<PAGE>
Under the Securities Exchange Act of 1934
(Amendment No. )*
CardioThoracic Systems, Inc.
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock
- --------------------------------------------------------------------------------
(Title of Class of Securities)
141907-10-5
------------------------------
(CUSIP Number)
Keith E. Brauer
Guidant Corporation
111 Monument Circle, 29th Floor
Indianapolis, Indiana 46204
(317) 971-2000
with a copy to:
Bernard E. Kury
Jonathan L. Freedman
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019-6092
(212) 259-8000
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
August 30, 1999
-------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box
[_].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
- ------------------------ ---------------------
CUSIP NO. 141907-10-5 PAGE 2 OF 12 PAGES
- ------------------------ ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON Guidant Corporation
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON: 35-1931722
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
Not Applicable (b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
WC,OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Indiana
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 1,919,859
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
0
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
1,919,859
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,919,859
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_] Not Applicable
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
13.24%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
Item 1. Security and Issuer
This Statement relates to the common stock, par value $0.001 per share
("Common Stock"), of CardioThoracic Systems, Inc., a Delaware corporation
("CTSI"). The address of the principal executive offices of CTSI is 10600 North
Tantau Avenue, Cupertino, California 95014.
Item 2. Identity and Background.
(a) This statement is filed by Guidant Corporation, an Indiana corporation
("Guidant"). The principal business of Guidant is the design, development,
manufacturing and marketing of medical devices.
(b) Address: 111 Monument Circle, 29th Floor, Indianapolis, Indiana 46204
(c) Set forth in Schedule I to this Schedule 13D is the name and present
principal occupation or employment of each of Guidant's executive officers
and directors. The business address of each of the executive officers and
directors of Guidant is c/o Guidant Corporation, 111 Monument Circle, 29th
Floor, Indianapolis, Indiana 46204.
(d) During the last five years, neither Guidant, nor, to Guidant's knowledge,
any of the persons with respect to whom information is given in response to
this Item 2 has been convicted in a criminal proceeding.
(e) During the last five years, neither Guidant nor, to Guidant's knowledge,
any of the other persons with respect to whom information is given in
response to this Item 2 has been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction resulting in a
judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, Federal or State securities laws or
finding any violations with respect to such laws.
(f) To Guidant's knowledge, all directors and executive officers of Guidant
named in Schedule I to this Schedule 13D are citizens of the United States,
except for Ruedi E. Wager, who is a citizen of Switzerland.
Item 3. Source and Amount of Funds or Other Consideration.
As described in the response to Item 4 below, the shares to which this
statement relates have not been purchased by Guidant. In connection with the
execution of the Merger Agreement (as defined in Item 4), Richard M. Ferrari and
Charles S. Taylor, stockholders of CTSI, (together, the "CTSI Stockholders"),
and Guidant have entered into a Support Agreement dated as of August 30, 1999
(the "Support Agreement"). The number of shares of CTSI Common Stock
beneficially owned by each of the CTSI Stockholders, as represented to Guidant
in the Support Agreement by the CTSI Stockholders, is set forth on Schedule II
of this Schedule 13D. Pursuant to the Merger Agreement, each share of CTSI
Common Stock will be converted into the right to receive a fraction of a share
of common stock, without par value, of Guidant ("Guidant
3
<PAGE>
Common Stock") pursuant to a formula described in Item 4. No additional
consideration was given in exchange for the Support Agreement.
Item 4. Purpose of the Transaction.
(a)-(b) On August 30, 1999, CTSI, Guidant and Clydesdale Acquisition
Corp. ("Merger Sub"), a Delaware corporation and a wholly-owned subsidiary of
Guidant, entered into an Agreement and Plan of Merger (the "Merger Agreement")
contemplating a merger of CTSI with and into Merger Sub (the "Merger").
On May 6, 1999, Guidant and CTSI entered into a Confidentiality Letter
Agreement (the "Confidentiality Agreement"). On August 6, 1999, Guidant and
CTSI entered into a Letter Agreement amending the Confidentiality Agreement (the
"Letter Agreement") under which, among other things, (i) CTSI agreed to cease
any existing discussions or negotiations with any third party other than Guidant
with respect to a Prohibited Transaction (as defined in the Letter Agreement),
(ii) CTSI agreed to negotiate exclusively and in good faith with Guidant through
August 30, 1999, subject to the fiduciary duties of its board of directors to
its stockholders under applicable law, (iii) Guidant agreed to negotiate in good
faith with CTSI and (iv) Guidant agreed to keep all attorney-client privileged
or attorney work product information received from CTSI in the strictest
confidence.
The foregoing summary of the Confidentiality Letter and Letter
Agreement is qualified in its entirety by reference to copies of such letters
included as Exhibit 99.1 to this Schedule 13D and incorporated herein in their
entirety by reference.
In connection with the Merger, Guidant and CTSI have entered into a
Stock Option Agreement, dated August 30, 1999 (the "Stock Option Agreement"),
under which CTSI has granted Guidant an option to purchase 2,885,035 newly
issued shares of common stock, par value $0.001 per share, of CTSI ("CTSI Common
Stock") (equal to approximately 19.9% of the outstanding number of shares of
CTSI Common Stock) at a purchase price of $19.50 per share if any of the
Triggering Events (as hereinafter defined) occur. Following the exercise by
Guidant of its option to purchase the CTSI Common Stock, CTSI may repurchase the
CTSI Common Stock from Guidant at the Alternative Purchase Price (as defined in
the Option Agreement). Pursuant to the terms of the Option Agreement, in no
event shall Guidant's Total Profit (as defined in the Option Agreement) exceed
$10,500,000.
