of
the Company, against all other parties thereto, in accordance with their
terms. Except for such instances that are not reasonably likely to result in a
Company Material Adverse Effect, (a) the Company and the Company Subsidiary
are not in default under any such contract, binding commitment or agreement,
(b) to the knowledge of the Company, no party having any binding commitment
to, or contract or agreement with, the Company or the Company Subsidiary is in
default thereunder and (c) the Company has no knowledge of any fact,
circumstance or event which might reasonably be expected in the future to
cause any such party to be in default under any such material contract,
binding commitment or agreement.
3.14 Employee Benefit Plans.
(a) Section 3.14 of the Company Disclosure Schedule sets forth each plan,
agreement, arrangement or commitment which is an employment or consulting
agreement, executive or incentive compensation plan, bonus plan, deferred
compensation agreement, employee pension, profit sharing, savings or
retirement plan, employee stock option or stock purchase plan, group life,
health, or accident insurance or other employee benefit plan, agreement,
arrangement or commitment, including, without limitation, severance, holiday,
vacation, Christmas or other bonus plans (including, but not limited to,
"employee benefit plans", as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), maintained by
the Company or the Company Subsidiary for any of their present or former
employees, consultants, officers or directors ("Company Personnel") or with
respect to which the Company or the Company Subsidiary has liability, makes or
has an obligation to make contributions ("Company Plans").
(b) The Company has made available to Parent (i) true and correct copies of
all currently existing Company Plans or in the case of an unwritten plan, a
written description thereof, (ii) true and correct copies of any annual,
financial or actuarial reports and Internal Revenue Service determination
letters relating to such currently existing Company Plans and (iii) true and
correct copies of all summary plan descriptions (whether or not required to be
furnished under ERISA) and material employee communications relating to such
Company Plans and distributed to Company Personnel. The Company has no
liabilities under any Company Plan that is not currently existing.
(c) There are no Company Personnel who are entitled to (i) any pension
benefit that is unfunded or (ii) any pension or other benefit to be paid after
termination of employment other than required by Section 601 of ERISA or
pursuant to plans intended to be qualified under Section 401(a) of the Code
and listed on Section 3.14 of the Company Disclosure Schedule, and no other
benefits whatsoever are payable to any Company Personnel after termination of
employment (including retiree medical and death benefits) except pursuant to a
Company Plan listed in Section 3.14 of the Company Disclosure Schedule.
(d) Each Company Plan that is an employee welfare benefit plan under Section
3(l) of ERISA is either (i) funded through an insurance company contract and
is not a "welfare benefit fund" within the meaning of Section 419 of the Code
or (ii) is unfunded.
(e) All contributions or payments owed with respect to any periods prior to
the Closing under any Company Plan have been made or accrued. Each Company
Plan by its terms and operation is in material compliance with
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all applicable laws (including, but not limited to, ERISA, the Code and the
Age Discrimination in Employment Act of 1967, as amended).
(f) There are no actions, suits or claims pending or, to the Company's
knowledge, threatened (other than routine claims for benefits) or, to the
Company's knowledge, no set of circumstances exist which may reasonably give
rise to such a claim against any Company Plan or administrator or fiduciary of
any such Company Plan. As to each Company Plan for which an annual report is
required to be filed under ERISA or the Code, all such filings, including
schedules, have been made on a timely basis and with respect to the most
recent report regarding each such Company Plan liabilities do not exceed
assets, and no material adverse change has occurred with respect to the
financial matters covered thereby.
(g) Neither the Company nor any entity required to be aggregated with the
Company pursuant to Sections 414(b), (c), (m) or (o) of the Code contributes
to, maintains or has any liability with respect to a plan subject to Title IV
of ERISA, Section 412 of the Internal Revenue Code or Section 302 of ERISA.
(h) Each Company Plan that is intended to be qualified under Section 401(a)
of the Code has received a favorable determination letter from the Internal
Revenue Service stating that such plan is so qualified and (i) nothing has
occurred since the date of such letter to cause the letter to be no longer
valid or effective, or (ii) the applicable remedial amendment period for such
plan has not yet expired.
(i) Neither the Company, the Company Subsidiary nor any other person,
including any fiduciary, has engaged in any "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA), which could
subject any of the Company Plans (or their trusts), the Company, the Company
Subsidiary, or any person who the Company or the Company Subsidiary has an
obligation to indemnify, to any material tax or penalty imposed under Section
4975 of the Code or Section 502 of ERISA.
(j) The events contemplated by this Agreement (either alone or together with
any other event) will not (i) entitle any Company Personnel to severance pay,
unemployment compensation, or other similar payments under any Company Plan or
law, (ii) accelerate the time of payment or vesting or increase the amount of
benefits due under any Company Plan or compensation to any Company Personnel,
(iii) result in any payments (including parachute payments) under any Company
Plan or law becoming due to any Company Personnel, or (iv) terminate or modify
or give a third party a right to terminate or modify the provisions or terms
of any Company Plan.
(k) The Company, the Company Subsidiary and each member of their respective
business enterprises have complied with the Worker Adjustment and Retraining
Notification Act.
3.15 Labor Matters.
Neither the Company nor the Company Subsidiary is a party to, or bound by,
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. There is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge of
the Company, threatened against the Company or the Company Subsidiary relating
to their business, except for any such proceeding which is not reasonably
likely to result in a Company Material Adverse Effect. To the knowledge of the
Company, there are no organizational efforts with respect to the formation of
a collective bargaining unit currently being made or threatened involving
employees of the Company or the Company Subsidiary. The Company and the
Company Subsidiary are in compliance with all applicable laws regarding
employment, consulting, employment practices, wages, hours and terms and
conditions of employment, except where noncompliance is not reasonably likely
to have a Company Material Adverse Effect.
3.16 Parent Stock Ownership.
Neither the Company nor the Company Subsidiary owns any shares of Parent
Common Stock or other securities convertible into or exercisable for Parent
Common Stock.
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3.17 Pooling of Interests; Tax Reorganization.
There has been no action or omission by the Company or the Company
Subsidiary which would prevent the accounting for the Merger as a pooling of
interests in accordance with Accounting Principles Board Opinion No. 16 ("APB
No. 16"), the interpretative releases issued pursuant thereto, and the
pronouncements of the SEC. There has been no action or omission by the Company
or the Company Subsidiary which would prevent the Merger from constituting a
reorganization within the meaning of Section 368(a) of the Code.
3.18 Environmental Matters.
Except where any noncompliance is not reasonably likely, individually or in
the aggregate, to result in a Company Material Adverse Effect, the Company and
the Company Subsidiary are in compliance with all applicable federal, state,
local and foreign laws, rules and regulations relating to pollution or
protection of human health, worker safety or the environment (including,
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata) (collectively, "Environmental Laws"). Such compliance
includes, but is not limited to, the possession by the Company and the Company
Subsidiary of all permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof. Neither the Company nor the Company Subsidiary has received written
notice of, or to the knowledge of the Company, is the subject of, any actions,
causes of action, claims, investigations, demands or notices by any person or
entity alleging liability under or noncompliance with any Environmental Law.
To the knowledge of the Company, there are no currently existing circumstances
that are reasonably likely to prevent or interfere with such compliance in the
future.
3.19 State Takeover Statutes and Shareholder Rights Plan.
The Board of Directors of the Company has approved this Agreement and the
Merger, and such approval is sufficient to render inapplicable to this
Agreement and the Merger and the transactions contemplated by this Agreement
and the Support Agreement, the provisions of Section 203 of the DGCL to the
extent, if any, such Section is applicable to this Agreement and the Merger
and the transactions contemplated by this Agreement and the Support Agreement.
To the Company's knowledge, no other state antitakeover statute or similar
statute or regulation is applicable to the Merger or the other transactions
contemplated hereby and by the Support Agreement and the Option Agreement. The
Company has taken all actions necessary such that, for all purposes under the
Rights Agreement, neither Parent nor Merger Sub nor any of their affiliates
shall be deemed an Acquiring Person (as defined in the Rights Agreement), the
Distribution Date (as defined in the Rights Agreement) shall not be deemed to
occur, and the Rights will not separate from the Company Common Stock, in each
case solely as a result of Parent's and Merger Sub's entering into this
Agreement, the Option Agreement or the Support Agreement or consummating the
Merger and/or the other transactions contemplated hereby or thereby.
3.20 No Brokers.
The Company has not entered into any contract, arrangement or understanding
with any person or firm which may result in the obligation of the Company or
Parent to pay any finder's fees, brokerage or agent's commissions or other
like payments in connection with the negotiations leading to this Agreement,
the Option Agreement and the Support Agreement, or the consummation of the
transactions contemplated hereby and thereby, except that the Company has
retained Piper Jaffray Inc. as its financial advisor, the arrangements of
which have been disclosed by the Company to Parent. Other than the foregoing
arrangements, the Company is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement, the Option
Agreement and the Support Agreement, or the consummation of the transactions
contemplated hereby and thereby.
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3.21 Opinion of Financial Advisor.
The Board of Directors of the Company has received the opinion of Piper
Jaffray Inc. to the effect that, as of the date hereof, the consideration to
be received in the Merger is fair to the holders of Company Common Stock from
a financial point of view.
ARTICLE 4
Representations and Warranties of Parent and Merger Sub
Except as set forth in the disclosure schedule delivered at or prior to the
execution hereof to the Company (the "Parent Disclosure Schedule") or in the
Parent Reports (as defined below) filed on or prior to the date hereof, Parent
and Merger Sub represent and warrant to the Company as of the date of this
Agreement as follows (it being understood that disclosure in one instance is
sufficient for all purposes if the context thereof is reasonably evident and
it being understood that disclosure of an item is not to be construed as an
admission of any fact):
4.1 Existence; Good Standing; Corporate Authority; Compliance with Law.
Each of Parent and Merger Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Parent is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of any other state
of the United States in which the character of the properties owned or leased
by it or in which the transaction of its business makes such qualification
necessary, except where the failure to be so qualified or to be in good
standing is not reasonably likely to result in a Parent Material Adverse
Effect (as defined in Section 8.14 hereof). Parent has all requisite corporate
power and authority to own, operate and lease its properties and carry on its
business as now conducted or as reasonably contemplated in the future. Neither
Parent nor Merger Sub is in violation of any order of any court, governmental
authority or arbitration board or tribunal, or any law, ordinance,
governmental rule or regulation to which Parent or Merger Sub or any of their
respective properties or assets is subject, other than any violations which
are not reasonably likely to result in a Parent Material Adverse Effect.
Parent and Merger Sub have obtained all licenses, permits and other
authorizations and have taken all actions required by applicable law or
governmental regulations in connection with their business as now conducted,
except where the failure to obtain any such item or to take any such action is
not reasonably likely to result in a Parent Material Adverse Effect.
4.2 Authorization, Validity and Effect of Agreements.
Each of Parent and Merger Sub, respectively, has the requisite corporate
power and authority to execute and deliver this Agreement, the Support
Agreement and the Option Agreement and all other agreements and documents
contemplated hereby and thereby, and perform its obligations hereunder and
thereunder. The consummation by Parent and Merger Sub, as applicable, of the
transactions contemplated hereby and by the Option Agreement and the Support
Agreement have been unanimously approved by the Board of Directors of Parent
and Merger Sub, as applicable, and duly authorized by all requisite corporate
action. This Agreement, the Support Agreement and the Option Agreement,
constitute the valid and legally binding obligations of Parent and/or Merger
Sub, as applicable, enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity.
4.3 Capitalization.
The authorized capital stock of Parent consists of 1,000,000,000 shares of
Parent Common Stock and 50,000,000 shares of Preferred Stock, without par
value, ("Parent Preferred Stock"). As of August 27, 1999, there were
301,677,625 shares of Parent Common Stock and no shares of Parent Preferred
Stock issued and outstanding and 458,226 shares of Parent Common Stock and no
shares of Parent Preferred Stock held in Parent's
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treasury. Since such date, no additional shares of capital stock of Parent
have been issued, except shares issued pursuant to the exercise of options
outstanding under Parent's stock option plans (the "Parent Stock Option
Plans"). As of August 27, 1999, options to acquire 36,672,998 shares of Parent
Common Stock were outstanding. Since such date, no additional options have
been granted. Prior to the Closing Date, Parent anticipates that options to
acquire additional shares of Parent Common Stock will be granted to certain
employees pursuant to the Parent 1998 Stock Plan. Parent has no outstanding
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or which are convertible into or exercisable for securities
having the right to vote) with the stockholders of Parent on any matter. All
such issued and outstanding shares of Parent Common Stock are, and all shares
of Parent Common Stock to be issued pursuant to Section 2.2(a) hereof, when
issued in accordance with the terms hereof will be, duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. Except as
contemplated by this Agreement, there are not at the date of this Agreement
any existing options, warrants, calls, subscriptions, convertible securities,
or other rights, agreements or commitments, other than pursuant to the Parent
Stock Option Plans and the Rights Agreement between Parent and Bank One,
Indianapolis, NA dated October 17, 1994 (the "Parent Rights Agreement"), which
obligate Parent or any of its Subsidiaries to issue, transfer or sell any
shares of capital stock of Parent or any of its Subsidiaries.
4.4 Merger Sub.
The authorized capital stock of Merger Sub consists of 100 shares of common
stock, par value $0.01 per share, all of which shares are issued and
outstanding and owned by Parent. Notwithstanding any provisions to the
contrary, Parent may, in its sole discretion, increase or decrease the number
of shares of authorized common stock of Merger Sub and the number of shares of
common stock of Merger Sub issued and outstanding owned by Parent. Merger Sub
has not engaged in any activities other than in connection with its formation
and the transactions contemplated by this Agreement.
4.5 No Violation.
Neither the execution and delivery by Parent and Merger Sub, as applicable,
of this Agreement, the Support Agreement or the Option Agreement, nor the
consummation by Parent and Merger Sub, as applicable, of the transactions
contemplated hereby and thereby in accordance with the terms hereof and
thereof, will: (i) conflict with or result in a breach of any provisions of
the respective Certificate of Incorporation or Bylaws of Parent or Merger Sub;
(ii) result in a breach or violation of, a default under, or the triggering of
any payment or other material obligations pursuant to, or accelerate vesting
under, any of the Parent Stock Option Plans, or any grant or award under any
of the foregoing; (iii) violate, conflict with, result in a breach of any
provision of, constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, result in the termination or
in a right of termination or cancellation of, accelerate the performance
required by, result in the triggering of any payment or other material
obligations pursuant to, result in the creation of any lien, security
interest, charge or encumbrance upon any of the material properties of Parent
or Merger Sub under, or result in being declared void, voidable, or without
further binding effect, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust or any material license,
franchise, permit, lease, contract, agreement or other instrument, binding
commitment or obligation to which Parent or Merger Sub is a party, or by which
Parent or Merger Sub or any of their respective properties is bound or
affected, except for any of the foregoing matters which is not reasonably
likely to (a) result in a Parent Material Adverse Effect, (b) impair in any
material respects the ability of Parent to perform its obligations under this
Agreement, the Option Agreement and the Support Agreement, or (c) prevent or
materially delay the consummation of any of the transactions contemplated by
this Agreement, the Option Agreement or the Support Agreement; or (iv) other
than filings by Parent required under the HSR Act, the filing with the SEC of
a Registration Statement on Form S-4, the filing of the Certificate of Merger
with the Delaware Secretary of State, and the submission to the NYSE and the
Pacific Exchange, Inc. (the "Pacific Exchange") of a listing application,
require, by or with respect to Parent or Merger Sub in connection with the
execution and delivery of this Agreement by Parent and Merger Sub or the
consummation by Merger Sub of the Merger, any consent, approval or
authorization of, or declaration, filing or registration with, any domestic
governmental or regulatory authority, other than consents, approvals,
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authorizations, declarations or filings or registrations which, if not
obtained or made, are not reasonably likely to result in a Parent Material
Adverse Effect.
4.6 SEC Documents.
As of their respective dates, or, if amended, as of the date of the last
such amendment, each registration statement, report, proxy statement or
information statement (as defined in Regulation 14C under the Exchange Act) of
Parent prepared by Parent since January 1, 1996, in the form (including
exhibits and any amendments thereto) filed with the SEC, (collectively, the
"Parent Reports") (i) complied as to form in all material respects with the
applicable requirements of the Securities Act, the Exchange Act, and the rules
and regulations thereunder applicable to such Parent Reports and (ii) at the
time they were filed did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under
which they were made, not misleading. Each of the consolidated balance sheets
included in or incorporated by reference into the Parent Reports (including
the related notes and schedules) fairly presents the consolidated financial
position of Parent and its Subsidiaries as of its date, and each of the
consolidated statements of operations, stockholders' equity and cash flows
included in or incorporated by reference into the Parent Reports (including
any related notes and schedules) fairly presents the financial position,
results of operations and cash flows, as the case may be, of Parent and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which are not
reasonably likely to be material in amount or effect, and the absence of
footnotes), in each case in accordance with GAAP consistently applied during
the periods involved, except as may be noted therein. Neither Parent nor any
of its Subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) except (a) as set forth in the
Parent Reports, (b) liabilities or obligations reflected on, or reserved
against in, a consolidated balance sheet of Parent or in the notes thereto,
prepared in accordance with GAAP consistently applied and included in the
Parent Reports, (c) liabilities or obligations incurred in the ordinary course
of business which are not reasonably likely to have a Parent Material Adverse
Effect and (d) arising under executory contracts not currently in default.
