AGREEMENT AND PLAN OF MERGER
by and among
GUIDANT CORPORATION
CLYDESDALE ACQUISITION CORP.
and
CARDIOTHORACIC SYSTEMS, INC.
Dated as of August 30, 1999
TABLE OF CONTENTS
Page No.
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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
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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
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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
EXHIBIT A Form of Affiliate Letter
SCHEDULE
Company Disclosure Schedule
iii
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).
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 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, 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,
9
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
10
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 ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of ▇▇▇▇ (▇▇▇ "▇▇▇ ▇▇▇"), 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
11
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
12
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.
13
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
14
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.
15
(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.
16
(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
17
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
18
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
19
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 ▇▇. ▇▇ ("▇▇▇
▇▇. ▇▇"), 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
20
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 ▇▇▇▇▇ ▇▇▇▇▇▇▇ 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
▇▇▇▇▇ ▇▇▇▇▇▇▇ 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
21
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
22
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
23
(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.
24
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 ▇.▇. ▇▇▇▇▇▇ 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.
25
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
26
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,
27
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
28
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;
29
(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;
30
(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
31
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
32
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
33
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 ▇▇▇▇▇ ▇▇▇▇▇▇▇ Inc. under the terms of the
arrangement between the Company and U.S. Bancorp ▇▇▇▇▇ ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇ ▇▇▇▇▇▇▇ 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).
34
(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
35
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 ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP, legal
counsel to Parent, and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, 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
36
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
37
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.
38
(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, ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, 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, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, 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
39
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, ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ 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, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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 ▇▇▇ ▇▇. ▇▇.
(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.
40
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).
41
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;
42
(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.
43
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
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: General Counsel
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company:
CardioThoracic Systems, Inc.
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
44
with copies to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: J. ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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.
45
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.
46
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
47
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.
48
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/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and Chief Executive officer
CLYDESDALE ACQUISITION CORP.
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: President
CARDIOTHORACIC SYSTEMS, INC.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------------
By: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and Chief Executive officer
EXHIBIT A
TO MERGER
AGREEMENT
FORM OF AFFILIATE LETTER
Guidant Corporation
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
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
A-1
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
A-2
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
A-3
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:
A-4
Accepted this ____ day of
________, 1999 by Parent
By:__________________________
Name:
Title:
A-5