The foregoing summary of the Stock Option Agreement is qualified in
its entirety by reference to a copy of the Stock Option Agreement included as
Exhibit 99.2 to this Schedule 13D and incorporated herein in its entirety by
reference.
In the Support Agreement, each CTSI Stockholder has agreed to vote all
of such CTSI Stockholder's shares of CTSI Common Stock in favor of the Merger,
the approval and adoption of the Merger Agreement and the approval of the other
transactions contemplated by the Merger Agreement, at any meeting of
stockholders of CTSI called to vote upon the Merger and the Merger Agreement or
at any adjournment
4
<PAGE>
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"). The CTSI Stockholders' obligation to so vote is conditioned
upon (i) the performance by Guidant and Merger Sub of all obligations under the
Merger Agreement required to be performed prior to the date of the Special
Meeting and (ii) the effectiveness of a Registration Statement on Form S-4 with
respect to the shares of Guidant Common Stock to be issued in the Merger.
Each CTSI Stockholder has granted Guidant and James M. Cornelius,
Ronald W. Dollens and J.B. King, who are executive officers and directors of
Guidant, an irrevocable proxy, for and in the name, place and stead of each CTSI
Stockholder, to vote all of such CTSI Stockholder's shares of CTSI Common Stock
in favor of adoption of the Merger Agreement.
Pursuant to the terms of the Support Agreement, each CTSI Stockholder
has agreed that, until the close of business on the date of the Special Meeting,
such CTSI Stockholder will not (a) sell, assign, transfer, pledge or otherwise
dispose of any of its CTSI Common Stock, (b) deposit its CTSI Common Stock into
a voting trust or enter into a voting agreement or arrangement with respect to
such CTSI Common Stock or grant any proxy with respect thereto, or (c) 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 CTSI Common Stock.
Pursuant to the terms of the Support Agreement, each CTSI Stockholder
has agreed (a) to not permit any 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 CTSI'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 CTSI
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 CTSI 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 CTSI Common Stock and (b) to notify Guidant 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. Both of the CTSI Stockholders are directors
and officers of CTSI. Pursuant to the terms of the Support Agreement, each CTSI
Stockholder entered into the Support Agreement solely in his capacity as the
record holder and beneficial owner of, or the trustee of a trust whose
beneficiaries are the beneficial owners of, CTSI Common Stock and nothing
therein shall limit or affect any actions taken by such CTSI Stockholder in his
capacity as an officer or director, as the case may be.
5
<PAGE>
The foregoing summary of the Support Agreement is qualified in its
entirety by reference to a copy of the Support Agreement included as Exhibit
99.3 to this Schedule 13D and incorporated herein in its entirety by reference.
The purpose of the transactions under the Stock Option Agreement and
the Support Agreement is to enable Guidant to consummate the transactions
contemplated under the Merger Agreement. The Stock Option Agreement and Support
Agreement may also make it more difficult and expensive for CTSI to consummate a
business combination with a party other than Guidant. In particular, the Stock
Option Agreement could jeopardize the ability of another party to acquire CTSI
in a transaction accounted for as a pooling of interests.
Pursuant to the terms of the Merger Agreement, CTSI will be merged
with and into Merger Sub, and each share of CTSI Common Stock will 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
Guidant Common Stock that equals the amount obtained by dividing $19.50 by the
Average Price (as hereinafter defined); provided, that in no event shall the
Exchange Ratio exceed 0.3611 or be less than 0.2955.
"Average Price" means the average per share closing price of Guidant
Common Stock during the 20 full trading days preceding the date of the last full
trading day prior to the Special Meeting or any adjournment or postponement at
which the approval of the Merger Agreement and the Merger by the stockholders of
CTSI is obtained, as such prices are reported on the New York Stock Exchange
Composite Transactions Tape (as reported by The Wall Street Journal, or, if not
reported thereby, any other authoritative source).
The consummation of the Merger is subject to the satisfaction or
waiver of certain conditions, including approval by the holders of a majority of
the outstanding shares of CTSI Common Stock, all as set forth in the Merger
Agreement.
Pursuant to the terms of the Merger Agreement, CTSI is obligated to
pay Guidant a fee of $9,000,000 upon the termination of the Merger Agreement by
(i) either Guidant or CTSI if approval of the Merger is not obtained by CTSI's
stockholders, a proposal with respect to a Specified Transaction (as defined in
the Merger Agreement) has been made and within one year after such termination,
a third party acquires beneficial ownership of more than 50% of CTSI's
outstanding voting stock or CTSI enters in to an agreement with respect to any
Specified Transaction; (ii) Guidant if CTSI's board of directors withdraws or
modifies in a manner adverse to Parent its approval of the Merger Agreement,
Support Agreement, Option Agreement or the Merger or recommends an Alternative
Proposal to its stockholders; or (iii) by CTSI if, in the exercise of the good
faith judgment of its board of directors as to fiduciary duties to its
stockholders imposed by law based as to legal matters upon 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 such termination
is required by reason of a
6
<PAGE>
Superior Proposal (as defined in the Merger Agreement) (the events referred to
in clauses (i), (ii) and (iii), each a "Triggering Event").