4.7 Investigations; Litigation.
Except as set forth in Section 4.7 of the Parent Disclosure Schedule or in
the Parent Reports (a) no investigation or review, except in the ordinary
course of its business, by any governmental entity with respect to Parent or
Merger Sub is pending (or, to Parent's knowledge, threatened) that, if
concluded adversely to Parent or Merger Sub, individually or in the aggregate
is reasonably likely to have a Parent Material Adverse Effect nor has any
governmental entity indicated to Parent or Merger Sub an intention to conduct
the same; and (b) there are no actions, suits or proceedings pending against
Parent or Merger Sub or, to the knowledge of Parent or Merger Sub, threatened
against Parent or Merger Sub, at law or in equity, or before or by any federal
or state commission, board, bureau, agency or instrumentality, that, if
concluded adversely to Parent or Merger Sub, individually or in the aggregate
is reasonably likely to have a Parent Material Adverse Effect.
4.8 Absence of Certain Changes.
Since December 31, 1998, other than as set forth in the Parent Reports,
Parent has conducted its business only in the ordinary course of such
business, and there has not been (i) any Parent Material Adverse Effect or any
event which is reasonably likely to result in a Parent Material Adverse
Effect; (ii) any declaration, setting aside or payment of any dividend or
other distribution with respect to its capital stock (other than the regular
quarterly cash dividends payable on Parent Common Stock); or (iii) any
material change in its accounting principles, practices or methods, except as
required under GAAP or applicable law.
4.9 Company Stock Ownership.
Neither Parent nor any of its Subsidiaries owns any shares of Company Common
Stock or other securities convertible into or exercisable for Company Common
Stock.
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4.10 No Brokers.
Parent has not entered into any contract, arrangement or understanding with
any person or firm which may result in the obligation of the Company or Parent
to pay any finder's fee, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement and the
Support Agreement or the consummation of the transactions contemplated hereby
and thereby, except that Parent has retained J.P. Morgan Securities Inc. as
its financial advisor. Other than the foregoing arrangements, Parent is not
aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement and the Support Agreement or the consummation of the
transactions contemplated hereby and thereby.
4.11 Pooling of Interests; Tax Reorganization.
There has been no action or omission by Parent or its Subsidiaries which
would prevent the accounting for the Merger as a pooling of interests in
accordance with APB No. 16, the interpretive releases issued pursuant thereto,
and the pronouncements of the SEC. There has been no action or omission by
Parent or its Subsidiaries which would prevent the Merger from constituting a
reorganization within the meaning of Section 368(a) of the Code.
ARTICLE 5
Covenants
5.1 Alternative Proposals.
The Company, its affiliates and their respective officers, directors,
employees, representatives and agents shall immediately cease any existing
discussions or negotiations, if any, with any parties other than Parent or
Merger Sub conducted heretofore with respect to any merger, consolidation,
share exchange, business combination, sale, lease, license, exchange,
mortgage, pledge, transfer or other disposition of substantial assets of the
Company other than in the ordinary course of business or sale, pledge,
issuance, or other transfer or disposition of shares of capital stock of the
Company (other than in the ordinary course of business under the Company Stock
Option Plans or the Stock Purchase Plan or pursuant to currently outstanding
options or warrants) or similar transaction in each case involving or with
respect to the Company or the Company Subsidiary (each, a "Transaction"). The
Company may, directly or indirectly, furnish information and access, in each
case only in response to unsolicited requests therefor, to any corporation,
partnership, person or other entity or group, and may participate in
discussions and negotiate with such entity or group concerning any Transaction
if such entity or group has submitted a written proposal to the Company Board
relating to any such Transaction (an "Alternative Proposal") and the Company
Board by a majority vote determines in its good faith judgment, based as to
legal matters on the advice of outside legal counsel and as to financial
matters upon the advice of an investment banking firm of national reputation,
that the Alternative Proposal is a Superior Proposal (as hereinafter defined)
and that failing to take such action may constitute a breach of the Company
Board's fiduciary duty. The Company Board shall notify Parent of the receipt
of any Superior Proposal and the material terms and conditions thereof, and
shall promptly notify Parent of any changes to such material terms and
conditions. Except as set forth above, neither the Company or any of its
affiliates, nor any of its or their respective officers, directors, employees,
representatives or agents, shall, directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, or provide any
information to, any corporation, partnership, person or other entity or group
(other than Parent and Merger Sub, any affiliate or associate of Parent and
Merger Sub or any designees of Parent and Merger Sub) concerning, or enter
into any agreement with respect to, any Transaction; provided, however, that
nothing herein shall prevent the Company Board from taking, and disclosing to
the Company's stockholders, a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender offers; provided,
further, that the Company Board shall not recommend that the shareholders of
the Company tender their outstanding shares of Company Common Stock in
connection with any such tender offer or exchange offer unless the Company
Board by a majority vote determines in its good
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faith judgment, based as to legal matters on the advice of outside legal
counsel and as to financial matters upon the advice of an investment banking
firm of national reputation, that the tender offer is a Superior Proposal and
that failing to take such action may constitute a breach of the Company
Board's fiduciary duty under applicable laws. Nothing in this Section 5.1
shall (x) permit the Company to terminate this Agreement (except as
specifically provided in Article 7 hereof), (y) permit the Company to accept
or enter into any agreement with respect to an Alternative Proposal during the
term of this Agreement, or (z) affect any other obligation of the Company
under this Agreement.
For purposes of this Agreement "Superior Proposal" means any Alternative
Proposal with respect to a Transaction which (a) in the good faith judgment of
the Company Board, after consultation with its outside financial advisors, is
superior to the Merger from a financial point of view to the stockholders of
the Company, (b) faces no material legal or other impediments to consummation
which are more adverse, in the aggregate, to the Company than the legal or
other impediments, if any, faced by the Company in connection with the
consummation of the Merger, and (c) is reasonably capable of being financed.
5.2 Interim Operations.
(a) Prior to the Effective Time, except as set forth in the Company
Disclosure Schedule or as contemplated by any other provision of this
Agreement, unless Parent has consented in writing thereto, the Company:
(i) shall, and shall cause the Company Subsidiary to, conduct its
operations in the ordinary course consistent with the manner as heretofore
conducted;
(ii) shall use commercially reasonable efforts, and shall cause the
Company Subsidiary to use commercially reasonable efforts, to preserve
intact their business organizations and goodwill, keep available the
services of their respective officers and employees and maintain
satisfactory relationships with those persons having business relationships
with them;
(iii) shall not, and shall cause the Company Subsidiary not to, amend
their respective Certificates of Incorporation or Bylaws or comparable
governing instruments;
(iv) shall give prompt notice to Parent of any representation or warranty
made by it contained in this Agreement becoming untrue or inaccurate such
that the condition set forth in Section 6.3(a)(ii) would not be satisfied;
provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement;
(v) shall, upon receiving any written notice from any Taxing authority
proposing any adjustment to any Tax relating to the Company or the Company
Subsidiary, give prompt written notice thereof to Parent, which notice
shall describe in detail each proposed adjustment;
(vi) subject to the provisions of Section 5.1, shall not, and shall not
permit the Company Subsidiary to, (A) acquire or agree to acquire by
merging or consolidating with, or by acquiring any capital stock of or
purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, joint venture, association or
other business organization or division thereof, or (B) acquire or agree to
acquire assets other than in the ordinary course of business and except for
capital expenditures made in accordance with clause (xviii) below and
except for in-licenses of technology, the cost of which does not exceed
$1,000,000 individually or $2,000,000 in the aggregate, or (C) release or
relinquish or agree to release or relinquish any material contract rights;
(vii) shall not, and shall not permit the Company Subsidiary to, effect
any stock split or otherwise change its capitalization or issue any shares
of its capital stock or securities convertible into or exchangeable or
exercisable for shares of its capital stock, except (A) upon exercise of
options to purchase shares of Company Common Stock under the Company Stock
Option Plans, and except (B) pursuant to the Stock Purchase Plan;
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(viii) shall not, and shall not permit the Company Subsidiary to, grant,
confer or award any options, warrants, conversion rights or other rights,
not existing on the date hereof, to acquire any shares of its capital stock
or other securities of the Company or the Company Subsidiary, other than
(a) the issuance of Company Options to newly hired employees, consistent
with past practice or (b) as set forth in Section 5.2(a)(viii) of the
Company Disclosure Schedule;
(ix) shall not, and shall not permit the Company Subsidiary to, take or
fail to take any action which would, or would be reasonably likely to,
prevent the accounting for the Merger as a pooling of interests in
accordance with APB No. 16, the interpretive releases issued thereto, and
the pronouncements of the SEC.
(x) shall not, and shall not permit the Company Subsidiary to, take or
fail to take any actions which would, or would be reasonably likely to,
prevent the Merger from qualifying as a reorganization with the meaning of
Section 368(a) of the Code;
(xi) shall not, and shall not permit the Company Subsidiary to, amend in
any material respect, except as required by applicable law or in response
to changes in applicable law, the terms of any Company Plan, including,
without limitation, any employment, severance or similar agreements or
arrangements in existence on the date hereof, or adopt any new employee
benefit plans, programs or arrangements or any employment, severance or
similar agreements or arrangements, or change in any respect any vesting
schedule with respect to any Company Plan or grant or award thereunder, or
grant any salary increases to any employee of the Company or the Company
Subsidiary above that amount previously disclosed in writing by the Company
to Parent, except in the ordinary course of business consistent with past
practice to non-officers of the Company or the Company Subsidiary, except
that (A) the Company may hire employees in the ordinary course of business
consistent with past practice and (B) this subsection (xi) shall not
preclude Company from making payments under Company Plans;
(xii) shall notify Parent in writing promptly upon receiving notice from
any employee of the Company or the Company Subsidiary of such employee's
intention to terminate employment with the Company or the Company
Subsidiary;
(xiii) shall not, and shall not permit the Company Subsidiary to, except
in the ordinary course of business consistent with past practice, change in
any respect the compensation arrangements for the sales force of the
Company or the Company Subsidiary;
(xiv) shall not, and shall not permit the Company Subsidiary to, except
in the ordinary course of business consistent with past practice, grant any
promotion to any management level employee of the Company or the Company
Subsidiary;
(xv) shall not, and shall not permit the Company Subsidiary to, except in
the ordinary course of business consistent with past practice, (x) incur,
create, assume or otherwise become liable for borrowed money or assume,
guarantee, endorse or otherwise become responsible or liable for the
obligations of any other individual, corporation or other entity or (y)
make any loans or advances to any other person;
(xvi) shall not, and shall not permit the Company Subsidiary to, (x)
make, revoke or change any election with respect to Taxes or (y) settle or
compromise any Tax liability;
(xvii) shall not, and shall not permit the Company Subsidiary to, (y)
declare, set aside or pay any dividend or make any other distribution or
payment with respect to any shares of its capital stock or other ownership
interests or (z) directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or capital stock of the Company
Subsidiary, or make any commitment for any such action;
(xviii) shall not, and shall not permit the Company Subsidiary to, make
any capital expenditures which in the aggregate are in excess of
$1,000,000;
(xix) shall not, and shall not permit the Company Subsidiary to, solicit
to hire or hire any employee of Parent; provided, however, that nothing in
this Section 5.2(a)(xix) shall prevent the Company or the Company
Subsidiary from publishing any general advertisement or similar notice in
any newspaper or other publication or from hiring any person pursuant to
such advertisement or notice;
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(xx) shall use reasonable efforts to not, and shall use reasonable
efforts to cause the Company Subsidiary to not, contact Parent's sales
representatives, customers, vendors or strategic partners, the names of
which have been provided by Parent to the Company, concerning Parent or the
Merger, without Parent's prior written consent, which consent shall not be
unreasonably withheld;
(xxi) shall not, and shall not permit the Company Subsidiary to, make any
public disclosure regarding its understanding of Parent's plan for
integrating the operations of the Company with those of Parent and any of
its Subsidiaries; and
(xxii) shall not, and shall not permit the Company Subsidiary to, agree,
in writing or otherwise, to take any of the foregoing actions.
(b) Prior to the Effective Time, except as set forth in the Parent
Disclosure Schedule or as contemplated by any other provision of this
Agreement, unless the Company has consented in writing thereto, Parent:
(i) shall, and shall cause Merger Sub to, give prompt notice to the
Company of any representation or warranty made by it contained in this
Agreement becoming untrue or inaccurate such that the condition set forth
in Section 6.2(a)(ii) would not be satisfied; provided, however, that no
such notification shall affect the representations, warranties, covenants
or agreements of the parties or the conditions to the obligations of the
parties under this Agreement;
(ii) shall not, and shall not permit any of its Subsidiaries to, take or
fail to take any action which would, or would be reasonably likely to,
prevent the accounting for the Merger as a pooling of interests in
accordance with APB No. 16, the interpretive releases issued thereto, and
the pronouncements of the SEC;
(iii) shall not, and shall not permit any of its Subsidiaries to, take or
fail to take any actions which would, or would be reasonably likely to,
prevent the Merger from qualifying as a reorganization with the meaning of
Section 368(a) of the Code;
(iv) shall not, and shall not permit any of its Subsidiaries to, solicit
to hire or hire any employee of the Company; provided, however, that
nothing in this Section 5.2(b)(iv) shall prevent Parent or any Subsidiary
from publishing any general advertisement or similar notice in any
newspaper or other publication or from hiring any person pursuant to such
advertisement or notice;
(v) shall use reasonable efforts to not, and shall use reasonable efforts
to cause its Subsidiaries to not, contact the Company's sales
representatives, customers, vendors or strategic partners, the names of
which have been provided by the Company to Parent, concerning the Company
or the Merger, without the Company's prior written consent, which consent
shall not be unreasonably withheld;
(vi) shall not, and shall not permit any of its Subsidiaries to, make any
public disclosure regarding Parent's plan for integrating the operations of
the Company with those of Parent and any of its Subsidiaries; and
(vii) shall not, and shall not permit any of its Subsidiaries to, agree,
in writing or otherwise, to take any of the foregoing actions.
5.3 Meeting of Stockholders.
The Company will, as soon as practicable following the date of this
Agreement, establish a record date (which will be as soon as practicable
following the date of this Agreement) for, duly call, give notice of, convene
and hold a meeting of its stockholders (the "Company Stockholders Meeting") as
promptly as practicable for the purpose of obtaining the approval of its
stockholders of this Agreement and the Merger. The Company Board shall
recommend such approval and shall use its reasonable best efforts to solicit
such approval, including, without limitation, timely mailing the Proxy
Statement/Prospectus (as defined in Section 5.7); provided, however, that such
recommendation or solicitation shall not be required and the Company Board may
withdraw or modify such recommendation or solicitation, if previously made, if
and to the extent that the Company Board determines after the date hereof, in
its good faith judgment, based as to legal matters on the advice of outside
legal counsel
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and as to financial matters upon the advice of an investment banking firm of
national reputation, that the making of such recommendation or solicitation
may involve a breach of its fiduciary duties to its stockholders imposed by
law.
5.4 Filings; Other Actions.
Subject to the terms and conditions herein provided, the Company and Parent
shall: (a) promptly make their respective filings and thereafter make any
other required submissions under the HSR Act with respect to the Merger and
the transactions contemplated hereby and by the Option Agreement and the
Support Agreement; (b) use all reasonable efforts to cooperate with one
another (i) in determining which filings are required to be made prior to the
Effective Time with, and which consents, approvals, permits or authorizations
are required to be obtained prior to the Effective Time from, governmental or
regulatory authorities of the United States, the several states and foreign
jurisdictions in connection with the execution and delivery of this Agreement,
the Option Agreement and the Support Agreement and the consummation of the
transactions contemplated hereby and thereby and (ii) in timely making all
such filings and timely seeking all such consents, approvals, permits or
authorizations; and (c) use all reasonable efforts to take, or cause to be
taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement , the Option Agreement and the
Support Agreement as promptly as practicable.
5.5 Inspection of Records.
From the date hereof to the Effective Time, Company and Parent shall (i)
allow all designated officers, attorneys, accountants and other
representatives of their respective companies reasonable access at all
reasonable times to the offices, records and files, correspondence, audits and
properties, as well as to all information relating to commitments, contracts,
titles and financial position, or otherwise pertaining to the business and
affairs, of the other party and their Subsidiaries, (ii) furnish to such other
party and such other party's counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information as such persons may reasonably request and (iii) instruct
employees, counsel and financial advisors to cooperate with such party in such
party's investigation of the business of the other party and its Subsidiaries.