The foregoing summary of certain provisions of the Merger Agreement is
qualified in its entirety by reference to the copy of the Merger Agreement
included as Exhibit 99.4 to this Schedule 13D and incorporated herein in its
entirety by reference.
(c)-(i) If the Merger is consummated, CTSI will be merged with and
into Merger Sub and CTSI shall be the surviving corporation and become a wholly-
owned subsidiary of Guidant. As a result, the certificate of incorporation and
bylaws of Merger Sub will be the certificate of incorporation and bylaws of the
surviving corporation, except the name of the surviving corporation shall be
changed to CardioThoracic Systems, Inc. The directors of Merger Sub will be the
directors of the surviving corporation, and the officers of Merger Sub will be
the officers of the surviving corporation. Further, the CTSI Common Stock will
become eligible for termination of registration pursuant to Section 12(g)(4) of
the Exchange Act, and will cease to be quoted on any quotation system or
exchange.
Under the terms of the Merger Agreement, CTSI has agreed to certain
covenants relating to its conduct of business prior to the effectiveness of the
Merger, including restrictions on its ability to pay dividends or alter its
capital structure.
(j) Other than as described above, Guidant has no plan or proposal
which relates to, or may result in, any of the matters listed in Items 4(a)-(i)
of Schedule 13D (although Guidant reserves the right to develop such plans and
may develop plans or proposals with respect to CTSI and its subsidiaries in
anticipation of, and for implementation after, consummation of the Merger).
Item 5. Interest in Securities of the Issuer.
(a)-(b) As a result of the Support Agreement, Guidant may be deemed
to have shared power to vote an aggregate of 1,919,859 shares of CTSI Common
Stock for the limited purposes described in Item 4 above and in the Support
Agreement.
Based upon there being 14,497,668 shares of CTSI Common Stock
outstanding as of August 27, 1999, as represented to Guidant by CTSI in the
Merger Agreement, such shares constitute 13.24% of the issued and outstanding
shares of CTSI Common Stock. Further, Guidant may be deemed to have shared
power with respect to the disposition of such shares based upon the restrictions
on transfer of such shares described in Item 4 above and in the Support
Agreement.
To Guidant's knowledge, no shares of CTSI Common Stock are
beneficially owned by any of the persons named in Schedule I, except for such
beneficial ownership, if any, arising solely from the Support Agreement.
(c) Neither Guidant, nor, to Guidant's knowledge, any person named in
Schedule I, has effected any transaction in CTSI Common Stock during the past 60
days, except as set forth below and as otherwise disclosed herein.
7
<PAGE>
On August 24, 1999, Bruce J. Barclay, Deputy General Counsel and
Secretary of Guidant, made a charitable donation of 1,000 shares of CTSI Common
Stock.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Other than as described in Items 4 and 5 above, there are no
contracts, arrangements, understandings or relationships (legal or otherwise)
between Guidant and the persons named in Item 2 or between Guidant and any other
person, or to Guidant's knowledge any other person named in Item 2 and any other
person, with respect to any securities of CTSI, including, but not limited to,
transfer or voting of any securities, finder's fees, joint ventures, loan or
option arrangements, puts or calls, guarantees of profits, division of profits
or loss, of the giving or withholding of proxies.
Item 7. Material to be filed as Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- -----------------------------------------------------------------------------------------
<S> <C>
99.1 Confidentiality Letter Agreement dated May 6, 1999, by and
between Guidant Corporation, an Indiana corporation, and
CardioThoracic Systems, Inc., a Delaware corporation, and
letter dated August 6, 1999 amending such agreement.
99.2 Stock Option Agreement dated as of August 30, 1999, by and
between Guidant Corporation, an Indiana corporation, and
CardioThoracic Systems, Inc., a Delaware corporation.
99.3 Support Agreement dated as of August 30, 1999, by and among
Guidant corporation, an Indiana corporation, Richard M.
Ferrari and Charles S. Taylor.
99.4 Agreement and Plan of Merger dated as of August 30, 1999, by
and between Guidant Corporation, an Indiana corporation,
Clydesdale Acquisition Corp., a Delaware corporation and
CardioThoracic Systems, Inc., a Delaware corporation.
</TABLE>
Date: September 9, 1999
GUIDANT CORPORATION
By: /s/ Keith E. Brauer
-------------------------------
Name: Keith E. Brauer
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ---------------------------------------------------------------------------------------
<S> <C>
99.1 Confidentiality Letter Agreement dated May 6, 1999, by and
between Guidant Corporation, an Indiana corporation, and
CardioThoracic Systems, Inc., a Delaware corporation, and
letter dated August 6, 1999 amending such agreement.
99.2 Stock Option Agreement dated as of August 30, 1999, by and
between Guidant Corporation, an Indiana corporation, and
CardioThoracic Systems, Inc., a Delaware corporation.
99.3 Support Agreement dated as of August 30, 1999, by and among
Guidant corporation, an Indiana corporation, Richard M.
Ferrari and Charles S. Taylor.
99.4 Agreement and Plan of Merger dated as of August 30, 1999, by
and between Guidant Corporation, an Indiana corporation,
Clydesdale Acquisition Corp., a Delaware corporation and
CardioThoracic Systems, Inc., a Delaware corporation.
</TABLE>
9
<PAGE>
SCHEDULE I
EXECUTIVE OFFICERS AND DIRECTORS OF GUIDANT
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
EMPLOYMENT
NAME TITLE (IF DIFFERENT FROM TITLE
- ----------------------------- ----------------------------------- --------------------------
<S> <C> <C>
James M. Cornelius Chairman of the Board and Director
(Principal Executive Officer)
Ronald W. Dollens President, Chief Executive Officer
and Director (Principal Executive
Officer)
J.B. King Vice President, General Counsel and
Director
Bruce J. Barclay Deputy General Counsel and Secretary
James R. Baumgardt President, Guidant Sales Corporation
Keith E. Brauer Vice President, Finance and Chief
Financial Officer (Principal
Financial Officer)
A. Jay Graf President, Cardiac Rhythm Management
Ginger L. Graham President, Vascular Intervention
Cynthia L. Lucchese Treasurer
Roger Marchetti Corporate Controller and Chief
Accounting Officer (Principal
Accounting Officer)
Rodney R. Nash Vice President Corporate Resources
& Policy
Richard M. van Oostrom President of Operations, Europe,
Middle East and Africa
F. Thomas (Jay) Watkins, III President, Cardiac and Vascular
Surgery
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
EMPLOYMENT
NAME TITLE (IF DIFFERENT FROM TITLE
- ----------------------------- ----------------------- ---------------------------
<S> <C> <C>
Kim B. Clark, Ph.D. Director Dean of the Faculty and Harry
E. Figgie, Jr. Professor of
Business Administration for
Harvard Business School
Maurice A. Cox, Jr. Director President, Chief Executive
Officer, The Ohio Partners, LLC
Enrique C. Falla Director Director and Senior
Consultant, The Dow Chemical
Company
Michael Grobstein Director Retired Vice Chairman, Ernst &
Young
Susan B. King Director Leader in Residence and Chair
of the Board of Advisors for
the Hart Leadership Program,
Duke University
J. Kevin Moore Director Senior Vice President and Chief
Operating Officer, Carolinas
Medical Center
Mark Novitch, M.D. Director Adjunct Professor of Health
Care Sciences, George
Washington University Medical
Center
Eugene L. Step Director Retired Director, Executive
Vice President and President of
the Pharmaceutical Division,
Eli Lilly and Company
Ruedi E. Wager, Ph.D. Director President, Centeon L.L.C.
</TABLE>
11
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OF CTSI OUTSTANDING SHARES OF
SUPPORT AGREEMENT COMMON STOCK CTSI COMMON STOCK AS OF
STOCKHOLDER BENEFICIALLY OWNED AUGUST 27, 1999
----------------- -------------------- -----------------
<S> <C> <C>
Richard M. Ferrari 965,041 6.66%
Charles S. Taylor 954,818 6.59%
</TABLE>
12
<PAGE>
May 6, 1999
Jay Watkins
Vice President
Guidant Corporation
1360 O'Brien Drive
Menlo Park, CA 94025
Jay:
In connection with Guidant Corporation's consideration of a possible
business combination transaction (a "Transaction") with CardioThoracic Systems,
Inc. (the "Company"), the Company and you expect to make available to one
another certain nonpublic information concerning their respective business,
financial condition, operations, assets and liabilities. As a condition to such
information being furnished to each party and its directors, officers,
employees, agents or advisors (including, without limitation, attorneys,
accountants, consultants, bankers and financial advisors) (collectively,
"Representatives"), each party agrees to treat any nonpublic information
concerning the other party (whether prepared by the disclosing party, its
advisors or otherwise and irrespective of the from of communication) which is
furnished hereunder to a party or to its Representatives now or in time future
by or on behalf of the disclosing party (herein collectively referred to as the
"Evaluation Material") in accordance with the provisions of this Agreement, and
to take or abstain from taking certain other actions hereinafter set forth.
(1) Evaluation Material. The term "Evaluation Material" also shall
-------------------
be deemed to include (i) all notes, analyses, compilations, studies,
interpretations or other documents prepared by such party or its Representatives
which contain, reflect or are based upon, in whole or in part, the information
furnished to such party or its Representatives pursuant hereto which is not
available to the general public, and (ii) the terms and existence of the
discussions between Guidant and the Company. The term "Evaluation Material"
does not include information which (i) is or becomes generally available to the
public other than as a result of a breach of this Agreement by the receiving
party or its Representatives, (ii) was within the receiving party's possession
prior to its being furnished to the receiving party by or on behalf of the
disclosing party, provided that the source of such information was not known by
the receiving party to be bound by a confidentiality agreement with or other
contractual, legal or fiduciary obligation of confidentiality to the disclosing
party, (iii) is or becomes available to the receiving party on a non-
confidential basis from a source other than the disclosing party or any of its
Representatives, provided that such source was not known by the receiving party
to be bound by a confidentiality agreement with or other contractual, legal or
fiduciary obligation of confidentiality to the disclosing party or any other
party with respect to such information, (iv) is disclosed by the disclosing
party to a third party without a duty of confidentiality (v) is independently
developed by the recipient without use of Evaluation Material, (vi) is disclosed
under operation of law, or (vii) is disclosed by the recipient or its
Representatives with the discloser's prior written approval.
1
<PAGE>
(2) Purpose of Disclosure of Evaluation Material. It is understood
--------------------------------------------
and agreed to by each party that any exchange of information under this
Agreement shall be solely for the purpose of evaluating a Transaction between
the parties and not to affect, in any way, each party's relative competitive
position to each party or to other entities. It is further agreed, that the
information to be disclosed to each other shall only be that information which
is reasonably necessary to a Transaction and that information which is not
reasonably necessary for such purposes shall not be disclosed or exchanged. For
purposes of determining when information is reasonably necessary for such
purpose, legal counsel to each party shall agree, in advance, to review
information requests so as to comply with such standard. In addition, review of
competitively sensitive information such as information concerning product
development or marketing plans, product prices or pricing plans, cost data,
customers or similar information which has been determined to be reasonably
necessary to a Transaction, shall be limited only to those senior executives and
Representatives who are involved in evaluating or negotiating a Transaction or
approving the value of a Transaction.