Except as required by law, Parent and the Company will hold, and will cause
their respective officers, employees, accountants, counsel, financial advisors
and other representatives and affiliates to hold, any and all information
received from the Company or from Parent, as the case may be, directly or
indirectly, in confidence, in accordance with the Confidentiality Agreement
dated as of May 6, 1999 between Parent and the Company (as it may be amended
from time to time, the "Confidentiality Agreement").
5.6 Publicity.
The initial press release relating to this Agreement shall be a joint press
release in the form heretofore agreed to by the parties and thereafter the
Company and Parent shall, subject to their respective legal obligations
(including requirements of stock exchanges and other similar regulatory
bodies), consult with each other, and use reasonable efforts to agree upon the
text of any press release, before issuing any such press release or otherwise
making public statements with respect to the transactions contemplated hereby
and by the Option Agreement and Support Agreement and in making any filing
with any federal or state governmental or regulatory agency or with any
national securities exchange with respect thereto.
5.7 Registration Statement.
Parent and the Company shall cooperate and promptly prepare and Parent shall
file with the SEC as soon as practicable a Registration Statement on Form S-4
(the "Form S-4") under the Securities Act, with respect to the Parent Common
Stock issuable in the Merger, which Registration Statement shall contain the
proxy statement with respect to the meeting of the stockholders of the Company
in connection with the Merger (the "Proxy Statement/Prospectus").
Notwithstanding the foregoing, the Company may file the Proxy
Statement/Prospectus
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with the SEC, and receive SEC clearance of the Proxy Statement/Prospectus,
prior to Parent's filing the Form S-4. The respective parties will cause the
Proxy Statement/Prospectus and the Form S-4 to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Parent shall use
reasonable efforts, and the Company will cooperate with Parent, to have the
Form S-4 declared effective by the SEC as promptly as practicable. Parent
shall take all action required to obtain, prior to the effective date of the
Form S-4, all necessary state securities law or "Blue Sky" permits or
approvals required to carry out the transactions contemplated by this
Agreement. The information supplied by the Company for inclusion or
incorporation by reference in the Proxy Statement/Prospectus and the Form S-4,
except to the extent that information contained therein has been revised or
superseded by a later-filed amendment to the Proxy Statement/Prospectus or the
Form S-4, shall not (i) at the time the Form S-4 is declared effective, (ii)
at the time the Proxy Statement/Prospectus (or any amendment thereof or
supplement thereto) is first mailed to holders of Company Common Stock, (iii)
at the time of the Company Stockholders' Meeting and (iv) at the Effective
Time, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they are
made, not misleading. The information supplied by Parent for inclusion or
incorporation by reference in the Proxy Statement/Prospectus and the Form S-4,
except to the extent that information contained therein has been revised or
superseded by a later-filed amendment to the Proxy Statement/Prospectus or the
Form S-4, shall not (i) at the time the Form S-4 is declared effective, (ii)
at the time the Proxy Statement/Prospectus (or any amendment thereof or
supplement thereto) is first mailed to holders of Company Common Stock, (iii)
at the time of the Company Stockholders' Meeting and (iv) at the Effective
Time, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they are
made, not misleading. No amendment or supplement to the Proxy
Statement/Prospectus will be made by the Company without the approval of
Parent and no amendment of the Form S-4 will be made by Parent without the
approval of the Company. Parent will advise the Company, promptly after it
receives notice thereof, of the time when the Form S-4 has become effective or
any supplement or amendment has been filed, the issuance of any stop order,
the suspension of the qualification of the Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Proxy Statement/Prospectus or the Form
S-4 or comments thereon and responses thereto or requests by the SEC for
additional information.
5.8 Listing Application.
Parent shall promptly prepare and submit to the NYSE and the Pacific
Exchange a listing application covering the shares of Parent Common Stock
issuable in the Merger and upon exercise of the Parent Options, and shall use
all reasonable efforts to obtain, prior to the Effective Time, approval for
the listing of such Parent Common Stock, subject to official notice of
issuance.
5.9 Affiliate Letters.
The Company shall use its reasonable best efforts to deliver or cause to be
delivered to Parent, prior to the Closing Date, from each person identified in
Section 5.9 of the Company Disclosure Schedule as an "affiliate" (each such
person, an "Affiliate") of the Company within the meaning of Rule 145 of the
rules and regulations promulgated under the Securities Act an Affiliate Letter
in the form attached hereto as Exhibit A.
5.10 Expenses.
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement, the Option Agreement and the Support Agreement
and the transactions contemplated hereby and thereby shall be paid by the
party incurring such expenses except as expressly provided herein and except
that the filing fee in connection with the filing of the Form S-4 or Proxy
Statement/Prospectus with the SEC and the expenses incurred in connection with
printing and mailing the Form S-4 and the Proxy Statement/Prospectus shall be
paid one-half by Parent and one-half by the Company.
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5.11 Certain Transaction Related Fees.
The Company shall not, and shall not permit any Subsidiary to, incur, spend
or otherwise become liable or obligated for any fees, costs or other expenses
arising out of or related to the transactions contemplated hereby, including,
without limitation, fees of legal counsel, investment banking, and other
financial and other advisors, in excess of an amount equal to the sum of (a)
any amounts owed to U.S. Bancorp Piper Jaffray Inc. under the terms of the
arrangement between the Company and U.S. Bancorp Piper Jaffray Inc. previously
disclosed by the Company to Parent and (b) $750,000. The Company shall not,
without the prior written consent of Parent, amend the arrangements with U.S.
Bancorp Piper Jaffray Inc., which have been disclosed by the Company to
Parent.
5.12 Directors' and Officers' Indemnification and Insurance.
(a) From and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of the
Company pursuant to (i) each indemnification agreement currently in effect
between the Company and each person who is or was a director or officer of the
Company at or prior to the Effective Time and (ii) any indemnification
provision under the Company's Restated Certificate of Incorporation and Bylaws
as each is in effect on the date hereof (the persons to be indemnified
pursuant to the agreements or provisions referred to in clauses (i) and (ii)
of this Section 5.12(a) shall be referred to as, collectively, the
"Indemnified Parties"). The Certificate of Incorporation and Bylaws of the
Surviving Corporation shall contain the provisions with respect to
indemnification and exculpation from liability set forth in the Company's
Certificate of Incorporation and Bylaws on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period
of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of any Indemnified Party. Section 5.12(a) of the
Company Disclosure Schedule sets forth a list of all indemnification
agreements between the Company and its directors and officers. In addition to
the foregoing, Parent shall guarantee the Surviving Corporation's performance
of its obligations pursuant to this Section 5.12(a).
(b) The Surviving Corporation shall not terminate for six years from the
Effective Time the Company's directors' and officers' liability insurance in
effect immediately prior to the Effective Time. Prior to the Effective Time,
the Company shall purchase a six-year "runoff" addition to its existing
directors' and officers' liability insurance policy (the "Runoff Policy"), the
cost of which Runoff Policy shall not exceed $700,000; provided, however, that
if (i) Parent's directors' and officers' liability insurance policy in effect
at the Effective Time ("Parent's Policy") provides coverage no less favorable
to the Company's directors and officers than the coverage that would be
provided by the Runoff Policy and (ii) Parent causes Parent's Policy to cover
all persons who would be covered by the Runoff Policy, then the Company shall
not purchase the Runoff Policy. If the Company does not purchase the Runoff
Policy, then for six years from the Effective Time, neither Parent nor the
Surviving Corporation shall reduce the coverage provided by Parent's Policy to
any person who would be covered by the Runoff Policy.
(c) Parent and the Surviving Corporation jointly and severally agree to pay
all expenses, including reasonable attorneys' fees, that may be incurred by
the Indemnified Parties in successfully enforcing the indemnity and other
obligations provided for in this Section 5.11.
(d) This Section shall survive the consummation of the Merger, is intended
to benefit the Company, the Surviving Corporation and each indemnified party,
shall be binding, jointly and severally, on all successors and assigns of the
Surviving Corporation and Parent, and shall be enforceable by the indemnified
parties.
5.13 Shareholder Rights Plan and Takeover Statutes.
The Company shall not amend, modify or supplement the Rights Agreement or
the Rights without the prior written consent of Parent. If any "fair price,"
"moratorium," "control share acquisition" or other form of antitakeover
statute or regulation, is or shall become applicable to the transactions
contemplated hereby or by the Option Agreement or the Support Agreement, the
Company and the members of the Company Board shall grant such approvals and
take such actions as are necessary so that the transactions contemplated
hereby and by
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the Option Agreement and by the Support Agreement may be consummated as
promptly as practicable on the terms contemplated hereby and by the Option
Agreement and by the Support Agreement and otherwise act to eliminate or
minimize the effects of such statute or regulation on the transactions
contemplated hereby and by the Option Agreement and by the Support Agreement.
If requested by Parent at least three business days prior to the Effective
Time, the Company Board shall take all necessary action to terminate or redeem
all of the outstanding Rights and to terminate the Rights Agreement, effective
immediately prior to the Effective Time.
5.14 Conveyance Taxes.
The Company and Parent shall cooperate in the preparation, execution and
filing of all returns, questionnaires, applications or other documents
regarding any real property transfer or gains, sales, use, transfer, value
added, stock transfer and stamp Taxes, any transfer, recording, registration
and other fees or any similar Taxes which become payable in connection with
the transactions contemplated by this Agreement, the Option Agreement and the
Support Agreement that are required or permitted to be filed on or before the
Effective Time.
5.15 Certain Tax Matters.
(a) From the date hereof until the Effective Time, (i) the Company and the
Company Subsidiary will prepare and file, or will cause to be prepared and
filed, in the manner required by applicable law, all Tax Returns that are
required (with extensions) to be filed, (ii) the Company and the Company
Subsidiary will timely pay all Taxes shown as due and payable, or required to
be shown as due and payable, on such Tax Returns that are so filed, (iii) the
Company and the Company Subsidiary will make provision for all Taxes payable
by the Company and/or the Company Subsidiary for which no Tax Return is due
prior to the Effective Time and (iv) the Company will promptly notify Parent
in writing of any action, suit, proceeding, claim or audit pending against or
with respect to the Company or the Company Subsidiary thereof in respect of
any Tax.
(b) The Company agrees that it will, and will cause the Company Subsidiary
to, make available all such information, employees and records of or relating
to the Company and the Company Subsidiary as Parent may request with respect
to matters relating to Taxes (including, without limitation, the right to make
copies of such information and records) and will consult with Parent before
filing Tax Returns and amended Tax Returns, and in connection with audits and
proceedings related to Taxes.
(c) It is understood and agreed that Dewey Ballantine LLP, legal counsel to
Parent, and Wilson Sonsini Goodrich & Rosati, Professional Corporation, legal
counsel to the Company, shall issue to their respective clients for inclusion
as exhibits to the Form S-4 substantially identical opinions to the effect
that the Merger will be treated for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and respecting
related matters (each such opinion, an "Exhibit Opinion" and, collectively,
the "Exhibit Opinions"). In rendering such Exhibit Opinions, such legal
counsel may require and reasonably rely upon reasonably requested
representations contained in certificates of the Company, Parent and Merger
Sub (the "Tax Certificates").
5.16 Benefit Arrangements.
Following the Effective Time, Parent will provide benefits to the Company
employees and officers who are employed by Parent immediately after the
Effective Time ("Company Employees"), substantially identical to the benefits
currently provided to similarly situated employees and officers of Parent, for
so long as such persons shall remain employed by Parent or any of its
Subsidiaries, including the Company. Parent has made available to the Company
true and correct copies of all plans setting forth such benefits or in the
case of an unwritten plan, a written description thereof. From and after the
Effective Time, Parent shall grant all Company Employees credit for all
service (to the same extent as service with Parent is taken into account with
respect to similarly situated employees of Parent) with the Company prior to
the Effective Time for (i) participation and vesting purposes, (ii) for
purposes of vacation accrual, and (iii) for purposes of severance pay and
service awards after the Effective Time as if such service with the Company
was service with Parent. Parent and the Company agree that where
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applicable with respect to any medical or dental benefit plan of Parent,
Parent shall waive, with respect to any Company Employee, any pre-existing
condition exclusion and actively-at-work requirements (provided, however, that
no such waiver shall apply to a pre-existing condition of any Company Employee
who was, as of the Effective Time, excluded from participation in a plan by
virtue of such pre-existing condition) and provided that any covered expenses
incurred on or before the Effective Time by a Company Employee or a Company
Employee's covered dependents shall be taken into account for purposes of
satisfying applicable deductible, coinsurance and maximum out-of-pocket
provisions after the Effective Time to the same extent as such expenses are
taken into account for the benefit of similarly situated employees of Parent.
5.17 Company Employee Stock Purchase Plan.
Outstanding options under the Stock Purchase Plan shall be exercised upon
the earlier of the applicable Stock Purchase Date or immediately prior to the
Effective Time, provided that if the Effective Time is later than October 31,
1999, then a new Purchase Period will commence on November 1, 1999 and will
end upon the earlier of April 28, 2000 or immediately prior to the Effective
Time, and each participant in the Stock Purchase Plan shall accordingly be
issued shares of Company Common Stock at that time pursuant to the terms of
the Stock Purchase Plan and each share of Company Common Stock so issued shall
by virtue of the Merger, and without any action on the part of the holder
thereof, be converted into the right to receive the consideration contemplated
by Section 2.2 hereof. The Company Board shall take such actions as shall be
necessary to effectuate the provisions of this Section 5.17, including without
limitation such actions contemplated by Section 19(c) of the Stock Purchase
Plan with respect to setting the New Exercise Date (as defined in the Stock
Purchase Plan) immediately prior to the Effective Time and giving the notice
contemplated by the Stock Purchase Plan not less than 10 business days prior
to the Effective Time.
5.18 Temporary License.
The Company agrees not to terminate the Temporary License Agreement between
the Company and Origin Medsystems, Inc. ("Origin") dated May 3, 1999 (the
"Temporary License Agreement") prior to the earlier of the Effective Time or
the termination of this Agreement by either party in accordance with Article
7. If the Company terminates the Temporary License Agreement following
termination of this Agreement, the Company agrees that it will provide Origin
with at least thirty (30) days written notice prior of such termination.
Parent will pay to the Company royalties as set forth in the Collaboration
Agreement dated July 18, 1997 between the Company and EMBRO Vascular LLC, as
amended (the "Collaboration Agreement") for Net Sales of Products (both Net
Sales and Products as defined in the Collaboration Agreement) pursuant to the
terms of the Collaboration Agreement for sales occurring on and after
September 1, 1999. The Company has provided to Parent a true and correct copy
of the Collaboration Agreement.
5.19 Support Agreement Legend.
The Company will inscribe upon any Certificate representing the Shares
tendered by a Stockholder (as such terms are defined in the Support Agreement)
for such purpose the following legend: THE SHARES OF COMMON STOCK, PAR VALUE
$0.001 PER SHARE, OF THE COMPANY REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A SUPPORT AGREEMENT DATED AS OF AUGUST 30, 1999, AND ARE SUBJECT TO THE
TERMS THEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY.
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ARTICLE 6
Conditions
6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) This Agreement and the Merger shall have been approved by the holders
of the issued and outstanding shares of capital stock of the Company in
accordance with the DGCL and Company's Certificate of Incorporation.
(b) The waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have expired or been terminated.
(c) None of the parties hereto shall be subject to any order, decree or
ruling or any other action of a United States federal, state, local or
foreign court of competent jurisdiction or United States federal or state,
local or foreign governmental, regulatory or administrative agency or
commission which permanently restrains, enjoins or otherwise prohibits the
Merger. In the event any such order, decree, ruling or other action shall
have been issued, each party agrees to use commercially reasonable efforts
to have any such order, decree, ruling or other action reversed and any
such restraint or injunction lifted.
(d) The Form S-4 shall have become effective and shall be effective at
the Effective Time, and no stop order suspending effectiveness of the Form
S-4 shall have been issued, no action, suit, proceeding, or investigation
by the SEC to suspend the effectiveness thereof shall have been initiated
and be continuing, and all material approvals under state securities laws
relating to the issuance or trading of the Parent Common Stock to be issued
to the Company stockholders in connection with the Merger shall have been
received.
(e) The Parent Common Stock to be issued to the Company stockholders in
connection with the Merger shall have been approved for listing on the NYSE
and the Pacific Exchange, subject only to official notice of issuance.
(f) Parent shall have received any necessary approvals, or any applicable
period for action shall have expired, under the German antitrust laws.