(3) Use of Evaluation Material. Each party hereby agrees that it and
--------------------------
its Representatives shall use the other's Evaluation Material solely for the
purpose of evaluating a possible Transaction between the parties, and that the
disclosing party's Evaluation Material will be kept confidential and such party
and its Representatives will not disclose or use for purposes other than the
evaluation of a Transaction any of the other's Evaluation Material in any manner
whatsoever; provided, however, that (i) the receiving party may make any
disclosure of such information to which the disclosing party gives its prior
written consent and (ii) any of such information may be disclosed to the
receiving party's Representatives who need to know such information for the sole
purpose of evaluating a possible Transaction between the parties, who are
directed by the receiving party to treat such information confidentially and who
are bound under confidentiality obligations to the receiving party similar in
scope to those contained in this Agreement. Each party is aware, and will advise
its Representatives who are informed of the matters that are the subject of this
Agreement, of the restrictions imposed by the United States securities laws on
the purchase or sale of securities by any person who has received material,
nonpublic information from the issuer of such securities and on the
communication of such information to any other person when it is reasonably
foreseeable that such other person is likely to purchase or sell such securities
in reliance upon such information.
(4) Non-Disclosure. In addition, each party agrees that, without the
--------------
prior written consent of the other party, its Representatives will not disclose
to any other person the fact that any Evaluation Material has been made
available hereunder, that discussions or negotiations are taking place
concerning a Transaction involving the parties or any of the terms, conditions
or other facts with respect thereto (including the status thereof) provided,
that a party may make such disclosure if in the written opinion of a party's
outside counsel, such disclosure is necessary to avoid committing a violation of
law. In such event, the disclosing party shall use its best efforts to give
advance notice to the other party.
(5) Required Disclosure. In the event that a party or its
-------------------
Representatives are requested or required (by oral questions, interrogatories,
requests for information or documents in legal proceedings, subpoena, civil
investigative demand or other similar process) to disclose any of the other
party's Evaluation Material, the party requested or required to make the
disclosure shall provide the other party with prompt notice of any such request
or requirement so
2
<PAGE>
that the other party may seek a protective order or other appropriate remedy
and/or waive compliance with the provisions of this Agreement. If, in the
absence of a protective order or other remedy or the receipt of a waiver by such
other party, the party requested or required to make the disclosure or any of
its Representatives, are nonetheless, in the opinion of counsel, legally
compelled to disclose the other party's Evaluation Material to any tribunal, the
party requested or required to make the disclosure or its Representative may,
without liability hereunder, disclose to such tribunal only that portion of the
other party's Evaluation Material which such counsel advises is legally required
to be disclosed, provided that the party requested or required to make the
disclosure exercises its reasonable efforts to preserve the confidentiality of
the other party's Evaluation Material, including, without limitation, by
cooperating with the other party to obtain an appropriate protective order or
other reliable assurance that confidential treatment will be accorded the other
party's Evaluation Material by such tribunal.
(6) Termination of Discussions. Subject to the limitations in the
--------------------------
letter agreement between the parties dated May 5, 1999 (the "Letter Agreement"),
if either party decides that it does not wish to proceed with a Transaction with
the other party, the party so deciding will promptly inform the other party of
that decision by giving a written notice of termination. In that case, or at
any time upon the request of either disclosing party for any reason, each
receiving party will promptly deliver to the disclosing party or destroy all
written Evaluation Material (and all copies thereof and extracts therefrom)
furnished to the receiving party or its Representatives by or on behalf of the
disclosing party pursuant hereto. In the event of such a decision or request,
all other Evaluation Material prepared by the requesting party shall be
destroyed and no copy thereof shall be retained, and in no event shall either
party be obligated to disclose or provide the Evaluation Material prepared by it
or its Representatives to the other party. Notwithstanding the return or
destruction of the Evaluation Material, each party and its Representatives will
continue to be bound by its obligations of confidentiality and other obligations
hereunder. Notwithstanding the foregoing, each may retain one copy of all
Evaluation Material in its legal files, exclusively for use by legal counsel, in
evidencing compliance with this Agreement.
(7) No Representation of Accuracy. Each party understands and
-----------------------------
acknowledges that neither party nor any of its Representatives makes any
representation or warranty, express or implied, to the accuracy or completeness
of the Evaluation Material made available by it or to it. Each party agrees
that neither party nor any of its Representatives shall have any liability to
the other party or to any of its Representatives relating to or resulting from
the use of or reliance upon such other party's Evaluation Material or any errors
therein or omissions therefrom. Only those representations or warranties which
are made in a final definitive agreement regarding the Transaction, when, as and
if executed, and subject to such limitations and restrictions as may be
specified therein, will have any legal effect.
(8) Definitive Agreements. Each party understands and agrees that no
---------------------
contract or agreement providing for any Transaction involving the parties shall
be deemed to exist between the parties unless and until a final definitive
agreement has been executed and delivered. Each party also agrees that unless
and until a final definitive agreement regarding a Transaction between the
parties has been executed and delivered, neither party will be under any legal
obligation of any kind whatsoever with respect to such a Transaction by virtue
of this Agreement except for the matters specifically agreed to herein and in
the Letter Agreement. For purposes of
3
<PAGE>
this paragraph, the term "definitive agreement" does not include an executed
letter of intent or any other preliminary written agreement. Both parties
further acknowledge and agree that each party reserves the right, in its sole
discretion, to provide or not provide Evaluation Material to the receiving party
under this Agreement, to reject any and all proposals made by the other party or
any of its Representatives with regard to a Transaction between the parties, and
to terminate discussions and negotiations at any time, subject only to the
limitations in the Letter Agreement.
(9) Waiver. It is understood and agreed that no failure or delay by
------
either party in exercising any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise thereof preclude
any other or future exercise thereof or the exercise of any other right, power
or privilege hereunder.
(10) Miscellaneous. Each party agrees to be responsible for any
-------------
breach of this Agreement by any of its Representatives. No failure or delay by
the Company or any of its Representatives in exercising any right, power or
privileges under this Agreement shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise of any
right, power or privilege hereunder. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
(11) Injunctive Relief. It is further understood and agreed that
-----------------
money damages would not be a sufficient remedy for any breach of this Agreement
by either party or any of its Representatives and that the non-breaching party
shall be entitled to equitable relief, including injunction and specific
performance, as a remedy for any such breach. Such remedies shall not be deemed
to be the exclusive remedies for a breach of this Agreement but shall be in
addition to all other remedies available at law or equity. In the event of
litigation relating to this Agreement, if a court of competent jurisdiction
determines that either party or any of its Representatives have breached this
Agreement, then the breaching party shall be liable and pay to the non-breaching
party the reasonable legal fees incurred in connection with such litigation,
including an appeal therefrom.
(12) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California applicable to
agreements made and to be performed within such State.
(13) Term. This Agreement shall terminate five years from the date
----
first set forth above.
(14) Pooling of Interests. During the term of this Agreement,
--------------------
Guidant Corporation and its Affiliates (as defined under the Securities Exchange
Act of 1934, as amended) will not, directly or indirectly, unless specifically
requested to do so in writing in advance by the Company's Board of Directors,
take any action (including, without limitation, the exercise of any dissenters'
rights) that would preclude any acquisition transition involving the Company
from being accounted for as a pooling of interests.
(15) Non-solicitation. Both parties agree not to use the Evaluation
----------------
Material for the purpose of soliciting or hiring employees of the other party.
4
<PAGE>
(16) Counterparts. This Agreement may be executed in two
------------
counterparts, which together shall be considered one and the same agreement and
shall become effective when such counterparts have been signed by each party and
delivered to the other party, it being understood that all parties need not sign
the same counterpart.
Please confirm your agreement with the foregoing by signing and
returning one copy of this Agreement to the undersigned, whereupon this
Agreement shall become a binding agreement between you and the Company.
Very truly yours,
CARDIOTHORACIC SYSTEMS, INC.
By: /s/ Richard A. Lotti
-------------------------------
Richard A. Lotti
Vice President Business Development
Accepted and Agreed as of
the date first written above:
GUIDANT CORPORATION
By: /s/ Jay Watkins
----------------------------
Jay Watkins
Vice President
5
<PAGE>
August 6, 1999
PRIVATE AND CONFIDENTIAL
- ------------------------
Mr. Richard Ferrari
President and Chief Executive Officer
CardioThoracic Systems, Inc.
10400 North Tantau Avenue
Cupertino, CA 95014
Re: Letter Agreement
----------------
Dear Mr. Ferrari:
This letter shall amend the Confidentiality Letter Agreement dated May
6, 1999 ("Agreement") by and between Guidant Corporation ("Guidant") and
CardioThoracic Systems, Inc. (the "Company"). In consideration of the mutual
covenants and agreements herein contained and intending to be legally bound
hereby, Guidant and the Company hereby agree as follows:
1. The Company agrees that it shall immediately cease any existing
discussions or negotiations with any third parties other than Guidant with
respect to: (a) any merger, consolidation, business combination or tender or
exchange offer involving the Company or any of its subsidiaries; (b) any sale,
lease, license or other disposition of substantial assets of the Company or any
of its subsidiaries by the Company or any of its subsidiaries; (c) any purchase
or other acquisition by the Company or any of its subsidiaries of substantial
assets or securities other than in-licenses of technology by the Company or any
of its subsidiaries; (d) any reorganization, recapitalization or other similar
transaction that would result in any person, group or entity acquiring control
of the Company or its business or assets; (e) any incurrence of indebtedness for
borrowed money or issuance of debt securities by the Company or any of its
subsidiaries other than borrowing under the terms of credit agreements, lines of
credit or similar arrangements existing as of the date hereof; or (f) any sale
or issuance by the Company or any of its subsidiaries of any capital stock or
other voting securities, or securities exercisable, exchangeable or convertible
into capital stock or other voting securities of the Company of any of its
subsidiaries other than in the ordinary course of business under the Company's
stock option and stock purchase plans or pursuant to currently outstanding
options or warrants (any of the foregoing in (a) through (f) inclusive, a
"Prohibited Transaction").