6.2 Conditions to Obligation of the Company to Effect the Merger.
The obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) (i) Parent and Merger Sub shall have performed in all material
respects all obligations contained in this Agreement required to be
performed by them on or prior to the Closing Date (except for those
obligations contained in clauses (iv), (v) and (vi), and, to the extent it
relates to clauses (iv), (v) and (vi), clause (vii), of Section 5.2(b) of
this Agreement), (ii) the representations and warranties of Parent and
Merger Sub contained in this Agreement, the Parent Disclosure Schedule and
documents delivered at Closing, other than the representations and
warranties contained in Section 4.8(i) of this Agreement, shall be true and
correct in all material respects as of the Closing Date, except for changes
contemplated by this Agreement and except that those representations and
warranties which address matters only as of a particular date shall have
been true and correct in all material respects as of such date and except
that those representations and warranties that are qualified with respect
to materiality, Parent Material Adverse Effect or similar qualification
shall be true and correct in all respects as of the Closing Date, and (iii)
the Company shall have received certificates of the President or a Vice
President of Parent and Merger Sub dated the Closing Date, certifying to
such effect with respect to Parent and Merger Sub, respectively.
(b) The Company shall have received from its legal counsel, Wilson
Sonsini Goodrich & Rosati, Professional Corporation, the Exhibit Opinion
rendered by such legal counsel pursuant to Section 5.15(c)
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and reconfirmed as of the Effective Time. In reconfirming its Exhibit
Opinion as of the Effective Time, Wilson Sonsini Goodrich & Rosati,
Professional Corporation, may reasonably rely upon the Tax Certificates
(updated as necessary).
6.3 Conditions to Obligation of Parent and Merger Sub to Effect the Merger.
The obligations of Parent and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) (i) The Company shall have performed in all material respects all
obligations contained in this Agreement (except for those obligations
contained in clauses (xix), (xx) and (xxi) and, to the extent it relates to
clauses (xix), (xx) and (xxi), clause (xxii), of Section 5.2(a) of this
Agreement), and the Option Agreement and the Stockholders (as defined in
the Support Agreement) shall have performed in all material respects their
agreements contained in the Support Agreement, in each case, required to be
performed on or prior to the Closing Date, (ii) the representations and
warranties of the Company contained in this Agreement and the Option
Agreement, the Company Disclosure Schedule and documents delivered at
Closing, and the representations and warranties of the Stockholders
contained in the Support Agreement, shall be true and correct in all
material respects as of the Closing Date, except for changes contemplated
by this Agreement and except that those representations and warranties
which address matters only as of a particular date shall have been true and
correct in all material respects as of such date and except that those
representations and warranties that are qualified with respect to
materiality, Company Material Adverse Effect or similar qualification shall
be true and correct in all respects as of the Closing Date, and (iii)
Parent shall have received a certificate of the President or a Vice
President of the Company, dated the Closing Date, certifying to such effect
with respect to the Company.
(b) Parent shall have received from its legal counsel, Dewey Ballantine
LLP, the Exhibit Opinion rendered by such legal counsel pursuant to Section
5.15(c) and reconfirmed as of the Effective Time. In reconfirming its
Exhibit Opinion as of the Effective Time, Dewey Ballantine LLP may
reasonably rely upon the Tax Certificates (updated as necessary).
(c) Parent shall have received a letter of its independent public
accountants, dated the Effective Time, in form and substance reasonably
satisfactory to it, stating that such accountants concur with management's
conclusion that the Merger will qualify as a transaction to be accounted
for in accordance with the pooling of interests method of accounting under
the requirements of APB No. 16.
(d) From the date of this Agreement through the Effective Time, there
shall not have occurred a Company Material Adverse Effect (or, if a Company
Material Adverse Effect shall have occurred, it shall have been cured).
ARTICLE 7
Termination
7.1 Termination by Mutual Consent.
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time, before or after the approval of this Agreement by
the stockholders of the Company, by the mutual consent of Parent, Merger Sub
and the Company.
7.2 Termination by Either Parent or the Company.
This Agreement may be terminated and the Merger may be abandoned by action
of the Board of Directors of either Parent or the Company if (a) the Merger
shall not have been consummated by February 29, 2000, or (b) the approval of
the Company's stockholders required by Section 6.1(a) shall not have been
obtained at a meeting duly convened therefor or at any adjournment thereof, or
(c) a United States federal, state, local or foreign court of competent
jurisdiction or United States federal or state, local or foreign governmental,
regulatory or
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administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and
nonappealable; provided, that the party seeking to terminate this Agreement
pursuant to clause (c) shall have used all reasonable efforts to remove such
injunction, order or decree; and provided, in the case of a termination
pursuant to clause (a) above, that the terminating party shall not have
breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the failure to consummate
the Merger by February 29, 2000. Notwithstanding the foregoing, the Company's
ability to terminate this Agreement pursuant to subsection (b) of this Section
7.2 is conditioned upon the prior payment by the Company of any amounts owed
by it pursuant to Section 7.5(a), if applicable.
7.3 Termination by the Company.
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time, before or after the adoption and approval by the
stockholders of the Company referred to in Section 6.1(a), by action of the
Company Board, if (a) in the exercise of its good faith judgment as to
fiduciary duties to its stockholders imposed by law based as to legal matters
on the advice of outside legal counsel and as to financial matters upon the
advice of an investment banking firm of national reputation, the Company Board
determines that such termination is required by reason of a Superior Proposal
being made, or (b) there has been a breach by Parent or Merger Sub of any
representation or warranty contained in this Agreement that (i) has had or is
reasonably likely to have a Parent Material Adverse Effect or (ii) would cause
the condition set forth in Section 6.2(a)(ii) to not be satisfied, and which
breach is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by the Company to Parent, or (c) there
has been a material breach of any of the covenants or agreements set forth in
this Agreement on the part of Parent which breach would cause the condition
set forth in Section 6.2(a)(i) to not be satisfied, and, which breach is not
curable or, if curable, is not cured within 30 days after written notice of
such breach is given by the Company to Parent, or (d) the Average Price is
less than $47.00. Notwithstanding the foregoing, the Company's ability to
terminate this Agreement pursuant to Section 7.3(a) is conditioned upon the
prior payment by the Company of any amounts owed by it pursuant to Section
7.5(a).
7.4 Termination by Parent.
This Agreement may be terminated and the Merger may be abandoned at any time
prior to the Effective Time, before or after the approval by the stockholders
of the Company referred to in Section 6.1(a), by action of the Board of
Directors of Parent, if (a) the Company Board (i) shall have withdrawn or
modified in a manner adverse to Parent its approval or recommendation of this
Agreement, the Option Agreement, the Support Agreement or the Merger or (ii)
shall have recommended an Alternative Proposal to the Company stockholders, or
(b) there has been a breach by the Company of any representation or warranty
contained in this Agreement that (i) has had or is reasonably likely to have a
Company Material Adverse Effect, or any breach by the Company of any
representation or warranty contained in the Option Agreement or (ii) would
cause the condition set forth in Section 6.3(a)(ii) to not be satisfied, or
any breach by any Shareholder of any representation or warranty contained in
the Support Agreement, and which breach is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by Parent to
the Company or the breaching Shareholder, as appropriate, or (c) there has
been a material breach of any of the covenants or agreements set forth in this
Agreement or the Option Agreement on the part of the Company, or any of the
covenants or agreements set forth in the Support Agreement by any Shareholder,
which breach would cause the condition set forth in Section 6.3(a)(i) to not
be satisfied, and, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by Parent to the
Company or the breaching Shareholder, as appropriate.
7.5 Effect of Termination and Abandonment.
(a) The Company shall pay Parent a fee of $9,000,000, which amount shall be
payable by wire transfer of same day funds prior to any termination by the
Company in the case of clause (i) or (iii) below (with any such
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payment being a condition precedent to any such termination), and within two
business days after such amount becomes due in the case of any termination by
Parent pursuant to clause (i) or (ii) below, upon the occurrence of any of the
following events:
(i) The Company or Parent terminates this Agreement pursuant to clause
(b) of Section 7.2 and prior to such termination, (x) a proposal with
respect to the sale or other disposition of all or substantially all of the
assets of the Company, or a transaction pursuant to which any third party
would acquire beneficial ownership of more than 50% of the Company's
outstanding shares of voting stock or any similar transaction involving a
change of control of the Company (each a "Specified Transaction") shall
have been made, and (y) within one year after such termination, (A) any
third party shall acquire beneficial ownership of more than 50% of the
Company's outstanding shares of voting stock, or (B) the Company shall
enter into any agreement (including an agreement in principle, letter of
intent or similar agreement), whether oral or written, with respect to any
Specified Transaction;
(ii) Parent terminates this Agreement pursuant to clause (a) of Section
7.4 ; or
(iii) The Company terminates this Agreement pursuant to clause (a) of
Section 7.3.
The Company acknowledges that the agreements contained in this Section 7.5(a)
are an integral part of the transactions contemplated in this Agreement, and
that, without these agreements, Parent and Merger Sub would not enter into
this Agreement; accordingly, if the Company fails to promptly pay the amount
due pursuant to this Section 7.5(a), and, in order to obtain such payment,
Parent or Merger Sub commences a suit which results in a judgment against the
Company for the full amount of the fee set forth in this Section 7.5(a), the
Company shall pay to Parent its costs and expenses (including attorneys' fees)
in connection with such suit, together with interest on the amount of the fee
at the prime rate of Bank of America N.T. and S.A. in effect on the date such
fee was required to be paid.
(b) In the event of termination of this Agreement and the abandonment of the
Merger pursuant to this Article 7, all obligations of the parties hereto shall
terminate, except the obligations of the parties set forth in this Section 7.5
and Section 5.10 (Expenses) and except for the Confidentiality Agreement and
the letter, dated August 6, 1999, from Parent and accepted and agreed to by
the Company amending the Confidentiality Agreement. Moreover, in the event of
termination of this Agreement pursuant to Section 7.3 (b), 7.3(c), 7.4(b) or
7.4(c), to the extent such termination results from the willful breach by a
party of any of its representations, warranties, covenants or agreements set
forth in this Agreement, nothing herein shall prejudice the ability of the
nonbreaching party from seeking damages from any other party for any breach of
this Agreement, including, without limitation, attorneys' fees and the right
to pursue any remedy at law or in equity.
7.6 Extension; Waiver.
At any time prior to the Effective Time, any party hereto, by action taken
by its Board of Directors, may, to the extent legally allowed, (a) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (b) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (c) subject to the proviso of Section 8.5, waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE 8
General Provisions
8.1 Nonsurvival of Representations, Warranties and Agreements.
All representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the
Effective Time; provided, however, that the agreements contained in Article 1
(The Merger), Article 2 (Conversion and Exchange of Securities), Section 5.10
(Expenses), Section
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<PAGE>
5.11 (Certain Transaction and Related Fees), Section 5.12 (Directors' and
Officers' Indemnification and Insurance), Section 5.16 (Benefit Arrangements)
and this Article 8 (General Provisions) shall survive the Merger to the extent
contemplated by such sections.
8.2 Notices.
Any notice required to be given hereunder shall be sufficient if in writing,
and sent by facsimile transmission, by courier or other national overnight
express mail service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
If to Parent or Merger Sub:
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204-5129
Attention: General Counsel
Telecopy: (317) 971-2141
with copies to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attention: Bernard E. Kury, Esq.
Jonathan L. Freedman, Esq.
Telecopy: (212) 259-6333
If to the Company:
CardioThoracic Systems, Inc.
10600 North Tantau Avenue
Cupertino, California 95014
Attention: Richard M. Ferrari
Telecopy: (408) 342-1715
with copies to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: J. Casey McGlynn
Christopher J. Ozburn
Telecopy: (650) 493-6811
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date
so telecommunicated, personally delivered or mailed.
8.3 Assignment; Binding Effect.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties,
except that Merger Sub may assign its rights hereunder to any Subsidiary of
Parent, but no such assignment shall relieve Merger Sub of any of its
obligations hereunder. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. Notwithstanding anything contained in this
Agreement to the contrary, except for the
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provisions of Article 2 (Conversion and Exchange of Securities) and Section
5.12 (Directors' and Officers' Indemnification and Insurance), nothing in this
Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
8.4 Entire Agreement.
This Agreement, the Option Agreement, the Exhibits hereto, the Company
Disclosure Schedule, the Parent Disclosure Schedule, the Confidentiality
Agreement, the Temporary License Agreement and any documents delivered by the
parties in connection herewith or therewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be
binding upon any party hereto unless made in writing and signed by all parties
hereto.
8.5 Amendment.
This Agreement may be amended by the parties hereto, by action taken by
their respective Boards of Directors, at any time before or after approval of
matters presented in connection with the Merger by the stockholders of the
Company; provided, however, after such stockholder approval, no amendment
shall be made which by law requires the further approval of stockholders
without obtaining such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
8.6 Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to its rules of conflict of laws.
8.7 Counterparts.
This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.8 Headings.
Headings of the Articles and Sections of this Agreement are for the
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
8.9 Interpretation.
In this Agreement, unless the context otherwise requires, words describing
the singular number shall include the plural and vice versa, and words
denoting each gender shall include the other gender and words denoting natural
persons shall include corporations and partnerships and vice versa.
8.10 Waivers.
Except as provided in this Agreement, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a
waiver of any prior or subsequent breach of the same or any other provision
hereunder.
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<PAGE>
8.11 Incorporation of Exhibits.
The Company Disclosure Schedule, the Parent Disclosure Schedule and all
Exhibits attached hereto and referred to herein are hereby incorporated herein
and made a part hereof for all purposes as if fully set forth herein.
8.12 Severability.
Any term or provision of this Agreement which is invalid or unenforceable in
any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement
is so broad as to be unenforceable, the provision shall be interpreted to be
only so broad as is enforceable.
8.13 Enforcement of Agreement.
The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with its specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which they
are entitled at law or in equity.
8.14 Definitions.
(a) As used in this Agreement, the word "Subsidiary" when used with respect
to any party means any corporation or other organization, whether incorporated
or unincorporated, of which such party directly or indirectly owns or controls
at least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization, or any organization of which such party is a general partner.
(b) As used in this Agreement, "Company Material Adverse Effect" means a
change or effect that is materially adverse to the business, prospects,
results of operation or financial condition of the Company or the Company
Subsidiary; provided, however, that (i) any adverse change or effect that is
proximately caused by conditions affecting the economy or securities markets
generally shall not be taken into account in determining whether there has
been or is reasonably likely to be a "Company Material Adverse Effect" on or
with respect to the Company or the Company Subsidiary; (ii) any adverse change
or effect that is proximately caused by conditions affecting any industry in
which the Company or the Company Subsidiary competes shall not be taken into
account in determining whether there has been or is reasonably likely to be a
"Company Material Adverse Effect" on or with respect to the Company or the
Company Subsidiary; (iii) any adverse change or effect resulting from the
announcement or the pendency of the Merger shall not be taken into account in
determining whether there has been or is reasonably likely to be a "Company
Material Adverse Effect" on or with respect to the Company or the Company
Subsidiary; (iv) any adverse change or effect resulting from the breach by
Parent of the covenants set forth in clauses (iv), (v) and (vi) and, to the
extent it relates to clauses (iv), (v) and (vi), clause (vii), of Section
5.2(b) of this Agreement shall not be taken into account in determining
whether there has been or is reasonably likely to be a "Company Material
Adverse Effect" on or with respect to the Company or the Company Subsidiary;
and (v) any adverse change or effect resulting from those items set forth in
Section 8.14 of the Company Disclosure Schedule shall not be taken into
account in determining whether there has been or is reasonably likely to be a
"Company Material Adverse Effect" on or with respect to the Company or the
Company Subsidiary.
(c) As used in this Agreement, "Parent Material Adverse Effect" means a
change or effect that is materially adverse to the business, prospects,
results of operation or financial condition of Parent and its Subsidiaries,
taken as a whole; provided, however, that (i) any adverse change or effect
that is proximately caused by conditions affecting the economy or securities
markets generally shall not be taken into account in
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<PAGE>
determining whether there has been or is reasonably likely to be a "Parent
Material Adverse Effect" on or with respect to Parent and its Subsidiaries,
taken as a whole; (ii) any adverse change or effect that is proximately caused
by conditions affecting any industry in which Parent and any of its
Subsidiaries compete shall not be take into account in determining whether
there has been or is reasonably likely to be a "Parent Material Adverse
Effect" on or with respect to Parent and its Subsidiaries, taken as a whole;
(iii) any adverse change or effect resulting from the announcement or the
pendency of the Merger shall not be taken into account in determining whether
there has been or is reasonably likely to be a "Parent Material Adverse
Effect" on or with respect to Parent and its Subsidiaries, taken as a whole;
and (iv) any adverse change or effect resulting from the breach by the Company
of the covenants set forth in clauses (xix), (xx) and (xxi) and, to the extent
it relates to clauses (xix), (xx) and (xxi), clause (xxii), of Section 5.2(a)
of this Agreement shall not be taken into account in determining whether there
has been or is reasonably likely to be a "Parent Material Adverse Effect" on
or with respect to Parent and its Subsidiaries, taken as a whole.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
Guidant Corporation
/s/ Ronald W. Dollens
By:__________________________________
Name: Ronald W. Dollens
Title: President and Chief
Executive Officer
Clydesdale Acquisition Corp.
/s/ Nicky Spaulding
By:__________________________________
Name: Nicky Spaulding
Title: President
Cardiothoracic Systems, Inc.
/s/ Richard M. Ferrari
By:__________________________________
Name: Richard M. Ferrari
Title: President and Chief
Executive Officer
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<PAGE>
EXHIBIT A
TO MERGER
AGREEMENT
FORM OF AFFILIATE LETTER
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, IN 46204-5129
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of CardioThoracic Systems, Inc., a Delaware corporation (the
"Company"), as the term "affiliate" is (i) defined for purposes of paragraphs
(c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Act"), or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the SEC
(the "Pooling Rules"). Pursuant to the terms of the Agreement and Plan of
Merger, dated as of August 30, 1999 (the "Agreement"), between Guidant
Corporation, an Indiana corporation ("Parent"), Clydesdale Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Parent ("Merger Sub"),
and the Company, Merger Sub will be merged with and into the Company (the
"Merger").
As a result of the Merger, I will receive shares of Common Stock, without
par value, of Parent (the "Parent Common Stock") in exchange for shares owned
by me of Common Stock, par value $0.001, of the Company (the "Company Common
Stock").
1. Compliance with the Act. In compliance with the Act and the Rules and
Regulations thereunder, I represent, warrant and covenant to Parent that in
the event I receive any Parent Common Stock as a result of the Merger:
(a) I shall not make any sale, transfer or other disposition of the
Parent Common Stock in violation of the Act or the Rules and Regulations.
(b) I have carefully read this letter and the Agreement and discussed the
requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the Parent Common Stock,
to the extent I felt necessary, with my counsel or counsel for the Company.
(c) I have been advised that the issuance of Parent Common Stock to me
pursuant to the Merger has been registered with the SEC under the Act on a
Registration Statement on Form S-4. However, I have also been advised that,
since at the time the Merger was submitted for a vote of the stockholders
of the Company, I may be deemed to have been an affiliate of the Company
and the distribution by me of the Parent Common Stock has not been
registered under the Act, I may not sell, transfer or otherwise dispose of
the Parent Common Stock issued to me in the Merger unless such sale,
transfer or other disposition (i) has been registered under the Act and all
applicable state securities or "blue sky" laws, (ii) is made in conformity
with Rule 145 promulgated by the SEC under the Act and all applicable state
securities or "blue sky" laws, or (iii) in the opinion of legal counsel
reasonably acceptable to Parent, or pursuant to a "no action" letter
obtained by the undersigned from the staff of the SEC, is otherwise exempt
from registration under the Act and all applicable state securities or
"blue sky" laws.
(d) I understand that Parent is under no obligation to register the sale,
transfer or other disposition of the Parent Common Stock received by me or
on my behalf as a result of the Merger under the Act or to take any other
action necessary in order to make compliance with an exemption from such
registration available.
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<PAGE>
(e) I also understand that stop transfer instructions will be given to
Parent's transfer agents with respect to the Parent Common Stock and that
there will be placed on the certificates for the Parent Common Stock issued
to me, or any substitutions therefor, a legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED PURSUANT TO A
BUSINESS COMBINATION WHICH IS BEING ACCOUNTED FOR AS A POOLING OF
INTERESTS, IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED
. , 1999 BETWEEN THE REGISTERED HOLDER HEREOF AND PARENT, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF PARENT."
(f) I also understand that unless the transfer by me of my Parent Common
Stock has been registered under the Act or is a sale made in conformity
with the provisions of Rule 145 and all applicable state securities or
"blue sky" laws, Parent reserves the right to put the following legend on
the certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES OR "BLUE SKY"
LAWS AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933
APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR
FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ALL APPLICABLE STATE
SECURITIES OR "BLUE SKY" LAWS.
It is understood and agreed that the legends set forth in paragraphs E and F
above shall be removed by delivery of substitute certificates without such
legend if such legend is not required for purposes of the Act, any applicable
state securities or "blue sky" laws or this Agreement. It is understood and
agreed that such legends and the stop orders referred to above will be removed
if (i) one year shall have elapsed from the date the undersigned acquired the
Parent Common Stock received in the Merger and the provisions of Rule
145(d)(2) are then available to the undersigned, (ii) two years shall have
elapsed from the date the undersigned acquired the Parent Common Stock
received in the Merger and the provisions of Rule 145(d)(3) are then available
to the undersigned, or (iii) Parent has received either an opinion of counsel,
which opinion and counsel shall be reasonably satisfactory to Parent, or a "no
action" letter obtained by the undersigned from the staff of the SEC, to the
effect that the restrictions imposed by Rule 145 under the Act and all
applicable state securities or "blue sky" laws no longer apply to the
undersigned.
2. Pooling Requirements.
(a) I further represent to and covenant with Parent that (A) I have not sold
any shares of Company Common Stock within 30 days of the Effective Time (as
defined in the Merger Agreement) and (B) I will not sell, transfer or
otherwise dispose of (i) any shares of Company Common Stock within 30 days of
the Effective Time or (ii) any Parent Common Stock received by me in the
Merger or any other shares of the capital stock of Parent until after such
time as results covering at least 30 days of post-merger combined operations
of the Company and Parent have been published by Parent, in the form of a
quarterly earnings report, an effective registration statement filed with the
SEC, a report to the SEC on Form 10-K, 10-Q or 8-K, or any other public filing
or announcement which includes such combined results of operations and would
satisfy the Pooling Rules (such period is referred to herein as the
"Restricted Period").
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<PAGE>
(b) The parties acknowledge that sales of Parent Common Stock issuable on
exercise of stock options solely to provide for payment of the exercise price
of such stock options simultaneously with the exercise of such stock options
shall not constitute such reduction of relative risk.
(c) Notwithstanding anything to the contrary contained in paragraph 2.A, but
subject to paragraph 1, I will be permitted, during the Restricted Period, (i)
to sell, exchange, transfer, pledge, distribute or otherwise dispose of or
grant any option, establish any "short" or "put"-equivalent position with
respect to or enter into any similar transaction (through derivatives or
otherwise) intended to have or having the effect, directly or indirectly, of
reducing its risk relative to any shares of Parent Common Stock that I own (a
"Transfer") equal to the lesser of (A) 10% of the Parent Common Stock that I
own and (B) my pro rata portion of 1% of the total number of outstanding
shares of Parent Common Stock owned by me and all other stockholders of Parent
(in each of clause (A) and clause (B) above as measured as of the date of such
Transfer and subject to confirmation of such calculation by Parent), and (ii)
to make bona fide charitable contributions or gifts of such securities;
provided, however, that the transferee(s) of such charitable contributions or
gifts agree(s) in writing to hold such securities for the period specified in
paragraph 2.A.
3. Certain Tax Matters. In connection with the qualification of the Merger
as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), I hereby represent and warrant
to Parent as follows:
(a) I am currently the owner of shares of Company Common Stock.
These shares constitute my entire interest in the Company.
(b) I have no current plan or intent to engage in prior to and in
connection with the Merger any Sale (as defined below) of any Company
Common Stock to the Company or any person related to the Company within the
meaning of Treas. Reg. (S) 1.368-1(e)(3).
(c) I have no current plan or intent to engage in at any time after, or
in connection with, the Merger a sale, exchange, transfer, pledge,
distribution, redemption, or other disposition of (collectively, a "Sale"),
any Parent Common Stock that I receive in the Merger to Parent or any
person related to Parent within the meaning of Treas. Reg. (S) 1.368-
1(e)(3).
(d) I do not intend to take a position on any federal or state income tax
return that is inconsistent with the treatment of the receipt of Parent
Common Stock in the Merger as occurring pursuant to a reorganization within
the meaning of Section 368(a) of the Code.
(e) I shall immediately notify Parent in writing via facsimile if, at any
time prior to the Effective Time, any of the following representations are
untrue.
The representation, covenants and agreements contained herein shall be true
and correct at all times from the date hereof. I understand that my
obligations hereunder shall attach to and be binding upon any person or entity
to whom legal or beneficial ownership of my shares of Company Common Stock
(and shares of Parent Common Stock following the Merger) shall pass by
operation of law or otherwise.
Very truly yours,
Name:
Accepted this day of
, 1999 by Parent
By: _________________________________
Name:
Title:
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<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of August 30, 1999 (the "Agreement"),
between Guidant Corporation, an Indiana corporation (the "Grantee"), and
CardioThoracic Systems, Inc., a Delaware corporation (the "Grantor").
WHEREAS, the Grantee, Clydesdale Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of the Grantee ("Merger Sub"), and the Grantor
are entering into an Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"), which provides, among other things, for the merger
of the Grantor with and into Merger Sub (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, the Grantee and Merger Sub have requested that the Grantor grant to
the Grantee an option to purchase up to 2,885,035 shares of Common Stock, par
value $0.001 per share, of the Grantor, including all associated preferred
share purchase rights (the "Common Stock"), upon the terms and subject to the
conditions hereof, and
WHEREAS, in order to induce the Grantee and Merger Sub to enter into the
Merger Agreement, the Grantor is willing to grant the Grantee the requested
option.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. The Option; Exercise; Adjustments.
(a) Subject to the other terms and conditions set forth herein, the Grantor
hereby grants to the Grantee an irrevocable option (the "Option") to purchase
up to 2,885,035 shares of Common Stock, including all associated preferred
share purchase rights (the "Shares") at a cash purchase price equal to $19.50
per share (the "Purchase Price"). Subject to the other terms and conditions
set forth herein, the Option may be exercised by the Grantee, in whole or in
part, at any time, or from time to time, following the occurrence of a
Triggering Event (as hereinafter defined), and prior to the termination of the
Option in accordance with the terms of this Agreement.
(b) Triggering Events. The term "Triggering Event" shall mean the occurrence
of an event, circumstance or condition pursuant to which Parent's right,
pursuant to Section 7.5(a) of the Merger Agreement, to receive the termination
fee first arises.
(c) In the event the Grantee wishes to exercise the Option, the Grantee
shall send a written notice to the Grantor (the "Exercise Notice") specifying
a date (subject to the HSR Act (as defined below)) not later than 10 business
days and not earlier than three business days following the date such notice
is given for the closing of such purchase. In the event of any change in the
number of issued and outstanding shares of Common Stock by reason of any stock
dividend, stock split, splitup, recapitalization, merger or other change in
the corporate or capital structure of the Grantor, the number of Shares
subject to this Option and the purchase price per Share shall be appropriately
adjusted to restore the Grantee to its rights hereunder, including its right
to purchase Shares representing 19.9% of the capital stock of the Grantor
entitled to vote generally for the election of the directors of the Grantor
which is issued and outstanding immediately prior to the exercise of the
Option at an aggregate purchase price equal to $56,258,182.50.
2. Conditions to Delivery of Shares. The Grantor's obligation to deliver
Shares upon exercise of the Option is subject only to the conditions that:
(a) No order, decree or ruling or any other action of a United States
federal, state, local or foreign court of competent jurisdiction or United
States federal or state, local or foreign governmental, regulatory
<PAGE>
or administrative agency or commission permanently restraining, enjoining
or otherwise prohibiting the delivery of the Shares shall be in effect; and
(b) Any applicable waiting periods under the HSR Act with respect to the
transactions contemplated by this Agreement shall have expired or been
terminated.
3. The Closing.
(a) Any closing hereunder shall take place on the date specified by the
Grantee in its Exercise Notice at 9:00 A.M., local time, at the offices of
Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New York, or, if
the conditions set forth in Section 2(a) or (b) have not then been satisfied,
on the second business day following the satisfaction of such conditions, or
at such other time and place as the parties hereto may agree (the "Closing
Date"). On the Closing Date, the Grantor will deliver to the Grantee a
certificate or certificates, representing the Shares (including all associated
preferred share purchase rights) in the denominations designated by the
Grantee in its Exercise Notice and the Grantee will deliver an amount of money
necessary to purchase such Shares from the Grantor at the price per Share
equal to the Purchase Price. Any payment made by the Grantee to the Grantor,
or by the Grantor to the Grantee, pursuant to this Agreement shall be made by
certified or official bank check or by wire transfer of federal funds to a
bank designated by the party receiving such funds.
(b) The certificates representing the Shares shall bear an appropriate
legend relating to the fact that such Shares have not been registered under
the Securities Act.
4. Representations and Warranties of the Grantor. The Grantor represents and
warrants to the Grantee that (a) the Grantor is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the requisite corporate power and authority to enter into and perform
this Agreement; (b) the execution and delivery of this Agreement by the
Grantor and the consummation by it of the transactions contemplated hereby
have been duly authorized by the Board of Directors of the Grantor and this
Agreement has been duly executed and delivered by a duly authorized officer of
the Grantor and constitutes a valid and binding obligation of the Grantor,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles (the "Enforceability Exceptions"); (c) the Grantor has taken all
necessary corporate action to authorize the issuance of, and reserve for
issuance, the Shares issuable upon exercise of the Option and the Shares, when
issued and delivered by the Grantor upon exercise of the Option and paid for
by Grantee as contemplated hereby, will be duly authorized, validly issued,
fully paid and non-assessable and free of preemptive rights; and (d) except as
otherwise required by the HSR Act, the execution and delivery of this
Agreement by the Grantor and the consummation by it of the transactions
contemplated hereby do not require the consent, waiver, approval or
authorization of or any filing with any person or public authority and will
not violate, result in a breach of or the acceleration of any obligation
under, or constitute a default under, any provision of Grantor's charter or
by-laws, or any indenture, mortgage, lien, lease, agreement, contract,
instrument, order, law, rule, regulation, judgment, ordinance, or decree, or
restriction by which the Grantor or any of its subsidiaries or any of their
respective properties or assets is bound.
5. Representations and Warranties of the Grantee. The Grantee represents and
warrants to the Grantor that (a) the execution and delivery of this Agreement
by the Grantee and the consummation by it of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Grantee and this Agreement has been duly executed and delivered by a
duly authorized officer of the Grantee and constitutes a valid and binding
obligation of Grantee, enforceable in accordance with its terms, subject to
the Enforceability Exceptions; and (b) the Grantee is acquiring the Option
and, if and when it exercises the Option, will be acquiring the Shares
issuable upon the exercise thereof for its own account and not with a view to
distribution or resale in any manner which would be in violation of the
Securities Act.
6. Listing of Shares; Filings; Governmental Consents. The Grantor will
promptly file an application to list the Shares on the Nasdaq National Market
and will use its reasonable best efforts to obtain approval of such
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listing and to effect all necessary filings by the Grantor under the HSR Act;
provided, however, that if the Grantor is unable to effect such listing on the
Nasdaq National Market by the Closing Date, the Grantor will nevertheless be
obligated to deliver the Shares upon the Closing Date. Each of the parties
hereto will use its reasonable best efforts to obtain consents of all third
parties and governmental authorities, if any, necessary to the consummation of
the transactions contemplated.
7. Repurchase of Option Shares. Following the exercise of the Option, the
Grantor may repurchase any Shares as to which the Grantee has exercised the
Option at a price equal to the Alternative Purchase Price. As used herein
"Alternative Purchase Price" shall mean the higher of: (a) if and as
applicable, the highest price per share of Common Stock (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid or
proposed to be paid by any person pursuant to (i) a Superior Proposal (as
defined in Section 5.1 of the Merger Agreement), if the Triggering Event is an
event described in Section 7.3(a) of the Merger Agreement, or (ii) an
Alternative Proposal (as defined in Section 5.1 of the Merger Agreement), if
the Triggering Event is an event described in Section 7.4(a)(ii) of the Merger
Agreement, or (iii) a Specified Transaction (as defined in Section 7.5(a)(i)
of the Merger Agreement), if the Triggering Event is an event described in
Section 7.5(a)(i) of the Merger Agreement, or (iv) the Closing Price (as
defined below), if the Triggering Event is an event described in Section
7.4(a)(i) of the Merger Agreement; and (b) the closing price of the shares of
Common Stock as reported on the Nasdaq National Market on the last trading day
immediately prior to the date on which the Grantor sends to the Grantee notice
of the Grantor's exercise of the Repurchase Right (the "Closing Price"). If
the Alternative Purchase Price includes any property other than cash, the
Alternative Purchase Price shall be the sum of (i) the fixed cash amount, if
any, included in the Alternative Purchase Price plus (ii) the fair market
value of such other property. If such other property consists of securities
with an existing public trading market, the average of the closing prices (or
the average of the closing bid and asked prices if closing prices are
unavailable) for such securities in their principal public trading market on
the five trading days ending five days prior to the date of the repurchase
shall be deemed to equal the fair market value of such property. If such other
property consists of something other than cash or securities with an existing
public trading market and, as of the payment date for the Alternative Purchase
Price, agreement on the value of such other property has not been reached, the
Alternative Purchase Price shall be deemed to equal the Closing Price. In the
event the Grantor wishes to exercise the Repurchase Right, the Grantor shall
send a written notice to the Grantee specifying a date (not later than
20 business days and not earlier than 10 business days following the date such
notice is given) for the closing of such purchase. In connection with any
purchase/sale of the Shares as to which the Grantee has exercised the Option
pursuant to this Section 7, the Grantee shall be required to represent and
warrant to the Grantor that the Grantee is the owner of such Shares, free and
clear of all adverse claims, and that the Grantee shall deliver good title to
such Shares, to the Grantor, free and clear of all adverse claims, upon
consummation of any purchase/sale pursuant to this Section 7.