2. For a period from the date of full execution of this letter
amendment until 5:00 p.m. California time on August 30, 1999 ("Exclusive
Negotiation Period"), the Company and its directors, officers, employees,
agents, affiliates and representatives (a) shall negotiate exclusively and in
good faith with Guidant with respect to a possible transaction, and (b) shall
not directly or indirectly solicit, initiate, continue, discuss, negotiate,
commit to, enter into or encourage any Prohibited Transaction or any inquiries,
proposals or offers that constitute, or could reasonably be expected to lead to,
a proposal or offer for a Prohibited Transaction or provide any non-public
information to any third party with respect to any of the foregoing.
6
<PAGE>
Mr Richard Ferrari
August 6, 1999
Page 2
Notwithstanding the foregoing, the Company may, if the Board of
Directors of the Company determines in good faith after consultation with legal
counsel and financial advisors that the proposed transaction is a Superior
Proposal (as defined below) and the failure to do so may constitute a breach of
fiduciary duties to the Company's stockholders under applicable law, in response
to a proposal for a Prohibited Transaction that was unsolicited or that did not
otherwise result from a breach of this letter agreement, furnish nonpublic
information with respect to the Company to any person pursuant to a customary
and reasonable confidentiality agreement and participate in discussions
regarding such Prohibited Transaction. In the event that the Company (a)
receives an unsolicited proposal for a Prohibited Transaction which proposal
could reasonably be expected to lead to a Prohibited Transaction whose terms are
superior to those of the contemplated transaction between Guidant and the
Company (a "Superior Proposal") and (b) provides information or engages in
discussions pursuant to the preceding sentence, the Company shall notify Guidant
of the receipt of such proposal and the material terms and conditions thereof.
3. During the Exclusive Negotiation Period, Guidant and its
directors, officers, employees, agents, affiliates and representatives shall
negotiate in good faith with the Company with respect to a possible transaction.
4. Guidant agrees that, as a party with an existing common interest
with the Company, it will maintain all attorney-client privileged or attorney
work product information (in whatever form) received from the Company in the
strictest confidence, will not disseminate or make copies of any documents
containing attorney-client privileged or attorney work product information, and,
if the common interest with the Company terminates, will return all such
information to the Company.
5. Except as otherwise provided herein, the terms and conditions of
the Agreement shall remain in full force and effect.
6. Guidant and the Company each represent and warrant that they have
independently determined that entering into this letter amendment will not
constitute a material event requiring disclosure under applicable law or stock
exchange rules.
7
<PAGE>
Mr Richard Ferrari
August 6, 1999
Page 3
Please confirm your agreement with the foregoing by signing and
returning one copy of this letter amendment to the undersigned, whereupon this
letter amendment shall become a binding agreement between Guidant and the
Company.
Sincerely,
GUIDANT CORPORATION
By: /s/ Jay Watkins
--------------------------
Title: Vice President
--------------------------
Accepted and agreed as of the date
set forth below.
CARDIOTHORACIC SYSTEMS, INC.
By: /s/ Richard M. Ferrari
-------------------------
Title: President & CEO
-------------------------
Date: 8-6-99
-------------------------
8
<PAGE>
EXECUTION COPY
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
<PAGE>
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 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
-2-
<PAGE>
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
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
-3-
<PAGE>
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.
-4-
<PAGE>
(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
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.
-5-
<PAGE>
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 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
Attn: Bernard E. Kury, Esq.
Jonathan L. Freedman, Esq.
Telecopy: (212) 259-6333
-6-
<PAGE>
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 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.
-7-
<PAGE>
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
-8-
<PAGE>
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).
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.
-9-
<PAGE>
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
Title: President and Chief Executive officer
CARDIOTHORACIC SYSTEMS, INC.
/s/ Richard M. Ferrari
--------------------------------------------------
By: Richard M. Ferrari
Title: President and Chief Executive officer
-10-
<PAGE>
EXECUTION COPY
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").
<PAGE>
(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:
(i) 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
(ii) 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 (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.
2
<PAGE>
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 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
3
<PAGE>
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.
4
<PAGE>
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
5
<PAGE>
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 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
6
<PAGE>
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 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.
7
<PAGE>
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
Title: President and Chief Executive officer
/s/ Ronald W. Ferrari
--------------------------------------------------
Richard M. Ferrari
/s/ Charles S. Taylor
--------------------------------------------------
Charles S. Taylor
[SIGNATURE PAGE TO SUPPORT AGREEMENT]
<PAGE>
Schedule A
----------
Stockholder Shares Owned
- ----------- ------------
Richard M. Ferrari 965,041
Charles S. Taylor 954,818
<PAGE>
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.