8. Registration Rights.
(a) The Grantor shall, if requested by the Grantee at any time and from time
to time within five (5) years of a Triggering Event (the "Registration
Period"), as expeditiously as possible prepare and file up to three
registration statements under the Securities Act, in order to permit the sale
or other disposition of Shares that have been acquired by the Grantee upon
exercise of the Option ("Registrable Securities") pursuant to a bona fide firm
commitment underwritten public offering in which the Grantee and the
underwriters shall use reasonable efforts to prevent any person or group from
purchasing through such offering shares representing more than 3% of the
outstanding Common Stock of the Grantor on a fully diluted basis and in no
event shall any person or group purchase through such offering shares
representing more than 4.9% of the outstanding Common Stock of the Grantor on
a fully diluted basis (a "Permitted Offering"); provided, however, that any
such registration must relate to a number of shares equal to at least 2% of
the outstanding shares of Common Stock of the Grantor on a fully diluted
basis.
(b) If the Common Stock is registered pursuant to the provisions of this
Section 8, the Grantor agrees (i) to furnish copies of the registration
statement and the prospectus relating to the Shares covered thereby in such
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numbers as the Grantee may from time to time reasonably request and (ii) if
any event shall occur as a result of which it becomes necessary to amend or
supplement any registration statement or prospectus, to prepare and file under
the applicable securities laws such amendments and supplements as may be
necessary to keep available for at least 180 days a prospectus covering the
Common Stock meeting the requirements of such securities laws, and to furnish
the Grantee such numbers of copies of the registration statement and
prospectus as amended or supplemented as may reasonably be requested. The
Grantor shall bear the cost of the registration, including, but not limited
to, all registration and filing fees, printing expenses, and fees and
disbursements of counsel and accountants for the Grantor, except that the
Grantee shall pay the fees and disbursements of its counsel, and the
underwriting fees and selling commissions applicable to the shares of Common
Stock sold by the Grantee. The Grantor shall indemnify and hold harmless (i)
Grantee, its affiliates and its officers and directors and (ii) each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended
(collectively, the "Underwriters") ((i) and (ii) being-referred to as
"Indemnified Parties") against any losses, claims, damages, liabilities or
expenses, to which the Indemnified Parties may become subject, insofar as such
losses, claims, damages, liabilities (or actions in respect thereof) and
expenses arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained or incorporated by reference in any
registration statement filed pursuant to this paragraph, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, that the Grantor will not be liable in any
such case to the extent that any such loss, liability, claim, damage or
expense arises out of or is based upon an untrue statement or alleged untrue
statement in or omission or alleged omission from any such documents in
reasonable reliance upon and in conformity with written information furnished
to the Grantor by the Indemnified Parties expressly for use or incorporation
by reference therein.
(c) The Grantee and the Underwriters shall indemnify and hold harmless the
Grantor, its affiliates and its officers and directors against any losses,
claims, damages, liabilities or expenses to which the Grantor, its affiliates
and its officers and directors may become subject, insofar as such losses,
claims, damages, liabilities (or actions in respect thereof) and expenses
arise out of or are based upon any untrue statement of any material fact
contained or incorporated by reference in any registration statement filed
pursuant to this paragraph, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reasonable reliance upon and in conformity with written information furnished
to the Grantor by the Grantee or the Underwriters, as applicable, specifically
for use or incorporation by reference therein.
9. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement, except as otherwise specifically provided
herein.
10. Specific Performance. The Grantor acknowledges that if the Grantor fails
to perform any of its obligations under this Agreement immediate and
irreparable harm or injury would be caused to the Grantee for which money
damages would not be an adequate remedy. In such event, the Grantor agrees
that the Grantee shall have the right, in addition to any other rights it may
have, to specific performance of this Agreement. Accordingly, if the Grantee
should institute an action or proceeding seeking specific enforcement of the
provisions hereof, the Grantor hereby waives the claim or defense that the
Grantee has an adequate remedy at law and hereby agrees not to assert in any
such action or proceeding the claim or defense that such a remedy at law
exists. The Grantor further agrees to waive any requirements for the securing
or posting of any bond in connection with obtaining any such equitable relief.
In addition, Grantor and Grantee waive to the fullest extent permitted by
applicable law any right to a trial by jury with respect to any claim or
proceeding related to or arising out of this Agreement or any transactions
contemplated hereby.
11. Notice. All notices, requests, demands and other communications
hereunder shall be deemed to have been duly given and made if in writing and
if served by personal delivery upon the party for whom it is intended
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or delivered by registered or certified mail, return receipt requested, or if
sent by facsimile transmission, upon receipt of oral confirmation that such
transmission has been received, to the person at the address set forth below,
or such other address as may be designated in writing hereafter, in the same
manner, by such person:
If to the Grantee:
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204-5129
Attention: General Counsel
Telecopy: (317) 971-2141
With a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attention: Bernard E. Kury, Esq.
Jonathan L. Freedman, Esq.
Telecopy: (212) 259-6333
If to the Grantor:
CardioThoracic Systems, Inc.
10600 North Tantau Avenue
Cupertino, California 95014
Attention: Richard M. Ferrari
Telecopy: (408) 342-1715
with a copy to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: J. Casey McGlynn
Christopher J. Ozburn
Telecopy: (650) 493-6811
12. Parties in Interest. This Agreement shall inure to the benefit of and be
binding upon the parties named herein and their respective successors and
assigns; provided, however, that such successor in interest or assigns shall
agree to be bound by the provisions of this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any person other
than the Grantor or the Grantee, or their successors or assigns, any rights or
remedies under or by reason of this Agreement.
13. Entire Agreement; Amendments. This Agreement, together with the Merger
Agreement and the other documents referred to therein, contains the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior and contemporaneous agreements and understandings,
oral or written, with respect to such transactions. This Agreement may not be
changed, amended or modified orally, but may be changed only by an agreement
in writing signed by the party against whom any waiver, change, amendment,
modification or discharge may be sought.
14. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the
other party hereto, except that the Grantee may assign its rights and
obligations hereunder to any of its direct or indirect wholly owned
subsidiaries (including Merger
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Sub), but no such transfer shall relieve the Grantee of its obligations
hereunder if such transferee does not perform such obligations.
15. Headings. The section headings herein are for convenience only and shall
not affect the construction of this Agreement.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to
principles of conflicts of laws.
18. Termination. The right to exercise the Option granted pursuant to this
Agreement shall terminate at the earliest to occur of: (i) the Effective Time
(as defined in the Merger Agreement); and (ii) the termination of the Merger
Agreement other than under circumstances which constitute (or upon
satisfaction of the conditions to payment of the termination fee set for in
Section 7.5(a) of the Merger Agreement would constitute) a Triggering Event
under this Agreement; and (iii) the date which is one year after termination
of the Merger Agreement under circumstances which, if the conditions to
payment of the termination fee set forth in Section 7.5(a) of the Merger
Agreement were satisfied, would constitute a Triggering Event under this
Agreement, provided no such Triggering Event resulting from the satisfaction
of such conditions has occurred prior to the occurrence of such date; and (iv)
the occurrence of the date which is one year after a Triggering Event.
All representations and warranties contained in this Agreement shall survive
delivery of and payment for the Shares.
19. Profit Limitation. (a) Notwithstanding any other provision of this
Agreement, in no event shall the Grantee's Total Profit (as hereinafter
defined) exceed $10,500,000 and, if it otherwise would exceed such amount, the
Grantee, at its sole election, shall either (a) deliver to the Grantor for
cancellation Shares previously purchased by Grantee, (b) pay cash or other
consideration to the Grantor, or (c) undertake any combination thereof, so
that Grantee's Total Profit shall not exceed $10,500,000 after taking into
account the foregoing actions.
Notwithstanding any other provision of this Agreement, this Option may not
be exercised for a number of Shares as would, as of the date of the Exercise
Notice, result in a Notional Total Profit (as defined below) of more than
$10,500,000 and, if exercise of the Option otherwise would exceed such amount,
the Grantee, at its discretion, may decrease the number of Shares set forth in
the Exercise Notice so that the Notional Total Profit shall not exceed
$10,500,000; provided, that nothing in this sentence shall restrict any
exercise of the Option permitted hereby on any subsequent date.
As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount of cash received by Grantee
pursuant to Section 7.5 of the Merger Agreement, (ii) (x) the amount received
by Grantee pursuant to the Grantor's repurchase of Shares pursuant to Section
7 hereof, less (y) the Grantee's purchase price for such Shares, and (iii) (x)
the net cash amounts received by Grantee pursuant to the sale of Shares (or
any other securities into which such Shares are converted or exchanged) to any
unaffiliated party, less (y) the Grantee's purchase price for such Shares.
As used herein, the term "Notional Total Profit" with respect to any number
of Shares as to which Grantee may propose to exercise this Option shall be the
Total Profit determined as of the date of the Exercise Notice assuming that
this Option were exercised on such date for such number of Shares and assuming
that such Shares, together with all other Shares held by Grantee and its
affiliates as of such date, were sold for cash at the closing market price for
the Common Stock as of the close of business on the preceding trading day
(less customary brokerage commissions).
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20. Confidentiality Agreement. Reference is hereby made to the
Confidentiality Agreement (as defined in the Merger Agreement). The Grantor,
on behalf of its Board of Directors, hereby requests Grantee to enter into
this Agreement.
21. Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
22. Public Announcement. The Grantee will consult with the Grantor and the
Grantor will consult with the Grantee before issuing any press release with
respect to the initial announcement of this Agreement, the Option or the
transactions contemplated hereby and neither party shall issue any such press
release prior to such consultation except as may be required by law or the
applicable rules and regulations of the New York Stock Exchange or the Nasdaq
National Market, as applicable.
IN WITNESS WHEREOF, the Grantee and the Grantor have caused this Agreement
to be duly executed and delivered on the day and year first above written.
Guidant Corporation
/s/ Ronald W. Dollens
By___________________________________
Ronald W. Dollens
President and Chief Executive
Officer
Cardiothoracic Systems, Inc.
/s/ Richard M. Ferrari
By___________________________________
Richard M. Ferrari
President and Chief Executive
Officer
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ANNEX C
SUPPORT AGREEMENT
SUPPORT AGREEMENT, dated as of August 30, 1999, between Guidant Corporation,
an Indiana corporation ("Parent"), and the undersigned stockholders of the
Company, a Delaware corporation (the "Company") (the "Stockholders," each a
"Stockholder").
WHEREAS, as of the date hereof, each of the Stockholders owns (either
beneficially or of record) that amount of shares of common stock, par value
$0.001 per share, of the Company, including all associated preferred share
purchase rights ("Company Common Stock"), as set forth opposite such
Stockholder's name on Schedule A attached hereto (all such shares and any
shares of Common Stock hereafter acquired by the Stockholder prior to the
termination of this Agreement being referred to herein as the "Shares");
WHEREAS, concurrently herewith, Parent, Clydesdale Acquisition Corp., a
Delaware corporation ("Merger Sub") and the Company are entering into an
Agreement and Plan of Merger (as such Agreement may hereafter be amended from
time to time, the "Merger Agreement"), pursuant to which, upon the terms and
subject to the conditions thereof, Merger Sub will be merged with and into the
Company (the "Merger"), and the Surviving Corporation (as defined in the
Merger Agreement) will be a wholly owned subsidiary of Parent; and
WHEREAS, as a condition to the willingness of Parent to enter into the
Merger Agreement, Parent has requested that the Stockholders agree, and, in
order to induce Parent to enter into the Merger Agreement, the Stockholders
have agreed, to the terms and provisions hereof;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, the parties hereto, intending to be legally bound,
hereby agree as follows:
ARTICLE I
1.1 Voting of Shares. Subject to Section 1.1(c) hereof, and until the
termination of this Agreement in accordance with Section 4.12 hereof, each
Stockholder hereby agrees as follows:
(a) The Stockholder shall vote (or cause to be voted) the Shares in favor
of the Merger and the approval and adoption of the Merger Agreement at any
meeting of stockholders of the Company called to vote upon the Merger and
the Merger Agreement or at any adjournment thereof or in any other
circumstances upon which a vote, consent or other approval with respect to
the Merger and the Merger Agreement is sought (the "Special Meeting").
(b) The Stockholder, and any beneficiary of any trust for which the
Stockholder serves as trustee, shall not take any action to revoke or
terminate such trust or take any other action which would restrict, limit
or frustrate the Stockholder's right to vote the Shares, including on
behalf of such trust, in accordance with this Agreement. Each such
beneficiary hereby acknowledges and agrees to be bound by the terms of this
Agreement applicable to it.
(c) Notwithstanding anything to the contrary contained herein, the
obligations of the Stockholders pursuant to Section 1(a) hereof with
respect to such matters to be considered at the Special Meeting are subject
to the following conditions:
(a) Parent and Merger Sub shall have performed in all material
respects all obligations under the Merger Agreement required to be
performed by them on or prior to the date of such Special Meeting; and
(b) the Form S-4 (as defined in the Merger Agreement) to be filed
with the Securities and Exchange Commission (the "Commission") by
Parent under the Securities Act of 1933, as amended
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(the "Act"), to register the common shares, no par value, of Parent to
be issued in the Merger shall have become effective and shall be
effective at the time of the Special Meeting, and no stop order
suspending effectiveness of the Form S-4 shall have been issued, no
action, suit, proceeding, or investigation by the Commission to suspend
the effectiveness thereof shall have been initiated and be continuing.
1.2 Grant of Irrevocable Proxy; Appointment of Proxy
(a) The Stockholder hereby irrevocably grants to, and appoints, Parent and
James M. Cornelius, Ronald W. Dollens and J. B. King, in their respective
capacities as officers of Parent, and any individual who shall hereafter
succeed to any such office of Parent, and each of them individually, the
Stockholder's proxy and attorney-in-fact (with full power of substitution),
for and in the name, place and stead of the Stockholder, to vote the Shares,
or grant a consent or approval in respect of the Shares, in favor of adoption
of the Merger Agreement.
(b) The Stockholder represents that any proxies heretofore given in respect
of the Shares are not irrevocable, and that all such proxies are hereby
revoked. The Stockholder hereby affirms that the irrevocable proxy set forth
in this Section 1.2 is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the performance
of the duties of the Stockholder under this Agreement. The Stockholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked. The Stockholder hereby ratifies and
confirms all that such irrevocable proxy may lawfully do or cause to be done
by virtue hereof. Such irrevocable proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212(e) of the
Delaware General Corporation Law.
1.3 Restrictions on Transfer and Conversion
(a) Until the close of business on the date of the Special Meeting, the
Stockholder will not (i) sell, assign, transfer, pledge or otherwise dispose
of any of its Shares, (ii) deposit its Shares into a voting trust or enter
into a voting agreement or arrangement with respect to such Shares or grant
any proxy with respect thereto, or (iii) enter into any contract, option or
other arrangement or undertaking with respect to the direct or indirect
acquisition or sale, assignment, transfer or other disposition of any Shares.
(b) If, at the time the Merger Agreement is submitted for approval to the
stockholders of the Company, the Stockholder is an Affiliate (as defined in
the Merger Agreement), the Stockholder shall deliver to Parent, prior to the
Closing Date (as defined in the Merger Agreement) an Affiliate Letter in the
form attached as Exhibit A to the Merger Agreement.
(c) The Stockholder agrees to tender to the Company, within 10 business days
after the date hereof (or, in the event the Shares are acquired subsequent to
the date hereof within 10 business days after the date of such acquisition),
any and all certificates representing the Shares in order that Merger Sub may
inscribe upon such certificates the following legend: THE SHARES OF COMMON
STOCK, PAR VALUE $0.001 PER SHARE, OF THE COMPANY REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO A SUPPORT AGREEMENT DATED AS OF AUGUST 30, 1999,
AND ARE SUBJECT TO THE TERMS THEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY.
ARTICLE II
Each Stockholder represents and warrants to Parent as follows:
2.1 Authority. The Stockholder has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized, executed and
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delivered by the Stockholder and constitutes a valid and binding obligation of
the Stockholder enforceable against the Stockholder in accordance with its
terms. If the Stockholder is a natural person and is married, and the Shares
constitute community property or otherwise require spousal or other approval
for this Agreement to be legal, valid and binding, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, the Stockholder's spouse, enforceable against such
spouse in accordance with its terms. No trust of which the Stockholder is a
trustee requires the consent of any beneficiary to the execution and delivery
of this Agreement or to the consummation of the transactions contemplated
hereby.
2.2 The Shares. The Stockholder is the record and beneficial owner of or is
trustee of a trust that is the record holder of, and whose beneficiaries are
the beneficial owners of, and has good and marketable title to, the Shares,
free and clear of any liens, claims, encumbrances or security interests
whatsoever. The Stockholder does not own, of record or beneficially, any
shares of capital stock of the Company other than as set forth on Schedule A.
The Stockholder has the sole right to vote the Shares, and none of such Shares
is subject to any voting trust or other agreement, arrangement or restriction
with respect to the voting of such Shares, except as contemplated by this
Agreement.
2.3 No Violation. Neither the execution and delivery by the Stockholder of
this Agreement nor the consummation by the Stockholder of the transactions
contemplated hereby in accordance with the terms hereof, will: (i) conflict
with, or result in a breach of any provision of the Certificate of
Incorporation or Bylaws (or other comparable organizational documents, if any)
of the Stockholder, if applicable; (ii) violate, conflict with, result in a
breach of any provision of, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, any trust
agreement, loan or credit agreement, bond, note, mortgage, indenture, lease or
other contract, agreement, obligation, commitment, arrangement, understanding,
instrument, permit, concession, franchise, license, statute, law, ordinance,
rule, regulation, judgment, order, notice or decree, applicable to the
Stockholder or to the Stockholder's property or assets, including the Shares;
(iii) other than the expiration or termination of the waiting periods under
the HSR Act (as defined in the Merger Agreement) and informational filings
with the SEC, require any filing with, or permit, authorization, consent or
approval of, any Federal, state or local government or any court, tribunal,
administrative agency or commission or other governmental and regulatory
authority or agency, domestic or foreign, or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Stockholder
or any of the Stockholder's properties or assets, including the Shares.
ARTICLE III
3.1 No Solicitation. Prior to the Effective Time (as defined in the Merger
Agreement), (a) no Stockholder in its capacity as a stockholder of the Company
shall, or shall permit any of its agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by
it) to, initiate, solicit or encourage directly or indirectly, any inquiries
or the making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to the Company's stockholders) with respect
to an Alternative Proposal (as defined in the Merger Agreement) or with
respect to any tender offer for or solicitation of proxies with respect to any
shares of Company Common Stock, or engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions with,
any person relating to an Alternative Proposal or relating to any tender offer
for or solicitation of proxies with respect to any shares of Company Common
Stock, or otherwise facilitate any effort or attempt to make or implement an
Alternative Proposal or any tender offer for or solicitation of proxies with
respect to any shares of Company Common Stock and (b) each Stockholder will
notify Parent immediately in writing if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations
or discussions are sought to be initiated or continued with, it in its
capacity as a stockholder of the Company.
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ARTICLE IV
4.1 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered, mailed or transmitted, and shall be effective upon
receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier
number specified below:
If to Parent:
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204-5129
Attention: General Counsel
Telecopy: (317) 971-2141
with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019-6092
Attention: Bernard E. Kury, Esq.
Jonathan L. Freedman, Esq.
Telecopy: (212) 259-6333
If to the Stockholders, to the address indicated on Schedule A
attached hereto for each respective Stockholder.
with a copy to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: J. Casey McGlynn
Christopher J. Ozburn
Telecopy: (650) 493-6811
4.2 Certain Events. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Shares and shall be binding upon any
person or entity to which legal or beneficial ownership of such Shares shall
pass, whether by operation of law or otherwise, including such Stockholder's
heirs, guardians, administrators or successors. In the event of any stock
split, stock dividend, merger, reorganization, recapitalization or other
change in the capital structure of the Company affecting the Company Common
Stock, or the acquisition of additional shares of Company Common Stock or
other voting securities of the Company by any Stockholder, the number of
Shares listed herein shall be adjusted appropriately and this Agreement and
the obligations hereunder shall attach to any additional shares of Company
Common Stock or other voting securities of the Company issued to or acquired
by such Stockholder.
4.3 Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that Parent may assign its rights
hereunder to any of its direct or indirect wholly-owned subsidiaries,
including Merger Sub. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. Nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the
C-4
<PAGE>
parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
4.4 Entire Agreement. This Agreement constitutes the entire agreement of the
parties and supersedes all prior agreements and undertakings, both written and
oral, between the parties, or any of them, with respect to the subject matter
hereof.
4.5 Amendments. This Agreement may not be amended except by an instrument in
writing signed by each of the parties hereto.
4.6 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect to
principles of conflicts of laws.
4.7 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity. In addition, each of the parties hereto
waives to the fullest extent permitted by applicable law any right to trial by
jury with respect to any claim or proceeding related to or arising out of this
Agreement or any of the transactions contemplated hereby. If Parent should
institute an action or proceeding seeking specific enforcement of the
provisions hereof, then each Stockholder hereby waives the claim or defense
that Parent has an adequate remedy at law and hereby agrees not to assert in
any such action or proceeding the claim or defense that such a remedy at law
exists. Each Stockholder further agrees to waive any requirements for the
securing or posting of any bond in connection with obtaining any such
equitable relief.
4.8 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 contemplated hereby 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 to the
fullest extent permitted by applicable law in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent
possible.
4.9 Public Announcements. Except as required by law, no Stockholder shall
issue any press release or other public statement with respect to the
transactions contemplated by this Agreement and the Merger Agreement without
the prior written consent of Parent.
4.10 Headings. The headings contained in this Agreement are for reference
only and shall not affect in any way the meaning or interpretation of this
Agreement.
4.11 Counterparts. This Agreement may be executed 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.
4.12 Termination. This Agreement shall terminate automatically immediately
following the earlier of (i) termination of the Merger Agreement and (ii) the
closing of the Merger.
4.13 Stockholder Capacity. As of the date of this Agreement, certain of the
Stockholders are directors of the Company. None of the Stockholders makes any
agreement or understanding herein in his or her capacity as a director or
officer of the Company. Each Stockholder signs solely in his or her capacity
as the record holder and beneficial owner of, or the trustee of a trust whose
beneficiaries are the beneficial owners of, such
C-5
<PAGE>
Stockholder's securities and nothing herein shall limit or affect any actions
taken by a Stockholder in his or her capacity as an officer or director of the
Company to the extent specifically permitted by the Merger Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Guidant Corporation
/s/ Ronald W. Dollens
By___________________________________
Ronald W. Dollens
President and Chief Executive
Officer
/s/ Richard M. Ferrari
_____________________________________
Richard M. Ferrari
/s/ Charles S. Taylor
_____________________________________
Charles S. Taylor
[SIGNATURE PAGE TO SUPPORT AGREEMENT]
C-6
<PAGE>
Schedule A
<TABLE>
<CAPTION>
Stockholder Shares Owned
----------- ------------
<S> <C>
Richard M. Ferrari.............................................. 965,041
Charles S. Taylor............................................... 954,818
</TABLE>
C-7
<PAGE>
ANNEX D
U.S. Bancorp Piper Jaffray
222 South Ninth Street
Minneapolis, NM 55402
612-342-6000
August 30, 1999
The Board of Directors
CardioThoracic Systems, Inc.
10600 North Tantau Avenue
Cupertino, CA 95014
Members of the Board:
In connection with the proposed transaction ("Transaction") in which
Clydesdale Acquisition Corp., a wholly-owned subsidiary of Guidant Corporation
("Guidant") will be merged with and into CardioThoracic Systems Inc. ("CTS"),
you have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of CTS of the proposed consideration to be received
by the stockholders of CTS in the Transaction pursuant to the Agreement
referred to below. Under the terms of the Agreement and Plan of Merger (the
"Agreement"), and subject to specified collars at the effective time of the
Transaction, each issued and outstanding share of CTS Common Stock will be
converted into shares of Guidant common stock based on an average of the daily
closing stock price of Guidant for a specified period ending prior to the
stockholders meeting relating to the Transaction. The terms and conditions of
the merger are more fully set forth in the Agreement. The Transaction is
intended to qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and is intended
to be treated as a pooling-of-interests for accounting purposes.
U.S. Bancorp 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
CTS in connection with the Transaction and will receive a fee for our services
which is contingent upon consummation of the Transaction. In addition, we will
receive a separate fee for providing this opinion, which will be credited
against the fee for our services. This opinion fee is not contingent upon the
consummation of the Transaction. CTS has also agreed to indemnify us against
certain liabilities in connection with our services. We acted as a manager of
the initial public offering of CTS Common Stock on April 18, 1996. We write
research on and make a market in the Common Stock of CTS. In the ordinary
course of our business, we and our affiliates may actively trade securities of
Guidant and CTS 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 dated August 24, 1999 of the
Agreement and Plan of Merger, (ii) certain publicly available financial,
business and operating information related to Guidant, (iii) certain publicly
available financial and securities data of Guidant and selected public
companies deemed comparable to Guidant, (iv) certain analyst reports on
Guidant, (v) to the extent publicly available, information concerning selected
transactions deemed comparable to the proposed Transaction, (vi) certain
publicly available financial, business and operating information relative to
CTS, (vii) certain internal financial information of CTS on a stand-alone
basis prepared for financial planning purposes, and furnished by CTS
management and (viii) certain publicly available financial and securities data
of CTS and selected public
<PAGE>
companies deemed comparable to CTS. We had discussions with members of the
management of CTS concerning the financial condition, current operating
results and business outlook for CTS on a stand-alone basis and as a combined
company. We also had discussions with members of the management of Guidant
concerning the financial condition, current operating results and business
outlook for Guidant and as a combined company.
We have relied upon and assumed the accuracy, completeness and fairness of the
financial statements and other information provided to us by CTS, Guidant, or
otherwise made available to us, and have not assumed responsibility for the
independent verification of such information. CTS has advised us that it does
not publicly disclose internal financial information of the type provided to
us and that such information was prepared for financial planning purposes and
not with the expectation of public disclosure. We have relied upon the
assurance of the management of CTS and Guidant that the information provided
to us by CTS and Guidant 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.
We have assumed that the final form of the Agreement will be substantially
similar to the last draft reviewed by us, without modification of material
terms or conditions by CTS or Guidant. We have also assumed that the
Transaction contemplated by the Agreement will constitute a "reorganization"
within the meaning of Section 368(a) of the Code and that the Transaction will
be treated as a pooling-of-interests for accounting purposes. In addition, we
have assumed that, in the course of obtaining the necessary regulatory
approvals for the Transaction, no restrictions, including any divestiture
requirements, will be imposed that will have a material adverse effect on the
contemplated benefits of the Transaction to CTS and its stockholders.
In arriving at our opinion, we have not performed any appraisals or valuations
of any specific assets or liabilities of CTS or Guidant, 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 CTS or Guidant 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 do not have any obligation to update, revise or
reaffirm this opinion.
This opinion is directed to the board of Directors in connection with its
consideration of the Transaction and is not intended to be and does not
constitute a recommendation to any stockholders as to how such stockholder
should vote with respect to the Transaction. 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. 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 consideration proposed to be
received by the stockholders of CTS in the Transaction pursuant to the
Agreement is fair, from a financial point of view, to the stockholders of CTS
as of the date hereof.
Sincerely,
/s/ U.S. Bancorp Piper Jaffray
- ------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Indiana Business Corporation Law provides that a corporation, unless
limited by its Articles of Incorporation, is required to indemnify its
directors and officers against reasonable expenses incurred in the successful
defense of any proceeding arising out of their serving as a director or
officer of the corporation.
As permitted by the Indiana Business Corporation Law, the Registrant's
Articles of Incorporation provide for indemnification of directors, officers
and employees of the Registrant against any and all liability and reasonable
expense that may be incurred by them, arising out of any claim or action,
civil or criminal, in which they may become involved by reason of being or
having been a director, officer, or employee. To be entitled to
indemnification, those persons must have been wholly successful in the claim
or action or the Board of Directors or independent legal counsel must have
determined that such persons acted in good faith in what they reasonably
believed to be in the best interests of the Registrant and, in addition, in
any criminal action, had no reasonable cause to believe that their conduct was
unlawful.
Officers and directors of the Registrant are insured, subject to certain
exclusions and deductibles and maximum amounts, against loss from claims
arising in connection with their acting in their respective capacities, which
include claims under the Securities Act of 1933.
Item 21. Exhibits and Financial Statement Schedules.
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of August 30, 1999, by and among
Guidant Corporation, Clydesdale Acquisition Corp. and CardioThoracic
Systems, Inc. (attached as Annex A to the Proxy Statement/Prospectus
included in this Registration Statement).
2.2 Stock Option Agreement, dated as of August 30, 1999, between Guidant
Corporation and CardioThoracic Systems, Inc. (attached as Annex B to the
Proxy Statement/Prospectus included in this Registration Statement).
2.3 Support Agreement, dated as of August 30, 1999, among Guidant
Corporation, Richard M. Ferrari and Charles S. Taylor (attached as Annex
C to the Proxy Statement/Prospectus included in this Registration
Statement).
5.1 Opinion of J.B. King, Esq., as to the legality of the securities.
8.1 Tax Opinion Wilson Sonsini Goodrich & Rosati, Professional Corporation.
8.2 Tax Opinion of Dewey Ballantine LLP.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Consent of J.B. King, Esq. (included in opinion filed as Exhibit 5.1).
23.5 Consent Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in opinion filed as Exhibit 8.1).
23.6 Consent of Dewey Ballantine LLP (included in opinion filed as Exhibit
8.2).
23.7 Consent of U.S. Bancorp Piper Jaffray Inc.
24.1 Powers of Attorney (included on signature page hereto).
99.1 Form of Proxy for holders of CardioThoracic Systems, Inc. Common Stock.
</TABLE>
II-1
<PAGE>
Item 22. Undertakings.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Indianapolis, State of
Indiana, on the 7th day of October 1999.
Guidant Corporation
/s/ James M. Cornelius
By: _________________________________
James M. Cornelius
Chairman of the Board
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Keith E. Brauer
and J.B. King, and each of them severally, acting alone and without the other,
his or her true and lawful attorney-in-fact with authority to execute the name
of each such person, and to file with the Securities and Exchange Commission,
together with any exhibits thereto and other documents therewith, any and all
amendments (including without limitation post-effective amendments) to this
Registration Statement necessary or advisable to enable the registrant to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission in respect thereof,
which amendments may make such changes in this Registration Statement as the
aforesaid attorney-in-fact deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James M. Cornelius Chairman of the Board and October 7, 1999
______________________________________ Director (principal
James M. Cornelius executive officer)
/s/ Ronald W. Dollens President, Chief Executive October 7, 1999
______________________________________ Officer and Director
Ronald W. Dollens (principal executive
officer)
/s/ Keith E. Brauer Vice President, Finance October 7, 1999
______________________________________ and Chief Financial
Keith E. Brauer Officer (principal
financial officer)
/s/ Roger Marchetti Corporate Controller and October 7, 1999
______________________________________ Chief Accounting Officer
Roger Marchetti (principal accounting
officer)
/s/ Kim B. Clark, Ph.D. Director October 7, 1999
______________________________________
Kim B. Clark, Ph.D.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Maurice A. Cox, Jr. Director October 7, 1999
______________________________________
Maurice A. Cox, Jr.
/s/ Enrique C. Falla Director October 7, 1999
______________________________________
Enrique C. Falla
/s/ Michael Grobstein Director October 7, 1999
______________________________________
Michael Grobstein
/s/ J.B. King Director October 7, 1999
______________________________________
J.B. King
/s/ Susan B. King Director October 7, 1999
______________________________________
Susan B. King
/s/ J. Kevin Moore Director October 7, 1999
______________________________________
J. Kevin Moore
/s/ Mark Novitch, M.D. Director October 5, 1999
______________________________________
Mark Novitch, M.D.
/s/ Eugene L. Step Director October 7, 1999
______________________________________
Eugene L. Step
/s/ Reudi E. Wager, Ph.D. Director October 7, 1999
______________________________________
Reudi E. Wager, Ph.D.
</TABLE>
II-4
<PAGE>
Exhibit 5.1
G U I D A N T
October 14, 1999
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, IN 46204-5129
Ladies and Gentlemen:
Guidant Corporation, an Indiana corporation (the "Company"), has filed with
the Securities and Exchange Commission Form S-4 (the "Registration Statement")
relating to shares of the Company's common stock, without par value (the "Common
Stock"), that may be issued by the Company pursuant to an Agreement and Plan of
Merger dated as of August 30, 1999 (the "Merger Agreement"), providing for the
merger of CardioThoracic Systems, Inc ("CTS") and a wholly-owned subsidiary of
the Company in which CTS will be the surviving corporation and become a wholly-
owned subsidiary of the Company.
It is my opinion that:
A. The Company is a corporation duly organized and validly existing
under the laws of the State of Indiana.
B. The shares of Common Stock to be issued pursuant to the Merger
Agreement:
(i) are duly authorized; and
(ii) will be validly issued and outstanding, fully paid and non-
assessable upon issuance pursuant to the terms of the Merger
Agreement.