-------
<S> <C>
ARTICLE 1 The Merger................................................................. 2
1.1 The Merger................................................................. 2
1.2 The Closing................................................................ 2
1.3 Effective Time............................................................. 2
1.4 The Charter and Bylaws..................................................... 3
1.5 Directors of the Surviving Corporation..................................... 3
1.6 Officers of the Surviving Corporation...................................... 3
ARTICLE 2 Conversion and Exchange of Securities...................................... 3
2.1 Merger Sub Stock........................................................... 3
2.2 Company Stock.............................................................. 3
2.3 Exchange of Certificates Representing Company Common Stock................. 5
2.4 Adjustment of Exchange Ratio............................................... 7
ARTICLE 3 Representations and Warranties of the Company.............................. 8
3.1 Existence; Good Standing; Corporate Authority; Compliance
with Law................................................................... 8
3.2 Authorization, Validity and Effect of Agreements........................... 9
3.3 Capitalization............................................................. 9
3.4 Subsidiaries............................................................... 10
3.5 Other Interests............................................................ 10
3.6 No Violation............................................................... 10
3.7 SEC Documents.............................................................. 11
3.8 Patents, Trademarks, Copyrights and Trade Secrets.......................... 12
3.9 Investigations; Litigation................................................. 12
3.10 Governmental Approvals..................................................... 13
3.11 Absence of Certain Changes................................................. 14
3.12 Taxes and Tax Returns...................................................... 14
3.13 Material Contracts......................................................... 17
3.14 Employee Benefit Plans..................................................... 17
3.15 Labor Matters.............................................................. 19
3.16 Parent Stock Ownership..................................................... 20
3.17 Pooling of Interests; Tax Reorganization................................... 20
3.18 Environmental Matters...................................................... 20
3.19 State Takeover Statutes and Shareholder Rights Plan........................ 20
3.20 No Brokers................................................................. 21
3.21 Opinion of Financial Advisor............................................... 21
ARTICLE 4 Representations and Warranties of Parent and Merger Sub.................... 21
4.1 Existence; Good Standing; Corporate Authority; Compliance
with Law................................................................... 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.2 Authorization, Validity and Effect of Agreements........................... 22
4.3 Capitalization............................................................. 22
4.4 Merger Sub................................................................. 23
4.5 No Violation............................................................... 23
4.6 SEC Documents.............................................................. 24
4.7 Investigations; Litigation................................................. 25
4.8 Absence of Certain Changes................................................. 25
4.9 Company Stock Ownership.................................................... 25
4.10 No Brokers................................................................. 25
4.11 Pooling of Interests; Tax Reorganization................................... 26
ARTICLE 5 Covenants.................................................................. 26
5.1 Alternative Proposals...................................................... 26
5.2 Interim Operations......................................................... 27
5.3 Meeting of Stockholders.................................................... 31
5.4 Filings; Other Actions..................................................... 31
5.5 Inspection of Records...................................................... 32
5.6 Publicity.................................................................. 32
5.7 Registration Statement..................................................... 32
5.8 Listing Application........................................................ 33
5.9 Affiliate Letters.......................................................... 33
5.10 Expenses................................................................... 34
5.11 Certain Transaction Related Fees........................................... 34
5.12 Directors' and Officers' Indemnification and Insurance..................... 34
5.13 Shareholder Rights Plan and Takeover Statutes.............................. 35
5.14 Conveyance Taxes........................................................... 35
5.15 Certain Tax Matters........................................................ 36
5.16 Benefit Arrangements....................................................... 36
5.17 Company Employee Stock Purchase Plan....................................... 37
5.18 Temporary License.......................................................... 37
5.19 Support Agreement Legend................................................... 37
ARTICLE 6 Conditions................................................................. 38
6.1 Conditions to Each Party's Obligation to Effect the Merger................. 38
6.2 Conditions to Obligation of the Company to Effect the Merger............... 39
6.3 Conditions to Obligation of Parent and Merger Sub to Effect
the Merger................................................................. 39
ARTICLE 7 Termination................................................................ 40
7.1 Termination by Mutual Consent.............................................. 40
7.2 Termination by Either Parent or the Company................................ 40
7.3 Termination by the Company................................................. 41
7.4 Termination by Parent...................................................... 41
7.5 Effect of Termination and Abandonment...................................... 42
7.6 Extension; Waiver.......................................................... 43
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 8 General Provisions......................................................... 44
8.1 Nonsurvival of Representations, Warranties and Agreements.................. 44
8.2 Notices.................................................................... 44
8.3 Assignment; Binding Effect................................................. 45
8.4 Entire Agreement........................................................... 45
8.5 Amendment.................................................................. 45
8.6 Governing Law.............................................................. 46
8.7 Counterparts............................................................... 46
8.8 Headings................................................................... 46
8.9 Interpretation............................................................. 46
8.10 Waivers.................................................................... 46
8.11 Incorporation of Exhibits.................................................. 46
8.12 Severability............................................................... 47
8.13 Enforcement of Agreement................................................... 47
8.14 Definitions................................................................ 47
</TABLE>
EXHIBIT A Form of Affiliate Letter
SCHEDULE
Company Disclosure Schedule
iii
<PAGE>
EXECUTION COPY
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).
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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 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").
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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.
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
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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 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).
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(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
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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 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.
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(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.
(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
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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.
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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 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,
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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.
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
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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 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
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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
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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.
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.
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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, 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
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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.
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(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 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.
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(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 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
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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 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
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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
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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.
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
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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.
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
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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 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
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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
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(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,
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.
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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.
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.
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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
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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 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,
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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;
(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
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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;
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(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;
(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;
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(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 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
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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 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
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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
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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.
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).
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(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 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
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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
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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 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
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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.
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.
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(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) 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
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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.
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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 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).
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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 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;
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(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.
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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 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
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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 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.
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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.
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.
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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
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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 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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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
---------------------------------------------
Name: Ronald W. Dollens
Title: President and Chief Executive officer
CLYDESDALE ACQUISITION CORP.
/s/ Nickey Spaulding
---------------------------------------------
Name: Nickey Spaulding
Title: President
CARDIOTHORACIC SYSTEMS, INC.
/s/ Richard M. Ferrari
--------------------------------------------
By: Richard M. Ferrari
Title: President and Chief Executive officer
<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
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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.
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
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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").
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
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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:
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<PAGE>
Accepted this ____ day of
________, 1999 by Parent
By:__________________________
Name:
Title:
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