In arriving at the foregoing opinions, I or members of my staff have
examined corporate records, plans, agreements and other documents of the Company
deemed appropriate. I am a member of the Bar of the State of Indiana and express
no opinion as to the laws of any other jurisdiction.
I consent to the filing of this opinion as an Exhibit to the Registration
Statement. In giving such consent, I do not admit that I come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the Rules and Regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
GUIDANT CORPORATION
/s/ J.B. King
---------------------------------
J.B. King
Vice President and General Counsel
Guidant Corporation
111 Monument Circle, 29th Floor Indianapolis, IN 46204-5129
Mailing Address: P.O. Box 44906, Indianapolis, IN 46244-0906
Tel 317,971,2000 Fax 317.971.2040
www.guidant.com
<PAGE>
Exhibit 8.1
[Letterhead of Wilson Sonsini Goodrich & Rosati P.C.]
October 15, 1999
CardioThoracic Systems, Inc.
10600 North Tantau Avenue
Cupertino, California 95014
Ladies and Gentlemen:
We have acted as special counsel to CardioThoracic Systems, Inc., a
Delaware corporation ("CTS"), in connection with the proposed transaction (the
"Merger") contemplated by the Agreement and Plan of Reorganization, dated as of
August 30, 1999 (the "Merger Agreement"), by and among Guidant Corporation, an
Indiana corporation ("Guidant"), Clydesdale Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Guidant ("Clydesdale"), and CTS. In
that connection, we have participated in the preparation of a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
on Form S-4 (the "Registration Statement"), including a proxy
statement/prospectus of CTS and Guidant dated today (the "Proxy Statement").
You have requested that we deliver to you our opinion, as described in the
Registration Statement, of the material U.S. federal income tax consequences of
the Merger to Guidant, Clydesdale, CTS and the holders of shares of CTS common
stock (the "Exhibit Opinion"). In rendering our opinion, we have examined the
Merger Agreement, the Registration Statement, the Proxy Statement, the
representations contained in the officer's certificates of Guidant, Clydesdale
and CTS, each dated today, which have been delivered to us for purposes of this
Exhibit Opinion (the "Officer's Certificates"), and such other documents and
corporate records as we have deemed necessary or appropriate.
In addition, we have assumed with your permission that (i) the Merger will
be consummated in the manner contemplated in the Proxy Statement and in
accordance with the provisions of the Merger Agreement, (ii) the statements
concerning the Merger set forth in the Proxy Statement are true, accurate and
complete, (iii) the representations set forth in the Officer's Certificates are
true, accurate and complete, and any representation made "to the best of the
knowledge" or similarly qualified is, in each case, correct without such
qualification, (iv) the representations set forth in the Officer's Certificates
will remain true, accurate and complete on and as of the Closing Date as if
given at such time, and (v) we will reconfirm this Exhibit Opinion on the
Closing Date pursuant to Section 6.2(b) of the Merger Agreement.
<PAGE>
CardioThoracic Systems, Inc.
October 15, 1999
Page 2
Material Federal Income Tax Consequences
The material federal income tax consequences of the Merger are as follows:
(a) The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
(b) CTS stockholders will not recognize any gain or loss upon the exchange
of their CTS common stock solely for shares of Guidant common stock
pursuant to the Merger, except with respect to any cash they receive
instead of a fractional share of Guidant common stock.
(c) The aggregate tax basis of the shares of Guidant common stock received
solely in exchange for shares of CTS common stock pursuant to the
Merger, including a fractional share of Guidant common stock for which
cash is received, will be the same as the aggregate tax basis of the
shares of CTS common stock exchanged for them.
(d) The holding period for shares of Guidant common stock received in
exchange for shares of CTS common stock pursuant to the Merger will
include the holding period of the shares of CTS common stock exchanged
for them.
(e) CTS stockholders who receive cash instead of a fractional share of
Guidant common stock should be treated as having received the
fractional share in the Merger and then as having the fractional share
redeemed by Guidant in a distribution under Section 302 of the Code.
Accordingly, these stockholders should generally recognize gain or
loss equal to the difference, if any, between the tax basis of the
fractional share and the amount of cash received. The gain or loss
generally will be capital gain or loss and, in the case of
individuals, long-term capital gain or loss eligible for reduced rates
of taxation if the CTS stock exchanged has been held for more than one
year.
(f) None of CTS, Clydesdale, or Guidant will recognize any gain or loss as
a result of the Merger.
The foregoing description assumes that the CTS shareholders hold their
shares of CTS common stock as capital assets. Further, the discussion does not
address all of the federal income tax consequences that may be relevant to the
CTS shareholders in light of their particular circumstances; nor does the
discussion address the federal income tax consequences that may be applicable to
taxpayers subject to special treatment under the Code, such as:
<PAGE>
CardioThoracic Systems, Inc.
October 15, 1999
Page 3
(i) insurance companies;
(ii) financial institutions;
(iii) dealers in securities;
(iv) traders that mark to market;
(v) tax-exempt organizations;
(vi) stockholders who hold their shares as part of a hedge, appreciated
financial position, straddle or conversion transaction;
(vii) stockholders who acquired their shares through the exercise of
options or otherwise as compensation or through a tax-qualified
retirement plan; and
(viii) foreign corporations, foreign partnerships or other foreign
entities and individuals who are not citizens or residents of the
United States.
No information is provided in this Exhibit Opinion with respect to the tax
consequences, if any, of the Merger under applicable foreign, state, local and
other tax laws. This Exhibit Opinion is based upon the provisions of the Code,
applicable United States Treasury regulations, and Internal Revenue Service
("IRS") rulings and judicial decisions, as in effect as of the date of this
document. There can be no assurance that future legislative, administrative or
judicial changes or interpretations, which changes could apply retroactively,
will not affect the accuracy of the statements or conclusions set forth in this
Exhibit Opinion. No rulings have been or will be sought from the IRS concerning
the tax consequences of the Merger, and this Exhibit Opinion will not be binding
on the IRS or any court.
The preceding discussion does not purport to be a complete analysis or
discussion of all potential tax effects relevant to the Merger. Thus, CTS
stockholders are urged to consult their own tax advisors as to the specific tax
consequences to them of the Merger, including tax return reporting requirements,
the applicability and effect of federal, state, local, foreign and other tax
laws and the effect of any proposed changes in the tax laws.
Consent
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "THE MERGER -- Material
Federal Income Tax Consequences" in the Registration Statement. In giving this
consent, we do not concede that we are experts within the meaning of the
Securities Act or the rules and regulations thereunder, or that this consent is
required by Section 7 of the Securities Act.
<PAGE>
CardioThoracic Systems, Inc.
October 15, 1999
Page 4
Very truly yours,
/s/ Wilson Sonsini Goodrich & Rosati P.C.
WILSON SONSINI GOODRICH &
ROSATI P.C.
<PAGE>
Exhibit 8.2
[Letterhead of Dewey Ballantine LLP]
October 15, 1999
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204-5129
Ladies and Gentlemen:
We have acted as special counsel to Guidant Corporation, an Indiana
corporation ("Guidant"), in connection with the proposed transaction (the
"merger") contemplated by the Agreement and Plan of Reorganization, dated as of
August 30, 1999 (the "Merger Agreement"), by and among Guidant, Clydesdale
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Guidant
("Clydesdale"), and CardioThoracic Systems, Inc., a Delaware corporation
("CTS"). In that connection, we have participated in the preparation of a
registration statement under the Securities Act of 1993 on Form S-4 (the
"Registration Statement"), including a proxy statement/prospectus of CTS and
Guidant dated today (the "Proxy Statement").
You have requested that we deliver to you our opinion as described in the
Registration Statement of the material U.S. federal income tax consequences of
the merger to Guidant, Clydesdale, CTS and the holders of shares of CTS common
stock (the "Exhibit Opinion"). In rendering our opinion we have examined the
Merger Agreement, the Registration Statement, the Proxy Statement, the
representations contained in the officer's certificates of Guidant, Clydesdale
and CTS, each dated today, which have been delivered to us for purposes of this
Exhibit Opinion (the "Officer's Certificates"), and such other documents and
corporate records as we have deemed necessary or appropriate.
In addition, we have assumed with your permission that (i) the merger will
be consummated in the manner contemplated in the Proxy Statement and in
accordance with the provisions of the Merger Agreement, (ii) the statements
concerning the merger set forth in the Proxy Statement are true, accurate and
complete, (iii) the representations set forth in the Officer's Certificates are
true, accurate and complete, and any representation made "to the best of the
knowledge" or similarly qualified is, in each case, correct without such
qualification, (iv) the representations set forth in the Officer's Certificates
will remain true, accurate and complete on and as of the Closing Date as if
given at such time, and (v) there will be no material change in fact or law that
would prevent us from reconfirming this Exhibit Opinion on the Closing Date
pursuant to Sections 6.2(b) and 6.3(b) of the Merger Agreement.
<PAGE>
Guidant Corporation
October 15, 1999
Page 2
Material Federal Income Tax Consequences
The material federal income tax consequences of the merger are as follows:
. The merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code.
. CTS stockholders will not recognize any gain or loss upon the exchange
of their CTS common stock solely for shares of Guidant common stock
pursuant to the merger, except with respect to any cash they receive
instead of a fractional share of Guidant common stock.
. The aggregate tax basis of the shares of Guidant common stock received
solely in exchange for shares of CTS common stock pursuant to the
merger, including a fractional share of Guidant common stock for which
cash is received, will be the same as the aggregate tax basis of the
shares of CTS common stock exchanged for them.
. The holding period for shares of Guidant common stock received in
exchange for shares of CTS common stock pursuant to the merger will
include the holding period of the shares of CTS common stock exchanged
for them.
. CTS stockholders who receive cash instead of a fractional share of
Guidant common stock should be treated as having received the
fractional share in the merger and then as having the fractional share
redeemed by Guidant in a distribution under Section 302 of the
Internal Revenue Code, Accordingly, these stockholders should
generally recognize gain or loss equal to the difference, if any,
between the tax basis of the fractional share and the amount of cash
received. The gain or loss generally will be capital gain or loss and,
in the case of individuals, long-term capital gain or loss eligible
for reduced rates of taxation if the CTS stock exchanged has been held
for more than one year.
. None of CTS, Clydesdale, or Guidant will recognize any gain or loss as
a result of the merger.
The foregoing description assumes that the CTS shareholders hold their
shares of CTS common stock as capital assets. Further, the discussion does not
address all of the federal income tax consequences that may be relevant to the
CTS shareholders in light of their particular circumstances; nor does the
discussion address the federal income tax consequences that may be applicable to
taxpayers subject to special treatment under the Internal Revenue Code, such as:
2
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Guidant Corporation
October 15, 1999
Page 3
. insurance companies;
. financial institutions;
. dealers in securities;
. traders that mark to market;
. tax-exempt organizations;
. stockholders who hold their shares as part of a hedge, appreciated
financial position, straddle or conversion transaction;
. stockholders who acquired their shares through the exercise of
options or otherwise as compensation or through a tax-qualified
retirement plan; and
. foreign corporations, foreign partnerships or other foreign entities
and individuals who are not citizens or residents of the United
States.
No information is provided in this Exhibit Opinion with respect to the tax
consequences, if any, of the merger under applicable foreign, state, local and
other tax laws. This Exhibit Opinion is based upon the provisions of the
Internal Revenue Code, applicable Treasury regulations, and IRS rulings and
judicial decisions, as in effect as of the date of this document. There can be
no assurance that future legislative, administrative or judicial changes or
interpretations, which changes could apply retroactively, will not affect the
accuracy of the statements or conclusions set forth in this Exhibit Opinion. No
rulings have been or will be sought from the IRS concerning the tax consequences
of the merger, and this Exhibit Opinion will not be binding on the IRS or any
court.
The preceding discussion does not purport to be a complete analysis or
discussion of all potential tax effects relevant to the merger. Thus, CTS
stockholders are urged to consult their own tax advisors as to the specific tax
consequences to them of the merger, including tax return reporting requirements,
the applicability and effect of federal, state, local, foreign and other tax
laws and the effect of any proposed changes in the tax laws.
Consent
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "THE MERGER - Material
Federal income Tax Consequences" in the Registration Statement. In giving this
consent, we do not concede that we are experts within the meaning of the
Securities Act of 1933, as amended, or the rules and regulations thereunder, or
that this consent is required by Section 7 of the Securities Act of 1933.
3
<PAGE>
Guidant Corporation
October 15, 1999
Page 4
Very truly yours,
/s/ Dewey Ballantine LLP
Dewey Ballantine LLP
4
<PAGE>
Exhibit 23.1
EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Consolidated Financial Data" in the Registration Statement (Form S-4)
and related Prospectus of Guidant Corporation for the registration of 6,088,245
shares of its common stock and to the incorporation by reference therein of our
reports dated January 28, 1999 (except for Notes 5 and 14 as to which the date
is February 11, 1999) with respect to the consolidated financial statements of
Guidant Corporation incorporated by reference in its Annual Report (Form 10-K)
for the year ended December 31, 1998 and the related financial statement
schedule included therein, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Indianapolis, Indiana
October 14, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
__________________________________
We consent to the inclusion of our report dated April 21, 1999, on the financial
statements of Sulzer Electrophysiology as of and for the three years ended
December 31, 1998 in the Guidant Corporation Form S-4 dated October 15, 1999.
/s/ PricewaterhouseCoopers LLP
______________________________
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
October 14, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Guidant Corporation of our report dated January 22,
1999, relating to the financial statements, which appears in CardioThoracic
Systems, Inc.'s 1998 Annual Report to Shareholders, which is incorporated by
reference in its Annual Report on Form 10-K for the year ended January 1, 1999.
We also consent to the references to us under the headings "Experts" and
"Selected Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
October 14, 1999
<PAGE>
EXHIBIT 23.7
CONSENT OF U.S. BANCORP PIPER JAFFRAY INC.
We hereby consent to the inclusion in the Registration Statement on Form S-4 of
Guidant Corporation ("Guidant") relating to the proposed merger of
CardioThoracic Systems, Inc. with and into a wholly owned subsidiary of Guidant,
of our opinion letter, dated August 30, 1999, appearing as Annex D to the Proxy
Statement/Prospectus which is a part of the Registration Statement, and to the
references of our firm name therein. In giving such consent, we do not thereby
admit that we come within the category of person whose consent is required under
Section 7 or Section 11 of the Securities Act of 1933, as amended, or the rules
and regulations adopted by the Securities and Exchange Commission thereunder,
nor do we admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
By /s/ U.S. Bancorp Piper Jaffray
________________________________
U.S. Bancorp Piper Jaffray Inc.
Minneapolis, Minnesota
Dated: October 14, 1999
<PAGE>
CARDIOTHORACIC SYSTEMS, INC. proxy
- ------------------------------------------------------------------------------
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS, NOVEMBER 15, 1999
THIS PROXY IS SOLICITED ON BEHALF OF CARDIOTHORACIC SYSTEMS, INC.
The undersigned hereby appoints Richard M. Ferrari, Steven M. Van Dick, and
J. Casey McGlynn, and each or any of them (with power of substitution), proxies
for the undersigned to represent and to vote, as designated on the reverse side
hereof, all shares of common stock of CardioThoracic Systems, Inc. which the
undersigned would be entitled to vote if personally present at the special
meeting of its stockholders to be held on November 15, 1999, and at any
adjournment thereof, subject to any directions indicated on the reverse side of
this card.
IF NO DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THE PROPOSAL TO APPROVE
AND ADOPT THE AGREEMENT AND PLAN OF MERGER, THE MERGER, AND THE OTHER
TRANSACTIONS CONTEMPLATED IN THE AGREEMENT AND PLAN OF MERGER.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE SIGN AND RETURN PROMPTLY IN
THE ENVELOPE PROVIDED. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE MEETING AND VOTE IN PERSON, THIS PROXY WILL NOT BE USED.
Continued and to be signed and dated on reverse side.
<PAGE>
Please detach here
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CTS's board of directors recommends a vote FOR approval and
adoption of the Agreement and Plan of Merger, the Merger, and
the other transactions contemplated in the Agreement and Plan of Merger.
1. To consider and vote upon a proposal [_] For [_] Against [_] Abstain
to approve and adopt the Agreement
and Plan of Merger among CTS, Guidant
Corporation and a wholly-owned
subsidiary of Guidant, and the merger
contemplated by that agreement.
To transact any other business as may PLEASE COMPLETE, SIGN, DATE AND
properly be brought before the special PROMPTLY RETURN THE PROXY IN THE
meeting or any adjournment of such ENCLOSED ENVELOPE, IF MAILED IN
meeting. THE UNITED STATES.
Change of Address If you Plan to
and or Comments Attend the Special
Mark Here Meeting Mark Here
[_] [_]
-----------------------------------
Signature
-----------------------------------
Signature (if held jointly)
Dated ___________________, 1999
Please sign exactly as name or
names appear on this proxy. If
stock is held jointly, each holder
should sign. If signing as
attorney, trustee, executor,
administrator, custodian, guardian
or corporate officer, please give
full title.
